Monro Inc (MNRO) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake first quarter earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company. I would now like to introduce Ms. Melissa Myron, of Financial Dynamics. Please go ahead.

Hello everyone, and thank you for joining us on this morning's call with Monro Muffler. I would just like to remind you that on today's call management may reiterate forward-looking statements made in today's release. In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks and uncertainties related to these statements, which are more fully described in the press release and the Company's filings with the Securities and Exchange Commission.

These risks and uncertainties include, but are not necessarily limited to, uncertainties affecting retail generally, such as consumer confidence and demand for auto repair, risks relating to leverage and debt service, including sensitivity to fluctuations in interest rates, competition within the primary markets in which the Company's stores are located, the need for and cost associated with store renovations and other capital expenditures,

The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of the unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events or circumstances described in such statements are material.

Joining us for this morning's call for management are Rob Gross, President and Chief Executive Officer, and Cathy D'Amico, Chief Financial Officer. And with these formalities out of the way, I would now like to turn the call over to Rob Gross. Rob, you may begin.

Good morning and thank you for joining us on today's call. Our team has delivered a strong start to fiscal 2006, which I will review with you before turning the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional detail on the financial results.

The first quarter marked our eighteenth consecutive quarter of record sales. Our consistent progress and steady growth can be attributed to the strategy we implemented several years ago, our team's excellent execution of this strategy, and our ability to adapt and take advantage of the changing marketplace.

Our strategy has been and remains a straightforward three pronged approach. First, we aim to grow by driving comparable store sales. We have accomplished this by reducing our dependence on the Exhaust category, expanding our product and service offerings, driving traffic through competitively priced oil changes, and building a reputation as a trusted service provider with excellent customer service.

These initiatives have resulted in consistent gains in traffic and the ability to raise prices, and that has been reflected in our Twelfth consecutive quarter of comparable store sales increases.

The second part of our strategy is to acquire competitors cheaply. We're very disciplined in our approach and ensure that each acquisition will increase our market share and be accretive to earnings in a reasonable time frame. The overall environment has been challenging, but especially for many of our small competitors, and has provided us ample opportunity to pick and choose the best acquisition candidates. As a result of our offer efforts, we have substantially increased our tire business, completing five acquisitions in the past three years, which have added 80 stores and over 90 million in sales to our business.

We have further diversified our business by opening approximately 15 new stores each year, the majority of which are BJ's Wholesale Clubs.

Lastly, we are focused on creating the best and constantly improving business model, which delivers superior margins and profitability to our shareholders. We leverage our fixed costs and work to eliminate all costs that are invisible to the customer. By doing this we have been able to deliver six competitive years of 17% earnings per share growth or better.

Living specifically to the first quarter, we continue to see consumers choosing to defer the higher margin, higher ticket major maintenance services when possible. We remain comfortable that we are well positioned to attract these higher margin repairs when consumers are unable to defer them any longer.

In spite of this trend, traffic increased during the quarter as did the number oil changes, a key traffic driver. We posted a solid April with 3.7% comparable store sales. Like many retailers, May was our most difficult month, coming in at down 2%. However, business rebounded in June when conditions became more favorable, and we posted a 4.5% comp store sales gain. So for the full quarter our comparable store sales were up 1.7%, and total sales were up a 8.3%.

Our strongest categories were maintenance services, which were up 7%, and tires which were up 6% on a comp sales basis. Our tire stores are now able to offer more maintenance services because we now have the equipment and skill-set to offer these services to our customers. And this has helped drive the continued improvements in our maintenance category. The service stores continue to do a great job on that front.

I'm also very pleased with our tire comp, which continues to outperform the industry. The successful expansion of our comparable tire sales is primarily due to sharing best practices and cross Company learning among our existing service stores and our recent tire store acquisitions, as well as having all of our tire stores under one strong management team led by Joe Tomarchio. In fact Henderson Holdings, our most recent Ten Store acquisition in southern Maryland completed in March 2005, is fully integrated and was up 10% comparable sales in their first quarter under our ownership, although not included in our comparable store sales number.

As you know, our recent acquisitions have been focused in the tire arena, which typically carries lower gross margins than the service business. Despite the increase of tires in our sales mix, our gross margin actually improved by 60 basis points year-over-year. This reflects better purchasing power and our ability to implement and maintain price increases.

Further, our SG&A expense as a percentage of sales also improved to 28.4% versus 28.9% last year, primarily due to fixed costs leverage. These margin gains, combined with our sales growth, resulted in an impressive 18% increase in our operating income and 110 basis point operating margin improvement compared to last year.

In addition to the solid execution of our operating plan, we are also focusing on creating a stable foundation for long-term growth and value generation. An important part of this was the new credit facility that we announced today. This new financing provides more favorable rates and extended term, and most importantly the growth capital we need to continue executing our acquisition strategy.

Also our management team who have been integral to our growth and success is stable. I am very pleased that Joe Tomarchio, who has done an excellent job in his role leading our tire stores will be with Monro through at least June of 2008. Cathy D'Amico, our CFO, will soon be extending her contract through June 2008. John Van Hale (ph) was promoted to Senior Vice President Store Support. John has been with us since 2002, and we look to him to provide further depth to our management team.

In addition, the performance and stability of two divisional Vice Presidents, Chris Hornback (ph) and Craig Hoyle (ph), and their zone managers on the service side of the business continued to lead us forward.

Finally, I extended my employment agreement through December 31, 2007. My commitment to stay with Monro is based upon my confidence that the best is yet to come, and that we are extremely well positioned to further our leadership position and continue our profitable expansion.

Also, I wanted to highlight that we announced the initiation of our first-ever cash dividend in May of this year, which will be payable on July 29. The cash dividend is part of our commitment to enhance shareholder value and encourage long-term investment in Monro. And we are confident that this dividend will in no way compromise our ability to pursue acquisitions and the organic growth opportunity.

Now looking ahead, thus far in July we have seen an acceleration of the positive sales trends we experienced in June. At this point our comp store sales are running up approximately 4%. However, if you back out the negative impact of the July 4th holiday falling on a Monday this year compared to Sunday last year, costing us a half a day, or approximately 600,000 in sales, we are currently running up 8%, and would expect full month July reported comps to come in at an increase of approximately 5%. As you may remember, June, July and August sales stunk last year. So we certainly expect to run strong numbers against these relatively flat year ago results. In addition, our acquisition pipeline is strong, and we hope to have something to announce later this quarter.

Based on current business and economic conditions, we continue to anticipate fiscal 2006 sales to be in the range of 375 to 385 million, not including anticipated acquisitions, assuming a comparable store sales increase between 3 and 5%.

We also expect earnings per diluted share to be in the range of $1.52 to $1.60. For the second quarter of fiscal 2006 we currently anticipate earnings per share between $0.51 and $0.55 versus $0.45 in the same period last year.

I am very optimistic about our future and believe we're executing well and running on all cylinders. Our proven strategy, superior business model, experienced and dedicated management team, and favorable long-term industry trends combine to form a compelling business proposition that I am very excited to be part of.

We remain on track to meet our long-term objectives of approximately 20% top line growth, and approximately 15% bottom line gross, and look forward to reporting on our progress to you next quarter. This completes my overview, and I would now like to turn the call over to Cathy for her review of our financial results.

Good morning everybody. As Rob mentioned, sales for the quarter increased 8.3%. Comparable store sales increased 1.7%. And new stores, which we define as stores opened after March 27, 2004, added $7 million. And that compares to a comparable store sales increase of .9% in the first quarter of last year.

There were 77 selling days in both quarters, both first quarters this year and last. And at June 25, 2005 the Company had 625 company operated stores compared with 597 stores at June 2004. During this quarter ended June 2005 the Company added two stores enclosed three.

Gross profit for the quarter ended June 2005 was $40.7 million, or 43% of sales, as compared to 37 million, or 42.4% of sales, for the same quarter of last year. The increase in gross profit for the current year quarter is primarily due to a reduction in material costs, a combination of selling price increases which were implemented in March 2005, some lower product costs because of new venture agreements, and the recognition of vendor rebates against cost of goods and constant with inventory turns, all helped to lower material costs.

Operating, selling, general and administrative expenses for the current year quarter increased by $1.7 million from the prior year quarter, and were 28.4% of sales as compared to 28.9% in the prior year quarter. The decrease in SG&A expense as a percentage of sales is primarily due to better leveraging of these costs against improved sales. In part there was a reduction in advertising cost to better leveraging with more tire stores clustered in the Baltimore market. Additionally, management bonus costs and corporate insurance and appreciation costs declined as a percent of sales as compared to the prior year quarter.

Operating income for the quarter ended June 2005 is approximately $13.8 million, increased 17.5% as compared to operating income for the prior year quarter and increased as a percentage of sales from 13.5% to 14.6% for the same period.

Net interest expense for the current year quarter increased by approximately $300,000 as compared to the same period in the prior year, and increased from .7% of sales to .9% of sales for the same period. There was an increase in the weighted average interest rate for the current year quarter of approximately 270 basis points as compared to the prior year, due to increases in the prime and LIBOR rates, as well as some new capital leases that carry higher rates in our bank facility. Partially offsetting this was a decrease in the weighted average debt outstanding for the quarter ended June 2005 of approximately $7.1 million. The effective tax rate for both quarters was 38 percent of pretax income.

Net income for the quarter ended June 2005 of 7.7 million increased 13.2% over the prior year quarter. And diluted earnings per share were $0.52 as compared to $0.47, up 10.6% over the prior year.

Moving onto the balance sheet, our balance sheet remains very strong. Our current ratio is comparable to the same quarter of last year and year end. Inventory turns were improved slightly as compared to the year ago quarter. Current liabilities are up due to increased vendor payables and income taxes payable. We continue to try to shift more of our cash flow needs to Accounts Payable and vendor financing versus bank financing.

Monro generated approximately 14.4 million of cash from operations during the quarter. We received approximately $250 million of cash from option exercises. Depreciation and amortization totaled $4.4 million. And we spent 3.6 million on CapEx, while paying down $9.2 million of debt.

As a reminder, our debt to capital ratio is .22 to 1, about the lowest in our history. As we announced earlier today, we have signed a new credit facility with a syndication of banks led by Charter One Bank and the Royal Bank of Scotland. We have $93 million of availability under our credit line, without considering the accordion feature, and plenty of room under our debt covenants, making it very easy for us to do acquisitions when the time comes.

Additionally, the spread over LIBOR that we're paying is currently 75 basis points, which reduced from the 125 basis points under the prior agreement. At current debt levels that represents an annualized savings of approximately $160,000 of interest.

That concludes my formal remarks on the financial statements. And with that I will now turn the call over to the Operator for questions.

(OPERATOR INSTRUCTIONS). Scott Stember with Sidoti & Co.

Can you give a little more detail on the quarter with regards to segment sales on a comp basis, and particularly exhaust -- talk about where that is going and where it has been?

Exhaust was weak. Certainly a lot weaker in May than the rest of the quarter. Exhaust for the quarter was down 9%, and brakes were down approximately 5%. Certainly significantly worse in May. May brakes were down 10, so we were down 1, down 2, and the other months in exhaust was down 13 in May. So exhaust for the quarter was down 9, brakes were down 5, and alignments were up 5. And then we reported on the maintenance categories and the tires.

Could you talk about where you stand with price increases right now? How much more flexibility do you have to raise prices again if you had to? And could you talk about where your oil change prices on average right now, and how that is leading ticket traffic?

Sure. Our oil change collected was up $1.00 over the prior year. Average collection was about $17.50 last year during the quarter, $18.70 this quarter. So we are collecting more on the oil changes.

As far as pricing flexibility, as you know for every year for the past seven years we raise our prices in March approximately 3%. Usually 2% of it sticks. That occurred this year. And last year we also raised our prices in July.

Certainly we think there is flexibility and we will be assessing what we want to do a price increase, I would say it is certainly at this juncture not going to occur in July just based on the strong momentum we have. We will let things run a little bit, but certainly I wouldn't be surprised if we did something a touch later in the quarter. But I haven't made the decision now.

As far as BJ's, can you give a little flavor on how the roll out is going there, and any roadblocks that you have come across in regard to your expansion plan?

Sure. The only real roadblocks are zoning, which it takes us a lot longer than we expected to get through some of these marketplaces, especially in Massachusetts. We currently have 31 locations open. We would expect to open another five to ten BJ's this year as part of the 15 organic stores we intend to open.

Part of the reason for maybe opening a few less is, if you think we might do something in the future on the acquisition front, we want to make sure we have the resources to continue to integrate these deal quickly and efficiently, and maybe take a step back and go a little bit slow with BJ's, being they will be there whether we open them this year or next year.

I just want follow-up on that. We have had a few stores that have been anniversaried to this point. Can you give some either specific or anecdotal comments on how the stores are running either via a sales basis or on a bottom line basis?

Are you talking about BJ's?

Yes, I am.

BJ's, the stores that are anniversaried are running up 20 comps. So those are organic locations. And remember what we commented in general about our comps is with our strategy when we are acquiring new stores, we would expect to more normalized comp growth of 3 to 5% similar to what our Company does.

That being said, obviously Henderson running up 10 is performing a lot better. But with BJ's then being totally greenfield stores for us, one would expect them to do better on the maturity curve. And we typically say if we are looking at the maturity curve we would say, year one comps would be up 15, then up 10, then up 5. Certainly the BJ's locations are doing a little bit better than our first-year anticipated 15% comp.

Jack Bellows (ph) with Midwood.

First I have a question for Cathy. Did you say that your year inventory turns improved?

Just slightly from a year ago quarter. About the same as year end. Yes.

Because it looks to me as though you're up what 12% year-over-year in inventory, right?

If you did the math that is probably right.

So if you are up 8% in sales, how does turn improve?

Keep in mind that you are looking at cost of sales, which includes labor, distribution and occupancy and material costs. If you just cull out the material costs the math works, but the turns are up slightly. As we buy better that all enters into the formula. It is hard for you to calculate if you just take total cost of sales.

What would be your interest expense estimate for the second quarter coming up?

Probably similar to this quarter.

Similar, okay.

Maybe a little bit less. But the problem is that although our interest rate on the bank debt is going down half a point, we are paying that down quicker than the capital leases, which weight in there a little bit heavier than they used to. So that is going to keep the rate up a little bit overall, and the dollars up a little bit.

At the CIBC conference I'm not sure I overheard correctly in your presentation because the transmission wasn't that good, so I was just going to ask you. I'm not sure if you said this. And that is you have said that you can grow 20% in sales and 15% in earnings. But I thought I heard you say at CIBC that perhaps maybe -- I don't know how far down the road -- you might be able to grow 20% in earnings, then 20% in sales. Is that right?

Yes. Certainly with the leverage we are creating in the business model obviously starting to show itself with the margin improvement this quarter versus last year, one would expect as the base of stores continue to improve we will continue to get operating leverage.

Right now we're only three years into this roll up strategy. But intuitively if we are running 20% top line, 15% bottom line today, if you continue two years down the road, three years down the road, I would expect those numbers to improve. So if we are growing sales by 20%, you should start seeing bottom line growing by 20%. Five years, six years down the road, or maybe it is year seven, you would 20% top line growth to lead to 25% bottom line growth, if we do what we think we can do in expanding and improving our operating model.

You know our objective is for constant improvement, so we're not going to be happy with 6% net margins or 10.5% operating margins. We think -- and certainly it did bore out at least this quarter that there are opportunities as the top line grows. Certainly if you are doing a good job managing your business your margin should expand, because you should be able to get more leverage with vendors. And you SG&A should go down because you don't need to -- you're leveraging your fixed structure, and we would expect that to continue. So as we add more sales, we should be getting that leverage and get closer to 20% top line, 20% bottom line. And then eventually it should even accelerate based on our business model. But I certainly wasn't saying that for this year or next year.

What about the profitability accelerating in the tire stores as the acquisitions mature in their profitability?

Yes.

Right. Okay. Thank you.

(OPERATOR INSTRUCTIONS). Graham Tanaka with Tanaka Capital Management.

Good quarter. I just wanted to get -- since then 20% number is so important -- if you could talk a little bit more about how you'll get the 20% top line growth? How much of it will be price increases? Say each of the next several years how much would have to come from acquisitions and --?

Sure. Let's talk about this year because obviously I didn't even know May was going to be down too -- so comp. But if you figure we do 3 to 5% comps, a piece of that, maybe 2% is price, and 3 to 4% organic growth. That brings you in somewhere around 7, 8%. Internal we would expect at least in this year, are fairly confident that you'll see 10 to 12% from -- through acquisitions. So certainly the first quarter is done, so you can kind of do the math to get an idea of what we might expect the size of those deals to be that would get us to 20%.

But typically our comps -- maybe it is going to be 3 to 5. Maybe one year it will be 4 to 6, maybe it will be 2 to 4. Organic growth, at least as long as we see the acquisition opportunities in the pipeline that we do today, organic growth will probably remain about 3 or 4%. So the expectation, while acquisitions are always choppy, we bake into our thinking, and from what we can see going forward, there is an expectation of 10 to 15% a year in acquisitions sales to make up the difference to get us to the 20% top line growth.

And the 3 to 4% organic growth includes the BJ's (multiple speakers)?

Yes, that includes the 15 greenfield stores we're talking about.

Great. The other thing I wanted to get at if I could is what the price increases would do relative to cost increases at the gross margin line. In other words, are you anticipating cost pressures of about -- inflation of about 2% per year that the price increases would cover?

Not exactly. As we grow the tire business, while obviously the cost of tires are going up, cost of oil is going up, for tires we have the benefit of still being relatively small, or the disadvantage of being relatively small. So as we grow that business significantly, we should be getting better pricing and more advertising from the vendors that would offset any of those price increases.

And oil we are at $60 a barrel. That is baked into our numbers. If it goes to 70, you're going to see some margin pressure. If it goes back to 50, you're going to see some help. What really helped us this quarter and should be helping us all year is steel prices going down. Over the last couple of years they went up significantly, and now we are seeing it start to flow through -- through our inventory turns that those prices are going down. And for example, our cost on brakes are going down pretty substantially that would be helping our margins and should continue to positively impact our margins throughout this whole year.

Is there a rule of thumb on the oil? In other words, $10 is roughly how much relative to the volume that is sold?

It depends if we raise the prices. But you can certainly -- I mean $10 on oil probably costs us $0.50 in oil changing cost.

That is relative to that 17, $18?

Yes, so it might be a $10 increase in a barrel of oil might cost us 10%.

That would be a hit. So you would have to follow with a price increase or something?

Sure. But obviously we are focused -- we use the oil change -- certainly we do a lot of them. I believe it is -- our run rate is about 1 million 8 a year. That being said, it is still the cheapest form of advertising if you think that anytime you run a FSI (ph) or any radio advertising the average acquisition cost of the new customer is 100 to $110.

I view the oil change as kind of like advertising. And maybe I'm making $8.00 profit or $9.00 profit instead of 10 or 11, but I am still making money to acquire a new customer. And while our objective is to increase the oil change count, it has been proven for us what has driven the business, created stability in repeat businesses is the fact that we are driving them in with the oil change, albeit maybe not priced where it should be in light of the oil environment. But I am more concerned about keeping them six to nine months down the road and getting some of the higher margin repairs, which inherently happen with the age of vehicles out there.

Cid Wilson with Monarch Research.

A question regarding can you give us a little bit of sense in terms of the cash flow generation, and also what your thoughts are given the current quarter, and look at the expectations for how things are going so far for July?

Sure. As far as --.

Do want me to take it? Is there anything specific on cash flow or you just want me to walk you through what I said before?

Yes, please.

Sure. Depreciation and amortization was about 4.4 million. The cash generated by operating activities in total was 14.8 million. And we spent about 3.6 million on CapEx. We took in about $250 million from employee exercise of stock options. And we paid down about $9.9 million of debt.

And any thoughts on -- any guidance on (indiscernible) for the second quarter?

I think we are out with 3 to 5% comps, which sizes to 51 to 55% -- $0.55 versus 45 last year. So not necessarily satisfied with the first quarter, but the second quarter we are encouraged with what we see in July. And coming up against soft August numbers that if we come in towards the high end of that, that is 20%. It gets us back on track for the year. And the 3 to 5 ties the 51 to 55, just like the 3 to 5 ties to $1.52 would be 3%. 5% would get us $1.60.

And the leverage in the business, which we're starting to see this quarter, would mean that any 1% above 5% is about $0.07 additional to the bottom line. And I think we have proven this quarter that even though we were a little light on sales, even if we struggle to get the 3%, which we certainly don't anticipate this quarter, we're still able to usually hit the low end of our guidance.

And then my last question is that I noticed that you finished the quarter with a lot more cash on hand versus the same period last year. Was there a timing issue, or is that just stronger cash generation?

Yes,

Yes, it was a timing issue. We were a little bit on that fence about when we were going to refund -- refinalize the debt facility. And we were trying to be a little bit more flexible, because we didn't want to have a lot of money tied up in LIBOR that we had to break, because you have to pay off the old guy and borrow from the new guy.

But, Sid, you tell me what cash you want on the balance sheet at the end of the quarter, and we will just raise the debt and add the cash.

Okay. Alright great. Thanks a lot.

(OPERATOR INSTRUCTIONS). Jamie Weiland (ph) with Weiland Management.

Nice quarter. Question, I might have missed this, the other expense number on the income statement of 425,000, what was that?

That was a combination of about half of it was amortization of intangibles, customer lifts and things like that. And the other half was loss on disposals of things like roofs and repaving and that kind of thing.

That should fall back to a much smaller number in the future?

It will still be -- you will still see it probably around 300,000 a quarter going forward. It was a little bit heavier in terms of the types of repairs we did on the stores. Our capital items we did on the stores resulted in a write-off of the remaining basis on items that we replaced.

As you move forward I assume the acquisitions are going to be more on the tire size than the muffler shop side?

Overall that is a fair comment in light of the fact that with 626 stores currently, approximately 546 of them being service stores, and us saying we can open 1,000 tire stores and 1,000 service stores in our current markets, one would think that the lion's share of what we do would be tire acquisitions.

You do a remarkable job at Mr. Tire with both the marketing job and the operational execution. I assume as you make an acquisition, you are probably going to rebrand whatever you do under Mr. Tire. My question is what states do you have that capability of doing that within? And does that limit your acquisition search?

The Mr. Tire name is out of Minneapolis, so certainly in Minnesota we probably have difficult branding Mr. Tire. But as we expand -- we are also very satisfied with the Tread Quarters name also, and that is very strong in the Virginia, South Carolina area.

That being said, I wouldn't necessarily think Mr. Tire is the brand name for all our tire stores. If we did a 100 store tire acquisition, we might be inclined to use that brand name. But again being we do no television advertising, the economies of the way we go to market, it doesn't hurt us to have separate brands in various categories.

Now by the end of this year all of our service will be branded Monro. And we will continue, being we are working off that base, but being in the tire side of the business we're still in its infancy. I wouldn't be surprised to have Tread Quarters, Mr. Tire and brand X until we start losing operating leverage by having more than one brand. And being we don't necessarily believe in it, and television and electronic -- whereas where do you get the economies of scale, I don't think we loose too much, and that would be the compelling reason to start changing brand.

When you make an acquisition, a lot of how you bring the acquired stores up to your operating margins is reducing the cost structure. But in most of the acquisitions that you have made, what has the pricing structure been relative to what your stores are experiencing, and do you adjust those prices immediately?

Certainly management -- the tire stores wants to be competitive on a market by market basis. We are competitive on the service side in a market by market basis. I can tell you we have owned the Mr. Tire chain for, whatever it is now, 15 months, and their prices today are higher by a similar amount to the price increases we have taken than they were. So as well as what they have done taking over the Kimmel and Trend Quarters chain and the Fraser (ph) chain.

So they are raising prices to add leverage to the business there. Certainly they are buying better being they are now bigger. That is helping the gross margin. And immediately upon buying any of these tire stores -- and remember the average tire stores is doing 1 million 1 -- and 40% of that business is service -- immediately typically they buy parts for half the cost that they were paying prior to us acquiring them.

So the margin expansion is very quick, both on the pricing side and the cost side. And that is some of our reason that at least the starting point for us is top line is going to grow 20%. Bottom line is going to grow 15. Because the one thing we don't want to do is screw up the integration of these acquisitions. So we say on average we're going to get 600 basis points improvement in the bottom line of any acquisition we do within the first two years.

Could we make it quicker if we were more aggressive? Yes. Is the risk associated with accelerating, getting that full 600 basis points worth it? Obviously not in our estimation.

Is there anyone else out there who is a potential acquirer of stores who has the financial capabilities and the operational capabilities to achieve the types of savings that you get?

With our operating margins and net margins being more than twice any of the service competitors, certainly from an executional standpoint their are not going to get to where we get as quickly as we can get there, if ever. That being said, there certainly are players that can buy stores, and have proven that at least on the bigger deals so far, they are willing to pay more than we are.

But no one has the ability to reduce the cost with part savings that you (multiple speakers)?

No. And again on every one of these smaller deals -- 5, 10, 20, 30 store deals -- we compete against no other entity. We're only competing against the seller's price.

(OPERATOR INSTRUCTIONS). Deforest Tinman (ph) with Paradigm Capital.

This is kind of quick question on the turnover for your employees that you talked about. How high is that actually for a given year?

The last three years it has been the lowest it has been since 1993. Our best store managers that get stock options and win the President's Challenge every year, which is a six-month contest, and they get stock options, an 18 months employment contract, and 5% minimum raises, that group of our best performers turns a 10%.

The average store manager rank turns at 30%. But included in that number, remember is us probably terminating 15% or half of the people that leave. And also typically 80% of our store managers don't go. It is more a function of us replacing similar positions in similar stores a couple of times before we get it right.

On that technician level, turnover runs about 100% a year. Again the same thing with the stores managers. About 80% of our technicians don't turn at all. And then the 20% that turn, it probably takes us three or four or five times to get it right. And that is what consists of that 100% turnover on technician side.

Has the cost been rising for the training? You're saying that turnover is down, but has the training cost gone up too?

No, training cost as a percentage of sales continues to decline as we get more efficient and know exactly what we should focus our training on. We train in Rochester, New York, it is something called Monro University. And we send assistant managers and managers to that for a week training course.

At the store level we run clinics. And we have the vendors do a lot of the training. And the field training staff goes out to train the technicians. But for the lion's share of our stores our store managers and assistant managers are responsible for training our guys. We have programs and training courses to get them prepared for the ASE certifications, and we do all that. But certainly like any costs associated with growing a business as we are growing the way we are, while we will spend more training dollars in a given year, as a percentage of sales that number, like hopefully all of our other costs, will continue to be leveraged and go down.

(OPERATOR INSTRUCTIONS). At this time there appear to be no further questions. I would now like to turn the floor back to management for any closing comments.

Again, we continue to work hard for our shareholder base. We are comfortable with our business model. We are confident certainly going into the second quarter with what we see as of today. And certainly very pleased with the operating margin improvement last quarter, while less pleased with the comp store sales. And we will continue to do everything we can to deliver the kind of returns you have come to expect from us. And looking forward to talking to you next quarter to report our progress. Thanks very much for your time today.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.