Monro Inc (MNRO) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake second-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (OPERATOR INSTRUCTIONS). And 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. Cara O'Brien of Financial Dynamics.

Good morning, everyone, and thank you for joining us on this morning's call with Monro Muffler. I would just like to remind you that on this morning's call, management may reiterate forward-looking statements made in today's release. In accordance with the Safe Harbor provisions 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 SEC. 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 rate; dependence on and competition within the primary markets in which the Company's stores are located; the need for and costs 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 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 from management are Rob Gross, President and Chief Executive Officer, and Cathy D'Amico, Chief Financial Officer. With this out of the way, I would like to turn the call over to Rob Gross. Rob, you may begin.

Good morning, and thank you all for joining us on today's call. First, I went to give you an update on our strategic initiatives, as well as a brief overview of the quarter. I will then turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional details on the financial results.

During the second quarter, we produced record sales for the 19th consecutive quarter, an achievement we are very proud of. Even in a challenging market, we have achieved steady growth, outperformed our industry, and made consistent progress in carrying out the strategy we implemented several years ago.

Our strategy is that of a straightforward, three-pronged approach to the business. First, we aim to grow by driving comparable store sales. We have been able to achieve this by shifting our sales mix to reduce our dependence on exhaust sales. This has been accomplished by expanding our tire and service categories. We also continue to focus on driving traffic through competitively priced oil changes in our service stores and compelling entry-point price points, such as four for 99 tires in our tire stores. Successfully driving traffic, shifting our sales mix, and capitalizing on opportunities to raise prices while at the same time consistently building our reputation as a trusted service provider have resulted in an increase in comparable store sales for the 13th consecutive quarter.

The second part of our strategy is to acquire competitors. We have been and continue to be extremely disciplined in our approach. We are committed to buying right and ensuring each acquisition will increase our market share and be accretive to earnings in a timely fashion. The challenging environment we have been facing actually presents us with an opportunity in this area. Due to the fact that many of our smaller competitors or those with less efficient operating models are feeling the effects of these challenges to a higher degree, we are able to choose the best acquisition candidates that can accelerate our business model forward.

The favorable acquisition climate in our industry has resulted in a substantial increase in our tire business with the completion of five acquisitions in the past three years. Through these strategic acquisitions, we have added approximately 80 stores and over 90 million in sales to our business, which have given us a solid platform from which to build a very strong tire business. In the coming years, we envision a company of up to 1,000 service stores and 1,000 tire stores in our current 17-state area, creating market dominance and further pricing power, diversifying risks between our two formats, expanding the pool of acquisition candidates at attractive prices, and further expanding our service-industry-leading margins.

In addition to our acquisitions, we continue to grow our business by opening approximately 15 stores per year, most of which are located within BJ's Wholesale Clubs.

Finally, we're focused on constantly improving our business model in order to drive operating margins higher. We are doing this by leveraging our fixed costs and eliminating costs that are invisible to the customer. With this, we have been able to deliver six consecutive years of 17% earnings per share growth or better and double our competitors' operating margins.

Now, moving onto the results for the quarter, we posted a solid July and August with positive comparable store sales of up 3.3 and 2.6%, respectively. However, our September comp sales were down 3.8% against our strong 6.2% increase last year. Rising gas prices and a decline in consumer confidence caused our customers to defer higher-margin, higher-ticket services, and this impact was particularly felt in September.

We know that customers cannot defer these repairs forever. We are well positioned to attract these repairs when the customers realize they cannot defer them any further, and the most recent two weeks and our past history support this. For example, we experienced soft comps last summer when gas prices spiked, but then benefited from the positive 6% comp in September and positive comp store sales in the last six months of fiscal 2005. We also saw a high level of deferrals this May, when comps were down 2%, only to see them return solidly in June and July. So while external economic conditions can impact our comps on a month-to-month basis, over the longer term, we have proven our ability to generate consistently positive comparable store sales.

Further impacting our results was the fact that there was one less sales day in the quarter than in the same quarter last year, causing more challenging year-over-year comparisons. The results of our full-quarter comparable store sales were up 0.9%. However, if we adjust for the day, our comp store sales increase would have been 2.2% in the quarter, with July up 7.8%.

During the quarter we continued to see a shift in our sales mix towards our tire and maintenance service business. Tires was our strongest category, posting a 12.3% increase in comp store sales and a 13.8% increase if you adjust for the day. Our maintenance/services category was also up a strong 5.7% for the quarter on a comp sales basis and up 7% adjusting for the day.

We are particularly pleased with the performance of our tire business, both at stores that are already in our count number, as well as the stores acquired from Henderson Holdings in March of '05, not included in comps, but whose comparable store sales were up 16.2 in the quarter. In fact, it was our tire stores that we saw the strongest traffic increases. Our impressive comparable tire sales are mainly due to the successful integration of best practice initiatives across our stores as well as having all of our tire stores under one strong management team.

As I mentioned, our recent acquisitions have all been focused in the tire arena, which typically has comparatively lower gross margins than the service business. Despite the increased cost of tires and oil over last year, we were able to keep our gross margin relatively flat compared to the same quarter last year, which is very encouraging. We were able to improve our SG&A expense as a percentage of sales by 90 basis points to 28% because of fixed cost leverage as well as other certain factors which Cathy will detail later. Due to these positive factors, we were able to achieve a 14.7% increase in operating income as well as an 80 basis point improvement in operating margin when compared to last year.

Now looking ahead, so far in October, our comp store sales are running up approximately 1.5% with the most recent two-week period running up approximately 3% and improving. Our current expectation would be 3 to 4% comps for our third quarter. Also, our acquisition pipeline remains strong and we are working diligently to complete our next deal.

Based on current business and economic conditions, we anticipate fiscal 2006 sales to be in the range of 365 to 370 million, not including anticipated acquisitions, with the assumption of a full-year comparable store sales increase between 2 and 3%. We also expect earnings per diluted share to come in at the low end of our previously stated range of $1.52 to $1.60, representing a solid, double-digit increase over last year's EPS of $1.35 in a challenging environment for both sales and energy costs. For the third quarter of fiscal 2006, we currently anticipate earnings per share between $0.25 and $0.27 versus $0.24 in the same period last year.

Our team continues to execute well, and I am very optimistic about our future. 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 a part of. Despite the external challenges we face, our net income was up 16% for the quarter and 15% for the first half. We continue to execute on our strategy to meet our long-term objectives of approximately 20% topline and 15% bottom-line growth, and look forward to reporting on our progress to you next quarter or before, if a sizable transaction occurs.

This completes my overview, and I would now like to turn the call over to Cathy for her view of our financial results.

Thanks, Rob. Good morning, everyone. As Rob stated, sales for the quarter increased to 8.2%. Comparable store sales increased 0.9%, and new stores, which we define as stores opened after March 2004, added $7.9 million. These increases were partially offset by a decrease in sales related to stores closed for the quarter. And this compares to comparable store sales increase of 0.6% in the second quarter of last year. As a reminder, there were 76 selling days in the quarter ended September 2005 as compared to 77 selling days in the prior-year quarter.

Year-to-date comparable store sales increased 1.3% and new stores added $14.8 million. And again, that compares to a comparable store sales increase of 0.8% for the first six months of last year.

Gross profit for the quarter ended September 2005 was 39.7 million or 41.6% of sales as compared to 36.9 million or 41.7% of sales for the prior-year quarter. Gross profit was relatively flat for the quarter, in spite of increases in the cost of tires and oil which Rob mentioned and a shift in sales mix to the lower-margin service categories of maintenance and tires. A combination of selling price increases, some lower product costs as a result of new vendor agreements, and the recognition of vendor rebates against cost of goods in concert with inventory turns all helped to substantially offset the aforementioned pressures on margins.

Operating, selling, general, and administrative expenses for the quarter ended September 2005 increased by 1.2 million to 26.8 million from the prior-year quarter, and were 28% of sales as compared to 28.9% in the prior-year quarter. The decrease in SG&A expense as a percentage of sales is partially due to fixed cost leverage as well as a decrease in Sarbanes-Oxley compliance costs, management bonus costs, and advertising expense. Additionally, health insurance expense decreased as a percent of sales compared to the prior year. We are largely self-insured, and claims this quarter were less than we had expected. However, we believe we were a bit lucky in this quarter, and this decrease is not something we necessarily expect to continue through the balance of the year.

Operating income for the quarter ended September 2005 of approximately $13 million increased 14.7% as compared to operating income for the same quarter of last year, and increased as a percentage of sales from 12.8% to 13.6% for the same period. Net interest expense for the quarter ended September 2005 increased by approximately $200,000 as compared to the same period in the prior year, and was relatively flat at 0.8% of sales as compared to the prior year.

There was an increase in the weighted-average interest rate for the current-year quarter of approximately 260 basis points as compared to the prior year, due to increases in prime and LIBOR interest rate, as well as some new cap releases that carry higher rates than the Company's bank facility. Partially offsetting this was a decrease in the weighted-average debt outstanding for the quarter ended September 2005 of approximately $7.8 million.

Additionally, based on our performance measured by our debt levels and growing 12-months EBITDA, we just qualified for another 25 basis point reduction in our borrowing rate with our banks. This brings the spread we pay over LIBOR down to 50 basis points from 75. At our current debt levels, that represents an annualized savings of approximately $80,000.

The effective tax rate for the quarters and six months ended September 2005 and 2004 was 38% of pre-tax income.

Net income for the quarter ended September 2005 of 7.6 million increased 16.4% over net income for the prior-year quarter. Earnings per share of $0.51 on a fully diluted basis for the quarter September 2005 increased 13.3% over the prior-year earnings of $0.45 per share. For the six months, earnings per share of $1.03 represents an increase of 12% over the prior-year six-month earnings of $0.92. As a reminder, the weighted average shares increased as compared to the prior year, primarily due to the shares issued in connection with the Henderson acquisition in March 2005.

Moving onto the balance sheet, our balance sheet remains very strong. Our current ratio, at 1.6 to 1, is comparable to year end and year ago September. Inventory is up $2.7 million from March 2005, due primarily to new store openings and our continued efforts to improve stocking levels and mix of inventory to reduce outside purchases. However, turns were slightly improved as compared to last year's September.

For the first six months of the fiscal year, we generated approximately $21 million of cash from operations and received $2.5 million from the exercise of stock options and warrants. Total CapEx so far this year is approximately $9 million with $1 million coming from capital leases and $8 million through cash expenditures. We paid down $13 million of debt and paid 700,000 of dividends. Depreciation and amortization totaled approximately $9 million.

As a reminder, our debt to capital ratio is 20%, about the lowest in our history. We have $92 million of availability under our credit line, not including the $35 million accordion feature. That gives us plenty of room under our debt covenant as well, making it very easy for us to do acquisitions when the right ones present themselves.

That concludes my formal remarks on the financial statements. With that, I will now turn the call over to the operator for questions.

(OPERATOR INSTRUCTIONS). Scott Stember, Sidoti and Company.

Rob, I think I missed the part where you were explaining the comps or breaking it out by month. Can you do that once again, if you didn't do it already?

Sure. September -- we'll start with the best -- was minus 3.8. August was up 2.6. July was up 3.3.

Okay, and obviously, we saw the tires and some of the maintenance stuff worked out pretty good. Can you talk about where brakes and exhaust were in the quarter?

Sure. Brakes for the quarter were minus 6, the lion's share of that obviously being September. And exhaust for the quarter was minus 14.

Okay. And I think that you had said that so far this quarter, you guys are running up a couple percentage points. And you talked about the last couple weeks being up about 3%. Are you seeing strength across the board in all of those categories?

Yes. Everything is running better. Traffic is significantly better. Maintenance services in tires continues to carry the day on the high end. And we said we were up 1.5% for the quarter. So the first week of our October, which was the last week of September, stunk still. And then we got better in the last two weeks. And the last week, things have accelerated. But, again, we are three weeks into the new quarter. It's just nice to see us running solid comp increases instead of living off September's number.

And just going back to exhaust, could you just clarify where you guys had been trending over the last couple quarters on exhaust?

Pretty close to flat, minus 2. July was flat. It was a strong month. When our comps typically run up 3, plus 4, exhaust will probably run flat to minus 3. When everybody is deferring, the most deferrable purchase out there we find is exhaust, followed by brakes. And when things are slow and people are deferring, that's where our conversion rates -- from us pointing out the problems to the customer, them backing off and basically saying they will do it next oil change -- is where those categories flow.

Okay. And can you talk about where BJ's stands right now?

BJ's we continued. So open this year will probably be closer to 10 stores. We continue to open them. On a comp store sales basis, they continue to run about up 15 comp. They are profitable. And we will continue to layer in 10, 15 stores, whatever we can get through zoning and logistically incorporate with some of the other growth initiatives that we are constantly working on.

And how many BJ's stores are you in right now?

I believe the number is 32. So we would hope to be 38, 40 by the end of the year.

And, Cathy, I apologize again; I missed the cash flow information. Can you just give that again, operating cash flow (multiple speakers)?

Sure. It was $21 million from operations. We also received about 2.5 million from the exercise of stock options and warrants. And CapEx is running about 9 million, but 1 million of that is cap leases, so 8 million was through the cash flow. And we paid down 13 million of debt.

Tony Cristello, BB&T Capital Markets.

Tires are really strong, and I guess even stronger than -- you had a plus 6 or 7 last quarter and plus 12 this quarter. Can you talk a little bit in tires as well as your other business -- what you are seeing with respect to average ticket versus transaction? And did you see a drop-off in average ticket, but yet you made up for it with transactions since August and September?

No. Everything in the tire side of the business is strong, both in our tire stores stand-alone as well as increases in our service business. And a lot of that is -- we are learning a lot about tires, and that has expanded into our service business, where the guys have done a good job there moving us from an average of two tires a day to closer to four tires a day. Still tons of opportunity with what we are learning from the tire folks. And in fact, we are starting an initiative which should be underway in the next three or four months, where the management team from the tire stores are going to help us improve our business further on the tire side of the business, on the service side.

But traffic is up in the tire stores. Transaction count is up in the tire stores. And price is up in the tire stores.

Okay, and what about on the service level? Have you seen a drop-off? Obviously, you have seen a drop-off in average ticket. Have you continued to see strong transaction counts?

Transactions are up. Our store traffic continues to be up. As you said, our average ticket continues to decline because when you are losing two of your high-price, high-margin services like exhaust and brakes, which we did, especially in September -- those numbers were a lot better in July and August -- that will have a negative impact on your average ticket.

But the oil changes and the maintenance piece of the business -- we are finding people continue to upkeep their car. Maybe they are delaying and getting an oil change every four months instead of three months, but they are not deferring something like a $20 oil change. Where the problem comes in is when we tell them they need a $300 brake job. And they'll specifically say, can we wait till the next oil change? Is the car safe? And in a lot of cases, they can. And they do.

Have you put any price increases in over the last month with the spike in oil?

We raised our prices, as we said, in March, which we do every year, on average 3% -- 2% sticks. We raised them again 3% in August. On average, 2% is sticking. So we raised them in August. And it certainly hasn't hurt our business in October. And I would not say that it negatively impacted our business in September. It's not a function of customers not wanting to pay and do the service because it’s $320 versus $310; it's -- I don't want to spend the 320 when I am putting an extra $100 a month in my car for gas.

And Cathy, maybe you can comment a little bit about the other income line. I know, I think, from the last call you alluded to sort of 300,000 being the run rate. And you sort of flipped to a positive number there --

Right. We sold a store to another retail establishment, a drugstore chain, this quarter. So it was an unusual transaction that we wouldn't have, typically, in a quarter.

And how much was that?

There was about a $0.5 million gain from that. So offset by amortization of intangibles.

Okay. And so you probably still had about 150 of amortization and such in there, and then the balance of a gain?

Well, the other income line, I believe, was up about 100,000. So you've got a little bit of expense from -- there's several things that go in that line. There's a couple other store closures, which had some minor expense associated with those; a $0.5 million gain from the one store, and then amortization of intangibles, and some of it going in as income, odds and ends that go in there. So amortization runs probably about -- was probably 3 or $400,000 this quarter.

Okay. And that's going to be your normalized run rate?

Yes.

And one other question. You have talked about health care -- probably not going to see the benefit that you saw in this quarter. Of the 90 basis point improvement year over year, how much of that was related to reduced claims? And on a run rate basis, can we still expect some leverage there, but just not as much?

Yes. Obviously, our intent, and we have spoken to it, is to continue to improve our operating margins. We think there's opportunity on gross margins, albeit we are up against some headwinds. The SG&A should continue to improve. The one thing that will work against us in Q3 and Q4, which is baked into our estimate, is higher energy prices. And that will be a significant number that will impact Q3 and additionally impact Q4, and might offset what you would view as continuing to move our operating margins forward. But while we are pretty certain we will incur it this year, we are not so certain when the next 15, 18 months run that we will be up against the same headwinds that we will be facing this year.

So you should expect our operating margins to continue to improve. You certainly should expect our bottom line to continue to improve. The third and fourth quarter, which, again, is included in our assessment that we gave you today will be more difficult to overcome a big energy number.

Shaun Nicholson, Kennedy Capital.

I have a quick question on your debt-cap kind of ratio. What level do you guys -- are comfortable with that, with making acquisitions? Are you paying it down to get to a level where you can go ahead and make a bigger acquisition, or --?

I think we are paying it down because we are not going to do an acquisition just to do an acquisition. We want them priced right. We want them to be accretive to earnings quickly. They have got to make sense, to move our business model and our operating margins, long-term, forward.

That being said, I think a 20% debt to cap is below where we would want it in a perfect world. But we're not going to take it up just to get a deal done. I think that this Company, with the cash flow it produces, should and could be running anywhere between 35 and 45% debt to cap. We don't, in a rising interest rate environment and shaky consumer confidence, want to be above 50. And we would not look to take it above that. But certainly, with the leverage we have, with the borrowing rates we have, and even with the increase in interest rates out there that are still relatively low from a historic standpoint, we think it's a huge opportunity for us to grow the business. And we'd look to grow the business as long as we can do economic deals that make sense for our Company.

So long answer -- the short answer is 20% is too low. 40 to 45% is probably the right number. And we will get there. Or if the deals don't materialize and the prices don't come in where we think they will in this current environment, we will continue to pay down debt.

Okay, fair enough. As far as the competitive landscape, do you know if customers from, say, Pep Boys are coming to you guys now for better prices? Or do you have a feeling of what kind of competitors are doing out there as well?

Well, I would say intuitively that if our tire business is running up 12 comp, and my guess is no one else is, we are probably grabbing customers.

(OPERATOR INSTRUCTIONS). Jamie Willand (ph), Willand Management.

Nice quarter, certainly a ton better than your competitors'. I wanted to ask you kind of an overall strategy question as far as acquisitions and where you now stand. I assume you are still trying to buy companies in the five to seven times EBITDA range. And I assume from CVCs (ph) and others out there, the operating margin within the industry for the people you are buying -- they are probably doing 5, 6% operating margins. And the strategy is to buy them at those multiples and then take the operating margins up to double digits. Is that the basic game plan?

That is the basic game plan. And hopefully, like we are seeing with this recent Henderson acquisition, on average, every deal we have done we have improved operating margins by 600 basis points in the first two year of ownership. If we can continue to do that every time and we have pretty good visibility on that piece of it -- but then you layer in Henderson, which is running up 15 comp, in addition to getting those operating improvements you have some good acceleration, even beyond what we've forecast.

But the starting point for us to do a good economic deal is we need to know enough about the Company, enough about the opportunities that we are very comfortable in a low comparable store sales environment that we can get to 600 basis points on the operating line.

And in the long run one, Rob, if you get to the 1,000 tire stores, 1,000 service stores, what would be the target operating margin that you could achieve if you were at that rate?

I would hope that we would get 200 basis points. I would hope we would get it before we hit 1,000 and 1,000. The objective of what we're trying to plug in and the whole reason for our staying within our current footprint is you get the logistics, you get the advertising, you get the operating economies of scale. We are still relatively new to the tire business, and while the vendors are supportive because of our accelerating growth, we still have huge opportunities to buy better there, in addition to adding services to the tire stores as well as selling tires better in our service stores.

So I would hope over the next two or three years -- again, depending on some of the energy prices and what happens with oil and tires -- but it can't continue to be forever ugly. We've seen the ugliness over the last 9, 15 months. So even if it stays where it is, we can incorporate that in our model. And I would hope to be talking to you in two to three years about 12, 12.5% operating margins.

Outstanding. Thanks, Rob.

Jack Valos (ph), Midwood (ph) Research.

Regarding price increases, the cost of you for oil, what percent an increase has that been? And how much have you been able to increase your own prices?

We have not raised the price of oil. The average ticket on oil change is up $1. But again, the whole strategy is that's our loss leader, if you will, even though by not increasing the prices over the past couple of years we have probably gone from a 40-point margin business to 30-point margin business on oil changes.

But Jack, the key for us is to keep our customers coming in or trying us if they are new customers, but getting them in three or four times a year and having the opportunity to service all of their needs. So the oil prices are going up as well as the tire prices, more than the price increases we're passing along.

That being said, the tire business is a high gross margin dollar business while it's not as strong as the service business on gross margin percentages. And we will continue to focus on those areas, giving up margin on the oil changes to make sure that our traffic and our market share continues to grow.

Your gross margins in tires -- are they going up?

They are staying relatively steady, slightly up. That's not so much a function on making more margin dollars on the rubber, but the execution of the tire stores on alignments, rotations -- some of the additional things that they are doing as part of providing full service to their customers is making the average margin higher on the tire business -- still below service.

That's very good. Could you expand on what you meant and how it was done when you said you went from two to four tires servicing a day in your Monro stores?

It's just been over time. And a lot of that is focus. When you know you are going to have difficulty in a tough environment with exhaust and things that are perceived to be deferrable, sometimes -- while tires are deferrable to a point, with some of the things that occurred over the past number of years and the high visibility of inflating your tires or recalls, that folks, you know, might be more inclined to buy the tires, versus they'll live with a loud exhaust or brakes that they know are safe, but that they probably need to get changed three months from now. And again, all of these services are for the most part deferrable, but are not discretionary.

I'm not clear. When you say -- going from two to four tires, what are you doing? Is that two to four tire additional sales, or rotating them --?

We were running at a run rate of two tires per service store. We are now in a good percentage of our stores approaching four tires per service store.

If you're asking what we've done to achieve that, I'm really not going to share that with all my competition.

When it comes to health care costs, Cathy, were you actually within that referring to workman's compensation?

No, no; just health insurance.

Oh, just health insurance?

Yes.

So your workman's compensation experience there -- what is that?

We are largely self-insured there. It's pretty much in line with last year's percent of sales and with what we budgeted. It's challenging in this business; it's not extraordinarily better or extraordinarily worse than what we have seen in the past.

And finally, in terms of your management bonuses, accruing them lower, I'm trying to recall. Didn't that occur in the second half of last year, Rob?

In the second half of last year, yes.

(multiple speakers) We start taking back our management bonus accrual when we start falling below what our targets are.

Okay, so what's your expectation in terms of how that bonus accrual will look in the second half of this year compared to the second half of last year?

My expectation is that we are going to get our act together, get more sales, do some acquisitions to move the business forward, and pay our guys what they deserve.

That being said, you look at the numbers, and it is what it is. If we continue to run a plus 1, plus 2 comp store sales, we are in a high margin with a lot of operating margin -- if we don't get the sales, it's not like this is a restructuring turnaround like it was in the old days, where we are going to pick up buckets of money by cutting costs.

We are building an infrastructure because we think there are opportunities to grow. We are not going to do an acquisition that we are going to screw up because we don't have the resources in place to do the acquisition correctly as well as continue to run our business. So the anticipation is the numbers you see will be there with management bonuses or without, depending on myself and my team getting our act together and posting better numbers.

Graham Zenaca (ph), Zenaca Capital Management.

I just wondered what your average price increase was relative to the sales gains, just kind of across the board?

On average, this year, for the full year we raised prices 6%. The average price increase is probably running about 4%. But remember, on oil changes, it won't be. So the average price increase on tires might be higher than that, on brakes would be higher than that, on exhaust would be higher than that, made up by the oil change business not going up hardly at all.

So if you look at it product by product, basically it sounds like you were able to cover your cost increases except for oil?

That is correct.

And I'm just wondering if you have coming down the pipeline talking to your suppliers -- particularly for tires, what kind of price increases are coming in, say, the next six months?

Well, they just nailed us two times already. So I would assume they will attempt to do it again, if they can. That being said, we are not looking to hurt our margins. We think the advantage of being company-owned and being in the service business is that our customers do view us as adding value. And our objective is for our employees to get paid fairly as well as our shareholders to get rewarded for the amount of risk that's involved in our business. And we think our value equation is better than a lot of our competitors'.

And at least over the last seven years, we have not been embarrassed about raising prices. We have not seen it negatively impact our sales. We think the opportunity to increase our price is there whenever we receive a price increase from a vendor. Whether the tire guys will go for a third price increase this year -- maybe you want to talk to Cooper and Goodyear. We have not heard anything beyond the two that we have already absorbed and overcome with the price increases that we have included.

What is driving the demand, the growth in tires? Have you improved or increased your promotional activity?

Actually, as Cathy said, when we're in a tough environment, typically we pull back on advertising. So I think we are getting smarter and more efficient in our advertising, learning what works. I think the management team, at least in the tire stores now has been running for a longer period of time -- all 80 of our tire stores, and have made both efficiency improvements, advertising improvements, and certainly, executional improvements by the fact that a lot of the services that they are selling are high-margin services.

The margin on alignment is 100%. So the more alignments you do, the more benefit for the tire margins. They are significantly outperforming the service stores and higher-priced oil changes. MaxLife, which is Valvoline's oil change for 75,000-mile cars or more -- their percentage of premium oil changes for the rest of the chain is significantly higher.

So I think certainly it's an execution issue. Certainly, I think they are taking advantage and grabbing a lot of marketshare. But in fairness to the service side of the business, some of the things we have done there has also vaulted the service business comps in tires forward also.

That's good. I didn't catch what you said about alignments and 100% -- what was that?

Well, alignments are a straight service. So if you are selling tires at an average of whatever, 30, 33 points margin on the rubber, you layer in a 40 or $50 alignment that's 100% straight margin because there's no cost of goods associated with it. And the margin on that tire sale gets significantly higher.

Cid Wilson, Kevin Dann and Partners.

Most of my questions have been answered. I just have one question, is that -- can you give us some sense of what you usually see in terms of sales after a heavy rainfall, like what we have seen in the Northeast? And any guidance in terms of what you might see for that? I've heard that increased rainfall means more brake work in the future, but maybe you can give us a better sense of that?

Maybe slightly, Cid. You know, if we went through and blamed everything there was to blame, we would have no accountability ourselves. I think the bigger issue, if you're talking about what has recently occurred in New Hampshire and Massachusetts and New Jersey, is obviously during those four or five days of flooding, people are not thinking about fixing their car. Maybe it wears a little bit more on the brakes. I think the biggest impact is over those four or five days, but it's difficult for us to use it as an excuse, being the last two weeks our business has improved markedly.

So hopefully you are right. I don't sit there on the top of my daily sales report, for every market we have, have a rain forecast. I can tell you that extreme temperatures affect metal, so if the winter is very cold, that's good. If the summer is very hot, as we saw in July -- you back out that sales day, we ran a 7, 8 comp in July. We haven't seen that in seven years. Now some of it was brilliant management, but a lot of it was the weather cooperated. And if we get that granular and blaming everything under the sun, we are not running our business, and we are making excuses. And certainly, if we're going to have another 500,000 or $1 million of energy costs, which we will in the third and fourth quarters -- I'm going to make you aware of that and take my numbers to the point that we did. But beyond that, we're in the Northeast. We're in the mid Atlantic. We're going to have bad weather. We're going to have good weather. And we need to run our business, and we'll save the excuses until we really need them. Just kidding, Cid, kidding.

Tony Cristello, BB&T Capital Markets.

I wonder if you can give me the product mix or category breakdown for the quarter?

Sure.

Okay, combined mix -- brakes, 25%; exhaust, 12%; steering, 14%; tires, 22%; miscellaneous, 27% or 28%, whatever the plug is to get you to 100, Tony.

And is CapEx -- has that been adjusted for balance of the year? Are you still looking, I think, at around close to 17?

Yes.

I mean, I'm sorry --

(multiple speakers) That was 20, actually. It maybe a little bit lower, by $1 million or so, but --

We said it would be around 20; 15 of that maintenance CapEx.

Sir, there appear to be no further questions at this time.

Great. I just wanted to thank everybody for their continued support. Again, as we have said numerous times, we would hope to continue to move the comp store sales forward. It has been a tough environment. We will continue to do everything we can to prosper through it, as we have in the past.

The good news is when things get tough for the industry as a whole, there creates more opportunities for us to get more done and accelerate our growth on the acquisition front. We believe now and over the next six months we are in that kind of period, and hope to report to you on some of those things in the near future.

Housekeeping things -- Cathy, November 1st, will be at the JPMorgan Chase conference. And I on November 1st will be at the Gabelli Conference out in Las Vegas at the SEMA show. And we look forward to speaking to you guys then.

So thanks. And Cathy and I are available if you have any follow-up questions. Appreciate the support. That will do it.

This concludes today's Monro Muffler Brake second-quarter earnings conference call. You may now disconnect.