Monro Inc (MNRO) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake third 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. If anyone should require assistance during the call please press star, zero on your touch-tone telephone. 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. Lauren Puffer of Financial Dynamics. Please go ahead.

Thank you. 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 this morning's call management may reiterate forward-looking statements made in today's release. In accordance with the Safe Harbor provisions from 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 fluctuation and interest rates, dependence on and competition within the primary markets in which the Company 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 here of or to reflect the occurrence of unanticipated events. The inclusion of any statements in this call does not constitute an admission by Monro or any other person that the event 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 these formalities out of the way, I would like to turn the call over to Rob Gross, Chief Executive Officer. Rob, you may begin.

Thanks, Lauren. Good morning and thank you all for joining us on today's call. First I want to give you a brief overview of the quarter and an update on our strategic initiatives. I will then turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional details on the financial results. I am proud to say that the third quarter of fiscal '06 marked our 20th consecutive quarter of record sales. Even in a challenging market we were able to achieve double-digit gains in both our top and bottom-lines, as well as continue our progress of steady growth, strengthening our business and outperforming our industry. We delivered a 4.7% increase in overall comparable store sales for the quarter which was achieved by our continued shift in sales mix towards the tire and maintenance service categories. While we did have an extra day in the quarter, offsetting the lost day last quarter, our accounts were still up 3.3% adjusted for days.

Tires was our best performing category for the quarter with a 15% increase in comparable store sales. It needs to be said that our efficient integration process along with a strong and highly capable management team contributed to the success of our tire category. These gains, coupled way 9% increase in maintenance services, make it easy to see why these two categories are becoming increasingly important to our business. For the past couple of years we have seen a trend of customers deferring higher margin, larger ticket purchases due to various macro factors and we continue to see our customers being cautious. At the same time most repairs cannot be deferred indefinitely and we believe we have been successful in attracting this major maintenance business when the customers do decide to purchase. This was evidenced in November as increased sales across all our major categories drove a 6.9% increase in comparable store sales for the month.

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. In addition to our solid comparable store sales, we also generated 6.7 million in new store sales during the quarter. To continue this positive trend and meet our long-term top-line targets, we continue to focus on driving traffic to our stores through our competitive pricing on our key traffic driving items, including discounted oil changes in our service stores and $99 on a set of four tires in our tire stores, as well as maintaining customer loyalty by marketing directly to our customer base through reminders and offering a trusted customer service experience. While we reported strong comparable store sales for November, it is also an historically high sales month for our lower margin tire category as customers gear up for the winter season. The increased cost of goods related to our strong tire sales, as well as an increase in the cost of oil, resulted in a 60 basis point decrease in gross margin.

For the quarter, however, our August price increases have stuck and we plan on raising prices again in March approximately 3%. Importantly, we were able to improve our SG&A margin during the quarter by effectively leveraging our sales on our fixed cost base, as well as benefiting from a year-over-year decrease in Sarbanes-Oxley costs. Which together helped us achieve an 18.7% increase in operating income and 40 basis point improvement in our already industry leading upgrading margin. In terms of our long-term strategies, we continue to focus on expanding our store base and increasing the profitability of the Company. We have been able to take advantage of the current industry environment and acquire smaller companies with less efficient operating models. We are extremely disciplined in our approach and will only acquire companies that are a good fit with our business model, have attractive price tags and will be accretive to earnings in a reasonable time frame.

In this environment we have been able to substantially increase our tire business with a combination of five acquisitions in the past three years, adding 80 stores and approximately 100 million in revenue to our business. We believe there is potential for up to 1,000 tire stores and 1,000 service stores throughout the 17 states in which we operate, which would increase our current pricing power, give us clear market dominance and diversify our risk between our two formats. During the quarter we acquired a steak in Strauss Discount Auto, which operates 100 stores in the New York City, New Jersey and Philadelphia markets and generates approximately 170 million in annual sales. As we explained in our November 1st press release, we acquired a 13% stake in Strauss for approximately $2 million. We have the option to purchase another 20% before April 1, 2006, for $3 million. If we decide to do this, we can then purchase the remaining 67% of the Company for 9 million in cash and 1 million in Monro stock any time before April, 2007.

This investment furthers our strategy to be the dominant automotive after market service provider within our current geographic footprint. We are extremely excited about Strauss' solid presence in highly desirable markets and they have already begun to benefit from our relationships and industry expertise. Additionally, our combined buying power will reap benefits to both Strauss and Monroe. Based upon our experience this far with Strauss, our current expectation is to purchase the remaining 87% we don't currently own by March 31, 2006. This would translate into total consideration of $30 million, 15 million in cash and stock and 15 million of debt assumption. Based upon current market conditions, we continue to view acquisitions as the most attractive expansion alternative and there is no shortage of opportunities in the hopper. Additionally, we estimate that we will open approximately 15 new stores per year in our existing markets with most of these being BJ's locations.

Looking ahead we continue to expect comparable store sales growth for the full fiscal year to be in the range of 2 to 3% and diluted earnings per share to be between $1.52 and $1.55, compared to $1.35 per share last year. We continue to perform well and I'm very optimistic about our future. Despite challenging macro factors we were able to achieve a 15% increase in net income, which translated into earnings per diluted share of $0.27. With our proven business model, successful strategy and dedicated team, I am confident in our able to further drive profitability and enhance shareholder value in the short and long-term. This completes my overview and I would now like to turn the call over to Cathy for her review of our financial results.

Thanks, Rob, and good morning everyone. As Rob stated sales for the quarter increased 12%, comparable store sales increased 4.7%, and new stores, which we define as stores opened after March 27, 2004, added $6.7 million. There were 77 selling days in the quarter ended December, 2005, as compared to 76 selling days in the quarter ended December, 2004. Adjusting for days, comparable store sales were 3.3% and that compares to the prior year quarter of comparable store sales increase of 2.4%. Partially offsetting the increase this quarter was a decrease in sales related to closed stores amounting to $1.2 million. Year-to-date sales increased 9.4%, comparable store sales increased 2.3%, with new stores adding 21.6 million. Partially offsetting this was a decrease in sales from closed stores of $3.9 million. There were the same number of selling days in the first nine months of fiscal 2006 and 2005. These numbers compare to a comparable store sales increase of 1.2% for the first nine months of last year.

Gross profit at 38.7% of sales for the third quarter ended December, 2005, decreased as a percent of sales when compared to the same quarter last year, which showed a gross profit of 39.3%. The decrease in gross profit as a percent of sales is due primarily to a shift in mix to the lower margin service categories of maintenance and tires, as well as an increase in the cost of oil. 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 partially offset the aforementioned pressures on margin. Additionally, labor and occupancy costs, both components of cost of sales, declined as a percent of sales as compared to the prior year. Labor declined in part due to the shift in mix but also due to better labor control and increased productivity this quarter as compared to the prior year. Occupancy costs decreased slightly as a percent of sales due to the leveraging of fixed costs against increased sales.

Gross profit for the nine months ended December, 2005, were essentially flat at 41.1% of sales, compared with 41.2% of sales for the first nine months ended December, 2004. Operating, selling, general and administrative expenses for the quarter ended December, 2005, decreased to 30.5% of sales as compared to 31.5% in the same quarter of the prior year. The decrease in SG&A expense as a percent of sales is partially due to fixed cost leverage, as well as a decrease in Sarbanes-Oxley compliance costs and health insurance expense partially due to plan and contribution changes. These decreases were offset in part by an increase in utility costs, management bonus costs, none were paid in the prior year, and a decrease in cooperative advertising credits primarily related to a shift of those credits against cost of sales. For the nine months ended December, 2005, SG&A expenses were 28.9% of sales as compared to 29.8% for the first nine months of last year.

Operating income for the quarter ended December, 2005, increased 18.7% as compared to operating income for the prior year quarter, and increased as a percentage of sales from 7.8% to 8.2% for the same period. Net interest expense for the quarter ended December, 2005, increased by approximately 0.2 million as compared to the same period in the prior year, and increased from 0.8% of sales to 0.9 for the same period. There was an increase in the weighted-average interest rate for the current year quarter of approximately 250 basis points as compared to the prior year due to increases in prime and LIBOR interest rate, as well as some new capital leases 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 of approximately $5.8 million. Net interest expense for the nine months ended December, 2005, increased from the prior year as a percent of sales by 0.2%. The effective tax rate for the quarter and nine months ended December, 2005, and 2004, was 38% of pretax income.

Net income for the quarter ended December, 2005, of $4.1 million increased 15.4% over net income for the prior year quarter. For the nine months ended December, 2005, net income of 19.4 million increased 14.9% over the prior year period. Fully diluted earnings per share for the quarter were $0.27 as compared to $0.24 for the same quarter a year ago, a 12.5% increase. For the nine months ended December, 2005, diluted earnings per share increased 12% to $1.30 from $1.16 for the first nine months of the prior year. Weighted-average shares outstanding for the quarter and year-to-date both increased approximately 3% as compared to the prior year, in part due to the shares issued in connection with the Henderson Holdings acquisition of last March.

Moving on to the balance sheet, our balance sheet continues to be strong. Our current ratio at 1.7 to 1 is comparable to year-end in the year ago December. Inventories up $3.7 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 from last December and comparable to March. For the first nine months of this fiscal year we generated approximately 26 million of cash from operations and received 3.4 million from the exercise of stock option and warrants. Total CapEx so far this year is approximately $13.5 million with $1 million coming from capital leases and 12.5 million through cash expenditures. We also realized approximately $2 million from the sale of fixed assets. We paid down $11 million of debt and paid 1.4 million in dividends. We made a $2 million investment in Strauss and lent them $5 million. Depreciation and amortization so far this year is approximately $13 million.

As a reminder, our debt to capital ratio remains at about 20%. We have $89 million of availability under our credit line and plenty of room under our debt covenant, making it very easy for us to do acquisitions when the right ones present themselves, including the financing for the Strauss acquisition should we go forward in March, as Rob mentioned. That concludes my formal remarks on the financial statements. With that I will now turn the call over to the operator for questions.

Thank you. [OPERATOR INSTRUCTIONS]. Your first question is coming from Scott Stember of Sidoti & Company. Please go ahead.

Good morning.

Hi, Scott.

Could you break out what the comps were on some of the higher margin items like breaks and exhaust. And also maybe talk about what October and December comps looked like.

October we said was plus 2, November was 6.9, so December I believe was up slightly -- not accounting for the extra day up 4.3, right in that vicinity if you include the extra day which makes up for what we lost last quarter. As far as overall categories, a few of them, brakes were down 1, front end was up 5, shocks were down, exhausts were down, as would you think if people are deferring various categories. We talked about tires being up 15 and service being up 9. Breaks were flat, Scott, I said down 1.

Okay. Can you just discuss right now what you are seeing a little bit more specific regarding where comps are now and whether you are seeing any releasing of pent-up demand that you've seen in previous quarters?

Yes, comps are running, again, we are only a couple weeks into the month, up approximately 1.5 give or take. December and January are probably the most iffy months with Christmas and what goes on and then being slow, slow time of year for us. That being said, with the price increases holding and us getting continued leverage on the fixed cost base, we are in pretty solid shape going into the fourth quarter. I think we said comps for the year are at 2.3%. We would expect the fourth quarter comps to fall somewhere within that range and if it does fall within that range we are at $0.22 to $0.25 for the fourth quarter versus $0.19 last year. If things progress as they did in the third quarter and we post a bigger than expected number, certainly we have some upside. But I remain cautious on what the customer is going to do with gas prices and in general. I would love to be back here in a couple months and tell you that we were overly conservative. But I think right now in light of some of the choppiness out there, which we saw in May and we saw in September, I'm certainly very comfortable with the year-end projection and the 2 to 3% comp number. And if it comes in better than that, that would be great.

Okay. And can you just quantify tire sales, the percentage of the total pie right now versus last year?

Yes. That was -- in the third quarter tire sales were 26% of our business. In all of '05 they were 20% of our business. Maintenance category was 29%. Breaks was 22%. Exhaust is down to 10%. Steering 13%.

Okay. And the price increases, last question, will there be a price increase with some of the lower margin items such as maintenance and oil changes as well?

We already actually are collecting last quarter $2 more on an oil change than we did the same quarter last year. So we got through the rebate and some of the promotional programs with Valvoline. We were able to collect more on an average price of an oil change, plus some of our locations are doing a better job selling the premium oil changes. That helped the average ticket. We are going to be very careful when it comes to oil changes and probably just as aggressive on the other side. Oil changes are traffic drivers. As we said, we need opening price points that are very attractive. On oil for the service stores and on opening price point tires for the tire stores, to keep the traffic coming in, let our folks do what they do best, build trust with the customer and get more names in our database for the long-term. As you know we've raised prices every year for the past seven years. We raised them a total of 6% each of the last two years. We typically, as we are this March, raise them approximately 3% in March and then we will evaluate whether we raise them again in the August time frame, as we have done the past two years. I think the most encouraging thing about our gross margin opportunities are certainly the labor productivity, which again, as we've said, is up over 35% over the last seven years and started moving forward again last quarter with some of the leverage. But we have stopped seeing the massive tire price increases from the manufacturers so these price increases, while we did a good job of offsetting increases last year, I think next year we will start to see potentially some margin improvement, especially out of the tire stores.

Okay. And I lied, one last question, on R & F Strauss. I know that you are probably limited on what you can say at this point. But just given the first three months that you guys have had a part of this Company, can you give some general anecdotal evidence or comments about what you have seen so far?

I think we have been in there. I think they have a good team that is very willing to work with us to move both of our Companies forward. It looks like a great partnership. Obviously I wouldn't have set expectations for us doing the whole deal a little bit quicker than we have to if the last two months didn't, number one, make us comfortable with their operation and their prospects, as well as some of the things we've already started to do from an integration standpoint. Talking to our vendors they have already raised prices. They are implementing discounted oil changes to start driving traffic. They've had training already occurring on phone answering skills and scheduling appointments. They've been great partners to work with. There's a lot of smart, hard working, dedicated people there that we're very encouraged on what we see and would hope to start off the year, or shortly after the start of the year, with them in the fold and start getting more efficiencies in SG&A and certainly buying capabilities. As we've said with any acquisition, and you know this better than most, Scott, in two years our expectation in any deal we do would be to get 600 basis points of operating margin. And with the Strauss situation 400 basis points will come from the combined buying power, 200 basis points will come from various other economies of scale, logistics and advertising, synergies like that. We don't see anything that would preclude us over the first two years of full ownership to get that full hit. And what we've also said is we would expect it in year one of ownership to be basically breakeven, slightly accretive. And then in year two of ownership to be significantly accretive as the systems are converted, as all the vendors are giving us the best pricing and the combined pricing and normal type things that you would see that would occur within the integration of two companies.

Okay, that's all I have. Thanks.

Great.

Thank you. Your next question is coming from Tony Cristello of BB&T Capital. Please go ahead.

Thanks, good morning, Rob, good morning, Cathy.

Hi, Tony

Good morning.

One question I want you to talk a little bit about is when you look at the tire sales and you had a great quarter last quarter, this quarter really strong plus 15%. And what I'm wondering is a mid-teen type comp, something that's sustainable for the next few quarters? And then secondly, as you discuss Strauss a little bit, I'm assuming that those are going to be predominantly tire stores? I think you might have discussed that in the past and is that sort of a catalyst to keep the strength going?

Second one first. Certainly Strauss is a catalyst to keep the strength going. It will benefit us most on the cost side from joint buying where Monro will get some gross margin help as well as Strauss. But I think the biggest opportunity with Strauss is some of the leverage that they will get both from sales techniques and our experience on the service side of the business and a Company that joins together the things that they do well we can adopt and the things that we do well they can adopt. Certainly adding that amount of sales with not a lot of risk. And what I mean by that is we are adding about 15% store count to get 45% sales growth. That will have a major impact on leveraging our SG&A and some of the other efficiencies. What was your first question there, Tony?

Do you think a mid-teen type comp in tire sales is sustainable for awhile?

For awhile. Maybe this quarter, possibly next quarter. But that's a big number. We are certainly not going to, with stores that have been in the fold, and, again, remember, we are not buying one and two year open stores. We are buying companies that have been in business 20, 30 years. So accelerated comps is not in our future, regardless. What we've always said is we are buying these things right. We can add a lot on the operating margin line but no one should expect us to be a Company that can consistently deliver 8% comps. That's not what the age of the stores we are buying and the quality of the people we are buying allow. It's more of a tweak and most of those numbers come from buying power and economies of scale with a consistent, what we would hope, 3 to 5% comp number and and with our margins where they are that's enough to carry the day for us. The tire folks are doing a fabulous job. We are absolutely taking advantage of some of our competitors situation, grabbing market share. It's obvious with the RMA coming out with only 2% unit increases for the full year, we are obviously a lot higher than that while we are raising prices, while we are integrating companies, so we would certainly expect tire comps to lead the way coupled with the maintenance service categories going forward. But I wouldn't look for a steady diet of us running plus 15 comps in tires.

Now, what about as percentage of tire mix as a whole? I think you said it was 26%. Is that a number that exceeds 30% at some point as you get more and more of those tire sales at your Monroe stores? And then secondly, the spread between maybe a little bit of erosion for on selling tires versus the benefit of the fixed leverage that you get. Do you have a preference, if you sell more tires you obviously get a lot more general revenue to cover those fixed costs.

My preference is to make more money. Last time I checked none of us pay our bills with percentages, it's all dollars. So my hope is that tires continue to drive more traffic, which they have. We have the benefit going into next year of while a lot of our competitors have been taking increases and not passing them along, we have been taking the increases and passing them along. At some point the increases will slow down in oil and most likely tires. We continue to raise our prices, which will improve the spread. And again, with the Strauss acquisition there is a ton of opportunity for them to run good top-line numbers. But again, the combined buying power should help the margins along to the point where what we typically would hope to end up with. And I'm certainly not apologizing for operating margins being up 40 basis points because that's the net. Basically we are getting more leverage on SG&A than we lost on gross margin. I believe last quarter we lost 0.1. So, one would think that there would be more gross margin deterioration as a percentage in a quarter that has the highest percentage tire sales, which we said is November, tire sales are always high because of Christmas. They won't continue to run quite that high, so the sales mix issue won't be as strong in any quarter other than the third quarter but tires are a high ticket item. We continue to buy them better. We continue to build up our relationship with the manufacturers and get the benefit of that. And I don't see any long-term trend where we should be expecting gross margins to be deteriorating and certainly the leverage of the business would lend us to believe what we've done over the past seven years is operating margins should continue to tick up as we get bigger and continue to get more efficient and all of these acquisitions are fully integrated.

Okay. Maybe one last question for Cathy. Is there anything with respect to FAS 123 for next year that would be impacting or should take in account when looking at numbers?

We will have an expense related to the two stock options probably somewhere in the $0.06 to $0.08, just going by the old rules. We haven't quantified the new rules but it should be somewhere in that range on a go forward basis -- on an annual basis.

Okay, great. All right, thanks for your time. Thank you.

You're welcome.

Thank you. You next question is coming from Jack Balif of Midwood Research. Please go ahead.

Hi. First of all regarding Strauss, now the stores that have service bays and service, what percent of those store sales is in that category?

Service versus being -- so you are talking about the wet stores? They have 30 dry stores, Jack. They do 170 million of sales. On average the 30 dry stores are doing 1.1 million, so that takes you to what, 137 million.

Maybe I'm not clear, my question is in the 70 stores that are wet, that you call wet, that have service, what percent of those store sales are service?

About 50/50.

50/50?

Yes.

Okay. When it comes to the lowering the acquisition costs of merchandise on a combined basis, the 400 basis points, I guess it might take perhaps six months for the inventory to turn in Strauss. So does that mean that theoretically six months beyond, let's say what is that, September of '06, then in the second six months of going forward in the fiscal year that that is when you should start to see some improvements in the gross margins in the acquisitions for Strauss?

That would be true but again, if we do exercise this thing at the end of March, remember the first six months of the year are typically the highest volume months where we will be getting the most leverage. Especially remember distribution and occupancy are included in our gross margins. So sales volume helps significantly. So while what you are saying is absolutely correct, it won't show up quite as strongly in Q3 and Q4 where you still have the fixed component distribution in occupancy and lower sales volume levels. But what you are saying is accurate.

Okay. But on a seasonally adjusted basis for those quarters when you are comparing the same quarter you have that?

Absolutely true. Yes.

Plus to the extent we buy better than them, the inventory under purchase accounting, their inventory gets valued at our cost. So right out of the shoot you will see some margin improvement as well.

I'm sorry, would you please repeat that. I wasn't clear about that.

Under acquisition accounting, purchase accounting, when you buy the inventory we would value it at our acquisition cost to the extent it's less than what they are buying it for in certain categories. So you would see margin improvement just from the purchase accounting as well in the first couple of quarters.

Okay. Regarding tires, just in the tire category itself, I know that the manufacturers have been increasing their prices to you and you have been increasing your retail prices. On a net basis how does the gross margin within tires compare to a year ago?

Tire costs are down and so -- and we've been raising our prices, so overall margin's a little bit better on tires.

I'm sorry, you say -- I thought the manufacturers were increasing tire costs to you.

Well they are. But what I'm saying is chain-wide because of the volume increases we've had -- . Let's put it this way, gross margin is better on tires, primarily due to price increases but also on certain cases we've gotten some better pricing overall on tires because our volume has increased so much with Mr. Tire, Henderson and Rice in certain lines and certain brands. So all in gross margin's better on tires than it was a year ago same quarter?

Okay. Is there any difference in terms of what you'll be doing in terms of tire business between stores that are what you call -- have that that are wet than stores that are dry?

I'm sorry, what are you asking, Jack?

In terms of the additional tire business you expected to do in Strauss stores, is there any difference whether the store is dry or is also wet in terms -- ?

A lot of the focus of the tire business in Strauss is going to be a transformation of Strauss from what I would view as, for the most part, service operated service bays to more of a tire format and our tire folks will be involved in helping them achieve that. So on average they will sell significantly more tires out of a Strauss service store than the average Monro, but certainly not as high a percentage as our average tire store.

I see. I see. Cathy, what you just said about purchase accounting, do you have any idea to what degree that's going to help your gross margins as you go forward in the new fiscal year?

No, I don't, Jack.

Okay, thank you.

Thank you. [OPERATOR INSTRUCTIONS] Your next question is coming from Cid Wilson of Kevin Dann & Partners. Please go ahead.

Hi, congratulations on your number. Question, can you give us an idea in terms of where you feel the best opportunity will be with Strauss once you acquire the major stake when you compare the service side to the merchandise side?

Certainly I think the best opportunity for us adding value to Strauss is in the combined buying ability of our two Companies together. We will become much more important to pretty much every vendor we deal with. From an operational side, where obviously we'll add the most value is where we have expertise, which is on the service entire side of the business. And we think there are huge opportunities there for us working together, as occurred when we bought the Mr. Tire chain, for both organizations to get smarter and do a better job. On the retail side, we will focus on standard operating labor productivity and moving the business forward dealing with vendors to obviously have a much stronger operation with much larger expansion opportunities. But on the retail side the biggest thing we are going to bring to the table is purchasing power of our joint Companies and a very healthy financial situation of the joint Companies. And on the service side, I think it's everything across the board, all the logistics and all the advertising and all of the purchasing power. We think we do a pretty good job executing and think that we will get accelerated comp store sales and significantly better operating margins with us working together.

Okay. My last question is that I think you mentioned that you are expecting to open 15 new stores next year, most of which will be BJ's. Will those be in existing markets or will those be -- are you looking at possibly new markets and maybe can you gives us any color into the geographically whether there's more in the south?

We will probably of the 15 stores, ten of them will be BJ's Wholesale Club locations. They will be fill-in locations. They will be within our current markets and it's really a function of how long it takes to get some of these through zoning as to which ones -- at any given time we could be working on 15 or 20 of them and we don't kind of slot them. As you know, they are very low capital investment, high return on assets, they've been operating well at up double-digit comps now the past two quarters. So we are happy with them and really not doing anything beyond when we can get through some of these small town zoning issues. We open them. They will be within our current markets. The other five stores, for the most part whether they are tire or service stores, will absolutely be fill-in. Again our whole organic strategy is going to be to fill-in our current markets, as you can see, even with the acquisition strategy, all things being equal, we love the fact that we can just keep plopping more store locations within our current markets because that's the way you move the operating margin forward and the profitability forward without taking a lot of business risk.

Okay. Thank you very much.

Thanks, Cid.

Thank you. At this time there are no further questions. I would like to turn the floor back over to the presenters for any closing remarks.

Great. Thanks, operator. I just want to thank everybody. I know it was an early time for us to come out Tuesday morning after a Federal holiday. Number one, we wanted to get the information out early and number two, I'm at the Sidoti conference now presenting in about 20 minutes, so anyone who wants to see that presentation it is already up on our website, www.monro.com. There is a little color on Strauss, nothing significantly beyond what we talked about here today. And the presentation, for those of you who have sat through it before, will look pretty similar with all the new numbers updated. So again appreciate your continued support. We continue to work hard and would expect to provide the same kind of returns we've been able to do over the last six or seven years and that will do it. Thank you very much. Bye.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day