Monro Inc (MNRO) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Monro Muffler Brake third-quarter 2009 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).

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. Caren Villarreal of FD. Please go ahead.

Thank you. Hello, everyone, and think you for joining us on this morning's call. 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 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 related to leverage and debt service, including sensitivity and fluctuations in interest rates; dependence on and competition within the primary markets in which the Company's stores are located; and the need for 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 which 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, Chairman 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. Rob, you may begin.

Thanks, Karen. Good morning, and thank you for joining us on today's call. We are pleased that you are with us to discuss our third-quarter 2009 performance. After reviewing our quarterly performance, I will provide you with an update on our business, as well as our outlook for the fourth quarter. I will then turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional details on our financial results.

We are very pleased with our results for the third quarter and the continued strong performance of our business, especially in light of the ongoing challenges in the economic environment. Our comparable store sales increase of 5.9% exceeded our previously estimated range and was our third straight quarter of mid-single-digit, industry-leading comparable store sales increases.

We generated a total sales increase of 5.5%, achieving a record $118.7 million in sales, compared to $112.5 million in sales for the prior-year third quarter. Comparable store sales for our former ProCare stores increased 9.3% for the third quarter.

Net income for the third quarter grew 5.2% to a record $5.6 million, and includes a 400 basis point increase in our effective tax rate versus last year. Our pretax income increased 12.6% to $8.4 million. In addition, our earnings per share grew an impressive 12% to $0.28 over the prior-year earnings per share.

As always, the stronger trust relationships we have with our customers continues to be the key to our ongoing success. We have found that especially in these difficult economic times, our customers need us for valuable and reliable service and are confident that they can depend on us to keep their vehicles running.

Moreover, we have taken quite an aggressive stance on advertising and marketing in recent quarters, and have been successful in generating a solid return on this investment. I will talk more about advertising and promotion in a moment, but for now, let me just say that we have been extremely pleased with the results of our efforts and see these programs and our in-store execution as the major drivers of our strong performance in the third quarter.

We are satisfied with our continued expansion in gross margin, which was largely driven by the price increases that we implemented this year, as well as our in-store execution. The shift in sales mix towards lower-margin tire and maintenance service categories did partially offset gross margin expansion, although tire sales helped to drive our top line and average ticket. In addition, we see customers trading down to lower-cost alternatives, particularly in the tire category, in response to the difficult economic climate.

We expect that the mix issues that are negatively impacting gross margin and positively impacting sales to continue. The good news is that we have recently received our first cost decrease in oil and tires and would expect that to have a positive impact in margin starting in March and April.

Regarding our product categories, comparable store sales increased approximately 3% for brakes, 10% for maintenance services, 12% for alignments and 7% for tires. We are pleased with our 3% comparable store sales increase for the brakes category, especially when considering that brakes are a big-ticket item that many consumers tend to defer as long as possible. Again, we believe that the trust relationships we have with our customers and our reputation for value-added, excellent service helps us to maintain our strength in the brakes category, while others in our industry have been experiencing weakness in the category.

We are also happy to have achieved yet another quarter of strong comparable store sales growth for alignments. As you may recall, alignments are a high-margin category and tied closely to the sale of tires. Growth in sale of alignments, along with other high-ticket items such as tires and brakes, has helped to drive the growth in average ticket over the past several quarters.

As I mentioned a moment ago, the tires and maintenance service categories represented a larger portion of our sales in the third quarter, and this is reflected in our strong comparable store sales growth increase for both categories. This growth is largely due to strengthening in-store sales execution and employee training, as well as the continued success of our Black Gold program. As you may recall, the Black Gold program is designed to expand our market share and increase sales of tires in our service stores. Our 168 Black Gold service stores continued to outperform non-Black Gold service stores during the third quarter.

Additionally, tires comprised a noticeably larger portion of the total sales mix in the service stores than the category did in the prior-year quarter. We added 21 stores to Black Gold in the third quarter and expect to have a total of at least 190 stores converted to Black Gold by the end of the fourth quarter. We have designated Cleveland, Ohio as our next area of focus for the program, as we have strong store density, with 28 service stores and 12 tire stores.

And now I would like to provide you with an update on our growth strategy. Our major driver of our organic growth strategy has been our successful advertising and marketing programs, which we have ramped up in recent quarters. Low cost and highly effective advertising and promotions, combined of course with excellent service, have been crucial to maintaining and growing our customer base.

In fact, largely due to the positive impact of advertising and promotion on bringing new and returning customers to our locations, this fiscal year, our store traffic is basically flat, which is comparatively very good when considering recent industry and economic trends. As part of our regular advertising program, we actively remind our customers when it is time for them to return to us for their vehicle's regularly scheduled maintenance.

We also actively promote sales in certain categories through programs such as oil change and more, in which our customers receive free maintenance services with the purchase of an oil change, and our Brakes Forever sales program, in which we guarantee brake pads for the life of the car and replace pads for only the cost of labor. We have found that these value-added programs resonate with consumers even more so in this difficult economic climate. In addition, the programs are very useful in driving return visits and strengthening our long-term customer relationships.

In addition to these ongoing advertising and promotional programs, we have engaged in marketing efforts to recruit new customers who may be seeking value-added and trusted relationships with their service provider. We have found that low cost advertising, primarily radio, web-based and print, has been highly effective in driving new customer traffic and helping us to grow our market share during a time when many consumers may be left without a dependable nearby dealership alternative or are consciously seeking a value service provider like Monro.

We are already seeing consumers responding to the weak economy by coming to Monro from dealers who typically charge 33% to 50% more than we do for repairs. We hope this trend would accelerate into our fiscal 2010, as it is projected that another 2000 dealerships will close. This growth in our customer base, as well as our ability to take business from small local independents and larger repair chains not only has enabled us to grow under very difficult circumstances, but puts us in an excellent market position for when the economy recovers.

And now for an update on our acquisition strategy. We know that some of you may have been expecting us to announce our next acquisition by now. Trust me, me too. We recently walked away from a deal due to a continuing deterioration of their sales and earnings. We are very actively evaluating the competitive landscape, and are currently engaged in discussions with several potential acquisition opportunities.

That said, we will only make an acquisition when we believe purchase prices are at appropriate levels. Time and the economy are on our side, and we are committed to using our very strong balance sheet to substantially grow our business during this tough economy, [but] making sure we capitalize on the right opportunities among the several out there. We look forward to updating you on our next acquisition soon.

I will now move to an update on some of our more recently acquired chains. For the quarter, Craven, Valley Forge and Broad-Elm Tire stores performed well and contributed $7.2 million in total sales. In addition, our ProCare stores, after a lot of hard work, are finally contributing nicely to the chain. ProCare's third-quarter sales were $11.2 million, and its comparable store sales growth was an impressive 9.3%.

I would now like to briefly discuss our outlook for the fourth quarter and fiscal year 2009. As I mentioned at the start of this call, we are encouraged by our performance for the quarter and for the first nine months of the year. We would hope that these trends will continue for the fourth quarter and have been very pleased with our January comparable store sales growth, which is an impressive 15% with three days left in the month, our best comp sales month since November 2001. Store traffic in January is up 6%.

Additionally, we are pleased that we remain on track to deliver our eighth consecutive year of positive comparable store sales results. However, given the continuing pressure on the economy and consumer, we remain cautiously optimistic about our outlook for the fourth quarter.

As detailed in our press release this morning, we expect fourth-quarter comparable store sales growth in the range of 4% to 7%. We expect fourth-quarter earnings per share to range between $0.09 and $0.14, which compares to $0.10 for the fourth quarter of 2008. Remember, Q4 last year included a $1 million gain on a property sale and a $300,000 tax benefit.

Additionally, we expect that our sales mix will continue to shift slightly towards lower-margin tire and maintenance category in the near-term, due largely to our successful sales execution efforts for those products and the expected deferral of some other big-ticket items due to the challenging economy.

For the full year, we are raising our expected range for total sales to $467 million to $471 million from our previously expected range of $460 million to $465 million. In addition, we have raised our expected range for comparable store sales growth to 5% to 6% from our previously expected range of 3% of 4%. We are reiterating our expected fiscal year EPS range of $1.14 to $1.19.

Before I turn the call over to Cathy, I would like to quickly remind you of some of the longer-term industry trends that have been working in our favor. Cars are older. There are more of them. They are more complex. And there is less competition, with store and dealership closures. Weak consumer confidence and tight consumer credit markets are causing drivers to hold on to their vehicles longer. This trend often leads them to value service providers like Monro.

While the economic environment has been undoubtedly tough, we are quite pleased with our ability to grow our business during this challenging time, gain new customers, grow our market share, strengthen our solid position in the industry and outperform our competitors. We expect these trends to continue for some time, and look forward to updating you on our next call.

This completes my overview. Now I'd like to turn the call over to Cathy for a more detailed review of our financial results.

Thanks, Rob. Good morning, everybody. Sales for the quarter increased 5.5%, with comparable store sales increasing 5.9%, as Rob stated. As you know, the former ProCare stores are now included in our comparable store sales numbers. New stores, which we define as stores opened after March 31, 2007, added $2.4 million. The 19 former Craven, Valley Forge and Broad Elm stores acquired last fiscal year contributed $1.7 million of the increase.

The total sales for these acquired stores were $7.2 million in the third quarter of fiscal 2009, as compared to $5.5 million in the third quarter of last year. Partially offsetting this increase was a decrease in sales related to closed stores amounting to $1.2 million. And there were 76 selling days in both the current and prior-year quarter. And just as a comparison, last year in the third quarter of fiscal 2008, our comparable store sales increased 1.9%.

Bulk sales to a barter company of slower-moving inventory were approximately $1.4 million as compared to $2.5 million this quarter -- the third quarter of this year versus the third quarter of last year. These are important transactions to the Company as they help to improve inventory turns and reduce carrying costs. Inventory turns have a more direct impact on cost of goods sold than they had in the past because of the large amount of vendor rebates that we receive, which are recognized over turns now under the current accounting rules.

Year-to-date sales increased 8.1%, with comparable store sales increasing 5.3%. New stores added $13.8 million, including $11.6 million from the Craven, Valley Forge and Broad-Elm stores. The total sales for these acquired stores were $20.6 million in the first nine months of this year as compared to $9 million in the same period of fiscal 2008. Partially offsetting this was a decrease in sales from closed stores of $3 million. There were 229 selling days in the first nine months of both fiscal years, and that compares to our comparable store sales increase of 3.4% for the first nine months of last year.

As of December 27, 2008, the Company has 711 Company-operated stores compared with 713 stores at December 2007. During the quarter ended December 2008, the Company opened three locations and closed one. Year-to-date, the Company has opened three locations and closed 12 underperforming locations.

Sales for the ProCare stores acquired in April 2006 continue to improve since the acquisition, as Rob mentioned, and efforts continue which focus on increasing sales volumes, reducing costs and improving margin. These stores made approximately $0.01 per share in the quarter ended December 2008 as compared to a loss of approximately $0.01 in the prior-year quarter.

As Rob mentioned, comparable store sales for the ProCare stores for the quarter ended December 2008 increased 9.3%. In this quarter, ProCare's gross profit improved by 40 basis points and operating income improved by $600,000 to $900,000 as compared to the same period in the prior year. Additionally, pretax income increased by $0.8 million to a pretax profit of $0.4 million as compared to a pretax loss of $0.4 million in the prior-year quarter. Year-to-date on a pretax basis, the acquired ProCare stores have improved $1.9 million over last year with pretax income at $1.3 million. We are very encouraged by the continuing improvement in these stores.

Gross profit for the Company for the quarter ended December 2008 was $45.2 million, or 38.1% of sales, as compared to 37.7% of sales for the quarter ended December 2007. The increase in gross profit for the current-year quarter as a percentage of sales is due to several factors. There was a decrease in labor costs as a percent of sales due partially to a shift in mix to tire sales, as well as an improvement in technician productivity chainwide, especially in the tire stores, achieved through improved sales and rightsizing of crews. When sales improve and with good control over technician hours, there is less subsidized or guaranteed wages, because technicians are more productive, thereby decreasing technician labor as a percent of sales.

Additionally, sales per man hour increased in the third quarter for the third consecutive year. Occupancy costs, which are a component of our cost of sales, decreased 0.6% of sales from the prior year, as the Company gained leverage with positive comparable store sales.

Partially offsetting these cost decreases was an increase in total material costs due to cost increases in oil and tires, as well as a shift in mix from the higher-margin categories of brakes, shocks and exhaust to the lower margin categories of tires and maintenance services. It appears that consumer spending is focused more on needed services rather than more discretionary items.

Gross profit for the nine months ended December 2008 was $146.5 million, or 40.8% of sales, compared to $137.7 million, or 40.5% of sales, for the nine months ended December 2007.

Moving on to operating expenses, for the current-year quarter, they were $35.3 million, or 29.7% of sales, as compared to $33.5 million, or 29.8% of sales, for the prior-year quarter. Within operating expenses, selling, general and administrative expenses for the current-year quarter increased by $1.3 million to $35.7 million from the quarter ended December 2007, and were 30.1% of sales as compared to 30.6% in the prior-year quarter.

The decrease in SG&A expense as a percentage of sales is due to a number of factors. First, there is a decrease in expense related to Rob's stock options awarded in the prior year in October 2007 in connection with a renewal of his contract at that time. The contract included a tranche of options that vested immediately with the signing of the contract and the related expense of $0.9 million had to be recognized.

Second, the Company recorded a credit of approximately $300,000 in the third quarter of this fiscal year related to a decrease in environmental reserves that had been previously provided for some of our older acquired stores. We have been able to successfully settle some of these liabilities for lesser amounts than originally estimated. Utilities expense also decreased as a percentage of sales as compared to the prior-year quarter, and overall in this current-year quarter, the Company gained leverage on expenses in connection with the larger increase in comparable store sales.

Partially offsetting these decreases was an increase in manager pay related to increased incentives in the third quarter of this current fiscal year 2009 due to improved store performance as compared to the prior year. Additionally, management compensation expense increased as a percentage of sales as compared to the prior year due to increased management bonus provided in the third quarter of this fiscal year as compared to the prior year, and the expectation that the Company will attain required profit goals for fiscal 2009, which we did not attain in 2008.

For the nine months ended December 2008, SG&A expenses increased by $8.5 million to $109.3 million from the comparable period of the prior year, and were 30.5% of sales compared to 30.4% in the prior year.

Intangible amortization for the quarter and nine months ended December 2008 remains unchanged from $0.1 million and $0.4 million, respectively, and was 0.1% of sales for both the quarter and nine months ended December 2008 and December 2007. The gain on disposal of assets for the current-year quarter decreased $0.5 million from a gain of $1 million for the quarter ended December 2007, and that increased operating expenses by 0.5% of sales this year. Effectively, as we stated in prior quarters, there will be timing differences in property sales from year to year and quarter to quarter.

Operating income for the quarter ended December 2008 of approximately $9.9 million increased $1 million over the prior year and increased 11.1%. And as a percentage of sales, it increased from 7.9% to 8.4% for this quarter. For the nine months ended December 2008, operating income of approximately $37.6 million increased by 9.9% as compared to operating income of approximately $34.2 million for the nine months ended December 2007. As a percentage of sales, it increased from 10.3% to 10.5% for the year-to-date period.

Net interest expense for the quarter ended December 2008 remained unchanged at $1.5 million and 1.3% of sales. The weighted average debt outstanding for the quarter ended December 2008 increased by approximately $23 million over the prior-year quarter. This is primarily related to the funding of the Valley Forge, Craven and Broad-Elm acquisitions and the funding of the stock repurchase program, all of which occurred in fiscal year 2008.

However, the weighted average interest rate decreased by approximately 170 basis points from the prior year. This decrease is due to a shift in a larger percentage of debt, revolver versus capped leases, outstanding at a lower rate, as well as a decrease in the LIBOR and prime rates.

Net interest expense for the nine months ended December 27, 2008 increased by approximately $700,000 as compared to the same period in the prior year and increased from 1.2% to 1.3% as a percentage of sales. Other income for the quarter ended December 2008 at $0.1 million was flat as compared to the same period in the prior year.

Our effective tax rate for the quarter ended December 2008 and December 2007 was 34.2% and 29.6%, respectively, of pretax income. For the nine months ended December 2008 and 2007, the effective tax rate was 36.9% and 35.5%, respectively, of pretax income.

Both quarters' tax expense was positively impacted by the resolution of a certain tax position in accordance with FIN 48. The primary reason the tax rate was lower in the prior-year quarter is because income tax expense was reduced by approximately $300,000 related to the resolution of state tax accounting matters, including state apportionment factors. Our tax rate for Q4 of this year, aside from any FIN 48 adjustments, should be approximately 37.3%.

Pretax income for the quarter of $8.5 million and year-to-date of $33.3 million for the period ended December 2008 increased by almost 13% and 8%, respectively, over the prior-year period.

Net income for the quarter ended December 2008 of $5.6 million increased 5% over net income in the prior-year quarter, with diluted earnings per share increasing 12%. For the nine months ended December 27, 2008, net income of $21 million increased 5%, and diluted earnings per share increased 18%.

Moving on to our balance sheet, the balance sheet remains strong, as Rob pointed out. Our current ratio at 1.4-to-1 is comparable to last December and slightly lower than year-end. The decrease from year-end is due in large part to our very deliberate and close work in capital management, whereby we were able to increase vendor payables and reduce bank debt.

In the first nine months of this year, we generated $45 million of cash flow from operating activities as compared to $37 million for the same period last year, and were able to pay down $30 million of debt during this fiscal year as compared to borrowing about $45 million in the same nine months of last year. As a result of the debt paydown, our debt-to-capital ratio dropped to 33% from 42% at year-end.

As a reminder, we have a $163 million revolving credit facility with a group of lenders that is committed through January 2012. The agreement bears interest at LIBOR plus a spread of 50 to 150 basis points. We currently are paying LIBOR plus 100 basis points, and expect that spread to drop to 75 basis points early in our next fiscal year. This very favorable agreement permits us to operate our business, including doing acquisitions, without bank approval as long as we are in compliance with debt covenants.

Those terms, as well as our current availability of approximately $74 million, give us a lot of ability and flexibility to get acquisitions done quickly. We are fully compliant with all of our debt covenants and have plenty of room under our financial covenant to do acquisitions without any problem.

During the first nine months of this year, we have spent approximately $15 million for capital expenditures, net of proceeds from disposals, and paid $3.5 million of dividends. We received about $1 million for the exercise of stock options. Depreciation and amortization totaled $15 million.

Inventory is up $3.4 million from March 2008 and $2.4 million from December 2007, due primarily to the increased price of oil compared to last year and the expansion of the tire assortment offered in all service stores, including developed Black Gold stores. In addition, we continue efforts to improve stocking levels and mix of inventory to reduce outside purchases chainwide. However, turns were slightly improved from year end and last December due to our focus on reducing slower-moving inventory such as exhaust and our interest in improving inventory turns in order to be able to more quickly recognize the vendor rebate credits recorded under the new accounting rules.

That concludes my formal remarks on the financial statements, but I wanted to take a minute to talk with you about some planned annual selling activity that we expect from two of our directors, Peter J. Solomon and Donald Glickman, both of whom are in their 70s and are actively engaged in estate planning.

Mr. Solomon and Glickman have regularly sold shares in recent years, and have informed us that they intend to sell approximately 200,000 shares and 100,000 shares, respectively, on an annual basis beginning this month, subject to blackout periods and other restraints. As you may recall, Mr. Solomon and Glickman bought the controlling interest in our Company back in July 1984. We are very pleased that both of these gentlemen have remained actively involved in our business since that time as directors and large shareholders.

And with that, I will now turn the call over to the operator for questions.

(Operator Instructions) And I will turn the conference back over to our speakers while we wait for our participants to queue up for questions.

Well, we know the questions will be coming, so we will wait a few minutes.

The first question comes from me. How did I get so good-looking and intelligent? I don't have an answer.

Scott Stember, Sidoti & Company.

Thank God.

You knew I had some questions for you, Rob.

Absolutely, Scott.

Could you talk about some of the other line items, exhaust, and how they performed in the quarter, and maybe just give a breakout comp-wise by month in the quarter?

Sure. Comps for the month were -- October was up 4.4. November was up 9.2. December was up 3.1.

Okay.

And as far as other categories, third-quarter exhaust was down 3. Third-quarter shocks were down 14. Front end was up 5. And I think you have all the other major categories.

Okay. And as far as the advertising, you have touched on the last couple of quarters about Internet advertising, buying keywords on search engines. Are you rolled out to all of your markets using this, or is this something that we could expect to continue to feather out through the first half?

That will continue to feather out. Obviously, this year was our first foray. We are satisfied with the results. We will tweak them, and leading into next year, we will do more Internet advertising than we did this year, probably close to double that amount.

Okay. And I think the last couple quarters, you gave an indication of the level of advertising, I think, as a percentage of sales. Do you have that figure this year versus last year?

I think in total, we are going to run -- hang on, I've got it right here -- 3.7% of sales.

That was in this quarter?

Correct.

What was it last year?

3.3%.

Okay. And just going back to Black Gold, could you quantify the outperformance of the Black Gold stores versus the non-Black Gold?

Sure. Comp store sales in the Black Gold stores were up 8.5% on the quarter for the service stores; non-Black Gold 7.4%. Tire units in the Black Gold stores were up 23%. They were up 10% in the service stores. Tire dollars in the Black Gold stores were up 39%. They were up 13% in the service stores. Alignment dollars in the Black Gold stores were up 10%. They were up 4% in the service stores. Year-to-date comp store sales in the Black Gold stores are up 7.9% versus 5.2% for the service stores.

All right. And just touching on the 15% increase that you've seen so far, you kind of alluded to the fact that you expect that tires, maintenance to play a bigger role, I guess, throughout the quarter. Are you basically saying that that 15% is seeing stronger tire versus brake, for instance?

Sure, but obviously at plus 15%, everything is doing pretty good. But the lion's share is tires, and obviously we are getting some benefit with the plus 6% store traffic, which we haven't seen.

All right. And Cathy, just a couple of follow-up questions. I think you mentioned with the operating cash flow from operations -- did you say $45 million so far?

Yes.

And did you give out what you expect full-year CapEx to be?

Full-year should probably be around $20 million, $21 million.

All right, and one last question. I know you mentioned what the profit from ProCare was versus last year. I missed that.

Yes, ProCare this year -- year-to-date or the quarter?

For the quarter is fine.

Okay. For the quarter, the pretax profit was up $0.8 million -- sorry, that is -- no, that's the quarter -- yes, was up $0.4 million as compared to a $0.4 million loss last year.

And I think you said it was $0.01 versus a loss of $0.01 last year also.

Yes, so we were actually up $8 million, $4 million -- $400,000 profit this year, $400,000 loss last year.

Got you. That's all I have. Thank you.

Thanks, Scott.

Cid Wilson, Kevin Dann & Partners.

Congratulations on the quarter. By the way, I'm not sure the operator (inaudible). We were asking questions; I guess it was on hold. But that is okay -- from the operator's side. But anyway, here's my question.

You probably got better answers then.

Absolutely, yes. My question is that given the current economic environment, has there been any change in terms of what your criteria is for an acquisition in terms of the multiples that you look for in acquisitions?

The multiples don't really change, but what certainly changes is the people we are looking at's earnings. Comps have a tendency to be down. Earnings have a tendency to be down. So I think we have a pretty good model that at least on eight of the nine deals we've done gets us to breakeven in year one and accretive after that, with an opportunity to pick up 600 to 800 basis points of operating margin in all cases. I think the difficulty is as their numbers decline, maybe their price doesn't decline along with them.

Okay, understood. And also, I may have missed this, but what was the depreciation and amortization for the quarter?

For the quarter, it was $5 million.

$5 million. Okay.

$15 million for the year; you can expect $20 million for the full year.

And also, did you give CapEx for the quarter?

I didn't, but CapEx for the quarter was about $9 million.

Okay, perfect. Okay, great. Thank you very much.

Tony Cristello, BB&T Capital Markets.

Good morning, everyone. A couple questions. One, when you look at you've taken the revenue up, taken the comp range up, but yet the EPS range is staying flat. In spite of what it sounds like to get a little bit of a tailwind from favorable price decreases on your input costs or your product, is there any rationale or is that just ultra conservatism? Is there something else that is going on in -- I understand last year you had some items that helped the quarter, so comparisons might look a little bit more favorable.

But Rob, can you kind of give a little bit of color on sort of your thought there, about taking revenue up but yet EPS kind of staying flat?

Well, certainly we are very pleased with the plus 15% in January, on the heels of a real solid November plus 9%. It is difficult to know exactly what is going to happen. But certainly at least for the next three to six months, the shift to maintenance services and tires is going to put some pressure on margin, which we've been overcoming and would expect to.

It is just difficult to know where sales are going to be. We are comfortable with the numbers. Obviously, we are going to get more sales. Margin last quarter was up 40 basis points; it is going to contribute in. And in this environment, I would much rather come out in three months and have beaten rather than doing the performance we are doing and have a risk of missing.

So, if that is conservative, I would rather err in an uncertain market on being conservative. And I think we see help coming in 2010, because the cost side of the businesses on oil and tires is going to be working in our favor all year. But Q4, we are not expecting to get any help until March or April, which is obviously towards the end of the quarter.

Fair enough. And I guess with the macro backdrop, that is kind of the place to be. Maybe shifting gears a little bit, you talked about having 190 stores by the end of Q4 on the Black Gold program. Can you kind of remind me where your tire mix is today, where you ultimately see that going, the number of stores you have dedicated to tire versus the number that are service but with Black Gold focus?

Sure. I think in total, we have approximately 145 tire stores. In addition to that, currently we have 168 Black Gold stores. So for the third quarter of this year, brakes are 19% of the business; exhaust is 6% of the business; tires are now 33% of the business; and maintenance services are 31% of the business.

Now that is for Q3. We would expect certainly tires and maintenance service continue to go up, but Q3 will always be our highest percentage sale tire month, just inherently. Remember, November is a very big tire month, especially in our markets, leading into the winter driving season.

For year-to-date 2009, maintenance services are 31.1%; tires are about 29%. So you can see the spike up in our Q3 on the tire category, which historically will put more pressure on margin than any other quarter we are running, especially leading into next year, where we expect to see some cost declines.

November being a pretty good month there for you, and I saw the miles driven for November came out today, down over 5%, which I guess I was a bit surprised by, given what seemed like more favorable trends. And maybe is there now a little bit of a disconnect between the declines in miles driven and people now simply having cycled through everything they can defer and are just having to get things fixed when they need it to get fixed, regardless of how much driving they are doing -- some element of that control is no longer there?

I might have a better answer for you in February. Certainly, again, plus 6% traffic, we haven't seen that in years. The plus 15% is a very good number. I know we have been trending the last 11 months at a plus 6% comp, so that is certainly a trend versus an aberration. I think if we get a couple more data points in February and March and the trend appears to be higher, I think that would certainly be supportive of what you are asking. It is just difficult without a little bit longer period to know what the run rate is going to be.

And if dealer closures and people trading down in this economic environment I know are helping us. I don't know specifically how much what you are saying absolutely could be an additional piece of why things have been relatively good. I think let's see what our numbers look like in the next month or two, and we'll also probably get some data points from some of our competitors and how well they are doing.

And I guess one follow-up to the mix on the tire side. Is this a business where you would like to see tires represent 40% or 45%, or are we going to see tire mix in the low 30s or mid-30s? How should we be thinking about the growth opportunity across your system and network?

Well, I think being we can get three times bigger and not leave our current footprint, and we have more service stores than tire stores, the opportunity for the next set of acquisitions you see will be on the tire store side, which inherently then will push the overall mix up. I would see tires moving their way closer to 35%, 40%. So there will continue to be that pressure or that help on the cost of goods side going into next year and beyond.

And if we can run plus 6, plus 7 comps and tires become a bigger piece of it, I am happier with the market share gains than I would be with a plus 3 comp and have tires -- even though it is putting pressure on margin -- not driving the business.

Okay. And one last question. And I don't know if this is for Cathy or not. When you look at your distribution costs, or maybe as a percent of revenue, fuel expense -- obviously with what gas prices have done -- you self distribute. And I am just wondering is that a savings that we can see throughout this year as well to maybe help gross margins some, and is it material?

Because our distribution costs are relatively low overall -- we do it pretty efficiently -- you won't see a huge improvement. But clearly, though, it will help us with diesel prices coming down.

Okay. Is it 20, 30 basis points, to that magnitude --?

Maybe 10 basis points, because as a percent of sales, our distribution costs are only about 1%, 2%.

Okay, fair enough. Thanks, guys. Good quarter.

Thank you.

Thanks, Tony.

John Lawrence, Morgan, Keegan.

Good morning. Rob, first of all, would you just go through -- obviously the numbers on the traffic side, is there any way to look at the advertising and dig through that? How much of that 6% and 15% comp are we seeing cars for the first time as you look at the dealer shifts and all that kind of stuff? Can you quantify that at all?

We are obviously getting a trade-down from the dealers. And again, I would much rather have another quarter of information before -- we certainly -- two out of the last three months have been very satisfying, and we would just rather have a little bit more data points before everyone starts extrapolating everything out. But that being said, we know 29% of our business in November came from new customers.

29% in November?

Right, which is higher than normal. If you remember, we usually talk about kind of a 85%/15% split.

Okay. So obviously the response rates on a lot of that advertising has moved up.

The response rates are good, and the challenge for us next year is to expand what is working and then test other things to replace what didn't work this year, but keep the advertising levels very similar.

Right. And secondly, on the cost on the inputs, can you speak a little bit to the discussions with the vendors of how that goes? And I know you are still working on some of those. But will you look at longer-term contracts here? How are those discussions going as you move through looking to next year?

I think we want to keep the flexibility so we can get the best deal from the vendors. Certainly we are a very loyal customer, all things being equal. But we have an obligation to our Company, and are constantly looking for the most attractive alternatives, whether it is in tires and oil.

The conversations with the vendors goes something like, look, we had $140 oil. Now it is at $40. How come the price isn't coming down? Well, we were slow to raise the prices the last couple years, there is a bunch of additives in this, and our capacity issues. And all the stuff that I don't want to hear, and you're going to want to hear from them if you owned them.

So our objective is as one of the few guys that is growing their business, and we are growing in total, that we would expect more help than we've been getting. And I think they understand that. And it is their job to hold on as long as possible. And it is my job to get the best deal for the Company, and if I need to move the business to someone who is going to be more aggressive and values us more, we will.

Great. Great quarter. Thanks for your help.

Gerry Heffernan, Lord Abbett.

In regards to the discussion on acquisition, I, for one, am certainly happy that you are maintaining a very good thought of sacredness to the capital that you have and not going after anything just because you feel pressured to add something on.

The discussions with the opportunities that you have met with in the last couple of months, the changes that you see to their business, is it in some way similar or are you in some way fearful of what took place at ProCare, where you got into it thinking that, yes, I am willing to have a certain amount of revenue degradation, but the degradation was just much more and it just put you in a much more difficult position to turn that business around and make it an accretive acquisition?

Well, none of the people we are talking to are on the verge of bankruptcy, and none of the people we talking to thus are going to send letters to all their customers saying they are going into bankruptcy. So no, we won't see what was a -10 comp in ProCare go to -30 and have to overcome that and have a name change.

I think the types of challenges the companies we are talking to that we are close with are more a consistent minus 5 comp, which is in line with what we are seeing from a lot of these private guys. October, November, December reverting to a minus 10 comp, and us wanting some comfort that minus 10 is going to go back to minus 5 versus stay at minus 10.

Because if it goes back to minus 5 and it was a couple month blip, our pricing is right. If minus 10 continues to run throughout the system, I am not scared of a minus 10 in a good company in a good region of the country. But I want to pay minus 10 numbers for the whole thing. And their opinion is that the minus 10 is a blip and we are going to be at minus 5 in January and February, and that is great. I hope that is the case, because there is a lot of good properties.

But that would be the kind of numbers we are seeing and the people that we are talking to that we might be close with.

How long can they maintain their business at minus 10 numbers, and to what extent does a greenfield proposition become a reasonable capital item?

I think a greenfield proposition, with the exception of the five to seven stores we've historically been opening recently, is where you are going to see the greenfield proposition. Again, to your point, I am not going to rush to overpay. Things are only getting worse. But every greenfield store I open is 100 cents on a dollar replacement cost versus $0.60 of replacement cost on what I buy.

I'm going to be much more anxious to spend $0.60 on a dollar, get a company with sales, that is running good, that might have challenges, as every retailer is economically. But the sales are in place. The employees are in place. I know the real estate is good. Rather than revert to a greenfield strategy, where for every 10 stores I open, I know five years down the road I am going to close at least one, even if I'm the best operator out there.

So I eliminate the real estate risk and are buying cheap assets with a revenue stream that certainly gives me a lot of comfort going forward that spending my capital in a tough market, I have downside protection.

Okay, great. Thank you very much.

DeForest Hinman, Walthausen & Company.

Most of my questions have been answered. Just kind of recurring theme. We're obviously maintaining a strong balance sheet, paying down some debt. If we were to do an acquisition in terms of order of magnitude, how much debt would we be willing to put on the balance sheet in this type of environment, obviously, since last quarter things have gotten a little bit, I'd say, more pessimistic than they were? So just your thoughts on that.

What did you say about last quarter being more pessimistic than they were -- or are you talking about the consumer?

I'm saying that probably the consumer is a little bit more pessimistic -- or just the economy in general seems to be a little bit worse than it was three months ago.

I see. Obviously, we have run the Company very conservatively going forward. That being said, in a tough economy with our balance sheet, we think this is the ideal time to grow the business. We are not going to reach for deals. I think we've proven that over the past couple years.

But if there was a $40 million acquisition, that would not deter us from going out and adding $40 million of debt, based on -- I think Cathy mentioned our free cash flow this year is looking to be $30 million. So we are not going to stretch. We are not going to come up close to any of our covenants.

With the Speedy deal 10 years ago, we were at much higher debt-to-cap levels, and we are not going to miss an opportunity where our business is sustaining itself very well, free cash flow is improving, and we might have a chance to get assets that we will not get during a better time. We will add that in this marketplace, if the return on capital warrants it and we would expect that it will.

All right. That is very helpful. That's it. Thank you.

(Operator Instructions) [Al Klein], (inaudible).

Good morning, gentlemen. The last time I wrote a report on Monro was Monro Muffler in 1958 with one market maker and no conference calls. And [Jerry Soy] at Fidelity, we put together 60,000 shares for him.

But my question is are the customers paying cash or credit at this point?

We haven't seen a certificate shift. They pay cash, they pay credit. We are happy as long as they pay. But we have not seen our statistics, credit card sales versus cash sales, change significantly.

Do you have your own credit card?

No. I mean we have a private label card, but it is through either Firestone or Goodyear and the banks associated with them. And we don't have any credit risk.

Okay. Thank you, sir.

Thank you.

Graham Tanaka, Tanaka Capital.

Congratulations. What is the return on invested capital in the tire -- in sort of the four major categories, particularly focusing on tire? I'm just wondering if you look at the capital employed, the inventory of tires is pretty large. Are the returns on capital higher to warrant attracting you to that business versus others?

Yes, because the turns are higher, Graham, we get a lot more co-op below the line, the turns are higher. So the return on capital on the tire stores is strong, which is why, if you remember, six years ago we started getting into them. Forgetting about the market share, store density and some of those competitive advantages, we thought that was a good way to grow our business. We certainly didn't foresee over the last three years what was going to occur with cost of goods in that category.

So if you were to rank the major categories of the product areas, which would have the highest ROIs?

Well, and brakes will come back and eventually be there, strictly due to the inventory turns. On a straight margin basis, brakes, exhaust, shocks, are our highest margin categories, with tires being the lowest. But remember, when we talk about low-margin tire business, it doesn't include, for example, a $90 alignment at 90% margin.

Okay. The other thing is, on the advertising, I am just wondering how much of the pop and the better-than-expected traffic and comps were from strong advertising versus the dealer closures? I haven't focused on the dealer closures. Have you been about -- is it hard to figure out that?

It absolutely is at this time. I mean, as we are going through the year, I can tell you we are going to our database and checking out 2006 vehicles that are now coming to us this year versus last. But there are so many moving parts, whether it is the fact that gas prices are down now. Us being in the Northeast and it being cold. The dealership closures. The threat of dealership closures, so people are moving away from the dealers. The economy, so people are trading down from the dealers. Our advertising, where we know certainly a plus 6 traffic increase is huge. Is some of that a layover from December?

The fact, though, that, as you know, advertising works over time, and the more impressions you get and the more new vehicles you start to include, whether it's web-based for the first time or radio for the first time, you are talking to a different group of customers that then needs a certain number of impressions before they come into the fold.

Certainly, a piece of our comp increases versus competitors is the 10% price increases we took last year to counteract some of the raw material increases, where a lot of people in this economy were saying, we don't think we can justify that kind of price increase to our consumers. We felt we could, with value-added services and the free tire rotation and some other things. But a lot of it just comes down to in-store execution, people being comfortable that we are not going to rip them off, that we will get the job done, and that makes its way through an environment over time.

Right. And so what do you think the pricing -- if you had to guess -- it is trending down this year, I gather. Right? Or do you think it might not?

Well, I think our cost of goods are going to trend down and we will most likely revert back to our April and September price increases, more along the historical lines of 2% to 3% each period. So we are not looking -- we have not seen any price resistance from our consumers. We have seen a trading down in like the tire category, maybe from a brand name to a less rated tire, and getting the work done.

But we feel -- and our consumers are telling us -- with their wallets that they like our convenience. The pricing is at a level that they are comfortable with, that they are not getting ripped off and they know we are going to be in business. And certainly versus the dealers, we are significantly less expensive and we are seeing more of that than any trade-off or concern on pricing on our end. So certainly for us, the next move on retail prices is going to be up.

What is the dealer closure rate, and what is the dealer market share in the relevant categories? Are we talking --?

I think in total, the dealer market share runs somewhere around 32% of the do-it-for-me category aftermarket. And you can see some of that, while it is shifting significantly this year, on the slides we have in our presentation -- which the old slides are on Monro.com -- you can get the exact numbers. That will obviously be shifting with what is occurring. I don't think we've seen that work its way through the process yet.

It is 32% of the overall aftermarket. They will continue to grab share at a much slower pace. We in the tire store category will continue to increase its share at a much higher pace than we have in the past, which was second only to the growth in dealers over the past five years.

Thank you.

Thanks, Graham.

That does conclude our question-and-answer session for today. I will turn the conference back over to our speakers for any additional or closing remarks.

Great. Thank you, operator. Everyone, thank you very much for your time and attending the call. Obviously, Cathy or I are available for any further questions you might have. And we will continue working hard in a tough environment to add value. Appreciate your support. Have a great day. Bye.

That does conclude today's conference call. We thank all for you participation, and you may now disconnect.