Monro Inc (MNRO) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Monro Muffler Brake fourth quarter and fiscal year 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 thank you for joining us on this morning's call. I would just like to remind you 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 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, consumer confidence and demand for auto repair. Risks related to leverage and debt service, including sensitivity to fluctuations of 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 relevant events or circumstances after the date hereof, or to reflect the occurrence on unanticipated events. Inclusion of any statement on 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, Caren. Good morning and thank you for joining us on today's call. We are pleased that you are with us to discuss our fourth quarter and fiscal 2009 performance. After reviewing our quarterly and annual performance I will provide you with an update on our business as well as our outlook for the first quarter and fiscal year 2010. I will then turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional details on our financial results.

Before I begin, I'd first like to acknowledge Monro's 4200 employees for their hard work and dedication to you our Company and our customers. It is their superb efforts that have enabled us to execute so well against our goals, continue to grow our market share, and significantly enhance our store productivity. Our employees are committed to ensuring that our customers receive the same high standards for quality service, value and honesty that they would wish to receive themselves. Through their direct interactions with our customers, our employees build and maintain the trust relationships that are the foundation of Monro's success, and for that we thank them.

On another note, we are pleased to share some positive news on the acquisition front. As we announced today, we have entered into a definitive agreement to acquire 26 St. Louis, Missouri based Autotire Car Care Centers from Am-Pac Tire Distributors Inc. , a wholly owned subsidiary of American Tire Distributors. Our intended acquisition of Autotire fits with our stated goal of acquiring reasonably priced businesses that strengthen or extend our geographic footprint and expand our market share. Through this deal, we will be expanding Monro's footprint into a new market and building out our tire store base.

Additionally, I am pleased that we have been able to increase our quarterly dividend by $0.01. This increase underscores Monro's strong financial position and cash generation, consistent earnings growth, and commitment to enhancing shareholder value. As always, we are pleased to be able to return value to our shareholders through our quarterly dividend without compromising our ability to pursue acquisitions and organic growth opportunities. I will discuss these developments in more detail momentarily, but first I'd like to review some of our performance highlights.

We are delighted with our results for both the fourth quarter and fiscal year and are very pleased that the momentum we built in fiscal 2009 has continued into fiscal 2010. Starting with our fourth quarter results, we achieved a double digit comparable store sale increase of 11.2% which exceeded our previous estimate of 10%. Comparable store sales for our former ProCare stores increased 16.6% for the fourth quarter. We generated a total sales increase of 9.3%, reaching a record $117.1 million in sales compared to $107.2 million in sales for the prior year fourth quarter. Net income for the fourth quarter grew 57.2% to $3 million, and our earnings per diluted share grew to $0.15 from $0.10. Our fourth quarter pretax income increased 94.6% to $4.8 million.

Regarding our product categories, comparable store sales for the fourth quarter increased approximately 6% for brakes, 16% for maintenance services, 13% for alignments and 14% for tires. In fact, for the first time in quite awhile, we experienced comparable store sales growth in every product and service category. Yes, even exhaust was plus 1%. We believe that our customers are consciously choosing Monro over our competitors for necessary, big-ticket maintenance such as brake service and replacement due to our solid reputation, store execution, and effective marketing. Our Oil Change & More and Brakes Forever value-added offers continue to attract new and existing customers to our stores as evidenced by our 6% comparable store sales increase in the brakes category, which signifies continued market share expansion in this important category.

We are also satisfied 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 tie closely to sales of tires. Comparable store sales growth of 13% in alignments, along with other high-ticket items such as tires and brakes, has helped to drive growth in sales and gross profit over the past several quarters.

We are once again quite pleased with our expansion in gross margin. During the fourth quarter, price increases that were implemented in response to increased material costs, as well as improved labor productivity and our ability to leverage occupancy costs, led to margin expansion of 110 basis points. Our gross margin expansion was partially offset by the shift in mix to lower margin tire and maintenance service categories as well as consumer's trading down to lower cost alternatives in this difficult economy. We expect that these trends will continue to some degree in our new fiscal year. However, during the fourth quarter, we received our first cost decreases on oil and tires in four plus years. The decreases -- three times so far on oil in January, March, and now in May; one time on select tires -- will continue to work their way through cost of goods and have even more impact in Q3 and Q4. Although we still have not yet recouped all of the cost increases we received in fiscal year '09. We still see 100 basis point gross margin improvement for full year 2010.

To briefly review our fiscal year results, we are pleased with our full year net income increase of 10% to $24.1 million from $21.9 million in the prior year. Earnings per diluted share were $1.20 compared with $1.00 for fiscal year 2008. Comparable store sales grew 6.7%, which marks our eighth consecutive year of comparable store sales increases and which demonstrates our ability to grow in both favorable and unfavorable business cycles. In addition, we achieved a total sales increase for the year of 8.4%, reaching a record $476.1 million compared to $439.4 million for the prior year. Gross margin expanded 50 basis points for the year and total operating expenses remained flat at 31% of sales.

To briefly discuss trends in our business and the industry, we saw modestly increased traffic for the year, but accelerated in the fourth quarter as auto makers continue to face difficulties, dealerships close at an accelerated pace, and consumers kept their older cars longer. Throughout the fourth quarter, more consumers were unwilling or unable to pay high dealership prices or found dealerships they frequented for repair had or were going to close. We took the opportunity to capitalize on these industry trends by using our proven low-cost advertising and promotional strategies to communicate Monro's services and added value. We believe the shifts in our industry and economy contributed to our impressive 5.5% growth in traffic for the quarter, and these trends put us in an excellent position for continued sales going forward, especially when the economy recovers. As I'm sure all of you are aware, many dealers have gone out of business recently, with as many as 3,000 more predicted to shut their doors in the next few years. We believe we have an opportunity to further expand our market share and grow our customer base in an economical and cost effective manner as a result of these changes in the auto industry.

Now I would like to provide you with an update on our growth strategy. First, I will say again that we are delighted to have announced our acquisition of Autotire Car Care Centers. Our acquisition of the 26 tire stores of Autotire Car Care Centers is an excellent fit for our Company that is low risk, low cost and high reward. This deal is slightly different from past deals in that the seller, American Tire Distributer, is a large wholesaler and distributer rather than an independently owned chain like those we have acquired in the past. While we've had to be a bit patient in negotiating the appropriate purchase price for Autotire, we are pleased with the valuation of the transaction which we believe represents a high potential for shareholder return on investment. We expect to close this deal by the end of June.

Importantly, the acquisition allows us to enter the St. Louis, Missouri market, a new market for us. We believe that we will be able to expand into this new market in a cost effective and efficient manner due to the store density of this chain in greater St. Louis and an attractive rent structure. We believe these locations will perform similarly to our nine previous acquisitions. Autotire generates annual sales of about $31 million, and its sales mix is about 50% tires and 50% service. The stores are already high volume at approximately $1.2 million per location. The $10 million purchase price makes this the least expensive deal we have done on a cost-per-bay and on a percent of sales basis, two key metrics for us. Our expectations would be that year-two EBITDA multiple, after integration, would be four times. I promise more to come next quarter, when we actually own it.

Generally speaking, we have found that the acquisition opportunities are continuing to present themselves in this challenging time and valuations are attractive. Because our business remains strong and flexible, we are in good position to consider additional acquisitions. In fact, we have several additional opportunities in our pipeline presently that we will consider so long as they are priced appropriately. Remember, we have $90 million available on our credit line, good until 2012, paying 100 basis points above LIBOR.

Turning now to our organic growth strategy. A major driver of our organic growth and customer retention strategy continues to be our highly effective promotional and advertising activities. Recently, we focused more on the internet and radio to get our message of value and quality service out to our existing and target customers. These advertising vehicles are cost effective and are getting more so with advertising rates declining. And they have a very positive impact on our ability to drive sales and take market share.

Another important initiative is our Black Gold program, which is designed to expand our market share and increase the sales of tires in our service stores. We are very pleased with the positive results that we have seen from the Black Gold program to date as our Black Gold stores continue to outperform our other service stores. In fact, our Black Gold stores had a 40% tire-dollar increase and a 24% unit increase for 2009. We most recently completed the expansion of our program into Cleveland, giving us a total of 190 Black Gold locations. For the year, Black Gold stores sales count 3% higher and 5 percentage points more store contribution dollars than nonblack Gold stores.

I would now like to briefly discuss our outlook for the first quarter and fiscal year 2010. Please note that our guidance includes the impact of the intended Autotire acquisition. As I mentioned, we are certainly encouraged by our performance in the fourth quarter and for the full year of fiscal 2009 and we are pleased that much of the momentum that we built in fiscal 2009 has continued as we entered fiscal 2010. We are optimistic that the positive trends that we have been experiencing will continue throughout the remainder of the first quarter and fiscal year. Specifically, the macro trends in the automotive sector, including the slated closings of additional dealerships, are working to our advantage. Consumers repairing and keeping their cars longer is a major plus. We have also begun to see a slight uptick in consumer confidence. These trends will help drive our business and provide us with an even stronger foundation for when the economy stabilizes.

Importantly, we have been pleased with comps so far in the first quarter of fiscal 2010, with an April comp increase of 5.5% and an approximately 8% comp increase to date in May. Keep in mind this comp growth is on top of an 8% increase in April 2008 and a 4% increase in May 2008. As detailed in our press release this morning, we expect first quarter comparable store sales growth of 4% to 7%, and first quarter earnings per share to range between $0.42 and $0.47 which compares to $0.39 for the first quarter of 2009. For the year, we continue to anticipate comparable store sales growth of 4% to 7%, and earnings per share in the range of $1.30 to $1.45. We expect total sales for fiscal 2010 to be in the range of $515 million to $530 million.

In summary, I am delighted with our results and positive momentum in fiscal 2009. Our strong, low cost business model and Company-owned and operated stores, combined with highly favorable macro trends in the auto industry, has solidly positioned us for future growth. Further, we look forward to integrating our new acquisition and extending our excellent service to a new market. And last but not at least, we will continue to build and maintain our trust relationships with our customers which is key to our success.

Thanks for your continued support of Monro. I look forward to updating you on our next call and would like to turn the discussion over to Cathy for a more detailed review of our financial results.

Thank, Rob. Good morning, everyone. As Rob stated, our sales increased 9.3% in the quarter, or $9.9 million. Comparable store sales were up 11.2%. The former ProCare stores are now included in comparable store sales numbers and they increased 16.6% this quarter. New stores, which we define as stores opened after March 31, 2007, added $2.1 million. Included in that $2.1 million is our sales from the 19 former Craven, Valley Forge and Broad Elm stores acquired last fiscal year. They contributed $1 million of the increase. The total sales for these acquired stores were $6.5 million in the fourth quarter of fiscal 2009 as compared to $5.5 million in the fourth quarter of last year. Partially offsetting these increases was a decrease in sales related to closed stores amounting to $1.1 million. There were 77 selling days in both the current and prior year quarter.

Year-to-date sales increased 8.4% with comp store sales increasing 6.7%. New stores added $16 million including $12.6 million from the Craven, Valley Forge and Broad Elm stores. The total sales for these acquired stores were $27.1 million for fiscal 2009 as compared to $14.5 million in fiscal 2008. Partially offsetting this was a decrease in sales from closed stores of $4.1 million. As of March 28, 2009 the Company had 710 Company-owned stores compared to 720 stores at March 29, 2008. During the quarter-ended March 2009, the Company closed one location. In fiscal 2009, the Company opened three locations and closed 13 underperforming locations.

Sales for the ProCare stores acquired in April 2006 continue to improve since the acquisition and efforts continue which focus on increasing sales volumes, reducing costs, and improving margins. These stores made approximately $0.03 per share in fiscal 2009. Comparable store sales for the ProCare stores for fiscal 2009 increased 10.1%. Gross profit improved by 130 basis points and $1.8 million. For the full year 2009, operating income of $3.1 million improved by 380 basis points and $1.7 million over last year. We are encouraged by the continuing improvement in these stores.

Moving on to gross profits for the quarter, it was $45 million or 38.4% of sales, as compared with $39.9 million or 37.3% of sales for the previous year quarter. The increase in gross profit for the quarter-ended March 2009 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 chain-wide, especially in the tire stores, achieved through improved sales and right-sizing 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 fourth quarter for the fifth consecutive year. Occupancy costs decreased 1.2% as a percent of sales from the same period in the prior year quarter, largely due to the Company gaining leverage against strong comparable store sales.

Partially offsetting these cost decreases was an increase in total material costs due to cost increases in oil and tires compared to the previous year, 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-type services. Selling price increases helped to mitigate the negative impact of increases in product costs.

Gross profit for the full year was $191.5 million or 40.2% of sales, compared with $174.6 million or 39.7% of sales for the year ended March 2008 due to similar factors as I discussed for the fourth quarter. Operating expenses for the quarter-ended March 2009 were $38.9 million or 33.2% of sales, compared with $35.8 million or 33.4% of sales for the quarter-ended March 2008. Within operating expenses, selling, general and administrative expenses for the quarter-ended March 2009 increased by $2.6 million to $39 million from the quarter-ended March 2008, and were 33.3% of sales as compared to 34% in the prior year quarter.

The decrease in SG&A expense as a percentage of sales is due to a number of factors. In general, the Company gained leverage against these partially fixed costs with strong comparable store sales as compared to the same quarter of last year. During fiscal year '09, the Company also made a concerted effort to control or reduce expenses wherever possible. For the full year ended March 2009, SG&A expenses increased by $11 million to $148.4 million from the comparable period of the prior year and were relatively flat as a percent of sales at 31.2% compared to 31.3% for the prior year. The largest drivers of the dollar increase in SG&A expense was as follows -- store manager pay and related benefits increased by approximately $3.8 million for comparable stores attributable to raises and increased incentives in fiscal 2009 due to improved store performance as compared to the prior year. There was an additional $1.9 million of increased expense related to a full year of Craven, Valley Forge and Broad Elm manager pay and benefits, including increased incentive pay for improved performance in those stores.

Advertising expense increased approximately $2.5 million in connection with the Company's focused efforts to drive traffic, gain market share, and improve comparable store sales. Store supports costs increased by approximately $2.4 million including increased Management compensation expense as compared to the prior year. Management bonus expense was up due to the Company attaining required profit goals for fiscal 2009 which it did not attain in fiscal 2008. Benefits expense was up, primarily due to increased FICA expense related to increased wages paid, as well as increased workers compensation expense.

Intangible amortization for the quarter was relatively flat at approximately $100,000 and 1/10 of a percent of sales for the fourth quarter. For the full year, intangible amortization decreased by $100,000 to $0.5 million from fiscal 2008 and remained flat as a percent of sales. Gain on disposal of assets for the quarter-ended March 2009 decreased by $0.5 million from a gain of $0.8 million for the previous year quarter, increasing operating expense by 6/10 as a percentage of sales. Effectively, as we stated last quarter, there will be timing differences in property sales year to year and quarter to quarter. The gain on disposal of assets for the full year of 2009 decreased $0.6 million to $1.1 million from fiscal 2008 and was 2/10 of a percent of sales as compared to 4/10 in the prior year.

Operating income for the quarter-ended March 2009 was approximately $6 million increased by 45.7% as compared to operating income of approximately $4.1 million for the prior year quarter, an increase as a percentage of sales from 3.9% to 5.1% for this quarter. Operating income for the full year of approximately $43.7 million increased almost 14% as compared to operating income in 2008, an increase as a percentage of sales from 8.7% to 9.2% for the year-to-date period.

Net interest expense for the quarter-ended March 2009 decreased $0.5 million from $1.8 million to $1.3 million. The weighted average debt outstanding for the quarter-ended March 2009 decreased by approximately $21 million from the prior year quarter. This increase in debt in the prior year was primarily related to the funding of the Valley Forge, Craven and Broad Elm acquisitions and the stock repurchase program, all of which occurred in fiscal 2008. However, partially off-setting this increase was a decrease in the weighted average interest -- I'm sorry. Not only was debt down but the weighted average interest rate decreased by approximately 50 basis points from the prior year. The decrease is due primarily to a decrease in LIBOR and prime rate.

For the full year, net interest expense increased by approximately $0.2 million as compared to the prior year and remained flat at 1.3% of sales. The weighted average debt outstanding for the year increased by approximately $26 million, partially offset by a decrease in the weighted average interest rate of approximately 170 basis points from the prior year.

Our effective tax rate for the quarter-ended March 2009 and March 2008 was 36.2% and 21.0%, respectively, of pretax income. In the fourth quarter of fiscal 2008, the Company recorded a net benefit relating to the favorable settlement of older outstanding tax matters, partially offset by the true-up of deferred taxes, both of which were somewhat one-time items that did not recur in this fiscal year. For the years ended March 2009 and March 2008, the effective tax rates were 36.8% and 34.4%, respectively, of pretax income. Pretax income for the fourth quarter of $4.8 million and year-to-date of $38.1 million increased by approximately 95% and 14% respectively over the prior year period.

Net income for the quarter-ended March 2009 of $3 million increased approximately 57% over net income in the prior year quarter, with diluted earnings per share increasing 50%. For the full year 2009, net income of $24.1 million increased by almost 10% and diluted earnings per share increased 20% over the prior year.

Moving on to our balance sheet. Again our balance sheet remains very strong. Our current ratio at 1.4 to 1 is slightly lower than last year-end at 1.6. The decrease from year-end -- from last year end is due in large part to our very deliberate and close working capital management whereby we were able to increase vendor payables and reduce bank debt. In fiscal 2009, we generated $48 million of cash flow from operating activities as compared to $37 million in the prior year. And we were able to pay down $26 million of debt during this fiscal year as compared to borrowing about $67 million in the prior year. As a result of the debt pay down, our debt to capital ratio dropped to 34% from 42% at the prior year end.

As a reminder, we have a $163 million revolving credit facility with a group of lenders that, as Rob stated, 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 around the end of the first quarter of this fiscal year. The 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 $92 million, gives us a lot of flexibility and ability to get acquisitions done quickly, such as the one in St. Louis that we are just completing. We are fully compliant with all of our debt covenants and have plenty of room under our financial covenants to do acquisitions without any problem.

During fiscal 2009, we spent approximately $22 million for capital expenditures net of proceeds from disposals and we paid $4.7 million of dividends. We received about $1.7 million from the exercise of stock options, and depreciation and amortization totaled $20.4 million. Inventory is up about $5 million from March 2008 and about $2 million from December 2008 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 the Black Gold stores. In addition, we continue efforts to improve stocking levels and mix of inventory to reduce outside purchases chain-wide. However, turns were slightly improved from last year-end 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 cooperative advertising credits recorded under the new accounting rules.

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

The question-and-answer session will be conducted electronically. (Operator Instructions) We will pause for a moment to assemble our roster.

We will go first to Tony Christello with BB&T Capital Markets.

Good morning.

Hey, Tony.

Question with respect to the acquisition. When you look at the profile of the stores, I'm assuming they're going to mirror Mr. Tire? Can you talk a little bit about, when you dig in, what the opportunity is from a sales standpoint versus the opportunity from a cost standpoint as you integrate?

Sure. I think they're already doing $1.2 million in sales and the properties have been on sale for the last six months. So, that is not the easiest situation to work through from an employee perspective. We are thrilled to get a hold of it at this juncture. They do about 50% tires, 50% service. You're right, it mirrors the Mr. Tire acquisition, and unlike ProCare where those stores started at about $400,000 per unit in sales, at $1.2 million there's a lot of opportunity for leverage, the employee base is a lot stronger, and the customer satisfaction levels and the loyalty of those customers is better. So we view a lot of opportunities on the sales side, putting our programs in place, investing in these stores for the future.

On the cost side, obviously, we have significant opportunities to reduce costs. The rents are the most important thing, and those are very low, which creates a great baseline for us to improve the profitability of the business. But for starters, certainly, unfortunately, the corporate overhead assigned to this business from the other folks is unnecessary, while we will be taking all of the store employees. So, on the cost side, we will be getting the benefit of losing a corporate overhead over the transition period. We will get our systems in. So outside purchases should be a little bit better because we will be sharing inventory. We will be doing some things with tires a little bit differently. But the folks that we bought this from are in the wholesale distribution business and, I think, part of the attractiveness of us as a buyer is them being able to give us deals based on our size and maybe future opportunities for them to sell us goods where we feel we certainly have an opportunity to reduce the cost of goods.

All told then, if you put those synergies and economies of scale together, we paid $10 million for the property and have said second year EBITDA would effectively be four times. Kind of gives you an indication that very low risk, we're buying these properties right on both a cost-per-bay as well as a percentage of sales basis. And we are excited starting off with the Number 3 store density in that market with our format and our ability to grow the market out, moving towards the Number 1 or Number 2 market share and density that we enjoy in most of our markets.

How is the brand equity or brand awareness there? Are you going to have to, like you did with ProCare, have an immediate changeover or are you going to use that name and that marketplace from an expansion standpoint?

We are going to use that name. Remember when we took over ProCare, there were $400,000 in sales per unit running minus 30 comps. These stores are doing $1.2 million in sales, at low rent rates, on the Autotire brand name is strong and it has been supported. There was no reduction in advertising and they built a very good brand name in St. Louis. So our expectation would be that we will be keeping the Autotire brand name, enhancing the marketing that they do would certainly -- a more significant direct mail approach which we think we do well and are very cost effective -- and would look to drive the business that way.

And one last question on that. When you look at your model today from a sourcing standpoint, do you buy most of your tires from the manufacturer itself, whether it is Yokohama or Pirelli, or do you already have some involvement with a wholesaler? And, going forward, and I think you have alluded to it a bit, does this structurally change or give you some opportunity to further reduce your product cost or your sourcing down the road if you were to sort of strike some type of relationship or maybe broaden the relationship with American Tire?

Sure. Most of our tires are bought directly from the manufacturers today. That being said, we are always looking for opportunities to test things and build a better business model, and this is a foray of seeing what we can do from a cash flow perspective. If the pricing is attractive enough, there are other players out there in our markets that potentially this sort of format being tested in St. Louis might hold value for us improving our operation and margins going forward or not. But it is a perfect opportunity with a very credible, talented organization. And American Tire Distributors, with their Am-Pac unit, for us to look at all options as we're growing the business and we intend to do that.

Great. Thank you.

Thank you, Tony.

Our next question will come from Scott Stember with Sidoti and Company.

Can you maybe talk about new customer data? I think last quarter, Rob, you had given some indication that you saw a big increase in new customers that are actually coming to your stores, whether it's because of the increased advertising or just having dealerships near you go out of business. Did you see any similar trends in the fourth quarter?

Well, certainly in the fourth quarter, with traffic up 5.5%, the highest number traffic increase we have, I believe, run in my ten years with the Company. We saw new traffic coming from a lot of different areas. I certainly attribute a piece of it coming from the promotional and advertising, us doing a little bit more internet, a little bit more radio. Us going after business in the slowest quarter of the year, and certainly all of the uncertainty from the dealer network -- whether they're closed already, whether they're closing in the future -- I think makes potential dealer-customers concerned, and, in fact, in a lot of our research what we have seen now is the number one concern of customers is warranty and guarantees which obviously is coming about by people not wanting to make a $500 or $1,000 repair investment in their vehicle, and not having some comfort that a year from now someone will be there to stand behind it. So I think it is all of those factor that have benefited us in April and May. Our traffic is up too. As you know, from history, a plus 2% traffic increase for us, in light of the price increases that we have incurred, coupled with now the fact that cost of goods on oil and tires are going down, the full effect should be seen in Q3 and Q4. Hopefully makes for some pretty powerful leverage within our business model.

Okay. As far as the promotional environment, I'm not sure if you touched on this already. You already talked about the fourth quarter, how you drove sales during the seasonally slow quarter. How is that factoring into the comps that you are seeing right now?

Well, sure. I mean we raised our prices 3% in April. That was on the heels of a 5% increase in September. We continue to advertise at similar levels that we did last year, albeit we are paying less for advertising with what's going on in the advertising market. That's also benefiting us. From a promotional standpoint, we certainly want to be aggressive, but, remember, we are a value-added operation. So while we are 33% to 50% the price of the dealers offering a nice trade down, we still try and market ourselves because of our store execution and the loyalty and trust we have built up with our customer base at above many of our competitors who maybe have not been as aggressive taking pricing the way that we have over the past 12 months. And while our promotional activities will not be as strong as they were in the fourth quarter, we certainly don't want to give up market share and don't feel we are with the comps that we ran in April and May.

Okay. Last question. On Autotire, just so we can get like a base framework as the quarters progress, what kind of comps would you say that Autotire is running currently or just throughout the year so we can just see how things improve?

I think right now they're running at about minus 6. I think -- I would like to at least before I give a more detailed report on Autotire, we probably should own it first.

Fair enough. Thanks a lot.

Next question will come from John Lawrence with Morgan, Keegan.

Good morning.

Hey, John.

Rob, just to follow on that, in the fourth quarter, the incremental advertising you spent in January to track some of that business, how much on a normalized run rate would you say that was?

I think for the year we spent somewhere around $2 million more on advertising. That moved our advertising from about -- I think our old run rate of about 3.3% up to 3.5% with the obviously strong comps; and the fourth quarter, the incremental advertising above prior year probably ran somewhere between $400,00 and $500,000.

Okay. That would have been in the fourth? Ok. And what could you, as far as distribution costs -- Well first of all, the costs in the second quarter, you expect to close in June?

Correct.

Would there be any --? Obviously there's some cost as you get ready to close the deal?

Yeah. In fact I think, remember effective March of this year, this past March, any deal we do all due diligence costs are now no longer capitalizable. So, you will see some obviously already, because we have been doing due diligence on this deal prior to signing the asset purchase agreement. We will continue to do it the month of June whether we close in mid-June or towards the end of June. Those costs will be included in our P&L to the negative already incorporated in our estimate that we gave out today, and you will see additional costs effective in Q2. That being said, we would hope to own these $1.2 million stores -- sales stores per year in Q2. And Q2 is one of the strongest quarters along with Q1 as far as performance of stores of this ilk.

So we still need to get our marketing plans in place, need to get everybody up and running on our systems, and the normal so-called culture shock and system changes and putting in our programs to get the full benefit, which we will start to see more in Q3 and Q4. But the sheer volume levels and the fact that these stores and their employees have held up sales fairly well and fairly competitively in a tough environment, while all of this other turmoil was going on, should bode well for the second quarter. And I point out the fact that we said we would get this deal done in June so we will have it for whatever, call it nine months of this year, and it didn't adjust our range for the full year of $1.30 to $1.45. It is the same as we came out two months ago without anticipating this deal. So, all told it is neutral; maybe we lose $0.01 or $0.02 in year one. I think the importance is they're strong stores. The market is strong and we are excited about expanding that market and building a presence in St. Louis.

And just related to that, as far as -- obviously they were owned by a tire distributer. Was there any kind of --? Is it a normal situation that you see for parts distribution? You obviously had the same leverage points there is to bring your model to that?

Yeah. I mean we will, certainly for the first year, run a higher cost of goods than the chain runs as a whole. That being said, the rents we will be paying on these locations on average are lower than the Company's rents as a whole. And if you look at our whole base of tire stores, the 150 we now have in place, run between $1.2 and $1.3 million in sales with us owning them, and with us growing the business this market is already at $1.2 million with us doing nothing, and our intent, hopefully, is not to screw it up.

I understand. Congratulations.

Thanks very much.

Our next question comes from Brian Sponheimer with Gabelli & Company.

Good morning.

Hey, Brian.

On potential future acquisitions, can you give us an idea about what sub-segments you will be targeting? Potentially looking at more operations that were typically performed by dealers?

Well, I think we are pretty consistent in our acquisition strategy, which is we are going to buy either tire stores or service stores. And we can get three times bigger within our current footprint and that would be our intent depending on the price points that we can get. We certainly -- the St. Louis, Missouri market is outside our current footprint but the pricing and the future opportunities were just too attractive to pass up. If there are markets in contiguous states -- Kentucky, Tennessee, Georgia, Florida, Alabama -- that are likewise priced, we would certainly look there. But the lion's share of the deals that you will see us do over the next couple of years will be sitting within our core 17 states and will either be tire stores or service stores, nothing beyond that.

Okay. That's very helpful. Thank you.

You're welcome.

Our next question comes from John Walthausen with Walthausen & Company.

Yes. Hi. Hi, Rob. Congratulations on a great quarter, first of all.

Thank you.

But on the acquisition, so I am to understand that you will, for these stores, you will have an agreement for certain term of time where you will be buying the tires from them, but then where -- can you elaborate a little bit on that? And also, are they the landlord of record on this? Is there some sort of expectation that those rents won't stay low for all that long? And then finally on the non-tire parts, would those be sourced out of our distribution or some third party?

First off, John, I wouldn't game you on the rents. The rents are with third party landlords and are expected to stay low as a percentage of sales, and if we do our job right, go lower. So --

All right.

On the tire side, obviously we have very strong relationships with Michelin, Pirelli, Goodyear, Bridgestone, Yokohama, and some of the private labeling we do. We can certainly do direct shipments of tire to our stores and the distribution network out of our warehouse in Rochester, St. Louis is no further than South Carolina as far as distributing parts. That being said, we have an opportunity with a $2 billion wholesaler and distributor to test out on what is effectively an outlying market. If we can make our business model comparable or even more efficient by structuring a deal with them where we can provide them with a lot of guaranteed volume from a growing company as a different way of doing business, certainly, initially, so we can get these things up and running and not skip a beat for these stores and our customer base out there. And then assess it during the first year to see where the net-net falls on whether it is something attractive for us to pursue in other potential markets or go back to our normal distribution.

Sounds good.

Great.

Appreciate it. Thank you.

Thanks, John.

(Operator Instructions) We will go next to Jack Balos with Midwood Research.

Hi. First of all I was wondering regarding Autotire, I don't know if you said this, is it currently operating at a loss?

No.

It is not? Well, okay.

Well remember, we are going to have some interest costs and some goodwill amortization.

Right.

But that would be an expectation of awful big improvements if my purchase price is $10 million and I said we expect EBITDA to be four times next year. So we are good, but we are not that good.

Okay. I meant on an operating basis, in terms of gross margins and payroll and expenses. Are you saying that Autotire is operating at a profit now?

I understand what you are asking and -- asked and answered, Jack.

Okay. Okay. One other thing I wanted to ask you about is regarding, I guess, a new promotional program by Midas where the local promotions are getting more promotional in terms of oil changes and so forth. Have you noticed that? Has that had any impact in terms of what you are doing?

Well, we were plus eight in May and plus 11 last quarter. So why don't we let it run its course and we see how they do. They're doing the right things. I think it is just difficult -- the benefit of being company-operated is we have total control over our operations and they need to cajole and help some of these guys get on the right page, which might be more difficult than it is for us to help our folks get on the right page.

I understand that. It is just that I think this has been a change, something new they haven't done before in terms of being this aggressive in terms of promotions, particularly oil changes and things like that. Have they done it like this before?

Sure.

They have? Okay. Okay.

Sure.

Cathy, I just have a question for you and that is, when it comes to comparable store sales gains --

Yes.

I was wondering what your definition of a comparable store sale is? Most other retailers usually define it as more than a year or more than 14 months in age. What is your definition?

Our definition is that it must be open one full fiscal year. So it would be anywhere from 13 to 23 months as a new store.

Wow.

So yeah, the stores. We have always been that way, since we have been a public Company. So it is that's why the Craven, Valley Forge, Broad Elm stores, none of those stores are included in the comp stores yet. They will be in April of 2010.

What about the existing base of Monro stores? I mean -- ?

If we were to open a store you mean? A green field store?

Yes.

For instance, if we were to open a green field store this month, in May of 2009, that would enter comps in April of 2011. So there, for instance, 23 months.

Yeah but you could do it on the basis of 14 months or 12 months if you wanted to.

Yes, we certainly could, but we have never done it that way. We have always done it this way.

I know, but everybody else in retailing does it the other way and it would be easier -- much better, more comparative basis to compare what you are doing with all the other retailers that do it all the other way, makes it much better comparative basis to do it that way.

We have actually looked at it several times, Jack, and it makes very little difference, probably because we are adding new stores on a fairly consistent basis.

Okay. Thank you.

We will go next to Mark Cooper with Wells Capital.

Good morning. I apologize if you have already answered this, but what was the cash flow from operations for the quarter or for the year?

For the year it was $48 million. For the --

$48 million?

Yes. For the quarter, it was, pardon me --

Was that about $3 million then for the quarter?

Yes.

Okay. Thank you.

We will go next to Jamie Wyland with Wyland Management

Great quarter, fellas. I apologize if you have addressed this one as well. Does Am Tire have any other retail operations?

They have an additional ten stores that we did not get involved with, I believe, out in California.

Okay. And are these stores -- given the volumes I assume they're like superstores with lots of bays?

On average they're seven bays each, very similar to the Mr. Tire format, which I know you are familiar with in Baltimore.

Okay. Relatively new stores? Or what's the condition of the store base?

The store base is in good shape. They have been maintained. We will certainly invest in imaging and equipment to allow us to broaden the services and maybe do a little bit more service work. We will be keeping the brand name so the signage won't change. But they have been in the fold -- This was a company started by the [Latham] and [Robiski] family, and they did a great job building the business. I believe sold it to Am-Pac and Autotire dealers and just really, as you would hope, built a great family brand, caring about their customers and thus why a lot of the stores have been open a long time. The rents are very attractive, and we will upgrade the stores, but certainly no wholesale changes and we are very happy with the store base.

Okay. On the dealer closing, again, sorry if you have addressed this, but three different areas. Have you seen -- where any dealers have closed, have you seen any same-store sales impact? Secondly, as they are closing, how does this affect, positively I would think, your labor pool? And will you look at some of the equipment that these guys have that are as they closing the dealership and possibly think of opening up more stores since they can now be opened up on the cheap if a piece of equipment for pennies on the dollar?

Sure. We won't be looking at taking over dealer location, but certainly if a dealer is looking for cash flow, they already know we are there to help. The most important thing for us is trying to get that customer base. Where that's a huge opportunity, we have made strides in that area without getting too specific on what our strategy is going forward. But certainly happy to report when we are done how we fared. We know that the Chrysler closings that are announced by location and occurring June 9th, that 65 of those locations fall within five miles of our current stores and 88 fall within ten miles of our current stores. So we are excited about that opportunity, but, remember, not even the Chrysler stores have closed yet. So, we are certainly in the early stages of capturing this business. And, as I said, the biggest thing helping us at this juncture is people's concern about doing business with someone that might not be around to stand behind the product whether it is an announced closure or what's going to happen in the future at Chrysler, GM or any of these guys.

Okay. But it seems like your same-store sales outlook doesn't factor in anything for a potential increase from the dealer closings and seems rather conservative in light of how you finished up the previous fiscal year.

Well, if like last year, the worst thing we can do every quarter is beat and raise guidance, hopefully you guys won't beat us up too bad.

I think we can live with it. Thank you,.

Thank, Jamie.

There are no further questions at this time. I would like to turn the call back over to Mr. Rob Gross for any additional or closing remarks.

Thank you. I just want to thank all of you for your support of Monro. And specifically, again, thank our whole team that's working in St. Louis meeting with our new employees joining us, as well as everyone in our stores and corporate headquarters that have been busting their butts to produce what I think is a very solid year, a great fourth quarter, and has all the earmarks of a great first quarter with momentum building to take us through this next year in a tough economic environment. I appreciate all of their efforts. I'm proud to be working with them and know that we will be working hard for all our shareholders to constantly improve shareholder value and get you the return on investment you have come to expect from Monro. So thanks very much and I will talk to you next time. Bye.

Ladies and gentlemen, this does conclude today's conference. Thank you for participation.