Monro Inc (MNRO) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Monro Muffler Brake fourth-quarter 2012 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. Jennifer Malan of FTI Consulting. 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 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 relating to leverage and debt service, including sensitivity to fluctuations in interest rates, dependence on and competition within the primary markets in which the Company's stores are located, and the need for and cost associated with store renovations and other capital expenditures.

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

Joining us for this morning's call from management are Rob Gross, Chairman and Chief Executive Officer, John Van Heel, President and [Chief] D'Amico, Chief Financial Officer. With these formalities out of the way, I'd like to turn the call over to Rob Gross. Rob, you may begin.

Thanks, Jen. Good morning and thank you for joining us on today's call. We are pleased that you're with us to discuss our fourth-quarter and fiscal 2012 performance. After reviewing our quarterly and full-year performance I'll provide you with an update on our business as well as our outlook for the first quarter and new fiscal year. I'll then turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional details on our financial results.

Before we get into the details of the call, I want to spend a minute on our recent sales results in April and May. Fiscal 2012 was a tough enough year, but we were able to increase core EPS by a solid 15%, excluding the 53rd week, on comp store sales growth of less than 1% adjusted for days. While we aren't happy with those results, we didn't expect the sales trends that we have seen thus far in April and May, which has been the worst seven-week sales period since I've been with the Company.

However, I don't think we got dumber overnight nor in this case the last seven weeks and the favorable industry trends in our business model advantages haven't changed. Actual results we have from tire manufacturers and tire and service competitors, including the guys we are negotiating to buy tell us that, for the most part, our recent performance is in line with if not better than industry trends.

While weather was a negative factor for us in Q3 and Q4, it can be nothing but a positive for us this Q3 and Q4. We believe that overall pressure on the consumer is the overriding driver of our poor start to fiscal year 2013.

We are continuing to execute on the initiatives that delivered 11 straight years of positive comp sales and 20% average EPS growth. We've accelerated acquisitions in this difficult market as we said we would in times of slow organic growth. Our strategy, which we believe is the right one, has not changed and we will continue to execute on it.

We're not happy with the start to fiscal 2013 which is the main reason for our weaker-than-usual projected EPS growth for the full year but at the end of the day, people need what we sell and can only defer purchases of our products and services for so long. Nothing has changed regarding the long-term industry trends and I believe that sales will improve as we move through fiscal 2013 and customers turn to us for these deferred purchases. The growth we achieved this year both organically and through accelerated acquisitions will benefit the Company and shareholders beyond this year.

Now turning to our performance, we performed solidly overall for fiscal 2012, setting new records for both our fourth-quarter and full-year results, despite the lingering tough environment and a softer finish to the year than we had anticipated. We believe these results demonstrate the flexibility of our business model, which allows us to advance our business in both strong and weak markets.

Low-cost, Company-owned operations in markets with strong store density allowed us to continue to effectively service our customers' needs, while owning both tire and service store chains provide pivotal flexibility and service stores fare better in a tough year for tire sales across the industry.

I would like to thank each of our employees who continue to work hard to provide consistently superior service to our loyal customers. Our brand strength is a direct result of this consistent execution which is an integral part of Monro's compelling customer value proposition.

Let me begin by providing a review of our fourth-quarter and fiscal year results. For the quarter, our comparable store sales adjusted for days grew 0.7% versus flat comparable sales last year. Sales during the quarter were weaker than we had anticipated which we believe is a function of the tough economic environment and the mild weather. On a reported basis, comparable store sales increased 7.4%. In total we increased sales by 13.9% to a record $171.7 million, compared with $150.8 million in sales in the prior year fourth quarter, with total sales reflecting contribution from our fiscal 2012 acquisitions and the extra week.

For the fiscal year our comparable store sales were up slightly versus last year adjusted for days, our 11th consecutive year of positive comparable store sales.

On a reported basis comparable store sales increased 2%.

Total sales for the fiscal year increased by 7.8% to a record $686.6 million compared with $636.7 million in the prior year. Notably our fiscal 2012 acquisitions continued to perform very well and contributed to our top and bottom-line performance as we expected.

Over the last several quarters, we've discussed actions we're taking to combat the gross margin pressure we are experiencing as a result of both the expected product mix shift toward sales of lower margin tires, which is associated with our recent tire store acquisitions and significant cost increases on tires and oil.

Although we continue to leverage the increased purchasing power that has resulted from our recent tire store acquisition and shifting purchases between our broad base of vendors, we made the decision during the third and fourth quarters not to pass certain price increases along to consumers following higher-than-normal retail price increases earlier in the year that were not implemented by many of our industry competitors. Although we did raise tire prices in January and March, our gross margin remained under pressure decreasing 140 basis points during the fourth quarter to 38.7% versus 40.1% in the prior year.

For the full year, gross margins declined a modest 10 basis points. As we have said in the past we're focused on leveraging our business model to create sustainable long-term value by capitalizing on our size and the strength of our Company-operated store model. In this regard we've been working to increase our direct to international sourcing primarily from China. Our goal has been to achieve a run rate of approximately 30% of our total product cost less oil and [alt buys] by the end of fiscal 2012. And we achieved that level.

We continue to see an opportunity to help offset future gross margin pressure and hopefully deliver incremental benefit by further increasing our direct international sourcing. Over the next 12 to 18 months, we believe we have an opportunity to take that run rate to 40% which will help us at least partially offset continued cost pressure, particularly on tires.

At the same time, we're carefully managing our costs and our recent acquisitions will continue to benefit operating margin. For the fourth quarter, operating income increased 21.2% to $17.5 million, which translates to an operating margin of 10.2% compared with 9.5% in the fourth quarter of last year. The extra sales day in the fourth quarter helped drive this improvement; for the full-year operating income increased 16.6% to $91.4 million from $78.4 million in fiscal 2011, which translates into an operating margin of 13.3% versus 12.3% in fiscal 2011.

Net income for the fourth quarter increased 27.3% to a record $10.5 million from $8.2 million last year. Our earnings per share rose 26.9% to $0.33 on a base of 32.2 million shares outstanding from $0.26 in the prior year quarter. For the full year, net income increased 19.1% to a record $54.6 million from $45.8 million in fiscal 2011.

Full-year earnings per share increased 17.4% to $1.69 from $1.44 in 2011. As you know, we have factored the 53rd week into our guidance for the fourth quarter and full year fiscal 2012. But to break it out for you, we estimate that the 53rd week provided a $0.07 benefit to the fourth quarter and full year earnings. It is important to note that operating income for the fourth quarter and full year of fiscal 2012 includes $1.3 million of pretax due diligence costs, which were much higher than our typical due diligence costs in a single quarter and related to Midas, which was sold to a higher bidder.

The due diligence cost equates to roughly $0.03 in earnings per share which was not factored into our original guidance for the fourth quarter and full year.

In terms of sales category trends during the quarter, comparable brake sales were again solid, posting a 4% increase -- consistent with the 5% increase last quarter. At the other end of the spectrum, exhaust comparable store sales were down 8% after being up 12% in the third quarter and up an average of 5% over the past two years. Go figure.

Comp sales for tires increased 2% in the quarter all in more due to price increases, following a 5% decline in the third quarter. At 39% of our sales mix, we have significantly higher mix of tires than our competitors with the exception of the independent tire retailers we're looking to acquire. Tires are a big ticket item and with the recent tire price increases in this environment, where gas, food, and other prices are also higher there has been sticker shock.

Being that tires are a safety issue and a need based on where and mileage, we believe that the level of deferrals has increased significantly and that reversal of this trend should positively impact sales the second half of fiscal 2013.

We continue to promote sales in key categories through specific programs, such as Oil Change and More, in which our customers receive free tire rotations and brake inspections with the purchase of an oil change. And Brakes Forever, in which we guarantee brake pads for the life of the car and replace pads for only the cost of labor. We believe that these initiatives continue to create value for our customers and build trust and are particularly important during tough economic times like these.

Turning now to our growth strategy. We continue to be focused on increasing our market share through same-store sales growth, opening additional new stores in existing markets, and acquiring competitors at attractive valuations.

We expect moderate organic sales growth for fiscal 2013 as a result of continued pressure on consumers. However, we believe that we are well-positioned to take advantage of additional acquisitions and attractive valuations. We have been accelerating these acquisitions so far in fiscal 2013 with compelling opportunities that fit right in our wheelhouse.

Importantly, these acquisitions will further expand our market share and our operating leverage, positioning Monro for continued profitable growth. We will continue to pursue these transactions in a very disciplined manner.

Regarding discipline, as you are aware, we were involved and have vigorously analyzed the potential of purchasing Midas. In the final analysis, we determined that the price was too high and the risk versus reward too great.

Now turning to our more successful recent pursuits. With the $9 million in annualized sales from the Terry's Tire Town acquisition in October 2011, plus the $36 million in annualized sales from the Vespia acquisition in June 2011, Monro added $45 million in annualized sales or 7% acquisition growth in fiscal 2012.

We're very pleased with the results we've seen thus far from these acquisitions as sales and earnings from these stores have been better than expected. Vespia was slightly accretive in fiscal 2012 and the Terry's Tire Town stores are on track to be slightly accretive in the first 12 months of ownership, ahead of plan.

We remain focused on executing our longer term business plan, which includes pursuing growth through acquisitions at an accelerated pace during periods of slow organic growth. 2013 has already started off as a strong year in this regard.

As mentioned in our press release this morning, we completed the acquisition of Kramer Tire on April 1, representing approximately $25 million in annualized sales which is expected to be slightly accretive in fiscal 2013. This acquisition adds 20 locations to our existing 17 locations in the Norfolk, Virginia market, giving us number one market share in that region.

We also expect to complete the acquisition of 18 retail stores from the Colony Tire business on June 2, representing an additional $25 million in annualized sales and expanding our presence in North Carolina.

This represents a combined total of $50 million in incremental annualized sales so far in fiscal 2013, or 7% acquisition growth.

Additionally, we have signed a Letter of Intent on one more similarly sized transaction that we anticipate closing in the second quarter, which would bring acquisition growth so far in fiscal 2013 up to double digits on a run rate basis.

Overall, we continue to pursue value-priced accretive bolt on acquisitions to further fill out our footprint and potentially expand into new markets as we position the Company for longer term growth. We're seeing more opportunities for attractive deals than we have in the past several years, due to the increasing difficult operating impairment, cost pressures and growing seller concern over potential future income and capital tax gains increases.

In fact, we presently have seven NDAs signed, up from six last quarter, after having completed one of those acquisitions and discontinuing discussions on another two. We have plenty of liquidity and strong cash flow to complete these deals. We remain very disciplined on the prices we will pay and believe that this is an extremely favorable acquisition environment that will continue through calendar 2013.

I'd now like to briefly discuss our outlook on the environment and industry prospects. As I've discussed, higher year-over-year gas and food prices and high unemployment continue to negatively impact consumer sentiment and purchasing behavior, which affects Monro as a service and retail business, as well as the whole industry.

These factors also negatively impact miles driven although miles driven are now on older vehicles, which offsets this impact to some extent. However, as we have always said, the good news is that our services and products are a need not a want purchase and we have been able to support higher sales prices through convenience, advertising, and store execution.

Significantly, we've had nine consecutive years of averaging approximately 17 million new cars sold through 2007, which has grown the number of vehicles in our sweet spot which is four to 12 years to an all-time high. Plus in our view, the 14.5 million new car sales projected for calendar 2012 will not dent the growing age of the average vehicle in the US fleet, now at a record 10.8 years which is driving our business forward.

In short, we believe the long-term trends for our business are still in place and remain very favorable, notwithstanding occasional short-term choppiness.

Let me now turn to our outlook for fiscal 2013. As we discussed, the first quarter of fiscal 2013 has started off lousy. April and May comps are down 7 versus up 1 last year. Both of these seven weeks, comp store oil changes are up 1% but our key sales categories are down, which indicates that consumers are still visiting us for basic maintenance but deferring larger purchases. Again, because consumers eventually have to get these needs addressed, we would expect our traffic and sales trends to improve significantly in the coming months.

For the first quarter overall, we expect comparable store sales to decline in the range of 5% to 7%. As a reminder, we're up against approximately 2% comparable store sales gains in the prior year first quarter. We expect first-quarter earnings per share to be in the range of $0.35 to $0.40 which compares to $0.48 for the first quarter of fiscal 2012.

For the full year, taking into account sales contributions from our first -- from our [two first quarter] as well as pending acquisitions, we expect total sales to be in the range of $750 million to $775 million in comparable store sales to be in the range of flat deposit of 3% adjusted for days. Additionally, we estimate fiscal year EPS of $1.65 to $1.85 which compares to EPS of $1.69 in fiscal 2012 or EPS of $1.65, excluding the estimated $0.07 benefit for the 53rd week and the $0.03 in due diligence costs charges for the Midas deal.

We expect comps will improve but remain under pressure through the first half of the fiscal year and rebound strongly in the second half of fiscal 2013 as we were up against flat comp store sales over this period.

As we move through fiscal 2013, we anticipate that we will have improved performance as customers turn to us for purchases that have been deferred. We expect gross margin in fiscal 2013 will remain under pressure, particularly in the first two quarters, due to oil and tire cost increases partially offset by increasing our direct to importing of parts and tires throughout the year.

While we continue to carefully manage costs, we expect that weak comparable store sales and effective fiscal 2012 was a 53-week year will offset further SG&A cost leverage provided by our acquisitions. With that said, we believe that we have not seen a better environment for accelerated growth through accretive acquisitions than we're seeing currently.

While recent trends have been challenging and we are more cautious near term as a result of the previously mentioned macroeconomic issues, our long-term confidence in the business and outlook for our industry and Company remains very positive. There's still 240 million cars on the road in the US that are getting older, consumers still can't work on these vehicles. The number of overall service phase is decreasing and independent tire dealers we are looking to acquire are getting older, finding it increasingly difficult to compete and worrying more and more about taxes.

Importantly, we remain confident that fiscal 2013 will be a year like we saw back in fiscal 2008 where weaker sales trends, economic issues and higher costs set the stage for accelerated acquisitions, which pays dividends in fiscal 2009 to 2011. This will allow us to leverage both our business model and further improve our position as a low-cost trusted service provider to continue to grow the business and enhance shareholder returns.

In this regard, we are pleased with the increase in our quarterly dividend that we announced this morning, which is our seventh increase in the last seven years. This increase is a reflection of our financial strength which allows us to invest in continued growth while returning additional value directly to our shareholders as well as the Board's continued confidence in our long-term strategic plan and financial prospects.

Looking over the longer term, nothing has changed in our view. Our five-year plan continues to call forth on average 15% annual topline growth, 10% through acquisitions, 3% to 4% comps, 1% to 2% greenfield stores. The acquisition growth will break even in year one, the $0.08 accretive year two and add an additional $0.08 year three. Over the period, this should improve our operating margins approximately 300 basis points and deliver an average of 20% bottom-line growth.

Prefer turning the call to Cathy, I would again like to technology each of Monro's 5,300 employees, our performance as a direct result of their ability to execute well and consistently provide excellent service to our loyal customers. Particularly as we enter a very challenging year we remain steadfastly focused on growing the business both organically and through acquisitions, executing on operational initiatives, protecting our position as a low-cost operator, and capitalizing on favorable industry trends despite the challenging macro environment. I believe that we are well-positioned for the long-term profitable growth and I'm confident that fiscal 2013 will continue to move us forward.

With that, I'd like to turn the call over to Cathy for a more detailed review of our financial results. Cathy?

Thanks Rob. Good morning, everybody. As Rob stated, sales for the quarter increased 13.9%. New stores which we define as stores opened after March 27, 2010 added $11.5 million in sales. Partially offsetting these increases was a decrease in sales from closed stores of approximately $1.5 million. Comparable store sales increased 7.4%. There were 97 selling days in the current fourth quarter and 91 in the prior year quarter. Adjusting for days comparable store sales increased 7/10 of a percent as compared to the prior year quarter when we were at 3/10 of a percent.

Year to date comparable store sales increased 2%. Additionally there was a sales increase of $38.4 million related to new stores. Partially offsetting the sales increase was the decrease in sales from closed stores amounting to $4.5 million. Fiscal 2012, as Rob stated, was a 53-week year and, therefore, there were 368 selling days as compared to 351 selling days in fiscal year 2011. Adjusting for days, comparable store sales increased by 1/10 of a percent in fiscal year 2012.

Moving on, March 31, 2012 the Company had 803 Company-operated stores as compared with 781 stores at March 2011. During the quarter ended March 2012 the Company opened two stores and closed two stores. Year to date, the Company added 36 locations including 23 Vespia and seven Terry's Tire Town stores, and sold or closed 14 locations which include the sale of the seven Long Island stores earlier in the fiscal year.

Gross profit for the quarter ended March 2012 was $66.5 million or 38.7% of sales as compared with $60.4 million or 40.1% of sales for the quarter ended March 2011. The decrease in gross profit for the quarter ended March 2012 as a percentage of sales was due to several factors. Total material costs increased as a percentage of sales as compared to the prior year.

As Rob discussed, the Company experienced significant increase in oil and tire costs as compared to the same quarter of last year. And for competitive reasons the Company elected not to pass through certain of these cost increases, resulting in gross margin percentages below prior year levels.

The shift in mix and higher margin categories such as brakes which had comparable store sales increases in the quarter helped to slightly offset the effect of tire and oil increases, as did cost reductions obtained through the use of lower-cost direct import products.

Distribution and occupancy costs which are a component of cost of sales decreased as a percentage of sales from the prior year as the Company with higher overall sales was able to better leverage these larger fixed costs.

Labor costs also decreased as a percentage of sales as compared to the prior year, largely due to better control of payroll and improved labor efficiency as measured by sales per man hour.

For the full year, gross profit was $276.4 million or 40.3% of sales as compared with $257.5 million or 40.4% of sales for fiscal 2011. The year-to-date improvement -- slight improvement in gross profit is largely due to leveraging of fixed distribution occupancy costs against higher sales this year as well as decreased labor costs partially offset by increased material costs.

Moving on to operating expenses for the quarter, they increased $3 million [in reporting $9 million] or 28.6% of sales as compared with $46 million or 30.5% of sales for the prior year quarter. When we remove the sales and operating expenses related to the extra week, operating expenses were 29.4% of sales for the quarter as compared to 30.5% last year. The 110 basis point improvement in operating expenses as a percent of sales is largely due to focused control -- focused cost control on higher sales.

Direct store expenses related to the fiscal year 2011 and 2012 acquired stores accounted for the bulk of the increase in dollars spent as compared to the prior year. Expenses related to these stores increased operating expenses by $2.5 million out of the $3 million increase for the quarter.

Operating expenses for fiscal 2012 increased by $5.9 million for the full year to $185 million from fiscal 2011 and were 26.9% of sales as compared to 28.1%. Removing the extra week, operating expenses were 27.2% of sales versus 28.1% since last year or a 90 basis point improvement.

Operating income for the quarter ended March 2012 of $17.5 million increased by 21.2% as compared to operating income of approximately $14.4 million for the prior year quarter ended March 2011, an increase as a percentage of sales from 9.5% to 10.2%. Operating income for fiscal 2012 of approximately $91.4 million for the full year increased by 16.6% as compared to operating income of approximately $78.4 million for fiscal 2011, an increase as a percentage of sales by 100 basis points from 12.3% to 13.3%.

Net interest expense for the quarter ended March 2012 increased by $0.3 million to $1.6 million and was relatively flat at 9/10 of a percent as a percentage of sales for the same period in the prior year. The weighted average debt outstanding for the fourth quarter of fiscal 2012 was flat as compared to the fourth quarter of last year; however, the weighted average interest rate increased by approximately 200 basis points from the prior year due to a shift to a larger percentage of debt, that being capital leases versus revolver debt at a higher rate.

For fiscal 2012, weighted average debt decreased by approximately $12 million and the weighted average interest rate increased by approximately 180 basis points.

The effective cash rate for the quarter ended March 2012 and 2011 were 34.9% and 37.7%, respectively, of pretax income. The difference in rate relates to the accounting for uncertain tax positions which may vary from quarter to quarter and year to year. The effective tax rate for the full fiscal year was 37% as compared to 38%, respectively, of pretax income last year.

Net income for the current quarter of $7.5 million increased 27.3% over net income for the prior year quarter. Earnings per share on a diluted basis of $0.33 increased 26.9% over last year's $0.26.

For the full fiscal year, net income of $54.6 million increased 19.1% and diluted earnings per share increased 17.4% from $1.44 per share to $1.69.

Moving on to our balance sheet, it remained very strong. The current ratio 1.2 to 1 is comparable to fiscal 2011 year end. In fiscal 2012 we generated $83 million of cash flow from operating activities and paid down $9 million of debt. In addition, we financed the purchase of Vespia Tire in June 2011 which, as Rob mentioned, added 23 stores and $36 million of annualized sales, as well as the purchase of Terry's Tire Town in October 2011 which added seven stores and $9 million of annualized sales.

As a result of the debt paydown, our debt to capital ratio including capital leases decreased to 14% from 16% at fiscal 2011 year end.

At the end of our fiscal year, long-term debt consisted of $5 million of outstanding revolver debt and $50 million of capital leases.

As a reminder we have $175 million revolving credit facility with a group of lenders that is committed through June 2016. Additionally, we have a $75 million accordion feature included in the agreement. The agreement bears interest at LIBOR plus a spread of 100 to 200 basis points and we're currently paying LIBOR plus 100 basis points. This flexible agreement permits us to operate our business including doing acquisitions without bank approval as long as we're compliant with debt covenants, which we are fully compliant.

Those terms as well as our current availability of $131 million which doesn't include the accordion give us a lot of flexibility to get acquisitions like Kramer and Colony done quickly. We have plenty of room under our financial covenants to [do] these and other acquisitions without any problem.

During the fiscal year we were also conservative with CapEx spending at about approximately $29 million including $23 million of maintenance CapEx. The fiscal 2012 acquisitions used another $39 million of cash. Depreciation and amortization were approximately $24 million and we received $3 million from the exercise of stock options. We paid about $11 million in dividends.

Inventory is down about $2 million from March 2011 due primarily to reduced tire purchases in an effort to rightsize stocking levels in the stores as well as improve inventory turns. We are pleased that we're able to reduce overall inventory levels in spite of vendor price increases in oil and tires as previously discussed and the addition of inventory for the fiscal year 2012 acquired stores. Additionally, we added parts inventory in an effort to improve stocking levels and the mix of inventory to reduce outside purchases [far] ahead of cost increases and ensure adequate supply for longer lead time for foreign purchases.

Expanding on the guidance for our fiscal year 2013, which includes the expected results and current and pending acquisitions, as Rob said we expect sales in the range of $750 million to $775 million. This reflects 0 to 3 comparable store sales adjusted for days.

Given our wide range in the earnings per share estimate I am going to discuss guidance at about the midpoint of the range or $1.75 EPS. Operating margin is expected to decline 75 to 100 basis points. We're estimating at this point that gross profit will decrease about 50 basis points and SG&A will increase by about the same. This factors in sales increases coming from both comp store increases and acquisitions.

It also factors in some integration costs and losing some leverage in going from the 53-week to the 52-week year. Again, at about the midpoint of our range for the full year fiscal year 2013, interest expense should be about $4.5 million, EBITDA should be about $120 million, depreciation and amortization should be about $26 million, CapEx should be approximately $20 million with maintenance CapEx around $19 million. The tax rate should be about 37% for the full year with some fluctuations between quarters.

That concludes my formal remarks on the financial statements but I wanted to talk with you about some planned selling activities we expect from officers and directors. A few will be selling at some point prior to the end of our fiscal year, new fiscal year, in connection with exercising expiring stock options and for tax and estate planning purposes.

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

(Operator Instructions). Bret Jordan, BB&T Capital Markets.

Hi, good morning. (multiple speakers). A couple of quick questions and I guess one of them as you look at the first quarter to date, you talk about a -7 comp in the seven weeks. Can you give some color on the cadence of that -- was that a trend that is improving from something worse than that or is it generally flat April to May?

We're fairly consistent. May started out worse than April and -- but for all of our long-term investors, the last four days have been a lot better.

Okay and I guess if you look at price year over year, you typically took price in April and September although it looked like you took a couple of price increases you said January and March this year. What is the price strategy? Did you take price again in April on service and what was the impact of price versus traffic on that comp?

We took -- Bret, this is John. We did take price on tires and service in March at about that 2% that we typically take it. So, we obviously, this year, priced -- was more influential than traffic. Our traffic was down slightly for the year so --.

Okay and I guess if we look at the fourth quarter that 2% tire comp, what was the unit comp? I guess because it seems like a lot of that positive was in price as opposed to the units. Do you [look] feeling for the unit transactions?

Yes, that was the units were down to mid- to high single digits.

Okay.

So it was (technical difficulty) [all priced].

And I guess as you look at your guide on comp this year the 0 to 3% -- is that assuming a price increase coming in the September cycle as well?

Yes, absolutely.

Okay, great, thank you.

Scott Stember, Sidoti & Company.

Good morning (multiple speakers). Just talking to sales so far in the first seven weeks. Could you maybe talk about the individual higher ticket items such as brakes and tires? Is there one that's leading the path down or are they pretty much all down in that 7% range?

Yes, it consistently sucks.

Okay (laughter) and can you talk about (multiple speakers) --

Again, the last four days, Scott, are a lot better.

Can you talk about the competition particularly on tires what you're seeing fourth quarter into the first quarter? Have you seen any heightened competition and when you mentioned your comment about raising prices in September, was that for tires as well?

Yes, in terms of competition, I can -- the tire manufacturers have said that their units year to date, which is calendar year to date are down mid- to high-single digits. So we're basically in line with that. And all the guys that we're looking to buy are experiencing very similar sales trends to what we are. So we don't see that we're losing share. We just think it's kind of (expletive) everywhere. And you know in terms of September and the price increases, we look for whatever opportunities we have to increase the tire prices because the costs continues to rise. So we would absolutely look at what we can do in September on service and tires.

So if one was to go to the lower end of your guidance would that probably assume you had some trouble putting through prices on tires?

I'm sorry. Say that again, Scott?

If we were looking at the lower end of your guidance would that assume that you would have trouble putting through prices?

No, I think -- don't look at the lower end, you're going to make me cry. I would think that like this year our tire sales were certainly -- the unit decline was compensated by collecting more for a retire and I would expect that to continue going forward. I think there's more risk in the near term on traffic and people continuing to defer.

Okay. Good enough. Just last question. With oil prices going up and being a headwind for you guys, could you maybe just frame out the number of oil changes you do per year so we could just get an idea of what you have to contend with?

About 2.5 million and approaching 4.5 million overall vehicles a year. 2.5 million oil changes, Scott.

That's all I have, thank you.

Peter Keith, Piper Jaffray.

Hi. Good morning to everyone there. Rob, I guess I'm a little bit confused still on the deceleration here in the last few months. You're citing some inflationary pressures with oil and food but, in reality, gas prices have been have been coming down the last few weeks -- are actually kind of running now flattish to down year on year. So it just doesn't seem like there's been any sharp inflection on consumer pressure.

I guess I'm wondering maybe is there some sort of delayed effect from the mild winter that's maybe caused less wear and tear and therefore less service work here in recent months.

You know, it could be --. I certainly have a different view and I think we'll see what other retailers and other categories say going forward. I think certainly they reported a weaker April. I think things -- irrespective of saying gas prices are flat with last year and down a little bit over the last two weeks, that most consumers are stretched and are not in a very strong position, irrespective of what all the people that make $0.5 million say they are. I think if you're making $50,000 to $100,000, that it's not a question of whether gas prices are $4.00. It's costing me $50 to fill up when three months ago it cost me $40. And I think that's a big factor.

You know, more than happy to blame it on weather. But I think weather is going to benefit us the end of this year and I'm probably not going to give weather credit for our great numbers.

You know, weather is going to occur. I think the economy is weak. I think it was weak last year to your point and it's been weak for a while and I think retail, in general, is going to continue to be weak, regardless of what all the brilliant pundits say.

Fair enough. It sounds like you've addressed some of the share in tires and sounds like everyone is weak in the industry. How about with some of the other product services? Do you have any other competitive comparisons to suggest you're maintaining share in those areas?

Well, I mean, what we know certainly on brakes in Q3 and Q4, that was strong performance compared. As far as April and May, we don't know -- I mean there, you know, was a public company that was going private that now we'll see if they do came out with, you know, some indications that weren't stellar. You know, but until everyone reports we don't know I think some of the parts guys expressed similar concerns on replacement parts and wear and tear but, again, we're focused. We don't think we're losing share. We don't think we're underperforming and our job is irrespective of weather and irrespective of the consumer figuring out ways of making more money, and the most important thing to us while you might not want to hear it, if I can sign up for a year like we're telling you this year is going to be and grow acquisitions 20%, you know, it certainly served this Company and shareholders well for three years following us getting that kind of acquisition growth done.

The industry is strong and deferrals will come back, and it will snow again in Rochester, New York. I'm a lot more concerned about what our Company can do to make the most of what's going on out there. And right now, I think John and his team are making the most out of getting a lot of acquisitions done at attractive prices that will be accretive quickly and that's a pretty good trade-off for our business.

Okay, that's helpful. And one last question, too, on an unrelated note. Just on the gross margin, speaking about the cadence on your gross margin through the year, I was having a little bit of difficulty getting to your Q1 EPS guidance. Unless I am crushing gross margins, it looked like gross margins was going to be -- pressure was going to be quite heavy in the first half and maybe kind of flatten out or get better in the second half?

Yes, that's absolutely how we see the year. Tires and oil in the first part of the year will be a drag and as we have said, we would expect tires, pending any other cost increases that come through, to improve in the second half of the year and oil as well. In fact, we so many of the acquisitions we've gotten done have given us the opportunity to revisit our oil deal which we are doing right now, and we would expect any benefit from that to help the second half of the year.

Okay, thank you very much and good luck with the coming year.

Jon Greenbaum, GoldenTree.

I was wondering if you could please comment on the cadence that you see for same-store sales performance throughout the year. So you provided guidance for Q1 and for the full year. Obviously, that implies some sort of ramp, some sort of improvement in Q2 through Q4. I was hoping perhaps you could provide a little bit more detail there.

I think Q1 will be our worst, Q2 will be our second worst and Q3 and Q4 will be our best tied to the fact that we're up against flat comps with absolutely no winner and ridiculously weak unit sales of tires. As far as getting more specific, you know, I don't know what tomorrow's sales are going to be.

Okay, is it safe to say also following up on the previous question that margins will largely be tied to the cadence of same-store sales?

Sure. Obviously we generate a lot of leverage in our business model and part of the weakness, even though we got to 17% bottom-line growth this year on relatively flat comp store sales was generated from all the operating margin improvements we picked up through the acquisitions and the leverage of what occurred over the last three years, comp store sales are the most profitable sale we can have. And the acquisitions absolutely help sales, absolutely help operating dollars and gross margin dollars.

But remember we have to sell through higher-priced inventory, due diligence costs are now expensive recorder and all of that is incorporated in our estimates of making this year, having the sales line growth significantly while still being under pressure on the operating margin percentage. But certainly significantly increasing operating margin dollars.

Okay. Shifting gears, my last question is could you give us a sense of the type of tires you guys are selling, the sort of ASPs you're generating, what brands are selling more than others? Just I guess some additional details around the tire business.

Sure, the average selling price is up this year. And we are seeing a shift to more private-label tires as customers trade down and, frankly, as we push that as a part of increasing the direct import program. Coming into fiscal 2013, you will see us put the low-cost radials or low-cost tires that we import out to all of our service stores. Previously they were only in about half of our service stores and those were the Black Gold service stores and we are also bringing in -- that's under way at the end of last fiscal year so March, April and into the first-quarter timeframe.

We're also bringing in another line of import tires that we expect to put into our product stream as a first step up and that would be taking away from larger manufacturers' associate brands, and buy that for less, sell it for the same and get that margin improvement.

All of that represents a value for the customer in a tough economic time for them. And that's -- so notwithstanding the cost benefits for us, we think that there's a greater opportunity to make sales there as well.

Okay. Sorry, so just to be clear you said that you're seeing an increasing shift into private-label but then you also said your ASPs are up. I would assume that the private-label tires carry lower selling prices. So does that mean that the sort of price increase you're pushing through is overwhelming the negative mix shift? Am I understanding that correctly?

Well, the mix shift is not huge. We saw about a 5% mix shift this year into the private-label tires. So our average selling price was up around $10 this year, net of that shift in the mix.

(Operator Instructions). Sachin Shah, Tullett Prebon.

Hi, good morning. So, I think I missed your comments on April and May and how well that is going.

Lousy.

Lousy, okay. Is it because of all these other conditions -- mild weather, gas prices still high, the weak consumer or is it some other reasons that you're seeing this kind of follow through from fiscal fourth quarter?

I don't think there is anything fundamentally wrong with the industry or our offering. I think you can look to weather, you can look to a consumer that's pulling back. I think all of us in the category are seeing it and I think you will if you haven't seen it already will start to see it in retail in general.

You know, my view is that the consumer is in worse shape than we want to believe and that will run its course. The good news for us is you have to buy our stuff. You don't want to buy our stuff, you don't come home and you're excited about your new brakes or your new tires. But you absolutely need them and if you want to run your vehicle and people -- a certain group will move into buying new cars.

Most people, though, it is a certain piece of the middle class are now buying new cars. Most people, if they are going to start doing better, are going to repair their older cars which sits in our sweet spot. So you know, I think April and May at this juncture were worse than we'd expected and I commented that as bad as, you know, start to a quarter I've seen in my 12 years here. I do not expect them to continue but you know it's probably not like turning on the faucet. It will get progressively better and we're much more encouraged on the second half of the year then we are certainly in the first quarter.

Okay, and that's the reason why you've kind of guided below kind of consensus, is what consensus was expecting for fiscal 2013 is you're expecting the second half to be stronger than the first half and the first half to be a little bit weaker than you expected or -- it seems like the market was expecting before?

Well, I think as far as what we said to the market, we hit our numbers for the fourth quarter and the full year. Certainly, I think the market, as well as us being surprised in the beginning of April and May, did not like those numbers. I think the reflection in our estimate for the year is totally encompassed in a first quarter that if you're referring to consensus had a 5 in front of it. We did $0.48 last year and we said we're going to $0.35 to $0.40 in the first quarter with six weeks of information. There is the difference between everyone's annual numbers and what we are guiding to.

Okay, you mentioned earlier about Midas and Midas was taken private. You have another deal, Pep Boys in the stages of going private itself. And when you said that price was higher than what you thought it was worth, and that was based on specific valuation or the synergies you expected? And just curious to find out like another transaction. Pep Boys is going private. Any comment on that?

If people see value -- I was just kind of curious to see how you measure value and the fact that some of these companies are going private.

We measure value on what we can do with the business.

Okay.

I mean, no one has the parts distribution network we have. The flexibility and ability to go overseas and start bringing products in, that distribute to their own stores, that have our level of store density that have the growth prospects to operate.

As far as the Midas stores no one has the breadth of experience running service stores the way we do. You know, as far as how someone else comes up with value and justifies paying a given price, we certainly -- we're not involved in the Pep Boys deals. We said we were involved in the Midas deals and you can assume our assessment of value in the Midas deal was significantly different than the [$11.50] that got it done.

Bret Jordan, BB&T Capital Markets.

Hey Rob, a couple quick follow-ups and one's on the acquisition pipeline. You said you've got seven non-disclosure signed now so I guess that's net up one and you'd call a couple out. What's the environment looking like here? You have seen the Midas deal go off. And is valuation expectation getting higher or lower given the fact that some of the M&A transactions are accelerating this year or --? And if you could talk sort of regionally, are you looking in different markets than you were previously and what kind of size range are we talking about amongst that seven?

Bret, this is John. You know, in short, the acquisition pipeline is better than it ever has been. The seven that we talked about, the seven NDAs we talked about, don't include Colony and don't include the LOI we expect to close in August. So if you want to do same numbers or same numbers that would be more like nine, if you include those. So we added four since January and, again, the pipeline's never been better.

The reasons for that are these guys are getting older, they don't have a succession plan, the business is getting more difficult again with the tire costs pressures that we have. These guys are all 45% to 65% tires so even higher than we are, and they don't have the ability like we do to increase the direct imports. The business is tougher to run and they are very concerned and getting more and more concerned about taxes.

The rest of this calendar year and certainly next calendar year from an opportunity perspective, five of those seven NDAs are within our footprint. Two are adjacent to it, and so, we look for continuing to look within our footprint and adjacent as we always have to focus on that store density that Rob just talked about that's key to operations and key to distribution. And from a valuation perspective we are certainly not seeing that go up. That's coming down, because these guys are earning less money and that's one of the (technical difficulty) one or two more at the higher end of that.

Okay and I guess as you look at -- you revisit in the Ashland the oil contract, how much room is there to move what has oil done in the terms since you renegotiated that contract last?

Well, I guess our view of it is that there is more room to move than they think there is but we think that to be a seven-figure improvement for us. But we'll let you know when we get there.

Okay, and one last question. As you look at inventory, this strategy you are going through right now rolling tires out to all the stores, is that going to materially increase the inventory since you can hold more rubber at the store level?

It will have some increased impact on inventory but not material. And don't forget we borrow at 100 basis points over LIBOR so we've got an awful lot of capability there to borrow inexpensively and get significant cost improvements.

And that's going to be a private-label tire strategy you're going to put into the stores?

Yes. In that it's not a Monro Muffler Brake branded tire but --.

Right but it's something you're direct sourcing?

Yes.

And from whom?

From a high-quality manufacturer over there. I don't want to give everybody all the answers.

All right. Okay, thank you.

Rob Straus, Gilford Securities.

Hi guys, thank you for taking my question. Regarding the acquisition front, if you think about the specific valuations for those smaller chains and, importantly, whether or not you're seeing incremental bidders for those smaller chains can you give us some detail there and then as a follow-up and related to that question, can you discuss a little bit your thought process on your capital structure and how you're willing to flex that for acquisitions in the future?

Sure, with regard to competition for the deal that were in, then we haven't seen any increase in competition on deals and over the 18, 19 deals we've done in nearly every single case we have been the only competition we've had is the sellers expectations, you know -- and the process for us is to see if we can bridge their gaps. So we haven't seen that and we're in exclusive discussions with most of these guys.

As far as the capital structure, Rob, we believe in the dividends to give money back to shareholders. That being said, we are a growth company. We think the prospects for growth especially over the next couple of years are massive, especially based on how small we still are and we, certainly over the years if you remember around Cash For Clunker time whenever the stock gets ridiculously stupid we stepped into the market twice to do a stock buyback. If we think the value to our shareholders is there, we -- if you back out our capital leases which five years ago wouldn't even be on the books, we have what? $5 million of debt on a $300 million base or our debt to capital is like 2%, 14% if you include all the capital leases. So we have plenty of room to do while in need to do.

The most attractive thing for us to do today is to continue to buy companies at the right price, plug them into our business model and prove they're operating model by 800 to 1,500 basis points. In every case improve our size and improve our earning margin, improve our store density and our position within the market. And remember right now, with the Kramer deal, I think we're at 820 stores. We can still get three times bigger and not leave the footprint we're in. That is the most attractive use for capital.

Thank you very much and good luck.

[David Levy, Synvest].

I'm pretty new to the story. So I just wanted to know if it's always been Company policy to include deals that haven't closed yet in the annual guidance or if there's something new that you guys are doing.

Only deals that we are sure are going to close.

Okay and you said the timing of the deal that hasn't closed yet is for August?

Second quarter.

And have you told us how large the deal is supposed to be in terms of revenue contribution?

We said it was a similar size to the two we announced.

So, around $25 million annualized?

That would be a similar size.

Thank you.

(Operator Instructions). Matthew Dotson, Edmund White Partners.

I just have one quick question for you. It seems like your guidance is based on customers who were deferring tire purchases actually coming into stores and sequentially actually needing to get their tire changed but can you help us understand why that's going to happen and why can't they push that out maybe to like the winter season?

They can. I mean, we certainly have said we wouldn't have predicted what April and May did. That being said prior to this year we didn't predict three straight years of 6% comps under the same guise of people during that whole period. We thought we were up against tough numbers and people weren't going to be able to buy year-over-year at that rate. If we run a -3 comp, we're wrong and we don't hit our numbers.

You have no additional questions. I would like to turn the conference back over to management for any additional or closing remarks.

Great. Thank you, everybody, for your time and I know that the call ran a little bit long but it's important to fill you in with everything we know and appreciate your continued support and look forward to giving you better results in the future. So with that, have a great weekend and Memorial Day. Bye.

Thank you. Again, ladies and gentlemen, that does conclude today's presentation. Thank you for your participation. You may now disconnect.