Monro Inc (MNRO) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake's earnings conference call for the fourth quarter of FY14.

(Operator Instructions)

And as a reminder, ladies and gentlemen, this conference call 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. Leigh Parrish 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 press 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 stores are located; and the need for, and costs associated with, store renovations and other capital expenditures. The Company undertakes no obligation to release publicly any revision 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 constitute an admission by Monro, or any other person, of the events or circumstances described in such statements are material.

Joining us for this morning's call from management are John Van Heel, President and CEO, Cathy D'Amico, CFO and Rob Gross, Executive Chairman. With these formalities out of the way, I would like to turn the call over to John Van Heel. John, you may begin.

Thanks, Lee. 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 FY14 performance. After some brief opening remarks, I will review our results for the quarter and then provide you with an update on our key initiatives and outlook for the 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.

As we look back at our performance throughout FY14, I am pleased with our team's consistent execution of our proven strategies and the initiatives that enable us to remain an industry leader in any macroeconomic environment. Throughout the year, we continued to deliver on our key objectives of increasing traffic, expanding gross margins through lower product costs, carefully managing operating expenses, and driving strong sales and earnings contributions from recent acquisitions, while capitalizing on opportunities to complete additional acquisitions at attractive prices.

As a result, we were able to deliver record fourth-quarter sales and net income, with operating margin expansion of 260 basis points, and bottom-line growth of 47%. Further, full-year sales were a record $831 million, an increase of 14% versus the prior year, and we generated net income growth of 28% to $54.5 million, and 140 basis points of operating margin improvement. Importantly, we were able to deliver robust profit growth for the fourth quarter and full year in the face of a difficult consumer spending environment. Fourth-quarter comparable-store sales were down 1.3%, while full-year comparable-store sales were down 0.5%.

While we saw some weather related disruption to our business in the fourth quarter, we are not complaining about it. We see -- we expect to see the benefits of last year's harsh winter throughout this year. Both fourth-quarter and full-year results reflect pressure on comparable-store tire sales, due primarily to consumers continuing to trade down from higher-priced tires, which is why comparable-store tire units were up 1% for the year, while comparable-store tire sales were down 1%. This reduced our overall reported comparable-store sales by approximately 1% throughout FY14. Yet, we were still able to grow tire margins during the year.

For the full year, we experienced a 1% increase in oil change units, which resulted in higher overall comparable-store traffic. We also experienced comparable-store sales increases of 1% for brakes, exhaust and shock sales, offset by lower comparable-store sales in maintenance service and tires. We continue to see consumer acceptance of our broader tire assortment, with comparable-store tire units up 1% for both the fourth quarter and fiscal year.

In FY14, we generated significant improvement in gross margins, with an increase of 190 basis points in the fourth quarter, and 50 basis points for the full year, despite a shift in sales mix for the lower gross margin tire category for the year that primarily reflects the higher tire sales mix of our recent acquisition. As we have previously discussed, since the elimination of the tariff on imported tires a year and a half ago, we have received reductions of at least 20% in import tire costs and mid- to high-single-digit reductions in branded tires.

We have taken a proactive approach in pursuing lower tire costs from both direct imports and branded suppliers and we continue to take advantage of the significant increase to our purchasing power that has resulted from our recent acquisitions. As a result of continuing moderation in tire input costs, increasing penetration of direct imports and increasing production among manufacturers, we expect a favorable cost environment to continue in FY15, and our tire costs to continue to decline. As a reminder, these costs reductions flow into our cost of goods sold as our tire inventory turns.

As I noted, we continue to see budget-conscious consumers delaying purchases and trading down from higher-cost tires and services. Customers remain under pressure and are increasingly looking for value, particularly in tires, which remain a significant purchase.

We have effectively managed our business to meet our consumers' needs by expanding our tire assortment to provide additional value-oriented options and we are very pleased that consumer acceptance is ahead of our expectations. In fact, we saw the penetration of direct imports increase to over 35% of tire units sold for the fourth quarter and 32% for FY14, versus mid-20% in FY13 and mid-teens three years ago.

This trend has supported increases in tire unit sales while allowing us to expand our margins and gross profit dollars per tire and we expect that we will get to a 40% penetration rate in FY15. The on going benefits of -- from our tire supply programs and our retail pricing discipline allowed us to collect more average gross profit dollars per tire in the fourth quarter than any other quarter of this year. We expect to see that continue in FY15, assuming a relatively stable pricing environment with the greatest benefits in our first and second quarters.

We are pleased by our ability to continue to carefully manage costs while appropriately investing for growth. For the fourth quarter, total operating expenses as a percent of sales decreased to 27.4%, as compared to 28.1% the previous year. And for the full year, total operating expenses decreased to 27% of sales as compared with 27.9% in the prior fiscal year.

Our fourth-quarter and fiscal-year results reflect leverage from our higher overall sales combined with our cost control initiatives. In FY14, we generated significant earnings growth on slightly negative comparable-store sales, due to the flow through of lower product costs, improvement in the performance of recent acquisitions, and disciplined cost control.

Based primarily on the continued reduction of product costs we expect in 2015 and current costs control measures that we have in place, we expect to be able to deliver earnings growth on a 1% comparable-store sales increase, a lower threshold than the 2% to 2.5% comparable-store sales increase we have needed to achieve in prior years. We are also pleased by the recent positive comparable-store sales trends in our business, and remain very optimistic that the hash winter weather will serve as a tailwind throughout FY15.

Quarter-to-date sales are up approximately 2% on positive traffic, positive oil changes, positive tire units, and comparable-store sales increases in key service categories such as brakes and alignments, which are up a combined 9%. Trade-down continues to mute our reported comparable-store sales in tires, which are down 2%, though on average we are making higher margins and more money on each unit sold than in the prior year. We believe these positive sales results primarily reflect the harsh winter we just experienced, while still reflecting a consumer who remains pressured, with referrals remaining higher and longer than normal.

We believe that the consumer remains a sales opportunity as the year progresses. Additionally, as FY13 acquisition stores are now part of our comparable-store sales base, and given that we have moved through much of the integration process last year, these stores also represent upside to our current comparable-store sales run rate this year.

Turning now to our growth strategy, we remain focused on increasing our market share through comparable-store sales growth, opening new stores in existing markets, and acquiring competitors at attractive valuation. Through our successful acquisitions, we are operating with greater economies of scale that are benefiting us today and positioning us -- and positioning the Company to deliver strong earnings over the next several years. In this choppy sales environment, we remain focused on increasing our market share while strengthening our key competitive advantages and operating leverage through additional accretive acquisitions.

That said, we continue to be pleased with the outperformance of our recent acquisitions. The FY13 acquisitions were ahead of our plan this past fiscal year, and in FY15, we expect accretion of $0.27 to $0.30 from the FY13 and FY14 acquisitions. Collectively, our acquisitions increase our store density within our geographic footprint and our purchasing power with vendors. The acquisitions also allow us to further leverage the G&A costs of distribution, advertising, field management, and headquarters, all of which will help drive future operating margin expansion.

We still see meaningful opportunity for attractive deals in the marketplace, given the continued pressure on consumers. The owners of target independent tire dealers are most often individuals who are at, or nearing, retirement age without an internal succession option.

In addition, the prices for new acquisitions are generally more attractive when the industry is pressured, which speaks to our Company's ability to grow earnings in any macro environment. We presently have ten NDAs signed, up from 5 in the third quarter, if you exclude the 2 acquisition agreements we just announced. Quarter to date, we have signed definitive agreements to acquire 21 stores generating approximately $16 million in annualized sales.

19 of the stores are located in Michigan, a new state for the Company, and the other stores fill in in existing markets. These acquisitions provide additional upside, given we are purchasing the real estate for 19 locations, which generally drives higher levels of profitability. Their sales represent approximately 2% of total Monro Muffler Brake sales, adding to our 30% acquisition growth achieved in the 11 deals closed in FY13 and FY14. The transactions are expected to close in June, and the locations will operate under the Monroe brand name.

Based on our recent transactions, and our current NDAs, we are very encouraged about opportunities for additional acquisitions in the near future. While we remain disciplined in the prices we will pay for acquisitions, as we reach acceptable terms, we are ready to act on any opportunity.

Before I turn to our outlook, I want to first discuss our overall view on the industry and key trends, which remains very positive. There are still 245 million cars on the road in US that are getting older as consumers are keeping and maintaining their vehicles longer. We know this because the average age of vehicles on the road has increased to 11.7 years. Vehicles over 12 years old continue to represent over 20% of our traffic from mid-teens three years ago, with average ticket on these older vehicles consistent with our overall average.

Although deferrals and trade downs have increased in this economy, consumers continue to repair and retain these older vehicles, as evidenced by our positive FY14 comparable sales in our exhaust and shock categories, which are largely discretionary and performed on older vehicles, as well as year-to-date increases in traffic and comparable-store oil change and tire unit sales. We are encouraged by these results, and would expect to continue seeing this positive momentum in the remainder of this year.

Fewer consumers have an interest in, and are able to, work on their vehicles, the number of all over service bays is declining and there remain numerous acquisition candidates that meet our criteria. As we look at the position of our business within the industry, our key competitive advantages are still in place, including our low cost operations, superior customer service and convenience, price advantage versus car dealers, along with our store density and two-brand store strategy.

Our guidance for the first quarter and fiscal year assumes a continuation of the underlying muted macro environment we have been experiencing. However, our guidance also reflects our confidence in our recent positive comparable-store sales trends, positive traffic, and the expected tailwind from the hash winter.

Currently, quarter-to-date comparable-store sales are up 2%, on top of positive 3% last year during the same period, driven by strong growth in key service categories, and positive traffic, positive oil change units, and positive tire sales -- tire unit sales. As a result, the first half -- as a reminder, the first half of the first quarter was the strongest sales period in FY14, so our comparison sees going forward this year.

For the full fiscal year, taking into account anticipated contribution in sales from our FY15 announced acquisitions, we now expect total sales to be in the range of $875 million to $905 million, based on comparable-store sales guidance of positive 1% to 4%. Based on these assumptions, improving margins and outperformance by our recent acquisitions, we expect FY15 EPS to be in the range of $1.95 to $2.15, an increase of 17% to 29% versus $1.67 diluted earnings per share in FY14.

Operating margins are expected to expand in the range of 125 to 175 basis points for the year. Based upon trends quarter to date, we expect first-quarter comparable-store sales to increase in the range of 2% to 3% and total sales to be in the range of $217 million to $221 million. We anticipate first-quarter operating margin to expand approximately 225 to 300 basis points. As a result, the Company expects diluted earnings per share for the first quarter to be between $0.52 and $0.55 as compared to $0.42 for the first quarter of FY14, with slight dilution from the FY15 acquisitions we have announced.

As we look at FY15, we anticipate that we will see the greatest improvement in operating margins in the first quarter, with somewhat less improvement in Q2, due to the fact that our lower product costs began to really take hold the second quarter of FY14 and our recent acquisitions improved sequentially through the year. Additionally, the fourth-quarter operating margin improvement will be limited by higher healthcare costs, due primarily to the Affordable Care Act, and the lapping of the significant product cost reductions we benefited from this past fiscal year.

Looking forward, I am optimistic that the hash weather conditions we experienced this past season will continue to help sales during this spring and should serve as a tailwind for the reversal of customers increased deferrals, which have extended longer than we would have expected. We are encouraged by the recent positive trends in our business, and our continued actions to reduce both products and operating costs. This should allow us to produce operating leverage at comparable-store sales increase of approximately 1%. Coupling this with continued strong performance of our recent acquisitions, we should deliver a solid FY15.

Our five-year plan remains consistent and continues to call for, on average, 15% average annual top-line growth, including 10% growth through acquisitions, 3% to 4% comps, and a 1% to 2% increase from Greenfield stores. Our acquisitions are generally diluted to earnings in the first six months as we overcome due diligence and deal-related costs while working through initial inventory and the operational transition of these stores.

With cost savings and recovery in sales, results are generally break even to slightly accretive year one, and will be $0.9 to $0.12 accretive year two and year three. This is an update from the previous year-two and year-three accretion guidance of $0.08 to $0.10, and is a reflection of our target for 10% growth through acquisitions on the higher sales base with the same rate of return. Over the five-year period, that should improve operating margins approximately 300 basis points and deliver an average of 20% bottom-line growth.

Our disciplined acquisition strategy is further strengthening our position in the marketplace and will continue to provide meaningful value to our shareholders for many years to come. To this end, the 18% increase in our cash dividend that we announced today, which is the ninth in the last nine years, reflects the Board's continued confidence in our long-term strategic plan and commitment to increasing shareholder returns.

Before I turn the call over to Cathy, I would like to say that while I hoped the consumer would have been stronger, I am proud of the performance of our team during the fourth quarter and FY14. We continue to service more customers, offering them exceptional service, drive higher tire unit sales while generating more profit per tire, control operating costs, do an excellent job integrating acquisitions and finding new acquisition opportunities at attractive prices.

These efforts allowed us to report record sales and earnings for the fourth quarter and strong overall results for the year. The hard work, passion for superior customer service, and consistent execution that our employees deliver every day are reflected in these results and are critical to Monro's brand strength and success. We greatly appreciate everyone's efforts.

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

Thanks, John, and good morning, everyone.

Sales for the quarter increased 3.7% and $7.3 million. New stores, which we design as stores opened or acquired April 1, 2012, added $10.5 million. Comparable-store sales decreased 1.3% and there was a decrease in sales from closed stores of approximately $1.1 million. There were 91 selling days in both the current and prior-year fourth quarters.

For the year, sales increased $99.4 million and 13.6%. New stores contributed $110 million of the increase. Partially offsetting this sales increase was a comparable-store sales decrease of 0.5% and a decrease in sales from closed stores amounting to $5 million. There were 361 selling days in both the FY14 and FY13. At March 29, 2014, the Company had 953 Company-operated stores as compared with 937 stores at March 30, 2013. During the quarter ended March 2014, the Company opened four stores and closed two. For the year, we added 29 stores and closed 13.

Gross profit for the quarter ended March 2014 was $77 million, or 37.9% of sales, as compared with $70.6 million, or 36% of sales, for the quarter ended March 2013. The increase in gross profit for the quarter ended March 2014 as a percentage of sales is due to several factors. First, total material costs, including outside purchases, decreased as a percent of sales as compared to the prior year. We saw a meaningful decline in product costs with a comparable sales mix to the fourth quarter of last year.

Partially offsetting this was distribution and occupancy costs, which increased as a percentage of sales from the prior year, primarily due to adjustments that we made in the fourth quarter of last year, which reduced this line. As you may recall, these were related primarily to opening balance sheet accounting for leases and our fiscal -- for our FY13 acquisitions, which decreased rent expense and increased depreciation and interest expense. Labor costs as a percentage of sales were essentially flat as compared to the same period last year.

Gross profit for the full FY14was $320 million, or 38.5% of sales, as compared with $278.1 million, or 38% of sales, for FY13. The increase in gross profit for FY14 as a percentage of sales is due to several factors. Labor costs decreased as a percentage of sales as compared to the prior year through focused payroll control. Labor productivity, as measured by sales per man hour, improved over the prior year, as well. Distribution and occupancy costs for the full year decreased as a percentage of sales from the prior year, as we leveraged these largely fixed costs against the increase in sales from the acquired stores.

Total material costs were relatively flat as a percent of sales as compared to the prior year. This was due to a shift in mix to the lower margin service and tire categories, the latter due primarily to the acquisition of more tire stores, offset by a meaningful decline in product costs, particularly tires.

Operating expenses for the quarter ended March 2014 increased $0.5 million, and was $55.6 million, or 27.4% of sales, as compared to $55.1 million, or 28.1%, of sales for the quarter ended March 2013. The increase is primarily due to expenses associated with the FY13 and FY14 acquisition stores, offset in part by continued cost control, including savings and benefit costs such as workers' compensation. Excluding expenses associated with the FY14 and FY13 acquisitions, operating expenses actually decreased from the same period last year.

For the full year, operating expenses for FY14 were $224.6 million, or 27% of sales, as compared with $204.4 million, or 27.9% of sales, for FY13. Excluding the increase in operating expenses related to the stores acquired in FY14 and FY13, operating expenses decreased by approximately $2.2 million. This demonstrates that we experienced leverage in decline on a comparable-store basis through focused cost control and pay plans which appropriately adjust for performance.

Operating income for the quarter ended March 2014 of $21.4 million increased by 38.4%, as compared to operating income of approximately $15.5 million for the previous year quarter, an increase as percentage of sales from 7.9% to 10.5%. For the full year, operating income in FY14 of approximately $95.3 million increased by 29.4%, as compared to operating income of approximately $73.7 million in FY13, an increase as percentage of sales from 10.1% to 11.5%.

Net interest expense for the quarter ended March 2014 decreased four-tenths of a percentage point of sales, as compared to the same period last year. As mentioned previously, during the fourth quarter FY13, we made some entries totaling $1.6 million to true up capital and financing leases, primarily related to FY13 acquisitions.

Additionally, weighted average debt outstanding for the fourth quarter of FY14 decreased by approximately $31 million, as compared to the fourth quarter of last year. This decrease is primarily related to a decrease in debt outstanding under the Company's revolving credit facility, as well as a decrease in amount outstanding under capital and financing leases. Additionally, the weighted average interest expense decreased by approximately 50 basis points, as compared to the prior-year quarter.

Net interest expense for the full FY14 increased by approximately $2.3 million as compared to the prior year, and at 1.1% was relatively flat as a percent of sales. The weighted average debt outstanding for the year-ended March 29, 2014, increased by approximately $61 million from FY13, primarily related to an increase in debt outstanding under the revolving credit facility to fund the purchase of our acquisitions, as well as increased capital leases related to those acquisitions. Partially offsetting this increase was a decrease in the weighted average interest rate of approximately 40 basis points from the prior year due to a shift in the percentage of debt revolver versus cap leases outstanding at a lower rate.

The effective tax rate for the quarter ended March 2014 and March 2013 was 37.6% and 34.9%, respectively, of pre-tax income. For the full FY14, taxes were 37.1% of pre-tax income as compared to 36.3% last year. The difference in the tax rate lowered earnings per share for the FY14 fourth quarter and full year by approximately $0.02 per share.

Net income for the current quarter of $11.9 million increased 46.5% from net income for the quarter ended March 2013. Earned per share on a diluted basis of $0.36 increased 44% as compared to last year's $0.25. Net income for FY14 increased by 11. -- increased $0.20, excuse me, increased 27.9% from $42.6 million in FY13 to $54.5 million in FY14. And earnings per share -- and earnings per diluted share increased by 26.5% from $1.32 to $1.67.

Moving onto the balance sheet, our balance sheet continues to be strong with a current ratio at 1.2 to 1, which is comparable to fiscal year end 2013. In FY14, we generated approximately $94 million of cash flow from operating activities and paid off $29 million of debt. In addition, we used some of the cash flow from operating activities to finance the FY14 acquisitions. These acquisitions added 22 stores and approximately $36 million of annualized sales.

At the end of the fourth quarter, debt consisted of $107 million of outstanding revolver debt, and $88 million of capital leases and financing obligations. As a result of the debt pay downs, our debt-to-capital ratio, including the capital leases, decreased 600 basis points to 32% at March 2014, from 38% at March 2013. Without the capital and financing leases, our debt-to-capital ratio was 20% at the end of March 2014, a decrease from 26% at March 2013. Under the revolving credit facility, we have $250 million that is committed through December 2017. Additionally, we have a $75 million accordian feature included in the revolving credit agreement.

The agreement bears interest at LIBOR plus a spread of 100 to 200 basis points and we currently are playing LIBOR plus 125 basis points. The flexibility built into the agreement permits us to operate our business, including doing acquisitions without bank approval, as long as we are compliant with debt covenants. Those term, as well as our current availability of $138 million, which doesn't include the accordion, gives us a lot of flexibility to get acquisitions done quickly. We are fully compliant with all of our debt covenants and have plenty of room under the financial covenants to do acquisitions without any problems.

During FY14, we spent approximately $32 million on CapEx, including approximately $11 million in the fourth quarter, which included about $5 million of maintenance CapEx, though our acquisitions during FY14 used another $27 million of cash. Depreciation and amortization was approximately $32 million, divided roughly evenly between the four quarters. And we received $4 million from the exercise of stock options. We paid about $14 million in dividends.

Inventory is up about $6.7 million from March 2013, largely due to acquired stores and the purchase of tires to expand product assortment and decrease outbuys. Total inventory turns for the rolling 12 months ended March 2014 have improved almost 5% from last year.

Expanding on John's guidance for our FY15, as he stated, we expect sales in the range of $875 million and $905 million. This reflects a 1% to 4% comparable-store sales increase. Operating margin is expected to increase by 125 to 175 basis points. Interest expense should be about $8 million before any adjustments to true up acquisition accounting for potential capital leases. However, any such adjustment would result in a reduction to occupancy costs, which are included in cost of sales.

EBITDA should be in the range $143 million to $153 million. Depreciation and amortization should be about $32 million. CapEx should be approximately $33 million. Maintenance CapEx will be about $21 million of that amount, with the remainder for new stores. The tax rate should be about 38% for the year, with some fluctuations between quarters.

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

Thank you.

(Operator Instructions)

We will now take our first question from Bret Jordan, BB&T Capital Markets.

Good morning.

Morning.

If we look at the weather impact in the quarter, is there a way to sort of back in the envelope, maybe through outright store closure days, what its impact on comp was? And I guess, given the visibility you have in peers' performance through the NDAs or general market intelligence, how did your traffic compare to the balance of the market in the quarter?

Yes. If you look at the store closures and remove the impact of that, our sales would have been about flat. So there was a fairly sizable impact on the quarter. And in terms of traffic judging, I guess, my best way to judge is the 10 NDAs that we have. I think we are gaining share.

Okay. And then, I guess we look at tires and your expectation that tire pricing continues to go in your favor. Is that skewed toward the import or are you beginning to see some price concessions or an acceleration of price concessions on the RMA of the branded product?

I would say yes on both. It will still be higher on the import, but we are seeing increased concessions from the branded guys.

Okay. And then one last question. Could you give us a feel on maybe what the price delta is now, if you were to say the average branded product versus the import product, what the difference you're seeing at retail is?

Yes. It's larger than it has been in the past. Sometimes I feel like we're the only guys answering these kind of questions, and I really don't want to open up the whole play book. It is definitely larger than it has been.

Okay. All right. Thank you.

Thank you.

Next we'll take our question from Rick Nelson from Stephens.

Hey, Rick.

(Multiple speakers)Discount for the current quarter plus two, I think that's the best we've seen it going back now 12 quarters, and as you point out, the compares get easier as the quarter progresses and the year progresses. Are there big Memorial Day promos planned this year that maybe weren't planned a year ago because of the more favorable weather conditions? And I guess, how do you see the remainder of the quarter shaking out?

Yes. In terms of Memorial Day, I don't see an awful lot more activity than has been out there in the past. Certainly with the increased traffic and the service business responding pretty well, we've always said that as we look at marketing, we're going to fish when the fish are biting, and this sort of starts to line up like that. As we move through the year, if we continue to see some strength, we'll make investments there.

But for the rest of the quarter, our comps within the quarter get much easier. June, coming off of this plus-three last year midway through the quarter, we ended up reporting a plus-one for the quarter, so June really remains an opportunity for us.

And the quarter is more heavily weighted, right, to May and June? April is relatively small?

Yes. It's slightly smaller.

And the guidance that you're providing on the acquisitions, now $0.27 to $0.30, I think last call you had talked about $0.24 to $0.30. You're more optimistic there. I'm just curious what is driving that, and is it the improvement in the comps?

Well, I view it as much as anything as consistent. The $0.24 to $0.30 we talked about with the FY13 acquisitions, there will be some, you know, accretion as well from the 2014 acquisitions, but that is consistency off of outperformance in FY14 on those acquisitions. That's part of why we beat. We said $0.20, we had an initial range of $0.15 to $0.20. We bumped it $0.20 to $0.22 and those acquisitions, the FY13 deals, contributed $0.24 in FY13.

Got you. Also curious how you see the year shaping up from an acquisition standpoint. Your long-term target is 10%. Do you see this as a bigger year or a smaller year?

Yes. I think with the number of NDAs we have right now, we are looking at potentially an above-average year this year. I think the market -- with the market being choppy out there, and all of these guys continuing to get older as we all are, there's more interest out there. As -- the tougher the market, the better we do in acquisitions.

Okay. Good to hear. Thanks a lot, and good luck.

Thank you.

Thanks, Rick.

And now we'll take our next question from Anthony Dean from KeyBanc Capital Markets.

Hi. Good morning.

Hi. Good morning.

As it relates to the $0.27 to $0.30 acquisition accretion outlook, does that include the -- any assumed dilution from the most recent acquisition or is that separate?

From the -- yes, it incorporates what we'll have from these couple deals here we just announced.

But nothing in the future, Anthony. I mean, all of our numbers include the deals that John announced today in the core business and anything we do in the future we'll respond to, including the increased sales that we'll get from them.

Okay. Helpful. And then, I appreciate the color on the weather impact. Sounds like about 100 to 150 basis points. Can you just talk to the cadence of your same-store comp in the quarter? January was previously said to be slightly positive, so perhaps February and March down over 100 basis points.

Yes.

Can you give me any color on that cadence?

Right. January ended up being flat. If you remember, we were up and we kind of got whacked right at the end of the quarter, so January was flat, February was down 100, and March was down 200.

Okay. And then on the first quarter same-store guide up 2% to 3% versus the up 2% quarter to date, so it seems like you expect to see some slight acceleration final week of May into June, seems like that's all driven by comps. Am I -- is that a fair assessment?

Yes. I mean, it was, what we're reacting to there is the latter part of last, of last year's first quarter was weak.

Right.

It was negative, so that, it seems to me, based on what we've seen for the first seven weeks, that there's that opportunity for the latter part of the quarter.

And then shifting gears on the tire costs outlook, beyond the second quarter of this year, sounds like there's some opportunity for some slight benefit from lower tire costs. Probably not to the magnitude of what we're seeing last year, but relative to the down 20%-plus on imports, down mid- to high-single digits on branded costs, can you give us a sense of what those numbers will looks like in FY15?

Yes. I think they're -- you might see flat to down another 5 points or something. Again, I'm not really interested in being the only guy out there offering a whole bunch of details about how we're trying to deliver results here.

Okay. I understand. Great. Thank you.

Thank you.

Yes, Anthony. I think we're very comfortable with our guidance.

Great.

Thanks.

Thank you.

And we'll take our next questions from James Albertine from Stifel.

Great. Thanks, and good morning, everyone.

Good morning.

First, I just wanted to ask for sort of a reminder or refresher course on how your stores flow into the comp base, because looking at $875 million to $905 million guidance for next year, and if I'm correct, I think your 140 or so stores that you added a couple years back should to be start flowing through now. I'm just surprised there's not more of a jump, I suppose, relative to the $831million you reported for the end of the fiscal year.

You're absolutely correct in how the guidance -- or in how these stores enter the comp. All of these stores that were acquired or opened in our FY13 will be in our comp base, or are in our comp base for FY15. And again, the sales guidance reflects the 1% to 4% comp and some additional sales from the FY14 acquisitions and the deals that we just announced today. But --

Got you.

But with regard --

Sorry.

With regard to the acquisitions being a part of the comp base, or just really generally where they are this year, last year we -- there's an awful lot of work that goes into that operational transition, and that's really the hallmark of last year. We're buying much of that. And so as I look at 1% to 4% comp, certainly the acquisition stores represent part of that upside there, because last year, for at least part of the year they're worried about procedures and computer changes and some things like that, that tend to take a little bit out of sales. So that represents some of the upside within the 1% to 4%.

Got you. I just have one quick follow-up on the 10 NDAs that you announced. If I recall, last quarter we were talking about the seven or so NDAs. You eluded to 5 to 40 stores per NDA. I was wondering if you can give us an update on the store count per NDA at this point.

Yes, that range applies to this group as well.

Okay.

So it's very consistent there.

Okay. Very helpful. Thanks again.

Thank you.

And we'll take our next question from Michael Montani, from ISI Group.

Hey, guys. Good morning.

Good morning.

I wanted to ask about, first off, the mixed percentages. Can you just tell us as a percentage of sales what the various categories were for this quarter?

Sure. For the quarter brakes was 14%, exhausts 4%, steering 10%, tires 44%, and 29% for maintenance services. Again, don't hold me to the rounding.

Okay. Fair enough. On the tire ticket down roughly 3% for this past quarter, was that basically all trade down? Is there also some deflation on like-for-like tires, and how do you guys see that dynamic playing out as we move ahead through this year?

Yes. The majority of that is trade down, and there is a small piece of deflation in there. But for the year, as we've said, that same kind of metric relates to the year and it has been more trade down than price all year for us.

And I guess when you put the 1% to 4% comp guidance out, is there any way to think about inflation overall in that number? Is it basically assuming traffic trends kind of maintain and then you get some benefit from that, or how should we think about traffic and ticket?

Yes. I think you're going to see traffic up and ticket somewhat pressured by this overall trade down. I mean, the trade down we will see through the year, with us at 32% and, you know, we're going to be in the higher 30%s or 40% this year on the import tires.

We're going to see some continued pressure from that unreported dollar sales. Our job is to sell more tire units at more money, gross profit per tire. That's what we're focused on.

Great. And just the last question I had was on Affordable Care Act, which you mentioned at the opener. I think last quarter you guys had spoken to maybe $2 million to $3 million type range of impact from that. Is that still the right way to look at that particular cost element heading into this year? And some of the initiatives you have to offset it, please?

Yes, Mike, it will impact our fourth quarter of FY15, which will be the January through March quarter, is when we'll have to be in full compliance, and that figure, that the $2 million to $3 million for a full year or a quarter of that for FY15, would be the right number.

Yes. In terms of initiatives, I know we've talked a little bit about it. Again, not wanting to give too much out about what we're doing. We did make a -- we have made a push over the last year to focus on our best people and have those folks earnings more money.

The result of that is better customer service, better sales, better operations. One of the net results of that is, we can do it with a few less heads, and that helps things like the Affordable Care Act, and that's really how we've approached at least part of it.

Okay. Great. Thanks, guys. Good luck.

Hey. Thank you.

Thank you.

And we'll take our next question from Scott Stember from Sidoti & Company.

Good morning.

Good morning.

Morning, Scott.

Outside of tires, are there any planned price increases in any of the other categories which could help margins this year?

Yes. We'll put through a 1% to 2% price increase here in the spring. We started that already and again, on the tire side, we've talked about that a little bit, so that will -- that price increase will touch all other categories.

Oh, okay. Great. And just going back to the commentary about what you've seen so far in the first quarter of 2015, I think you said that tires were down 2% so far. Is that on units or on actual comp?

No. That is the actual comp sales. Units are positive.

Oh, okay. And --

We'll give you the details of that at the end of the quarter.

Got you. And just, what you were saying before that the first part of the quarter, I guess April, faced more difficult comps. Given that fact plus the fact that more consumers are coming into the shops with tires excessively worn, can you talk about the expectations as the quarter progresses on potential acceleration for tire sales?

Yes. Well, I think tire sales, like other categories, are still impacted by a consumer that's under pressure. We see it in the acceptance of our value priced tire offer -- offering, and I think with higher units and some strength on the service side of the business during April and May, all of those things are part of the consumer deferral that has been higher and lasted longer than we would have expected, and we've always said that after a tough winter, we would expect to see some strength in sales in the spring, and I think we're seeing that. June was down last year, so I think there's real opportunity there.

And just going back to that, could you just remind us, last year's first quarter, what the comps were by month, just so we have a better framework of what we're looking at?

Yes. I have that. Last year's first quarter, we were up 3% in April. We were up 1.1% in May, and down 3% terms of June.

Okay. Great. And just last question, the acquisition that you announced today up in Michigan. Now, as you are the last year plus been starting to go outside of your normal contiguous footprint, will this deal once again be supplied by the traditional Monro distribution system or are there any plans to depart from that as you start to grow past your usual footprint?

Yes. The -- it will be supplied by the traditional Monro footprint. We deliver not far from where these stores are right now, and we've been going outside of our footprint for several years now, and we really look for the right opportunities to do that.

An example we often point to is St. Louis. There are enough stores out there. It was outside of our footprint, but we saw a real hedge in, we would have some higher distribution, but we had real estate, fixed costs which were very advantageous out there that more than offset that.

As we pointed out in the script today, we're buying the locations for all of these stores up in Michigan, which, again, brings in that kind of a cost hedge despite the fact that these stores are not within our existing footprint of distribution, so there's a natural hedge there. We often look for that in these types of deals, and that's what drives profitability.

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

Thank you.

Thank you, Scott.

(Operator Instructions)

And we'll take our next question from Bret Jordan, from BB&T Capital Markets.

Hey. (Multiple speakers) I can't. It's never enough. As a follow-up to that last question, I guess as we look at the growth in NDAs, is this expansion up to 10 because you're looking further outside the existing market, or are most of these within the footprint?

It is not -- we've always had within the footprint or contiguous, and all of these are fitting -- continuing to fit within there.

Okay. And then one last question as it relates to import mix. This 40% target, is there a maximum you don't go above in import, or as long as the market wants more of it, you're going to sell more of it?

Yes, I think we're going to let the consumer define that. Certainly, I'd love to sell everybody very high-end Michelin tires, but not everyone's got $200 a tire. But we're going to let the consumer define where we go there. For us, it's perfectly fine where we're at.

Okay. All right, thank you.

And it appears there are no further questions at this time. I'd like to turn the conference back over to the speakers for any additional closing remarks.

Thank you. Thank you all for your time this morning. We continue to make progress on sales, margins and acquisitions in a weak consumer sales environment. We remain committed to profitable growth and expect a strong year this year. We appreciate your support and the efforts of our employees that work hard to take care of our customers every day. Thanks and have a nice day.

And that concludes today's conference. Thank you for your participation.