Jennifer Milan – IR John Van Heel – President and CEO Cathy D’Amico – EVP and CFO Rob Gross – Chairman.

Bret Jordan – BB&T Capital Markets Scott Stember – Sidoti & Company Michael Montani – ISI Group Peter Keith – Piper Jaffray Quinton Mathews – QKM, L.L.C.

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake Second Quarter 2014 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) 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 Milan 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 person that 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 Chief Executive Officer; Cathy D’Amico, Chief Financial Officer; and Rob Gross, Executive Chairman. With these formalities out of the way, I’d like to turn the call over to John Van Heel. John, you may begin..

Thanks, Jen. Good morning and thank you for joining us on today’s call. We are pleased that you are with us to discuss our second quarter fiscal 2014 performance. After some brief opening remarks, I will review our quarterly performance then provide you with an update on our key initiatives and outlook for the remainder of the 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. Similar to our performance in the first quarter our strong business model enabled us to deliver sales and net income growth of 16% and 18% respectively in the second quarter.

We are disappointed in our top line results which remained weaker in the second quarter than we had hoped. However we were able to deliver bottom line results within our guidance range with improvement in operating margin and continued out-performance of our recent acquisitions despite what remains a choppy sales environment.

This performance is the result of our team’s consistent execution of our proven strategy and the initiatives that continue to enable us to lead our industry in both strong and weak markets.

During our second quarter we delivered on our key objectives of benefiting from lower material cost, controlling operating expenses, generating strong sales and earnings contributions from our recent acquisitions and capitalizing on opportunities to complete additional acquisitions at attractive prices.

As we look to the second half of fiscal 2014, we expect these positive trends to grow. However, the macro environment and retail environment remained weak during the quarter and continued to negatively influence consumer purchasing behavior with uncertainty increasing and consumer confidence decreasing.

We continued to see consumers defer significant purchases and trade-down focusing on repairs that can no longer be put off. Given this environment, we remain conservative in our promotional and marketing activity during the quarter. As we have stated previously, we will increase marketing spend when we see an inflection point in consumer activity.

While tires were strong during our first quarter with units up 4%, our service business led the second quarter highlighting an important natural hedge in our two-store format strategy. We are hopeful that these sales improvements, while choppy, are signs that the extended deferral cycle may begin to reverse in the near future.

More specifically, in the second quarter, comparable store sales in exhaust and brakes each increased by more than 4% compared to last year and shocks were up 2%. Additionally, we were pleased to see comparable store oil changes continue to improve up approximately 2% in the quarter.

These results demonstrate that customers turned to us during the quarter to perform the work necessary to maintain and expand the life of their vehicles. We were disappointed that the tire category, which was positive but weakened late in our first quarter decreased by 6% in the second quarter with units down 3%.

During the quarter, we continued to see the average age of vehicles we service increase. Vehicles over 12 years old now represent over 20% of our traffic, up from the mid-teens in 2010. We know that there is no difference in the overall average ticket and tires sold per vehicle service for this growing population of older vehicles.

Additionally, the sales increases in the exhaust and shock categories, which are more discretionary replacements, show that customers are keeping and maintaining their older vehicles. We believe this trend will continue.

For the first six months of fiscal 2014, comparable store sales are down slightly but oil changes, key service sales categories including brakes, exhaust and shocks and tire units are all positive. Also comparable store sales for our service stores as a group are positive for both quarters in fiscal 2014.

We remain optimistic for improved sales performance in the second half of the year with a return to more normalized weather, particularly as we will be cycling against two consecutive warm winters and a two-year deferral cycle. But we have not included that potential upside in our sales and earnings estimates for the remainder of the year.

At the end of the day, people can only defer purchases of our products and services for so long, and we are confident that they will continue to turn to us as their trusted service provider.

We generated improved gross margin versus the second quarter of the prior fiscal year despite a shift in sales mix to the lower margin tire category that primarily reflects the high tire sales mix of acquisitions completed in the past year.

Our ability to increase gross margin was largely due to reduced material costs and payroll control in our comp stores as well as leverage of fixed costs as we achieved great economies of scale from our recent acquisitions. The strength of our service sales categories in the second quarter also helped margin.

In fact, gross margin in our comp stores for the first six months is 70 basis points ahead of the first six months of fiscal 2013. As we have previously discussed, since the elimination of the tariff on imported tires a year ago, we have received 15% to 20% reductions in import tire costs.

In addition to these savings, we continue to take a proactive approach in pursuing lower cost from direct import and branded suppliers and are taking advantage of the significantly increased purchasing power that has resulted from our recent acquisitions.

We are also benefiting from increased volume-related incentives and select cost reductions from branded manufacturers. As a reminder, these cost reductions fall into our cost of goods sold as our tire inventory turns, and we began to see these lower costs really take hold in our second quarter.

The benefit of declining tire costs was enhanced by the fact that on average we collected slightly more per tire in the second quarter versus our first quarter of this year, but still slightly less than last year’s second quarter. This is quite an accomplishment considering that consumer continues to trade down to private label import tires.

In fact, excluding fiscal 2013 and 2014 acquisitions, our second quarter tire gross margin improved over the prior year, and we expect to see that continue in our third and fourth quarters assuming relatively stable retail pricing environment. We also continue to carefully manage operating costs while appropriately investing for growth.

For our second quarter, total operating costs as a percent of sales decreased to 28.2% from 28.4% in the prior year, primarily reflecting our cost control efforts and leverage from higher overall sales.

For the remainder of fiscal 2014, we expect that our actions to reduce operating expenses combined with declining material costs will allow us to generate EPS growth on our base business at a slightly negative comp, whereas in the past we had needed a 2% to 2.5% comp sales increase to overcome normal inflationary cost increases.

Our second quarter results demonstrate the benefits of our active management of operating expenses. 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.

As you know, we significantly accelerated acquisitions and achieved record acquisition growth in fiscal 2013. These acquisitions allowed us to enter the current fiscal year with greater economies of scale that are benefiting us today as well as positioning the company to deliver strong earnings over the next several years.

In this uneven sales environment, we remain focused on increasing our market share while strengthening our key competitive advantages and operating leverage through accretive acquisitions. We continue to be very encouraged by our fiscal 2012 and 2013 acquisitions, which contributed to earnings for the second quarter again outperforming our plan.

As a reminder, based on the timing of our fiscal 2013 acquisition, we estimated EPS accretion of $0.15 to $0.20 in fiscal 2014. We now expect $0.20 to $0.22 of EPS accretion from these deals for the year.

We are pleased to report that we closed on the acquisition of 10 Curry’s Auto Service stores located in Greater Washington DC market that we had discussed on our prior call and which add approximately $18 million in annual sales.

Also, as we announced this morning, we executed definitive agreements to acquire another 10 stores in Delaware, Maryland, and Lexington Kentucky representing an additional $15 million in annualized sales. These deals, which we expect to close in late November increase our store density and leverage, our existing brands of Mr.

Tire in Delaware and Maryland markets and Towery’s Tire in Kentucky. Combine our fiscal 2014 acquisitions represent nearly 5% annualized sales growth with sales split 60% service and 40% tires. We are pleased with these results after taking six months off to integrate the four deals we closed in November and December of 2012.

Collectively our acquisitions increase our store density within our geographic footprint and our purchasing power with vendors and allow us to further leverage distribution, advertising, field management and headquarters G&A cost, all of which will help drive future operating margin expansion.

We still see meaningful opportunity for attractive deals in the marketplace given the current macro-environment. The owners of target independent tire dealers are individuals who are at or nearing retirement age without an internal succession option.

We presently have six NDAs signed compared to seven at the end of the first quarter even after completing or signing three of those deals. Four of these NDAs are within our footprint and two are in a contiguous market with store chains ranging in size from five to 40 locations.

Based upon our recent transactions in our existing NDAs we remain optimistic about our opportunities for additional acquisitions during the second half of our fiscal year.

If a winner doesn’t come again and comps remain weak we would expect smaller competitors to be impacted more significantly than Monro which should help us to get even more deals done and grow the top line further, another key hedge in our business model.

Turning now to our outlook I want to first discuss our overall view of the industry and key trends which remains very positive. There are still 245 million cars on the road in the U.S. that are getting older and 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 and customers are servicing these older vehicles as evidenced by our exhaust and shock category sales increases as well as the increasing age of vehicles we are servicing.

Ever fewer consumers have an interest in and are able to work on their vehicles, the number of overall service space is declining and there remain numerous acquisition candidates that need 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 along with our store density and two brand store strategy.

Sales trends remain challenging in October with comparable store sales down 2.8% to last year through October 22. Sales have remained soft particularly in the tire category while oil change traffic and key service categories remain positive.

Because of our lack of – because of our demonstrated lack of visibility on sales our outlook for the remainder of the year conservatively incorporates our year-to-date sales run rate. However we continue to believe that November represents the next opportunity for an inflection point particularly for tires.

We remain cautiously optimistic that with more normalized weather patterns throughout the high tire selling season after two abnormally warm winters in our geography, and a two year deferrals cycle sales will improve in the second half of this of fiscal 2014 and represent an upside to our guidance.

For the full fiscal year, taking into account anticipated sales contribution from our fiscal 2013 and 2014 acquisitions and lowering overall sales expectations to be conservative we now expect now total sales to be in the range of $830 million to 845 million.

This range incorporates comparable store sales in the range of minus 1% to flat versus last year.

Based on these sales assumptions, improving margins and out-performance by our recent acquisitions we are narrowing our estimate of fiscal 2014 EPS to a range of $1.58 to $1.65, which compares to EPS of $1.32 in fiscal 2013 and which represents a 20% to 25% increase in EPS and 75 basis points to 100 basis points of operating margin improvement.

Based on trends to-date, in the third quarter and taking into account the fiscal 2013 and 2014 acquisitions we expect total sales for the current quarter to be $213 million to $220 million, incorporating a decline in comparable store sales of 1% to 3%.

We expect third second quarter earnings per share to be in the range of $0.41 to $0.46 with the fiscal 2013 acquisitions contributing to earnings and the fiscal 2014 acquisitions slightly dilutive. This compares to $0.35 for the third quarter of fiscal 2013 and represent earnings per share growth of 17% to 31%.

As a reminder, our third quarter coincides with a high tire selling season in our market. Accordingly, we expect tire sales to be nearly 50% of our total sales for the third quarter which will result in a sequentially lower gross margin than our second quarter, however, we expect – we expected to improve over the prior year.

Our five year plan remains unchanged and continues to call for on average 15% annual top line growth, including 10% growth through acquisition, 3% to 4% comps, and 1% to 2% increase from Greenfield stores.

Our acquisitions are generally dilutive 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 breakeven to slightly accretive year one, $0.08 to $0.10 accretive year two and another $0.08 to $0.10 accretive in year three. For last year’s 30% acquisition growth just tripled those EPS benefits.

Over the five year period that should improve the operating margins to approximately 300 basis points and deliver an average of 20% bottom line growth. Given the timing of our fiscal 2013 acquisitions, we expect to see significant contribution from these deals throughout the remainder of fiscal 2014 and even greater contribution in fiscal 2015.

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.

Before I turn the call over to Cathy, for a more detailed review of our financial results, I would like to state all of our employees for their continued hard work, passion for superior customer service and consistent execution. All of which are critical Monro’s brand strength and success. With that, I would like to turn the call over to Cathy.

Cathy?.

Thanks John. Good morning everybody. Sales for the quarter increased 16.3% new stores which we define as stores opened or acquired after April 1, 2012, added $34 million.

As a reminder, the former Kramer tire stores acquired on April 1, 2012 are considered comparable stores in fiscal 2014 because they were opened one full fiscal year by the end of fiscal 2013. Comparable store sales including the Kramer stores decreased 2.1%, and there was a decrease in sales from closed stores of approximately $1.4 million.

There were 91 selling days in both the current and prior year second quarters. Year-to-date sales increased $65.8 million a 19%, new stores contributed $69.9 million of the increase partially offsetting the sales increase was a comparable store sales decreased of 0.5% and a decrease in sales from closed stores amounting to $2.4 million.

There were 181 selling days for the first six months of this and last fiscal year. At September 28, 2013, the company had 940 company operated stores as compared with 853 stores at September 29, 2012. During the quarter ended September 2013, the company added 12 stores and closed six. Year-to-date we added 13 stores and closed 10.

Gross profit for the quarter ended September 2013 was $81.7 million or 39.8% of sales as compared with $69.9 million or 39.6% of sales for the quarter ended September 2012. The increase in gross profit for the quarter ended September 2013 as a percentage of sales is due to several factors.

Distribution and occupancy costs decreased as a percentage of sales as compared to the prior year, as again leveraged on these largely fixed costs with higher overall sales. Labor costs also decreased as a percentage of sales to focus cost control. Labor productivity as measured by sales per man-hour improved over the prior year quarter.

Additionally, tire costs decreased meaningfully in the second quarter of this year as John mentioned, as compared to the same quarter of last year.

Partially offsetting the decreases was an increase in total material costs due to a shift in sales mix, to the lower margin tire category due primarily to the fiscal year 2013 acquisitions of a 139 tire stores with a higher tire sales mix.

Additionally, excluding the fiscal year 2013 and 2014 acquisition stores, gross profit actually improved by approximately a 150 basis points as compared to the second quarter of last year.

Gross profit for the six months ended September 2013, was a $160.6 million or 39% of sales as compared with a $138 million or 39.9% of sales for the six months ended September 2012.

the year-to-date decrease in gross profit as a percent of sales is due largely – is due to material – increased material costs largely related to the significant shift in mix as I described for the quarter – for the quarter, partially offsets by distribution and occupancy costs and labor costs which decreased related to similar passages descried for the second quarter.

Operating expenses for the quarter ended September 2013 increased $7.7 million and were $57.8 million, or 28.2% of sales as compared with $50.1 million, or 28.4% of sales for the quarter ended September 2012. Due to increased sales from the fiscal 2013 and 2014 acquisitions, and continued cost control we gained leverage on these largely fixed costs.

For the six months ended September 2013. Operating expenses increased by $15.1 million to a $113.6 million from the comparable period of the prior year, and were 27.6% of sales as compared to 28.5%.

Operating income for the quarter ended September 2013 of $23.9 million increased by 21.2% as compared to operating income of approximately $19.7 million for the quarter ended September 2012 and increased as a percentage of sales from 11.2% to 11.6%.

For the six months ended September 2013, operating income of approximately $47 million increased by 19.3% as compared to operating income of approximately $39.4 million for the six months ended September 2012 and remained flat as a percentage of sales.

While net – while net interest expense for the quarter ended September 2013 increased two-thirds as a percentage of sales as – as compared to the same period last year, the weighted average debt outstanding for the second quarter of fiscal 2014 increased by approximately $81 million as compared to the second quarter of last year.

This increase is primarily related to an increase in debt outstanding under the company’s revolving credit facility for the purchase of our recent acquisitions as well as an increase in capital leases recorded in connection with these acquisitions.

Largely offsetting this increase was a decrease in the weighted average interest rate of approximately 110 basis points from the prior year due to a shift to a larger percentage of debt that being revolver versus capital leases at a – at a lower rate. For the six months ended September 2013, results were similar.

Interest expense increased by $1.2 million and were virtually flat as a percentage of sales as compared to the prior year. Weighted average got increased by approximately $92 million and the weighted average interest rate decreased by approximately a 180 basis points.

The effective tax rate for the quarter ended September 2013 and September 2012, was 38.1% and 37.6% respectively of pre-tax income. Net income for the current quarter of $13.6 million increased 18.2% from net income for the quarter ended September 2012.

Earnings per share on a diluted basis of $0.42 increased 16.7% as compared to last year’s $0.36 per share. For the six months ended September 2013, net income of $27.2 million increased 17.4%, and diluted earnings per share increased 16.7% from $0.72 to $0.84. Our balance sheet continues to be strong.

Our current ratio at 1.2 to 1 is comparable to last year’s and in last year’s second quarter. In the first six months of this year, we generated approximately $47 million of cash flow from operating activities and paid off a $11 million of debt.

In addition, we used some of the cash flow from operating activity to finance the purchase of Curry’s Auto Service in August of 2013. This acquisition added 10 stores and $18 million of annualized sales.

At the end of the second quarter, long-term debt consisted of $119 million of outstanding revolver debt and $65 million of capital and financing leases. As a result of the debt pay downs, our debt to capital ratio including capital leases decreased 200 basis points to 32% at September 2013 from 34% at March, 2013.

Without the capital and financing leases, our debt to capital ratio was 23% at the end of September 2013, a decrease from 26% at March 2013. Under our revolving credit facility, we have $250 million committed through December 2017. Additionally, we have a $75 million accordion feature included in the revolving credit agreement.

The agreement bears interest at LIBOR plus a spread of 100 basis points to 200 basis points, and we are currently paying LIBOR plus 125 basis points. The flexibility that built into this agreement permits us to operate our business, including doing acquisitions without bank approval as long as we are compliant with our debt covenant.

Those terms as well as our current availability of approximately a $106 million, which doesn’t include the accordion, gives us a lot of ability to get acquisitions done quickly. We are fully compliant with all of our debt covenants and have plenty of room under our financial covenant to do the plan and potential acquisitions without any problem.

During the first six months of this year we spent approximately $14 million on CapEx, including approximately $6 million in the second quarter. Store acquisitions during the first half of this year used another $17 million of cash. Depreciation and amortization was approximately $15 million divided roughly evenly between Quarter 1 and Quarter 2.

And we received $3 million in the exercise of stock option. We paid about $7 million in dividends. Inventory is up about $2.5 million from March 2013 largely due to the purchase of winter tires in anticipation of the demand in the third quarter and increased purchases from our employed vendors in an effort to expand and enhance product assortment.

Total inventory turns for the rolling 12 months ended September 2013 have improved slightly from last year’s second quarter and year end. Additionally at September 28, 2013 a non-FY 2013 and FY 2014 acquisition stores, tire inventory was down by about 5% as compared to the same time last year.

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

Operator?.

Thank you very much (Operator Instructions) And we go first to Bret Jordan of BB&T Capital Markets..

Good morning. A couple of quick questions here.

And John, I guess if you look at the tire category and you look at the markets that you’re in geographically, how do your volumes appear to stack up to the market as a whole?.

Looking at all of the NDAs that we had signed, you know I think our – you know our experience is hanging in there with what I see in the markets..

Okay, and I guess what was the mix of branded versus the import product in the third – in the second quarter?.

Import at 30%..

Okay.

And I guess, in the commentary, you were talking about tire costs down meaningfully, could you give us sort of a handle on what we look at right now buying -- what the year-over-year reduction in branded versus import pricing might be?.

We, well the import we – we talked about 15% to 20%, and you know on the branded side you know we – we had been in the 5% to 8% range. We are now much more close to that 8% range across the Board..

Okay, great and then I guess one question, I guess, if you look at the exhaust category which is sort of an outlier, what’s the average vehicle age when you’re doing exhaust replacement, that seems like a fairly long-life product, and maybe sort of an average transaction expense on that if people are…?.

Yeah on….

Are people investing a large -- yeah, go ahead..

On average, that’s 11, 12 years..

Okay, and what’s the average ticket on in the exhaust, is that sort of an indicator that people are planning to maintain these aged cars because they are making a large investment?.

Yes..

Is that fair to think of it that way?.

Yeah several hundred dollars, I mean there – it’s an investment..

Okay. All right.

And as far as the NDAs, how many of them are signed now?.

Excuse me?.

How many?.

We have 6, we have 6 NDAs right now..

Okay and one last question, can you give us a feeling for the size ranges of those prospective deals?.

They are the same 5 to 40 store chain..

Okay, great. Thank you..

Sure. Thank you..

Our next question comes from Scott Stember with Sidoti & Company..

Good morning..

Good morning..

Hey Scott..

Can you give what the sales were by months on a percentage basis?.

Sure, the comp sales by months?.

Yes..

July was – July was down [four tenths], August was down [2.8%], September was down [3.2%]..

Got you.

And just going back to the tire segment, could you talk about what some of the competitors in the market are doing, if you are seeing some -- getting a little bit more aggressive on pricing as everybody is waiting for the units to come back into the market, and just talk about the condition of these tires as they’re coming in, and I imagine that there – they’ve got to be really excessively worn, and at some point we have to see some kind of churn here?.

Yeah, to take your second point first, the tires that we continue to see in our base are more and more than what we’ve seen over the past several years. So, that trend is still in place.

From a more broad competitive perspective, I don’t see significant changes in the broad market from Q1 to Q2, there was – there has been some pricing pressure, but that existed in our first quarter as it did in our second quarter. We did a little bit better job of managing that in the second quarter which was part of our margin improvement.

But I don’t see significant changes from what we saw even earlier in the year when our units were up 4%..

Okay, and you know -- just you know – with the condition of the tires as you said continuing to get worse, just trying to figure out what the – what the rub point is with customers, I mean these are safety items right as are brakes?.

Yeah..

And we’ve seen brakes come back at some point.

Just trying to figure out what really the difference here is between tires and brakes as they are both pretty high dollar items?.

Yeah – you’re right, they’re both higher ticket items. We saw strength in the tire units in Q1 particular – particularly the earlier part of Q1, maybe off winter, some folks before the driving season starts needed to replace some tires, we had some strength there.

And I – the weakness that we saw in the last couple of months, I think probably ties into people looking to buy those tires that they need just before the winter season here which we’re coming up on in November so.

There – in the middle, there you had our service business which was basically flat in the first quarter and strengthened somewhat in the second quarter and those are safety items. So, I think winter is a real catalyst on the tire side of the business, and I think that’s the difference..

Alright just last question. You talked about the import tires being about 30% of the mix.

Where was that versus a year ago and sequentially versus the first quarter of this year?.

It was in the mid-20s a year ago and about 27.5 in the first quarter, high 20s..

And that’s like double, this is Rob, double over the last three years going from 15% to 30% unit so that’s what’s also going on with tires is the high price people are trading down. And we’re seeing people with tires who can buy two tires instead of four and avoid some of those things. So, I think that continues to put pressure on tires..

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

Thank you..

Thank you..

We move now to Michael Montani with ISI Group..

Hey guys thanks for taking the question. I was going to ask first a house keeping question just on mix.

Can you share the category mix that you had this quarter as a percentage of sales?.

Sure, so for the quarter tires were 42, tires were 43, maintenance was 28, brakes was 16, exhaust was 4 and steering was 9..

Okay thanks. And then just looking at the down two comp for this quarter, it looks like oil changes up around two.

Is it safe to think overall traffic is positive probably somewhere around the same level?.

Overall traffic is slightly negative. Again we had – the service business was stronger, the tire business was weaker..

Okay. One thing we’ve been thinking through is just some of the impact of the debate and the issues in Washington and it looks like may be we’re getting some component of resolution. You guys obviously have pretty high exposure to those markets given DC and then also Albany and so forth.

So, is there any more recent improvement that you’ve seen is this, it looks like we have at least a near term resolution, how are you guys thinking about that?.

Yeah we definitely saw new tact on those areas in our sales and I mean the improvement is the change in that situation is pretty new. We’ve seen some slight improvement but definitely that uncertainty did impact us..

We think that everyone getting unemployment and back pay there should be an inflow of cash flow..

Right, sounds good. Okay and then I guess just the last thing is looking at tires I guess down six I think you said units down three.

Can you just tell us what the price and the mix what those were this quarter? Thank you?.

Yeah there is a chunk of each of those in there. This quarter with the movement in the import tires the mix to import tires and some of that trade down is a little bit bigger of a peak that also ties into the continued aging of the vehicle and into the margin improvement.

But in the first quarter it’s a little bit flipped little bit more price little less mix..

Okay. Thank you..

Sure..

Thank you..

Thank you..

(Operator Instructions) We move now to Peter Keith with Piper Jaffray..

Hi good morning everyone. Looking at the core gross margin trend I think you sighted it was up 150 basis points so that was a nice change from flat in the first quarter.

Was that something that as we look forward in tire pricing is they’re still kind of cycling through some of that lower cost inventory? Should that core gross margin trends kind of hold steady exclusive of mix or do you think that can improve in the back of the year?.

We’re very careful improve versus prior year but sequentially remember we saw a lot more tires in Q3 so that’s going to put pressure on gross margins being tires are still low as gross margin percentage.

But Q3 and Q4 gross margin but more importantly overall operating margin will continue to accelerate of what you saw in Q2 just based on the accretiveness of the deals, the average leverage we’ll get from sales and the lag effect of import tire costs making their way their cost to goods..

Okay thanks Rob.

That’s what I was getting at the lag effect that was the lower import cost is that still kind of ramping up as a benefit that you haven’t seen a full effect of?.

Yeah we still have a way, a little way to go on that yes..

Okay good. And just go back to the last question on the ASP pressure on tires has been pretty consistent at about down 3% year-on-year for Q1, Q2 another mix shift is difficult to predict.

But do you have any forecast in terms of when pricing pressure or ASP on tires would kind of normalize?.

Well I think you had the tariff come off in October of 2012 so we’ve had some pricing pressure since that point more – more related to the start of this year. So, we’re going to be anniversarying some of that in the next year after the next six months. So, I think that it’s probably more of a short term impact..

Related to tires in terms of heavy acquisition activity from last year.

What is the year-on-year sales trend look like in some of those acquired chains is that – I guess I’m wondering is that comp trend that out performing or underperforming the legacy Monro stores?.

We typically don’t, this is Rob. We don’t comment on the acquisition sales run rate.

What we do say is that typically we plan for anything we take over the first six months that the disruption and the change assistance will negatively impact their sales get back some of that in the second six months and then those chain will continue to run at whatever Monro is running and I think that holds true..

Okay – but I was going to kind of follow on with that.

So, the big chunk of acquire stores should enter your comp base in Q1 if I’m not mistaken I guess I’m trying to get at if there, if we should anticipate for modeling purposes that’s going to accretive to comp or dilutive to comp?.

I think it will be neutral to comp..

Yeah but they will come in with fiscal 2015 all the fiscal 2013 acquisitions will enter comp in April..

Correct, right, okay great. One last question for you then, with the historic accretion at this acquisition side provided you guys have been pretty clear on that on the $0.08 to $0.10 of there is 10% acquisition growth.

With this the current comp just given the heavily concentrated tires and you’re seeing better margin dynamics in tires because of the lower cost.

Would those acquisition type potential would be more accretive looking out to the next two years then perhaps historical acquisitions?.

Yeah, I mean certainly we see some potential for that. One of the important aspects of the acquisitions last year was that we bought them at the highest point of tire cost and when we knew regarding especially the big chunk in November and December of last year that tire costs were starting to reverse.

So, I expect the help under tire cost to continue through this year in the next year and that will absolutely continue to benefit those acquisitions and base business..

Okay, thanks for the feedback and good luck [hitting] the quarter..

Thank you..

We now take a follow up question from Bret Jordan with BB&T Capital Markets..

Yeah John I guess on that tire cost environment over down I guess between 8% and 20% depending upon branded or import, where do you think we are in the trend of decreases how much left is there to take out? And I guess a follow up question, September being one of the key times you generally take price would you take prices up in any categories this September?.

I’ll take your second question first. We’re putting a 1% increase in the service side of the business through in our third quarter here. And on the tire side we continue to manage to collect more sequentially so that’s – its somewhere in the same region about 1%..

Yeah and I guess we think the shift in mix to private label forgetting about the consumer is really being driven from the value equation of the direct imports having to reduce their prices 15% to 20% and the branded guys holding out at the 8% level.

So the spread between the first year branded and the import has expanded and the customers going for value I guess the better question would be when do the branded guys to decide not to give up market share..

But your feeling would be there is more room to move to the downside on input cost? The price is coming and the fact is….

Yeah I mean I think there is room to continue to move down particularly in the marketing general I think there is additional room. And we still have not squeezed everything we can out of the significant increase in volume that we had from the acquisitions that we did last year and are continuing to do this year.

So, I think we have as a key piece of our strategy a leg up on everybody else in that regard..

Okay.

And then I guess one last question on tires, if you managed to move pricing up in the area of 1% with mix, is it easier to move pricing on the imports because they’re harder to price check against comparable brands since there is not a lot of comparable brand out there I know you’re sort of topping out on branded pricing which you’ve got flexibility on the import or do you see upside in both?.

No, I mean I think we’ll see where the competitive environment takes us. But we’re certainly going to continue to operate our business for profitability and we’re not going, we’re going to continue with our position as not being the lowest guy out there and being up to 5% higher. So, we’ll continue to push that in all segments..

Alright, great. Thank you..

Thank you..

(Operator Instructions) We move next to Quinton Mathews with QKM, L.L.C..

Good morning, thank you for taking my question..

No problem..

How are you? A follow -up on two questions ago was asked about possible improvement on the tire acquisitions from gross margins so none of that just to be clear none of the $0.08 to $0.10 accretion that you guys see on 10% acquisition growth? Anticipate any of that improvement that you would see from buying the tire acquisitions or entire cost were the highest that’s not included in the $0.08 to $0.10 accretion at all?.

No that is included.

What gets not included is every acquisition we do when we talk about the accretiveness, its fully loaded and its full of our P&L, the any additional benefits to the company that comes from leveraging SG&A or a corporate G&A or our buying power getting better and there is on the company side and that’s a piece of why 2% to 2.5% comps which is normally our requirement overcome inflation.

This year it’s going to be somewhere between meeting a 0 to -1 to accomplish the same overall accretion, accretiveness..

Understood, understood. Okay, and then last one. You guys, congratulations you guys have been doing well in executing on the acquisitions. When I look at the five year goal and then I look back and correct me if I’m wrong.

If I look back over the last decade I don’t think that there was a five year period where you guys compounded your sales at a 15% rate over any five year period.

And arguably had the best period of time going into the recession when everybody was delay in buying new cars and again kind of that arguably are coming on tougher period of time at least comp.

So what is that you see now is it a change in environment the acquisitions are going to be heavy over the next couple of years because comps are down a bit, what is that you see that you can achieve higher revenue growth over the next five years than you’ve been able to do in the past given some of the headwinds that may be out there?.

Well, again the headwinds that you’re talking about new car sales hitting $16 million we were in positive comps for nine years when new car sales did run $16 million.

We also if you want to go back beyond our weak last year and our mediocre this year we’re coming off a period in our markets where we were in three straight years averaging 6% comps coming out averaging I think for those three years if you include the acquisitions for last year and close to 15% acquisition growth.

So I guess it depends on what period you want to slice this thing for. We’re certainly bigger, we’re financially healthier the further you go back in our cycle remember we started this thing at a $60 million market cap company that was going through restructuring many years ago.

So, I guess it’s time and when you pick your party and if you start from year 2000 and look at a compound annual growth rate on the bottom line I think it’s right around 20%. And I think as John said we run the business for profitability and we will continue to do so.

We’ll have years of better than sustainable comps like we did in 2009 through 2011 which will generate 30% bottom line growth and I’d like to say we’re not going to have another total [crap] year like we did in 2012.

But I don’t know how you project what’s going on in the market place and the minus six comps and the highest tire cost ever in two years of declining tire units over the last 60 back-to-back and anticipate that after 11 straining years of comp increases..

I would just add to that, that over the last several years we certainly build more competencies internally here to be able to make more acquisitions in any one year than we had in the past. So, we’ve developed that piece of the puzzle out and I see a significant opportunity going forward to continue very, very healthy acquisition growth..

Okay sounds great. So if the – if the comps aren’t there it should be easier to buy and….

Yeah..

And if we unfortunately went through a two or three year period where comps were flat you could get like 15% growth through acquisitions you believe because you’ve got a better – you better would acquire it now than you were five, 10 years ago?.

Yeah I mean we saw that’s going to level off over a five year period but take the worst year we ever had from an earnings perspective which was last year and we ended up growing sales by 22% if you include a 6% down comp with the acquisition fees.

So, it’s a five year period it averages we’re much more concerned about consistently doubling the earnings every five year. And again I think we’ve successfully done that over the last 14 which it was a pretty good run rate..

Very good. Well I appreciate it guys. Thank you very much and good luck..

Thanks..

Thank you..

And that concludes our question and answer session. I’d like to turn the conference back over to our speakers for any additional or closing remarks..

Sure. I’d like to thank everyone for your time this morning. We’re making a lot of progress on margins and acquisition in the choppy sales environment. We’re encouraged by the recent uptake in our service business and are hopeful that winter brings upside in sales.

We appreciate your continued support and we certainly appreciate all the efforts from our employees that are working hard to take care of our customer every day. Thank you and have a great day..

Ladies and gentleman that concludes today’s conference. Once again thank you everyone for joining us..