Leigh Parrish – Investor Relations John W. Van Heel – President and Chief Executive Officer Catherine D’Amico – Chief Financial Officer, Executive Vice President-Finance, Treasurer and Secretary Robert G. Gross – Executive Chairman.

Bret D. Jordan – BB&T Capital Markets N. Richard Nelson – Stephens, Inc. Anthony J. Deem – KeyBanc Capital Markets, Inc. Scott L. Stember – Sidoti & Co. LLC Peter J. Keith – Piper Jaffray, Inc. Jon Berg – Piper Jaffray, Inc. Michael D. Montani – International Strategy & Investment Group LLC Brian Sponheimer – Gabelli & Company.

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake’s Earnings Conference Call for the Third Quarter of Fiscal 2014. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) And as a reminder ladies and gentlemen, this conference call is being recorded and may not be reproduced in whole or in any 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 SEC.

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 the leverage and debt service including sensitivity to fluctuations in interest rates, dependence on and competition within the primary market, 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 CEO; Cathy D’Amico, CFO; and Rob Gross, Executive Chairman.

With these formalities out of the way, I’d like to turn the call over to John. John, you may go ahead..

Thanks Leigh. Good morning and thank you for joining us on today’s call. We are pleased that you are with us to discuss our third quarter fiscal 2014 performance. After some brief opening remarks, I will review our results for the quarter, then provide you with an update on our key initiatives and outlook for the remainder of the 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.

We delivered record sales in net income in the third quarter as we leveraged our strong operating model and benefited from more normalized winter weather with sales and net income growth of 14% and 36% respectively.

Importantly, during the quarter, we continued to deliver on our key objectives of increasing traffic, benefiting from lower product costs, controlling operating expenses, generating strong sales and earnings contributions from our recent acquisitions and capitalizing on opportunities to complete additional acquisitions at attractive prices.

Our performance is the result of our team’s consistent execution of our previous strategy and the initiatives that enable us to meet our industry in both strong and weak markets.

While we benefited from more normalized weather trends in the third quarter, the macro and retail environment remain weak and negatively influenced consumer purchasing behavior resulting in a comparable store sales increase of 0.003%.

We have seen budget conscious consumers defer repairs and focus on the most necessary items which has resulted in choppy sales across key categories throughout this year. Customers have also continued to trade down particularly in tires where direct imports were just over 30% of our tires sold versus mid-20s last year and mid-teens three years ago.

In the third quarter, comparable store oil change traffic and tire units each increased 3% and comparable store sales were up 2% for brakes and 1% for tires demonstrating that customers continued to turn to us during the quarter to perform the work necessary to keep them safe and maintain and expand the life of their vehicle.

At the same time, comparable store sales decreased in the exhaust, shock and alignment categories which are more discretionary. Comparable store and tire units were positive for the quarter and year-to-date period despite the weak consumer.

In November and December, comparable store and tire units were positive by mid-single digits as a result of the winter weather in our markets. Tire unit sales have also been leading the way month-to-date in January.

We remain cautiously optimistic for improved sales performance in the fourth quarter with continued normalized weather patterns, particularly as we are cycling against two consecutive warm winters and a two-year deferral cycle.

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

We are hopeful that sales improvements we are seeing in certain categories while choppy, are signs that the expanded deferral cycle may begin to reverse in the near future.

Overall, we are encouraged that the cold winter weather and its affects on part failures and repairs in the spring season should help our sales in the first quarter of fiscal 2015.

As expected, we generated improved gross margin versus the third quarter of the prior fiscal year despite a shift in sales mix to the lower margin tire category that primarily reflects the higher tire sales mix of our recent acquisition.

Our ability to increase gross margin was largely due to reduced product costs and payroll control in our comp stores as well leverage of fixed costs as we achieve greater economies of scale from our recent acquisition.

We continue to drive reductions in product costs primarily tires, which will benefit the fourth quarter of this year and next fiscal year. 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 tire costs from direct import and branded suppliers and are taking advantage of the increased purchasing power that has resulted from our recent acquisition.

We are also benefiting from increased volume-related incentives and select cost reductions from branded manufacturers. As a reminder, these cost reductions flow into our cost of goods sold as our tire inventory turns. We expect this trend to continue into fiscal 2015 due to lower tire input costs, increasing supply and our increasing volume.

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

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

For the third quarter, total operating expenses as a percent of sales decreased to 25.6% from 26.7% in the prior year, reflecting leverage from a higher overall sales combined with our cost control initiatives. Our third 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 valuations. As you know, we significantly accelerated acquisitions and achieved record acquisition growth in fiscal 2013.

Through our successful acquisitions, we are operating 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 our operating leverage through accretive acquisition. We continue to be very encouraged by our fiscal 2012 and 2013 acquisitions, which contributed to earnings for the quarter again outperforming our plan.

As a reminder, based on the timing of our fiscal 2013 acquisitions, we estimate an EPS accretion of $0.15 to $0.20 coming into fiscal 2014 and raised that estimate after our second quarter to $0.20 to $0.22.

During our third quarter, we closed on the previously announced acquisitions of 10 stores and $15 million in annualized sales in Delaware, Maryland, and Kentucky. These deals increase our store density and leverage our existing brands of Mr. Tire in Delaware and Maryland and Towery’s Tire in Kentucky.

On a combined basis, the acquisitions we have completed in fiscal 2014 represent nearly 5% of total sales.

Proactively, our acquisitions increased 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 costs, all of which will help us drive future operating margin expansion.

We still see meaningful opportunity for attractive deals in the marketplace given the current macroenvironment. Owners of target independent tire dealers are individuals who are at or nearing retirement age without an internal succession option. We presently have seven NDA signed compared to six at the end of the second quarter.

Five of these NDAs are within our footprint and two are in a contiguous market with store change ranging in size from five to 40 locations. Based upon our recent transactions and our existing NDAs, we remain optimistic 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 turns, we are ready to act on any opportunities smaller or larger. Turning to our outlook. I want to first discuss our overall view on the industry and key trends which remain 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.

Vehicles over 12 years old now represent over 20% of our traffic, up from the mid-teens three years ago and average ticket on these older vehicles is consistent with our overall average.

Although deferrals have increased in this economy, consumers continue to perform necessary repairs on these older vehicles as evidenced by a year-to-date increases in comparable store oil change traffic, tire units and brake, exhaust and shock category sales.

Newer consumers have an interest in and are able to work on their vehicles, the number of overall service base 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 servicing convenience along with our store density and two brand store strategy.

Looking to our results for the remainder of the year, we are encouraged by this year’s weather trends and expect that normalized weather patterns will continue to have a positive impact on our business.

January comparable store sales month to date are slightly positive after running up approximately 2% prior to last week storms that impacted many of our stores. By the way, that is not a complaint about the weather. As a result, we have conservatively incorporated our year-to-date run rate of flat sales into our guidance for the fourth quarter.

For the full fiscal year, taking into account anticipated sales contribution from our fiscal 2013 and 2014 acquisitions we now expect total sales to be in the range of $830 million to $835 million this range incorporates flat comparable store sales versus the prior range of down 1% to flat.

Based upon these sales assumptions increasing margins and outperformance by a recent acquisitions, we are increasing our estimate of fiscal year 2014 EPS to a range of $1.63 to $1.66 from a range of $1.58 to a $1.65 which compares to EPS of $1.32 in fiscal 2013 and which represents a 23% to 26% increase in EPS versus fiscal year 2013.

In addition margins will continue to improve significantly in the fourth quarter as compared to the prior year and we expect 100 basis points to 125 basis points of operating margin improvement for the full fiscal year 2014.

Based upon trends to date in the fourth quarter, we expect fourth quarter comparable store sales to be flat to an increase of 1% and earnings per share to be in the range of $0.32 to $0.35 with fiscal 2013 acquisitions contributing the earnings and the fiscal 2014 acquisitions being slightly dilutive.

This compares to $0.25 for the fourth quarter of fiscal 2013 and represents earnings per share growth of 28% to 40%. Looking forward to next year, I’m encouraged by the cold and wintry weather this season because it affects on part failures and repairs should accelerate our comparable store sales in the spring.

I am also encouraged by the results of our continued actions to reduce both product and operating cost, which should allow us to produce operating leverage at a comparable store sales increase of approximately 1% versus the 2% to 2.5% we have needed in past years.

Coupling this with continued strong performance of our recent acquisitions, we should deliver a solid fiscal 2015. Our five-year plan remains unchanged and continues strong performance of our recent acquisitions, we should deliver a solid fiscal 2015.

Our five-year plan remains unchanged and continues to call for, on average 15% annual topline growth including 10% growth through acquisitions, 3% to 4% comps and a 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 to these stores.

With cost savings and recovery in sales, results are generally break-even 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 our recent 30% acquisition growth, just triple those EPS benefits.

Over the five year period that should improve operating margins approximately 300 basis points and delivering 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.

Before I turn the call over to Cathy, I would like to say that I’m very proud of the performance of our team during the third quarter.

We serviced more customers, performed more oil changes starting out future business, sold more tires and made more money on each unit, controlled operating costs and did a great job integrating our acquisitions from last year and our three new deals completed this year. These efforts allowed us to report record sales and earnings for the quarter.

The hard work, passion for superior customer service and consistent execution that our employees deliver everyday are reflected in these results and are critical to Monro’s brand strength and success. We greatly appreciate their 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. Good morning everyone. Sales for the quarter increased 13.8% and $26.3 million, new stores which we define as stores opened or acquired after April 1, 2012, added $29.6 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 at the end of fiscal 2013. Comparable store sales including the Kramer Stores increased 0.003%, and there was a decrease in sales from closed stores of approximately $1.5 million.

Additionally in the third quarter of last year, the company sold $2.4 million of slower moving inventory to a buyer company. There was no similar transaction in this quarter. There were 89 selling days in both the current and prior year third quarters.

Year-to-date sales increased $92.1 million and 17.2%, new stores contributed $99.5 million of the increase, partially offsetting the sales increase was a comparable store sales decrease of 0.002% and a decrease in sales from closed stores amounting to $3.9 million.

At December 28, 2013, the company had 951 company operated stores as compared with 918 stores at December 29, 2012. During the quarter ended December 2013, the company added 13 stores and closed two. Year-to-date we added 26 stores and closed 12.

Gross profit for the quarter ended December 2013 was $82.3 million or 38% of sales as compared with $69.6 million or 36.6% of sales for the quarter ended December 2012. The increase in gross profit for the quarter ended December 28, 2013 as a percentage of sales is due to several factors.

Distribution and occupancy costs decreased as a percentage of sales from the prior year, as we gain leverage on these largely fixed costs with higher overall sales. 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 quarter. Additionally, tire costs decreased meaningfully in the third quarter of this year as compared to the same quarter of last year. Total material costs, including outside purchases were relatively flat with the prior year.

We saw a meaningful decline in product costs, which were offset by a shift in sales mix to the lower margin tire category due primarily to the fiscal year 2013, and 2014 acquisitions of tire stores with high tire sales mix.

Additionally, excluding the fiscal year 2013 and 2014 acquisition stores, total material costs declined almost a full percentage point as compared to the third quarter of last year.

Gross profit for the nine months ended December 2013 was $242.9 million as compared with $207.6 million for the nine months ended December 2012, and remained flat at 38.7% of sales.

Operating expenses for the quarter ended December 2013, increased $4.6 million and were $55.4 million, or 25.6% of sales as compared with $50.8 million, or 26.7% of sales for the quarter ended December 2012.

Due to increased comparable store sales and sales from the fiscal 2013 and 2014 acquisitions as well as continued cost controls, we gain leverage on these largely fixed costs.

For the nine months ended December 2013, operating expenses increased by $19.7 million to $169 million from the comparable period of the prior year, and were 26.9% of sales as compared to 27.9%.

Within operating expenses approximately $5 million in expenses were directly attributable to increased expenses such as manager pay, advertising and supplies related to the fiscal 2013 and fiscal 2014 acquisition.

On a comparable store basis, operating expense dollars actually decreased, demonstrating some leverage in the slides from focused cost control.

Operating income for the quarter ended December 2013 of $26.9 million increased by 43% as compared to operating income of approximately $18.8 million for the quarter ended December 2012 an increase as a percentage of sales from 9.9% to 12.4%.

Operating income for the nine months ended December 2013 of approximately $73.9 million increased by 27% as compared to operating income of approximately $58.2 million for the nine months ended December 2012, an increase as a percentage of sales from 10.9% to 11.8%.

Net interest expense for the quarter ended December 2013 increased 0.007% as a percentage of sales as compared to the same period last year related primarily to the trueup of opening balance sheet lease accounting related to the recent acquisition.

There was a corresponding decrease in occupancy costs, primarily rent, included in cost of sales during the quarter. There was an increase in the weighted average interest rate of approximately 180 basis points related entirely to this opening balance sheet trueup.

Weighted average debt outstanding for the third quarter of fiscal 2014 increased by approximately $72 million as compared to the third quarter of last year.

This increase is related to an increase in debt outstanding under the company’s revolving credit facility for the purchase of our recent acquisition as well as an increase in capital leases recorded in connection with these acquisitions. Total interest expense for the fourth quarter of this fiscal year should be about $2.3 million.

For the nine-months ended December 2013, interest expense increased by $2.9 million or 0.003% [Ph] as a percent of sales as compared to the prior year. Weighted average debt increased by approximately $92 million, and the weighted average interest rate decreased by approximately 35 basis points.

The effective tax rate for the quarter ended December 2013 and December 2012 was 36.3% and 35.4% respectively of pre-tax income. Net income for the current quarter of $15.3 million increased 36.2% from net income for the quarter ended December 2012. Earnings per share on a diluted basis of $0.47 increased 34.3% as compared to last year’s $0.35.

For the nine-months ended December 2013, net income of $42.6 million increased 23.5%, and diluted earnings per share increased 22.4% from $1.07 to $1.31. Our balance sheet continues to be strong. Our current ratio at 1.2 to 1 is comparable to last year and in last year’s third quarter.

In the first nine months of this year, we generated approximately $75 million of cash flow from operating activities and paid off $20 million of debts. In addition, we used to some of the cash flow from operating activity to finance the fiscal 2014 acquisition.

At the end of the third quarter, long-term debt consisted of a $112 million of outstanding revolver debt, and $88 million of capital leases and financing obligations. As a result of the debt paydown, our debt-to-capital ratio including capital leases decreased 500 basis points to 33% at December 2013 from 38% at March 2013.

Without capital financing leases our debt to capital ratio was 22% at end of December 2013, a decrease from 26% at March 2013. Under our revolving credit facility, we have $250 million that is 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 the spread of a 100 basis points to 200 basis points and we currently are paying LIBOR plus a 125 basis points. The flexibility built into the agreement permits us to operate our business including during acquisitions without bank approval as long as we are complaint with debt covenants.

Those turnout as well as our current availability of approximately $117 million which does not include the accordion, gives us lot of ability to get acquisitions done quickly. We are fully complaint with all of our debt covenants and have plenty of room under our financial covenants to do acquisitions without any problems.

During the first nine months of this year, we spent approximately $22 million on CapEx including approximately $8 million in this third quarter. Store acquisitions during the first nine months of this year used another $26 million of cash, depreciation and amortization was approximately $24 million.

And we received $3 million in the exercise of stock option. We paid about $11 million in dividends. Inventory is up about $5.9 million from March 2013, largely due to new stores in the purchase of tires to expand product assortment and decrease outsize.

Total inventory turns for the rolling 12 months ended December 2013 have improved slightly from last year’s third quarter and March year-end. That concludes my formal remarks on the financial statement. So with that, I will turn the call over to the operator for questions.

Operator?.

Yes, thank you. (Operator Instructions) And we’ll take our first question today from Bret Jordan with BB&T Capital Markets. Please go ahead..

A quick question on the tire costs, I guess the trajectory.

Do you have a feeling for is the cost savings moderating or maybe what any more in on the savings side on the input?.

It’s certainly as we indicated, within our inventory, we’ve got cost savings that will leak into the fourth quarter and into fiscal 2015 based on inventory turns, and we continue to see decreases going forward as we said input costs are down, supply is there, and we expect our volume to continue to grow.

So we absolutely see more room there to decrease costs..

Okay. And I guess a question on the current quarter comp guidance.

If the majority of January was up to until the storm, but you are guiding to something slightly better than flat for the quarter, is there some expectation that the trends continue to moderate or is that just not reflecting the first half of January in your guidance?.

No, we just thought that it was better to be conservative in the comp, notwithstanding that recent change that we had here. We just thought it was conservative, which is consistent with how we approach the remainder of this year..

Okay. And then one last question and I will get off.

A sort on big picture, as you look at the acquisitions out there and talk about Sears, if you physically look at that chain, how many of those Sears units are within your distribution network?.

On those larger deals, we’ve been very successful doing what we’re doing, we view that as low risk. And frankly, we’ve also said we would be willing to look at other things larger than that. But those would come with the higher risks, so we would need to see the right price there for anything bigger.

Certainly a big chunk of those are within our current geography..

Okay. Great, I appreciate it. Thank you..

Sure..

And we’ll take our next question from Rick Nelson with Stephens. Please go ahead..

Thanks. Good morning..

Good morning..

I’d like to ask you about the downward revision to the revenue guidance. We saw an upward revision in the comp.

If you could talk about what drove that and the acquired stores, how they are performing?.

Yes, the acquired stores again are outperforming, ahead of our plan. With regard to the sales revision, we took the high end down based upon what we saw in the third quarter and the start to the fourth quarter to reflect that conservatism..

Gotcha.

Also, I’m curious about the traffic in January with the improvement in the weather to the easy compares, why you don’t think that comp isn’t stronger at present, and is the weather potentially, in fact, a negative keeping people out of the stores?.

Well, certainly, recently the weather hasn’t helped us. I am not here to make excuses about weather, we’ve talked about it for too long. But – and the winter weather is good for our business, and it has helped our business.

In shorter timeframes, it can certainly disrupt store operations and keep people at home when temperatures are very low and wind chills are below freezing and all that. So we saw a little bit of that recently..

Gotcha..

Outside of that, the weather has gotten us back flat, and it’s the consumer that we are looking to make the next move..

Okay.

And January is headed up or down or is sideways?.

Traffic is slightly up in January, led by tires..

I would also like to ask you about the acquisition pipeline. You mentioned the NDAs. I know in a typical year you target 10% acquisition growth. I think you are at 5% at this point, how you feel about that and looking out to next year, excluding I guess any transformational deals. And I’m curious on your thoughts – current thoughts there..

The pipeline is strong. We’ve got one more NDA than we had at the end of the second quarter, and it’s a matter of trying to get a meeting of the minds on price really. These guys are interested in selling, they are at the right time.

Some of them are not showing the earnings increases that they would like to, to reconcile what we think is a fair price within the range that, that we pay. So we need to resolve those and as we do, we are completely ready to add on several of those acquisitions..

The number – we are at 5% this year, but we had a self-imposed six-month hiatus to make sure that we did a good job integrating the prior year’s acquisitions. And I certainly think that was time and effort well spent..

That’s a good point, Rob.

And then on the transformational opportunities, has that got a price differential, or is there more to it than that?.

Well, I mean, like I said, we’ve been very successful in doing what we’ve been doing. We view it as low risk to continue to grow in our markets and in contiguous areas to our markets. And so anything that’s broader, would come with more risk and more reward, we need to balance that and we would have to be – have to be the right price..

As we said before, I wouldn’t own us in hopes of a transformational deal..

And thanks very much and good luck..

Sure, thank you..

And we’ll take our next question from Anthony Deem with KeyBanc Capital Markets. Please go ahead..

Hi, good morning..

Good morning..

Good morning..

Right. You mentioned that you see decreases going forward on the tire side and as input costs are down, the supply is there, and certainly as your volume grows. So you think you can decrease costs. I was just curious.

Are you able to quantify the benefit you might expect for fiscal 2015 overall? It seems as though that the most recent slate of tire cost reductions might anniversary by fiscal 2Q.

So any thoughts there?.

Yes, I think we gave that we gave you some general guidance on how do we see tire costs moving down and saying that we think that the point at which we get EPS contribution will be somewhere in the neighborhood of a 1% comp versus the 2% to 2.5% that we’ve needed.

Now this year, now we are operating even lower than that, that is I still think there is a lot of opportunity out there, but we wanted to at least indicate that we see some continued help there..

And then I was hoping you could comment on margins and specifically operating margins. We are obviously hitting this period of lower tire cost contributions from acquisitions and good cost controls.

And I guess, what I’m wondering is, and as you think about fiscal 2015, can you identify what the major tailwinds are versus the major headwinds?.

Yes, I think the major tailwinds are tire costs, we will continue to help. And for us, the major headwinds are things like Obamacare and the consumer. But in terms of – another significant tailwind obviously will be another year of contribution from our fiscal 2013 and fiscal 2014 acquisition.

So on the headwind side, Obamacare and the consumer, on the tailwind side, you have tire costs coming down, you have acquisitions.

And frankly the winter weather should help us in terms of sales in the spring and when we come around to next year in the fall certainly the winter, we’ve had this year will be on the minds of consumers even earlier, I think than it was this year. So again, that weather helps our business..

Okay, thank you..

Sure, thank you..

Next is Scott Stember with Sidoti & Co. Please go ahead..

Good morning..

Good morning..

I jumped on the call late, so I apologize if you have answered these already.

But could you just remind us what the tire comps that you are going up against in the fourth quarter and throughout maybe the next couple of quarters?.

The tire comp is down three in the fourth quarter of – was down three in the fourth quarter of last year. It was up 1% in the first quarter of this year and down 16% in the second quarter..

Okay, got you. And, again, if you mentioned this, I apologize.

But can you talk about percentage of your tires that are private label now versus a year ago, and could you possibly comment on what that percentage could be by the end of the year?.

Sure, we said that the percentage of import tires in terms of sales was just over 30% that is up from the mid-20s last year.

And with regard to where that can go, we managed the business to make money and we believe that after several years of significant inflation on tire prices that we believe we’re delivering a value to the consumer with these import tires, 33 tires that we can offer to consumers at an attractive price.

Again, if you think about this consumer that’s under a lot of pressure, we think that makes a lot of sense and consumers are building with their wallets. They are obviously buying these and seeing value there. So we are not going to place a necessarily a limit there.

We’ll continue to push that, and I think, as you look at the broader picture certainly that comes at the expense of other tiers we could be selling. So if you look at branded manufacturers and what they are looking to do and how long they allow us to and others like us to drive these import tires at the expense of tires they could be selling..

Okay.

So it’s fair to assume that we will probably see a continuation of the trend of the sales growth lagging the unit growth of tires at least for the foreseeable future?.

Yes. In the first quarter of our current fiscal year, we were up in the higher 20%s. In Q2, we were just short of 30%, right around 30%.

So we are going to be anniversarying some higher rates there, which I think will mute the impact and sales side of things, as well as, anniversarying some of the pressure that was more prevalent early in the year on tire prices. That will start to anniversary in our first quarter.

So we’ll experience some stability there will – you will see that effect potentially if you believe it..

Gotcha. That’s all I have. Thank you so much for taking my questions..

Sure. Thanks, Scott..

And we’ll now go to Peter Keith with Piper Jaffray. Please go ahead..

Great, thanks. Congratulations on a nice quarter, guys. This is John Berg on for Peter. I know you haven’t specifically guided fiscal year 2015 yet. You have provided some commentary on how you are thinking about some things moving into fiscal 2015.

But if you kind of weigh out and balance the impact of this winter weather versus the condition of your core consumer right now, how do you expect that to play out over the next six months, and which categories do you expect to see the biggest benefit?.

Yes. As I said, we’ve described pressure on the consumer as a key driver in our business and what’s happened in our business over the last two years really and the weather was a piece of it. The weather certainly has helped us.

And we are hopeful that some of the strength we’ve seen at different times during the year in categories is an indication that the consumer is going to be coming back.

And I think our next natural inflection point in timing would be the spring season coming off a pretty harsh winter when consumers will have a lot of part failures and that we will typically have off of a tough winter. So I think that’s how we would see it in April and May..

Okay. And then I know you are certainly not using weather as an excuse here. And it certainly benefited your business here in Q3 and seems to be in Q4 as well, too.

But would it be fair to say in Q3, I mean you had more store closures year-over-year due to the weather?.

Yes, I mean we didn’t highlight we – again, we don’t highlight those types of things typically within the quarter and last year very significant. So that’s probably it’s fair to say because we certainly had worse weather this year than last, but we didn’t think it was significant enough to highlight..

Okay, great. And then just one last quick one.

If I didn’t catch it, did you give the comps by month?.

No, the comps by month were October was down 2.6%, November was up 2.6% and December was up a 10%..

Great. Thanks a lot guys. Good luck in Q4..

All right, thank you..

Thank you..

Now we’ll take a next question from Michael Montani with ISI Group. Please go ahead..

Hey guys, thanks for taking the question. I wanted to ask about first a housekeeping question.

Can you provide the sales mix by category for the quarter?.

Sure. Sales mix by category for the quarter, brakes was 13%, exhaust was 3%, steering was 9.9%, tires was 49% and maintenance was 26% and don’t hold me to the rounding..

Got you, okay. And then just in total, on traffic and ticket for the quarter, I understand traffic was up.

Was it basically up 3% like the oil change/tire units, or was it a little lighter than that?.

No, traffic was up less than that and ticket was down slightly..

Okay.

And then just within the tire category, in particular, can you just talk about how much ASP was versus mix in terms of the ticket pressure that you saw?.

Sure. In this quarter, it was more mix and trade down than it was average selling price..

And thus my follow-up question was just to understand basically the competitive dynamics that you might be seeing out there. As you head into the fourth quarter, the guidance seems to imply gross margin is better, but maybe sort of similar to this one, although the compares are a lot easier.

Do you see maybe some incremental competition, or is there an incremental step up in tires to mix that would impact that? How should we think about, you guys typically want to increase prices, so how should we think about that?.

Sure Mike, I mean I think the guidance for Q4 is we were nine months of a zero comps. So why go out there, why not have the opportunity to do better. Certainly, the weather has been cooperating. We think the big upside of the weather is going to be April and May. But I mean, how much to stretch when you got nine months under your belt of zero..

Right. Just from a competitive standpoint strictly, though, it sounds like it’s pretty rational out there.

I mean, is that a fair way to think about it, or how would you guys categorize it?.

Yes. I would say it’s more rational than it was last year. I think people are hoping to make more money. We think we are holding our share based on looking at seven NDAs and how those guys are doing. And again, I think our margin, we are about the business model and improving our operating margin.

And as John said, we took some reductions in operating costs that would show up as a percentage of sales and reduce the advertising. We are not going to advertise. We are not going to get significantly promotional at a time where, in our view, the consumer is not shopping and it’s the softest volume months of the year.

We will save our powder, and we’ll see what the consumer has to say based on our traffic come April and May..

Okay, thanks guys..

Thank you..

Thank you..

And we have time for one more question today and that question will come from Brian Sponheimer with Gabelli & Company. Please go ahead..

Hi everyone. Happy New Year..

Happy New Year..

Happy New Year..

I just want to go back to just the acquisition pipeline. And presumably, as you guys get bigger, you are going to need bigger targets in order to maintain that growth rate. Rob, you were very clear in saying that we should have known you or recommend you in the hopes of a transformational deal.

But in the event something were to come around, that would be the right price and the right size, would you all ever consider using your stock as a currency if the transaction was that significant?.

Yes. Sure, I mean again, our risk profile is to be conservative and anything big, I don’t think we would be looking to leverage up to the point where we were doing all cash deals..

Okay.

But presumably if there was a distressed seller, the stock might be an appropriate currency for you to look down?.

If we think the stock is reasonably priced..

All right, all right. Thank you very much..

Great, thank you..

And that does conclude our question-and-answer session. Gentlemen, I will turn it back for any additional or closing remarks..

Thank you all for your time this morning. We continue to make a lot of progress on margins and acquisitions in a weak consumer sales environment. We are committed to profitable growth and expect positive fourth quarter results in a strong next year.

We appreciate your continued support and the efforts of all of our employees that work hard everyday to take care of our customers. Thanks and have a great day..

Thank you very much. And I would like to thank everyone for your participation today and that does conclude our conference..