John Van Heel - President, CEO and Secretary Catherine D’Amico - EVP, CFO, Treasurer and Secretary Robert Gross - Executive Chairman of the Board Effie Veres - FTI Consulting.

Bret Jordan - BB&T Capital Markets Richard Nelson - Stephens Inc. Anthony Deem - KeyBanc Capital Markets, Inc. James Albertine - Stifel Nicolaus & Co. Michael Montani - Evercore ISI Robert Higginbotham - SunTrust Robinson Humphrey.

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brakes Earnings Conference Call for the Third Quarter of Fiscal 2015. 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] 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’d now like to introduce Ms. Effie Veres of FTI Consulting. Please go ahead..

Thank you. Hello, everyone, and thank you for joining us on this morning’s call. I’d 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’d 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 costs associated with store renovations and other capital expenditures.

The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence to 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 Hell. John, you may begin..

one, from potential tariff related inflation and two, deposited impact of price mix on tire sales. Remember that every $1 increase in gross profit per tire is $0.05 of EPS and every 1% increase in units equates to 2.5% to $0.025 in EPS.

The impact of cost increases from the tariffs and our import tires will be limited to 5% to 10%, expanding our cost advantage over competitors and providing opportunity for increased gross profit for tire. At current barrel prices, a decline in oil cost of about $1 million in fiscal 2016 net off lower waste oil credits.

Significant sales in earnings contribution from our fiscal 2014 and 2015 acquisition and additional acquisitions at attracted valuations, particularly if the consumer and operating environment remain difficult. I’d like to thank our team for their great performance throughout the year.

The hard work, passion for superior customer service, and consistent execution that our employees deliver every day are reflected in our sales and earnings results and are critical to Monro's brand strength and success. We greatly appreciate their efforts.

With that, I’d 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 9.2% and $19.9 million. New stores, which we define as stores opened or acquired after March 31, 2013 added $24.1 million including sales of $21 million from fiscal 2014 and 2015 acquired stores.

Comparable store sales decreased 1.8% and there was a decrease in sales from closed stores of approximately $2.5 million. Additionally, during the quarter-ended December 2014, the Company completed the bulk sales of approximately $2.1 million of slower moving and non-stocking inventory to a barter company in exchange for barter credit.

There were 89 selling days in both the current and prior year third quarters. Year-to-date sales increased $47.2 million and 7.5% to $675.4 million. New stores contributed $54.2 million of the increase.

Partially offsetting the sales increase was a comparable store sales decrease of 1% and a decrease in sales from closed stores amounting to $5.8 million. During the nine months ended December 2014, sales to the barter company of slower moving inventory totaled approximately $5 million.

And there were 270 selling days for the first nine months of this and last fiscal year. At December 27, 2014, the Company had 1017 company operated stores as compared with 951 stores at December 28, 2013. During the quarter-ended December 2014, the Company added 21 stores and closed seven. Year-to-date, we added 82 stores and closed 18.

Gross profit for the quarter-ended December 2014 was $90.2 million or 38.1% of sales as compared with $82.3 million or 38% of sales for the quarter-ended December 2013. The increase in gross profit for the quarter-ended December 2014 as a percentage of sales is due to a decrease in material costs.

Total material costs including outside purchases decreased as a percentage of sales as compared to the prior year largely due to a shift in the mix of tires sold to lower cost direct import tires which carry a higher margin.

Labor costs were relatively flat as a percentage of sales as compared to the prior year quarter through continued focus on payable controls. Partially offsetting these decreases was an increase in distribution and occupancy costs, as compared to the comparable prior period.

This is due primarily to opening balance sheet lease accounting adjustments recorded in the quarter ended December 2013, which artificially lowered cost of sales by approximately 100 basis points last year. In addition, as previously mentioned, we completed the barter sale of $2.1 million during the quarter of lower margins.

This transaction decreased gross profit in the third quarter of this year by 0.002% as a percentage of sales. Additionally, excluding the new stores opened in fiscal 2014 and in fiscal 2015, gross profit actually improved by approximately 90 basis points as compared to the third quarter of last year.

Gross profit for the nine months ended December 2014 was $259.7 million or 39.9% of sales as compared with $242.9 million or 38.7% of sales for the nine months ended December 2013. This year-to-date increase in gross profit as a percentage of sales is largely due to decreased material costs, as I described for the quarter.

Moving on to operating expenses, operating expenses for the quarter ended December 2014 increased $6.8 million and were $62.2 million or 26.3% of sales, as compared with $55.4 million or 25.6% of sales for the quarter ended December 2013. The increase as a percentage of sales is due to the decline in comparable store sales in the quarter.

For the nine months ended December 2014, operating expenses increased by $14.4 million to $183.4 million or 27.2% of sales from 160 -- from $169 million or 26.9% of sales for the comparable period with the prior year.

Operating income for the quarter ended December 2014 was $28 million, and an increase by 3.8% as compared to operating income of approximately $26.9 million for the quarter-ended December 2013, and decreased as a percent of sales from 12.4% to 11.8%.

For the nine months ended December 2014, operating income of approximately $86.3 million, increased by 16.7% as compared to operating income of $72.9 million for the nine months ended December 2013, and increased as a percentage of sales from 11.8% to 12.8%.

Net interest expense for the quarter ended December 2014 at 1.2% of sales increased $23 million as compared to the same period last year, which was 1.5% of sales. Weighted average debt outstanding for the third quarter of fiscal 2015 increased by approximately $83 million, as compared to the third quarter of last year.

This increase is related to an increase in debt outstanding under our revolving credit facility for the purchase of our fiscal 2014 and 2015 acquisition, as well as an increase in capital lease debt recorded in connection with these acquisitions.

The weighted average interest rate decreased by approximately 220 basis points from the prior year due primarily to the purchase accounting adjustments for acquisitions recorded in the prior year third quarter, which artificially increased interest expense for the prior year quarter.

Excluding those adjustments, the weighted average interest rate decreased by approximately 30 basis points as compared to the third quarter of last year. For the nine months ended December 2014, interest expense increased by $0.8 million and increased by a one-tenth of a percent as a percentage of sales as compared to the prior year.

Weighted average debt increased by approximately $31 million and the weighted average interest rate decreased by 20 basis points. The effective tax rate was 37.4% pre-tax income for the quarter ended December 2014 and 36.3% for the quarter ended December 2013.

Net income for the current quarter of $16 million, increased 4.3% over net income for the quarter ended December 2013. Earnings per share on a diluted basis of $0.49 increased 4.3% as compared to last year’s $0.47.

For the nine months ended December 2014, net income of $49.2 million increased 15.7% and diluted earnings per share increased 14.5% from $1.31 to a $1.50. Moving on to the balance sheet, our balance sheet continues to be strong. Our current ratio at 1.2 to 1 is comparable to last year’s third quarter and fiscal -- and year-end fiscal 2014.

In the first nine months of this year, we generated approximately $89 million of cash flow from operating activities, and increased borrowings under our revolver by approximately $41 million. We use these borrowing and cash flow from operating activities to finance our fiscal 2015 acquisitions and new stores which added 82 stores year-to-date.

At the end of the third quarter, debt consisted of $147 million of outstanding revolver debt and $136 million of capital leases and financing obligations. As a result of the debt borrowings, our debt to capital ratio including capital leases increased to 38% at December 2014 from 32% at March 2014.

Without capital and financing leases, our debt to capital ratio was 24% at the end of December 2014 and 20% at the end of March 2013. Under our revolving credit facility we have $250 million that is committed through December 2017. And we also have a $75 million accordion feature included in the agreement.

Our interest rates during the second -- our interest rate is currently at LIBOR plus 25 basis points. I’m sorry, our interest rate is currently at LIBOR plus of 25 basis points.

And we have a lot of flexibility under our debt agreement to operate our business without bank approval, including doing acquisitions as long as we’re compliant with debt covenant.

Those terms as well as our current availability of approximately $88 million, which does not include the accordion, gives us a lot of ability to get acquisitions on quickly. We are fully compliant with our debt covenants and have plenty of room under the financial covenants to add additional debt for acquisitions without any problem.

During the first nine months of this year, we spent approximately $26 million on CapEx including approximately $7 million in the third quarter. Store acquisitions use another $83 million of cash.

Depreciation and amortization totaled approximately $26 million divided roughly evenly between all three quarters, and we received $2 million from the exercise of stock option. We paid about $13million in dividends.

Inventory is up approximately $12 million from March 2014, largely due to inventory per credit stores and the purchase of import tires to get ahead of the tariff. However, we made a conscious effort to reduce some branded tire inventory through the barter transaction and lower replenishment, which helps to offset the increases from the import tires.

Inventory turns for the rolling 12 months ended December 2014, we’re down slightly from last year, largely as a result of these advanced purchases of import tires. That concludes my formal remarks on the financial statements, and with that I will now turn the call over to the operator for questions..

[Operator Instructions] And we’ll take our first question from Bret Jordan with BB&T Capital Markets..

Hi, good morning guys..

Good morning..

Good morning..

A quick question, as we look at the new stores that have been added in the further south markets.

Could you give us any feeling sort of, what the impact on operating efficiency has been with some of those longer supply chains, and sort of maybe what it did for basis points in the third quarter?.

Yes, I mean, generally you’re looking at a couple of 100 basis points difference in the overall material and distribution cost..

Bret Jordan:.

buying:.

Its -- the ones we added in December and, I think we need to be closer to triple digits to be really thinking about putting a significant facility down there..

Okay. And then as we look at the current quarter and I -- no, go ahead..

No, go ahead, Bret..

As we look at the current quarter you talked about expectations of some retail price inflation in the near-term.

In your comp forecast what is your assumption on import tire pricing in the current quarter?.

On import tire pricing, I’m assuming to get some help in February and March. I’m not going to give a specific number related to that.

We said in the second quarter that based on what we were collecting at the end of September, if we compared that to the fourth quarter we would have been at plus 2 versus, in average selling price quarter-versus-quarter and we followed that up in Q3 with the highest average selling price for the year.

So, I think that supports that, in the later half of this quarter we should see some of that benefit..

Okay. Then one last question, on the inventory cap you were talking about $12 million between new stores and tires.

Could you breakout what was tires versus new stores? And I guess, would we expect to see that tire inventory build covert back to cash if things normalize around tariff frontline?.

I think you would see that covert back to cash in fiscal 2016, so that -- that should occur, and no, we don’t break it out, tires versus other..

All right. Thanks..

Okay. Thank you..

We’ll take our next question from Rick Nelson with Stephens..

Thanks. Good morning. [Indiscernible] tariff probably late November, and submit your [indiscernible] anti-dumping tariff came in January. How much did you raise tire prices in the third quarter? What have you seen fourth quarter today’s.

Or are quarter-to-date?.

We raised tire prices in the third quarter a couple of percent. The anti-dumping -- the November tariff was the smaller of the two. And again for the fourth quarter I would expect to see more of the benefit to the later half of the quarter now that competitors have -- had the actual amounts that the costs are going to up.

Just to put that in context, we have maintained our -- a couple of dollars more than the market tire pricing stance. So, throughout the third quarter we continue to maintain that. So, I would expect us to be kind of following the market up as it goes, and I would think that would occur now that the news is out, in the later part of this quarter..

Well, thanks. But how its going to [indiscernible] Chinese tire prices and for domestic manufactures followed, are you seeing [indiscernible]..

Your question was, the last tariff we saw the brand did go up along with the Chinese and what our expectation is this time?.

Yes, exactly..

So, given the nature of this tariff as I laid out in our comments, for the branded manufacturers who are not manufacturing in China, I would expect to see less increase activity this time because of the raw material environment, because of growing production for the U.S.

and also because of the fact that they are potentially loosing market share to these economy tires. I think what we’ll see out of these manufacturers potentially is realignment of some of their lines to close the gaps between where their tires are positioned and these economy tires..

Can you remind us what [indiscernible] out of the cost of goods sold per tire. I know it’s meaningful..

I don’t have that off-hand. I wouldn’t want to -- I mean, I know it is meaningful. I don’t want to give you a number here. I can definitely follow that up with you, Rick..

Okay. Thanks..

I just don’t have that right here..

So, finally -- let's [indiscernible] so about the pipeline on the acquisitions to the number of NDAs [indiscernible] used some of that in the prepared remarks..

Yes, I said we have 10 NDAs excluding the acquisition we expect to close this quarter, and that acquisition will add about $9 million in sales. It’s within our existing markets. The NDAs that we have are generally between 5 and 40 stores within our markets..

Great. Thanks a lot, and good luck..

Thank you..

We’ll take our next question from Anthony Deem with KeyBanc..

Hi, good morning..

Good morning..

Good morning..

So, a couple of questions here; first, as you wind down your Chinese imports, as raw material environment is increasingly favorable for tire manufacturers, that’s something you could presumably benefit from, I guess, I should we be thinking about one offsetting the other.

In other words, did higher cogs from the tariff be offset by more favorable pricing from tire manufactures or net-net do you see tire costs in general going up next year?.

We’ll update next years overall numbers when we give our guidance. But directionally I think, that is one of the significant differences between this tariff and last tariff, that raw material -- that declining raw material environment is significant.

So, I expect there to be a much harder case for branded manufactures to make in raising their tire cost than previously..

And so, with the comment on price mix on your tires turning positive in the fourth quarter here. We’re obviously seeing a decline in raws.

Just wondering if at all, just seeing a lower cost of goods on your tires, and if at all that can affect the anticipated reversal of the pricing deflation that you anticipate in your same store guidance?.

No, we are seeing lower tire cost this year. But the pricing, the retail pricing increases in terms of price mix are about what the replacing cost is of current inventory. That’s the way most dealers approach it us, when they know their costs are going up which the tariff does put some pressure on those costs, they begin to raise price of retail..

Okay.

And then, if I hear correctly that there is a 2% decline quarter-to-date in your same store sales?.

Yes, on positive traffic..

Okay. So, just a follow-up there. So your guidance reflects up 2%, is really just the price inflation or lack of deflation given you some confidence in outlook for, as we separate March here.

Is that the primary driver to get it up 2%?.

That’s a part of it, plus we’re up against down two comps in February and March. If we run up one for the last two months of the quarter, we’re at the -- we’re at the low end of our guidance. So, I felt like, with the tire pricing opportunity that there is and with those softer comps, that was reasonable..

Okay. Then a couple more if I may. So with the anticipated $0.02 to $0.03 EPS headwind from the higher inventory in tires in the back half discussed last quarter. Just looking at inventory as a percentage of your cost of goods, it seems like it’s the lowest it’s been in the past four quarters.

Is that a seasonal issue? Is that the broader issue that you all discussed or should we expect higher inventory to hit in fourth quarter?.

No, I don’t think you can expect much higher inventory to hit in the fourth quarter. And certainly, we just came through the largest tire selling season of the year. So, our December inventory obviously reflects that. And as Cathy mentioned, we have been trimming other inventory in order to keep an overall handle on working capital..

Okay.

And then just last question for me, of the 10 NDAs that you signed, can you share the range of revenues? How small to how large might be the acquisitions be?.

Yes, again generally they’re sized to 40 stores, and they’re primarily tire stores. So those would be in that $1.3 million range per store..

Okay. Thank you very much..

Sure. Thank you..

And we’ll take our next question from James Albertine with Stifel..

Good morning. Thanks for taking my question..

Sure..

I apologize -- just for a quick house keeping item, I apologize if I missed it.

But the monthly comps during the quarter; did you say those in the prepared remarks?.

Yes. October was down 2%, November was up 4%, December was down 9%..

I apologize for missing that. And then separately, we’ve talked historically about kind of a -- in a more North-East centric Monro portfolio something along the lines of 3x in terms of potential store count, and this is back when you were running something like 700 or 800 stores.

Now that you’ve kind of grown into the Mid-Atlantic, the upper Mid-West and certainly the South-East, how should we think about your aggregate sort of target portfolio size? Should we kind of take that 3x and extrapolate from there or do you have any updates you’re willing to share at this point?.

No, I don’t think we’re updating that. We continue to see something like 1,300 tire stores and 1,300 service stores throughout our 25 states, there is that kind of opportunity for density..

Okay. And then, historically as well you talked sort of $0.08 to $0.10 as it relates to years two and three accretion from new stores. More recently last few quarters you’ve been saying $0.09 to $0.12.

Understanding the lack of succession plans and quite frankly the bigger broader pressures on your competitive set -- your competitor set, is that really -- that additional accretion a function of lower valuations of deals or is there something that you’re deriving from a logistics perspective that’s helping you to sort of buy more accretion than you did historically?.

The metrics that we’re using are remaining the same, 7 to 7.5 times EBITDA and picking up 800 to 1500 basis points of operating margin improvement. As there is more pressure on these smaller guys, we are tending to get more of that 800 -- that 800 and 1500 is coming through a little bit at the higher end generally.

But also the $0.08 to $0.10 going to $0.09 to $0.12 reflects a larger company. So, you’re buying more stores and that’s generating more incremental income. So, the acquisition volume goes up, and so does the EPS..

Very good. Thank you for clarifying and good luck in the fourth quarter..

Sure. Thank you..

Thank you..

And we’ll take our next question from Michael Montani with Evercore ISI..

Hi, guys. Thanks for taking my question. I wanted to ask about first off comp, ticket versus traffic in the third quarter with the 1.8% decline.

Can you just tell us, what was traffic and what was ticket?.

Yes, traffic was the majority of that, about 1.5% which you would expect against the tire price mix flattened out in the quarter..

Okay.

And year-to-date is traffic actually still up now, or is it flat or down?.

Year-to-date traffic is slightly positive for the year. Yes..

Okay. In the third quarter you mentioned that price of mix was roughly a neutral factor in terms of your tire comp dollars being down $0.03.

Can you just give us the split of actually what the price did versus what mix was?.

So you had a mix shift, we gave you the percentage of direct import tires. So, you saw that mentioned 30 to 38 and that is -- that shift was offset by price increases..

Okay.

Because I was just thinking sequentially in the second quarter ASP that had 0.5, so is it fair to think maybe they could be up 1 or 1.5 this quarter or how should we think year-over-year?.

Yes, I think we commented that, we thought units would be flat in February and March and comps would be up too, which would be generated by a flip in price and inflationary raising prices in general on tires in light of what's going on..

Okay. I’ll move on. Just the last two I had was, is there anyway to think about this quarters increase in price in terms of branded tires versus the Chinese tires, were both of those up a few points or can you just help us with that. And the last one I had was the mix of sales by category..

Sure. The answer on branded versus import, yes they were both up. And second -- and your second question mix by category, brakes was 13%, exhaust was 3%, steering was 9%, tires was 49% and maintenance was 26%..

Great. Thanks a lot guys..

Thank you..

Thank you..

And we have time for one more question. We’ll take our last question from Robert Higginbotham with SunTrust..

Good morning, everyone. Thanks for the question..

Good morning..

So my question relates mainly to inventory, to the extent that your inventory grew pretty close to the overall revenue growth that as you stockpile import products, you said that you were funding some of those import purchased by lower branded purchases.

So would you characterize your current branded tire inventories significantly in short such that you are starting to have to ramp up those purchases up?.

No, we get very ready supply from branded manufacturers, so we’re able to manage that inventory pretty closely. We’ve made sure that all of our stores had plenty of tires to sell, and that’s allowed us to just manage the overall increasing inventory while investing in the pre-buys for the import tires..

Okay.

And then, so what you have and in terms of imports, how many months of supply do you have with those -- of that product now?.

Yes, we haven’t broken out how many months of supply we have at any point during this, and I don’t think it helps for us to do that.

I am 100% comfortable with the 5% to 10% increase year-over-year fiscal ’16 cost of sales versus fiscal ’15 that we’ve guided to, and the pre-buy in orders that we made and agreements we have with manufactures all play into that..

Yes, Robert, I mean, we borrowed 1%. So, if the domestic guys decide they want to sell stuff, we’re in a position to buy it and put whatever on the shelves we want to just like with the shifting production out of China, we’ll do the same on imported tires.

It’s not a function when you carry $5 million extra of inventory and it cost you $50,000 to carry it for a year, I mean, its not something we worry about to the same extent you do..

Well, to be clear, I’m less worried about what your cost to just store the product might be.

I’m wondering, how long, how many quarters you can sell Chinese imports at a higher retail market price having funded it at a pre-tariff costs?.

We said the first six months of 2016 to work through it, but that question is assuming that domestic guys aren’t going to make any adjustments, import guys aren’t going to make any adjustments. I mean, some of this is driven by what our competition does also. So, it’s a pretty long tale..

Sure, fair enough. And then, so to make sure I understand the 5% to 10% cost increase that you’ve talked about for a while which is really helpful. That’s sounds like that is a fiscal ’16 number.

What would the annualized number be based on the current post-tariff cost structure would be?.

That is our estimate for the annual number for fiscal ’16 with post-tariff -- our post-tariff impacts incorporated over fiscal ’15..

Well, I mean kind of more on a rolling 12 months, what's the full annual impact [indiscernible]?.

You mean beyond fiscal ’16?.

Well, yes, beyond ’16 and really importantly beyond whatever beyond you working down your stockpile levels..

Yes. There is absolutely assumptions we made of costs beyond working down our existing inventory. That is all incorporated in the 5% to 10%.

But as I have said, the most important -- we’re focused on fiscal ’16 not only because it’s the next fiscal year, but in the transit -- in the year that’s coming up, you’re going to have significant amount of sourcing shipping out of China into other non-tariff countries, and that’s really where we’re focused.

Our whole focus was to put ourselves in a position where we could contain the cost in the first year and then maximize the opportunities that we have to source outside of China. So, what you should hear out of that is, I don’t expect cost beyond that to be ramping up significantly from what we’ve talked about for fiscal ’16.

I mean, that’s a long way off, that’s sort of my projecting it forward..

So, we’re trying to get -- Sure. I understand. And then, so one quick last one, that the 2-ish percent price increased. You said you took in third quarter, which sounds like it was.

Sure, I understood. And then, so one quick last one that the, 2’ish percent price increase you said you took in third quarter which sounds like it was spread across both throughout Chinese imports and the branded product.

Was that driven by the manufacturers and you passing that through or was any of that you taking price action just at retail?.

That was us taking action at retail..

Okay. Thank you..

Sure..

Thank you..

And that does conclude our question-and-answer session. I’ll turn it back over to our speakers for any closing remarks..

Thank you..

Thank you all for your time on this early morning. While I’m not contend with our results, we are actively managing our business to drive top line growth, in earnings in this operating environment, and to expand our competitive advantages to strengthen Monro to the long-term.

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

And that does conclude today’s conference call. We appreciate your participation..