Effie Veres - IR, FTI Consulting Brett Ponton - President & CEO Brian D'Ambrosia - CFO.

Brian Nagel - Oppenheimer James Albertine - Consumer Edge Matt Fassler - Goldman Sachs Carolina Jolly - Gabelli.

Good morning, ladies and gentlemen, and welcome to the Monro Incorporated Earnings Conference Call for the Third Quarter Fiscal 2018. [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 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 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 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. With these formalities out of the way, I'd like to turn the call over to Monro's President and Chief Executive Officer, Brett Ponton. Brett, you may begin..

Thanks, Effie. Good morning everyone. I'd like to welcome you to Monro's third quarter fiscal 2018 earnings call. I would like to start with a brief overview of our third quarter results followed by an update on the progress we've made on our strategic initiatives.

As expected, comparable store sales were volatile throughout the quarter ending with the decline of 3%. As was the case last quarter, negative traffic was partially offset by a higher year-over-year ticket. This was particularly true as we lapped an increase of comparable store sales of 15% in December of last year.

To provide you with additional color, our monthly comparable store sales were negative 3% in October, negative 1% in November and negative 5% in December. From a regional perspective, we once again saw outperformance in our southern markets as compared to our northern markets with our stores in the south comping positive in the quarter.

When we look at sales by category as provided in this morning's press release, we saw declines across the majority of our service and repair categories. In our largest category, tires, we experienced a decline of 4% in comparable store sales, reflecting a decline in yields of 5% which were not surprisingly led by declines in December.

This was partially offset by a 1% higher average ticket in the quarter. We also continued to see consistent and a rational retail tire pricing across our major markets.

In our fiscal month of January which started on December 24th and ended on January 20th, comparable store sales have improved to an increase of 1% or 2.5% when adjusting for the holiday calendar shift. And thus far in our fiscal month of February, our retail comps have accelerated and are up approximately 4%.

The holiday calendar shift in January reflects the shift to the Christmas and New Year's holidays from Sunday to Monday.

This is a headwind for us given that our sales on a Monday are an average two-times higher than a Sunday, which is our slowest sales for the week, slowest sales day of the week, given that approximately 1/3rd of our store base is closed.

While third quarter results on an adjusted basis were in line with our internal expectation these results are far from where we want them to be. We know we can do better and we have moved quickly to launch a number of strategic initiatives that will get us there.

More specifically, since our last earnings call, we have completed a rigorous business assessment which has further highlighted the significant opportunity we have for improvement, particularly as it relates to our instore execution.

As we previously discussed, we believe that by delivering a high quality and consistent experience to our customers, we can improve customer retention and over time drive higher customer lifetime value.

This will enable us to drive traffic back into our stores which we believe will lead to sustainable growth in comparable store sales and higher profitability. Based on our findings, we have developed a game plan to strengthen our five areas of focus which include store operations, marketing, our team mates, omni-channel, and acquisitions.

While we have made progress across all areas, there are a few important initiatives that I would like to highlight. Starting with our first strategic area of focus store operations. One of the most critical initiatives underway is providing a consistent best-in-class experience to our customers across our over 1100 company stores.

To achieve this, we've kicked off our store operational excellence initiative we fittingly named Monro Forward. This key initiative focuses on setting brand standards for how we look and how we operate. First on how we look.

Monro is a company that has grown through decades of acquisition activity which has resulted in a store base that includes a wide range of store sizes and configurations. Our objective is to drive consistency in our store appearance and store layout across our markets and store formats regardless of structural differences.

The outcome will be a [white] [ph] store refresh which modernizes our store appearance and establishes clear standards for our retail banners. This fresh and modern look will carry into the store and extend a visual merchandising and customer amenities.

We will also update how we communicate in store with our customers by simplifying and updating materials such as service estimates, invoices and inspection forms, so we can better inform our customers about their automotive needs and the service options available to them.

Additionally, at some point in the future, we also introduced an interactive tablet for our customers that can further rate and streamline the sales process and enhance our customer experience.

We are currently in the process of segmenting our stores by format and size to determine the investment and timeline required for this [slight] [ph] store refresh which we will share with you on our next earnings call in May. How we look also extends to what we sell. We want to optimize our product mix in our tire category.

When we reviewed our tire assortment, we took a more granular approach to category management and we identified several gaps in our tire offering particularly in our mid-to-higher price points. To address this in the near term, we have already started to make changes to our mix.

However, to truly optimize our tire assortment, we will line every stores inventory to its local demographics and vehicle population. So, we can truly offer our customers the right tires at the right price. We've also optimized this updated tire mix through clearly defined good, better, and best product options.

To support this stronger merchandizing strategy, we are working with the point-of-sale partner to evaluate our in-store product materials and visual merchandizing and refine our selling approach, so that our team mates can properly educate consumers on the benefits across our good, better, and best product options.

The combined effect would be to maximize our ticket and drive higher conversion through an improved customer experience in merchandising strategy. Turning to how our stores operate. We want to get it right the first time every time. That means setting high standards of performance for our team mates.

This starts with understanding the critical moments in-store that separate a good customer experience from a bad one. We will leverage best practices from both inside and outside Monro to help us define those moments and the in-store procedures and practices that we want our teammates to follow.

Our objective is to ensure that we deliver a best-in-class experience to every customer at every store every day. This new playbook will be supported with new training for our teammates delivered through a cloud based learning management system.

Our playbook will also define the roles and responsibilities of our teammates in-store, which will set the foundation for a new career development plan at Monro which I will discuss in a moment.

We believe these actions will ensure that our teammates are well trained with [assist, educate] [ph] and address our customers' needs providing an in-store experience that is worthy of our customers trust and long-term patronage.

To ensure we reach our objectives, we are increasing transparency and accountability throughout the organization by providing the right tools to our field managers, so they can enact real change at the store level. To do this effectively, we are investing in leveraging technology.

We are currently testing new handheld web product tablets with software designed specifically for our industry. These will allow our field managers to evaluate and manage their stores performance across key performance indicators.

These include the ability to trap traffic, sales mix, staffing, margin, customer appointments, as well as customer reviews and allow managers to trap these metrics versus budget and historical trends and versus their peers.

These dashboards also enable field managers to correct teammate's progress with respect to training and certification goals and requirements. Overall, these dashboards reduce the time spent by managers identifying the underlying cost performance issues freeing out more time for coaching that'll enable real improvement.

To drive visibility and accountability in the field, we're implementing a standardized store review process that our field managers would use when they visit stores. This cloud based store report will set expectations for teammates by incorporating the same KPIs accessible in the dashboard.

We'll also include quantitative matrix such as a rating for store appearance and in-store execution assessment to measure the customer experience.

In all, both the dashboard and the store report will provide field managers with the analytics to help them effectively manage their store base as well as the ability to measure the progress of our Monro Forward program. We expect both of these tools will be rolled out to the field by the end of this quarter.

To help us effectively design and implement the Monro's Forward program, we've hired a third party, a firm which I've had great success with in the past.

From a timing perspective, we expect our updated tire merchandising strategy will be implemented by the middle of fiscal 2019, with respect to our store refresh, instore procedures and employee sales trading, we've already begun the first phase, the design and planning process which we expect will also be completed by the middle of fiscal 2019.

We have which one, we'll begin a pilot across three select markets. We expect the roll ups to our over a 1100 company stores would be a multi-year initiative. To ensure there is minimal disruption to the business. What's rolled out are stores who will have a consistent look in field, regardless of market or store format both inside and out.

And importantly, from an execution standpoint, our teammates will have the tools and the training to deliver a customer experience that surpasses our customers' expectations. Turning to our second area's strategic focus; our marketing strategy.

Today, the majority of our marketing is product focused being primarily offer-based and centered around oil change promotions.

We'll be moving to a marketing program that is customer focused and leverages the robust data we have in our CRM database to deliver the right message with the appropriate product and service offer to our customers at the right time.

More specifically, we will leverage will be know about our customers vehicles, their buying habits, and OEMs maintenance tables to tailor a timely message regarding upcoming needed service or parts replacement.

By engaging with our customers in a smart and appropriate way, we can improve customer retention, drive higher marketing productivity while putting forth a marketing message that encapsulates the true breath of our service offering and reinforces our strong value proposition. Turning to our customer acquisition efforts.

We've hired a customer analytics firm to provide market segmentation and demographic information with a geographic area surrounding each of our stores, so that we can identify potential Monro customers and directly market to them.

By leveraging these customer analytics, we can also identify which of our stores are underperformers relative to the size of their potential target market and better focus our attention to driving improvement.

Additionally, we can also use this customer information to help us in choosing Greenfield locations as well as identifying favorable markets in which to pursue acquisitions. Finally, we're also committed to ensuring that the Monro brand is well represented online.

That means cert change and optimization and local risky management to ensure our customers can find us. It also means creating a presence on social media and effectively managing our online reputation.

Through our new dashboards, we are able to zero in on our stores with a lowest online customer ratings and address performance issues through our Monro Forward program. We also ensure that the stores which are providing exceptional customer service are accurately reflecting that and customer reviews online.

From a timing standpoint, we expect to complete the work to our marketing strategy by the middle of fiscal 2019. We got a lot of ground to cover but we're off to a great start. Our third area of strategic focus is on our teammates.

Monro's long-term success will ultimately be based on our ability to effectively attract train and retain talented technicians. Therefore, it is imperative that we have the internal resources to offer our teammates the technical training needing to affectively serve our customers as well as a clear path for career advancement.

As I mentioned earlier, as part of the Monro Forward program, we're developing a comprehensive learning management system, an onboarding program we have named Monro University.

With the increasing adoption of technology in newer vehicles, we want to ensure that our over 7000 field teammates receive consistent and ongoing high quality training that will support them through the clear progression and allow Monro to capitalize on the continued market shift from DIY to Do it For Me as vehicles increasingly become more complex.

As we enter the new fiscal year, we will revise our store compensation model to a more balanced score card. One that is driven by performance on sales, profitability and customer satisfaction. Our stronger field team model also helped to optimize our store staffing. As we previously discussed, our store scheduling process is currently done by hand.

Our assessment has highlighted a large number of understaffed stores and a significant number of stores which appeared to be overstaffed.

To bring better alignment to our store labor, we are once again investing in technology and expect to begin rolling out our electronic store staffing model in the fourth quarter of fiscal 2019, which leverages detailed sales data to more effectively staff stores not only with the right number of technicians but also match the appropriate complement of technical abilities based on the mix of services historically provided in each store.

The adoption this technology will allow us to better track and manage employee productivity and ultimately provide greater bandwidth in our store labor to drive sales while improving our customer experience.

With respect to our four strategic focus area and looking beyond our store footprint, we're making progress in delivering a true omni-channel experience to our customers. In fiscal 2019, we'll upgrade our website to a mobile capable architecture as well as add new content and make improvements to our user experience.

We will also be building the capabilities for a seamless omni-channel experience, one that allows customers to view and purchase available tires online and to seamlessly make an appointment for installation at a nearby Monro location.

Once completed, we believe these omni-channel capabilities will significantly enhance our customer experience, drive traffic towards stores and favorably reflect on our brand. Our revamped website will also have a capability to seamlessly integrate with multiple 3rd party online tire sellers.

As we discussed on our last earnings call, we are engaged with a number of online tire sellers as a preferred installer.

While still representing a small percentage of our business, these installations are very profitable with a high average ticket that is comparable to our corporate average and just as important, half of the customer sent to us from these online sellers are new to Monro, making this a meaningful traffic driver.

Also worth noting, as part of our assessment, we discovered that Monro is one of the only tire sellers online to include installation in the pricing of its tires, unless consumers closely read the small print, this may give the appearance that our tires are anywhere from $17 to $20 higher than many of our online competitors.

The reality is our pricing is in line with those of our largest competitors in our major markets. To alleviate this potential misperception, we will be unbundling the price of our tires in installation. We expect this change to be completed by the end of the fourth quarter.

As with our focus areas, we will be using analytics to drive our pricing strategy going forward. Turning to our fifth and last focus area; acquisition.

I believe the successful completion of the initiatives related to the other four strategic areas I just discussed, we'll drive a stronger more scalable business model capable of more efficient acquisition integration with higher returns on investment.

With the passing of corporate tax reform, we do expect to see some pickup in acquisition opportunities as we lookout to fiscal 2019. We have a disciplined approach to acquisitions which we will continue to follow and build upon.

Additionally, the investments we are currently making will only help us integrate these future acquisitions that much faster. As you may have seen this morning's press release, we signed a definite agreement to acquire seven stores which nicely fill in our existing footprints. With annualized sales of approximately $7 million.

As we look ahead, we remain excited by our M&A prospects with a strong acquisition pipeline and more than NDAs on opportunities ranging from five to 40 stores. To conclude, as I reflect back on my six months at Monro, I'm pleased with the steps we've taken and I'm confident in our detailed assessment of the business.

The opportunities isn’t covered and the plan we put in place the drive, change throughout the organization. We do not expect to see improvement overnight as these initiatives will take time to implement.

But I'm confident that our investment in technology, our dated driven approach coupled with strong and disciplined execution will deliver long-term profitability and value to our shareholders.

On our fourth quarter earnings call in May, we'll be laying out a three-year plan reflective of our business transformation which went through to a series of benchmarks to track our progress.

As we discussed on our last earnings call, we believe many of our initiatives can be executed by reprioritizing our capital investments and this would not significantly change our company's investment profile.

Having said that, with a significant benefit, we're projecting from lower corporate tax rate in fiscal 2019, we are considering taking a portion of these tax savings and accelerating our investments in fiscal 2019 to fast track many of our initiatives.

We are still working through our fiscal 2019 budget and will provide an update on our capital expenditure plans and financial targets on our next earnings call. And with that, I would now like to turn the call over to our Chief Financial Officer Brian D'Ambrosia to provide a detailed overview of our third quarter results..

Thank you, Brett, and good morning everyone. Sales for the quarter totaled $285.7 million, representing a 0.9% or $2.6 million decrease year-over-year. New stores defined the stores opened or acquired after March 26th 2016 added $6.4 million including sales of $2.3 million from our fiscal 2017 and 2018 acquisitions.

This was offset by a comparable store sales decrease of 3.1% and a decrease in sales from closed stores of approximately $1.4 million. The third quarter had 90 selling days in line with the prior year period.

As of December 23rd, 2017, the company had 1138 company operated stores and 103 franchise locations as compared with 1098 company operated stores and 132 franchise locations as of December 24th, 2016. During the quarter, we had a four company operative stores in closed bill.

Gross profit for the third quarter was a $170 million or 37.4% of sales as compared with $105.6 million or 36.6% of sales for the prior year period. The increase in gross margin for the quarter was due primarily to a decrease in material cost as a percentage of sales largely due to sales mix.

Labor costs were flat as a percentage of sales as compared to the prior year quarter. Just a fusion in occupancy cost for the quarter increased as a percentage of sales as we lost leverage on these largely fixed cost with a decrease in comparable store sales.

Operating expenses for the quarter increased $5.2 million and were $77.7 million or 27.2% of sales as compared with $72.5 million or 25.2% of sales for the prior year period. The increase is primarily attributable to $2.7 million in one-time cost consisting of $2 million in litigation settlement cost and $0.7 million in management transition costs.

The remaining year-over-year dollar increase represents expenses from 40 net new stores.

With respect to our litigation settlement I just mentioned, in December 2017, the company did settle a litigation matter that had been pending for several years related to alleged violations of the fair labor standards act and certain state laws relating to overtime and unpaid wages.

The case had recently answered court ordered mediation following a series of court decisions in the company's favor. The settlement occurred at the non-binding mediation before which the company had a low expectation of settlement.

However, during the mediation, the company took the opportunity to settle the case as well as any related potential litigation in an amount slightly less than $3 million, which we estimated to be less than the legal fees and expenses that we would likely incur in connection with defending this matter over the next 12 months.

Therefore, our analysis led us to the conclusion that the settlement was a better amount of favorable one. Any litigation takes a certain amount of management's time and its sanction, and we believe that settling this matter will allow management to focus and running the company's operations and executing the initiatives previously laid out.

Turing to our operating income for the third quarter of $29.3 million which increased by a 11.4% as compared to operating income of $33.1 million for the same quarter last year. In decrease as a percentage of sales from a 11.5% to 10.3%.

excluding the one-time process in the quarter, operating income would have been $32 million, a decrease of 3.4% year-over-year and operating margin would have been a 11.2%; a decline of 30 basis points year-over-year. Net interest expense for the third quarter, increased $0.9 million as compared to the same period last year.

The weighted average debt outstanding for the third quarter of fiscal 2018 decreased by approximately $14 million as compared with the third quarter of last year.

This decrease in debt is due to the pay down of our bank debt using cash flow from operations partially offset by higher capital lease debt recorded in connection with our fiscal 2017 and 2018 acquisitions and Greenfield expansion.

The weighted average interest rate for the quarter increased by approximately 110 basis points year-over-year mainly due to the higher interest expense associated with capital lease and financial obligations coupled with higher LIBOR and prime interest rates as compared to the prior year period.

The effective tax rate was 50.1% for the third quarter compared to 37.2% for the same period last year. On December 22nd 2017, President Trump signed a tax cuts in jobs at in the legislation. The new U.S. tax legislation is subject to a number of provisions including a reduction of the U.S.

statutory corporate income-tax rate from 35% to 21%; effective January 1st, 2018. Under accounting guidance, the tax effects of the new legislation are recognized upon enactments. Accordingly, our net differed tax to assets and liabilities have been revalued at the newly enacted U.S.

federal corporate income tax rate and a tax expense of $5.3 million with recognized in our tax provision as a discreet item during the quarter ended December 2017.

Further, we recognize and income tax benefit of $2.1 million related to the reduction of approximately 300 basis points in our estimated annual effective tax rate during the quarter end of December 2017. For the quarter, the NAT tax expense related to the new tax legislation, a $3.2 million decreased diluted earnings per share by approximately $0.10.

We expect future earnings to be positively impacted by the new tax legislation largely due to the reduction of the U.S. federal corporate income tax rate. This should represent a reduction in our estimated annual effective tax rate from approximately 37% to 24% and a benefit of between 45% and $0.50 of deluded earnings per share in fiscal 2019.

Net income for the current quarter of a $11.6 million decreased 34% year-over-year. Earnings per share on a diluted basis for the third quarter were $0.35 as compared to last year’s $0.53.

Excluding $0.10 per share related to the net impact of newly enacted tax legislation, $0.04 per share in litigation settlement cost and $0.01 per share in management transition cost and adjusting for rounding. Adjusted dilute in earnings per share for the quarter, third quarter of fiscal 2018 were $0.49 per share; a decrease of 7.5% year-over-year.

Now, I would briefly comment on our balance sheet which continues to be strong. Our current ratio at 1.1 to one 1.0 is comparable to year and fiscal 2017. Inventory returns at the third quarter of fiscal 2018 improved as compared to fiscal 2017 year-end and the third quarter of fiscal 2017.

During the first nine months of fiscal 2018, we generated approximately $97 million of cash flow from operating activities and reduced our debt under our revolver by approximately $28 million.

Capital lease and financing obligations increased $16 million due primarily to the accounting for our fiscal 2017 and 2018 acquisitions and Greenfield expansion. At the end of the third quarter, debt consisted of a $155 million of outstanding revolving debt and $245 million of capital leases and financing obligations.

As a result of the fiscal 2018 pay downs, our debt to capital ratio including capital leases decreased to 39% at December 2017 from 41% at March 2017. Excluding capital and financing leases, our debt to capital ratio was 20% at December 2017 and 24% at March 2017.

Under our revolving credit facility, we have $600 million that is committed through January 2021. Additionally, we have a $100 million recording a future included in the revolving credit agreement. We have approximately $420 million of availability not counting the accordion.

We're fully compliant with all of our debt covenants and there's plenty of room under our financial covenants to add additional debt for acquisitions without any issues. All of this as well as the flexibility built into our debt agreement allows us to take advantage of more and larger acquisitions and makes it easy for us to complete that quickly.

During the first nine months of this year, depreciation and amortization totaled approximately $36.5 million, we received $3 million from the exercise of stock options and we paid about $18 million in dividends.

We spent approximately $29.7 million on CapEx and $16.4 million on acquisitions, including one to four store acquisitions completed as part of our Greenfield expansion strategy. As you saw in this morning's press release, we announced that we signed a definitive agreement to acquire seven stores.

These stores fill in existing markets and are expected to add approximately $7 million in annualized sales; representing a sales mix of 45% service and 55% tires. This acquisition is expected to close in the fourth quarter.

Acquisition is completed in an announced date in fiscal 2018, are expected to add $20 million in annualized sales and be breakeven to deluded earnings per share in fiscal 2018. During the quarter, we opened four Greenfield locations, during our total Greenfield store openings to 14 fiscal year today.

We expect to open an another 13 locations in the fourth quarter with 27 Greenfields store openings expected for fiscal 2018. As a reminder, Greenfield stores include new construction as well as the acquisition of one to four store operations. These locations are expected to add approximately $1 million each in annual sales.

Now, turning to our outlook for fiscal 2018. We have narrowed our fiscal 2018 comparable store sales range to a range of negative 0.5% to an increase of 0.5% on a 52-week basis or an increase of 1.5% to 2.5% when accounting for the 2% cap sales benefit from an extra week in the fourth quarter.

This compares to our previous guidance which call for a decrease of 1% to an increase of 1% on a 52-week basis.

Based on the updated comparable store sales guidance in the contribution from today's announced acquisition, we now anticipate fiscal 2018 total sales of $1,000,120,000,000 to $1,000,135,000,000 representing an increase of 10% to a 11% year-over-year. Our guidance does not assume many future acquisitions or Greenfield store openings.

The updated guidance implies a 3% comparable store sales range for the fourth quarter of fiscal 2018 at the midpoint of the 52-week range. This compares to a decline in comparable store sales of 8% in the fourth quarter of fiscal 2017. Turning to our past outlook.

Our fiscal 2018 guidance continues to assume a slight moderation in our overall tire cost in the fourth quarter as compared to the third quarter as well as lower oil cost year-over-year. Given these assumptions, we continue to expect to generate operating leverage and a comparable store sales increase above 1% on a 52-week basis.

As a reminder, every 1% increase in comparable store sales above this threshold generates an incremental $0.08 in EPS for the fiscal year excluding the extra week.

Our fiscal 2018 guidance now anticipates deluded earnings per share to be in the range of a $1.88 to a $1.93 to reflect the revised comparable store sales guidance as well as $0.04 in third quarter litigation settlement costs, $0.10 in third quarter incremental net tax expense and an expected $0.02 in net tax benefit in the fourth quarter from the newly enactive tax legislation.

This compares to our previous guidance of a $1.95 to $2.10. The earnings guidance continues to include $0.05 in management transition cost and $0.10 per share in a contribution from the extra week in the fourth quarter and now include $0.16 to $0.18 in accretion for the recently completed acquisitions versus previous guidance of $0.15 to $0.19.

Excluding the impact of the litigation settlement, the midpoint of our earnings guidance represents flat operating margin for the fiscal year. With operating margins expected to improve year-over-year in the fourth quarter due to improved results from recent acquisitions, continued sales execution and the impact of the extra week in fiscal 2018.

This concludes my formal remarks and the financial statements. With that, I will now turn the call over to the operator for questions..

Thank you. [Operator Instructions] And we will first go to Brian Nagel from Oppenheimer..

Hi, good morning..

Good morning, Brian..

Good morning..

So, my question just on sales or maybe a little more qualitatively. But you weighed out your prepared comments the cadence of I guess some monthly comps and into the fiscal fourth quarter here. More qual, how do you, how is the overall sales environment shaping up. It seems like the weather has got more favorable for you.

Is that reflected in the numbers? Do you think you're capitalizing up on that weather or are there other factors that play here sort of that’s driving this better comps?.

A couple of points to comment on, Brian. To go back to our Q2 call that we had we knew going into this second half of the year we're going to experience some volatile comps between our Q3 and Q4 largely driven by December and January dynamics we saw last year; driven by pre-favorable winter conditions in December of last year.

So, given that fact, we elected to guide flat sales on the year. And our internal [indiscernible] were down three and plus three for Q4. So, based upon that, we certainly feel good that we came in in line with what we're expecting.

Albeit I think we all would agree we have opportunities to improve off of that but given the strong comps last year, we felt like that was a reasonable place to be. And we're encouraged that we came in according to that. Related to the dynamics in January, I would say this.

In a on a two year stack basis, if you look at December of this year, we were up plus 10 and January down plus 10. So, if you net that out rolling across the calendar year, we're basically flat. As I mentioned, we have seen some nice acceleration in February in particular with sales up 4%. Certainly it's very early in the month.

We as we look to the latter half of February, we will be lapping some lighter comps. So, we’re somewhat encouraged by that yet we recognize there's still lot of time left in the quarter and our March comp is certainly one of the harder comps for the quarter we have to overcome. So, the net of that is guiding to three up on the quarter.

Couple of other things that we're seeing, certainly the weather conditions provided some favorability namely on tires and we're also encouraged that some of the colder temperatures we would expect to set a nice backdrop for our spring service selling season as well.

We'd like to comment just about little bit of a cultural change, then start to see in our team and our organization. Certainly not going to suggest that's driving our improvement in performance but I think it's playing certainly a factor.

Like the teams has responded extremely well to our Monro Forward initiative I think they're excited about the new tools that we're going to be rolling out the latter part of the month of February. And we're excited about the forward direction that we have as related to all of these initiatives..

That's very helpful, thank you. And there's this one quick follow-up, with regard to acquisitions, I know in prior conversations we've talked a lot about prospects of the hopes of tax legislation change keeping some of your potential bigger sellers on the sidelines.

So, now that we have the tax legislation in place, have you started to see those sellers of larger chains come back in force to you?.

Yes. The opportunities that we're now seeing coming into our pipeline, certainly have accelerated after the first of the year. And as a result of that, we've expanded our M&A team to manage those increase in activity, Brian.

We are certainly in the game for acquisitions but just to remind everybody, we're in the game with a keen focus on delivering value to our shareholders.

We believe that value to our shareholders will come through a combination of the right acquisitions, some Greenfield development where it makes good sense for us and then of course we'll just reinforce the fact we're very focused on the execution of our operational excellence initiatives we've just discussed in this call.

But net-net, we definitely see some improvement in the deal flow, if you will on our M&A pipeline..

Got it. Thank you..

Thanks, Brian..

And our next question comes from James Albertine from Consumer Edge..

Hi, good morning everybody. And let me just say thank you for all the detail you provided on that prepared remarks on the call and certainly looking forward to the three-year plan later this year..

Thanks, James..

I wanted to ask if I may, a question that we and others have asked for many years to no avail, really hasn’t been a great data or great answer around it. I'm hopeful we can get a little bit more granular today given all the data that you've laid out and all the work you're doing around data and analytics.

But really it's a question of market share and as well sort of the idiosyncrasies of operating in the Northeast versus other parts of your portfolio. Clearly the South is outperforming the Northeast, you said that in prepared remarks.

Do you have a better sense and a better handle of where your market share is today relative to peers and maybe help us sort of draw a line in the sand as to where you stand, either an absolute percentage or in terms of the share you believe maybe Monro has yielded over the past several years.

Because it does sound like you've been giving up share based on some of the initiatives that you've outlined..

Maybe to start with, I'll give you a little bit of color more on our performance for the quarter. We highlighted that our South outperformed the rest of our portfolio but we also saw relative outperformance of the mid-Atlantic region. We saw some nice strength in our Northeast stores relatively speaking.

Our softest performing markets would be in the Great Lakes region that we saw in the quarter. As relates to market shares, in our industry it's pretty difficult to get our arms around that with finite data.

However, as I made some comments on my prepared remarks around a company that we partnered with on analytics this is going to allow us or the intention behind that partnership is twofold.

One, we want to make better real-estate decisions, analytics associated with that but also want to leverage that data to drive more targeted acquisition efforts from a marketing point-of-view. By virtue of having that data, we will then have a much better view in terms of what our share of market is.

But currently where it stands today, I certainly don’t have a lot of visibility there. We certainly look at other metrics that are out there. Performance in the tire category relative to what we see in the form of tire shipments into the trade as well as comments from analysts like yourself and others.

I made the comment when I first joined the company I think there has been three drivers that have impacted the performance of our business over the last few years.

One, certainly has been the more macro trends that we have faced is related to our cohort, six to 11 year vehicle that's over the last five to six years we've experienced 15 million fewer vehicles in that cohort. So, no doubt that's played a factor and a headwind on our organic growth.

Certainly weather up until recently has played a factor but I've also been quickly I think in a position to point out we believe we have opportunities to improve our performance.

And if I look at all the initiatives that we are laying out and are committed to executing, those are all geared towards improving not only how our stores look but equally important how we're operating stores. And we believe if we do that well, we will protect the share of market and the markets that we have.

And that will translate in a more consistent sustainable organic growth out of the company than what we've seen in the past..

I really appreciate that color, Brett, and as a follow-up if I may.

With respect to the comment on the analytics partner, better real-estate decisions, driving more targeted acquisition efforts, are we to take from that an implication that you're going to look to add new markets at a faster rate perhaps than Monro was doing historically? And then to follow-up the demographics and the vehicles in operation data that you have.

Is there anything kind of funny in that data that just sort of shows the Northeast is a little bit in a worse positioned perhaps relative into the South and mid-Atlantic. They can help support that? Thanks..

I'll start with the second part. I think when you look at our company, given the fact we have just under a 50% of our business mix is related to tires.

Certainly in the Northeast given an outsized exposure to weather dynamics that we see in that portion of our footprint and it creates more exposure to volatility and ties us more closely to weather dynamics that will steer demand stronger or weaker depending upon those conditions.

So, I think that's I would say that's the larger backdrop in terms of what we see as related to the Northeast. It's related to analytics, again I think we're going to use that data that just sort of shows that northeast is a little bit in the worst positioned perhaps relative into the south and mid-Atlantic they can help to support that? Thanks..

I’ll start with the second part.

I think when you look at our company given the fact that we have just under 50% of our business mix is related to tires, certainly in the northeast given an outsized exposure to weather dynamics that we see in that portion of our footprint and it creates more exposure to volatility and ties us more closely to weather dynamics that will stir demand stronger or weaker dependent upon those conditions.

So I think that’s – I would say that’s the larger backdrop in terms of what we see as related to the northeast. As it relates to analytics, again I think we’re going to use that data to help drive better decision across multiple factors.

One, we are making better decisions around our leases; number two, will help us optimize our DMAs or MSAs which will drive our targeted acquisition effort as well as Greenfields in terms of filling in. But certainly we’ll use it to help, to lift the potentially accelerated growth in more attractive geographic segments in our business as well.

And a third piece that we’ll use that data to help drive in our company is really understanding better what is the potential of our stores will be able to drive forecast based upon market demographic and trends, and we’ll use that as a tool to help better set more appropriate forecast and budgets for our stores. Thanks, Jamie..

And we’ll now move to Brett Jordan from Jefferies..

Good morning, this is Mark Jordan on for Brett. Just going back to reading your performance during the quarter, did the regional gap close or widen maybe from October to December and do you have any reason in the current quarter.

I think there was some favorable weather in the northeast that might have fallen into fiscal January?.

Yes, so certainly the gap didn’t widen in the quarter particularly highlighted by December. And then secondly, as we move into January here we are seeing that reverse in January and narrowing with better performance in the northeast relative to the south..

Great.

And then Q4 [Indiscernible] strength kind of outside or maybe higher traffic, is there any product mix that might be driving the comp improvement?.

Yes, still very early in the quarter for us but certainly the traffic trends related to tires we seem to strengthen in our tire category as we walk through January into February..

Great, thank you. And then just following up on the M&A question that was that earlier.

Have you seen any difference in acquisition multiples or expect any given tax reform going forward?.

I think my commentary is pretty consistent with what we said last quarter related to M&A and you know valuations. I think certainly on the larger deals we’ve seen an increase in the multiples those are trading at.

We have yet to see that materially impact the multiples that – the 5 to 40 store operators would expect so no material change at this point that we’ve seen driven in particular by the tax law change..

Okay, great. Thank you very much for taking my questions..

Thank you, Mark..

And we’ll now go to Matt Fassler from Goldman Sachs..

Thanks so much and good morning. My first question focuses on the different scenarios for investment that you see going forward and particularly the range of costs that might get associated within.

And I know you're going to share a more detailed accounting of what that might look like on the May conference call, but is it a question of speed, is it a question of some of the IT and other infrastructure that you need to accumulate just understand the range of outcomes as we try to frame the margin paths of the business?.

That’s great; it’s a great question Matt. The short answer is yes, there is range and vary based upon speed and our ability to execute and we want to be thoughtful about how quickly we drive change in our organization. So certainly that’s going to be a gating item that we’ll work in our way through that will reflect in our FY'19 and beyond plans.

And just to reinforce a couple of other insights or perspective around our investments going forward. There is three broad themes that we are sending to our team internally. Number one we want to invest in our stores, number two, invest in our people in terms of training, capability, group, passing and development.

And then three there is a large team you’ve been hearing a lot about which is investing in technology.

I will say yes, if you look at the three investment themes, no doubt the most capital intensive one is around our stores in terms of how we look and how we operate, which is driving most of our work right now to really start to break down our portfolio, to understand the state of the stores within the portfolio which will drive the amount of investment that we think we need to do bring them up to our standards.

And that of course will drive our timeline and we’d expect to roll that out under. As it relates to the other initiatives around technology and training, really the gating item there is internal resources.

As we found out already with a number of technology investments we’ve already made in the company, it’s allowed us to eliminate cost that we have spent in other programs or platforms keeping our net investment in the company net neutral on several of the technology investments we’ve made to this point..

Understood.

And then you know because CapEx dollars are ultimately fungible, is it feasible that perhaps you could cut back on Greenfield stores for example in fiscal 2019 and put some of that cash into technology CapEx is that one consideration as we think about outcomes?.

Yes, absolutely Matt. If you look at our total CapEx spend on average it’s around 35 million, of which 25 to 30 million is maintenance CapEx.

So certainly as part of our forward view here, we will be looking at the total investment and prioritizing the total dollars to really ascertain how much needs to be incremental versus reprioritizing our current spend..

The other important thing about the CapEx spend as well is just their thought. If you listen to Brett’s prepared remarks regarding the timing, certainly related to the light refresh that’s going to be designed and planned throughout the first half of fiscal 2019 and then a pilot across a few markets after that and then the roll out.

So certainly as we think about 2019 fiscal 2019 we don’t have full 12-months of this initiative being spent on the light refresh. So I think that will mitigate some of the reinvestment or the investment in our FY 2019..

Understand. And then Brian, just the second question is for you. So I hear you are on the 24% tax rate on an annualized basis, given that the quarter ended in December, can you just explain the line item for the kind of tax benefit that you would have registered, you classified it as a one-time item.

And I’m trying to understand whether that relates to marking a part of the quarter or part of the year to the new tax regime and then also I think you talked about only $0.02 for the fourth quarter in terms of lower tax rates. So what are the tax assumptions that feed those items.

I understand the right kind of the DTA that’s pretty intuitive but the other piece is just as we finish out this fiscal year and we decide what’s truly one-time in nature like DTA rate down versus what’s the beginning of the adaption of the more normalized element of the new tax bill? Thank you..

Sure. So for a non calendar year tax payor like ourselves our March fiscal that the way you calculate the annual effective tax rate is basically for pro rate. So we basically recalculate our annual effective rate using nine months at the of old federal rate and three months of the new rate.

So what that creates is in the third quarter we are supposed to true up to that new effective annual rate. So within that $0.06 of benefit basically not only the benefit recorded in Q3 but the cumulative benefit of recasting Q1 and Q2 to the new effective rate.

So that’s why the $0.06 is not a run rate that you could expect just for a quarter, that is basically the full nine months of catch up. And that’s also why the fourth quarter is only $0.02, that’s also due to the rate reduction, but that also reflects that annual prorated rate.

And for that reason as we move into 2019, we’ll -- without the proration in effect anymore we’ll get the full benefit of the 21% federal rate..

So in other words, that 6 plus 2 is effectively the fourth quarter benefit which is the only quarter that falls into fiscal – falls into the current fiscal, current calendar year, is that fair?.

The $0.08 would be the – basically the annual benefit of the rate related to the fourth quarter being 21% blended back across our full fiscal year..

Perfect. Thank you so much for that..

[Operator Instructions] We’ll now go to Rick Nelson from Stephens..

Hey guys, this is Nick Zangler in for Rick. Just to touch again on those upcoming investments, you know the ones that you went around the strategic initiative standpoint, just a lot going on there.

How should we think about from an OpEx standpoint view particularly as we enter fiscal 2019, are we seeing bottomline or redployment of spend or are we to expect incremental spend as we go forward?.

Yes, I mean I think that what Brett had explained earlier is that some of the initiatives that we’ve already identified currently is really a redeployment of spend where we are maybe taking some solutions that were already in place and optimizing them for some current technologies in current technology investment.

So I think that there is a good portion of our OpEx spend that will not be necessarily incremental but self funded.

And then as you move towards the CapEx, we’ve obviously already commented on that and certainly any redeploymnet of CapEx would already be contemplated but any incremental CapEx is going to have a depreciation impact and we’ll provide some more color on that in May..

And maybe to add a little bit more color to that as well. A lot of the investments that we are talking about here over the next six to nine months are primarily technology investments and we’ve elected to pick off the shelf partners and the affordability on the solutions we selected as quite affordable.

So as Brian mentioned, just to reinforce the point in many respects we are eliminating cost that we have incurred in the company to fund the initiatives that we’ve laid out here, so we don’t see a lot of incremental spend on the OpEx side going forward..

Great. And then just to get back on acquisitions.

I know you’ve touched on it briefly here, but I’m just trying to gauge given the savings that you are going to get from tax reform, are you guys more willing to bid up to get on acquisition pricest to get these deals done? Does the additional capital available change of valuation criteria at all?.

Like I think you know as I mentioned in my prepared comments, growth or acquisitions looks it’s going to be a key component of our growth story of the company.

And certainly I think that the uncertainty that we saw and with tax law that’s created a little bit of a pause in the second half of last year and I think as a company we took advantage of that to manage the transitional leadership in the company and develop our forward strategy and by the way the forward strategy I think helps me get more confident that we can drive more integration and more value from the companies we acquire and allow us to have more confidence so that you can accelerate in the pace at which we integrate them into the company.

So having said that, I think certainly Monro is going to be in the ball game for acquisitions and our appetite for deals is there.

We certainly have balance sheet capacity to do that and provided the opportunity that we are looking at creates value for the company and our shareholders, we certainly are going to be in a position to take advantage of that..

Okay, thank you very much guys. Much appreciated..

Thank you..

And we’ll now go to Carolina Jolly from Gabelli..

Good morning, thanks for taking my call.

Just quickly on tires I guess, can you talk about price versus volume and any factors that are affecting those two variables and potentially I guess what might affect that going forward?.

Yes, I think that the broader backdrop that we provided in our comments we have seen a pretty stable environment on retail pricing throughout Q3 and continued into Q4.

As we talked about in the quarter, we did see some favorability in our price mix on tires and part of our margin expansion in the quarter was driven by some favorability on the cost side. But as we highlighted in Q2, we expected the flow through our P&L in the second half of the year.

So we characterize the environment is pretty stable, environment right on both pricing and cost..

Perfect, thanks. And then just second quickly regarding weather, when you have this type of favorable weather that we’ve seen in end of December, early January.

Do you have any thoughts on when that kind of can be seen through the same store sales over the next quarter?.

I think normally speaking tires, the tire side of our business you would see usually somewhat of a realtime pick up in traffic and volume, just given that consumer behaviors relates to tires and as it relates to more service related items on a consumers car, the cold weather has a tendency to create mechanical issues and break things on consumers cars.

And in many cases consumers will get around doing that in spring period and as I made the comment my opening remarks, certainly the colder temperatures that we’ve seen certainly sets up we would see as somewhat of a favorable spring service season as a result of the colder temperatures that we have seen..

Okay. Thanks a lot..

Thank you..

And there are no further questions. I’ll turn the conference back over to you Brett for any additional or closing remarks..

Thank you. Before we conclude the call, I want to reiterate how excited I am about the tremendous opportunity to drive improvement across to our organization. I would like to thank all our team mates for their continued hard work and dedication to our customers.

I am confident that the strong foundation of our business coupled with our renewed focus on the customer and data-driven approach will create sustainable, long term value for our shareholders. Thank you all for joining us today and for your continued support as we enter a new phase in Monro’s history. Have a great day..

This concludes today’s presentation. Thank you for your participation..