Maureen E. Mulholland - Monro, Inc. Brett Ponton - Monro, Inc. Brian J. D'Ambrosia - Monro, Inc..

Brian Nagel - Oppenheimer & Co., Inc. Matthew J. Fassler - Goldman Sachs & Co. LLC Rick Nelson - Stephens, Inc. Mark Jordan - Jefferies LLC Stephanie Benjamin - SunTrust Robinson Humphrey, Inc..

Good morning, ladies and gentlemen, and welcome to Monro, Inc.'s Earnings Conference Call for their First Quarter of Fiscal 2019. At the 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.

And as a reminder, ladies and gentlemen, this conference call is being recorded and may not reproduced in whole or in part without permission from the company. I would now like to introduce Ms. Maureen Mulholland, Senior Vice President, General Counsel, and Secretary at Monro. Please go ahead..

Thank you. Hello, everyone, and thank you for joining us on this morning's call. Before we get started, please note that as a part of the call this morning, we will be referencing a presentation that is available on the Investor Information section of our website at www.monro.com.

I'd like to draw your attention to the safe harbor statement on slide 2 of the presentation. As a reminder 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 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 leverage and debt service including sensitivity or fluctuations in interest rates, dependence on and competition within primary markets in which the company stores are located, the need for and cost associated with store renovations and other capital expenditures, risks related to litigation, and risks relating to the integration of acquired businesses.

The company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect the 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. Additionally, on today's call, management statements include the discussion of certain non-GAAP financial measures.

Reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation. With these formalities out of the way, I'd like to turn the call over to our President and Chief Executive Officer, Brett Ponton. Brett, you may begin..

Thank you, Maureen and good morning, everyone. Thanks for joining us today.

Before diving into our first quarter performance and the progress we've made towards executing our Monro.Forward strategy, I would like to thank our teammates across the organization for their ongoing effort and the outstanding work they do every day as we continue to drive positive and effective change across our company.

We are off to a great start in the new fiscal year as sustained momentum in our business led to strong top-line performance in the first quarter. As illustrated on slide 3, we achieved comparable store sales of 1.9%, driven by a higher average ticket, improving traffic and strength in our tire and brake business.

We are also very encouraged by the improving comparable stores sales trends we saw during the quarter, which as we discussed at our Investor Day started off negative in April due to a late spring arrival, but was more than offset by our return to positive comp sales in May.

We ended the first quarter with accelerated comp sales performance in June, and we are pleased to report that momentum continued into July with comparable store sales up approximately 2% month-to-date. May and June comparable store sales of 3.3% and 3.6%, respectively, were adjusted for the Memorial Day calendar shift.

The continued improvement in our two-year stacked comparable store sales performance, over the past few months, is further evidence of our strengthening top line, a trend we expect to continue through fiscal 2019. When looking at comparable store sales by category, we experienced an increase of 2% in tires, our largest category.

Lower unit sales were more than offset by higher ticket as a result of our optimized tire sales and pricing strategy. We're also very encouraged by the improvement in our online operating metrics resulting from the changes we made to our online tire pricing strategy at the end of last year, when we unbundled tire from instillation.

These changes led to increased conversion and a notable increase in online service appointments. In our service and repair categories, we saw positive comp sales in brakes and front end/shocks, while alignments and maintenance declined year-over-year.

In particular, we experienced strong demand in our brake category, further supported by the launch of our Good-Better-Best brake packages in the first quarter which drove an 11% increase in our brake transaction volume.

During the quarter, we also identified opportunities to further optimize the pricing of our brake packages as we continue to capitalize on the strong demand in this category, which I will talk about more in a moment. Geographically, we saw a strength in our northern markets, which outperformed our southern markets.

Lastly, new stores added $14.4 million in revenue, including $9.7 million from recent acquisitions.

Turning to slide 4, we continue to capitalize on favorable accretive acquisition opportunities in the marketplace and are pleased to report that we completed the acquisition of eight Sawyer Tire Company locations earlier this month, filling in the existing market of Missouri with a sales mix of 50% service and 50% tires.

These acquisitions have annualized sales of $8 million and are expected to be breakeven to EPS in fiscal 2019. Additionally, we are pleased to announce that we signed a definitive agreement to acquire seven stores in existing markets.

These stores have annualized sales of $8 million and are expected to be breakeven to EPS in fiscal 2019 with a sales mix of 60% service and 40% tires. We expect to close this transaction during the second quarter.

Acquisitions announced and completed thus far in fiscal 2019 represent $63 million in annualized sales, and our M&A pipeline remains robust with over 10 NDAs signed with opportunities ranging from 5 to 40 stores.

As we highlighted at our Investor Day, we operate in a highly fragmented industry with significant M&A opportunities, which represent a potential 10% in annual sales growth and an additional 12% to 17% in potential earnings growth by year three post-acquisition close.

Additionally, we believe through the execution of our Monro.Forward strategy, we will be able to drive more effective integration leading to higher ROI going forward. Moving on to slide 5, we are thrilled to announce our collaboration with Amazon.com to provide tire installation services to their customers across the Eastern United States.

As we announced in our press release this morning, these services will be available to any customers who purchase tires online from Amazon.com and select the ship-to-store option. We receive the selected tires and complete the tire installation during an appointment and at a location designated by the customer.

As part of the initial launch, these services are available to Amazon customers in the Greater Baltimore area at our Mr. Tire Auto Service Centers and over the course of the next year will be available to Amazon customers at all Monro retail locations across our 27 states.

In line with our Monro.Forward strategy, this collaboration marks a major milestone in development of our omnichannel presence and builds upon the success of our multiple preferred tire installer agreements. While still representing a small fraction of our business, our agreements with online retailers are a key component of our omnichannel strategy.

As we have said before, these agreements are a notable traffic driver as 50% of these customers are new to Monro. Once these customers are in store, we can inspect their vehicle and recommend add-on services driving increased conversion and higher tickets.

Importantly, we're also able to add them to our CRM database and begin to build long-term one-to one-relationships.

We are looking forward to providing tire installation services to Amazon customers and intend to continue to leverage our preferred tire installer agreements to develop our online presence and enhance our customer-centric engagement efforts.

We entered fiscal 2019 focused on driving operational excellence and delivering a consistent 5 star experience to our customers. During our Investor Day, we outlined the key pillars of our Monro.Forward strategy and I would like to provide an update on the progress we've made so far.

As highlighted on slide 6, I am pleased to report that we are progressing as planned and moving quickly to implement our strategic initiatives.

Starting with our initiatives to improve the customer experience, we are very pleased with the traction of our online reputation management program which we launched across our entire store base in late February.

We believe investments in technology and increased efforts to solicit customer feedback are paying off as we receive more than 75,000 customer surveys and online reviews since we launched the pilot program in January.

Early results show that improved search traffic resulting from our online reputation management program has contributed to driving higher conversion and importantly higher traffic to our stores.

We are also actively leveraging the customer feedback and insights from this data to drive operational improvement across our stores which has led to significant improvement in our overall star rating across all online review sites.

We have received an average online review rating of 4.6 stars since the beginning of the year, which has significantly improved our all-time average company online star rating, up now to 4.2 stars across our 1160 location as of the end of June and that's compared to 3.6 stars before we started this program.

Turning to slide 7, we are also pleased to report that our store reimage initiative is progressing on schedule. We believe the store refresh will help modernize and align the appearance of our stores driving consistency across our markets and delivering a five-star experience to our customers.

We have defined clear brand standards, identify the appropriate scope of refresh needed for each of our stores, and are currently on schedule to launch our 30 store reimage pilot in Rochester, New York in the beginning of the third quarter of fiscal 2019.

Now, let me provide an update on our data-driven marketing strategy and initiatives to enhance our customer-centric engagement.

In line with our plans, we expect to launch our data analytics-based CRM platform in the second quarter, which will enable us to leverage customer data and insights to deliver tailored messages and service recommendations to our customers based on their specific vehicle needs.

Our objective is to develop long-term one-to-one customer relationships and drive higher customer retention. As mentioned earlier, building our omnichannel presence is another key priority regarding our customer engagement initiatives.

It starts with the modernization of our online presence through our mobile platform and our website which we plan to roll out in the second quarter of fiscal 2019. We are upgrading our website to a mobile capable architecture and making improvements to our user experience.

We're also using these upgrades to add new content and better convey our customer value proposition on our new website.

Next, we are making good progress with our initiatives to optimize our product and service offering; in particular we are very excited by the early signs of success of our Good-Better-Best packages that we launched across our store base during the first quarter.

While we are very pleased to see the increased demand for brakes during the quarter, sub-optimal brake package pricing at launch slightly pressured our first quarter gross margin.

To combat this, we raised our package prices late in the quarter and we'll continue to identify opportunities to further optimize our brake package pricing including leveraging analytics to capitalize on the high demand in this category going forward.

Importantly, our Good-Better-Best packages simplify the customer education in in-store selling process for our store managers by providing clearly defined options for our customers, allowing for increased trade-up and attachment opportunities.

During the quarter, we trained our teams on how to market these assortments and expect to see positive margin tailwinds from this initiative as we continue to ramp up our efforts through the remainder of fiscal 2019. Lastly, we have moved quickly on some of our productivity and team engagement initiatives.

As a first step to optimize our store staffing, we added technicians to our understaffed stores to support improved traffic trends and sustained sales momentum. Our strong commitment to support our teammate's professional development and the cultural changes we are making across the organization also resulted in lower turnover in the first quarter.

While we are pleased with the reduced turnover and positive impact of our store staffing optimization on our top line performance, these combined factors also resulted in some temporary gross margin pressure during the quarter which should normalize as our staffing initiative ramps up through fiscal 2019.

In the coming quarters, we plan to right-size overstaffed stores which we expect will get us back to a flat staffing model and will allow us to achieve overall greater store efficiency.

As part of our store staffing optimization efforts, we plan to also rebalance the level of technical skills in each store, ensuring our stores are staffed with technicians that have the appropriate skill level for the services needed.

In addition to optimizing our head count, we expect to implement a cloud-based, data-driven store staffing and scheduling system in the first quarter of fiscal 2020 to drive further staffing efficiency. With that, I'll turn the call over to Brian who'll provide additional detail on our quarterly financial performance..

Thank you, Brett and good morning everyone. Turning to slide 8. We delivered solid top-line performance in the first quarter. Sales increased 6.2% year-over-year to $295.8 million driven by a comparable store sales increase of 1.9% and sales from new stores of $14.4 million including $9.7 million from recent acquisitions.

This was offset by a decrease in sales from closed doors of approximately $2.1 million. The first quarter had 90 selling days, in line with the prior year period. As of June 30, 2018, the company had 1,164 company-operated stores and 98 franchise locations as compared with 1,119 company-operated stores and 114 franchise locations as of June 24, 2017.

During the first quarter, we added 19 company-operated stores and closed 5. Gross profit for the first quarter was $117.2 million or 39.6% of sales compared to $112.9 million or 40.5% of sales in the prior year period. The gross margin decline reflects the expected sales mix impact of the Free Service Tire acquisition.

As we've previously noted, the commercial and wholesale locations we acquired as part of the Free Service Tire acquisition operate at a lower gross margin, primarily due to the higher sales mix of tires; and with respect to the wholesale business, a higher sales mix of tires without installation.

As Brett discussed earlier, gross margin was also negatively impacted by increased material costs as a percentage of sales related primarily to sub-optimal brake package pricing when we initially launched our Good-Better-Best brake packages in the quarter and a temporary headwind due to high labor costs as a percentage of sales related to our store staffing optimization initiative.

Distribution and occupancy costs were relatively flat as a percentage of sales from the prior year. On a comparable store basis, gross margin for the first quarter decreased approximately 50 basis points from the prior year period.

Operating expenses for the quarter increased $5.1 million and were $84.2 million or 28.5% of sales as compared with $79.1 million or 28.4% of sales for the prior year period.

The year-over-year dollar increase represents $1.6 million in costs related to Monro.Forward initiatives, including $0.8 million in one-time costs as well as expenses from 45 net new stores.

Our operating income for the first quarter was $33.1 million which decreased by 2% as compared to operating income of $33.7 million for the same quarter last year and decreased as a percentage of sales from 12.1% to 11.2%.

On a comparable store basis, and excluding one-time Monro.Forward costs in the quarter, operating margin for the first quarter declined approximately 50 basis points from the prior year period. Net interest expense for the first quarter increased $0.8 million as compared to the same period last year.

The weighted average debt outstanding for the first quarter of fiscal 2019 increased by approximately $16 million as compared to the prior year period.

This increase in weighted average debt is due to higher capital lease debt recorded in connection with our fiscal 2018 and fiscal 2019 acquisitions and greenfield expansion, partially offset by the amount we paid toward our bank debt using cash flow from operations.

The weighted average interest rate for the first quarter increased by approximately 50 basis points year-over-year largely due to the higher interest expense associated with capital lease obligations, coupled with higher LIBOR and prime interest rates, as well as a 25 basis point increase in interest rate spreads as compared to the prior year period.

The effective tax rate was 22.7% for the first quarter compared to 37.2% for the same period last year. The year-over-year decrease in our effective tax rate was a result of the Tax Cuts and Jobs Act, which reduced the U.S.

federal corporate income tax rate from 35% to 21%, as well as a variety of other factors, none of which was individually significant.

Net income for the quarter of $20.6 million increased 17.4% year-over-year, diluted earnings per share increased 17% year-over-year to a record $0.62 including $0.02 per share of non-recurring costs related to Monro.Forward investments, and compares to $0.53 in the prior-year period.

Excluding these onetime items, diluted earnings per share was $0.64, up 21% year-over-year. A complete bridge comparing our first quarter fiscal 2019 earnings per share performance with the same period last year is presented on slide 9.

As you can see, the positive effects of our 1.9% increase in comparable store sales, combined with the performance of our fiscal 2018 and 2019 acquisitions, and the impact from recent tax reform drove a collective $0.16 per share increase, which was partially offset by a few factors.

During the first quarter, we saw a $0.01 per share decrease in EPS primarily related to the previously discussed sub-optimal brake package pricing surrounding the launch of our brake packages.

We also saw a $0.01 decrease in EPS from increased technician labor cost as a percentage of sales related to our previously mentioned store staffing initiative. Of the $0.04 impact relating to Monro.Forward, $0.02 of this was one time in nature.

These onetime investments were largely front-loaded with the majority of our onetime investments completed during the first quarter. This impact was in line with our internal expectations, and we continue to anticipate reinvesting $0.13 of our tax savings to support our Monro.Forward strategy.

As a reminder, the midpoint of our fiscal 2019 EPS guidance range is $2.35 and we believe we remain well-positioned to achieve this target. Turning to slide 10. We are also committed to maintaining a disciplined capital allocation strategy as we execute on our Monro.Forward strategy.

As we highlighted at our Investor Day, we plan on spending an incremental $75 million in capital expenditures, above our normal run rate over the next five years, primarily to support investments in store reimage and technology.

Our capital expenditures were $11.4 million in the first quarter of fiscal 2019 and do not yet reflect any significant investments relating to our Monro.Forward capital initiatives. Secondly, we plan to continue to take advantage of attractive M&A opportunities which remain a key pillar of our growth strategy.

During the first quarter, we spent approximately $27.5 million on acquisitions including 1 to 4 store acquisitions completed as part of our greenfield expansion strategy. We are also committed to returning capital to shareholders through our dividend program and paid about $6.7 million in dividends during the first quarter.

Lastly, we remain focused on maintaining a solid balance sheet with ample flexibility to support our growth strategy. We ended the first quarter with strong leverage ratios and have ample room under our financial covenants. We generated approximately $50 million of cash flow from operating activities during the first quarter of fiscal 2019.

Debt under our revolver increased by approximately $10 million during the first quarter. Now turning to our outlook for fiscal 2019 on slide 11.

Based on current sales, business and economic trends and recently announced and completed acquisitions, we now anticipate fiscal 2019 sales to be in in the range of $1.180 billion to $1.210 billion, an increase of 4.6% to 7.3% as compared to fiscal 2018 sales. This compares to the previous sales guidance range of $1.170 billion to $1.200 billion.

Fiscal 2019 sales guidance continues to assume a comparable store sales increase of 1% to 3% on a 52 week basis. Please note that fiscal 2019 is a 52-week year, while fiscal 2018 was a 53-week year and benefited from an extra week of sales in the fourth quarter.

This guidance continues to assume stable overall tire and oil costs compared to fiscal 2018. In the face of global tariff uncertainties, our vertically integrated and diversified supply chain continues to drive our cost leadership position and remains a key differentiator in our industry.

Given these assumptions, we continue to expect to generate earnings growth on a comparable store sales increase above 1%. Based on these assumptions, we continue to expect fiscal 2019 earnings per diluted share to be in the range of $2.30 to $2.40, representing earnings growth of 20% to 25%.

This includes approximately $0.01 to $0.03 in accretion from fiscal 2018 acquisitions. Fiscal 2019 acquisitions are expected to be breakeven to earnings per diluted share in fiscal 2019.

At the midpoint of our guidance range, we continue to expect an operating margin of 11.1%, interest expense to be approximately $29 million, depreciation and amortization to be approximately $54 million and EBITDA to be approximately $186 million.

This guidance continues to reflect an effective tax rate of approximately 24% and is based on $33.4 million diluted weighted average shares outstanding. As always, our guidance does not assume any future acquisitions or greenfield store openings. I'll now turn it back over to Brett to provide some closing remarks before we move to Q&A..

Thanks, Brian. To conclude, we are encouraged by the momentum we've seen so far in fiscal 2019. We delivered solid comparable store sales in the first quarter and are pleased to see this continue through July.

During the first quarter, we made the investments necessary to right-size our store staffing in understaffed stores to drive higher traffic and have now substantially completed the majority of the onetime investments related to Monro.Forward, while continuing to make solid progress on the execution of our strategic initiatives.

In particular, our collaboration with Amazon.com represents a critical milestone in the development of our omnichannel presence. Taking all that into consideration, we remain confident in our outlook for fiscal 2019 and look forward to delivering continued value for our shareholders.

With that, I will now turn the call over to the operator for questions..

Thank you. And our first question today will come from Brian Nagel with Oppenheimer..

Hi. Good morning..

Good morning, Brian..

Hi, Brian..

Appreciate you taking my questions. So, a few, maybe quick questions here. First off, with regard to sales, clearly there's been a nice ramp-up here lately. You discussed – you've spent a lot of time talking about that in your prepared comments.

Can you parse out, as you look at the improving sales, can you parse out how much of that reflects potentially an improving backdrop for your sector versus some initial results of the strategic repositioning that you've undertaken?.

Sure, Brian. As you might expect, it's pretty difficult to parse that out. But I would say this – like, first of all, no doubt this harsher, more normalized winter conditions we experienced heading into the spring certainly created, I think, a pretty favorable backdrop as it relates to our service business.

But I will say this, I give a lot of credit to our team around the way they executed in the quarter as evidenced by, again, the improvement in our star rating online which I think has certainly contributed favorably to our traffic trends.

And also I credit our team with really strong execution in-store especially as it relates to the brake services that we had commented about. So, difficult to parse how much of the comp increase came from which, but we're encouraged by a more favorable backdrop, of course, along with strong execution by our team..

Got it.

My second question and, apologize, you've been a little – too granular here, but if you look at the monthly comp trend, so I think you said comps were tracking in the months of May and June north of 3% and then 2% in July at least month-to-date, any reason to explain that, again, recognizing it's modest but that downshift into July?.

Yeah, Brian, this is Brian. I think that if you look at Q1, we certainly talked about April being affected by the late spring.

And so I think there was some pent-up demand that flowed into May and I think even into June that probably if you look at the balance of the quarter being up 1.9%, that's probably a little more reflective of the actual trend once neutralized for the for the weather dynamic..

Okay, makes perfect sense. And then my final question, is with regard to Amazon. We've talked about, and I know you've been working on this for quite some time.

It's early obviously, but how should we think about the profitability of sales that come to Monro via Amazon versus typical sales for you?.

Well, Brian, as you know, we've commented on previous calls that we currently enjoy relationships with other online tire retailers as a preferred installer for them and – look, we're extremely excited about adding Amazon relationship to our portfolio relationships with others.

As it relates to the economics, we've also shared that roughly 50% of these customers are new to our brand, and we've experienced historically an average ticket in the neighborhood of $120 on those installations, and that compares to our company average ticket of north of $160.

We have no reason to believe that the economics on the Amazon relationship will be dissimilar to what we're currently experiencing with other online partners..

Great, thank you. And congrats on the progress so far..

Thanks, Brian..

Thank you..

Next, we hear from Matt Fassler with Goldman Sachs..

Thanks a lot, guys, and good morning. I have a couple of questions on Amazon and online, then a couple questions on the core business.

On Amazon, based on what you know of the demographics of consumers who order tires on Amazon, based on what you've seen or what you've heard, what is the overlap of sort of the demographic profile of that customer relative to the customer who typically does their full tire transaction at Monro?.

I'll take that one, Brian. Matt, I think as we look at just online tire retailing in general with consumers, as we've shared previously, industry reports indicate that the penetration rate for consumers that buy tires online is roughly 7%.

And I think if you cut that across consumer demographics or interest levels, no doubt there is an over-indexing in consumers that we would consider enthusiasts, people that are into vehicles, into cars, into tires, that probably have a disproportionate interest level in buying tires online.

And certainly, we would expect that trend to continue across almost every online tire retail platform that we see, inclusive of Amazon, of course. But we're – early innings, of course, in our relationship there, just establishing it.

But at this stage, I think we have no reason to believe it wouldn't follow suit with other online partners that we partner with today..

And are there limitations on either you or an Amazon in terms of the partnerships you could have with other online sellers or they could have with other installers, particularly in the regions where you operate?.

No. This is a non-exclusive relationship, both ways..

Got you. My follow-up questions relate to the core business, I'll just get them both out at once, so they might be for Brian. Just looking over the course of the year, you spoke about some pricing on brakes and you also spoke about some labor dynamics, each of which sounds like it should abate pretty soon.

So, if you could just talk about what elements of the pressures that you saw on the numbers, the margin pressure should fade and what the timeframe is for that. And then my final one relates to inventory which is up a bit more than we had anticipated, and any comments you have on that would be very helpful as well..

Yes. Sure. So related to the margins, in my script I talked about a 50 basis point decrease on a comparable store basis. You talked about the two reasons, primary reasons for that being the brake packages as well as the labor. So, if we look at each one of those individually, we had already taken actions at the end of Q1 related to our brake pricing.

We saw, as Brett talked about in his comments, up 11% brake transaction volume. We drove a 7% brake comp for the quarter. So, clearly, we gave a little bit back on price there, and we made adjustments late in the quarter to get that back in line and expect that to start flowing through immediately in Q2.

The second thing around labor, there's two pieces to that. The first piece is we attacked our understaffed stores first in the quarter to be able to support our improving traffic trends.

The next piece of that is to, obviously, optimize that through a reduction in overstaffed stores, and we've already started putting that in place as we move through Q2.

What will really allow us to do this on a scalable basis is going to be the technology that we're talking about related to our staffing and scheduling system that will really allow us to move from our more manual paper-based scheduling that we're muscling through and proving as we speak to getting that scalable through a technology solution..

Great.

And on inventory?.

On inventory, the increase is primarily related to Free Service in the quarter. If you look at Free Service, they have, as we talked about, a pretty decent wholesale business. So, there's some tire inventory assigned to that acquisition..

And you feel good about the quality of that inventory and sustainability, durability, what have you?.

Absolutely..

Great. Thank you so much, guys..

Thanks, Matt..

Next, we'll hear from Rick Nelson with Stephens..

Thanks. Good morning. I'd like to....

Hi, Rick..

Good morning..

...ask about the acquisition environment.

You completed eight stores; you've got another seven store agreement, if you could speak to the multiples that you're paying and maybe the competitive environment for deals?.

As I mentioned in our prepared comments, Rick, look, we see a very robust pipeline for M&A transactions going forward. As I mentioned at Investor Day, one of the things we're not going to comment on going forward is the multiples specifically that we're seeing in the marketplace.

However, I can share that for multiples that we are paying for deals in that size are very much in line with historical trends that we've seen historically. So no noticeable appreciation in multiples at that level for that deal size..

Okay. Good to know.

Sales strengthening that you pointed to as the quarter progressed, did promotional activity – did that pick up as well or was that a driver?.

I wouldn't attribute that to promotional activity. I really attribute it to strong or improving traffic trends that we saw in our business as the quarter progressed and certainly a stronger in-store execution by our team as well were two contributing factors there. But promotional activity is relatively consistent throughout the quarter..

Okay.

And, finally, if I could ask you the maintenance services, that segment lagged some of the other categories, was that a weather effect certainly in the quarter or some other factor?.

I think that that was just a little bit of softness in that. I think that the softer April delayed some of those other maintenance categories, and I think that we saw that come back a little bit as the quarter progressed, certainly not to the extent that the brake category did..

Got you. Thanks a lot and good luck..

Thanks, Rick..

We'll now hear from Bret Jordan with Jefferies..

This is Mark Jordan on for Bret. Thank you and good morning..

Good morning, Mark..

Good morning..

Good morning. Just thinking about the 1.9% comp here.

How does that compare to the market? You know, do we think that Monro, maybe, gained share during the quarter or maintained share?.

Well, if we look at other publicly traded companies in the Auto Parts sector, Mark, I think we feel like we're in line to slightly above market conditions as reported. On the tire side of our business, we look at industry shipment data and we feel like our tire performance is also in line, if not slightly above industry performance on the tire side..

Okay, great. And then it sounds like roughly 2% the new run rate for Q2 here.

Are we seeing strength in any particular categories or is it more broad-based to maybe kind of the more strength in brakes continuing on?.

Yeah. Good continuity, I think, of our service business coming out of Q1 namely, brakes. Our tire business remains stable. Good execution by our team in store on price mix as related to tires. We expect that trend to continue through Q2 into the tire selling season at Q3 and Q4..

Okay, great.

And one last question here on the gross margin during the quarter, are you able to break out the impact of what the labor costs were and how maybe we should think about that normalizing going forward? Is that primarily through reducing the overstaffed stores and when can we expect the technology to have more of an impact?.

Yeah. I think if you think about that 50-basis-point gross margin, operating margin pressure for comp stores and you think about brakes and staffing, they're pretty equal contributors to that. So, that's about the scale of each one. We're attacking both. Like I said, we've already taken the actions on the brake pricing.

On the labor pricing, we are already attacking that. And like I said, it's a little bit of a more of a muscling exercise and getting this operationalized for our current platform which we think we've got an impact to effect immediately.

But at the same time, we really have an even greater opportunity to optimize, particularly as Brett talked about getting the technical competencies right-sized and appropriately skilled at the stores and that's really going to be enabled by the technology..

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

Thanks, Mark..

We'll now hear from Stephanie Benjamin with SunTrust..

Hi. Good afternoon. Thank you for the question.

Just kind of looking at the kind of sub-optimal brake pricing dynamic that you experienced during the quarter, was this the case where you just found more consumers were kind of trading down or just kind of – if you could just provide more color there and kind of just that dynamic and really what the response has been early on since you have since raised the pricing? And then also just as a follow up and clarification, what's the timeline on launching more of that Good-Better-Best strategy across other products and service offerings? Thanks..

Thanks, Stephanie. As relates to brakes, this is – we launched the three packages on brakes in the first quarter as we had commented, and we conducted some market analysis to the terminal, we felt like were the appropriate price points.

And as we saw extremely strong unit volume flow through in the quarter, we felt like there was an opportunity to take prices up above, say, market level on the opening price point package as well as step that up on the other options.

And I attribute that again to our team's solid execution in store as well as the improvement in the experience relative to our competition had allowed us, I think, to move that pricing up and still remain confident that we can hold on to the unit volume.

And as we talked about, we watch that pretty closely throughout the quarter once we saw that that volume was consistent and real. We elected to make some adjustments to pricing as we exited the first quarter. As it relates to the other packages, we launched a similar approach to our oil services in Q1.

And our team is just in the process of, I would say, getting comfortable with those packages as well.

And throughout the balance of FY 2019, we expect the level of execution at store level to improve, coupled with more refined pricing on breaks to help close the gap on the gross margin compression that we saw in Q1 and get us back in line on a full year basis where we expect..

Great. Thanks so much..

Thank you, Stephanie..

Thank you. And that will conclude today's question-and-answer session. I will now turn the conference over to Brett Ponton for any additional or closing remarks..

I'd like to thank you all for joining us today and for your continued support of Monro. We are pleased with the solid progress we have made so far, and we could not be more excited about the opportunities ahead. We look forward to providing further updates as the year progresses. Have a great day..

That does conclude today's conference call. Thank you for your participation. You may now disconnect..