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Executives

Jennifer Milan - Investor Relations, FTI Consulting

John Van Heel - President and Chief Executive Officer

Cathy D’Amico - Chief Financial Officer

Rob Gross - Executive Chairman

Analysts

Bret Jordan - BB&T Capital Markets

Rick Nelson - Stephens Inc.

Jamie Albertine - Stifel Nicolaus

Mike Montani - ISI Group

Jon Berg - Piper Jaffray

Scott Stember - Sidoti & Company

Brian Sponheimer - Gabelli & Company

Monro Muffler Brake, Inc. (MNRO) F4Q 2013 Earnings Conference Call May 21, 2013 11:00 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake’s Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the company.

I would now like to introduce Ms. Jennifer Milan of FTI Consulting. Please go ahead.

Jennifer Milan

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 in 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 related to leverage and debt service including sensitivity to fluctuations in interest rates, dependence on and competition within the primary markets in which the company’s stores are located and the need for and cost associated with store renovations and other capital expenditures.

The company undertakes no obligation to release publicly any revisions to these forward-looking statements that maybe made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events or circumstances described in such statements are material.

Joining us for this morning’s call from management are John Van Heel, President and Chief Executive Officer; Cathy D’Amico, Chief Financial Officer; and Rob Gross, Executive Chairman. With these formalities out of the way, I would like to turn the call over to John Van Heel. John, you may begin.

John Van Heel

Thanks Jen. Good morning and thank you for joining us on today’s call. We are pleased that you are with us to discuss our fourth quarter and fiscal 2013 performance. After some brief opening remarks, I will review our quarterly and full year performance then provide you with an update on our business as well as our outlook for the new fiscal year. I’ll then turn the call over to Cathy D’Amico, our Chief Financial Officer who will provide additional details on our financial results.

I want to start by saying that although fiscal 2013 was a tough year for us with the lingering effects of a challenging macro environment and less than ideal weather conditions that persisted into the early part of the fourth quarter, we were able to deliver overall sales growth of $45 million to $732 million, an increase of 6.6% over fiscal 2012, which included an extra week. In this challenging environment, we continue to execute on our proven strategies and the initiatives that have helped us consistently lead our industry during both strong and weak markets.

We accelerated acquisitions as we said we would in times of slow organic growth, and with record acquisition growth in fiscal 2013 positioning the company for strong earnings growth over the next several years. We are now pleased with our fourth quarter or fiscal 2013 results, but are optimistic that we have some strengthening in our business with comparable store sales trends improving in February and March after a tough start to the quarter and with further improvement in April and May into positive territory, which I will talk about in a few moments.

At the end of the day, people need what we sell and can only defer purchases of our products and services for so long. The extended deferral cycle we have been seeing seems to be reversing somewhat and our loyal customers are turning to us for their needed purchases. Although with what we expect will be positive top line trends in fiscal 2014. Along with what we expect will be positive top line trends in fiscal 2014, our operating margins will benefit as we move through the year from reduced material cost implemented expense reduction initiatives and improving results from recent acquisitions.

Before I move on to our performance for the fourth quarter and fiscal year 2013, I would like to reiterate that my long-term confidence in our business and outlook for our industry remain very strong. There are still 245 million cars on the road in the U.S. that are getting older. Consumers still can’t work on these vehicles. The number of overall service bays is declining and the availability of suitable acquisition candidate is accelerating. Further our key competitive advantages are still in place including our low cost operations, superior customer servicing convenience along with our store density and [tier] [ph] store brand strategy.

That said, I would like to reinforce my opinion on trends in the marketplace in terms of how they affect our sector and especially Monro. First we often mirror that increasing new car sales will [crater] [ph] our business. In our view, the 14.5 million new car sales in calendar 2012 or 15 million to 15.5 million in calendar 2013 will not make a dent in the increasing age of the average vehicles in the U.S. fleet, now a record 11 years, which will drive our business forward. In particular if many more households had the ability to sign up to $4000 in new – in annual new car payments, it’s hard to see how the other 90% of households won’t be doing better and will likely reduce their deferrals of needed services and tires. Also the U.S. market had nine consecutive years of averaging approximately 17 million new cars sold through 2007, which has driven the number of vehicles in our sweet spot of 5 to 13 years old to an all time high. By the way we ran positive comp store sales during all of those years.

Second, many have already bet although 10-year-old cars presented the tailwind for our business in previous years, 11 year old cars now present a headwind. The thinking is that owners of older cars will sign up for the $4000 in annual new car payments in this economy versus the $1000 to $1500 it takes to maintain their vehicle. We don’t believe that owners of cars of this age will neglect getting needed oil changes, brakes, tires and other services that keep these older cars safe and running and which represents the vast majority of our sales. In fact our mix of vehicles age 13 years and older has increased and now represents about 20% of our traffic. As a group, vehicles of 13 years and older have a ticket average consistent with younger vehicles. In short, with all of this in mind, we firmly believe that the primary macro drivers of our business are still in place.

Now on to our fourth quarter and fiscal year results, the fourth quarter remained challenging. However, we were able to somewhat navigate the headwinds and deliver EPS at the high end of our anticipated range. For the fourth quarter our comparable store sales adjusted for days declined 5.6% versus a 0.7% comparable store sales increase last year. While we believe the continued softness in sales during the fourth quarter is due in large part to continued economic pressures, the lack of winter weather early in the quarter also remained a headwind as opposed to the catalyst we had hoped it will be which particularly impacted our comparable store sales results in January. We were pleased to see more normalized weather later in the quarter which typically drives parts replacements and repairs during the spring ahead of the prime summer driving season.

Our position as a low cost trusted service provider remained strong and we are maintaining share as evidenced by fact that comparable store oil changes were basically flat for the fiscal year and are increasing low-single digits thus far in fiscal 2014. Costumers have been deferring trading down and prioritizing higher cost maintenance, repairs and tire purchase more so than in the past. This is further evidenced by a full year decline in average ticket which we haven’t experienced since 2003. Importantly with the return to more normalized weather in the last two months of the quarter, we saw improvement in our comparable store sales trend.

We are also encouraged by the fact that trends to-date in the first quarter of fiscal 2014 had shown further improvement across our market with comparable store traffic and sales running up quarter-to-date. In total, we increased sales in the fourth quarter by 14.1% to $195.9 million compared to $171.7 million in sales in the prior year due to recent acquisition. Our fiscal 2012 acquisitions contributed sales and earnings in the fourth quarter and as expected our fiscal 2013 acquisitions added $45 million of sales and was slightly dilutive to our bottom line as a result of our challenging environment due diligence and deal related costs and the operational transition.

For the fiscal year, our comparable store sales decreased 5.5% adjusted for days. Net sales per the fiscal year increased 6.6% to $732 million compared to $686.6 million for fiscal 2012. Notably our fiscal 2012 acquisitions performed very well and contributed to our top and bottom line performance for the year and our 2013 acquisitions contributed $87 million in sales and were slightly diluted for the year as we expected.

For the fourth quarter, gross margin decreased 270 basis points to 36% versus 38.7% in the prior year due primarily to a shift in sales mix to the lower margins tire category namely as a result of the high tire sales mix of recent acquisition and the loss of leverage due to weak comparable store sales and the 53rd week last year. This was offset in part by lower year-over-year labor costs. For the full year, gross margin declined 230 basis points to 38% from 40.3% in the prior year. We continue to leverage the increased purchasing power that has resulted from our recent acquisitions and our ability to ship purchases between our broad base of vendors.

As discussed on prior calls as a result of adding stores through acquisitions, we were able to negotiate lower oil costs that took effect during the second quarter of fiscal 2013. This resulted in savings in oil cost of $500,000 for the fourth quarter and we continue to expect that we will see the similar amount in the first quarter of fiscal 2014. We are also seeing improvement in tire costs. As noted previously after the September 2012 expiration of the tariff on tires imported from China we received 10% reduction in import tire cost, which was followed by an addition of 5% cost reduction on import tires that took effect January 1st. We continued to pursue lower tire costs from import and domestic suppliers and continue to benefit from increased volume related incentives from branded manufacturers.

Excluding fiscal 2013 acquisitions, our fourth quarter tire gross margins improved slightly over the prior year quarter. For the first half of fiscal 2014, we expect overall gross margin to continue to reflect the pressure of the shift in sales mix to the lower margin tire category from our recent acquisition, which should be offset somewhat by continued declines in tire and oil cost assuming a stable retail pricing environment. Further, we have increased our direct international sourcing primarily from China over the past several years.

For fiscal 2013 approximately 32% of our total product costs, that’s oil and out-buys were direct imports which compares to 15% at the end of fiscal 2010. We will continue to pursue improvements in gross margins particularly in tires through direct international sourcing. At the same time, we have carefully managed our costs in this difficult sales environment and our recent acquisitions will increasingly benefit our operating margin as we move through fiscal 2014.

For the fourth quarter, all of the increase in total SG&A costs is attributable to acquired stores. Excluding fiscal 2013 acquisitions operating expenses for the fourth quarter were actually $1.5 million lower compared to the prior year. Operating income for the fourth quarter decreased 11.4% to $15.5 million, which translates to an operating margin of 7.9% compared to 10.2% in the fourth quarter of last year. Our earnings per share declined 24.2% to $0.25 at the high end of our guidance range of $0.20 to $0.25 on a base of 32.3 million shares outstanding and including slight dilution from fiscal 2013 acquisition. This compares to diluted earnings per share of $0.33 in the prior year or $0.26 excluding a $0.07 benefit from the 53rd week in fiscal 2012.

For the full year, cost control efforts partially offset margin pressures. Operating income decreased 19.4% to $73.7 million from $91.4 million in fiscal 2012, which translates into an operating margin of 10.1% versus 13.3% in 2012, which was a 53-week year. Net income for the full year declined 22.1% to $42.6 million from $54.6 million in fiscal 2012. Full year earnings per share decreased 21.9% to $1.32 from $1.69 in 2012, which was at the high end of our guidance range of $1.27 to $1.32. Excluding the $0.07 benefit from the 53rd week in fiscal 2012, earnings per share for fiscal 2012 were $1.62.

Turning now to our growth strategy, we remain focused on increasing our market share through comparable store sales growth, opening additional new stores in existing markets, and acquiring competitors at attractive valuation. While we expect, the consumer will remain cautious, we are optimistic about the near-term based on the recent trends we are seeing in our business and easier comparisons ahead, which gives us confidence in our ability to deliver comparable store sales increases in the first quarter and for the full fiscal 2014. In addition, our fiscal 2013 acquisitions positioned Monro for profitable growth over the next several years starting in fiscal 2014. We continue to see very attractive deals in the marketplace and will pursue these transactions in a very disciplined manner.

Fiscal 2013 was our strongest year ever for acquisition growth and while still early in the operational transition in this challenging environment, we are pleased with the results of these stores so far. In fiscal 2013, we strengthened our key competitive advantages and grew our business through eight acquisitions that expanded our footprint and added 139 locations that will contribute roughly $190 million in incremental annualized retail sales. This also broadened our store portfolio into Kentucky, Indiana, and Tennessee, which helps to reduce our geographic concentration in the Northeast and increased our base for continued expansion in the Midwest and South. The new stores allow us to further leverage purchasing, distribution, advertising, field management and headquarters G&A cost, which will drive operating margin improvement going forward. Collectively, the new stores increased our annual tire purchases by about 40%, which significantly increases our purchasing power with vendors and will help us reduce cost.

Importantly, we completed the majority of these deals when tire costs were at their peak and the sellers’ earnings were at their lowest level of the past three years providing Monro and our shareholders with attractive valuations and the full earnings benefit of lower tire cost moving forward. We continue to see more opportunities for attractive deals than we have in the past several years due to near-term seller concerns over the operating environment as well as taxes and healthcare, and because all independent tire dealers, we are looking to acquire are getting older and many are at or nearing retirement age without an internal succession option. We presently have eight NDAs signed with store chains ranging in size from 5 to 40 locations. Six of these are within our footprint and two are in contiguous markets.

Based upon these discussions, we expect to close on at least one of these opportunities early in the second quarter of fiscal 2014. We have plenty of liquidity combined with strong cash flow to complete these deals and remain very disciplined on the prices we will pay with 7 to 7.5 times EBITDA or about 80% of sales being our key metric. Importantly, we continued to compete only with the sellers’ expectations in these deals.

Let me now turn to our outlook for the first quarter of fiscal 2014. While we believe this sketchy macro environment and higher taxes will continue to pressure consumer purchasing behavior we are encouraged by the positive trends in our business in April and May where we have seen an increase in traffic and improvement in some recent trends in many of our key sales categories particularly tires. Quarter-to-date comparable store sales are running up approximately 3%. We expect the trends in April and May to set the tone for consumer behavior patterns through October and are optimistic that the first quarter may represent an end to what has been an extended deferral cycle.

Furthermore, we would expect that more normalized weather throughout the high tire selling season which starts in November to present a further tailwind in fiscal 2014. As we circle against the crappy sales in fiscal 2013, we have set to achieve increases in comparable store sales for the first quarter and full fiscal 2014. We will also continue to carefully mange operating costs and have been aggressively pursuing expense reductions in all areas of the business while being mindful that we are a growth company.

For fiscal 2014, we expect these actions combined with materials and other declining costs to improve our operating model and allow us to generate EPS growth on our base business at zero percent comps whereas in the past we had needed a 2% to 2.5% comp sales increase to overcome normal inflationary cost increases. Overall for fiscal 2014, we expect operating margins will improve as we move through the year from higher sales, expense reductions and lower material costs and increasing leverage and contribution from our fiscal 2012 and 2013 acquisitions.

For the full fiscal year taking into account contributions from the eight acquisitions completed in fiscal 2013, we expect total sales to be in the range of $840 million to $865 million incorporating a comparable store sales increase in the range of 2.5% to 4.5% versus down 5.5% in fiscal 2013 adjusted days. Based on these assumptions, we estimate full fiscal 2014 EPS of $1.65 to $1.80, which compares to an EPS of $1.32 in fiscal 2013 which at the midpoint of our anticipated range represents a 30% increase in EPS and 125 basis points of operating margin improvement.

Based upon sales – based upon trends to-date, we expect total sales for the first quarter to be $208 million to $212 million incorporating a comparable store sales increase of 3% to 4% versus down 7.2% last year. We expect first quarter earnings per share to be in the range of $0.42 to $0.46, with the fiscal 2013 acquisitions slightly accretive. This compares to $0.36 for the first quarter of fiscal 2013.

For fiscal 2014, we expect gross margins to be flat to slightly lower. The continued shift in sales mix through the tire category primarily related to acquisitions will continue to pressure gross margin and will be offset by improved sales and declining material costs as the year progresses. The gross margin pressure will be the greatest in the first half of the year as we incorporate the acquired stores higher sales mix for the first time and complete the first year operational transition for those stores.

For the first quarter operating margin is expected to flat to 50 basis points higher than last year’s first quarter. Margin improvement should increase throughout the year as sales improve, we integrate the acquisitions and material costs continue to decline. As a result we would also expect the percentage improvement in net income and EPS to increase as we move through the year with the third and fourth quarters’ percentage improvement being somewhat similar as we budgeted for healthcare reform at cost in our fourth quarter.

Our five-year plan continues to call for on average 15% annual top line growth, 10% through acquisitions, 3% to 4% compensation, and 1% to 2% Greenfield stores. Our acquisitions are generally dilutive to earnings in the first six months as we overcome due diligence in deal-related cost while working through initial inventory and the operational transition of these stores. With cost savings and recovery in sales, results are generally breakeven to slightly accretive year one, $0.08 to $0.10 accretive year two, and another $0.08 to $0.10 accretive in year three. For 30% acquisition growth, just triple those EPS benefits.

Over the 5-year period that should improve operating margins by approximately 300 basis points and deliver in average of 20% bottom line growth. Given the timing of our fiscal 2013 acquisitions, we expect to see positive contribution from these deals starting in the first quarter of fiscal 2014 with increasing contribution throughout the year. In total, we are expecting accretion of approximately $0.15 to $0.20 for the full year fiscal 2014 and even greater contribution starting in fiscal 2015. We are confident that our disciplined acquisition strategy is strengthening our position in the marketplace and will provide meaningful value to our shareholders for many years to come.

Before I turn the call over to Cathy, I also would like to thank each of our employees. Monro’s brand strength is a direct result of their hard work, consistent execution, and superior customer service that is an integral part of Monro’s compelling customer value proposition. With that, I would like to turn the call over to Cathy for a more detailed review of our financial results. Cathy?

Cathy D’Amico

Thanks, John. Good morning everybody. Sales for the quarter increased 14.1% on new stores which we define as stores opened or acquired after March 26, 2011 added $43.5 million. Reported comparable store sales decreased 11.4%, and there was a decrease in sales from closed stores of approximately $1.2 million. There were 91 selling days in the current fourth quarter and 97 in the prior year’s fourth quarter.

Adjusting for days, comparable store sales declined 5.6% as compared to the prior year quarter. Year-to-date sales increased $45.4 million and 6.6%. New stores contributed $99.6 million of the increase partially offsetting the sales increase with a comparable store sales decrease of 7.3% and a decrease of sales in closed stores amounting to $6.4 million. There were 361 selling days in fiscal year ‘13 and 368 in the prior year. Adjusting for days, comparable store sales declined 5.5% as compared to the prior year.

At March 30, 2013, the company had 937 company-operated stores as compared with 803 stores at March 31, 2012. During the quarter ended March 2013, the company opened 23 stores, including 21 from recent acquisitions and closed four. For the full fiscal year, we added 144 stores and closed 10.

Gross profit for the quarter ended March 2013 was $70.6 million, or 36% of sales as compared with $66.5 million, or 38.7% of sales for the quarter ended March 2012. The decrease in gross profit for the quarter ended March 2013 as a percentage of sales is due to several factors. Total material cost including outside purchases increased as a percentage of sales as compared to the prior year. This was all mixed related as costs were flat versus the same quarter of last year. The increase in material cost as percent of sales was all due to a shift in mix to the lower margin service and tire categories, the latter due in large part to the acquisition of more tire stores. Labor cost decreased slightly as a percentage of sales as compared to the prior year, while distribution and occupancy costs were flat.

Gross profit for the full fiscal year 2013 was $278.1 million or 38% of sales as compared with $276.4 million or 40.3% of sales for fiscal 2012. The year-to-date decrease in gross profit as a percent of sales is due to increased material cost related primarily to the increased tire mix, related to the acquired stores along with the lots of leverage on fixed distribution and occupancy cost due to lower comparable store sales. Labor costs were relatively flat as compared to the prior year.

Operating expenses for the quarter ended March 2013 increased $6.1 million and were $55.1 million, or 28.1% of sales as compared with $49 million, or 28.6% of sales for the quarter ended March 2012. If you exclude – as John mentioned, if you exclude the operating expenses related to the FY ‘13, fiscal year ‘13 acquired stores, operating expenses actually decreased by approximately $1.5 million after adjusting for the extra week in fiscal 2012. This demonstrates that the company experienced leverage in this line on a comparable store basis through focused control and pay plans which appropriately adjust for performance.

For fiscal 2013, operating expenses increased by $19.5 million to $204.4 million from the comparable period of the prior year and were 27.9% of sales as compared to 26.9%. Operating income for the quarter ended March 2013 of $15.5 million decreased by 11.4% as compared to operating income of approximately $17.5 million for the quarter ended March 2012 and decreased as a percentage of sales from 10.2% to 7.9%. Operating income for the full fiscal year 2013 of approximately $73.7 million decreased by 19.4% as compared to operating income of approximately $91.4 million for fiscal 2012 and decreased as a percentage of sales from 13.3% to 10.1%.

Net interest expense for the quarter ended March 2013 of $3.1 million increased by $1.5 million as compared to interest expense of $1.6 million for the quarter ended March 2012 and increased as a percentage of sales from 0.9% to 1.6%. During the fourth quarter of fiscal 2013, we made some entries to true up capital and financing leases, primarily related to the fiscal year ‘13 acquisition which accounted for the entire increase as a percent of sales. Additionally, the weighted average debt outstanding for the fourth quarter of fiscal 2013 increased by approximately $145 million as compared to the fourth quarter of last year primarily related to the borrowings made on the company’s revolving credit facility for the purchase of our recent acquisition. This was partially offset by a decrease in the weighted average interest rate of approximately 510 basis points from the prior year due to a shift to a larger percentage of debt that being revolver versus capital leases at a lower rate.

Interest expense for fiscal 2013 of approximately $7.2 million increased by $2 million as compared to interest expense of approximately $5.2 million for fiscal 2012 and increased as a percentage of sales from 0.8% to 1%. Weighted average debt increased by approximately $75 million for the full fiscal year and the weighted average interest rate decreased by approximately 340 basis points.

The effective tax rate for the quarter ended March 2013 and March 2012 was 34.8% and 34.9% respectively of pre-tax income. Net income for the current quarter of $8.1 million decreased 22.6% from net income for the quarter ended March 2012. Earnings per share on a diluted basis up $0.25 increased 24.2% as compared to last year’s $0.33 or last year’s $0.26 if adjusting for the 53rd week in fiscal 2012. In fiscal 2013, net income of $42.6 million decreased 22.1% and diluted earnings per share decreased 21.9% to $1.32 from $1.69 for $1.62 if adjusting for the impact of the extra week in 2012.

Moving on to the balance sheet, our balance sheet continues to be strong. Our current ratio of 1.2 to 1 is comparable to fiscal 2012. In fiscal 2013, we generated $84 million of cash flow from operating activities. Depreciation and amortization was approximately $27 million and we received about $3 million from the exercise of stock option. We incurred net borrowings of $118 million of debt. We used those borrowings and cash flow from operations to finance acquisitions of 139 stores for $160 million net of the proceeds from the disposal of assets related primarily to the Kramer acquisition.

At the end of the fourth quarter long-term debt consisted of $120 million of outstanding revolver debt and $64 million of capital leases and financing obligations. As a result of the debt borrowings our debt-to-capital ratio including capital leases increased to 34% from 14% at March 2012. Without capital and financing leases our debt to capital ratio was 26% at the end of March 2013.

Last quarter as a reminder we amended our revolving credit facility to increase the committed sum from $175 million to $250 million and extended the maturity date through December 2017. Additionally we continue to have $75 million accordion feature included in the agreement. No other terms of the agreement were changed. The agreement continues to bear interest at LIBOR plus the spread of 100 to 200 basis points. We currently are paying plus 100 basis points.

Even before the amendment this facility provided us with significant flexibility during fiscal 2013 to get the acquisitions done quickly. The amended agreement with the increased committed sum and the extended term at continued favorable rate gives us even more flexibility to continue to operate our business opportunistically without bank approvals as long as we are compliant with that covenant. We currently have $190 million available under the facility.

During fiscal 2013 we spent approximately $34 million on capital expenditures including approximately $6 million spent on acquired stores since we bought them. We paid about $13 million in dividend. Inventory is up about $20.9 million from March 2012 with approximately $17 million of the increase in store inventory due primarily to the addition of the FY ‘13 acquired stores. Additionally we increased inventory related to import products such as tires and filters to enhance product assortment, ensure adequacy of supply in light of the lead time for foreign purchases and to help offset margin pressures.

Last, inventory levels have increased due to the initiatives to expand and enhance product assortment in order to reduce outside purchases. As an insight, the tire inventory is totally is up about 32% from last March including inventory added for acquisitions, but is down 2% for non-acquisition of locations.

Expanding on the guidance for our fiscal year 2014 which includes the expected results from our FY ‘13 acquisitions, as John said we expect sales in the range of $840 million to $865 million. This reflects 2.5% to 4.5% comparable store sales increase. At the midpoint of the range operating margin is expected to increase by 100 to 150 basis points. We are estimating at this point the gross profit will be flat to slightly down in fiscal 2014 as a percent of sales due to the increased entitlement. Operating expenses will decrease as a percent of sales due to improved leverage on higher sales and cost saving initiatives.

Operating margins should improve throughout fiscal 2014 as the fiscal 2013 acquisition stores are fully integrated and material costs continued to decline. Interest expense should be about $7.5 million before any adjustments to true-up the acquisition accounting for potential capital leases. However, any such adjustment would result in a reduction to occupancy costs, which is in cost of sales. EBITDA should be in the range of $124 million to $132 million. Depreciation and amortization should be about $31 million. CapEx should be about $34 million with maintenance CapEx about $22 million and the remainder set aside for new stores. The tax rate should be about 38% for the year with some fluctuations between quarters.

That concludes my formal remarks on the financial statements, but I wanted to talk with you about some planned selling activity that we expect from officers and directors. A few will be selling at some point prior to calendar year end in connection with exercising expiring options and for tax and estate planning purposes.

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

Question-and-Answer Session

Operator

(Operator Instructions) And we will go first to Bret Jordan with BB&T Capital Markets.

Bret Jordan - BB&T Capital Markets

Hey, good morning. Couple of questions on tires, and I guess as we look at the tire mix during the fourth quarter and as it seems to be recovering into the first quarter, could you tell us sort of what import versus branded or domestic tires in that sales mix?

John Van Heel

Sure, import is slightly more than 25%.

Bret Jordan - BB&T Capital Markets

Okay. And what are you seeing on a pricing trend there I mean it sounds like some of the domestic manufacturers are talking about some increased competition I guess lower invoice pricing to the retail channel are you seeing your prices continuing to come down?

John Van Heel

Yes, we’ve laid out the details of what we have seen on the branded side, we have seen discounts primarily behind the line discounts of up to 8% and I would expect that to continue during this year as raw materials stay down and as their units go down. The increasing mix that we have of import tires tends to take units out of the branded manufacturers and at some point I think they’d respond to that.

Bret Jordan - BB&T Capital Markets

Okay. And then I think in your prepared remarks you talked about maybe seeing some inflection point on this deferral trend are you seeing anything either attachment rates on alignments or bias to buy two and four tires as opposed to buying individual tires, anything changed in sort of that consumer response here recently as seems like business has picked up?

John Van Heel

No, I don’t see anything significant there. Obviously, the most important number for us is just that traffic itself is up.

Bret Jordan - BB&T Capital Markets

Okay, great. And I guess what is the alignment attachment that we sort of look at that as an indicator for the consumer confidence?

John Van Heel

It’s about one alignment for every four tires.

Bret Jordan - BB&T Capital Markets

Okay, great, thanks.

John Van Heel

Yeah. Thanks.

Operator

And now to Rick Nelson with Stephens

Rick Nelson - Stephens Inc.

Thanks. Good morning. I would like to follow-up on this improvement in comps that you have seen in the current quarter, if you could talk about the categories that are driving that recovery and how the margins are looking at this point are you having to promote more aggressively to drive the comp?

John Van Heel

Yes, the tires are the best category, in there all the other categories are up somewhat. We don’t go into category details in the middle of a quarter, but they are all up with tires leading the way.

Rick Nelson - Stephens Inc.

Okay, got you. And John on the acquisition front, your target of 10% acquisition growth obviously last year was substantially more than that how do you see this year shaping out relative to that 10% target?

John Van Heel

Well, as I’ve said we have eight [NDAs] [ph] that we are currently working on and given the conversations we could see one or two of those close early in the second quarter, so that number of eight NDAs is really a high point for us, so the acquisition pipeline remained strong and the long-term trends are in place. These guys are getting older, don’t have internal succession options. So, we could close several deals this year and I think we could get one or two done in the first quarter.

Rob Gross

Hey Rich, this is Rob. I think we said in general we would expect based on taxes and healthcare reform for fiscal 2014 to be a slightly better than average year and 2015 to be slightly worse than average year, moving up some of the acquisitions. However, we have no target beyond I think the 10% is what we referred to is what we will average per year over a 5-year period.

Rick Nelson - Stephens Inc.

Got you. And just to be clear acquisitions are not in the guidance for the current year?

John Van Heel

The fiscal 2013 acquisitions are anything that we would do in fiscal ‘14 are not.

Rick Nelson - Stephens Inc.

Got you. And the $0.15 to $0.20 accretion for this year obviously that ramps pretty substantially in fiscal ‘15, any color on how you expect that to ramp from ‘14 to ‘15?

John Van Heel

Yes, I think that we have laid out how the acquisitions contribute over the first two years breakeven to slightly accretive in year one, $0.08 to $0.10 in year two, and $0.08 to $0.10 in year three. So, there is – we have given that to allow to get to that accretion as those acquisitions mature given – and given the times that we did the deal, so…

Rick Nelson - Stephens Inc.

Okay, great. Yeah, we can do the math on that. Thanks a lot and good luck.

John Van Heel

Thanks.

Operator

Now to Jamie Albertine with Stifel.

Jamie Albertine - Stifel Nicolaus

Thanks for taking my questions. And just in case I missed it did you guys provide the actual monthly comp breakdown through I guess April or even quarter-to-date, I mean, I heard 3% is where you are running, but did you provide the monthly breakdown?

John Van Heel

No, that is April and if you are talking about in fiscal ‘14 that’s April and May together.

Jamie Albertine - Stifel Nicolaus

Together it’s 3%, okay. And did you say what January, February, and March were?

John Van Heel

Yeah, January adjusted for days was down 13%, February was down 0.7%, March was down 3.7%. The quarter adjusted for days was 5.6%. It was down 5.6%.

Jamie Albertine - Stifel Nicolaus

Great, thank you. And then wanted to just ask another question, with respect to your GM guidance which I believe if I have it correctly was flat to slightly down for the year ahead. Is that anticipating as the comp kind of improves here to 2.5% to 4.5% clip, any increase in potential promotion or discounting prices to the consumer in that more competitive environment presumably?

John Van Heel

No, given what we seen from the acquisitions that we have been looking at and have [NDAs] [ph] on, we see continued pressure on margins, so we would expect the pricing environment to remain relatively stable. Beyond that, that guidance as soon as that we run out our business in this market to collect all that we can and provide a service to our customer that supports that.

Jamie Albertine - Stifel Nicolaus

Okay, great. And then one last question if I may, understanding the years two and three accretion of $0.08 to $0.10 for every 10% in acquisitive growth, in an environment where you are comping better than expected, is there an acceleration of that trend into year one, perhaps or an appreciation of that aggregate accretion? So, can it be $0.09 to $0.11 in a 5% comp environment presumably? I am just trying to get a sense for now that you have lowered your comp leverage point to sort of flat from 2% to 2.5%, does that – is there any movement in that range potentially? Thanks.

Rob Gross

This is Rob. The comps from the acquisitions remember don’t go into the comp base. So, part of our conservatism, our hopeful conservatism is that we assume we are going to screw up sales for the first six months. So, if we are running at plus 4 comp to the company that doesn’t necessarily mean our expectation for first year acquisition growth is going to be higher. I think we are fairly comfortable at the 10% acquisition level that we will get $0.08 to $0.10 accretiveness in year two breakeven or slightly accretive in year one and that same group will then be $0.08 to $0.10 accretive in year three, and if you remember, as our base is built, those numbers used to be $0.06 to $0.08 accretive in the first year being 10% was $50 million in sales as opposed to not going forward, 10% is going to be $840 million. So, the $0.08 to $0.10 is fully loaded 10% acquisition growth.

Jamie Albertine - Stifel Nicolaus

Very good. Thanks so much for the color.

Rob Gross

Thank you.

Operator

And now to Mike Montani with ISI Group.

Mike Montani - ISI Group

Hey, guys. Just wanted to ask if you could give the breakout of on the category sales mix, so like tires are X percent of sales this quarter just so we can compare year-over-year?

John Van Heel

Sure. For the quarter, brakes was 14%, exhaust 4%, bearing 10%, tires 44%, and maintenance 29%.

Mike Montani - ISI Group

Okay. Go ahead John.

John Van Heel

I was going to give it to you for the year, brakes were 16%, exhaust was 4%, bearing was 10%, tires were 42%, and maintenance was 29%. So, don’t hold me to the rounding there.

Mike Montani - ISI Group

Good. Okay, and then when you look at the improvement that you all have seen in comp trends obviously going to plus 3% from a down 5%, 6% adjusted for days, can you provide what the traffic and ticket were to get to the down 5%, 6%? And then what is really improved? It sounds like it’s mostly traffic, but maybe there is also ticket given the mix.

John Van Heel

Yes, we had traffic in the fourth quarter was down and ticket was also down in the fourth quarter. Again, as we said, oil changes for the year were flat. So, we continued our relationships with our customers there and the traffic being up in the first in April and May is lead by oil changes. So, oil changes are up consistent with traffic.

Mike Montani - ISI Group

And has the ticket now also turned positive John or is that still on the comp so to peak?

Rob Gross

This is Rob. We commented on the full year, I mean, we will be happy to express what’s going on with ticket when we get to the end of the quarter, Mike. We are kind of just trying to give as much color as we can.

John Van Heel

Obviously with tires being a strong category in the first couple of months that certainly helps tickets.

Mike Montani - ISI Group

Great, thanks. And just the last one I had was on the fourth quarter with the tires being down 6% in dollars, can you share what the unit versus pricing would have been?

John Van Heel

Yeah, the units for the quarter were down similarly.

Mike Montani - ISI Group

Okay, great. Thank you. Good luck.

John Van Heel

Thank you.

Operator

And now to Peter Keith with Piper Jaffray

Jon Berg - Piper Jaffray

Good morning. This is actually Jon Berg on for Peter. Thanks a lot for taking our questions. If you look at the entire auto services industry right now, do you guys believe you are maintaining your share in all your categories and then the X tires if you look out over the next 12 months, where do you anticipate the most acceleration as far as categories?

John Van Heel

Yeah, we are maintaining share. We talked about that quite a lot during this year with the pressure on sales, particularly in our geographic regions. And I think the oil changes and our tire units speak to that through fiscal ‘13 and with tire sales being up early this year and with oil changes being up, I think we are holding share, if not taking a little bit, but we’ll see about that as we gather more information about what’s happening early this year.

Jon Berg - Piper Jaffray

Okay. And then we noticed you are advertising a second option for credit card on your website now, and I don’t recall seeing that before. I think that card allows for no interest paid for 12 months, is that helping the drive tire sales and potentially trade up within the tire category?

John Van Heel

Yeah, the reason we put that into place several months ago was that – so that – that went into place later last year that was to make sure that we offered our customers a convenient way to purchase tires, it’s got $500 minimum. So, it’s very useful for tire purchase – tire sales I should say. And with our size, we felt like we could offer that at a very competitive cost.

Rob Gross

But I don’t – this is Rob, it is not the driver of what’s occurring with tires coming out of the winter because that promotion you were talking about was in place all of the fourth quarters and helped us to deliver a spectacular minus six in tires. In fact we have said that we are holding the powder on our advertising until we see some pick up, so we are encouraged that we running the plus three without a significant increase if any on the advertising side.

Jon Berg - Piper Jaffray

Okay, great, thanks a lot good luck in Q1.

John Van Heel

Thank you.

Operator

Now we will go to Scott Stember with Sidoti & Company.

Scott Stember - Sidoti & Company

Good morning.

John Van Heel

Hi Scott.

Scott Stember - Sidoti & Company

Much has been made about I guess the level of deferral of tire sales basically people driving on essentially bald tires, can you talk about the condition of the tires that are coming up off on your lift to give us an indication of what could possibly be coming in the next couple of quarters?

John Van Heel

Yeah, I think that’s exactly what we are seeing. We are seeing more people driving around on bald tires, it’s the worst condition collectively that we see in a long period. So, I think that it’s that it’s the basis of the extended deferral and that’s really what’s out there. I would expect that next shoe to drop to be a reduction in that deferral cycle and period and particularly given some of the traction that we have seen early in this quarter.

Scott Stember - Sidoti & Company

Okay. And last question in the past we talked about growing in some other areas a little bit more such as temperature control is there anything new on that front particularly with the summer coming up or any other areas that you guys are targeting?

John Van Heel

No, I mean nothing in particular, we continue as Rob said to promote our business and save some of our powder on the advertising front till we see some more traction. And we’ll see as things develop here when it makes sense to push a little bit more on that front where we think that we can actually drive some real increased sales.

Scott Stember - Sidoti & Company

Great, that’s all I have. Thank you.

John Van Heel

Thank you.

Operator

And we will go to Brian Sponheimer with Gabelli & Company

Brian Sponheimer - Gabelli & Company

Hi, good morning.

John Van Heel

Good morning Brian.

Brian Sponheimer - Gabelli & Company

So, with tires coming back a little bit, next category I am curious about is on the brakes side, presumably if the tire is coming back the brake pads seem can’t be all that much better, what do you think drives the change there to get brakes back on the positive side?

John Van Heel

Well, as I said all the categories are positive, our key categories are positive and we saw a deferral on the brakes side as well. The key for us is to continue to drive oil changes to have that opportunity to present the customer with their brake measurements and their tire measurements as we do on every oil change. That’s part of our building trust on keeping them coming back if the consumer is improving we want them in our shop when they are more prepared to make that brake purchase.

Brian Sponheimer - Gabelli & Company

The brake pads that you are selling right now, are you still seeing the trend towards the good and better as opposed to the premium set?

John Van Heel

Yes, we have a very strong mix of upgraded pads.

Brian Sponheimer - Gabelli & Company

Alright. I look forward to a better year.

John Van Heel

So are we.

Operator

(Operator Instructions) And it appears there are no further questions at this time. I’ll be glad to turn the conference back our speakers for any additional or closing remarks.

John Van Heel

Thanks. I would like to thank everyone for their time this morning. We came out of the tough year with a lot higher store count, a lot better store density and we are encouraged by the positive sales trends early in this fiscal year and very confident about the opportunities we have in 2014 and beyond. We appreciate your continued support and certainly appreciate all the efforts from all of our employees that are working hard everyday to take care of our customers. Thank you and have a great day.

Operator

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation.

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