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Monro Muffler Brake, Inc. (NASDAQ:MNRO)

Q4 2014 Results Earnings Conference Call

May 22, 2014 11:00 AM ET

Executives

Leigh Parrish - FTI Consulting

John Van Heel - President and CEO

Cathy D’Amico - Chief Financial Officer

Rob Gross - Executive Chairman

Analysts

Bret Jordan - BB&T Capital Markets

Rick Nelson - Stephens

Anthony Deem - KeyBanc Capital Markets

James Albertine - Stifel

Michael Montani - ISI Group

Scott Stember - Sidoti & Company

Operator

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake’s Earnings Conference Call for the Fourth Quarter of Fiscal 2014. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). And as a reminder, ladies and gentlemen, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company.

I would now like you to introduce Ms. Leigh Parrish, FTI Consulting. Please go ahead.

Leigh Parrish

Thank you. Hello, everyone, and thank you for joining us on this morning’s call. I would just like to remind you that on this morning’s call, management may reiterate forward-looking statements made in today’s press release. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks and uncertainties related to these statements, which are more fully described in the press release and the company’s filings with the 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 the leveraging debt service including sensitivity to fluctuations and interest rates, dependence on and competition within the primary market, 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.

Joining us for this morning’s call from management are John Van Heel, President and CEO; Cathy D’Amico, CFO; and Rob Gross, Executive Chairman.

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

John Van Heel

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

As we look back at our performance throughout fiscal 2014, I am pleased with our team’s consistent execution of our proven strategy and the initiatives that enabled us to remain an industry leader in any macroeconomic environment. Throughout the year, we continued to deliver on our key objectives of increasing traffic, expanding gross margins through lower product costs, carefully managing operating expenses, and driving strong sales and earnings contributions from recent acquisitions while capitalizing an opportunities to complete additional acquisitions at attractive prices.

As a result, we were able to deliver record fourth quarter sales and net income with operating margin expansion of 260 basis points and bottom-line growth of 47%. Further, full year sales were a record $831 million, an increase of 14% versus the prior year and we generated net income growth of 28% to $54.5 million and 140 basis points of operating margin improvement. Importantly, we were able to deliver robust profit growth for the fourth quarter and full year in the face of a difficult consumer spending environment.

Fourth quarter comparable store sales were down 1.3%, while full year comparable store sales were down 0.5%. While we saw some whether related disruption to our business in the fourth quarter we are not complaining about it. We see -- we expect to see the benefits of last year's harsh winter throughout this year.

Both fourth quarter and full year results reflect pressure on comparable store tire sales due primarily to consumers continuing to trade-down from higher price tires, which is why comparable store tire units were up 1% for the year, while comparable store tire sales were down 1%. This reduced our overall reported comparable stores sales by approximately 1% throughout fiscal ‘14, yet we were still be able to grow tire margins during the year.

For the full year, we experienced a 1% increase in oil change units which resulted in higher overall comparable store traffic. We also experienced comparable store sales increases of 1% for brakes, exhaust and shocks sales, offset by lower comparable store sales in maintenance service and tires.

We continue to see consumer acceptance of our broader tire assortment with comparable store tire units up 1% for both the fourth quarter and fiscal year.

In fiscal 2014, we generated significant improvement in gross margin with an increase of 190 basis points in the fourth quarter and 50 basis points for the full year, despite a shift in sales mix for the lower gross margin tire category for the year that primarily reflects the higher tire sales mix of our recent acquisition.

As we have previously discussed, since the elimination of the tariff on imported tires a year and half ago, we have received reductions of at least 20% in import tire costs and mid to high single-digit reductions in branded tires. We have taken a proactive approach in pursuing lower tire costs from both direct imports and branded suppliers and we continue to take advantage of the significant increase to our purchasing power that has resulted from our recent acquisition. As a result of continuing moderation in tire input costs, increasing penetration of direct import and increasing production among manufacturers, we expect the favorable cost environment to continue in fiscal 2015 and our tire costs to continue to decline. As a reminder, these costs reductions flow into our cost of goods sold as our tire inventory turns.

As I noted, we continue to see budget conscious consumers delaying purchases and trading down from higher cost tires and services. Customers remain under pressure and are increasingly looking for value, particularly in tires, which remain a significant purchase. We’ve effectively managed our business to meet our consumers need by expanding our tire assortment to provide additional value oriented options and we are very pleased that consumer acceptance is ahead of our expectations.

In fact, we saw the penetration of direct imports increased to over 35% of tire units sold for the fourth quarter and 32% for fiscal 2014 versus mid 20% in fiscal 2013 and mid-teens three years ago. This trend has supported increases in tire unit sales while allowing us to expand our margins and growth profit dollars per tire and we expect that we will get to a 40% penetration rate in fiscal 2015.

The ongoing benefits from our tire supply programs and our retail pricing discipline allowed us to collect more average growth profit dollars per tire in the fourth quarter than any other quarter of this year. We expect to see that continue in fiscal 2015 assuming a relatively stable pricing environment with the greatest benefits in our first and second quarters.

We are pleased by our ability to continue to carefully manage costs, while appropriately investing for growth. For the fourth quarter total operating expenses as a percent of sales decreased to 27.4% as compared with 28.1% the previous year, and for the full year total operating expenses decreased to 27% of sales as compared with 27.9% in the prior fiscal year. Our fourth quarter and fiscal year results reflect leverage from our higher overall sales combined with our cost control initiatives.

In fiscal 2014 we generated significant earnings growth on slightly negative comparable store sales, due to the flow through of lower product cost, improvement in the performance of recent acquisitions and disciplined cost control. Based primarily on the continued reduction of product cost we expect in 2015 and current cost control measure that we have in place we expect to be able to deliver earnings growth on a 1% comparable store sales increase a lower threshold than the 2% to 2.5% comparable store sales increase we have needed to achieve in prior years.

We are also pleased by the recent positive comparable store sales trends in our business and remain very optimistic that the harsh winter weather will serve as a tailwind throughout fiscal 2015. Quarter to date sales are up approximately 2% on positive traffic, positive oil changes, positive prior units and comparable store sales increases in key service categories such as brakes and [alignment] which are up a combined [90%].

Trade down continues to meet our reported comparable store sales in tires which are down 2% though on average we are making higher margins and more money on each unit sold than in the prior year.

We believe these positive sales results primarily reflect the harsh winter we just experienced while still reflecting the consumer will remain pressured with deferrals remaining higher and longer than normal. We believe that, the consumer remains the sales opportunity as the year progresses.

Additionally as fiscal 2013 acquisition stores are now part of our comparable store sales based and given that we have moved through much of the integration progress last year, these stores also represent upside to our current comparable store sales run rate this year.

Turning now to our growth strategy. We remain focused on increasing our market share through comparable store sales growth, opening new stores in the existing markets and acquiring competitors at attractive valuations. Through our successful acquisitions, we are operating with greater economies of scale that are benefiting us today and positioning the company to deliver strong earnings over the next several years. In this choppy sales environment, we remain focused on increasing our market share while strengthening our key competitive advantages and operating leverage through additional accretive acquisitions.

That said, we continue to be pleased with the outperformance of our recent acquisitions. In fiscal -- the fiscal 2013 acquisitions were ahead of our plan this past fiscal year and in fiscal 2015, we expect accretion of $0.27 to $0.30 from the fiscal 2013 and fiscal 2014 acquisitions.

Collectively, our acquisitions increased our store density within our geographic footprint and our purchasing power with vendors. The acquisitions also allow us to further leverage the G&A costs of distribution, advertising, field management and headquarters all of which will help drive future operating margin expansion. We still see meaningful opportunities for attractive deals in the marketplace given the continued pressure on consumers.

The owners of target independent tire dealers are most often individuals who are at or nearing retirement age without an internal succession option. In addition, the prices for new acquisitions are generally more attractive when the industry is pressured, which speaks to our company’s ability to grow earnings in any macro environment. We presently have 10 NDAs signed, up from 5 in the third quarter if you exclude the two acquisition agreements we just announced. Quarter to date, we have signed definitive agreements to acquire our 21 stores generating approximately $16 million in annualized sales, 19 of the stores are located in Michigan, a new state for the company; and the other stores fill in, in existing markets.

These acquisitions provide additional upside given we are purchasing the real estate for 19 locations which generally drive higher levels of profitability. Their sales represent approximately 2% of total Monro sales adding to our 30% acquisition growth achieved and the 11 deals closed in fiscal 2013 and ‘14. The transactions are expected to close in June and the locations will operate under the Monro brand name.

Based on our recent transactions and our current NDAs, we are very encouraged about opportunities for additional acquisitions in the near future. While we remain disciplined in the prices we will pay for acquisitions, as we reach acceptable terms, we are ready to act on any opportunity.

Before I turn to our outlook, I want to first discuss our overall view on the industry and key trends which remain very positive. There are still 245 million cars on the road in the U.S. that are getting older as consumers are keeping and maintaining their vehicles longer. We know this because the average age of vehicles on the road has increased to 11.7 years. Vehicles over 12 years old continue to represent over 20% of our traffic from mid-teens three years ago, with average ticket on these older vehicles consistent with our overall average. Although the growth in trade downs has increased in this economy, consumers continued to repair and retain these older vehicles as evidenced by our positive fiscal year 2014 comparable sales in our exhaust and shock category which are largely discretionary and performed on older vehicle as well as year-to-date increases in traffic and comparable store oil change and tire unit sales. We are encouraged by these results and we expect to continue seeing this positive momentum in the remainder of this year.

Fewer consumers having interest in and are able to work on their vehicles, the number of overall service space is declining and there remain numerous acquisition candidates that meet our criteria.

As we look at the position of our business within the industry, our key competitive advantages are still in place including our low cost operations, superior customer service and convenience, price advantage versus car dealers and along with our store density and two brand store strategy.

Our guidance for the first quarter and fiscal year assumes the continuation of the underlying muted macro environment we have been experiencing. However, our guidance also reflects our confidence in our recent positive comparable store sales trends, positive traffic and the expected tailwind from the harsh winter.

Currently quarter-to-date comparable store sales are up 2% on top of positive 3% last year during the same period, driven by strong growth in key service categories and positive traffic, positive oil change units and positive tire unit sales. As a result, the first half -- as reminder, the first half of the first quarter was a strongest sales period of fiscal 2014. So our comparisons ease going forward this year.

For the full fiscal year taking into account anticipated contribution in sales from our fiscal 2015 announced acquisitions, we now expect total sales to be in the range of $875 million to $905 million based on comparable store sales guidance of positive 1% to 4%. Based on these assumptions, improving margins and outperformance by our recent acquisitions, we expect fiscal year 2015 EPS to be in the range $1.95 to $2.15, an increase of 17% to 29% versus $1.67 diluted earnings per share in fiscal 2014.

Operating margins are expected to expand in the range of 125 to 175 basis points for the year. Based upon trends quarter-to-date, we expect first quarter comparable store sales to increase in the range of 2% to 3% and total sales to be in the range of 217 million to 221 million. We anticipate first quarter operating margin to expand approximately 225 to 300 basis points. As a result, the company expects diluted earnings per share for the first quarter to be between $0.52 and $0.55 as compared to $0.42 for the first quarter of 2014 with slight dilution from the fiscal 2015 acquisitions we have announced.

As we look at fiscal 2015, we anticipate that we will see the greatest improvement in operating margin in the first quarter with somewhat less improvement in Q2. Due to the fact that our lower product costs began to really take hold the second quarter of fiscal 2014 and our recent acquisitions improved sequentially through the year.

Additionally, the fourth quarter operating margin improvement will be limited by higher healthcare costs due primarily to the Affordable Care Act and the lapping of the significant product cost reductions we benefited from this past fiscal year. Looking forward, I am optimistic that the harsh weather condition we experienced this past season will continue to help sales during this spring and should serve as a tailwind for the reversal of customers increased deferrals which have expanded longer and we would have expected.

We are encouraged by the recent positive trends in our business and our continued action to reduce both products and operating costs. This should allow us to produce operating leverage at comparable store sales increase of approximately 1%. Coupling this with continued strong performance of our recent acquisitions we should deliver a solid fiscal 2015. Our five year plan remains consistent and continues to call for on average 15% average annual top-line growth including 10% growth through acquisitions, 3% to 4% comps and 1% to 2% increase from Greenfield stores.

Our acquisitions are generally dilutive to earnings in the first six months as we overcome due diligence and deal related costs while working through initial inventory and the operational transition of these stores. With cost savings and recovery in sales, results are generally breakeven to slightly year one and will be $0.09 to $0.12 accretive year two and year three. This is an update from the previous year two and year three accretion guidance of $0.08 to $0.10 and is a reflection of our target for 10% growth through acquisitions on a higher sales base with the same rate of return.

Over the five year period that should improve operating margins approximately 300 basis points and deliver an average of 20% bottom line growth. Our disciplined acquisition strategy is further strengthening our position in the marketplace and will continue to provide meaningful value to our shareholders for many years to come. To this end the 18% increase in our cash dividend that we announced today which is the ninth in the last nine years reflects the Board's continued confidence in our long-term strategic plan and commitment to increasing shareholder return.

Before I turn the call over to Cathy, I would like to say that [Technical Difficulty] hope the consumer would have been stronger, I'm very proud of the performance of our team during the fourth quarter and fiscal 2014. We continue to service more customers, offering them exceptional service, drive higher tire unit sales while generating more profit per tire, control operating costs, to an excellent job integrating acquisitions and finding new acquisition opportunities at attractive prices.

These efforts allowed us to report record sales and earnings for the fourth quarter and strong overall results for the year. The hard work, passion for superior customer service and consistent execution that our employees deliver everyday are reflected in these results and are critical to Monro’s brand strength and success. We greatly appreciate everyone's effort.

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 and good morning everyone. Sales for the quarter increased 3.7% and $7.3 million. New stores which we define as stores opened or acquired after April 1, 2012, added $10.5 million. Comparable store sales decreased 1.3%, and there was a decrease in sales from closed stores of approximately $1.1 million. There were 91 selling days in both the current and prior year fourth quarters.

For the year sales increased $99.4 million and 13.6%. New stores contributed a $110 million of the increase, partially offsetting the sales increase was a comparable store sales decrease of 0.5% and a decrease in sales from closed stores amounting to $5 million. There were 361 selling days in both the fiscal 2014 and fiscal 2013.

At March 29, 2014, the company had 953 company operated stores as compared with 937 stores at March 30, 2013. During the quarter ended March 2014, the company opened four stores and closed two. For the year we added 29 stores and closed 13.

Gross profit for the quarter ended March 2014 was $77 million or 37.9% of sales as compared with $70.6 million or 36% of sales for the quarter ended March 2013. The increase in gross profit for the quarter ended March 2014 as a percentage of sales is due to several factors. Third, total material costs, including outside purchases decreased as a percent of sales as compared to the prior year. We saw a meaningful decline in product costs with the comparable sales mix for the fourth quarter of last year. Partially offsetting this was distribution and occupancy costs which increased as a percentage of sales from the prior year, primarily due to adjustments that we made in the fourth quarter of last year which reduced this line. As you may recall, these were related primarily to opening balance sheet accounting for leases in our fiscal -- for our fiscal 2013 acquisitions which decreased rent expense and increased depreciation and interest expense.

Labor costs as a percent of sales were essentially flat as compared to the same period last year. Gross profit for the full fiscal year 2014 was $320 million or 38.5% of sales as compared with $278.1 million or 38% of sales for fiscal 2013. The increase in gross profit for fiscal 2014 as a percentage of sales is due to several factors.

Labor cost decreased as a percentage of sales as compared to the prior year through focused payroll control. Labor productivity as measured by sales per man hour, improved over the prior year as well. Distribution and occupancy costs for the full year decreased as a percentage of sales from the prior year as we leveraged these largely fixed cost against the increase in sales from the acquired stores.

Total material costs were relatively flat as a percent of sales as compared to the prior year. This was due to a shift in mix to the lower margin service and tire categories but due primarily to the acquisition of more tire stores offset by a meaningful decline in product costs, particularly tires.

Operating expenses for the quarter ended March 2014 increased $0.5 million and was $55.6 million or 27.4% of sales as compared to $55.1 million or 28.1% of sales for the quarter ended March 2013. The increase is primarily due to expenses associated with the fiscal 2013 and 2014 acquisition stores offset in part by continued cost control including savings in benefit costs such as workers’ compensation. Excluding expenses associated with the fiscal 2014 and 2013 acquisitions, operating expenses actually decreased from the same period last year.

For the full year, operating expenses for fiscal 2014 were $224.6 million or 27% of sales as compared with $204.4 million, or 27.9% of sales for the fiscal 2013. Excluding the increase in operating expenses related to the stores acquired in fiscal 2014 and fiscal 2013, operating expenses decreased by approximately $2.2 million. This demonstrates that we experienced leverage in this line on a comparable store basis to focus cost control and [pay plans] which appropriately adjust for performance.

Operating income for the quarter ended March 2014 of [$21.4] million increased by 38.4% as compared to operating income of approximately $15.5 million for the previous year quarter, an increase as a percentage of sales from 7.9% to 10.5%. For the full year, operating income in fiscal 2014 of approximately $95.3 million increased by 29.4% as compared to operating income of approximately $73.7 million in fiscal 2013, an increase as a percentage of sales of 10.1% to 11.5%.

Net interest expense for the quarter ended March 2014 decreased [four tenths] as a percentage point of sales as compared to the same period last year. As mentioned previously, during the fourth quarter of fiscal 2013, we made some entries, totaling $1.6 million to true up capital and financing leases, primarily related to fiscal 2013 acquisition.

Additionally, weighted average debt outstanding for the fourth quarter of fiscal 2014 decreased by approximately $31 million as compared to the fourth quarter of last year. This decrease is primarily related to a decrease in debt outstanding under the company’s revolving credit facility as well as a decreased amount outstanding under capital and financing leases. Additionally, the weighted average interest expense decreased by approximately 50 basis points, as compared to the prior year quarter.

Net interest expense for the full fiscal year 2014 increased by approximately $2.3 million as compared to the prior year and at 1.1% was relatively flat as a percent of sales. The weighted average debt outstanding for the year ended March 29, 2014 increased by approximately $61 million from fiscal 2013, primarily related to an increase in debt outstanding under the revolving credit facility to fund the purchase of our acquisitions as well as increased capital leases related to those acquisitions. Partially offsetting this increase was the decrease in the weighted average interest rate of approximately 40 basis points from the prior year due to a shift in the percentage of debt revolver versus cap leases outstanding at a lower rate.

The effective tax rate for the quarter ended March 2014 and March 2013 was 37.6% and 34.9% respectively of pretax income. For the full fiscal year 2014 taxes were 37.1% of pretax income as compared to 36.3% last year. The difference in the tax rates lowered earnings per share for the fiscal 2014 fourth quarter and full year by approximately $0.02 per share.

Net income for the current quarter of $11.9 million increased 46.5% from net income for the quarter ended March 2013. Earnings per share on a diluted basis of $0.36 increased 44% as compared to last year’s $0.25. Net income for fiscal 2014 increased 27.9% from $42.6 million in fiscal 2013 to $54.5 million in fiscal 2014. And earnings per share, earnings per diluted share increased by 26.5% from a $1.32 to a $1.67.

Moving on to the balance sheet, our balance sheet continues to be strong with the current ratio at 1.2 to 1 which is comparable to fiscal year end 2013. In fiscal 2014, we generated approximately $94 million of cash flow from operating activities and paid off $29 million of debts. In addition, we used some of the cash flow from operating activities to finance the fiscal 2014 acquisitions. These acquisitions added 22 stores and approximately $36 million of annualized sales. At the end of the fourth quarter debt consisted of $107 million of outstanding revolver debt and $88 million of capital leases and financing obligations.

As a result of the debt pay downs, our debt-to-capital ratio including the capital leases decreased 600 basis points to 32% at March 2014 from 38% at March 2013. Without the capital and financing leases, our debt to capital ratio was 20% at the end of March 2014, a decrease from 26% at March 2013. Under the revolving credit facility, we have $250 million that is committed through December 2017. Additionally, we have a $75 million accordion feature included in the revolved credit agreement. The agreement bares interest at LIBOR plus the spread of 100 to 200 basis points and we currently are paying LIBOR plus 125 basis points.

The flexibility goes into the agreement permits us to operate our business including doing acquisitions without bank approvals as long as we are compliant with that covenant. Those terms as well as our current availability of $138 million which doesn’t include the [accordion] gives us a lot of flexibility to get acquisitions done quickly. We are fully compliant with all of our debt covenants and have plenty of room under those financial covenants to do acquisitions without any problems.

During fiscal 2014 we spend approximately $32 million on CapEx including approximately $11 million in the fourth quarter which included about $5 million of maintenance CapEx. Store acquisitions during fiscal 2014 used another $27 million of cash. Depreciation and amortization was approximately $32 million divided roughly evenly between the four quarters. And we received $4 million from the exercise of stock option. We paid about $14 million in dividends.

Inventory is up about $6.7 million from March 2013, largely due to acquired stores in the purchase of tires to expand product assortment and decrease out-buys. Total inventory turns for the rolling 12 months ended March 2014 have improved almost 5% from last year.

Expanding on John’s guidance for our fiscal year 2015 as he stated we expect sales in the range of 857 million and 905 million this reflects a 1% to 4% comparable store sales increase. Operating margin is expected to increase by 125 to 175 basis points. Interest expense should be about $8 million before any adjustments to [share of] acquisition accounting for potential capital leases. However, any such adjustment would result in a reduction to occupancy costs which are included in cost of sales.

EBITDA should be in the range of $143 million to $153 million. Depreciation and amortization should be about $32 million. CapEx should be approximately $33 million, maintenance CapEx will be about $21 million of that amount with the remainder for new stores. The tax rates should be about 38% for the year with some fluctuations between quarters.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will now take our first question from Bret Jordan, BB&T Capital Markets.

Bret Jordan - BB&T Capital Markets

Good morning.

John Van Heel

Good morning.

Bret Jordan - BB&T Capital Markets

If we look at the whether impact in the quarter, is there a way to sort of back in the envelope maybe through our outright store closure days what its impact on top was and I guess given the visibility you have in peers performance maybe through the NDAs or just general market intelligence, how did you traffic compare to the balance of the market in the quarter?

Rob Gross

Yes. If you look at the store closures and remove the impact of that, our sales would have been about flat. So there was a fairly sizeable impact on the quarter. And in terms of traffic, judging I guess my best way to judge is the 10 NDAs that we have. I think we are gaining share.

Bret Jordan - BB&T Capital Markets

Okay. And then I guess we look at tires and your expectation of tire pricing continues to go in your favor. Is that skewed towards the import or are you beginning to see some price concessions or an acceleration of price concessions on the RMA of the branded product?

Rob Gross

I would say yes on both. It will still be higher on the import, but we are seeing increased concessions from the branded guys.

Bret Jordan - BB&T Capital Markets

Okay. And then one last question. Could you give us a feel maybe what the price delta is now if you were to say the average branded products versus the import product with the difference you are seeing on retailers?

Rob Gross

Yes, it's larger than it has been in the past. Sometimes I feel like we're the only guys answering these kind of questions and I really don't want to open up the whole playbook. It is definitely larger than it has been.

Bret Jordan - BB&T Capital Markets

Okay. All right. Thank you.

Rob Gross

Thank you.

Operator

Next, we'll take our question from Rick Nelson from Stephens.

Rick Nelson - Stephens

Hey just kind of…

John Van Heel

Hey Rick.

Rick Nelson - Stephens

For the current quarter plus to, I think that’s the best we have seen it going back down 12 quarters then you point out compares get easier as the quarter progresses, I mean year progresses, are there big memorial day promos plan this year that maybe you wanted to kind of plan a year ago, because of the more favorable weather conditions? And I guess how do you see that to make for the quarter shaking out?

John Van Heel

Yes. Well, in terms of Memorial Day, I don’t see an awful lot more activity than has been out there in the past, certainly with the increased traffic and the service business responding pretty well. We’ve always said that as we look at marketing, we’re going to fish when the fish are biting and this sort of starts to line up like that. And as we move through the year if we continue to see some strength, we’ll make investments there. But for the rest of the quarter, our comps within the quarter get much easier, June coming off of this plus three last year, midway through the quarter, we ended up reporting a plus one for the quarter, so June really remains an opportunity for us.

Rick Nelson - Stephens

And John, the quarter is more heavily weighted right to May and June, April is relatively small?

John Van Heel

Yes, it’s slightly smaller.

Rick Nelson - Stephens

And the guidance that you’re providing on the acquisitions, now $0.27 to $0.30; I think last call you had talked about $0.24 to $0.30. You’re more optimistic there. I’m just curious what is driving that and is it the improvement in the comps?

John Van Heel

Well, I view it as much as anything as June ‘15. The $0.24 to $0.30 we talked about with the fiscal ‘13 acquisitions, there will be some accretion as well from the ‘14 acquisitions, but that is consistency off of outperformance in fiscal 2014 on those acquisitions. That’s part of [why we deal]. We said 20 to -- we had an initial range of 15 to 20, we wanted 20 to 22 and those acquisitions for fiscal ‘13 deals contributed $0.24 in fiscal ‘13.

Rick Nelson - Stephens

So, I was just curious how you see the year shaping up from an acquisition standpoint. Your long term target is 10%, do you see this as a bigger year or smaller year?

John Van Heel

Yes. I think with the number of NDAs we have right now, we are looking at potentially an above average year this year. I think the market - with the market being choppy out there and all of these guys continuing to get older as we all are, there is more interest out there. As the tougher the market, the better we do in acquisitions.

Rick Nelson - Stephens

Good. Good to hear. Thanks a lot and good luck.

John Van Heel

Thank you.

Operator

And I will take our next from Anthony Deem from KeyBanc Capital Markets.

Anthony Deem - KeyBanc Capital Markets

Hi, good morning.

John Van Heel

Hi, good morning.

Anthony Deem - KeyBanc Capital Markets

As it relates to the $0.27 to $0.30 acquisition accretion outlook does that include the -- any assumed dilution from the most recent acquisition, or is that separate?

John Van Heel

Yes, it incorporates what we’ll have from these couple of deals here that we just announced.

Rob Gross

But nothing in the future, Anthony. I mean all of our numbers include the deals that John announced today in the core business and then anything we do in the future will responsive including the increased sales that we will get from them.

Anthony Deem - KeyBanc Capital Markets

Okay, helpful. And then I appreciate the color on the weather impact, sounds like about 100 to 150 basis points. Can you just talk to the cadence of your same-store comp in the quarter? January was previously said to be slightly positive, so perhaps February and March down over 100 basis points, can you give any color on that? Thanks.

John Van Heel

Right. January ended up being flat. If you remember, we are up in the kind of about last right at the end of the quarter. So January was flat; February was down one and March was down two.

Anthony Deem - KeyBanc Capital Markets

Okay. And then on the first quarter same-store guide up to the 3% versus up 2% quarter-to-date, so it seems like you expect to see some slight acceleration final week of May and into June; it seems like that's all driven by comps and is that fair estimate?

John Van Heel

Yes. I mean it was -- what we're reacting to there is the latter part of last year's first quarter was weak.

Anthony Deem - KeyBanc Capital Markets

Right.

John Van Heel

It was negative. So that seems to me based upon what we've seen for the first seven weeks that does that opportunity for the latter part of the quarter.

Anthony Deem - KeyBanc Capital Markets

And then shifting gears on the tire cost outlook. Beyond the second quarter of this year, it sounds like there is some opportunity for some slight benefit from where were tire costs probably not to the magnitude of what we're seeing last year but relative to the down 20% plus on imports, down mid to high single-digits on branded costs, can you give us a sense for what those numbers will look like in fiscal 2015?

John Van Heel

Yes. I think you might see flat to down in other 5 points or something. Again, I'm not really interested in being the only guy out there offering whole a bunch of details about how we're trying to deliver results here.

Anthony Deem - KeyBanc Capital Markets

Understand, great. Thank you.

John Van Heel

Thank you.

Rob Gross

Yes. Anthony, I think we're very comfortable with our guidance.

Anthony Deem - KeyBanc Capital Markets

Great.

John Van Heel

Thanks.

Anthony Deem - KeyBanc Capital Markets

Thank you.

Operator

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

James Albertine - Stifel

Great. Thanks and good morning everyone.

John Van Heel

Good morning.

James Albertine - Stifel

First, I just wanted to ask for a sort of a reminder or refresh of course on how your stores flow into the comp base because looking at 875 to 905 guidance for next year and if I'm correct, I think your sort of -- 140 or so stores that you added a couple of years back should start to be flowing through now. So, I'm just surprised that there is not more of a jump I suppose relative to the 831 you reported for the end of the fiscal year.

John Van Heel

You are absolutely correct in how the guidance and how the stores enter the comp, all of the stores that were acquired or opened in our fiscal ‘13 will be in our comp base or are in our comp base for fiscal ‘15. And again, the sales guidance reflects the 1% to 4% comp and some additional sales from the fiscal ‘14 acquisitions and the deals that we just announced today.

James Albertine - Stifel

Got you. I am sorry.

John Van Heel

But with regard to the acquisitions being a part of the comp base or just really generally where they are this year, last year we -- there is an awful lot of work that goes into that operational transition and that’s really the hallmark of last year [would buy] much of that. And so as I look at 1% to 4% comp, certainly the acquisition stores represent part of that upside there because last year for at least part of the year they’re worried about procedures and computer changes and some things like that that tend to take a little bit out of sales. So, that represents some of the upside within the 1% to 4%.

James Albertine - Stifel

Got you. If I could just have one quick follow-up on the 10 NDAs that you announced, if I recall last quarter we were talking about the 7 or so NDAs you alluded to 5 to 40 stores per NDA. I was wondering if you could give us an update on the sort of the store count per NDA at this point.

John Van Heel

Yes. That range applies to this group as well. So, it’s very consistent.

James Albertine - Stifel

Okay. Very helpful. Thanks again.

John Van Heel

Thank you.

Operator

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

Michael Montani - ISI Group

Hey guys, good morning.

John Van Heel

Good morning.

Michael Montani - ISI Group

I wanted if you talk about first off the mix percentages, can you just tell us as a percentage of sales what the various categories were for this quarter?

John Van Heel

Sure. For the quarter brakes was 14, exhaust 4, steering 10, tires 44, and 29 for maintenance services.

Michael Montani - ISI Group

And then -- okay, fair enough. On the tire take it down roughly 3% for this past quarter, was that basically all trade down is there also some deflation on like for like tires and how do you guys see that dynamic playing out as we move ahead through this year?

John Van Heel

Yes. The majority of that is trade down and there is a small piece of deflation in there. But for the year, as we said that same kind of metric relates to the year and it has been more trade down than price all year for us.

Michael Montani - ISI Group

And I guess when you put the 1% to 4% comp guidance out, is there any way to think about inflation overall in that number, is it basically assuming traffic trends kind of maintain and then you get some benefit from that or how should we think about traffic and ticket?

John Van Heel

Yes. I think you are going to see traffic up and ticket somewhat pressured by this overall trade down, I mean the trade down we’ll see through the year with us at 32 and we’re going to be in the higher 30 or 40 this year on the import tires. We are going to see some continued pressure from that on reported dollar sales, our job is to sell more tire units at more money gross profit per tire. That’s what we are focused on.

Michael Montani - ISI Group

Great. And just the last question I had was on affordable care act which you mentioned at the opener, I think last quarter you guys had spoken to maybe 2 million to 3 million type range of impact from that. Is that still the right way to look at that particular cost element heading into this year and some of the initiatives you have to offset it please?

Cathy D’Amico

Yes. Impact our fourth quarter of fiscal 2015 which would be the January through March quarter is when we'll have to be so compliance and that figure, the 2 million to 3 million for a full year or a quarter of that for fiscal 2015 would be the right number.

John Van Heel

Yes. In terms of the initiatives, I know we've talked a little bit about it, again not wanting give too much out about what we're doing. But we did make, we have made a push over the last year to focus on our best people and have those folks earning more money, the result of that is better customer service, better sales, better operations. One of the net results of that is we can do it with a few less heads and that helps things like the Affordable Care Act and that's really how we've approached at least part of this.

Michael Montani - ISI Group

Okay, great. Thanks guys. Good luck.

John Van Heel

Thank you.

Cathy D’Amico

Thank you.

Operator

And we'll take our next question from Scott Stember from Sidoti & Company.

Scott Stember - Sidoti & Company

Good morning.

John Van Heel

Good morning.

Rob Gross

Hey Scott.

Scott Stember - Sidoti & Company

Outside of tires, are there any planned price increases in any of the other categories which could help margins this year?

John Van Heel

Yes. We will put through a 1% to 2% price increase here in the spring, we started that already. And again on the tire side, we've talked about that a little bit. So that price increase will touch all other categories.

Scott Stember - Sidoti & Company

Okay, great. And just going to back to the commentary about what you have seen so far in the first quarter of '15. I think you said that tires were down 2% so far, is that on units or on actual comp?

John Van Heel

No, that is the actual comp sales, units are positive.

Scott Stember - Sidoti & Company

Okay. And….

John Van Heel

We'll give you the details of that at the end of the quarter.

Scott Stember - Sidoti & Company

Got you. And just what you were saying before that the first part of the quarter, I guess April faced more difficult comps, given that fact plus the fact that more consumers are coming into the shops with tires excessively warrant. Could you talk about the expectations as the quarter progresses on potential acceleration for tire sales?

John Van Heel

Yes. I think that tire sales like other category are still impacted by consumer that's under pressure. We see it in the accessing of our value price tire offering.

And I think with higher units and some strength on the service side of the business during the April and May, all of those things are part of the consumer deferral that has been higher and lasted longer than we would have expected. And we've always said that after a tough winter, we would expect to see some strength in sales in the spring, and I think we're seeing that. June was down last year, so I think there is real opportunity there.

Scott Stember - Sidoti & Company

And just going back to that could you just remind us last year's first quarter, what the comps were by months just so we have a better framework of what we're looking at?

Cathy D’Amico

Yes, I have that. Last year’s first quarter, we were up 3% in April, we were up 1.1% in May and down 3% in June.

Scott Stember - Sidoti & Company

Okay, great. And just last question, the acquisition that you announced today up in Michigan as you are the last year plus starting to go outside of your normal contiguous footprint, will this deal once again be supplied by the traditional Monro distribution systems or are there any plans to depart from that as you start to grow past year at usual footprint?

John Van Heel

Yes. It will be supplied by the traditional Monro footprint. We deliver not far from where these stores are right now. And we’ve been going outside of our footprint for several years now and we really look for the right opportunities to do that. An example we often point to is St. Louis. We run enough stores out there, was outside of our footprint but we saw a real hedge and we would have some higher distribution but we had real-estate fixed costs which were very advantageous out there that more than offset that.

As we pointed out in the script today, we’re buying the locations for all of these stores up in Michigan which again brings in that kind of a cost hedge despite the fact that these stores are not within our existing footprint of distribution. So there is a natural hedge where we often look for that in these types of deals. And that’s what drives profitability.

Scott Stember - Sidoti & Company

Got you. And that’s all I have. Thank you.

Cathy D’Amico

Thank you.

John Van Heel

Thank you.

Operator

(Operator Instructions). And we’ll take our next question from Bret Jordan from BB&T Capital Markets.

Bret Jordan - BB&T Capital Markets

Hi. Just follow-up to the…

Rob Gross

(Inaudible).

Bret Jordan - BB&T Capital Markets

I can’t, never enough. As a follow-up to that last question, I guess as we look at the growth in NDAs, is this expansion upto 10 because you’re looking further outside the existing market or most of these within the footprint?

John Van Heel

It is -- we’ve always had within the footprint or contiguous and all of these are fitting, continuing to fit within that.

Bret Jordan - BB&T Capital Markets

Okay. And then one last question as it relates to import mix, this 40% target; is there a maximum you don’t go above in import or as long as the market wants more of it, you are going to sell more of it?

John Van Heel

Yes. I think we are going to let the consumers define that. Certainly I would love to sell everybody very high end Michelin tires but not everybody has got $200 a tire. So we’re going to let the consumers define where we go there. And for us, it’s perfectly fine where we are at.

Bret Jordan - BB&T Capital Markets

Okay, thank you.

Operator

And it appears there are no further questions at this time. I would like to turn the conference back over to the speakers for any additional closing remarks.

John Van Heel

Thank you. Thank you all for your time this morning. We continue to make progress on sales, margins and acquisitions in a weak consumer sales environment. We remain committed to profitable growth and expect the strong year this year. We appreciate your support and the efforts of our employees; they work hard to take care of our customers every day. Thanks and have a nice day.

Operator

And that concludes today’s conference. Thank you for your participation.

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