Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake’s Second Quarter 2013 Earnings 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 produced in whole or in part without permission from the company. I would now like to turn the call over to Ms. Jennifer Milan of FTI Consulting. Please go ahead.

Thank you. Hello everyone and thank you for joining us on this morning’s call. I would just like to remind you that on this morning’s call, management may reiterate forward-looking statements made in today’s release. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks and uncertainties related to these statements, which are more fully described in the press release and the company’s filings with the Securities and Exchange Commission. These risks and uncertainties include but are not necessarily limited to, uncertainties affecting retail generally such as consumer confidence and demands for auto repair, risks relating to leverage and debt service including sensitivity to fluctuations in interest rates, dependence on and competition within the primary markets in which the company stores are located and the need for and costs associated with store renovations another 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 Chief Executive Officer, Cathy D’Amico, Chief Financial Officer; and Rob Gross, Executive Chairman. With these formalities out of the way, I’d like to turn the call over to John Van Heel. John, you may begin.

Thanks, Jen. Good morning, and thank you for joining us on today’s call. We’re pleased that you’re with us to discuss our second quarter fiscal 2013 performance. After some brief opening remarks, I’ll review our quarterly performance, then provide you with an update on our business as well as our outlook for the remainder of the 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. Before I review our second quarter performance, I would first like to speak briefly about our recent management succession. As many of you know, I assumed the role of Chief Executive Officer October 1, at which time Rob Gross assumed the role of Executive Chairman of the Board. On behalf of the board and the entire Monro team, I would like to thank Rob for his leadership, strategic vision and dedication which has been instrumental in Monro’s success over the past 13 years. I’m very pleased to be in my new role and to continue to work together with Rob, our strong management team and our 5300 professional associates to further strengthen and leverage our position as a low-cost, trusted service provider. We continue to execute on our proven strategy and the initiatives that has delivered 11 straight years of positive comp sales and a 13-year average of 20% EPS growth; because favorable industry trends and our competitive advantages haven’t changed. We’ve accelerated acquisitions as we said we would, in times of slow organic growth. We are not pleased with the first half of fiscal 2013 and expect near-term results to remain choppy, but people need what we sell and can only defer purchases of our products and services for so long. I believe that sales will improve as we…

Thanks, John. Good morning, everybody. As John said, sales for the quarter increased 1.9%, new stores, which we define as stores opened or acquired after March 25, 2011, added $15.4 million. Comparable store sales decreased 4.6% and there was a decrease in sales from closed stores of approximately $1.9 million. Additionally, during the quarter ended September 2011, the company completed the bulk sale of approximately $2.9 million of slower-moving inventory to a barter company. There was no barter transaction in the quarter ended September 2012; and these numbers compare to a comparable store sales decrease of 0.8% in the second quarter of last year. There were 91 selling days in both the current and prior year’s second quarters. Year-to-date, sales increased $7.6 million and 2.2%. New stores contributed $33.1 million of the increase, partially offsetting the sales increase of the comparable store sales decline of 5.9%, and a decrease in sales from closed stores amounting to $3.6 million. At September 29, 2012, the company had 853 company-operated stores as compared with 802 stores at December 24, 2011. During the quarter ended September 2012, the company opened 18 stores, including 17 from the Tuffy acquisition, and closed one store. Year-to-date, we have added 56 stores and closed 6. Gross profit for the quarter ended September 2012 was $69.9 million or 39.6% of sales as compared with $71.3 million or 41.2% of sales for the quarter ended September 2011. The decrease in gross profit for the quarter ended September 2012 as a percentage of sales is due to several factors. First, distribution and occupancy cost accounted for the majority of the increase as a percentage of sales over the prior year as the company, with lower overall comparable stores, lost leverage on these largely fixed costs. Additionally, labor cost increased slightly as…

[Operator Instructions] And our first question comes from Bret Jordan with BB&T Capital Markets.

Couple of quick questions here. And one, I guess if you look at tires and they’re down 3% comp in the quarter, what were tire units down in the quarter?

They were down 7%.

Okay. And I guess, as you look at tire pricing strategy and you’ve gotten some price reduction from the supply side, is that something that you would use to try to capture the margin or do you think you’re going to be lowering price to the retail to try to draw velocity there?

Yes, I think we’re going to try to maintain the margin and make sure that we stay competitive. In September, we put through a price increase on services of about 2% and we held tire pricing basically flat with no increase there, just due to where the market is. So we will look to maintain the margin as we go forward, but remain competitive.

Okay. And I guess on the pricing strategy, it seems that oil has been a category that a number of folks have been using to promote recently to try to get the traffic back in the bay. Are you expecting that you’re going to give most of the oil savings or some of the oil savings back on the new oil contract in the form of lower price on oil changes or is that a category that’s staying roughly flat on margin?

First of all, we are maintaining market share with positive oil change comp units for the year. And our strategy has always been to use that low cost -- everyday low-cost oil change to bring customers in on a low-cost, low-risk service to begin to establish a relationship with then and trust, and then to plug them into our marketing and advise them about their car and earn that repeat business. So we are already there on the oil change pricing and I don’t think that needs to change going forward; that is a benefit for our gross margin.

Okay. And then one last question. On acquisitions, what’s the -- what are you seeing on pricing, I guess the, sort of the parameters you generally try to value these within? Have we seen any -- given the sustained, tough environments of change in pricing, either getting cheaper as more motivated sellers in the market or is there stability?

Yes. Definitely there is more flexibility on the seller side, but there’s disappointment just like -- we’re fighting through a tough environment here. These guys are making less money and there’s a little bit of disappointment to get through in trying to pay them on what their results are now versus what they were, so -- but obviously, we’ve been able to be disciplined and get deals done.

Okay. And then one last question and I’ll get back in line. On the 7 non-disclosures you have signed, can you give us a feeling sort of size range of those 7? Small to large, number of units and revenues?

They are 5 to 40 stores in/or contiguous to our markets, and I remarked last quarter that they would take care of the better part of two years of acquisition growth, so there are some sizable deals there.

Our next question comes from Joe Edelstein with Stephens, Incorporated.

You’ve already done a great job bringing in the new acquisitions here today that you announced, but I’m also just curious what goals that you’ve set out for yourself and for the company really within the first 90 days of your new role?

Well, I guess I’m glad to say that the very first day of my new role I spent talking to the employees of the Midas stores up here in Rochester that we were acquiring. So I’ve been here for 10 years and my objective was to continue to capitalize on the significant opportunities that we see in the current market, especially with many sellers concerned about tax rates going up this year. So it’s really to take advantage of this near-term opportunity that we have and continue the long-term trend of running good stores, continuing to be a low-cost operator trusted by our customers that drive profitable growth going forward. Just more of the more of the same. I guess, it’s just more of the more of the same, what we’ve been doing.

Great. And I guess on the topic of acquisitions then and correct me if I misheard you, but I think you said that you’re not necessarily seeing a lot of competition for the deals that you’re looking at. Does that surprise you given the environment?

No, I think we are the best guy out there acquiring companies. We continue to cultivate relationships and seek these acquisitions. We’ve been aggressive about that for the past 10 years and we will continue to be aggressive there. And I think there’s a lot of credibility that we’ve established in doing these deals quickly and confidentially that -- and these sellers are very comfortable in working with us.

And do you think just in terms of timing then -- do you think that with the pipeline that you currently have that we could potentially see some more deals getting completed by the end of the year, to push you above that roughly 18% rate that you’re already at?

Yes, we could see that within the fiscal year.

Okay, and then just one other question then I’ll get back in queue. But I’m curious about the financing offering that you mentioned. Is that a new program? And really how much uptake have you seen from customers?

Yes. What that is in the tough environment, that’s a 12 month, no-interest offer on the customer credit card that we have and use in the stores. So, we thought that coming into a key selling season for high-ticket items like tires, we wanted to make it more convenient and less costly for our customers to make those larger purchases and we view that as a real customer benefit. We think that customers right now are deferring, because they can’t afford this stuff, and we think that this helps get more sales done in the - through the rest of the year and also supports our gross margin. It’s a pretty low interest rate environment so the cost of this versus straight discounting everything is, we thought, the right kind of trade off there.

Our next question comes from Scott Stember with Sidoti & Company.

You talked about how sales so far in the quarter are trending down about 6% yet you’re guiding for - looking at flat to down 3%. When would we get a good sign of how things are materializing? Obviously, you’re - it sounds like you’re relying on tires sales coming back for the more normalized winter. Could you just maybe talk about that a little bit?

Yes, I think that the key, Scott, we -- November is a key month for tire sales in particular. Customers right now -- or consumers, I should -- consumers are riding around on tires with less tread depth than ever or certainly in an awful long time, and tires are a safety issue. So we’re looking at November being a key month there. And if you look at November and December last year, we were down a little over 2% and our guidance assumes that in what should be a better environment in terms of weather that we do a comp similar to that down 2%.

Could you just go over the comment again about the percentage of parts brought from China. I missed the exact details?

Sure. Our run rate for Q2 was 30%; that is similar to the run rate we had achieved at the end of last year and down slightly from our first quarter. In the first quarter, we had -- and that is really because we stopped bringing tires in later in the second quarter so that we could take advantage of post-tariff costs on those tires once the tariff expired at the end of September.

Great. And just to clarify one more time, the amount of incremental acquisition revenues that you announced today, that was not in your guidance before was the $60 million that you announced on today’s press release? And also is that included in your guidance going forward?

It’s included in the sales range but in the first 12 months, acquisitions are breakeven to slightly accretive. So there’s really not much built into the range, certainly on the low end for the acquisitions - that acquisition, those acquisitions being profitable in -- during this fiscal year.

And the $60 million that you announced, that was the only incremental revenues that were announced today?

That’s correct. This is Rob. That doesn’t include anything that might get accomplished in our Q4. We talked about -- we got $62 million under our belt; John just said he expects to get $60 million done in the fourth quarter. That is included in our range and then whatever occurs obviously -- in the third quarter...

In the third quarter.

Yes, whatever gets accomplished in the fourth quarter would be in addition to that.

[Operator Instructions]. We’ll move next to Peter Keith with Piper Jaffray.

The large acquisition that you’re kind of in the process of closing, I guess the wording on that is a little funny because I think you’re using acquisitions in a plural form, is that -- is it multiple deals or I guess better said, is it kind of an all-or-none type of structure or is it kind of a series of acquisitions?

It’s multiple deals.

But just coincidentally, all closing around the same time?

Yes. I mean, closing within the third quarter is obviously a significant for seller tax purposes.

Yes. That’s right. But those are not linked together in anyway, where some could fall out.

No.

On a separate topic, you’ve done a nice job of citing the -- your oil change comp the last few quarters and I’ll say that’s probably a good proxy for traffic. Is that actual sort of oil change units or has that been impacted at all by oil price inflation?

Yes, that’s units I was just going to add that, that’s the pricing on the oil changes. Retail pricing is fairly stable. We’re out there at an everyday low price. So that is units and they would drive the related sales.

Okay. On a unit basis, if you’re comp is trending at 1% right now, how would you observe your oil change and unit growth historically? Is that kind of in line with maybe what you were at a couple years ago or is it still a little bit below just to reflect the tough economy?

No, we’ve -- in general we’ve run into traffic of between down 2% and plus 2% during our 11 years of comp store sales increases. So I view the 1% -- we’re actually at about 1.5% or maybe a bit better than that for the year -- but I view that kind of within the range of what we’ve seen in the past.

Okay, great. Last question for me then is, it’s nice to see I guess with the gross margin that you didn’t have any material cost impact, just some positives and some negatives kind of neutralizing one another. On a go-forward basis, to your best visibility that you have right now - material costs are going to be neutral or maybe even slightly positive to gross margin?

Yes. We think that Q3 is more like neutral and Q4 getting better as we sell through the inventory and as everyone sells through the inventory of tires that they currently have.

Okay. So to think about gross margin then through the end of the year or even into next year, I guess it’s more going to be driven by the leverage or deleverage effect of the comp store sales?

Yes, absolutely. We certainly have not indicated -- we have a lot of visibility on sales with a 4 point range for the third quarter. So that is a key to what the gross margin is going to be. As you know, rent and occupancy costs and distribution costs that are included in our gross -- our cost of sales. So we do lose leverage if we have negative comps.

Our next question comes from Michael Montani with ISI Group.

I was just going to ask about on traffic side, you had mentioned oil changes were up 1%. Is it fair to assume that the overall traffic count was also up about 1%?

Yes, the overall traffic is less than that. So again, consumers are coming in for that low-cost maintenance and deferring those larger purchases.

But is it still positive, though, John?

It’s slightly negative.

Just to actually clarify with respect to the tire purchase savings that you all have been able to realize, it sounds like it’s about 10% on Chinese tires. We were thinking it could actually be closer to 20% there. When you said 10%, was that across the board? Was it just for Chinese buyers? And do you think there is more opportunity to go there in terms of further cost savings?

Yes, that is on the Chinese imported tires. And there absolutely is more you room to go there. I think with the number of tires that we buy from over there, we are already at a very favorable low cost. And we picked up that 10% and we expect there to be more; like I expect there to be more with all the manufacturers.

And when you mentioned a goal of maintaining margin on tires, was that -- just to be clear -- was that profit dollars or was it margin rate? How would you prioritize or think about it?

Yes. My - our first priority is to maintain gross profit dollars per tire which we did in the second quarter. And we did have slightly lower gross margin percentage on tires.

And one housekeeping thing, and apologies if I missed this, but did you give out the monthly comp trends inter-quarter?

Sure. In the quarter, the comp trend was down 5% in July, down 4% in August and down 4.9% in September.

And just the last question that I had was on the fleet side. Can you guys speak at all to the opportunity that you see there for growth in terms of fleet? Maybe some of the actions that you’ve taken to build out your organization and how we should be thinking about that as a potential driver of traffic in the future?

Sure. Yes, we’ve typically been focused -- highly focused on the retail customer and have not been nearly as focused on the fleet customer. And we are getting more organized on the fleet side of things. So we view that as a positive to sales going forward. And as we develop that program, we will talk about it more.

Our next question comes from Bret Jordan with BB&T Capital Markets.

I have a couple of follow-ups here and one of them goes to mix of the non-disclosures you’re looking at. What is the tire mix in that portfolio? Are you still looking at tire-heavy acquisitions?

Yes, it’s 6 to 1.

Okay. And I guess to just try to get a feeling for consumer sentiment, do you have the attachment rate of alignments to tire transactions? Or are people still opting out of the alignment given the sticker shock attached to the tire? Or is that improving or deteriorating or stable?

Well we said tires were down 3% and alignments I believe were...

You said units. I guess we need to be looking at tire units maybe as opposed to dollars there to get that math?

Yes. I mean, people are getting 2 tires instead of 4; they’re getting 1 instead of 2; and if they’re getting 2 tires instead of 4, usually there’s a lesser chance of an alignment being associated with it. So alignments are still -- I mean, the business is weak. Period.

Yes, it’s hard to talk about categories with such a weak consumer.

Right. And I guess from a sequential standpoint, I guess slightly negative traffic, I was under the impression that traffic had been more than slightly negative in some preceding quarters. So is that a -- what’s the trend on traffic in Q2?

It’s pretty consistent. Maybe it slightly improved in Q2. But, I mean, it’s been -- oil changes are up and if everyone of your categories are down, your traffic is going to be challenged. I mean, it’s well within the range that we’ve run even in good years and bad years -- it’s just a function of now people are buying nothing; generating, as John said, the first ticket average decline in the first 6 months of this year than we’ve seen since 2003. So they’re coming in for oil changes, they’re getting some of their scheduled maintenance done, they’re buying nothing. We’re seeing them as often as we did and they’re just not complying with recommendations saying, "I’ll wait until my next oil change," or in our view, potentially they’ll wait until it snows.

And we’ll take a follow-up question from Michael Montani with ISI Group.

Just a housekeeping question. But can you share the breakdown of sales by category, like brakes versus exhaust for the quarter -- major category items?

Yes, I think we gave you the comps. The brake comps were down 10% and exhaust comps were down 15%.

Yes, I was actually thinking of like the percentage of sales that brakes make up?

Okay, sure. For the quarter, you’ve got brakes at 17%, exhaust at 5%, front end and steering at 10%, tires at 39% and maintenance is the rest. Otherwise, you’re going to tell me that I didn’t round right.

Mr. Montani if there is nothing further? There are no additional questions at this time.

All right. I would like to thank everyone for their time this morning and unfortunately your patience. We’re doing everything we can in this tough environment. We’re committed to maintaining our market share and we’re working hard to get back to the kinds of returns and earnings that you’re accustomed to; and certainly we are accustomed to over the last number of years. We’re taking advantage of this tough period and we’ll come out of it with a lot higher store count, a lot better store density, a lot better operating margin and a lot bigger and more profitable company. We appreciate your continued support and certainly appreciate all the efforts from all of our employees that are working hard every day. Thank you and have a great day. Good bye.

Ladies and gentlemen, that will conclude today’s presentation. We appreciate your attendance. You may now disconnect.