Monro, Inc. (MNRO) Q4 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Monro Muffler Brake's Earnings Conference Call for the Fourth Quarter and Fiscal 2017. [Operator Instructions] And as a reminder, ladies and gentlemen, this conference call is being recorded and may not be reproduced in whole, or in part without permission from the company. I'd now like to introduce Ms. Effie Veres of FTI Consulting. Please go ahead.

Thank you. Hello, everyone, and thank you for joining us on this morning's call. I would just like to remind you that on this morning's call, management may reiterate forward-looking statements made in today's release. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks and uncertainties related to these statements, which are more fully described in the press release and the company's filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not necessarily limited to, uncertainties affecting retail generally, such as consumer confidence and demand for auto repair; risks relating to leverage and debt service, including sensitivity to fluctuations in interest rates; dependence on and competition within the primary markets in which the company's stores are located, and the need for and costs associated with store renovations and other capital expenditures. The company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events, or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro, or any other person that the events, or circumstances described in such statements are material. Joining us for this morning's call from management are John Van Heel, President and Chief Executive Officer; Brian D'Ambrosia, 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, Effie. 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 2017 results. Today, we will start with a review of our results and update on our growth strategy followed by our outlook for fiscal 2018. Then I'll turn the call over to Brian D'Ambrosia, our Chief Financial Officer, who will provide additional details on our financial results. Looking back over fiscal 2017, our business was impacted by challenging economic conditions facing our customers coupled with unseasonable weather particularly in the fourth quarter which led to a decline in comparable store sales for the fiscal year of 4.3%. As we have in the past, our company responded to this difficult environment by capitalizing on attractive acquisition opportunities allowing us to grow our total sales for the fiscal year by 8% to a record $1,022,000,000 while limiting our earnings downside through effective cost management. Importantly as we entered fiscal 2018, our fiscal 2017 acquisition which includes 71 stores and approximately $150 million in annualized sales growth over fiscal 2016, they set a strong foundation for future sales and earnings growth. Additionally, our significant Greenfield expansion added 30 more stores in fiscal 2017 providing us with greater store density and sales in our core markets at very attractive cost. I will provide more details behind our 2018 in a moment but first I would like to recap our fourth quarter and full year fiscal 2017 results. Total sales in the fourth quarter increased 10% on strong acquisition growth despite a decline in comparable store sales of 8%. Following a strong December which posted positive comparable store sales of 11% in the month led by tires, we saw weaker top line trends in the fourth quarter. From a geographic perspective, the moderate weather in the fourth quarter led to regional disparity in comparable store sales performance as our Northern Markets underperformed our southern markets by 500 basis points. We believe these top line trends and regional differences are very similar to the sales cadence of other competitors in the aftermarket space, as well as the acquisition candidates we are engaging with. We are not only continuing to maintain our market share but we believe we are making more money in this difficult environment than our competition. So far in fiscal 2018, we see meaningful improvement in comparable store sales which were up approximately 3% in April and 2% month-to-date in fiscal May. The comp increase is being driven by an increase in average ticket. This increase is led in part by higher average tier ticket of 2%. We are also encouraged to see strength in the brake category with higher than average ticket repairs. We believe this may signal that customers report more work to be done after long deferring repairs. Additionally, the geographic disparity between our northern and southern markets has narrowed in terms in favor of our northern markets quarter-to-date both regions are comping positive. In fact our strongest markets has been New Jersey, New York and Maryland in which we have seen high single and double-digit comp sales increases. Despite these positive trends quarter-to-date, we remain cautious with respect to the health of our consumer and are hopeful that we will finally see normalized weather in the second half of this fiscal year following two consecutive warm winters. Turning to gross margins, fourth quarter gross margins declined by 310 basis points versus the prior year primarily as a result of the sales mix impact from fiscal 2017 acquisitions and de-leverage from negative comparable store sales. On a comparable store basis, portfolio gross margin declined by 40 basis points year-over-year due to deleverage. For fiscal year on a comparable store basis, gross margin declined by only 20 basis points despite the second worst comparable store sales decline in 20 years, while I'm not happy about our comps, our ability to maintain our gross margin and minimize the impact on profitability highlights the strength of our business model in tough operating environment. Turning to expenses, total operating expenses for the fourth quarter increased by $7.7 million however on a comparable store basis, total operating expense dollar actually declined slightly year-over-year underscoring our diligent cost control and performance based plans. Now I would like to provide a brief update on a number of new customer focus enhancements we began implementing across our store base in late fiscal 2017 and into 2018 to drive sales and efficiency. These include new ways to communicate directly with our customers including the ability to send text messages directly from our stores, a new and improved customer relationship management system and use online informative videos educating our customers on service and repairs helping us close more sales. Second improvements to our point of sales systems including improved fleet business processing, more efficient tire quotes and enhanced electronic ordering from our parts vendors which will result in lower price cost. Third a comprehensive online training program to more fully support the career development of our technicians and fourth the launch in March of our new private label credit card named the Drive Card. This new bank sponsored credit card is exclusive to Monro brands and provides us with complete control over customer targeted marketing and promotional offers which we believe will drive greater long-term customer loyalty. We have been very pleased with the early results of the Drive Card as our total sales volume on this card has already surpassed the Goodyear cards that we previously issued. In March and April we processed just short of 10% of our overall retail sales on these cards and look to close the Drive Card's penetration to 20% of retail sales. Our field team has embraced this customer loyalty tool as demonstrated by the fact that we are currently taking about five times the number of applications we work before this launch. Our fiscal 2018 budget includes great Drive Card offers such as discounts and changes, service discounts and career rebates which we believe will drive increased returns from our customer and attracts some new ones as well. We expect these initiatives to be positive contributors to traffic, employee retention and store efficiency in fiscal 2018 and we also believe there remains significant opportunities to incorporate technology throughout our business and help our teams drive top line growth. It's also worth noting that we continue to see strong increases in our online appointments which were up approximately 20% for the fiscal year. Additionally, the customer reviews we collected in fiscal 2017 remains very favorable with an overall satisfaction score of 4.5 out of 5 on 100,000 completed surveys. Now let's turn to our growth strategy. We are continuing the integration of our fiscal 2017 acquisitions which is progressing in line with our plans and is expected to add approximately $150 million in annualized sales representing 15% sales growth over fiscal 2016. This includes the most recent acquisition completed in our fourth quarter of 16 Car-X stores, 13 of which are located in Illinois and three of which are in Iowa. We continue to expect these stores to generate $15 million in annualized sales representing a sales mix of 75% service and 25% tires. As a reminder, we also completed the acquisition of Clark Tire in mid-September which is expected to add approximately $85 million in annualized sales representing a sales mix of approximately 50% retail and commercial and 50% wholesale and lastly the McGee Auto Service & Tires acquisition completed in May of 2016 is expected to deliver $50 million in annualized sales representing a sales mix of 40% service and 60% tires. These fiscal 2017 acquisitions are strategically significant because they expand our retail and commercial business by 71 stores and $105 million in the key markets of Florida, North Carolina and Illinois while also adding $45 million of wholesale tire sales which combined increases both our scale and market share. They increase our tire unit purchases by approximately 25% expanding our tire assortments and strengthening our purchasing power which is particularly important as we enter the first fiscal year of tire cost increases in several years and we look to move purchasing volume to manufacturers with the most attractive costs. They allow us to directly distribute tires to approximately 100 of our stores or roughly 10% of our chains strengthening our position as an independent dealer and reducing our reliance on distributors thereby allowing us to maximize profitability while creating new organic growth opportunities in the wholesale locations themselves and lastly they expand our acquisition opportunities to include competitors with integrated retail commercial in wholesale locations. We believe these acquisitions will continue to strengthen our competitiveness in the market while also providing another valuable avenue of growth over the next several years. As we told you in the past, our long-term acquisition growth is underpinned by independent deal is getting older and not having an internal succession option, that said we continue to see an elevated level of acquisition opportunities in the marketplace and as a result of the difficult operating environment. We are more than 10 MDA signed each of them represents in five, between 5 and 40 stores within our existing markets, we will continue to capitalize on these attractive opportunities and aggressively grow and expand our business. However any potential reduction in tax rates for small businesses contemporarily delays some transactions through the second half of fiscal 2018. At the same time, a rising cost environment for tires should pressure the earnings of smaller dealers which should result in more attractive prices for these businesses. We are also continuing our Greenfield expansion with the goal of opening between 20 to 40 stores per year. In fiscal 2017, we opened 30 Greenfield locations and we expect to open a similar number in fiscal 2018 including approximately seven locations in the first quarter. As a reminder, Greenfield stores for us includes new construction as well as the acquisition of one to four store operations. These locations are expected to average approximately $1 million in annual sales and require roughly half the investment per store compared to a larger acquisition which should result in an even high return on investment over time. Turning now to our outlook for fiscal 2018 based on current economic conditions, the contribution of recent acquisitions and positive quarter-to-date comparable store sales, we expect total sales in the first quarter of fiscal 2018 to be in the range of $217 million to $275 million representing an increase of 14% to 16% year-over-year, this is based on an increase in comparable store sales of 2% to 3%. We anticipate first quarter dilutive earnings per share to be in the range of $0.52 to $0.56 an increase of 4% to 12% year-over-year compared to $0.50 in the first quarter of last year. Please note that our first quarter earnings per share guidance seems slight contribution from our fiscal 2017 acquisitions. For the full fiscal year, we anticipate comparable store sales to increase 2% to 4% on a 52 week basis or 4% to 6% when accounting for the 2% comp sales benefit from an extra week in our fourth quarter. We expect fiscal 2018 total sales of $1.125 billion to $1.155 million representing an increase of 10% to 13% year-over-year. As mentioned previously, our comparable store sales quarter-to-date are up approximately 2.6% driven by higher average tickets. For the fiscal year, we expect that higher tire selling prices driven by the pass-through of higher cost will lead to a sustained increase in overall average ticket of 2% to 3% year-over-year. Please note that the high end of our fiscal 2018 comparable store sales guidance also incorporates a 1% traffic increase. Fiscal 2018 guidance does not assume any future acquisitions or Greenfield store openings. Now let's turn to our outlook on costs. As we mentioned on our last earnings call, recent increases in raw materials have led several tire manufacturers doing price increases of between 3% to 14% with the highest of these increases driven by branded tire manufacturers. Importantly, the level of price increase varies significantly by manufacturers with several manufacturers actually beginning to offset these announced increases with additional volume rebates as raw materials moderate. It is important to note that our direct import tires have been subject to cost increases towards the lower end of the range referenced. These imported tires represent approximately one third of our tire units sold in the fourth quarter and allow us the flexibility to source tires at attractive costs as well as realize higher gross profit dollars per tire branded alternative. Our fiscal 2018 guidance incorporates a cost increase for tires and oil combined which we believe will be lower than most competitors particularly smaller independent dealers. This guidance reflects higher cost for tires partially offset by lower oil costs. In light of these cost increases, we expect to generate operating leverage on a comparable store sales increase above 2%. This is higher than reflect the negative comparable store sales we needed to level expenses in recent years. Also every 1% increase in comparable store sales above this 2% threshold generates an incremental $0.08 in EPS for the fiscal year excluding the extra week. Based on these assumptions we expect fiscal 2018 earnings per diluted share to be in the range of $2.10 to $2.30 representing earnings growth of 14% to 24%. This includes $0.10 in contribution from the extra weeks in the fourth quarter and $0.15 to $0.19 in accretion from fiscal 2016 and fiscal 2017 acquisitions. The mid-point of our fiscal 2018 guidance assumes an increase in operating margin of 70 basis points. As we discussed with you on recent calls and as seen again this quarter the commercial and wholesale location we acquired as part of the McGee and Clark Tire acquisitions operate at a lower gross margin primarily due to higher sales mix of tires and the respectful wholesale business of higher sales mix of tires without installation. Rather these acquisitions also refer a lower level of SG&A expenses, therefore we continue to expect this change in our sales mix will continue to reduce the gross margin by approximately 250 basis points and be offset by a similar reduction in SG&A expenses as a percentage of sales until we fully wrap these acquisitions in the third quarter of fiscal 2018. Importantly, we continue to have a favorable outlook for the industry and we expect trends will continue to strengthen moving forward. Most beneficial to our business is that total deal closing operations are expected to grow over the next five years with vehicles in our sweet spot of six year old and older representing the vast majority of this growth. This is in contrast to the pressure on this group over the past several years including a significant decline in vehicles, six years old to 10 years old. Additionally, the number of service base is expected to continue its slow steady decline. These trends represents a tailwind to our comparable store sales over the next several years. Vehicles 13 years or older accounted for 28% of our traffic in fiscal 2017 up from 26% last year providing further evidence that the average age of vehicles continues to rise. These vehicles produce average tickets similar to our overall average demonstrating that customers continue to invest in and maintain their vehicles even as they advance in age. And with that, I would like to turn the call over to Brian D'Ambrosia for a more detailed review of our financial results. Brian?

Thanks John. Sales for the quarter increased 10% and $23 million, new stores defined as stores opened or acquired after March 28, 2015 added $40.8 million including sales of $35.1 million from fiscal 2016 and 2017 acquisition. Comparable store sales decreased 8%, additionally, there was decrease in sales from closed stores of approximately $1.6 million. There were 90 selling days in the current quarter and 91 in the prior year fourth quarter, adjusted per days comparable store sales decreased 7%. Year-to-date sales increased $77.9 million and 8.3%. New stores contributed $124.3 million of the increase including a $102.5 million from fiscal 2016 and 2017 acquisitions. Comparable store sales decreased 4.3% additionally there was a decrease in sales from closed stores of approximately $8.1 million. There were 361 selling days in both fiscal year 2017 and fiscal year 2016. At March 25, 2017 the company had 1,118 company operated stores and 114 franchise locations as compared with 1,029 company operated stores and 135 franchise locations at March 26, 2016. During the quarter on March 2017 we added 24 company operated stores and closed four stores. For the full year 2017, we added 105 company operated stores and closed 16. Gross profit for the quarter ended March 2017 was $93.2 million or 37% of sales as compared with $91.9 million or 40.1% of sales for the quarter ended March 2016. The decrease in gross margin for the quarter was primarily due to the sales mix shift from recent acquisitions as well as the impact of negative comparable store sales. During fiscal 2016, we acquired certain tire and automotive repair locations to serve commercial customers and wholesale players to customers for resale. These locations conduct higher and automotive repair activities that are similar to our retail location, other than with respect to the sales mix resulting from the sale of commercial tires as well of the gross margin of the wholesale locations being different primarily due to the higher mix of tires sold and in fact those tire sales do not include installation or other tire related services that are more common at other locations. On a consolidated basis, labor cost and distribution in occupancy cost increased as a percentage of sales due to the impact of negative comparable store sales. On a comparable store basis, gross margin for the quarter ended March 2017 decreased 40 basis points from the prior year quarter due primarily to the impact of negative comparable store sales. Gross profit for the fiscal year ended March 2017 was $396.9 million or 38.9% of sales as compared with $385.7 million or 40.9% of sales for the fiscal year ended March 2016. The decrease in gross profit for fiscal 2017 as percentage of sales was primarily due to the sales mix shift related to recent acquisitions and the impact of comparable store sales. Additionally, labor cost and distribution and occupancy costs were relatively flat as percentage of sales as compared to the prior fiscal year. On a comparable store basis, gross margin for fiscal 2017 decreased slightly as compared to the prior fiscal year. Operating expenses for the quarter ended March 2017 increased $7.7 million and were $73.1 million or 29% of sales as compared with $55.4 million or 28.6% of sales for the quarter ended March 2016. The dollar increase is primarily due to increased expenses for new stores. On a comparable store basis, total operating expense dollars in the quarter ended March 2017 declined slightly from the prior year period, we believe that this demonstrates the effectiveness of our strong cost control in a period of soft sales. For the fiscal year ended, March 2017 operating expenses increased by $15.4 million to $280.5 million or 27.5% of sales as compared with $265.1 million and 28.1% of sales for fiscal year 2016. The dollar increase primarily relates to increased expenses for new stores. Operating income for the quarter ended March 2017 of $20.1 million decreased by 24.1% as compared to operating income of approximately $26.5 million for the quarter ended March 2016 and decreased as a percentage of sales from a 11.6% to 8%. Operating income for the fiscal year ended March 2017 of approximately $116.4 million decreased by 3.5% as compared to operating income of approximately $120.6 million for the fiscal year ended March 2016 and decreased as a percentage of sales from 12.8% to 11.4%. Net interest expense for the quarter ended March 2017 increased $1 million as compared to the same period last year and increased from 2% to 2.2% as a percentage of sales. The weighted average debt outstanding for the fourth quarter of fiscal 2017 increased by approximately $110 million as compared to the fourth quarter of last year, this increase is due to an increase in debt outstanding under our revolving credit facility upon the purchase of our fiscal 2017 acquisition, as well as an increase in capital lease debt reported in connection with acquisitions. The weighted average interest rates decreased by approximately 80 basis points as compared to the fourth quarter of the prior year. The weighted average interest rate is lower as compared to the prior year due to a higher amount of debt outstanding under the revolving credit facility in relation to total debt partially offset by higher LIBOR rates in the fourth quarter of fiscal 2017 as compared to the same period in fiscal 2016. For the fiscal year ended March 2017, net interest expense increased by $4.2 million as compared to the prior year and increased from 1.6% to 1.9% as a percentage of sales for the same period, the weighted average debt outstanding for the year ended March 2017 increased by approximately $80 million from the year ended March 2016. The weighted average interest rate for the year ended March 2017 remained relatively flat as compared to the same period of the prior year. The effective tax rate was 34.5% of pre-tax income for the quarter ended March 2017 and 36.5% for the quarter ended March 2016. For the year ended March 2017, the effective tax rate was 36.7% of pre-tax income versus 36.6% for the year ended March 2016. Net income for the current quarter of $9.7 million decreased 30.5% from net income for the quarter ended March 2016. Earnings per share on a diluted basis for the quarter ended March 2017 of $0.29 decreased 31% as compared to last year's $0.42. For the fiscal year ended March 2017, net income of $61.5 million decreased 7.9% and diluted earnings per share decreased 7.5% from $2 to $1.85. Our balance sheet continues to be strong, our current ratio at 1.1 to 1 is comparable to year end fiscal 2016. Inventory turns at March 2017 improved as compared to fiscal year 2016. During this fiscal year, we generated approximately $130 million of cash flow from operating activities and increased our debt under our revolver by approximately $79 million, capital lease and financing obligations increased $51 million due primarily to the accounting for our fiscal 2016 and 2017 acquisitions. At the end of the fiscal year, debt consisted of $182.3 million of outstanding revolver debt and $228.4 million of capital leases and financing obligations. As a result of the fiscal 2017 borrowings, our debt to capital ratio including capital leases increased to 41% at March 2017 from 34% at March 2016. Without capital and financing leases, our debt to capital ratio was 24% at the end of March 2017 and 16% at March 2016. Under our revolving credit facility, we have $600 million that is committed through January 2021. Additionally we have a $100 million accordion feature included in the role of revolving credit agreement. We're currently borrowing at LIBOR plus 100 basis points and have approximately $411 million of availability not counting the accordion. We're fully compliant with all of our debt covenants and have plenty of room under our financial covenants to add additional debt for acquisitions without any issues. All of this as well as the flexibility built into our debt agreement allows us to take advantage of more and larger acquisitions and makes it easy for us to complete them quickly. During this fiscal year, we spent approximately $35 million on CapEx including 11 new construction stores. This was approximately $8 million in the first quarter, $10 million in the second and third quarters and approximately $7 million in the fourth quarter. We also spent $143 million on acquisitions, which also includes 19 new locations from small one to four store deals. Depreciation and amortization totaled approximately $45 million and we received $3.5 million from the exercise of stock options. We paid about $23 million in dividends. Now expanding on the guidance for our fiscal year 2018. As John said, we expect sales in the range of $1.125 billion and $1.155 billion. This reflects an increase in comparable store sales of 2% to 4% on a 52 week basis and 4% to 6% including an extra week in the fourth quarter. Operating margin is expected to increase by 70 basis points at the midpoint of our range. Interest expense should be about $21 million before any adjustments to true-up acquisition accounting for potential capital leases. EBITDA should be approximately $185 million at the mid-point of our range. Depreciation and amortization should be about $46 million. CapEx should be approximately $38 million. Maintenance CapEx will be about $30 million with the remainder for new store construction. The tax rate should be about 37.4% for the year with some fluctuations between quarters. This rate is before any impact from excess tax benefits that maybe recognized from the future exercise of stock options. This concludes my formal remarks on the financial statements. With that I will now turn the call back over to John. John?

Thanks John. Sales for the quarter increased 10% and $23 million, new stores defined as stores opened or acquired after March 28, 2015 added $40.8 million including sales of $35.1 million from fiscal 2016 and 2017 acquisition. Comparable store sales decreased 8%, additionally, there was decrease in sales from closed stores of approximately $1.6 million. There were 90 selling days in the current quarter and 91 in the prior year fourth quarter, adjusted per days comparable store sales decreased 7%. Year-to-date sales increased $77.9 million and 8.3%. New stores contributed $124.3 million of the increase including a $102.5 million from fiscal 2016 and 2017 acquisitions. Comparable store sales decreased 4.3% additionally there was a decrease in sales from closed stores of approximately $8.1 million. There were 361 selling days in both fiscal year 2017 and fiscal year 2016. At March 25, 2017 the company had 1,118 company operated stores and 114 franchise locations as compared with 1,029 company operated stores and 135 franchise locations at March 26, 2016. During the quarter on March 2017 we added 24 company operated stores and closed four stores. For the full year 2017, we added 105 company operated stores and closed 16. Gross profit for the quarter ended March 2017 was $93.2 million or 37% of sales as compared with $91.9 million or 40.1% of sales for the quarter ended March 2016. The decrease in gross margin for the quarter was primarily due to the sales mix shift from recent acquisitions as well as the impact of negative comparable store sales. During fiscal 2016, we acquired certain tire and automotive repair locations to serve commercial customers and wholesale players to customers for resale. These locations conduct higher and automotive repair activities that are similar to our retail location, other than with respect to the sales mix resulting from the sale of commercial tires as well of the gross margin of the wholesale locations being different primarily due to the higher mix of tires sold and in fact those tire sales do not include installation or other tire related services that are more common at other locations. On a consolidated basis, labor cost and distribution in occupancy cost increased as a percentage of sales due to the impact of negative comparable store sales. On a comparable store basis, gross margin for the quarter ended March 2017 decreased 40 basis points from the prior year quarter due primarily to the impact of negative comparable store sales. Gross profit for the fiscal year ended March 2017 was $396.9 million or 38.9% of sales as compared with $385.7 million or 40.9% of sales for the fiscal year ended March 2016. The decrease in gross profit for fiscal 2017 as percentage of sales was primarily due to the sales mix shift related to recent acquisitions and the impact of comparable store sales. Additionally, labor cost and distribution and occupancy costs were relatively flat as percentage of sales as compared to the prior fiscal year. On a comparable store basis, gross margin for fiscal 2017 decreased slightly as compared to the prior fiscal year. Operating expenses for the quarter ended March 2017 increased $7.7 million and were $73.1 million or 29% of sales as compared with $55.4 million or 28.6% of sales for the quarter ended March 2016. The dollar increase is primarily due to increased expenses for new stores. On a comparable store basis, total operating expense dollars in the quarter ended March 2017 declined slightly from the prior year period, we believe that this demonstrates the effectiveness of our strong cost control in a period of soft sales. For the fiscal year ended, March 2017 operating expenses increased by $15.4 million to $280.5 million or 27.5% of sales as compared with $265.1 million and 28.1% of sales for fiscal year 2016. The dollar increase primarily relates to increased expenses for new stores. Operating income for the quarter ended March 2017 of $20.1 million decreased by 24.1% as compared to operating income of approximately $26.5 million for the quarter ended March 2016 and decreased as a percentage of sales from a 11.6% to 8%. Operating income for the fiscal year ended March 2017 of approximately $116.4 million decreased by 3.5% as compared to operating income of approximately $120.6 million for the fiscal year ended March 2016 and decreased as a percentage of sales from 12.8% to 11.4%. Net interest expense for the quarter ended March 2017 increased $1 million as compared to the same period last year and increased from 2% to 2.2% as a percentage of sales. The weighted average debt outstanding for the fourth quarter of fiscal 2017 increased by approximately $110 million as compared to the fourth quarter of last year, this increase is due to an increase in debt outstanding under our revolving credit facility upon the purchase of our fiscal 2017 acquisition, as well as an increase in capital lease debt reported in connection with acquisitions. The weighted average interest rates decreased by approximately 80 basis points as compared to the fourth quarter of the prior year. The weighted average interest rate is lower as compared to the prior year due to a higher amount of debt outstanding under the revolving credit facility in relation to total debt partially offset by higher LIBOR rates in the fourth quarter of fiscal 2017 as compared to the same period in fiscal 2016. For the fiscal year ended March 2017, net interest expense increased by $4.2 million as compared to the prior year and increased from 1.6% to 1.9% as a percentage of sales for the same period, the weighted average debt outstanding for the year ended March 2017 increased by approximately $80 million from the year ended March 2016. The weighted average interest rate for the year ended March 2017 remained relatively flat as compared to the same period of the prior year. The effective tax rate was 34.5% of pre-tax income for the quarter ended March 2017 and 36.5% for the quarter ended March 2016. For the year ended March 2017, the effective tax rate was 36.7% of pre-tax income versus 36.6% for the year ended March 2016. Net income for the current quarter of $9.7 million decreased 30.5% from net income for the quarter ended March 2016. Earnings per share on a diluted basis for the quarter ended March 2017 of $0.29 decreased 31% as compared to last year's $0.42. For the fiscal year ended March 2017, net income of $61.5 million decreased 7.9% and diluted earnings per share decreased 7.5% from $2 to $1.85. Our balance sheet continues to be strong, our current ratio at 1.1 to 1 is comparable to year end fiscal 2016. Inventory turns at March 2017 improved as compared to fiscal year 2016. During this fiscal year, we generated approximately $130 million of cash flow from operating activities and increased our debt under our revolver by approximately $79 million, capital lease and financing obligations increased $51 million due primarily to the accounting for our fiscal 2016 and 2017 acquisitions. At the end of the fiscal year, debt consisted of $182.3 million of outstanding revolver debt and $228.4 million of capital leases and financing obligations. As a result of the fiscal 2017 borrowings, our debt to capital ratio including capital leases increased to 41% at March 2017 from 34% at March 2016. Without capital and financing leases, our debt to capital ratio was 24% at the end of March 2017 and 16% at March 2016. Under our revolving credit facility, we have $600 million that is committed through January 2021. Additionally we have a $100 million accordion feature included in the role of revolving credit agreement. We're currently borrowing at LIBOR plus 100 basis points and have approximately $411 million of availability not counting the accordion. We're fully compliant with all of our debt covenants and have plenty of room under our financial covenants to add additional debt for acquisitions without any issues. All of this as well as the flexibility built into our debt agreement allows us to take advantage of more and larger acquisitions and makes it easy for us to complete them quickly. During this fiscal year, we spent approximately $35 million on CapEx including 11 new construction stores. This was approximately $8 million in the first quarter, $10 million in the second and third quarters and approximately $7 million in the fourth quarter. We also spent $143 million on acquisitions, which also includes 19 new locations from small one to four store deals. Depreciation and amortization totaled approximately $45 million and we received $3.5 million from the exercise of stock options. We paid about $23 million in dividends. Now expanding on the guidance for our fiscal year 2018. As John said, we expect sales in the range of $1.125 billion and $1.155 billion. This reflects an increase in comparable store sales of 2% to 4% on a 52 week basis and 4% to 6% including an extra week in the fourth quarter. Operating margin is expected to increase by 70 basis points at the midpoint of our range. Interest expense should be about $21 million before any adjustments to true-up acquisition accounting for potential capital leases. EBITDA should be approximately $185 million at the mid-point of our range. Depreciation and amortization should be about $46 million. CapEx should be approximately $38 million. Maintenance CapEx will be about $30 million with the remainder for new store construction. The tax rate should be about 37.4% for the year with some fluctuations between quarters. This rate is before any impact from excess tax benefits that maybe recognized from the future exercise of stock options. This concludes my formal remarks on the financial statements. With that I will now turn the call back over to John. John?

Before I turn the call over to the operator, I want to announce that our Board of Directors has approved the change in our corporate name to Monro, Inc. Our business has moved well beyond exhaust but not worse with the number of brand names under the Monro Corporate umbrella. In true fashion we believe that simple is better and that this change to our corporate name is a reflection of the significant growth and improvements our company has undergone since it was founded. The name change will apply to our corporate entity only and will be voted on by shareholders at our Annual Meeting in August. If approved, the name will become effective that same month. It is appropriate that this change also marks our 60th anniversary and the year in which Monro crosses the $1 billion sales mark for the first time. While we still maintain at the bottom line, it is more important than the top line this is a significant achievement for our entire team and I want to congratulate and thank them for all their hard work in getting our company to this point. We look forward to the next 60 years of growth. And with that, I will turn the call back over to the operator for questions.

[Operator Instructions] We will go first to Brett Jordan with Jefferies.

Hi, good morning guys. No savings and signage from the shortened name?

That would be pre-Munro fashion move.

I guess question on the current quarter, the April, May trends. Could you talk sort of more granular about sort of the regional performance obviously maybe sort of central state, North East versus South East you talked about a couple of very strong markets but maybe give us some more correct information. And then product lines, I think you said tires were up too but is that pricing or units?

Tires average ticket, brakes is up high single digits that is some units in some tickets and those are the big categories moving in the first quarter. In terms of regional performance, we pointed out those strong markets and as I said both in north and the south are comping positive, the south is comping slightly positive and our weakest areas are in the sort of central more western states.

On the private label card, the Drive Card is there - you talked about sort of volume growth with the loyalty, is there any margin impact as you promote around that card?

We freed up some dollars in getting that card as a private label card, so we've got that - we got fundings for some of the offers that we're putting out here. What we're looking for here is more returns business and we should see higher ticket because this will be a dedicated card for our customers to help prepare that card.

And then last question, as we think about card maybe is the wholesale tire category, obviously we thought about volume pick up and giving better buying power but is that probably not going to be flowing through to incremental margin leverage in the near term, it seems like we're seeing maybe some negative EBIT impacts in addition to the gross impact?

Well certainly early on in any acquisition we get operating margin pressure and we're seeing that here. So this is the toughest timeframe for that acquisition which we added in September. What I will tell you is that additional volume will help us do a better job I believe than others in keeping tire costs increases in check.

Okay, great. Thank you, guys.

[Operator Instructions] We will go next to Rick Nelson with Stephens.

Thanks, good morning. A follow-up on the guidance, as I look at EPS growth rate for the first quarter 8% to the mid-point of the guidance, full year 19% of the mid-point and if we take out that extra week we're looking at 14% growth. So a step-up by I guess for the remaining quarters and if you could comment on that and would you see as the drivers?

Sure. If you look at the timing of the acquisitions that we made last year for the fiscal 2017 acquisitions - they as all acquisitions they are dilutive in the first six months, so they were dilutive last year or in fiscal 2017 in the last six months and validate overall will contribute all year that will grow during the year and will obviously be up against those weaker numbers of resolution in the third and the fourth quarters. So I think that is the biggest piece of it there.

Sure. If you look at the timing of the acquisitions that we made last year for the fiscal 2017 acquisitions - they as all acquisitions they are dilutive in the first six months, so they were dilutive last year or in fiscal 2017 in the last six months and validate overall will contribute all year that will grow during the year and will obviously be up against those weaker numbers of resolution in the third and the fourth quarters. So I think that is the biggest piece of it there.

Also these tire price increase of 3% to 14% how do you see the industry's ability to pass on some of these cost increases, it sounds like your scale and your buying power are you able to mitigate some of the pattern costs, what you see happening in retail?

Yes. You can see that were up - our average ticket on tires is up 2% in the first quarter. So we're seeing some ability to pass that along already in the first quarter. And I would expect that tire retail prices, consumer prices would need to go up later in the year to account for the cost increases taking hold more generally without increasing volume in our scale again what I would expect is that our cost will go up less than others and that to the extent that we're able to pass through some additional above the cost increases that really represents some upside for us where our base budget is with the 2% hurdle rate accounting for us passing basically that increase and as tire costs increased during the year, that will be a help to comp later in the year that additional tire pricing.

Yes. You can see that were up - our average ticket on tires is up 2% in the first quarter. So we're seeing some ability to pass that along already in the first quarter. And I would expect that tire retail prices, consumer prices would need to go up later in the year to account for the cost increases taking hold more generally without increasing volume in our scale again what I would expect is that our cost will go up less than others and that to the extent that we're able to pass through some additional above the cost increases that really represents some upside for us where our base budget is with the 2% hurdle rate accounting for us passing basically that increase and as tire costs increased during the year, that will be a help to comp later in the year that additional tire pricing.

Do you use your cost advantage to drive volume or to expand margins?

We will look to expand margins while making sure we drive some units but we've never been the low guy out there, so we will make sure we remain competitive and try to make some money.

We will look to expand margins while making sure we drive some units but we've never been the low guy out there, so we will make sure we remain competitive and try to make some money.

And finally if I can ask any update on the DC in the south or more likely the Greenfield are there acquisition opportunities?

Yes I said that we need to be over 100 stores in Florida for that to make sense. We are obviously still not there and I would look for us to be at that level somewhere north of 100 stores before we put that DC in.

Yes I said that we need to be over 100 stores in Florida for that to make sense. We are obviously still not there and I would look for us to be at that level somewhere north of 100 stores before we put that DC in.

Great, thanks and good luck.

We will go now to Brian Nagel with Oppenheimer.

Good morning. Thanks for taking my questions. First off not to be too granular here but if you look at the sales cadence in the first couple of months here of the new fiscal year. So 3% in May, I'm sorry 3% April, 2% in May, is there anything to read into that modest deceleration more than just more difficult comparisons month-to-month?

No I don't view any of that comp comparisons this coming year as difficult. I think incrementally we're in a better situation that as I said, I still have concerns for the consumer and as we said in our comments, we're getting some price which is driving that, so I feel little bit better about the fact that we're getting some price but really I would look to see that through the end of the quarter to see how that plays out through the end of the quarter and we can give you the full first quarter and the first couple of weeks of July when we come out of the first quarter.

No I don't view any of that comp comparisons this coming year as difficult. I think incrementally we're in a better situation that as I said, I still have concerns for the consumer and as we said in our comments, we're getting some price which is driving that, so I feel little bit better about the fact that we're getting some price but really I would look to see that through the end of the quarter to see how that plays out through the end of the quarter and we can give you the full first quarter and the first couple of weeks of July when we come out of the first quarter.

With regard to price have you the guidance you've given for sales growth for the current year, you mentioned in your prepared comments that's largely driven on price maybe the high-end better traffic. So historically when we see pricing benefits like this do they tend to stick or is there risk around if you are looking over the course say 12 months is there risk that something could change and there is pricing dynamics could become less the driver?

Yes, I think that this is as I just talked about with Rick, this is cost driven and tire costs were up which I think will generally support higher prices through the year, that's very - what's different this year versus last. So I think and for the extent that price isn't pass through by others their earnings are going to be significantly impacted and I think that helps us get acquisitions done if that takes place.

Yes and then just the follow up question with regard to acquisitions, again referring back to the prepared comments, you talked about it seems like the pipeline is still quite good, you mentioned I guess just want to call a risk that with potential tax legislation although that some sellers maybe holding off, question was that are you seeing that right now or is that just a concern that could pop-up?

No I think we're seeing that, I'm not inventing that. No that is being part of discussion with the sellers. Just like last year with various sellers we were looking at sellers that believe tax rates were going to be higher at this time and that is how we get motivation, no one wants to pay the government more the money than they have to especially small business people that have worked hard to build the business.

Brian this is Robert. It's typically on the bigger deals we're looking at where you're seeing that, the 20 store deals are moving forward and are not being impacted by that issue.

Thank you.

We will now take your question from Matt Fassler with Goldman Sachs.

Thanks so much, good morning guys. My question relates to just get some clarity your expectations for traffic growth through the year relative to the 1Q run rate, it seems like prices is a bigger piece of your, it is a bigger piece of the equation and how you're thinking about that in absolute terms and also against the compare you face because you are up against obviously some pretty modest compares for the first couple of months and of the first fiscal quarter?

Yes, as I said traffic at the high end or high end incorporates 1% of traffic growth otherwise 2% to 3% price and as I said I think incrementally we're in a bit of a better place than we were last year at this time but I don't imagine that it was last year. So I think the price is supported by the cost increases and we look to traffic as not as much a part of the low end but certainly more part of the high end.

Yes, as I said traffic at the high end or high end incorporates 1% of traffic growth otherwise 2% to 3% price and as I said I think incrementally we're in a bit of a better place than we were last year at this time but I don't imagine that it was last year. So I think the price is supported by the cost increases and we look to traffic as not as much a part of the low end but certainly more part of the high end.

Understood. And then secondly as we think about weather obviously during the winter, weather can be extremely decisive for you kind of as a current indicator of business for companies that are dealing much more so under the hood than on the tire side, a warm winter can be an impediment to the following summer almost regardless of what the summer looks like. Do you expect any hangover for your business from the winter that we just had and what kind of weather would change or impact your sales outlook real time for the rest of the fiscal year certainly until we get to next one thinking through next fall?

Great, I think that is right. I think the weather impact for us is about winter. So I don't see any other weather impact that were defined in next six months, we've given you seven weeks of data where we have got some positive comps driven by price and I talked about traffic not really being a part of our low end guidance. So I don't think we're looking that as a part of that low end. So I don't see weather as a big differentiator for the next six months.

Great, I think that is right. I think the weather impact for us is about winter. So I don't see any other weather impact that were defined in next six months, we've given you seven weeks of data where we have got some positive comps driven by price and I talked about traffic not really being a part of our low end guidance. So I don't think we're looking that as a part of that low end. So I don't see weather as a big differentiator for the next six months.

Okay, thanks.

We will take our next question from Mike Montani with Evercore ISI.

Hi guys, thanks for taking the question. Just wanted to start off like on the credit card side, can you just share some incrementals on who the private label partner is and what the difference is in terms of incremental value that you're offering to your consumer with this versus with the Goodyear deal you had and then what the incremental benefit for you all for making this switch economically?

Sure. The partner is Citibank and the incremental - the offers for our customers are discounted oil changes, so we were offering a discount on any oil change that's put on the card. We think that will be – that will be a big driver of customer loyalty which as you know for us is very important, we want the opportunity to perform that regular maintenance on our customers vehicles. So we can help them understand which shape the vehicles are in, their brakes, their tires get checked every time they are in our stores and we go back and do direct marketing to our great customers after I mean and this offer on all changes will help them be more sticky. We have a service discount over a certain dollar amount of spend which will help our customers pay for any work that's needed that we find during those regular visits and on the tire side, we are enhancing rebates to draw in some new customers. So those are the offers and how they sort of laid across our business and really I guess the difference for us in doing this and having this be our card is that it's exclusive to our brands and we have much more flexibility in everything that I just described than we had under a more national program like a Goodyear program.

Is there any kind of benefits that would accrue to you all if the card was used to third-party retailers or vendors like a process agreement?

No not at this time.

Okay. And the other questions I had was little bit more housekeeping in nature but did you give, what the monthly comp cadence was for 4Q and I just missed it or would you mind sharing it?

Sure, we were down - we were down 12 in January adjusted to down eight per day. Then we were down seven in February and down five in March.

Okay. Also can you share some color about what oil changes did in 4Q in overall traffic versus ticket on the down eight?

Sure, traffic was down five, oil changes was similar and ticket was down three.

And then with the tires being down 11, would the units have actually been down 12 or 13 or can you give color there?

Yes units were down nine and we had 2% some trade down on the ticket price.

Okay. And then what's driven the margin to be positive now on the tire side is basically the fact that you've been able to implement price increases and then presumably better volume over the last two months is that fair?

Yes, we absolutely had much better volume in the last couple of months and we've implemented prices I described to price.

Okay, great. Thanks a lot.

We will take our next question from James Albertine with Consumer Edge Research.

Yes hi thanks for taking my questions, this is Derek Glynn on for Jamie. You provided some details on the prepared remarks on the online progress you're making, how do you see your digital strategy evolving over time, any new initiatives on the horizon we can look to and the pace of investment we could expect in this regard?

Not, I've been talking about the more generally the work we've been doing to enable technology more globally and we're funding that out of some saves I mentioned associated with that, we are getting some higher rebates and lower costs on parts. We're looking to sell fund some of that feed. The advertising and marketing side, we've had a shift over the last couple of years from print primarily to digital and we continue to make progress there. Although obviously broader market conditions and weather can overcome the progress that we're making there but that shift to digital from print and frankly some shift into CRM from print will continue in fiscal 2018 with the advent of our new CRM system and we actually have a new digital agency that's helping us make some additional gains there.

Okay, great. And sorry if I missed this, but can you give us the revenue mix percentage by segment for the quarter?

Sure. Hang on one second. For the quarter, we were brakes 14, exhaust 3, steering 9, tires 46 and maintenance at 30, don't hold me to the rounding.

Okay, thanks very much guys.

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

Thank you for your time this morning. In this choppy market, we remain focused on driving profitable sales, at the same time our team is aggressively expanding our business and scale through acquisition, investing in technology and training to improve our operations and customer experience all laying the groundwork for sales and earnings growth this year and beyond. As always, I appreciate your support and I want to personally thank our team who works to provide outstanding service to our customers every day. Thanks again. Good bye.

This concludes today's call. Thank you for your participation. You may now disconnect.