Good day Ladies and Gentlemen, and welcome to the Monro Muffler Brake First Quarter 2013 Earnings Conference Call. [Operator Instructions] I would now like to introduce Miss 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 provision that the private security 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 sensitivities and fluctuations of interest rates, dependence on and competition within the primary markets in which the company's stores are located, and the need for and cost associated with store renovations and other capital expenditures. The company undertakes no obligation to release publicly any revisions to these forward-looking statements that 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 Rob Gross, Chairman and Chief Executive Officer, John Van Heel, President, and Cathy D’Amico, Chief Financial Officer. With these formalities out of the way, I'd like to turn the call over to Rob Gross. Rob, you may begin.

Thanks, Jen. Good morning, and thank you for joining us on today's call. We are pleased that you are with us to discuss our first quarter fiscal 2013 performance. After reviewing our quarterly performance, I'll provide you with an update on our business as well as our outlook for the remainder of the fiscal year. I'll also briefly discuss our long plan management transition, which take effect October 1st. 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 had anticipated, the first quarter remained challenging in terms of both top line and margins. However, we were able to somewhat navigate the headwinds we are seeing in our business and deliver EPS within our anticipated range. That said, we are not happy with our results. Sales for the first quarter were in line with the low end of our expected range while remain somewhat weaker than we had hoped. While gas prices have moderated somewhat recently and weather is more favorable than in Q4, the macro environment seems to be weighing more heavily on consumer sentiment. Customers are deferring trading down and prioritizing higher cost maintenance and repair purchases, which they have been able to defer longer due to the mild winter this past year. Our position as a low cost, trusted service provider remains strong. And we are maintaining shares evidenced by the fact that comparable oil changes were up 2.5% year-over-year. Significantly, customers are coming in. They're just not buying as much when it comes to maintenance and repair. This has further supported by our first decline in the average ticket since 2003. While weather was a negative factor for us in Q3 and Q4 last year, with the lingering effect on Q1, the…

Thanks, Rob. Good morning, everybody. As Rob stated, for the quarter, sales increased 2.6%. New stores, which we define as stores that opened after March 26, 2011, added $17.7 million. Partially offsetting these increases was a decrease in sales from closed stores of approximately $1.8 million. And comparable store sales decreased 7.2%. There were 90 selling days in both the current and prior year first quarters. At June 30th, 2012, the company had 836 company operated stores. And that is compared with 802 stores on June 25th, 2011. During the quarter ended June, 2012, the company added 38 locations including 20 Kramer and 18 Colony stores and closed 5 stores. Gross profits for the quarter ended June 30, 2012, was $68.1 million or 40.3% of sales as compared with $70.8 million or 43% of sales for the quarter ended June, 2011. The decrease in gross profits for the quarter ended June, 2012, as a percentage of sales is due to several factors. Total material costs including outside purchases increased as a percentage of sales as compared to the prior year quarter. The company experienced significant increases in tire costs as compared to the same quarter of the prior year. And for competitive reasons, we did not increase selling prices to the degree that would have preserved gross margin percentages at prior year levels. Additionally, there was a shift in mix to the lower margin service and tire categories. Delayed occupancy costs, which are part of cost of sales increased as a percentage of sales from the prior year as the company with lower comparable store sales lost leverage on these largely fixed costs. Labor costs also increased slightly as a percentage of sales as compared to the prior year quarter. Operating expenses for the quarter ended June, 2012 increased $3.8…

[Operator instructions] We'll take our first question from Bret Jordan of BB&T Capital Markets.

A couple quick questions here. And one of them is starting out with tires. Comp was down 6. Can you give us a feeling for what the unit comp was down for tires?

Yes, the unit was down low double digits.

Okay, and I guess just in alignments, whether or not, are you seeing a softening of alignment correlation to tires as consumers are pulling back on spending?

Yes, there's absolutely a correlation between the lower tire units and the consumer pulling back. So you have alignment units down similarly.

Okay, and I guess on tires, you talk about lower margin tires both impacted I guess from trade down as well as what might be an ability to pass through price, could you give us a feeling for sort of what we look at year-over-year on the quarter for margin -- in tire margin deterioration as what might have been from a trade down to lower price point as well as what might be the inability to pass through?

Yes, I think it's down about a little bit more than our consolidated gross margin is down. So when you look at it, we were down 270 basis points, a little bit higher that. And that really is due to the cost pressure when we typically have better margins on the lower end tires -- better gross margin percentages on those, and so you see it's basically due to the cost pressure.

Okay, and I guess as you look at that and it looks like Tuffy just from an average unit volume is more weighted to service than it is to tires. Is that something that your pipeline is focusing more towards service than tires right now?

No, it’s not Tuffy. The Tuffy stores are due as volume similar to the Monro stores. On our side, they have a split of sales that's also similar to our Monro stores. Although our mix of sales for tires in our Monro stores is a bit higher there. But it's not a shifting of what we're looking at in terms of the opportunities are. And this was just an opportunity to get a continuous market and to fill in one of our other markets. And we would expect that with our ability to put inventory into those service stores, those service base stores, that we'll be able to get a great return out of them.

Okay, and then I guess on that pipeline of acquisitions, it was 7 NDA's in hand. Is that primarily weighted to tire operations in that pipeline?

It is 8, and it is yes, it is weighted heavily to tires as it has been.

We move now to Rick Nelson with Stephens.

What gives you confidence that the deferral and the trading down is sort of going to run its course by the back half of this year? I understand the weather impacts, that that's going to drive more store traffic. But is it anything beyond that to give Q2 the comfort?

I mean, certainly we talked that the margins are going to get better. Certainly there is a good chance or 50/50 chance that the tariff is going to come off, which will make the price Increase on tires much more manageable. And there won't be sticker shock for the consumers. But we are up against flat comps last year with no winter. And tires are a safety issue. If you ask me when exhaust is going to rebound, I'm going to have a much harder problem because that's a quality of ride issue. But with tires and brakes, they wear out. And the rubber that are currently on peoples' vehicles have never been as worse shape coming off last winter. And one would think you were going to have to get it fixed irrespective of what's going on with the consumer. That all being said, I don’t have a crystal ball. But certainly I find it hard to believe that after what we went through last year with some of the price and sticker shock going away due to tire manufacturers starting to reduce their prices as well as some of the other things going on, how it can't be better than last year.

Got you. And for the economy MDA's, can you give us some feel for the number of stores or revenues that we're talking about?

Yes, the number of stores is between 5 and 40 stores. And I think the best way I can describe the volume narrative, it would take a couple years of our 10% annual growth at least. So it's a healthy pipeline. Like we said, I've never seen a pipeline better than this right now. And there's a lot of flexibility on the seller side because they're have the same tough time that we are with the current market.

And the low double digit current unit decline for tires in the quarter, how do you think that compared to the industry over that same period?

Yes, I think we're slightly worse than the industry because we maintained the margin. And we think that being on market where customers are pulling back anyway, we're not going to try to force volume because we just don’t think it's there. We're going to maintain some discipline on the price sides, and keep people coming through the door with driving traffic on oil changes like we are.

With the pressures we did see in the quarter, I understand the mix towards the lower margin products. But if you look at gross profit in your major segment, the margins there aside from tires, which was discussed, how are they holding up on a year-over-year?

Everything's holding up fine outside of tires. There were a number when we report a 207, the basis points declining gross margin, that also incorporates a minus 7 comp, and we have distribution and occupancy as a part of our gross margin. And mechanic's labor as a part of our gross margin. So it not all cost of goods. A lot of the leverage we lost is not just straight cost of goods. Which to typically, to answer your question, things like exhaust, things like brakes, we do not see margin deterioration. Oil changes have been our traffic driver for awhile. Slight margin hit there, but in general, the lion's share as John said of the margin deterioration is the tire costs. Hopefully, it will reverse in the second half.

And the time as far as saying it's going to help there, what sort of margin advantage are you getting with the direct source [indiscernible]?

Yes, on the parts side, it's greater than 20%, 20% to as much as 40%. And on the tire side, it's about 10% to 15% of an advantage there. And again, what we are -- we rolled out during the first quarter, we rolled out low cost radials, the entry level radials to all of our service stores. They were only in half of our service stores. It's about 250 stores. Again, those stores are selling about 2 tires a day. And we are in the second quarter, we are bringing in that second line of import tires that we referred to that's part of the Increase in the direct sourcing. That is meant to be the step up from that low cost, that kind of entry level tire. And we expect that to be a solid help to our margin.

If I could take one more, take comps by month, April, May, and June if you have those.

Adjusted for days, down 4 in April, down 10 in May, down 6.8 in June.

Our next question, we move to Scott Stember with Sidoti and Company.

Maybe talk about the raw material pricing. Rob, you alluded to the fact that you expect your input costs to start going down in the back half of the year. Can you just maybe dig into that a little bit more? When will we start seeing that a little bit closer?

I think costs are going to go down the second half of the year. Oil costs are going to go down the second half of the year. We said the second half and we set it for 6 months, Q1 and Q2 gross margin is going to be under a lot of pressure. Q3 and Q4, we start anniversary-ing the higher prices, which are now starting to recede. So in Q3 and Q4, they will make their way through the system. As far as any other categories, we're not seeing any cost pressure, so that should remain the same.

And you said that you're starting to see a little bit of an abatement right now. Should you see a little bit of benefit in the second quarter then?

No. No, by the time we'll sell through the higher priced inventory, again our estimates for Q2 incorporates no benefit until Q3 on the cost side.

Okay, and moving over to talk about now that you've moved over, far over into the Midwest, how is it tough to get into that product right now and will be supplying product through Rochester?

Yes, we will be supplying product there through Rochester. And right now they primarily source it from the NAPA's, Auto Zones, and Advances of the world.

[Operator Instructions] We go next to Peter Keith with Piper Jaffray.

Question on the various players in the industry. Some of them seem to be still getting impacted by the warm weather that we had this past year. And I imagine that plays to you guys as well. I'm curious though if there's any noticeable regional disparity. I know you're mostly in the Northeast, but you do out to Missouri and the Mid-Atlantic, maybe states that don’t have a severe winter. Is there any change or differences in performance between some of those different geographic places?

No, no real differences at all. The only slight impact was when we had the hurricanes roll through the Mid-Atlantic. Those numbers dipped. We lost about $500,000 in sales with closed stores and power outages. But I mean we've been consistently crappy throughout all our areas.

Okay. What about with the product mix? Did the number of things that you guys would either sell or work on, it seems like everything across the board is pretty weak. Are there certain categories that should be more impacted by weather wear and tear on a cold or snowy winter that should be weak and maybe others that are sort of surprisingly weak from the economy?

Yes, I guess you mentioned cold or snowy winters. Obviously, tires is a key for the winter season. When it gets hot, you're talking about batteries, electrical, AC, air conditioning, those kind of things.

Okay. Yes, and even though a little bit of heat here, you're still not seeing much improvement?

Well, I mean air conditions and batteries are obviously holding up better than anything else. But I mean the bottom line is, were' 20% brakes. We're 40% tires. Those 2 areas are safety issues. Brakes held up last year, so we're encouraged that on the safety front, people are going to have to get this stuff done. Some of the other repairs like shocks and exhausts are more deferrable.

Okay. On the second quarter comp guidance, I guess it kind of seems to set up similar to Q1, so you're running at the low end of the range here for the first month. Is there something with compares for the upcoming 2 months that are a lot easier that give you some confidence that you could accelerate here in the coming weeks?

The whole quarter last year was weak. Frankly, I just can't believe we're going to continue to run record crummy numbers. So I might be wrong. I was obviously wrong in Q1 thinking that things would improve, and they didn’t. They stayed where they were. And certainly can't see it getting worse than what did in July, but I was wrong before. And my best estimate is that it's going to get slightly better in August and September, still not great. And significantly better on the second half of the year.

The last question made for Cathy specifically, could you just let us know what you're factoring in for interest expense within the guidance?

Yes, for the year, we should be somewhere in the $4 to $5 million range for interest expense. And now we do have a lot of live positions that could go up. But barring so cheaply that a lot of that is out for capital rate systems as well.

Now we'll take a follow up question from Bret Jordan with BB&T Capital Markets.

Just on the sort of visibility on lower input costs into the second half. I think you did renegotiate your oil contract with Ashland. On the tire side, are you seeing manufacturers beginning to offer you lower price point product or lower prices if you commit to some volume on the second half that gives you I guess the confidence in lower input?

With regard to the oil contract, we are in the process of negotiating not only with Valvoline, but with other key players. We are getting that contract. I would expect us to at a minimum be buying oil for a dollar less year-over-year in the second half of the year. And we're looking to be doing better than that through our process. On the tire side, we are absolutely seeing greater rebates on specific lines not quite as much tied to annual volumes. So it takes different forms with different vendors, but though those kind of programs, we're absolutely seeing a softening in the tire cost side of things.

Okay, and I guess if you look at that and you had taken a lot of price last year to help maintain the margin, that seems to have cost a little more this year here. Do you have a feeling for what you're Delta is versus competition on sort of comparable product regionally if you were to look at comparable years on a comparable product where you're off on price?

Yes, we typically would be about 5% higher, somewhere in that range. If you get closer to double digits, we get really sensitive to that and make adjustments back down. We continuously make adjustments back and forth on that. We talked about the increases we put through periodically throughout the year. But we're always adjusting back and forth. And globally, we haven't taken that down significantly in the last 7 months. We have adjusted within the lines.

All right, and did you say on the quarter what your traffic comp was? I know you said in July, your oil traffic was flat. Did you give a number for what July traffic comp is?

No. I mean the traffic comp is going fairly -- oil changes are our traffic driver.

Okay. What was traffic comp in the quarter I guess if total comp was down 7 and a fraction?

It was 2.5 was the oil change.

All right, how about overall?

I don’t have that.

And Mr. Gross, we have no other questions in the queue at the moment. I'd like to turn the call back over to you for any additional or closing remarks.

I just want to thank everybody for their time. And unfortunately their patience. We are doing everything we can. We have done nothing different than we have in the past. And we are going to work hard to get back to the kind of returns and earnings that you're accustomed to. And certainly, we're accustomed to over the last number of years. And we will go through this choppy period, and come out on the other side with a lot more store count, a lot better store density, a lot better operating margins, and a lot bigger more profitable company. And we appreciate you guys being along for the ride. And we'll be working hard, and certainly appreciate all the efforts from all of our employees that are working hard every day. So thanks a lot and have a great day. Bye.

Ladies and gentlemen, that does conclude today's conference. Thank you everyone for joining us.