Good morning, ladies and gentlemen and welcome to the Monro Muffler Brake’s Earnings Conference Call for the Third Quarter of Fiscal 2016. [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. And now, I would like to introduce Ms. Effie Veres of FTI Consulting. Please go ahead, ma’am.

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 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 and 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 and other capital expenditures. The company undertakes no obligation to release publicly any revisions to these forward-looking statements that maybe made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events or circumstances described in such statements are material. Joining us on this morning’s call from management are John Van Heel, President and Chief Executive Officer; Cathy D’Amico, Chief Financial Officer; and Rob Gross, Executive Chairman. With these formalities out of the way, I would like to turn the call over to John Van Heel. John, you may begin.

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 third quarter fiscal 2016 performance. I will start today with a review of our results, the initiatives and outlook for the remainder of the year. I will then turn the call over to Cathy D’Amico, our Chief Financial Officer, who will provide additional details on our financial results. Third quarter comparable store sales declined by 2.5% and earnings per share were $0.46 in line with the business update we released on January 11, but below our original earnings guidance range of $0.53 to $0.58. The earnings mix was due to lower comparable store sales, which were negatively impacted by unseasonable weather. Everything else is just noise. Despite the weaker top line results this quarter, our team continued to leverage our competitive advantages, including our increasing scale and flexible supply chain, which led to 100 basis points of gross margin expansion and an increase in our operating margin to 12.1%, excluding due diligence cost. Now, let me provide you with more detail around the cadence of sales during the quarter. While comparable store sales were strong in October, increasing 4%, unseasonably warm weather across our Northeastern and North Central markets during the remainder of the quarter led to a 9% decline in comparable store sales in November, followed by an increase of 0.4% in December. Overall for the quarter, comparable store tire sales declined by nearly 4.5%, which drove substantially all of the comparable store sales decrease. While average tire – while average retail tire prices increased approximately 3% from last year, which is consistent with prior quarters, this was more than offset by a 7.5% decline in tire units. Despite the adverse weather, the underlying fundamentals…

Thank you. [Operator Instructions] And we will take our first call from Bret Jordan with Jefferies.

Hi, good morning guys.

Good morning.

You commented on the outlook for tire pricing a combination of increased competition from the manufacturers as well as lower raw materials, which do you see is being the bigger impact as you look out into fiscal ‘17?

Right now, I think the raw material is a slight green there, has slightly more rate there.

Okay. So, you haven’t seen a lot of price competition amongst the manufacturers yet?

We have – yes, certainly, but the raw material – I mean, I don’t how to parse it for you, Bret, within the cost reductions that we are talking about. But I can tell you that we have entertained new quotes that are more attractive from several new tire brands that we are not currently carrying. So that applies to what we import from the Pacific Rim as well as what we talk about as branded tires.

Okay. And then on tire inventory, given soft unit sales in the December quarter, how was the tires growth year-over-year to inventory?

While we have more – as of the end of the quarter, we had snow tires. When we wanted on the hand we certainly sold through a lot of those in January. But overall that – it’s not our tire inventory isn’t way out of whack certainly at the end of January and the turns reflect that they are pretty flat.

Okay. And then one last question and on the January comp, I guess regional you called out the South as outperforming the December quarter, is there anything that’s particularly meaningful than what we have seen in January as far as regional performance goes?

No, we were up across our markets, because we got some weather throughout our market. So, the Southern – if your question is the Southern markets trail off? It didn’t.

Okay, great. Alright. Thank you.

Sure. Thank you.

We will go next to Rick Nelson with Stephens.

Hi, guys. This is Nick Zangler in for Rick. Just looking for more detail on that January comp, what would you attribute that 10% to and specifically may be the acceleration throughout the month, I know you have started off with around 9% two weeks in and did that seem to obviously improve through the month, I mean are we talking pent up demand, is it the digital initiative and may be tire unit comps in the month, any further detail will be great?

Sure. Yes. I mean it’s pent up demand primarily from Q3 and I don’t think we got everything in January that was pent up from Q3. So it was basically the turn with winter finally coming to our market. We got some pent up demand from the weak sales we had, we reported in Q3. But certainly, one strong month doesn’t make for – make up for a 3-year deferral cycle. So I still see some period that there will be an inflection point with the consumer. And I am certainly not calling that with January, but I am hopeful of looking throughout the rest of the quarter and into April, that if we continue to see some strong sales momentum throughout that period that might be an inflection point for the consumer. And in terms of color on tires, just like tires was the weakest category in the third quarter, tires was absolutely the strongest category in January, it over indexed the [indiscernible].

Okay, great. And then just on the NDAs and acquisitions going forward, it sounds like you guys have a more aggressive stance I guess, going forward than maybe you have in the past, do you think the due diligence costs start to role off, I mean the $0.05 in the last quarter, just wondering how to think about that going forward, I know you guys have a few in the pipeline, but do think will stay at this kind of level going forward as you guys get more aggressive or was that kind more like a one-time thing this quarter?

That was – I mean, the due diligence costs in the quarter at $0.05 was a one-time thing. That was one large transaction that we were looking at. So no, we are not going to be at that level going forward. And we have – we have always had due diligence costs. We rarely pointed them out because they are part of our expansion strategy. And we have overcome those costs consistently in driving the EPS growth that we have over the years.

Great. Thank you very much. Great start with the quarter, good luck.

Thank you. Cathy D’Amico: Thank you.

We will go next to Tony Cristello with BB&T Capital Markets.

Thank you. Good morning.

Good morning.

The question I want to talk about a little bit is, on your regional performance, when you look at the service category in and of itself, is the South performing better in that segment of the business, I mean the tire side seems to influence the Northern trends, but do you see any differences in service patterns?

Sure. I think you have picked up on what difference there is. When the North is impacted by tires, it has some knockdown impact on the other categories. Generally, though those categories were positive throughout the company, but just stronger in the Southern market.

Okay. So you are not seeing any less demand on service, its more of an influence that the tire purchasing is having and thus looks at alignments or brakes or any of those other categories?

Yes.

Okay. And if you – when you look at some of [Technical Difficulty] the density that you do in some of the Northeast markets, can you talk a little bit about how you are seeing those stores perform in general and are you performing better than you would have expected to see?

So, I – you are breaking up a little bit, I understood that you were asking, where in some of the newer markets where we are less done, is that impacting the sales performance and…?

Correct.

Yes. I think we are performing well and so I think you are asking about Florida, you are asking about Georgia. We are performing well down there. The acquisitions are ahead of plan. And I am not – there is nothing to point out in a negative sense from the sales side because we haven’t filled in the markets there. We are certainly not getting all of the cost efficiencies that we will get once we fill those in and strengthening the distribution network down to those markets. But from a sales side, we are doing well and overall, we are performing better than our expectations.

Okay. And then on a little bit different topic, when you look at your costs side, I think you were able to control that a little bit better, even those sales turned against you in the quarter, do you think your business is in the place where you have the ability to throttle back or more controlled to prevent the leverage even though sales maybe warning negative on a comp basis. And what do you think your – is that a situation where once you get the first couple of weeks in, you can really control that so that earnings aren’t materially impacted?

Well, as we have pointed out in the past, we tend not to chase sales where customers are not buying. Like this is a good quarter, we didn’t go out and not that we have predicted the weather, but we didn’t have – we didn’t run any additional promotions or additional advertising as we were seeing, the weather not materialized. But generally, the big piece of our cost benefit for the year has been product costs. We continue to drive product costs down by remaining independent and seeking out the best deal possible, with a growing volume. And when we approach vendors, we are the company out there with consistently meaningful growth in volume. And that means a lot to the vendors that we deal with. And that’s as we tie that into our inflation breakeven point at being 50 basis points this year and also the 100 basis points last year and that’s really the benefit. And as we continue to execute the acquisition strategy, that will – it will continue but it will become even more important.

Okay, very helpful. Thanks for the time.

Sure. Thank you.

We will go next to James Albertine with Stifel.

Good morning. Thanks for taking question.

Sure.

Congratulations as well on the January comp and on the new revolving facility, it sounds like it’s a huge opportunity for you guys from a future pipeline perspective. Just a housekeeping item, I don’t think you mentioned, apologies if I missed it. The percentage of tires on the private label side, did you guys break that out in your prepared remarks?

No, we didn’t. It was consistent with the 40% that it’s been running.

Okay, great. And maybe a bigger picture question, we saw sort of an epic acquisition, so the take-out of one of your biggest peers and fighting between an OEM and another sort of independent ownership. How do we think about, how do you think about what that does to the competitive landscape? And maybe as an aside, without knowing the plans for the business over time, considering what appears to be new ownership, I don’t think it’s closed, but we all expect it will, will there be future M&A opportunities in terms of carving up that portfolio or is it pretty well settled at this point?

Well, to deal with the first part first, we have been competing with those stores. There is a chunk of those stores I think maybe 400 or so within our markets. And our strength of density in the markets is something that brand lacks in our market. So, we have been competing well against them in the past, hasn’t impacted our operation or growth. So, I don’t see anything particularly significant out of this change, just from that change. And I don’t know what the plan is there. But in terms of future opportunities, we have said all along that we are interested in anything larger that makes sense for our shareholders. We viewed something like that certainly the entire business as having more risk versus our low risk strategy that we have been executing on. So, the price has to be right for us to do something like that whether it’s that company or any other.

Okay, great. Well, John, thank you very much and best of luck in the next quarter.

Sure. Thanks.

And we will go next to Michael Montani with Evercore ISI.

Hey, guys. Good morning.

Good morning.

I just wanted to ask first off on the digital initiative it sounds like there is some momentum going there although given the volatility it’s obviously hard to parse it out, but can you just help us think about maybe anything to quantify the impact it could have had so far to traffic or appointments? And then how should we think about the gating of that moving forward as you get to CRM further develop in some of the website enhancements, etcetera?

Sure. Yes, I think you are right that with the choppiness of sales, it’s been a little bit hard to see. But as an example, I think you can look at the fact that despite traffic being pressured and being pressured by tires, it’s been down so much we still ran positive oil changing for the quarter and a lot of that is due to driving new customers in from these initiatives. Our website visits, our appointments continued to outpace any other traffic measures that we have. I am very pleased with what’s happening there. We are still very early in the game. So, there is a lot more to develop as we go into next year. And I talked about that as being supportive of our overall focus within our field operation of driving traffic and then sales off of that traffic. And that’s really how I view it. So, it’s positive. And as we take more steps, we will outline more in that regard.

Okay, great. And if I could just follow-up a little bit on the January result being as strong as it is. Is there any way to quantify the lost sales days you may have had in general last year versus this year just to kind of parse that out?

The loss in – well, between Friday and Saturday, we lost somewhere about $1 million worth of sales in January. So, I don’t believe the primary days that we lost last year were in February versus January. So, I think that $1 million, I couldn’t tell you, Mike, but I think it stacks up pretty well against anything that we would have lost right at the end of January.

Great. And the last one I had if you can just housekeeping, but the mix of sales, John, by line of business?

Sure. So, brakes was 13%, exhaust was 3%, steering was 9%, tires was 48% and maintenance was 26%.

Alright, thank you.

Sure.

We’ll go next to Matthew Fassler with Goldman Sachs.

Thanks a lot. Good morning, guys.

Good morning.

My first question relates to – my first question relates to gross margin and just understanding the impact that the favorable mix dynamics had as tire sales were a bit softer this quarter versus the pure cost decline and this one was in tires?

Sure. The cost piece of it was 60 or 70 basis points. The mix was 30 or 40.

And would that mix most likely to the extent that tires were outpaced in the house this quarter probably go to some degree the other way though I know the underlying cost dynamics will improve?

Yes, I mean tire costs certainly have a higher material content to them shipped.

Okay. And then secondly just to understand the way things work with these stores, I know that you printed the very strong January comp despite some loss sales on the last day of the quarter and presumably the preparation for that storm also helped. How do things tend to play out in the aftermath? Do you tend to see kind of one seasonal surge in front of need and clearly there is enough media going into the storm to create that pop or is there less lumpiness to the business than that over the course of the winter?

No. Certainly, there is some sales that takes place just before an event like that. And also you had some customers that were planning on coming in that couldn’t come in that are going to come in after that. So again, I think more broadly, we are still catching up with some near-term pent-up demand and we are really working off of a 3-year deferral cycle that at some point is going to reverse and that will help us.

Understood. Thanks, John. Thank you so much.

Sure. Thanks.

And we will go next to Anthony Deem with KeyBanc.

Hi, good morning everybody.

Good morning.

So your formal comments, it sounds like you are getting aggressive with these 10 NDAs. And I am wondering can you share how advanced you are into these negotiations currently? And should we have reason to believe fiscal 2017 will be an above average year for M&A as a result?

Well, look I don’t think that we took several months off to take a look at another opportunity. And we are back looking and working through these opportunities as aggressively as we had previous to that. I would just tell you that all along I believe that fiscal ‘16 was going to be a very strong year for acquisitions. We then took some time off to look at another opportunity. And I think that what I am trying to convey is that nothing has changed there in either the number of opportunities that we see or our interest in proceeding on them very aggressively. So, yes, I think that the next 12 months should be a very good time for acquisitions for us. And importantly, we put our new credit facility in place. So, we have much more flexibility enacting on the number of deals or the size of deals that we feel fit our criteria.

And then how is valuation being viewed currently in the M&A market? Our retailers are looking for higher valuations lately, have there been changes in expectations. I think you have all done a great job being disciplined at around 7x, trailing 12 months. But do you see the need to raise your max evaluation maybe to stay competitive or has there been really no change there as well?

No, we have talked about this in the past. It’s very consistent with that. And that is that the smaller deals are on the valuation criteria that we laid out and we have executed against and the larger deals are certainly attracting higher multiples.

Okay. Just a couple of more if I may. Would you say about $0.01 per share as a normal run-rate for due diligent costs and I am curious what was originally built into the third quarter EPS guidance and what is currently built into the fourth quarter?

Sure. Somewhere around a $0.01 or up $0.01 is not bad for a quarter. And in the initial guidance, it was $0.01 to $0.02 that was built in for the [indiscernible]. And then in the fourth quarter, you have that sort of same up to $0.01 of cost built in.

Great. And then last one from me, I appreciate all the comments on gross margins and your comment on manufacturers may be getting aggressive, really just two questions. Did you see that greater competition in tires happening with branded or import manufacturers because it sounds like maybe new vendors might be driving that. And then secondly, are there any other major puts and takes we should take into consideration from a cost of sales standpoint or operating costs looking into fiscal 2017 that might offset the benefits of lower tire costs? Thank you.

So, the first question is, it’s both Pacific Rim as well as branded manufacturers. And again, it’s hard to separate between just increasing supply and the benign or lower material cost. But the good news is, is that we have got opportunities on both sides that we are acting on. And then in terms of fiscal ‘17, I wouldn’t point out anything in particular right now. We covered what we thought the main points were in terms of commodity costs remaining low and getting some help on tire costs for next year. We will fill out the rest of that, once we get through this quarter.

Thank you.

Thank you.

And we will take a follow-up from Bret Jordan with Jefferies.

Hi. Just on the number and the size of the potential deals out there, has anything changed on the size, I guess as maybe Sumitomo has been frustrated with Midas or the Sears tire and service, is there anything that would give us an outlook for potentially larger transactions down the road or was everything pretty much the same?

Consistent with the past, more than 10 NDAs are the 5 stores to 40 stores that I have described. There are certainly other potential opportunities out there, but we have stuck with talking about the smaller change that we have yet.

And then you mentioned a couple of other prospective tire suppliers and I think you are just talking about that, could you tell us what the mix is of private label versus branded, are you looking at some new brands in the portfolio or is this mostly house brand stuff?

No, the import stuff or the branded, non-branded is about 40%. Right now, lot of that’s coming out of the Pacific Rim. So it’s really being driven by that opportunity for supply. And by the way, on the 5 stores to 40 stores, those are 5 stores to 40 stores, each one of those NDAs. So I think I have commented in the past, that that pipeline accounts for greater than 2 years of our 10% acquisition growth just a sort of high level estimate on it.

Okay. Thanks.

Sure.

And ladies and gentlemen, that does conclude the Q&A portion of today’s call. At this time, I would like to get it back over to John Van Heel for any comments or closing remarks.

Thank you. Thank you all for your time this morning. I am pleased that we have January sales momentum to take in the last – to take into the last two months of our fiscal year. We remain focused on driving profitable growth through our core stores and acquisitions. Despite this year’s choppy market, our business model should produce another year of EPS growth on top of the 40% increase over the past 2 years. We appreciate your continued support and the efforts of our employees that work hard to take care of our customers every day. Thanks again and have a great day.

And this does conclude today’s conference call. We thank you for your participation. You may now disconnect.