Good morning, ladies and gentlemen and welcome to the Monro Muffler Brake's Earnings Conference Call for the Fourth Quarter and 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. I would 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 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 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 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 fourth quarter and fiscal 2016 performance. I will start today with a review of our results, our growth strategy and outlook for fiscal 2017, then I will turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional detail on our financial results. Looking back at our performance through fiscal 2016, we were able to grow sales by $49 million or 5.5% to a total of $944 million. Through our increased scale, effective cost control and the outperformance of acquisition, we delivered 70 basis points in operating margin expansion, and net income growth of 10% versus fiscal 2015, excluding due diligence costs in both periods. We delivered these results despite flat comparable store sales, and on top of the 43% increase in net income we delivered in the prior two years. Fiscal 2016 earnings per share were $2 compared with $1.88 in the prior year, and included $0.04 of higher due diligence costs. That said, I am disappointed that our overall results were not better. On the plus side, we were able to drive traffic and expand margins. Early in fiscal 2016, we said that we were going to increase traffic, and we did. Despite ongoing weakness in consumer spending and the lack of winter weather in our market, traffic increased by 1% for the year. We also said that we would take advantage of higher average retail prices and lower material costs, to improve margins, and we did. With gross margins up 140 basis points for the year, on top of 100 basis point increase in the prior year. Operating margins were up 70 basis points, as I just described, on…

Thanks John and good morning everybody. Sales for the quarter increased 4.5% and $9.9 million. New stores, which we define as stores opened or acquired after March 29, 2014, added $11.1 million, including sales of $9.9 million from fiscal 2015 and 2016 acquired stores. Comparable store sales increased 0.5%, and there was a decrease in sales from closed stores of approximately $3.1 million, largely related to the BJ store closures in fiscal 2015. There were 91 selling days in both the current and prior year fourth quarters. Year-to-date, sales increased $49.2 million and 5.5%. New stores contributed $68.7 million of the increase, including $63.6 million from fiscal 2015 and 2016 acquisitions. This was partially offset by a decrease in comparable store sales of one-tenth of a percent, and sales from closed stores of approximately $19.6 million, again, largely due to the 2015 BJ store closures. There were 361 selling days, in this and the last fiscal year. At March 26, 2016, the company had 1,029 company operated stores at 135 franchise locations, as compared with 999 company operated stores and one franchise location at March 28, 2015. During the quarter ended March 2016, the company added six company operated stores and closed eight. For the full year 2016, we added 52 company operated stores. Including seven acquired from Car-X franchisees, and we closed 22 underperforming locations, generally at the end of their lease terms. With regard to franchise locations, we added one during the fourth quarter of this year and four closed. During the year, we added two franchise locations and seven closed, in addition to the locations we acquired from Car-X. Additionally, we purchased seven locations during the year from existing franchisees. Gross profit for the quarter ended March 2016 was $91.9 million or 40.1% of sales, as compared…

[Operator Instructions]. And we will take our first question from Tony Cristello with BB&T Capital Markets.

Hi. Thank you. Good morning everybody.

Good morning.

Good morning.

First question I had, with respect to, just sort of the distribution center and potential addition for Florida, and what type of leverage that ultimately can bring, as you grow that business? It's obviously not giving us the benefits that you can fully realize in a self-distributed marketplace?

My expectation is, it's going to be somewhere in the neighborhood of 200 basis points.

And what's the timeline that -- if you start implementing something, I think you talked about, perhaps a second half of next year, what's the timeline of then getting something fully up and running? Is that a 12 months sort of project to get something going?

Yeah, I think. We'd expect something to be occurring within some time mid fiscal 2018.

Okay. And then I guess, I wanted to ask a little bit, I missed the final CapEx number, Cathy, that you gave, so I wanted to -- I got $26 million of maintenance CapEx and I missed the other component there. But I also wanted to understand, if I look at what you have done and relative to a store investment standpoint, you have got over 1,000 locations now. And as you start to add more, and if you accelerate -- are your stores where they need to be, whether its systems or equipment or tooling or Wi-Fi or whatever else it might be? I mean, should we have to expect any change in how you view maintenance CapEx in a more normalized environment?

Tony, what I said for 2017 was that we thought CapEx could be upwards of $46 million. Maintenance CapEx would be about $26 million and the other $20 million would be for opportunities that see with single store acquisitions that John has talked about in the past. As far as our stores are concerned, we don't expect any -- we have been performing routine CapEx and investing in our stores, in equipment that's needed, we are up with the latest technology. This year, we are going to have Internet in all of our stores. So that's all included in our numbers, and I don't see any year coming, that will have a [sight] [ph] in there, in terms of maintenance CapEx. John, I don't know if you want to comment?

I would agree.

Okay. And then, one last question, just on your purchasing cost; is there any reason to believe, I mean how should we think about from a commodity standpoint. Is there any read through, if oil prices stay here or go up a little bit? Do you still think the capacity that you see coming into the marketplace is still going to give you some benefit, in terms of your purchasing as we move forward?

Yes. Our guidance is contemplating commodity prices around where we are right now, and so, that's all incorporated in what we put out for this year. So yes we are still expecting these benefits with commodities where they are at.

Great. Thank you for your time.

Sure. Thank you.

And we will take our next question from Bret Jordan with Jefferies.

Hey, good morning.

Good morning.

When you look at the comp guide, could you sort of give us some granularity between what you are expecting in price and traffic? I guess, both in the quarter, that we are looking at now, and then for the year?

Sure. For the quarter, traffic is down right now. So I am expecting that traffic in either scenario is down. The minus 5 contemplates us running basically flat in June, and then as we’ve said for the remainder of the fiscal year, Q2 is about half of the decrease in -- what we put out for Q1, so it's down two to four. And then the back half of the year is up one to four. One gets us back what we lost last year, and I would expect, from a traffic standpoint, we are going to be positive in traffic as we -- later in the year, as the business responds to the soft winter compares that we have. In pricing, right now we are seeing a little bit of price pressure, which says to me that others are feeling very much the same trends that we are. So that's baked into, a little bit of price pressure is baked into the first quarter estimate with that, easing up as we go through the year.

Okay. And then on McGee, with the commercial mix, is that something that you are going to begin to look at commercial acquisitions in the rest of your geography as well, since your toe is in the water in Florida, are you going to shop around in the northern markets as well?

What I said in my comments was that, we are going to focus on Florida first. We are going to prove the value that we bring to that business down there, and there is a significant opportunity down there. And then we will look outside of that, so I think, we are open to anything that, obviously that makes sense, and we think that adding commercial and going after it in Florida first, is the smart way to do that, and then absolutely, it could represent a significant opportunity outside of Florida, because its complementary to the business overall.

Okay. And then last question; on store closures, is there any common theme? Are you either in the region or some of the store closures that we saw at the end of the year, from a particular acquisition?

No. Those are throughout our markets. There is no real concentration there to tap in that, a number of leases came up this year that we decided that were underperforming stores and we are at the end of the lease, so we took advantage to clean those up.

Okay, great. Thanks.

Thank you.

And we will take our next question from Rick Nelson with Stephens.

Good morning. John, I think you had 25% acquisition pace in 2013. If we added together the 10 [NDAs] [ph], what would that represent in terms of growth for you, if you got them all?

Yeah, like I have said in the past that represents at least two years of acquisition growth. So it's in the neighborhood of 20% plus.

And what are you seeing in terms of acquisition multiples? I guess, McGee would be the most recent example, any changes there?

No changes in what we have seen on deals in that size. Our metrics are holding.

Got it.

Of course, it's a tough year this year and earnings go down for, you know, for the guys that were looking to buy. At that point, we adjust our purchase price in our expectations based on those multiples. And I think that for us, with the operating leverage that we bring; absolutely you know, is a much higher value for us.

And are you starting to see or more willing -- more negotiations I guess and more willing sellers?

Yes. A tough market helps those conversations, as does fear of tax increases. These guys are going to sell their business only once in their life, and the last thing they want to do is write a bigger check for the pleasure of having sold it.

Scale about competitive landscape, the franchise dealers into the -- making a big push into the tire business, the internet companies, like Tire Rack, are you seeing any meaningful changes, that way they could be affecting comps?

Nothing year-over-year, no. The installations that we do for Internet-based companies are a couple of percent. Our tire units have been -- I don't see that as the issue and you with regards to franchise companies that right now don't have a large presence in the tire -- on the tire category. I mean, I am not overly concerned about those guys. The folks that we have in our stores are well-trained and we had your great programs that I think is very hard to replicate, including availability of tires, which of course is helped by the fact that we focused on store density and you'll find that a lot of these franchise guys don't have the capacity to carry tires make it convenient for consumers.

And then, tire unit decline you referred to in the fourth quarter percentage I guess was that, and if you could comment on market share, what you think happened there, as well as what you are seeing in the April-May timeframe, from a unit perspective and a market share perspective?

Units were down 3% in quarter and tire ticket was up by some -- in April. In May units are down. And as I said, from a market share perspective, we are absolutely not losing share from everything that I gather, through looking at financials or you know for companies that were looking to buy, we are absolutely performing with the market and better than that.

Thanks for the color and good luck.

Sure. Thank you.

And our next question comes from Michael Montani with Evercore ISI.

Hey guys. Thanks for taking the question. Just wanted to ask, if I could first off; what the split was by mix of business, just what percentage of revenues you have for brake, service maintenance, etcetera?

Sure. For the quarter, it was 13% brakes, 3% exhausts, 10% steering, 45% tires, and maintenance was 29%.

Okay. And then, within that I guess, just diving into the tire ASP a little bit more, can you provide any update, what percentage was the imported tires of your total tire units and then also, are you still feeling any trade down pressures there or what about pricing -- what kind of price increases are you getting on that?

So the imports are just under 40% of the overall mix. So that's down a little bit and from a average selling price perspective, we picked up you know price as we had consistently throughout the year.

Okay. And I guess, the follow-up I had was just on the labor side; can you share any kind of updates in terms of what you're seeing for wage increases for your technicians, either on an hourly rate or otherwise? And what is your ability to pass it through; because there's some nice gross margin gains, but it sounds like it's really -- mostly occupancy as well as some of the acquisition cost improvement, given commodity costs?

Yeah. Its pricing discipline combined with material cost reduction, in terms of the gross margin improvement. From a labor perspective, we managed labor well this year, I think. Our labor as a percentage of sales was flat. So we've been competitive in terms of wages and anything we've had to do has certainly been made up for in productivity. But our rate base is generally pretty flat.

How much is retention for the technician themselves; because there has been a fair amount of interest from the dealers to kind of poach these guys, not just from you all, but broadly. Are you seeing any of that or are you feeling like there's good recruitment?

Sure. We have been seeing that for -- I have been in this business for more than 13 years, we have seen it for that entire time. If you're asking whether anything has changed fundamentally there, I would say no.

Okay. Thank you.

Thank you.

And we will take our next question from Matthew Fassler with Goldman Sachs.

Thanks a lot. A couple of questions if I could. First of all, at a couple of conference presentations you all had over the course of the quarter, you indicated that that the pace at which you finish the quarter and started fiscal Q1, you felt it was likely to be the pace at which you would you would run for a few months going forward? You sort of saw this indicative of what the run rate would look like? It seems like, despite the tough start to Q1, you seem to think, perhaps because of what's happened in recent days or perhaps because of some obvious weather factors, that some improvement is likely reasonably soon. So if you could just help us contextualize how you're thinking about the forecast, [indiscernible]?

I think you summarized what we're considering. First of all, the trend significantly changed, almost immediately in April. And so, if you want to say that, we underestimated what that would look like, I think that's a fair statement. I just don't -- we are a needs based business and you know what I really see here, is a pull back by the consumer, off of a very light winter. And I think what gives me confidence about that, is the fact that our southern markets are better, and the fact that, later in the year, we really have easier comps and that's really what -- there is something going on with the consumer that wasn't present at the time we were having those discussions at conferences, and I think that for those reasons, it's going to improve as we work through the year.

Got it. If I and this might be kind of a common old tad issue, and I am new to covering the stock as you know, but if I look now, there is obviously some quarter volatility on whether and other things. If I look now, really in the past four or five fiscal years, we've been running comps flat to down somewhat and that's in contrast to, where we stood with some consistency over the prior number of years. Where flat, has been, in essence, the low end of the range and that was through a variety of macroeconomic backdrops. If you could think about something structural that you think would get you back to the prior comp range or maybe it has to do with acquisition volume and integration, just what do you think it would take to get the comps out of the rut, that we've seen, and what would have to happen in the industry for that to transpire?

First of all, I think if you look back at that period, you will see over the last several years that our comps have been down 50 basis points, I think, from 2014. If you go back a few years earlier than that, just to give some perspective, we ran three years at plus 7 -- prior to this sort of tougher period, and what I referred to in the comments are that, I know that there are more vehicles that are entering the six plus age range over the next five years and we really haven't had that. It has been more flat. Overall vehicles in operation have been flat and now that's coming back and growing. The other important trends, older cars is a trend that's going to continue for the next several years. I think you know that helps. And you are seeing that there are more vehicles per base, so the service station and garages are exiting the marketplace. So when you look at overall vehicles in operation increasing 8% over the next five years, you look at the number of vehicles coming into six plus going to be increasing for the next five years and you look at the number of vehicles per day continuing to go up, because small guys are exiting the market. I think that underpins what we've described as our opportunity on the traffic side. And then we are proving that we've been able to get something in price. If you look at something like flat to plus two in traffic and flat to plus two in price, you get that 3% comp that we talked about.

Thanks so much John. Appreciate it.

Sure. Thank you.

And our next question comes from Scott Stember with CL King.

Good morning.

Good morning.

Could you may be talk about the cadence of sales by month in the quarter please?

Sure. January was up 10, February was down 4 and March was down 3.

Okay. And maybe just bigger picture, not having a crystal ball and knowing what sales will be, obviously it's a very volatile market and you said yourself, this is a needs-based business. In the event that sales were to be worse than expected than the guidance than you gave, and we were to some of these pretty sharp negative trends continue for the foreseeable future. Does this, at any way, impact your acquisition strategy whatsoever and maybe also just throwing the balance sheet in there as well, given the fact that you have been using debt to some extent to fund these acquisitions? Thanks.

Sure thanks. As I said in my comments, if this is year's fees stays very difficult, we will get significantly more than our average annual 10% target of acquisitions done. That's my expectation, and the fact that we have $400 million plus of availability, means that we can get pretty much any the acquisitions that that we have as NDAs done as a part of that and that I -- it's the thing that I have -- that's attractive to me, or being one of the most attractive things about me to Monro, over the years and that continues to be. It's great hedging our business.

Even in a softer year, we are generating $80 million to $90 million of free cash flow.

Yeah. Fair point. Absolutely.

Got you. And just last question, just trying to flush out the 8% decline that we have seen so far. Without getting, maybe too specific by category, but could you just talk maybe how tires are performing versus some of the other categories? Just better core spend --?

Sure. As I said, tires are actually performing better than our other care-based service categories.

Okay. Got you. All right. That's all I have right now. Thanks for taking my questions.

Thank you.

And we'll take our next question from Anthony Deem with KeyBanc.

Hi, John, Cathy, Rob Effie, good morning. Thanks for taking my question.

Good morning.

I have a three part question here on the comp outlook, kind of going off one of the last question. And John, I appreciate the vehicle part in each comment. For 2017, its going to mark the fifth year of flat to negative same store sales, but while the [indiscernible] is not up. So would your company ever roll out you evaluating the positive longer term same store revenue growth outlook? And then, as it relates to the 2017 comp outlook, it sounds like the first quarter, you are not losing share, but taking a step backing, thinking more longer term, do you think this is a regional issue and sort of a weak consumer? Monro losing share over the long term and then there is one more on there; lastly, how should we think about the margin, given the weak comps? As we think there is the need to be more competitive, maybe the exact price of profitability, because frankly it's not like -- that's exactly what's going on in the first quarter? Thank you.

Sure. I described what my view is of our comp outlook going forward, and I guess I wouldn't change that. I would only change that, if I saw one of those fundamental pieces of it, change itself. So from the second piece I think was, in the first quarter -- is it regional, and I think we expressed very clearly that our southern market has been and are performing better and we have actually seen that as well in the financials of the acquisition that we have been looking at. So yes, I do think its regional, and I think that's an important element to it. And then lastly, in terms of pricing and -- pricing versus volume and traffic, we are a retailer, we are always focused on traffic, but as we said in the past, we are focused on bottom line profitability and we try to manage the business in that way. We need to stay competitive generally, but we are not the lowest price guy out there, and I really -- I don't see that changing right now, that doesn't mean we don't have to modify our pricing and react, like I did talk about. We have seen some pressure in these first several weeks of the quarter, on pricing. But again, we manage the business for the bottom line, and trying to balance that with driving traffic and sales.

Okay. And in your flat to down 2% comp estimate for the year, can you break down the full year assumption on prior revenue and unit specifically and then the expectation for services? I may have missed that, I am not sure [indiscernible], but I'd appreciate that. And then, on the price pressure in the first quarter, some more on the tire side and the service side, because it sounds like the fourth quarter tire ASP is about 5%, which is pretty aggressive. Thanks.

Sure. I would expect tire -- tire units right now are under pressure, as you would imagine, but that's being down. And I would expect tire units to be positive in the back half of the year. Like I said, tire units were down for the year, so I think, you can expect us to look to get a big chunk of that, back during the year. And then the second part of your question, what was that?

Yeah. Just on the tire pricing pressure in the first quarter, it has been on service or tires across the board? The fourth quarter tire ASP is strong, to my point, I think that tire price --

That is not all ASP, there are some other related services like TPMS that was doing a good job in there. But we did select more on tires during the quarter.

Can I sneak one more in please, John, to your comment on leverage that says, now it's a flat comp, where it's sort of -- the leverage is dilutive or I guess is it 0.5% so [indiscernible] inflation?

We said that, we will start to achieve operating leverage on any positive comps. So if you want to call it an inflation hurdle, inflation hurdle is zero.

Thank you very much.

Sure.

And we will take our next question from Carolina Jolly with Gabelli.

Hi, good morning everyone. It’s Brian Sponheimer on for Carolina. Thank you for letting me in. I guess just one question, because I know you are bumping up against time here; the transaction that you weren't able to compete last year, has there been any noticeable difference in how they go to market, in your comparable markets, and has that changed the environment at all from a pricing perspective?

I assume you are talking about capital lease?

Yes.

No, I don't think they are driving the market.

All right. And then I guess one just real quick; John, when you speak about the consumer environment, you probably use that same term as difficult for the last several years, you and Rob. Is this environment any different really than that, which you have really been experienced in the past seven, eight, nine, 10 years? What other than wage inflation would lead you to change your view on that?

I think it is a difficult environment. It has been a difficult environment for some time, and I think, some wage inflation would certainly help that. But the consumer overall, is dealing with the higher cost that I talked about, and I do think that healthcare, rent, those kind of things are outstripping the benefit of GAAP. I mean, we look at our own employees and we look at our customers and we see a lot of similarities -- I think that's a -- we have seen it over the couple of years in trade-down and in increasing [indiscernible] and deferrals and that's the environment that we are describing, and that we have been operating through, and again, the tougher the environment, the more we will grow the top line, and that to me is the big hedge for you in the business that we have, that we continue to act at.

All right. I really appreciate it. Thank you very much.

Sure.

And at this time, I'd like to turn things back to Mr. John Van Heel for any closing or additional remarks.

Thank you. Thank you all for your time this morning. We remain focused on managing the business through this difficult environment and taking advantage of the significant growth opportunity it presents. I look forward to reporting our progress in July, and as always, we appreciate continued support, in the effort of our employees that work hard to take care of our customers every day. Thanks again and have a great day.

And that does conclude our conference. Thank you for your participation. You may now disconnect.