Good morning, ladies and gentlemen, and welcome to the Monro Inc.'s 2018 Earnings Conference Call for the Second Quarter Fiscal 2018. [Operator Instructions] And as a reminder, ladies and gentlemen this conference 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, ma'am.

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. With these formalities out of the way, I'd like to turn the call over to Monro's President and Chief Executive Officer, Brett Ponton. Brett, you may begin.

Thanks, Effie. Good morning everyone. I’m excited to be here with you on Monro's second quarter fiscal 2018 earnings call. Since joining Monro in August 1, and now officially taking on the role of CEO earlier this month, I spent a considerable amount of time with both senior leadership and our team in the field. I've had the pleasure to visit our team members and customers at over 80 stores across our markets, as well as spend time with our team members in our wholesale and commercial locations. My time in the field has underscored the positive view I have at Monro when I decided to join, a unique business model in an attractive industry with strong competitive advantages and significant room for growth. That's not to say we don't face challenges as our flat comps in the second quarter highlight. We along with the rest of the automotive aftermarket service space faced near-term headwinds from the car [parts] [ph], weather and pressure on our consumer. Regardless of when these headwinds subside, I am very confident that there is significant room for improvement at Monro that is well within our control. Today I’d like to share with you my initial assessment and our strategic priorities, as well as my view on the quarter and full-year guidance. Then I would like to turn the call over to Brian D'Ambrosia for a more detailed financial review of the quarter. Let me start to what I see as the strengths of Monro's business model. The company scale and the benefits that come with that were part of the reason I joined the company. With over 1100 owned stores and 107 franchised locations concentrated across 27 states, Monro has grown into one of the leading automotive service and tire companies in the country in…

Thank you, Brett and good morning everyone. Sales for the quarter totaled $278 million representing a 13% or $32.1 million increase year-over-year in line with our guidance range. New stores defined as stores opened or acquired after March 26, 2016 added $34.4 million including sales of $29.1 million from our fiscal 2017 and fiscal 2018 acquisition. This was partially offset by a comparable store sales decrease of 0.4% and a decrease in sales from closed stores of approximately $1.5 million. The second quarter had 91 selling days in line with the prior year period. In connection with Hurricane Irma, we had 93 temporary store closures in the quarter. All of these stores have since reopened. When adjusting for these lost selling days, comparable store sales in the quarter were flat and sales from new stores were higher by approximately $0.5 million. As of September 23, 2017 the company had 1,136 company operated stores and 107 franchised locations as compared with 1097 company operated stores, and 132 franchise location as of September 24, 2016. During the quarter, we had a 23 company operated stores and closed six stores. Gross profit for the second quarter was $107.9 million or 38.8% of sales as compared with $100 million or 40.7% of sales for the prior-year period. The decrease in gross margin for the quarter was primarily due to the sales mix shift from recent acquisition. As a reminder, during fiscal 2017 we acquired certain tire and automotive repair locations that also serve commercial customers, and sell tires to customers for resale. These locations conduct tire and automotive repair activities that are similar to our retail location. However, these locations have a sales mix which differs from our retail location given the sale of commercial tires, as well as the lower gross margin of…

[Operator Instructions] And we will take our first question from Brian Nagel with Oppenheimer.

So first question I have, I guess maybe longer term in nature but with respect to acquisitions, and Brett you talked a bit about this in your prepared comments but two parts. One, how should we think about with the ongoing discussion around tax legislation, how should we think about the pace of acquisitions over the balance of this year maybe next year. And then secondarily with the initiatives you laid out, does that imply that you could be looking for either disruptions and acquisitions or maybe the list of target companies may change or maybe some change in the makeup of acquisitions?

Thanks Brian for the question. As it relates to the tax reform we discussed in my prepared comments, consistent with what the company has shared in the prior call, I think we certainly see a slowdown in the activity with larger deals where the potential for positive tax reform has significant consequences on those respective companies. So the deal pipeline I think is still rather robust in that category if you will, however the deal flow there certainly has slowed until we get some certainty out of Washington DC on that matter in particular. Having said that, as it relates to smaller deals we’ve certainly haven't seen a slowdown there. I think our pipeline is certainly robust as it was in Q1 and that was still net positive about our ability to continue to get deals done as reflected in our 20 store openings in the last quarter. Longer term - but my view is very positive on the industry and as I made the statement in my prepared comments, I believe the work that we’re going to be doing on our four priorities if you will that impacts organic growth, I think certainly supports our ability to accelerate our M&A activity going forward and deliver a stronger return profile on the acquisitions that we would do. We're going to leverage I think the time that we have here with a little bit of a lull right now with deal flow in larger transactions and we’ll focus our energy on smaller deals and working pretty aggressively on the core initiatives that’s going to impact our organic business.

And then as a quick follow-up and I apologize if you addressed this maybe more for Brian but the negative three comp you called that for the month of October anything, what are your views behind that deceleration from what we saw in the September quarter?

I think we saw significant softening in the second half of September rolling into our October month. I think we would attribute that to a couple of things, one, primarily it's in tires, and we’re seeing a slow move into the fall selling season with certainly very mild conditions that we have seen in our Northern markets, Brian, that’s a big driver of that in October.

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

Talking about the timing of some of the internal initiatives obviously some of the big M&As off the table short-term but can you talk about optimizing price strategy and maybe some targeted increase in CapEx. Could you maybe give us some colors to when we might start seeing that happen and when it might be sort of a measurable impact?

Yes, the first statement I’d make is anything that we intend to do near term is reflected in our full-year guidance Brett, but let me digress for a second give you some context on timing for the broader initiatives that I’d laid out. As you know I’d been here now for about 90 days and basically three weeks in the Chair as CEO and I feel pretty good about the pace were moving at, and I want to complement our internal team by really being support of my onboarding here. Feel like we’ve moved pretty quick through the assessment phase and certainly leveraging some of the experience I've had from previous companies and to get us [Indiscernible] we have identified the five priority areas we’ve talked about. The work that we've got to do now as a management team is put the structure behind those strategy areas into key initiatives and with those key initiatives we will need to understand better what the timing is number one, reflective of what I would see as our organizational capability and capacity to be able to get those done. And once we establish the gating on the timing that will dictate our investment profile that we would need to support those. But I just want to amplify maybe a couple of points here, one, I feel that those investments that we’re going to make are highly targeted in nature, largely geared towards technology in particular and so I had mentioned before we have a significant amount of CapEx that we spent today on maintenance CapEx. So we see opportunities to first reallocate, reprioritize based on our current spend. But anything we would do on an incremental basis given the timing of those initiatives, we would view as pretty much in line with investment profile in the company today.

In your discussion of tire, you talked about the market getting sealed, but higher promotions as demand soften. Could you talk about whether you're seeing any shift with import versus branded tire competition? And then also maybe within that what's your mix in the quarter of brand versus import?

I will start with the last one. Our mix of brand and import was 70, 30, 70 brand 30 import which has been pretty consistent sequentially in the business. As I mentioned in my comments Brett, we're seeing pretty stable price environment at retail. It feels like market is taking a wait-and-see approach on tires and we are expecting some recovery here in the winter selling season on tires. On the cost side, as mentioned in my previous comments, we are seeing some downward movement on prices. I think part of that's reflected in our second half guidance where we've lowered our inflation hurdle on the year down to 1%. And certainly that reflects some of that downward movement, and we'd expect to see in our fourth quarter numbers. And that applies both import as well as branded tires that we're seeing movement on that.

And Brian, I guess just housekeeping, could we get the monthly comps.

Sure. July was up 0.7, August up 0.3, and September was up 1 and that reflects the - neutralizes for the hurricane.

[Operator Instructions] And we would take our next question from Matt Fassler with Goldman Sachs.

My first question relates to the gross margin. So I think on a comparable or same store basis you've disclosed gross margin up about 40 basis points in the June quarter was up 110 basis points. So can you talk about the fade in gross margin expansion on a comp basis that you saw from Q1 to Q2?

That was primarily driven by the topline performance. So, on the softer comps we lost leverage on our fixed distribution and occupancy expenses, which are up a component of our cost-of-good sold.

And any change in the in the tire profit dynamic as you think both about materials cost and about market pricing?

No, pretty consistent. I mean obviously in the quarter, based on our flow-through of our tire inventory and our turns on tire inventories, we had the full impact of the cost increases that were announced by the end of our FY'17. So that was reflected obviously in our results for the second quarter.

Brett, the second question. You've spoken to this a bit and as you've talked about both the strategic plan and as a kind of growth that you want to see. Is there any thought to a sharper slowdown to either acquisition activity or shutdown of organic growth as you try to shore up the comps store sales performance where you're getting more consistent same store sales growth that in the organization?

As I mentioned in my prepared comments, we have a dedicated team here at the company that's working pretty aggressively on M&A. And as I looked at our competency in the company, I believe we are quite good at analyzing, evaluating and integrating acquisitions. In some respects certainly with small deals we have a very focused team that's able to do that. I think that keeps us somewhat isolated where we can still maintain a focus on M&A. While we have a separate group of resources and members of our team that will be very focused on our core organic opportunities because we roll out some of these initiatives we'll talk about in the calendar year, I believe that just accelerates our capability and our performance to further integrate or assist with the integration on future deals going forward Matt. So I believe at this stage, we can do both in the company given the resources that we'll look to add in a couple strategic areas of the company.

And then one last quick one. So you may have this announcement late last week, talked about the partnership on the tires and service side and we popped around, and you are a big part of that program and as you said you would be - many programs involving installation of tires marketed by third parties online. I am not sure that this is one that you have discussed in particular in the past, but any update on the role that these installed programs through third-party online sellers are playing from on-road today?

I’ll talk strategically first about that. As I think about our e-commerce strategy, I think about this through three stages if you will. Our first stage is, we want to participate in supporting any online seller of tires, just because I believe it's a great traffic driver due to all the things I mentioned in my prepared comments of course. Phase 2, which is the phase we’re in now which we’re in the process of building out some technology, but I think will allow us to participate with those online installers in a more efficient manner and one area that this will branch into is a concept that we’re working in test fashion right now, whereby we not just install the tire but we also look to leverage our inventory that's in our supply chain today. We still got some work to do on that in particular on the IT side to drive some integration work there, but that would be kind of Phase 2 of what our e-commerce strategy would be. The third phase what I commented around in our strategic focus which is, we’re going to be pretty aggressive about building our own internal capability. Certainly we want our Monro branded formats to be first choice with consumers and be in a position to deliver a good solid omni-channel experience online for them and participate in that by installing those tires in our own brick-and-motor. So we want to cut across I think all three segments of the marketplace starting first the Phase 1 as we migrate to our own capability that will develop over time.

[Operator Instructions] And we will take our next question from Rick Nelson with Stephens.

Just to follow up on e-commerce and installation. Brett or Brian, if you could tied us the impact you see here from Amazon pushing into the tire category and if you could describe your relationship with Tire Rack as an installer and the economics that are involved being an installer for an e-commerce platform?

Maybe I’ll start with the first point first. As I mentioned as a company we have been embracing online selling and supporting that through installation for some time now, as we all know companies like Tire Rack and Tire Buyer have been in this space for quite a while. I believe on our last quarter call we have articulated what the incremental impact is to our business as a participant in that and I think couple of key data points if I look at pretty closely. One is, the types of customers that we’re seeing through that channel and when we look at our data, roughly 50% of the customers that we’re seeing for installation services are new to our brand. So again reinforces the point from my perspective is this is the nice traffic driver for us. The second point is gives us an opportunity to build a relationship with those customers in store and drive conversion, and if I look at our average ticket comparison between our company average versus install, look we are lower on a dollar basis, our company average is 160 versus 120, that we do on installs but keep in mind that the installation ticket is much higher margin because of the lack of the product component of the cost structure there. And the third piece that I like about still supporting that model is just the fact that we don't want to get those customers into our database and it gives us the opportunity to mind that data and build relationships with them over a lifetime. Switching gears and talking a little bit about Amazon, again first of all I feel like our category automotive services in the aftermarket is well insulated in this category relative to others, because of the reasons I mentioned earlier, which is, we're in the need business, we get the opportunity to develop relationships with our customers through oil changes, break service and other categories that are very important to those customers parts. And if I look at how tires are sold, certainly consumers will go online and shop for tires, but there's an awful lot of tires that gets sold through inspection in-store and we get the opportunity to convert to sell those tires. So if we want to be irrelevant I think in all channels as I mentioned we want to have a strong omni-channel approach. We want to be supportive of online retailers but certainly, we're going to leverage our own brick-and-mortar and relationships we have with our customers that I think create some pretty strong defensible barriers around this business for us.

And would you be pursuing Amazon to become an installer for that.

I forgot your last part of your question. We are in discussions with Amazon currently right now. I have a tendency to move a little bit slower methodical in that discussion for two reasons. One, I want to make certain that we have the technology capability lined up to deliver a good experience. As we move into test, we want a good experience for the consumer number one and also a good experience with Amazon number two. So we are in discussions with them. We're in and process of building our capability to make certain that this experience can be seamless, which is requiring a little behind the scenes work from a technology point of you to make that happen. But we intend to support that program.

Also I'd like to ask you about the tire comps down 2 for the quarter minus 3 for October. If you could differentiate price and unit what's happening there? And how you're thinking units are comparing to the overall market?

I would comment on - 2Q where units were down 4 and price mix was up 2, letting out to the 2 down and as we compare comps versus industry participants at least from a tire manufacturer data that we get, certainly we all see some softness. Our tire business has been particularly softer in the Midwestern and in the Great Lakes region in particular. But most recently, we see more softness in our northern stores that it typically would see some help from seasonal dynamics in October that we have yet to see at this stage.

And the car dealers with their push into tires and the elevated recall activity that that's having impact on your comps?

I think the tire dealers have been in the business now for a little over 11-12 years I think - and that was a good year and we're working pretty close with them, putting them into the tire business. So I don't think it's a new dynamic than be in a competitor in this space. When I look at the tire business, I see this -unfortunately in tires, I think it requires a consumer stimulus to get them, or a stimulus to get the consumer to know that they need tires which in some respects certainly weather is a big contributor to that fact. And I think as an industry as I mentioned before, I think there is a little bit of wait-and-see approach as it relates to the industry with some moderate expectations that we returns to some normalcy here on tires as a result of that. But having said that, I think we’re going to be very focused on the things that we can control in our business. And I do think there's opportunities for us to rethink our product stream strategy to make certain that we have products that are positioned at the right price points, to be relevant with consumers that we see in our stores and also create the right step up and conversion opportunities in store. And that will be supported with I think the right selling materials in store that allows us to help facilitate that. So, look we're just not going to wait for the industry to rebound here. We're going to do things that's well within our control to focus on that going forward.

Thanks a lot and good luck.

Thank you.

Before we move out to the next question, this is Brian, I just wanted to clarify something from earlier. I think I may have misquoted the September comp. I think I may have said that it was up one adjusted for the hurricane, I just wanted to clarify that it was down one adjusted for the hurricane. Apologize for any misunderstanding.

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

So, a competitor in this space is talking about vertically integrating the aftermarket and acquiring repair team. Has that pressured M&A in the space for multiples? And has, I guess the soft industry sales also has that have any effect on the M&A acquisition multiples as well?

Maybe I'll start with the second part of the question first. And I think when we look at soft industry conditions I think certainly for smaller deals, we would expect that to continue to drive interest and opportunity for us to acquire companies that have a little less scale and sophistication to deal with some pervasive industry softness. As it relates to larger deals, I think certainly what I would consider a platform acquisition, I think there has been more interest in our space which I believe reinforces the attractiveness of our industry given that level of interest. But I think as it relates to multiples, I think as I look at the market for platform deals, larger platform deals we have seen multiples move up on those kind of deals. However as it relates call it midsize deals, I think at this point we are yet to see some inflation in multiples at that level of deal.

[Operator Instructions] And it appears there are no further questions at this time. Mr. Brett Ponton, I'd like to turn the conference back to you for any additional or closing remarks sir.

Thank you. I'm honored to lead this great company and I want to thank all of our team members for their support during this transition, and over the course of my assessment. In the coming months, we'll be developing the action plans supporting the five areas of strategic focus I outlined. I look forward to updating you on our progress on our next earnings call. Thank you all for joining us today and for your early support of our new path forward for Monro. Thank you.

And ladies and gentlemen, that does conclude today's conference. I’d like to thank everyone for their participation. You may now disconnect.