Jan 29, 2013
Executives
Jennifer Milan - IR, FTI Consulting John Van Heel - CEO Cathy D’Amico - EVP, Finance & CFO Rob Gross - Executive Chairman
Analysts
Bret Jordan - BB&T Capital Markets Joseph Edelstein - Stephens James Albertine - Stifel Nicolaus Michael Montani - ISI Group Matthew Dodson - Edmunds White Partners Brian Sponheimer - Gabelli & Company
Operator
Good morning ladies and gentlemen and welcome to the Monro Muffler Brake’s Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).
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 would now like to introduce Ms.
Jennifer Milan of FTI Consulting. Please go ahead.
Jennifer Milan
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 related to leverage and debt service including sensitivity to fluctuations in interest rates, dependence on, and competition within, the primary markets in which the company's stores are located and the need for and costs associated with store renovations and other capital expenditures. The company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events or circumstances described in such statements are material. Joining us for this morning’s call from management are John Van Heel, President and Chief Executive Officer; 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.
John Van Heel
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 third quarter fiscal 2013 performance. After some brief opening remarks, I will review our quarterly performance then provide you with an update on our business as well as our outlook for the remainder of the fiscal year.
I'll then turn the call over to Cathy D’Amico, our Chief Financial Officer who will provide additional details on our financial results. I want to start out by saying that my long-term confidence in our business and the outlook for our industry remains very strong.
There are still 240 million cars on the road in the US that are getting older, consumers still can't work on these vehicles and the number of overall service base is declining and the availability of suitable acquisition candidates is accelerating. Further, our key competitive advantages are still in place, including our low cost operations, superior customer servicing convenience along with our store density and few store brand strategy.
That said, we continue to hear various concerns or myths in the marketplace in terms of how they affect our sector and especially Monro which I would like to offer my opinion on. Myth number one; increasing new car sales will cater our business.
In our view, the 14.5 million new car sales in calendar 2012 or 15 million to 15.5 million in calendar 2013 will not then the increasing age of the average vehicle in the US fleet, now at record 10.8 years, which will continue to drive our business forward. In particular, with many households have the ability to sign up for 4,000 and annual new car payments when they are already paying more for food and gas and now paying about $1000 more on security charges on average.
It's hard to see how the other 85% households won't be doing better and will likely reduce their deferrals of needed services and tires. Also the US market had nine consecutive years of averaging approximately 17 million new cars sold through 2007, which is driven the number of vehicles in our sweet spot of four to 12 years old to an all-time high.
By the way, we ran positive comp store sales all of those years. Myth number two; 10-year old cars were a tailwind, 11-year old cars are a headwind.
The thinking is, old car owners will sign up for the 4,000 new car payments in this economy versus the $1,000 to $1,500 it takes to maintain their vehicle. We don’t believe that owners as whole charge of this age won’t get the need-ability to change its breaks, tires and other services that keep these older cars safe and running and which represent the vast majority of our sales.
In fact, vehicles aged 13 years and older now represent more than 20% of our traffic and as they groom have a ticket average consistent with younger vehicles. We also hear concerns about our sales remaining weak while the economy and the consumer are showing some signs of improvement.
I am probably more pessimistic about the economy and the consumer than most other retailers and believe that the consumers have been in much worst shape than those. This is evident in the deteriorating consumer sentiments over the past two months which hit the lowest point in over a year in January and certainly won’t be helped in coming months as people begin to adjust to less disposable income due to higher taxes.
This is a real risk to our business and all retail companies for that matter, some of this concern may be attributable to a concentration in the Northeast, Great Lakes and Mid-Atlantic regions which have lagged the rest of the country significantly this year. In fact, National Parts Retailers have reported that their overall comps and commercial business comps in our regions are underperforming the rest of the country by as much as 500 to 1,500 basis points respectively.
In part, we believe the underperformance in these regions relative to other areas of the country is due to the extreme mild winter last year and so far this year. Additionally, some of our key geographies were less impacted by the housing crisis than other regions of the country and significantly outperformed in the 2009 to 2011 timeframe, but are not benefiting currently from the modest recovery affecting other areas of the country.
The difficult market was the result of basic industry issues within car sales, increasing age of vehicles or competition, none of these other regions would be performing better than our geographies. Importantly, this difficult environment benefits our acquisition strategy.
As the primary macro drivers of our business are still in place, we continue to execute on our prudent strategy and initiatives that has helped us deliver our 11 straight years of positive comp sales in the 13 year average of 20% EPS growth. We have accelerated acquisitions as we said we would in times of slow organic growth positioning the company for significant earnings growth over the next several years.
We are now through with the first nine months of fiscal 2013, and expect near-term results to remain choppy, but people need what we sell and can only defer purchases of our products and services for so long. I believe that sales will improve when this deferral cycle reverses and customers turn to us for these needed purchases.
While operating margins will also benefit from reduced material costs, implemented expense reduction initiatives and improving results from recent acquisitions. Now on to our third quarter results.
As we had anticipated the third quarter remains challenging in terms of both topline and margins. However, we were somewhat able to navigate the headwinds we are seeing in our business and deliver EPS within our anticipated range.
That being said, we are not happy with our results. For our third quarter our comparable store sales adjusted to-date declined 4.9% versus a 1.3% comparable store sales decline last year; weaker than we had anticipated.
We believe the softness in sales is due in large part to continued economic pressures, the lack of winter weather, most importantly snow and also remains a headwind that and was not a catalyst we hoped it would be as in Hurricane (inaudible) either. On a reported basis, comparable store sales declined 5.9%.
However, our position as a low cost, trusted service provider remains strong and we are maintaining share as evidenced by the fact that comparable store oil changes were flat year-over-year. Our selected price is slightly positive and the decrease in our comparable store oil change units sold this year is in line with Rubber Manufacturers Association data for our Northeastern, Great Lakes and Mid-Atlantic geography.
Customers continue to find trading down and prioritizing higher costs maintenance repair, entire purchases more than in the past and have been able to defer these purchases longer. This is further evidenced by a year-to-date decline in average ticket which we haven't experienced since 2003.
Importantly, during last two weeks of December, snow had a significant impact throughout our markets and we ran a positive trend comparable store sales increase led by the trailer category. For the third quarter, total sales increased by 7.8% to $190 million compared with $176 million in the prior year quarter due to the contribution from our recent acquisitions.
Our fiscal 2012 acquisitions contributed slightly to our bottom line for the quarter as we expected with contributions from the 2012 acquisition partially offset by early transition in deal related costs from the 2013 acquisitions. Gross margin decreased 180 basis points during the quarter to 36.6% versus 38.4% in the prior year due primarily to a shift in sales mix to the lower margin tire and service categories in part due to our recent acquisitions and loss of leverage due to weak comparable store sales while product troughs began to moderate.
We continue to leverage the increased purchasing power that has resulted from our recent acquisitions and our ability to shift purchases between our broad base to vendors. As discussed on our last call and as a result of adding stores through acquisitions, we were able to negotiate lower oil costs (inaudible) factoring the second quarter and helped our gross margin again in the third quarter.
This cost benefit will continue chasing $500,000 in oil costs in the fourth quarter of our fiscal year and $1 million in the first half of fiscal 2014 at current trends. We are also seeing improvement in tire costs.
After the September 2012, expiration of the tariff on tires imported from China, we received a 10% reduction in import tire costs and more recently we received an additional 5% cost reduction on import tires that take effect January 1. We are also benefiting from increased volumes related incentives from branded manufacturers.
As a result of these decreases and a generally stable pricing environment, during the third quarter our tire growth margin improved slightly over the prior year quarter, the first such improvement this year. We expect continued declines in tire and oil costs to benefit margins further as we move throughout the remainder of fiscal 2013 and into fiscal 2014.
Further, we have increased our direct international sourcing primarily from China over the past several years. At the end of fiscal 2012, we achieved a run rate of approximately 30% of our total product costs less oil and outbuys it have increased that to 32% year-to-date in 2013.
We continue to see an opportunity to improve gross margin particularly on tires by further increasing our direct international sourcing to a run rate as much as 40% over the next year. At the same time, we're carefully managing our cost in this difficult environment and our recent acquisitions will start to benefit our operating margin next year.
For the third quarter, all of the increase in total SG&A cost is attributable to acquired stores. Excluding fiscal 2013 acquisition and the $1.7 million gain on sales of seven stores in the third quarter of fiscal 2012, operating expenses were actually down 900,000 as compared to the prior year due to this focused cost control.
That said, we lost leverage in the third quarter due to weak comparable store sales. For the third quarter, operating income decreased 16.8% to $18.8 million which translated to an operating margin of 9.9% compared with 12.8% in the third quarter of last year.
Net income for the third quarter decreased 16.9% to $11.3 million from $13.6 million last year. Our earnings per share declined 16.7% to $0.35 including $0.02 dilutions from our fiscal 2013 acquisition on a base of 32.2 million shares outstanding, from $0.42 in the prior year quarter or $0.39 excluding the $1.9 million gain last year.
In terms of sales category trends during the quarter, nearly all remained weak and similar to the first six months of the year, with the exception of comparable changes which were flat. Turning now to our growth strategy, we remained focused on increasing our market shares through same-store sales growth, opening additional new stores in the existing markets and acquiring competitors at attractive valuations.
We expect full year of 2013 organic sales to be weak as a result of continued pressure on consumers and our poor results in the first nine months of the year. However, we have accelerated acquisitions in fiscal 2013 as attractive opportunities and significantly increased during this tough operating environment.
Importantly, these acquisitions further expand our market share and our operating leverage positioning the growth for profitable growth over the next several years. We have and will continue to pursue these transactions in a very disciplined manner.
We have been very pleased with the results that we have seen thus far from the acquisitions we completed in fiscal 2012 which added $45 million in annualized sales. (inaudible) and the Terry's Tire Town floors were accretive in the first 12 months of ownership ahead of plan and continue to contribute in fiscal 2013.
Fiscal 2013 is our strongest year ever for acquisition growth. During the first half of the fiscal year, we completed acquisitions from (inaudible) Towery Tire and Tuffy Associates representing an incremental $59 million in annualized sales in total or 9% acquisition growth.
These acquisitions strengthened our presence by giving us number one market share in the North of Tidewater Virginia market expanding our presence in North and South Carolina and expanding our footprint into Milwaukee, Wisconsin a new market. The second half of fiscal 2013 has been even stronger for acquisition growth.
In October, we completed the acquisition of five stores located in Rochester, New York from a former Midas franchisee for an additional $3 million in annualized sales. In November, we completed the acquisition of 31 tire stores from Tire Barn representing an additional $64 million in annualized sales which added to our presence in Indiana, including a leading position in Indianapolis and Illinois and expanded our footprint into Tennessee a new contiguous market.
In December, we completed the acquisition of 27 stores from Towery’s Tire and Auto Care and the company's wholesale business which combined represent an additional $54 million in annualized sales. This transaction expanded our footprint into Louisville and Lexington, Kentucky, new contagious markets where Towery currently holds the number one position.
For the third quarter, this represents a combined total of $121 million in annualized sales or 18% acquisition growth. Most recently at the start of the company's fourth quarter, we completed acquisitions of Enger Tire and Tire King stores.
The Enger Tire acquisition expands our presence in Northern Ohio with the addition of 12 stores and $9 million in annualized sales to our existing 16 Mitchell Tire and 15 Monro stores in these markets. The Tire King transaction expands our presence in (inaudible) and Durham, North Carolina with the addition of 9 stores and $11 million in annualized sales to our existing 12 stores in these markets.
The Tire Barn, Mr. Tire stores offer only tires and alignment services similar to our Autotire and Tire Warehouse stores in New England and the other stores acquired this year have a 50% service, 50% tire sales mix with the exception of the Tuffy stores which are service locations.
We have strengthened and grown our business through the series of acquisitions that expand our footprint adding 139 locations that will contribute roughly $200 million in incremental annualized sales, a record year over 29% growth over fiscal 2012. This broadening of our store portfolio helps to reduce our geographic concentration in the northeast Great Lakes and increases our base for continued expansion in the Midwest and south.
From a financial perspective, these acquisitions provide significant top line growth that will contribute to leverage for Monro going forward. Also we collectively increased our annual tire purchases by about 40%, which significantly increases our purchasing power with vendors and will help us reduce costs and increase tires margins going forward.
Importantly, we completed the majority of these deals as tires costs were at their highest, depressing earnings to these sellers and when the cost reductions were just beginning to occur, giving Monro and our shareholders the full earnings benefit of lower tire costs moving forward. In a better or overall economic environment, we would not have been able to complete these deals for roughly 30% annualized sales growth at these prices and with this momentum on costs and margins.
While we are not happy with the difficult year we are going through, the future benefits and earnings from these acquisitions will far outweigh the temporary earnings decline we are experiencing. We continue to see more opportunities for attractive deals than we have seen in the past years due to near term seller concerns over the continuing difficult operating environment and into the future given that all of the independent tire dealers we are looking to acquire are getting older and many are at or nearing retirement age without an internal succession option.
We presently had eight NDA signed versus the seven we had at the end of the second quarter, even after having completed four of those deals since our conference calls. Seven of these NDAs are within our footprint and one is in new contiguous market.
We could close on one or more of these opportunities as early as the first fiscal quarter of 2014. We have plenty of liquidity combined with strong cash flow to complete these deals.
We remain very disciplined on the prices we will pay with 7 to 7.5 times EBITDA or about 80% of sales in the key metrics. The November and December transaction that were completed for a purchase price of $104 million in total or about 75% of sales, which includes the real state for 25 of the 79 locations.
Importantly, we continue to compete only with the sellers expectations in these deals. Let me now turn to our outlook for this quarter.
We believe the turbulent macroeconomic environment will continue to negatively impact consumer purchasing behavior, all of which is likely to be exacerbated further by higher taxes. This affects Monro as a service and retail business, as well as the whole industry.
Trends in the fourth quarter of fiscal 2013 have remained more challenging than we had hoped. Weather has remained a headwind to start the quarter, with January snowfall in our key markets at less than half of last year’s already depressed levels.
January comp store sales are down 10% versus a 6% comp increase last January, while oil change units are holding in. As a note, the two year sales comp for January is minus 4 versus a minus 5.6 for the nine months ended December 2012.
Our key sales category remained down which indicates that consumers are still visiting us for basic low cost maintenance, but still deferring larger purchases particularly tires. Given this very slow start, we expect comparable store sales for the quarter to be down 9% to 6% adjusted per day versus up 0.7% last year.
We expect fourth quarter earnings per share to be in the range of $0.20 to $0.25, with the fiscal 2013 acquisition at breakeven for slightly diluted. This compares with $0.33 in the fourth quarter of fiscal 2012 or $0.29 excluding the estimated $0.07 benefit from the 53 week and $0.03 in Midas related due diligence cost.
The low end of our EPS range incorporates combined comps for February and March at our year-to-date comps sales run rate, down about six, and the high end incorporates a similar comp decrease as we had in last February and March, just down about three. For the full fiscal year, taking in to account sales contributions from the eight acquisitions completed year-to-date, we now expect total sales to be in the range of 725 to 735 million, incorporating a comparable store sales decline in the range of 6.5% to 5.5% adjusted for days.
Based on these new assumptions, we estimate full fiscal year 2013 EPS of a $1.27 to $1.32, which compares to EPS of a $1.69 in fiscal 2012 or EPS of $1.65 last year excluding the estimated $0.07 benefit from the 53rd week and the $0.03 in Midas related due diligence cost. While we don’t have visibility on when the state of the consumer may ultimately improve, there are several positives that will impact us in the fourth quarter of fiscal 2013 and heading in to fiscal 2014.
We're up against negative 3% comp store sales in February and March adjusted for days and a negative 6% comp store sales for the first nine months of fiscal 2014. We wouldn’t expect customer deferrals to continue at this increased rate.
We expect operating margins will benefit from improved sales, lower oil cost, lower tire costs and increased contribution from our fiscal 2012 and 2013 acquisitions. We will also continue to carefully manage SG&A costs, but expect that for fiscal 2013 weak comparable store sales in the first nine months and the fact that fiscal 2012 was a 53 week year will offset these cost controls and the SG&A leverage provided by our acquisitions.
That being said, we are not (inaudible) for increased consumer deferrals to turn around. We are aggressively pursuing expense reductions in all areas of the business, while keeping mindful that we are a growth company.
Specifically, we are on track to achieve roughly 4 million in annual cost reductions on our base business excluding fiscal 2013 acquisitions. In short, we are acting quickly and aggressively to better align our operating expenses with current sale trends, while improving productivity.
For fiscal 2014, we expect these actions combined with other declining costs to improve our business model and allow us to generate EPS growth on our base business at 0% comps where in the past we have needed a 2% comp or better to increase to overcome normal inflationary cost increases. Our five year plan continues to call for on average [50%] annual top line growth, 10% acquisition growth, 3% to 4% from comps, and 1% to 2% through [infield] stores.
The acquisitions are generally diluted in the first six months as we overcome due diligence and deal related cost, while working through initial inventory and the operational transition. With cost savings and recovery in sales results are generally breakeven or slightly accretive year one, $0.08 to $0.10 year two and an addition of $0.08 to $0.10 in year three.
So 30% acquisition growths just triple those EPS partnership. Over the five year period that should improve operating margins approximately 300 basis points and deliver an average of 20% bottom line growth.
Given the timing of our fiscal 2013 acquisitions, we would expect to see positive contribution from these deals in the first quarter of fiscal 2014 and beyond. We are confident that a disciplined acquisition strategy is strengthening our position in the market place, and will provide meaningful share value to shareholders for many years to come.
Before I turn the call over to Cathy, I would also like to thank each of our employees. Monro’s brand strength is the direct result of their hard work, consistent execution and providing superior customer service that is an integral part of Monro’s compelling customer value proposition.
With that I would like to turn the call over the Cathy for more details review of our financial results, Cathy.
Cathy D’Amico
Thanks, John and good morning everybody. Sales through the quarter increased 7.8%, new stores which defined as stores opened or acquired after March 26, 2011 added $23 million, reported comparable store sales decreased 5.9%, and there was a decreased in sales from closed stores of approximately $1.6 million.
There are 89 selling days in the current third quarter and 90 in the prior year quarter. Adjusting for days, comparable store sales declined 4.9% as compared to the prior year quarter.
Year-to-date sales increased $21.3 million and 4.1%, new stores contributed $56.1 million of the increase partially offsetting this sales increase was a comparable store sales decrease of 5.9% and a decrease in sales for closed stores amounting to $5.3 million. There were 270 selling days in the first nine months of fiscal year ’13 and 271 in the prior year.
Adjusting for days, comparable store sales declined 5.6% as compared to the prior year. At December 29, 2012 the company had 918 company operated stores as compared with 803 stores at December 24, 2011.
During the quarter ended December 2012, the company opened or added 65 stores including 63 from recent acquisitions and closed none. Year-to-date, we have added a 121 stores and closed six.
Gross profit for the quarter ended December 2012 was $69.6 million or 36.6% of sales as compared with $67.8 million or 38.4% of sales for the quarter ended December 2011. The decrease in gross profit for the quarter ended December 2012 as a percentage of sales is due to several factors.
First, distribution and occupancy costs which are included in cost of sales increased as a percentage of sales from the prior year as we lost leverage on these largely fixed costs with lower overall comparable store sales. Total material costs including outside purchases increased as a percentage of sales as compared to the prior year.
This was primarily due to a shift in mix to the lower margin service in tire category, the latter due in large part to the acquisition of more tire stores. These increases were partially offset by a decrease in oil costs as compared to the prior year helped in part by our newly negotiated oil pricing.
Labor costs were relatively flat as a percentage of sales as compared to the prior year. Gross profit for the nine months ended December 2012 was $207.6 million or 38.7% of sales as compared with $209.9 million or 40.8% of sales for the nine months ended December 2011.
The year-to-date decrease in gross profit as a percentage of sales is due to increased material costs related primarily to the increased tire mix related to the acquired stores along with increased distribution and occupancy costs and labor costs due to loss of leverage on lower comparable store sales. Operating expenses for the quarter ended December 2012 increased $5.7 million and were $50.8 million or 26.7% of sales as compared with $45.1 million or 25.5% of sales for the quarter ended December 2011.
If you exclude the $1.7 million gain from the sales of Long Island stores last year which reduced operating expense and operating expenses related to the FY’13 acquired stores, operating expenses as John mentioned actually decreased by approximately $0.9 million. Additionally, if you exclude the due diligence costs we incurred this year in Q3, operating expenses are actually down on total of $1.7 million on the base business.
This demonstrates that the company experienced leverage in this line on a comparable store basis through focused cost control and pay plans which appropriately adjust for performance. For the nine months ended December 2012, operating expenses increased by $13.1 million to $149.3 million from the comparable period of the prior year and were 27.9% of sales as compared to 26.4%.
Operating income for the quarter ended December 2012 of $18.8 million decreased by 16.8% as compared to the operating income of approximately $22.6 million for the quarter ended December 2011 and decreased as a percentage of sales from 12.8% to 9.9%. Operating income for the nine months ended December 2012, of approximately $58.2 million decreased by 21.3% as compared to operating income of approximately $74 million for the nine months ended December 2011, and as a percentage of sales it decreased from 14.4% to 10.9%.
With regard to interest expense for the quarter ended December 2012, it was $1.5 million, an increase, which is an increase of $300,000 as compared to interest expense of $1.2 million for the quarter ended December 2011. It increased as a percentage of sales from 0.7% to 0.8% relatively flat.
The weighted average debt outstanding for the third quarter of fiscal 2013 increased by approximately $58 million as compared to the third quarter of last year, primarily related to borrowings made on the company’s revolving credit facility for the purchase of our recent acquisition. This was offset by a decrease in the weighted average interest rate of approximately 370 basis points from the prior year due to a shift to a larger percentage of debt that being revolver versus capital leases at a lower rate.
For the nine months ended, December 2012, results were similar. Interest expense increased by $0.5 million and was virtually flat as a percentage of sales as compared to the prior year.
Weighted average debt increased by approximately $39 million and the weighted average interest rate decreased by approximately 270 basis points. The expected tax rate for the quarter ended December 2012 and December 2011 was 35.4% and 36.9% respectively of pretax income.
Net income for the current quarter was $11.3 million, decreased 15.9% from net income for the quarter ended December 2011. Earnings per share on a diluted basis was $0.35 decreased 16.7% as compared to last year’s $0.42.
For the nine months ended December 2012 net income of $34.4 million decreased 21.9% and diluted earnings per share decreased 21.9% as well from a $1.37 to $1.07 EPS. Moving on to the balance sheet; our balance sheet continues to be strong.
Our current ratio of 1.3 to 1 is slightly higher than last year’s third quarter. In the first nine months of this year, we generated $63 million of cash flow from operating activities.
Depreciation and amortization was approximately $19 million which is divided evenly between Q1, Q2 and Q3. And we received about $2 million from the exercise of stock option.
We incurred net borrowings of $115 million of debt. We used those borrowings in cash flow from operations to finance acquisitions of a 118 stores through the end of Q3 for a $143 million net of deferrals each from the disposal of assets related primarily to the Kramer acquisition.
At the end of the third quarter, long-term debt consisted of $124 million of outstanding revolver debt and $49 million of capital leases. As a result of the debt borrowings, our debt to capital ratio including capital leases increased to 33% from 14% at March 2012.
As we stated in our press release, we amended our revolving credit facility during the third quarter of fiscal 13 to increase the committed sum from a $175 million to $250 million and extended the maturity date through December 2017. Additionally, we continue to have a $75 million accordion feature included in the agreement.
No other terms of the agreement were changed. The agreement continues to bear interest at LIBOR plus its prior at 100 and 200 basis points and we currently obtained LIBOR plus at 100 basis points.
Even before the amendment this facility provided us with significant flexibility during these hard time to get the acquisitions done quickly. The amendment agreement with the increased commitment sum and expanded term and continued favorable rates, gives us even more flexibility to continue to operate our business opportunistically without bank approval as long as we are compliant with our debt covenants.
We currently have $95 million available under the facility after completing the Enger and Tire King acquisitions at the beginning of Q4. During the first nine months of this year, we spend approximately $21 million on CapEx including approximately $3 million spend on acquired stores since we bought them.
We paid out $13 million in dividends including the planned fourth quarter dividend which we accelerated into Q3 to try to benefit the investors for (inaudible) purposes. Inventory is up about $18 million for March 2012 with approximately $13 million of the increase in store inventory, due primarily to the addition of the fiscal year ‘13 acquired stores and timing related to increased stocking of snow tires.
Additionally, we increased inventory related to import products such as tires and filters to enhance product assortments and ensure adequacy of supply in light of lead times for foreign purchases and help to offset margin pressures, whereas inventory levels have increased due to cost increases, an initiative to expand and enhance product assortment in order to reduce outside purchases. As an aside, higher inventory total was about 19% from last December including inventory added for acquisitions which is down 9% for non-acquisition locations.
That concludes my formal remarks and the financial statements and with that, I will now turn the call over to the operator for questions. Operator?
Operator
(Operator Instructions) And we will go first to Bret Jordan with BB&T Capital Markets. Your line is open.
Bret Jordan - BB&T Capital Markets
A couple of quick questions and one just John to start out of the tire pricing, you talked about seeing some price decreases on the import side as well as some of the domestic sourcing. If you gave us sort of a blended tire price decrease sort of accounting for what has been imported versus what's sourced domestically on the quarter what would the year-over-year deflation be?
John Van Heel
Well, we've got for the quarter?
Bret Jordan - BB&T Capital Markets
Yeah.
John Van Heel
Yeah, for the quarter its down slightly about 2%, you got a 2% retail price increase working in there so the margin itself was up slightly, the cost was down just a touch.
Bret Jordan - BB&T Capital Markets
Okay and I guess going forward, do you see continued price decreases coming to you from the manufacturers as costs of goods have come in?
John Van Heel
Yes, absolutely. As I said, we got about 15% decrease since the tariff came up on the low cost [radial], low cost tires which are about 25% of units and the discounts, volume discounts, other discounts that we are getting from the branded manufacturers somewhere around 5% and we see that continuing in the next year.
Bret Jordan - BB&T Capital Markets
And I guess we get tire pickup you got a positive comp in December when the weather got bad was that driven primarily by tires moving and I guess to some extent as you've seen a little bit in the last week or so weather deterioration or snow and ice in your markets, have you seen the same trend on tires?
John Van Heel
Yeah, absolutely, tires was a driver in late December and I can tell you that the last week was our best week in January as well. It improved sequentially during the month.
Bret Jordan - BB&T Capital Markets
In that case, it seems like you've got some correlation to weather and improving sales, does your comp guide for the current quarter, because as the quarter gets easier as you get through it, January being the toughest month year-over-year assume that the weather remains warmer and drier year-over-year. I'm just trying to handle on the guide down at the rate that you guide it down given what is an easing comparison as the quarter progresses and performance of signs of improvement in tires?
John Van Heel
Yeah, I guess in first of all, our comp in January being down where it is, all the categories suck, tires leading the way. But our comps guidance for the quarter with limited visibility that we have from the January number, it basically says that on the low end, we’ve ran all the year and on the high end, we're going to run similar comp in February and March to what we did last year.
We thought that was the most conservative way to go after being (inaudible) for the first nine months of the year.
Operator
(Operator Instructions) We will go next to Joseph Edelstein with Stephens. Your line is open.
Joseph Edelstein - Stephens
Can you first just provide the comp numbers by month and remind us what you are going to be up against then, I guess the February, March number. I think you may have said that but I just want to double check?
John Van Heel
Right, so the comps for the months in Q3 were downsized in October, adjusted for days, down seven in November and one in December. For the fourth quarter, for February and March, February was down 3.5 and March was down 2.5.
Rob Gross
And January was up six.
Joseph Edelstein - Stephens
And I certainly appreciate the breakdown by category that you put in the press release and John I think you also talked about oil changes being flat and how that indicates to you that it is literally deferral process but I have also noticed that the trends in the year-over-year performance in oil changes has also been coming down, so I am just trying to get a sense for what other indications is it that it’s just a deferral and not necessarily losing share to other participants in the marketplace?
John Van Heel
For us importantly, we want to be at least flat. We want to be positive.
We were up 2.5 in oil changing, it’s in the first quarter and we have been flat for the past six months. So we believe, I mean, that to me says we are not losing market share because customers aren’t going to come to our shop to get an oil change they go somewhere else to get their breaks done or get their tires.
They are coming back to us because they trust us to do all of their work; they are deferring the more significant purchases.
Rob Gross
Joe, this is Rob. We have bought eight (inaudible) in the year into our market.
So we know what their numbers are. We have eight NDAs currently signed that we are working on, so we know what all their numbers are, we know the Rubber Manufacturer Association was running minus eight units in our geographic area and we have the breakdown between the national parts guys showing what’s going on within our specific regions.
I think the one other public guy, their report is certainly doing better on pushing the oil changes at the lower price and taking margin heads commence for it which we are not willing to do. We have always been running plus two traffic in oil change is flat, oil change traffic in that generates our business.
So when in various types talked about oil change is running down 3 or down 5, I think relative to your point where we would (inaudible) concerned in losing market share but running oil change number for us in a very difficult environment, again speaks very well that we are holding on to what we have, certainly not happy with the sell through and so many additional immediate work that these customers need to protect their vehicles, but we are two years in deferral cycle and now we will come around, but certainly we have qualitative grouping whether we brought them or looking about them, exactly what's going on moving our marketplace.
Joseph Edelstein - Stephens
Right, I appreciate, the actually details. Yeah that is very helpful.
And then if I can maybe just ask one other kind of clean up question related to the tax rate that number has balanced around a bit for the first couple quarters here, just generally where do you think that will come in for the fourth quarter and just as you look out even into next year?
Cathy D’Amico
In Q4 should be around 36%, (inaudible) in tire because we take cash, credits that come and go and next year conservatively I think we are about 38% because we are in new state and below for (inaudible) more clarity when we talk about FY ‘14 that we normally do in the spring, but certainly its best to use right now.
Operator
And we will go next to James Albertine with Stifel Nicolaus. Your line is open.
James Albertine - Stifel Nicolaus
Very quickly as always thank you so much for all the details going into your prepared remarks. I wanted to focus on one of the points to make sure I heard it correctly, because it sounded like you made a comment John that your comp leverage point, if you think about this deferral cycle and hopefully the turning of this deferral cycle back to the positive category.
It sounds like your comp leverage points fall on to flat from that 2% or better before, just want to make sure I understood that correctly and if you could sort of by order of magnitude kind of lay out the drivers. It sounds like mostly in gross profit, did that get us there.
John Van Heel
Yeah, absolutely you are exactly right in what we’ve said. For fiscal ’14 that rate through the lower oil costs and lower tire costs and us taking initiatives in this year and getting it and adjusting the business in terms of the expense structure to what our sales run rate is going after that $4 million of expense reductions on the base business that will bring it to flat that inflexion point from what's traditionally been 2% or a little bit better.
Certainly we've never had an increase of 40% in tire units to work with before. So, for us that's extremely important and its going to be very powerful to driving those costs down which will be a big piece of the gross margin element of driving that inflexion point down.
James Albertine - Stifel Nicolaus
That's great, I appreciate the additional detail, and I guess just as it relates to that maybe sort of asking the same question in a slightly different way. If you look at where gross profit is as a percentage of sales I think it was 36.6 this quarter, and I think a very helpful point that you mentioned as you grow on the tires sort of the non-warehouse, non-tire barn stores is a 50-50 split service in tires.
So just trying to sort of gauge where you think gross profits can go and if they are in fact troughing in your opinion.
John Van Heel
Yeah, they are giving a lot you know…
James Albertine - Stifel Nicolaus
Back to where we had seen it before I guess is my question.
John Van Heel
Yeah, I think back to where they were last year, two years ago, that's where I see them going. It obviously depends somewhat on the retail pricing environment, but again we haven't had cost decreases year-over-year like we are having right now 15 points on the low cost radials, 5% on the branded tires, going into next year and that's certainly going to get better.
Rob Gross
Chiming to John’s point, third quarter 47% of our business is tires, it’s the highest we've ever been. We run about 40%, I think John was trying to give you a view that way down the road it never gets above 50, so if you are looking at third quarter gross margin couple that with the negative comps, it doesn't get worse than that and remember again, we have a fixed component of distribution and occupancy in there.
So while we haven't given anything relating to 2014, certainly the fourth quarter should be better, but there's a huge opportunity to move that number up just remember that there will still be continuing quarter one year over another year sales mix shift towards tires which even as tire margins will get significantly better, based on the things John mentioned there will still be some negative pressure with the shift to more tire sales.
Operator
And we will go next to Peter Keith with Piper Jaffray. Your line is open.
Unidentified Analyst
This is actually [John Burgons] for Peter this morning. Just a couple of questions for you here.
Do you believe you are seeing any incremental impact from the exploration of the payroll tax cut in month-to-date results? I know you commented that your core consumer continues to be challenged and it doesn’t seem like there is any differences this quarter and kind of what you are seeing, but have you even seen anything above and beyond that you think in January?
John Van Heel
All we can say about January is minus 10 is worse than worse than minus 6.
Unidentified Analyst
Okay, got you.
John Van Heel
I don't know, what pieces whether, what piece.
Rob Gross
Weather certainly couldn’t help us. The payroll cash can’t help.
So, break it out is not something I think we're going to be offering to you much John.
Unidentified Analyst
And I guess looking at kind of your acquisition outlook as you go forward, I know you said your number of NDAs are up and with kind of people, I think trying to rush and sell ahead of the end of the year last year. I mean, even though your NDAs are up, I mean, are you seeing any less as far as people enquiring about selling their business or is everything just kind of where it has been running?
John Van Heel
No, we haven’t seen a slowdown in those discussions at all. As you know the NDAs are between five and 40 stores and seven are within our territories and one is in contiguous market.
So very consistent to what we have looked at over the last several years.
Unidentified Analyst
Okay, excellent and just one last quick one and I apologize if I missed this, but did you quantify at all the comp headwind from Sandy at all in the quarter?
John Van Heel
When I said hurricanes don’t help either that was all of our comments. It was about a 1% comp drain on November.
Operator
(Operator Instructions) We will go next to Michael Montani with ISI Group. Your line is open.
Michael Montani - ISI Group
First was on just on traffic and ticket, I know you mentioned oil change traffic was flattish, should we assume that the overall traffic transaction counts were about flat or slightly down or how would you break it down?
John Van Heel
No, they were just slightly down as Rob was alluding to. We have traditionally (inaudible) traffic between plus two, minus two.
So the overall traffic was down.
Michael Montani - ISI Group
Okay. And then just in terms of the SG&A leverage I know you mentioned the 4 million of expense reductions.
Is there any way you can help just break that down a little bit further because the other piece that we were concerned about as affordable [caveats] which I think would impact you guys in fiscal 4Q of next year, but it sounds like you are still seeing that reduction despite that, so is that correct and then is there some specific initiative you can point to there?
John Van Heel
Yeah, I guess with regard to the initiatives we have traditionally been very good at managing cost and in this environment we are absolutely taking another look at every aspect of the business, that incorporates payroll and fuel, it incorporates payroll back here again understanding that we are in a high period of growth, but there is significant leverage in that. Warehousing that is across the board in terms of where we are looking for the cost savings, and with regard to the affordable [carry-out], part of what we are doing right now will definitely help when we get around to the affordable [carry-out] and that's absolutely in our mind that as we approach how to manage payroll and other cost everywhere within the company, that will have at start have an impact next year in Q4, but the real impact will come through in fiscal year 2015, and we think with the initiatives we are taking right now we’ll only be in a better place to address, what is going to be a higher cost, and we like all other company are looking hard at the affordable [carry-out] and what impact it will have.
I know its not going to reduce our cost, it’s going to increase it.
Michael Montani - ISI Group
Sure. But when you mentioned that you might be able or you would be able to improve the expense rate on sort of a flattish comp, was that speaking specifically to the SG&A leverage or was that including the tire and the oil cost benefits too?
John Van Heel
Its SG&A and non-tire and oil costs.
Operator
And our next question will come from Matthew Dodson Edmunds White Partners. Your line is open.
Matthew Dodson - Edmunds White Partners
Real quick, when we look out to 2014, should we bake-in $200 million of acquisition revenue, is that a fair kind of run rate?
John Van Heel
Yeah, we will, yeah we will have all of the acquisitions in for full 12 months. Its going to be something slightly less than that because several of these will still be kind of coming up for sales and from then this will hit that retake you know in the first six months of transition.
Rob Gross
Yeah, I think from a sales standpoint we try and our new presentation which we will have on our website today breaks out the exact dates when we bought these stores, what the annualized sales is, just to help you guys starting with the 2012 acquisitions, so you can run the 12 months. Obviously, a lot of the deals we did in November and December we already have sales that will be included in our Q4, so you can double count that increase each year; I think we've given you perfect information to understand the accretive-ness when the deals turn over 12 months and we can start getting the $0.08 to $0.10 accretive on the 10% acquisition growth and your specific question on what adds to the sales base which we said for this year would be 725 to 735.
I think you take those run rates with the dates we gave you with the annual sales and you can get a pretty good estimate of our sales numbers for next year which we will come out with in the April-May time period anyways and give you that so you should be able to work through it with the information we've given you.
Matthew Dodson - Edmunds White Partners
That helps and my next question as you guys talked about snow tires, adding inventories, if we don't get more snow in the quarter, can you kind of talk about the headwind that would be with clearing the inventory out?
John Van Heel
Well, it’s all good inventories. And one of these years soon, we are going to have a normal amount of snow and it’ll be less last year’s return rates with some tires and we are leaving this year with some additional tires but that product is no problem at all.
It’s maybe couple of million dollars worth of inventory and as we said we borrow that LIBOR plus a 100, so the ordering and holding snow tires is somewhat of a (inaudible) each year and it’s not a significant cost for us to carry them. They are all given.
I'm hoping to solve all of them next year.
Operator
And we will go next to Brian Sponheimer with Gabelli & Company. Your line is open.
Brian Sponheimer - Gabelli & Company
Just a couple of real quick ones. With the series of acquisitions you made, what's the appetite for a largest (inaudible) and other targets that actually exist that are bigger than some other targets you’ve gotten in house over the course of the last six months?
I guess we will start there.
John Van Heel
Brian, Rob wants to know if you had something you wanted to buy?
Brian Sponheimer - Gabelli & Company
I don't (inaudible) approach.
John Van Heel
We can absolutely give completed additional acquisitions in the next year. Certainly, this level of growth is something that we haven't done in the past but our team, over the past 10 years, we had absolutely changed our company such that we could take in this amount of growth and we could absolutely do a couple more deals next year including larger deal that came about.
I said our returned NDAs, size of 40 stores and we can absolutely get several of those done and a bigger deal that came along.
Brian Sponheimer - Gabelli & Company
Going back to I guess about 18 months or now, the Midas acquisition a year ago anyway, the Midas acquisition disrupt the valuation multiples of other targets?
John Van Heel
No. I think you can see that from the purchase price information that we gave you.
You know, we bought these stores within our metrics, and the deals that we closed in November and December; we thought a third of the stores will bring those the real estate for a third of the stores within those metrics. So like I said I don’t think in a different year we would have been able to complete these many at these prices when tire cost already we know are going down.
So there is no question there and we are going to get the entire benefit of that.
Brian Sponheimer - Gabelli & Company
Alright and to actually segue from my last question here. With the added real estate from the acquisitions what are your plans regarding the parcels of land that you now hold under in-house?
Any sale lease back opportunities, any conversion to a REIT MLP something along those lines?
John Van Heel
No, not at all. We think owning good real estate at a level where we had it somewhere around 30% just short of that of our employer store base is a good thing long-term, and again with all of the LIBOR plus a 100 basis points with plenty of liquidity to get other deals done.
Rob Gross
We are not looking to be trading the liquidation (inaudible).
Operator
And at this time we have one more question left in the queue. We will go next to Bret Jordan with BB&T Capital Market.
Your line is open.
Bret Jordan - BB&T Capital Market
Great, at least I finally had a follow-up. One question John as for the class of 2012 acquisitions because a lot of those came late in the year.
I think I heard you say that you thought they might be contributing to earnings in the first fiscal quarter of 2014. So that would be less than the couple of quarters of integration period that you traditionally talk about.
Are they on balance better stores that you picked up or more functional or you just become more effective?
John Van Heel
Are you talking about the deals we have done in fiscal 2013?
Bret Jordan - BB&T Capital Market
Right, I though that your fiscal ‘13 transactions, we are talking about possibly been additive to the earnings and the beginning of fiscal 2014 are right?
John Van Heel
Yes.
Bret Jordan - BB&T Capital Market
Yes, okay. It was my understanding you usually took a few quarters or a couple of quarters to get them to the point where they were not a drag on earnings yet a lot of these acquired sales came in the December quarter.
So are they better in that it will only take a quarter to integrate? If they are going to be additive in the June quarter that's only the March quarter, that they are going to be sucking for everything?
John Van Heel
We’ve got several of those acquisitions where we get earlier in the year, you know that will be contributing and whether it’s gone through the most difficult piece on these bigger deals which will be in the fourth quarter and we said that even it maybe slightly dilutive as a group there, but we would expect not to see that contribute in the first quarter and we are ourselves will take a better look at that as we look to issue guidance for next year. Certainly the cost of sales reductions in tire cost are absolutely a big piece of that with regard to how we talked about acquisitions over last couple of years in that rising cost environment.
So again getting these deals done when tire cost for the seller were at their highest, and we are positioned to come down from the timing perspective is a big benefit to us. The thing we haven't been able to predict as when the consumers turned around but at least having that tailwind is very significant.
Operator
And that does conclude today's question-and-answer session. I would like to turn the conference back over to management for any additional or closing remarks.
John Van Heel
Thank you. I would like to thank everyone for the time this morning.
We are doing everything we can in this environment. We are committed to maintaining our market share and working hard to get back to the kinds of returns and earnings that you and we are accustomed to over the last number of years.
We've taken advantage of this tough environment to significantly grow our store base at a time when we will be benefiting significantly from declining tire costs and other cost savings and will come out of this period with a lopsided operating margin and a lot bigger, more profitable company. We appreciate your continued support and certainly appreciate the efforts from all of our employees that are working hard everyday.
Thank you and have a good day.
Operator
This does conclude today's conference. Thank you for your participation.