Monro, Inc.
Q1 2017 Earnings Call Transcript

Published: 1 Aug 2016

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake's earnings conference call for the first quarter of fiscal 2017. [Operator Instructions] 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 now like to introduce Ms. Effie Veres of FTI Consulting. Please go ahead.

[Effie Veres:]

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 risk 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, risk 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 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; Brian D'Ambrosia, Chief Accounting Officer; and Rob Gross, Executive Chairman. With these formalities out of the way, I'd like to turn call over to John Van Heel. John, you may begin.

[John Van Heel:]

Thanks, Effie. Good morning and thank you for joining us on today’s call. We’re pleased that you are with us to discuss our first quarter 2017 performance. I'll start today with a review of our results, our growth strategy, outlook for fiscal 2017 and comment on the recent store report on our company. Then, I'll turn the call over to Cathy D'Amico, our Chief Financial Officer; and Brian D'Ambrosia, our Chief Accounting Officer, who will provide additional details of our financial results. Many of you have spoken to Brian over his tenure with Monro. Bryan’s participation on our call this morning and on future calls reinforces the fact that as amazing as she is, Cathy doesn't do it alone. Brian has worked closely with Cathy over the last four years as part of our plan for developing our future finance function and leadership. And I'm pleased he is with us today. Now on to our results, our first quarter results reflect a difficult consumer spending environment that we signaled on our last earnings call. Nevertheless, our focus on margins, cost control and the successful integration of our acquisitions produced earnings per share at the higher end of our guidance range. As we have done historically in similar challenging operating environments, we are aggressively managing our business and leveraging our natural business hedge through the pursuit and completion of multiple acquisition opportunities. The trending comparable store sales improved as we moved through the quarter from a decline of 9% in April to 7% in May and 5% in June. May and June are adjusted for the Memorial Day calendar shift. This resulted in a decline of 6.9% in comparable store sales for the quarter. July comparable store sales were negative 4.8%, slightly improved from June result. Turning to our sales by category for the quarter, we continue to see consumers deferred large ticket purchases as tire comparable store sales declined 3%, reflecting lower average ticket of 1% and a decline in unit of 2%. Importantly, tire sales also improved as we moved through the quarter with comparable store tire sales for the last two months of negative 1% reflecting lower unit. Turning to our service and repair categories, we experienced a pullback in consumer spending, including breaks and alignment following two combined years of strong comparable store sales performance in both categories, which were up 8% and 16%, respectively, in the first quarters of the prior two years combined as well as declines in the more discretionary services such as maintenance, front-end shops and exhaust. In addition to a choppy consumer spending environment, we believe these results are partly due to the lingering effects of a mild winter. Business supported by the continued disparity in our geographic performance, similar to the back half of fiscal 2016, our first quarter results continued to reflect the relative outperformance of our southern markets compared to our northern markets. While comparable store sales in our southern market were down slightly for the quarter, comps in the south were positive in June and July. Nevertheless, the weaker trends we’re seeing in our business are the same trends that competitors in northern markets we are looking to acquire are experiencing. Therefore, we believe we are maintaining our market share and driving more dollars to the bottom line than our competitors. Last year, I spoke to you about our efforts to further integrate technology into our customer value proposition. Specifically into our customer interaction, feedback and marketing activities. These improvements centered around website enhancement, e-mail collection, increasing the number of customers use that we capture and subsequently use to help our digital search ranking and improvements in our online appointment process. Our efforts led to an increase in online appointments of 10% in fiscal 2016, which contributed to the 1% traffic increase we achieved for that same year. Additionally this year we are providing our store level staff with more tools to drive traffic, sales, customer loyalty and achieve greater levels of efficiency. Some of these include improved communication with customers through email in fact directly from our stores, expanded our nation of billing for national and fleet account business, further improvements to our online appointment process, online ordering of parts and tires, a slew of efficiency related store improvements including online credit card application, payment plans, and electronic forms, increasing training and sales support videos and lastly improved use of customer feedback and reviews both in search engine marketing and on our website. With regard to customer reviews, I believe we can do a significantly better job of marketing the over 120,000 reviews we receive annually directly from our customers. We asked our customers to provide us with feedback after each service and we take pride in the fact that our customer approval scores are 94% in areas that are particular importance to them. These are

[Cathrine D'Amico:]

Thanks, John. Good morning everybody. Sales for the quarter [indiscernible] and about $0.4 million. New stores, which we define as stores that opened or acquired after March 28, 2015, added $18.5 million, including sales of $16.8 million from the fiscal 2016 and 2017 acquisition. Comparable store sales decreased 6.9% and there was a decrease in sales from closed doors of approximately $2.3 million. There were 90 nine days in both the current and prayer year first quarters. At June 25, 2016, the company had a 1064 company operated stores and 134 franchise locations, as compared with 999 company operated stores and 146 franchise locations at June 27, 2015. During the quarter ended June 2016, we added 36 company operated stores. We closed one company operated store and one franchise location closed during the quarter. Gross traffic for the quarter ended June 2016 was $98.1 million or 41.4% of sales as compared with $99.7 million or 42.2% sales for the quarter ended June 2015. The decrease in gross profit for the quarter ended June 2016 as a percentage of sales is due to an increase in total material costs including outside purchases which increased as a percentage of sales as compared to the prior year. This was largely due to a shifting mix from higher margin service category to the lower margin tire category as well as the impact from acquisition. On a comparable store basis, gross margin increased by 50 basis point, driven by lower material cost primarily in tires and oil. On a consolidated basis, labor cost increased slightly due to the impact of negative comparable store sales. Distribution and occupancy cost decreased moderately largely due to distribution cost saving. Operating expenses for the quarter ended June 2016 increased $1.7 million dollars and were $66.8 million or 28.2% of sales as compared with $66.1 million or 28% of sales for the quarter ended June 2015. The increase as a percentage of sales was primarily due to relatively fixed expense against the lower comparable store sales. Before the loss on closed stores and amortization associated with acquired stores, the dollars that an operating expenses actually decreased slightly as compared to the prior year, in spite of inflation and costs associated with the weighted average increase of 50 stores from the first quarter of last year. This demonstrates strong cost control in a period of soft sales. Operating income for the quarter ended June 2016 of $31.3 million decreased by 6.9% as compared to operating income of approximately $33.6 million for the same quarter of last year and decreased as a percentage of sales from 14.2% to 13.2%. Net interest expense for the quarter ended June 2016 at 1.9% of sales increased $1.1 million as compared to the same period last year which was at 1.4% of sales. The weighted average debt outstanding for the first quarter of fiscal 2017 increased by approximately $57 million as compared to the first quarter of last year. The increase is due to an increase in capital lease debt recorded in connection with the fiscal 2015 and fiscal 2017 acquisition as well as an increase in debt outstanding under our revolving credit facility to fund the purchase of the 2017 acquisition. The weighted average interest rate also increased by approximately 50 basis points from the prior year, largely due to adding capital leases as well as an increase in LIBOR and primary versus the same time last year. The effective tax rate was 37.9% of pretax income for the quarter ended June 2016 and 38% for the quarter ended June 2015. Net income for the current quarter of $16.8 million decreased $10.9% from net income for the quarter ended June 2015. Earnings per share on a diluted basis of $0.50 decreased 12.3% as compared to last year’s $0.57. I will now turn the call over to Brian D'Ambrosia who will review the balance sheet and cash flow for the quarter. Brian?

[Brian D'Ambrosia:]

Thank you, Cathy. Our balance sheet continues to be strong. Our current ratio at 1.1 to 1 is comparable to fiscal 2016. Inventory turns at June 2016 improved slightly as compared to year end and the first quarter of last year. During this fiscal quarter, we generated approximately $22 million of cash flow from operating activities and increased our debt under our revolver by approximately $38 million. Capital lease and financing obligations increased $15 million due primarily to the accounting for our fiscal 2016 and fiscal 2017 acquisition. At the end of the fiscal quarter that consisted of $141 million of outstanding revolver debt and $192 million of capital leases in financing obligation. As a result of the fiscal 2017 borrowings, our debt to capital ratio including capital leases increased to 38% June 2016 from 34% at March 2016. Without capital and financing leases, our debt to capital ratio was 20% at the end of June 2016 and 16% at March 2016. Under our revolving credit facility, we have $600 million that have committed through January 2021. Additionally, we have $100 million accordion feature included in the revolving credit agreement. We’re currently borrowing at LIBOR plus 100 basis points and have approximately $441 million availability, not counting the accordion. We are fully compliant with all of our debt covenants and have plenty of room under our financial covenants to add additional debt for acquisitions without any issues. All of this as well as the flexibility built into our debt agreement allows us to take advantage of more and larger acquisitions that makes it easy for us to get acquisitions done quickly. During the fiscal quarter, we spent approximately $8 million on CapEx and $47 million on acquisition. Depreciation and amortization totaled approximately $11 million and we received $2 million from the exercise of stock options. We paid about $6 million in dividends.

[Cathrine D'Amico:]

This concludes our formal remarks on the financial statement. And with that, we will now turn the call over to the operator to questions. Operator?

[Operator:]

[Operator Instructions] And we’ll take our first question from Bret Jordan from Jefferies.

[Bret Jordan:]

Could you talk about what the import versus the domestic mix in tires in the quarter was?

[John Van Heel:]

It was consistent with what we've seen in the past, high 30% of the sales units.

[Bret Jordan:]

And then on the acquisition you talked, the to-be-closed acquisition, could you give us some color as to where that is regionally?

[John Van Heel:]

No. We will certainly in due time will. We didn’t disclose for a reason.

[Bret Jordan:]

And then on the quarter to date trends, you talked about the southern markets coming back. Could you give us maybe some feeling on the quarter and then also quarter to date what the spread, the spread between strong market performance and weak market performance might be in comp?

[John Van Heel:]

For the quarter, it's about 700 basis points. And it’s still ranging around 500 to 600.

[Bret Jordan:]

And how is traffic versus the ticket on that in the quarter to date?

[John Van Heel:]

The traffic, our traffic was down 4 in the quarter.

[Operator:]

We’ll take our next question from Rick Nelson from Stephens.

[Rick Nelson:]

John, the NDAs that you've got now in the pipeline. I guess we're at 10% growth already now through the four months. If you've got all of these closed, how much incremental revenue would be left?

[John Van Heel:]

Sure. The NDAs that we have are still about two years of annualized sales of 10%.

[Rick Nelson:]

Also, could we get comps by month, April, May June?

[John Van Heel:]

Yes. We said that April was down 9%, May was down 7% and June was on 5%. So down 9%, down 7%, down 5%.

[Rick Nelson:]

And in July we got the numbers. So how do you get to positive comps for the year with the negative comps to date?

[John Van Heel:]

If you recall the last half of last year was very weak because we had no winter in our markets. Our tire units were down significantly in the second half of the year, I believe down 600 basis points in the second six months. And I think with some more normalized weather and the consumer getting through these health care pressures that they have, we have that opportunity in the second half of the year. We also for the year have spent minus 2 to flat in our guidance. So we're not guiding to positive comps. I mean I think that represents certainly an opportunity with the weak comps and lack of weather that we had last year.

[Rick Nelson:]

And when do you think these digital initiatives are going to contribute?

[John Van Heel:]

Well, as I said, they have been contributing to traffic. I expect them to contribute throughout the year and accelerate in the second half as we get several of them implemented. And that is supportive of traffic and sales.

[Rick Nelson:]

Do you think you're at a competitive disadvantage at all relative to the dealers with all the recall activity that they're doing?

[John Van Heel:]

The dealers try to take advantage of the recall activity, but as I said before I believe that our competitive advantages versus the dealer are significant, one of which is convenience from number of locations and hours and the second is value. They're high priced and especially in a market of stagnant wages, consumers are sensitive to price and I think they see more value in our overall offering. And I think that’s sensible and that will continue for years.

[Operator:]

We will take our next question from David Bellinger with Oppenheimer

[David Bellinger:]

You mentioned a combination of the weaker consumer environment and also the negative effect of the milder weather across certain markets. Is there any way you could break that out for us and just comment in terms of what's having a greater impact on your sales trend?

[John Van Heel:]

We said in the past that we thought in the first quarter was half and half and a lot of that is given the disparity that we see in the comp trends between the southern market and the northern market. So that's what I see and I expect that the weather impact would dissipate as we get further into the second quarter here and the consumers should do better as they deal with things like healthcare deductible

[David Bellinger:]

Then just switching gears on the acquisition front to the recent acquisitions you had in this quarter, have you seen any change in the multiples?

[John Van Heel:]

No, we said multiples are consistent to the extent that the smaller dealers are having tougher time, especially in certain markets that are more pressured that – as their earnings go down, the valuations go down and we get some there.

[Operator:]

We will take our next question from Matt Fassler from Goldman Sachs.

[Matt Fassler:]

I've got two questions. The first relates to gross margins. So, this was the first meaningful gross margin decline that you'd experienced in quite some time, and I know that it was up kind of pound for pound on a comparable basis, but I guess, then, the impact of the acquisitions to take it down was quite significant, especially relative to the acquisitions that you've booked over, say, the trailing 12-month period. So can you talk about what it was about those deals that would have weighed on gross margin to the degree that we saw?

[John Van Heel:]

Sure. A minus 7 comp was overcome within that. But yeah, in terms of the deals that we've announced and certainly most recently the McGee deal does have a - it's very early in that. So we got the worst part of it or the highest cost part of it and so that weighs on it and it does have an element of commercial business, which is lower margin generally and certainly because it's new we think conservative and accounting, so the numbers are - of course that's really primarily the main issue.

[Matt Fassler:]

And if you think about the comp store gross margin expansion that you put up, which I think was in the neighborhood of 50 basis points, if you think about the mix issues or the mix dynamics that you confronted with some of the weather factors that you faced, and then you also think about the consequences of the comp and the deleverage there, with the somewhat better comp that you're guiding to and whatever you see playing out in terms of your base case for weather, does that comp margin go up more than 50? I guess you have some nice tailwinds in the tire mix side, et cetera. And also does the drag from the acquisitions start to abate as you season some of these deals?

[John Van Heel:]

Yes, yes for the second piece and in terms of the abatement from the acquisition and then on the first piece, we can certainly see some additional help above 50 basis points depending on what the pricing environment is for tires. Like I said on our last call and noted here we did have 1% lower ticket or 100 basis lower ticket on tires during the quarter. So I expect that to settle out and in fact that did settle out by the end of the quarter.

[Matt Fassler:]

And then just a quick follow-up just looking at some of the multiyear category trends, if we look at the two-year and three-year comp stacks, and nothing has really broken out of that differently. I guess the shocks business seems like it's quite depressed for you, and brakes, I guess, moved into a deeper state of decline than you had seen on a one-year basis and also kind of on a multiyear basis. If you think about those categories and just think about their trajectory, whether it's market position, the state of those industries, the impact of the weather, are those businesses that will stay under pressure or do you see those coming back?

[John Van Heel:]

Let me make sure that we've got the numbers right. Over the last two years, the front end and shock category was down 2% and [5%] for the year, for the two years, for the fiscal years breaks was up 5% over the last two years. So brakes was up, not down. Certainly, the impacts that we saw in the first quarter on the front end in shock side is absolutely tied to weather. When you don't have potholes, you don't have the weather, you're going to have less breakage there and we're absolutely seeing that. After running two years and plus five on the brake side, running down like we did in brakes is a consumer pullback. And again the two-year stack on brake was up 8% I believe over the last two years first quarter. So there was a higher comparable there. The reason I say brakes that consumer, brakes is less deferrable than shock as well brakes is a safety issue. So you do have some consumers staying away and also seeing if they can squeeze a national oil change out of that brake.

[Operator:]

We will take our next question from Nick Carsio from Evercore ISI.

[Mike Montani:]

This is Mike Montani here. Just wanted to ask if I could, and apologize because I just jumped on late, but did you give the oil change numbers in the quarter yet?

[John Van Heel:]

I said that traffic was down 4 for the quarter, oil changes were down 200 basis points.

[Mike Montani:]

And I guess on a housekeeping front can you just do the revenue mix percentages that you guys usually give for the different lines of business?

[John Van Heel:]

Brakes were 15%, exhaust was 3%, steering was 10%, tires was 44%, and maintenance was 28%

[Mike Montani:]

And then the other question I had was just on the labor front, and, again, if I missed this I apologize, but in terms of wage rates themselves, and then also in terms of the healthcare costs, can you just talk about kind of what you're seeing for your workforce and any plans to manage through those costs?

[John Van Heel:]

I did comment that our labor, there is really no change from what I've described in the past. From a health care standpoint, our employees like most consumers are seeing higher healthcare costs and the company is absolutely sharing in both cost increases as cost go up and that's all baked in within the numbers that we gave. On cost control we have, from a wage standpoint, we're competitive and I did say that we had said in the past that being that we enacted minimum wage loss are not going to have a significant effect on us. So it is really very consistent with what I described in past.

[Mike Montani:]

And I guess if I could just sneak in one more, which would be we've obviously seen sustained oil prices at a pretty low level. I know you all have some contracts I place. But can you talk about any potential cost saves there if and when those contracts are coming due? And similarly on the tire side, is there still further rounds of goodness to go from here between the tariff and any other raw declines, or are we at a stage now where some of those are going to be given back?

[John Van Heel:]

Well, I said consistent with our prior call that our guidance for the year comps employees, commodity costs where they are. We have had the materials saves that we've talked about year over year our tires and in oil. I'm glad to say that our oil contract is up next year. So we have another crack at our old agreement and both with tires and with oil, our increasing scale and our increasing volume from our acquisitions is going to continue to pay off in a lower cost going forward.

[Operator:]

We will take our next question from Stott Stember with CL King.

[Scott Stember:]

Could you maybe talk about – dig deep into the difference in the customer base in your Northern and Southern regions outside of weather, maybe just talk about the economic profile a little bit better so we can get a little bit better understanding about how things like healthcare and the general economy could be impacting both.

[John Van Heel:]

I think what you've seen generally is certainly a big piece of it is general, the housing market, supporting the general economic activity in those areas, that’s one of the big differences.

[Scott Stember:]

And maybe just talk about alignment. I know that certainly bad weather, potholes, promotes alignment activity, but at least in previous quarters we've seen a little bit of a divergence between alignments and tire sales, and I guess part of it was because some folks might have been trying to extend the life of their tires. Can you maybe just talk about some of the relationships there that you're seeing, and where you would expect that to go going forward?

[John Van Heel:]

I think we've comped up over the last two years 15% in alignment and I believe that was related to consumers trying to extend the life of their tires. I just see the time results as consumer driven from the standpoint that consumers just pull back in a way this last three months than they had previously. That to be is the biggest difference. I don't know that I expect us to run plus 8% in alignments from here to [indiscernible] either. But we've done a good job in the field, but the main piece is that the consumer just really pulled back. And another big piece, I'm sorry for interrupting, is the fact that you brought up about the fact that we coming off of the winter, we just didn't have the potholes and all that really drives a big piece of that business in the last three months.

[Scott Stember:]

And last question, maybe just talk about the Greenfield strategy. It sounds – I missed part of that talking about I think you said six to eight stores. Maybe just talk about how that manifested, and the thought process behind that.

[John Van Heel:]

Sure. As I’ve explained before, the same fundamental factor that is driving the smaller dealers, the chains that we're acquiring to drive those acquisition opportunities is relevant for the one, two or three store guys and that is they are getting older and the operating environment isn’t getting easier. So the idea behind this was really just to apply the same proven acquisition oriented plan that to these smaller opportunities. And I expect out of that to get better overall entry costs or the purchase cost relative to the larger chain and more leverage on us implementing our business model. So we said we're targeting between 20 and 40 of these. For the year, we opened seven in the first quarter and we expect to open another 6to 8 in the second quarter. So we're well within that plan and it's going very well. We’re seeing good level of interest.

[Operator:]

We will take our next question is from Brian Sponheimer Gabelli & Company

[Brian Sponheimer:]

You mentioned that your addressable population is going to be growing, but if I'm thinking back 8 to 10 years, or really 6 to 8 years, you got low new-unit years of 2008, 2009, 2010 and 2011 that are going to be – those cars are going to be coming 7, 8, 9 years old. Isn't that necessarily a headwind for you as you kind of think about comps over the next few years since that's truly your sweet spot?

[John Van Heel:]

Yeah, I mean look, I think as you look back again we've had a lot of discussion about the last couple of year’s comps. Certainly what we've seen is a flattening out of the number of vehicles in operation over the last couple of years and like I did say that certainly going forward I see an increasing number of vehicles, but I think I have said that looking – if you look at the areas of that new car sales, it might correlate very well with the comp pressure that we’ve seen. But we’ve also seen a lower scrap rate over the last couple of years. And I would expect that to continue and I think that the forecasts are for that to continue for the car park to grow and for the vehicles fix also to grow, which will be tailwinds for us going forward over the next five years.

[Operator:]

We’ll take our next question comes from James Albertine from Consumer Edge Research.

[James Albertine:]

I wanted to ask a couple of things, and, look, I apologize, as well, I dialed on -- I dialed in a little bit late, so if it was in your prepared remarks, again, apologies in advance. But from a competitive standpoint you got one of your biggest, but anything worth noting from a promotional or anything sort of competitively that's changed since that occurred?

[John Van Heel:]

No. I have not seen anything significantly different. I think I said on our last call to a similar question that they're not driving the market.

[James Albertine:]

Any appetite to – and I don't want – your methodology for growth has been truly stunning over the last 15 years, but given the extent of the deferred maintenance cycle and how bad comps have been more recently, would there be any sort of eagerness within management to drive growth faster by jumping out into newer markets? So, in other words, you've kind of taken a market, you've grown very slowly around that market, and it's proven to be very effective. But is there an urgency to diversify as quickly as possible away from the Northeast. And is that something that could allow you to accelerate M&A in the near term?

[John Van Heel:]

Yeah, I have absolutely said that our growth is great because it reduces that concentration in the Northeast, but I continue to believe that our strategy of remaining primarily focused in our existing markets call it east of the Mississippi is still the best way for us to go. We get significant leverage when we grow within our market. Growth in the south is a great thing, we're doing really well there, but overall we drive such significant operating margin when we play within our market. I want to stick to doubling the size of the company let's call it east to Mississippi.

[James Albertine:]

And then lastly, just sort of a follow-up, and this is more to make sure I heard you correctly, if anything else. There was a question before in recalls and alluding to, I think share shifting between dealers and yourselves or dealers and the aftermarket broadly. From our experience no one knows the markets better than you do. You see a lot more than we do on a day-to-day basis and from your sort of NDAs. Am I hearing you correctly, there is no discernible share shift related to recalls to this point?

[John Van Heel:]

Well, I don't know that I can suggest whether their share shift is related to one, how things are going on out there. What I have said is that based upon looking at all those NDAs and everything I know about the market that we are maintaining our market share.

[Robert Gross:]

Currently the dealers are forgetting about the recall. They are obviously more competitive. They're doing a better job. They are obviously significantly more expensive still than us. So the difficulty in looking at the dealer share is think about the car park, number one – a third of them disappeared in 2009, so this was competition. And the biggest factor when you just look at the disappearing of them is the last five years we've had monster new car sales, correct. So you look at the new car sales moving to $16 million, $17 million, we’re placing years that are on this with call it zero to four or stretch it zero to five, we’re placing 11 million or 12 million car a year and then they have a built in comp of anywhere from plus 10, plus 20%, that will shift as the steadiness of the 16 million new car years remain and now we start moving some of those 16 million, 17 million car years into our sweet spot.

[James Albertine:]

If I may, then, as a follow-up to that, Rob, is there any truth to the idea that given, I mean, recalls have been across such a wide range of vehicles, both new and old, if you have a 12-, 13-, 14-, 15-year-old car that has been recalled, are you seeing or do you believe consumers are opting to replace that vehicle, or is that just not an issue because of kind of where they are in the income stream, broadly speaking?

[John Van Heel:]

I don't know, I think the answer to your question is that [rate] are low and we continue to see the cars that we're servicing continue to age out and we're closer to 30% cars that are 13 years old and older. And so again if that vehicle, if that customer was one of the people that bought a new vehicle, we're seeing that that vehicle that they, the used vehicle that they sold still within the car park and that's what's important to us. More vehicles in the car park, more vehicles six year plus in the car park, both of those things we should see over the next five years. And when you look at it, if you look at that year of 10 million new cars sold to these last couple of years with 15 million new cars sold, just project order. Couple of years and we're going to see 6 million new cars in the 6 plus cohort of vehicles and that's going to be a challenge for us.

[James Albertine:]

Well, you've been very gracious with your time, so thank you for taking the questions, and best of luck.

[Operator:]

We have no further questions in queue. I would now like to turn the conference back over to John Van Heel for any additional or closing remark.

[John Van Heel:]

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

[Operator:]

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