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Monro, Inc. (NASDAQ:MNRO)
Q4 2018 Earnings Conference Call
May 21, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Maureen Mulholland -- Vice President, General Counsel, and Secretary

Good morning, everyone, and welcome to Monro's Investor Day. My name is Maureen Mulholland. I'm Senior Vice President, General Counsel, and Secretary at Monro. I'd like to thank everyone for joining us here in person, as well as those of you listening via webcast. We're excited to be hosting our first Investor Day, and we appreciate your time this morning. A copy of the presentation, as well as a replay of the webcast, will be available on our website at monro.com.

I'd like to start by drawing your attention to our customary Safe Harbor statement. We encourage you to read it in its entirety. Certain statements made in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and Monro assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Additionally, the company's presentations may include certain non-GAAP financial measures.

Today, Brett Ponton, our President and Chief Executive Officer, and Brian D'Ambrosia, our Chief Financial Officer and Senior Vice President of Finance, will provide you with a detailed overview of the company's new strategy and financial outlook. Through the course of this morning, you will also be hearing more detail on our strategic initiatives from Evan Naylor, our Chief Operating Officer, and Deborah Brundage, our Senior Vice President of Marketing and Merchandising. As you all may be aware, Evan and Deborah recently joined the Monro team, and we are thrilled to have them here today. With that, I'm pleased to introduce Monro's President and Chief Executive Officer, Brett Ponton.

Brett Ponton -- President and Chief Executive Officer

Thank you, Maureen, and good morning, everyone. We're happy to be hosting our first-ever Investor Day and very pleased to have you all here with us today. We're really excited about our strategy at Monro and look forward to sharing more details about the initiatives we're driving across our business. Building off a very solid foundation, we're thrilled about the changes we're making at Monro and believe we will be well positioned for strong future growth.

I'll start things off this morning with an overview of our company and the industry we operate in, outlining how we at Monro are positioned to benefit from the tailwinds we anticipate in the automotive aftermarket over the next few years. Next, I will introduce our strategy and the initiatives we are implementing, as well as the foundational tools we have already set in place across our business. Then, you'll hear from Deborah and Evan, who will provide more detailed information regarding our marketing and teammate-related initiatives. Finally, Brian will walk you through our M&A strategy and financial targets for fiscal year 2019 and beyond.

We will also provide a brief overview of our fourth-quarter and fiscal 2018 results, which were reported earlier this morning. Following our presentation, we will have a question and answer session in which those of you in the room with us, as well as those of you listening on the webcast, are invited to ask questions.

So, let's get started. Before we dive into our strategic initiatives, I want to provide a brief overview of Monro, our key differentiators, and the dynamics at play in the industry we operate in. With over 1,160 owned stores, 98 franchise locations, and nine wholesale locations across 27 states, Monro has grown into one of the leading automotive service and tire companies in the country, generating record revenue of $1.12 billion in fiscal 2018.

Our growth has been driven by our disciplined acquisition strategy, and over the past six years, we have completed 29 acquisitions, which added 386 new stores and about $520 million in annualized revenue. These acquisitions have not only given us greater scale but have enabled us to enter eight new states and pursue our expansion into adjacent markets to the south and west of our core northeast region. As you will hear us talk about today, we operate in a very fragmented and attractive industry and have a very unique operating model with strong competitive advantages that will enable us to capitalize on significant growth opportunities going forward.

Turning to Slide 8 -- and, for those of you less familiar with Monro, I would like to start with Monro's two-store format strategy and an overview of our retail brand portfolio. We operate two store formats in the majority of our key markets with a focus on increasing store density to drive higher operating margin as we share inventory and leverage our distribution network across our store base.

Monro Muffler started as a specialty retailer in Rochester, New York over 60 years ago, and our business model has evolved over the years, responding to changes in the marketplace. Today, our 547 service stores focus on brakes, tires, and preventative maintenance services like oil changes and other scheduled services, along with under-car services for ride control, and of course, exhaust. Over the last 16 years, we have also acquired tire stores, specifically to fill in our existing markets with a second store format. We like the competitive advantages store density offers us and we utilize the two-format strategy to maximize our density in the markets we are in.

As you can see on the slide, over the years, we have acquired several regional retail brands with strong local reputations and great brand equity in the markets they operate in. In addition, we also operate nine wholesale locations, which contribute to strengthening our competitiveness in the market while providing service to our own stores, and also creates new organic growth opportunities for us at Monro.

Moving on to Slide 9 and our vertically integrated and diversified supply chain that drives our cost leadership position, a key component of our strong operating model. Our centralized purchasing model and controlled distribution system for parts and tires, coupled with our store density, provides us with significant pricing power and cost leverage. Our far-reaching supply chain for parts provides us the opportunity to source high-quality, low-cost auto parts from sources in Southeast Asia.

We service our stores through our network of three distribution centers and nine wholesale locations that provide coverage to over 90% of our stores. Having diversified our business with the acquisition of wholesale locations, this has improved our ability to service our own retail locations while opening up new revenue streams for the company. Maintaining our cost leadership position remains a key priority for us going forward. We will look to further leverage our integrated supply chain as we create a scalable platform to drive sustainable growth.

Now, I'd like to take a moment to walk through the favorable industry trends we are seeing in the marketplace. The automotive aftermarket service space is experiencing a substantial shift. With the vehicles in operating expected to grow significantly over the next five years, Monro is poised to benefit from these dynamics, which we have outlined on the next few slides. New car sales have been robust the past five years, resulting in consistent growth in the number of vehicles on the road.

The age of vehicles continues to get older, averaging approximately 12 years today. The cars on the road are also being driven more miles per year on an average. These dynamics, combined with the declining number of service outlets and bays, coupled with the increasing complexity of vehicles, which I will come back to shortly, are important traffic drivers for us as consumers go to outlets they trust to provide tires, maintenance, and repair services for their vehicles.

Turning to Slide 11, we would like to share some data that we believe outlines a very compelling industry environment for Monro over the upcoming years. Using 2017 as our anchor year, you can see the differences in the compounded annual growth rates over the past five years as well as the forecast for the next five years for vehicles in the 0-to-5-year cohort, the 6-to-12-year cohort, and for vehicles over 13 years of age. Over the past few years, the industry has been growing significantly in the 0-to-5-year cohort driven by the growth in new car sales after the Great Recession. Conversely, the 6-to-12-year-old cohort, which we consider our targeted segment or our sweet spot, declined 4% over the past five years.

These macro trends have created a significant structural headwind to our organic growth in recent years. However, as you can see on the charts, the headwind we have experienced has been transitory and is expected to turn into a tailwind for us over the next few years. While growth in the 0-to-5-year cohort is expected to be flat, we are looking at significant momentum in our targeted cohort with a CAGR of approximately 4% over the next five years. We believe these favorable macro trends help position Monro to deliver more consistent and sustainable organic growth than we have over the past few years.

As illustrated on Slide 12, the continued shift from "do it yourself" to "do it for me" is another favorable trend in our industry. The automotive aftermarket is estimated at approximately $287 billion in the U.S. and is primarily concentrated on the "do it for me" channel, which represents about 80% of the market. There has been an acceleration in the shift from "do it yourself" to "do it for me," and we expect that trend to continue with the increasing adoption of technology in new vehicles. As customers choose DIFM more frequently, Monro's strong customer value proposition positions us well to captures these opportunities.

First, and relative to the new car dealer, we offer significant price advantages to the consumer, as we are able to leverage our vertically integrated supply chain and capitalize on our focused menu of services we provide consumers. Secondly, the convenience we provide our customers through store locations and operating days and hours is another strong competitive advantage for us. When looking at the competitive landscape on the right-hand side of the slide, the tire stores and general repair channels have experienced growth, both of which are where Monro operates using our two-store model strategy. We expect to benefit from more vehicles on the road and fewer outlets available to service them. Lastly, our industry remains very fragmented, creating significant opportunities for us to continue to grow via acquisition.

Moving on to Slide 13, I'd like to provide additional color on vehicles in our targeted segment or our sweet spot of 6 to 12 years, and why our competitive advantage is particularly relevant in that segment. Vehicles generally need more service and repairs as they advance in age. However, think about consumers who hold on to cars longer. Their willingness to pay higher prices decreases when their vehicle becomes older and therefore less valuable. Monro is able to offer better value than the new car dealers to these consumers, who are more price-sensitive.

Monro's service menu is also focused on the sweet spot of the market, focusing on items that provide good purchase frequency, like oil changes and other scheduled services, along with higher-value services like tires, brakes, and other under-car services. Going forward, we will take a thoughtful approach to focusing on scheduled maintenance services with our goal to be more relevant to consumers sooner in their vehicle's lifecycle. We will talk more about this later when we discuss our strategic marketing initiatives.

As you can see on Slide 14, vehicles in the 6-to-12-year cohort represent about 45% of the vehicles we serve at Monro, while they only represent about 30% of the vehicles in operation. As a recent influx of newer vehicles post-recession continues to age, we expect the 6-to-12-year cohort to grow faster than the market, which provides us with significant runway for growth. Vehicles 13 years and older represent 28% of our traffic, providing evidence that our average age of vehicles continue to rise and that consumers continue to invest in and maintain their vehicles even as they get older.

Now, on to Slide 15, and as I mentioned earlier, the increased adoption of technology in vehicles is another trend shaping the future of our industry. Vehicles today are more complex than ever before, accelerating the shift from "do it yourself" to "do it for me." As described on Slide 15, the forecast for the vehicles in operation in year 2030 projects a modest shift to hybrid or full electric vehicles in the U.S., with the vast majority of the market still being traditional technology, which is internal combustion engines. Hybrid vehicles generally require the same services today that traditional vehicles require, with the addition of more battery- and electrical-related services, and any meaningful shift to fully electric vehicles will create opportunities for expanded services to complement the tires, ride control, brake service that we believe will still be required on those vehicles.

Monro is well positioned to capitalize on these evolving vehicle needs as we provide our technicians with the necessary training to remain on the cutting edge of these changes, and these changes, however, create challenges for smaller competitors, who will struggle to make the investments needed to keep up with the evolving marketplace.

So, in summary, we believe Monro is very well positioned to capitalize on a variety of favorable trends in our industry. We expect the increasing number of vehicles on the road, particularly in our sweet spot of 6 to 12 years, the accelerated shift from DIY to DIFM, and the declining number of service outlets and bays to drive more consumers to our stores over the next few years. We also remain very excited about the M&A prospects, as we intend to capitalize on the strong opportunity for further consolidation in our industry.

Turning now to Slide 17, I would like to take a moment to discuss what we are doing internally to ensure we are capitalizing on this favorable industry backdrop. As you know, since joining the company, I've begun the process of implementing new strategic initiatives at the company, which we'll discuss in a few minutes, but let me be clear: While we are in the early stages of executing that strategy, we have already begun to capture some of the benefits, particularly as it relates to our foundational technology and tools that we rolled out during the fourth quarter. This includes the investments we have made and will continue to make in technology and data-driven analytics.

I am pleased to report that we successfully launched tablet-based dashboards and a cloud-based standardized store review process during the quarter. The feedback from our leaders in our store operations organization is very positive, and we are confident that these tools will help us execute on our strategy by providing our leadership team at all levels of the organization greater visibility and better insights into our business. Our tablets and dashboards will allow our store operation leaders to more effectively evaluate and manage each store's performance across numerous key performance indicators, such as customer satisfaction and online reviews, traffic and sales trends by category, margin performance, and staffing and labor metrics, to name a few. Managers will have the ability to track these metrics versus budget, historical trends, and their peers with the information flowing to them near real-time.

Our store review process now is standardized across all districts in the company and will drive increased visibility into the field. We call this customized app that we develop "SOAR," S-O-A-R, which stands for Store Operations and Asset Review. This standardized store review process allows us to take both a quantitative and qualitative approach to assessing our store performance, evaluating each store regularly on 135 points across five areas, ranging from store appearance to operational performance. In addition, we launched a new technology-supported customer satisfaction and online review management system as well that we believe is key to supporting our broader strategy. We will discuss this item in more detail later and the impact it has had on some very important leading indicators in our business.

Overall, we believe our data-driven approach and related investments in technology will drive efficiency in our stores and our field management organization, reducing the time that they spend identifying underlying causes of performance issues and allowing them to prioritize their time and attention to coach our store teams on improving the results. The cloud-based systems will also increase the transparency and accountability throughout our organization and eventually drive consistent improvement in execution across all of our stores. Importantly as well, we will leverage these tools and the analytics to track our progress of the larger operational initiatives going forward. In addition to having accomplished this important initial step in our strategy, we also have generated improved operating performance and expect to build on that momentum as we exit the fourth quarter.

As illustrated on Slide 18, we are encouraged by our top-line recovery at the end of the fiscal year 2018. We achieved comparable store sales of 2.4% in the quarter on a 52-week basis, driven by higher average ticket and overall strength in our tire business. We also generated $13.8 million in revenue from new stores, including $8.7 million from recent acquisitions. This is further supported by the improvement in our two-year stacked comparable store sales performance over the past few months, which has shown consistent improvement since January and positive in April and May month-to-date.

As we enter the spring service selling season in the first quarter of fiscal 2019, we continue to see positive trends as we advance in the quarter. The temporary softness we experienced in April due to a late spring arrival was offset by a return to positive comps month-to-date in May, up 3%. When looking at comparable store sales by category, as provided in this morning's press release, we experienced an increase of 5% in tire comps, our largest category. In our service and repair categories, we saw positive comps in brakes and front-end shocks while alignments and maintenance declined year over year.

We are also pleased to announce that we have successfully added $20 million in annualized sales through our acquisitions completed in fiscal 2018, and as highlighted on Slide 19, this includes the previously announced Appalachian Tire acquisition we closed during the fourth quarter, which adds $7 million in annualized sales. Similarly, as you saw in this morning's press release, we also completed the acquisition of Free Service earlier this month, including 12 retail commercial locations and four wholesale locations, which are expected to add $47 million in annualized revenue. This acquisition is filling in our existing market of Tennessee and expanding our footprint in the South.

I also want to draw your attention to the gross margin impact of this acquisition, as the acquired wholesale locations operate at a lower gross margin, primarily due to higher sales mix of tires without installation. We expect the sales mix to reduce gross margins until we lap the acquisition next year. Looking ahead, we remain very well positioned to capitalize on favorable accretive acquisition opportunities, which Brian will comment on later this morning.

Now, I'd like to move on and talk more about our Monro.Forward strategy. Since I assumed the role of CEO in October, we have completed a rigorous and comprehensive business assessment highlighting a number of areas where we can improve. I spent a lot of time with our teammates in the field during the first 90 days of my tenure. My goal was to get a clearer understanding of the consumer experience in our stores and how our teammates interact with the customer. I also wanted to understand the level of support our teammates receive from us at corporate to better understand our go-forward initiatives.

Our assessment has revealed significant opportunities to improve in-store execution and the customer experience across our store base to drive higher traffic with a focus on customer lifetime value. We have developed our strategic plan based on these observations, as well as the experiences of our leadership team, all of whom have executed similar initiatives in our careers.

Today, we will be unveiling more detail around our strategy, Monro.Forward, which is focused on the following four key pillars. 1). Improve the in-store customer experience, 2). Enhance the level of engagement with our customers with data-driven marketing strategies, 3). Optimize our product and service offerings in-store and online, and 4). Accelerate our in-store productivity and teammate engagement. These four key pillars, supported by investments in technology and data analytics, will create a scalable platform for sustainable growth over time.

We are looking forward to sharing further details about our strategy today and are very encouraged by the support and excitement we have received thus far from our teammates throughout our organization about the future of Monro. Our teammates have been quick to embrace our new strategy and are working hard as we roll out our initiatives. We are also pleased to have strong alignment with our board of directors, who have been instrumental in helping to shape our strategy and have provided their full commitment to supporting us as we execute Monro.Forward over the coming years.

Now, let's take a deeper dive into the initiatives we will be implementing as part of our strategy, starting first with improving the customer experience. This includes three key areas of focus. First, improving our online reputation, second, delivering a consistent five-star experience to our customers in-store, and third, improving the appearance of our stores. When it comes to the customer experience, the changes we are making at Monro are more than just about online reviews. At its core, we are fundamentally changing our culture, shifting away from a transactional mindset to one that is focused on the overall lifetime value of our customers and how we can deliver a five-star experience to them every time at every one of our store locations.

We recognize the importance of online reviews in helping us achieve this goal. We will leverage what we learn from our reviews in order to learn more about what our customers want and need, and how we can always deliver a five-star experience to them. Equally important: "Improve customer experience" is a virtuous cycle as it leads to improved online ratings that drive better visibility online, which in turn leads to increased conversion and ultimately, higher future traffic to our stores.

One of the first initiatives I launched as CEO was investments in technology to increase our customer feedback. In fact, since January of this year, we have received over 50,000 customer surveys and online reviews. We are using technology to help us solicit feedback from our customers across all major areas of the experience with our brands. We want to get a better idea of what is working well in our stores as well as the changes we need to make to improve. We are leveraging the insights and feedback we gained from this data to provide constructive coaching to our teammates and drive improvement across our stores.

As you can see on Slide 25, this renewed focus has already begun to drive an improvement in our online reputation, as represented on the chart. We piloted our online reputation management program in January, which I will talk about more in a moment, and we launched this program across our entire store base in late February and into early March. Our increased efforts to solicit customer feedback has driven a fivefold increase in the number of online reviews. Leveraging the insights from this feedback, we are making improvements to our store operations, which, in turn, is leading to a material improvement in Monro's overall star rating across online review sites.

Last year, we ended the year as a company with an average star rating of 3.6 stars across our store portfolio, and today, we are now at 4.1 stars across our 1,160 locations. We are very proud of these results, as much of this has come from our teammates' increased awareness and attention to the customer experience. We have communicated that the customer is our top focus, and our teammates have done a fantastic job of embracing our new culture.

So, you might be asking yourself, "Hey, that's great, Brett, but why should I care about online ratings so much?" Let me show you why, based on the results of our recent pilot program. To begin our online reputation efforts, in January, we launched a pilot program across 185 stores across our two-store formats in two different regions. Here, you can see that materialize in an increase in the number of reviews we received, as well as the overall star ratings, represented in the top left chart. This, in turn, has led to improved search traffic as measured by search engine optimization, or SEO, which is shown here on the top right chart.

Higher online traffic has led to more actions being taken by consumers, whether that is to click to call a store, click to get directions to a store, or click to a link on our website to make an online appointment or get more information about our products and services offered. Most importantly, in the bottom left chart, you can see that these actions have driven a material increase in traffic in these stores year-to-date. While early in our launch, these are impressive results that give us confidence as we ramp up this initiative at all of our stores.

As we work to effectively manage and improve our online reputation, driving consistency and quality across our store base is paramount to delivering a five-star experience. In order to do this, we are creating brand standards for how we operate across our store base. We are also developing standard operating procedures for how we execute across every major touchpoint. From the first impression to the final review, we want to provide a best-in-class experience for our customers, and we want that experience to be the same no matter which store our customers decide to visit.

This new playbook will be an education-centered approach for our customers and will include clearly defined roles and responsibilities for our teammates. We want to position our teammates as expert advisors who can clearly and professionally provide our customers with options and choices for the work their vehicles need. By providing a consistent and high-quality experience to our customers every time in every store, we hope to increase overall customer lifetime value.

To create our five-star experience, it is also important that these standards for how we operate are aligned with the appearance of our stores. As Monro has grown through the years by way of acquisition, we have built a store base that includes a wide range of stores and formats. We are standardizing our appearance to drive consistency across our markets. In order to accomplish this, we will be executing our store reimage initiative that will begin in Q3 fiscal year '19. To determine the appropriate scope of refresh needed, from a refresh lite all the way to a renovation plus, we have examined the age, size, and market demographics of each of our stores that ensures we are investing the appropriate amount of capital to achieve the right level of customer experience at the highest possible returns.

On Slide 29, you can see some of the intended results of this refresh. Through this reimage initiative, we want to ensure our stores are inviting, contemporary, and functional, all while remaining practical and appropriate for what our customers have come to expect from the Monro brand. Importantly, we will work with the assets we have to drive consistency without making structural changes to our stores.

So, in summary, we are excited about the opportunities ahead of us. We are exiting Q4 with a great deal of momentum, we have strong industry tailwinds, improving financial performance, and the recent launch of new technology will help us capitalize on the opportunities ahead. Our shift to a focus on customer lifetime value and delivering a five-star experience is well under way, and we are pleased with the results of our pilot program for online reputation management, which are showing impressive results thus far. Lastly, we are pleased with the strong support we've received from our entire organization and look forward to executing our Monro.Forward strategy.

Next, you'll be hearing more about our strategic initiatives from Deborah Brundage, our Senior Vice President of Marketing, and Evan Naylor, our Chief Operating Officer. As Maureen mentioned, both Deborah and Evan are new to the Monro team and we are thrilled to have them on our leadership team. As we began to build out our strategy, we recognized the importance of bringing on additional team members who would ensure we executed on the initiatives we laid out. The expertise in their respective fields that Deborah and Evan have shared with us have been instrumental in shaping our Monro.Forward strategy and we look forward to continuing to execute on these initiatives together. Please let me welcome Deborah Brundage.

Deborah Brundage -- Senior Vice President, Marketing and Merchandising

Thank you, Brett. Good morning and thank you all for coming. I'm excited to share our plans to enhance our customer-centric engagement, and our core strategies include driving customer retention, or simply keeping the customers we have, by delivering the right message for the right service at the right time via a data-based CRM platform. Our second strategy is customer acquisition, or gaining the customers we want, by leveraging analytics to segment the market to identify our highest-value customers. Third, developing an omnichannel presence with a seamless buying experience for our customers.

At Procter and Gamble, we prided ourselves as being exceptional brand builders with the ability to deliver the right message at the right time. We also took a data-driven approach to unlock key consumer insights and trial barriers to define our target consumer. And, we invested in high-ROI channels to meet them where they are. After 16 years of experience at P&G, I'm definitely up for the challenge to implement our Monro marketing strategies.

Leveraging CRM, or customer relationship marketing, is our No. 1 priority to keep the customers we have. CRM allows us to develop long-term one-to-one relationships with our customers based on specific vehicle needs. It just makes business sense. We're able to be more efficient and productive to leverage analytics to deliver tailored messages to our customers, especially after they've just received a five-star experience in-store.

Our second priority is to bring new customers in, and to do that, we have to shift to the channels where they are, which is digital. In fact, 60% of our web traffic is mobile. Lastly, to ensure we reach our current and future customers where they are, we are investing in high-ROI channels like digital and CRM.

Slide 35 communicates why driving retention is such a priority. It's critical to deliver the right message for the right next service at the right time through the right channel. As Brett mentioned, retaining customers starts with a better in-store experience. Our goal is to provide quality professional service while educating our customers on services recommended based on our complimentary courtesy inspection form and OEM scheduled maintenance. Through this education, we want our customers to feel like they're part of the decision-making process. Because we've already captured valuable vehicle information in-store, we're able to leverage our CRM platform to deliver a recommendation for their next service, and based on spending habits, we can send the right offer to drive traffic back in-store.

Slide 36 explains why driving loyalty is such a key part of customer retention and why a private-label credit card is key to any retailer loyalty program. Why, you ask? Because we're in the customer's wallet, which drives top-of-mind awareness, especially for the cost-conscious consumer who knows the exact amount of their available credit. Encouragingly, we can continue to leverage the Drive Card to drive improved traffic and in-store conversion, especially for big-ticket items. A set of four tires can cost anywhere from $800.00 to $1,200.00, and interest-free financing for six months on a large purchase is definitely a consumer benefit.

We had a strong Year 1, and as we begin Year 2, we're continuing to see nice growth on applications, and early indications are showing higher loyalty and higher spend versus non-Drive Card users. Lastly, we'll leverage our CRM platform to retain these customers by tailoring offers that drive them back in-store.

Let's move to Slide 37 to talk our second core strategy of customer acquisitions. It all starts with trust. For most consumers, a car is their second most valuable asset, and they want to ensure that it's properly taken care of. We shared how an improved in-store experience can lead to increased ratings and reviews, which in turn gives us higher visibility for SEO and SEM. 97% of customers read reviews online, and if these reviews are positive, they're much more likely to allow us to service their vehicle because they now trust what they've read.

Separately, we're partnering with a customer analytics firm to provide market segmentation and demographic data specific to a geographic area in close proximity to a Monro location to identify high-value lookalikes and market directly to them. This market segmentation and customer demographic information will also help us identify key markets for greenfield expansion and acquisition.

Slide 38 outlines our third strategy, which is to develop a robust omnichannel presence by creating a seamless buying experience for our customers. We're going to do this in a two-phased approach. The first phase is modernizing the primary channel by which we reach our consumer, and that's through mobile and the website. We can leverage this opportunity to ensure our communication strategy clearly amplifies our value proposition. Our second phase is to create a seamless omnichannel approach, and we're primed to win. We've got 1,166 brick-and-mortar locations, 1.4 million tires in inventory, and access to all major retail tire brands. This approach will allow our customer to view and purchase tires online, seamlessly schedule an appointment, and go in-store for installation. This creates a better one-stop shop customer experience that Monro can own from start to finish.

Slide 39 illustrates the importance of being a preferred tire installer for third-party online sellers, and this strategy allows us to leverage our core marketing strategies, which first, we get to meet the consumer where they are, which is purchasing tires online. Second, we can drive new customer acquisition since 50% of these consumers are new to Monro. This gives us the opportunity inspect their vehicle, recommend any add-on service, and drive conversion in-store. Once the customer is in-store, we can drive retention by adding them to our CRM database and begin to build long-term one-to-one relationships.

In conclusion, our core strategies will enhance our customer-centric engagement with a focus on the following: Increasing customer retention by delivering the right message for the right next service at the right team through our CRM platform. We'll begin to roll this out in Q2. Second, drive new customer acquisitions by targeting high-value consumers, working with our consumer analytics firm, which we will roll out in Q4. Third, invest in marketing channels with the highest ROI to meet our consumers where they are -- and, you saw we're beginning to shift to digital, so that's ongoing.

Create a seamless omnichannel experience for our customers to buy tires online and install in-store. Our two-phased approach with website modernization will roll out in Q2 and omnichannel will roll out in fiscal year '20 Q1. Lastly, we will continue to support online retailers as their preferred installer to drive traffic. That will be ongoing. Next, I'd like to introduce Evan Naylor, our Chief Operating Officer.

Evan Naylor -- Chief Operating Officer

Well, thank you, Deborah, and good morning, everyone. My name is Evan Naylor, and I'm Monro's new Chief Operating Officer, and I'm excited to be with you here today. Prior to Monro, I had the opportunity to work for some great retailers. Working with both large-box companies like Target and Home Depot as well as in the smaller-format C-store industry with Murphy USA, I developed a unique retail perspective. Through all these experiences, a common theme rings true. Retail is about a clearly defined strategy that is well-executed consistently across all locations. I am passionate about achieving this consistent execution by building teams focused on operational excellence and delivering great experiences for our customers. I'm excited to join Monro in the early innings of Monro.Forward and lead our team through this positive transformation.

You heard from Brett and Deborah about the first two pillars of this transformation. I would like to share with you the last two pillars of the Monro.Forward strategy, our optimized product and service offerings, and our initiatives to accelerate productivity and team engagement. Turning to Slide 43, I will provide an overview of our redefined selling approach through our new customer inspection process, which will focus on improving our in-store conversion, and also our good-better-best merchandising strategy and improved tire sell strategy, which is focused on educating our customers and providing them with clear options tailor-fit to meet their specific needs.

First, we are improving our customer inspection process by providing our guest with an easy-to-understand form. This form will educate them on the results of their vehicle inspection while also providing our technicians with an easy-to-follow process to ensure consistent execution of the vehicle courtesy check. Providing the customer with a clear understanding of their vehicle's needs gives them peace of mind that their vehicle is safe and operating at optimal performance.

As part of our inspection process, we also provide customers with a new scheduled maintenance review. This will educate them on any recommended services from their owner's manual. We will provide customers with dealer-quality service and maintenance for significantly less.

In the future, we will also introduce an electronic version of the courtesy inspection. This will improve the overall inspection process and will also provide our customers with real-time communication about their inspection.

As highlighted on Slide 45, we also believe that we can drive higher in-store conversion and expand margins with a stronger merchandise strategy across good, better, and best product options that are relevant to all consumer price segments. Here, we show our multiple packages for oil, brake, and tire installation. We are also refining our selling approach so our teammates can properly educate our customers about their vehicle care needs and offer them the right products and services at the right prices.

We have undertaken a comprehensive analysis of our product and service offering to develop a clearly defined merchandise strategy. As a result of this analysis, we launched good-better-best service packages in Q1 fiscal 2019 to provide customers with clear options to choose the right services for their vehicle. Offering several options keeps the customer education and in-store selling process simple and gives our teammates the opportunity to trade customers up to higher-value packages and also increase attachment sales.

Finally, we have optimized our tire pricing strategy. Historically, Monro has included the price of the tire installation with the price of the tire while the majority of the industry sells these items individually. Unless the customer has read the small print, this may have led them to believe our tires were priced higher than our competitors'. To alleviate any potential misconception, in Q4 fiscal '18, we changed our online pricing approach to unbundle tire from installation.

Moving on to Slide 46, I would like to provide more detail around our improved tire sales strategy. Tires are an important part of Monro's category given that they represent half of our sales. Therefore, it is critical for us to offer the right tires at the right price point. Through our product assessment, we identified considerable gaps in our tire offering, especially at the higher and mid price points. We have taken near-term steps to correct this and optimize our tire assortment by leveraging the breadth of our tire brand portfolio.

Going forward, we also see great potential in leveraging data analytics to align our tire inventory assortment with consumer demographics so that we can provide the right-sized vehicle for the vehicle population surrounding our stores. This will further be supported by better sales tools and visual merchandising to educate our customers on their tire options, which we plan on launching across our stores in Q1 fiscal '20.

We are confident that our redefined selling approach combined with our optimized tire assortment will contribute to improving the customer experience and maximizing our ticket through higher conversion. Overall, our new customer inspection process coupled with the introduction of good-better-best products provide customers with better options and help our teammates inform and advise them with what option is right for their vehicle. Leveraging these tools and initiatives will ensure we are delivering a consistent five-star experience while also improving in-store conversion and expanding margins.

Now, on to Slide 47, let's shift gears on how we accelerate our productivity through our highly engaged teammates. As outlined on Slide 48, we will focus on optimizing our store staffing model and offering our teammates a clear path for career advancement, including an enhanced training program, while aligning their compensation with behaviors that drive optimal financial performance.

Turning to Slide 49, as a service business, staffing and scheduling is a critical aspect of our productivity. Based on our initial analysis, we have identified labor productivity opportunities for improvement to our staffing and scheduling model. We want to make sure that we have the staffing in each store that is aligned with its needs in order to achieve greater store efficiency and deliver a consistent five-star experience for our customers. We will do this by optimizing the right headcount, including both part-time and full-time teammates. Day part scheduling gives us more flexibility to ensure our staffing matches customer traffic patterns. Having the right people in the right place also ensures that we have the right skill levels for each store based on sales and volume mix as well as that store's growth potential.

Additionally, we are implementing a new data-driven scheduling system. This will help us drive further efficiency for our teammates. This system, which we rolled out in Q1 fiscal '20, will move us away from current paper schedules that are determined solely based on a store's gross sales. The new model will use key labor drivers such as customer account, sales by category, and labor cost of service to pinpoint the right staffing complement for each store and schedule teammates based on peak traffic trends. In parallel, the mobile app for our teammates will allow them to easily pick up shifts and give them the flexibility that they need to increase their hours and earnings.

Moving on to Slide 50, I would like to spend a moment to highlight our strategic initiatives to attract, develop, and retain talent. This is a critical aspect of our productivity initiatives because a teammate who is given the proper training and development, as well as a clear career path, is likely to be more engaged, more productive, and less likely to leave. We are strongly committed to supporting our teammates' personal and professional growth. Our goal is to ensure that we have the right hiring and onboarding procedures for our new teammates, to develop and advance our people into roles with increasing amounts of responsibility and leadership, and to provide our teammates with a clear pathway for career growth.

To attract the right talent and build the best team in the aftermarket auto industry, we are focused on providing our people with the right tools to optimize their performance. To accomplish this, we will roll out a robust cloud-based curriculum called Monro University in Q3 fiscal year '19. This will provide our teammates with the technical training needed to effectively serve our customers today and prepare them to handle future technician requirements as vehicles become more complex with the increased adoption of technology.

Our retention efforts with our teammates will benefit greatly from the previously mentioned electronic scheduling system, which optimizes our technicians' ability to earn hours and pay while also providing them with transparency into their schedule. We also expect to drive higher retention by providing more transparency into career opportunities and to aid the team in charting their own course toward advancement, which will be further supported by annual reviews, which will align their business as well as their developmental objectives.

Turning to Slide 51, the final piece of the puzzle to optimize productivity and drive team engagement is to make certain that our incentives are tightly connected to desired performance. This is a significant opportunity for us, as the previous compensation model was based solely on profitability, which in some cases can lead to poor customer experiences. Our new compensation model will be based on a balanced scorecard that rewards same-store sales growth, profitability, and the customer experience.

The incentives are designed to increase as the teammate's performance improves with maximum payouts for outstanding performance. This new compensation plan will also streamline all previous bonus programs, creating consistency and providing us with the ability to use labor more productively across our stores and markets.

In conclusion, we are very excited about the opportunities to accelerate productivity and team engagement across our business. Normalizing our processes across all Monro stores will deliver a better five-star experience for our customers by creating a consistent way of doing things for our team and ensuring our teams are doing those things consistently day in and day out. Our good-better-best service and products will educate our guest on what's right for them and lead them to trade-ups which will enhance our margins, coupled with our new customer inspection process, which provides us with more opportunities in-store.

At the same time, we are committed to using our labor more efficiently with a data-driven store staffing model and electronic scheduling system, which will allow us to leverage our people more effectively while improving our customer experience. We are also confident that the introduction of Monro University, along with our talent management initiatives, will place our teammates in the driver's seat of their own development and career advancement, helping them stay on the cutting edges of shifts in technology and the shift from "do it yourself" to "do it for me," which in turn will improve our overall business performance. With that, I am pleased to hand the presentation over to Brian.

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

Thank you, Evan, and good morning, everyone. To begin, I would like to walk you through how the execution of our strategic initiatives will allow us to drive a scalable business model capable of sustainable growth. Turning to Slide 55, we believe the execution of our strategic initiatives will provide us with multiple avenues for growth through same-store sales improvement as well as acquisitions and greenfield expansion.

First, as we have described earlier, we expect to drive higher customer retention and acquisition rates through our Monro.Forward strategy. We are confident that our renewed focus on the customer will provide us with a clear pathway to drive organic growth, positioning Monro to capitalize on the momentum in our industry. Additionally, by driving consistency and increased productivity across the business, we'll be able to more efficiently integrate acquisitions. Our clear standards for how we look and how we operate will also benefit our integration process, increasing the value we realize from the companies that we acquire. Finally, we will continue to expand our store base through greenfield locations. We will use our data-driven analytics to select the best markets to pursue store openings and we will realize more value from the companies we acquire.

Turning to Slide 56, I would like to provide additional detail around our acquisition strategy, which remains a pillar of our growth strategy here at Monro. Our commitment to this strategy is evidenced by our recent Appalachian Tire and Free Service Tire acquisitions, which, as we previously mentioned, will collectively add $54 million in annualized sales. We have completed 45 acquisitions in the last 16 fiscal years, adding 681 locations and $900 million in annualized revenue. Over the last six years, we have completed 29 of these acquisitions, entering eight new states and expanding our presence in Southern and Midwestern markets.

Going forward, we will leverage data-driven analytics to further support our growth strategy. We have a robust pipeline of high-quality acquisition targets. Currently, we have over ten NDAs signed on opportunities ranging from five to 40 stores. As we build upon our robust M&A pipeline, we anticipate the market will remain ripe for consolidation given the significant fragmentation in our industry. As you can see on the chart on the left-hand side, the Top 10 national automotive chains have only 14% of the market share, with the other 86% being smaller operators.

Using consumer demographic analytics will allow us to better identify targets that operate in the markets with favorable demographics and customer trends, ensuring we enter regions who are poised to benefit most. Finally, we have added talent and structure to our M&A teams, who will work with our management team to ensure we capitalize on the momentum in the market.

Turning to Slide 58, I would like to provide a brief overview of our fiscal 2018 results, followed by a discussion of our fiscal 2019 outlook as well as our three-year organic growth targets. I will also provide a few comments on our disciplined capital allocation strategy and continued focus on growing shareholder value.

Starting with our financial results on Slide 59, we are very pleased to deliver fourth-quarter and full-year fiscal 2018 performance in line with our expectations. Sales for the fourth quarter increased 13.3% year over year to $285.6 million, driven by a comparable store sales increase of 10.3% on a reported basis or 2.4% when adjusted for an extra week of sales in fiscal 2018. We also benefited from sales from new stores of $13.8 million, including $8.7 million from recent acquisitions.

Gross margins increased 70 basis points year over year to 37.7%, primarily due to a decrease in distribution and occupancy costs as a percentage of sales as we gained leverage on these largely fixed costs with an increase in comparable store sales. Labor costs decreased as a percentage of sales as compared to the prior-year quarter and material costs as a percentage of sales remained relatively flat.

Operating margin increased 270 basis points to 10.7% as the additional expenses from 32 net new stores, $1 million in management transition costs, and expenses related to the extra week were offset by the leverage we gained on distribution and occupancy costs and operating expenses with higher comparable store sales.

Diluted earnings per share were $0.52, up 79% year over year, and included $0.02 per share in management transition costs, $0.04 of net tax benefit from the newly enacted tax legislation, and $0.10 of contribution from the 53rd week. The net tax benefit totaled $1.4 million or $0.04 per share in the fourth quarter and is comprised of $0.02 per share related to the reduction of approximately 300 basis points in our estimated annual effective tax rate during the fourth quarter as well as $0.02 per share related to revaluing our net deferred tax assets to reflect the new U.S. federal corporate income tax rate. This resulted in an effective tax rate of 27.9% in the fourth quarter of fiscal 2018 as compared to 34.4% in the prior-year period.

For the full year fiscal 2018, sales totaled $1.128 billion, up 10.4% year over year, in line with our guidance. The total sales growth was driven by a $96.2 million increase in sales from new stores, including $73.5 million from recent acquisitions, while comparable store sales increased 1.8% on a reported basis and were approximately flat on a 52-week basis, compared to a 4% decline in the prior year.

Diluted earnings per share were $1.92 for the full year, at the high end of our guidance range. Fiscal 2018 diluted EPS included $0.04 per share in litigation settlement costs, $0.06 per share in management transition costs, and $0.06 per share related to the net expense impact of newly enacted tax legislation. It also reflected $0.10 of contribution from the 53rd week.

Lastly, we opened eight greenfield locations during the fourth quarter, bringing our total greenfield store openings to 22 in fiscal 2018. As a reminder, greenfield stores include new construction as well as the acquisition of one-to-four-store operations. These locations are expected to add approximately $1 million each in annual sales. As of March 31st, 2018, the company had 1,150 company-operated stores and 102 franchise locations as compared with 1,118 company-operated stores and 114 franchise locations as of March 25th, 2017. During the fourth quarter, we added 15 company-operating stores and closed three.

Turning to our outlook for fiscal 2019 on Slide 60, based on current economic conditions, the contribution of recent acquisitions, and our performance quarter to date, we anticipate comparable store sales to increase 1% to 3% in fiscal year 2019. Please note that fiscal 2019 is a 52-week year, while fiscal 2018 was a 53-week year and benefited from an extra week of sales in the fourth quarter. We expect fiscal 2019 total sales of $1.17 billion to $1.2 billion, representing an increase of 3.7% to 6.4% year over year.

As mentioned previously, our comparable store sales decreased 1.7% in fiscal April and have increased approximately 3% through the first half of fiscal May. May results reflect strengthening traffic trends and higher average ticket, a positive trend we expect to continue in fiscal 2019. Our full-year guidance includes eight newly constructed greenfield store locations in fiscal 2019 as well as contribution from recently completed acquisitions. As always, our guidance does not contemplate any future acquisitions.

Our fiscal 2019 guidance assumes stable overall tire and oil costs compared to fiscal 2018. Given these assumptions, we continue to expect to generate earnings growth on a comparable store sales increase above 1%. Based on these assumptions, we expect fiscal 2019 earnings per diluted share to be in the range of $2.30 to $2.40, representing earnings growth of 20% to 25%. This includes approximately $0.01 to $0.03 in accretion from fiscal 2018 acquisitions. The Free Service acquisition is expected to be break-even to diluted earnings per share in fiscal 2019.

As Brett mentioned earlier, the commercial and wholesale locations we acquired as part of the Free Service acquisition operate at a lower gross margin, primarily due to higher sales mix of tires, and with respect to the wholesale locations, a higher sales mix of tires without installation. Therefore, we expect this change in our sales mix will reduce gross margin by approximately 80 basis points on an annual basis and 60 basis points for fiscal 2019. The midpoint of our fiscal 2019 guidance assumes a 20-basis-point decrease in operating margin year over year. Excluding the Free Service acquisition, operating margin is expected to increase 10 basis points in fiscal 2019.

I would also like to provide an update on our expected tax savings in fiscal 2019. We expect the reduction of the U.S. federal corporate income tax rate to reduce our annual effective tax rate from approximately 37% to 24%, providing us with a benefit of approximately $0.40 to diluted earnings per share. This expected diluted earnings per share benefit is lower than the $0.45 to $0.50 that we previously expected due to a slight increase in our expected state income tax rate as a result of the new federal income tax legislation as well as lower expected pre-tax income primarily related to the reinvestment of approximately 30% or $0.13 of these tax savings to support our Monro.Forward strategic initiatives.

These reinvestments, of which $0.11 are recurring and $0.02 are one-time in nature, will include approximately $0.04 for our initiatives dedicated to improving the customer experience, $0.01 to enhance customer-centric engagement, and $0.08 for our initiatives to accelerate productivity and team engagement. Lastly, at the midpoint of our guidance range, we expect interest expense to be approximately $29 million, depreciation and amortization to be approximately $54 million, and EBITDA to be approximately $186 million. This guidance is based on 33.4 million diluted weighted average shares outstanding. A complete bridge comparing the midpoint of our fiscal 2019 EPS guidance with fiscal 2018 adjusted EPS is presented on Slide 61.

Turning to Slide 62, I would like to provide additional color on our capital expenditures for fiscal 2019. As you can see on the bar chart on the left-hand side of the slide, we anticipate a 20% increase in our capital spending for the year, the majority of which will be driven by our store refresh program, which will be rolled out in the second half of the year, and to a lesser extent by IT investments. A breakdown of the store refresh initiative is provided on the right-hand side of the slide and reflects an appropriate level of investment based on store age, size, and the demographics of the market in which the store is located.

I will now walk you through our three-year organic growth financial targets. We anticipate our strategic plan will accelerate same-store sales growth, which will drive operating leverage and double-digit earnings growth. This excludes any impact from future acquisitions. As illustrated on Slide 64, we expect our Monro.Forward strategy, supported by favorable industry trends, will accelerate same-store sales growth from 2% at the midpoint of our fiscal 2019 guidance to above 4% by 2021. We expect the accelerated top-line growth to drive operating leverage and result in operating margin reaching 12%-plus by 2021 while also supporting Monro.Forward investments. Lastly, we expect to consistently deliver organic diluted earnings-per-share growth between 10% and 15% by 2021.

As outlined on Slide 65, we are executing on our growth initiatives while maintaining a disciplined capital allocation strategy. First, we plan on spending an incremental $75 million in capital expenditures above our normal run rate over the next five years, primarily to support investments in store reimage and technology. Secondly, we will continue to capitalize on attractive acquisitions in the marketplace. We believe M&A opportunities represent potential 10% annual sales growth and an additional 12% to 17% earnings growth by Year 3.

We also remain strongly committed to returning cash to our shareholders, as evidenced by the increase in our dividend 13 times since we initiated the dividend program 13 years ago, including the 11% increase in the dividend announced today. Lastly, we will maintain a flexible balance sheet which supports our business objectives. We ended fiscal 2018 with strong leverage ratios and ample debt availability to execute our growth strategy. During fiscal 2018, we generated approximately $121 million of cash flow from operating activities and reduced our debt under our revolver by approximately $34 million.

So, to conclude, we are confident that our sharp focus on executing our Monro.Forward strategy combined with our disciplined capital allocation will allow us to build a strong, scalable platform for growth. Looking ahead, our top priorities are to drive organic growth through our strategic investments while continuing to execute our acquisition strategy and returning cash to shareholders. We believe we are well positioned to capitalize on favorable industry trends and to achieve our three-year financial targets. I'll now turn it over to Brett to provide some closing remarks before we move to Q&A.

Brett Ponton -- President and Chief Executive Officer

Thank you, Brian, and hello again, everyone. As we wrap up today, we wanted to give you a look at some of our most important initiatives across our four key areas. We will use this timeline in order to track our progress and to hold ourselves accountable as we continue to execute Monro.Forward over the next few years.

In closing, we are well positioned for the future at Monro. We have an experienced leadership team that is ready to build upon the strong foundation of our business and the growing momentum we are seeing in our industry, specifically in the cohort we are operating in. We have made the investments in technology and data analytics needed to support our strategic initiatives, which will drive increased consistency and productivity across our business, ultimately increasing the lifetime value of our customers. We see a strong opportunity to capitalize on the fragmentation in our industry and will continue to consolidate through highly accretive acquisitions. Lastly, the execution of our strategy will strengthen the scalability of our business, driving a sustainable platform for long-term growth and strong shareholder returns. That concludes today's program. We'll now move on to Q&A. Maureen?

Questions and Answers:

Maureen Mulholland -- Vice President, General Counsel, and Secretary

Thanks, Brett. Before we start taking questions and answers, just a couple of notes. For those of you in the room, if you'd like to ask a question, please raise your hand. We will bring a microphone over to you. When the microphone is handed to you, if you would please state your name and the name of your firm for the benefit of those who are listening via webcast. For anyone who is listening online, if you would like to ask a question, please post your question via the webcast.

Matthew Fassler -- Goldman Sachs -- Managing Director

Good morning. It's Matt Fassler from Goldman Sachs. Thanks a lot for your presentation this morning. My question relates to third-party tire sellers like Amazon, presumably, and others. Can you talk about your expectation for the role that this cohort plays in the market and how that's expected to evolve? Also, can you talk about the mechanics of what a transaction involving a third-party seller at Monro look like, just so we can understand exactly how this plays out at retail? Thank you.

Brett Ponton -- President and Chief Executive Officer

Thanks, Matt. First of all, as Deborah mentioned in her slide, we at Monro are committed to first of all, developing our own omnichannel strategy, but we want to control the experience from buying tires online and having them installed at our 1,160 brick-and-mortar locations. Having said that, we also recognize that consumers are choosing other channels to purchase their tires, and in that respect, we want to be part of the installation network for any online seller of tires.

So, we have relationships today -- like we have had for a number of years -- with online sellers that represent the 7% penetration rate that we shared with you today of tires that are bought online. Look, Matt, I think we see the penetration rate increasing over time for tires being bought online. However, I think there are some nice, defensible barriers that we have in this industry as it relates to our brick-and-mortar given the fact that tires still require installation. Most consumers can't ship tires to their house because they don't have the equipment to mount and balance the tires on their car, and in most cases, we would recommend aligning your tires as well to get the most out of the investment in those tires. So, certainly, at a brick-and-mortar, it creates a nice advantage for us.

The other thing I think we need to understand about tires is for the most part, tires are a low-interest category for consumers, meaning consumers in many cases don't know they need new tires until they go in for an oil change or brake service, we inspect the car -- like Evan had mentioned -- and identify the fact that that consumer needs new tires for their vehicle. I think the reason why we see a spike in tire demand during winter driving season -- because in many respects, that's the first time a consumer will get a stimulus that suggests to them that they need to buy new tires. Either their tires spin or their traction control light will go off on the dashboard. So, again, we believe there are some nice barriers -- advantages, I should say -- to us having brick-and-mortar locations.

So, let's talk a little bit about the economics. We also think it's pretty attractive for us just installing tires. We mentioned earlier we have a lot of experience in installing tires for existing players today and we're able to compare the average ticket that we see on those installation purchases. Our average ticket overall is north of $160.00 for an installed tire purchase. For an online seller, it's about $120.00. So, what comes with that is the price to install the tire, and of course, any installation or attachments that will come with that -- for example, TPMS reset or the opportunity to inspect and add on other services when the customer is in the store. So, as Deborah also mentioned, 50% of the time, those customers are new to our brand and we see that as a good opportunity to drive traffic to our store, get those consumers into our database, and leverage the CRM program to communicate to them going forward.

Matthew Fassler -- Goldman Sachs -- Managing Director

Thank you.

Brian Nagel -- Oppenheimer and Company -- Managing Director

Good morning. Brian Nagel from Oppenheimer. So, Brett, thanks for all the detail -- and, your team, too. Can you talk a bit about -- right at the beginning of your presentation, you discussed briefly your prior roles. How much of what you're doing here at Monro is similar to what you've done at other companies?

Brett Ponton -- President and Chief Executive Officer

Thanks for the question. First of all, I think most of you know my background. I spent 15 years with Goodyear and have a marketing operations background. I had the opportunity to run Goodyear's company-owned store retail locations, where we underwent a similar approach to driving operational excellence and reimage stores to improve the customer experience. The last two roles prior to joining Monro I spent in private-equity-backed companies that were more operational turnarounds, one being a Jiffy Lube franchise business where we operated just under 400 locations and grew that company to just under 600 locations in four years, and most recently, at the parent company that owned AAMCO, which was a little bit unique in the sense that it was a franchise business primarily but had some of the uniqueness -- some of the similarities that we talked about today.

So, as it relates to your question, the playbook that we're executing here is very consistent with the strategies that I have implemented in the two previous companies I've been at. A lot of the vendors that we had talked about today are existing vendors that I had relationships with in my past life. I've seen firsthand the value of the services and the technology and how that translated into improved performance. One, in particular, is around online reputation management. We've selected the same vendor I've used for the last eight to nine years, and I'm encouraged that we're seeing similar results -- if not accelerated results -- using that same vendor that we have in the past.

As it relates to standardizing in-store operations, I think it's pretty typical and can happen to a lot of companies that grow pretty quickly through acquisition -- inconsistency can creep up across your portfolio, requiring the need to come back and be very disciplined and very standardized about how you approach in-store operations. I've had to do that in the past two companies that I ran. Similarly, one of the reasons why we hired Evan is we like his background of seeing what good, strong, process-driven retailers do at Home Depot and Target, and also, I liked his experience that he had in specialty box retail in the C-store space that sometimes can experience a little higher turnover environment, a little harder, sometimes, to control the experience from point to point. I think those are all relevant experiences that Evan brings as COO now for the company. So, we're excited about having him on board. Thanks, Brian.

John Healy -- Northcoast Research -- Managing Director

Thank you. John Healy from Northcoast. Brett, I wanted to ask two questions. When I think about the slides that you put up there today -- and, you talked about the organic growth going from 2% to 4% over the next few years -- could you talk about it by category, whether it's tires, exhaust, brakes, or front end? How do you see those categories being positive contributors or headwinds? Secondly, I was hoping you could talk a little bit about some of the changes in tire distribution that Goodyear, Bridgestone, and Michelin have all undergone or are setting up to undergo later this year. Do you see that impacting your wholesale business meaningfully, and what does it mean for installers like yourself?

Brett Ponton -- President and Chief Executive Officer

Good question, John. First of all, it relates to category growth. As we've shared, 50% of our business is tires today, and certainly, as Evan walked through, that's going to be an area that we're going to apply some stronger analytic rigor to our business to ensure that we can drive and maximize unit volume as well as margins through better price mix management through optimizing our product screens and getting the most out of that category. So, we certainly are going to expect growth out of tires. Brakes is another key category for us.

The other areas of emphasis I will add color to that Evan touched on are around scheduled maintenance services, ranging from oil changes to other services that are triggered by the consumer's odometer as well as time intervals. That is an area of emphasis for us. We started our emphasis there in Q1 of this year with the launch of three new packages, with the objective being help our teammates in-store communicate the value to the consumer, and options and choices to buy different products or fluids for their vehicle creates good trade-up opportunity for us and the opportunity to expand margin. We'll continue to execute that better as that strategy unfolds.

As it relates to tire distribution, clearly, our industry is in a major state of change and consolidation. We obviously know that we are a consolidator with our emphasis around taking out some of the fragmentation at retail. Certainly, there's a lot of consolidation and changes with tire distribution. With Michelin's joint venture with TBC followed on by Bridgestone and Goodyear joining forces on Tire Hub, it's created some interesting dynamics as relates to distribution.

I will say this: We buy tires direct from our tire manufactures. All the major brands, we have a direct relationship with, as well as we have access to a supply chain in Southeast Asia that gives us access to more opening-price-point-sensitive brands. So, we don't see the changes necessarily impacting us a great deal early on, just given the fact we buy tires direct and how those manufacturers choose to deliver tires to us certainly is going to change a little bit in the case of Goodyear with their decisions around another national distributor, but we're going to have to work through some short-term transitional issues there that we feel confident will be non-disruptive to us. So, we don't see any significant change. Our focus here clearly is to deliver the best experience to our consumers in-store for tires, for both online retailers as well as our own business.

Jamie Albertine -- Consumer Edge -- Analyst

Hi. Jamie Albertine from Consumer Edge. Thanks again for a great presentation, great to meet everybody. One clarification: You mentioned in your next-year outlook a 1% comp leverage point. Just wondering if it's fair -- can we push that forward to also assume that it stays 1%-ish over the longer-term outlook that you provided, or will that move somewhat as you achieve this normalized run rate with the digital investments and so forth? As well, a follow-up to your point on technicians and sweet spots -- I noticed on your chart you said transmissions start to tick up in Years 12 and 13. I remember Monro always being a "keep it simple" service model, and I'm wondering -- as you're looking at hiring new technicians, are you envisioning more complex services, and would that have any impact to inventory turns, bay turns, and so forth over time that we should consider?

Brett Ponton -- President and Chief Executive Officer

Why don't I take the second part of the question, and Brian, you can take the first part? As we articulated in the industry slide that showed types of service that are done, I just want to clarify that that doesn't indicate that that's our intention to get into those services necessarily, it's just to indicate when those types of services are done on a consumer's vehicle based upon the lifecycle. So, coming back to your question, Jamie, one of the things I like about Monro is how we've been very focused on our service menu.

I think we are well positioned in the sweet spot of the industry. That balances a couple things. One is good purchase frequency with the services we do coupled with higher-value services with tires and brakes. The third part of that equation is it allows us to stay very focused from a labor point of view on keeping our labor model very focused and cost-effective. That gets strengthened with the introduction of Monro University, where we see the opportunity to recruit technicians at an entry-level capacity and create opportunities for them to grow and develop by leveraging the online training that we're going to develop with Monro University.

So, today, our technicians have the ability to diagnose issues, plug scanners into the OBD and pull the necessary codes to diagnose problems. We feel like going forward -- especially once we have Monro University installed -- we'll stay on the cutting edge of those changes going forward to respond to any more sophisticated changes with technology going forward. But, we don't have intention today of adding more complexity to our service offering because I really like where we're positioned today, but I think there's an opportunity to improve the penetration rate that we have in the categories that we are in today that we had talked about earlier.

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

Just to answer the first part of your question, Jamie, we've considered in our three-year outlook a similar inflation hurdle, and like you said, carried that forward. Certainly, we would expect some of the efficiencies that we've talked about in productivity to affect that, and potentially, in a positive way. We also know that a lot of that hurdle is driven by macro conditions, whether it's the tire pricing environment or oil, so we're surely not making any different assumptions on those in the out years and keeping it at the 1%.

Stephanie Benjamin -- SunTrust Robinson -- Vice President

Hi, good morning. Stephanie Benjamin from SunTrust. Thanks again for your time. My question really just goes back to the long-term same-store sales growth target acceleration from 2% to 4%. Could you break that down a little bit between what we're seeing now from a category growth of that 2% and what categories will take it to that acceleration of 4%? Again, rough numbers are fine.

Brett Ponton -- President and Chief Executive Officer

I think very consistent with what I mentioned earlier, our core business today is tires -- 50% of our business -- followed by brakes and scheduled maintenance services. Our emphasis is going to be on our core categories and to drive deeper penetration and growth there, and I think we really see the opportunity to increase our penetration on scheduled maintenance services, other services that are more routine, for two reasons. It creates great opportunities in-store to drive ticket increases through attachment, but the other advantage to that emphasis is that it allows us to be more relevant to consumers sooner in their car lifecycle today.

Our average age of our vehicle today is in line with the industry. We have a desire to be more relevant to consumers sooner. The entrée to be able to do that is to be a bit more relevant on scheduled maintenance services that we'll emphasize going forward. A lot of that is triggered by two things. One is -- Evan took you through that this morning -- around improving our inspection process in-store that allows us to identify and educate the consumer on what their vehicle needs. The second piece of that equation is leveraging the data that we know about the consumer's vehicle in terms of what's in your owner's manual on what services are required for those services at that particular point in time. If we execute well in-store and leverage that data in our CRM platform that Deborah talked about, we see that as the formula that's going to allow us to drive better penetration on scheduled maintenance going forward.

Scott Stember -- C.L. King and Associates -- Senior Vice President

Hi. Scott Stember from C.L. King. Thanks for taking my questions. You mentioned up 3% in May. Can you talk about April and May? Was that 3% number that you gave April and May combined, or -- you had alluded to the fact that April might have been a little bit soft.

Brett Ponton -- President and Chief Executive Officer

We provided the April results. May is -- at the midpoint of May, we are up 3% in May.

Scott Stember -- C.L. King and Associates -- Senior Vice President

Is that just for the month of May/

Brett Ponton -- President and Chief Executive Officer

Just for the month of May.

Scott Stember -- C.L. King and Associates -- Senior Vice President

Got it. Maybe just talk about the weather. Obviously, that's been an issue the last couple of years, and nobody wants to blame things on the weather, but clearly, when you don't have winter, it hurts. This year, we had it. Can you talk about how that's helping your business and the categories you will typically do well in, such as tires? Maybe some of the other areas and how you would expect that to play out for the rest of the year.

Brett Ponton -- President and Chief Executive Officer

As we talked about in our Q4 performance, you saw that we were up 5% in tires, and certainly, tires is driven a lot by weather conditions, and certainly, in the early part of the fourth quarter, we had a favorable backdrop on that. So, we would consider the weather certainly helping our performance in the fourth quarter on tires. I also think another factor -- Evan mentioned that we had made the decision to decouple tire pricing from installation pricing. We've seen some favorability in our demand based upon those changes that we've made. Harsher winters create a nice, favorable backdrop as well for more services, and we have seen some strength in our brake business, our front-end business as a result of more corrosion, potholes on the road, et cetera.

A little bit of a step back in April driven by a slow start to spring, a little delayed spring, and certainly, an extended winter. I think as it relates to vehicles, particularly tires and other categories, we always want a traditional winter season that rolls nicely into a traditional spring selling season. When you get a little overlap on that, it creates some issues, but I think net of that, we feel confident that rolling out of the April season, we saw a nice bounce-back in sales in May, as we reported this morning.

Scott Stember -- C.L. King and Associates -- Senior Vice President

Thanks.

Bret Jordan -- Jefferies LLC -- Managing Director

Bret Jordan with Jefferies. As we think about the CapEx cadence, obviously, you're looking at about a $10 million increase this year as you start the store reformats in the second half of this year. What do you think about next year and the following year? Is there going to be a big investment cycle or are you going to keep CapEx roughly flat? And then, a quick follow-up: On the quarter just ended, could you talk regional performance, North versus South?

Brett Ponton -- President and Chief Executive Officer

I'll start with the first part. Both regions of our business were up in Q4 and the North outpaced the South marginally, but both sides were up. As it relates to the CapEx cadence, I'll let Brian add some color here, but look, we provided color to you that suggests that we're going to spend $75 million over a five-year period, and that implies a little bit longer timeline to do the refresh. That's subject to change. Part of the reason why you do pilots is you want to really refine how much capital we truly we believe we're going to invest via the store segment that we've laid out, but it also helps us understand the difficulty in execution.

Certainly, our expectation at this point is that it's a five-year timeline, pretty linear in how that rolls out, but we'll further refine that once we get through the pilot period and the first part of the rollout that's scheduled. I think one of the things we want to be mindful of is mitigating the disruption to our business, and having done this before in a couple of other formats, we want to be thoughtful about the pace that we roll out, especially within the context of the other initiatives that we laid out this morning as well.

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

I think Brett was spot-on there. I also would like to add that we are -- one of the advantages of this rollout as well as our other initiatives that we're doing here is they're flexible in nature in terms of our ability to react to conditions on the ground and open the spigot, turn the spigot off in terms of the pace at which we move. So, certainly, we are not committed to anything long-term in terms of commitment, so we're able to be really flexible here and be able to navigate this as the pilots and as the rollout start to take step.

Bret Jordan -- Jefferies LLC -- Managing Director

One last question -- on your comp expectations, what are you thinking price versus traffic in that mix? Are you saying pricing is a tailwind in comp, or is the online competition in tires going to limit what you can get in price on that side of the business?

Brett Ponton -- President and Chief Executive Officer

I think early on, the early years, we're expecting early in the cycle, maybe a little more of the comp coming from price mix versus traffic, and as the initiatives take hold around customer retention, we would expect that to shift more favorably to traffic trends deeper into our three-year plan.

Matthew Fassler -- Goldman Sachs -- Managing Director

It's Matt Fassler from Goldman Sachs, and I have two follow-ups. You didn't speak about it much, but the SG&A this quarter -- when you back out the management transition costs -- was certainly well below our expectations, and the growth rate per store -- backing out the extra week -- was well below what you had been doing prior. Is there -- what did that result from? I'm talking dollars now, not just ratio. What did that result from? I know you spoke about reinvestment, but how do we think about whether that sets any precedent for the fore? And, I'll wait on my second question.

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

We really saw some benefit from our higher comp sales. Really, that was what drove our improved leverage on SG&A. There wasn't anything significantly structurally in the quarter. Certainly, here at Monro, we've always been focused on cost control. I wouldn't say there's anything unique to this quarter that wouldn't be something we would expect to carry forward.

Matthew Fassler -- Goldman Sachs -- Managing Director

My second question relates to acquisitions and to the whole notion of capital allocation and cost discipline. If we look at your history as a firm over the past five or six years -- and going back longer -- your EPS have typically grown slower than your net income. That has to be, in part, a function of what the company has paid for deals. So, can you talk about the competitive environment for deals, given that there are a couple of private equity entities that are quite focused on the space alongside you, and also, how you intend to think about the returns that you are likely to attract on transactions?

Brett Ponton -- President and Chief Executive Officer

I'll take the first part and Brian can take the second part. In terms of environment, I think we've made this comment the two previous calls, and I think the landscape is still pretty consistent. For the deal size that historically been in our sweet spot, the 5-to-40-store deal range, we haven't seen meaningful appreciation in the multiples there, certainly on what we would consider more platform-sized deals -- large-sized deals -- where private equity firms create an entry point in the marketplace. Certainly, the multiples have appreciated there.

I think our approach and thought process going forward at Monro is 1). I'm probably not going to be as transparent on disclosing what multiples we're paying because I think from a competitive point of view, that's put us at a disadvantage, but 2). I think we're very focused on creating value, and if we can find deals that allow us to create value for the company and our shareholders, we are going to do those deals. We've got plenty of room on our balance sheet. As you've seen with the Monro.Forward initiative, our objective here going forward is to not just leverage cost synergies that we can gain from these companies, but also see our way to revenue and margin synergies with becoming a more scalable, data-driven, sophisticated operator as a result of that.

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

Related to returns, certainly, we feel that while we haven't changed our return targets, we certainly feel we have a much better opportunity, as Brett said, to achieve those return targets around our acquisitions. And, certainly, we feel that we have an opportunity very similar to our operating to continue to expand our overall return on invested capital as an organization, both through the same-store sales growth and also through more effective integration of the acquisitions we do.

Matthew Fassler -- Goldman Sachs -- Managing Director

Thank you

George Schultz -- Nitorum Capital -- Analyst

Hi. George Schultz, Nitorum. So, I had a question for you about tire costs. Given at the manufacturer level, they have pretty rapidly rising raw material costs at the moment, how does it impact you and what do you have baked into the guidance at the moment?

Brett Ponton -- President and Chief Executive Officer

We've seen a pretty stable and consistent environment, both on our cost side for tires as well as -- I would consider it a very stable retail pricing environment as well. Brian mentioned our assumption -- our FY '19 guidance is sustained stability there. I think what gives us confidence around sustained stability there is the leverage that we have, and the diversity in our supply chain, and the options that we have as a large buyer of tires to create a lot of flexibility in where we source tires. So, to answer your question directly, we're forecasting a pretty consistent environment in FY '19.

George Schultz -- Nitorum Capital -- Analyst

And, one follow-up, if I may. In the question earlier about the install business, you said that the average ticket was $120.00 when you do the install as $160.00 as your corporate. What is that $120.00? I thought it was a $20.00 installation when you were doing installation.

Brett Ponton -- President and Chief Executive Officer

In addition to that, that would also pick up any attachment. So, when the customer comes in for the installation of the tires, in some respects, you require a TPMS reset or new TPMS sensors on your tires. In addition to that, we do add other services -- in some respects, an alignment for the vehicle would be one example of attachment that would come with that installation, driving the ticket from $80.00 to $120.00 on average.

Seth Basham -- Wedbush -- Analyst

Hi. Seth Basham with Wedbush. Can you remind us of the relative gross margins across product categories and how you see those evolving over the next few years?

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

If you look at company baseline, our brakes and service categories -- think about it as a plus-10 and think about tires as a minus-10. So, as Brett was just mentioning, as we think about the installation business, certainly, the higher margins are going to be on the attachment items, such as the alignments and the TPMS resets. The actual tire installation -- the tire sale itself -- of the product is going to be at a lower margin. So, certainly, as we move forward -- and, Brett already made some commentary on what products and categories would drive the growth -- think about it and put those relative margins in mind.

Seth Basham -- Wedbush -- Analyst

So, no significant change in terms of product category for each of the margins?

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

Other than through our in-store execution on the good-better-best options that we talked about earlier -- that Evan talked about earlier, we think that we have a real opportunity to educate the customer and put them into the right level, whether it's oil change, brake service, or tire installation.

Seth Basham -- Wedbush -- Analyst

Thanks.

Brian Nagel -- Oppenheimer and Company -- Managing Director

Hi. Brian Nagel from Oppenheimer again. Just a follow-up -- with regard to the test group of stores you do that you displayed, to what degree was there variability in the performance of those units? Overall, any surprises as you ran down the initial test?

Brett Ponton -- President and Chief Executive Officer

It was actually pretty consistent, candidly, between the two. One was the Midwestern market and the other was the Mid-Atlantic market that we ran in. One of the businesses -- one of the regions -- was up prior year, the other one was down prior year, but candidly, what we saw there, Brian, was good, strong execution with the leaders that got behind that initiative, really embraced it, got their team aligned, really started to get out in front of this cultural change and this focus on customer lifetime value. We saw pretty darn consistent performance across those relative regions.

Kyle Kavanaugh -- Palisade Capital -- Senior Vice President

Hi, Kyle Kavanaugh, Palisade Capital. I was wondering if you can talk a little bit about your technicians as you roll out these new initiatives. In the past, you've mentioned you might be adjusting their schedules, and I was wondering if there's any potential for disruption on the technician side. I think that some of the dealers have also said that one of the gating factors for improving their comps on the service side has been the availability of technicians, so I was wondering if you could comment on those things.

Brett Ponton -- President and Chief Executive Officer

Sure. Let me provide some context on how we see technicians because I think technicians come in different shapes and sizes with a wide variety of technical skillset. I think when a lot of the dealers talk about technicians, we're talking about real high-end technicians that are ASC Level 1 certified, and I think we would share the view that there is a shortage on technicians that are highly skilled to perform high-end, high-level diagnostics. At Monro, our service menu dictates the level of technician that we need to attract and develop in our business. The nature of the services we do are not necessarily requiring the level of certification that a technician at the dealer does. So, I think we're a little bit different in that respect.

Having said that, I think I've commented before that when I looked at Monro's technician turnover rate, it's probably a little higher than what I've seen in my past experience, which has driven a lot of the initiatives we had talked about earlier around creating good, clear career paths for technicians to where they can hire in at an entry-level position and grow their skills, and develop, and create opportunities for them to grow personally and professionally by leveraging Monro University. It's a very similar playbook that I've executed in past companies, where we've created career path and opportunities to develop, and we've seen a meaningful reduction in the level of turnover as a result of that. I would expect the pattern to follow here to Monro as we launch Monro University.

As it relates to staffing and scheduling stores -- Evan alluded to this -- I think the key in any retail business is the lineup, the right quantity of people in-store to service the consumer, as well as, in our particular case, make sure the technicians have the right skillsets to perform the services on our menu. That works two ways. One is we want to make certain that we are not under-skilled -- the technicians that have the skills appropriately to do quality services -- but also, there's a flip side to that where we have to make certain that we're not over-skilled, which is defined as if we have too many more qualified technicians doing work that doesn't require those qualifications, then we certainly are creating margin pressure as a result of that in our business.

I think there's a real opportunity for us to dial in and optimize to get the right quantity as well as technicians that have the right skillset, but for us to unlock that value, I think it requires a cloud-based, data-driven system to be able to support that across 8,000 teammates that we have in the company today.

Scott Stember -- C.L. King and Associates -- Senior Vice President

Scott Stember from C.L. King again. Maybe just talk about what you mentioned earlier about omnichannel and your plans to expand that in the future -- maybe just give us a better understanding of the timeline and the types of products beyond tires that could possibly be pushed through an omnichannel method. Thanks.

Brett Ponton -- President and Chief Executive Officer

Let's start with the timeline. Deborah mentioned this. We're thinking about this in two phases. It all starts first with making certain we have our foundational technology in place vis-à-vis our website. Our website today is not designed mobile-first, so Job 1 for us is to modernize and make the website more contemporary, and we have that slated for Q2 of this year. Coming in behind that, we'll work on the e-commerce capability, so by Q1 of FY '20, we see ourselves in a position at that point to have consumers shop online for tires, make purchases online for tires, and of course, get those tires installed in-store.

As relates to the second part of the question, 50% of our business is tires, and certainly, of all the categories that we offer the consumer, the category that lends itself to buying online and shopping online certainly is tires. However, having said that, I think when a consumer is on our site purchasing tires, there's a nice opportunity online to attach an add-on -- oil changes, scheduled maintenance services, et cetera -- and as we fully develop the CRM platform where consumers can have a login information about their car, we can be a bit more prescriptive for them about what items or services they should be adding on to that particular purchase at that point in time.

Carolina Jolly -- Gabelli Securities -- Analyst

Thanks for taking my question. Carolina Jolly from Gabelli. First question -- with the dealerships -- I was recently at another Investor Day that had to do with tires, and there was this conversation around dealerships getting more aggressive on the tire channel. Can you talk about if you've seen that, and if you have seen it, how you combat that?

Brett Ponton -- President and Chief Executive Officer

I think as relates to dealers and as relates to tires, first of all, the dealers have been in the tire business for 12 or 13 years now, so I don't think that's necessarily a new strategy for them. I think what we've seen from dealers -- and, recognizing that there has been a pretty significant gap in the price/value equation with consumers, I think they've made a lot of moves to close that gap, not necessarily with being more aggressive on price, but I would characterize it more as increasing the value through investments in their experience, showroom, et cetera. So, for the most part, that's what we've seen strategically that they have done.

Similar to that, of course, Monro -- we are making similar investments in our level of experience, and as we identified this morning and shared with you, we feel like over the last four or five years, the market backdrop set up very favorably for the dealers in the sense that most of the industry growth was in that 0-to-5-year cohort that lines up pretty well with their targeted consumer, but rolling forward, we see those tailwinds now moving more in our favor. The other area that gets contemplated a lot between the aftermarket and the dealer is the dealer certainly wants to keep consumers longer in their brand, and I think in the aftermarket -- certainly, in the case of Monro -- we have every desire to be more relevant to consumers sooner in the lifecycle, but as we assess the situation, we see that that battleground is not necessarily on our turf. That battleground is more on others' turf that creates share opportunities for us going forward versus concerns about share loss with their respective initiatives.

Jamie Albertine -- Consumer Edge -- Analyst

Jamie Albertine again, Consumer Edge. Two quick follow-ups. Apologies if I missed this in the prepared remarks. Could you just update us with where your private-label tire penetration is? Over the years, that's bounced around a lot with Chinese tire tariffs and a lot of different macro noise out there. So, as a baseline, as we get into good-better-best, I'm just wondering what the margin opportunity could be there from a selection perspective. And then, separately, you talked about a 20% increase in CapEx on a year-over-year basis, which I forget the absolute dollar, but it feels like $10 million to $12 million. Is that for 30 stores only -- the vast majority of that -- with retrofitting, and does that suggest that $75 million might be somewhat conservative as you think about bridging that onto the rest of your portfolio over time? Thanks.

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

I'll take the second question first and have Brett take the first part. No, the incremental is this year assuming a successful third-quarter pilot and a further rollout in Q4. That incremental is not specific to the 30-store pilot.

Brett Ponton -- President and Chief Executive Officer

As it relates to our tire mix, Jamie, about 35% to 40% -- in that range -- is what our internally sourced opening-price-point tires would represent as part of our mix. Certainly, going forward, as Evan mentioned, we want to be very data-driven and sophisticated about how we set up our tire product screens to optimize balancing volume and price mix -- ultimately, optimizing margin -- based on laying out those assortments, understanding clearly all the options and choices that we have as a multi-branded retailer that has access to every major brand, but also, access to our supply chain in Southeast Asia -- which, by the way, is quite flexible in and of itself.

When the tariffs came up two or three years ago, it forced us to be a bit more flexible in our supply chain to where we have access to supply not only in China but also throughout Southeast Asia, as we articulated this morning. So, we've got a lot of flexibility on our tire brands. I think the real opportunity for us is to figure out how we optimize margins based on the brands, the tire lines, and the options that we have to create max value for us as a company.

Jamie Albertine -- Consumer Edge -- Analyst

Thank you. Along those lines, regarding maximizing margins on the categories, I know some of the tire manufacturers have talked about larger-diameter tires giving them more margin the last couple of years from a price mix standpoint. As those cars go through the replacement cycle -- maybe it begins in the next three years -- do you think the larger-diameter tires will actually produce a better gross margin to you as an installer, or do you think that gets competed down, and is there anything associated with that in the guidance that you're talking to?

Brett Ponton -- President and Chief Executive Officer

When we look at our tire category historically and roll forward, we've seen a shift to higher-value tires, if you will, large-size tires, and certainly, the vehicles in operation is what's driving that. As you might expect, the bigger the tire, usually, the higher the revenue, and also, we've seen margins that would fall in line with that higher revenue as well. I think the real question for us going forward is as those vehicles age in the lifecycle, as we all know, as we talked about earlier, the consumer's appetite to pay higher prices also becomes a little bit diminished, so in terms of how that lifecycle plays out on tire pricing, I think it remains to be seen. But, early innings and where we're at today, we certainly see higher revenue per tire and higher margin per tire on the larger rim sizes.

Maureen Mulholland -- Vice President, General Counsel, and Secretary

We did have a question online. It's been asked in part already, so I'll just ask what hasn't been touched on already. This is from Adam Schwartz at Black Bear Value Partners. He's asking about the auto dealers -- again, so, this is really a follow-on to Carolina's question -- "Do you feel that the auto dealers are shifting to private-label parts and selling service plans, and how do you compete with them given they see the customer first when they buy a car?"

Brett Ponton -- President and Chief Executive Officer

I'll start with the second part. Look, the car dealer does have the advantage because they sell the car new to the consumer and they get the opportunity to service that vehicle with warranty follow-up, and as the value of that vehicle remains relatively high after purchase, the consumer's appetite to pay higher prices certainly is there. As we identified in the slide this morning, we think our value proposition becomes much more compelling to consumers as their car gets older, the value of the vehicle drops, and as a result of that, their willingness to pay higher prices to service that vehicle also drops. So, we believe Monro is very well positioned with vehicles in that 6-to-12-year cohort. We feel very well positioned to win that going forward. As it relates to the private label parts, I can't comment specifically about what their strategy is around part sourcing.

Maureen Mulholland -- Vice President, General Counsel, and Secretary

We did have a couple of questions about the presentation, so just to confirm, that will be posted on the Monro website following this event at monro.com.

Brett Ponton -- President and Chief Executive Officer

Okay. Well, that concludes our Investor Day. We'd like to thank everyone here and everyone listening on the webcast for your time. We are excited about our Monro.Forward strategy and look forward to updating you all on our progress in the future. Thank you, everyone.

Duration: 121 minutes

Call participants:

Maureen Mulholland -- Vice President, General Counsel, and Secretary

Brett Ponton -- President and Chief Executive Officer

Brian D'Ambrosia -- Chief Financial Officer and Senior Vice President of Finance

Evan Naylor -- Chief Operating Officer

Deborah Brundage -- Senior Vice President, Marketing and Merchandising

Matthew Fassler -- Goldman Sachs -- Managing Director

Brian Nagel -- Oppenheimer and Company -- Managing Director

John Healy -- Northcoast Research -- Managing Director

Jamie Albertine -- Consumer Edge -- Analyst

Stephanie Benjamin -- SunTrust Robinson -- Vice President

Scott Stember -- C.L. King and Associates -- Senior Vice President

Bret Jordan -- Jefferies LLC -- Managing Director

George Schultz -- Nitorum Capital -- Analyst

Seth Basham -- Wedbush -- Analyst

Kyle Kavanaugh -- Palisade Capital -- Senior Vice President

Carolina Jolly -- Gabelli Securities -- Analyst

Adam Schwartz -- Black Bear Value Partners -- Chief Investment Officer

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