Monro at UBS Global Consumer Conference: Market Share Strategy

On Thursday, 13 March 2025, Monro Muffler Brake Inc. (NASDAQ: MNRO) presented its strategic initiatives at the UBS Global Consumer and Retail Conference 2025. The company outlined its efforts to regain market share and enhance profitability, focusing on customer service and operational efficiency. Despite challenges like tariffs and competition, Monro aims to leverage technology and consolidate its position in the aftermarket auto services sector.

Key Takeaways

• Monro is committed to regaining market share in the tire and brake businesses.
• The company is focusing on customer experience and leveraging technology such as Confidrive.
• Electric vehicles present new opportunities for Monro due to tire wear and battery cooling needs.
• Monro aims for double-digit operating margins and healthy top-line growth.
• The aftermarket industry remains fragmented, offering consolidation opportunities.

Financial Results

• Monro is targeting double-digit operating margins through top-line growth and margin improvement.
• The company is managing a $50 million net bank debt, with a net bank debt to EBITDA ratio of 0.34x.
• CapEx allocation focuses on business investment, finance lease debt reduction, and dividends.

Operational Updates

• Monro is enhancing customer trust through a digitized courtesy inspection process called Confidrive.
• The company is personalizing marketing efforts using data from digital inspections.
• Technician recruitment and retention are key focuses, with training aimed at increasing technician income.

Future Outlook

• Monro sees electric vehicles as an opportunity due to their impact on tire wear and battery cooling needs.
• The company plans to expand in the West and Southwest regions, taking advantage of the fragmented market.
• Monro is addressing wage inflation and labor market challenges by maintaining strong relationships with its technician team.

Q&A Highlights

• CEO Mike Broderick emphasized the company’s focus on regaining its tire business.
• CFO Brian D’Ambrosia highlighted strategic sourcing practices to mitigate tariff impacts.
• The company is prioritizing sales growth over supplier price increases.

For more detailed insights, please refer to the full transcript below.

Full transcript - UBS Global Consumer and Retail Conference 2025:

Unidentified speaker, Host: Good afternoon, everybody. Welcome to the home stretch where we could not be more excited to have the team from Monroe with us. All the way to my far right is Mike Broderick, the company’s CEO, who has done a remarkable job of making some transformational changes at Monroe over the last few years.

Brian D’Ambrosia is the company’s CFO in going up what twelve years?

Brian D’Ambrosia, CFO, Monroe: Yes, the thirteen years with the company.

Unidentified speaker, Host: Holy cow, time flies when you’re having fun. And Felix Fetzker does not need much of an introduction, but he does run the IR function at Monroe. Where I want to start is very popular topic for consumer conferences. How are you thinking about the state of the consumer? You operate in a business that tends to be non discretionary nature.

There is some seasonality and there is some decision making. But, Mike, you’ve been around consumer businesses for a long, long time, even if you know you’re still a young man.

Mike Broderick, CEO, Monroe: Thank you.

Unidentified speaker, Host: With that being said, how are you thinking about the state of the consumer right now?

Mike Broderick, CEO, Monroe: I don’t see the consumer changing much. I would say over the last two years, we’ve basically been calling it, it’s been the strength consumer. Just to be incredibly clear, that’s why we’re like incredibly focused on Monroe and fixing Monroe. We have basically made three declarations starting in May that we’re going to get our tire business back. It all started with big ticket, although non discretionary big ticket has been pressured for sure.

And it started with the tire business and there’s a lot of I would say people that equate tires to like mattresses. It’s really funny to help people are talking about the consumer. But what we are focused on is we’re going to be very value driven. That’s our customer. Dual income under $100,000 we know who they are and we’re going to create value with those.

They’re going to have perceived value not only with the prices that we’re offering through promotions, but also the quality of work that we’re providing them. And that’s what we’ve been focused on. That started with tires back in May, coming out of a tough Q1 into Q2. And we said we’re going to get our tire business back. It represents 50% of our volume.

Then we said we were going to get our brake business back because that’s not only high margin, but that is a good safety, big part of the safety aspect of what we do and we’re going to get our brake business back and we’ve had sequential improvement there. And then finally, we said we’re going to get our customers back regardless of the macro and micro. We have, I would say, a unique opportunity at Monroe to get our business back the good old fashioned way, which is just great service. And that being said, it’s all about how we inspect the car, how we communicate it, the quality of work that we’re demonstrating, how we’re communicating to the customer. That’s what we’re incredibly focused on is how do we create a better, more trusted environment for our consumers and we feel like we’ll get rewarded not only in the short term, but mid to long term too.

Unidentified speaker, Host: There’s a lot to unpack there and we will unpack most of that through our conversation. With that being said, one thing you did articulate, which I think is a good point to emphasize that tires are not mattresses. Mattresses, you can as a consumer sleep on for an extended period where tires wear out. Is that was that your intention? Are there other elements of the purchase decision around tires that the market should keep in mind as it thinks about the roast business?

Mike Broderick, CEO, Monroe: What we saw was customers were deferring later and later with tires. And we had to not only create some excitement around tires and the promotions that we had to go get those customers back. I think that goes once again back to how we inspect and communicate to the customers. When I have customers that I witness and I travel stores all the time, that’s what I do, not these environments in the store environment. And where people are just saying, look, I’m not ready to make a purchase and the steel belts are hanging out of their tire, there’s something wrong, like there’s something not right about it.

I know that’s anecdotal, but I would say that’s the deferral cycle that we’re dealing with. And I think that’s where these promotions driving value and be able to communicate that this is the time to buy the vehicle, buy your tires, I would say that’s what we’ve been focused on, Michael.

Unidentified speaker, Host: Got you. The other popular topic is yours are tariffs. And Monroe is going to offer a customer a complete solution. So the product is going to be a portion of the total value proposition that you’re offering to the consumer. But given how volatile the environment is, A, can you give us a sense for how much sourcing that Monroe is doing from these overseas markets that might be subject to tariffs?

And what’s the playbook that Monroe is going to use on how to handle that?

Brian D’Ambrosia, CFO, Monroe: Yes. It’s a great question. And it does depend on the category in terms of how much of the bill materials is material versus labor. Tends to be higher labor, lower materials on the service category. So those are inherently less sensitive to changes in parts pricing, more sensitive to labor or wage changes in price.

So focusing in on the tire side that would be the category that has more product involved in the build material and therefore more subject to tariff impact. But what we see related to tariffs is that we’ve been really loyal to our Tier one through three tiers. And a good amount of those tiers relative to even our competitive set are manufactured in non tariff impacted countries at least to this point. Where we see the biggest impact of tariffs is going to be on the Tier four tires, which we have intentionally our strategy has been to have less exposure to those and try to preserve our Tier one through three tiers with promotions and offers for our consumer to buy what we think is a higher value tire and better for Monroe, but also for the consumer. So we think what that means is that as tariffs potentially impact that Tier four tire and potentially then impact the competitive set to a disproportionate amount that it impacts Monroe, we’ll see those Tier four prices that have been where customers have been gravitating to in this value oriented environment start to nudge up.

And therefore, the value prop between a Tier four and a Tier three or at least the perceived value prop for a consumer will start to be to dissipate and it will be better price parity. That’s going to obviously make Tier one through three more competitive relative to Tier four.

Unidentified speaker, Host: So a lot to unpack there. First and foremost, the product is a small portion of the total build that the consumer sees to the product the products are sourced from different domiciles around the world. You tend to be less focused on sourcing tires in particular from China and more from other markets. Where are those tires produced for those who are not familiar?

Brian D’Ambrosia, CFO, Monroe: Yes. I think the primary source of supply for us across our screen without getting into too much specifics. There is North American supply, certainly U. S. Supply.

And then there is other Southeast Asian countries including Korea where our primary brands are manufactured. So we do have less exposure to some of the countries, particularly China, where a good amount of the Tier four category is made.

Unidentified speaker, Host: And what are you hearing from your partners about how they’re handling the tariffs? Obviously, this is so such a fluid situation to say, is there are there contingencies in place, meaning, like if the tariffs are go through, we’re going to charge you X, we may wait some period of time to ensure that it actually goes through. How are these conversations going to play?

Mike Broderick, CEO, Monroe: Let me just walk through some numbers then. Goodyear came out and they were down North America, what 7.5%. We were up in units. So we have we’re growing. I would say that a lot of our strategy is we’re going to get our tires back and it’s played well because you don’t put price changes in on customers that are growing.

Yes. So we are going back. We’ve been very loyal, just like Brian talked about to fewer suppliers, so that it’s harder for them to have those conversations. And just to remind you, Mike, we sold all our distribution centers. So whatever I stock it’s in my stores and I have distribution partnerships around the country already.

So it’s not a question. If one vendor puts pricing on me, I can immediately go to another vendor and say, hey look, you want more, we have twelve fifty plus stores, you want exposure to those twelve fifty stores and that’s the game that we’re playing right now. I’m not interested. We’ve invested a fortune in our margin. It’s now time for us to go get our margin back And that starts with our customers, that starts with sales growth and that’s what we’ve been very focused on.

I’m not interested in taking a lot of price right now from our suppliers.

Unidentified speaker, Host: Got you. Yeah. Makes a lot of sense.

Mike Broderick, CEO, Monroe: And I’m focused on growing and they’re not.

Unidentified speaker, Host: Got you. This is a good segue to the state of the competitive landscape within the services business of the aftermarket. As you just mentioned, Monroe’s got more than 1,200 locations. This is remarkably still a fragmented industry. There’s a few players that have a significant amount of share and then the tail is very long and very wide.

How do you see this playing out from a consolidation standpoint? What’s keeping this a fragmented sector? And do you see it the consolidation continuing to accelerate?

Brian D’Ambrosia, CFO, Monroe: Yes, I can answer that. I would say that

Unidentified speaker, Host: We guys have had these questions before.

Mike Broderick, CEO, Monroe: We’ve been working together for a couple of weeks.

Unidentified speaker, Host: I think we’re very aligned on that. Yes,

Brian D’Ambrosia, CFO, Monroe: that’s right. It’s fragmented as the industry is now. It’s obviously consolidated a good amount from where it was. And I don’t think that changes. And to your point, the top 10 independent tire dealers and tire and service dealers only have about 15% market share.

So that 85% is a long tail and you can be still a 10 store chain and be a top 100 tire dealer. So it just goes to show you even below the chains of 10 stores, the 1s, the 2s, the 5s, tremendous amount of fragmentation. And that just makes the industry continued ripe for consolidation. And if you look at the top 10, a number of them have including Monroe have embarked on that consolidation path. As far as Monroe goes, that is still a big part of our growth model moving forward.

We’ve taken some time here over the last couple of years to put a pause on acquisitions. We’ve really been focused on putting in place internal processes, technologies like Confidrive, which I’m sure we’ll talk about later to create a scalable platform for Monroe’s next round of growth. And ultimately, we think we’re making the necessary and the appropriate investments to do that. But all in all, the balance sheet that we have, the opportunity that we have for continued infill in really key markets, us only being in 32 states, presents a lot of opportunities and really attractive geographies, particularly out West and in the Southwest that we’ll be able to capitalize on in the future.

Unidentified speaker, Host: So, did you want to add something you got?

Mike Broderick, CEO, Monroe: I’d be glad to. Just think about the industry, a lot of the one store, two store chains, it’s because you had a technician that all of a sudden decided to own their own shop. And now that technician as they might have been a great tech mechanic, right. And they had a loyal following. They were able to open up that one shop and the barrier to open it’s pretty low.

Now it’s changing. Now you have to invest in tools, equipment, technology. Now that customer experience is actually there’s an expectation in the aftermarket driven by the OE, there’s an expectation. And I would say that, that one to two store chain that technician, their business acumen has to now continue to rise, their investment in their own business has to arise. That’s how this whole industry was formed.

And I would say that’s being pressured right now. Wages are pressuring that. Just the amount of investment in this lifts, the hardware in our shops are going up and I would say that’s where scale matters.

Unidentified speaker, Host: Is it right to think Mike that ten, fifteen years ago there might have actually been an advantage for small players because it’s a local business where convenience matters a lot in that interpersonal relationship. But as the cost environment, as the other challenges in the environment have evolved, scale has become more important in the industry. Is that

Mike Broderick, CEO, Monroe: a fair case? That’s how

Unidentified speaker, Host: I look at it.

Mike Broderick, CEO, Monroe: And I’ve been calling on Monroe for close to twenty five years. I’ve been in the industry for thirty five years. And that’s why I’m that’s why I’m part of Monroe. That’s why we’re focusing on Monroe, because I think that we skill does matter.

Unidentified speaker, Host: Yes. And as there is more consolidation in the market and there are a few larger players, Is there more competitive intensity amongst the larger players? Are you seeing more promotions, more pricing as a way to drive the business?

Mike Broderick, CEO, Monroe: I would say that it’s very transparent to the consumer. It’s very transparent to the vendor community. Let’s talk about tires. There’s map in tires. You can’t go too far.

You can’t go below, you get into a penalty box and that’s generally managed pretty well in our industry on tires. I would say on the other service categories, it’s less about price competitiveness. It’s really about do you have the right people in the back shop and the front shop to win the consumer over. It’s very locally based and it’s not as transparent like tires is. It’s very transparent.

But once you get into that shop, it’s all about that relationship you have with the consumer. Starts with the back shop, the front shop and that relationship with the consumer.

Unidentified speaker, Host: And it seems like one of the hallmarks of Monroe’s current strategy ushered in by the current leadership team is we need to execute at a store level each interaction with the customer as best we can on an everyday basis because that’s how we’re going to win. And you have empowered these locations with more technology, more prompts, more training to be able to provide that better experience for Is that a fair characterization? And can you give us

Mike Broderick, CEO, Monroe: Is that where I go into my commercial about Confidrive and the whole digital privacy inspection? Yes.

Unidentified speaker, Host: I think Michael will be able to have a bit more perspective on what that journey has been like. There’s been a focus on some of the underperforming stores and pivoted to the broader chain and how this has played out?

Mike Broderick, CEO, Monroe: Yes, it’s great. So let’s isolate the underperforming stores, right? And I’ll address that really fast. Underperforming stores, we have approximately designated 300 stores. And one of the reasons why we stopped acquiring external stores is we’re going to reacquire those stores.

That’s a growth vector for our organization. Last quarter, we talked about two fifty basis points of improvement versus the rest of the chain, but our internal metric is double digits and we talk about it. I’m not happy until we get we’re not happy until we get double digits. Let’s isolate that, right. So that is a huge growth vector and a big opportunity to fix the fundamentals of our business with that.

Now let’s talk about how we do it. We talk about tires and oil. We lead those are our customer drivers, customer drivers and then we go all about the process. And I would say just like every consumer in this room and in this building, nobody really trusts the automotive aftermarket. I

Unidentified speaker, Host: do. I trust both of you.

Mike Broderick, CEO, Monroe: Michael. Yes. No, I don’t trust you.

Unidentified speaker, Host: No, no. So I

Mike Broderick, CEO, Monroe: would say the automotive aftermarket, there’s actually I think there’s always a tendency that we’re trying to sell you something that you don’t need. That’s the natural reaction to

Unidentified speaker, Host: most of our customers.

Mike Broderick, CEO, Monroe: That’s why we’ve literally we’ve embarked on this courtesy inspection. It was 32 points, but it was on a piece of paper and you couldn’t read anybody’s handwriting, you could never read my handwriting and we digitized it. And not only did we digitize it, then we can actually export it to you either through text or through email to say, hey, look, this is what we uncovered with pictures and it actually helps us really gain that trust with the consumer. And I think that is where the industry needs to go. Either you’re on that program or you’re not and the customers are going to reward people that are on that program.

Unidentified speaker, Host: So it’s been about a year since the compadrive has been rolled out. Give us a sense because I think you characterized it really well, which is when you go to get your car repaired, the last thing you want to hear is, well, we need to fix your tires, but you should also have your brakes adjusted at the same time. There is a natural resistance or skepticism that the consumer has. What does this do to overcome that skepticism?

Mike Broderick, CEO, Monroe: Yes, starting with the fact that it’s all industry standards. So we have to just communicate what the industry standards are. The fact that we did look at it and maybe your car is in perfect shape and we actually say, hey, this is great, you do a great job keeping your car up. That would be a great experience, the customers would really like it. Or we say to them, look, this is the state of your vehicle.

Not everything needs to be fixed, but things are going to fail just because that’s the nature of the product that we work on. Things are going to fail and you need to start addressing some of these issues. Oh, and by the way, here’s a picture of it. Like in that way, that kind of takes all the ambiguity out of that conversation. They’re going to say, all right, that doesn’t look good.

And we can take them back to the shop. Most people don’t want to go back to the shop, but showing them a picture, texting them a picture. I think that is what the customer’s minimum expectation and we save that information. So literally, I mean, that’s a part of like if customer ever said, why did you do that work? We can actually show them, look, this is the picture we took of the vehicle.

You don’t have to second guess it, here’s the picture. And that’s what we fixed. That’s what we addressed. You don’t have that problem anymore.

Brian D’Ambrosia, CFO, Monroe: I think there’s two things on that too. And because like Mike said, we might find a good amount that your vehicle may need, but we can help prioritize off of that. And ultimately, what that data that we do save goes into is our customer relationship management software that allows us to then market back to that guest based on when we think they may be at a failure point if it’s between standard oil change visits or something and provide them with an offer to come back in and get that taken care of at a later date. The other thing that the courtesy inspection does is it gives the death the history of their car. So if they see that their tires were at sixthirty two a year ago and now they’re at four thirty seconds when they go in, that’s going to resonate with the guests to let them understand, okay, that makes sense to me that they’re not going to grow rubber, right?

And they’re going to they are degradating and maybe I’m not going to get them done yet, but I won’t be surprised the next time if I come in and they say, okay, you’re finally at threethirty 2 or less, you’re going to need to replace those tires. So it gives a preview to what may be coming down the pike in terms of service needs for the vehicle.

Unidentified speaker, Host: So if nothing else, the resistance points are being overcome through transparency by and empowering customers some information.

Brian D’Ambrosia, CFO, Monroe: That’s right.

Mike Broderick, CEO, Monroe: They’re getting used to it. You buy a new car, most of the OE dealers have transitioned into this new technology and customers get used to it. So when you go to the aftermarket and you don’t have it, I would say that it’s less of an experience.

Unidentified speaker, Host: And what have you seen so far? So it’s been about a year, there’s you obviously have two customers that you serve, the car owner as well as your service tech. What has been the reaction from both?

Mike Broderick, CEO, Monroe: I think the technician hardest change I’ve done some things and hardest change management program that we’ve put in place. We took control. In the past, the technician said, hey, look, I got this, I’m going to do whatever I need to do from an inspection process. And now we can actually see by technician, by store, by day, exactly the type of work that they do. And generally technicians, I love them all.

They don’t appreciate giving up control. This has been in the works for over two years and we fully deployed it last April. And for the third quarter, we finally talked about the fact that we are seeing improvement, not only batteries, ride control and alignment, substantial growth. And we’re looking for every category to be positive. Oh, and by the way, something that has not been good for us is brakes and actually brakes went positive in January.

So these are the type of outcomes that we’re looking for.

Unidentified speaker, Host: What have been the resistant points from the how have you been able to overcome the resistance points? So you raise a very interesting point. If I’m a technician and I have or if I’m a doctor and I have a way that I approach addressing a patient and then I am encouraged to do that differently, how have you been able to overcome some of the objections?

Mike Broderick, CEO, Monroe: If you follow our process, you make more money. Yes. Not only that, but you have your customers come back, they reward you with their second car or even new customers. We have a higher rep score because the customers are actually rewarding us with their opinions about the work that we’ve done. It all comes back to the technician to literally teach them how to make more money.

And that’s what that tool has provided us.

Brian D’Ambrosia, CFO, Monroe: I think what we also did was we really spent the time with the store managers, because ultimately the store manager is responsible for making sure that the courtesy inspection is occurring in the back shop. And we really I think that the store managers have grabbed onto the value that that courtesy inspections provide in terms of credibility with the guest to present their vehicle in a much more professional way. So what happens is that store manager wants to have that professional interaction with the guest to be able to educate them. They know that this tool enables it, So they really hold their back shop accountable to properly completing the compa drives and making sure that they’re reflective of what the vehicle really needs.

Unidentified speaker, Host: So if I ask you, has this been more challenging than you originally anticipated? Sounds like your answer would be yes. So is that true? And if you had to use a baseball analogy or a percentage term, where is Monroe in the process of harvesting a benefit from this? Because it does sound like there was it was necessary to take a step back to be able to implement this change before you take a step forward.

Mike Broderick, CEO, Monroe: So I like baseball, the game never ends. So, I would say the fact that we started disclosing performance indicators, I would say that that’s middle innings and until we have every category positive that we report, positive customer count, positive sales with the appropriate margin, I would say we’re always going to be middle innings.

Unidentified speaker, Host: Got you. And you mentioned brakes has been the area where there’s been the most. Is that because brakes are a unique job that the customer needs or is there some other categories?

Mike Broderick, CEO, Monroe: The deferral, it’s a big ticket item brakes, it’s anywhere between $200 to $400 or more and customers will defer it. You don’t see it, you have to take the wheels off, nobody looks at the brakes every morning. It’s going back to what Brian said is how do you educate the consumers to say where is the state of their disrepair in pictures and give them a lot of information before something really does happen. Majority of our customers don’t know how far along their break wear is. When a customer comes in and says, look, my brakes are squealing, that’s an easy sell and that’s an easy fix, right.

They already know there’s a known problem. Our job is to educate the consumer of where that problem, where in the cycle that problem is and it’s hidden behind a wheel. So you have to take the wheels off, you have to do that proper inspection, then you have to properly communicate where it is in the cycle.

Unidentified speaker, Host: And where would you expect the benefit to then materialize? Is it the tire business? Is it somewhere battery business somewhere else?

Mike Broderick, CEO, Monroe: A better inspection wouldn’t help all the certain brakes. So it starts with the tire. Customers come in, that’s why it’s so important to get that tire business going and the oil customer going. So we talk about our promos, although we’ve invested a lot, now we’re getting the vendor community on board to make sure they continue to invest. Then it goes right to, hey, look, you got to get the tires off so that you can inspect the brakes and that’s what we’ve been focusing on.

Unidentified speaker, Host: And so you’re through this process collecting a lot of information. What do you need what does Monroe need to do in order to be able to capitalize on this information? There’s a CRM in place, but the next phase would be to make sure that you have a lot of personalized communication with your car owners. Where is Monroe in that process? Yes.

Brian D’Ambrosia, CFO, Monroe: I mean, we’re there in terms of that personalized one on one marketing, right? So in the past, you might get an offer or a break offer and we’re trying to do some guesswork on the last time you went for brakes and some mileage that you may drive. But now that we have exactly what your brake measurements were in the system at your last visit, and we’re able to then produce an email or a postcard whatever way we feel may best reach you depending on your demographic, we can include not only the offer, but a picture, a recreation of the comfort drive that you already have in your house.

Unidentified speaker, Host: In the email?

Brian D’Ambrosia, CFO, Monroe: Yes, it’ll show you the it’ll take the brake measurements right off of what we put in and you have on a sheet of paper or in your email from your visit and put it right into the offer to say, hey, as a reminder, here were your brake measurements the last time you came in, they’re probably giving you a little more trouble right now, here’s an offer to come back in. So it creates it from a trying to do something in mass with an offer to really getting down to what that consumer needs and what they may need from the last time they were in.

Unidentified speaker, Host: And what type of response are you seeing to those?

Brian D’Ambrosia, CFO, Monroe: Yes, I mean, we haven’t commented on that. Not until now. We haven’t commented on that side of it, but I can’t. But we do know that, we have less time under our belts with that because as Mike said, we launched it as you said in April 1. It was really a six month burn in period where we didn’t really, I would say, have the compliance that we fully wanted after the change management process until our third quarter.

So those follow ups and those marketings are probably just really coming through here in our fourth quarter.

Unidentified speaker, Host: And from the other side of the equation, what have you been witnessing from a tech turnover standpoint? How is the market to attract and retain techs right now? And then I have a follow-up.

Mike Broderick, CEO, Monroe: Tech turnover is part of the industry dynamic, I would say our good techs, our flat rate technicians. We have two types of technicians, just to be clear. We have flat rate technicians. These are people that have already committed to the industry. They make a good living.

They earn out a good hourly wage and they produce. So these are people that we hold on to and we really go through part of the change is getting their feedback and how do we communicate differently to these type of people. So although we don’t talk about turnover numbers, I would say it’s still put a lot of pressure on people that I’ve been doing this for twenty years, that type of conversation. I don’t want to change. So you would expect there would be some turnover there.

Now let’s talk about the general service technicians. These are hourly people. They generally haven’t made a commitment to their career yet. They’re generally newer into the industry less than one year, less than two years into the program. These are people that we’ve been very prescriptive because it’s really important that they do their job.

If they’re not on board, I mean, they’re making quick decisions and we’re making quick decisions about their career too. So I would say that in that case, that turnover is generally very high, but we got to weed through people who are either going to get on program or get off. And because there’s only one way we’re going to do the best go to market moving forward.

Unidentified speaker, Host: And what does the path look like from here? The silver lining or the half glass full is you are helping empower these techs to be more productive, make more money. How long does it take before the deployment of what you’ve done translate to the realization such that it stabilizes the turnover?

Mike Broderick, CEO, Monroe: It’s been every bit of six months that we really they’re called flat rate units. It’s just a measure of how well we’re producing, how much work we’re finding. These are all industry known like a brake job you get one unit for that’s basically equates to an hour. So we really have a lot of rigor around how many units are we creating through the inspection process. Just a great outlook and that’s how we pay our technicians too.

So it takes some time to believe and I would say that it was a very it was a big part of how we had to communicate to our teams is how do you make money and when you’re on program, what does that mean to your personal pocketbook?

Unidentified speaker, Host: As a tangent to this, there’s been a lot of focus on immigration policy enforcement. Monroe, it probably doesn’t have any issues with that. There may be other players in the industry that may not be in the same situation as Monroe. If indeed this process accelerates such that it does draw some labor out of the tech pool. How A, will that impact Monroe?

Is there going to be a indirect impact where the rates for all techs go up? And B, what’s the plan to be able to manage through that? And is this a reasonable progression of logic?

Brian D’Ambrosia, CFO, Monroe: I can answer that. I would think that it is a progression of logic and I think that and it is reasonable in that, there is going to be labor drawn out in some place and maybe even in a different industry that could affect our technicians and their commitment to our industry, even if it wasn’t within competitors in the industry. So to that point, I think that our skilled technicians, the ones that have committed to the aftermarket, the ones that have invested $20,000 in their own toolbox and their set of tools, I think we have less of an issue there in those more established technicians. I think at the entry level, the industry may have more exposure at that entry level technician. And like you said, while Monroe has absolutely no issues with that type of a worker, if it is they are drawn out of other businesses or other sectors of the economy, it could put pressure on that opening price point tech because they are somebody that is more transient across different sectors of the economy if they don’t feel a commitment to the aftermarket.

That being said, anything that continues to put wage pressure on beyond the current inflation that we’re seeing, which is already above trend in the technician ranks, would certainly I think be felt ultimately in prices to the consumer.

Unidentified speaker, Host: Two points in that regard. What is the current wage inflation relative to where it’s been in the past?

Brian D’Ambrosia, CFO, Monroe: Yes, we haven’t commented on it recently, but I’ll remind everyone where it was in the past. We said that our combined inflation, both wage and goods inflation was mid to high single digits and that was about twelve to eighteen months ago. And that we had only passed along low to mid single digits in the form of price as industry dynamics did not allow us to fully pass that on. It has come down in terms of that, but it is still above our traditional trend rate.

Unidentified speaker, Host: And the government’s early in the process of this immigration policy enforcement. Have you seen any evidence that it has had an impact either on your customer or on the tech market?

Brian D’Ambrosia, CFO, Monroe: We have not. I think that it’s kind of baked into our full year kind of belief for calendar twenty twenty five in the consumer and that we don’t see it materially getting worse, materially getting better from the challenged environment that Mike described around tighter trade down and a really value oriented lower income consumer. So our planning process in terms of growing units in both tires, growing visits in oil, growing guest count, as well as the conversion into other services is that we’re going to have to gain share and take it from someone else.

Unidentified speaker, Host: The point is that you had already assumed in your guide whether as immigration policy enforcement tariffs, uncertain consumer and market is going to remain how it has been. But the point is that Monroe has this nice opportunity to continue its transformation, gain market share and grow independent or at least above what happens in the market.

Brian D’Ambrosia, CFO, Monroe: That’s correct. I agree with all that other than we haven’t provided a guide, but in our outlook and our the color that we provide in our quarters, that’s the assumption.

Unidentified speaker, Host: Got you. So it has been a process and you’ve talked a lot about all the actions that Monroe has taken to serve the customer better, serve the tech better. Where is Monroe on this journey to improve its profitability? There’s been a lot of puts and takes on the inflation that trade down to certain tire levels. What are the principal opportunities to improve the profitability here?

Brian D’Ambrosia, CFO, Monroe: We’ve said that, we’re going to like Mike said, we’re going to go get our units back, we’re going to get our brakes back, get our customers back and we’re committed to that top line growth. And we said it on our last earnings call, even if that meant putting pressure on our short term profitability. We were going to make the pricing investments and take the promotional actions that we think were warranted to continue to attract customers back to Monroe after having lost tire units in Q1 and Q2 of last year. And we largely did that in Q3. You saw that it did put pressure on our gross margins, but we did say that we had higher units, higher units year over year in our full Q3.

The path to restoring, we’ll call our operating margins back to what is our ultimate goal of double digit operating margins. It comes with really two to three primary pieces. The first is a healthy and growing top line. That top line will deliver a lot of fixed cost leverage for us throughout the P and L, both in occupancy costs and cost of goods, but also G and A. The second is variable margin improvement.

And we talk a lot about the compidrive, courtesy inspection that’s supportive of those service categories. Those service categories come with 70% margins relative tires at 40%. So we continue to do a good job converting into those services. It should have a healthy mix impact on the business, which will be supportive to variable margin expansion. And then third is going to be continue to find places within the tire category to optimize margins, to find the right places to optimize promotion offers, take price and make sure that we are razor sharp on what it takes to drive units in tires, but also doing that in a way that maximizes margins.

Unidentified speaker, Host: And what type of sales growth number is needed in order to generate leverage in the business? And how do you see the path of profitability playing out from here? How should shareholders potential shareholders think about the time horizon to restore some of the business back to where it’s been historically?

Brian D’Ambrosia, CFO, Monroe: Yes. We talked about this a little less than a year ago in terms of giving some range on what flow through from a comp sales standpoint is. So our comp sales hurdle to for inflation is about 1% to 2%. So the first one percent to 2% of our comp sales is gobbled up by inflation. Anything above that or below that is about a $0.13 add for every one point in comps.

In terms of what we the timeline, I think we’re very focused right now and Mike can come on this too. I’m just making sure that we have solidified our unit share and making sure that we see if we build on the trends that we saw in Q3 and execute on the growth in our service categories based on the comp for drive, continue the momentum we saw in January on breaks with the growth and then ultimately continue to be really opportunistic in those places where we can price pull back on promotions. That’s ongoing, but I don’t think I would assign a timeline to that other than we’re committed to doing that over the long term. Okay, anything to add?

Mike Broderick, CEO, Monroe: It’s a great business. We have a sales problem at Monroe. So that is what we’re focusing on is getting ourselves back and then we can manage expenses once we get ourselves back.

Unidentified speaker, Host: And do you think that there might be more investment needed in order to drive the sales?

Mike Broderick, CEO, Monroe: I’m not investing any more margin that goes back to there has to be a reset with the manufacturers, tire manufacturers. Coming out of COVID, there might have been scarcity of supply, they put a lot of price in, all that needs to be reset and that’s what we’re working on. Got you.

Unidentified speaker, Host: One of the questions that does come up from time to time on the longer term outlook for the auto services business is, is it changing vehicle complexity with EVs? And how do you see that playing out? Have you been getting EVs in your bays? What have you had to do to adapt to this changing vehicle population?

Mike Broderick, CEO, Monroe: Yes. So the aftermarket is known to adapt. EVs is a great opportunity for us. High torque heavy vehicles are all center of gravity kind of they just destroy tires. It’s crazy.

So if you have one, I know it’s a sick way to describe it, but you’re going to be buying tires. Suspension also very difficult. And although you talk about functional fluids from an internal combustion engine, it all goes down to cooling the battery for it to be efficient. And that technology comes to the aftermarket. We like that business model.

So I would say EVs aren’t a problem. I think that’s an opportunity. We adapt well to it. It’s really about how do we keep our customers healthy, how do we drive the value and perceived value that they can come to Monroe. The better the tech, the better they want, I mean they’re literally challenged to bring on new vehicles.

That’s what we all live for is to to fix those vehicles that are relatively new. There’s a lot of also a lot of information out there, good information that is shared that really helps us inform not only our technicians, but also Monroe, Mike Glidden and myself is like, hey, look, what’s going on? How do you do this type of work? And when you’re in the aftermarket, as long as people like myself, that’s what we live on is to fix things. And that’s what’s kind of great about our business model.

And we’re all makes all models. Unlike the dealership or their Chevrolet, Our technicians like it because they literally have the opportunity to work on a bunch of different vehicles.

Unidentified speaker, Host: So give us a sense, is Monroe currently working on EVs? Are there any restrictions on Monroe that?

Mike Broderick, CEO, Monroe: If you go to California right now, they’re all over our base.

Brian D’Ambrosia, CFO, Monroe: Yes. Yes. Nationwide, we’ve trained all of our technicians on how to properly lift an electric vehicle. There are certain things that have to be in place on the lift, certain pucks that we’ve invested in to be able to make sure that we can lift EV without damaging the battery compartment below. And like Mike said, predominantly in high EV geographies.

We do a significant amount of EV work, a lot of tires as Mike said.

Unidentified speaker, Host: Got you. Where I want to conclude our conversation is investors have come to think of the services business as a bit volatile, the tires a bit volatile. There can be unexpected bumps along the way, no pun intended. With that being said, if this you have articulated a very compelling story. If this doesn’t play out as you expect over the next couple of years, what are going to be the two or three factors that will stand in the way of Monroe from being able to capitalize on its potential from here?

Mike Broderick, CEO, Monroe: We can’t attract the best technicians in the marketplace. That’s one. We have to be great to our teammates. That’s been a big focus of myself and the management team is how do we continue to improve our relationship with the back shop. And then we still need to continue to improve.

We’re at 4.4 on the rep score right now. How do we get to 4.6? And that leap is a big deal to me. We were at 4.2, it took us a long time to get to 4.4, how do we get to 4.6? That relationship between the consumer and if they’ve lost confidence in us for whatever reason, I would say that would be something that just that would be failure to me.

And if I can’t attract great technicians that secondly that would be failure too. So those are the two big I would say the big cohorts that we really focus on.

Unidentified speaker, Host: And from a financial flexibility standpoint, Brian, can you provide a sense of where Monroe currently stands? Is there any capital constraints that would prevent the company from capitalizing on it?

Brian D’Ambrosia, CFO, Monroe: Yes. No, we have the ability to fully fund all of our capital allocation priorities and also continue the path that we’ve been on of deleveraging the balance sheet. We only have about $50,000,000 of net bank debt to EBITDA, only about 0.3 or four times levered on a net bank debt to EBITDA ratio, $50,000,000 of net bank debt. That’s a 0.34 net bank debt to EBITDA ratio, if I misspoke there. And it allows us to fully fund our CapEx allocation priorities, which are continue to invest in the business through CapEx, continue to pay down our other finance lease debt, which is about $40,000,000 a year and then fully fund our dividend.

And that really preserves a balance sheet that’s really ready for an opportunistic unit growth opportunity or other shareholder friendly actions.

Unidentified speaker, Host: Well, we look forward to continuing to see your progress. Please join me in thanking Mike and Brian and Felix for a wonderful presentation.

Mike Broderick, CEO, Monroe: Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.