Monro, Inc. (MNRO) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to the home stretch where we could not be more excited to have the team from Monro 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 Monro over the last few years. Brian D'Ambrosia, he is the company's CFO in what 12 years.

Yes, 13 years with the company.

Time flies when you're having fun. And Felix Veksler, does not need much of an introduction, but he does run the IR function at Monro. Where I want to start in a 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 nondiscretionary in nature. There is some seasonality and there is some decision-making. Mike, you've been around consumer businesses for a long, long time. Even if you're still a young man. With that being said, how are you thinking about the of the consumer right now?

I don't see the consumer changing much. I would say, over the last 2 years, we've basically been calling it. It's been a string consumer. Just to be incredibly clear, that's why we're like incredibly focused on Monro and fixing Monro. We have basically made 3 declarations starting in May that we're going to get our tire business back. It all started with big ticket, although we're nondiscretionary 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 are quite 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. It 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, a 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 Monro 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.

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 the tires are not mattresses. Mattress is you can, as a consumer, sweep 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 markets you keep in mind as it thinks about Monro's business.

Yes. What we saw was customers were deferring later and later with tires. And we had to not only create some excitement around tires in 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. I think there's something not right about it. I know that's anecdotal, but I would say that's the deferral cycle that we are 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 -- buy your tires, I would say that's what we've been focused on, Michael.

Got you. The other popular topic is your -- are tariffs. And Monro 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 Monro doing from these overseas markets that might be subject to tariffs? And what's the playbook that Monro is going to use on how to handle that.

Yes. It's a great question. It does depend on the category in terms of how much of the build 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 1 through 3 tiers and a good amount [indiscernible] relative to even our competitive set are manufactured in nontariff-impacted countries at least to this point. Where we see the biggest impact of tariffs is going to be on the Tier 4 tires which we have intentionally -- our strategy has been to have less exposure to those and try to preserve our Tier 1 through 3 tiers with promotions and offers for our consumer to buy what we think is a higher-value tire and better for Monro, but also for the consumer. So we think what that means is that as tariffs potentially impact that Tier 4 tire and potentially that impact the competitive set to a disproportionate amount that it impacts Monro, we'll see those Tier 4 prices that have been where customers have been gravitating to in this value-oriented environment start to no job, and therefore, the value prop between a Tier 4 and Tier 3 or at least a 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 1 through 3 more competitive relative to Tier 4.

So lots to unpack there. First and foremost, the product is a small portion of the total build that the consumer sees to 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.

Yes. I think the primary sources of supply for us across our screen without getting in too much specifics, there is North American supply, certainly, U.S. supply. And then there's 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 4 category is made.

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 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 typically going?

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. 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 1 vendor what's pricing on me. I can immediately go to another vendor and say, "Hey, look, you want more -- we have 1,250-plus stores, you want exposure to this 1,250 stores, and that's the game that we're playing right now. I'm not interested. We've invested of 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.

Got you. Makes a lot of sense.

And I'm focused on growing, and they're not.

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, Monro'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 the consolidation continuing to accelerate?

I can answer that. I would say that...

You guys have had these questions before.

We've been working together for a couple of -- we're very aligned on this. We really -- 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 deal. So it just goes to show you even below chains of 10 stores, the ones, the twos, the five, tremendous amount of fragmentation. And that just makes the industry continued right for consolidation. And if you look at the top 10, a number of them have -- including Monro, have embarked on that consolidation path. As far as Monro 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 Monro'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.

You want to add something you got.

I'd be glad to. Just think about the industry. A lot of the 1 store, 2-store chains, it's because you had a technician that all of a sudden decided to own their own shop. And now that technician is -- they might have been a great tech, mechanic, right? And they had a loyal following. They were able to open up that 1 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 and driven by the OE there's an expectation. And I would say that 1 to 2 store chain, that technician, their business acumen has to now continue to rise. Their investment in their own business has to rise. 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.

Is it right to see, Mike, that 10, 15 years ago, there would -- there might have actually been an advantage for small players because it's a local business that where convenience matters a lot in that interpersonal relationships. But as the cost environment is the other challenges in the environment have evolved scale has become more important in the industry. Is that a fair...

That's how I looked at it. And I've been calling on Monro for close to 25 years. I've been in the industry for 35 years. And that's why I'm -- that's why I'm part of Monro. That's why we're focusing on Monro because I think that we -- scale does matter.

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?

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, start with the back shop, the front shop and that relationship with the consumer.

And it seems like 1 of the hallmarks of Monro's current strategy assured 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 -- the locations with more technology, more prompts or training to be able to provide that better experience for the customers -- is that a fair characterization? And can you give us...

Is that where I go into my commercial about ConfiDrive and the whole digital...

I think, Mike, we 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.

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 factor for our organization. Last quarter, we talked about 250 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 leave those at 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 trust the automotive aftermarket.

I do. I trust both of you.

Michael. Yes. No, I don't trust you. So I 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 most of our customers. That's why we literally -- we've embarked on this technology journey of literally driving that courtesy inspection. We had a courtesy inspection. It was 32 points. But it was on a piece of paper and you couldn't read anybody's handwriting, you couldn't 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 e-mail 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.

So it's been about a year since the ConfiDrive have 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?

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 didn't 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 off. That would be a great experience. The customers would really like it. Or we say, oh, 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. 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 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 a 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 fix. That's what we address. You don't have that problem anymore.

I think there's 2 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 it at a later date. The other thing that the courtesy inspection does is it gives the history of their car. So if they see that their tires were at 630 seconds a year ago, and now they're at 430 seconds when they go in, that's going to resonate with the guests of 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 330 seconds or less you're going to need to replace those tires. So it gives a preview to what may be coming down the pipe in terms of service needs for the vehicle.

So if nothing else, the resistance points are being overcome through transparency by and empowering a customer some information.

That's right. 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.

And what have you seen so far? So it's been about a year. You obviously have 2 customers that you serve. The car owner as well as your service tech. What has been the reaction for both?

Technician hardest change -- I have done some things and hardest change management program that we've put in place. .

Why did you do that?

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 2 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, we ride control and alignment, substantial growth. And we're looking for every category to be positive. Oh, 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.

What have been the resistant points from the -- how have you been able to overcome the resistance point? So you raised a very interesting point. If I'm a technician and I have -- 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 you've been able to overcome some of the objections.

If you follow our process, you make more money. Not only that, but you have a -- 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.

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 inspections occurring in the back shop. And we really -- I think the store managers have grabbed on to the value that, that courtesy inspection provides 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 guests 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 ConfiDrive and making sure that they're reflective of what the vehicle really needs.

If I ask you, has this been more challenging than you originally anticipated? It sounds like your answer would be yes. So that, a, is that true? And if you had to use a baseball analogy or a percentage term, where is Monro 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.

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.

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 factor that explains why brakes have seen more of an impact in other categories?

The deferral. They just -- 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 their 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 dish repair 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 brake-ware is. When a customer comes in and says, look, my brakes are squalling, that's an easy sale. And that's an easy fix, right? They already know there's a known problem. Our job is to educate the consumer where that problem, where in the cycle that problem is, and it's hidden behind the 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.

Where would you expect the benefit to them materialize? Is it the tire business? Is it some more battery business somewhere else?

A better inspection wouldn't help all the bad brakes. So it starts with the tire customers come in. It's why 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 expect the brakes. And that's what we've been focusing on.

And so you're through this process, collecting a lot of information, what do you need -- what does Monro 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 Monro in that process?

Yes. 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 brake offer, and we're trying to do some guess work on the last time you went for brakes and 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 e-mail or a post card, whatever way we feel may best reach you depending on your demographic. We can include not only the offer, but picture, a recreation of the ConfiDrive that you already have in your home. . Yes, it will show you it will take the brake measurements right off of what we put in, and you have on a sheet of paper or in your e-mail 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.

And what type of response are you seeing to those.

Yes. I mean we haven't commented on -- we haven't commented on that side of it, but I can -- but we do know that we have we have less time under our belts with that because as Mike said, we launched it, as you said, on April 1. It was really a 6-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.

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.

Tech turnover is part of the industry dynamic, I would say our good techs, our flat rate technicians. We have 2 type 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 still put a lot of pressure on people that I've been doing this for 20 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 1 year, less than 2 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 1 way we're going to go to market SP-11 Moving forward.

And what does the path look like from here. The silver lining or the half-glass-full is you are helping empower these text 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.

It's been every bit of 6 months that we really -- they call 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 1 unit for that 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.

As a tangent to this, there's been a lot of focus on immigration policy enforcement -- Monro, 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 Monro. If indeed, this process accelerates, such that it does draw some labor out of the tech pool how, a, will that impact Monro? Is there going to be an indirect impact where the rates for all tech go up? And b, what's the plan to be able to manage through that? And is this a reasonable progression of logic?

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 Monro has absolutely no issues with that type of a worker. If they are drawn out of other businesses or other sectors of the economy, it could put pressure on that opening price point tack 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 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.

Well, 2 points on that. What is the current wage inflation and where -- relative to where it's been in the past.

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 12 to 18 months ago. And that -- it 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.

And the government is 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?

We have not. I think that it's kind of baked into our full year kind of belief for calendar '25 in the consumer and that we don't see it materially getting worse, materially getting better from the challenged environment that Mike described around tire 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. Take it from someone else.

So the point is that you had already assumed in your guide, whether it's immigration policy enforcement tariffs, uncertain consumer -- market is going to remain how it has been, what they're -- the point is that cx has this nice opportunity to continue its transformation gain market share and grow independent or at least above what happens.

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 provided in our quarters, that's the assumption.

Got you. It has been a process, and you've talked a lot about all the actions that Monro's taken to serve the customer better, serve techs better. where is Monro on this journey to improve its profitability. There's been a lot of puts and takes on the inflation of the trade down to certain tire levels. What are the principal opportunities to improve the profitability here?

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 Monro 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 unit -- tire units year-over-year in our full Q, 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 2 to 3 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&L, both in occupancy costs and cost of goods, but also G&A. The second is variable margin improvement. And we talk a lot about the ConfiDrive courtesy inspection, it's supportive of those service categories. Those service categories come with 70% margins relative to 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 and tires, but also doing that in a way to maximize the margin.

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.

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 1% 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 1 point. In terms of what we -- the time line, I think we're very focused right now, and Mike can comment on this too. I'm just making sure that we have solidified our unit share and making sure that we see -- we build on the trends that we saw in Q3 and execute on the growth in our service categories based on the ConfiDrive, continue the momentum we saw in January on brakes 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 time line to that other than we're committed to doing that over the long term.

You got anything to add?

It's a great business. We have a sales problem in Monro. So that is what we're focusing on is getting ourselves back and then we can manage expenses once we get our sales back. .

And do you think that there might be more investment needed in order to drive the sales.

I'm not investing any more margin that goes back to -- that 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. One of the questions that does come up from time to time on the longer-term outlook for the auto services business? 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?

So the aftermarket is known to adapt. EV is a great opportunity for us. High-torque, heavy vehicles, they're all center of gravity kind of thing -- 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 there -- 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 Monro. The better the tech, the better -- they want -- I mean, they're literally challenged to bring on new vehicles. That's what they -- we all live for is 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 Monro, including myself, it's 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 where all makes all models. Unlike the dealership or they're a Chevrolet, our technicians like it because they literally have the opportunity to work on a bunch of different vehicles.

So give us a sense that is Monro currently working on EVs and there any restrictions on Monro that...

If you go to California right now, they're all over our base.

Yes. Nationwide, we've -- 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 left, certain packs 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.

Got you. Where I want to conclude our conversation is investors have come to think of the services business as bit volatile tires a bit volatile, there can be unexpected bumps along the way, no pun intended. But that being said, if this -- you've 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 2 or 3 factors that will stand in the way of Monro from being able to capitalize on its potential from here?

We can attract the best technicians in the marketplace. That's 1 -- 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 this 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, secondly, that would be failure too. So those are the 2 big, I would say, the big cohorts that we really focus on.

And from a financial flexibility standpoint, Brian, can you provide a sense of where Monro currently stands? Is there any capital constraints that would prevent the company from capitalizing those?

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 million of net bank debt to EBITDA, only about 0.3 or 4x levered on an net think debt-to-EBITDA ratio, $50 million of net bank debt, that's a 0.34 net debt-to-EBITDA ratio. And it allows us to fully fund our capital 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 million a year and then fully fund our dividend. And that really preserves a balance sheet that's really ready out for an opportunistic unit growth opportunity or other shareholder-friendly actions.

We look forward to continuing to see your progress. Please join me in thanking Mike and Brian and Felix for wonderful presentation.

Thank you very much.