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On this episode of On The Tape Dan Nathan and Peter Boockvar are previewing this week’s Federal Reserve meeting, what are they looking for ahead of Wednesday’s rate announcement (2:00)? After the break, Peter Boockvar interviews Michael Broderick, Monro CEO. Michael dives into the automotive parts industry and his journey to become CEO (11:30). Peter and Michael discuss the current labor market environment and how Monro is overcoming staffing headwinds (17:30). The electric vehicle revolution is on our doorstep, what does that mean for the auto-services industry, will it actually be a boom for those in the tire replacement business (28:45)?
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Show Transcript:
Dan Nathan: [00:00:31] CME Ad. iConnections Ad. Welcome to a bonus edition of On the podcast. I am your host, Dan Nathan. I am joined with Bleakley Financial’s Peter Boockvar. Our listeners know and love Peter. He is the CIO over there. He’s also the author of the Boock Report. You got to read this, people. It’s one of my first reads every morning. That’s Boock Report, the BoockReport.com. Peter, welcome back to On the Tape. [00:01:44][72.8]
Peter Boockvar: [00:01:44] Thanks, Dan. Always fun to be here. [00:01:45][1.3]
Dan Nathan: [00:01:46] We got a lot of stuff to go over. We’re going to hit your interview with Michael Broderick. He is the CEO of Monro, Inc. That is a Nasdaq listed auto services company. And we’re going to go through why you wanted to speak with Michael and what you kind of gleaned from that conversation about the U.S. consumer, about just some of the challenges they have, finding employees and the like. So we’re gonna hit all that, but we’ve got to hit the Fed. We know that we have the CPI print comes out Tuesday morning. The Fed chair Powell is going to have a rate decision. CME Fed fund futures strongly suggesting that we’re going to have 50 basis points. If you look out in 2023, it looks like we’re gonna have another 50 basis point in hikes. Not maybe all at the same time. And that’s something that I think that we’re going to spend so much time trying to figure out how we get there. Peter, talk to me a little bit about this week. This is kind of important. You know, it’s been a volatile year in almost every single risk asset. You look at the S&P 500 down only 17 and a half percent. Given the the pace of hikes we’ve had this year, it just doesn’t seem comprehensible a little bit. But we won’t have another Fed meeting until February 1st. Talk to me a little bit about what your expectations are for tomorrow’s data. Might we see some sort of volatility in and around that, or will it be reserved for the Fed’s decision the next day? [00:03:03][77.6]
Peter Boockvar: [00:03:04] Well, we’re going to see continued moderation in the rate of consumer price increases, the expectations at 7.3%. And we peaked at above nine over the summer. And this number is going to continue to drop as we progress through 2023. But even at 7.3% and even with continued moderation, the Fed’s rate hike on Wednesday is still going to take the Fed funds rate to just four and a quarter, four and a half, which is still well below the rate of inflation. So the question is, is where do those two points sort of intersect where the inflation rate continues to drop, the Fed keeps raising rates and we eventually get to a real rate of about zero, which is where the Fed wants to get to. And as you mentioned, you know, the two main pressure points this year in markets have been higher inflation, 40 year highs and most aggressive monetary tightening in 40 years. And now we’ve shifted to, okay, Fed’s almost done, inflation’s topping out, everything is fine, but I think 2023 is really going to be defined as a measure of the economic consequences of this new rate environment that we’re in. And how do we move on economically and market wise in a higher rate regime for longer? [00:04:10][66.7]
Dan Nathan: [00:04:11] And The Wall Street Journal this morning, there was a headline that caught my eye Slowing growth edges out inflation as top concern. And I think that’s to your point. I think that all of us can get our arms around the fact that 40 year high readings in inflation are topping out, especially when you consider some of the reasons for that. All the fiscal monetary stimulus, the shooting war in Europe, what’s happened to supply chains with China and zero COVID. So again, we’re probably on the other side of some of the worst aspects of that. But we do have a scenario where the Fed has routinely indicated that they’re going to leave rates higher for longer until they see inflation get back down towards those low single digits a little bit. But talk to us about that, because you just said for 2023, I mean, this is going to be the battle, right? It’s going to be okay. We still have elevated interest rates. We have elevated levels of inflation. But if everything that the Fed hoped to do with those rate increases takes hold in 2023, we’re going to a weaker economy. Right. And so now, you know, the fascination among strategists and investors is going to be for the first half of the year, are we in a recession? How deep of a recession will be and how long will it be, in your opinion, is there any way that the Fed can nail the landing and we avoid a recession in 2023? [00:05:27][75.9]
Peter Boockvar: [00:05:28] There’s almost no chance. And I say that because of the very high dependency that the US economy has on the cost of capital, because we have very low savings rates even at the business level where a lot of the cash is sort of landlocked. It’s most of the bigger companies because of the low savings rate, we’ve been very dependent on a low cost of capital, whether it’s in getting an individual to buy a car or a home or it’s a business and just financing themselves. And as you get a higher cost of capital, structurally, that just itself is going to slow the rate of growth. And I see it’s almost impossible to avoid that recession. Now, if you take the most interest rate sensitive parts being housing and autos, well, that’s north of 20% of the US economy. And you have Europe that’s in a recession that’s going to affect the trade aspect of GDP. And you have capital spending outside of the bigger companies who will always continue to spend. But as earnings growth slows, cash flow is weakened. Capital spending that’s close to. So mathematically, I don’t know how you avoid a recession. So I think it’s more of a debate of how deep it is and how prolonged it will be, being more the question of whether we’re going to have a soft landing or not. [00:06:45][77.0]
Dan Nathan: [00:06:45] Peter, you know, we spend a lot of time talking about the 210 spread inversion. It’s, you know, 80 bps right now. I think it got as high as 85 bps in the two year is kind of pat. It’s tracking what the Fed is doing with Fed funds. But the precipitous drop in the ten year Treasury yield from 4.3% just a few weeks ago to about three and a half percent today. I mean, that really kind of highlights what we’re talking about here. But does does it kind of suggest like the potential for stagflation? And just again, I know that you’ve talked to our listeners a little bit about that in the past, but we talked about a lower growth environment. But the idea of stagflation, where you have lower growth and higher prices and just a malaise that just cannot end well for risk assets. So I’m just curious. Stagflation. We haven’t seen it since, what, the seventies here? What does that mean for the stock market and other risk assets in 2023, in your opinion? [00:07:37][51.3]
Peter Boockvar: [00:07:38] Stagflation creates this what I call a death by a thousand cuts type environment where unlike you, 2000 2002, where we had this macro event of the crash of tech and then of course 08 09 housing and the banking sector, I see this with this higher rate environments and higher inflationary environment, even though it’s going to be much less than what we’ve seen, just sort of like eating away at multiples and and just grinding away at economic growth. And then when you look at what’s a major economic growth driver from here and it’s hard to point your finger at and obviously growth is population growth plus productivity, but productivity has been pretty poor. It’s been negative for three quarters in a row and household formation has been pretty anemic. So you try to figure out where is this growth going to come from? And therefore, earnings growth I think is going to falter. I think profit margins are greatly at risk. So while there’s not going to be one big boom of a fall, it’s going to be sort of this this grind you down type environment, I believe, sort of like how Japan came out of their their bubble. You know, there was no collapse in Japan. It was just this 30 year malaise. Now, I’m not saying that’s going to happen here in terms of timeframe, but I think it could we could see sort of a similar malaise that last a bit. [00:09:01][83.5]
Dan Nathan: [00:09:02] Yeah, I guess in the very near term, just to kind of highlight a risk asset that might be depicting all that would be, you know, crude oil. When you look at it, just, you know, yesterday or Friday afternoon closed that a new 2022 low. It’s still a little bit above its December 2021 lows. And so it hasn’t made a new 52 week low, but maybe that’s getting a bit oversold. It was trading above 90, you know, a month ago and it kissed 70 this morning. All right. Let’s talk quickly about your interview. Set this thing up by Michael Broderick, CEO of Monro. You’ve had a lot of really interesting discussions on the tape with some CEOs over the last few months. What are you hoping to learn from speaking to Michael about Monro? And again, like I highlighted before, some of the issues that they have as far as consumer spending, some of the dislocations in supply chains and obviously securing workers. [00:09:52][49.6]
Peter Boockvar: [00:09:52] Yeah, so that’s what I found interesting because their business touches upon a lot of the, you know, the macro themes that we talk about what’s the state of the consumer where used and new vehicle sales going and where’s the status of price changes there as being a main driver of of goods inflation that we saw for the past couple of years the transition from internal combustion engine to EVs. They’re seeing that firsthand and from the repair side and this chronic labor market shortage and finding enough skilled workers because their business needs skilled workers, whether it’s a technician or a mechanic that is dealing with these sophisticated automobiles. And I think he he touched upon all that. And Monro is not a name that many people have heard of, but they’re the largest independent auto service company out there. And we hear a lot about AutoZone in advanced auto parts. They are the do it yourself. It’s just for the what they call the DFI and the Do It for me business model. So I think it was some interesting micro talk, but also talked on some some interesting macro talk with respect to the consumer and the other things that I just mentioned. [00:10:54][62.4]
Dan Nathan: [00:10:55] Well, do it for me when it comes to cars is my motto here. All right. Listen, I really appreciate you coming on talking to us a little bit about your expectations for this week from the Fed, from the data, what you are kind of thinking about as we enter 2023, we’ll definitely have you come back and give us a broader outlook in general of what investors are in store for next year. But we really appreciate your time. We appreciate you coming on. And Michael Broderick, we hope you come back really soon. Thanks, Peter. [00:11:21][25.6]
Peter Boockvar: [00:11:21] Thanks, Dad. Happy New Year. [00:11:22][0.9]
Dan Nathan: [00:11:23] All right. Stick around for Peter’s conversation with Michael Broderick, CEO of Monro, Inc. [00:11:27][4.0]
Speaker 1: [00:11:31] CME Ad. iConnections Ad. FactSet Ad. [00:11:32][1.0]
Peter Boockvar: [00:13:42] I am Peter Boockvar. Here is another episode of the CEO podcast. Today I have the CEO, Mike Broderick of Monro. I’ve been following this company for more than 20 years, and it was originally, from what I remember, Monro, Muffler and Break. So if you needed something fixed with your car, if you needed a new tire, you needed an oil change, you need a new brakes. Monroe was that place. So Mike, welcome to the show. [00:14:06][24.2]
Michael Broderick: [00:14:06] Peter Thank you very much for having me. And actually all of Monro, I look forward to talking to you about our business and sharing what we do and where we’re going. [00:14:15][8.3]
Peter Boockvar: [00:14:15] So, Mike, you’re your bio has car guy written all over it? I see advanced auto parts, federal local, auto zone. What sort of brought you into this industry? Was it just happenstance or it was a love for cars where you wanted to make that your career? [00:14:31][15.4]
Michael Broderick: [00:14:31] Really good question because I get asked this often. I didn’t start out as a car guy. I actually grew up and it was really very much father led. My father used to throw me out in the driveway and said, fix the car. Didn’t give me a lot of direction, a lot of instruction. I’m sure I’m not the only one that live that way. I loved fixing things. It just is a lot of fun. And that’s the best part of our job at Monro is we fix things. It’s not just selling stuff, we fix problems. I was always one of those people that, you know, it changed out brake pads, you know, the tune ups. I just fix things. And I tinkered enough where I had enough experience, where after college I took that experience on the road and I started selling parts. But I’ve always been excited about fixing things, whether it’s in my driveway, in my garage or other people’s cars. [00:15:19][47.7]
Peter Boockvar: [00:15:19] So you’ve sort of gone from what we call the do it yourself, where the average consumer would walk into an auto zone or advanced auto parts. It would find something that they needed and they would try to figure it out themselves. And now you are the do it for me business. When I started following Monro, maybe the company had a few hundred stores and now you have about 1300 in 32 states, whereas previously you were just mostly northeast. How did you get from there to here? [00:15:47][28.0]
Michael Broderick: [00:15:48] I’ve been here for approximately 20 months. I just use round numbers right now, but I’ve been calling on Monro for over 20 years, just like you, Peter. I’ve been part of the Monro story calling on them in the Northeast, and I’ve seen how we’ve expanded through acquisition. We really have done an incredible job as an organization developing our footprint, and it really goes back to our model, going back to focusing on our customer, focusing on our teammates. And we’ve been able to expand through acquisition and our growth mainly was focused on acquisition. I would say our same store sales were relatively flat, but we were big acquirer of a very fragmented marketplace. I still believe that’s a big opportunity for Monro. There’s a lot of questions I get where else you’re going to go and we’re looking to fill out those other 18 states that we’re not in and fill out the states that we are in with legitimate density. And you’re correct, we have an organization that was built in the Northeast, but now we have 106 stores down in Florida. We have 100 stores out in California. We have nothing in Texas, for example. So I really look forward to filling out the map. New York State we have stores basically in every community, so we might not focus on New York State, but we fill in a lot of other markets across the country. I’ve talked about the southeast and the southwest is big areas of opportunity for Monro and most of it would be through acquisition. But it’s not just acquisition of companies that have, you know, garage stores. I’m looking for good companies and I think that’s been part of the success of Monroe, that we’ve really had a good relationship. We understand the business, what good looks like, and we’ve been able to acquire partners that come on board because we do a good job taking care of their business, taking care of their people, and we get rewarded. I believe for many years of what we’ve been doing at Monro is building a very successful organization. [00:17:39][111.0]
Peter Boockvar: [00:17:40] With half your business is tires literally just replacement tires, I assume where people, you know, they get a flat and they come in and you’ll sell them a new tire and you’ll you’ll put it on for them and then you do it. Everything else, brakes and steering and alignment and other maintenance services like an oil change is. Has that mix sort of been pretty steady, as is the tire component, typically the biggest part of of fixing one’s car? [00:18:06][26.8]
Michael Broderick: [00:18:07] It is it’s a big ticket item. So when I look at the jobs, tires are not half of the jobs that we perform, but they’re big ticket items, significantly larger, an average ticket repair. So I look at our business as a very balanced approach. It’s all about the car. So cars, new tires, they need brakes, they need tune up, they need batteries, they need starters, alternators, they need steering parts. These are the things that we’re focused on is how do we just have a very balanced approach to our business all focused on. Retention of that customer, having them feel comfortable coming back to us. Oil change, whatever it takes in order to keep that car on the road. It’s the second largest investment our customers make, and we want to be very much part of that equation where customers feel like we provide value, that we do a good job the first time that we’re easy to do business with. I think that’s a lot of what I’ve been focused on, at least for the last year and a half, for sure. [00:19:05][58.7]
Peter Boockvar: [00:19:06] Cars have become much more sophisticated in what they can do. They’ve essentially become your smartphone on the road. That and that also means it’s very complicated. If something breaks, if there is a light switch that goes off, you know, there’s a whole electronic sort of pathway that you have to track to see what’s actually wrong. But you have to have mechanics that are sort of up to speed constantly on this new technology. How do you bring these type of mechanics in? How do you train them? How do you stay up to speed? Because you’re competing against the dealers. You’re competing against the dealers that are selling the actual brands. Your mechanics need to know as much as they do in terms of fixing that particular car. [00:19:53][46.5]
Michael Broderick: [00:19:53] Not to even add a little bit more complication where all makes all models. Now, I do believe that’s our greatest opportunity also to attract and retain the best technicians in the marketplace. But it all centers around that we have to attract retain the best technicians, and we’ve got to train them. So we’ve been focused not only online training, but also in the store training, in-classroom training. We’re trying to get these people up to speed. It’s all about confidence when you have a problem with your car. If you’ve already dealt with that problem with the car, it’s easy to fix and it’s fixed right the first time. Now, you started off with, you know, it gets more complicated. All the diagnostic tools that are available in the marketplace make our job easier. But you still have to have a qualified technician, somebody that’s actually been in the trenches that understand what those codes actually tell you is the problem. And what are some of the shortcuts of getting and resolving those codes that actually are triggering that check engine light on your dash? Nothing’s more annoying to me, at least, is having that check engine light on the dash. So the minimum expectation that I have for our organization is we’re going to be the go to to be able to remove that dash issue that check engine light. That’s where we’re going. But Peter, you said it. We’re all makes all models. We’re competing with the dealer environment that are singly focused on maybe one brand of automobile. We have the local mom and pop that might have a relationship at the local level in the communities. And here we are, you know, Big Monro Automotive. And we have to replicate that at the local level. And how do we do that? We focus every day on training, driving the Monro process, the Monro way, and that starts with answering the phone one way, greeting the customer with a friendly smile. All these things are minimum expectations in order for us to have that relationship with the customer. And if they come in with a problem and it is complicated, we’ve got to fix it. We have to have the right people in our back shops and the right people in their front shops to be able to communicate the problem and give the customer the confidence that we know how to fix the problem. I really do believe that’s the best part of the DIFM business. Do it for me that we’re fixing the problem. And that’s something that you mentioned, and that’s AutoZone, very proud of those companies. But you never saw the finished work. We see the finished work. The customer has the opportunity to drive off our parking lot with the problem solved. And I think that’s very rewarding from my perspective and why the best years are to come for Monro and how we position ourselves in the automotive aftermarket. [00:22:38][165.8]
Peter Boockvar: [00:22:39] So I’m going to mix in a lot of micro and macro here and asking these questions, because in today’s labor environment, it’s really tough to find people and it’s really tough to find skilled people. How do you manage the challenge of finding these technicians? How do you manage the technician that calls in sick all of a sudden, you know, the morning of of a full day shift and just the wage pressures that we’re seeing and the competition for talent. [00:23:10][30.1]
Michael Broderick: [00:23:10] I can’t say it easy. Nothing about what you described is easy. We’ve been incredibly fortunate. I have a very tenured leadership team that understand the values of our teammates and how to communicate properly to our teammates. They’ve been in the business for many, many years, so I think they’re really great frontline leaders, people that they understand how to relate to the to our stores. I think that’s from a culture and part of I think success of Monro is. Having that is at the highest levels. I think it’s very important now in order to support that, we did build an HR organization that has recruiting, that’s led by Matt Hanson, that has training, really, really building out the fundamentals of a strong HR organization because our product is our people. It truly is. We sell service now. I know we sell tires, but the majority of our business is service. So we built out an organization. Then last but not least is it’s all about attitude. And I think our teams have done an excellent job demonstrating to new applicants why you should be coming to Monro compared to somebody else in the marketplace. Part of that success, and we talked about the complicated cars is the fact that we do have a robust training platform that we are going to continue to invest, and making sure that our new people coming on board, as well as people who are working for us, have the tools and understand how to do the work. Then you when you talk about tools, we’ve invested a small fortune in equipment. There’s nothing more frustrating to a good technician is if they know what to do, but they just don’t have the tools to get it done. And we’ve at Monro have done a really just a great job in our facilities and how we’ve managed it to give our technicians the tools that they need to do their jobs and make their lives a little bit easier. And I think that we can do more and we will do more. But I think that from a very for the last 18 months, I’ve been very proud of the results of the team has actually been driving. [00:25:18][127.5]
Peter Boockvar: [00:25:19] And one of the the natural demand drivers of your business is the older the car gets, the more the customer needs you. And we’ve we were I don’t even know what the updated status of the average car on the road is what, eight or nine years at this point? I remember was six and 10:00 and seven, and it just seems like it’s going up every year. But there’s also a contingency of people that just love to lease. And after three years, they hand back the keys. And within three years there’s less need for maintenance hits that turn over to the use that seems where you get that real bump up. [00:25:55][35.9]
Michael Broderick: [00:25:55] So the average vehicle age is in double digits now. So I would say that’s a tailwind to our business. When I look at our business, everything’s focused on for me is how many miles are being traveled. It’s less about the car. So if the car comes off of lease, the second generation car owner, that’s a new car to that second generation car. They generally invest and they come to Monro to make sure that their car is working as well as it came off the showroom floor. So they come in for tires. They come in for 32 point inspection, making sure that we have, you know, their brakes are suitable for the next 10, 15, 20, 20,000 miles. So when I look at just what’s been going on really since COVID is as the world is coming back to normal, vehicle miles traveled are coming back to normal. The car park is aging. When you look at the used car market, it seems to be very it’s it’s out of the grasp of a lot of people, the prices of a used cars. So when I look at new cars, the same thing. When I look at really how Monro is situated, customers are looking for us, looking for people like us because they’re trying to keep their existing cars on the road for longer. Or if they’re changing over to a used car, the used car might have more years than what they’ve been used to, and that requires more work. Brakes and tires don’t get better over time. Nothing gets better on a car over time. So it does put us in a situation where customers are looking for people like us, looking for people like Monro to take care of their car. Car needs. A lot of what I focus on is staying above that vehicle, miles traveled. I want to get more than my fair share of the customers who are looking for their cars to stay on the road to get it properly fixed in shops like us. I want to continue growing faster than vehicle miles traveled. I think that’s a minimum threshold of what I expect at Monro. [00:28:02][126.5]
Peter Boockvar: [00:28:03] But I see that average age only growing. I mean, one of the sort of outgrowths of the pandemic was that the entire auto industry was turned upside down where you had used cars that were worth more than new cars. We obviously have major supply challenges with semiconductors and other wire hangers out of the Ukraine and a bunch of other things where 13 million, 6 million annually adjusted rate of of new car sales was ended up being normal even though that number was a recessionary level and then force people to buy used. What I see over the next couple of years is you’ve had a limited number of new car leases and new car sales over the last couple of years. Therefore, you’re going to have less cars coming off lease going into the used car market. And rental car companies have been buying much less new cars because of the lack of supply. They’re also a source into the used car market. There’s going to be less of that. Therefore, people are going to have less options for that used car market and therefore continuing to drive their existing car even longer. Miles wise and age wise. My off on that or you got the same thing. [00:29:16][73.2]
Michael Broderick: [00:29:18] You’re spot on. So we did a strategic review of Monro. We actually prepared our organization for those tailwinds. That’s a challenge. That’s why we’ve staffed up our stores with. A year ago, I talked about over 700 technicians to really prepare ourselves. That’s why I train and we spend as much money as we do on training, making sure that we have the equipment so that we can take advantage of those tailwinds in our industry. What you’re looking at is very similar to what Monro looks at, but it’s all about our execution at the local level. And that’s where really. Everything becomes very real when you talk about these numbers. What you said is our opportunity, Monro’s opportunity. It’s really about how do we now take advantage of it. And a lot of work’s been put in place to take advantage of it. [00:30:03][45.0]
Peter Boockvar: [00:30:03] So I want to hear about your thoughts on the transition to more electric vehicles in the market. The stats, it’s only 1% right now, so it’s still very small, but you hear a lot of projections looking out ten, 15, 20 years and certainly a lot of it mandated. A lot of the car companies are obviously investing big. And of course, if you have an electric vehicle, you don’t need an oil change. How do you see sort of the mix of your business? And again, this is going to be more evolutionary, rather rather than revolutionary in terms of the timing of it. But how do you see the mix sort of evolving over time and sort of retraining your technicians to learn about the guts of an EV and how to fix a problem with that compared to the internal combustion engine car. [00:30:53][50.2]
Michael Broderick: [00:30:54] They’re in our shops right now. So the EVs are coming to our shops. They’re growing big time big time growth, but they’re a very small percentage of our repair orders. But the most of the work that we’re focused on is tires, brakes and chassis work so that we haven’t really dived into the drive train and the replacing batteries. And I don’t know if we’re ready for that, but you said something really important for you to that. I want to just grab on to you. I’ve talked a lot about training, a lot about training in this organization for my short tenure. It’s like one of my big five. I actually talked about this during a quarterly analyst call. It’s a big portion of who our DNA is. If we’re not training, we’re not working. Of that training. That mindset, I think, is going to become very relevant and challenged as the car park changes. I think we have good fundamentals. We have a strong foundation and training. But what you have identified is I think it’s really going to be tested when the car park flips over. We’re seeing that out in California where we do a good job at the local level. We’re taking market share. We’re an alternative that the customers can rely on. I think we’re going to have to expand that across other states because we do see that as we have a better quality, better trained technician that’s able to diagnose the problems, fix the problems in a timely manner. We’re getting rewarded with sales. The majority of our work is still when I say it’s the majority of the work is still just tires and chassis work and brakes. Now the good news about electric vehicles, they’re heavier and they have high torque. So everything that everybody likes about them, I do too. And they generally wear out parts now. I think time will show that I don’t have a lot of facts, but we’re accumulating those facts to determine, hey, is the is the cycle of repair on an electric vehicle is actually shorter? And do we actually have more upside as the car park flips? And that just makes me even more motivated to train our technicians, make sure that we have the right people in every store to really start going out there, advertising to a lot of these expensive car owners that really they think there’s only the dealer to go back to. They can come to us as a dealer alternative and we can fix it right the first time and potentially drive a little bit of value in the equation. [00:33:18][144.6]
Peter Boockvar: [00:33:19] Well, it sounds like the California business is going to be an interesting test case for this, since they’re the state that’s most aggressive in making this transition. And if you look at the end of the day of line up per unit, store basis, how much revenue that internal combustion engine drove, no pun intended, versus a in 5 to 10 years, that California store where most of the customers are going to have the EVs, is there going to be a very similar revenue number? Of course, inflation adjusted? [00:33:51][32.4]
Michael Broderick: [00:33:52] Yeah, that’s a really good question. I don’t know if I have enough information to properly answer you. I do look at the changeover as an opportunity. Of course, I would say that on a call like this, but I do believe that if we’re prepared for it, we’ll be able to take care and take advantage of that customer dynamic. But how do the economics play out? I, I would say I have to do a little bit more work, but it doesn’t change the fact that we’re going to go after it and we’re going to focus on it and we’re going to prepare our organization forward. We’re going to advertise in market as an alternative to, I think, what customers believe is their only destination to get their cars fixed. They can come to a Monro branded shop and we’ll be able to, you know, fix their car the right way the first time. Now, how that plays out in the economics, I look forward to sharing that. That would be a different offered opportunity. And Peter, you talked about like the Monro, the old Monro, where we talked about mufflers and brakes. And, you know, now mufflers are less than 1% of our category, just like we evolved from mufflers. We’re going to continue to evolve and I look forward to the next two, three years because I think that’s all the time I have in order to get ready for that that changeover, right? [00:35:03][71.0]
Peter Boockvar: [00:35:04] Yeah. It seems that it’s gonna be an interesting mix. And one thing I did learn is that you talked about the heaviness of an ev of the car, which also means that you probably wear the tires quicker and you need to change the tires in a shorter period of time than you would in an internal combustion car. [00:35:21][17.7]
Michael Broderick: [00:35:22] I have data. I just don’t have enough data to be able to support that, but I believe that is correct. Between the high torque of those cars, the fact that they can accelerate and they’re heavy. And just common sense would mean that they’re going to wear out their tires and brakes faster than an internal combustion engine. But I look forward to be able to demonstrate that because I think that’s a reason to believe behind Monro. It’s also another reason to believe internally why we need to get ready for that business. [00:35:49][26.8]
Peter Boockvar: [00:35:49] You have a lot of different brands like I know the Monro Brand, but I’m looking at some of the other brands. Tire Choice. Mister Tire Auto Service. Car X Tire Tire Warehouse tires for less. Now, if you tire now if if those that shop there, had they heard of Monro or if the customer Monro, had they heard of the others like why so many brands as opposed to creating one brand that that would resonate nationally? [00:36:16][26.6]
Michael Broderick: [00:36:17] I think that’s where we’re going in the future. Monro has been very focused on fixing the end shop experience, making sure that we have the technicians, make sure they’re trained, make sure that we have the right experience when a customer walks through those doors. I believe that the customer. We establish that relationship and customers can trust us and they can trust us doing good work. They will allow us to change out the brand and they’ll be less concerned about the brand. More concerned about I’m going to go see Mike because she takes care of my car and he does a good job every time. I think that’s what we’ve been focused on. Ultimately, I do believe we’re going to have probably about two brands. We’ll rationalize the two brands because we actually have stores in the same community right across the street from each other. So having a two brand approach, I think will be relevant. But in the meantime, all my attention, all the companies attention is really fixing what’s most important to our customers and our teammates and making sure that we have quality talent, that we’re able to take care of the car the right time, right the first time, really fixing that experience inside the box. And our customers are going to continue to reward that good work. Less about the paint on the outside of the wall. [00:37:33][76.4]
Peter Boockvar: [00:37:34] Now, because of that labor thing being challenging, is that then make it more attractive for you to buy other businesses because then you’re buying existing talent as opposed to building greenfield stores and buying a plot of land and building it out from scratch and then having to go recruit and fill up a whole store. [00:37:54][19.9]
Michael Broderick: [00:37:54] We do both. We’ve done both. But I would say that right now we buy a business. One of the big key factors is the quality of people and making sure that the business is the people. So making sure that we’re able to retain and they’re the people that actually have built the business. A lot of the people who sell the business stay with us to continue to work. And we like that relationship. We really do. And that continuity of message, making sure that we don’t disrupt that relationship at the local level because honestly, the customer doesn’t know who Monro is. They will. If I do my job well, they will know who Monro is. But I would say in the meantime, it’s very much focused on that local relationship. So when we look at acquiring a business first and foremost, we’re looking at the quality of people that they have. [00:38:40][45.5]
Peter Boockvar: [00:38:40] Employed and just looking at them now. But where you have stores, it seems that the middle of the country and the Sunbelt outside of Florida and system in Louisiana, there is enormous opportunity here. And but that’s also where people are moving. More so than not, it’s where the populations are growing. Employment is growing in a lot of the states that you’re not in. So I’m assuming in the demographic studies that you do, you’re looking at those growing states. [00:39:06][26.4]
Michael Broderick: [00:39:07] You know, we’ve been very vocal about expanding to Texas, Georgia, Alabama, Mississippi. I mean I mean, we’re in California, but we’re not in Arizona. Not in Colorado. So when you look at these big markets that we’re just not in, it just gives us all an opportunity for years to come. It’s a very fragmented market. The automotive service is different than the automotive aftermarket parts, where you have three or four or five big competitors in a marketplace. Our business is very fragmented. I mean, we’re one of the largest and we have 1300 locations. And you’ve already highlighted we’re not in 18 states. And even the states that we’re in some some of the states besides Florida, we have a big opportunity to fill out the map. So scale is going to be important when you look at it. But the the fact that we’re just a very disciplined buyer right now and we’re very much focused on. I believe we’re going to be a better acquirer if we are a better operator. So a lot of my focus has been very much focused on the operations, fixing the in-store operations, getting our company to grow organically, not through acquisition. And then when we really get that flywheel going, then we go in, we acquire as much as we can and we fill out that map as prudently as possible. [00:40:25][78.3]
Peter Boockvar: [00:40:26] We’re obviously in a different environment. Interest rates are dramatically higher. We have been for decades a very interest rate sensitive economy that has become very accustomed to low levels of inflation and low levels of interest rates. And now it’s a different ballgame. And the consumer, with inflation being higher, exceeding wage growth, they are beginning to feel cramped, particularly the middle and lower income consumer. Are you seeing any change in behavior? Now, you can’t defer fixing a car so much because then you’re endangering your life. But some sort of discretionary type decisions, or are you seeing any of that? [00:41:04][37.7]
Michael Broderick: [00:41:04] We’re a non-discretionary business. So would you said, Peter, what I’ve seen is the deferral cycle starting in June, really starting in May, gas prices went up for our customers. Personal balance sheet has inflated. I mean, when you talk about the cost of groceries, just the amount of expenses that our customers are dealing with that they didn’t have to deal with a year and a half ago. We’ve seen it, but it’s also driving miles. So vehicle miles traveled once again is very important to us. We’re seeing that vehicle Miles traveled is still very stable. When you talk about the last holiday season, people got on the road more than ever before. I would say that it hasn’t stopped people’s behavior, but we did see a deferral cycle first. It started with tires, remember, big ticket, and then it moved over into some of our other service categories. So customers might say in the past, when we presented them, you need brakes or your car requires brakes, and this is the reason why their answer might be, okay, replace it today. They might ask, Can I get away with another 3 to 4000 miles? And and that’s just a very natural position, I think, where the customer is. We’re very focused on making sure that we’re offering good, better, best. A lot of our conversation right now is focused on value, really meeting the customer with value so they understand that they can come to a Monro shop and they can trust the prices that they’re paying. I don’t think there’s a retailer out there right now that can get out of the block. We have to be very price competitive, very, very customer focused, because if not, then the customer is going to choose somewhere else. [00:42:45][100.9]
Peter Boockvar: [00:42:46] It’s very interesting. I’m seeing that a lot with the consumer trade downs in a lot of different parts of the economy, even just from store brands, private label, that’s taking market share from the well-known brands that we all know that the consumer is definitely more sensitive. But the good thing with the car is that you can only defer for so long if it needs to be fixed. If you need your brakes, you need to do it. Well, Mike, I can’t thank you enough for for joining me and enlightening our listeners to what the company does. And as you mentioned, you’re the largest independent auto service slash tire center in the country, but only a little more than half the states. So thank you very much for your time. [00:43:25][39.2]
Michael Broderick: [00:43:26] Thanks for having us. [00:43:26][0.6]
Dan Nathan: [00:43:55] CME Ad. On the tape is a risk reversal media production. This podcast is for informational purposes only. All opinions expressed by me and Nathan Guy, Danny, Danny Moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions. [00:43:55][0.0]
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