Advance Auto Parts reported third-quarter net sales of $2.5 billion, a nearly 10% increase over third-quarter 2019, as the retailer continued to see a surge in DIY demand.
Comparable-store sales jumped 10.2% compared to third-quarter 2019, marking Advance’s biggest comp-sales increase in 15 years.
During the company’s third-quarter conference call, CEO Tom Greco asserted that three “external demand drivers” are buoying the automotive aftermarket during the COVID-19 pandemic.
The decline in new-vehicle sales is contributing to the aging of the car parc – always a plus for the aftermarket – while consumers’ reluctance to use mass transportation is “creating a heightened emphasis and reliance on personal vehicles.” And with more people working from home than usual this year, some DIYers have more time on their hands to do their maintenance and repairs.
”Finally it’s our belief that when motorists have DIY needs in this environment, they prefer to shop in smaller boxes,” Greco added. “In our stores they can feel safe, get the trusted advice they need and get back on the road quickly so that they can do the job well.”
Advance’s “DIY-growth initiatives” are producing good results, according to Greco. The company’s acquisition of the DieHard battery brand in late 2019 – bolstered by this year’s ad campaign featuring Bruce Willis – has boosted Advance’s market share in the battery category, he noted, and the company has seen a positive response to its same-day delivery services as well as the launch of its mobile app earlier this year.
He also noted that Advance has seen year-over-year growth in active “Speed Perks” members since rolling out the revamped customer-rewards program last summer.
“Importantly, we’re seeing a steady increase in members graduating to the Elite and VIP levels,” Greco added. “Our graduation rates improved by more than 20% year-over-year, reflecting an important share-of-wallet gains for DIYers.”
In its professional business, Advance delivered “mid-single-digit net sales growth” in the third quarter, after sales declined in the second quarter due to COVID-19-related temporary shop closures. Greco pointed to professional initiatives such as “dynamic assortment,” which leverages machine learning to ensure that the company has “the right part in the right place.”
“This enabled both assortment and close-rate improvements as lookups and demand surged,” Greco added.
Adjusted gross profit in the third quarter increased 11.2% to $1.1 billion. Among the cost-savings initiatives that Greco highlighted, the company is making headway on cross-banner replenishment, which “redirects stores to a more freight-logical distribution center” to reduce shipping miles.
“We’re on track to complete approximately 40% of our identified stores by the end of the year, with completion and full run rate expected to be realized by Q4 2021,” Greco said of the cross-banner-replenishment plan.
Advanced reported approximately $9 million of costs related to COVID-19. But the company managed to reduce its SG&A (sales, general and administrative) expenses as a percentage of net sales, thanks to a number of initiatives, including travel restrictions and the company’s continued focus on workplace safety. According to Greco, the company’s lost-time injury rate – a measure of its most severe workplace accidents – dropped 33% compared to third-quarter 2019.