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Advance Auto Parts CEO on spike in Q2 net sales, growing customer base, online traffic

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Tom Greco, Advance Auto Parts CEO, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss the company's recent quarterly report, its typical customer, rise in electric vehicles and much more.

Video Transcript

ALEXIS CHRISTOFOROUS: So Advance Auto Parts is coming off a strong earnings report. They also rang the opening bell this morning at the New York Stock Exchange. And joining us now is the company's CEO, Tom Greco. Tom, good morning to you. Talk to us about this jump in sales that you saw last quarter. Was a lot of that because people put those stimulus checks to work, buying up auto parts?

TOM GRECO: Good morning, Alexis, thanks for having me. And certainly, the stimulus and unemployment benefits helped us. But there was a lot of other factors that contributed to the performance. First of all, our team members really stepped up in a meaningful way. We're an essential business, so it's very important for us to be keeping our first responders, health care workers, and many others on the road during this time.

You know, nobody asked for a global pandemic. There really wasn't a playbook for it. And we had to build that up from the ground. And our team really stepped up. And it resulted in about 7.5% comp sales growth, 270 basis points of margin expansion, and 60% increase in free cash flow, which is one of the strongest quarters we've had in a long time.

I think that there are a couple of other factors that contributed to it. First of all, when you have a difficult macroeconomic climate, you know, people tend to postpone new vehicle purchases, which means an older fleet, an aging fleet, if you will, and more repairs and maintenance on that fleet. COVID-related factors would include things like people appropriately concerned about mass transportation.

You know, they don't want to get on a bus. They don't want to get on a subway. And your personal vehicle becomes a safe place, if you will, and something that's very important for people. Also, people have time on their hands. They can't sit in their homes all day, you know, watching Netflix or looking at a computer screen.

So eventually, you've got to get out and do something, and that can include things like, you know, home improvement or fixing your car. So, you know, there are some other external factors. And we also had a couple of internal factors that we feel contributed to our success.

BRIAN SOZZI: Tom, we're already starting to see it, and I suspect we'll see it more over the next three to five years. The electric car boom. Tesla, NIO, you name it, these cars are coming in a big way. How will that change what Advance Auto Parts does? How are you going to play in that trend? Because the bottom line is, I open up a Tesla hood, I have no clue about it. I can't work on that out of my garage.

TOM GRECO: Yeah, no question, Brian. I mean, there's a couple of large, we would call, mega trends that we monitor pretty closely. Electric is obviously one of them, autonomous is one, ridesharing is a disruptive element in the automotive sector, and connectivity. And so we look at all four of those very carefully.

Now, we are the aftermarket, so, you know, we tend to service cars that are older. You know, our sweet spot is cars over six years old. There's 280 million cars on the road in America today. It's a huge number of cars and light-duty trucks. And electric itself, well, it affects the new vehicle sales today. If you even fast forward to 2029, it's still a relatively small part of the business by then.

But obviously, we look at all of those trends and ways that we can take advantage of them in the future.

ALEXIS CHRISTOFOROUS: Tom, you know, during the quarter, we saw some of your competition have to pivot to other things, like Walmart, which sells auto parts, had a pivot to other essential items like food. Did that help give the bottom line a boost? And if so, how do you-- how do you plan on retaining those newfound customers?

TOM GRECO: Yeah, good question. I mean, obviously, when this thing hit, it was highly disruptive in so many ways and changed consumer behavior meaningfully. You can't go out to a restaurant, you can't go to a stadium, people are staying inside, they're eating at home. So that caused, you know, large companies, like a Walmart or an Amazon, to, you know, really prioritize staples, food and beverage products, things like that, which meant that the proverbial long tail of products got deprioritized.

And that opened a window for us. And obviously, we took advantage of it. We've been investing heavily in our Omni-channel platforms for a number of years now. Just listening to the previous speaker, the technology impact on our business is meaningful as well. Over 80% of purchases now start with an online visit.

So, you know, we had to make sure that our online portal was really a great consumer experience. We launched our app in the early part of the year, which helped us a lot. So we got in a lot of new traffic that came in. And obviously, once you get them in, the idea from there is you've got to keep them.

And we have a very powerful loyalty program that we call Speed Perks that we leveraged during the pandemic. And we expect we'll continue to drive our business going forward. So we obviously want to get these new customers to come in and have a good experience out of the gate, and then you want to keep them there and increase your share of wallet over time.

BRIAN SOZZI: Tom, I have 10 seconds left. How did you get into auto parts? I remember talking to you when you were running PepsiCo's Frito-Lay division.

TOM GRECO: Yeah, I know, it's a great-- I love cars and trucks, for one thing. It's a great business. It has a lot of things that were similar in my old world. A large frontline organization, the importance of digital and Omni-channel, a complex supply chain. So there was a lot of things that I learned from my prior experience that I was able to leverage in this role.