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COVID-19 caused, 'people to start to do things themselves': Advance Auto Parts President

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Advance Auto Parts President & CEO Tom Greco joined Yahoo Finance to break down their recent Q1 earnings report and the outlook for the car parts industry.

Video Transcript

ADAM SHAPIRO: All right, if you're buying a new car or a used car, you know you're going to pay through the nose to get it. Prices are up. But one of the thing that's happened, is people are holding onto cars, they're fixing them up themselves. And no better place to go get the parts than Advanced Auto Parts. The CEO is joining us now. Tom Greco is president and CEO of Advanced Auto Parts, joining us after what was a very strong first quarter earnings report. Thank you for being here. Your sales jumped 23%.

I like to do show and tell sometimes. This is a Bendix two barrel carburetor, Stromberg carburetor. I rebuilt this, and I was glad I was on your website before the show. And I can still get the kit to rebuild it. I'm a terrible mechanic. It comes from a different part of my life when I starred in episodes of "Jewish Mechanic." But what is driving people buying the parts? Is it because car prices are so high now?

TOM GRECO: Well, first of all, thanks for having me, Adam. We had a great quarter. As you said, our sales were, our comparable sales were 24.7%, which is an all-time high for us. We grew our margins by 466 basis points. Our EPS was up 234%, also an all-time high for our company. And I think the industry overall had a very strong quarter. And as you indicated, there are some macroeconomic factors helping that. I mean, obviously the coronavirus had a significant impact on consumer behavior last year.

That caused people to start to do things themselves instead of necessarily having their car repaired at a professional garage because they had time on their hands. They were concerned about mass transportation. To your earlier point, they held on to their cars. They didn't necessarily buy a new car. So there are a number of factors that have been tailwinds for the DIY business over the last year. And the good news is, now as we all get back in our car and start driving again, that's going to drive more repairs, more maintenance for us, and in particular, on the professional side of the house.

SEANA SMITH: Tom, I wanted to ask you that just in terms of your DIY part of your business outperforming your pro. I mean, how long do you think, or it sounds like you've already started to see that rotate a little bit and your pro segment come back. But I guess, how long do you expect this trend to continue?

TOM GRECO: Yeah, well, first of all, the trend started, Seana, last year in the second quarter when we started this kind of abrupt change in consumer behavior. And now as we start to lap it in April and May, people are starting to return to work. They're certainly starting to return to do the things they know and love, visiting their friends, visiting their family, going out to restaurants.

And that means miles driven starts to grow. They will not have as much time on their hands as they did before. So that means they're probably going to get their car repaired professionally. And that's why right now we're seeing professional outperform DIY, as we indicated today. And that's really good for us, because 60% of our business is professional, and we're extremely well positioned to take advantage of that trend.

ADAM SHAPIRO: When you talk about taking advantage of that trend, given your background, I mean, the impressive background you had when you were over at Frito-Lay and other companies, what lessons from that, because that's a different kind of business, and yet so consumer-facing, what lessons do you bring to that with Advanced Auto Parts? Because I'm a car nut. I'm in your store, I'm there, no problem. But what are the lessons?

TOM GRECO: Well, I mean, there's a couple of things. I mean it's a very different business, so we'll start with that. But I also love cars and trucks myself. I think one of the things that I brought from PepsiCo is brand building. Brands are very important in the consumer products industry, and they're very important in the auto parts business. And that's why we acquired the DieHard brand about a year and a half ago. And we've been investing behind the DieHard brand.

We advertised it last fall featuring, of course, Bruce Willis. And that has been extremely successful for us not only to drive sales, but to drive awareness of our company. Our awareness is relatively low as a company nationally, and when you have a brand like DieHard, that really helps. Obviously, Frito-Lay is known as a very strong distribution organization and has an exceptional supply chain, a lot of digital capabilities. So those are some of the things that are, I would say, transferable as you come into this environment.

SEANA SMITH: Tom, you also recently announced a large expansion into California, into the West coast. Just talk to us about the opportunity that you think that presents there for the company going forward.

TOM GRECO: Well, we are very excited about our announcement today. I mean, first of all, we announced that we are converting 29 auto parts stores out in Oregon. It's a company called Baxter Auto Parts that has been around for 80 years, that know their customers, know that market extremely well. They're going to convert it over to the Carquest banner. And then in Southern California, we have an arrangement with Pep Boys where we're assuming the leases for 109 stores.

And what that enables us to do, Seana, is get out there with our lineup and our value proposition back to DieHard. We bring the DieHard battery brand into Southern California, into Oregon. I can tell you the team members out there can't wait to sell DieHard batteries. It's got a great reputation. We bring our digital capabilities, our online catalog, our professional customers that are out there. We're able to service them. We weren't able to service them properly when we don't have the physical store presence that we have in other parts of the country.

So essentially extending what has been a very successful value proposition that we've been investing in over a number of years, including our team members. And our team members are a very important part of our value prop, and we've been investing significantly in them, about $60 million actually over the last several years in stock that we provide to our frontline team members, which is something that they're very excited to hear about out in LA as we assume those leases.

ADAM SHAPIRO: Tom, as you point out, nothing is forever. I mean, I'm old enough to remember when you got a DieHard battery at Sears, and that's what? A 90-year-old brand. Going forward, with the conversion and race to electric vehicles, does that impact where Advanced Auto Parts might be going in the future?

TOM GRECO: Well, we're very excited about getting into California. And we talk about the electric trend as being deeper than it is sooner. We laid out what is really the outlook for pure BEV vehicles in our April investor day. We expect about 15 million by the year 2030. So it's going to be a gradual shift, given there's 280 million vehicles on the road today. And once again, DieHard has tremendous equity. It's an equity associated with power. We see extending DieHard into that world as it starts to unfold.

We've obviously got a lot of physical buildings out there that we're going to take advantage of. But we sell a lot of things that BEV vehicles have on them today, whether that's brakes or wipers or some of the other components that are part of a BEV vehicle. Obviously, it has a lithium battery on it, doesn't have an internal combustion engine. But we're going to continue to look for ways to reposition our business and use California as a bit of a testing ground for that.

ADAM SHAPIRO: I hope you will come back. It's always fun to talk cars, and the world is safer when I am not working on cars, I can tell you that. Tom Greco is Advanced Auto Parts president and CEO. All the best to your team.