Q1 2020 Earnings Call

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[noise] at this time for questions, we'll take our first question from Eric better with FCC Research. Please go ahead Sir.

Hey, good afternoon, congratulations on a very corridor.

Hello.

Eric Kenya.

Yes, I can you hear me Hey, yes, sorry about this technical difficulties here.

Alright, Congrats centigrade corridor could you talk about the supply chain and.

Well you are working with your vendors.

And what should we expect going forward in terms of your ability to capitalize on the.

So we've been around for 25 years and most of our suppliers in Asia, we've been working with them for over two decades, we have great relationships.

Our partners in Asia had some minor disruption at the beginning of the pandemic.

But most of our supply chain comes from Taiwan.

I wanted a really good job managing the pandemic.

As far as our suppliers and partners in China. There also back the work we had a couple of weeks of disruption, but as of today.

Containers are being brought on water were receiving product and everyone is back to work.

Okay and change so basically we are back in all of that how do you look at.

The branding of JC, Whitney and as you down to Chile.

To online Sir side, how does that give you leverage level for what should we be thinking about now Mr. J.C., we need man.

Yes, I think that JC Whitney brand is going to could become a brand of our private label products like we've mentioned before.

We're also going to launch several other brands along along weather.

So depending on where that part goes.

Yes, that's going to determine the branding on the part.

And on the side the focus is really on our part dotcom.

And so that's going to leave the flash of side that we're going to be last wells.

By the end of this year so.

One more sites that were going to generic will be Jason Whitney and then we're going to make a nice experience on hardware Discomfiting Brown.

Great Congratulations look forward to seeing Argos wrestling here.

Thanks.

Once again will once again press star one if you have a question, we'll hear from Sarkis Sherbetchyan with B.

Riley FBR.

Okay. Good afternoon, and thanks for taking my question London.

Sure.

Also you guys can hear me so.

Just wanted to kind of touch on the.

Inventory position, you mentioned strong private label sales growth and pretty solid quarter to date trends now do you feel about your inventory position seems like you might be kind of bumping up against some of the physical location capacity at the DC is great.

Jamie you talked about that and I will follow.

Bill I think in terms of inventory, it's always kind of a work in progress for us. It's the one of the is the oxygen of our business. So we are right now we have a whole team focusing on inventory forecasting and we're constantly looking for opportunities to make it more efficient and we work with our partners in Taiwan and.

And China in terms of forecasting to support the current growth now over the last four weeks we saw.

The unprecedented demand so we're working with our suppliers to get as much inventory and start as possible to support the growth.

Now to your point the network right now in terms of the three distribution centers is currently operating full steam.

No we're constantly evaluating options and as soon as we design.

We're going to do and Jones Act.

The network in the supply chain for we'll let you know.

Okay. That's helpful and in that regard would it be potentially mapping out the next DC next location or would it be something else.

Yes, so we have.

As live as we've talked about before in our strategy is tied part right time right place and the right time of that equation after with our fulfillment capabilities, it's making sure that we'll get our parts to our consumers.

And our customers in general.

Faster and so if that means getting closer to the customers are expanding our existing fulfillment capabilities.

We're going to continue doing that and so it could come in the form of expanding our existing dcs or new DC.

Or combination of both.

And.

Thanks for that and then.

In the release in the remarks, you kind of mentioned D. The higher margin E com businesses outpacing the marketplace business can you maybe give us some more contracts or color around in either the metrics or just kind of.

Something a little bit more detailed for us to kind of.

I understand what what's going on with the numbers.

Yes, so we will.

We've always.

Data and that our goal was to grow our E commerce business, because it gives us an opportunity to on the customer and.

We want to grow and the same pace has a marketplaces are growing so if you look at ebay and you look at Amazon.

You can kind of look on their growth from extrapolate kind of how fast.

Well growing there because we are growing.

I was a same day has as they are.

What I can tell you is that our E Commerce channel.

Is growing significantly faster.

And we're very excited about the interaction that it's taking our fan for competitive reasons, we decided not to.

He leaves information around traffic conversion and things like that as well as E commerce revenue on spend because a lot of our customers a lot of our competitors I'm sorry.

Not public companies and so.

We wanted to add to keep a lot of that information closer than us.

Okay. Thanks for that.

We have a follow up from Eric better with FCC research.

Hi, guys.

Two things one did you talk a little about the marketing stand and wait for how you plan on focusing on I know you wanted a lot of great each allied.

Let's now where that's going in terms of obviously shortly website, but beyond that.

How are you taking those customers and rain a more onboard learning through.

So I think.

In the last year towards the end of the airway implement.

Aram.

And so we've we've seen some really good success around.

Utilizing the data that will have an our system.

To sell customers parts that are more related to their vehicles as are the long term vision is that we should be able to participate and the maintenance conversation knowing what vehicle the customer has.

As well as knowing kind of how that is how many miles the customers driving and we should be able to build the holger ours, because most of our customers. It's it's a household guide it's not just one car.

Probably multiple cars, so we need to be able to build out a whole garage and deliver value to the consumer not just trying to perspective, our selling parts to them, but when they all happen, we'll be able to London now.

So theres a lot of work being done right now on how we can utilize the data.

To better target the customers not just.

For the purposes, as our selling them more parts, but also for the purpose of building a long term relationship with our customer and positioning ourselves.

The expert in the industry.

Somebody that they can trust and that they can turn to when they're thinking about the repair because ultimately you want to stay top of mind.

One that repair comes around and when they have that need they should be thinking our view as a first plays a little too.

Great and so.

Well a lot of people basically stay at home.

Because when they start coming back in driving is that an opportunity you guys. How do you look on that potential.

Selling general and Lucky months in the car.

Hello.

Yes, it's actually a great opportunity I think there to do things there so miles driven nationally right now are down about 50%.

So I think one one that's driving returns within collisions will return as well so that's the first opportunity.

Other opportunity is mechanical parts.

Moneycard sitting around understanding driven.

And in some areas of the country. The temperature as are still fluctuating rises Lynn harton warm.

A lot of the seals and a lot of mechanical parts are going to start failing.

And so we've been busy kind of.

Replacing our existing suppliers mechanical parts and we have.

Partners in China that are helping us.

Kind of build out a full product assortment on the mechanical side.

So I think anything thats under the hood or in the will base.

That entire lineup as is is being sourced right now.

So as deeply turns are driving and as those mechanical parts are failing we see it has a big opportunity for us we havent really carpenter.

And Eric as to what led just said on the mechanical parts side, what's what's really great is that historically, we get a lot of business in Taiwan, but in China. We have a lot of a big suppliers that are ready to partner with us and going bust and kind of build that business with us because we've been in business for 25 years, we're starting.

Look ahead over the next.

10 to 20 years, how do we expand those relationships in Asia, and how do we make investments in partnership with those suppliers.

And we're happy to report that we've done that and we've been working on this so.

Expects some good things out of the mechanical parts business. Thanks.

Interesting. Thank you.

We'll hear from licensing Dahl with Craig Hallum Capital Group.

Hey, guys congrats on the corridor.

Hey, Thanks, Ryan sorry about that technical difficulties.

So all good.

Second Mel I appreciate taking your questions here as well.

So I apologize I didnt hear anyone else's question. So if you've already answered these.

I apologize but.

Wanted to start with.

You know CAC and marketing spend can you talk about kind of efficiency using what that was in Q1 and then what trends were in March and April and you guys are seeing any efficiencies from and the demand picture as well as potentially some cheaper AD spend on Facebook, Google et cetera.

Yes, I think.

I won't give you exact numbers, but I'll tell you kind of what were seeing in the margin.

I think in March there was this pullback.

From most retailers on on across multiple advertising platforms.

The primary one is that something Google for us but.

We saw Amazon leave a lot of the part names.

And so thats kind of drove lower cbcs.

But the demand was also lower.

So the demand for fall apart.

You have on Google times, and see that as well, so I'll, probably 30% to 40%.

And then as we kind of got used to this new normal and as most consumers that got used to stay at home orders and now driving.

We saw the demand starts coming back and we also saw.

One of our competitors kind of seeing that demand back in the marketplace brining cdcs backup.

I wouldn't say that the marketing spend up more efficient.

Link in the margins one played out of that demand, one up and CBC run up whether.

But there's more demand now so if you compare.

If you look at Google times over the last couple of weeks.

You'll see that nice in the beginning of March of all at 100% right now, we're setting up somewhere like a 120%.

Meaning that demand there's a lot more in search traffic Aldeyra Cpcs are also a little bit higher.

On.

Marketing spend deficiency is pretty much.

On par with whereas was in March.

And then you mentioned, 40% sales growth quarter to date or the first five weeks.

Q2.

Breakup between private label and branded and then secondly, how do you feel about inventory right now.

At the moment, given kind of our that strong demand and you think that could be a constraint on the remainder of Q2.

So on the private label versus branded split right now we're sitting at about 92%.

So private label in the first five weeks of Q2 grew at over 70% so that translated into growth for total sales at over 40%.

Brand. It is a small part of our business now and we're really trying to drive the the private label as far as inventory.

Again, we have a team that's focused on that and we do would skew level I think we did a really good job last year at managing inventory of course, there's always some wants to do.

Right now Weve seems an unprecedented demand out of the inventory we have that we're working with our partners both domestically and in Asia, the kind of get the inventory to support the growth.

Good well, it's impressive private label.

Last question for me, then I'll turn it over so with the operational improvements AJ made last year, but up until now it's really seem to be starting to pay dividends in margins in results. How do you think about pivoting from operational turnaround to growth focus and then what are the next few initiatives kind of on euro.

Matt.

Yes.

I mentioned before I think we're evaluating our fulfillment.

And as David.

Inventory is a few onto our architecture so.

Certainly need more inventory to drive.

Additional growth our also starting from marketing perspective, we're starting to look at.

Upper funnel marketing.

So on the next call on Tvs, you updates on what that looks like but will have a few initiatives going on this quarter.

That's where testing into upper funnel marketing under expansion side.

We're definitely looking into how can we start playing in maintenance space.

So whether that means changing the assortments.

Or thinking through how the communicate with the customer.

That they need to do preventive maintenance and you know where do they do it how do they do it like thinking for all of those questions.

I think those are all the things are in the works. This year I think the the most important thing that we can do is no. This is here too.

And for US what we've always said is that last year was year zero in a literally took all of last year to build the team.

Really define our strategy come up with a project with matter, but we have a three year strategy that we're executing on and a lot of.

A lot of that strategy hinges on doing the basics through literally wells.

And so we don't want to chase. The next shiny object I think we're still really focused on operational execution and operational excellence.

We're focused on our core business and now is definitely the time for us to really get focused on and rally around our core business.

To make sure that we don't lose focus off of what was them doing because it can go it can go bad really fast.

So I think.

To answer your question, we have a lot of initiatives going on but the main focus of almost everybody in the company is to continue driving the core metrics and not dish to chase the next shiny object.

Absolutely good to hear.

Thats, a flurry of affecting Q. Good luck guys and congrats on the solid results.

Next question will come from Gary Prestopino with Barrington Research.

Hey, good afternoon, I didn't hear many of the question, so I'm, hoping that among them.

Nothing to be PDGF, but.

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As I look at your gross margin I mean, it's continuing to expand obviously that is due to the fact that you've got more private label.

Anything inherent in the mix in private label that drives that gross margin either way.

I guess, what I'm trying to get as is as you stay in the nineties.

Gross your private label as a percentage of sales should that gross margin pretty much stay within a range of 33% to 34%.

Well I think we kind of like the margin where it is now obviously it will fluctuate kind of up or down based on product mix.

We are working on some big initiatives around brand partnerships. We are working on kind of co investment opportunities with our manufacturing partners in China. So we do have projects lined up and as the mechanical parts becomes a bigger part of our business good kind of fluctuate up or down but I think.

In terms of just like overall, we kind of like when we are right now.

So you say mechanical parts versus what will that be like maintenance parts.

Grants collision angle.

Those are loosening tonnage.

The collision right now is about it in between 70 and 80% of our business.

Additionally, the industry mechanical parts are also huge opportunity for us.

So from a data perspective supply chain perspective.

Coinvestment with the manufacturing partners quality control sourcing.

As long as marketing and technology work will go for this so right now just a small part of our business, but there are opportunities in the feature for us that we're working on.

Is there any different than the gross margin between those two category broadly defined.

Mechanical is actually a little bit mechanical is actually a little bit higher gross margin after freight.

No thats more standard box.

So if you think about collision valuable Scott herds and bumper covers and Sanders, our convert goes LTL some of the Golden a giant box.

Whereas mechanical and I know it fits nicely into the clinic systems.

Gross margin after freight on mechanical parts is actually a little bit better than.

Collision.

Okay, and then in terms of what you're seeing at least now that more people shopping.

In line. Thank you.

Upside versus brick and mortar stores, obviously because of what's going on coal bed, but is there anything that you're working on now trying to get retention of these customers or have you actually seen.

Some some retention in terms of follow on orders from some of these customers.

I think it's early to see follow on orders because they're just replacing.

Their first orders are in online a few wells.

No I think I think in other ways. The way that was set ourselves up is we want to be able to provide the best experience online for auto parts shoppers.

Now.

Benefiting from the fans of their shopping for the first time and we spent all of last year on things like sites speed and user experience and simplifying the churn outflow.

And making sure that if we get parts to them faster than before so.

So I think these first time shoppers are benefiting from all the things we did last year.

And.

We believe that will continue benefiting.

From making those investments last year, and making additional investments are going to make this year.

Thank you.

That will conclude today's question and answer session I'll now turn the call over to Mr. Peaker for any additional closing remarks.

Thank you everyone and we'll talk to you in August one were announced positive.

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