Q1 2022 Genuine Parts Co Earnings Call
Good day, ladies and gentlemen, welcome to the genuine parts company first quarter 2022 earnings conference call.
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Please note. This event is being recorded at this time I would like to turn the conference over to Sid Jones Senior Vice President Investor Relations. Please go ahead.
Good morning, and thank you for joining us today for the genuine parts company first quarter 2022 earnings Conference call with me today are Paul Donahue, Our chairman and Chief Executive Officer will Stengel, our president and Carol Yancey, our EVP and Chief Financial Officer, and Bird Napier, our EVP and CFO .
Got it.
As a reminder, today's conference call and webcast includes a slide presentation that can be found on the genuine parts company Investor Relations website.
Please be advised this call may include certain non-GAAP financial measures, which may be referred to during today's discussion of our results as reported under generally accepted accounting principles.
A reconciliation of these measures is provided in the earnings release issued this morning, which is also posted in the investors section of our website.
Today's call May also involve forward looking statements regarding the company and its businesses the company's actual results could differ materially from any forward looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release.
The company assumes no obligation to update any forward looking statements made during this call.
Now I'll turn the call over to Paul for his remarks, Thank you Sid and good morning, welcome to our first quarter 2022 earnings Conference call.
Ed mentioned, we're happy to have Bert Napier on the call with us today.
<unk> joined US on February 28, the CFO elect and has been working side by side with Carol to ensure a smooth transition in this key role.
Turning to the first quarter. We are pleased with the continued strength in our results to start the year and we're proud of the great work by all of our 52000 GPC teammates who are at the core of our success a.
A few highlights in the quarter include <unk>.
Quarterly sales records for GPC, and our automotive and industrial segments.
<unk> margin expansion of 50 basis points.
Strong double digit EPS growth and.
And our strengthened balance sheet and strong cash flow.
The GPT team is focused on key strategic priorities to sustain accelerated sales growth.
Improved gross margins and enhance operational efficiencies in the face of ongoing supply chain challenges and inflationary pressures at levels, we haven't seen in 40 plus years.
We also executed on our acquisition strategy and our industrial team made excellent progress on the integration of command distribution grid.
And with the addition of lessor on which we announced last week, we have expanded our automotive footprint in Europe with the entry into key markets in Spain and Portugal.
Fifth largest market.
For the first quarter total sales were $5 3 billion, a 19% increase from last year.
We delivered our 18th consecutive quarter of gross margin expansion and our teams drove cost initiatives to enhance productivity and offset inflationary pressures.
All in adjusted earnings per share were up 24%, representing our seventh straight quarter of double digit EPS growth.
Total sales for global automotive were $3 3 billion for the quarter and 11% increase from 2021, and representing 62% of total company sales.
On a comp basis sales were up 10% driven by low double digit comps in the U S and Canada and high single digit sales comps in Europe and Australasia.
The sales cadence through the quarter was relatively steady with our strongest performance coming in the month of March with our teams posting a 30 plus percent increase on a two year stack.
Our pricing actions have contributed positively to sales and we have maintained our gross margins. Despite mid single digit inflation for the quarter.
As we look ahead, we believe the sales environment continues to support our pricing actions and we expect current levels of inflation to continue through at least the second quarter.
As mentioned earlier, our strongest Q1 comps were in North America.
In Canada. The continued reopening of the economy drove strong demand and a 14% increase in total sales with comp sales up 13%.
In the U S. Total sales were up 14, 5% with comp sales up 12% from last year.
These results reflect strengthening trends in our two year stacks for both markets.
In the U S sales to both commercial and retail customers were positive with double digit commercial sales growth outperforming DIY.
In addition ticket and traffic counts were both positive for the fifth consecutive quarter.
Sales were strong across a number of product categories, such as brakes heating and cooling and chassis.
DIY sales continue to trend trend well above historical growth rates with enhanced in store merchandising.
Improved product assortment and our digital initiatives all driving solid growth.
Napa online continues to be our fastest growing sales channel up nearly 50% from last year.
In addition, our after pay payment service, which operates existing and new customers buy now pay later option has been well received by consumers and is driving higher basket sizes.
We have launched after pay and other global markets and we're excited to see the growth generated from this new service both online and in store.
The strength in commercial sales was driven by double digit growth across the majority of our customer segments.
Sales to our major account partners Napa auto care centers fleet.
Fleet government and other wholesale customers were all strong driven by the continued strength and demand for commercial repairs and maintenance.
Our sales teams were also affected and extracting new business with national and regional accounts fleet and auto care accounts.
So an outstanding job by our teams and strong results across all our commercial accounts.
Furthering our commitment to the commercial segment, we are excited to return to the classroom within person training for our auto technicians across the industry.
Napa Auto Tech provides industry, leading virtual online and classroom training programs as a value add service for over 50000 technicians each year.
We are particularly proud that more to have more than 2000, new tax and are accredited training program.
Our European operations also had a strong start to the year with total sales up 14% and comp sales up 7% from last year.
These results reflect solid growth across each of our seven European markets and are especially impressive given the headwinds of a mild winter across Europe .
Our AG team continues to drive share gains through key account expansion and the continued rollout of Napa branded products.
As announced last week, we expanded our presence into key markets in Spain, and Portugal with the addition of lepton.
<unk> is a leading distributor of automotive aftermarket parts based in Bilbao, Spain.
With a nationwide footprint, including one national distribution center and nine regional DC servicing over 14000 customer partners and key accounts.
With our entre into Spain, and Portugal, both highly fragmented markets, we expect to further strengthen <unk> market, leading position by capitalizing on our European scale and purchasing expertise as.
As well as leveraging our Napa brand.
We welcome the <unk> team to the GPC family and we're excited to work together to maximize the growth opportunities in our European business.
In our Asia Pac business total sales were up 10% from 2021 with comp sales up 8% and the strongest two year sales tax across our automotive operations.
This represents a terrific start to 2022, despite the headwinds posed by the COVID-19 outbreak and severe flooding during the quarter.
Both commercial and retail sales continue to perform well with growth for the Rep, Cal and Napa brand driven by the increased demand and share gains from accelerated digital strategies and store expansion.
With 2022, representing <unk> 100th anniversary, it's only fitting in the Asia Pac team would have a standout year.
So now let's discuss the global industrial segment total sales for this group were $2 billion for the quarter, a 34% increase from last year and representing 38% of total GPC sales.
On a comp basis, which excludes Kate EG sales were up 16%, representing our fourth consecutive quarter of double digit comps driven primarily by the strong growth in our North American business.
The sales cadence strengthened throughout the quarter with March being the strongest up to three months.
The strong sales momentum in our industrial business reflects the benefits of our many growth initiatives and continued strength of the industrial economy as evidenced by the PMI and industrial production indices.
PMI has consistently held at expansionary levels of 57 or above every month.
Since October of 2020, and industrial production was up 8% in the first quarter its strongest year over year growth since the fourth quarter of 2020.
Our industrial team is executing on its sales programs to accelerate organic growth and delivered positive sales growth across every major product category and industry served with most up double digits.
As mentioned earlier, our industrial team made excellent progress on the integration of K D. G.
While will is going to go into greater detail in a few moments I would summarize by saying that we are on plan and generating expected synergies.
Wrapping up our industrial review, our strong first quarter results gives us confidence in our growth plans and pricing actions and we entered the second quarter with strong momentum.
We expect continued healthy activity levels across the vast majority of our products and industries.
Finally, it's important to add that we have been busy in 2022 building on our commitment to responsible ESG business practices.
Our focus areas in 2022 include formalizing, our carbon emission reduction strategy and establishing reduction targets as well as driving continued progress in de Eni.
We will provide additional details and report on our progress in these areas and our 2022 sustainability report later this year.
So with that I'll turn the call over to Wil well.
Thank you Paul Good morning, everyone I'd like to Echo Paul's comments and thank the global GPC team for the impressive start to 2022. The teams did a great job during the quarter and built on the strong finish to 2021.
As we traveled and visited the global operations during the quarter. The team energy is positive there is.
The strong sense of focus and alignment and it's encouraging to see the broad based strength across the business.
Our discussion centered around performance trends initiative progress talent and finding better ways to serve our customers'.
Global supply chain and inflation challenges are common topics and all are doing an excellent job to respond.
In flight strategic initiatives continued to deliver impact our foundational priorities, our talent and culture sales effectiveness technology, including data and digital supply chain and emerging technologies.
Strategic M&A complements our initiatives.
We added to our talent momentum during the quarter. In addition to Burke joining the team we welcome Jeff, England as EVP Chief supply chain officer of the U S automotive business.
Jeff joins us following an impressive career over nearly two decades at Walmart.
He will lead end to end supply chain execution for U S automotive and brings disciplined strategic leadership and relevant expertise. We're excited to have him on the team.
During our travels we had the chance to meet with the Canadian automotive leadership team in person for the first time in two years.
As Paul mentioned, the Canadian economy is showing encouraging signs of strength as it reopens from prolong the lockdowns in our Canadian team is well positioned with detailed market level plans to capture the growth.
We also traveled to Australia, where we visited locations and perform deep dive initiative reviews.
Like Canada. This was the first time in over two years, the extended GPC and Australian leadership team was together in person.
GPC Asia Pac continues to capture market share with its differentiated customer value propositions, new store rollout and unique digital and brand strategies, all of which are delivering winning profitable growth.
We look forward to celebrating the 100th year anniversary with the GPC Asia Pac team later this year.
In both Australia, and Canada sales effectiveness initiatives focused on market density data and analytics and customer loyalty are proving effective.
Our technology initiatives are building momentum the teams are gaining positive traction in our efforts across <unk> digital inventory store systems payments and workforce management platform we.
To invest in diverse engineering talent across the technology organization and evolve our operating approach to leverage common solutions around the globe.
Our supply chain initiatives are advancing well in the quarter, we visited with various U S. Automotive DC leadership teams in the mid Atlantic region, where we walked facilities assessed operational performance and thank the teams.
Our U S automotive distribution facilities are working hard to process strong demand, despite challenging supply chain and labor dynamics.
We also spend time with our industrial business and met with the extended motion leadership team.
We reviewed the successes of our fulfillment center and network optimization effort in Florida.
This strategy improved service levels enhances product depth and reduces duplicative fixed costs.
Similarly, while in Australia, we received an encouraging update on the traction of network and automation investments in New Zealand in Victoria.
And each example, our supply chain investments improve the customer experience and enhanced operating productivity.
Our emerging technology initiatives made progress in the quarter as well we hosted our first emerging tech supplier Council session with various automotive partners to learn from each other and explore opportunities.
We executed various targeted inventory strategies to serve current EV market needs rolled out marketing efforts added dedicated emerging tech talent and advanced numerous emerging tech commercial partnership discussions across Europe , Canada, and the U S.
M&A bolt on execution continues to be active we remain focused on adding density to existing priority markets entering complementary strategic geographies and or adding new product expertise or capabilities.
The <unk> integration and synergy efforts are ahead of plan. The dedicated integration team is executing a disciplined playbook to deliver value.
The feedback from teammates customers and vendors continues to be extremely positive.
The executive leadership functional and field operating structures are already realigned and the teams are working well together as one motion team.
As an example, the team rebranded the combined fluid power offering to motion fluid power solutions.
Based on motions existing vendor relationships, we on boarded over 20, new strategic fluid power supplier relationships, which added 2 million skus to our offering ultimately, giving our customers more choice and our vendor partners and sales teams more opportunity to deliver growth.
The team also realigned our automation and robotics business under the motion AI or motion automation intelligence brand, which now creates a $500 million leading national automation platform.
We are really pleased with the early momentum of the integration efforts and are excited about the value creation outlook.
In summary, our travels during the quarter reinforced that our initiatives are well defined and the teams are focused to execute.
Our people care about serving our customers always impressed with their deep expertise and are energized to deliver results.
Before I turn it over to Carol I'd like to again acknowledge her amazing career at GPC.
On behalf of the extended team. We thank you for all you've done for GPC and for all of our GPC stakeholders over the years with that I'll turn it over to Carol to detail the financials Carol.
And thanks to everyone for joining us today, we're very pleased with our strong financial performance in the first quarter. As a reminder, our comments. This morning, primarily focus on our quarterly adjusted results, which exclude the transaction and other costs related to the acquisition of command distribution group as outlined in our press release.
Yes.
Total GPC sales were $5 3 billion in the first quarter up $830 million or 19% from last year.
Our gross margin for the quarter was 34, 6%, a 10 basis point improvement compared to the first quarter last year, primarily driven by the positive impact of a strategic category management initiatives and areas such as pricing and global sourcing.
These gains were partially offset by slight headwinds from supplier incentives shifts in business mix foreign currency and the timing of inflation in certain product categories.
Our total operating and non operating expenses were $1 four 8 billion up 18% from 2021 and at 27, 9% of sales compared to 28, 1% of sales last year.
Double digit comp sales growth in the first quarter drove SG&A expense leverage despite the ongoing inflationary pressures in areas such as wages and freight.
Our teams are focused on executing our strategic initiatives to further reduce expenses and drive operational efficiencies.
With our strong sales and improvement in gross margin and SG&A segment profit was 453 million up 25% and our segment profit margin was eight 6% a 50 basis point increase from last year.
Our tax rate was 24, 5% compared to 23, 8% in the first quarter of 2021 with the increase in rate due to several factors, including the impact of prior year gains on the sale of real estate and geographic shifts in income.
First quarter adjusted net income was 266 million with adjusted diluted earnings per share of $1 86.
This compares to 218 million or $1 50 per adjusted diluted share in the prior year, an increase of 24%.
Really solid work across our global teams to achieve the strong growth in the first quarter.
So turning to our first quarter results by segment total automotive revenue was $3 3 billion up 11% from last year.
Segment profit was 265 million and up 12% with profit margin at eight 1%, a 10 basis point improvement from 2021 and up 120 basis points from 2019.
Our industrial sales were 2 billion in the quarter up 34% from 2021.
Segment profit of $188 million was up a strong 50% from a year ago and profit margin improved to nine 3% up 100 basis points from 2021, and up 180 basis points from 2019.
This margin improvement reflects the benefits of strong sales growth and strategic initiatives in areas, such as category management and pricing.
In addition, the industrial team is also advancing their plans to gain further operational efficiencies.
Both our automotive and industrial teams are doing a tremendous job of managing through a dynamic environment and delivering margin expansion through their steady focus on our strategic priorities. We've improved our total segment profit margin by 150 basis points from the first quarter of 2019.
So now, let's turn our comments to the balance sheet.
At March 31st our total accounts receivable was up 18%, including the sale of $200 million and receivables under on accounts receivable sales agreement.
Our inventory was up 17% or up 9%, excluding Kt G. A function of the sales increase and accounts payable increased 16% from 2021 in line with the increase in inventory.
Our AP to inventory ratio of 124% was unchanged from December 30, <unk> and the prior year.
Our total debt at March 31 is $3 5 billion up 900 million or 34% from March of last year, driven by the 1 billion in new public debt related to the KCG acquisition.
We closed the first quarter with available liquidity of $2 billion and our debt to adjusted EBITDA is two times.
This is at the low end of our targeted range of two to two and a half times and supportive of our investment grade rating.
We generated $399 million in cash from operations in the first quarter, which is improved from last year.
For the full year, we expect cash from operations to be in the one five to $1 7 billion range and free cash flow of one two to one 4 billion Wade.
We believe our continued strong cash flow and the financial strength and flexibility of our balance sheet support our growth plans and provide for a disciplined value creating capital allocation.
Our key priorities for cash remain the reinvestment in our businesses through capital expenditures and M&A and the return of capital to our shareholders through dividends and share repurchases.
For the quarter capital expenditures totaled 78 million for a broad range of productivity enhancing investments.
We also invested $1 4 billion of cash for strategic acquisitions to accelerate growth and while Kt G. Since most of this investment. We also acquired several automotive store groups across North America.
We continue to generate a robust pipeline of additional acquisitions and we remain focused on the successful integration of KCG and emotion.
In the first quarter, we also paid $116 million in cash dividends to our shareholders.
The company has paid a cash dividend every year since going public in 1928, and the 10% increase for 2022 represents our 66th consecutive annual increase in the dividend.
And as part of our share repurchase program, we used $73 million to purchase 570000 shares in the first quarter. The company is authorized to repurchase up to $11 3 million additional shares and we expect to remain active in this program in the quarters ahead.
So turning to our current outlook for 2022, we are raising our full year guidance previously provided in our earnings release on February 17th.
We expect total sales for 2020 to be in the range of plus 10 to plus 12% an increase from plus nine to plus 11%. These.
These growth rates include an estimated 1.5% to 2% headwind from foreign currency translation and exclude the benefit of any future acquisitions.
By business segment, we are guiding to plus five to plus 7% total sales growth for the automotive segment and increased from the plus four to plus 6% previously.
The new outlook reflects plus six to plus 8% comp sales growth, which is up from our previous estimate of plus five to plus 7%.
For the industrial segment, we are updating our total sales outlook to plus 21 to plus 23% an increase from our previous outlook of plus 20% to 22%.
This new outlook includes a plus five to plus 7% comp sales increase which is up from the plus four to plus 6% previously.
On the earnings side, we are raising our guidance for adjusted diluted earnings per share to a range of $7 70 to $7 85.
Which is up 11% to 14% from 2021.
This represents an increase from our previous guidance of $7 45 to $7 60.
So while the operating environment remains very dynamic we are encouraged by the strength of our first quarter and the continued momentum in our businesses as we move forward into the second quarter.
To close as we previously noted I'll be retiring from GPC at the end of May. So this will be my last earnings call as CFO , it's been a privilege and an honor to work for such an amazing company over the last 30 years and I fully expect the friendships that I've made over the years to last a lifetime.
I'm proud of the progress we've made together and I know that the best days for GPC are yet to come.
I could not be more excited for Bert Napier to start as CFO on May 2nd Burton I had been working hand in hand over the last two months traveling to meet with all of our business units and our leaders.
As well as spending time, with our finance and accounting teams.
It was also nice to meet with many of you on our recent visit to New York I personally enjoyed seeing everyone in person for the first time in two years and I know that Bert found that time extremely beneficial.
I'm confident that bird transition to CFO will be smooth and seamless and know he looks forward to working with each of you very soon thank you and I'll now turn it over to Paul.
Thank you Carol another excellent review of our financial performance.
And fitting that our results were so strong for your last call as CFO .
As a reminder to everyone on the call Carol has had an incredible 30 year career at GPC.
Serving in nearly every key financial role before being named CFO in 2013.
And her nine years as CFO her leadership and.
And a positive influence on the company's success has been immeasurable.
He has served on our executive leadership team our investment Committee, our cyber Security Committee.
And in addition, she has held leadership positions in everything from supply chain and logistics to real estate.
In addition to our financial responsibilities.
She has been a valued partner to me and the entire GPC leadership team as well as to our board.
And she will be greatly missed by all of us.
So thank you Carol and best wishes to you to Mike and your entire family.
So in closing we are proud of our progress in the first quarter and the strong results to start the year delay.
Delivering a new sales record.
<unk> margin expansion.
Double digit earnings growth.
Our strengthened balance sheet and strong cash flow highlight our first quarter performance.
At the same time, our teams have done a terrific job of integrating <unk> into the motion business.
Looking ahead, the increase in our sales and earnings outlook reflects the confidence in our plans for accelerated growth and profitability as we build on the positive momentum in our automotive and industrial businesses.
While cognizant of the many uncertainties in the global economy, We believe GPC is well positioned with the financial strength and flexibility.
To support our growth plans and provide for disciplined value, creating capital allocation, while enhancing shareholder value.
We thank you for your interest in GPC and we thank each of our GPC teammates for taking great care of our customers and delivering strong results.
With that I'll turn the call back to the operator for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.
The first question comes from Kate Mcshane.
With Goldman Sachs. Please go ahead.
Hi, Thank you good morning, Carol Thank you again and congratulations.
Our questions are around the guidance.
Got you raised for the year, we wondered how much of the guidance increase is due to your strong Q1 performance versus maybe what has changed in the outlook for the rest of the year.
Versus what you were thinking when you first gave guidance and just how does the contribution from inflation change meaningfully influencing comp guide.
Yeah. Thank you for your comments Cade and I'll talk a little bit about they've got so certainly.
What went into our thinking on the stronger quarter that we had I mean really it couldn't be more pleased with both our automotive and industrial teams and the stronger comp sales that they delivered and so that momentum with continuing on with certainly contemplated in our guidance outlook and then the inflation number was.
A bit higher than what we anticipated coming out of Q4 and that was contemplated as well, but really based on what we know now there and there's not a ton of clarity around inflation and then you know how volatile that is that we certainly contemplated a little bit more on the top line growth and a little bit.
More on inflation.
The earnings side, certainly the ability to leverage on that growth and the strong Q1 that we have we just felt like it was appropriate now to use that range that we have we certainly hope to do better than that but we thought it was an appropriate range to give right now.
And just as a follow up question I think.
We've seen a bit of a falloff in miles driven given the higher gas prices, but it seems that you still are seeing as he mentioned a good degree of momentum in automotive can you help reconcile for US why you don't think miles driven as necessarily having as much of an impact on demand and again, how you see that playing out with the higher gas prices.
Yes, I'll take a shot at that Kate and good morning, welcome to the call look I think.
As you look at our tail winds in the automotive aftermarket certainly miles driven.
Is a factor.
And Unfortunately, we don't get a whole lot of.
Yeah.
Transparency as to where miles driven is trending currently it usually.
Trails by a couple of months, but given the high gas prices one would assume it is trailing a bit from last year, but.
When you look at the tailwind <unk> got an incredible pent up demand.
People want to travel airfares are incredibly high.
So I think youre going to see folks traveling more both both for vacation, but I also think.
That youre going to see miles driven pickup with folks returning to the workplace.
Even though youll see youll see a hybrid workforce I do believe we will see a lift their used car prices are at all time highs.
Lack of new up new car inventory all of that I believe is going to continue to bode well for the automotive aftermarket.
Thank you.
Thank you.
The next question is from Greg knowledge of Evercore ISI. Please go ahead.
Hi, Thanks, and Carol I'll add my voice to well thanks for everything over the years.
Thanks, Greg.
I guess I had two questions.
One.
For you for I'll start with is what comp now do you think you need to lever given the broader cost inflation like you talked about mid single digits in the top line.
Yeah, what do you need to lever now.
Yeah look in it and again as we have contemplated when you look at what we're contemplating for the full year <unk> got comps of 6% to 8% for automotive and 5% to 7% for industrial we were pleased to take those comps up 100 beds, we also going into the year with greater.
Operating margin improvement.
Again contemplated in our guidance and in part based on the stronger results in Q1.
So we are we are certainly comping just fine at those levels, but at the same time. This is an inflationary environment that we've never seen before and so we're being very mindful on what we're seeing in terms of <unk>.
Inflation in our product inflation in our cost, but we do know when we look at our numbers and our cost structure that we still have permanently lowered our cost structure going back to 2019, so that the in the range of the 3% to 4%. We certainly can see operating margin improvement there with all the acts.
<unk> that we've taken.
Got it.
And then maybe Paul will if you want to take this you've mentioned some.
So pretty interesting initiatives in terms of expanding and accelerating growth I guess I'd love to.
As a follow up particularly on the after paying could you take us as to how big that is and what that program actually entails for both.
Our DIY customers and then you talked about adding the Skus, which I thought was the 2 million Skus I thought was interesting just some more color on that yes.
Yes so.
On the after pay it's certainly early days Greg.
It's not a material part of the business, but the trends that we're seeing in our pilots are very encouraging.
Is predominantly DIY today with applications for do it for me in the future.
One of the things that we've done recently is rolled out online.
And we're seeing encouraging trends there so it's early days.
But something that we're excited about as it relates to acquiring new customers and driving.
Average order value, which is typically higher than what we've seen in our core business.
On the supplier side I think this was a.
Fundamental thesis that we had when we acquired KCG.
The relationship that then the supplier and customer base for that matter in the community.
Motion has.
With that type of transaction it created a lot of great productive commercial discussions with all of our vendors.
And so we called out the fluid Power example is one of them, but I would say that the discussions with the motion team is having with its vendor base now with command as part of the family is incredibly encouraging including the access to new products, new growth segments et cetera, So consistent with what we saw.
Before we bought the business.
And really encouraged to see that initiatives, taking hold just as a reminder, it's only 100 days in on KCG. So again early days, but encouraging trends in the business.
Got it and then my last one.
Got.
Scott was stronger in the quarter in North America.
DIY is still positive.
How does that look as you go into the second quarter, especially given the.
Bizarre comps that Youre seeing.
Particularly in DIY.
Yes.
I'll take a shot at that Greg you mentioned.
Of the DFM comps so.
<unk> double digits, and we're seeing it across the entire.
Commercial segment from major accounts to auto care to fleets, we're seeing it across our entire business DIY is holding up okay.
We're seeing high single digit.
Our strength, Greg is always going to be on the <unk> side and that's.
Good 80% of our of our overall business.
For us to generate high single digit numbers in DIY.
That's a reflection I think on all the good work our teams are doing in the stores.
And look with with.
Inflation that could very well drive people into.
Back into the stores are attempting to do more DIY type projects.
I don't think the general population is going to get real proficient at changing out their own breaks but certainly.
More basic type projects car care products I think we will continue to see.
Good lift in the in the back half of the year. So.
Yes, we're very very pleased at the mix and anticipated continuing through the <unk>.
Through the back half of the year.
That's great good luck.
Thank you.
The next question is from Chris <unk> of Jpmorgan. Please go ahead.
Thanks, Good morning, everybody and congratulations again Carol on your retirement by.
By the time that you depart we might have spring in the United States. So.
Good news ahead.
Maybe starting on the on the industrial side of the business you talked about the acceleration in March in the U S. A.
And sorry, and in the quarter can you talk about.
What industries are you seeing the most et cetera acceleration and obviously energy and AG, there's a lot of optimism around those those sub sectors given all the inflation that's going on in those industries can you remind us how.
If how significant that is for you and to what extent are you seeing improvements in those those sub sectors.
So as I've mentioned in my call.
Comments upfront Chris the.
Yeah.
The increases we're seeing are across the board in all of the.
The segments that we track, we're seeing really strong double digit with the exception of two and those two are up mid to high single digits. So.
You called out oil and gas, we're seeing huge increases in that in that segment not a huge.
Segment for us.
But I can tell you the increase is.
Significant we're also seeing good increases solid increases in segments like aggregates cement.
Conveyance logistics.
Products, which really points to the strength and expansion, we're seeing in distribution centers around the country equipment and machinery, which is our single largest segment again really really strong growth in the quarter. So.
Really it's broad based and across almost every segment that we track.
Got it and then.
On the U S Napa business in March and acceleration is pretty impressive considering.
We are lapping.
Lapping stimulus from a year ago and to the point on maybe some late spring impact on on DIY. So can they diagnose maybe.
Help that acceleration to the extent that.
It was pro versus DIY was it an acceleration.
On the inflation front.
And then was there much difference in terms of the trend in the quarter between company operated stores and independence.
Yes, I'll take the last part first Chris not much difference at all as we've seen in recent quarters between R.
Our good solid independent owners in our company stores both performed.
Very very well in the in the quarter and as mentioned.
We finished strong we had a record month in the record sales month in the month of March, but we were up double digits.
January February and March and you called out weather, Chris the weather the weather has not really.
Ben our friend in Q1, certainly not in April with as you mentioned snow storms across the upper Midwest and northeast were ready to get into spring and get into.
The AG business depends on getting out in the field. So weather has not been a.
Positive for us.
<unk> versus DIY I mentioned.
In an earlier call strong strong double digit growth in our core which is <unk> and thats across the entire segment. That's major accounts fleet auto care really pleased to see.
The surge in our auto care.
Segment, that's that's.
Thats, a great call out for us but DIY.
<unk> to be up high single digits, and again I think thats evident.
Evidence of the good work that our folks are doing in our stores.
A number of initiatives from improved Assortments.
Enhanced store hours, better training and better in stock availability. So.
Really broad based across.
Crossing in tire.
Napa team they are all doing well.
And Chris I would just comment.
That Paul just said it really was very insignificant in terms of inflationary impact for March you are talking about a point or two Paul said.
Mid single digit inflation, we were certainly a bit higher than that in U S automotive, but the bulk of it is just.
All of that market initiatives and the growth and really the inflation impact for March specific or is really just a point or so so not significant.
Got it thank you very much thanks, Chris.
The next question is from Liz Suzuki with Bank of America. Please go ahead.
Great. Thanks for taking my question, so given the pervasiveness of concern in the investment community about a potential recession in the next 12 months to 24 months and comparing that to the strength you've experienced in your business is there anything that youre seeing in the leading indicators that you track that gives you any pause in your outlook for that.
During the year ammonia a degree of conservatism baked into that raised outlook, just given the uncertainty around potential recession or economic slowdown.
Look great question.
And certainly.
Excited as we are about our Q1 performance and how our teams performed really all of 'twenty, one and throughout Q1.
We fully realize the environment, we're operating in could get more challenging in the.
In the latter part of the year.
Not as concerned.
In the U S. I think we'll be fine industrial remains.
Strong and.
And I would tell you that.
Our outlook for the balance of the year, we worked really really hard and looked at all the factors and we think our our guidance for the balance of the year is.
He is very prudent.
Yeah.
Great and just one follow up if that international expansion I mean, you guys have been adding new markets to your addressable market for the last.
For several decades, and adding you know a couple of new markets. Even even every couple of years. So are there still is there still some low hanging fruit that you see out there markets, where you have an enter it does seem like they would makes sense as adjacencies to your current business or new regions to enter that you think have the same types of.
Either vehicle dynamics or on the industrial side have similar economic.
Backgrounds as regions, where you're already operating.
So Liz.
I would mention our latest latest acquisition.
<unk>, who is a market leader in Spain, and Portugal that will be our eighth and ninth country that we've expanded into in Europe and Lepton is just as you are Spain is just as you described it as a great.
Adjacency to our current markets fifth largest market in Europe .
35 million vehicles average age 11, plus years, it's very underpenetrated.
We think we've got a real opportunity with a great team on the ground in Spain and Portugal.
To be to be a first mover in that in that part of the world. So.
That that's an exciting move for us as we look at you mentioned industrial is look we are incredibly bullish as we've said in these calls before about our industrial business and I think that was borne out in our.
Big acquisition of command an early early January still plenty of opportunities for our industrial business and continuing to expand we've got arguably less than 5% market share in the MRO space with <unk>.
The robotics the automation business.
Certainly see us continuing to expand.
In those categories.
But I can say the same about all of our businesses lives we.
We have less than 10% market share in every business and every part of the world that we that we operate in.
Including our North American automotive business so.
Yes lots of opportunities going forward.
Sure.
We're cautiously optimistic about the balance of the year.
Great. Thanks, very much thank you.
The next question is from Bret Jordan of Jefferies. Please go ahead.
Hey, good morning, guys Hey.
Hey, Brad and.
And congratulations Carol again.
Thank you Brett.
On the 12% comp in the U S did you talk about what your feelings around share gain where that number how do you see the underlying market in the first quarter and then did you see anything I guess relative to peer price dynamics as anything either more or less competitive.
The us auto market.
Yes.
Brent being the first one out of the big four to.
To report.
It's hard to say.
How the others will line up we're very very pleased with our performance in Q1 and <unk>.
If there is any market share gains my guess is it perhaps is coming from.
Some of the smaller regional players, but again until we see the the balance of the Big four report out it will be hard.
To pinpoint that exactly in terms of pricing dynamics, Brett I'm really pleased to tell you that.
It remains very rational as the automotive aftermarket has for many many years.
Certainly we're seeing price increases across all of the major categories.
But it has remained.
Very very rational across the industry.
And then a question on Europe could you talk about the cadence of Europe , and obviously, a lot's changed in eastern Europe . Since late February but is that showing any impacts in western European demand dynamic and then just a housekeeping you talked about the Napa brand expansion ongoing there could you talk about what percentage of European sales are in.
Napa branded mix.
Yes.
Let me take the first part of your question.
In terms of the cadence again, we had a.
Very good quarter.
We had a very good quarter following up on a very good year in 2021 in Europe . So our total sales up 14, our comps were up 7% in Q1, so very pleased with the performance.
As I mentioned earlier as good as we feel about Q1, we also fully realize.
That given all of the factors that are occurring in Europe , it could get more challenging in the in the final three quarters, but I would tell you that.
Our teams are planning accordingly, and.
If there's one thing that we learned.
Breath during the downturn in the pandemic.
Our teams are very agile they can turn very quickly and if we do see a downturn in the business.
We'll be ready to pull all the levers to ensure we deliver on the bottom line and then the second part of your question Brent regarding the Napa brand.
It's hard to say exactly but I would tell you we are.
At a point now it's less than 10% of our overall.
Our European business.
We launched initially in the UK, it's more widespread there and it's more expansive across a variety of product categories.
We have since launched in the Benelux, Germany, France, and we're kind of taking a product category by product category. So we've got tremendous upside and many more opportunities to come in and ultimately now we will we will launch the Napa brand as we expand across Spain and Portugal.
<unk> as well.
Great. Thank you.
Youre welcome. Thank you Brett.
The next question is from Scot Ciccarelli with Truest. Please go ahead.
Hey, guys Scot Ciccarelli I am sure Carol is ready to enjoy a long delayed vacation.
Two questions one on each segment of the business first given continuing our supply chain challenges have you seen any signs that companies are trying to increase their domestic production activity.
Obviously there'll be bullish for motion if so and then on the auto business just given the amount of inflation, that's flowing through both the economy and your own.
Product costs.
Paul have you seen any resistance at all to the higher price points, meaning any kind of demand destruction, even if it's in a small minor category.
Please go.
Go ahead, well, we'll go I'll take the first question I'll take your first question absolutely. We're seeing I would say the discussions with the vendor community are more active than they ever have been on the re shoring concept.
So as you alluded to that's incredibly bullish for the motion business over the medium term I think the global supply chain and the complexities and some of the challenges that everybody has been working through over the last couple of years.
It makes it very logical for that.
Factoring activity to come back to North America, So we're bullish about it and.
And we'll see that opportunity as it develops.
And then and then.
<unk> to your second question, Scott on automotive and in the higher price points or are we seeing consumers trade down we didn't see much of it in Q1, I think as evidenced by our strong 12% comp increase it was strong across <unk>.
Just about every product category.
But I would tell you with our good better best strategy.
We're well prepared if we if we do see consumers begin to trade down to the value lines and we've seen that in the past when time gets times get tough they will they will trade down but I would tell you we did not see much of that in Q1.
Excellent alright, thanks, guys, yes. Thank you.
The next question is from Daniel Enbrel of Stephens. Please go ahead.
Yes, thanks, so much Carol I'll add my congratulations and congrats on the first quarter guys on the results.
I wanted to start on the on the industrial piece.
With robust Paul.
It came from margin leverage are you able to disaggregate out of the <unk> margin leverage how much was for maybe vendor volume rebates versus how much was core sustainable cost of ruble just as we model headline growth slowing overtime trying to see how much of that maybe the vendor rebates go away through the back half of this year and into next year. Thanks.
Yes, so on the industrial side again, the motion comps were 16% in the quarter and that is just tremendous operating results and when you get that kind of comp growth. The leverage on SG&A was extremely impressive and then on the gross margin side, they've done a tremendous job I mean, they've got.
Our long track record of initiatives on the gross margin side, both pricing and category management and with with looking at their improvement in their operating margin and again the strong 100 beds, that's coming about equally from gross margin and SG&A.
Vendor incentives it certainly is moving in line with.
With what the comps are but.
It's incremental dollars, but it's not necessarily giving us the bump on the rate.
So really just strong operating both on gross margin initiatives on the leverage on the SG&A and again, just a tremendous job by the industrial teams and we've we certainly are pleased we don't have any reason to suspect that that doesn't continue as we look ahead, because we've got full year operating margin implied for them as we look ahead.
Got it and then maybe one for will thinking.
Prepared remarks, you talked about bringing in some external talent to lead that supply chain kind of optimize that I'm curious what drove that decision or are there particular inefficiencies that you guys were really struggling to address some of the supply chain or what made you are why is now the right now to accelerate that investment.
With external talent you Brian Thanks.
Yes, listen we're always looking to add great talent and expertise to the organization and I would say.
Been pretty clear that supply chain technology, our foundational priorities.
Around those elements are clear and talent helps us get there so nothing nothing to read into it other than we're adding great folks to the team and we're looking forward to build on our momentum.
Got it. Thanks, so much best of luck. Thank you Daniel.
We have time for one more question from Seth Basham of Wedbush Securities. Please go ahead.
Thanks, a lot.
Graduations to Carol.
Paul I just have a follow up question for you you talked about the rational pricing environment in the U S. Auto segment, but have you seen any indication where relative price investments from any of your peers have talked about doing that in the commercial side.
We have we have not.
And look where we're all.
Attuned to that given the discussions of a couple of months ago.
Team here.
<unk> Carol and bird, we've spent half a day with our U S automotive team.
The entire leadership team and Trust me that was a focal point for us and I can assure you that.
We're not we're not seeing it.
We're not seeing it out there.
Might have come here in the second half of the air perhaps but we certainly didn't see it in Q1.
Got it okay helpful and one last follow up regarding <unk>.
Integration did you see any margin accretion in the industrial segment, well condition of that business this quarter or was there a margin improvement driven by the other factors that you mentioned.
Yeah got it and we're going to stay pretty consistent what we talked about at our February call and also in December with <unk>.
We certainly it's not.
The contribution of the operating margin improvement was really coming from the core motion business, having said that.
Really pleased with the early execution of the integration and what we're seeing there as we get to the fully synergize model. It is definitely accretive to the industrial margins, but we're still a bit early on on that so the again the strong comp growth is really what <unk>.
<unk>, the 100 basis point improvement in operating margin, but again <unk> performed well in the quarter. They had a similar grant quarter.
The teams are really integrated we spent some time with them so.
We look ahead, we know that we're going to be at our targets that we talked about and hopefully be a bit early on the synergies.
Wonderful thank you.
Thank you Seth.
This concludes our question and answer session I would like to turn the conference back over to management for closing remarks.
We'd like to thank all of you for participating in our Q1 conference call. We appreciate your support and personally I. Appreciate all of your support and your kind remarks today and the company look forward to discussing the Q2 results with you in July Thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.