Advance Auto Parts, Inc.
Q2 2009 Earnings Call Transcript

Published: 13 Aug 2009

[Operator:]

Welcome to the Advance Auto Parts second quarter 2009 conference call. Before we begin, Judd Nystrom, Vice President, Finance and Investor Relations, will make a brief statement concerning forward-looking statements that will be made on this call.

[Judd Nystrom:]

Good morning and thank you for joining us on today's call. I would like to remind you that comments today contain forward-looking statements subject to risks and uncertainties that may cause our results to differ materially. The most important of these risks, as well as the reconciliation of any non-GAAP financial measures mentioned on the call and the corresponding GAAP measures are described in our earnings release and our SEC filings. These can be found on our Web site at www.advancedautoparts.com. For planning purposes, our third quarter earnings release is scheduled for Wednesday, November 11, 2009, after market close and our quarterly conference call is scheduled for the morning of Thursday, November 12, 2009. To be notified of the dates of the future earnings release, you can sign up through the Investor Relations section on our website. Finally, a replay of this call will be available on our website for one year. Now, let me turn the call over to Darren Jackson, our CEO, who will be followed by

[Darren R. Jackson:]

Good morning everyone. Welcome to our second quarter conference call. I would like to begin by congratulating the team on another successful quarter. I would like to point out that our positive results continue to be driven by the efforts of our 49,000 Advance team members. We are at the halfway point of fiscal 2009 and we remain on track to deliver a very good year. We are closing in on the end of our turnaround efforts for Part 1, which is the foundation of our story. The turnaround has been focused on

[Jimmie L. Wade:]

I would also like to thank our store teams, our commercial sales force, and our support teams for another strong quarter. This morning I will update you on our two core customer strategies. Through our commercial acceleration strategy, we continued to gain significant market share during the second quarter, demonstrating that our strategy focused on our customers and our team members is continuing to gain traction. With the large commercial market and our low, 3% market share, there continues to be plenty of room for continued growth. This was our sixth consecutive quarter of double-digit growth in commercial, with a 14.8% increase in comp store sales for the quarter, on top of a 13.5% comp increase during the second quarter of last year. This is the second quarter that our commercial sales mix as a percent of our total sales was over 30%. We continue to drive towards our goal of a 50% commercial business mix. Our commercial gross profit rate again improved as a result of increase in mix of parts sales and our continued implementation of our value proposition based on customer service. We remain confident in our efforts to aggressively grow the commercial business and we continue to drive towards double-digit comps for the remainder of the year. In the last few quarters we've discussed our focus areas that are leading our acceleration in our commercial business. We are continuing to make progress in these focus areas

[Kevin P. Freeland:]

I would also like to congratulate the team on a great quarter. I will briefly highlight our initiatives that include our gross profit rates as well as key focus areas in investment that will continue to drive long-term values. During the second quarter our gross profit rate increased 189 basis points versus last year. The 189 basis point improvement was primarily due to continued investment in pricing capabilities, merchandising capabilities, a decrease in inventory shrink, and better store execution resulting from our changes to better align team-member incentives. We continued to roll out our new price optimization process, which favorably impacted our gross profit rate in the quarter. Our retail price optimization strategy has been implemented across the majority of the front-room categories. This was achieved while simultaneously improving our price competitiveness against our major competitors. We will complete our back-room optimization tests in the fourth quarter. We continue to move quickly to develop a true, direct importing program and believe our opportunities in this area are great. Our Asian sourcing operation has been stamped and we expect this capability to provide a significant margin improvement and allow us to increase our speed to market with products that are aligned with what our customers want and need. We are rebuilding our order management process to ensure smooth integration of new import sourcing and are finalizing a trade finance program for import ordering. Our initial orders will arrive next month and we expect the program to grown substantially over the next several years. Through the outsourcing of our corporate purchasing and expense account payable function, we have identified significant savings that will strengthen our bottom line performance. Although some of the benefits are capitalized or realized over multiple years, we expect the benefits to offset transition expenses in fees this year. However, we expect to drive significant benefits in 2010 and beyond. Next I would like to update you on the progress of our Availability Excellence strategy. Availability Excellence enables us to serve our customers better than anyone else by redefining the standards with breadth, depth, and speed of delivery of parts. During the quarter we added two PDQ, or Parts Delivered Quickly, warehouses and 24 hub stores. With a larger footprint than any standard Advance store, the hub store stocks a wider variety and greater size inventory allowing the hub store to supplement the inventory of other Advance stores in its immediate market. We also increased store delivery services to provide a wider assortment of parts to our customers. These facilities, combined with the added delivery service, increase our ability to provide car part stores within two hours or less. In concert with our new custom mix capability, a record-setting 466 inventory upgrades occurred during the quarter. We are establishing a standard for availability in our industry. We were also able to reassert 22% of our parts plan-o-grams using our new custom mix tool, bringing the total reassortment of 36% of our parts year-to-date. We continue to work aggressively to remove overstocks of unproductive inventory from our store assortments and adding products with proven demand in that locale. In Q4 of 2008 we announced a significant change on how we manage slow-moving inventory. During the quarter approximately $20.0 million of slow-moving inventory was disposed of, bringing the total to $26.0 million year-to-date. Our goal is to dispose of the remaining $11.0 million by the end of the year. This will not have any impact on our 2009 financials since we are utilizing the inventory reserves recorded during the fourth quarter of 2008. A combination of strong gross margin improvements, sales increases, and a reduction in inventory led to a solid increase in gross margin return on inventory. I would like to congratulate the merchandising team on this exceptional performance on the company's largest financial asset. In addition to Availability of Excellence investments, we continue to identify opportunities to drive efficiencies through our supply chain and logistics functions. During the quarter we implemented engineered standards for order selection within two of our eight distribution centers, bringing to a total of six year-to-date. This initiative enables us to improve labor productivity in our main distribution centers and reduce distribution expenses substantially in the quarter. We are also on track to deliver the expected financial savings in the outsourcing of our fleet for outbound transportation. Turning to information technology, we are continuing to invest in IT in support of our business strategy. Last quarter we launched an online inventory lookup site and began building a team of experienced e-commerce professionals. With the strides that we've made so far, we are on track for the B-to-C, or business to consumer site, to go live in Q4 of this year and the business-to-business site to go live in early 2010. Another initiative we have underway is the implementation of our core merchandising system. I am pleased with our progress thus far. We are currently on track for our initial implementation to begin in the second half of 2009 and to be completed in early 2010. As previously stated, we anticipate we will begin to realize the benefits of the new system and begin to see improved category performance as a result of these new investments. Next I would like to update you on our Superior Experience strategy. Superior Experience enables us to serve our customers better than anyone else by consistently providing legendary customer service through our relentless focus on execution. Superior Experience translates that goal into specific activities that our team members must perform in order to unlock their full potential, provide significant customer satisfaction improvement, while ultimately accelerating profitable sales growth. We have launched a new initiative called the Implementation Factory which will establish a new standard of excellence by providing training and coaching programs for specific initiatives that have broad field impact. The Implementation Factory began their journey in Q2 by rolling out the first initiatives, including new battery-warranty procedures, disciplined commercial pricing, and improved shrink controls. We look forward to sharing results from this exciting initiative in future quarters. Additionally, the Implementation Factory will roll out initiatives that have been fully tested. While the ultimate destination of these tests will be our stores, they will be sponsored by various functions throughout the company. We have many tests underway to improve our conversion rate, enhance our labor scheduling, optimize both pricing and localized assortments. These tests, with their greatest overall impacts, will be prioritized for the fastest deployment through the Implementation Factory. In closing, I continue to be encouraged with the progress we're making as a result of our investments in Availability Excellence and Superior Experience strategies. Now let me turn the call over to Mike to review our financial results.

[Michael A. Norona:]

I would like to start by thanking all of our talented and dedicated team members for the results we achieved this quarter. Despite being up against a challenging comparison from second quarter last year, due to the positive impact of the economic stimulus, our team again delivered a strong financial quarter. I plan to cover the following topics with you this morning

[Operator:]

(Operator Instructions) Your first question comes from Analyst for Gregory Melich – Morgan Stanley.

[Analyst for Gregory Melich:]

As it relates to comp progression during the quarter, can you talk about how comps may have trended or improved as you began cycling stimulus. And then relating to some of the gross margin, improvement we've seen and the initiatives you have there, if you could provide an update again on the percentage you feel we're through and what's left to be realized there.

[Michael A. Norona:]

First of all, we typically don't provide inter-quarter results just because as you know, last year we talked about the 2% stimulus, we say that. Obviously that did have an impact on our DIY comps. As you look between the quarters there's so many things that could happen. You look at unemployment that was up about 400 basis points from last year, so you've got weather, you've unemployment, the economic factors. What we can tell you is that we're focused on rebalancing our portfolio and we are pleased with the progress to date.

[Jimmie L. Wade:]

That's pretty much what I could add. I think as we looked at the second quarter, especially relative to the first quarter, we knew we had some stimulus impact from last year. We certainly look at how we're doing relative to market share, overall, and feel pretty comfortable with where we are there. So nothing significant one way or the other in regard to the trend during the qtr.

[Darren R. Jackson:]

And if you were to look at it, June was a little bit softer. I think we had some of the record coolest weather than we had a long time. And July was up a little over June, so it was a little bit choppy.

[Kevin P. Freeland:]

On the margins, relatively straight forward, about two-thirds of it was actually at the register and it was various initiatives, both the price optimization that we've spoken of previously, lower cost of acquisition of goods and greater preservation of margin at the register, and about a third of it was comprised of the continuing improvement in our shrink results.

[Analyst for Gregory Melich:]

And then to follow-up with the two-thirds at the register, as far as price optimization goes I know in the past you've spoken about that likely continuing into next year. Can you provide an update, if we're about a third of the way through with custom mix, about how far would price optimization be at this point?

[Kevin P. Freeland:]

We're largely complete on price optimization in the front room and it's migrating to behind the parts counter at this point. And in terms of the cost of acquisition of goods, we are continuing with the roll out of our category management capabilities, which is allowing us to partner more closely with our vendors on pricing of their programs and the global sourcing. First orders ship next month and that will ramp up substantially and put tail winds to our margins literally for years to come.

[Darren R. Jackson:]

We're really in things that are other structural, as well. So we just began the Implantation Factory. There's an effort that we call reduce the margin drainers. What we're seeing in that space, just take an example like battery return rates, in our test districts we've been able to cut those in half. If we're able to sustain that and take that across the country, that will add to the margin going forward. The other thing we talk about is that we have price overrides and what we could see, if we quartile our stores, some of our lowest margin performing stores, just by adding tools and decision frameworks for those store managers, we're seeing margin increases in our low quartile stores about 200 basis points, which doesn't mean they're necessarily raising prices, it's just we're making better decisions and we have better tools in terms of seeing the portfolio differently. So I would say as we look out, we just see different things that we're putting time and energy into that are structural that I still think we're relatively early in the game in terms of those benefits and RP&O.

[Operator:]

Your next question comes from Matthew J. Fassler – Goldman Sachs.

[Matthew J. Fassler:]

The inventory decline was quite impressive in terms of the kind of sales that you were able to produce with inventories down year-on-year. I guess a chunk of the decline related to the upslate of inventory that you cleared out and I guess didn't impact the P&L. I know this is ancient history now in terms of the charge that you took, but to what degree do you think that might have retrospectively added to gross margin performance, as you were able to achieve that inventory reduction without taking that hit?

[Darren R. Jackson:]

To be honest, I think those are unrelated events. The improvement in turnover clearly that the getting rid of obsolete inventory is the lion's share of what's going on. As we reported, we have upgraded many, many stores' inventories. We are adding distribution facilities closer in to our stores in numerous markets. Those obviously require additional inventories, so the decline is coming in areas that we categorize as non-working, more than offsetting that. But the lion's share of the margin gains that we're getting are on the main existing programs that would be considered healthy inventory.

[Matthew J. Fassler:]

Relating to the margin outlook over the remainder of the year, you listed a series of drivers that should be enduring in their impact for you and gross margin's been an obviously a driver of your improvement. As you look to Q4 you're up against an extremely impressive performance last year. As we look forward a quarter out, if you could just recap for us were there any tail winds a year ago that you would not expect to repeat and is there enough that you have in your tool box this year that you didn't have a year ago that will allow you to potentially cycle that successfully.

[Michael A. Norona:]

Typically, as you know, we don't provide guidance. We have provided an annual outlook and so we're not going to comment on quarters three and four. But Kevin will share with you what the initiatives are and where we expect to see some of the benefits.

[Kevin P. Freeland:]

The areas that we're working, as I mentioned on a previous question, what you're seeing embedded in the numbers right now has been price optimization in the front room and we're in the fall migrating into the back room. There's also been an overall lower cost of acquisition of goods, through category management, and it's a very fine line and detailed process, category by category, vendor by vendor. And that will continue through the fall as well. We have commented on the custom mix, which we're growing our share in the parts business and that will continue to grow as custom mix rolls out through the fall as well. And then all the points that Darren made, there are numerous activities that are rolling out through the Implementation Factory that will preserve even a greater portion of the margins at the register than what we saw in second quarter.

[Operator:]

Your next question comes from Anthony Cristello – BB&T Capital Markets.

[Anthony Cristello:]

When you look at the success you've had on the commercial side of the business and it seems like a lot of investment dollars and initiatives to drive what are very good sales there. If you contrast that with what's going on on the Do-It-Yourself side of the business, your traditional retail side, and I understand you've got initiatives underway, but it doesn't seem like the same level of emphasis is on that side of the business to try and either recapture share or aggressively close what is perceived to be a little bit, I think Jim noted, a market gap between the second quarter and what maybe the rest of the industry is doing. Can you give a little bit of an update on how you see the DIY business evolving and how you are approaching that, in light of the aggressive push you have on commercial?

[Jimmie L. Wade:]

I think a couple of different ways we look at it is that first of all, we are looking at the four walls of the store and how much total volume are we doing in the stores, so we are growing that, we're growing our share in total pretty significantly. When we look at the individual businesses, you are certainly right, our biggest push and of our investment is in commercial and we certainly see the biggest opportunity there. But we are doing a lot of things internally to, not invest as much in DIY but to invest more specifically and get a better return on our investment. And we're spending less in areas like advertising and others on DIY but we are focusing our effort better on what we are spending. And with the opportunities that we see, I think we mentioned in our comments about increasing the conversion rate of customers that are walking in our store and at the same time doing some things that increase the consideration rate, a lot of those things don't specifically take lots of investments. They do take a lot of hard work, to get into the detail and look at where we can drive the business better. And when we look at our market share numbers, we have held our—in terms of our market growth, we have held that to the market through the first half of the year. Second quarter we were a little bit lower but when we're talking about little bit lower, it's literally tenths of a percent as opposed to significant. So we think we can continue to see our DIY business perform well without substantial investments by focusing on some of those consideration and conversion opportunities that we have in our stores, and at the same time grow commercial and grow the total business in the stores and gain share.

[Darren R. Jackson:]

Maybe to build on that a little bit, I think you're right. We came into this year with a view if we could pull DIY share, grow it a little bit, but we made deliberate decisions to channel resources, marketing being one of it, some of the labor dollars to out of the DIY business into the commercial business, and some of the focus of the team. But there are other things that are running in the background. For example, I think we are up to 500 traffic counters and the way we think about the business as we think about concept, proof of concept scale, in terms of where we're going. And right now we're working on proof of concept in terms of what can we learn about conversion rates. We're working on tools, like staff to demand, to better put labor in the stores and help our store managers when the customers are in the store. We are working on twenty-plus-three test divisions in terms of R&D to test new product categories. There are a handful of those that will work, a handful that won't work in terms of the business. We're testing new direct mail approaches. But the truth is there still is a waiting, and it may even be a disproportionate waiting, when you start to think about the parts pros, the commercial sales people, the hours that are going into the commercial business, because we do believe, and we haven't veered from this, is that we have to rebalance the four walls of our store to be able to grow the profitability and the top line consistently over time. And I think you will experience volatility in the short term. What Jim didn't say is we experienced a slight decline in dollar share, but in unit share, we actually saw our unit shares grow in the second quarter. Part of that is we're cleaning up pricing. And so as we've gone through all the pricing, as Kevin talked about, we will find places—an example is batteries—where we had to r-price. And there are places, yes, that we're taking price up, other places where we're taking it down to be more competitive. Not necessarily having to leave the market, but we're recognizing in those key categories, we have to be able to project to our DIY customers better value, too. So when you put all of that together, I would expect, and I know there's probably some concern about what happened to DIY, it's going to be a little more volatile in terms of our business, in part because we're a little further behind, and in part because we're cleaning up. But you should know, we are not walking away from that business, but at this moment in time we just see the rebalancing effort is just critical to the longer-term business model of Advance.

[Anthony Cristello:]

On a follow-up, would you say that the initiatives underway to drive the commercial, then you're two-thirds of the way done, maybe more, and as you get into next year that you're going to be much better positioned. Will 2010 be the year where you try to say maybe and adjustment to APAL is necessary or—and I don't know that you gave specific numbers on traffic or what your conversions are, does that customer get the part 60% of the time, is it there 80%--but then are those when those initiatives sort of take hold for the DIY side?

[Darren R. Jackson:]

I wish we were two-thirds done. We have a little further to go than that in terms of the commercial work. Here's what I would say, is that we're going to launch the new commercial merchandising system in the second part of this year. We are beginning to turn our efforts towards, and we can't fix all of the past, but the truth is in many of our systems we started in the back of the house. We've got a terrific people soft HR system, but our POS system is not where it needs to be. Neither is APAL. Kevin and his team with Rick Core are beginning that journey of what is POS, APAL, our e-commerce, as we talked a little bit about, we'll have our initial launch later this fall of our Beta C and I'm thrilled with the progress we're making. That's a principal DIY investment that will improve in-store pick up. You know, we're getting 1.5 million people coming to a site that you can just look at things today. And so there are things that are DIY-oriented as we go into the back half of this year and into the next year, that I'm certain under Greg's leadership and the other leadership, we'll start to see better conversion. And that's what we've been focusing most of our efforts on right now. But we're beginning to do testing in terms of the consideration efforts that as we look to next year I think will make that business a little more predictable. But it doesn't change the structural dynamics of that business, that it just tends to be, when looked at over the long term, a slower growth business, smaller than commercial, that we have to recognize in our longer-term strategy.

[Operator:]

Your next question comes from Dan Wewer – Raymond James.

[Dan Wewer:]

I was wanting to play devil's advocate on pricing optimization. One could view the completion of rolling that out to the front end of the stores coinciding with some deceleration in your Do-It-Yourself sales growth. Do you ever ask yourself, perhaps, demand is a bit more elastic, the pricing changes, than you had first anticipated?

[Kevin P. Freeland:]

We actually have a system that we're very proud of how we manage our pricing and essentially every product that we carry is identified in how sensitive it is to prices vis-à-vis our competitors. The items that have been identified as the most sensitive, essentially we are competing aggressively in the market and attempting to be very aligned with what the market price for the products are. And according to our records, have improved that position substantially over the course of the first and second quarter. So we would believe that a customer who is price aware and is calling around or shopping around would be quite pleased with what they see. The benefits that we're receiving in optimization are in items that are not essentially high in a customer's thought process, they're more convenient type purchases. So we think the system is quite sustainable. On top of that, that's only a portion of the gain. There's also gains in lower cost of acquisition of the product and is unrelated to the prices that we need to charge the customers and then it's also preservation of margins at point of sale, as Darren mentioned, adherents to battery-return policies and maintenance of–what level of ancillary discounts are we making to our commercial shop. So according to the work that we're looking at, we don't see a link between what we're doing in pricing and the DIY sales.

[Michael A. Norona:]

I'm just going to build on one thing that Kevin said earlier because as I'm reading all the research reports this morning, one of the themes and one of the questions that gets asked is what amount is this LIFO impact in the margin. I think Kevin said two-thirds were pricing the merchandising capabilities and one third were areas of shrink. LIFO had no impact on the incremental margin of 189 basis points. What you will see in our 10-Q will be $3.3 million LIFO impact this year, annualized against a $3.5 million adjustment last year. So there is no impact from LIFO for the quarter.

[Dan Wewer:]

And Mike, just to follow up on that, the industry has always told investors that margins are higher on do-it-yourself than commercial. And yet as Advance grows at commercial at a faster rate than Do-It-Yourself, you're actually delivering an accelerating increase in gross margin rate. Which doesn't make any sense. So just curious, are you seeing a significant increase in your margins in commercial that's more than offsetting this change in mix?

[Darren R. Jackson:]

The short answer is if you think about at three levels you're right. Structurally DIY is a better gross margin business than commercial. I would say part two is, yes, we're seeing increases in our commercial business, pretty material ones in terms of the business. And I think you would say, well, what's driving it. And part the truth is commercial, for us, I don't know that we put the time and energy into until recently, as I said earlier, bringing tools and techniques down to our parts pros. Things that help us in tiered pricing so we could look across all the different groups of commercial programs and begin to ask questions in terms of, well, wait a minute, we've got to have a level of integrity and pricing or consistency in pricing. And we're just beginning that journey. So many of the things that I would say that the pricing benefits are coming from, a lot of it's hygiene. You know, that hygiene of consistency in terms of our offer. I would say the other thing that we're seeing in pricing is we step up our service levels, our consistency, and our reliability. We're getting paid for it, and we would expect to get paid for it. We felt that one of our benefits, structurally, given our store locations, is that we're within 30 minutes of many of our key customers and we can turn those products around sometimes in 20 minutes and build those relationships that way. And so the way I think about it is that consistency is getting us some benefit. I see it in some of my lowest margin stores getting better. The other thing I see in terms of margins getting better across, not necessarily from pricing, but from delivering on the value proposition of the service in 30 minutes. Now, are we where we need be? We've still got a long way to go. But I think that's principally what's driving it.

[Jimmie L. Wade:]

I think another way to look at that as well is that one of the ways that we're getting paid for it is as we provide that service level and we've become a bigger portion of that garage's purchases, we're seeing more parts sales. And that is driving higher margins because parts sales have higher margins to them. And that's clearly part of our entire value proposition that's built around the service to the customer.

[Operator:]

Your final question comes from Chris Horvers – JP Morgan.

[Chris Horvers:]

I don't know if you have this data, but in terms of the market growth, you talked about June and July, was there a similar trend in the overall market growth? And then could you refresh us on the gas shortages last year and how that played out as you went across Q3?

[Jimmie L. Wade:]

On the first part of the question, in terms of how we look at the market growth relative to individual months, I think it's a much better view of a quarter than it is individual months, because it's just hard to look at specific trends on a monthly basis. So on a monthly basis we look more internally, on a quarterly basis we look more across how have we done across the market.

[Darren R. Jackson:]

And it's probably fair to say that the second quarter in general, from a market view in terms of the market data we get, came back to more of a rebalancing on historical levels. The first quarter, there's no doubt about it and particularly from a DIY point of view, it was terrific market growth quarter for Advance Auto Parts and we exceeded the market, by a touch. And then in the second quarter I would say it returned to more historical levels, and we underperformed it, again by a touch. And that's in dollar share. In unit share was the opposite. Our units were just a little shy of the market in Q1. But our units were a little better in Q2. And so I'm not losing a lot of sleep that DIY has had a big change. I think the market, when we looked at the first six months, looks reasonable to us.

[Michael A. Norona:]

Just to build on Darren's point, the first three months of the year, the market grew about 7.5 and in the last three months it fell by about a half, to about 3.5.

[Chris Horvers:]

Any thoughts you have on what is slowing that down? I mean you hear a lot of talk out there about what Clunkers is doing. Are you hearing anything from your commercial guys, or within the traffic counters you have out there, any insight on is there an impact that you expect from that or any other change that would have caused that market growth to slow?

[Kevin P. Freeland:]

The Clunkers program, I think it's going to be a short-term phenomenon and starting with about $1.0 billion, I think it's 250,000 cars. They've added on to it. You read mixed reports on what it's done. We think it's a short-term phenomenon. You know, it's a choppy market down there and I think Darren said it earlier, I think we got a little ahead of ourselves in terms of the retail business in the first quarter of the year, and I think it's normalizing back to the recent history and trends.

[Jimmie L. Wade:]

As we went into the second quarter, even after we saw the first quarter strength in DIY, we didn't really plan on that for the second quarter. We anticipated somewhat of a lower rate and I think the lower rate is probably more reflective of what we're seeing as opposed to the strength in the DIY market overall in the first quarter and I think as Darren mentioned, there is going to be volatility from quarter to quarter as we work through some of the external factors that are affecting the business.

[Darren R. Jackson:]

Of course, I come back to how are we doing on the units, how are we doing on the traffic, and some of it will sit in the pricing. A little bit in the inflation was probably a little less in the second quarter than it was in the first quarter. And so what I pay attention to is that when I look at our traffic counts, we didn't see a demonstrable fall off in year-over-year traffic patterns in the second quarter, so that's good. Customers are showing up. And the other thing is, as I said before, we didn't see our units from a share point of view, fall off in the second quarter, we actually saw an uptick, so that's encouraging as well. I think as we look to the back half of the year, without giving any projections, we're going to stay on strategy, we're going to stay focused on growing that commercial business. We did take some resources out of the DIY business, as we said. Principally in marketing. Maybe that's a little overdone and we have to re-look at that, but as I said, this market is going to go up, it's going to come down, but we feel good that what we set out to do, we're achieving.

[Chris Horvers:]

Any comment on the third quarter, how the shortages last year hurt you?

[Darren R. Jackson:]

I don't know. I think the shortages probably hurt us but I think we had a few hot days in the third quarter that helped us, too. I used to tell my team, I don't want to talk about weather. I want to talk about things in our control. So you're right, we did in the third quarter have those gas shortages, we also had a gas price in the third quarter last year is my recollection, of about $3.82 a share. We're doing about $2.54 right now. So that should help us. Who knows where miles driven is going to go.

[Michael A. Norona:]

Miles driven is positive, unemployment is up.

[Darren R. Jackson:]

Mike always reminds me we're better operators than predictors of the future.

[Operator:]

That's all the time we have for questions. I would like to turn the call back over to Judd Nystrom for final comments.

[Judd Nystrom:]

Thanks to our audience for participating on our second quarter earnings conference call. If you have additional questions, please contact Joshua Moore at 952.715.5076. Reporters, please contact Shelley Whitaker at 540.561.8452.

[Operator:]

This concludes today’s conference call.