Earnings Call Transcript - AAP Q2 2020

Operator, Operator

Welcome to the Advance Auto Parts Second Quarter 2020 Conference Call. Before we begin, Elisabeth Eisleben, Senior Vice President, Communications and Investor Relations, will make a brief statement concerning forward-looking statements that will be discussed on this call. Please go ahead.

Elisabeth Eisleben, Senior Vice President, Communications and Investor Relations

Good morning and thank you for joining us to discuss our second quarter 2020 results. I am joined by Tom Greco, our President and Chief Executive Officer and Jeff Shepherd, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that our remarks today may contain forward-looking statements. All statements other than statements of historical facts are forward-looking statements, including but not limited to statements regarding our initiatives, plans, projections and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about factors that could cause actual results to differ can be found under the caption, forward-looking statements and risk factors in our most recent Annual Report on Form 10-K and subsequent filings made with the commission. Now, let me turn the call over to Tom Greco.

Tom Greco, President and Chief Executive Officer

Good morning to everyone joining us today. Before we get to the specifics of our quarter, I want to start with an acknowledgment to our Advance team members and independent partners. They've shown incredible perseverance and support for each other and for our customers over the past few months. Never has the term essential business meant so much to us. Throughout Q2, our team members responded to the pandemic with an exemplary level of customer care. At the same time, our entire organization responded with a remarkable level of speed and agility. Every week, we hear stories from both customers and team members on how Advance has helped keep America on the road during this crisis, along with commendations on the safeguards we’ve put in place to protect them while in our stores. Our sincere thanks and appreciation goes out to every single AAP team member and Carquest Independent Partners, who delivered the strong performance we're about to review. Since the onset of COVID-19, we established three overarching priorities: First, prioritize the health and safety of our team members and customers; second, preserve cash and protect the P&L during the crisis; and third, prepare to be stronger following the crisis. At the beginning of the pandemic, we set up a team dedicated to the health and safety of our team members and customers. This cross-functional team organized daily standup calls throughout our organization, which allowed us to respond with a tremendous sense of urgency to help keep people safe and healthy. As an example, we installed plexiglass care shields in our stores in a matter of weeks. We institutionalized entirely new standard operating procedures across our stores and DC network. Our technology team enabled remote work capabilities for corporate functions and for our field team. We significantly increased communication through virtual town halls and regular video updates. And importantly, we've provided enhanced compensation and benefits on top of our industry-leading Fuel the Frontline stock compensation program to help our team members during this time. Health and safety has been a top priority for the leadership team here at Advance over the past few years. While none of us wanted COVID-19, the foundational processes that were put in place prior to COVID were instrumental in enabling us to not only respond to the global crisis but to provide outstanding customer support within it. As a result of our health and safety focus, we're very pleased that AAP has been well below the national average infection rate for COVID-19. We remain laser-focused on taking the necessary steps to enable our team members to feel safe coming to work and to ensure our customers feel safe shopping in our stores, which is more important than ever right now. When we provided our quarter-to-date results during our Q1 call, we indicated that our sales results had sequentially improved every week during the first four weeks of Q2. As you saw in our results this morning, our sales momentum continued for the remainder of the quarter. Our sales grew 7.3% to $2.5 billion, compared to the prior year. Comparable store sales increased by 7.5%, the highest quarterly growth rate in close to 10 years. Our adjusted operating income increased by 42% to $279 million and our adjusted operating income margin rate increased 274 basis points to 11.2%, while free cash flow in the quarter was up 16%. Nearly all regions had positive comparable store sales with the Gulf Coast, Central and Appalachia regions posting strong double-digit growth. The Northeast, Mid-Atlantic and West Coast regions, which were more impacted by the pandemic, significantly trailed our other regions. In fact, we had an extremely wide distribution performance geographically, with over 2,000 basis points separating the highest and lowest growth regions. As you've heard from others, our Professional business was more negatively impacted by COVID-19 than DIY in the quarter. This was primarily due to the temporary closure of garages across North America. In addition, we have a disproportionate amount of our Professional business in the Northeast, Mid-Atlantic and the West Coast. These regions represent over 30% of our Pro sales, and they were all well behind the rest of the country in terms of their professional growth rate. However, as the quarter progressed and stay-at-home orders began to lift, we saw sequential improvement in our Professional business each period. In the final four weeks of Q2, Pro sales were up mid-single digits. During the quarter, we continued to support our Professional customers, including the rollout of our enhanced MotoLogic platform. This repair and diagnostic tool was built from the ground up by industry and technology experts and provides access to complete unedited OEM information. Since 2018, 3,700 new vehicles and 14 million-plus articles have been added. Our most recent upgrade includes enhancing MotoVisuals, which allows technicians to share repair animations. This helps them explain services to customers in person, by text, or email. Also in Q2, we signed up a record number of new TechNet customers as we crossed 11,500 TechNets in total. Our Independent Carquest, Worldpac and Carquest Canada businesses also recovered nicely as the quarter progressed. Throughout the quarter, we responded quickly to the needs of our Professional customers, and put new tools in place for our sales team to be successful regardless of current challenges. This includes contact-free delivery, instructor-led virtual training for shop owners, and expansion of selling capabilities, enabling our sales team to better meet the needs of our professional customers. We believe the work we've done to be there for our professional customers at a time of great need has set us apart. Our DIY omni-channel performance was meaningfully stronger than our DIFM business throughout the second quarter. This was driven by both external and internal factors. An overarching macroeconomic factor is whether consumers are repairing or maintaining their vehicles; they're much more focused on saving money during challenging times. This generally means fewer new vehicle sales and aging fleets and more DIY jobs. In addition, the stimulus checks from the CARES Act, as well as extended unemployment benefits in Q2 provided incremental discretionary income, which we believe contributed to our DIY sales performance. Since our DIY momentum has continued into Q3, we believe there are other external factors driving DIY beyond stimulus. First, many consumers were continuing to spend more time at home and had more time to work on their vehicles. Secondly, we believe that due to COVID-19, people were less apt to use public transportation. This includes ride-sharing, buses, trains, and subways. It also includes air travel, which was down significantly in the quarter. Airline leisure travel was at times replaced by road trips in personal vehicles. In total, mass transportation indices were well below year-ago levels all quarter. Meanwhile, personal vehicle miles driven climbed throughout Q2, according to Apple and Google mobility. Finally, according to our research, many of the large box retailers, including online retailers, prioritized staples along with food and beverages in Q2. This resulted in long-tail items such as auto parts being deprioritized, which temporarily opened the door. We believe external factors represented the majority of the surge we experienced in DIY. While we cannot speculate on the longer-term impact of these macroeconomic or COVID-related variables, we do believe from past experience that DIY typically performs better during recessionary environments as consumers try to save money and keep their vehicles longer. Additionally, as our economy continues to reopen, we believe there is still an understandable concern surrounding public transportation and mass gatherings. We remain committed to providing a safe shopping experience through our suite of Advance Same Day options. As more and more consumers are relying on personal vehicles, they're choosing contact-free options, like Advance Same Day Curbside or Advance Same Day Delivery. While we clearly have strong momentum in DIY, it's important to reiterate that there are still many unknowns surrounding COVID-19. In addition to external factors, our internal initiatives for DIY gained traction in Q2. First, we successfully launched DieHard on July 2nd nationwide. Although it's not a meaningful growth driver in the quarter, the first week of selling DieHard was a momentous celebration and a galvanizing event for our team. The launch involved coordination across every aspect of our business. Normally, the Advance executive team would be doing store tours during a launch like this. When we would have preferred to do in-person store tours, this was simply not possible during this time. Therefore, we adapted and conducted a combination of in-person and virtual tours across the country. The good news is we got to a lot of stores very quickly. And every general manager we spoke to was incredibly excited about the potential of DieHard. While it's too early to quantify the impact of DieHard, we believe this iconic brand will be a long-term differentiator for us. Secondly, we made a decision in the early stages of the pandemic to prioritize Advance Same Day Messaging in our advertising over previously planned brand awareness campaigns. The Advance Same Day Advertising was both timely and relevant. Going forward, we'll continue to build the awareness of the Advance brand partnering with Team Penske, NASCAR and with the Indy 500 this upcoming weekend. Third, our Speed Perks loyalty program sustained continued momentum as the number of active members grew to more than 13.5 million, an increase of nearly 30% year-over-year. We're also seeing growth on customers graduating to higher tiers within the program along with improved retention rates. Finally, our DIY execution continues to improve. In addition to the national launch of Advance Same Day Delivery, we strengthened the front-end user experience of our online platform, which led to improved traffic and higher conversion rates. Our in-store execution also improved with strong ticket count growth along with notable gains in units per transaction and sales per ticket. As a result of both external and internal factors, we delivered double-digit growth in DIY omni-channel throughout Q2. To close out the top line, and as we said in a press release, we continue to see strong sales through the first five weeks of Q3. As we turn to profitability, we made progress on each of the four pillars of margin expansion in the quarter. In terms of sales and profit per store, we had very strong sales per store in the quarter. On a rate basis, our SG&A per store was down materially. Certainly we benefited from top-line growth. However, our productivity tools are also helping. Utilizing our new scheduling and task management tool, our field team has done an excellent job managing hours despite a challenging and evolving environment. With that said, we took several actions in the quarter reflective of the unique operating environment, such as a reduction of certain labor and costs related to the softer Professional business. And our business continues to normalize including the mix, we expect to add certain expenses back. In terms of the supply chain, improved execution and standardization in our distribution centers enabled us to leverage supply chain in the quarter. As we called out in our Q1 earnings release, we did need to delay or pause some important initiatives due to COVID-19. As an update and given the strength of our business, several of these key initiatives are now back up and running. Cross-banner replenishment, which will integrate the supply chain within Advance and Carquest, is on track to deliver the original savings we planned in Q3 2021. This is slightly delayed from our original timeline, primarily due to factors related to COVID-19. Our single warehouse management system or WMS initiative was officially paused during the quarter. We've restarted this work and revised the timelines for WMS, which includes prioritizing our largest DCs. We expect to complete our WMS implementation in these large DCs by the end of 2021. We believe this will enable us to realize the vast majority of the planned savings in 2022. In terms of category management, we continue to work with suppliers on material cost optimization and own brand expansion. We also began the implementation of a new pricing platform and expect over time this new tool will enhance our pricing management capabilities. Our next step is to begin the implementation of market-based or local pricing strategies, which is something we cannot do efficiently today. Finally, in addition to leveraging store labor in the quarter, we continued to execute our SG&A productivity agenda. This includes the integration of back office accounting as we consolidate four ERP systems to one. We also saw significant savings in travel expenses after pausing travel across the Company. While we believe there will likely be some savings associated with reduced travel longer term, it will not be at the level we saw in Q2. Our focus on health and safety also continues to drive cost savings in SG&A. In Q2, we once again reduced our recordable incident rate, which has resulted in a 27% reduction for the first half of 2020. Our collision frequency rate has also improved with a year-to-date reduction of 13%. Before I turn it over to Jeff, and based on current events happening across the U.S., I want to reinforce our commitment to inclusion and diversity. We're witnessing immense civil unrest across the country in recent months. These events are reinforcing the importance of our cultural belief at Advance. Our cultural beliefs are part of how we think and how we act at Advance, regardless of level or title. Our Champion Inclusion cultural belief is highlighted by the statement, 'I embrace diversity of people, thoughts, skills and styles to deliver results.' It's never been more apparent to my leadership team that we need to step up our commitments to Champion Inclusion even more. This includes standing up against intolerance and racism, conducting business with integrity and interacting with all people in a respectful manner. We recently launched an initiative we call Advancing Black Pathways. This is focused on creating real change in three primary areas: culture, careers, and communities. We look forward to seeing further progress in this important element of our culture as the initiative develops. In summary, Q2 was a strong quarter, and we could not be prouder of how our field team members took care of our customers during a difficult time. In spite of the challenges we faced from COVID-19, our advanced leadership team also stepped up, as evidenced by significant increases in our communication and employee engagement scores in our most recent pulse survey. While we're pleased with our second quarter results, uncertainty remains in terms of how the pandemic will impact consumer behavior and our business. Regardless, we remain focused on executing our strategy while updating the value and prioritization of our long-term projects in this new environment. Most importantly, we will continue to prioritize the health and safety of our customers and team members for the balance of the year, while leveraging our industry-leading portfolio, which now proudly includes DieHard. With that, I'll turn it over to Jeff for details on our financial performance.

Jeff Shepherd, Executive Vice President and Chief Financial Officer

Thank you, Tom, and good morning, everyone. We're certainly in an unprecedented time right now. And I truly hope that you and your families have stayed well during the past several months. Before driving into our Q2 results, I want to thank our team members for all we have accomplished over the last several months. It’s a result of their dedication that we're extremely pleased with what we delivered in the second quarter. In Q2, our adjusted gross profit was approximately $1.1 billion, which was an increase of nearly 9% compared to Q2 in the prior year. Adjusted gross profit margin improved 57 basis points year-over-year to 43.9%, driven by favorable channel mix and supply chain efficiencies. These were partially offset by inventory-related costs, due to a significant decrease in inventory, driven by an increase in customer demand. Our adjusted SG&A was approximately $818 million in Q2, nearly flat compared to Q2 2019. Adjusted SG&A as a percent of net sales improved 217 basis points compared to the prior year, primarily driven by cost controls we implemented in response to the pandemic in late Q1. These include reductions in labor costs as we leveraged store labor while reducing medical claims. Further, we saw savings from lower delivery expenses to Pro customers in the front half of the quarter before Professional sales began to recover. Additionally, we saw favorability in travel and a reduction in insurance expenses. These cost savings were partially offset by investment in marketing expenses associated with the launch of our Advance Same Day campaign and the DieHard brand in the quarter. Import contracts related to IT solutions we have implemented since Q2 2019 were also a slight headwind in Q2. In addition, we incurred $15 million in COVID-19 expenses in the quarter, which partially offset the cost savings we delivered in the quarter. Our COVID-19 expenses were a combination of two things. First, we are incurring ongoing costs as we provide cleaning supplies, gloves, masks, and hand sanitizer to our stores, DCs, and corporate locations. In addition, we incurred some one-time expenses such as installing plexiglass barriers in our stores. Secondly, we continued to invest in team member compensation and benefits in the quarter. Adjusted operating income in Q2 was $279 million, which improved 42% compared to the prior year quarter. Our adjusted operating income margin rate improved 274 basis points to 11.2% in the quarter. Adjusted diluted EPS was $2.92, an increase of 46%. Free cash flow in the quarter was $380 million, a 60% increase compared to $237 million in Q2 2019. Year-to-date, free cash flow was $308 million compared to $381 million during the same period in 2019. As a reminder of our capital allocation priorities, we remain committed to maintaining our investment grade rating, invest in the business, and return excess cash to shareholders. Consistent with these priorities, we've taken several actions. First, we repaid the $500 million previously borrowed under our revolving credit facility. In addition, yesterday, we provided notice to the trustee of our intention to redeem the $300 million, 4.5% note due in 2022. These actions will help us return our leverage ratio to pre-COVID levels. Secondly, as Tom mentioned, we restarted several projects that we expect to enable margin expansion that were paused or delayed due to COVID-19. As a result, we now expect our full-year 2020 capital spending will be a minimum of $250 million. In Q2, our capital expenditures were $57 million, which was an increase of $7 million compared to the prior year. Third, with respect to our priority to return excess cash to shareholders, we're pleased to maintain a $0.25 dividend per share for Q3. In addition, we lifted the temporary suspension of our share repurchase program and will remain opportunistic in our balanced approach to returning excess cash to shareholders. In summary, we delivered strong operating results and strengthened our balance sheet this quarter. We remain diligent in managing our liquidity and executing our plan to win in the marketplace while expanding margins. With that, let’s open the call to address your questions.

Operator, Operator

Thank you. Operator Instructions. And your first question comes from the line of Michael Lasser with UBS. Please go ahead.

Michael Lasser, Analyst

Good morning. Thanks a lot for taking my questions. As you look at it, how is your market share in both DIY and DIFM as you try and adjust for business mix and geographic exposure? And as part of that, Tom, do you think that the customers in the DIFM segment you are levered to might be losing share within those markets?

Tom Greco, President and Chief Executive Officer

Good morning, Michael. We definitely gained market share in the quarter. The syndicated data indicates our growth in the DIY sector, and when we examine the reported figures compared to our performance, we're confident that we've also gained share in the DIFM segment. It's important to remember that this industry is quite fragmented. In a $150 billion market, the top four players account for $40 billion to $45 billion in sales, which is about a third of the total business. So, is it realistic to think that larger players, holding a third of the market, can capture share from smaller players who make up the remaining two-thirds, especially during a global pandemic? We believe we've demonstrated that this is indeed the case. Our advantages, such as a strong online portal, omni-channel capabilities, and an ability to pivot quickly with curbside or contact-free delivery, along with robust supply chains, give us an edge that smaller competitors lack. We're confident we gained share this quarter, and as you can see, larger players are likely to perform well in such a period.

Michael Lasser, Analyst

My second question is, you outlined some delays and initiatives that are going to drive the margin inflection in 2021, but there's also some factors that are probably trending better than what you anticipated. So, as you net those out, do you believe that the magnitude and the timing of the margin expansion that you previously outlined for 2021 will be consistent with what you had previously expected, or should we, as we look out forward, start to recalibrate lower our expectations for next year? Thank you very much.

Tom Greco, President and Chief Executive Officer

Well, obviously, there's a tremendous amount of uncertainty right now, whether it's the shape of the recovery, the impact of COVID, we've got an election coming up. So, we're still working through our updates, if you will, of our strategic plan, which will be a three-year plan when we discuss it later on in the year and into 2021. You're right, there's been impact to each one of the margin expansion initiatives that we have. At this point, we're not in a position to comment specifically on where we're going to be in 2021. It’s obviously very early at this stage. But we feel very good about the progress that's being made, whether it's in sales and profit per store, where we had a very strong quarter. The team did a really, really good job managing payroll in the quarter. We're looking a little bit differently at our fleet, if you will, as we go forward, given the changes in the real estate environment and construction costs. Supply chain, we referenced in the prepared remarks, we still feel very good about our ability to expand margins through supply chain. We're rolling up in our own brand portfolio, which will drive margins and SG&A. We had a very strong quarter those initiatives are moving very well, and in fact, ahead of our expectations. So, there's puts and takes in there but I think it's a little early to speculate on 2021.

Operator, Operator

And your next question comes from the line of Seth Sigman with Credit Suisse. Please go ahead.

Kieran McGrath, Analyst

Good morning. This is Kieran McGrath on for Seth Sigman. Congrats on the great quarter. Two questions for me. Firstly, you discussed DIY’s trend continuing quarter-to-date. Does that tell you that stimulus was a smaller piece of the elevated DIY demand in the first half? And related, do you now think that that elevated demand is more durable than your initial expectations?

Tom Greco, President and Chief Executive Officer

I'm sorry, Kieran. Can you repeat the first question? I'm not sure I understood everything.

Kieran McGrath, Analyst

Regarding the strong quarter-to-date DIY trends, with the stimulus now expired, does that indicate that the stimulus was a smaller factor in the elevated demand during the first half? Additionally, do you believe that this elevated demand is now more sustainable than you initially expected?

Tom Greco, President and Chief Executive Officer

There are many factors to consider. We clearly benefited from stimulus and unemployment benefits, but we expect less of that going forward. Nonetheless, the strength has persisted as we've mentioned. In a challenging economy and due to COVID, there are several elements that work to our advantage. We anticipate fewer new vehicle sales, leading to an aging fleet, which results in more repairs and increased DIY projects. People are likely to avoid mass transportation, viewing cars as a safer option during this time. Many are choosing to use personal vehicles, and some are purchasing cars, particularly used ones, after previously relying solely on ride-sharing. This trend will help us as well. Additionally, with people having more time for projects and spending less on travel and entertainment, we also gain from that. Overall, there are macroeconomic factors related to the environment and COVID that are beneficial for us. Internally, we are confident in our initiatives, like the launch of DieHard, our enthusiastic field team, and our marketing plans that are being implemented, along with our second year of Speed Perks. We believe that, regardless of the external environment, our DIY segment will remain strong in the latter half of the year.

Kieran McGrath, Analyst

Thank you. Could you provide more insight into your category performance? Was it broad-based, or primarily driven by maintenance and appearance? Also, what is your outlook for the category in light of the trends related to miles driven that you mentioned? Thank you.

Tom Greco, President and Chief Executive Officer

Yes, that's a great question. There is some impact on categories that rely heavily on miles driven. For instance, in areas like brakes and, to a lesser extent, undercar chassis, we experienced softness in the early part of the quarter, especially on the professional side. However, we picked up momentum throughout the quarter and are now seeing mid-single-digit growth rates in those categories. The categories dependent on miles driven have shown improvement recently. The intermittent driving situation has positively affected certain areas for us, such as batteries and fuel pumps, where we're witnessing significant growth. Air conditioning has also rebounded nicely due to recent warm weather in our region. Additionally, we've seen very strong performance in appearance products like wash and wax, which has remained consistent. While there's a typical dynamic relating miles driven to category performance, we’re observing strength in certain categories that don’t rely on miles driven as much.

Operator, Operator

And your next question comes from the line of Elizabeth Suzuki with Bank of America. Please go ahead.

Elizabeth Suzuki, Analyst

Just following up on a previous question. I guess, looking at the cost reductions that were made in the quarter. And it sounds like a lot of it was labor expense that will likely come back as the sales environment is more favorable. But at the same time, you have longer-term cost savings initiatives that were delayed. So, as we think about the remainder of the year, we expect labor costs to come back, but then longer term you get the benefits of the larger initiatives over the next two, three years?

Jeff Shepherd, Executive Vice President and Chief Financial Officer

Yes, we implemented several cost initiatives at the end of the first quarter, which began to show results in the second quarter. Payroll was a significant factor as the professional delivery segment was slow to recover, but we saw advantages there along with better control over costs like travel. Additionally, we experienced savings in medical expenses since many of our team members are postponing elective procedures and check-ups. Looking towards the second half of the year, we anticipate both potential challenges and ongoing positives, along with some factors that could go either way. As the professional segment improves, we will require more professional labor, which will incur additional costs. We will continue to invest in marketing for both DieHard and Same Day, as we believe this will drive revenue. We also have ongoing capital expenditures related to projects that were previously paused, which will involve operational expenses. We prioritize our team members over profits, but we also see some benefits ahead. We plan to maintain control over items like travel and store payroll while utilizing our labor tool, which has been beneficial. Although we expect to face increased labor costs on the professional side, we believe we can keep managing our payroll effectively. There remains an uncertainty around medical costs; while they have been beneficial, there may be an increase in expenses if team members become more willing to visit doctors for check-ups or electives in the latter half of the year. Overall, we are still navigating the pandemic and its uncertainties, which is why we currently do not have guidance for the future.

Operator, Operator

And your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Simeon Gutman, Analyst

I wanted to start with a question on some of the DCs that you've begun to standardize. Can you talk about the sales and margin performance around those DCs or the areas in which they serve? I think, some of them may have been impacted just because of COVID and some of the Northeast, but curious since it's a building block of the transformation, how it's progressing and are you seeing real change as a stepping stone to margin?

Tom Greco, President and Chief Executive Officer

Hey. Good morning, Simeon. Yes, for sure, out of the gate, we were really happy with what we were getting from the implementation of the new warehouse management system. The fill rates improved. The DC that we did was much more organized. The people there were trained and very excited about what was done. It was a material difference, I think, between what was there before. Obviously, the impact of COVID has been significant in throughout all of our DCs and in our stores. It's made it difficult to hire people. It's a challenging environment right now, if you have an infection in the DC. There's obviously things that we have to go through. We have to quarantine people. So, I think it's a difficult time to really benchmark the success of the warehouse management system at this point. As we're starting to ramp back up and get people hired in our buildings, we just went through this yesterday. We are seeing progress and improvement on fill rates and how quickly we put things away and all of the things that go with running a DC successfully. So, the short answer is, we're highly optimistic that the warehouse management system implementation will enable a much more structured labor management system for our buildings and standardized our buildings and allow us to drive productivity. During the last several months, it was difficult to realize some of those benefits.

Simeon Gutman, Analyst

Okay. Thanks for that. And then, my follow-up is related to a couple initiatives in the do-it-yourself side. I think marketing was on the cusp of changing and being enhanced. And then, the DieHard battery, and I apologize if some of this was asked already, but curious where you are in these two initiatives and how you manage in this environment?

Tom Greco, President and Chief Executive Officer

Sure. We shifted our marketing from a branded campaign aimed at increasing recognition of the Advance name to a more urgent approach as COVID hit. This led us to focus on the rally cry campaign, Advance Same Day, which has proven very effective in emphasizing the speed, convenience, and reliable advice we offer customers. This campaign also promotes Advance Same Day Curbside, allowing customers to wait in their cars while we bring out and install the battery for them. Additionally, our Advance Same Day Delivery is unique in the industry and has been successful, boosting our in-store pickup business as well. We are pleased with the campaign's performance but remain focused on raising awareness of the Advance brand. Regarding DieHard, we are thrilled about the potential. We quickly executed virtual market tours and were present in stores to see our performance. Our team is very enthusiastic about the brand; many have personal memories tied to it, such as recalling when they bought their first DieHard battery as kids. Our marketing plans for the fall are coming together well. We aimed to launch on the July 4th weekend and succeeded in executing it across the country. There's a lot of energy around DieHard, and now we need to build momentum to draw customers into our stores.

Operator, Operator

And your next question comes from the line of Scot Ciccarelli with RBC Capital Markets.

Scot Ciccarelli, Analyst

So, based on the flat comp that you had in the first four weeks in the quarter, it looks like, comp side, you got kind of 10% to 11% or so in the last eight weeks of the quarter. So, Tom, when you talk about strong sales continuing so far in Q3, does that mean we're still running at a double-digit rate?

Tom Greco, President and Chief Executive Officer

Yes, we're not providing a specific number, Scot. However, we did achieve double-digit sales in the last couple of periods, and we have continued to see strength into the third quarter, which we are pleased about. The category remains strong for several reasons I mentioned earlier, so we are optimistic about it.

Scot Ciccarelli, Analyst

Got it. Okay. And then, when you talked about the 2,000 basis-point gap across some of these geographies, I'm assuming that was kind of full quarter commentary. But should we assume there's been a fairly meaningful narrowing in that performance gap in kind of July and August so far, just as consumer mobility has continued to improve? Are you still seeing the gap that lies?

Tom Greco, President and Chief Executive Officer

Yes, good question. We are seeing it narrow. And we commented on the Northeast and Mid-Atlantic specifically where we've seen the most significant impact of COVID, and particularly on the Pro side, by the way. DIY, we're doing better there, but even there, you've got that differential that we're talking about, but it has narrowed as time’s gone on. And we are optimistic that we'll continue to narrow. It's just the people up in the Northeast and Mid-Atlantic have been just less mobile. And our overall performance up there has lagged. I mean, the center of the country was very, very strong throughout the entire quarter both on Pro and DIY. Mid-Atlantic and the Northeast challenged. West Coast, we did well on DIY. Pro was more challenged on the West Coast for us. So, that's kind of the geographic performance. But, we are seeing it narrowing, which is good for us.

Operator, Operator

And your next question comes from the line of Michael Montani with Evercore.

Michael Montani, Analyst

I just wanted to focus on two things. One was top-line and then a margin follow-up. So, just specifically as it relates to the top-line, I was just hoping for some extra clarification and color around the Pro side. Was that positive during the quarter? And then, anything you can share, Tom, in terms of traffic account versus ticket size for DIY and DIFM? And then, I just had a margin follow-up after that.

Tom Greco, President and Chief Executive Officer

First of all on Pro, we were down slightly in the quarter, overall. I think on ticket and traffic, very, very strong ticket performance on DIY. Dollars per ticket were up very strong. In terms of Pro, we measure accounts, right, Michael, on Pro, like how many accounts are we servicing. In April and into early May, that number dropped significantly, it was down 30% for a couple of weeks there as the garages were closed and some of these markets were shelter-in-place and very, very shut down. As the quarter progressed, the number of accounts we were servicing came back right up through the end of the quarter we started to approach here, the levels were still slightly negative, but were approaching year-ago levels. But our dollars per account surged. So, you're seeing some consolidation there a little bit. But overall, our pro business has recovered week-in, week-out, since this thing started and we're optimistic about that.

Michael Montani, Analyst

Okay, great. And then, just on the margin front kind of the two-parter, but one is on SG&A dollars. Jeff had some significant puts and takes there. But, if you think about the back half, can you kind of continue SG&A dollars to be more or less flattish with last year, even if the volumes remained strong, what should we think about there? And then, secondly on the gross margins firm, just wanted to see what kind of inflation you all are experiencing? And if you feel you can get it through, because as I recall, there's significant tailwinds from cycling the Speed Perks 2.0 launch, as well as supply chain leverage into 3Q that should be good for gross margin?

Tom Greco, President and Chief Executive Officer

Yes, sure. Let me start with SG&A. As I said on a previous question, we certainly have some headwinds and we have some tailwinds. And if you kind of tick that through those, the headwinds are controllable. We have marketing, but if we need to scale it back, we can scale it back. The only thing we really can’t is COVID. I mean, we're going to spend what it takes to protect our people and protect our customers. If Pro labor doesn't continue to trend the way it has been, we're not going to have drivers in the store if there's no part to deliver. And then on the tailwind side, obviously, travel and payroll in a store, I feel really confident we can continue to leverage that. Not to mention the awareness that we're going to get from the marketing and the impact that we're going to get from DieHard that we really didn't see much in the second quarter. And then, medical, again, could go either way. In terms of gross margin, inflation was relatively low in the quarter. I think we were right around 2%, maybe slightly under. And you're right, in the back half, there's two things we're going to be lapping. You touched on one of them, in terms of Speed Perks, and then also the full impact of the tariff. So, on a year-over-year basis, we should be able to see some benefit there, assuming we don’t get anything in the back half, associated with elections or anything else. So, yes, certainly some opportunity.

Operator, Operator

And your next question comes from the line of Daniel Imbro with Stephens, Inc. Please go ahead.

Daniel Imbro, Analyst

Hey. Good morning, guys.

Tom Greco, President and Chief Executive Officer

Good morning.

Daniel Imbro, Analyst

Tom, can you update us on the status of the independent Carquest locations? Obviously, they're levered towards the DIFM market, which has underperformed. I know you added a few, but just any material change in the health of the independent landscape you're seeing, especially maybe August year-to-date, as we've seen the PPP funding kind of run out in late July, any change you're seeing out there that differentiates?

Tom Greco, President and Chief Executive Officer

Well, first of all, it is changing. There's no question about that. But we grew in the quarter with our independents. We're really excited about that. I'd like to commend them. I mean, they did a phenomenal job amid tremendous challenges. I think the team really banded together, the independents themselves, our field team, our pro team that supported them. We acted really fast. And a lot of our independent partners were able to just take all of the things we were doing inside of advance to keep their team members safe, leverage the PPP loans. They were able to roll out curbside delivery in conjunction with our AAP stores, which allowed them to provide essential parts and services to their communities. So, I think more and more, we're able to move faster to enable our independents to do the things that they need to do to win in the marketplace. And that's why the Carquest program is growing. So, we feel very good about the progress that's been made there. And they had a strong quarter actually. So, we feel good about it, Daniel.

Operator, Operator

And your next question comes from the line of Jeff Shepherd with Wolfe Research. Please go ahead.

Jeff Shepherd, Analyst

And if I just follow-up on in terms of online. So, online growth has been significant with DIY channels. So, what do you think from a competitive standpoint now that this category seems to be gaining more traction online? Have you seen any other players get more aggressive in the states and how are you addressing it?

Tom Greco, President and Chief Executive Officer

The key here, David, is ensuring that new customers who visit our store or use our online portal for the first time become repeat customers. Speed Perks is essential for achieving that, and we are pleased with our loyalty program's performance over the past year. We’ve seen a 30% year-on-year increase in the number of participants, and we’re successfully moving customers from Speed Perks to higher tiers, with a 24% increase in graduation rates during the quarter. This indicates that these customers are increasing their spending with us, which is crucial. We aim to create lasting relationships, making the experience memorable. Our average spending per member has significantly increased, showing we're effectively capturing more wallet share. We are focused on converting online purchases into excellent customer experiences, whether through our app, which we launched this quarter, or in our stores. We believe we are making substantial progress, with significant opportunities ahead. We now have first-party data and can personalize our offers effectively. While other online competitors will continue their strategies, our deep knowledge of the category, alongside our trusted advice and the speed and convenience of our stores, positions us favorably in the market.

Operator, Operator

And there are no further questions at this time. I will turn the call back over to Tom for closing remarks.

Tom Greco, President and Chief Executive Officer

Well, thanks again for joining us today. And as you heard, we delivered strong results in Q2 and we're very optimistic about the second half of 2020. During this unprecedented time we’re all enduring, I'm incredibly proud of how our team has come together to serve our customers with care and speed while protecting the health and safety of all of our team members. I'm confident that the actions we're taking will allow us to continue building on this positive momentum for Advance and enable meaningful top-line growth, margin expansion, and significant cash flow generation. We look forward to talking to you again in November. Thanks again for your continued support and please stay safe.

Operator, Operator

This concludes today's conference call. You may now disconnect.