Greetings, and welcome to the Genuine Parts Company Second Quarter two018 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sid Jones, Senior Vice President of Investor Relations.

Good morning, and thank you for joining us today for the Genuine Parts Company Second Quarter two018 Conference Call to discuss our earnings results and current outlook for the full year. I'm here with Paul Donahue, our President and Chief Executive Officer; and Carol Yancey, our EVP and Chief Financial Officer. Before we begin this morning, please be advised that 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 press release issued this morning, which is also posted in the Investors section of our website. Today's call also may 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 the call. Now let me turn the call over to Paul.

Thank you, Sid, and welcome to our second quarter two018 conference call. We appreciate you taking the time to be with us this morning. Earlier today, we released our second quarter two018 results. I'll make a few remarks on our overall performance and then cover the highlights across our three businesses, Automotive, Industrial and business products. Carol Yancey, our Executive Vice President and Chief Financial Officer, will provide an update on our financial results and our current outlook for 2018. After that, we'll open up the call to your questions. So to recap our second quarter performance across our global platform, total sales were a record $4.8 billion, up 17.6%, driven by the favorable impact of strategic acquisitions and a 3.4% comp sales increase, which has improved from the plus 2% in the first quarter. Net income was $227 million and earnings per share of $1.54 was also a new record. Excluding the impact of transaction and other cost related to the acquisition of Alliance Automotive Group and the agreement to spin off the Business Products Group, adjusted net income was $234 million, up 23%, and adjusted earnings per share was $1.59, also up 23%. As we look to our global Automotive group, total sales were 27.7% in the second quarter, including an approximate 2.1% comp sales increase, which compares to a 1.5% increase in the first quarter. We are pleased to see our comps headed in the right direction. We also have the benefit of acquisitions and favorable foreign currency translation. Breaking it down further, sales for our U.S. Automotive operations were up 4% in the second quarter, with comp sales up 1.5% and improved from the first quarter. We were encouraged by the positive shift in the underlying sales environment for this business, which we believe reflects the…

Thank you, Paul. We will begin with a review of our key financial information and then we will provide an update of outlook for 2018. Our total sales in the second quarter were up 18% or up 3% before acquisitions and a slight benefit from foreign currency translation. Gross margin for the second quarter was 31.55% compared to 30.24% last year. Consistent with the first quarter, this strong increase primarily reflects the higher gross margin associated with AAG and other acquisitions as well as the benefit of increased supplier incentives in our Industrial business. These items were partially offset by lower supplier incentives for the Business Products Group. We remain focused on enhancing our gross margins through several key initiatives, including continued supplier negotiations both globally and across our businesses, the ongoing investment in more flexible and sophisticated pricing strategies and improved analytic capabilities around product and customer profitability. The pricing environment has been somewhat inflationary in our Industrial and business products businesses thus far in 2018 and we would expect this to continue with the ongoing rhetoric around new tariffs. With the latest round of tariff talk, we could also see an inflationary impact in Automotive, however, there is still a fair amount of uncertainty around its timing and ultimate impact. With that said, we expect to be able to pass along any increases to the customers. Our cumulative supplier increases through the six months of 2018 were flat for Automotive, up 2% in Industrial and up 1.1% for office. Turning to our SG&A. Total expenses for the second quarter were $1.22 billion, representing 25.33% of sales. This is up from last year due to the higher operating cost model at AAG as well as incremental depreciation, amortization and interest associated with the acquisition. In the quarter, we also…

Thank you, Carol. To recap the second quarter, we have several accomplishments to highlight. Although we also have a few areas requiring improvement, and we plan to address these head on. We fully recognize the need to show progress in our core operating results. And the key here is to improve our Automotive margin, specifically in our U.S. operations. To this end, our team is focused on driving core sales growth to better leverage our fixed expenses. We have more work to do to execute on our sales initiatives and maximize the growth opportunities available to us. And we are also focused on ensuring a steady gross margin along with an efficient cost structure. Rising costs in several areas has continued to offset our savings initiatives, so we must work to eliminate even more cost while continuing to provide exceptional customer service. We are committed to taking action to deliver cost savings in every aspect of our U.S. Automotive business. From an execution standpoint, we can and we will do better. Our team has delivered a much needed lift in revenues this quarter. And now we must increase our intensity around our execution and deliver improved results. As we look at the highlights from the second quarter, there are many to report on. We established a new sales record at $4.8 billion and up 18%. We established the new earnings record with EPS of $1.54, up 19%. We improved on our Automotive sales comps on our U.S. operation, and we continue to perform well in our international Automotive businesses. Our Industrial segment produced strong sales growth and improved on their profitability with an expanded operating margin. We stabilized our business products sales and continue to work towards the spinoff of this business. We improved the strength of our balance sheet and generated strong cash flows to support our capital allocation plans. We announced the significant strategic acquisition in Germany that will strengthen our position in this key market. And we increased our full year sales guidance to plus 13% to plus 14% and reiterated our full year adjusted EPS guidance at plus 19% to plus 22% over last year. With these accomplishments, as well as our other action plans to address areas requiring improvement, we entered the second half of 2018 focused on improving our operating results. We will continue to emphasize an organic and acquisitive sales strategy to drive long-term, sustained revenue growth and will continue to execute on our plans and initiatives to enhance our gross margins, reduce cost and build a highly productive and cost-effective infrastructure. We expect our focus in these key areas to improve the operating performance in our core businesses and for the company overall. As always, we look forward to updating you on our progress again in October when we report our third quarter two018 results. So with that, we'll turn it back to the operator, and Carol and I will take your questions.

[Operator Instructions]. Our first question comes from Bret Jordan, Jefferies.

A couple of questions on AAG. So the mid-single-digit comp in Europe, is that, do you think, better than the market? Are you gaining share there? Or was the market very strong in Europe?

Bret, I think that, overall, as we model that business and did our due diligence, we believe we're outperforming right now. Our thoughts going into the year would be really on the low side of positive comps, and we outperformed. And I would really call out our team in the U.K. where we had strong single-digit comps in the U.K. And Germany, we did just fine as well. So a really good performance by the AAG team.

How do we think about their EBITDA margin? I guess, it sounds like their gross margin's high, but maybe some incremental SG&A in that business mix?

No, actually, when we look at their operating margin, their operating margin is performing better than our U.S. Automotive margin and more in line with our other international Automotive businesses. So they actually carry a slightly higher operating margin and there isn't really any concerns with SG&A with that group. I can tell you when you have mid-single-digit comps and you're growing a little bit better than the industry, they're doing a really nice job on the margin side. So they are at plan with where we told you guys back last year with the $0.45 to $0.50 EPS on a full year basis and probably more at the high end of that number.

Okay, great. And then the question I have to ask, any regional performance spreads in the quarter in the U.S.?

Yes, Bret, certainly, the strength for us this past quarter was in our warmer markets. So our Southeastern division had a strong quarter. Our Southwestern division had a strong quarter. And if you look out West, we did just fine. They outperformed what we call our colder weather division, so the Midwest, the Central, Northeast, even the Mountain. And again, that April soft start with -- we had snow across the Midwest go in the month of April. That certainly had an impact on our Northern divisions, but they rebounded nicely in May and June.

Okay. And then one last question. We said you would probably passing through anything you see in tariffs. Have you had any conversations or have your suppliers been opening the conversation about higher pricing? Obviously, even before tariffs, they were seeing labor and maybe some material input inflation. But what do you expect for inflation in the second half? It sounded like it was flat in the second quarter.

Yes, so on the tariff side for Automotive, and you're right, we're flat in price increases for the first half. We certainly expect -- we've had some increases and some decreases, first half. We certainly expect to see something in second half for the year. When we speak specifically to tariffs, I think what's been effective thus far to date is they're negligible, especially when you look at this is just our U.S. Automotive business primarily what we're talking about year-to-date. So we absolutely have had conversations with our suppliers. They're ongoing. We've got a team that's very involved with this. And we would be looking at any increases, whether it's raw materials, freight, interest rates, tariffs, we're looking at it very broadly. We've got teams in place that are working with our global sourcing offices. We've got modeling going on. We're going to use a lot of database negotiations with our suppliers. But at the end of the day, it's going to be something that we pass along to the customer, and we'll just have to wait and see how this plays out.

Our next question comes from the line of Seth Basham, Wedbush Securities.

Nice improvement in the U.S. comps. But I was wondering if you could address some of the margin weakness in the U.S. Can you give us a breakdown how the margin performed between gross and SG&A, and what's been the drivers are specifically?

Yes. So Seth, when we look at our Automotive margins and the decline that we had in the quarter, that is completely related to the U.S. Automotive business. So combination, flat to slightly up on gross margins. We had a little bit of customer and product mix issues in the quarter that were a headwind on gross margin. But the primary issue is SG&A. And what I would call out is what we're seeing is probably about half of the margin deterioration is great and diesel fuel and delivery related and also IT investments, which we've called out, and the other half is payroll. And so the two things I would say is that these increases in payroll and specifically freight and delivery are greater than what our, say, 5% sales increases, including AAG. And so we had particular issues in the quarter with freight. You guys have seen it. April, it particularly spiked. It stayed up very strong in the Q2. We had some additional driver regulations. There's labor shortages. So our teams are working very hard to deal with those freight increases that are greater than our sales. And so we're working on that and considering and looking at a number of things from passing along to the customers. And the other thing with payroll, as you know, again, with payroll increases, some of the minimum wage increases and some of the unemployment. And quite honestly, incentive compensation swing this year compared to last year, which is a function of the improved sales, all that with a up slightly comp that we don't leverage on is really what's weighing on those U.S. Automotive margins. But having said that, and you heard Paul say it, we've got a lot of plans in place for the second half to hopefully narrow that gap and make up some of the progress there.

That's helpful color. How do you think about the pricing power of your business in the U.S. given these rising costs that everyone else is facing? Do you have an ability to pass along those higher cost in the form of higher prices?

Yes, we do, Seth. And if you look across our businesses in the U.S. whether it be Industrial, auto or business products, our intent -- and it's no different in 2018 as it has in past years, we do intend to pass those along. And when you look at our size and our scale in the Automotive sector, we certainly believe we have the ability to pass those along, not here -- not just in the U.S., but across the globe as well.

Fair enough. And then just thinking about the cadence of your sales for the quarter in the U.S., you talked about softer April and stronger May and June. Did -- was May your strongest month and then a bit of deceleration in June? And how do the July period start off for you?

No, the -- well, Seth, look, April was a train wreck. April weather really, really put us in a bit of a hole, coming out of April. We saw -- and I'm speaking just the U.S. Automotive right now. But it was a similar trend across all of GPC. We saw it rebound nicely in May and it held up in June. So there was no slide in June and July with the heat that we're seeing across the U.S. is holding up just fine. So as we predicted last quarter, that combination of that brutally cold winter we had, coupled with the heat that really kicked in May, June and is holding in July, that bodes well for the aftermarket.

Our next question comes from Elizabeth Suzuki, Bank of America Merrill Lynch.

So regarding your guidance, you had raised the sales growth outlook and the tax rate was lowered for the full year, but the EPS range is still the same. Do you think -- is there some conservatism being baked into that earnings outlook, particularly given the uncertainty around tariffs? Or do you think costs are already turning higher than you previously expected, so you're just going to keep the outlook for EPS the same as it was?

Yes. So what we looked at, certainly, we look at where we are thus far through the six months. So there is certainly a consideration that we're a bit behind through the six months. We had implied kind of flattish operating margins on a full year, and we're a little bit behind now. So that's part of it. We are implying a little bit stronger comp growth when we've got a range for a second half. If we come in a little bit stronger there, that would give us more comfort. But the other thing I'd point out is we called out a couple of cost increases for second half. So interest, amortization. We even have a little bit of FX in the second half. So I think our second half margins would be somewhat comparable to what you saw in the first half and we hope to kind of narrow that range. And look, as you mentioned, which is all the uncertainties right now, we just felt it was appropriate to leave the range that we have at this point.

Yes, that makes sense. And as you mentioned, the inability to leverage cost in the auto business this quarter, comps were above 2%, globally. So what do you think is the bogey for where your comp needs to be in order to get operating leverage in this current environment?

Well, we've said in the past that, that comp is around more of a 3% number to get us there. Having said that, when you've got these kind of increases in freight and delivery, we're working awful hard to get that to where it needs to be. So having 1.5% or 2% is certainly helping us, but we need to get 3 or above. And the reason we're comfortable with that is we can look at our industrial business and see what we've done there, their margins and their improvement, and we know also historically what we've done in the past. So a number of these projects we have will be helping us try to narrow that gap.

And Liz, I would just add to the comments Carol just made, the 3% number. The good news is that we were there and a little above that number in both May and June.

Our next question comes from Christopher Horvers, JP Morgan.

My first question is on the gross margins. Can you remind us of what the sort of acquisition benefit was in the gross margin? What I'm basically trying to figure out is if I look at the core gross margin rate performance and ex acquisition in 2Q versus 1Q, was it -- did you see similar up year-over-year? Or was there some degradation in the performance in 2Q versus 1Q, and what would have driven that?

Yes. So when you look at Q2 specifically, our core growth margin without AAG would be up slightly. So more around a 10 or 20 basis point up. That is primarily due to Industrial strong performance in their core gross margin, their improved supplier incentives, and that is being offset by the lower supplier incentives and product mix, customer mix issues and business products. And then the core Automotive is up slightly as well. When you ask specifically about Q1 to Q2, there is a little bit of a shift in Q2. It's small, and that primarily -- we would call out a little bit of the mix issues in the quarter. Some of our categories in Automotive, be it batteries, tools and equipment, commodities, chemicals, those carry the lower gross margin. So a little bit of mix shift. But I think when you look at kind of full year, you're going to see us have an up slightly gross margin, and that should carry through.

Understood. And maybe as you think about a core growth rate or comp in Industrial, 6.5, accelerating on a 1 year and 2 year, really very impressive. The margins haven't really flowed through. You would think at that pace that you would see more OI rate expansion. So is there something different about the cycle? Is it -- is some of this the freight cost that you're referring to? Is the vendor allowance dynamics different around cycles? Is the mix of the business that is growing? Curious how you think about as to the long-term potential of the Industrial operating income rate considering how strong it is at this point.

Yes. So the one thing I would call out, our Industrial business has performed quite well. As you recall, we combined the electrical division within motion. So when you look at their performance in the quarter, motion standalone was actually up 30 basis points in the quarter. So nice improvement there. The supplier incentives are moving in line with sales. This team is doing a terrific job on their balance sheet, working capital and inventories. So we're always going to be mindful of that. On a long-term basis, we're looking for their margins to be at 8 to 8.5. You're going to see more incremental margin improvement with the 10, 20, 30 basis points because it's a very competitive environment out there. So as they are having these increases, they're working very hard with their customers, especially those under contract to pass them along. So it remains a competitive environment. But we're pleased with this 30 basis point improvement that we have thus far. And a long-term basis, I think you can expect to see about this rate going forward.

And Chris, I would just add, our Industrial business really shows no signs of slowing down. And as you commented, they're building upon quarter after quarter. I mean, this rebound really began in Q4 of '16, carried all the way through last year. And now, the first half of this year. And when you look at key indicators, whether it be the manufacturing capacity numbers or the PMI numbers, rig count, all those continue to be very positive. So we're bullish on our Industrial business and expect to see continued good results from this group.

And that's a good segue. As you think about the energy business and your exposure to that, I was just curious what you're seeing. I'm surprised it wasn't up. You didn't mention that as a low, a double-digit grower. Is there something different this time in terms of the amount of hiring that's been happening as oil prices have come up? Is it that -- there's been more automated then there's been more investment so there's less -- sort of less need in terms of -- for parts of existing products versus [indiscernible] cycle?

No, I don't think so, Chris. One thing I would point out is we look across our divisions across the motion business. So I look at the -- if you were to ask about the regionality in our Industrial space, our best-performing operations are down in the Southwest part of the U.S. And again, we're stacking these increases on top of the quarter after quarter and over last year. So when you ask specifically about our oil and gas extraction business, it's up mid- to high-single digits, so still, still comping very well.

Yes. And then my last question is just for the peeling of the onion on the Automotive business. You talked about the West and the South being stronger because it didn't have April. I don't know if you have this in front of you, but if you could just focus on the May and the June side. Was the performance in sort of the North Central and Northeast more similar to the other areas of the country?

Yes, they rebounded nicely. And again, I've mentioned this on a number of times and we talked about it last quarter as well, the Midwest, which I visited just recently, spent time with our owners up in Illinois and Minnesota. These guys, the farmers couldn't get the field. They have to put a snow for the end of April. Once that snow cleared, we got into May and June, those businesses rebounded nicely, but they had just -- they were coming out quite of a hole in April.

Our next question comes from Greg Melich, MoffettNathanson.

I guess, a quick follow-up on the auto trends and then I want to fully understand the guidance. Paul, when you talked about that bounce back in those markets, like the Midwest and Northeast, are those areas now actually running ahead of the rest of the country? Is there some sort of catchup from that? Or are they just sort of back to a more normalized trend? And then I have a follow-up.

Back to more normalized, Greg. And if I look at the Northeast, for instance, they're going to get skewed with the, I mentioned, the big change over there. We're going to have really starting to take hold here in the second half, Sanel Auto Parts up in New England. So our Northeastern business is going to benefit greatly from adding that business. But no, we've returned back to more normal growth patterns across the Northern, Northern sector of the U.S.

Great. And then a follow-up on a bigger picture question on tariffs and passing through. What percentage of your product in the auto business is imported either indirectly or direct? And how, historically, it's been so long since we had any inflation in auto parts. What's the history? Or what do you think it takes in terms of timing for that to actually flow through to the end market?

Yes, I'll take the first part of that question, Greg, and I'll let Carol weigh in on the second half of your question. As we look across our businesses and what percentage of their business is coming out of China, whether it be on a direct sourcing standpoint, which is still relatively small for us. But our manufacturers and suppliers who manufacture and bring parts in from China, our Automotive business is about 40% and S.P. Richards is greater than that on the office side. Motion is significantly less than that number. So that's kind of how it breaks down by business.

And I think the only other thing I'd add is, as we've mentioned before with this tariff, and again, while there's a lot of uncertainties, this really does not impact our European Automotive business or our Australasian business. So this 40%, Paul mentioned, was really on the U.S. Automotive number. And as far as to how long and passing it through, look, one of the things is -- and we saw this with the first round that came into play, when these things go into effect, there's a number of discussions to go on with the suppliers. There's a lot of modeling that's done. We could look at early buy-ins. We could look at when the market can bear. I mean, we may even have opportunities to have margin increases in certain areas. So it's going to be -- I mean, we will have time. And if the effective date that's out there tentatively, remember to be September 1st on this list three that we have, we would have time to work with our suppliers on passing those through.

Great. So it sounds like something more for fourth quarter in terms of...

Well, look, we're really watching it very closely. But we know -- we don't know right now. We don't have anything factored in, but we would say later in the year for sure.

Greg, the list three that Carol referenced is the one that we're all keeping a very close eye on. We really, as we mentioned, it's negligible to this point, but everybody is keeping a close watch on list three.

Our next question comes from Chris Bottiglieri, Wolfe Research.

Quick clarifying one. The 5% comp growth or mid-single-digit that you said, slight in Europe, is that all same-store sales? Or is some of that like square footage growth?

It's a combination of both, Chris. Our AAG business in Europe, we've done a number of small bolt-on acquisitions that's kind of been their historical pattern. And we've continued that as we've stepped into that business. Again, where we were pleasantly surprised is the strength of our comp number in the quarter. And again, hats off to our team in the U.K. and in Germany. They've done a terrific job.

Got you. Okay, that's helpful. And then earlier in the conversation, you start talking about productivity investments. Can you just maybe remind us what you're doing there and types of projects are working and there's a way to quantify to the extent that those are currently impacting margins? And is there a point where you lap those? Are you kind of seeing this as like a multiyear process?

Well, the first thing I would say, this is a multiyear process. It's being driven GPC and it's actually being driven globally. I sat through a recent meeting with our senior operations team, and these are projects that are in Australia. They're in Canada. They're in Europe. It's putting further automation, as an example, further automation in our facility, so our distribution centers and enhancing those facilities. In some cases, moving to newer, more improved facilities, consolidating facilities, putting in automation. We're also looking at -- on the technology side. We look at automation there and whether it's back office, shared services, we certainly have projects there. So some of it is warehouse management type software and enhancements there. Pricing is other thing I'd call out. I mean, we call our technology and productivity investments in our pricing, data analytics and software and actually working with a group to use the data that we have and be able to have a more optimized pricing strategy for our retail and wholesale business. So that's some of where our investments are going to. As far as -- again, a multiyear process and as far as calling out, I think, again, it's probably too hard to really specifically talk about it, but it would fit into what our long-term margin goals are going forward.

Got you, okay. And then just one final unrelated question. You mentioned that the NAPA AutoCare Centers are seeing really strong growth right now. And then the national accounts, still a bit lighter. Can you talk about maybe what you think is driving that variance between the 2 customers? I would think they have kind similar demand patterns, but anything you can maybe talk to that could explain that gap?

Yes. First, I'd point out that the growth that we saw both out of our NAPA AutoCare Centers and the Major accounts is the best growth that we've seen in a number of quarters. We can do better and we will do better, but we're very pleased to see it headed in the right direction. NAPA AutoCare Centers, Chris, if you think about it, we've got a bit more of a captive audience there. They fly our flag. They fly the NAPA brand. They use our training, a lot of our systems, our guys are well entrenched there with our autocare centers. So our expectation would always be that auto care centers are going to outperform. Major Accounts, that's a competitive business for sure. And our competitors are all chasing that business as well. Again, we were pleased to see a positive increase in the quarter because it's been a while since we've seen our Major Accounts post positive comps. So we're encouraged by that.

Our next question comes from Matt Fassler, Goldman Sachs.

My first question relates to your guidance, your revenue guidance. Can you talk about how much of the change in the revenue guide, that hike in the revenue guide, relates to your second quarter performance? And then on the forward, how much of it would relate to your organic outlook versus acquisitions versus what, I think, is probably a slightly less helpful FX outlook for you guys.

Yes, I mean, I'm going to start with the FX. And I think you're spot on. I mean, we had about 0.5 point improvement in the first half, and it is not going to be as helpful in the second half. So we've modeled a slight headwind in the second half that would have us at maybe flattish, maybe up slightly for the full year. The second thing I'd remind you is AAG came on November 1 of last year. So you have that few months of revenue for AAG. I can tell you our guidance for second half versus first half is really largely based on where we are today. I mean, the run rate that we have to date and then mentioning the AAG 2 months and FX, we have not modeled in any acquisitions that haven't closed yet, and that would include the Hennig acquisition in Germany because that has not closed yet.

Got you. That's very helpful color. Secondly, you spoke about your confidence in the aging of the auto fleet and the sweet spot, stabilizing and helping the business going forward. You all have, presumably, pretty good visibility to the years, of cars that you're servicing. Are you -- other than the fact that they certainly should play out just based on everything we've seen historically. Are you seeing any evidence as cars make their way through your system that the dilution or the pain from these issue is abating and that the vintages are starting to help you out?

Matt, we have been saying now for some time that our hope and our expectation was that we would begin to see a little bit of a lift in the second half of this year, but certainly more so in 2019. And look, it's hard to zero in exactly why all of a sudden here in the months of May, June and certainly, in the July, things have really picked up. Is it all weather related? Is it partly due to the -- us coming out of that low we saw from the '08, '09 SAAR. But the fact is business is picking up. And I think it's certainly a combination of factors, including really a good job by our team in the field.

That's super helpful. And then one final question because we do get a lot of questions on the tariff scene. Presumably, the 40% of the products you said that is coming from overseas for the U.S. auto business are final goods or finished goods that are sourced from overseas. Correct me if I'm wrong, but beyond that, are there components that would contribute to or that are found in and some of your purchases that would make the underlying number a little bit better. Just trying to understand not just direct pressure, first order pressure, but whether there's additional potential inflationary pressure for the industry from those inputs?

No, it would largely be the finished goods that we're bringing in. Matt, we saw back when the steel and aluminum tariffs went in back in June. So it's still very, very early. We've seen some folks and they push through a few small price increases due to what's happening, and that's across a couple of our businesses, but it's very minimal and it's -- look, it just started to really take hold in June. So I think that's a bit early to tell. But the majority of what we're referring to on that 40% is all finished goods.

Our next question comes from Scot Ciccarelli, RBC Capital Markets.

I'm sure it feels like that the horse is good at this point but I did have one more on the auto side. I'm trying to quantify train wreck, if we can. Paul, was the business in the U.S. down like kind of 2% to 3% in April? Or was it even worse than that?

No, you're in the range. And it was probably a poor choice of words. But no, it's -- you're right in that range, Scot.

Got it. Okay, that's helpful. And is there any kind of difference in terms of DIY or commercial performance when you have those kind of wet and cold conditions in the spring? Or is that kind of uniform across the business?

Well, as we reported now for a number of quarters, our retail business continues to outperform. And our retail business, once again, was up mid-single-digit in the quarter. And that's a number of quarters in a row. What we are encouraged about is the slight lift that we saw on the wholesale side, which it's been a challenge. We've been battling that flat to even slight declines on the wholesale business. So it's really encouraging to see a lift in our wholesale business as well.

Got you, okay. And then the last question here. Should we expect tables in inventory to largely stay at these levels? Or is there something particularly happen or influence that ratio at this quarter?

So we would expect to be around this level, the 100% to 110%. We did have a reclass in the quarter in inventory, and it was about $200 million related to sales return and that moved from inventory to current assets. So that probably spiked in the quarter, but that's going to stay there for the rest of the year. So -- but again, I think we made good progress on working capital, and you can expect us to stay around that level.

Can I ask a clarification on that. So there was, what, $200 million of incremental inventory return in the quarter? Or is that like an accounting function of some sort?

No, it's an accounting -- it was related to the new revenue recognition guidance that was effective for this year. So it was reclassing an inventory amount to other current assets.

Our final question comes from Carolina Jolly, Gabelli & Company.

Most of my questions have been answered. But just, I guess, 2 clarifying ones, the do-it-yourself growth that you've been experiencing, would you attribute any of that to general industry growth? Or is that all of your investments in that investment?

Well, it's hard to say. We'll wait and see how our competitors report, Carolina. But as I have said in quarters past, our retail team is doing a terrific job. And our bar was set a bit low. And our team has done a terrific job of really upgrading our stores, which we've hit now. Most of our company stores have been revamped, expanded store hours. We have revamped our product assortment. All of that, I believe, is having a very, very positive contribution to our retail numbers.

Great. And then just another clarifying one. I know this has been asked a lot, but for the Automotive margin breakdown, would you say that the 40% that is international, did they actually see margin expansion? Or is this really all the U.S. that we saw some of that deleveraging and additional cost that you went over?

So basically, our international automotive margins had expansion, and that's a function of their core sales being mid-single digits. So we actually did have expansion year-to-date in the quarter for our international business. And remember, AAG is in there as well and that carries a higher margin. So I want to be clear, it was only the U.S. Automotive.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

We want to thank you for your participation in today's conference call. We look forward to reporting to you in our third quarter call in October, and thank you for your support and your interest of Genuine Parts Company.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.