President and Chief Executive Officer at Advance Auto Parts
Thanks, Elisabeth. And good morning to all of you joining us today. As always, we hope that you and your families are healthy and safe.
I'd like to start by thanking the Advance team and Carquest independents for their hard work and perseverance through these challenging times. Their continued dedication to provide outstanding service to our customers allowed us to deliver another quarter of top line sales growth, adjusted margin expansion and a double-digit increase in earnings per share.
We've been investing in both our team and our business over multiple years to transform and better leverage Advance's assets. In Q3, this helped enable us to comp the comp on top of our strongest quarterly comparable store sales growth of 2020. Specifically, we delivered comp store sales growth of 3.1%, while sustaining an identical two-year stack of 13.3% compared with Q2. As expected, this was led by the continued recovery of our professional business and a gradual improvement in key urban markets.
By putting DIY consumers and Pro customers at the center of every decision we make, we've been able to respond quickly to evolving needs. In Q3, this was highlighted by an overall channel shift back to Professional and a return to stores for DIYers. Within Professional, we're seeing increasing strength in certain geographies, which, like the rest of the country last year as the ongoing return to office of professional workers in large urban markets, catches up with the rest of the country.
Our diversified digital and physical asset base has enabled us to respond rapidly to these changing channel dynamics in the current environment. In addition, we also delivered significant improvements in our adjusted gross margin rate of 246 basis points, led by our category management initiatives.
Our adjusted SG&A costs as a percentage of net sales were 209 basis points higher as we lapped a unique quarter in Q3 2020. As we've discussed over the past year, our SG&A costs were much lower than normal in Q2 and Q3 of 2020. This was due to an unusually high DIY sales mix and actions we took last year during the initial stages of the pandemic, which were not repeated. Overall, we delivered adjusted operating income margin expansion of 37 basis points to 10.4% versus Q3 2020.
Adjusted diluted EPS of $3.21 increased 21.6% compared with Q3 2020 and 31% compared with the same period of 2019. Our year-to-date adjusted earnings per share are up approximately 50% compared with 2020. Year-to-date, our balance sheet remains strong with a 19% increase in free cash flow to $734 million, while returning a record $953 million to our shareholders through a combination of share repurchases and quarterly cash dividend.
Consistent with the front half of the year, there were several industry-related factors, coupled with operational improvements, contributing to our sales growth and margin expansion in Q3. As discussed in our April investor presentation, the three primary external drivers of industry demand are still improving versus prior year and the outlook remains positive.
The car park continues to grow slightly. The fleet is aging and perhaps most importantly vehicle miles driven continue to improve versus both 2020 and 2019. More broadly, the chip shortage continues to impact availability of new vehicles and is contributing to a surge in used car sales. This benefits our industry as consumers are repairing and maintaining their vehicles longer.
As we all know, over the last 18 months, the pandemic changed consumer behavior across our industry, which led to a surge in DIY omnichannel growth in 2020, while the Professional business declined. However, as the economy continues to reopen, with miles driven steadily increasing, our Professional business is now consistently exceeding pre-pandemic levels as discussed last quarter.
Regional performance was led by the Southwest and West. Category growth was led by brakes, motor oil and filters as miles driven reliant categories improved versus the softer 2020. We also saw continued strength in DieHard batteries, which led the way on a two-year stack basis. Each of these categories performed well as a result of the diligent planning between our merchant and supply chain teams, enabling a strong competitive position despite global supply chain disruptions.
At the same time, we experienced challenges in Q3 as we strategically transitioned tens of thousands of undercar and engine management SKUs to own brand. Importantly, these in-stock positions are now significantly improved and we're confident these initiatives will help drive future margin expansion.
Overall, comp sales were positive in all three periods of Q3, led by Professional. DIY omnichannel delivered slightly positive comp growth in Q3, while lapping high double-digit growth than the prior year. Within Professional, we navigated a very challenging global supply chain environment to allow us to say yes to our customers. The investments we've made in our supply chain, inventory positioning and in our dynamic assortment tool help put us in a favorable position competitively. We've implemented the dynamic assortment tool in all company-owned US stores as well as over 800 independent locations.
Our MyAdvance portal and embedded Advance Pro catalog continues to be a differentiator for us, while driving online traffic. Our online sales to Professional customers continues to grow as we strengthen the speed and functionality of Advance Pro. We remain committed to providing our industry-leading assortment of parts for all Professional customers. This will help enable us to grow first call status and increase share of wallet in a very fragmented market.
In addition, we expanded DieHard to our Professional customers. Following a recent independent consumer survey, DieHard stake disclaims as America's most trusted auto battery. During Q3, we announced a multi-year agreement with our national customer Bridgestone to sell DieHard batteries in more than 2,200 tire and vehicle service centers across the United States. With this system-wide rollout during Q3, we replaced their previous battery provider, making us the exclusive battery supplier across all Bridgestone locations.
In terms of our independent business, we added 16 net new independent Carquest stores in the quarter, bringing our total to 44 net new this year. We continue to grow our independent business through differentiated offerings for our Carquest partners, including our new Carquest by Advance banner program, which we announced earlier this month. As we continue to build and strengthen the Advance brand and our DIY business, Carquest by Advance adds DIY relevance for our Carquest-branded independent partners, while providing incremental traffic and margin opportunities. We've recently enrolled this new initiative out to our independent partners and look forward to further expansion over time for both new and existing Carquest independents.
Transitioning to DIY omnichannel, comparable store sales were slightly positive in Q3. As you'll recall, our DIY omnichannel business reported strong double-digit comp sales growth in Q3 2020. We continue to enhance our offerings and execute our long-term strategy to differentiate our DIY business and increased market share. In Q3, we continue to leverage our Speed Perks loyalty program as VIP membership grew by 13% and our number of ELITE members, representing the highest tier of customer spend, increased 21%.
Last year, the launch of our Advance Same Day suite of services helped enable a huge surge in e-commerce growth. This year, as DIYers return to our stores, in-store sales growth led our DIY sales growth. Part of this was expected due to a planned reduction in inefficient online discounts, which significantly increased gross margins.
Turning to margin expansion. We again increased our adjusted operating income margin in the quarter. Like Q2, this was driven by category management actions within gross margin, where our key initiatives played a role. First, we are realizing benefits from our new strategic pricing tools and capabilities. Like other companies, we're experiencing higher-than-expected inflation. However, our team has been able to respond rapidly in this dynamic environment as industry pricing remains rational. Behind strategic sourcing, vendor income was positive versus the previous year with continued strong sales growth.
Finally, double-digit revenue growth in own brand outpaced our overall growth in the quarter as we expanded the Carquest brand into new category. Carquest products have a lower price per unit than comparable branded products, which reduced comp and net sales growth in the quarter as expected. At the same time, the margin rate for own brands is much higher and contributed to the Q3 adjusted gross margin expansion.
Shifting to supply chain. We continue to make progress on our productivity initiatives. In Q3, the benefits from these initiatives were more than offset by widely documented disruptions and inflationary pressure within the global supply chain. As a result, we did not leverage supply chain in the quarter. We completed the rollout of cross-banner replenishment, or CBR, for the originally planned group of stores in the quarter. The completion of this milestone is driving cost savings through a reduction in stem miles from our DCs to stores. Over the course of our implementation, our team identified additional stores that will be added over time.
Secondly, we're continuing the implementation of our new Warehouse Management System, or WMS. This is helping to deliver further improvements in fill rate, on-hand accuracy and productivity. We successfully transitioned to our new WMS in approximately 36% of our distribution center network as measured by unit volume. As previously communicated, we follow WMS with a new Labor Management System, or LMS, which drive standardization and productivity. We are on track to complete the WMS and LMS implementations by the end of 2023 as discussed in April.
Further, our consolidation efforts to integrate WORLDPAC and Autopart International, known as AI, are also on track to be completed by early next year. This is enabling accelerated growth, gross margin expansion and SG&A savings. Gross margin expansion here comes behind the expanded distribution of AI's high margin owned brand products, such as shocks and struts, to the larger WORLDPAC customer base.
Finally, as we expand our store footprint, we're also enhancing our supply chain capabilities on the West Coast with the addition of a much larger and more modern DC in San Bernardino. This facility will serve as the consolidation point for supplier shipments for the Western US and enable rapid e-commerce delivery. In addition, we began to work to consolidate our DC network in the Greater Toronto area. Two separate distribution centers, one Carquest and one WORLDPAC will be transitioned into a single brand-new facility that will allow us to better serve growing demand in the Ontario market.
Turning to SG&A. We continue to execute our initiatives, both sales and profit per store along with the reduction of corporate SG&A. As previewed on our Q2 call, we also faced both planned and unplanned inflationary cost pressure versus the prior year in Q3. SG&A headwinds include higher than planned store labor cost per hour, higher incentive compensation and increased delivery costs associated with the recovery of our Professional business. Jeff will discuss these and other SG&A details in a few minutes. We remain on track with our sales and profit per store initiative, including our average sales per store objective of $1.8 million per store by 2023.
In terms of new locations year-to-date, we've opened 19 stores, six new WORLDPAC branches and converted 44 net new locations to the Carquest independent family. This puts our net new locations at 69, including stores, branches and independents during the first three quarters. Separately, we're actively working to convert the 109 locations in California we announced in April.
However, we're experiencing construction-related delays, primarily due to a much slower-than-normal permitting process. This is attributable to more stringent guidelines associated with COVID-19, which were exacerbated by the surge of the Delta variant. We now expect the majority of the store openings planned for 2021 to shift into 2022. As a result, we're incurring start-up costs within SG&A for the balance of the year, while realizing less than planned revenue and income. The good news is, we remain confident that once converted, these stores will be accretive to our growth trajectory.
The final area of margin expansion is reducing our corporate and other SG&A costs. We began to realize some of the cost benefits related to the restructuring of our corporate functions announced earlier this year, in addition to savings from our continued focus on team member safety.
In Q3, we saw a 22% reduction in our total recordable injury rate compared with the prior year. Our lost time injury rate improved 14% compared with the same period in 2020. Our focus on team member safety is only one component of our ESG agenda at Advance.
Our vision advancing a world in motion is demonstrated by the objective we outlined last April to deliver top quartile total shareholder return in the 2021 through 2023 timeframe. While delivering this goal, we're also focused on ESG. As part of this commitment, we launched our first materiality assessment earlier this year to help prioritize ESG initiatives. During Q3, we completed this assessment and are working to finalize the findings. The results will be incorporated in our 2021 Corporate Sustainability Report, which we expect to publish in mid-2022.
Before turning the call over to Jeff, I want to recognize all team members and generous customers for their contribution to our recent American Heart Association campaign. This year, we introduced a new technology solution in stores that allows customers to round up at the point of sale. This made it even easier for customers to participate and helped us achieve a record-setting campaign of $1.7 million. The mission of this organization is important to all of us across the Advance family. And I want to personally thank everyone for helping making this our most successful campaign to-date.
With that, I'll turn it over to Jeff for more details on our financial performance.