Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the Advance Auto Parts’ Second Quarter 2023 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.

Elisabeth Eisleben

Good morning, and thank you for joining us to discuss our Q2 2023 results. I'm joined by Gene Lee, Interim Executive Chair; Tom Greco, President and Chief Executive Officer; and Tony Iskander, Interim Chief Financial Officer.

Following their prepared remarks, we will turn our attention to answering your questions.

be remarks please forward-looking will begin, statements. we advised today that contain Before than facts leadership of including statements statements All other historical projections future limited statements plans, but to, are regarding initiatives, our transition, and performance. not statements, forward-looking those materially forward-looking could implied or from results by projected Actual differ the statements.

the cause filings factors recent Risk differ Factors commission. our results most can made Forward-Looking be information about actual captions and Additional found XX-K Statements subsequent and Form with that could to under the in

turn me to Lee. let over Now the Gene call

Gene Lee

quarter to Good turn joining remainder the morning, with everyone, us. to review I'm and year. results the I'll the of second Tony thank call the you pleased and for to call and outlook be join you. to Tom speak for and today over all of shortly able the

But a of I'd before a new of business, the that on the address the ahead to morning we strategic the we well actions work own and moment perspectives provide comprehensive leadership as and to taking. take regarding I made review, are as this have that, announcements we us and my like do some operational

Following named as Chief Advance Shane Officer Board the President, of a September Auto and O'Kelly Director XX. effective search, Executive Parts, thorough has

the We advisor, undertaking financial and to will Centerview the long-term operational have insight caliber our and and have the ensure Advance, the confident and valuable are Shane’s this review of and review. Partners, Together spectrum as value add we shareholder identified committed Advance with are increase opportunities are pleased to evaluating strategic Shane to alternatives full to success of to him Board join I'm an of individual we come business. on of

following chain years teams results. executive developing He accomplished with Brands, performing also the experience. high since success company's and has to Supply, Home highly Shane Interline of has Pro. and supply Home complex customer the joined Depot. XX drive Prior as served He Supply, cultures a acquisition is strategic proven a where HD which of development, HD as Shane the operated record integration operational, he of Advance than by XXXX, CEO more Depot from CEO was centric to

the We work September. Advance lead him right remain Interim the the alongside Executive in and to set, Shane and expertise [Raleigh] brings I plan discipline, to future. that are welcoming skill Shane into the Chair of the look forward (ph) through to to year confident I in management team. the end to role

and official Tom Shane's President Until to as date, start serve CEO. will continue

to Advance, with built of the of Tom bench serve he many notably behalf help advisor highly transition committed his talented contributions an members and Board, skilled On and ensure which leadership entire a Thereafter, team seamless will he culture includes thank as responsibilities. the to leaders. of for I has

Interim Iskander Senior We since accounting also and role, Officer. Financial finance company's Chief President, of Treasurer than the Tony and as Tony expertise XXXX. the served announced as brings years has and more today Finance Vice XX to

with someone identify search are basis. have the on interim We step role the are an CFO company's permanent pleased experience Tony's a and to next to to beginning into

We along Tom. with are Tony on also pleased the to call to review QX today have results

leadership as deeper to and Interim team, Chair Since more and our into Executive with closely business am serve strategy. role the partnering expanding my the dive a taking I

significant work to As a done. Board, we recognize be that there is

to review value. long-term the develop best-in-class to We strategy deliver a strategic and are operational conducting shareholder

strengthening working a investment productivity cost to structure turnover number executing Advance optimization frontline of to We and the long-term. discipline improving initiatives, for reduce organization the we enterprise, our inventory while capital in expect cost controls, across are including improvements, and a operational which asset benefit

even note actions and guidance stronger be today, focused performance is on to However, enhance drive The XXXX building and to team the for and we work these done which value. full-year know there's on providing the is joins ways company long-term on I more Advance’s recent updated looking ensure the expectations. year plan after potential. that we with of Shane on business him and balance next both performance to to near-term month, and capitalize considers would work I closely expect

With that, I'll now call to turn Tom. the over

Tom Greco

Thanks morning, everyone. Gene, and good

I my start, enable with to I to over want Tony sincere to Shane last Before I the for seven working a support transition. to the all Gene, express Board appreciation and their forward years. seamless look

of knew maintain also our want QX both As and strategic serving competitive team to focus QX we're to would help the and to our their be build pricing price quarter, Coming going to that I turn we investments was all targets year. for through improve the challenging, members our to I in on inventory the results, thank customers. relentless into making availability

our growth moving QX in this execution, quarter. on and earnings a the sales delivered we On talked we urgency approach with a the approach back-to-basics call, We quarter. about focus heightened net with and how is

remain QX metrics of challenged. balance the financial However, our

noted, some our Tony speak Gene growth. drivers key behind the more there further executing As transactions improvements, detail. the to in accelerate while be actions to to operational and will need in profitable to that we're are sales I'll speak taken our and results quarter,

better our Before that, taken to on touch steps to people. I'd like briefly we've support recently

and excellence, making turnover. high-caliber year, talent. right to delivering maintaining We our help we're is position center, to for supply we roles talent in the retain we've Support key in place that More compensation know operational in During in reduced strong more to Customer and stores the and In investments implemented high-caliber chain. seen specifically, compensation Advance this for attracting having critical increases quarter, organization our already roles. our we also our frontline investments made our retaining culture strongly and

our sales. omnichannel perspective, Turning engine management and growth. growth gained in batteries, outperforming West. resulted brand within e-commerce our sales further From quarter once to again and omnichannel Regionally, share a another saw improved DIFM quarter. unit of very in batteries DIY Carquest once well, through availability brand delivered the oil, We in category both QX, owned the perform DIY to quarter. the penetration which led the continues DieHard momentum was growth with during brakes net by again motor QX. in continued growth DIFM led on double-digit in Meanwhile, and

comparable the Pro. sales, of store sales was in decline comparable driven store X.X% negative of terms primarily by In

improvement we period However, sequential with Pro sales registering in in slightly store growth comparable both weeks saw QX each four of and last overall. DIY positive the

the the Our as to weeks. topline comparable into delivered we quarter, sales improve during four growth sales continued low-single-digit first third

performance the Our earlier we've this about improved DIY and to omnichannel drive talked Pro. from year both transactions in initiatives benefited

year-to-date supply chain on-hand availability improved fill in inventory the was investments and along store our rates by driven First, with rates. we made improvements

the saw improved growth in in-stocks sequential As parts in categories. quarter, we sales key hard

in our Second, actions sustained management continued category to competitive price ensure targets. we QX

past opportunity to to margins. the brand in discussed we've improve addition, increase penetration the owned In

discussed targeted was slower the May as at products, branded we As network. launched on moving the in reducing sales primarily transition Carquest to as call, QX. inventory a in accelerating This campaign well our

Finally, full in counts wallet Pro highlighted and our plan drive sales field executing activation customers. now of gains by share with customer level to calls and customer stride team is existing grow ensuring increasing customer of high weekly a accountability a

both sequential in transactions to Pro improvement actions in in in Our and QX compared DIY. resulted QX

year, ticket versus slightly the While up QX prior mid-single-digits. DIY was transactions omnichannel in average were down

quarter XX by ongoing We with traction active evidenced nearly approximately program continue loyalty with ended grew members. the and increasing our to DIY which Speed XX% with make progress consumers by million Perks as

percentage Our XX% over and continues Speed year. to this increase XXX of a Perks quarter, transactions point in climb from hit basis last the time

to Perks an at team our I'd best-in-class experience. their like commend proposition QX. Speed into we Pro, to value our customer strengthening execution QX, consumers. committed back for versus field Specific delivering and Transactions DIY strong in improvement moved remain territory dedication to to their positive a for

Within ticket TechNet, as competitive down saw in improved both the almost and campaign focus on I we quarter XX,XXX sales to As TechNet the was just execution average slightly strategic accounts in expected, and grew performance our members. targeted price we the targets of sustained maintaining mentioned.

competitive to including status wallet actions service us installers, the our with the very summary, and and enhance street of improve call improve we've availability, and our the down up sustain helped Pro gains business. drive pricing, important share In taken

the call results Tony full-year. quarter some the outlook update With our on over that, for second of Tony? our behind an turn the provide I'll to drivers and review to

Tony Iskander

and also focus like would Tom, Board to first the members I our dedication to would I on like thank morning. Tom and for me. Thanks, thank team customer. continued good and confidence all in their for their the

majority in X.X%. however, Sustaining In XXX of by compared the net to competitive sales transaction and store QX compared profit basis costs, the QX, decreased price primarily Gross driven X.X% margin deleveraged in sales chain to and supply headwinds. this resulted quarter, growth year, higher gross XXXX, prior our contributed margin product the comparable with deleverage. targets points increased

our to the driven Additionally, in chain members, closer center distribution costs team as we well by that experienced as supply parts higher positioning were more investments customer.

these investments help expect and productivity. drive improve We will retention further

SG&A includes a to net sales payroll. inflation, in deleveraged of as which labor investments due related year-over-year percent store

the As SG&A income headwinds, deleveraged operating our margin XXX margin a QX compared year. points result gross previous of and basis with

expense in operating lower higher per interest XXXX. to Our QX with share income in combined resulted $X.XX $X.XX compared of diluted earnings

of $XXX with end cash through million. revolver. of $XX flow we an million We quarter of had was In outstanding the and of finished QX, a cash QX Free the outflow an balance the $XXX $XXX million. million on inflow

the amended coverage compliant While in all interest agreement. our that we ratio covenants we're with credit in of

net comparable full-year terms sales outlook the store based guidance, of on channel. progress professional we and are in recent sales increasing our for and In continued slightly both trends

share maintain is cash rates targets professional flow. back channel outlook our will half, to mix remain per expect the We due our a competitive our as income to headwind primarily gross are diluted continues strengthen. reducing free in margin earnings this We price to and commitments in and rates, for now operating that margin expectation deleverage

we are down we sell expedite the earlier, brands. products higher owned accelerating In to margin addition, to the as categories highlighted transition and of

mid] be savings half costs, investments half. slightly leadership we result of in offset announced partially below restructuring realize back as [as to the be year. will earlier corporate will We back a will year. expect terms from non-recurring the the cost point In SG&A (ph) are well compensation last to team expect in we by SG&A the headwinds of now rates making in our as this our certain the SG&A, These related deleverage slight we morning, expect changes in primarily our

All XX%, of sales to our X.X% $XXX cash to free in store million, flow of per of of share earnings new to diluted million range XX $XXX $X.XX, and and capital expenditures a to XX million billion, tax to $XXX store in $XXX $XX.XXX includes GAAP of branch openings. have of rate $X.XX income X.X%, X.X% guidance, which million operating full-year these to margin X.X%, $XX.XXX net of sales factors positive of billion to considered comparable updated minus been income

With Operator? open it questions. up that, let's for

Operator

you. Instructions] first [Operator Simeon Stanley. question from Thank Our Morgan comes from Gutman

is open. Your go line Please now ahead.

Simeon Gutman

And everyone. question and morning, Gene and is Good a have Tom follow-up. I to this guess a Tony. I'll

First, on today? talk to how Worldpac. I it's with synergy and wanted into integrated then business Advance, about if the you the can deeply ask

Tom Greco

Obviously, Simeon. Worldpac morning, they've design had did Good Worldpac. run Part into we integrate they Auto Hey. still the initially, International as that

all from We source parts our catalog to customers. of our are to enterprise Worldpac, able is visible

But that in integrated. it's relatively very well. the to overall, they business So continues it's still independently. run perform And respect,

Simeon Gutman

especially you I'm do where the or Okay. a the And business, in it's to those? as as and biggest biggest do chain, then of investments exists to enhancement, then And you one this couple going think capital, leadership is, and priorities side of supply at of if look at solution, the we're to merchandising, does it wait new diagnose to follow-up If isolate P&L operations. areas, it other? combination the between think a you opportunity looks or

Gene Lee

Good This Gene. is morning, Simeon.

the I think, what all is about. strategic that's review

a biggest of Looking where and parts determine organization the point. trying is at to different our leverage

right not answer for question. that it's to think me I So

commit do that's for then way give think will And along to quick think And to say to where would to figure I I how be that do one possible. board, needs the a prioritize the soon initiatives on is be think good to it. the payback is determine as Shane's XX-day need he I to out me. the it we want is what will as of made. question us what which I with frame But we investment in don't I biggest a Shane way three gets agenda as really as framed you've

Operator

Simeon. Thanks,

Greg from comes Our next question Evercore ISI. Melich from

is now Please line open. Your go ahead.

Greg Melich

morning. good Thanks, Hi.

then topline then in the assumptions Given how growing people, half? us second, in two I in is, both the could year-on-year pricing, for first in parts passing I the plan inflation in your payroll not the both and investments one half to what half? you and are question, on back have through And back the which much is guess fill for

Tom Greco

Yes. Good Greg. morning,

wage like we So low-single-digits and, front on is more expect the inflation pricing mid-single.

Greg Melich

on And or then And what's low-singles Was like, that how low first quarter? fourth the single cadence through does pricing the that, -- the digit that high-singles gets the year? in inflation, to quarter? zero in

Tom Greco

down. the We in year. of more early through back a a were gradual through coming It's very management and have gradually We doing little we're Yes. a lot like work, but it's with bit the mid-single half, on help year. which the will, work, that in us do the category sourcing reduction

overall. retail sure freight you're We back seeing benefit that other that also a have the of know, you as rev I'm in parts in the, half,

Operator

Thanks, Greg.

Lasser comes from Our next from UBS. question Michael

go ahead. open. Your line Please now is

Michael Lasser

a Number the profitability approximation as it give and of Worldpac can for morning. the my questions. one, a us today? stands Good sales rough you lot Thanks taking of

Tom Greco

No. Yes.

broken that haven't We out, Michael.

Michael Lasser

Tom, question, and been the that, space has pricing as is just price you has peers gaps of Advance the it's about amount think follow-up with a environment, is, the ketchup, significant to My in play it widened. had

seeing these so constantly And the is down gaps, wide because what among you that And up invest these price of in. further to to and having account? or national are you're further, this street seeing across so having to versus more it's prices you happening space decreases accounts make degree the in investments are

Tom Greco

best I'll here. Michael. there, lot a my There's do

half fairly run of places First to us. and of didn't above we year, that well. back the you're market, think like characterized see to indices it move last did all, In price our the I we acceptable

it's year. through So did and we correcting sustain are start -- early year, we the that this

brand that's note is back weigh that to rate half. XX And, is that products factor back but Carquest we're out half. back half. that It's other margin on neutral something in to The the going the of to transitioning the it XX the down we called the of on sell gross points is dollars, important in in to basis accelerated

terms. also So, paid products we've inventory is, that a transitioning into for, and margin that we're with part higher that's factor. of out already moving The we're of good

us So pricing the, down it's but cards know, to have going wild big on are the for front. road, a on rather the big two or benefit the those factors

we've there has lot it for the really This industry terms street, been I time, in not a National up accounts down versus and a there's long rational a will forward. of and difference what of seen. expect be going

Operator

Michael. Thanks,

Our next of Elizabeth Suzuki comes from Bank question America. from

now is open. ahead. go line Your Please

Elizabeth Suzuki

to Great. just Thank the on margin I you. wanted clarify guidance.

of So, gross but then about, half slightly comment you back headwinds savings the and slight back SG&A the back to there being last offset in and partially deleverage margin the mentioned then half, cost of half the you deleverage a was some being in rate by those expect SG&A some year. below

tailwind second half headwind to this to a or year? So, just whether in to a of margin SG&A I going was wanted understand be the

Tom Greco

Liz. morning, a headwind. It's slight Good

bit and last mentioned, based and it's the people. as we're flow line. our opens to year, really for review little the operational the Gene the customer investments making prioritized on effectively for and a bottom We've above the door that in efficiently to really people. more our to it's ways through look So, And

Elizabeth Suzuki

Okay.

then, but that years And gross as your is the gross out just review theoretically margin piece going some expansion one of in story. thinking pending, the brands all So, should margin growth a comes I to mean, the in that ahead? about owned whatever larger become strategic percentage the going this with, of headwinds on more side. margin of result be the forward total

Tom Greco

we And accelerated gross back expect half, that points margin. the of In XX, as from to just correct. leverage this I to more CQ. mentioned XX That products transition basis Michael, Yes. of is into

Elizabeth Suzuki

you. Thank Great.

Operator

from comes your Chris, ahead. question now Please from next Our line go open. JPMorgan. Horvers Chris is

Chris Horvers

Thanks. Good morning.

last but, business the I improve? weighted Pro? down it eight one up in the national DIY following up business of degree in So, and mentioned the other was side the improved, business that, guess, earlier the did side to And the on to accounts seen Pro street that then you've question, side, both the the you and versus on an what weeks, was improvement

Tom Greco

Yes. with improve in comp we're third the It's Chris. Good quarter. consecutive it DIY, of morning, Yes, pleased in quarter growing our DIY. and did sales

investments the So, benefit availability that we're DIY making too.

Pro. business e-commerce half Our improved more, in did you is performing has well. slipped we Pro, know, in last as XXXX, of the

the both. has better. in seeing improvement accounts Pro the weeks And, versus disproportionately and So, up improved in last down several street, the national we're

is there. So, TechNet there progress is performing better. good

the street and the need to the well. So, all a I good our business out, win and will from is actions with accounts. meeting up job field we with taking, that our businesses out very and the doing really, that things They're benefiting moving as we're installers all of call professional do executing call the there, garages, up to list, the the national down getting

Chris Horvers

through the And of then, Worldpac guess, out you lot sizing around questions I talk business, that value. the a of catalog, as think Worldpac of one-stop margins shareholder business, the as Advance a the of the create the acquisition to relevance it. tenure you way it the can for is loud your strategic brings. and of what potential of argument the Worldpac there's always about us Got shop, as on start brings the having in been expansiveness from the top

better reason compelling sheet? to on start in-place unwind of financing create cash come there's that you vendor do cash cash it flow here, So, programs then of that some could are secondly, And your does you about the leverage obviously any -- concerned balance to and flow, there financial some flow and that, has free down, sort this concerned the what dynamics lose? have we're is you guidance

Gene Lee

with, a the Yes, think was lot is that Worldpac's question I'm of part but in in the it, just real me organization. not this role there sure first all where to question. the off let get to Gene. Hi, start of about asking I

going how can that, I is he operational to review, do be is the the what Tom, separate need Shane's one don't going or a -- opinion as to and strategic other role the organization, on how be, decision in who assets but on all integrate play us after whether in decides should it this you the it think plays integrate -- run with give to we it, and does and you the business organization. Worldpac

that's I think So, really, it's important.

Tom about think thinks his I opinion to Shane this Now, how can is going he a give as on business, the we move be but decision forward.

Tom Greco

Sure.

the the we've mean, I us is of. big line-up, table, got market brands, thing gives It anybody industry. a assortment. Chris stock brings got products we've very than the brand that the own us broader national then, assortment which gives we're in to XXX,XXX in parts. And proud the enterprise to our up Obviously, OE So, Worldpac obviously,

So, an we're that gives to we banners that the all that sell and customer. of leverage to us that able advantage the through there,

big got we've bottom So, said, to and review, line. go find to Gene the through profitability that’s thing. through flow the the as again, But, ways to new

out the come of that'll So, review.

Chris Horvers

And balance sheet on then side? the anything

Tony Iskander

is Hi, Tony. Chris. This

in finance we're there. our any So, changes seeing any not programs supplier in attractiveness or

read that in So, more and we disclosed later the queue that today. about you'll

Chris Horvers

Got very it. much. Thanks,

Operator

Thanks, Chris.

now from open. Please line next ahead. Bret, question Bret your go Our is from Jefferies. comes Jordan

Bret Jordan

guys. morning, good Hi,

losing obviously and loss issue label in in brand. I talking been share the an issue strategy, guess, investment is that's Carquest market the now private of availability are is an the or that you've quarters loss? price commercial something perception share either about around the the the in is last guess some I commercial that On share

Tom Greco

look biggest availability, improvements a I you of of we've of the the the first back into it the primarily do made highlighted, this been, that you part I availability and think, there think But minute ago. change. Bret, was as last year year, if our have driver

us bigger you key we management, a the undercar, driver, be engine continue benefit nicely in we are know, Our and transition, which categories the half. that etcetera. that's for back up on-hand rates to the expect And very been to in

brand. Our professional installers love the Carquest

best. the are brakes Our

them a We the than It's these gets we install we us and, transitioning once best this And, get the in chance the products in business. difficult. repeat customer brake that product have But been very is get program more business time taken them, we would to has off a like. of.

Bret Jordan

the more than to term ratio a going program the obviously, payables question that some might label, the a maybe leverage then to But follow-up would? that a private on or willing yes, brand base. to take payables is given Okay. vendors guess, supplier those I the in And fact support national pressure. be longer the under transition

Tom Greco

a I those change terms all mean, we make Carquest in we to obviously are. what know brand we When factor from national change Bret. in changes, the the

terms. make look of at it's vendor calculus, And our the the So, at all make rate. a the We right, then quality. OE evaluate so decision. we factor part they We when look margin that in. the itself, very at the which we the and we look providers of high quality product We most

So, making it's that our selecting a suppliers. of in holistic decision terms we're

Bret Jordan

Okay. I your you for might add another X? flow guess forecast ratio do the the of cash where see ratio down as to? payables leverage guess that couple we EBIT year, above have quarters I on getting the from

Tony Iskander

Yes.

to it's And over to expect get and behind QX it we time up. QX, build As of those some from increase investments, continue as we and starting then to go continue saw you us we to to replenish.

AP So, will continue believe ratio the we actually expand. to that

Bret Jordan

you. Thank Okay, great.

Tom Greco

Bret. Thanks,

Operator

Bret. Thanks,

Seth comes is ahead. Barclays. Our from question next from Seth, Please your line open. Sigman go now

Seth Sigman

follow-up issue morning, costs to seeing pressures supply and like year. margin. a on why elevated pricing is chain is had last -- you different but Hi, is COGS, or cover this you that the of costs, are incremental the in to function curious, really still for AAP? so good everyone. gross And the of I I'm I'm part It curious, sounds cost product wanted

that's And on to the have into that right, visibility the flowing into Some this normalize when balance or sheet. of turns. year? as was starts through if do just that inventory through capitalized now inventory you It's

Tom Greco

of did back pricing market and you'll that the sort I the the question addressing this we year. year, our that earlier And think last see that above which one, half. that through Seth, as go of back is, are see elevate half answered we we in into the

sure we're gets So, make here. holistic to better. to availability committed solution We want

our and visibility service going better, we you'll continue is improve. delivery into, we on But parts We'll as focused Our to to and price continues of further see And, index. obviously, are stay normalize. the to that out, that. sustain get

Seth Sigman

Okay.

if the Can So, the be what we it looks the lower but year. us less look guess, be year? of half second it, half second of improvement driving you the at contextualize the change than, the the just EBIT half that trend like for may help first margin year-over-year in outlook down of you did the year, will in I

Tom Greco

on Yes, we freight tailwind earlier. half. the margin sure. in for gross for I back the Freight sure mean, mentioned side, a us becomes

punitive, it the in management benefit price half. And us of in cost to is as We've as just year-over-year, a of initiatives versus half year. got the category was our begin sales. more not back Some front the

supply on side. the margin less gross So, leverage the there's chain,

really investments We're As in we making have involves above in keep and stores last here our sure all SG&A, turnover the have, rate we going be that great reduce said, people we we're SG&A team which slightly to the to make on is in corporate year's office. the smaller. the

them half. the both get were and better than going of drivers, to are front those the are they So, in two

Seth Sigman

Alright. Got you. Thank it.

Operator

Seth. Thanks,

go from Steven question Citigroup. comes line Steven, Our Zaccone open. your is ahead. from net Please now

Steven Zaccone

announcement. Great. and, taking Gene, question morning. I much question Thanks CEO very Good my guess, the for congrats my you. on for is

for business, more is it of But multi-year or like one figure do he how in your profitable nature? assessment curious your the business a invest-to-grow seat, it out. has as come of I return take to think to in will this will from long growth. know something this take role active you year Shane you for in more a As I'm margin this a seems and that's to lot strategy,

Gene Lee

really it's especially mean, operational right think seeing taken than that, year. that around I the I we less There's being here. think pretty good Well, should one now, are incremental I some actions quickly improvement, front. start

I up job down think today the with and our professional customers. much doing better a we're street

I level think at better. store much operating we're the

great I we're supply made our that we're more XXXX making improvements chain. never our with think top out, in progress importantly, when strategy there too. think, calling think I And significant about you products we've

I gross I deleverage that in are the that to to same will think inflation actually price we we as grow. not we see price-to-inflation line. to Therefore, we be And of the to move kind -- gap continue cover forward, able going wrap. you're margin So, think should after the

in initiatives some morning And so pretty for last We're that focused the think think XX We've seeing we're I the hard excited are that start I every days we're some, line. working to quickly. seeing starting some that that to been sales going growth. sales seeing XXX improvement to on come through us. We're

to we our past we of price leveraging get and will think half margin back see and we the get I at profit inflation, So, can inflation year, SG&A. as or slightly then the gross start and above gross both actually to

Steven Zaccone

detail. fair for Worldpac, for that follow-up just you operational and And there's divestitures? Thank several been I but asset because the curious great. to questions potential review. strategic clearly the includes with to That's conclude then, Is was that it

Gene Lee

our think productivity. that sit assets, we And today a think I is the there's asset is here one I issue range organization great we I in our all today, think a We think as about have to number consider. Worldpac of asset. options,

our fit me, of do And Worldpac. To more all those assets? improve end-to-end. Tom, from I there they to about. the of of I to And hard and to organizationally? And we’re focus And is how opportunity So, understand of assets, really what time processes through going the all evaluate improving because is those over mentioned We think on to we management. assets? including need on there's that's earlier, think cost need think and review the strategic procedures productivity category to we How our comprehensive, what's and lot best come I a our the operationalize operational be all procedures. the have processes potential that's will those review savings where working

procedures. We great will some that, progress have evaluate referring consultant working excited we're I show as us, our processes to and opportunities. the chain, value making that think all And positive but some what other been outside an about there's to into with and XXXX. really And I've I'm results

So, understand Shane understand I and Everything do in think all operationalize a truly truly the on would and how they best needs what's we of say these but options. I need them. we how wide assets range to of is we the table have to fit potential

Steven Zaccone

Great. detail. you of luck. the all for Best Thank

Operator

Steven. Thanks,

Steven Our Forbes next Steven, from question Guggenheim Partners. now from Please line open. go is ahead. your comes

Steven Forbes

I morning. have capital spending. Good on a question two-part

So pulled the second in should year, on the looking spend is, forward rate capital part go normalized start you from you the us spending, understand what we more know, the plans, the better the first, what think can and team as sort year-to-date, be. any about thoughts back And of has help of spending reduction initial given then on? ratios out,

Tony Iskander

Good again. Steven. is Thanks morning, This Yeah. Tony.

that's that's in going the our and in identify. the spend. store new brought reduction us in a quarter, strategic a had down On primarily what we you'll first guide As we that after is basis, the the forward help openings, quarter. first go And recall capital of higher to driving review number

Steven Forbes

Thank you.

Operator

Steven. Thanks,

go Goldman your Our comes Kate, from next from open. now Kate is line Sachs. ahead. question McShane Please

Kate McShane

are maybe you stocks. more your your simple current any view expect and to line be in it had And there? taking Thank you on and still think our there when for to where a categories can be where you thanks. Good We in is question. about inventory inventory levels question morning. you Hi, just want not if

Tom Greco

Yeah.

So, intense focus levels. done, Gene and highest measure the close paying about mentioned as our virtue by stores feel we've which or the our Kate, some depth those centers. their We've is on in That's breadth. that which also both also are dividends. hand coverage And We added rates, and growing significantly. rates SKUs on to of We've and real that distribution helping. velocity making pretty the SKUs the good, sure in we inventory items. on highest stock the added velocity we're

good, are on ones categories benefiting So, year. weak that we feel that the the most the we last very and were are themselves

up, was So, involved have suppliers grateful we're that Those for with. lot made. different had a the transition stepped of that suppliers We really and that. we're

those to starting some really us a are gains lot of to there's suppliers really important in room for and there. us categories, to still Our make from we're grow

nothing aggregate and there's in each nicely. or negative So uniformly grown good categories at of moving point. up this are those We've uniformly

Kate McShane

you. Thank

Operator

Thanks, Kate.

Our Oppenheimer. Brian, ahead. is question Nagel from line Please Brian now from next your comes go open.

Brian Nagel

Hi. Good morning.

look you Advance you to how sector. first So, improving on of back, bit part the at business you've question, maybe but versus if the a lately. you've a lately, my How sales much is within seen question, the efforts of solidifying seen step that follow-up internal improving prior of backdrop it's

Tom Greco

the but difficult one don't about good to it's get time mean, we Obviously, more I the we comparatively, DIY, say, until I mean, comparable that's Yeah. we that will frame. feel referencing. report channel Brian. to really see we our pro I'm don't which really peers is see

really see summer. need hot how everybody this been It's So, else extremely performs. we to

overall, categories, But ones in parts we heating are and So, better. obviously. you'd suppliers, to talk cooling, much seeing particularly expect we we doing as categories, the are our our strength in those

feel about them. and we feel continue we're execute we So, to the to we're going taking, actions good against

Gene Lee

that, result I taking the seen to Hey, seeing is have to what of specific I because a a Brian. that that -- we're action. It's wanted Gene. and team say want action, just is I specific

the to mind. my Tom see I then me do a say That's can get in it positive is that. is need to I something, we But and do what going backdrop. tell reaction from we see from So, think correct. we're I when We

Brian Nagel

you appreciate question, helpful. in you it. shift follow-up your And a my correctly. about I guess, made talked prepared if comments, then debt that I I a said That's in covenant

structure question of company? what affords So, here I the you what articulate similar made flexibility? is extent could debt maybe other did To being you to there. more you And adjustments be that the there guess can the type

Tony Iskander

Hi, I'll is Tony. take This Brian. that.

a little us Those prepared two We're the confident As did ratio. bit gives I the year. not are ratio, provides interest the flexibility primary the we've it covenants. a mentioned leverage it. carried our due adjust that we to primarily and earlier need in our that, We adjusted further of relief, interest in higher expense financial we remarks, in coverage that should

Brian Nagel

Got it. appreciate Tony. it. I Thanks,

Tony Iskander

Brian. Thanks,

Gene Lee

Brian. Thanks,

Operator

Brian. Thanks,

is Scot Scot, ahead. open. question next go from line Truist. Ciccarelli comes from Our your Please now

Scot Ciccarelli

X, I you Is last momentum, trends you something is guys. Can help improving of out kind call would why sales back in it expecting a morning, understand else half? about, the the the you're Good the first slightly know posted negative latest play of us that comp you just comps or there talked raise but you X estimate? weeks, in matter year half. full the

Tom Greco

volatile. we've Scot, seen the really It the always fourth in quarter is, is recent obviously momentum in weeks,

on So, mind, sales, that our good guys in multi-year strong that guidance we we the fourth finish the last year. sales. and year in track to quarter based on do we DIY everything you doing, have we're But feel as we've did very about keep seen, multi-year the comps, everything the we on

Scot Ciccarelli

Tony Okay. And about improve of I inventory target don't think for during Is I any end asked payables of the someone to secondly, there caught expectations year? that. I But, ratio I year. of for it. about know kind think then the talked course

Tony Iskander

to ratio, year. see identified and payable we'd targeted to accounts improvement in into year the we Now but next ratio haven't expect a throughout inventory that

Scot Ciccarelli

magnitude no can And provide you us?

Tony Iskander

today. Not

Scot Ciccarelli

Okay. you. Thank

Operator

Thanks, Scot.

go question comes is Our next your Wedbush. now Seth, from Please Basham from line ahead. Seth open.

Seth Basham

the national down are your good gross professional rate street business, up margin accounts a and seeing morning. in customers? Within currently pressure Thanks lot, or you more or

Tom Greco

multiple look I mean, when Seth, Yeah. the index, price at really obviously. we ways, we at it in it's competitive look

of in matching targeted we with channels. our And so each those are

the So, major between there's no difference two.

Seth Basham

with balance then, you risk cash And credit terms from be of sheet could your rating it. flow, down your the that Got rating do free decline see in investment grade?

Gene Lee

Yeah.

cash we can't you that with We And we in the are So, years, you to. prior indication active them at dialogue believe what good see agencies, of but we've on of that return all look the made. the speak the inventory reflective flow in this is can the in time. free company if year of do investments behalf a do believe that's that we

Operator

Thanks, Seth.

Wells is Fadem your line Our ahead. next go comes now Zach, open. from Fargo. from question Zach Please

Zachary Fadem

extra Is and peers? to you business street on provide can you the from how are perspective, your your an about national color down these just relative relative And morning. for any up customers the to can serving competitive there performing Good your particular disadvantages and talk advantages has think accounts? infrastructure today Hi. been what you

Tom Greco

a customers, as earlier, mentioned we mean, and the week. of Zach. seeing business, the First at progress all, are to We at we how look dollars every there's and every I up look we're of down week, lot customers there. street many the We customer selling per

faster seeing accounts want I sides term, But, the belief the second the to grow both that street I strength again? your business. going that moment and up our think at of longer business. are strategic it the of right. I understood And larger repeat sure is down on we the question part than make you to can are just

Zachary Fadem

peers? particular hard do you What your customers Yeah. these think are serving disadvantages or versus for advantages your

Tom Greco

I similar we've think it's said. to what

high all service professional have great our in on things the the We've an professional And professional our both win terrific the that business. enterprise brands We of about a brand, going is leverage sides of to a quality to Carquest assortment. products, our and visibility We've we continue I our footprint. I up business. availability, think continue and we'll grew it's got of parts. delivery. it's to we're leverage mean, the business. to and similar having got

As improve asset flow Gene to growth, better to the productivity here from we ensure and of said, as through it bottom drive our line. idea the that to we're able is business the

Zachary Fadem

Got strategic I it. And is the know that ongoing. review

through this your margin may you you talk short-term investment Can etcetera. this answer structural around this through the to what change, all is question noise year long-term? the pricing, for over come the P&L, business right So, but think EBIT as the you

Tony Iskander

is then as today, and for a pinpoint. other is involved impossible that that's today incremental improvement What our to have think differences room -- competitors. lot We to I I more we do this I of sit some get year-over-year. there's in structural here believe big --

today from significantly. take provide they're be think That's the best customers the improve operational to long-term. to we of to service to are opportunities of and team Shane true I need But I one the the customers. got out number unfair review and think to care where we what the documented. We team. our are service is more the that to go we so and our understand our members can every goal putting And well we through rest management a know of can there

Operator

Zach. Thanks,

from open. Michael, your now Please next from question is comes Davidson. DA Our Michael Baker line ahead. go

Michael Baker

be other could Okay. differences as We last may know I huge widened remind which situation, gap bit you Thanks. and you EBITDAR basis, an a over look there's on point, if like margins gap follow-up it see that on guys. between if what Gene, there's and versus competitors, versus little your you do down just margin own that the structural drags your can structure but different a the is at time. rent even

you differences stores, than the more besides structural what do? guys rent they So, are

Gene Lee

very which the other which margin inside it's very, business the would but the thing it's Remember, We're is productivity. approximately business. we've of business. very X.X, asset think I lucrative overall biggest the X.X. margins large business, our a is mix say different, are I impacts the independence structure Well, is a a our very doing got doing box guys approximately X.X the that Right? and the

So, be disadvantage at our additional the look don't And, addressed increase you How today, are it up, that just fantastic. needs dealt when need to a distribution also structural point. will I at to to but that's margins. what sales I it gets is just prioritized? our it mean, way that centers look through know that with. some huge set be The to that at X flow if million you does productivity on

keep I asset I and describe productivity. to And reverting as so, back

priority Our assets you get on structure. will margin improve Then but of the right into assets. biggest rent are own then our create not margins. independent impact the to versus the That all have the the productivity is productive channel business, to first mix, enough

Michael Baker

necessarily that structural. of And say isn't Yeah. I completely that some would I agree.

qualities while much I consider that a auto since how Shane auto parts question, assume other it anyone you guess question. O'Kelly was you does made that right follow-up his one ask could I factor than to better to business? I If you did Is that looked Is are been opportunity. us It's that within Shane about, or business, who at how first people my question. capabilities? the in much -- the the the the what capabilities Talk in, pick. main made that's and thought or my distribution the So operational --

Gene Lee

Yeah.

thoughtful I to think role the when a talked by person a great question. set. Shane search. disciplined, best We comprehensive but channel had I lot has very leader a for been professional most a part good mean, and a been this think of about you in of experience it process his of. people the was He's we box who lot career, of procedures to retail, exposure and a his big far, he's had Right?

done, they're discipline think very I role just get said experience, channel people I in is he before. car well we He that this that, a when we to is and and Shane educated, people had interesting being style we far background, best strong need. say on as situation. human position and our of the the that sold talk to and that the industry our a because most current He's in perfect a would at is was he's all candidate journey current by their non-competes, non-competes. loves the real leadership think out into were But it for business. He of difficult customers. I where for O'Kelly what focus so, even with was enthusiast. And are thoughtful his

And committee we're this job succession leader can't so and that as to a We're a getting fantastic for to quickly Shane. pleased in to do have excited wait to involved. able opportunity do very his identify did bring and as able someone to it to we're talents. the be And we with us point, like the to it skill him we're

Operator

Michael. Thanks,

open. Imbro question go next Please line Daniel, ahead. Daniel is from your from now Stephens. Our comes

Joe Enderlin

is on for question. for Daniel. Thanks Hey, our guys. Joe This taking Enderlin

is acceleration more in may categories driving a sales accelerate are mentioned You internal the the your investing think better that earlier actions you improvements a in weather you're specifically suggest seeing or sales. of it backdrop? that price in broader Are you

Tom Greco

Good morning.

to all, really sales. management, heating, availability. are in I we big the closely improvement improve cooling, the and the where engine those particular And improvements of in and opportunities more correlated much that's to start and with mean, in have year, drivers First par. versus availability categories last under

So, and well. an year. then There's it's And what through Gene connection. action that it corresponding taking we we're the are seeing see a very said close we lift. building the

installer, decision we I indices at we those and elasticities. ignore price you look do and mean, either that is is look the terrific can't this the retail category for honestly at have third elastic or categories team fourth it. every we because targeting criteria in pricing They our pricing are a category, week less The in pricing every the and closely than very area. many but

there. So, doing that's what really we're

Joe Enderlin

Got you. it. Thank helpful. very That's

to looking follow-up, retention. some Are talent Pro has turnover you Could side? maybe side provide at on on you distribution or recently? finding color a more retain how trended it difficult As the

Tom Greco

chain our in question. Good it measure supply our in I Yes. and stores. we mean, obviously

high that last up. in when pros, significantly. ago. parts turnover the half, I So, it the you It start in our a important. go the critical, in started roles think years managers, and general down with are commercial came is role started the our Every the managers about there's, that that I'll but DMs, many vitally some when general to stores year stores here the And just extremely stores, was terrific back

to tail of started it last directly, we the year. towards address end So,

seeing come down. are We that

same last significantly chain, job has story, and Steve, new one a supply good and supply of six chain, the down In done has chain, who's very supply turnover that head come addressing months. our in

better. And again turnover's to committed our retaining we're execute and customer as your down, supply able you're are talent serves we're slightly frontline when in and stay executing in stores, our important better chain, going better executing Gene that to said, we that day. coming our So, to every

Operator

[Daniel] Joe. Thanks, (sic)

at further questions this time. no have We

final I So Eisleben remarks. will back Elisabeth for with to hand that,

Elisabeth Eisleben

welcoming you in Thank us great couple all look speaking We Yes. and of again Shane you in here with a November. today. Have to day. forward for all a joining weeks

Operator

concludes This today's call.

You lines. may joining. now disconnect you your for Thank

Advance Auto Parts (AAP) 23 Aug 232023 Q2 Earnings call transcript