AAP - Earnings call transcript Q1 2024 | Advance Auto Parts, Inc.

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Operator

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 Q1 2024 results. I'm joined today by Shane O'Kelly, President and Chief Executive Officer; and Ryan Grimsland, Executive Vice President and Chief Financial Officer.

Following Shane and Ryan's prepared remarks, we will turn our attention to answering your questions.

Before we begin, please be advised that remarks today will contain forward-looking statements. and statements limited fact strategic to, review, plans, than including, forward-looking and other initiatives, not but statements projections statements of are historical statements, operational All performance. future regarding our

forward-looking differ could projected by from Actual statements. results materially or those implied the

Additional earnings could actual the release recent factors our differ statements and results caption, forward-looking Form that under most subsequent with be risk commission. found the forward-looking filings XX-K statements information to about cause can in made and our in

let to Now the O'Kelly. Shane over me call turn

Shane OKelly

Thanks, us Elisabeth. earnings for Good morning, and thank call. for you joining quarter our first

the Before and we the continued credit across the a dedication with purchasing I day. consumer anticipated negative off saw started At every make debt conditions. in we passion card weather, like and of power, their entire our serving industry. to to customers. impact Their experiencing The year coupled from review thank about the terms than of quarter, who to and balance slower for diminished higher each the macro Advance is difference year team commitment challenged first a Advance, uncertainty

note, low basis and lower As Carquest comps professional XX across with performance a accounts, points winning our transactions. single-digit segments, saw positive strategic a year-over-year. was than business including improvements is down believe in strategy down and On important business comp street result, QX our Pro expected, both pursuing in customers, that multiple We and up that to Worldpac. our are overall the and independence

year on and those street customers, we Regarding putting recapturing up focus accounts are the with and this additional winning lost customers. down

execute designed simplify our our to decisive previously of outlined our turnaround, against In we business. continue to terms actions

number and for competitive, our us and line. changes updates a investing supply into one, continuing front We actions all Worldpac. the a back four, more on productivity our important share portion number chain. reducing will are: Number me the improving process five, for decisive costs believe organizational to business, three, a consolidating these let while position of each. assets of impact Those savings success. to become Number those have positive on sale the few actions two, our long-term number making

the of with underway with that are potential we Worldpac, Starting sale well process.

very We we are to interest, are and results. have before quarter to conclude looking pleased our healthy we process second report the

is we've discussed our previously As Canadian that potential evaluate reminder, of we'll a sale business, sale complete. the once the and Worldpac

quarter. we a see focus, Second, the in reducing fourth beginning and are took costs we controlling and the from major is actions to benefits

than our $XX line. top quarter annualized the We million district including in in is our year-over-year in other We're roles previous in more to delivered also beginning front million on outlined reinvested XX% million year. this the from manager SG&A benefits savings evidenced despite a see $XXX line, this we of into key a and to on throughout reduction calls expect by a in and reduction turnover our our softer $XX see improvement the

$XX million In against is basis. an a initiative of on launched reduce executing our recently addition, to team minimum annualized purchasing our indirect

We the see have expect expenditures beginning bulk in as targeting of and savings costs diagnostic in XXXX. transportation are indirect such we corporate finished technology, stage contracts, to and reduced the the areas

Merchant. as and as enthusiast -- is Bruce an Merchandising experience, plan succession of and our deep of on of and is an role, Senior Starnes years our merchandising announce Capabilities merchandising are at Target brings Chief auto President regarding we nearly Next, Bruce having lead to XX Bruce President served will changes recently function. in This recently this the all for Executive aspects Operations. Vice most that third part Vice decisive is action team excited joining organizational and advanced orderly

over XX speed a outgoing Bruce's be has our of with merchandising Merchant, X automotive and merchandising industry family. of want also We in Chief the leader expertise will The after his years want with Bush, Board partnering Auto Bruce congratulate retirement aftermarket on Ken help welcome will remain Siebel, as who onboarding. newest upcoming continuity to role an our Tom will members, years help in advisory nearly ensure we to Advanced XX Ken in the function. to Bruce the the company, to Parts who

notified and locations. them opened that decisive a closed this XX underperforming independently the X Turning Carquest asset locations our our over in Last first were includes stores action In top Improving and quarter, company remains to owned and our company. stores. regarding independent this new had action program, both completed priority the QX. Carquest productivity removing and across that from we XXX we shared we we fourth quarter, we stores

our our IT impacting focus system addition, enabling for in-store is that's ability team's better serve customers. significant reliability on team to and productivities In POS their members,

last will We to in regard drive productivity is continue our elevate to store wanted growth. our profitable The area and I operations inventory. to existing across efforts discuss asset Advance

have our in along of had work project, in with plan, achievement of in the recent several with QX. We the of the merchandising new accountability We additional system. implementation leaders charge resulting put key success the milestones new on

of our the In expect in the will is year. X the the our inventory XXX,XXX the quarter, to of be suppliers. actively replenished by of several XXX first is added processes, This to system new new key be of second sets complete system, and SKUs previous well enhance steps end expectations nearly This system productivity. end all of SKUs ahead we to replenishment. to which and quarter, availability converted including overhaul planogram new the the by plus merchandising And store we

with will to unified decisive like components goal single supply with few the long-term as to consolidate operating describe take action this its incremental a And fifth progress. and of chain We've to finally, mapped look is our I'd now and our network. like underway minutes our a network

the XX our These required unified replenishment feet the each facilities have DCs nationwide square XX expect will serve XX nodes. XXX,XXX replenishment have a averaging large approximately XX. scouting of are currently We needed as our DCs. network and location for to We

component be next unified The hubs. the of market will network

we node pilot. new our a recently is network, successful and this quarter, of a last discussed completed As

hubs will number SKU existing number XX,XXX market we market have network. are Number adding converting our smaller converting locations. hub ways existing DCs two, of Our will average There be one, new count and with that footprint, hubs. more enhance will and X than sufficient stores greenfielding existing three, an

pilot. market least already half end Memphis, and including we conversions from existing X completed Baton have the the approximately to Rouge, quarter. and Three underway, by the XX learnings our these conversion complete of in Raleigh are By have DCs. XXXX, to from of we conversions operation, of those of of successful expect end them We at to expect third hub all the hubs store DC market are utilizing the

Importantly, we we greenfield existing that were can than rigor sufficient and by using all this to stores believe initiative more with if smaller legacy locations. have footprint accelerate DCs, converting we

existing third The includes for will surrounding operate. component of our continue serve for we hub expanded availability hubs network to currently that locations stores. and XXX unified These serve over currently as sources

reinforces compared on blended of XX,XXX hubs in On market performance having the customers. average, hubs benefit stores. our to box with they XX,XXX closer approximately our of parts The approximately traditional and hand SKUs have

to the unified of hubs by our at and development to least the existing DCs added network and this time expect large to XXXX. planning XX are of end take have market XX hubs network We of the

we also that unification. me implementation update Let our system indicated And of or a brief quarter, network. facilities across provide management WMS, there to is our on last This our warehouse of DC a enabler our X still were key convert.

Delaware, our by DC the We and the of at remaining have recently complete completed the expect the to Ohio implementation year. end X

we work actions, improve business' to making with we progress substantial performance. of While that recognize have our early are decisive our all we

committed clarity to Our accountability is to a entire disciplined all approach functions, team of in internal our increased and fostering leading goals.

in broader industry macro environment attractive needs-based to are fortunate the Turning we operate fundamentals. stable with to an

However, execution the business take know encouraged We as that distress on signs we of financial our feel that time, our store macro I improving am but care customers. customers meet will impacts time conditions members take we visit turnaround still of I if are recognize and this Even by team decisive a will or DC deteriorate. action. every remaining who backdrop, and show with focused our likely negative

established have deliver is leadership to and our team energized priorities our We clear on goals.

Now I our review over to the to turn call Ryan would performance Ryan? like financial in quarter. to the

Ryan Grimsland

good Shane, Thanks, and morning, everyone.

the Before from quarter. their to QX I members move throughout challenging like thank and would to also our our team I was financials, perspective. work continued hard year-over-year a dedication XX,XXX almost for

was primarily about However, decreased independence sales with improving our confident as remain on renewed by significant productivity. and and In reduction of compared the the focus capitalize to instilled million closures our and ahead. we billion P&L The of rigor on we QX $XX XXXX. ability asset decrease have store X.X% the first quarter, net discipline opportunity $X.X of driven in continue

Comparable store sales decreased X.X%.

still we actions room contribute helped the have we positive and And and by our have for improvement comp growth assortment the availability Pro we business, in encouraged to levels, in relative to are our While taken. transactions quarter.

saw From saw low category on we continued we strength in engine pressure in as anticipated, management, comparable filters by and in store perspective, driven negative batteries availability. as As a well single-digit sales. improved DIY resulting QX,

maintenance as tire Midwest our dollar deferred behavior in often seeing brakes, the quarter, in we installations, This categories, buying quarter, the regions. as combination their softness West down particular industry. evidenced stretch to purchased have the across with discretionary by we The spend. as maintenance as our and top-performing year-over-year and well decline they categories in in every are was were several adjust been such were In which experienced consumers looking and

Florida, challenged. Mid-Atlantic, Southeast, and While most the where are Texas including

start XX% As price. from the quarter. country points gross billion declined prior a net deleverage profit not by the cost sales impacted experienced primarily The XX driven season. of slower as was was the fully basis QX, $X.X Shane or In our spring by the offset weather sales. mentioned, which to year

our of terms categories we we've making strategic appropriate well and relative recognize been We in notably with In to where position also as market circumstances reassessing elasticity. focused as higher approach on been have uncompetitive visibility pricing. price, our adjustments the and have been

actioned million basis. QX, SKUs, investment X,XXX $XX an on In we of an on approximately annualized

to reviewing will to the as our assessing continued our the ensure QX, are pricing discipline confident committed competitively to availability to pricing provide from our remain are lower priced. success. the and we priced I'm initiative, securing accountability as achieve merchandising market. restructuring In assortment we our teams including well driving We how appropriate and merchandising help excellence vendors, align in

we all Despite see line. efforts, in likely we as the the believe face impact consumer continued pressure these will top will uncertainty that of QX

margin will cause addition, challenged to which be In QX. will rates significantly year's we actions, more be lapping last than

have will pricing we improvement expect to seeing half to acceleration begin units. an of in and the as the see begin prior on back cycled year's We the year initiatives

In our category addition, we our completed front were ongoing expect merchandising resets including supplier reviews contribute line backroom that consolidation part and and room productivity that supply to negotiations. QX hard positively will partner in key efforts, chain

negatively the consolidation to quarter. in warehouse planned addition in impacted capitalization In DC gross our margin investment costs and the

year. Our million of SG&A of our Ashville improved cost-saving partially independent XX corporate per significant sales, headcount a we improved overall replenishment supply expenditures in efforts $XX as down productivity of deleverage and this previously billion the executed locations by and driven and compared DC. driven reduction with lines last in $X.X and net by closure a offset frequency, earlier basis was our the XXXX QX chain QX discussed reduction in XXXX, points was hour, QX percent announced

gain have Florida. had we from Additionally, an in sale asset onetime

QX. previously, experienced of realized material which savings members, continued we team this we was frontline our primarily partially discussed remediation these back our We of related portion weakness, higher SG&A a headwind in to As which are offset year-over-year fees reinvesting professional the a quarter. savings into to

inflationary Finally, costs ongoing pressure to expenses. occupancy wages, transaction similar to many overall retailers, related we and experienced

year QX operating the Our compared quarter. margin points basis income XX with decreased prior

lapping. as quarter toughest actions In of year terms are the the that last a year pricing of margin second be our will that of quarter, taken result this believe we we

impacted compensation. see related the were in share decrease per a half. as discrete by tax stock-based $X.XX in back stronger operating prior the earnings to well expect related item improvement quarter. EPS margin Diluted we progresses, year the in year compared with in However, to primarily to the margin as was $X.XX impact QX as $X.XX

aligned with We have capital in on actions. significantly discipline around our spending investing focused initiatives decisive process, the high-return increased our

million compared expenditures $XX in primarily of the our the year. previous $XX flow a with outflow payables As compared with of of million timing the This QX the outflow $XXX an in XXXX. in by $XX quarter of quarter. result, million QX million XXXX were of was Free QX prior was capital an for lapping driven cash year

remains full unchanged. year guidance Our

We will across our they against improvement are and steady believe committed decisive Advance. performance to executing enable actions

the Q&A, our update internal back I to an control Before on I call turn efforts. to remediation and want Shane provide

We ensure open experienced the XX backfilled knowledge have we and personnel as hired experience. and internal to experienced requisite continue approximately we the roles appropriate controls accounting personnel and with

in important quickly the their onboarded and first who are progress making some hires made were We roles. quarter in

we've In redundant controls our structure. added control addition, compensated to internal and internal enhance

have remedial We been efforts testing the committed to thoroughly our are and remediation. completing

in see Form efficiency material a elevated to significant QX prior identified controls. will our area XXXX a As has XX-Q, in you weakness in been discrete of

an designed regarding weakness amount staffing, are Similar ensure robustly time. we over our as controls to testing of to our working are appropriate material

forward remains our for it priority I'll a you environment to And top Shane. look updating completion now control internal over remediation. turn us, on we the and Our to of

Shane OKelly

Ryan. you, Thank

do quarter. to to women would and in lives always terms the faced With thank during country. And to the the confident supporting are Day, have significant but gave appropriate of men team on unwavering customers members once turning we I we like to to their our your who the in to We adapting for our of work wake I to address our in their want again that, Memorial up the challenges business, while right around dedication it path. of on contributions questions. I'm the the the it's open of service brave reflect

Operator

[Operator Instructions]And Jordan today our at comes first Bret from Jefferies. question

Bret Jordan

cadence gives you the of maintaining you first the in about comfort for guide the months Can year? talk X that your comp . the

Ryan Grimsland

Yes.

I throughout started due pick cadence, but little quarter. think bit the up a the slower we weather, started think out I to to

really Bret, of we favorable from expect coming business some we're more are but year back we'll expecting the compares see to place, we've putting half the I especially of continue seeing and in initiatives we're Pro seen think out of QX, to fruit bear similar trends that have the in as the QX.

Unknown Executive

Yes.

comp continue that. As look to I transactions, pro think positive I doing think about we'll and

specifically the DIY But a power their their we've I they as U.S. PROs, inflection the debt customer. and look is. notably think Ryan targeting As mentioned, they point look U.S. got is the facing bit up street also at loads personal consumer side, down purchasing an consumer initiatives where the on of as at

some there reticence they're terms and And spending think how in that so there's I we think of so continues as well.

Bret Jordan

street, Pro the the X national and difference much account those between on then And side, . you Great. versus up saw positive comp first there segments? the the in Was down quarter.

Ryan Grimsland

on positive Bret. specifics don't don't comps of to like . we X, appreciate We those growth positive but to we the like it, Yes. break break did see out both but sides. I

Operator

UBS. The next Michael question comes from from Lasser

Michael Lasser

drivers performance be that of DIY segment challenging The of outcome from the are you to -- thinking what key going with are here. about And sales course improve that year? the over the how the the

Ryan Grimsland

consumer story a Michael, where that here, I think the affects goes. and there's So macro

the think good business. is the news needs-based consumer, function our I for a U.S. there's

my put And things, those start, doing needs new staples won't off so where battery. car can't a you it EG,

don't So see we'll to maintenance continue that now the anything checkbooks they end near their they of But of at those month. in to plays. there's for with kinds can the wrestle see I if the consumers as also changing term. defer

programs. terms needs trend with sales. we creative obviously our website. attachment of number We're in-store and associates doing customers the that We some to do and how things in do think We've terms greet training appropriate I done of our so in they a understand how them. using get And we continues. We're of see marketing

certainly lack not a there's of I we an opportunities said at on as to activity just part a, But sure make consumers. there's with we're maximizing our a So macro point. where bit before, of a interact fundamentally, I inflection level, think

Michael Lasser

risk of or year, quarter if this you that sale. close Worldpac like sense give the in business the there second look might close is guidance won't the Is what you the won't so the the underlying your the us and be can of were My for the some on is follow-up question any announced question it to sense we of deal to the a AAP can to thesis is outside doing like have is transformation before year. how Obviously, looking understand Worldpac of intent get end of there? what some

Shane OKelly

Yes.

I've behind So that. We until used and a and great done Michael, question, get segment do that expression not to the deal. is an you'd in deal XX reporting that I've deals understandable a acquisitions deal want a don't certainly

absolutely to everybody, announce which think big process. something just we have is But to the go announce, I we respect it. just the for will to picture, when important So I'll got

very that's happy of we're wrapped we'll earnings believe we So up it what before We have got. it. our where We're in the next middle are. and announcement, we've

something transaction, to soon as like. we company looks complete as then Ryan pick And remainder to we'll know, you what look different, and we'll let is the EG,

Ryan Grimsland

Michael, definitely the but And we've actually have have when update do a for that Yes, decision. we we remainco. forward wait got we the projections our a transaction we to when want going update that, there's guide -- will we and if give will perspective, you there, until to and

Operator

from Gutman comes Morgan from Stanley. question next Simeon The

Simeon Gutman

process. for low then separating conveying or the does single assume, message out how Worldpac from it commercial And it digits for still one the price that heard the at that, X Shane, them the you're you're positive Everyone. to Street. maybe I the that include connected Worldpac, is I to . and to ask, debt, decision the dependent? more Can business? right is is will decision the the try I I respect Or sell

Shane OKelly

this rest speak versus that. We're to appreciate time. at the the business about going Worldpac of I Yes, not

process through the of midst the here. working We are in

that have table keep the where we'll until can't speak we to them. So off something we

happy are business. Pro We with our

have the be and the We where we happy right more the something is it's explore. up. standpoint, give necessarily process to box and still happy to strategic ahead. are a from at able you and we'll and updates continue blended with the at on Go The where date with is opportunity, strategy. as X on to focused actually this still, We're affirm We're decision same it's we'll Worldpac now. this not exploring we

Simeon Gutman

supply to with And merchant. how population? vehicle opportunity Sorry, hired yes, we a about you the changes chain? is If ask you're decide think follow-up, make to is activities. timing that -- or then wanted there aligned with doing mix the chain if a any Are you properly different the there about the to consolidation, I new have merchandising, with should SKU sequencing effect X merchandising. does supply

Ryan Grimsland

I would I would activities. -- different are Yes. X say there

thanks here. Bruce We're Starns the first, there's things to are I for joining. unpacking thrilled So And of couple have asking think a that worth question.

First, important. of to and we in of fit enthusiast personally learned terms his that getting this process. know as auto he's is him in really energy at His have leadership skills he's Target, an fundamentals he merchandising really, in enjoyed terms view we his level very .

I think the in we're how worth mentioning of doing terms transition.

is a Bruce's have us period XX who joined through the industry. Siebel transition his will help Bush sticking around with a We the as merchant onboarding. in on He through Board retirement. Ken Tom years

So very this orderly much an transition. is

board. the to always mix the so do There's vehicle come it have excited him as can to on we SKU And work relates very population. we're and

there. parts auto of ocean out an there's think I

our the frame as Bruce part customers. review his in the puts Mark, on our is so always availability merchandising the right team, for And having we'll time right and what

activities doesn't there. can you is set it at a supply with nor chain. of imagine going the body sequencing work So on expense of of a it come

moving is chain supply now rapidly. So

a leader, supply about Slager system. now Steve getting putting in our DC plan together. of spent is running getting He our on year chain a inside as WMS terms everybody established, hubs our introducing large of They spent infrastructure market node

to goes within occur it our assortment can occur as day within and today. that And so changes our process every business on,

Operator

Greg comes from Miles Evercore question from next ISI. The

Unknown Analyst

I investment deflation price up you referenced. follow on specifically wanted inflation, to and the

is X,XXX the about frame deflation. inflation? help that's bps and the bit percentage $XX of have What just SKUs? little the a a assuming you XX total you still could box SKUs investment that? Or frame the million of how whole or of would XX that year So Is

Unknown Executive

do. customers $XX out came think the then pro were we So consumer both the impetus is our of and feedback surgical conduct we a in is just customers are We're as simply assessments to one. viewed competitive. where instances where data there market industry think where doesn't we're being buy. sure will of moves made source rational from for this in so fundamentally important rational in -- in that market, just terms reflected what customers from I our I terms own player sense what make But our million relative we of to some getting pricing a the the from a market legitimate the make customers this And and the is, pricing

is as you X,XXX if a add our of percentage percentage, relatively some. want So to SKUs small Ryan,

Ryan Grimsland

about it's count I X% mean, SKU of right now. the Greg, enterprise Yes,

we at only I think it's looked about X%. if Advance

a the but not it key . just that it's areas. overall, in of making competitive we So get is portion significant sure

Unknown Analyst

seeing still comp it. slight And say the in million, that the across first still quarter? inflation industry box, is that the Got we're in would that rational, if you $XX

Shane OKelly

inflation just Yes. the think, the inflation, think rational. I overall There's we rational. in the very standpoint. And in fairly from of we I industry a It to quarter. little want Like is said, still pricing slight is a bit industry, competitive . be

Ryan Grimsland

term I use would Yes. disinflation. the

think don't certainly, inflation that of has . I So but metered. deflation, we've tempo hit

Operator

Ciccarelli The from Truist. comes Scot from question next

Scot Ciccarelli

there out more to getting Can understand color then the just the to provide any XQ, the the amount for expecting bridge moving better margins on given margin us and in help pressure of you pieces you're back.

Shane OKelly

absolutely. Yes,

bit pressure see going to in are little we QX. more So a

take going there's need pricing quarter, board. a are these to get the of actions competitive and we've cycle full across taken to Some we probably some to that more

be competitive in sense pricing additional actions So we'll the it to where marketplace. makes take

to cycling was year see last QX. that a we're lever rate in QX. expect margin where was in price year pulled decelerate Also, we last So

we're And so that. cycling

much So down, it's the bringing comparison . In just action. much it as of year, a we're year-over-year. also last QX prices of not about wasn't price a, as about, but it's

year fact, were bit competitive little In to trying in more a QX. they get actually last

QX, So pricing last comparing cycle in wasn't some comparison against But actions we're year. the in as significant.

kind of it. that compounds say So quarter, guide on give from going QX decelerate. that not I'm would specifics would to you I but expect rate the to around

all of to Now what a benefit half doing, unit of in on. we're start things. we're we've year. the PLRs see place those year, that going the in of the done One the couple going is to to the first see the of part take start back take to we're the

made where start That price, have changes bit see of some little We to to that. see we've takes the hold. time a of take in to unit we consumers start as started seen

impact So half see the that's that. our supplier to second And some continuing year. of the we'll on then help cost going of out to partners we're work with

see as some that supply back start takes then year. half in the to And our benefit we'll of chain of the consolidation hold, hit

back So time in come bit these take of up a things to the little half.

comparisons half. some cycling really back also into We back comparing first our mentioned be helpful, the that in pricing half we more the to year in due We half have better and the that than we're would pressured Scot. of actions half these going first that the was against. Hopefully, do than

Scot Ciccarelli

helpful. Super

expect margin lower be operating do you XQ like though, could clarify margin. operating to Just than

Shane OKelly

. mean a the year-over-year yes. basis sequential. I deleverage, from that's Yes. Year-over-year, Yes.

Operator

comes The Chris Holmes JPMorgan. from next at question

Christian Carlino

that has Are medium and you the look might It's structural about costs that of over eclipsing some you on from which price investing of have recapture Christian now the Chris. still the Carlino been what to part plan gross for year. term, XX% you're visibility or differently like you any last thinking margins presumably this in onetime

Shane OKelly

to definitely and we This guide for that. the continue plan have we as committing are and to year, to Yes. priced, the part still of still of guide our sight line investigate competitively is we

end we we the the But given be with can part still backdrop. still comfortable and year invest we'll to where is . macro we're to we're plan, we're of So where competitive. the this going believe

Ryan Grimsland

Yes.

the our the and source sure side they're I costs there's think what merchant our equation, actions do other appropriate team working with our is make vendors which for the modest, pricing are securing that of product. to can

So comes programs place start some he there, we'll opportunity on that. I to in think and . look for for we've got board Bruce as putting

Christian Carlino

understanding in helpful. up there's the much it. That's use efforts where more on about the of undertaking? Got you Is other point. you're of you'd to DC update Could a the speak stepping be to proceeds you're the transaction. comfortable us the from how turnaround not leverage conversions some there level the And potential thinking sale? investments or of

Shane OKelly

Yes.

So we think about X potential uses.

delever Ryan degree. I Iskander, think to to Treasurer, first company our the look Tony working will the with some

So they'll which look at out. our various debt tranches and decide ones we'd take potentially

use, large a where hub new our we candidates we've couple second about network an areas supply ongoing started first And can build-out. the ask about got think of a different which And we is we've faster DC our accelerate for investment use. already the could important this development, would that here a to then that's from bring you conclusion. initiatives market chain so -- I think that's So underway functional perspective,

likely And terms example. -- unification would Steve there'd there. -- about candidate opportunities would some a about store junior be then on So opening our there our be talked likely of have POS still new we as think you proceeds. a an be for do could stores, system. capability, POS of condition be stores legacy stores some POS We are We that Technology. in stability.

got we list So top we've of would things of that those where going X move put constituents, I money are at the with faster the to on. think,

the priorities. And so X that's kind of

in X. Third, But we'll shareholders are be some way. about thinking those our the

Operator

from next Fargo. question comes Wells from Zack The Fadem

Zachary Fadem

mentioned conversions? Pro DIY color on in more successful You of lifts Can saw that game and what bit customer. plan market hub you or the a gave Curious what share would terms you you any confidence talk expect terms some the of for you can about pilots you in

Unknown Executive

Yes.

the you more in But -- I industry. responsive, So have you're that and you parts see elsewhere if is and customers to orders. more this premise get think you closer the

we you regard hours, next what XX what the found number so in looked time we day. requisite we a of can is there's in X fit did that can frames. those we X And we same get get at hours, in minutes, parts in how you terms we we can shortfall day, . And in you get significant that of at what

well, how more do do be said, that? we accelerate we we So competitive. How

to can hubs our does hub the And come so from otherwise a where where or is to ways. would X get the stores we And to market it have pushes what in it parts to works DC DC. customer closer other it

replenishment stores which some frequency. go to have with We orders,

delivered was We also and for have which quickly developed time consuming. a parts expensive one-offs, program

And the using to hub, was quickly get so if coming more we by from store than it DC. a it can the

And that XXX we so about the they're that's on physically both as see stores, DC. within sales. what parts, relying we've service that And think now that were hub, get store, could about seen. you because previously getting And have those the actual where better we we what stores, if then they surrounding only

premise. So that's the

another just comment think I here.

could follow a a in effective an being fast strategy. Sometimes be business,

that think the concept our idea And own pilot elsewhere good also points to so market hub this I the a the effectiveness in beyond results, business with it's one.

Zachary Fadem

couple Got a of questions. then it. And clarification

the there 'XX notch second, the on the high and on gain on of in color of line, up SG&A First, end then the sales any quantification any the outlook? slight impact your

Unknown Executive

we're you was Yes, the When noticed immediately Zach. out. going bringing press we to issued that up. release amendment appreciate an send the error, I

sales not our guide are accurate. We XX.X%, at guide rest the the The are numbers top end XX.X%. that of confirming of be should

shortly. that come should So see through you

the a our PX gain also quarter. in gain, was in implied It as million far guide As the $XX was the that was gain.

Operator

from at comes question next . The Coast North Aaron Research. Reed

Aaron Reed

where mean to going said I get an And largely when the all improvement, stores. up is to is that first just tier follow the and the sounds to My Or to once I sale an is, wanted it price funds that it's look debt, it returning some for question improving on you reducing the or it's component in, shareholders. order initiative should come it? had you going proceeds to debt possibly allocation how be, we done? like on Worldpac, store then amount the and be additional the at of something and dependent really of like of is this it's that sounds that's

Shane OKelly

I'll and in. Ryan he us then joined first. and Tony Yes. Debt morning, this start can jump

so I draw go think that there. in we would line of terms much -- and where will use the the off. figure we'd pay and is best Ryan of again, we out early exactly how And Tony proceeds

all X Our buckets sense on there's that value. those potential for gentlemen? though based of assessment of monies use Worldpac's our But is

Tony Iskander

Yes.

well. that what put Aaron, excess we we've money towards also would Shane good getting start that over time and our about to initiative, some of back So and as again. would would closer talked deleveraging, anything publicly course, go our We look prepared about earlier time. leverage targets our and put of back over of talked do towards remarks. money closer would to in to first to getting Ryan And we shareholders, X.Xx

Ryan Grimsland

Yes, Aaron, this prudent is multiyear and this We well the timing the for going company. that. think X on the know to thing and turnaround sequencing biggest be a as we're of is I

pay priority us. debt turnaround, the of the down first in top the priorities the business so debt, the for are . that's for And

Aaron Reed

to little And trying ratio. able to you will to that to ratio? a follow-up closer question fully then a Does believe mean be that debt allocation with the get closer, Great. you Okay. that target that and don't that debt target your going just to I sale achieve guess

Tony Iskander

Yes. would transaction. get the ready we from to Aaron, dollar about the amounts that talk actual not we're

have wait right. we'll to that if all we transaction, that's to and a be do So if share when able

Operator

of from Forbes comes Steven question Guggenheim Partners. next The

Unknown Analyst

Rene on of Steve as whether need. Marin are focus want for drive DC Forbes. on you us the through progress and focused think market you through on conversions. This the such you you I is conversions the think to KPIs to help these improvement can the ROI Can

Shane OKelly

sentence. I the your missed part last very of

that X time, please? say just more could you If

Unknown Analyst

And conversions need? these you are whether Yes. the driving improvement

Shane OKelly

Yes, fantastic.

SKUs and So terms what interval think do the square to cost ongoing available metrics, along sales with service are costs. we important then operating in convert all about sales the as for foot, of it per we

some are So metrics. key the of those

goes about qualitatively talk on. also me Let what

would all challenges the One network treat that the our decisions is DCs we previously in we of made equally.

foot and have a servicing X hours DCs could with a away and you their replenishment manager huge that's have facility. we DC be in ended million So in few square be store XX manager store you size your inequities have foot DC saw of and store that's serving you a their the and a could XXX,XXX servicing of disparity up your a stores square or in terms the terms what boxes so

issue. would we we could store and replenishment breadth truckload which as creates different But to way, say, to to would and fundamentally which was we nodes, our the other take and go which serving product was DCs be which was to a them an on DC a depth you. vendors them take So depending an By ship "Hey, the declare into what LTL intake DCs," available you of declared TCs need skit. we some you all nodes, meant --

way structurally, that's a good just not a knew chain. we to So operate supply

So with it, the gone makes we've that alluded from also sense it in of we some and to. that backdrop, as modeled metrics just

X So hub taking of we're And comes is doing again, it any XX,XXX the sources. with feet. from XX,XXX the what market square we're X to

profile. We have larger can some that fit this stores

higher We the SKUs, be -- will And have take, little is will And a or then conversions. we give number bit XX,XXX-plus then these SKUs. also some we doing of greenfields. think that right DC some

at rates. we're these for DCs leases with long-term favorable in we're converting, Now that them

something economically, been that's good that's So for been us.

We and will the rest. what partition sublease we need

that's the how exit altogether. the then we'll economics In of baseline we develop facility of But the the method facilities. some cases,

model maintenance the mechanization instead, be pick will a of won't also and about ongoing We traditional think that. in both look and costs And using operating of racking do. this with we'll and what terms

those well. will saying, which to "Hey, and as for you vendors cost the be that at operate is replenishment, our our only then breadth going it is original need picture what to depth but ship to service from or valuable and -- so into big full store now to to XX will then to available as that's every us works, large available And on and provided, stores -- the back DCs." and go that we've I the looked that what

Operator

The next Securities. from question comes Rakhlenko from TD Max

Maksim Rakhlenko

Great.

the biggest is chunk time. just SKU X,XXX the first, that a the the the and SKUs? it So bigger count over Or start action price of could is SKUs, that ultimately look bit quite

Shane OKelly

one the so, that the did into things company is we moved of pricing in merchandising. we

So functions. had disjointed been previously, those

the a We before, be don't We we pricing be to think want inappropriately to the to down. with industry us. customers don't it's good about we logical think to mentioned is to competitive. buy want conduct. lead way And from I priced so our I want market where want highly don't And

to merchants can to And talking from sourcing we're sure expect their will you so be that what at right make good vendors is us the cost.

opportunities have there. we think I

portfolio. going And their the "Hey, actually, price merchants to some at think other have are I looking higher instances, instances, were relative to say, move good move opportunity In we to market and In down." they'll we say, they're up.

sourcing market, we're pricing to that merchants look us margins we take could capable to hit the from we'll think key to away you teams we'll very at is sure closely I and that hit. make the to with need have message the be working

Unknown Executive

we a getting up, about did right Yes. brought of down we getting bringing some bring SKUs, competitive Max, actually the those add. X,XXX them bulk and priced portfolio. prices being up I'll So the is some -- Obviously, price them, in of to Shane's merchandising of across X% this said more will SKUs But Shane Of of it, place. it. I'm merchant add right? that through point will overall that increase there as in to comes enterprise about the sure it's and And said, new we X% will works well. Advance as that as the be as were

Maksim Rakhlenko

and And And Got as our a of should cadence are helpful. you very to and how initiatives up speak some year acceleration think price? goes environment making progress we then the of competitive street what the can It's besides you're the key the down And it. accounts? then about on?

Shane OKelly

Yes.

XX-year look Advance's a right participate our So Pro think customer to we at we if history, history, as you view the have market a throughout that I in.

capability. a a it's natural so for steep of we lot of perfectly have activities And us set that

a going there's activities on. so of whole And series

those So being program. compensation first, use we and And We've rejuvenated line, if sales and commercial in investing career compensation. CAMS investing team outside their -- terms investing pros, think of in the about front CAMS. in-store talked parts about we've you of members, CPPs they're terms pro those in roles roles those we're training. both of roles the We're conduit, in in in terms in trajectories. of investing We're

lot We're a understanding our terms doing in market. of

are store visit the customers? products exists, And are the what what go penetration is in things proximity are where Pro -- frequency. that Those to relative we who our propositioning the it What a customers, -- on. So to what's customer. that those are all is what all with

a warrant of We have TechNet, is which activities. litany

Our Pro website.

recognition equipment Our our trips. program,

-- direction answer their with just highlighting customer it's that's So the organized a we're we really have about would across we being spectrum needs. an for Pro and taking And the those pleased and find of needs, what attractive place.

Operator

. The comes Paribas. next question Bottiglieri BNP from Chris from

Christopher Bottiglieri

leaseback first for accounting that Worldpac does $XX does that couple Like impact curious sales else? be And is a of control The there want any clarifying resolved relying the be something on? Worldpac, million, influence an mediations, asset sale? Just if or the then on that ones. the to a fines Just on that's was sale. the or having

Shane OKelly

No, of That's Chris. the impact on . from Worldpac perspective. the to going from with Yes, piece transaction there sale not asset gain is that a separate leaseback, sale kept yes. kind

Christopher Bottiglieri

Sale leaseback.

that's us in you're back thinking out the persist then quarter, Okay. QX last supply costs And something that you quantify and tell the called that capitalized what or this of should the half, in terms just one, not? chain like

Shane OKelly

said inflation to wouldn't in continue expect we the moderate are our taking to do year able actions, we the very Obviously, on and From we year. rest to the pricing inflation product year because capitalize going we rate. an a that were for inflation originally, through that we'll standpoint, from we be to full overall the be be guide of on

. In the fact, around and X%. in we're about industry, talking expect I that are -- in still X% think guide, our being we inflation the about

Operator

Owen from Kari. Karri from Barclays. comes question next The

Seth Sigman

Seth me. Sigman. you Hopefully, hear It's could

follow-up Just on the I or here. confusion guess, number as question. a one,

here. So ask follow-ups, front from both I'll and X quick just up

the pick closing, more a the more bit year-over-year it a Is of just let's you starting some you to question It you closings And Can more operating the maybe about flavor? ultimate combination just is around just think bit for pressure real guidance footprint. on what just So store on units that? really do to then would a you're any of clarify Or think you're that. of follow-up have Do great. that trying store or little QX, closings SG&A? up So on is both? give characteristics margin more and us that gross pace margin. like the of of be learning view here. a looks about on that color the the How little on my number

Shane OKelly

cycling the from driven of things. actions take those chain -- as pressure by will going Yes. QX be mainly see Great pricing pressure. consumers The mainly couple recognize It's on the competitive just A time supply lift product our cost to to will driven That's Seth. gross and that et the working and costs cetera, last question, -- the get unit year some pricing. pricing in timing and where the some actions of and we're new out margin. pricing of benefits, the of of us

it's realized in on be to So mainly that perspective. profit gross going

Ryan Grimsland

store the Thanks I'll question. closing. the for on talk asking

first, eye all to assessment. to our go just say, stores, "Hey, an want have asset of and we it's So productivity shut out don't part of we number x

what so network. asset is So can does every And lens. the could around? hey, to it it store, is, I mean as first store turn preferred say the it where the thing and relates do be? identify it we we And the we what looking a it And that we're across at "Hey, be? it should we looking own is say, this company? We're for the that's doing when

We our CPPs. how is there, we management efforts sales, on going our that efforts, in grounded and so say, management the is outside talked about And team geography, at what's the member the we performing. hey, Pro Pro -- with look and

market in an we're we situation where say, structurally, and There are to So store's is instances that's store. performance look first just a flush always with can math we work, the closing becomes at can't if you where healthy regional option. make just share make the our some we're this where a

think the number a of we way, of, in to publish is we close. the toolbox. don't how X we business are close the hey, ongoing we items many so management is going It's now of terms too so that's or By could an think this team we And our just the regard, haven't that in of terms really really published estate a We've And to I store. want new in NSO of real unified real under know in that a think we've its improvements estate X opening made is an there. -- number but people number, leader. I capabilities

up buy in facility terms of processes. real out in terms site lease new opening terms time to management in in process in selection, line a looked terms at and store terms of our fit get hit of of We've of out estate versus

And really in is new for to better that much we look future. the the so opened something leverage stores we're a that seeing process we'll

Elisabeth Eisleben

your We all continued a to report support. again you appreciate this received. Thank . all right. us is joining updating and much That forward the we've day. time questions I nice All morning. look we so Have for QX. you after

Operator

you attendance. very call. for much This concludes Thank today's your

You may now disconnect your lines.

Advance Auto Parts (AAP) 29 May 242024 Q1 Earnings call transcript