The operator introduces the participants of the conference call and Elisabeth Eisleben makes a statement about forward-looking statements. Shane O'Kelly, the CEO, thanks the team members and talks about his first 60 days with the company, including visiting stores and meeting with customers and suppliers.

The new CEO of Advance, who has a military background, is impressed by the passion and dedication of frontline team members and is optimistic about the company's future. He has partnered with the Board and Management team to simplify the company's strategy and improve execution. To achieve this, they have initiated a sale process for Worldpac and their Canadian business, as well as significant cost reductions and reinvestment in the field. The company is also refocusing on their core business of selling auto parts through their blended box model.

Advance is simplifying their business model by selling their Worldpac and Canadian businesses separately. They have also launched a cost reduction program and plan to reinvest some of the savings into their frontline teams. They have appointed a new CFO with experience in leading retail businesses.

The company has announced the appointment of a new CFO and has reorganized parts of the leadership team to drive change and enhance collaboration. They are also conducting a strategic review and may make changes to unprofitable assets. The company is focusing on fundamentals, such as inventory availability, and recently held a summit with key suppliers to discuss their strategy and partnership. The company recognizes the importance of their vendor partners in serving customers.

The speaker thanks Tony for his work as Interim CFO and discusses the company's financial results for Q3. Net sales increased by 2.9% due to strength in the professional business, with all regions and certain categories performing well. The Pro business outperformed DIY omni-channel, with transactions up and average ticket down slightly. DIY omni-channel saw an increase in average ticket, but a decrease in transactions.

The company has made progress in remedying their material weakness and uncovered non-material issues with their previous financial results. They will compare their Q3 results to the corrected results from the previous year. Despite improving top-line trends, their gross profit margin was negatively impacted by various factors, including a change in estimate regarding excess inventory, higher product costs, wage inflation, and increased supply chain expenses. These were partially offset by a reduction in LIFO-related expenses. SG&A expenses increased year-over-year but leveraged slightly. The company is taking action to reduce costs and expects to save $150 million annually, with some reinvested in frontline team members.

In the third quarter, the company experienced a diluted loss per share of $0.82, compared to earnings per share of $1.92 in the same quarter last year. Free cash flow was an inflow of $148 million in the quarter and an outflow of $157 million year-to-date. The company's AP ratio expanded by 470 basis points from the previous quarter. The company's supply chain finance program has maintained a similar level of capacity thanks to strong bank partners. The company has updated its full year guidance, adjusting the top end of its net and comparable store sales ranges due to one-time factors impacting margins. The company is taking actions to improve its cost structure and has updated its 2023 guidance ranges accordingly.

Shane O'Kelly, CEO of Advance Auto Parts, acknowledges the work that needs to be done and states that the company is focused on executing a customer and employee-centered strategy while simplifying operations. They are taking decisive actions to stabilize and grow the business, and are committed to creating value for shareholders. O'Kelly declines to provide a long-term operating margin, but expresses optimism and a focus on increasing margins in the future.

The speaker discusses their organization's structure, which includes a direct reporting line for merchandising to manage margin in a retail company. They also address questions about the impact of a negative credit rating downgrade and their liquidity and financing, stating that there are no issues in these areas. They also mention that the sale of Worldpac and Canada is not urgent and is part of their overall strategy. The speaker wishes the caller good luck and moves on to the next question.

Christian Carlino, on behalf of Chris, asks about the issues with the supply chain and the company's plan to fix it. Shane O'Kelly explains that they will be focusing on validating the design of the future supply chain and there may be some rationalizations or facility additions. He also mentions that there has been improvement in areas such as undercar, engine management, heating and cooling, and brakes due to work done by the merchandise and inventory teams. Christian also asks about the one-time reorganization costs in the fourth quarter and how the supply chain finance program is being managed. Shane responds that there are two good questions and does not provide further details.

The speaker addresses the impact of supply chain financing and restructuring on their company's programs. They state that they have strong bank partners and support from their vendors, and are not seeing any negative effects at this time. They also mention that they are not commenting on the impact of restructuring due to the sensitivity of the situation for their team members. In response to a question about increasing the pace of new store openings, they explain that this decision was based on opportunities that arose and they will continue to be prudent in their approach. Lastly, they mention the businesses they plan to sell, which were acquired in 2014.

The speaker is not able to provide specific information about the Canadian and US parts of the Carquest business and the Worldpac business. They are starting a sales process for these assets and will only sell if they are satisfied with the market price. The speaker also mentions that the Worldpac business is a great one, but they will not discuss its operating margin. The speaker also mentions that the proceeds from the sales will be used to invest in the remaining business and its growth.

The company plans to use the proceeds to strengthen its balance sheet, return excess capital to shareholders, and focus on both the DIY and DIFM customers. The DIFM side has been losing share in the market, but the company is taking actions to simplify and improve its performance. They have been focusing on a targeted CPI number, which has brought down their average ticket, but transactions are increasing.

The speaker is discussing the progress made in consolidating the supply chain systems across all of the stores, including Worldpac. They are working on unifying the supply chain for the company, but it will take time. They also mention the sale of Worldpac and the potential impact on their business model. A question is asked about the price contribution to comp, and it is revealed that there was minimal inflation in the third quarter.

The operator introduces a question from Scot Ciccarelli of Truist regarding restatements and potential issues in the company's historical financials. Tony Iskander responds, stating that remediating the material weakness is their top priority and they will continue to share updates. Scot then asks about the impact of LIFO and Shane O'Kelly confirms that there was a benefit this quarter. The next question is from Jackie Sussman of Morgan Stanley, who asks about employee retention and areas for improvement. Shane O'Kelly responds, stating that they are impressed with their frontline associates.

The company has invested in key positions and initiatives to reduce turnover and improve employee satisfaction. They are also implementing a cost savings plan, which will primarily affect SG&A. There was also a mention of an inventory write-down, which the company is addressing.

The speaker, Tony Iskander, explains that the recent one-time charge of $119 million to the company's P&L was due to a change in the way excess inventory is estimated. This is not related to the capitalized supply chain costs. When asked about the company's future SG&A growth rate, Shane O'Kelly states that the company will continue to invest in the business for growth, despite the recent cost cutting measures.

During the earnings call, the executives discussed the decision to sell Worldpac and the urgency behind it. They emphasized that this decision was not made lightly and was based on the input and counsel of experienced leaders within the company. The new CEO, Shane O'Kelly, brings a fresh perspective and a bias for action to help reset the company and set it on a path for future success.

Shane O'Kelly, CEO of the company, admits that he does not have all the answers and acknowledges that there may be mistakes made in their initiatives, but they are focused on the blended box model as a key to their success. He cannot provide financial information on the assets for sale, but assures that the $50 million to $100 million guidance for the year includes all consolidated operations. In response to a question about gross margin, Tony Iskander explains that there was a step-down from the previous quarter, even when excluding the inventory charge, due to not covering costs with price.

The company has seen a decrease in supply chain costs and a shift towards Pro business, which has lower margins. They are not raising prices to cover inflationary costs. The company plans to focus on growing their Pro business through engagement in the market and organizing their Pro division under a new leader. They will also be divesting Worldpac to streamline their operations.

The company is focusing on improving their operations to better serve their Pro customers and increase profitability. They are reassessing their assets and making rational decisions about where to grow and how to operate in order to achieve consistent profitable growth. The company expects their operating margin to grow in 2024, but more details will be provided in February. They have announced a cost reduction program that will benefit the company in 2024. They are currently undergoing a strategic and operational review of their business.

An analyst asks if the company is considering soliciting a Fitch rating, to which the company responds that they will always consider what is best for the business. They are currently focused on improving their cash flow and working capital metrics. Another analyst asks how they plan to achieve positive cash flow for the full year, and the company explains that they have generated positive cash flow in the last two quarters and expect this trend to continue in Q4 due to improved working capital and higher sales.

The speaker asks about the sales decline and if it has continued into the fourth quarter and if there is any information about DIY versus Pro customers. The speaker responds by saying they are aware of the pressures on DIY consumers and the fourth quarter is tracking slightly better, but December will be challenging due to last year's colder weather. They are also conscious of the competitive environment and expect Pro customers to remain positive. The speaker also mentions that they will be providing a longer-term operating plan in the future.

The speaker discusses the competitive environment of their market and the team's excitement for simplifying their focus and taking decisive actions. They believe this will help them be successful with customers and create momentum for the business. They are still mapping out their first 60 days and will continue to look at long-term plans and future initiatives. They thank everyone for their support and wish them a Happy Thanksgiving.

This summary was generated with AI and may contain some inaccuracies.