The operator of the conference call welcomes participants and introduces the speakers, who will be discussing the company's first quarter results. The Senior Vice President makes a statement about forward-looking statements that will be discussed on the call. The President and CFO will give prepared remarks before answering questions. The speakers caution that actual results may differ from projections due to various factors. The President thanks the team for their dedication and mentions that the industry had a slow start to the year.

Advance saw a negative impact from weather and a challenged consumer in the first quarter, resulting in lower than expected performance. However, their professional business saw improvements. Advance is focused on winning in the professional market and recapturing lost customers. They are also executing decisive actions to simplify their business, including selling Worldpac and reducing costs. The potential sale of Worldpac is well underway and they plan to evaluate the sale of their Canadian business once it is complete. Advance is beginning to see benefits from cost reduction actions taken in the previous quarter.

In the third quarter, the company saw a reduction in SG&A expenses and a decrease in district manager turnover due to the reinvestment of $50 million into frontline roles. The indirect purchasing team is also working on reducing expenditures in various areas. Bruce Starnes, a new Executive Vice President and Chief Merchant, will lead the merchandising function with the help of outgoing chief merchant Ken Bush and new Board member Tom Seboldt. Ken Bush will retire after nearly 20 years with the company. The company is also focused on improving asset productivity.

In the first quarter, the company has closed underperforming stores and opened new ones in an effort to improve overall operations. They have also removed over 100 independently owned Carquest locations from their program. The IT team's focus on improving the POS system has resulted in increased productivity for team members and better customer service. The company has also seen success with their new merchandising system, adding 130,000 SKUs and expecting all actively replenished SKUs to be converted by the end of the second quarter. The company is also working towards consolidating their supply chain into a single unified network, with plans for 14 large distribution centers.

The company plans to establish 14 large replenishment nodes and 20 market hubs in their unified network, with 4 store-to-market hub conversions already completed. They will also convert smaller existing DCs and green-field new locations to accelerate this initiative. Additionally, they have over 300 existing hubs that will continue to serve as sources for expanded availability. The company expects this development to take time, with the goal of having the 14 large DCs and at least 60 market hubs added to their network by the end of 2026.

The company is providing an update on the implementation of their warehouse management system across their distribution centers. They have recently completed the implementation at one facility and expect to complete the remaining two by the end of the year. The company acknowledges that they have work to do to improve their performance, but they are committed to a disciplined approach and have clear priorities. The macro environment may have some negative impacts on their business, but they are focused on executing their decisive actions. The company's financial performance in the first quarter was challenging compared to the previous year, but they remain confident in their ability to capitalize on opportunities.

In the first quarter, the company saw a decrease in sales due to store closures and a focus on improving asset productivity. Comparable store sales also decreased, but there were positive transactions and comp growth in the Pro business. The DIY category saw continued pressure, but there was strength in batteries and some engine management categories. However, there was a decline in discretionary categories and deferred maintenance as consumers are trying to save money. The West and Midwest regions performed well, while the Mid-Atlantic, Southeast, Texas, and Florida were more challenging. The company also experienced a slower start to the spring season due to weather. Gross profit decreased due to costs not being fully offset by price. The company has been reassessing their market position and strategic pricing, making adjustments in categories where they were not competitive. In the first quarter, they made changes to 8,500 SKUs, which will result in an annualized investment of $40 million.

In the second quarter, the company is focused on accountability and remaining competitively priced. They have restructured their pricing and merchandising teams to ensure success. The company expects pressure in Q2 due to consumer uncertainty and last year's actions, which will impact margin rates. Improvement is expected in the second half of the year due to cycling prior year's pricing initiatives and an acceleration in units. The company's supply chain consolidation and merchandising productivity efforts are expected to positively contribute to supplier negotiations. Gross margin was impacted by warehouse capitalization costs and planned investments, but partially offset by supply chain productivity. SG&A decreased due to cost-saving efforts, including a reduction in corporate expenditures and headcount, and a one-time gain from an asset sale in Florida.

The company has reinvested some of their savings into their frontline team members, but they still experienced higher professional fees and inflationary pressure. Their operating income margin decreased in the first quarter, but they expect to see improvement in the second half of the year. Diluted earnings per share were impacted by the decrease in operating margin and a discrete tax item. They have become more disciplined in their capital spending process and have seen a decrease in capital expenditures. Free cash flow for the quarter was an outflow, but this was primarily due to timing. The company's full year guidance remains unchanged and they are committed to executing their decisive actions for steady performance improvement. They also provided an update on their internal control remediation efforts.

The company has hired experienced personnel and implemented internal controls to address previous deficiencies. They are committed to completing the remediation and have identified a material weakness in a specific area of controls. The CEO thanks the team and reflects on Memorial Day before opening up for questions. The first question is about the cadence of the first five months and how it influences the company's confidence in maintaining their comp guide for the year.

Ryan Grimsland and Shane O'Kelly discuss the company's performance in the first quarter, noting a slow start due to weather but expecting improvement in the second half of the year. They mention positive growth in both the Pro and DIY segments, with initiatives targeting both groups. They also mention a potential impact from consumer debt and purchasing power on DIY sales.

The speaker discusses the current state of the US consumer and how it affects their business. They mention the need for staples and the tendency for consumers to defer maintenance. They also mention their efforts to maximize opportunities with consumers through marketing and training. The speaker then addresses a potential Worldpac sale, stating that they will announce any updates when they have them and emphasizing the need to respect the process.

The company is pleased with its current progress and believes it will have the transaction completed before the next earnings announcement. They will update the projections for RemainCo once a decision is made. The decision to sell Worldpac is still being considered and the company is happy with its Pro business. The decision is based on strategic reasons and not necessarily tied to the blended box strategy.

The speaker is pleased with the current state of the opportunity they are exploring and will continue to explore it. They have recently hired a new merchant, Bruce Starnes, who brings valuable skills and experience to the team. The transition is being handled in an orderly manner with the help of other team members. The company will continue to review and improve their SKU mix and availability of parts for customers. This work will not affect the ongoing rapid progress in supply chain.

The company's supply chain leader, Steve Szilagyi, spent a year creating a plan to establish their large DC infrastructure and implement market hubs. This allows for changes to the assortment to occur daily. The company has also made a $40 million investment to address pricing discrepancies and remain competitive in the market. This investment covers 8,500 SKUs, which is about 3% of the company's total SKUs.

In the paragraph, the speaker discusses the expected margin pressure in the second quarter and the reasons for it. They mention that there will be more pricing actions taken to remain competitive in the market, and that the comparison to last year's pricing actions will also contribute to the pressure. They also mention that the pressure is expected to ease in the second half of the year.

The speaker discusses the expected decrease in operating margin in the second quarter compared to the first quarter. They mention several factors that will contribute to this, including the benefits of previous pricing actions and cost-cutting measures, as well as the impact of supply chain consolidation. They also note that the second half of the year is expected to have better comparisons and less pressure. A question is asked for clarification, and the speaker confirms that the decrease is expected on a year-over-year basis.

The company is still committed to their gross margin target despite investing in price and facing a challenging macro backdrop. They plan to continue investing to remain competitive and are comfortable with their current guidance. The potential use of proceeds from the sale includes de-leveraging the company, potentially increasing investments in DC conversions and other turnaround efforts, and potentially paying off debt.

The company is considering using proceeds from its recent divestitures to accelerate investment in ongoing initiatives. These include supply chain improvements, technology upgrades, and store renovations. The company has seen success with pilot programs for market hub conversions, which aim to improve customer service by providing faster delivery times for parts. This could potentially lead to increased sales for both professional and DIY customers.

The company has implemented a market hub strategy to accelerate sales and improve competitiveness. This allows them to push parts closer to customers and provide faster service. The hub has been successful in increasing sales and improving service for surrounding stores. The company also mentions that being a "fast follow" in business can be an effective strategy. There was an error in the sales outlook, which will be corrected. The company gained $18 million in the quarter, and this was included in their previous guidance.

During a conference call, the operator introduces Aaron Reed from Northcoast Research who asks about the sale of Worldpac. Shane O'Kelly, Tony Iskander, and Ryan Grimsland respond, stating that the first priority for the proceeds will be to pay off debt, followed by investing in store improvements and potentially returning funds to shareholders. They believe there will be enough money for all three uses based on their assessment of Worldpac's value. They also mention that the turnaround for the company will be a multiyear process and they will be prudent in their approach to using the proceeds.

The speaker is discussing the conversion of DCs to markets and the metrics they use to measure its success. These include sales per square foot, service interval for SKUs, and ongoing operating costs. They also mention the challenges of having inequities in the network due to the size of DCs, which affects store replenishment.

The author discusses the challenges of having multiple distribution centers (DCs) with varying capabilities and the decision to convert some of them into market hubs. These market hubs will be smaller, non-mechanized facilities that will serve as intake nodes for vendors. The company plans to sublease any excess space and only have 14 large DCs for vendors to ship to.

The company has recently made changes to its pricing strategy, with the goal of being competitive and maintaining good conduct in the industry. They have a team dedicated to working with merchants to ensure prices are at market level, and have made adjustments to both raise and lower prices on certain SKUs. This impacts 3% of the overall enterprise SKUs and 8% of Advance.

Shane and Max discuss the potential for growth in the company's Pro customer market and the various initiatives being implemented to attract and retain these customers. These include investments in sales teams, training, market research, and specialized programs and services. The company is committed to expanding its presence in the Pro market and has a range of offerings to meet the needs of these customers.

The speaker, Shane O'Kelly, is discussing the progress of the company's organization and meeting its needs. He thanks a participant named Max Rakhlenko and takes a question from Chris Bottiglieri about a recent $18 million sale leaseback and the impact of accounting control on the Worldpac sale. They also discuss the company's supply chain costs and inflation rates for the rest of the year. The next question comes from Carrick Irwin, who is unable to be heard, but another participant, Seth Sigman, is able to speak.

Seth Sigman asks two follow-up questions during a Q&A session. The first question is about the guidance for Q2 and the pressure on operating margin. Ryan Grimsland clarifies that the pressure will mainly be on gross margin due to pricing actions. The second question is about the store footprint and the increasing pace of store closings. Shane O’Kelly explains that they are not actively seeking to close stores, but rather assessing the productivity of each store and determining if it can be turned around before considering closure.

The management team of the company is constantly evaluating the performance of stores and making decisions about whether to close or open new stores. They have been making improvements in their real estate processes and are seeing positive results in new store openings. They do not have a specific number of stores that they plan to close, but it is an ongoing consideration in managing the business.

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