Q4 2023 Advance Auto Parts Inc Earnings Call

Again this is the precise Nathan <unk> senior Vice President Communications, and Investor Relations will make a brief statement concerning forward looking statements that will be discussed on this scope. Good morning, and thank you for joining us to discuss our Q4 and full year 2023 results I'm joined today by Shane Kelley, our President and Chief Executive Officer, and Ryan grandson, our executive.

Vice President and Chief Financial Officer, following Shane and Ryan's prepared remarks, we will turn our attention to answering your question before.

Speaker Change: Before we begin please be advised that remarks today will contain forward looking statements.

Speaker Change: All statements other than statements of historical fact are forward looking statements, including but not limited to statements regarding our ongoing strategic and operational review initiatives plan projections and future performance.

Speaker Change: Actual results could differ materially from those projected or implied by the forward looking statements additional.

Speaker Change: Information about forward looking statements and factors that could cause actual results to differ can be found under the caption forward looking statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the commission.

Speaker Change: Now, let me turn the call over to Shane Kelley.

Shane Kelley: Thanks, Elizabeth and good morning.

Shane Kelley: Before we dive into the details of the quarter I wanted to take a moment to thank the entire advance team for their dedication and continued focus on serving our customers throughout 2023.

Shane Kelley: I continued to track.

<unk> organizational structure to better align certain departments with our strategic goals. For example pricing is now part of merchandising.

In addition, we have consolidated our real estate function from across multiple parts of the company to form a single enterprise wide real estate team reporting directly to me.

Further our merchandising and inventory teams now directly report to me.

They have been working diligently on the implementation of our new core merchandising and inventory system.

We expect to complete the remainder of the vendor and SKU transitions to the new system. This year.

That effort involves transforming our current ordering and fulfillment processes, enabling us to move away from antiquated systems to more data driven capabilities.

The fourth decisive action, which we are introducing today is improving the productivity of all assets in the company, including company stores and independently owned <unk> locations.

While we opened 61 stores in 2023, we do not plan to open as many this year as we focus on improving our existing store operations and driving profitable growth.

In an effort to optimize our car quest independent business, we recently terminated our agreements with over 100 independently owned <unk> stores, which will help improve the overall profitability of our car Quest independent program.

In addition to improved store productivity. Our it department has made notable improvements in the reliability of our stores Oss systems the improvement in our network and store system resiliency is allowing our frontline to better serve our customers.

Lastly, we are announcing our fifth decisive action, which is the consolidation of our supply chain to a single unified network.

We know that our current network is inefficient and need substantial work to improve our cost structure and inventory availability.

We have long served our blended box stores by two distinct DC networks <unk>.

From the legacy <unk> business and one from advance.

The first step is completing the implementation of our warehouse management system, where WNS across all of our large dcs with only three Dcs remaining we will complete this by the end of the year.

Step two which we are conducting in parallel with step one is the conversion of smaller legacy Dcs from functioning as a replenishment node to operating as a market hub.

With 30, Adcs in our advance and <unk> network today, we view the smaller Dcs as valuable assets that can be leveraged more efficiently as market hubs, where we will forward deploy the right inventory closer to the customer.

We have recently started our first DC conversion to become a market hub and we will utilize our learnings to scale. This key initiative across the network by.

By leveraging our current Dcs, we can move faster and more cost effectively than if we greenfield it a new network.

Accordingly, once we complete this work, we will be able to order product into fewer Dcs, which will help reduce costs and improve inventory productivity.

We look forward to sharing more on all of these actions as we continue to improve our blended box strategy.

Before I turn it over to Ryan the last topic I want to touch on is the macro environment.

Key drivers of this industry remains strong these.

These include the average age of vehicles, which continues to increase and is now at 12 and a half years as well as miles driven both of which are projected to further increase this year.

Combined with the strengthening do it for me demand I am confident that advanced can begin to capitalize on the strong fundamentals of the industry.

Now I'd like to welcome and turn the call over to Brian <unk>, Our CFO, who will review our financial performance in 2023 and discuss the 2024 guidance. We provided in the release this morning, Brian.

Thanks, Shane and good morning I.

I am pleased to be here for my first earnings call as CFO of advance.

Before I move to the financials I would also like to thank our team members for their continued dedication as well as the warm welcome I received from the team.

Since my arrival at advance there are several swift changes, we have made to allow for the necessary transformation of our finance function as James discussed, we recently appointed Elizabeth Dreyer as our new Senior Vice President Chief Accounting Officer, and controller Elizabeth impressive track record and a variety of financial leadership roles.

We will benefit us as we work to remediate our previously disclosed material weakness related to internal control, which I'll speak to in more detail in just a moment.

In my first 90 days with advanced.

Privileged to meet and connected are hardworking and talented finance and accounting teams.

I am committed to providing cohesive leadership as well as ensuring we have the needed incremental resources that will enable us to be a best in class retail organization.

As you heard from Shane we're focused on improving the fundamentals across the business to bring rigor discipline and accountability with a sense of urgency we have begun to make changes and are committed to elevating ourselves to become a high performing team.

The first step has been filling critical roles, including hiring key leaders as well as a thorough and time intensive review of our reconciliations and processes across the company.

Within this review, we recently discovered additional work needed to fully realize the intended benefits of our finance ERP system, including potentially sunsetting certain legacy systems.

The turnover of accounting personnel over the past 12 months has increased the challenge to operate as an effective finance organization.

We have taken aggressive action to bring in resources around our internal controls, both hiring accounting professionals and in sourcing contractors at varying levels.

Our leadership and oversight.

With these actions we are making significant progress on remediated, our material weakness related to people identified in early 2023.

In addition, as disclosed in our release, we identified issues with certain previously reported financial results.

We are correcting prior period financial results in our earnings release and upcoming Form 10-K as you saw this morning, we filed for an extension.

We do not expect the results we are discussing today to be impacted however, we need additional time, principally to finalize our assessment of internal control over financial reporting and the related disclosures or.

Our financial results discussed today will compare our Q4 and full year 2023 results to the correct results for the prior periods.

Now onto our results.

In the fourth quarter, our net sales of $2 5 billion.

Decreased <unk>, 4% compared with Q4, 2022 and comparable store sales decreased one 4%.

This was primarily driven by softness in DIY throughout the quarter, but particularly in the last four weeks of the year as we lap tougher comparisons to the prior year. However.

However, we continue to be encouraged by our performance in pro as we realized strong transactional growth in the quarter as a result of improved availability.

The west and northeast were our top performing regions, while the mid Atlantic and Midwest, where our most challenged in the corner.

They were impacted by unfavorable weather.

From a category perspective, as we improve our availability, we saw strength in filters heating and cooling and engine management.

In Q4 gross profit margin of 38, 6% declined 500 basis points from the prior year quarter.

There are business performance issues, along with several atypical drivers that contributed to the deleverage.

Tori related items contributed approximately 280 basis points of which roughly 170 basis points are related to changes in estimates on a 110 basis points from inventory related capitalization costs.

In 2022, we hired an external firm to identify and recover previously earned vendor incentives over a multiyear period.

This resulted in approximately 120 basis points of deleverage.

Lastly, elevated supply chain costs contributed approximately 50 basis points.

Speaker Change: SG&A was $999 million in Q4, 2023, compared with $960 million in Q4 2022.

Speaker Change: As a percentage of net sales, our SG&A expenses, Deleveraged 176 basis points to 46%.

Speaker Change: The deleverage was driven by a year over year increase in occupancy costs.

Speaker Change: Labor related expenses from our intentional investments in our frontline team members and new store expenses.

Speaker Change: These were partially offset by previously discussed productivity actions taken in Q4.

Speaker Change: Importantly, we also incurred approximately $8 million in expenses related to our restructuring as well as $5 million related to the strengthening of our accounting resources.

Shane Kelley: These results are not indicative of how we want to run the organization as Shane mentioned, we are reducing expenses by building a cost conscious mindset throughout advance.

Speaker Change: Our Q4 operating income margin Deleveraged 679 basis points compared with the prior year quarter.

Shane Kelley: Diluted loss per share was <unk> 59 in Q4, compared with $1 39, <unk> earnings in the prior year quarter.

Shane Kelley: This was primarily driven by lower net income as well as higher interest expense.

Shane Kelley: For full year 2023, net sales of approximately 11 3 billion.

Shane Kelley: Increased one 2% compared with prior year.

Shane Kelley: Full year comparable store sales decreased <unk>, 3%.

Our gross profit decreased eight 3% year over year and gross profit margin contracted 414 basis points to 41%.

Shane Kelley: Inventory related items contributed approximately 157 basis points.

Shane Kelley: Cost increases were not fully covered by price contributed approximately 74 basis points to the full year decrease as.

Shane Kelley: As mentioned earlier the initiatives to recover previously earned vendor incentives negatively impacted full year gross margins by 60 basis points.

Shane Kelley: Lastly, elevated supply chain cost contributed approximately 50 basis points.

Shane Kelley: SG&A expense for full year 2023 increased three 5% compared with 2022.

Shane Kelley: On a rate basis SG&A as a percentage of net sales increased 85 basis points to 39, 1%.

Shane Kelley: This was primarily driven by expenses growing faster than sales throughout the year as well as an incremental onetime SG&A expenses related to head count reductions and personnel changes.

Shane Kelley: Our full year 2023, operating income decreased 82, 9% to $114 million.

Shane Kelley: On a rate basis, our Oi margin contracted 500 basis points to 1%.

Shane Kelley: Full year earnings per share were <unk> 50, compared with $7 65 at the end of 2022.

Shane Kelley: Our 2023 capital expenditures were $242 million compared with $424 million in 2022.

Shane Kelley: The primary drivers of the reduced capital expenditures are related to fewer new store openings and it related expenses.

Shane Kelley: We expect that our overall capital expenditures in 2024 will focus primarily on it enhancements and supply chain optimization.

Shane Kelley: We are committed to a disciplined capital allocation strategy on high return initiatives that hold our teams accountable to time budget and financial targets.

Shane Kelley: Free cash flow for the full year was $44 million. This.

Shane Kelley: This year over year reduction was due to lower net income results despite lower capital spend.

Speaker Change: Since Jan and I are joined advance as you would expect we have taken a deep dive into the business. While we have moved quickly to simplify the business and taken other actions to help put the company on a trajectory for improved performance, we clearly have more work to do.

We are focusing on the optimization of our supply chain assets implementing additional cost cutting measures, particularly with indirect spend and improving store productivity.

Speaker Change: We believe our efforts will begin to deliver incremental improvements this year, which is factored into our 2024 guidance, while setting the stage for growth in the years to come.

Speaker Change: Our assumptions for 2024 include continued pressure on the DIY consumer.

Speaker Change: Offset by <unk> improvement and modest inflation.

Speaker Change: These factors coupled with the solid industry fundamentals Shane discussed earlier.

Speaker Change: <unk> and our full year 2024 guidance, which includes.

Speaker Change: Net sales of 11, 3% to $11 4 billion.

Comparable store sales of zero to 1%.

Speaker Change: Operating income margin of three 2% to three 5%.

Speaker Change: Diluted earnings per share of $3 75.

Speaker Change: The $4 25.

Speaker Change: Capital expenditures of $200 million to $250 million and a minimum of $250 million in free cash flow.

Speaker Change: With that I'd like to turn the call back over to Shane.

Shane Kelley: Thanks, Ryan there is no doubt that we've got our work cut out for us in 2024, but I am confident that with our decisive actions and a focused team coupled with favorable industry fundamentals. We can return to profitable growth advance has a proud 90 year legacy a reenergized frontline team.

Shane Kelley: And our leadership team committed to delivering a powerful come back.

Speaker Change: I would now like to open the call up to address your questions.

Speaker Change: Operator.

Speaker Change: Thank you. Thank you would like to ask a question today. Please press star one on your telephone keypad now turn to the queue.

Speaker Change: Disciplined limit themselves to one question and one follow up per person and please ensure you're on mute locally.

Chris Horvers: Our first question today comes from Chris holders at J P. Morgan Chris Your line is open. Please go ahead.

Chris Horvers: Thanks, Good morning, and welcome to everybody on the management team.

Chris Horvers: My first question is going to start at a low level and then I'm going to try to bring it up to a higher level from a margin perspective, if you think about the fiscal year items could you help us understand and <unk> like the change in the estimate the vendor incentive pressures.

Chris Horvers: What exactly is going on there you're essentially writing inventory offset doesn't exist or are you writing inventory down to a lower market level.

Chris Horvers: Perhaps when we sell it later, there's going to be some gross margin recapture and on the vendor incentive side.

Chris Horvers: Totally unclear on what that is you had accrued for vendor incentives and now you are writing them off and what led to that.

Chris Horvers: Yes, Chris this is Ryan.

Ryan: Thanks for joining us today.

Ryan: Couple of things. So those are two really the big drivers of our inventory changes some of it is inventory that we are.

Ryan: Shrinking out of the system some of it is changes.

Ryan: Our excess and obsolete calculations and then some of it is on the vendor incentives. So a proven incentives some businesses, we no longer do business with.

Ryan: Challenges and recovery, we're just making sure we've got the right amount in there that we believe we're going to be able to recover.

Shane Kelley: Hey, Chris it's Shane.

Shane Kelley: Do not unsurprisingly.

Shane Kelley: New CFO, new CIO digging in on the business and looking at at our different.

Shane Kelley: Methods of estimating what we keep an eye on what's done and what's not in there digging into set us up for success.

Shane Kelley: And thats exactly whats occurring here and Chris I'll add one more thing on that we mentioned.

Shane Kelley: Last year, there was a prior initiatives.

Shane Kelley: Go back and look at.

Chris Horvers: Remember income over a multiyear period incentives et cetera that we have on the table.

Chris Horvers: Had a positive impact last year that were cycling over this year.

Chris Horvers: Okay. So then maybe that to clean it up.

Chris Horvers: As you think about on a fiscal year basis.

Chris Horvers: What are just clean lapse I E, you're going to get X basis points back in.

Chris Horvers: The gross margin line because it was a.

Chris Horvers: There is an impact this year that I'm not going to.

Chris Horvers: Effect next year and you'll get it back.

Chris Horvers: In terms of the gross margin and SG&A lines.

Chris Horvers: Yes, Chris So I would expect.

Chris Horvers: 157 basis points of growth kind of atypical items that I don't anticipate us cycling again next year, so from a cogs perspective their margin rate.

Chris Horvers: From an SG&A perspective about $12 million really that's related to severance.

Chris Horvers: Some of the expenses related to <unk>.

Chris Horvers: <unk> no material weakness on the SG&A side.

Speaker Change: Got it thank you very much.

Speaker Change: The next question comes from Michael Lasser from UBS, Michael Your line is open. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question given all the moving parts with your margin structure right now what do you think an ongoing sustainable operating margin for the business is in 2025 and beyond.

Michael Lasser: The 24 level.

Speaker Change: Working to grow our book.

Speaker Change: Hey, Michael it's Shane and Ryan I'll add to that so first you heard some color from Ryan If we started one oi in terms of what we published you can kind of put together some of the things that might not be might not be occurring this year to get to a bit of a baseline.

Speaker Change: Put out our guide.

Speaker Change: Which we feel good about it.

Speaker Change: And then later this year.

Speaker Change: Look for us to give multi multiyear perspective on where the business can go as we sit in the trenches today, we're looking to be incrementally better every day.

Speaker Change: And that's the first step and as we get that credibility, notably around this 2024 year guidance, we'll look to continue that journey.

Speaker Change: To further points, but Ryan yes.

Ryan: Yes, Michael Good question. So the 157 basis points is what I would think from.

Speaker Change: Atypical items that we don't expect or anticipate sort of lap again. This year. So thats one data point in our guide we do have modest margin rate expansion as we continue to execute on these decisive actions that we talked about earlier in the call. So thats a modest increase there as you can see in our Oi margin that's primarily.

Speaker Change: That Oi margin expansion is primarily coming from gross profit.

Speaker Change: Okay.

Speaker Change: And then obviously, we're going to get more information on the sale profit in the second quarter.

Speaker Change: So two related questions to that can you give us a peek on how that is going to be impacting the financial performance of the business over the long term. So we can get an assessment of what we should be modeling in terms of the ongoing sustainable margin rate for the core business, you'll be holding onto that number.

Speaker Change: One.

Speaker Change: And two how are you thinking about balancing maximizing the value of these assets with the need for resources to improve the business.

Speaker Change: Given that free cash flow is under pressure the rating agency downgraded.

Speaker Change: Your credit rating.

Speaker Change: And.

Speaker Change: You have a lot of.

Speaker Change: Receivables that are that are factored. Thank you so much.

Speaker Change: Yes, I buy the lots to unpack there so let's start with your second question.

Speaker Change: <unk> is a good business with good team members.

Speaker Change: This isn't a fire sale there is no sort of urgency that we have to sell the business, it's really around strategy and where we're taking the company. We believe that the blended box model is a route to success selling our pro and DIY customer from our from our core stores and so that strategic review led to the.

Speaker Change: So the idea of selling rural pack, which I think is the right move for the organization. So there is not a.

Speaker Change: As it relates to value maximization, we don't have to sell and Thats why we say, it's a potential sale process.

The good news is the interest thus far has been significant we're seeing a lot of players.

Speaker Change: Both breadth and depth of players who are expressing interest center view is running the process for us.

Speaker Change: And it's going at the tempo that I've seen I've done 40 deals of one sort or another.

Speaker Change: So as we get to price discovery and working with potential buyers, we will look to complete that process.

Speaker Change: In the second quarter.

Speaker Change: Importantly, though we do have and have started to think about what we would do with the proceeds and I can kind of think about them.

Speaker Change: In a couple of buckets, I think I think debt paydown figures into.

Speaker Change: The disposition with the funds.

Speaker Change: And then secondly, there are some key initiatives you've heard our decisive actions that we could potentially accelerate with additional proceeds so our supply chain consolidation I think that can be amplified with with some of the world Pac proceeds.

Speaker Change: You can think about our key initiatives you heard about are we've got a new inventory system coming online our pls. The pls system work that can be accelerated and then lastly, just on our store infrastructure either in terms of sprucing up existing stores or with our new real estate team looking at what we can do in terms of our.

Speaker Change: Our new store openings.

Speaker Change: On your first question, we're not ready to give a definitive depiction of what we.

Speaker Change: We look like as a remainder co without world packed again, we're tightening of the.

Speaker Change: Potential sale process at this point, but as we get closer and we get more information, we'll certainly provide that but we feel good that in the wake of that sale process. If it goes through we have a company that's focused on selling auto parts out of a blended box and that's what we're going to do.

Speaker Change: Okay.

Speaker Change: Thank you very much and good luck.

Speaker Change: Thanks, Michael.

Speaker Change: The next question comes from Simeon Gutman from Morgan Stanley Simeon. Your line is open. Please go ahead.

Simeon Ari Gutman: Hey, good morning, everyone, Hi, Shanghai, Ryan Hey.

Simeon Ari Gutman: Hey, Brian I wanted to look at the.

Simeon Ari Gutman: The guidance in a little different way.

Simeon Ari Gutman: If we annualize the fourth quarter EBIT.

Simeon Ari Gutman: You get to about $160 million and then when we add back the cost saves, which I get some of them may not fully annualized you get back about <unk>.

Simeon Ari Gutman: Roughly a $360 million run rate, that's a tad below the guidance. So a couple of questions.

Simeon Ari Gutman: Partly like how much reinvestment is there in some of the savings.

Simeon Ari Gutman: And then what improves in the core business to get you the higher threshold and some of this maybe some of the things that don't repeat I think to Chris's question earlier.

Simeon Ari Gutman: But there doesn't seem to be a lot of reinvestment if you just take that.

Simeon Ari Gutman: That math.

Simeon Ari Gutman: Yes.

Simeon Ari Gutman: <unk>.

Simeon Ari Gutman: One of the things we did do is we invested in the frontline. So we took some of the cost savings.

Simeon Ari Gutman: Reinvested that back into the frontline so that would stop.

Simeon Ari Gutman: 150, we invested about $50 million back Ed.

Simeon Ari Gutman: I think from a if we look at our full year right now I think we're coming in close on an EBIT perspective 116.

Simeon Ari Gutman: We take the 157 basis points I would say at that back plus $12 million in SG&A in the kind of a normalized rate and then you take that $100 million of SG&A now our guide on the top line of zero to 1%, we're going to work to manage inflation in our SG&A.

Simeon Ari Gutman: To get that flow through so I think that's how we would think of where we got to work on.

Simeon Ari Gutman: Yeah.

Speaker Change: So I mean, just come in a quick follow up on the cost side.

Speaker Change: It wasn't.

Speaker Change: It wasn't about the second.

Speaker Change: So the on the cost out the $1 50 that cost is out so we made the tough call and never easy.

Speaker Change: Some 400 team members not with the company anymore.

Speaker Change: So that's in the run that's not a that's not an April number in terms of how we're thinking about the organization.

Speaker Change: And then as you think about what we need to do you've heard Brian's points.

Speaker Change: But in terms of actual physical initiatives on the ground youre going to see.

Speaker Change: A renewed emphasis on the up and down the street pro from our organization. This year I think it's an area, where we had our eye off the ball a little bit.

Speaker Change: But I also think it's an area where on a relative right to win in terms of the capabilities of the team members, we have out in the field and to bring to our fans for our outside sales team members and our Cpp's who are inside the store pros.

Speaker Change: That's an area that they're excited to go after.

Speaker Change: Okay.

Thanks for that and the follow up is Shane intrigued by some of the.

Shane Kelley: Things Youre addressing in your diagnosis.

Shane Kelley: What what has been kind of holding this business back. So you mentioned a bunch of things systems and supply chain curious about your take if there isn't an achilles' heel, whether it is supply chain or merchandising or process first infrastructure. If you can elaborate a bit on that.

Shane Kelley: So I think some of it goes to culture and focus.

Shane Kelley: And the good news is I meet the team members in the field.

Shane Kelley: You see that 90 year heritage you see.

Shane Kelley: Men and women, who sell autoparts, who want to win and so we need to unlock that by making sure that what we do as a company.

Shane Kelley: And for my time in the service calls the inverted pyramid that we earned tiered not as the headquarter centric organization, but were field first organization and if you spend time listening to the customers.

Shane Kelley: We'll give you that feedback on what it takes to be successful.

Shane Kelley: Take time empowering our frontline associates.

Shane Kelley: That's a key route forward for us. Additionally.

It's the blended box model.

Shane Kelley: I think looked at different paths.

Shane Kelley: As a company in the past.

And didn't put the emphasis emphasis on the blended box you can see demonstrably in the industry, where the blended box.

Shane Kelley: Works it works with trips of the breadth of customers you could circuit works in terms of of the flow through you get when you get marginal sales in the same location. So so that's really where we're going as a company in.

Shane Kelley: In the future.

Speaker Change: Thanks, Good luck.

Speaker Change: The next question comes from Greg <unk> from Evercore ISI, Greg Your line is open.

Greg: Hi, Thanks, and welcome guys.

Greg: I guess my first question is I, just like to clarify a little bit I know.

Greg: <unk> sale, but in your guidance this year, how much of the free cash flow of sales et cetera are coming from world pack or the businesses you're considering sale.

Greg: Yes, Greg this is Brian.

Brian: And the guidance, we're not contemplating we didn't put anything in there for the sale of our guide is based on the remain co.

Brian: The company as it is today.

Brian: Back in Canada.

Greg: Yes, so we'll revisit with you at midyear if that process goes through and then Youll see the breakout the proceeds the remainder co and our plans for disposition proceeds.

Greg: So just whatever world pack.

Greg: Maybe to ask the question a different way last year and that was what was the remain co generate free cash flow for example.

Speaker Change: No we're.

Speaker Change: We're not going to talk about specific individual business units at this time, but we will come back in Q2.

Speaker Change: More details on that Brian.

Okay.

Brian: Fair enough, we'll update it again I guess I wanted to follow up a little bit more on the actions taken.

Brian: From in terms of stabilizing the business from a profit standpoint, I think you went through I'd love to hear a little bit more as you toured the country and talk to the frontline and the customers.

Brian: It sounds like the.

Brian: The focus here is getting up and down the street.

Brian: Serving them what is it that they need to get that theyre, not getting or haven't gotten from advance. The last couple of years is that product quality is it speed is at and stocks.

Speaker Change: Could you narrow that down a little bit more.

Speaker Change: Yeah, Great question, So I'll start with the team members.

Speaker Change: We've got to make sure that our team members feel like they're valued.

And if you looked at where we'd invested dollars it hadn't been on the frontline and so that goes to wage rates that goes to what their bonus programs are that goes to training programs and certification. So that both their capabilities insensitive pride are amplified so we've got a significant body.

Speaker Change: We have work underway focused on the frontline and we're seeing reduction in turnover.

Speaker Change: So that's been it's been a key piece secondarily as we've spent money and this goes to the SG&A takeout we will.

Speaker Change: Engage in marketing programs that were expensive that didn't bear fruit and so pivoting anything we do around being successful with the customer in the market as it relates to the customers' feedback product availability. So we would we would hear from statute customers, who were the first call in and say.

Speaker Change: Hey.

Speaker Change: I call you first.

You don't have the product. So you are literally driving me to call somebody else and so we've had a lot of work going on in product availability. Our in stocks are up over 200 basis points. This year.

Speaker Change: If you look at our aggregate inventory, it's down and bryan's talked to some of the disposition.

Speaker Change: But notably we put $300 million of incremental nutritive inventory that our customers are asking for we're capturing those demand signals. So that we have better in stocks, we want to further that in terms of how we cover on the up and down the street pro with our outside sales team members and theirs.

Speaker Change: A tremendous amount of work there.

Didn't touch on this.

Speaker Change: The script, but within our org structure, our <unk> efforts were bifurcated in different parts of the company.

Speaker Change: And now those are solidified.

Speaker Change: And so we go forward as one team as we think about our pro so it's not if you call. The store and you have the same customer you get a different set of interactions and you might get if youre, if youre working with our outside team. So thats going on a much more definitive basis and the last thing I'll touch on the merchandising side of the house is reaching out to our vendors.

Speaker Change: Both to ensure that from a cost position and the product availability and prioritization for innovation that were.

Speaker Change: Where we need to be but but.

Speaker Change: I think important for everybody to know as we as we talk to the vendors that feedback is also overwhelmingly positive around supporting advance. There is there is a strong desire to see advanced drive and you could say hey, that's.

Speaker Change: The vendors should have that perspective, but that works for us the idea that that that we've got this collective coalition between the vendors between our engaged frontline.

Speaker Change: Between customers want to buy from US, we just need to have our fundamentals right in terms of that product price.

Speaker Change: And the delivery all working together.

Got it and I think Brian you mentioned as part of the guide you expected a little bit of inflation.

Speaker Change: And the numbers as we reinvest in that inventory and get the right stuff. There is that is that fair, one or 2% yes.

Brian: Yes, our inflation rate right now that we're looking at about a 1% inflation rate that were seeing and were expecting.

Got it thanks, guys and good luck.

Speaker Change: Okay. Appreciate it thank you.

Speaker Change: The next question is from Bret Jordan from Jefferies. Your line is open.

Bret Jordan: Hey, good morning, guys.

Bret Jordan: On the supply chain initiative, and obviously that seems to me like it's been going on for a while that the WNS should be done by the end of this year at what point do you see actually having.

Bret Jordan: <unk> on a single ERP system and when your views those smaller Dcs is sort of.

Bret Jordan: Forward inventory will there be an investment cycle and building more large distribution center infrastructure.

Speaker Change: Yeah. So great Great question. Thank you Brent on the WNS will be done with that this year. So high jump as our Ws systems, we will have that in all will be our replenishment Dcs.

Speaker Change: The second part of the journey in terms of creating market funds and you see this this model probably elsewhere in the industry.

Speaker Change: We can use our smaller dcs to perform in this fashion and.

Speaker Change: We've had a journey in supply chain, but not a definitive one in terms of creating a unified.

Speaker Change: Single supply chain, what we had in the past we had cross banner replenishment, but what we're doing is basically asking 30 adcs. The function is full on replenishment dose basically to provide every product to a.

Speaker Change: To a store requiring that product and some products. Some some dcs don't have the size and capability to do that 38 is far too. Many for my past life in terms of where you would expect your vendors to ship into so the idea is we create a national network of larger Dcs, we're not ready to definitively.

Speaker Change: Define that exact number but you can look at other companies and sometimes Youll see 810, 12, 14 large dcs to give you that national footprint.

Speaker Change: And then and there.

Speaker Change: Market hub as both the conversion of our of these smaller Dcs will add additional market hubs beyond that.

Speaker Change: Because I think that that flow model works and so if you take those two together and look at the footprint. There are probably some additional large PC efforts that we need to undertake and we'll describe that more in terms of here's our exact number here's where we happen today, here's where we might be the new one that will all be coming in the coming months.

Speaker Change: <unk> today is that we are putting a flag in the ground to have a unified supply chain one flow path one set of systems.

Speaker Change: And an easier interaction for our vendors to work with us.

Speaker Change: You have a feeling I guess internally for what your basis point impact has been to run two disparate pretty inefficient supply chain like what's the incremental cost of running it as you have been running or what might you pick up by consolidating.

Speaker Change: Ill just say its material.

Speaker Change: Anybody who has been in and logistics. If you are running two supply chains and everybody else or your previous endeavors as one supply chain. It's just.

Speaker Change: It's just not the path forward for us so as we will explain with you. We think there's material monies that come out of the system and then importantly for our customers the product flows better.

Speaker Change: Bill or built it goes up and so.

Speaker Change: So theres kind of a <unk> two combo there.

Speaker Change: That will describe more at a later date.

Speaker Change: Great. Thank you.

Speaker Change: The next question is from Steven Forbes of Guggenheim Partners. Steven Your line is open. Please go ahead.

Steven Forbes: Good morning, Shayne, Ryan Shannon, maybe a follow up on the supply chain, you mentioned potentially using the sale proceeds to accelerate.

Steven Forbes: The migration to the single unified network.

Steven Forbes: Just curious like if we can think through the two scenarios here in terms of timeframe to near.

Steven Forbes: Completion of that initiative right if the asset sale occurs.

Steven Forbes: Is there like a timeframe in mind that you have to reach the goal and then I guess, if the asset sale doesn't occur.

Steven Forbes: Is that change in the timeframe that it would.

Steven Forbes: That would result in.

Steven Forbes: Maybe a difference in sort of the near term free cash flow proceeds with the business.

Speaker Change: Yeah, So listen my third time, combining supply chains and companies.

Speaker Change: And we want it to be sooner rather than later, but.

Speaker Change: It's a multi year endeavor.

Speaker Change: That's just the practical reality.

Speaker Change: What happens so can we shave time off absolutely and we will do that with the proceeds but this isn't something that that this group should expect to be done in 'twenty four but we will extend in the 25% and probably in the 26% as we do this.

Speaker Change: And in particular.

Speaker Change: There is both the existing set of efforts, which is what we'll do with the first 38, where we have to add net new market hubs.

Speaker Change: Or where if we look at our larger DC structure, where we need to put in large scale new DC. Those efforts efforts take time I think the thing for everybody here to know is that journeys beginning.

Speaker Change: And our first market hub.

Speaker Change: Conversion is going up and so and early indications are this is going to be a really good thing for us we will move as fast as we can because we know that the end state creates value for the customers and improves the profitability of the customer.

Speaker Change: So more to come but know that.

Speaker Change: Our supply chain team.

Speaker Change: <unk> is dedicated their focus.

Speaker Change: They are already.

Speaker Change: Thanks, and then maybe just a quick follow up Brian as we think there are sort of noncash and cash.

Speaker Change: Impact on the margin outlook any sort of <unk>.

Speaker Change: Around the fourth quarter LIFO.

Speaker Change: Either benefit or charge, and then sort of what's implied within the margin guide for 'twenty 'twenty four in terms of LIFO.

Brian: Yes. So in Q4, we saw a $5 two.

Brian: Income related to LIFO.

Brian: And we expect it to be moderating in 2024 is a moderate.

Brian: Expectations for 2024.

Brian: Yes.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: The next question comes from Seth Sigman from Barclays. Your line is open. Please go ahead.

Seth I. Sigman: Hey, good morning, everyone.

Seth I. Sigman: Wanted to follow up on the comps this quarter are down one 4% I'm. Just curious as you started to implement changes are you seeing a wider dispersion of performance across the store base you know I am sure. It's noisy with weather, but anything you can point to and maybe quantify to say that some of the early initiatives are working.

Speaker Change: Yeah, absolutely so.

Speaker Change: Whereas we saw availability improved we did see improvement in the Protraction. So we're actually seeing good performance in the pro we're excited about that encouraged it buyer inventory availability still see DIY pressured and so that kind of offset some of the pro performance in that and that's also kind of what's informed our guy.

Going forward, we expect to see good.

Speaker Change: Good improvement and the progress we have improved availability.

Speaker Change: This is DIY pressure going forward.

Speaker Change: Got it Okay and then my follow up question is just thinking about the gap in profitability versus some of your peers and what I guess, you will ultimately guide us to at some point how much of the issue Flash opportunity is just four wall profitability. That's sales driven it's volume driven versus how much of that profit.

Speaker Change: GAAP is maybe inefficiency outside of the stores and it may be both but I'm curious how you think about that as we contemplate the roadmap from here. Thank you.

Speaker Change: Yes. Good question it is a little bit of both so some of it is we talked about supply chain converged that obviously will generate so some benefit for us and help close that gap as well. There's also a mix factor as far as the type of product in our mix being heavier prone in DIY and that margin mix.

Speaker Change: That's a little bit of an impact as well, yes. There's also other areas, where we need to focus on <unk> excellence.

Speaker Change: Shane talked about improving line reviews et cetera. So there are some areas there.

Speaker Change: I don't have specifics around the comp in all of that but obviously there is some work and opportunity to close that gap, but I think the biggest one is that mix impact will keep us from both a completely but we do have opportunity and thats why our focus on.

Speaker Change: The big one here is to supply chain.

Speaker Change: Bryan Bryan is exactly right.

Speaker Change: And one way to illustrate.

Speaker Change: While we're focused on the blended box. If you look at revenue per store and you think about us as a kind of a 170 <unk> you can look at other folks who have have iron numbers. When you add revenue to a store 100 200 300000.

Speaker Change: That money drops to the bottom line and an incrementally larger level right. So so you because you've got your fixed cost coverage. So thats a key for us. So I think your question's a good one if you need to do both.

Speaker Change: And as we do both.

Speaker Change: We see the path forward to continued success and know that as we look at it we're advances.

Speaker Change: We don't we don't sit and say hey, let's let's benchmark off the other guys are.

Speaker Change: Our goal as an organization is to be incrementally better to the Ingram incrementally better every day take care of our customers look at our team members and I've seen this movie before and in other industries in fact in my last organization.

Speaker Change: And that's a recipe for success.

Speaker Change: Look for us look for that from US and then look for US later this year to provide a perspective on what that might look like after a couple of years.

Speaker Change: Okay, great. Thank you both and good luck.

Speaker Change: The next question comes from Chris, particularly energy from BNP Paribas, Chris. Your line is open. Please go ahead.

Chris Horvers: Uh huh.

Chris Horvers: Hey, Thanks for taking the question.

Chris Horvers: Sort of an additive not used to seeing some of these inventory adjustments just wanted to.

Chris Horvers: Sure I fully understood Chriss Whoever's question is it like with these inventory write downs and changes in aesthetically reversed itself was a period when you sell it or is that not possible like are these permanent changes.

Chris Horvers: Yeah.

Speaker Change: Yes no.

Speaker Change: I don't anticipate reimbursement at this was making changes to estimates and vendor receivables that went through that process.

Speaker Change: Wouldn't expect that things would reverse at any time.

Speaker Change: Okay.

Speaker Change: And then <unk>.

Speaker Change: Question is just.

Speaker Change: Was hoping you could talk more about the.

Speaker Change: The independent businesses that you've divested it looks like you take out the first 100.

Speaker Change: Is this like an immediate margin saving because you.

Speaker Change: Or actually losing money to these customers or is it does this enable you to actually shut down some of these Clark with Tcs.

Speaker Change: You wouldn't need them anymore of these surfaces.

Speaker Change: The display AD market, so I will start Chris and Brian can yep, Thanks, Chris I'll start and Brian.

Speaker Change: <unk>.

Speaker Change: The independents, who are unimportant part of the business right.

Speaker Change: Could serve geographies, we cant get too.

Speaker Change: They could serve end markets, where their depth of capability.

Speaker Change: Seeds are so so this is a play around exiting the independents arena. This is one where.

Speaker Change: At times, we were exuberant in terms of adding independence and as we looked at.

Speaker Change: The sort of balance of trade. If you will in terms of the benefit to each party. It wasn't working for us in some cases it wasn't working for the independent either and so.

Speaker Change: We looked at the aggregate number and there are about 100 folks that at the end of the day that didn't make sense for us to continue that relationship.

Speaker Change: And as we did that.

Speaker Change:

Speaker Change: It's a good move for us trying to talk about the impact but it has also been received well and the independent network.

At.

Speaker Change: The independents, who are good at what they do and they buy the way they exhibit a lot of pride in their in their business. They don't want folks representing the core quest name and doing it in a manner and consistent with what our customers would expect so it's been it's been a well received adjustment and we're happy with the independents.

Speaker Change: Yes, Chris I'll, just add that we're.

We'll lose some sales on that but we're actually going to gain on the bottom line and operating profitability roughly $3 million to $4 million.

Speaker Change: It's definitely a net positive for us.

Speaker Change: Okay that makes sense. Thank you.

Speaker Change: The next question comes from Seth Basham from Wedbush Seth. Your line is open. Please go ahead.

Seth M. Basham: Thanks, a lot and good morning. My question is around the balance sheet leverage going forward. How do you expect that to play out over the next few quarters, including post sale.

Seth M. Basham: And any implications on the vendor financing program.

Seth M. Basham: Yes. Good question, so as we said with the sale and Shane talked about it if we do get the proceeds and sale one of the first things we will deal with work to deleverage our balance sheet.

Seth M. Basham: With some of those proceeds so that's one thing we'll look at.

But going forward I think the business is generating good cash flow and as part of that cash flow will continue to work to delever. The balance sheet first invest in the business, but also get that leverage target into a better place.

Seth M. Basham: Okay.

Speaker Change: Okay. That's helpful. And then look beyond 24, obviously early by the supply chain transformation should we expect capex to rise from <unk>.

Speaker Change: I forgot.

Speaker Change: No. The Capex guide that we've put out contemplates actions, we're taking that supply chain conversion, we're going to be much more focused on our capital expenditures and making sure. We're investing in the right things that drive our business and the focus on these decisive actions. So as we said earlier the capital it's really focused on.

Speaker Change: And supply chain right now.

Speaker Change: Okay.

Thank you.

Speaker Change: Yes I'll.

Speaker Change: I'll just jump in there.

The supply chain transformation as it is a big one.

Speaker Change: I think Brian that our guide exactly where it should be for 'twenty four we could raise it in 'twenty five.

Speaker Change: And we will.

Speaker Change: Either through the through proceeds from from World Pac or just as the business performed better and we're able to deploy more again back to the previous questions. If we can accelerate or wherever we could accelerate the supply chain consolidation both of them.

Speaker Change: The next question comes from Michael Baker from Da Davidson <unk> Co. Your line is open. Please go ahead.

Michael Baker: Okay great.

Michael Baker: Just want to follow up on the.

Michael Baker: The 38.

Michael Baker: Distribution centers that you've talked about any.

I'm looking into the case in past annual reports and everything.

Michael Baker: Can't find a breakdown I know in the past you've talked about PD queues, which are a small duties but.

Michael Baker: Can you just tell US are these 38 Dcs how many do you consider bigger what are what she was a bigger D. C. How many are smaller just trying to get a sense of you know what you're going to go forward with in terms of your big Dcs and what maybe to be added to that thanks.

Michael Baker: Yeah. So it was a 38 I know it's hard to over 38 38 is the advanced and conquest DC network. So I think in total or about 15, which would include the wolfpack as well so thats when we talk about 38, we're specifically talking about the.

Michael Baker: Advanced and conquest DC network, So we'll give you.

Michael Baker: In the coming months of complete breakout of all the facilities.

Speaker Change: I'm a little reticent.

Speaker Change: To be more specific obviously, we've got team members in these dcs and if their DC is going to be converted into a market hub as we can.

Speaker Change: So through that plan, we want to make sure we're staying abreast of keeping them in the loop. So we will break out the differences in general the smaller Dcs.

Speaker Change: Or more that are appropriate for the market up converted K from conquest larger Dcs from the from the advanced model and there is a substantial size footprint difference.

Speaker Change: We.

Speaker Change: Largely think we have the large DC network that we need.

Speaker Change: Again, we may refine that a little bit in terms of what that national footprint might look like.

Speaker Change: Okay.

Speaker Change: So you had said to a previous question earlier that.

Speaker Change: Based on the other guy somewhere between eight to 10 to 12 to 14 is the right number of large Dcs and Youre, saying that you think you have those already from the Advair.

Speaker Change: Advance the old advanced network give or take a couple.

Speaker Change: I just want to clarify that yes, Michael good job good job threading righting, some questions and answers together they did <unk>.

Speaker Change: Thats my experience in a past life, if we hired some of the firms that do the work on setting up national infrastructures, and you say, hey, I want to have a nationwide distribution network, that's what they're going to tell you, but that's what I've seen in that sort of lift.

Speaker Change: So.

Speaker Change: I think that's an appropriate range.

Speaker Change: For us.

Speaker Change: Yes, largely we think we've got the facilities for that.

Speaker Change: Alright, alright.

Speaker Change: Leveraging our current assets alright, we're leveraging our current assets that we have we think we have the assets.

Speaker Change: Great network that we need yes, we came to you and said Hey, we've got to put the 10 new <unk>.

Speaker Change: <unk> 501 million square foot DC is up in the United States you guys can do the math on what those buildings cost and how long that takes we're trying to to do this more quickly and then and efficiently using the facilities we have.

Speaker Change: And a national model might come out and say gosh. The DC you have youll might be marginally better if it was located in our this way or that way.

Speaker Change: A little bit of the tradeoffs will make which is minor in terms of the efficiency drag but in exchange for the speed and the overall cost effectiveness, that's the right way to go.

Speaker Change: Yes that makes sense one other just from the beginning of the call. If I could clarify you talked about you found another $50 million.

Speaker Change: To get the frontline employees from from Sunsetting.

Speaker Change: What is that and I guess on a year over year basis is that incremental $50 million investment or is that netted somewhere.

Speaker Change: Yes, so make the math easy the $1 50 is out we took out 150.

Speaker Change: And then we said hey, we're going to take 50 of that and it goes in the frontline for wages bonuses and training.

Speaker Change: There is an incremental amount roughly double that that comes from some of US are ordinary course. So we've got we've got our merit planned for the year, but some of it comes from Sunsetting, we had some HR programs out there that we.

Speaker Change: We spend money on that Werent directed towards the frontline. So we cancelled those programs and we're putting those dollars and do it just bonuses and trained.

Speaker Change: So it's no net.

Speaker Change: It's no incremental drag to the company, it's a better use of funds that we were putting in the right place.

Speaker Change: The next question comes from Brian Nagel from Oppenheimer, Brian. Your line is open. Please go ahead.

Brian Nagel: Hi, good morning, Thanks for taking my questions.

Brian Nagel: So a couple of questions I guess, maybe.

Brian Nagel: Maybe philosophical in nature.

Brian Nagel: First of all not maybe not totally fair, but Shane.

Brian Nagel: So for those of US who followed the transfer of wild.

Brian Nagel: We've heard we've discussed in the past with prior management teams supply chain fixes. So I guess, we're talking a lot about that here is a key component of your view of the business.

Brian Nagel: Whats different now, whereas you look at if you look at the what you plan to do here.

Brian Nagel: <unk> perspective, and evaluating what has been done in the past what we've been really the key differences here and then my second question.

Brian Nagel: You have a lot going on here in the near term how do you balance or how do you think about market share because you have a very fragmented sector, but within that sector. You've got really a couple of really strong competitors. So how do you think about maintaining market share amid all of these nearer term type.

Brian Nagel: Efforts within the business.

Speaker Change: I will start with the second question on market share and there is lots of good companies. There's lots of people that we compete with every day.

Speaker Change: <unk> had some notable examples but there are plenty of smaller companies out there who sell auto parts. So so we know that we've got to earn our keep every day we can.

Speaker Change: Put out our guide.

Speaker Change: We think that's modest.

Speaker Change: And we know that our engine as we restarted with this turnaround will take a minute to get a full head of steam but the industry fundamentals are very good. This is a disciplined industry by the way, it's an industry that even with the big players there is still room and runway to grow by the way. There is just growth that occurs.

Speaker Change: <unk>.

Speaker Change: Natural and so.

Speaker Change: <unk>.

Speaker Change: We won't be a share taker.

Speaker Change: But first step is to be a shareholder and I mean that in terms of market share. So that's what we're looking to do.

Speaker Change: And we don't spend the day thinking.

Speaker Change: Anytime you put two companies together first thing you got to think about is what are you going to do.

Speaker Change: With the logistics infrastructure.

Speaker Change: So we let two different models exist for a long time.

Speaker Change: And then had sort of a patch solution and what we're telling the market today is the right answer for auto parts distribution is to have one single national networks, and that's what we're doing and so you won't be able identify facilities in terms of that the blue versus the red EG conquest versus advance where advance auto parts and we will have.

Speaker Change: National distribution network. The second thing is the idea of using this market.

Speaker Change: And I think you see that probably it's a I think it's a.

Speaker Change: A good way to get product closer to the customer or skus closer to the customer to be more responsive and I think that's a function that's a bit of an evolution I think the customers expectations have increased in terms of what can you get me in a short timeframe, we wanna be participated in that in that market up there.

Speaker Change: Uh huh.

Speaker Change: Okay.

Speaker Change: Got it I appreciate all the color good luck. Thank you.

Speaker Change: Thanks, Brian.

Speaker Change: Our next question is from Scot Ciccarelli from tourists Scott. Your line is open. Please go ahead.

Scot Ciccarelli: Thanks for fitting me in guys.

Scot Ciccarelli: So you talked about 400 teammates that are now gone, but can you provide more color on where you're able to take out $150 million of expenses from your cost structure, It's a pretty big number in a short period of time.

Scot Ciccarelli: And related to that have you factored in some sort of negative impact on sales.

<unk> the.

Scot Ciccarelli: The people there were doing at least something semi productive.

Scot Ciccarelli: Okay.

Scot Ciccarelli: So the cost takeout with broad based so no functional area was exempt and if I go back to an earlier comment I think we had a bit of a headquarters centric approach sort of running the business.

Scot Ciccarelli: With that you have.

Scot Ciccarelli: End up with slope in your in your corporate infrastructure I believe in the inverted pyramid idea that we need to be filled first and corporate needs to be linked.

Scot Ciccarelli: Corporate needs to be everybody, who sits in our corporate seat needs.

Scot Ciccarelli: These to be supporting the field.

Scot Ciccarelli: So we went across the functional areas I think notably marketing was an area where there were.

Scot Ciccarelli: More significant cuts than in the other areas because we invested in marketing programs that didn't have a yield.

Scot Ciccarelli: And so we view that cost takeout, not only as necessary but.

Scot Ciccarelli: But one that didn't dampen ourselves if anything I think we've got the opposite going out was we cleared out some bureaucracy, we booked it processes that were inefficient and we're empowering the front line and as we take dollars and put it in the frontline and reduce turnover and create energy those team members feel like their herd and.

Scot Ciccarelli: <unk> in a way that that wasn't occurring.

Scot Ciccarelli: Okay.

Scot Ciccarelli: Okay.

Scot Ciccarelli: You don't think you'll lose retail.

Scot Ciccarelli: <unk> marketing.

Speaker Change: One other question.

Speaker Change: Are there more restatements to historical results and anything on 'twenty, three we should be thoughtful of before and some of the new team are on.

Speaker Change: On the finance side came in.

Speaker Change: Okay.

Speaker Change: I would say more than what actually is being reported today.

Speaker Change: Correct.

Speaker Change: I think what we're talking about today is what we've shared today are the restatements that.

Speaker Change: That we plan to say one in our Form 10-K and Form 10-K out in short order it should be within that such a period of time.

Speaker Change: Got it okay. So no more recent results. Okay. Thanks, guys. Good luck.

Speaker Change: Thanks Scott.

Speaker Change: Our next question comes from Max <unk> from Cowen Max Your line is open. Please go ahead.

Speaker Change: Okay.

Max: Great. Thanks, a lot guys. So first how far away are your in stocks from where they need to be are where you want them to be I think you mentioned.

Max: By 200 basis points. So how much room ahead, and then just how we should think about that timing.

Speaker Change: Hey, Max we didn't get the question could you say one more time please.

Speaker Change: Oh, sorry, just how far away to your in stocks from where they need to be I think you mentioned 200 basis point improvement. So how much further do you have to go and then just how should we think about the timing.

Max: Yes, so we're doing that real time and as we complete this our inventory system that comes online it will get better.

Max: From where it sits today throw out to put a definitive number on it but that journey continues we do get customer feedback that says hey, I feel better about your product availability, we get feedback from them.

Max: Bob.

Speaker Change: I don't want to put a pinpoint but more to come.

Max: But material progress that has been noted by by customer and field team members.

Max: Yes, it does that I think broad based order improvement absolutely broad based improvement, but there's still work to do to geographically you think 38 different distribution center. Some are smaller just the ability to allocate the board vessel work that we're doing with the new system being able to get that so there's still work to do but broad based significant improvement.

Speaker Change: Okay, and then how are you thinking about pricing on the API.

Max: Syed and whether you are where you need to be in order to be competitive and then just latest thinking around private label versus national brands.

Max: Following some of the conversations that you've been having with the approach.

Syed: So I'll start with private label.

Syed: We think private label is an important dimension of the business and we've got some great.

Syed: Brands that we control diehard I think as the Premier name.

Syed: Park, West and think about our quest as it relates to our our platinum breaks products. So we've seen we've seen growth in private brands and we want private brand to be an important part of the portfolio.

Syed: Think something we have done is you in the past, sometimes our exuberance as it relates to who we work with we may have had suppliers are not in a position to fully represent what our needs are we've come through those issues and our and our our merchant and sourcing teams are making sure that that we're not only getting high quality products.

Syed: We're getting it in the quantities that we need on the on the pricing front.

Syed: Things here.

Syed: One this is a disciplined industry and I think that's important the conduct between the players in terms of.

Syed: How they active customers on pipe it's rational.

Syed: With customer feedback is a is an important dimension I would say we need to be in the ZIP code of.

Syed: Of the customers' needs on price.

Syed: But availability is important as is speed of service and that's something that we're focused on we know that if you've got a purer proud you've got a car in a lift you've got a chevy tahoe that needs brake rotors, we've got to get them to you expeditiously. So we're focused on that speed of service, which is something we measure but.

Syed: As it relates to price.

Syed: B, where the where the where the market sort of demands.

Syed: Okay.

Speaker Change: Got it thanks a lot.

Speaker Change: Alright. Thank you all of that is our last question for today. Thank you for joining US we look forward to sharing more progress on our decisive actions that we covered today when we speak with you again in May have a great day.

Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your line.

Speaker Change: [music].

We begin Elisabeth <unk> Senior Vice President Communications, and Investor Relations will make a brief statement concerning forward looking statements that will be discussed on the scope.

And thank you for joining us to discuss our Q4 and full year 2023 results.

I'm joined today by Shane Kelley, our President and Chief Executive Officer, and Ryan grandson, our 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.

All statements other than statements of historical facts are forward looking statements.

Including but not limited to statements regarding our ongoing strategic and operational review initiatives plans.

<unk> and future performance.

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

Additional information about forward looking statements and factors that could cause actual results to differ can be found under the captions forward looking statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the commission.

Now, let me turn the.

Investor Relations will make a brief statement concerning forward looking statements that will be discussed on this scope. Good morning, and thank you for joining us to discuss our Q4 and full year 2023 results I'm joined today by Shane Kelley, Our President and Chief Executive Officer, and Ryan <unk>, Our executive Vice President and Chief Financial Officer, followed.

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

Before we begin please be advised that remarks today will contain forward looking statements.

All statements other than statements of historical facts are forward looking statements.

Including but not limited to statements regarding our ongoing strategic and operational review initiatives plan projections and future performance.

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

Additional information about forward looking statements and factors that could cause actual results to differ can be found under the captions forward looking statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the commission.

Now, let me turn the call over to Shane Kelley.

Thanks, Elizabeth and good morning.

Before we dive into the details of the quarter.

Want to take a moment to thank for your entire advance team for their dedication and continued focus on serving our customers throughout 2023.

I continued to travel coast to coast during the past few months, leading customers meeting team members from our stores and team members from our distribution centers.

Remain impressed with our team's strong work ethic and their unwavering commitment to helping our customers.

I want to introduce today, our new Chief Financial Officer, Ryan Grimsley, We're pleased to have Brian on the advanced team and he brings vast experience in the Omnichannel retail space, serving both DIY and professional customers.

Deep knowledge of finance strategy and transformation will undoubtedly help lead our company forward.

Now onto the decisive actions, we've been taking to turnaround the business. We have continued to act with a sense of urgency to stabilize the business and position the company to return to profitable growth.

All of the actions, we're taking are geared to help us focus on the fundamentals of selling auto parts and we will eliminate activities that distract us from that goal.

Let me be clear.

Our results today are disappointing and not at all what I'm accustomed to delivering.

We have spent the last several months analyzing how advanced Scott here and we now have a better understanding of the work required to change our trajectory.

It's important to note that in recent periods, including this one there have been several atypical items contributing to our core financial performance.

Through disciplined execution and accountability, we will tighten the fundamentals of our business, which will help reduce and then eliminate elements that introduce noise to our core performance.

On our last quarter's call, we discuss decisive actions, let's take you through those actions as well as update you on new activities. The company is taking today.

Number one <unk>.

<unk> the sales processes for World pack and our Canadian business.

Number two significantly reducing our costs to remain competitive while investing a portion of those savings back into the frontline.

Number three making organizational changes to position us for success.

And now introducing two additional decisive actions.

Number four assessing the productivity of all assets, including car Quest independents.

And number five the consolidation of our supply chain.

Let's take a moment and further discuss each of these decisive actions.

First we initiated separate sales processes for World Pack and Canada.

We are very pleased with the interest we have received in both businesses.

The World pack process is underway and we are actively engaging with potential buyers. We currently expect to conclude the world packed processed during our second quarter and look forward to sharing more information when that occurs.

As it relates to the Canadian process. This is intentionally sequenced behind world pack and we've begun the internal work to explore separating the business.

Next as I discussed in our Q3 call the company's costs have outpaced our sales growth during the past several years, which warranted changes in how we operate in.

In Q4, we implemented significant cost reductions by eliminating roles and initiatives that did not support our commitment to improve the fundamentals of the business and we will realize at least $150 million of SG&A savings in 2024.

We're focused on our frontline team members and are reinvesting approximately $50 million of those SG&A dollars to increase wages bonus programs.

And as well enhancing our training.

This represents approximately half of the dollars planned for 2024 for our frontline with additional funding coming from sunsetting previous programs.

While we continue rolling out these investments over the next several months. We note that we are already seeing year over year improvement in turnover reduction of key frontline goals.

In addition to the Q4 cost reductions we are now launching in additional initiatives focused on our indirect spend with the goal of eliminating a minimum of $50 million on an annualized basis.

We will continue to be prudent with our expense structure and are committed to building a cost conscious culture.

Going forward in every operational decision, we make if it isn't core to the business to help our frontline team members and service our customers.

It's off the table.

In terms of the third decisive action I mentioned on our last call that we had streamlined our management structure and reorganized parts of my leadership team to drive collaboration and accountability.

These changes further simplify our structure and the upgrade talent in key positions to allow us to drive improvements in critical business areas.

In addition to Ryan joining us as the CFO. Another example of outstanding talent that we've recently hired is Elizabeth Dreyer, who joined the advance team as our Chief accounting Officer and controller.

Elizabeth brings a robust track record of building and leading high performing accounting team and I am confident she and Ryan will work together to create a high performing finance function.

We also recently hired a new chief data officer, Kunal daas to significantly improve the quality processing and utilization of our data.

In addition, we've also hired a new procurement leader, who will help deliver against the indirect cost savings that I just mentioned.

We've also made a number of changes within our organizational structure to better align certain departments with our strategic goals. For example pricing is now part of merchandising in.

In addition, we have consolidated our real estate function from across multiple parts of the company to form a single enterprise wide real estate team reporting directly to me.

Further our merchandising and inventory teams now directly report to me.

They have been working diligently on the implementation of our new core merchandising and inventory system.

We expect to complete the remainder of the vendor and SKU transitions to the new system. This year.

That effort involves transforming our current ordering and fulfillment processes, enabling us to move away from antiquated systems to more data driven capabilities.

The fourth decisive action, which we are introducing today is improving the productivity of all assets in the company, including company stores and independently owned conquest locations.

While we opened 61 stores in 2023, we do not plan to open as many this year as we focus on improving our existing store operations and driving profitable growth.

In an effort to optimize our conquest independent business, we recently terminated our agreements with over 100 independently owned <unk> stores, which will help improve the overall profitability of our car Quest independent program.

Speaker Change: In addition to improved store productivity for Department has made notable improvements in the reliability of our stores Oss systems the improvement in our network and store system resiliency is allowing our frontline to better serve our customers.

Speaker Change: Lastly, we are announcing our fifth decisive action, which is the consolidation of our supply chain to a single unified network.

Speaker Change: We know that our current network is inefficient and these substantial work to improve our cost structure and inventory availability.

Speaker Change: We have long served our blended box stores by two distinct DC networks, one from the legacy <unk> business and one from advance.

Speaker Change: The first step is completing the implementation of our warehouse management system, where WNS across all of our large dcs with only three Dcs remaining we will complete this by the end of the year.

Shane Kelley: Step two which we are conducting in parallel with step one is the conversion of smaller legacy Dcs from functioning as a replenishment node to operating as a market hub.

Shane Kelley: With 30, Adcs in our advance and <unk> network today, we view the smaller gcs as valuable assets that can be leveraged more efficiently as market hubs, where we will forward deployed of light inventory closer to the customer.

Shane Kelley: We have recently started our first DC conversion to become a market hub and we will utilize our learnings to scale. This key initiative across the network by.

Shane Kelley: By leveraging our current Dcs, we can move faster and more cost effectively than if we greenfield it a new network.

Shane Kelley: Accordingly, once we complete this work, we will be able to order product into fewer Dcs, which will help reduce costs and improve inventory productivity.

Shane Kelley: We look forward to sharing more on all of these actions as we continue to improve our blended box strategy.

Speaker Change: Before I turn it over to Ryan the last topic I want to touch on is the macro environment.

Shane Kelley: Key drivers of this industry remains strong these.

Shane Kelley: These include the average age of vehicles, which continues to increase and is now at 12 and a half years as well as miles driven both of which are projected to further increase this year.

Shane Kelley: Combined with the strengthening do it for me demand I'm confident that advanced can begin to capitalize on the strong fundamentals of the industry.

Shane Kelley: Now I'd like to welcome and turn the call over to Brian <unk>, Our CFO, who will review our financial performance in 2023 and discuss the 2024 guidance we provided in the release this morning.

Shane Kelley: Ian.

Brian: Thanks, Shane and good morning I.

Ian: I am pleased to be here for my first earnings call as CFO of advance.

Ian: Before I move to the financials I would also like to thank our team members for their continued dedication as well as the warm welcome I received from the team.

CFO: Since my arrival at advance there are several swift changes, we have made to allow for the necessary transformation of our finance function as.

Shane Kelley: As Shane discussed, we recently appointed Elizabeth Dreyer as our new Senior Vice President Chief Accounting Officer, and controller Elizabeth impressive track record and a variety of financial leadership roles will benefit us as we work to remediate our previously disclosed material weakness related to internal control, which I'll speak to in more detail.

Shane Kelley: At the moment.

Shane Kelley: In my first 90 days with advanced.

Speaker Change: Privilege to meet and connect with our hardworking and talented finance and accounting teams I am committed to providing cohesive leadership as well as ensuring we have the needed incremental resources that will enable us to be a best in class retail organization.

Speaker Change: As you heard from Shane we're focused on improving the fundamentals across the business to bring rigor discipline and accountability with a sense of urgency.

Speaker Change: We have begun to make changes and are committed to elevating ourselves to become a high performing team the.

Speaker Change: The first step has been filling critical roles, including hiring key leaders as well as a thorough and time intensive review of our reconciliations and processes across the company.

Speaker Change: Within this review we've recently discovered additional work needed to fully realize the intended benefits of our finance ERP system, including potentially sunsetting certain legacy systems.

Speaker Change: The turnover of accounting personnel over the past 12 months has increased the challenge to operate as an effective finance organization.

Speaker Change: We have taken aggressive action to bring in resources around our internal controls both hiring accounting professionals and in sourcing contractors at varying levels to provide leadership and oversight.

Speaker Change: With these actions we are making significant progress on remediated, our material weakness related to people identified in early 2023.

Speaker Change: In addition, as disclosed in our release, we identified issues with certain previously reported financial results.

Shane Kelley: We are correcting prior period financial results in our earnings release and upcoming Form 10-K as you saw this morning, we filed for an extension we.

Shane Kelley: We do not expect the results we are discussing today to be impacted however, we need additional time, principally to finalize our assessment of internal control over financial reporting and the related disclosures.

Shane Kelley: Our financial results discussed today will compare our Q4 and full year 2023 results to the correct results for the prior periods.

Speaker Change: Now onto our results.

Speaker Change: In the fourth quarter, our net sales of $2 5 billion.

Speaker Change: Decreased <unk>, 4% compared with Q4, 2022 and comparable store sales decreased one 4%.

Chris Horvers: This was primarily driven by softness in DIY throughout the quarter, but particularly in the last four weeks of the year as we lap tougher comparisons to the prior year.

Chris Horvers: However, we continue to be encouraged by our performance in pro as we realized strong transactional growth in the quarter as a result of improved availability.

Chris Horvers: The west and northeast were our top performing regions, while the mid Atlantic and Midwest, where our most challenged in the corner they were impacted by unfavorable weather.

Chris Horvers: From a category perspective, as we improve our availability, we saw strength in filters heating and cooling and engine management.

Chris Horvers: In Q4 gross profit margin of 38, 6% declined 500 basis points from the prior year quarter.

Chris Horvers: There are business performance issues, along with several atypical drivers that contributed to the deleverage.

Chris Horvers: Inventory related items contributed approximately 280 basis points of which roughly 170 basis points are related to changes in estimates of 110 basis points from inventory related capitalization costs.

Ryan: In 2022, we hired an external firm to identify and recover previously earned vendor incentives over a multiyear period.

Ryan: This resulted in approximately 120 basis points of deleverage.

Ryan: Lastly, elevated supply chain costs contributed approximately 50 basis points.

Ryan: SG&A was $999 million in Q4, 2023, compared with $960 million in Q4 2022.

Speaker Change: As a percentage of net sales, our SG&A expenses, Deleveraged 176 basis points to 46%.

Shane Kelley: The deleverage was driven by a year over year increase in occupancy costs labor related expenses from our intentional investments in our frontline team members and new store expenses.

Shane Kelley: These were partially offset by previously discussed productivity actions taken in Q4.

Chris Horvers: Importantly, we also incurred approximately $8 million in expenses related to our restructuring as well as $5 million related to the strengthening of our accounting resources.

Chris Horvers: These results are not indicative of how we want to run the organization as Shane mentioned, we are reducing expenses by building a cost conscious mindset throughout advance.

Chris Horvers: Our Q4 operating income margin Deleveraged 679 basis points compared with the prior year quarter.

Chris Horvers: Diluted loss per share was <unk> 59 in Q4, compared with $1 39, <unk> earnings in the prior year quarter.

Chris Horvers: This was primarily driven by lower net income as well as higher interest expense.

Chris Horvers: For full year 2023, net sales of approximately 11 3 billion increased one 2% compared with prior year.

Chris Horvers: Full year comparable store sales decreased <unk>, 3%.

Chris Horvers: Our gross profit decreased eight 3% year over year and gross profit margin contracted 414 basis points to 41%.

Speaker Change: Inventory related items contributed approximately 157 basis points.

Michael Lasser: Cost increases were not fully covered by price contributed approximately 74 basis points to the full year decrease.

Speaker Change: As mentioned earlier the initiatives to recover previously earned vendor incentives negatively impacted full year gross margins by 60 basis points.

Michael Lasser: Lastly, elevated supply chain cost contributed approximately 50 basis points.

Michael Lasser: SG&A expense for full year 2023 increased three 5% compared with 2022.

Speaker Change: On a rate basis SG&A as a percentage of net sales increased 85 basis points to 39, 1%.

Speaker Change: This was primarily driven by expenses growing faster than sales throughout the year as well as an incremental onetime SG&A expenses related to head count reductions and personnel changes.

Speaker Change: Our full year 2023, operating income decreased 82, 9% to $114 million.

Speaker Change: On a rate basis, our Oi margin contracted 500 basis points to 1%.

Speaker Change: Full year earnings per share were <unk> 50, compared with $7 65 at the end of 2022.

Speaker Change: Our 2023 capital expenditures were $242 million compared with $424 million in 2022.

Ryan: The primary drivers of the reduced capital expenditures are related to fewer new store openings and it related expenses.

Speaker Change: We expect that our overall capital expenditures in 2024 will focus primarily on IC enhancements and supply chain optimization.

Speaker Change: We are committed to a disciplined capital allocation strategy on high return initiatives that hold our teams accountable to time budget and financial targets.

Speaker Change: Free cash flow for the full year was $44 million. This.

Speaker Change: This year over year reduction was due to lower net income results despite lower capital spend.

Speaker Change: Since Shane and I are joined advance as you would expect we have taken a deep dive into the business. While we have moved quickly to simplify the business and taken other actions to help put the company on a trajectory for improved performance, we clearly have more work to do.

Speaker Change: We are focusing on the optimization of our supply chain assets implementing additional cost cutting measures, particularly with indirect spend and improving store productivity.

Speaker Change: We believe our efforts will begin to deliver incremental improvements this year, which is factored into our 2024 guidance, while setting the stage for growth in the years to come.

Speaker Change: Our assumptions for 2024 include continued pressure on the DIY consumer.

Speaker Change: Offset by <unk> improvement and modest inflation.

Speaker Change: These factors coupled with the solid industry fundamentals seen discussed earlier are considered in our full year 2024 guidance, which includes.

Speaker Change: Net sales of 11, 3% to $11 4 billion.

Speaker Change: Comparable store sales of zero to 1%.

Speaker Change: Operating income margin of three two to three 5%.

Speaker Change: Diluted earnings per share of $3 75.

Speaker Change: The $4 25.

Speaker Change: Capital expenditures of $200 million to $250 million and a minimum of $250 million in free cash flow.

Speaker Change: With that I'd like to turn the call back over to Shane.

Shane Kelley: Thanks, Ryan there is no doubt that we've got our work cut out for us in 2024, but I'm confident that with our decisive actions and a focused team coupled with favorable industry fundamentals. We can return to profitable growth advance has a proud 90 year legacy a reenergized frontline team.

Speaker Change: And our leadership team committed to delivering a powerful come back.

Speaker Change: I'd now like to open the call up to address your questions.

Speaker Change: Operator.

Speaker Change: Thank you. Thank you would like to ask a question today. Please press star one on your telephone keypad now turn to the Q2.

Speaker Change: It happens to limit themselves to one question and one follow up per person. Please.

Speaker Change: You should likely.

Chris Horvers: Our first question today comes from Chris holders with J P. Morgan Chris Your line is open. Please go ahead.

Chris Horvers: Thanks, Good morning, and welcome to everybody on the management team.

Speaker Change: My first question is going to start at a low level and then im going to try to bring it up to a higher level from a margin perspective, if you think about the fiscal year items could you help us understand and then <unk> like the change in the estimate the vendor incentives pressures.

Speaker Change: <unk> is going on there you're essentially writing inventory offset doesn't exist or are you writing inventory down to lower market level, such that perhaps when we sell it later, there's going to be some gross margin recapture and on the vendor incentive side.

Speaker Change: Totally unclear on what that is you had accrued for vendor incentives and now youre, writing them off and what led to that.

Speaker Change: Yes, Chris this is Ryan.

Ryan: Thanks for joining us today.

Ryan: Couple of things those are really the big drivers of our inventory changes some of it is inventory.

Ryan: Drinking out of a system some of it is changes in.

Speaker Change: Our excess and obsolete calculations and then some of it is on the Venice So accrued.

Speaker Change: Proven incentives some businesses, we no longer do business with.

Speaker Change: Challenges and recovery, we're just making sure we've got the right amount and then we believe we're going to be able to recover.

Simeon Ari Gutman: Phase III across the chain.

Speaker Change: Youre not unsurprisingly.

Simeon Ari Gutman: <unk> CFO, new CIO digging into the business.

Simeon Ari Gutman: And looking at at our different field methods of estimating what we keep an eye on whats there and whats not in there digging into set us up for success.

Speaker Change #100: And thats exactly whats occurring here and Chris I'll add one more thing on that we mentioned last year. There was a prior initiatives to go back and look at that.

Simeon Ari Gutman: <unk> income over a multiyear period incentives et cetera that we ever heard payable that had a positive impact last year that were cycling over this year.

Speaker Change #101: Okay. So then maybe.

Speaker Change: Clean it up.

Simeon Ari Gutman: As you think about on a fiscal year basis, like what or just clean lapse I E, you're going to get X basis points back.

Simeon Ari Gutman: In the gross margin line because it was a.

Simeon Ari Gutman: There is an impact this year that I'm not going to affect.

Simeon Ari Gutman: Effect next year and you'll get it back both in terms of the gross margin and SG&A lines.

Simeon Ari Gutman: Yes, Chris So I would expect roughly 157 basis points of growth kind of atypical items that I don't anticipate us cycling again next year, so from a cost perspective their margin rate.

Simeon Ari Gutman: From an SG&A perspective about $12 million really that's related to severance and some of the expenses related to.

Simeon Ari Gutman: Remediate that material weakness on the Australia.

Speaker Change: Got it thank you very much.

Speaker Change: The next question comes from Michael Lasser from UBS, Michael Your line is open. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question given all the moving parts with your margin structure right now whats the thinking ongoing sustainable operating margin for the business is in 2025 and beyond.

Speaker Change: The 24 level.

Speaker Change: Working to grow off of.

Speaker Change: Hey, Michael It's Shane and Ryan will add to this so first you heard some color from Ryan If we started one oi in terms of what we published you can kind of put together some of the things that might not be might not be occurring this year to get to a bit of a baseline.

Speaker Change: Put out our guide.

Speaker Change: Which we feel good about and then later this year.

Speaker Change: Look for us to give multi multi year perspective or more of the business handle as we sit in the trenches today, we're looking to be incrementally better every day.

Shane Kelley: And that's the first step and as we get that credibility, notably around this 2024 year guidance, we'll look to continue that journey.

Speaker Change #102: To further points, but Ryan yes.

Ryan: Yes, Michael Good question, so the 157 basis points, what I would think from a.

Shane Kelley: Atypical items that we don't expect or anticipate so again this year. So thats one data point in our guide we do have modest margin expansion as we continue to execute on these decisive actions that we talked about earlier in the call. So thats a modest increase there as you can see in our Oi margin that's primarily.

Shane Kelley: He said Oi margin expansion is primarily coming from gross profit.

Shane Kelley: Okay.

Shane Kelley: And then obviously, we're going to get more information on the sale profit in the second quarter. So.

Shane Kelley: Two related questions to that can you give us a peek on how thats going to be impacting the financial performance of the business over the long term. So we can in an assessment of what we should be modeling in terms of the ongoing sustainable margin rate for the core business, you'll be holding onto it number one.

Shane Kelley: In Q.

Shane Kelley: Are you thinking about balancing maximizing the value of these assets with the need for resources to improve the business given that free cash flow going to pressure the rating agencies downgraded.

Shane Kelley: Your credit rating is <unk>.

Shane Kelley: You have a lot of.

Shane Kelley: Receivables that are that are factored. Thank you so much.

Speaker Change #106: Yes, I buy the lots to unpack there so let's start with your second question.

Speaker Change: <unk> is a good business with good team members.

Greg: This isn't a fire sale there is no sort of urgency that we have to sell the business, it's really around the strategy and where we're taking the company. We believe that the blended box model is our routes to success selling our pro and DIY customer from our from our core stores and so that strategic review led to the.

Greg: So the idea of selling world, which I think is the right move for the organization.

Speaker Change: There's not a.

Brian: As it relates to <unk>, we don't have to sell and Thats why we say, it's a potential sales process.

Brian: Good news is the interest thus far has been significant we're seeing a lot of players.

Greg: Both breadth and depth of players who are expressing interest center view is running the process for us.

Greg: And it's going at the tempo that I've seen of them 40 deals of one sort or another.

Greg: So as we get the price discovery and working with the potential buyers will look to complete that process.

Greg: The second quarter.

Speaker Change: Importantly, though we do have and have started to think about what we would do with the proceeds and I can kind of think about them.

Speaker Change #108: In a couple of markets. So I think as a debt paydown figures into.

Brian: Disposition with the funds.

Brian: And then secondly, there are some key initiatives you've heard our decisive actions that we could potentially accelerate with additional proceeds so our supply chain consolidation I think that can be amplified with with some of the world Pac proceeds.

Brian: You can think about our key initiatives you've heard about are we've got a new inventory system coming online.

Brian: POS system work that can be accelerated and then lastly, just on our store infrastructure either in terms of sprucing up existing stores or with our new real estate team looking at what we can do in terms of our new store openings.

Speaker Change #103: On your first question, we're not ready to give a definitive depiction of what we.

Speaker Change #103: We look like as a remainder co without world pack again, we're tightening of the.

Speaker Change #103: Retention sale process at this point, but as we get closer and we get more information, we'll certainly provide that but we feel good that in the wake of that sale process. If it goes through we have a company that's focused on selling auto parts out of a blended box and that's what we're going to do.

Speaker Change: Okay.

Speaker Change #105: Thank you very much and good luck.

Speaker Change #104: Thanks, Michael.

Speaker Change #104: The next question comes from Simeon Gutman from Morgan Stanley Simeon. Your line is open. Please go ahead.

Speaker Change #110: Hey, good morning, everyone, Hi, Shannon, Hi, Ryan Hey.

Speaker Change: Hey, Ryan I wanted to look at the.

Speaker Change: The guidance in a little different way.

Speaker Change: If we annualize the fourth quarter EBIT.

Speaker Change: You get to about 160 million and then when we add back the cost saves, which I get some of them may not fully annualized you get back about <unk>.

Speaker Change: Roughly a $360 million run rate, that's a tad below the guidance. So a couple of questions.

Speaker Change: Partly like how much reinvestment is there in some of the savings.

Speaker Change: And then what improves in the core business to get to the higher threshold and some of this maybe some of the things that don't repeat I think to Chris's question earlier.

Speaker Change: But there doesn't seem to be a lot of reinvestment if you just take sort.

Speaker Change: Of that mass.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: One of the things we did do is we invested in the frontline. So we took some of the cost savings.

Speaker Change: Reinvested that back into the frontline so that would stop.

Speaker Change: 150, we invested about $50 million back Ed.

Speaker Change: I think from a if we look at our full year right now I think we're coming in closer on an EBIT perspective of 116.

Speaker Change: We take the 157 basis points I would say at that back was $12 million in SG&A in the kind of a normalized rate and then you take the $100 million SG&A now our guide on the top line of zero to 1%, we're going to work to manage inflation in our SG&A.

Speaker Change: To get that flow through so I think thats, how we would think of where we got to work on.

Speaker Change: Yeah.

Speaker Change: Hey, Jimmy just come in a quick follow up on the cost base.

Jimmy: That wasn't the office segment.

Jimmy: So the on the cost out the $1 50 that cost of that so it remains a tough call in never easy.

Speaker Change: Some 400 team members not with the company anymore.

Speaker Change: So that's in the run that's not that's not an equal number in terms of how we're thinking about the organization.

Speaker Change: And then as you think about what we need to do if you heard Brian's points.

Speaker Change: But in terms of actual physical initiatives on the ground youre going to see.

Speaker Change: Renewed emphasis on the up and down the street from our organization. This year I think it's an area, where we had our eye off the ball a little bit.

Speaker Change: But I also think it's an area where on a relative right to win in terms of the capabilities of the team members, we have out in the field and us bring to our fans for our outside sales team members and our Cpp's who are for inside the store pros.

Speaker Change: That's an area that they're excited to go after.

Brian: Okay.

Speaker Change #111: Thanks for that and the follow up is Shane intrigued by some of the thing.

Speaker Change #109: Youre addressing in your diagnosis.

Speaker Change: What what has been kind of holding this business back. So you mentioned a bunch of things systems and supply chain curious about your take if there is an achilles' heel, whether it is supply chain or merchandising or process first infrastructure. If you can elaborate a bit on that.

Bret Jordan: So I think some of it goes to culture and focus.

Bret Jordan: And the good news is I meet the team members in the field.

Bret Jordan: You see that 90 year heritage Juicy.

Bret Jordan: Men and women, who sell autoparts, who want to win and so we need to unlock that by making sure that what we do as a company.

Speaker Change: And for my time in the service calls the inverted pyramid that we're appeared not as the headquarter centric organization, but were appealed first organization and if you spend time listening to the customers.

Speaker Change: We'll give you that feedback on what it takes to be successful.

Speaker Change: Take time empowering our frontline associates.

Speaker Change: That's a key routes forward for us. Additionally.

Speaker Change: It's the blended box model.

Speaker Change: I think look there's different paths.

Speaker Change: As a company in the past.

Speaker Change: And didn't put the emphasis emphasis on the blended box you can see demonstrably in the industry, where the blended box.

Speaker Change: Works. It works in terms of the breadth of customers you can serve that works in terms of of the flow through you get when you get marginal sales in the same location. So so that's really where we're going as a company and.

Speaker Change: In the future.

Speaker Change #118: Thanks, Good luck.

Speaker Change: The next question comes from Greg <unk> from Evercore ISI Kirk Your line is open.

Greg: Hi, Thanks, and welcome guys.

Greg: I guess my first question is I, just like to clarify a little bit I know, it's a potential sale, but in your guidance. This year, how much of the free cash flow of sales et cetera are coming from world pack of the businesses you're considering sale.

Speaker Change: Yes, Greg this is Brian.

Brian: And the guidance, we're not contemplating we didn't put anything in there for the sale of our guide is based on the remain co.

Speaker Change: Our company as it is today.

Speaker Change: Back in Canada.

Speaker Change: So we'll revisit with you at midyear if that process goes through and then Youll see the the.

Speaker Change: The breakout the proceeds the remainder co and our plans for disposition proceeds.

Speaker Change: So just whatever world pack.

Speaker Change #121: Maybe to ask the question a different way than last year.

Speaker Change: Was the remain co generate free cash flow for example.

Speaker Change: Yes.

Speaker Change: Im going to talk about specific individual business units at this time, but we'll come back in Q2.

Speaker Change: To give you more details on the airframe.

Speaker Change: Okay.

Speaker Change #112: Fair enough. Thanks, Brian I guess I wanted to follow up a little bit more on the actions taken.

Speaker Change #124: From in terms of stabilizing the business from a profit standpoint, I think he went through I'd love to hear a little bit more as you toured the country and talk to the frontline and the customers.

Speaker Change: It sounds like the focus here is getting up and down the street.

Speaker Change: Serving them what is it that they need to get that theyre, not getting or haven't gotten from advance. The last couple of years is that product quality is it speed is it in stocks.

Steven Forbes: What is what gives you narrow that down a little bit more.

Steven Forbes: Yes, great question, So I'll start with the team members.

Speaker Change #113: We've got to make sure that our team members feel like they are valued.

Steven Forbes: And if you looked at where we would invest the dollars that hadn't been on the frontline and so that goes to wage rates that goes to what their bonus programs are that goes to training programs and certification so that both their capabilities and sense of pride are amplified. So we've got a significant part.

Steven Forbes: We have work underway focused on the frontline and we're seeing reduction in turnover.

Speaker Change: So that's been it's been a key piece secondarily as we spend money and this goes to the SG&A takeout.

Speaker Change: Would engage in marketing programs that were expensive that didn't bear fruit. So pivoting anything we do around being successful with the customer in the market as it relates to the customers' feedback product availability. So we would we would hear from statute customers, who were their first call and they say.

Speaker Change: Hey, Hey events I.

Speaker Change #114: I call Us first.

Speaker Change: You don't have the product. So you are literally driving me to call somebody else and so we've had a lot of work going on in product availability. Our in stocks are up over 200 basis points. This year.

Speaker Change: If you look at our aggregate inventory is down and Bryan talked to some of the disposition, but notably we put $300 million of incremental nutritive inventory that our customers are asking for we're capturing those demand signals. So that we have better in stock we want to further that in.

Speaker Change: Terms of how we cover on the up and down the Street pro with our outside sales team members and theirs.

Speaker Change: A tremendous amount of work there.

Speaker Change: Didn't touch on this in.

Speaker Change: In the script, but within our org structure.

Speaker Change: Our <unk> efforts were bifurcated in different parts of the company.

Speaker Change: And now those are solidified.

Speaker Change: And so we go forward as one team as we think about our pro so it's not if you call the store and do the same customer you get a different set of interactions and you might get if youre, if youre working with our outside so thats going on a much more definitive basis and the last thing I'll touch on the merchandising side of the house is reaching out to our vendors.

Brian: Both to ensure that from a cost position and the product availability and our prioritization for innovation that were.

Brian: Where we need to be but but.

Speaker Change: I think important for everybody to know as we as we talk to the vendors that feedback is also overwhelmingly positive around supporting advance. There is there is a strong desire to see advanced strive in you could say hey, that's the.

Seth I. Sigman: Vendors should have that perspective, but that works for us the idea that that that we've got this collective coalition between the vendors between our engaged frontline.

Seth I. Sigman: Between customers want to buy from US, we just need to have our fundamentals right in terms of that product price.

Speaker Change: And the delivery all working together.

Speaker Change #116: Got it and I think Brian you mentioned as part of the guide do you expect it a little bit of inflation.

Speaker Change #116: And the numbers as we reinvest in that inventory and get the right stuff. There is that is that fair, one or 2% yes.

Brian: Yes, our inflation rate right. Now then we'll look at about a 1% inflation rate that were seeing and were expected.

Speaker Change #117: Got it thanks, guys and good luck.

Speaker Change #119: Okay. Appreciate it thank you.

Speaker Change: The next question is from Bret Jordan from Jefferies. Your line is open.

Bret Jordan: Hey, good morning, guys.

Bret Jordan: On the supply chain initiative, and obviously that seems to me like it's gone on for a while that the WNS should be done by the end of this year at what point do you see actually having.

Speaker Change: The DCF on a single ERP system.

Speaker Change: Do you view those smaller Dcs is sort of.

Speaker Change: Forward inventory will there be an investment cycle and building more large distribution center infrastructure.

Speaker Change #115: Yeah. So great great question. Thank you Brent.

Speaker Change #115: <unk> will be done with that this year. So we are a high jump as our Ws systems, we will have that in all will be our replenishment Dcs.

Speaker Change #115: The second part of the journey in terms of creating market pumps and you see this this model probably elsewhere in the industry.

Speaker Change: We can use our smaller dcs to perform in this fashion and.

Speaker Change: We've had a journey in supply chain, but not a definitive one in terms of creating a unified.

Speaker Change: A single supply chain, but we had in the past we had cross banner replenishment, but what we were doing is basically asking 38 dcs to function as full on replenishment dose basically to provide every product to a.

Speaker Change: To a store requiring that product and some products. Some dcs don't have the size and capability to do that 38 is far too. Many from my past life in terms of where you would expect your vendors to ship into so the idea is we create a national network of larger Dcs, we're not ready to fill it.

Speaker Change: To define that exact number but you can look at other companies and sometimes youll see 810, 12, 14 large gcs to give you that national footprint.

Speaker Change: And then and there.

Speaker Change: When market harvest, both the conversion of our of these smaller Dcs, we will add additional market hubs beyond that.

Speaker Change: Because I think that that flow model works and so if you take those two together and look at the footprint. There are probably some additional large PC efforts that we need to undertake and we'll describe that more in terms of tiers are exact number here's where we have them today, here's where we might be the new one that will all be coming in the coming months.

Speaker Change: <unk> today is that we are putting a flag in the ground to have a unified supply chain one blow past one set of systems.

Speaker Change: And an easier interaction for our vendors to work with us.

Speaker Change: You have a feeling I guess internally for what your basis point impacts has been to run two disparate pretty inefficient supply chain like what's the incremental cost of running it as you have been running or what might you pick up by consolidating.

Chris Horvers: Ill just say its material.

Chris Horvers: Anybody who has been in the logistics, if youre running two supply chains and everybody else or your previous endeavors as one supply chain.

Chris Horvers: <unk>.

Chris Horvers: Yes.

Chris Horvers: Just not the path forward for us so as we will explain with you we think theres material monies that come out of the system and then importantly for our customers. The product flows that we have availability goes up and so theres kind of a <unk> combo there.

Speaker Change: I'll describe more at a later date.

Speaker Change #123: Great. Thank you.

Speaker Change: The next question is from Steven Folse cyclical behind partners. Steven Your line is open. Please go ahead.

Steven Forbes: Good morning, Shayne, Ryan Shannon maybe.

Steven Forbes: Follow up on the supply chain, you mentioned potentially using the sale proceeds to accelerate.

Speaker Change: Gration to the single unified network.

Speaker Change: Just curious like if we can think through the two scenarios here in terms of timeframe too.

Speaker Change #120: The completion of that initiative right if the asset sale occurs.

Speaker Change #120: Is there like a timeframe in mind that you have to reach the goal and then I guess, if the asset sale doesn't occur.

Speaker Change: Has that changed in the timeframe that it would.

Speaker Change: That would result in.

Speaker Change #129: Yeah, maybe a difference in sort of the near term free cash flow proceeds of the business.

Speaker Change #127: Yes. So this is my third time combined with supply chain and companies.

Speaker Change: And we want it to be sooner rather than later, but it's a multi year endeavor.

Speaker Change: That's just a practical reality.

Speaker Change: What happens so can we shave time off absolutely and we will do that with the proceeds but this isn't something that that this group should expect to be done in 'twenty, four or will extend into 'twenty five and probably in the 26% as we do this.

Speaker Change: In particular.

Speaker Change: There's both the existing set of efforts, which is what we'll do with the first 38, where we have to add net new market hubs.

Speaker Change: Where if we look at our larger DC structure, where we need to put in large scale EPC. Those efforts efforts take time I think the things for everybody here to know is that journeys beginning.

Speaker Change: And our first market hubs.

Speaker Change: Conversion is going up and so and early indications are this is going to be a really good thing for us we will move as fast as we can because we know that the entity creates value for the customers and improve the profitability of the customer.

Speaker Change: So more to come but know that.

Speaker Change: Our supply chain team.

Speaker Change #130: As dedicated their focus.

Seth M. Basham: They are already.

Speaker Change: Okay.

Speaker Change: Thanks.

Seth M. Basham: Maybe just a quick follow up Brian as we think there are sort of noncash and cash.

Speaker Change #126: Impact on the margin outlook any sort of.

Speaker Change #122: Color around the fourth quarter LIFO.

Speaker Change #132: Either benefit or charge, and then sort of what's implied within the margin guide for 'twenty 'twenty four in terms of LIFO.

Shane Kelley: Yes. So in Q4, we saw a $5 2 million of income related to LIFO.

Shane Kelley: And we expect it to be moderating in 2020 for some moderate XP.

Shane Kelley: Expectations for 2024.

Shane Kelley: Yes.

Speaker Change #141: Thank you.

Shane Kelley: Okay.

Shane Kelley: Okay.

Shane Kelley: Your next question comes from Seth Sigman from Barclays. Your line is open. Please go ahead.

Seth I. Sigman: Hey, good morning, everyone I wanted to follow up on the comps this quarter are down one 4% I'm. Just curious as you started to implement changes are you seeing a wider dispersion of performance across the store base.

Speaker Change: Noisy with weather, but anything you can point to and maybe quantify to say that some of the early initiatives are working.

Speaker Change #134: Yes, absolutely so.

Speaker Change #134: As we saw availability improved we did see improvement in the Protraction. So we're actually see good performance in the pro we're excited about that encouraged it buyer inventory availability still sees DIY pressure.

Speaker Change #131: So that kind of offset some of the pro performance in that and that's also kind of what's informed our guide going forward, we expect to see could.

Speaker Change: Good improvement in the pro is the have improved availability.

Speaker Change: This is DIY pressure going forward.

Speaker Change #125: Got it Okay and then my follow up question is just thinking about the gap in profitability versus some of your peers and what I guess, you'll ultimately guide us to at some point how much of the issue slash opportunity is just four wall profitability. That's sales driven it's volume driven versus how much of that profit.

Michael Baker: <unk> is maybe inefficiency outside of the stores and it may be both but I'm curious how you think about that as we contemplate the roadmap from here. Thank you.

Speaker Change #133: Yes. Good question it is a little bit of both so some of it is we talked about supply chain commerce that obviously will generate so some benefit for us and help close that gap as well. There is also a mix factor as far as the type of product in our mix being heavier prone in DIY and that margin mix.

Michael Baker: That's a little bit of an impact as well, yes. There's also other areas, where we need to focus on <unk> excellence.

Michael Baker: <unk> talked about improving line reviews et cetera. So there are some areas there.

Michael Baker: I don't have specifics around the comp and all of that but obviously there is some work and opportunity to close that gap, but I think the biggest one is that mix impact will keep us from both a completely but we do have opportunity and thats why our focus on the.

Michael Baker: The big one here is to supply chain.

Speaker Change #128: Yes, Bryan Bryan is exactly right.

Speaker Change #128: And one way to illustrate.

Michael Baker: While we're focused on the blended box if you look at revenue per store and you think about us as a.

Speaker Change: Kind of a 170 <unk> you can look at other folks who have have iron numbers. When you add revenue to our store 100 200 300000.

Speaker Change: That money drops to the bottom line and an incrementally larger level right. So you've got your fixed cost curve. So thats a key for us. So I think your question's a good one because you need to do both.

Speaker Change: And as we do both.

Speaker Change: We see the path forward to continued success and though that as we look at where advances.

Speaker Change: We don't we don't sit and say hey, let's.

Speaker Change: <unk> off the other guys are.

Speaker Change: Our goal as an organization is to be incrementally to.

Speaker Change: So the interim incrementally better every day take care of our customers look effort team members.

Speaker Change: And I've seen this movie before and in other industries in fact in my last organization and and and Thats a recipe for success.

Speaker Change: Look for us look for that from US and then look for US later this year to provide a perspective on what that might look like after a couple of years.

Speaker Change #135: Okay, great. Thank you both and good luck.

Speaker Change #135: The next question comes from Chris <unk> from BNP Paribas, Chris. Your line is open. Please go ahead.

Chris Horvers: Hey, Thanks for taking the question.

Chris Horvers: Sort of a competitive site used to seeing some of these inventory adjustments just wanted to I'm not sure I fully understood Chriss Whoever's question is it likely these inventory write downs and changes in aesthetically reverse.

Speaker Change: It was a period when you sell it or is that not possible like are these permanent changes.

Speaker Change #136: Yes no.

Speaker Change: Dissipate reimbursement at this was making changes to estimates and vendor receivables that went through that process.

Speaker Change: I wouldn't expect that these would reverse at any time.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: And then next question is just.

Speaker Change: Was hoping you could talk more about the.

Speaker Change: The independent businesses that you've divested it looks like to take the first 100.

Speaker Change: Is this like an immediate margin saving these U.

Speaker Change: You are actually losing money to these customers or is it does this enable you to actually shut down some of these <unk>.

Speaker Change #138: We don't need them anymore.

Speaker Change: The display AD market, so I'll start Chris and Brian can add.

Speaker Change: Thanks, Chris I'll start and Brian can jump in.

Speaker Change: The independent sort of unimportant part of the business, but I think as they could serve geographies, we cant get too.

Speaker Change: Could serve end markets, where their depth of capability <unk>.

Speaker Change: <unk>. So so this isn't a play around exiting the independent arena. This is one where at times, we were exuberant in terms of adding independence and as we looked at.

Speaker Change: The sort of balance of trade. If you will in terms of the benefit to each party. It wasn't working for us in some cases it wasn't working for the independent either.

Speaker Change: No.

Speaker Change: We looked at the aggregate number and there are about 100 folks that at the end of the day that didn't make sense for us to continue that relationship.

Speaker Change: And as we did that.

Speaker Change: It's a good move for us trying to talk about the impact, but it's also been received well and the independent network.

Speaker Change: At.

Speaker Change: The independents, who are good at what they do in other related but a lot of pride in their in their business. They don't want folks representing the car quest name and doing it in a manner consistent with what our customers would expect so it's been it's been a well received adjustment and we're happy with the independents that we have.

Shane Kelley: Yes, Chris I'll, just add that we are.

Brian Nagel: Lose some sales on that but we're actually going to gain on the bottom line and operating profitability roughly $3 million to $4 million. So it's definitely a net positive for us.

Speaker Change #146: Okay that makes sense. Thank you.

Brian Nagel: The next question comes from Seth Basham from Wedbush.

Seth M. Basham: Your line is open. Please go ahead.

Speaker Change #137: Thanks, a lot and good morning, my question's around balance sheet leverage going forward, how do you expect that to play out over the next few quarters.

Speaker Change #148: We encourage the sale of our question and any implications from the vendor financing program.

Speaker Change #142: Yes, it's a good question.

Speaker Change: As we said with the sale and Shane talked about it if we do get the proceeds it's one of the first thing we'll do is work to deleverage our balance sheet.

Speaker Change: With some of those proceeds so that's one thing we'll look at.

Speaker Change: But going forward I think the business is generating good cash flow and this is part of that cash flow will continue to work to delever the balance sheet and our first invest in the business, but also get that leverage target into a better place.

Speaker Change: Okay.

Speaker Change #151: Okay. That's helpful. And then look beyond 24, obviously early buy and with the supply chain transformation should we spend capex to rise from 24 guidance.

Speaker Change: No. The Capex guide that we put out contemplates actions, we're taking that supply chain conversion burner to be much more focused on our capital expenditures and making sure. We're investing in the right things that drive our business along with focused on these decisive actions. So as we said earlier the capital it's really focus.

Speaker Change: Now to IP and supply chain right now.

Speaker Change: Yeah.

Speaker Change #152: Thank you.

Speaker Change: Yes.

Speaker Change #153: Ill jump in there.

Speaker Change #154: Apply chain transformation as it is the big one I.

Speaker Change #140: I think Brian Scott, Our guide exactly where it should be for 'twenty four we could raise it in 'twenty five.

Speaker Change #145: We will.

Speaker Change #140: Either through the through proceeds from <unk> are just as the business performed better than we were able to deploy more again back to the previous questions. If we can accelerate or wherever we could accelerate the supply chain consolidation.

Speaker Change #140: Okay.

Speaker Change #140: Next question comes from Michael Baker from Da Davidson, Michael Your line is open. Please go ahead.

Michael Baker: Okay great.

Michael Baker: I just want to follow up on the 38.

Michael Baker: A recent centers at that you've talked about any of them.

Michael Baker: In the case in past annual reports and everything and I can't find a breakdown I know in the past you talked about PD queues, which are a small detail but can.

Michael Baker: Can you just tell US are these 30 Dcs how many do you consider bigger what are whats he was a bigger D C.

Michael Baker: Many are smaller just trying to get a sense of what youre going to go forward with in terms of your big Dcs and what maybe to be added to that thanks.

Speaker Change: Yes. So it was a 38 I know it's hard to over 38 38 is the advanced and conquest DC network. So I think in total or about 15, which would include the world pack as well so thats when we talk about 38, we're specifically talking about the.

Speaker Change: Advanced and car Quest DC network, So we'll give you.

Speaker Change: In the coming months of complete breakout of all the facilities.

Speaker Change #147: I'm a little reticent.

Speaker Change #147: To be more specific obviously, we've got the team members in these dcs and if their DC is going to be converted into a market hub as we can.

Speaker Change: Go through that plan, we want to make sure we're staying abreast of keeping them in the loop. So we will break out the differences in general the smaller Dcs.

Speaker Change: Or more that are appropriate for the market hub converted Jason conquest, the larger Dcs from the from the advanced model and there is a substantial size footprint difference.

Speaker Change: We largely think we have the largest DC network that we need.

Speaker Change #139: Again, we may refine that a little bit.

Speaker Change #139: Terms of of what that national footprint might look like.

Speaker Change #160: So you had said to a previous question earlier that eight.

Scot Ciccarelli: Based on the other guy somewhere between eight to 10 to 12 months 2014 is the right number of large Dcs and Youre, saying that you think you have those already from the <unk>.

Scot Ciccarelli: Advance the old advanced network give or take a couple.

Speaker Change #143: I just want to clarify that yes, Michael good job good job threading riding some questions and answers together, David 12 Sempra.

Scot Ciccarelli: That's my experience in a past life, if we hired some of the firms that do the work on setting up national infrastructures, and you say, hey, I want to have a nationwide distribution network thats, what theyre going to tell you, but that's what I've seen and thats sort of lift.

Scot Ciccarelli: So.

Scot Ciccarelli: I think that's an appropriate range.

Scot Ciccarelli: For us.

Speaker Change #149: Yes, largely I think we've got the facilities for that.

Scot Ciccarelli: Alright, alright.

Scot Ciccarelli: One is leveraging our current assets alright for leveraging our current assets that we have we think we have the assets.

Speaker Change #144: Great. The network that we yes, we came to you and said Hey, we got to put 10 new.

Scot Ciccarelli: 500 to 1 billion square foot Dcs up in the United States you guys can do the math on what those buildings cost and how long that takes we're trying to do this both more quickly and then and efficiently using the facilities.

Scot Ciccarelli: National model might come out and say gosh, the DC you have.

Scot Ciccarelli: Be marginally better if it was located in our this way or that way.

Scot Ciccarelli: That's a little bit of the tradeoffs will make which is minor in terms of the efficiency drag but in exchange for the speed and the overall cost effectiveness, that's the right way to go.

Speaker Change #150: Yes that makes sense one other just from the beginning of the call. If I could clarify you talked about you found another $50 million.

Speaker Change #150: To get to frontline employees from from Sunsetting things.

Scot Ciccarelli: <unk>, what is that and I guess on a year over year basis is that an incremental $50 million investment or is that netted somewhere.

Scot Ciccarelli: Yes, so make the math easy to $1 50 is out we took out $1 50.

Speaker Change: And then we said hey, we're going to take 50 of that and it goes in the frontline for wages bonuses and training.

Speaker Change: There is an incremental amount roughly double that that comes from some of US are ordinary course. So we've got we've got our merit plan for the year, but some of it comes from Sunsetting, we had some HR programs out there that.

Speaker Change: We spend money on that Werent directed towards the frontline. So we cancelled those programs and we're putting those dollars and do it just bonuses and training.

Speaker Change: So it's no net.

Speaker Change: Yeah.

Speaker Change: It's no incremental drag to the company, it's a better use of funds that we were putting in the right place.

Max: The next question comes from Brian Nagel from Oppenheimer, Brian. Your line is open. Please go ahead.

Speaker Change #159: Hi, good morning, Thanks for taking my questions.

Brian Nagel: A couple of questions I guess, maybe philosophical in nature, but first of all not maybe not totally fair, but Shane youre. So for those of US who followed advance for a while.

Max: We've heard we've discussed in the past with prior management teams supply chain fixes. So I guess, we're talking a lot about that here is a key component of your view of the business.

Speaker Change: What's different as you look at if you look at the what you plan to do here for the supply chain perspective, and evaluating what has been done in the past we've been really the key differences here and there.

Speaker Change #157: My second question.

Max: You have a lot going on here in the near term.

Max: How do you balance or how do you think about market share because you have a very fragmented sector, but within that you've got a couple of really strong competitors. So how do you think about maintaining market share amid all of these newer term type.

Max: Efforts within the business.

Speaker Change #155: I will start with the second question on market share and there is lots of good companies. There's lots of people that we compete with every day.

Max: <unk> had some notable examples but there are plenty of smaller companies out there who sell auto parts. So we know that we've got to earn our keep every day, we put out our guys.

Max: We think that's modest.

Max: And we know that our engine as we restarted with this turnaround will take a minute to get a full head of steam but the industry fundamentals are very good. This is a disciplined industry by the way, it's an industry that even with the big players there is still room and runway to grow by the way. There is just growth that occurs.

Max: <unk>.

Speaker Change #156: Natural and so.

Max: <unk>.

Max: We won't be a share taker.

Syed: But first step is to be a shareholder and I mean that in terms of market share.

Syed: So that's what we're looking to do.

Speaker Change #161: And we don't spend the day thinking.

Syed: What are the other guys do and we think about listening to our customer and when they tell US Hey, if you have this part and by the way if youre pricing is this versus that or if you can get it to me in this timeframe or I feel good about the relationships we get the order. So those those are the things we focus on and that's what we can control and Thats what gets us a sale.

Syed: If we do that right and Repetitively repetitively over time than the share.

Syed: Losses stem then we will start that rose back to holding and gaining share.

Syed: That's the first part.

Syed: And then remind me again on the supply chain Brian.

Brian: Yes, just real simply what's different with your plan versus what May have been tried in the past we attempted in the past to rationalize the supply chain at Baird.

Syed: Okay.

Syed: We didn't do it I think that's the key thing and we didn't we didn't.

Syed: If you look it at that.

Syed: Retail distribution.

Syed: Models on what it takes to be successful that wasn't the path. We will follow right. We did but we did have a cross banner replenishment model, but we've never set out.

Syed: And we should operate if you think about when we did the GPI acquisition.

Syed: Sure.

Syed: Anytime you put two companies together first thing you've got to think about is what are you going to do with the logistics infrastructure.

Syed: And so we led to different models exist for a long time.

Speaker Change: And then had sort of a patch solution and what we're telling the market today is the right answer for auto parts distribution is to have one single national networks, and that's what we're doing and so you won't be able identify facilities in terms of that the blue versus the red EG conquest versus advance where advance auto parts.

Speaker Change: And we will have a national distribution network. The second thing is the idea of using this market hub.

Speaker Change: And I think you see that prevalent Lisa I think it's.

Speaker Change: A good way to get product closer to the bore skus closer to the customer to be more responsive and I think thats a function that's a bit of an evolution I think the customers expectations have increased in terms of what can you get me in a short timeframe. We wanted these participated in that in that market.

Speaker Change #164: Makes sense.

Speaker Change: Okay.

Speaker Change #158: Got it I appreciate all the color good luck. Thank you.

Speaker Change #163: Thanks, Brian.

Speaker Change #158: Our next question is from Scot Ciccarelli from tourists Scott. Your line is open. Please go ahead.

Scot Ciccarelli: Thanks for fitting me in guys.

Scot Ciccarelli: So you talked about 400 teammates that are now gone, but can you provide more color on where you are able to take out $150 million of expenses from your cost structure, It's a pretty big number in a short period of time and related to that have you factored in some sort of negative impact on sales.

Scot Ciccarelli: <unk>.

Scot Ciccarelli: The people there were doing at least something semi productive.

Scot Ciccarelli: Yeah.

Scot Ciccarelli: So the cost takeout was broad based with no functional area with it and if I go back to an earlier comment I think we had a bit of a headquarters centric approach to running the business.

Scot Ciccarelli: With that you have.

Scot Ciccarelli: End up with flow in your in your corporate infrastructure I believe in the inverted pyramid idea that we need to be fields first and corporate needs to be lead.

Scot Ciccarelli: Corporate needs to be everybody, who sits in our corporate seat.

Scot Ciccarelli: <unk> supporting this deal.

Scot Ciccarelli: So we went across the functional areas I think notably marketing was an area where there were.

Scot Ciccarelli: More significant cuts then into other areas because we invested in marketing programs that didn't have a yield.

Scot Ciccarelli: And so we view that cost takeout, not only as necessary but.

Scot Ciccarelli: But one that didn't dampen ourselves if anything I think we've got the opposite going out with we cleared out some bureaucracy, we booked it processes that were inefficient and we're empowering the frontline and as we take dollars and put it in the frontline and reduce turnover and create energy those team members feel like they are heard and.

Scot Ciccarelli: Ported in a way that.

Scot Ciccarelli: Isn't occurring.

Scot Ciccarelli: Okay.

Speaker Change #162: Okay. So you don't think you'll lose any sales.

Speaker Change #162: Reduction in marketing.

Speaker Change #169: One other question.

Scot Ciccarelli: Are there more restatements to historical results and anything on 'twenty, three we should be thoughtful of before and some of that in your team.

Scot Ciccarelli: On the finance side came in.

Scot Ciccarelli: Okay.

Scot Ciccarelli: I would say more than what actually is being reported today.

Scot Ciccarelli: Correct.

Scot Ciccarelli: I think what we're talking about today is what we've shared today are the restatements that seven.

Scot Ciccarelli: We plan to save one in the Form 10-K, and Form 10-K out in short order it should be within that extension period of time.

Speaker Change #165: Got it okay. So no more as we don't anticipate results. Okay. Thanks, guys. Good luck.

Speaker Change #166: Thanks Scott.

Speaker Change #167: Our next question comes from <unk> <unk> from Cowen Max Your line is open. Please go ahead.

Speaker Change #167: Okay.

Max: Great. Thanks, a lot guys. So first how far away are your in stocks from where they need to be everywhere you want them to be I think you mentioned.

Max: By 200 basis points. So how much room ahead, and then just how we should think about that timing.

Max: Okay.

Speaker Change #170: Hey, Max we didn't get the question can you say one more time please.

Max: Oh, sorry, just how far away.

Max: That's from where they need to be I think you mentioned 200 basis point improvement. So how much further do you have to go and then just how should we think about the timing.

Max: Yes, so we're doing that real time and as we complete this our inventory system that comes online it will get better.

Max: From where it sits today don't want to put it.

Max: Definitive number on it but that journey continues we do get customer feedback that says hey.

Max: I feel better about your product availability to get feedback from them.

Max: Well, but I don't want to put a pinpoint but more to come.

Max: Material progress that has been noted by by customer and field team members.

Speaker Change #168: Yes, I'll just add I think broad based improvement absolutely broad based improvement, but there is still work to do geographically you think 38 different distribution center. Some are smaller just the ability to allocate the board. That's the work that we're doing with the new system being able to get that so there's still work to do but broad based significant improvement.

Speaker Change #171: Okay, and then how are you thinking about pricing.

Speaker Change #176: Thanks, Syed and whether you are where you need to be in order to be competitive and then just latest thinking around private label versus national brands.

Speaker Change #172: Following some of the conversations that you've been having with the approach.

Speaker Change #173: So I'll start with private label.

Syed: We think private label is an important dimension of the business and we've got some great.

Speaker Change #168: Brands that we control diehard I think as the Premier name.

Speaker Change #168: Park, West and think about our quest as it relates to our our platinum break spot. So we've seen we've seen growth in private brands and we want private brands to be an important part of the portfolio.

Speaker Change #168: Something we've done as you in the past, sometimes our exuberance as it relates to who we work with we may have had suppliers are not in a position to fully represent what our needs are we've come through those issues that are in our merchant and sourcing teams are making sure that that we're not only getting high quality products.

Speaker Change #168: We're getting it in the quantities that we need on the on the pricing front a couple of things here.

Speaker Change #168: One this is a disciplined industry and I think that's important the conduct between the players in terms of.

Speaker Change #168: How they act with customers on pipe it's rational.

Speaker Change #168: But customer feedback is as an important dimension I would say we need to be in the Zip code.

Speaker Change #168: The customers' needs on price.

Speaker Change #168: But availability is important as is speed of service and Thats something that were focused on we know that if you've got a Europe pro and you've got a car in a list you've got a chevy Tahoe that these brake rotors, we've got to get them to you expeditiously. So we're focused on that speed of service, which is something we measure but.

Speaker Change #168: As it relates to price will be where the where the where the market sort of demands.

Speaker Change #174: Got it thanks a lot.

Speaker Change #175: Alright. Thank you all of that is our last question for today. Thank you for joining US we look forward to sharing more progress on our decisive actions that we covered today when we speak with you again in May have a great day.

Speaker Change #177: This concludes today's call. Thank you very much for your attendance you may now disconnect.