Q2 2024 Advance Auto Parts Inc Earnings Call
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Welcome to the Advance Auto Parts second quarter 2024 earnings conference call.
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Speaker Change: welcome to the advanced auto parts second quarter two thousand twentyfour earnings conference callal before we begin leash hamnani wice president investor ations will make a brief statement andconidting forwardlookingstatements there will be discussed on this cool
Speaker Change: Before we begin, Lavesh Hemnani, Vice President, Investor Relations, will make a brief statement concerning forward looking statements that will be discussed on this call.
Speaker Change: Good morning and thank you for joining us today to discuss our second quarter 2024 results.
Speaker Change: Good morning, guys.
Speaker Change: Good morning.
Speaker Change: good morning and thank you for joining us today to discuss our second quarter two thousand and twentyfour resultsi'm joined today by shino kelly president and chief executive officer and ryan rimplin executive vice president and chief financial officer
Speaker Change: I'm joined today by Shane OKelly, President and Chief Executive Officer, and Ryan Grimsland, Executive Vice President and Chief Financial Officer.
Speaker Change: Following management's prepared remarks, we will take questions.
Speaker Change: Before we begin, please be advised that management's remarks today will contain forward looking statements.
Speaker Change: following management's prebared remarks we will take questions
Speaker Change: before we begin please be advedthat management remarks today we 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 strategic and operational review, initiatives, plans, projections, expectations for the future, and the anticipated sale of our world-backed business.
Speaker Change: all statements are other than statements of historical fact our forward-looking statements including but not limited to statements regarding a strategic and operation review initiatives plans projections expectations for the future and the anticipated sale ofour worldbackact business
Speaker Change: 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 forward looking statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the SEC.
Speaker Change: acturalual results could differ materially from those projective or implied by the forward-looking statements
Speaker Change: tradditional information about forward-looking statements and factors that could cause actual results to differ can be found under forward-looking statements in our owning release and riskfactors in our most recent form ten -k and subsequent filings made with the sec now let me turn the call over to sheno kelly shaan
Speaker Change: Now, let me turn the call over to Shane OKelly.
Speaker Change: Morning, Bret.
Speaker Change: Thanks very much for taking my question.
Speaker Change: Shane?
Speaker Change: WorldPAC working capital situation.
Speaker Change: I wanted to follow up on the price, investments.
Speaker Change: Thank you, Lavesh, and good morning, everyone.
Speaker Change: Hey.
Speaker Change: So the last time you spoke to us, you said the price investments that you were doing at that time accounted for about 8% of the skew count.
Speaker Change: thank you lavesh and good morning everyone i would like to start by expressing my appreciation for the hard work exhibited by our team members over the past several months
Speaker Change: I would like to start by expressing my appreciation for the hard work exhibited by our team members over the past several months.
Speaker Change: So this 100 million, you know, what does that translate to skew count today?
Speaker Change: during the second quarter our fundline team navigated a weak demand environment as consumers continue to feel the weight of an uncertain macroeconomic climate
Speaker Change: despite the headwinds our team maintained focus on serving customers and driving progress on our strategic priorities
Speaker Change: we ended the second quarter with positive comparable sales growth of zero point four percent led by our pro business dii remained pressured but improve sequentially
Speaker Change: our second quarter comp performance to the step in the right direction moreover the opportunity ahead of us to drive sustainable growth recapture market share and position advance for long-term value creation remains substantial
Speaker Change: turnarounds to take time but our team is solid and putting in the work the macro environment is challenging retailers are lowering expectations and we're starting from a lower baseline relative to the industry
Speaker Change: During the second quarter, our frontline team navigated a weak demand environment as consumers continue to feel the weight of an uncertain macroeconomic climate.
Speaker Change: Despite the headwinds, our team maintained focus on serving customers and driving progress on our strategic priorities.
Speaker Change: We ended the second quarter with positive comparable sales growth of 0.4% led by our pro business.
Speaker Change: on the other hand we successfully managed through a difficult quarter and navigated a complex ma process with a successful rworldle pack transaction that substantially strengthens our balance sheet
Speaker Change: we know what we need to do from here
Speaker Change: as you will hear later in this call looking forward some of our investments are around price some are related to supply chain and others on optimizing productivity all are focused on reigniting growth and improving our margins
Speaker Change: the slowpe of the path will also be determined by a thousand smaller decisions made by our team and not merely dictated by a topdown projection
Speaker Change: as a team we keep in mind that even incremental improvements can yield substantial upside
Speaker Change: selling world pack and solidifying our balance sheet our early inning winds and it is an exciting time to be in advanced auto parts team member
Speaker Change: DIY remained pressured but improved sequentially.
Speaker Change: Good morning.
Speaker Change: And then what gives you confidence that you won't need to take another level of price investments?
Speaker Change: when i joined advance last september we had just initiated a strategic and operational review of the business we have been executing against decisive actions to simplify our business and return to the fundamentals the selling autoparks
Speaker Change: Our second quarter comp performance is a step in the right direction.
Speaker Change: Just given the comment there that some of these have been slower to catch on with your pro customers?
Speaker Change: Good morning and thank you for your time.
Speaker Change: Thank you for joining us today to discuss our 2nd quarter, 2024 results.
Speaker Change: Moreover, the opportunity ahead of us to drive sustainable growth, recapture market share, and position advance for long-term value creation remains substantial.
Speaker Change: Yes, Steven, they are much more broad based, don't necessarily want to share like with a, percentage at this point, but it's definitely more broad based across all categories.
Speaker Change: I'm joined today by Shane OKelly, President and Chief Executive Officer and Ryan Grimsland, Executive Vice President and Chief Financial Officer.
Speaker Change: progress in these actions is setting the stage for a new future for advance let's review that progress and talk about the path ahead for the company
Speaker Change: Turnarounds take time, but our team is solid and putting in the work.
Speaker Change: How much of the inventory that you carry is discreet to WorldPAC, and I guess what's, the outlook as far as working capital reduction?
Speaker Change: We wanted to make sure that we are invested in the right places, especially in the pro and seasonal areas.
Speaker Change: Following management's prepared remarks, we will take questions.
Speaker Change: number one the strategic review of world pack and the canadian business we are pleased to have completed this process which sharpens our foccus on the blendended box
Speaker Change: As far as incremental investments, we're always going to continue to look and make sure that we, are competitively priced.
Speaker Change: second reducing our costs to become more competitive while investing in the front line these investments are energizing the front line and in particular our pro- sales teams
Speaker Change: third making organizational changes to position us for a success
Speaker Change: through our internal promotions and our external hires we are putting outstanding talent in key roles
Speaker Change: for consolidating our supply chain which unlocks better parts availability and service for our customers which improves the cost position of the company
Speaker Change: Thank you, Lavash and good morning, everyone.
Speaker Change: and bit improving the productivity of all of our assets
Speaker Change: I would like to start by expressing my appreciation for the hard work exhibited by our team members over the past several months. During the 2nd quarter, our frontline team navigated a weak demand environment as consumers continued to feel the weight of an uncertain macroeconomic climate. Despite the headwinds, our team maintained focus on serving customers and driving progress on our strategic priorities. We ended the 2nd quarter with positive comparable sales growth of 0.4% led by our pro-business.
Speaker Change: which will help narrow our operating margin gap to the industry
Speaker Change: The macro environment is challenging. Retailers are lowering expectations, and we're starting from a lower baseline relative to the industry.
Speaker Change: Yeah, Bret, so it's roughly in the ballpark of a million dollars of inventory.
Speaker Change: Again, I want to reiterate, we're not trying to lead the market here. We're just trying to remain competitively priced.
Speaker Change: DIY remained pressured, but improved sequentially.
Speaker Change: starting with the first decisive action regarding world back
Speaker Change: today we announced that we have entered into a definitive agreement to sell the world pack business for one point five billion dollars in cash to the carle group
Speaker Change: On the other hand, we successfully managed through a difficult quarter and navigated a complex M&A process with a successful WorldPAC transaction that substantially strengthens our balance sheet.
Speaker Change: Sorry, billion, about a billion dollars of inventory for WorldPAC.
Speaker Change: the sale process generated strong interest and we are pleased with the outcome we plan to use the net proceeds to strengthen our balance sheet and invest in the core business
Speaker Change: Their coverage ratio is a little bit lower.
Speaker Change: the transaction is expected to close before the end of the year and of behalf of everyone advance i would like to thank the more than five thousand world pack team members for their dedication over the last ten years
Speaker Change: Our 2nd quarter performance is a step in the right direction. Moreover, the opportunity ahead of us to drive sustainable growth, recapture market share, and position advance for long-term value creation remains substantial.
Speaker Change: We know what we need to do from here.
Speaker Change: We'll obviously share more on what that Reneco looks like as we discount them in Q3, but, that should give you a ballpark.
Speaker Change: So we have a better chance to say yes to the customer when we have the product.
Speaker Change: So there might be some additional investments, but from our perspective, the large portion of the investments were pretty much... And we've talked to our customers regularly.
Speaker Change: reaching an agreement to sell worldpac is a major milestone for the company
Speaker Change: and our vision from here is to further our commitment to the blended box model servicing both pro and diy customers with our well-established retail footprint augmented by our independence
Speaker Change: Turn around, take time, but our team is solid and putting in the work.
Speaker Change: The macro environment is challenging. Retailers are lowering expectations, and we're starting from a lower baseline relative to the industry.
Speaker Change: Their coverage ratio is going to mix us down when they're in the consolidated.
Speaker Change: It'll mix us up a little bit when they're no longer with us, but it's about a billion, dollars of inventory.
Speaker Change: that's our path forward and it's a proven service model in the autoparts industry
Speaker Change: On the other hand, we successfully managed through a difficult quarter and navigated a complex M&A process with a successful world pack transaction that substantially strengthens our balance sheet.
Speaker Change: the sale of grow packed fuels are vision by improving our balance sheet streamlining our operations and enabling us to focus on one business model
Speaker Change: OK. And then the proceeds, I guess you talked about debt reduction, and you've got a couple, of debt truncheons in the high 5%.
Speaker Change: with the world pack review now complete i also want to provide an update on our canadian assets
Speaker Change: during the second quarter i traveled to canada and was impressed by the deep expertise and market knowledge that our long-tenured canadian team brings to the business
Speaker Change: Can you pay those down, or are there any prepayment penalties, or I guess what the balance sheet, can look like post-close?
Speaker Change: our business model lines well with our u s operations and that team is consistently delivered strong performance as a result we have made the decision to retain our canadian operations
Speaker Change: i would like to thank our canadian team for their patients during the review where they maintained an unwavering focus on serving our customers and i look forward to working with this team to grow the business
Speaker Change: As you will hear later in this call, looking forward, some of our investments are around price, and others on optimizing productivity. All are focused on reigniting growth and improving our margins.
Speaker Change: The slope of the path will also be determined by a thousand smaller decisions made by our team and not merely dictated by a top-down projection.
Speaker Change: As a team, we keep in mind that even incremental improvements can yield substantial upside.
Speaker Change: moving to our second decisive action reducing costs and reinvesting in our front line
Speaker Change: Selling World Pack and solidifying our balance sheet are early inning wins, and it is an exciting time to be an Advance Auto Parts team member.
Speaker Change: We know what we need to do from here.
Speaker Change: we have reduced costs and reinvested a portion of those savings in our front line team these investments have been particularly meaningful for our commercial account managers and our commercial parts pros as they are stepping up our pro business efforts
Speaker Change: When I joined Advance last September, we had just initiated a strategic and operational review of the business. We have been executing against decisive actions to simplify our business and return to the fundamentals of selling auto parts. Progress in these actions is setting the stage for a new future for Advance. Let's review that progress and talk about the path ahead for the company.
Speaker Change: As you will hear later in this call, looking forward, some of our investments are around price, some are related to supply chain, and others on optimizing productivity.
Speaker Change: And as you know, we've got a large initiative underway with up and down the street pros, and we get the feedback that our pricing's in line.
Speaker Change: Now for customers where we're the first call, that's welcome news.
Speaker Change: All are focused on reuniting growth and improving our margins.
Speaker Change: And we continue to retain that business where we're a second or third call being in line with pricing that provides the opportunity to get the marginal business.
Speaker Change: I think one of the things that's always good about being in the auto parts business is there are so many parts out there that nobody has them all. So, inevitably, for even a customer who's entrenched with a competitor, there's some product that they don't have or they don't have with the requisite availability, we'll get that call.
Speaker Change: during q two comp sales to up and down the street pros turned positive year-over-year compared with a decline in the first quarter
Speaker Change: Now that we've got the price that's lined up, we get the business.
Speaker Change: The slope of the path will also be determined by a thousand smaller decisions made by our team and not merely dictated by a top-down projection.
Speaker Change: So, we think we're where we need to be.
Speaker Change: As a team, we keep in mind that even incremental improvements can yield substantial upside.
Speaker Change: our strategic pro accounts also grew year-over-year and we remain committed to serving them and growing our share across all pro segments
Speaker Change: We'll obviously be tuning it, but where we look at customers, we get feedback from customers, price isn't the objection in terms of why we are or aren't getting the business.
Speaker Change: along with that we are igniting the field culture to become more customer focused and are reducing times spend on non-sales tasks and we are putting greater emphasis on accountability
Speaker Change: Okay, that's helpful.
Speaker Change: as part of this we are continually seeking feedback from our front line team members to identify gaps and take swift actions to improve our business
Speaker Change: And then maybe to follow up on that, you made the comment earlier that turnarounds take time.
Speaker Change: lastly we remain on track deliver fifty million dollars of indirect procurement savings by next year
Speaker Change: And from following this industry, we all know price is just one piece of the factor in that decision to get the business, right? There's also service, parts availability, delivery speed.
Speaker Change: our third decisive action is related to organizational changes
Greu Storms: we welcomed our new chap merchandising officer grew storms in the second quarter
Greu Storms: and now we've added talented individuals in additional critical merchandiseing functions we have hired a new spp leading assortment visual merchandising and inventory management
Speaker Change: Selling world pack and solidifying our balance sheet are early in and wins and it is an exciting time to be an Advance Auto Parts team member.
Greu Storms: we added a new spp for merchandising operations and pricing and we've added a new vp of e-commerce we have also realigned our marketing and e-commerce functions to now report into bruce' organization for stronger collaboration
Speaker Change: When I joined Advance last September, we had just initiated a strategic and operational review of the business. We have been executing against decisive actions to simplify our business and return to the fundamentals for selling auto parts. Progress in these actions is setting the stage for a new future for Advance.
Greu Storms: these leaders are enhancing our capabilities with respect to fundamental retail operations and i look forward to the value that true merchandising excellence can bring to our business
Greu Storms: Number one, the strategic review of World Pack and the Canadian business.
Greu Storms: earlilyer examples include number one conducting more frequent and deeper linein reviews to ensure that we have the right product depth breadth and costs
Greu Storms: Let's review that progress and talk about the path ahead for the company.
Greu Storms: this year we are on track to do one hundred and thirty line reviews number two assessing front and backroom assortments to improve relevancy and availability and number three coordinating marketing efforts to deliver great offers for our customers
Greu Storms: an example of all three of these things coming together is our recent launch of our break fundle program
Greu Storms: the merchandising teams work is being augmented by recent pricing actions and the implementation of our new inventory management system we now have more than three hundred thousand actively managed skues in our new system
Greu Storms: Number one, the strategic review of world pack and the Canadian business.
Greu Storms: We are pleased to have completed this process which sharpens our focus on the blended box.
Greu Storms: We are pleased to have completed this process, which sharpens our focus on the blended box.
Greu Storms: Second, reducing our costs to become more competitive while investing in the front line.
Greu Storms: we began this effort earlier this year and completed it in july a full six months ahead of our initial goal
Greu Storms: our fourth action consolidation of our supply chain
Greu Storms: at completion our supply chain is expected the feutatureure fourteen large dc's operating on a single warehouse management system for ws this compares to our previous structure of thirty- eight dcs of varying capacities operating with different systems
Greu Storms: we remain on track with our wms implementation with the recent completion of the thompson georgia dc conversion and expect our final dc to be completed by year's end
Greu Storms: Second, reducing our costs to become more competitive while investing in the front line.
Greu Storms: These investments are energizing the front line and in particular are pro sales teams.
Greu Storms: the fourteen dc s will serve as nationwide replenishment nodes while the remaining ecs will either be closed ' converted to market huums
Greu Storms: speaking of market hubs as of mid-august we have ten market hubs in operation we are creating these cbs by converting smaller dcs upfitting existing stores or greenfielding new locations
Greu Storms: the market hub is new to advance and each market hub has the potential to make an average of eighty thousand skws available to a supported radius of stores on a same day basis
Greu Storms: we are gaining critical insights on managing hub inventory along with determining efficient routes and replenishment frequencies
Greu Storms: we now expect to open at least seventeen market hubs by the endof two thousand and twenty four and believe that this updated schedule will enable us to effectively apply learnings and develop the right operational model for our hub service stores
Greu Storms: Third, making organizational changes to position us for success.
Greu Storms: we still expect to open sixty market hubs by two thousand and twenty six
Greu Storms: Through our internal promotions and our external hires, we are putting outstanding talent in key roles.
Greu Storms: lastly our last decisive action is improving the productivity of all our assets
Greu Storms: as we continue our strategic and operational review we are amplifying our efforts to improve overall asset productivity we believe we can reposition the core advanced business to generate mid-single-digit margins in the next few years
Greu Storms: and as we consider our long-term margin goals we believe the following building blocks will help drive our future success these building blocks include
Greu Storms: generating sustainable positive comp sales
Greu Storms: this is supported by competitive market-based pricing it supported by our energized fundtline team and improved inventory availability note that sales productivity is our biggest opportunity to close our performance gaap relative to the industry
Greu Storms: our second building lock is store footprint
Greu Storms: this also contributes to closing the sales productivity gap and now with our stronger combined real estate team we are assessing our entire store footprint to identify markets where we can rationalize stores as well as where we can open new stores
Greu Storms: the team is currently scaling capabilities to put us on a path to open at least one hundred new stores per year located in markets of strength
Greu Storms: the next building block is improving gross margin as mentioned there are two primary tenants to unlocking better gross margins and they are merchandising excellence and supply chain
Greu Storms: value is created here from harmonizing the first costs improving dc throughput optimizing transportation and many other activities
Greu Storms: Four, consolidating our supply chain, which unlocks better parts of availability and service for our customers, which improves the cost position of the company.
Greu Storms: our last building block is realigning our sgna with our post-world pack operating structure
Greu Storms: we will continue to invest in the required areas of our business but at the same time we are putting greater emphasis with our leaders to manage expenses and create operating leverage for our future
Greu Storms: to conclude as we look to a post-world pac advance we are now executing against a clear vision of operating a single business that is poised for success as we revitalize core processes that focus on the fundamentals of selling auto parts
Greu Storms: we plan to share more details on our outlook for the remaining business at our next earnings call in november
Greu Storms: Can you help us understand how you stack up among those other factors when you're trying to get that customer just to move up the call list?
Greu Storms: now let me hand the call over to ryan to discuss our financial results ryan
Greu Storms: Yeah, we'll definitely share more specifics around that at a later date.
Greu Storms: Right now, we're going to take that cash, look at when we close the business, we'll, look at bolstering the balance sheet.
Greu Storms: Thanks very much.
Greu Storms: We'll definitely look at what debt we need to pay down, what we need to invest in the, business, and what we need for going forward.
Greu Storms: Yeah.
Ryan: thank you shane and good morning everyone i would also like to start by ththanking our dedicated team members for their commitment to delivery excellent customer service
Ryan: So we'll probably share a little bit more, but if we do attack debt, you would think, that we would attack those higher interest truncheons.
Ryan: before ddiving into q two results and our revised outlook for the year i'll provide some additional details related to the world pac transaction
Ryan: Yeah, and I'll touch on that in the prepared remarks.
Ryan: based on our reported financials over the last twelve months of the end of q two willpack contributed approximately two point one billion to the enterprise revenue and approximately one hundred million to enterprise ebitda
Ryan: this ebitdit does not account for certain a typical items in inter company margins at' some overhead costs related to supporting the world back business these adjustments account for approximately thirty million dollars of additional ebitda
Ryan: Fifth, improving the productivity of all of our assets, which will help narrow our operating margin gap to the industry.
Ryan: the transaction price of one point five billion dollars will result in net proceeds of approximately one point two billion dollars after taxes and transaction fees
Ryan: these proceeds will strengthen our balance sheet and provide greater financial flexibility to invest in our business and execute our strategic plan
Ryan: as shany mentioned we are amplifying our efforts to improve overall asset productivity to determine the most appropriate asset base and expense structure for the business
shany: we are also evaluating investment needs by business function to effectively deploy transaction proceeds to accelerate growth
shany: the simplification of our enterprise structure will provide further clarity for our front line and corporate support te
shany: we believe that a strategic plan to prioritize sales productivity com byed with a balanced enterprise cost structure will help deliver margin expansion and earnings growth
shany: while near-term headwinds have obscured our initial progress we remain confident in our approach and believe that the actions we are taking will position us well to generate mid-single-digit margin in the next few years
shany: Go ahead.
shany: moving to our second quarter results net sales of two point seven billion dollars were flat to last year comparable store sales increased zero point four percent led by a positive procomp
shany: diy comt in the negative low single-digit range
shany: although improved compared with q one
shany: the reduction in net sales was largely driven by fewer independent carquestest locations which largely offset the positive comparable sales performance
shany: Sorry, Brett.
shany: in terms of cadence for the second quarter trend started off soft and improved as we movele through the quarter with the benefit of the tailo from hot weather related sales and our strategic actions to drive growth among the probe
shany: in addition to the strong performance that hback category we continue to see positive results in fluids and chemicals and engine management
shany: looking at our channels more closely our professional business of positive comparable ticket and transactions in our diy business comparable ticket was also positive
shany: although more than offset by declining transactions
shany: gross profit was one point one billion dollars or forty-one point five percent of net sales compared with forty two point five percent of net sales in q two of the prior year
shany: on a year-over-year basis gross margin was impacted by our strategic pricing investment and higher product costs
shany: last quarter we took initial actions that fix our competitive pricing with an investment of forty million dollars on an annualized basis
shany: Starting with the first decisive action regarding world pack, today we announced that we have entered into a definitive agreement to sell the world pack business for $1.5 billion in cash to the Carlisle Group. The sale process generated strong interest and we are pleased with the outcome.
shany: during the second quarter we identified additional opportunities and expanded our actions more broadly across the assortment resulting in a cumulativeated investment of over one hundred million dollars
shany: i would note that these two thousand and twenty-four pricing changes
shany: are not in response to the challenging market dynamics
shany: rather we view these changes as necessary adjustments to reposition advance more competitively than to improve our price perception in the industry
shany: These investments are energizing the front line, and in particular, our pro sales teams.
shany: Third, making organizational changes to position us for success.
shany: our field team has been driving awareness of these changes with regular customer visits
shany: initial feedback has been positive and we believe that these pricing changes should put us in a stronger competitive position as demand begins to recover
shany: We plan to use the net proceeds to strengthen our balance sheet and invest in the core business.
Speaker Change: sqa was one billion dollars as a percentage of net sales s strnaa was thirty-eight point nine percent compared with thirty seven point eight percent in the same quarter last year
Speaker Change: the higher sgna was driven by an increase in payroll expenses associated wage investments and training for our front line team professional feesis related to the strategic and operational review of our business
Speaker Change: costs associated with the remediation of our previously disclosed material weaknesses and other expenses associated with the implementation of our strategic plan
Speaker Change: operating margin of two point seven percent de leverageed about two hundred basis points compared with last year
Speaker Change: diluted earnings per share came in seventy-five cents compared with one dollar at thirty-two cents in the prior year quarter
Speaker Change: year -to-day free cash flow was an outflow of four point six million dollars compared with an outflow of three hundred and twelve million dollars in the prior year driven by the timing of payables in the first half of last year
Speaker Change: yeah
Speaker Change: moving to an update on our full year two thousand and twenty-four guidance
Speaker Change: we have updated our fullyear outlook for the enterprise including worldpac pending the completion of the sale
Speaker Change: following clos will pack reported as discontinued operations we will update our outlook for advanced blendended box business with our third quarter results in november
Speaker Change: we now expect sales for the full year to range from eleven point one five to eleven point two five billion dollars including comparable store sales in the range of negative one percent the flat
Speaker Change: our revised guidance considers our year-day performance and expectations for the balance of the year we expect consumer -related headwinds related to maintenance deferrals lower discretionary spending to impact our trajectory in the short term
Speaker Change: with respect to quarter - day trends both our pro and diy businesses have started off weaker driven by the overarching macro pressure on the consumer
Speaker Change: tougher prior comparisons and dimension weather-related tailwind exititing q two
Speaker Change: we have factored this into our guidance for the full year while we won't speculate on the timing we are confident the industry will return to growth as conditions norommalize driven by the aging car c and largely nondiscretionary nature of auto maintenance
Speaker Change: this provides a supportive backdrop for us to execute againstest
Speaker Change: operating income margin for the full year is now expected to be between two point one to two point five percent the revised margin outlook is being driven by a combination of lower gross margin and higher sqmay deleverage
Speaker Change: as indicated earlier we took additional pric ing actions during the second quarter which will impact gross margin
Speaker Change: while we are seeing some green shoots in improving unit velocity the rate of improvement is slower than we initially anticipated given the weaker demand landscape that said over time we expect our price investments deield positive net results to increasase volume
Speaker Change: regarding s gna we still expect expenses to be flat to slightly up year over-year to a meaningful degree we are adjusting sstrna to address the current demand environment and are continuing to make necessary investments as part of our turnaround
Speaker Change: diluted epps for the full year is now expected the range from two dollars to do dollars of fifty centts and we expect to generate in the minimum of one hundred million dollars of free cash flow
Speaker Change: our guidance for capital expenditures is unchanged and still expect to be in the two hundred two hundred fifty million dollar range as we undertake projects to enhance our it stores and supply chain infrastructure
Speaker Change: I said, is repurchase still in the use of proceeds?
Speaker Change: to wrap up i would like to reiterate that we firmly believe that advance has a paackway to stronger earnings growth
Speaker Change: Yeah, over, I think, a reasonable period of time on that.
Speaker Change: Through our internal promotions and our external hires, we are putting outstanding talent in key roles.
Speaker Change: Fourth, consolidating our supply chain, which unlocks better parts availability and service for our customers, which improves the cost position of the company.
Speaker Change: through the productivity review of our assets willll have better visibility into the margintrajectory for the blended box and we expect to share more on this in november
mashame: with that i will now hand a hold on mashame
mashame: And fifth, improving the productivity of all of our assets, which will help narrow our operating margin gap to the industry.
mashame: The first priority is going to be the balance sheet and making sure we've got a good balance, sheet for growth going forward.
mashame: So, in terms of where we've got great people, our locations, our products, we do well.
mashame: thank you ryan in closing i want to thank all of our team members once again for their commitment to serving our customers
Speaker Change: our industry has historically proven to be resilient and it's demonstrated an the ability to recover quickly after periods of macro pressure
mashame: The transaction is expected to close before the end of the year and on behalf of everyone in advance, I would like to thank the more than 5,000 world pack team members for their dedication over the last 10 years.
Speaker Change: That's in our initiative.
Speaker Change: And so, we're excited by what this represents.
Speaker Change: since arriving at advance i have been excited by the people and have been excited by the company's purpose
Speaker Change: We're turning the page as a company to put the focus on our stores.
Speaker Change: Starting with the first decisive action regarding World Pack. Today, we announced that we have entered into a definitive agreement to sell the World Pack business for $1.5 billion in cash to the Carlyle Group. The sale process generated strong interest, and we are pleased with the outcome.
Speaker Change: And then, absolutely, over a reasonable period of time, returning cash to shareholders, excess, cash to shareholders is important for us.
Speaker Change: And we're seeing the early shoots from those investments.
Speaker Change: We plan to use the net proceeds to strengthen our balance sheet and invest in the core business.
Speaker Change: And on the investment side of the house, three areas, stores, you're in the prepared remarks, we created a unified real estate team.
Speaker Change: The transaction is expected to close before the end of the year, and on behalf of everyone in advance, I would like to thank the more than 5,000 World Pack team members for their dedication over the last 10 years.
Speaker Change: Reaching an agreement to sell World Pack is a major milestone for the company, and our vision from here is to further our commitment to the blended box model, servicing both pro and DIY customers with our well-established retail footprint augmented by our independence.
Speaker Change: in the wake of selling world pack and with our clearer vision i am now even more excited for the company's potential
Speaker Change: Reaching an agreement to sell world pack is a major milestone for the company.
Speaker Change: Our vision from here is to further our commitment to the blended box model servicing both pro and DIY customers with our well-established retail footprint augmented buyer independence.
Speaker Change: with that let's open the call up for questions operator
Speaker Change: That's our path forward, and it's a proven service model in the auto parts industry.
Speaker Change: We didn't have one.
Speaker Change: So, talk about investing in the frontline.
Speaker Change: The sale of World Pack fuels our vision by improving our balance sheet, streamlining our operations, and enabling us to focus on one business model.
Speaker Change: With the World Pack review now complete, I also want to provide an update on our Canadian assets. During the second quarter, I traveled to Canada and was impressed by the deep expertise and market knowledge that our long-tenured Canadian team brings to the business.
Speaker Change: thank you we would now begin today's q a sessions soif you would like to ask a question please press stf followed by one telephoneand keep pat turn to the que if you wish to withdrawal please press staffleded by two particens are asked to live in themselves to one question and one follow up each we may reach as many people as possible
Speaker Change: Our business model aligns well with our U.S. operations, and that team has consistently delivered strong performance.
Speaker Change: As a result, we have made the decision to retain our Canadian operations.
Speaker Change: During Q2, comp sales to up and down the street pros turned positive year over year, compared with the decline in the first quarter.
Speaker Change: We had multiple teams.
Speaker Change: We're hearing it from our team members.
Speaker Change: I would like to thank our Canadian team for their patience during the review, where they maintained an unwavering focus on serving our customers, and I look forward to working with this team to grow the business.
Speaker Change: Our strategic pro accounts also grew year over year, and we remain committed to serving them and growing our share across all pro segments.
Speaker Change: And so we've got a very strong leader running that team.
Speaker Change: Moving to our second decisive action, reducing costs and reinvesting in our frontline. We have reduced costs and reinvested a portion of those savings in our frontline team. These investments have been particularly meaningful for our commercial account managers and our commercial parts pros, as they are stepping up our pro business efforts.
Speaker Change: Along with that, we are igniting the field culture to become more customer focused and are reducing time spent on non-sales tasks, and we are putting greater emphasis on accountability.
Speaker Change: And we've been investing in creating a new store opening capability.
Speaker Change: As part of this, we are continually seeking feedback from our frontline team members to identify gaps and take swift actions to improve our business.
Speaker Change: That's a muscle that had atrophied.
Speaker Change: Lastly, we remain on track to deliver $50 million of indirect procurement savings by next year.
Speaker Change: So we want to get back to opening 100 stores a year.
Speaker Change: Our third decisive action is related to organizational changes. We welcomed our new chief merchandising officer, Bruce Starnes, in the second quarter, and now we've added talented individuals in additional critical merchandising functions. We have hired a new SVP leading assortment, digital merchandising, and inventory management.
Speaker Change: We've added a new SVP for merchandising operations and pricing, and we've added a new VP of e-commerce.
Speaker Change: We have also realigned our marketing and e-commerce functions to now report into Bruce's organization for stronger collaboration.
Speaker Change: These leaders are enhancing our capabilities with respect to fundamental retail operations, and I look forward to the value that true merchandising excellence can bring to our business.
Speaker Change: Early examples include, number one, conducting more frequent and deeper line reviews to ensure that we have the right product depth, breadth, and costs.
Speaker Change: This year, we are on track to do 130 line reviews.
Speaker Change: I go talk to a GM who said, hey, I was able to raise the wage for one of my team members for $1.50.
Greg Maniage: and our our first question today comes some gregmanage from eical i gre lineinesis open please go ahead
Greg Maniage: Number two, assessing front and backroom assortments to improve relevancy and availability.
Greg Maniage: And we're looking at markets where we have a right to win as a way to think about where, to put those stores.
Greg Maniage: We're seeing it in terms of our PLR impacts.
Greg Maniage: And number three, coordinating marketing efforts to deliver great offers for our customers.
Greg Maniage: An example of all three of these things coming together is our recent launch of our break bundle program.
Greg Maniage: There's some refresh of existing stores that need a bit of a freshening.
Greg Maniage: We're seeing it in terms of vendor partnerships.
Greg Maniage: The merchandising team's work is being augmented by recent pricing actions and the implementation of our new inventory management system. We now have more than 300,000 actively managed SKUs in our new system. We began this effort earlier this year and completed it in July, a full six months ahead of our initial goal.
Greg Maniage: Our fourth action, consolidation of our supply chain. At completion, our supply chain is expected to feature 14 large DCs operating on a single, warehouse management system, or WMS. This compares to our previous structure of 38 DCs of varying capacities operating with, different systems. We remain on track with our WMS implementation with the recent completion of the Thompson, Georgia DC conversion, and expect our final DC to be completed by year's end.
Greg Melich: thank you i guess id loveved to develo up really on the guidance try just wanted to make sure the full year guidance still includes world pack
Greg Melich: The 14 DCs will serve as nationwide replenishment nodes, while the remaining DCs will either, be closed or converted to market hubs.
Greg Melich: Speaking of market hubs, as of mid-August, we have 10 market hubs in operation. We are creating these hubs by converting smaller DCs, upfitting existing stores, or greenfielding, new locations. The market hub is new to Advance, and each market hub has the potential to make an average, of 80,000 SKUs available to a supported radius of stores on a same-day basis. We are gaining critical insights on managing hub inventory, along with determining efficient, routes and replenishment frequencies.
Greg Melich: We now expect to open at least 17 market hubs by the end of 2024, and believe that this, updated schedule will enable us to effectively apply learnings and develop the right operational model for our hub service stores.
Greg Melich: We still expect to open 60 market hubs by 2026.
Greg Melich: Lastly, our last decisive action is improving the productivity of all our assets. As we continue our strategic and operational review, we are amplifying our efforts to improve, overall asset productivity.
Greg Melich: We believe we can reposition the core Advance business to generate mid-single-digit margins, in the next few years.
Greg Melich: And as we consider our long-term margin goals, we believe the following building blocks will, help drive our future success. These building blocks include generating sustainable, positive comp sales. This is supported by competitive market-based pricing, it's supported by our energized frontline, team, and improved inventory availability.
Speaker Change: because you have it this year or it does it excludde it
Speaker Change: Note that sales productivity is our biggest opportunity to close our performance gap relative, to the industry.
Speaker Change: And then two other areas.
Speaker Change: Vendors are reaching out to us and they're saying, hey, we're excited by where you guys are going. We want you to succeed.
Speaker Change: Our second building block is store footprint. This also contributes to closing the sales productivity gap. And now, with our stronger combined real estate team, we are assessing our entire store footprint, to identify markets where we can rationalize stores, as well as where we can open new stores.
Speaker Change: On the IT front, we've got two POS systems.
Speaker Change: So, the vendors are behind us.
Speaker Change: The team is currently scaling capabilities to put us on a path to open at least 100 new, stores per year located in markets of strength.
Speaker Change: We still have a residual legacy POS system that we want to get all of our stores on one, POS system. So there's an IT investment there.
Speaker Change: So, at each sort of level of what we're doing, the improvements we're making are starting to get a little bit of traction.
Speaker Change: The next building block is improving gross margin. As mentioned, there are two primary tenants to unlocking better gross margins, and they, are merchandising excellence and supply chain. Value is created here from harmonizing first cost... Improving DC throughput, optimizing transportation, and many other activities.
Speaker Change: Now, we still have things that we want to do and places we want to go.
Speaker Change: morning greg i includes world pack in the guide as soon as we closse that transaction q three it'll go into this ops and we'll provide a guide for the remainco for the q three earnings call
Speaker Change: Our last building block is realigning our SG&A with our post-WorldPAC operating structure.
Speaker Change: So, supply chain, we've got to finish the consolidation.
Speaker Change: We will continue to invest in the required areas of our business, but at the same time, we are putting greater emphasis with our leaders to manage expenses and create operating leverage for our future.
Speaker Change: We've got to roll out the market hubs.
Speaker Change: To conclude, as we look to a post-WorldPAC advance, we are now executing against a clear vision of operating a single business that is poised for success as we revitalize core processes that focus on the fundamentals of selling auto parts.
Speaker Change: In merchandising, as Bruce gets traction with that team, we expect him to do more things.
Speaker Change: So, there's upside in all the areas we're doing, but there's progress that we're getting back from our own team and from our customers where people are indicating we're on the track.
Speaker Change: These are the things that we want to do.
Speaker Change: And importantly, internally, we're getting excitement.
Speaker Change: We plan to share more details on our outlook for the remaining business at our next earnings call in November.
Speaker Change: Now let me hand the call over to Ryan to discuss our financial results.
Speaker Change: Ryan?
Speaker Change: Thank you, Shane, and good morning, everyone.
Speaker Change: I would also like to start by thanking our dedicated team members for their commitment to delivering excellent customer service.
Speaker Change: got it and so the just to make sure that minimum of one hundred million free cash flow that would include the bitda most of the ebitda from worldll pack this year so we're thinking about it next year we should be
Speaker Change: Before diving into Q2 results and our revised outlook for the year, I will provide some additional details related to the WorldPAC transaction. Based on our reported financials, over the last 12 months at the end of Q2, WorldPAC contributed approximately $2.1 billion to the enterprise revenue and approximately $100 million to enterprise EBITDA. This EBITDA does not account for certain atypical items, intercompany margins, and some overhead costs related to supporting the WorldPAC business. These adjustments account for approximately $30 million of additional EBITDA.
Speaker Change: The transaction price of $1.5 billion will result in net proceeds of approximately $1.2 billion after taxes and transaction fees. These proceeds will strengthen our balance sheet and provide greater financial flexibility to invest in our business and execute our strategic plan.
Speaker Change: As Shane mentioned, we are amplifying our efforts to improve overall asset productivity to determine the most appropriate asset base and expense structure for the business.
Speaker Change: yeah correct guys
Speaker Change: And then on the supply chain side, we're rolling out the market hubs, we're doing the DC consolidation.
Speaker Change: okay thank you going get that on the agreement
Speaker Change: We are also evaluating investment needs by business function to effectively deploy transaction proceeds to accelerate growth.
Speaker Change: But even inside of the existing DCs, and think about this in terms of pick mods and conveyor, systems, there's investment there.
Speaker Change: The simplification of our enterprise structure will provide further clarity for our frontline and corporate support teams.
Speaker Change: But also in terms of just getting inventory tracking through the system in particular, as it goes from a DC to a hub to a customer.
Speaker Change: We believe that a strategic plan to prioritize sales productivity combined with a balanced enterprise cost structure will help deliver margin expansion and earnings growth.
Speaker Change: for the agreement on the sale is there any sort of exclusivity of distribution that you have with the buyer where you get to still you sell world pac product through advanced stores or that a cope the complete clean break
Speaker Change: While near-term headwinds have obscured our initial progress, we remain confident in our approach and believe that the actions we are taking will position us well to generate mid-single-digit margins in the next few years.
Speaker Change: Moving to our second quarter results, net sales of $2.7 billion were flat to last year. Comparable store sales increased 0.4 percent, led by a positive pro comp, DIY comp, and a negative low single-digit range.
Speaker Change: So there's some investment there.
Speaker Change: So there's a number of fruitful areas where we can put some of the proceeds that will, help us on the journey, both in terms of improving our effectiveness, or increasing our sales or both.
Speaker Change: Although improved compared with Q1, the reduction in net sales was largely driven by fewer independent car quest locations, which largely offset the positive comparable sales.
Speaker Change: Great.
Speaker Change: Performance.
Speaker Change: In terms of cadence for the second quarter, trends started off soft and improved as we moved through the quarter with the benefit of the tailwind from hot weather related sales and our strategic actions to drive growth among the pros.
Speaker Change: no we do have an agree with then we will continue to sell wellpack product through our stores that's a critical piece of for our catalogue offering for our proach
Speaker Change: In, addition to the strong performance at HVAC category, we continue to see positive results in fluids and chemicals and engine management.
Speaker Change: Looking at our channels more closely, our professional business of positive comparable ticket and transactions in our DIY business, comparable ticket was also positive, although more than offset by declining transactions.
Speaker Change: Gross profit was $1.1 billion or 41.5% of net sales compared with 42.5% of net annualized basis.
Greg: as you know greg world pack provides offered to certain in european oem type products that advance has sold so that relationship continues it's a huge part of our business but we want to retain the capability so we can source products to world back and then we would sell them to the customer as advance
Speaker Change: got it that's awful then last on the incremental price in investment i guess it's an extra sixty million is in an annualized figure and could you give us more detail in terms of what product lines or markets you're really looking to do there
Speaker Change: that is that an annualized number and that's the full fully loaded that doesn't necessarily account forard a li etca that we would see the offset that we expect to see unit
Speaker Change: trajectory and lift offset that and some cost out to get to help us at one hundred million dollarsar investment
Speaker Change: During the second quarter, we identified additional opportunities and expanded our actions more broadly across the assortment, resulting in a cumulative investment of over $100 million.
Speaker Change: but that itis annualized its's broad spread our initial when we went initially at the end of q one we had some seasonal categories high tilted board towards y w frck room but also the touch on pro categories
Speaker Change: That's our path forward and it's a proven service model in the auto parts industry.
Speaker Change: this was more broadsperead but also included more pro categories as we tried to get right pricice and competitively priced within the pro area but it's kind of broadspread across maybe balances out the the price investments across our full sskullisting so so some color there i think the first thing the note is we're not leading the moremar get down
Speaker Change: I would note that these 2024 pricing changes are not in response to the challenging market dynamics. Rather, we view these changes as necessary adjustments to reposition Advance more competitively and to improve our price perception in the industry.
Speaker Change: The sale of world pack fuels our vision by improving our balance sheet, streamlining our operations and enabling us to focus on one business model.
Speaker Change: With the world pack review now complete, I also want to provide an update on our Canadian assets. During the second quarter I traveled to Canada and was impressed by the deep expertise and market knowledge that our long tenured Canadian team brings to the business.
Speaker Change: this is as we looked at historically how we position we found that we were above the market unnecessarily sell
Speaker Change: Our field team has been driving awareness of these changes with regular customer visits. Initial feedback has been positive, and we believe that these pricing changes should put us in a stronger competitive position as demand begins to recover.
Speaker Change: SG&A was $1 billion. As a percentage of net sales, SG&A was 38.9% compared with 37.8% in the same quarter last year. The higher SG&A was driven by an increase in payroll expenses associated with wage investments and training for our frontline team, professional fees related to the strategic and operational review of our business, costs associated with the remediation of our previously disclosed material weaknesses, and other expenses associated with the implementation of our strategic plan.
Speaker Change: Operating margin of 2.7% deleveraged about 200 basis points compared with last year.
Speaker Change: Our business model aligns well with our US operations and that team is consistently delivered strong performance.
Speaker Change: Diluted earnings per share came in at $0.75 compared with $1.00 and 32 cents in the prior year quarter.
Speaker Change: As a result, we have made the decision to retain our Canadian operations. I would like to thank our Canadian team for their patience during the review where they maintained an unwavering focus on serving our customers and I look forward to working with this team to grow the business.
Speaker Change: Year-to-date free cash flow was an outflow of $4.6 million compared with an outflow of $312 million in the prior year, driven by the timing of payables in the first half of last year.
Speaker Change: Business.
Speaker Change: and so this is moving to the market and obviously customer feedback critical in these circumstances and 'll provide a personal anecdote i saw a pro customer
Speaker Change: who pulled up on the screen and said sh you guys are out of wack on radiators
Speaker Change: Moving to our second decisive action, reducing costs and reinvesting in our front line. We have reduced costs and reinvested a portion of those savings in our front line team. These investments have been particularly meaningful for our commercial account managers and our commercial parts pros as they are stepping up our pro business efforts.
Speaker Change: and so we go back andcan we look at what our radiated pricing is ' sure enough
Speaker Change: During Q2 comp sales to up and down the street pros turn positive year over year compared with the decline in the first quarter.
Speaker Change: 're materially higher sort of fifty dollars higher than than we needed to be and so we made be adjustment and then we start to see pick up in radiator unit so it rines that we've done this broadly
Speaker Change: but importantly it's to just be at the market and we'll look for customers to now know us as being market-based in terms of pricing and that's part of our growth story going forward
Speaker Change: Moving to an update on our full year 2024 guidance. We have updated our full year outlook for the enterprise, including WorldPAC, pending the completion of the sale. Following close, WorldPAC will report it as discontinued operations.
Speaker Change: Thank you.
Speaker Change: Okay, thanks for the detail.
Speaker Change: that's great good luck eyesys andthanks for the info
Greg: thanks greg
simmi pment: the next question comes from simmi pment from morgan stadley senior your line is o please go ahead
simmi pment: We will update our outlook for advanced blended box business with our third quarter results in November. We now expect sales for the full year to range from $11.15 to $11.25 billion, including comparable store sales in the range of negative 1% to 5%. Our revised guidance considers our year-to-date performance and expectations for the balance, of the year.
simmi pment: The next question comes from Scott Ciccarelli from Truist.
simmi pment: The next question comes from Brian Nagel from Oppenheimer.
simmi pment: take good morning everyone hian and i want to start asking a more strategic question
simmi pment: Scott, your line is open, please go ahead.
simmi pment: Brian, your line is open.
Speaker Change: there's it's under tone of improving the core business but we're also investing for growth
Speaker Change: Good morning, guys.
Speaker Change: Please go ahead.
Speaker Change: i wanted to ask you know how much a priority is growross i understand
Speaker Change: Can you outline maybe a bridge to your reduction in your EBIT margin?
Speaker Change: Hi, good morning.
Speaker Change: you know want to be left out as the industry keeps growing but the priority versus sort of triree ageing fixing the business bring it back to sort of normal health versus looking around the corner and still investing for growth in that balance
Speaker Change: We expect consumer-related headwinds related to maintenance deferrals, lower discretionary, spending to impact our trajectory in the short term.
Speaker Change: I mean, I know it's only over 150 base points or so, but it's a pretty sizable percent reduction.
Speaker Change: Thanks for taking my questions.
Speaker Change: yes thanks i mean we have to do both we don't get the luxury of of just focusing on on one versus the other i think inevitably in today's business environment if you look at the cost of benefits or renter or whatever it is you'll see escalation so we want to be a positive comping company
Speaker Change: With respect to quarter-to-date trends, both our pro and DIY businesses have started off, weaker, driven by the overarching macro pressure on the consumer, tougher prior-year comparisons, and diminishing weather-related tailwinds exiting Q2. We have factored this into our guidance for the full year.
Speaker Change: So maybe how much is from the sales change, how much from price investments, how much, from strategic investments, just to give a better idea of kind of what changed from a couple of months ago?
Speaker Change: So, my first question, and I apologize for being repetitive, but I also want to just touch on these price investments.
Speaker Change: Our strategic pro accounts also grew year over year and we remain committed to serving them and growing our share across all pros segments.
Speaker Change: Yeah, absolutely.
Speaker Change: So, the question I have, and you're recognizing, as you've said now several times, you're not leading the sector, the lower.
Speaker Change: Along with that, we are igniting the field culture to become more customer focused and are reducing time spent on non sales tasks and we are putting greater emphasis on accountability. As part of this, we are continually seeking feedback from our front line team members to identify gaps and take swift actions to improve our business.
Speaker Change: So the large portion of that is volume.
Speaker Change: Leverage Ratio.
Speaker Change: Lastly, we remain on track to deliver 50 million dollars of indirect procurement savings by next year.
Speaker Change: and so that's where you look at the likes of what we're doing in our sales efforts and up and down the street pro and rejuvenating team members with investments and focus on our cpps and campss also to bring in bruce starts
Speaker Change: Our third decisive action is related to organizational changes.
Bruce: and his merchandising excellence capabilities that he brings from his past experience
Bruce: we've got a cadray of outstanding leaders now inside of merchandising
Bruce: to help us with availability with pricing with our plr process in terms of costing
Bruce: so those are some of the mechanics but getting to a positive comp is critical for us
Bruce: Long term, we want to be at a 2.5.
Bruce: we've set the table in many regards as it relates to the underpinning of how we're competitive on on cost and things we want to do i think the world pack sale process piimmizes that so with world pack as a different business
Bruce: I mean, obviously, that's when we look at it from a Remainco standpoint.
Bruce: We welcomed our new chief merchandising officer, Bruce Starns, in the second quarter.
Bruce: And now we've added talented individuals in additional critical merchandising functions.
Bruce: We have hired a new SPP leading assortment, digital merchandising and inventory management.
Bruce: inside of our company the distraction that that creates we're singularly focused now on the blended box and so look for us operationally to make that more efficient to focus on that supply chain but also look for for a growth perspective that we need to be delivering a positive come
Bruce: When we close this transaction, we'll be evaluating what that looks like.
Bruce: We've added a new SPP for merchandising operations and pricing and we've added a new VP of e-commerce.
Bruce: And then the other piece of that is the price investments and the margin rate.
Bruce: But ultimately, we want to remain investment grade long term, and we want to be at a ratio about 2.5.
Bruce: the
Bruce: We have also re-aligned our marketing and e-commerce functions to now report into Bruce's organization for stronger collaboration.
Speaker Change: then a follow up can you i don't know ifyou'll comment but it looks like the run rate of e p s post world pack looks like it'll be
Speaker Change: Those are really the two big drivers of it.
Speaker Change: So we'll continue to look at what that means from a balance sheet standpoint.
Speaker Change: subtwo dollars and there was this mention of the the thirty million dollars of some adjustment to run rate world packy bitbut that i don't does that mean that that it's thirty million dollars that stays with advance or is that thirty million dollars just not part of it just goes away
Speaker Change: Yeah, and I'll just say that you think about this in the context of a turnaround.
Speaker Change: So we pick up a billion five here, got close to five in terms of our internal generation.
Speaker Change: So strengthening the balance sheet is a key step. And as we think about the different potential uses, whether it's with the with with debt or company investments or shareholders, it's exciting to now have that that cash infusion to fuel the journey.
Speaker Change: yes so ri unpacked a little bit but but i think ' your hypothesis that the underlying core business
Speaker Change: is wanting in terms of performance setic is accurate but that's exactly why we're creating this focus and that's where there is excitement in terms of turning the page as a company as a blended box auto parts retailer on
Speaker Change: I think, again, I want to emphasize for everybody on the call, selling WorldPAC and creating a singular focus, if you just look at at key activities associated with a turnaround, right?
Speaker Change: While we won't speculate on the timing, we are confident the industry will return to, growth as conditions normalize, driven by the aging car park and largely non-discretionary nature of auto maintenance. This provides a supportive backdrop for us to execute against.
Speaker Change: You simplify the business.
Speaker Change: The median income margin for the full year is now expected to be between 2.1% to 2.5%. The revised margin outlook is being driven by a combination of lower gross margin and, higher SG&AD leverage. As indicated earlier, we took additional pricing actions during the second quarter, which will, impact gross margin.
Speaker Change: While we are seeing some green shoots in improving unit velocity, the rate of improvement is, slower than we initially anticipated, given the weaker demand landscape. That said, over time, we expect our price investments to yield positive net results, through increased volume.
Speaker Change: Regarding SG&A, we still expect expenses to be flat to slightly up year-over-year. To a meaningful degree, we are adjusting SG&A to address the current demand environment and, are continuing to make necessary investments as part of our turnaround.
Speaker Change: yes mean we won't give specific guidance to the remain co until the q three but we did provide the evenbit the reason we added the thirty was that is additional ebitda
Speaker Change: The median EPS for the full year is now expected to range from $2 to $2.50, and we expect to, generate a minimum of $100 million of free cash flow.
Speaker Change: that is held at the parent companies is a net of some innerintercompany and costs that are held at the enterprise so you should look at that as additive to the hundred
Speaker Change: that if we were to close the deal on willpback think of that is closer to one hundred and thirty million
Speaker Change: These leaders are enhancing our capabilities with respect to fundamental retail operations and I look forward to the value that true merchandising excellence can bring to our business.
Speaker Change: Early examples include number one, conducting more frequent and deeper line reviews to ensure that we have the right product depth breadth and costs.
Speaker Change: This year we are on track to do 130 line reviews.
Speaker Change: but in q three earnings call some of full picture of meicgo thanks i mean
Speaker Change: You create focus on what the company is going to do.
Speaker Change: You have a strategy that everybody understands.
Brent Thill: the next question comes from breath children from ffreies right your line is open please go ahead
Speaker Change: Number two, assessing front and backroom assortments to improve relevancy and availability.
Brent Thill: And then you set about doing it.
Brent Thill: And number three, coordinating marketing efforts to deliver great offers for our customers.
Brent Thill: he morning guys
Speaker Change: one rest worldpact working capital situation i maring how much of that inventory you carry the creet to world pack and i guess what's the outlook as far as working capital reduction
Brent Thill: An example of all three of these things coming together is our recent launch of our break bundle program.
Speaker Change: i
Speaker Change: sorry pillion
Speaker Change: about a billion dollars of inventory for a world back their coverage ratio a little bit lower willll obviously share more what that remain co looks like as we discusgots them inq three but that should giveyou a allb part their coverage ratiois going to mix
Brent Thill: The merchandising team's work is being augmented by recent pricing actions and the implementation of our new inventory management system. We now have more than 300,000 actively managed skews in our new system. We began this effort earlier this year and completed it in July of full six months ahead of our initial goal.
Speaker Change: us down when they're in the consolidated it'll mix us up a little bit when they're no longer with us but its about a billiondollars inventory
Brent Thill: Our fourth action consolidation of our supply chain. At completion, our supply chain is expected to feature 14 large DCs operating on a single warehouse management system or WMS. This compares to our previous structure of 38 DCs of varying capacities operating with different systems. We remain on track with our WMS implementation with the recent completion of the Thompson Georgia DC conversion and expect our final DC to be completed by years end.
Speaker Change: okay and then the proceeds i guess you've talked about debt reduction and you've got a couple ofdebt trunches in the highfive five percent can you pay those down or you could prepay pales i guess what the balance she can look like post clos
Brent Thill: The 14 DCs will serve as nationwide replenishment nodes while the remaining DCs will either be closed or converted to market hubs.
Speaker Change: we'll definitely share more specifics around that at a later date right now we're going to take that cash look at when we close the business 'll look at bothl ering the balance sheet would definitely look at what debt we need to pay down what we need to invest in the business
Speaker Change: And then, by the way, if you have the luxury of a strong balance sheet, to help undertake that journey, all the better.
Speaker Change: and what we need for going forward so we'll price share a little bit more but if we do attack that you would think that we would attack those higher interest stranches
Speaker Change: Thank you.
Speaker Change: yes and i'll touch on doing that reprintmentthat all that prepared remarks
Speaker Change: Final question we have time for today comes from Chris, particularly from BNP Paribas.
Speaker Change: Chris, your line is open.
Speaker Change: Please go ahead.
Speaker Change: good cybre
Speaker Change: asi said is repurchase still in the use approceeds
Speaker Change: yes over i think a reasonable period of time on that it and the first priority is going to be the balance sheet making sure we've got a goodbalance sheet for growth going forward invest in our initiatives and then absolutely over a reasonable period of time returning cash to shareholders
Speaker Change: Speaking of market hubs, as of mid-August, we have 10 market hubs in operation. We are creating these hubs by converting smaller DCs, updating existing stores or greenfielding new locations. The market hub is new to advance and each market hub has the potential to make an average of 80% thousand skews available to a supported radius of stores on a same day basis. We are gaining critical insights on managing hub inventory along with determining efficient routes and replenishment frequencies.
Speaker Change: excess cash shareholders is important for us
Speaker Change: Our guidance for capital expenditures is unchanged and still expect to be in the $200 to $250, million range as we undertake projects to enhance our IT, stores, and supply chain infrastructure.
Speaker Change: To wrap up, I would like to reiterate that we firmly believe that advance has a pathway, to stronger earnings growth.
Speaker Change: Through the productivity review of our assets, we will have better visibility into the margin, trajectory for the blended box, and we expect to share more on this in November.
Speaker Change: With that, I will now hand the call back to Shane.
Speaker Change: and on the investment side of the house three areas stores
Speaker Change: 're in the prepared remarks we created a unified real estate team we didn't have when we have multiple teams
Speaker Change: We now expect to open at least 17 market hubs by the end of 2024 and believe that this updated schedule will enable us to effectively apply learning and develop the right operational model for our hub service stores.
Speaker Change: and so we've got a very strong leader running that team and we've been investing in creating a newsto opening capability that's a muscle that it attrifee
Speaker Change: Thank you, Ryan.
Speaker Change: In closing, I want to thank all of our team members once again for their commitment to, serving our customers.
Speaker Change: Our industry has historically proven to be resilient, and it's demonstrated an ability, to recover quickly after periods of macro pressure.
Speaker Change: We still expect to open 60 market hubs by 2026.
Speaker Change: Since arriving at Advance, I have been excited by the people and I've been excited by the, company's purpose.
Speaker Change: In the wake of selling WorldPak, and with our clearer vision, I am now even more excited, for the company's potential.
Speaker Change: With that, let's open the call up for questions.
Speaker Change: so we want to get back to opening one hundred stores a year and we're looking at markets where we have a right to win as as a way to think about where to put those stores
Speaker Change: Lastly, our last decisive action is improving the productivity of all our assets.
Speaker Change: Operator.
Speaker Change: As we continue our strategic and operational review, we are amplifying our efforts to improve overall asset productivity.
Speaker Change: Thank you.
Speaker Change: there's some refresh of existing stores that that need a bit of freshening and then two other areas on the it front
Speaker Change: We believe we can reposition the core advanced business to generate mid-single digit margins in the next few years.
Speaker Change: We will now begin today's Q&A session, so if you would like to ask a question, please, press star followed by 1 on your telephone keypad to enter the queue.
Speaker Change: If you wish to withdraw, please press star followed by 2.
Speaker Change: Participants are asked to limit themselves to one question and one follow-up each, so, we may reach as many people as possible, possible.
Speaker Change: And as we consider our long-term margin goals, we believe the following building blocks will help drive our future success. These building blocks include generating sustainable, positive comp sales. This is supported by competitive market-based pricing. It's supported by our energized frontline team and improved inventory availability.
Speaker Change: And our first question today comes from Greg Melich from Evercore ISI.
Speaker Change: we've got two pls systems we still have a residual legacy po system
Speaker Change: Greg, your line is open.
Speaker Change: Please go ahead.
Speaker Change: that we want to get all of our stores on one pls system so there's an it investment there
Speaker Change: Note that sales productivity is our biggest opportunity to close our performance gap relative to the industry.
Speaker Change: Thank you.
Speaker Change: and then on the supply chain side
Speaker Change: Our second building block is store footprint. This also contributes to closing the sales productivity gap. And now with our stronger combined real estate team, we are assessing our entire store footprint to identify markets where we can rationalize stores, as well as where we can open new stores.
Speaker Change: we're roll out the market hobs are ddoing the dc consolidation but even inside of the existing dc's
Speaker Change: and think about this in terms of tick mods and conveary systems as investment there but also in terms of just getting
Speaker Change: inventory tracking through this system in particular as it goes from a d c to a hub a customer so there's some investment thereso there's a number of of fruitful areas where we can put some of the proceeds that will help us on the journey both in terms improving our effectiveness 're increasing our sales are both
Speaker Change: thank you
Scotchic Already: next question comes from scotchic already from sur ance scot your line o please go ahead
Scotchic Already: I guess I'd love to follow up really on the guidance, Ryan, just want to make, sure the full year guidance still includes WorldPAC because you have it this year or does it exclude it?
Scotchic Already: Hey, guys, thanks for squeezing in.
Scotchic Already: Just wanted to kind of talk about the store opening plan.
Scot: good morning guys can you outline maybe a bridge to your reduction in your ebit margin i i know it you know only over one hundred un fifty basase pots are one hundred fifty basase points yourself but
Speaker Change: it's a presizable percent reduction so maybe how much is from the sales change how much from price investment so much from strategic investments just to give a better idea of kind of would change from a couple of months ago
Speaker Change: Yeah, morning, Greg.
Speaker Change: That seems like something incremental.
Speaker Change: yes absolutely so the large portion of that isits volume and then the other piece of that is the price investments and the margin rate those are really the two
Speaker Change: SG&A is coming in pretty much in line with what we expected.
Speaker Change: being drivers of it sdna coming in pretty much in line with what we expected while we're pulling back on sdna relative demand we're also making sure we' continue our investments in
Speaker Change: We're pulling back on SG&A relative to demand.
Speaker Change: We're also making sure we continue our investments in supply chain and those key growth initiatives, that we have.
Speaker Change: supply chain and those key growth initiatives that we have so as is going to come in about the same place we expected in the guide the biggest drivers are going to be the volume on the p line and margin rate
Speaker Change: So SG&A is going to come in about the same place we expected in the guide. The biggest drivers are going to be the volume on the top line and margin rate.
Speaker Change: Yeah.
Speaker Change: And Scott, you made a good observation there.
Speaker Change: Based on where we sit, even small changes have outsized impacts.
Speaker Change: yes it's sgotyyou made a good observation they based on where we sit
Speaker Change: even small changes have outsized impacts
Speaker Change: We are definitely seeing the headwind with the consumer, and it manifests itself in terms, of either deferring the spend or trading down.
Speaker Change: we are definitely seeing the headwind with the consumer and it manifests itself in terms of other deferring the spendor trading down
Speaker Change: And you guys know the stats, right?
Speaker Change: Credit card defaults are at a high 9%.
Speaker Change: and you guys know the stats right credit card defulter at a high nine percent people are getting squeezed on rents and mortgage that's up year-over-year and what we're seeing in the cohorts that are relevant for our company and think about that is households making fifty care lesseror even seventy-five k or less
Speaker Change: People are getting squeezed on rents and mortgage. That's up year over year.
Speaker Change: And what we're seeing in the cohorts that are relevant for our company, and think about, that as households making 50K or less or even 75K or less, their spend is diminishing or where they spend, they're spending less.
Speaker Change: The team is currently scaling capabilities to put us on a path to open at least 100 new stores per year located in markets of strength.
Speaker Change: their spend is diminishing or where they spend their're spending less and so we're sensitive to that that downtick hits us and that's something that when you're in a turnaround we're particularly sensitive to in terms of what that impact is on our bottom line
Speaker Change: And so we're sensitive to that, but that downtick hits us.
Speaker Change: And that's something that when you're in a turnaround, we're particularly sensitive to, in terms of what that impact is on our bottom line.
Speaker Change: Very helpful.
Speaker Change: Yeah, it includes WorldPAC in the guide.
Speaker Change: And then just a quick follow-up on WorldPAC.
Speaker Change: How much of that, I guess we're supposed to be using $130 million figure, how much of, that is DNA?
Speaker Change: very hohelpful and then just could follow up on world pack how much of that one hundred andi get re useingin hundred and thirty million dollars figure how much of that is dna
Speaker Change: We don't give specifically on DNA.
Speaker Change: we don't give specifically i just compet can we the percent of sales
Speaker Change: Can we look at a percent of sales?
Speaker Change: Well, the sales of WorldPAC was 2.1.
Speaker Change: i you
Speaker Change: oh
Speaker Change: so that the sales of wellback was two point one ebit we're saying is closer to one thir that you would you would think about that's ebitda
Speaker Change: EBITDA, we're saying, is closer to 130 that you would think about, but EBITDA.
Speaker Change: I understand.
Speaker Change: How much of that is the actual depreciation and amortization, though?
Speaker Change: i understand how how much of that is the actual depreciation and amorzation not like you know can we assume as you know it for pack with eighteen percent of total sallle enterprise sales it's about eighteen percent of dna
Speaker Change: The next building block is improving gross margin. As mentioned, there are two primary tenants to unlocking better gross margins. And they are merchandising excellence and supply chain. Value is created here from harmonizing first costs, improving DC throughput, optimizing transportation, and many other activities.
Speaker Change: Can we assume that if WorldPAC was 18% of total sales, enterprise sales, it's about, 18% of DNA?
Speaker Change: Our last building block is realigning our SGA with our post-world pack operating structure.
Speaker Change: Yeah, we're not giving out specific guidance relative to this ops or different parts of, the business at this time.
Speaker Change: we're not giving out specific guidance relative to this offs or different parts of the bus at this time we'll do thatin qthree
Speaker Change: As soon as we close that transaction, Q3, it'll go into DisOps and we'll provide a guide, for the RemainCo at the Q3 earnings call.
Speaker Change: We'll do that in Q3.
Speaker Change: Okay.
Speaker Change: Thanks, guys.
Speaker Change: Got it.
Speaker Change: The next question comes from Michael Lasso from UBS.
Speaker Change: We will continue to invest in required areas of our business.
Speaker Change: And so the just to make sure that minimum of one hundred million free cash flow, that would include the EBITDA, most of the EBITDA from WorldPAC this year.
Speaker Change: Michael, your line is open.
Speaker Change: okay thanks gu
Speaker Change: Please go ahead.
Speaker Change: So we're thinking about it for next year.
Speaker Change: Good morning.
Speaker Change: Hello, guys.
michael laser: next question comes from michael laser from es michael eline is open please go ahead
michael laser: We should be thinking.
michael laser: Thank you so much for taking my question.
michael laser: Just just wanted to ask about the store opening plan.
michael laser: So I think you're going to spend like I think it would cost about a million, to two million per box to open a store.
michael laser: You know, free cash for this year's one hundred million X WorldPAC, probably breakeven would be my guess.
michael laser: Got it.
michael laser: Gene, how should the market think about the long-term competitiveness of CoreAdvance, if it's going to have a mid-single-digit operating margin when its competitors are over-competing?
michael laser: good morning thank you so much for taking my question and how should the market think about the long term
michael laser: CoreAdvance, if it's going to have a mid-single-digit operating margin when its competitors are, in the high team's low 20% range, does that put it at a disadvantage if the market becomes more competitive and it just doesn't have as much resource to invest to remain in lockstep with the others?
michael laser: competitiveness
michael laser: of core advance if it's going to have a meetingle-digit operating margin when itits competitors
michael laser: But at the same time, we are putting greater emphasis with our leaders to manage expenses and create operating leverage for our future.
Speaker Change: are in the highteenens low twenty percent range is that put it at a disadvantage
michael laser: To conclude, as we look to a post-world pack advance, we are now executing against a clear vision of operating a single business that is poised for success as we revitalize core processes that focus on the fundamentals of selling auto.
Speaker Change: if the market becomes more competitive and it just doesn't have as much resource to invest to remain in lock step with the others
michael laser: We plan to share more details on our outlook for the remaining business at our next earnings call in November.
michael laser: Now let me hand the call over to Ryan to discuss our financial results, Ryan.
michael laser: Thank you Shane and good morning everyone.
Speaker Change: Yeah, correct.
Speaker Change: Hey, Michael, great question.
Speaker Change: But how do you think about funding the store growth?
Speaker Change: And then I guess a follow up on the.
Speaker Change: OK, thank you.
Speaker Change: And then on the agreement.
Speaker Change: For the agreement on the sale, is there any sort of exclusivity of distribution that you, have with the buyer where you get to still sell WorldPAC product through advanced stores or is it a complete clean break? No, we are we do have an agreement that we will continue to sell WorldPAC product through, our stores. That's a critical piece of our catalog offering for our pros.
Speaker Change: As you know, Greg, WorldPAC provides offer to certain European OEM type products that, advance has sold.
Michael: michael great question so so we said mid-single digits think about that as our next few years horizon that's not going to be our permanent
Michael: So that relationship continues.
Michael: I would also like to start by thanking our dedicated team members for their commitment to delivery excellent customer service.
Michael: It's not a huge part of our business, but we wanted to retain the capability so we can, source products to WorldPAC and then we would sell them to the customer as advance.
Michael: Got it.
Michael: That's helpful.
Michael: And then last on the incremental pricing investment, I guess it's an, extra 60 million.
Michael: So we said mid-single digits.
Michael: Is it going to come from the proceeds of WorldPAC or is it going to be just, contingent on improving margins and sales first?
Speaker Change: aspiration in terms of where we can take this company but i would say that this is a huge market it's an oceion of auto parts two hundred and eighty seven million vehicles age at twelve point seven years
Speaker Change: Is that an annualized figure?
Speaker Change: Think about that as our next few years, horizon.
Speaker Change: And could you give us more detail in terms of, you know, what product lines or markets, you're really looking to do there?
Speaker Change: and if you look at the share of the folks that you have that higher operating margin
Speaker Change: Yeah, that is that's an annualized number and that's the full fully loaded that doesn't, necessarily account for a list, et cetera, that we would see to offset that we expect to see unit trajectory and lift offset that and some some cost out to get to help offset the one hundred million dollar investment. But that is annualized.
Speaker Change: yes they certainly they've been growing but but in aggregate there's still a large swap of the market that they don't touch and that we don't touch so there's there's room for us to grow without ever taking a dollar or standing to to toe with that and i think that's that's important
Speaker Change: It's broad spread.
Speaker Change: Our initial when we went in initially at the end of Q1, we had some seasonal categories. I tilted more towards DIY front room, but also touch some pro categories. This was more broad spread, but also included more pro categories as we tried to get right, priced and competitively priced within the pro area.
Speaker Change: But it's kind of broad spread across and maybe balances out the the price investments, across our full SKU listing.
Speaker Change: secondly in terms of just sort of bones in terms of our ability to be out in the market we have forthousand seven hundred retail locations
Speaker Change: So some color there.
Speaker Change: we work with eleven hundred independence
Speaker Change: and if you look at where we are there there are many markets where we are the leading player
Speaker Change: so so structurally it's not as though to go out and compete with them we need to actually go have stores and b in markets we're there
Speaker Change: this is a function of tuning our operating model and clearing our focus to be better at those fundamentals and i think in the past you'll perhaps that hadn't been where we were as focused so i'm really optimistic about
Speaker Change: That's not going to be our permanent aspiration in terms of where we can take this company.
Speaker Change: And then you're going to return to store growth.
Speaker Change: But I would say that this is a huge market. It's an ocean of auto parts, 287 million vehicles aged at 12.7 years.
Speaker Change: Trying to understand the timeline and funding.
Speaker Change: Before diving into Q2 results and our revised outlook for the year, I'll provide some additional details related to the world pack transition. Based on our reported financials over the last 12 months at the end of Q2, World Pack contributed approximately 2.1 billion to the enterprise revenue and approximately 100 million to enterprise EBITDA. This EBITDA does not account for certain atypical items, inter-company margins, and some overhead costs related to supporting the world pack business. These adjustments account for approximately $30 million of additional EBITDA.
Speaker Change: Yeah, so good.
Speaker Change: Good question.
Speaker Change: The transaction price of $1.5 billion will result in net proceeds of approximately $1.2 billion after taxes and transaction fees. These proceeds will strengthen our balance sheet and provide greater financial flexibility to invest in our business and execute our strategic plan.
Speaker Change: And if you look at the share of the folks that have that higher operating margin, yes, they certainly they've been growing.
Speaker Change: where the company can go and as we move through this very tough phase which we're doing now which is in the turnaround and i would call those other players are still out there in that phas as we go through this we'll get to our
Speaker Change: As Shane mentioned, we are amplifying our efforts to improve overall asset productivity to determine the most appropriate asset base and expense structure for the business.
Speaker Change: But but in aggregate, there's still a large swath of the market that they don't touch and that we don't touch.
Speaker Change: We are also evaluating investment needs by business function to effectively deploy transaction proceeds to accelerate growth.
Speaker Change: So there's there's room for us to grow without ever taking a dollar or standing toe to toe with them.
Speaker Change: And I think that's that's important.
Speaker Change: Secondly, in terms of just sort of bones, in terms of, our ability to be out in the market, we have forty seven hundred retail locations.
Speaker Change: The simplification of our enterprise structure will provide further clarity for our frontline and corporate support teams.
Speaker Change: We work with eleven hundred independents.
Speaker Change: As we go through this, we'll get to our our point that we've talked about that mid single, digits and we'll continue to improve from there.
Speaker Change: So it's a little both.
Speaker Change: And if you look at where we are, there are there are many markets where we are the leading player.
Speaker Change: So so we actually open stores every year. Right.
Speaker Change: So so structurally, it's not as though to go out and compete with them, we need to actually go have stores and and be in markets where they're this is a function of tuning our operating model and clearing our focus to be better at those fundamentals.
Speaker Change: But as we go forward, having a robust store, opening capability is an important part of creating growth. And in terms of where you pick, where you open and how you open, what we find is makes all the difference. If you open in a market where where you're already known, and you have some regional market share, the take off of that store tends to be much quicker than if you open in an area where you're the last guy in the market.
Speaker Change: And I think in the past, perhaps that hadn't been where we were as focused.
Speaker Change: So so one of the things that we needed was to bolster, our real estate team to make that happen.
Speaker Change: So I'm really optimistic about where the company can go.
Speaker Change: And that's occurred.
Speaker Change: And and as we move through this very tough phase, which we're doing now, which is in the turnaround, I would call the you know, those those other players are still out there in that phase.
Speaker Change: And you've got to think about that in terms of site selection, by the way, whether you're building or whether you're you're leasing in terms of of how you go about your stocking programs, you're kidding and fitting your grand opening processes.
Speaker Change: OK, my follow up question is, as you are making these investments, either in frontline associates, distribution or price, do you have evidence to see that in those areas where you invest are investing either on a skew by skew basis or a store by store basis that are being connected to these new distribution assets that they are outperforming?
Speaker Change: We believe that a strategic plan to prioritize sales productivity combined with a balanced enterprise cost structure will help deliver margin expansion and earnings growth.
Speaker Change: All of those muscles needed to be rejuvenated.
Speaker Change: point that we've talked about that mid-single digits and we'll continue to improve from there
Speaker Change: And they have been.
Speaker Change: And we've been opening some stores that have that have put that to practice.
Speaker Change: So now how do you go accelerate it?
Speaker Change: okay my other question is as you are making these investment either in frontline associateates distribution or price
Speaker Change: do you have evidence to see that in those areas where you invest are investing either on a few by q bases or a store by store basis that are being connected to these new distribution assets that they are outperforming
Speaker Change: And of that, it sounds like your ability to get to a mid single digit margin is mostly sales dependent.
Speaker Change: through that it sounds like your're abilitying to get to a mid-single digit margin is mostly saliled dependent
Speaker Change: Why are there not other opportunities to grow your margin more significantly, especially considering your gross margin is about a thousand basis points below the others in the industry?
Speaker Change: well are there not other opportunities to grow your margin more significantly especially considering their gross margin is about a thousand basis pots below the others in the industry
Speaker Change: It's another good question.
Speaker Change: While near term headwind have obscured our initial progress, we remain confident in our approach and believe that the actions we are taking will position us well to generate mid single digit margin in the next few years.
Speaker Change: I think there's opportunities in both.
Speaker Change: the t
Speaker Change: another good question i think there's opportunities in both
Speaker Change: we certainly have opportunities as it relates to the margin so i' just think about the supply chain we talked about having thirty eightdcs
Speaker Change: different operating system so without and incremental dollar sales we get to the consolidated fourteen d c no with with the market hubs and that takes out substantial money that's a good example we talked about the tech being on different p o s systems and that friction that caus imagine being a district manager and you go to one store and your team members are trained on on one operating system and you go to another sto andit's entirely different and we have we have that in in plenty of location so there's an efficiency gain in terms of what our team memers so we certainly will look for operating improvement p r s about way a huge component ducting one hundred thirty of themand that's both in terms make sure we got the right products the right mix of vate brand
Speaker Change: Moving to our second quarter results, net sales of $2.7 billion will flat to last year. Comparable store sales increased 0.4% led by a positive pro comp, DIY comp and the negative low single digit range.
Speaker Change: Although improved compared with Q1, the reduction in net sales was largely driven by fewer independent car quest locations, which largely offset the positive comparable sales performance.
Speaker Change: In terms of cadence for the second quarter, trends started off soft and improved as we move through the quarter with the benefit of the tailored from hot weather related sales and our strategic actions to drive growth among the pros.
Speaker Change: In addition to the strong performance at HVAC category, we continue to see positive results in fluids and chemicals and engine management.
Speaker Change: We certainly have opportunities as it relates to the margin side.
Speaker Change: Looking at our channels more closely, our professional business of positive comparable ticket and transactions in our DIY business comparable ticket was also positive, although more than offset by declining transactions.
Speaker Change: Just think about the supply chain.
Speaker Change: We talked about having thirty eight D.C. on different operating systems.
Speaker Change: So even without an incremental dollar sales, we get to the consolidated 14 D.C. node with, the market hubs and that takes out substantial money.
Speaker Change: Growth profit was $1.1 billion or 41.5% of net sales compared with 42.5% of net sales in Q2 of the prior years, here.
Speaker Change: versus national brand the right cost position we're ordering in the right frequencies and quantities so a lit me of things there that that help us in terms of just the margin side without sales
Speaker Change: but on those things that you talked about if you think about frontline investments that helps us reduce turno turn there'sa lot ofhidden costs with tnover and we've substantially reduced turnover in a number of our key jobs
Speaker Change: that that makes a difference
Speaker Change: in terms of the distribution right we get as that investment comes through helps us with sales because were able to say yes more frequently
Speaker Change: I think the first thing to note is we're not leading the market down.
Speaker Change: to customers and then on pricing
Speaker Change: touch on it earlier we needed to be where the markets that and it's very frustrating to customers tell you had i like advance i like your brand to like your people but but you're out of line as it relates to pricing so moving to where the market is we thought was a was really an important action
Speaker Change: This is as we looked at historically how we were positioned, we found that we were above, the market unnecessarily so.
Speaker Change: And so this is moving to the market and obviously customer feedback critical in these, circumstances.
Speaker Change: iundunderstandod it can very much a good luck
Speaker Change: I'll provide a personal anecdote.
Speaker Change: That's a good example.
Speaker Change: Right.
Michael: thanks michael
Chris Holders: the next question comes from chris holders from jv moran risk your line is open please go ahead
Chris Holders: We talked about the tech being on different POS systems and the friction that causes. Imagine being a district manager and you go to one store and your team members are trained on on one operating system and you go to another store and it's entirely different.
Chris Holder: good morning ' christi carlein on the chris thanks for taking our question could you speak to how you're approaching these these price investments know advance wasn't known for its systems previously so this you know market and skkew based and peers will price like a high single digit premium to the w on under car and ine management categories are you pricing below the national peers
Chris Holders: On a year-over-year basis, Gross Margin was impacted by our strategic pricing investment and higher product costs. Last quarter, we took initial actions to fix our competitive pricing with an investment of $40 million on an annualized basis. During the second quarter, we identified additional opportunities and expanded our actions more broadly across the assortment, resulting in a cumulative investment of over $100 million.
Speaker Change: no we're not so that's not our goal to be below national peers we're just looking to be at the market we've looked at cp where we've been well above i mentioned the radiator example before we look category and market specifically where we were we've also
Speaker Change: I saw a pro customer who pulled up on the screen and said, Shane, you guys are out of, whack on radiators.
Speaker Change: And so we go back and we look at what our radiator pricing is.
Speaker Change: And sure enough, we're materially higher or sort of fifty dollars higher than where we, needed to be.
Speaker Change: and you mentioned on the system that we' actually
Speaker Change: put a lot of emphasis on what our pricing tears look like and creating the ability for our outside sales team members to be able to do exception pricing where warranted
Speaker Change: And so we made the adjustment and then we start to see pickup in radiator units.
Speaker Change: so we've built capabilities we've benchmark the markets we've looked broadly and we've made the adjustments but it is not to lead the market lower and i think that's an important component
Speaker Change: got and got it that's helpful and then on getting backto themidd marg i think you' said it hasn'tbeen material but to what extent could you quantify the impact of grosses from the higher supply chainfinancecing costs that you might get back when you deleverage and you're bking out about twenty five million of of charges for them material weakness and executive recruiting so what's the remainder of the world pac advisor refees that he should get back
Speaker Change: yeah so so we're not to give specific details on those items there i think abe q three earnings call we will lay out more specifically
Speaker Change: how our path to admid single digit
Speaker Change: oi rate so we'll come back with more details there and how we get there
Speaker Change: obviously there investments that we're making this year that might not recur but we might have investments next yearwell ay that out so you can understand our path to that number and where it's coming from to keeping when we think about our gap and our opportunity
Speaker Change: it's really three buckets and that's what we' laying down our investments it sales productivity
Speaker Change: its first cost margin and it's our supply chain cost those are the three big areas that we are focused on and that's where we're going to see the opportunity as we drive that oine
Speaker Change #100: got it thank you very much that's what
Speaker Change #100: So, as Ryan said, we've done this broadly.
Speaker Change #100: And we have we have that in plenty of locations.
set sigmon: the next question comes from set sigmon from barartley' se your line is open please go ahead
set sigmon: But but importantly, it's to just be at the market and we'll look for customers to now, know us as being market based in terms of pricing.
set sigmon: So there's an efficiency gain in terms of what our team members do.
Seth Sigmon: great good morning everyone i want to just talk about trends over the last several months trends improved through the second quarter sounds like started off weaker in the third quarter and you just disse that for us a bit more is that
set sigmon: I would note that these 2024 pricing changes are not in response to the challenging market dynamics. Rather, we view these changes as necessary adjustments to reposition advance more competitively and to improve our price perception in the industry.
Speaker Change #103: thatphoam coming from the pro is that diiy is the weather is it the consumer deferring any more perspective on that flow down that you're seeing and how do you think about that playing out the rest of the year
Speaker Change #103: So we certainly will look for operating improvements.
Speaker Change #104: yes absolutely so the slowdown we're seeing is a across both categories diy and pro probably more on the dy side we're just seeing consumers pressured
Speaker Change #105: and they're put it off discretionary some maintenance that you would typically want to see but it's typical when you see these consumers pressured in shin spoke to it earlier just the pressure on some the load to media medium income consumer
Speaker Change #103: Our field team has been driving awareness of these changes with regular customer visits. Initial feedback has been positive, and we believe that these pricing changes should put us in a stronger competitive position as the man begins to recover.
Speaker Change #103: SGNA was $1 billion. As the percentage in that sale, SGNA was 38.9% compared with 37.8% in the same quarter last year. The higher SGNA was driven by an increase in payroll expenses associated with wage investments and training for our frontline team.
Speaker Change #105: and that's kind of in our guide as we're expecting those trends that kind of continue
Speaker Change #105: to the back half of this year
Speaker Change #106: we did see nice positive movement through q two we ended the quarter higher than we started the quarter and that really was driven by our co-initiative and we're seeing the up and down the street pro continue to outperform the rest of the business
Speaker Change #106: And that's part of our growth story going forward.
Speaker Change #106: PLR is, by the way, a huge component.
Speaker Change #106: That's great.
Speaker Change #106: but we did see the trends decelerate recently and we think the marlargech part that's really the macrooverhing of the consumer pressure that 'ever seen
Speaker Change #106: i
Speaker Change #107: okayi got it and then just my follow question if i back out world pack you know i think it confirms the core productivity sales issues that you guys have talked a lot about and you're obviously trying to address
Speaker Change #108: can you just give us more perspective on what growth has looked like excluding rollpack at the very least for this quarter but ideally know some perspective on what that looks like over time
Speaker Change #108: We're, conducting one hundred and thirty of them.
Speaker Change #108: And that's both in terms of making sure we've got the right products, the right mix of private brand versus national brand, the right cost position.
Speaker Change #108: We're ordering in the right frequencies and quantities.
Speaker Change #109: we're not going to give specifics right now we will and the qute theorings but 'll give youjust
Speaker Change #109: So a litany of things there that that help us in terms of of just the margin side without sales.
Speaker Change #110: we are seeing positive in q two the positive pro performance
Speaker Change #109: Professional fees related to the strategic and operational review of our business cost associated with the remediation of our previously disclosed material weaknesses and other expenses associated with the implementation of our strategic plan.
Speaker Change #110: we're seeing that in the blended box
Speaker Change #111: and so when we talk about the up and down the street
Speaker Change #111: initiative we talk about our procompent transaction
Speaker Change #111: we're seeing a lot of that and the advanced blendended box and that's what 're really that's where we see some possible momentum there but won't be more specific on the different units in the q three call but we like whatwe'resee to the blund box theinitiativesthat roll down
Speaker Change #109: Operating margin of 2.7% V leveraged about 200 basis points compared with last year.
Speaker Change #112: okay thanks guys
Speaker Change #112: Good luck, guys, and thanks for all the info.
Speaker Change #113: thank you so
Stephen Neelenures: the next question comes from stephs are come from c group stephen neollineersas i please go ahead
Stephen Neelenures: Thanks, Greg.
Stephen Neelenreras: greatgood morning thanks very much forre taking my question i wanted to follow up on the price investments
Stephen Neelenreras: The next question comes from Simeon Gutman from Morgan Stanley.
Stephen Neelenreras: so the last time you spoke to us you said the price investments that you were doing at that time
Stephen Neelenreras: Simeon, your line is open.
Speaker Change #116: accounted for about eight percent of the skke count
Speaker Change #117: so this one hundred million what is that translate to to skew count today and then what gives you confididentence that you won't need to take another level of price investments
Speaker Change #118: just given the comment there that some of these have been slower to catch on with your pro customers
Stephen Neelenreras: The alluded earnings per share came in at 75 cents compared with $1.32 in the prior year quarter.
Speaker Change #119: yes even they are much more broad base don't necessarily want to share like with a percentage at this point but it's definitely more broad base across
Stephen Neelenreras: Year-to-date free cash flow was an outflow of $4.6 million compared with an outflow of $312 million in the prior year driven by the timing of payables in the first half of last year.
Speaker Change #120: all categories we've wanted to make sure that we are invested in the right places especially in the pro and seasonal areas as far as incremental investments we're always going to continue to look and make sure that we are competitively priced again to we're not trying to leadave the market here
Speaker Change #120: we're just trying to remain competitively priced
Speaker Change #120: so we have a better chance to say yes to the customer when we have the product
Speaker Change #120: so there might be some additional investments but from our perspectiveves a large
Speaker Change #120: portion of the investments we're pretty much out and we've talked to our customers regularly and as you know we've got a large innership underway with up and down the street frozze and we get the feedback that our pricings in line now for customers where we the first call
Speaker Change #121: that's welcome news and we continue to retain that business where we're a second or third call being in line with pricing that provides the opportunity to get the marginal business i think one of the things is that's always good about being in the auto parts business is there are so many parts out there that nobody has them all
Speaker Change #121: so inevitably for even in entrenched customers and rench with the competitor there's some product that that they don't have they don't have with the requisite availability we'will get that call now that we've got the price that's lined up we get the business so we think where we need to be we'll obviously be tuning it but where we look at customers we get feedback from customers price isn't the objection in terms of why we are aren't getting the business
Stephen Neelenreras: Moving to an update on our full year 2024 guidance, we have updated our full year outlook for the enterprise including Whirlpac pending the completion of the sale. Following close, Whirlpac reported as discontinued operations.
Stephen Neelenreras: We will update our outlook for advanced blended box business with our third quarter results in November. We now expect sales for the full year to range from $11.15 to $11.25 billion including comparable store sales in the range of negative 1% to flat. Our revised guidance considers our year-day performance and expectations for the balance of the year.
Speaker Change #122: ok that's helpful and then maybe to follow up on that you know you made the common earlier that turnarounds to take time and from following this industry you know we all know prices just one piece of the factor in that decision to get the get the business right there's also servists parts availability delivery speed can you help us understand how you stack up on among those those other factors when you're trying to get that customer just to move up the call list thanks very much
Stephen Neelenreras: We expect consumer-related headwinds related to maintenance deferrals, lower discretionary spending to impact our trajectory in the short term.
Stephen Neelenreras: With respect to quarter-day trends both our pro and DIY businesses have started off weaker driven by the overarching macro pressure on the consumer, tougher prior year comparisons and diminishing weather-related tailwind exiting Q2.
Stephen Neelenreras: We have factored this into our guidance for the full year.
Speaker Change #122: But on those things that you talked about, if you think about frontline investments, that, helps us reduce turnover. There's a lot of hidden costs with turnover and we've substantially reduced turnover in a number of our key jobs that that makes a difference in terms of the distribution.
Speaker Change #123: yes so in terms of where we've got crredic people our locations are products we do well
Speaker Change #124: and so we're excited by what this represents we we're turning the page as a company to put the focus
Speaker Change #124: Right.
Speaker Change #124: We get we as that investment comes through helps us with sales because we're able to say yes more frequently to to customers.
Speaker Change #124: on our stores
Speaker Change #124: and we're seeing the early shoots from those investments so talk about investing in the front line we're hearing it from our teamers i go talk to
Speaker Change #125: to talk to a gm who said hey
Speaker Change #126: i was able to raise the wage for one of my team members for for a buck fifty that makes a difference for that team members staying around
Speaker Change #126: and being part of the company versus potentially leaving for the for the first opportunity to to selfll fasastfood somewhere elseso we're seeing better retention of our team members we're seeing the energy that that that invokes we're seeing it in terms of our product availability we're seeing in terms of our p l r impacts we're seeing it in terms of vendor partnerships vendors are reaching out to us and say they're say we're excited by where you guys are going we want you to succeed so the vendors are behind us so at each sort of
Speaker Change #126: of level of what we're doing the improvements we're making our our starting to get a little bit attraction now we still have the things that we want to do in places we want to go so supply chain we got to finish the consolidation we had to roll out the market hubs
Speaker Change #126: in merchandising bruce constraction with that team we expect him to do more things so there's upside all the areas we're doing but there's progress that we're getting back from our own team from our customers where people are indicating we're on the track these are the things that we want to do and importantly internally we're getting excitement
Speaker Change #127: okay thanks for the detail
Speaker Change #127: Please go ahead.
Speaker Change #128: thenext question comes from brian nagle from oppenhemer rh your line is open please ahead
Speaker Change #128: Hey, good morning, everyone.
Speaker Change #128: And then on pricing, touched on it earlier, we needed to be where the market's at.
Speaker Change #128: And and it's very frustrating to have customers tell you, hey, I like advance.
Speaker Change #128: I like your brand.
Speaker Change #128: I like your people.
Brian Nagle: thank good morning thanks you taking my questions
Brian Nagle: so my first question i should been repetated also want to just ouch on these price investments
Brian Nagle: Hey, Shane, I want to start asking a more strategic question.
Brian Nagle: There's this undertone of we're improving the core business, but we're also investing for growth.
Brian Nagle: so the question i havevent you're recognizing as you've said now several times you're not leading the sector the lower
Brian Nagle: While we won't speculate on the timing, we are confident the industry will return to growth as conditions normalize driven by the aging car park and largely non-discretionary nature of auto-mage.
Speaker Change #130: but the question is you as you've adjusted prices andi know it's a case by case situation but do you see a competitive reaction to go to those adjustments you undertaking on these items
Brian Nagle: Maintenance.
Speaker Change #131: yeso brian we haven't seen competitors move
Brian Nagle: This provides a supportive backdrop for us to execute a guest.
Brian Nagle: Operating income margin for the full year is now expected to be between 2.1 to 2.5%. The revised margin outlook is being driven by a combination of lower gross margin and higher SG-MAD leverage. As indicated earlier, we took additional pricing actions during the second quarter, which will impact gross margin.
Speaker Change #131: on that because we're really just getting down to be competitive within the ball park of a
Speaker Change #131: but we haven't seen them moveved to bring it down lower it's not kind of driving a race of the bottom here we've been able to make the adjustment and keep them in place as we monitor at that price and the competitive position of that price
Speaker Change #131: gu
Speaker Change #132: because in my second question it with with regard to the sale of worldad pack again cognize you not giving pull detailsat this pointbut if you think about the remainco
Speaker Change #133: x world pack are there are other potential implications for the remain co in when we fer you specifically is that you was is then no' forwardyou ll be a small company are you are you less a scale buyor there other leverage opportunities that will be before going least near term
Speaker Change #134: we dont don t i don't see any i actually see the opposite which is our vendors are saying hey it's great to see that ' you're getting advance going
Brian Nagle: While we are seeing some green shoots in improving unit velocity, the rate improvement is slower than we initially anticipated given the weaker demand landscape.
Speaker Change #134: and keep in mind that the world pack was was substantially a separate company
Brian Nagle: That said, over time, we expect our price investments to be a positive net result to increase volume.
Brian Nagle: Regarding SGNA, we still expect expenses to be flat to slightly up year over year. To a meaningful degree, we are adjusting SGNA to address the current demand environment, and are continuing to make necessary investments as part of our turnaround.
Speaker Change #135: so it's not as though that the procurement between the two entities was was consolidated
Brian Nagle: The leading EPS for the full year is now expected to range from $2 to $2.50.
Speaker Change #135: so the vendors are saying you guys are focused
Speaker Change #135: you're getting some discipline you're getting some accountability you're serious about growing we want to be part of that and i think that's a that's a great message so what we will be marginally smaller we're still a huge player inside of autopart keep in mind thereare
Brian Nagle: We expect to generate a minimum of $100 million of free cash flow.
Brian Nagle: Our guidance for capital expenditures is unchanged and still expected to be in the $250 million range as we undertake projects to enhance our IT stores and supply chain infrastructure.
Brian Nagle: To wrap up, I would like to reiterate that we firmly believe that advance has a pathway to stronger earnings growth.
Brian Nagle: Through the productivity view of our assets, we will have better visibility into the margin trajectory for the blended box. We expect to share more on this in November.
Speaker Change #135: so many moms and pops and smaller distributors out there
Brian Nagle: With that, I will now hand it over to Shane.
Speaker Change #135: we're still an absolutely significant player in the industry we've got the support ofthe vendors we're building excitement internally we're going to start opening stores again
Brian Nagle: Thank you, Ryan.
Brian Nagle: In closing, I want to thank all of our team members once again for their commitment to serving our customers.
Brian Nagle: Our industry has historically proven to be resilient, and it's demonstrated an ability to recover quickly after periods of macro pressure.
Brian Nagle: Since arriving in advance, I have been excited by the people and have been excited by the company's purpose.
Speaker Change #135: so this is i view today as a is a watershed moment for this company in terms of selling world p making a decision to keep canada and then setting about the trajectory that we're putting forward
Speaker Change #135: p preach all the go
Prrian: thanks prrian
Satth Passashion: the next questionionsis from satth passashion from web bush set the alon is i please goahead
Seth Bastion: thats thanks for ingin good morning my first questions just on the guidance for this year how much of the eps items would you concompletely be onetime transitory items that will not recur next year
Speaker Change #139: igive us
Speaker Change #140: a smaller portion giving specifics on that one but it's a smaller portion of the overall guidance the real guide adjustmix
Speaker Change #141: is driven by margin and margin related to our pricing investments of product costs were mainly the pricing investments and then the volume on the top line those are the real drivers of the eps
Speaker Change #141: the year-over-year impact of some of those items and we'll probably lay out more of that on what that means going forward in our q three call but it's not a significant portion
Speaker Change #142: and my second question is postale of world pack where do you want to take a leverage how much deadly paay down to get to that laboratory
Speaker Change #142: I wanted to ask, you know, how much a priority is growth?
Speaker Change #142: ship
Speaker Change #143: a long term we want to be at a two five i mean obviously that's when we look at of a remain coast standpoint when we close this transaction will be evaluating what that looks like but ultimately we want to remain investment grade long term and i want to be ata ratio up two point five so we'll continue to look at what that beans from a balance sheet standpoint
Speaker Change #142: In the wake of selling world pack, and with our clearer vision, I am now even more excited for the company's potential.
Speaker Change #144: yes and iother say that you think about this in the context of a turnaround
Speaker Change #144: so we pick up a billion five year got close to five in terms of our internal generation so strengthening the balance sheet is a key step
Speaker Change #142: With that, let's open the call up for questions, our barator.
Speaker Change #145: and as you think about different potential uses whether it's with with debtor company investments or shareholders it's exciting to now have that
Speaker Change #142: Thank you.
Speaker Change #145: that cash infusion to fuel the journey i think is again i want to
Speaker Change #145: I understand you don't want to be left out as the industry keeps growing.
Speaker Change #145: But the priority versus sort of triaging, fixing the business, bringing it back to sort of normal health versus looking around the corner and still investing for growth in that balance.
Speaker Change #145: emphasize for everybody on a call
Speaker Change #145: selling worldpack and creating a singular focus if you just look at a key activities associated with a turnaround right you simplify the business
Speaker Change #145: We will now begin today's Q&A session.
Speaker Change #145: If you would like to ask a question, please press star followed by one or no telephone keypad to enter the queue. If you wish to withdraw, please press star followed by two.
Speaker Change #145: you create focus onwhat the company'is going to do you have a strategy that everybody understands and then you set about doing it and then by theway if you have the luxury of a strong balance sheet to help undertake that journey all the better
Speaker Change #145: Participants ask to deliver themselves to one question and one follow-up each.
Speaker Change #145: We may reach as many people as possible.
Speaker Change #145: Yeah, thanks, Simeon.
Speaker Change #146: thank you
Speaker Change #146: But but you're out of line as it relates to pricing.
Speaker Change #146: okay
Speaker Change #146: ona question we have talked day comes from chris particulararea can bnp parabor chris your line is open please go ahead
Speaker Change #146: Our first question today comes from Greg Menich from ethical ISI.
Speaker Change #146: We have to do both.
Speaker Change #146: So moving to where the market is, we thought was a was really an important action.
Speaker Change #146: Greg, you line us up and please go ahead.
Speaker Change #146: So one of the things you do is you go to the team and you say, OK, go figure out how many stores we can open. And they come back and say, hey, we can get to opening 100 stores a year and do that sequentially.
Chris: okguys thanks for swweezian
Speaker Change #146: Thank you.
Speaker Change #148: just wanted to kind of part cred store opening plan that seems like something cremental
Speaker Change #148: We don't get the luxury of just focusing on one versus the other.
Speaker Change #148: I understand.
Speaker Change #148: Right.
Speaker Change #148: I think inevitably in today's business environment, if you look at the cost of benefits or rent or whatever it is, you'll see escalation.
Speaker Change #149: hey us
Chris: just just wanted to ask what the store-opening plans so i think you're to spend like i think would cost about a million two million for box open the store
Speaker Change #150: free cash for this year s one hundred million exxwell tag probably breaking and be likei guess
Speaker Change #151: but how do you think about funding the store growth is going to come from the proceeds of rollpet or is it going to be just contingent on
Speaker Change #151: improving margins in sales first on
Speaker Change #152: historical terms in the time in the fund a good good question says a little both so so we actually open stores every year right but as we go forward having a robust store opening capability is an important part of creating growth
Speaker Change #152: So we want to be a positive comping company.
Speaker Change #152: Thank you very much and good luck.
Speaker Change #152: That's an important, important part of it.
Speaker Change #152: I guess I'd love to follow up really on the guidance, Ryan.
Speaker Change #152: And so that's where you look at the likes of what we're doing in our sales efforts and up and down the street pro and rejuvenating team members with investments and focus on our CPPs and cams.
Speaker Change #152: Thanks, Michael.
Speaker Change #152: So that's what they've been doing.
Speaker Change #152: Also to bringing in Bruce Starnes and his merchandising excellence capabilities that he brings from from his past experience.
Speaker Change #152: We've got a cadre of outstanding leaders now inside of merchandising to help us with with availability, with pricing, with our PLR process in terms of costing.
Speaker Change #152: The next question comes from Chris Horvitz from J.P. Morgan.
Speaker Change #152: And now they're identifying the markets where we can go do that.
Speaker Change #152: and in terms of where you kick where you open and how you openwhat we find is makes all the difference if you open in the market where you're already known and you have some regional market share that take off of that store tends to be much quicker than if you open in an area where you're the last guy in the market so one of the things that that we needed was to bolster or real estate team to make that happen and that's occur and you got to think aboutthatin terms of site selection by the way whether you're building or whether you your'leing in terms of how you go that stocking programs ' iding andfitting your grand opening processes all of those muscles needed to be juven ated and they have been and we've been opening some stores that havethat
Speaker Change #152: So so those are some of the mechanics.
Speaker Change #152: Chris, your line is open.
Speaker Change #152: But getting to a positive comp is critical for us.
Speaker Change #152: Please go ahead.
Speaker Change #152: We've set the table in many regards as it relates to the underpinnings of how we're competitive on on cost and things we want to do.
Speaker Change #152: I think the WorldPak sale process epitomizes that.
Speaker Change #152: So with WorldPak as a different business inside of our company, the distraction that that creates, we're singularly focused now on the blended box.
Speaker Change #152: And so look for us operationally to to make that more efficient, to focus on that supply chain, but also look for for a growth perspective that we need to be delivering a positive comp.
Speaker Change #152: And then a follow up.
Speaker Change #152: Hi, good morning.
Speaker Change #152: Just want to make sure the full-year guidance still includes world pack because you have it this year, or is it excluded?
Speaker Change #152: Yeah, morning, Greg.
Speaker Change #152: but that's the practice
Speaker Change #153: so now how do you go accelerate right so one of things you do you go to the tv you say ok go figure out how many stores we can open and they come back and say we can get to opening one hundred stores a year and do that sequentially that's an important compimportant part of it so that's what they've been doing and now they're identifying the markets where going go do thatso how do you pay for i think offered some numbers is to as to what those costs look like
Speaker Change #153: So how do you pay for it?
Speaker Change #153: I think you've offered some numbers as to as to what those costs look like.
Speaker Change #153: So some of it comes from the proceeds.
Speaker Change #153: I think absolutely.
Speaker Change #153: Right.
Speaker Change #154: so some that comes from the proces
Speaker Change #155: i think absolutely that's a great way to get the engine going
Speaker Change #156: some would come from our traditional capex budget that we set aside and i think ryinds put us it that two hundred to two fifty rights so they' they'll be money there and then if you wanted to further amplify and maybe you can get to something even a higher number of new store openings then that comes from some of the growth or the benefit that were creating from some of these turnaroundad activities
Speaker Change #157: but they a sense that'sa good state of next question how do you think about the store closures do you have like kind of a is going to framewhat presentcenter stores are forall losing buny how do you kind a balance the needs of scale particularically to getin ket versus store closures you p ty balance like the scale fromposingstores and the
Speaker Change #153: Yeah, it includes world pack in the guide.
Speaker Change #153: As soon as we close that transaction, Q3, it'll go into this option.
Speaker Change #157: opportunity
Speaker Change #153: We'll provide a guide for the remainco at the Q3 or any school.
Speaker Change #158: yes so so it's sort of the reverse process so look at look at markets where we don't have regional
Speaker Change #153: Got it.
Speaker Change #158: market share look at markets
Speaker Change #159: or individual stores where our performance is unprofitable or below where we' wanted to be or maybe the where the sales productivity is in coming and of the thing we do is we look at sayhey is this a function of we don't have the right management in place right because often that the g m makes a huge difference in terms of how a store performs or have whatwith the outside sales participation of the c p p performance we always look at those things first
Speaker Change #159: but yeah you could look at individual stores we can stack him and we could say hey here' a store where economically it's not where we wanted to be we don't think it's a function of making a leadership change
Speaker Change #153: Instead of the, just to make sure that minimum of 100 million free cash flow, that would include the most of the way you bid off from world pack this year.
Speaker Change #153: So when we're thinking about debating for next year, we should speak.
Speaker Change #159: and so therefore we'll clo it could be the physicalthe location of the store based on how easy isto againin in none of the parkmo it could be the market conditions
Speaker Change #153: Thank you.
Speaker Change #159: in terms of what how we're doing generally and so 'swhat well do and i think that's an important part of it and and if you close stores that are act actually a cash flow drag that's money that then you go to opening a store in a market where it's a cash flow benefit
Speaker Change #153: Got it.
Speaker Change #153: I got to follow up on the.
Speaker Change #153: OK, thank you again on the agreement.
Speaker Change #153: For the agreement on the sale, is there any sort of exclusivity of distribution that you have with the buyer where you get to still sell world pack product through advance stores or is it a complete claim break?
Speaker Change #153: No, we do have an agreement then we will continue to sell.
Speaker Change #159: Can you I don't know if you'll comment, but it looks like the run rate of EPS post WorldPak looks like it'll be sub two dollars.
Speaker Change #159: It's Christian Carlino on for Chris.
Speaker Change #159: That's a great way to get the engine going.
Speaker Change #159: And there was this mention of the 30 million dollars of some adjustment to run rate WorldPak EBITDA.
Speaker Change #159: Thanks for taking our question.
Speaker Change #159: Some would come from our traditional capex budget that we set aside.
Speaker Change #159: I don't does that mean that that is 30 million dollars that stays with advance or is that 30 million dollars just not part of it?
Speaker Change #159: Could you speak to how you're approaching these price investments? Advance wasn't known for its systems previously, so is this market and SKU based and peers will price it like a high single digit premium to the WDs on under car and engine management categories?
Speaker Change #159: And I think Ryan's put us at 200 to 250.
Speaker Change #159: It just goes away.
Speaker Change #159: Are you pricing below the national peers?
Speaker Change #159: Yeah.
Speaker Change #159: No, we're not.
Speaker Change #159: So we'll pack product through our stores.
Speaker Change #159: So Ryan, I'll unpack it a little bit, but but I think your your hypothesis that the underlying core business is wanting in terms of performance, I think, is is accurate.
Speaker Change #159: So that's not our goal to be below national peers.
Speaker Change #159: But that's exactly why we're creating this focus.
Speaker Change #159: We're just looking to be at the market.
Speaker Change #159: the take it
Speaker Change #159: We've looked at CPIs where we've been well above.
Speaker Change #159: I've mentioned the radiator example before.
Speaker Change #159: We looked category and market specifically at where we were.
Speaker Change #159: yes
Speaker Change #159: We've also, and you mentioned on the system side, we've actually put a lot of emphasis on what our pricing tiers look like and creating the ability for our outside sales team members to be able to do exception pricing where warranted.
Speaker Change #160: okay i think 're in time and thank everybody for the for the call today we appreciatee your questions
Speaker Change #160: That's helpful.
Speaker Change #160: Right.
Speaker Change #160: So we've built capabilities, we've benchmarked the markets, we've looked broadly and we've made the adjustments, but it is not to lead the market lower.
Speaker Change #160: That's a critical piece of our catalog offering for our pros.
Speaker Change #160: And then on getting back to the mid single digit margins, I think you've said it hasn't been material, but to what extent could you quantify the impact of grosses from the higher supply chain financing costs that you might get back when you deleverage?
Speaker Change #160: So there'll be money there. And then if you wanted to further amplify it and maybe you can get to something, you know, even a higher number of new store openings, then that comes from some of the growth or the benefit that we're creating from some of these turnaround activities.
Speaker Change #160: And I think that's an important component.
Speaker Change #160: And you're backing out about 25 million of charges for the material weakness and executive recruiting.
Speaker Change #160: Yeah, makes a lot of sense.
Speaker Change #160: Got it.
Speaker Change #160: So what's the remainder of the WorldPAC advisory fees that you should get back?
Speaker Change #160: That's a good segue to my next question.
Speaker Change #160: Got it.
Speaker Change #160: Yeah, so we're not ready to give specific details on those items there.
Speaker Change #160: How do you think, about the store closures?
Speaker Change #160: I think in Q3 earnings call, we will lay out more specifically how our path to a mid single digit OI rate.
Speaker Change #160: Do you have like kind of a, is there a way to frame what percent of your stores are for while losing money?
Speaker Change #160: Sounds like started off weaker in the third quarter, for the Year.
Speaker Change #160: And know that on behalf of everybody advanced, we're excited as we move forward in this next chapter of our journey.
Speaker Change #160: The key thing, when we think about our gap and our opportunity, it's really three buckets. And that's where we're laying down our investments. It's sales productivity, it's first cost margin, and it's our supply chain costs. Those are the three big areas that we are focused on.
Speaker Change #160: How do you kind of balance the needs of scale?
Speaker Change #160: Thanks.
Speaker Change #161: now look forward to describing more when we get to the third quarter and know that ' behalf of everybody advance were excited as we move forward in this next chapter of our journey one blended box one advance with our independence growing in the auto parts industry thank you
Speaker Change #161: And that's where you're going to see the opportunity as we drive that OI rate.
Speaker Change #161: Yeah.
Speaker Change #161: Yeah, absolutely.
Speaker Change #161: Got it.
Speaker Change #161: Particularly in a given market versus store closures?
Speaker Change #161: So the slowdown we're seeing is across both categories, DIY and pro, probably more on the DIY side.
Speaker Change #161: Thank you very much.
Speaker Change #161: How do you how do you balance, like losing the scale from closing stores and the opportunity?
Speaker Change #161: We're just seeing consumers pressured and, they're putting off discretionary, some maintenance that you typically want to see.
Speaker Change #161: The next question comes from Seth Fickman from Barclays.
Speaker Change #161: Yeah, so, so it's sort of the reverse process.
Speaker Change #161: But it's typical when you see these consumers pressured.
Speaker Change #161: And that's where there's excitement in terms of turning the page as a company, as a blended box auto parts retailer.
Speaker Change #161: We're seeing that in the blended box.
Speaker Change #161: One blended box one advance with our independence growing in the auto parts industry.
Speaker Change #161: Seth, your line is open.
Speaker Change #161: So look at, look at markets where we don't, have regional market share, look at markets or individual stores where our performance is unprofitable or below where we want it to be, or maybe the where the sales productivity isn't coming.
Speaker Change #161: And Shane spoke to it earlier, just the pressure on some low to medium income consumer.
Speaker Change #161: We won't give specific guidance to the RemainCo until the Q3, but we did provide the EBITDA. The reason we added the 30 was that is additional EBITDA that is held at the parent company. It's a net of some inner company and costs that are held at the enterprise. So you should look at that as additive to the hundred that if if we were to close the deal on WorldPak, think of that as closer to one hundred and thirty million.
Speaker Change #161: And so when we talk about the up and down the street initiative, we talk about our pro comp and transaction.
Speaker Change #161: Thank you.
Speaker Change #161: Please go ahead.
Speaker Change #161: And by the way, the first thing we do is we look at say, hey, is this a function of we don't have the right management in place, right?
Speaker Change #161: And that's kind of in our guide is we're expecting those trends to kind of continue through the back half of this year.
Speaker Change #161: As you know, Greg, World Pack provides offer to certain European OEM type products that advances sold.
Speaker Change #161: But in Q3, Ernie's call will come with a full picture of the Reneco.
Speaker Change #161: We're seeing a lot of that in the advanced blended box.
Speaker Change #161: Great.
Speaker Change #161: Because often, you know, the GM makes a huge difference in terms of how a store performs or have, you know, what's the outside sales participation or the CPPs performance.
Speaker Change #161: We did see nice positive movement through Q2. We ended the quarter higher than we started the quarter. And that really was driven by our pro initiative.
Speaker Change #161: Yep.
Speaker Change #161: And that's what we're really that's where we see some positive momentum there.
Speaker Change #161: Good morning, everyone.
Speaker Change #161: We always look at those things first.
Speaker Change #161: And we're seeing the up and down the street pro continue to outperform the rest of the business.
Speaker Change #161: Thanks, Simeon.
Speaker Change #161: But we'll be more specific on the different units in the Q3 call.
Speaker Change #161: I wanted to just talk about trends over the last several months.
Speaker Change #161: But yeah, you could look at individual stores, we can stack them and we could say, hey, here's a store where economically, it's not where we want it to be.
Speaker Change #161: But we did see the trends decelerate recently. And we think in large part, that's really the macro overhang of the consumer pressure, that we're seeing.
Speaker Change #161: The next question comes from Bret Jordan from Jeffreys.
Speaker Change #161: But we like what we're seeing in the blended box in the initiatives that we're rolling out.
Speaker Change #161: Trends improved through the second quarter.
Speaker Change #161: We don't think it's a function of making a leadership change.
Speaker Change #161: Okay, got it.
Speaker Change #161: Okay, thanks, guys.
Speaker Change #161: And so though, therefore, we'll close it could be the physical location of the store based on on how easy it is to get in and out of the parking lot.
Speaker Change #161: And then just my follow up question, if I back out WorldPAC, you know, I think it confirms the core productivity sales issues that that you, guys have talked a lot about and you're obviously trying to address.
Speaker Change #161: Thank you, sir.
Speaker Change #161: It could be the market conditions in terms of what how we're doing generally.
Speaker Change #161: Can you just give us more perspective on what growth has looked like excluding WorldPAC at the very least for this quarter, but ideally, you know, some perspective on what that's looked like over time?
Speaker Change #161: The next question comes from Steven from Citigroup.
Speaker Change #161: So that relationship continues.
Speaker Change #161: And so, that's what we'll do.
Speaker Change #161: We're not going to give specifics right now.
Speaker Change #161: It's not a huge part of our business, but we wanted to retain the capability so we can source products to world pack and then we would sell them to the customer as advance.
Speaker Change #161: And I think that's an important part of it.
Speaker Change #161: We will in the Q3 hearings, but I'll give, you just we are seeing positive in Q2 that positive pro performance.
Speaker Change #161: And, and if you close stores that are actual actually a cash flow drag, that's money that then can go to opening a store in a market where it's a cash flow benefit.
Speaker Change #161: This concludes today's call.
Speaker Change #161: Got it.
Speaker Change #161: Okay, thank you.
Speaker Change #161: Thank you very much for your attendance.
Speaker Change #161: Yeah.
Speaker Change #161: Okay, I think we're at time.
Speaker Change #161: Thank you, everybody for the for, the call today.
Speaker Change #161: We appreciate your questions.
Speaker Change #162: this concludes today's cool thank you very much foryour attendance you may now have disconnect your lines
Speaker Change #162: Bret, your line is open.
Speaker Change #162: Steven, your line is open.
Speaker Change #162: You may now disconnect, your line.
Speaker Change #162: Look forward to describing more when we get to the third quarter.
Speaker Change #162: That's also in the last on the incremental pricing investment.
Speaker Change #162: I guess it's an extra 60 million.
Speaker Change #162: Is that an annualized figure and could you give us more detail in terms of what product lines or markets you're really looking to do there? Yeah, that is an annualized number. And that's the full fully loaded.
Speaker Change #162: That doesn't necessarily account for a list, et cetera, that we would see the offset that we expect to see unit trajectory and lift offset that some cost out to get to help offset the $100 million investment.
Speaker Change #162: But that is annualized.
Speaker Change #162: It's broad spread our initial when we went in initially at the end of q1.
Speaker Change #162: We had some seasonal categories.
Speaker Change #162: I tilted more towards DIY front room, but also touch some pro categories.
Speaker Change #162: This was more broad spread, but also included more pro categories as we tried to get right price and competitively priced within the pro area, but it's kind of broad spread across many balances out the price investments across our full skew listing.
Speaker Change #162: So some color there.
Speaker Change #162: I think the first thing to note is we're not leading the market down.
Speaker Change #162: This is as we looked at historically how we were positioned, we found that we were above the market unnecessarily sell.
Speaker Change #162: And so this is moving to the market and obviously customer feedback critical in these circumstances will provide a personal anecdote.
Speaker Change #162: I saw a pro customer who pulled up on the screen and said, Shane, you guys are out of whack on radiators. And so we go back and we look at what our radiated pricing is and sure enough, we're materially higher or sort of $50 higher than where where we needed to be.
Speaker Change #162: And so we may be adjustment and then we start to see pick up in radiator units.
Speaker Change #162: So as Ryan said, we've done this broadly, but but importantly, it's to just be at the market and we'll look for customers to now know us as being market based in terms of pricing.
Speaker Change #162: And that's part of our growth story going forward.
Speaker Change #162: That's great.
Speaker Change #162: Good luck guys.
Speaker Change #162: And thanks for all the info.
Speaker Change #162: Thanks Greg.
Speaker Change #162: The next question comes from Simeon Goutman from Morgan Stanley Simeon.
Speaker Change #162: Your line is please go ahead.
Speaker Change #162: Hey, good morning, everyone.
Speaker Change #162: Hey, Shane, I want to start asking a more strategic question.
Speaker Change #162: There's this undertone of where, you know, improving the core business, but we're also investing for growth.
Speaker Change #162: I wanted to ask, you know, how much of priority is growth?
Speaker Change #162: I understand you don't want to be left out as the industry keeps growing, but the priority versus sort of triaging, fixing the business, bringing it back to sort of normal health versus, is looking around the corner and still investing for growth in that balance.
Speaker Change #162: Yeah, thanks, Simeon.
Speaker Change #162: We have to do both.
Speaker Change #162: We don't get the luxury of just focusing on one versus the other.
Speaker Change #162: I think inevitably in today's business environment, if you look at the cost of benefits or rent or whatever it is, you'll see escalation.
Speaker Change #162: So we want to be a positive comping company.
Speaker Change #162: And so that's where you look at the likes of what we're doing in our sales efforts and up and down the street pro and rejuvenating team members with investments and focus on our CPPs and cams also to bringing in brew starts.
Speaker Change #162: And his merchandising excellence capabilities that he brings from his past experience.
Speaker Change #162: We've got a cadre of outstanding leaders now inside of merchandising to help us with with availability with pricing with our PLR process in terms of costing.
Speaker Change #162: So those are some of the mechanics, but getting to a positive comp is critical for us.
Speaker Change #162: We've set the table in many regards as it relates to the underpinnings of how we're competitive on cost and things we want to do.
Speaker Change #162: I think the world pack sale process epitomizes that.
Speaker Change #162: So with world pack as a different business inside of our company, the distraction that that creates, we're singly focused now on the blended box.
Speaker Change #162: And so look for us operationally to to make that more efficient to focus on that supply chain, but also look for a growth perspective that we need to be delivering a positive comp.
Speaker Change #162: And then a follow up, can you, I don't know if you'll comment, but it looks like the run rate of EPS post world pack looks like it'll be sub two dollars.
Speaker Change #162: And there was this mention of the 30 million dollars of some adjustment to run rate world pack EBITDA.
Speaker Change #162: I don't, does that mean that that is 30 million dollars that stays with advance or is that 30 million dollars just not part of it just goes away.
Speaker Change #162: Yeah, so right on unpack it a little bit, but, but I think your hypothesis that the underlying core business is wanting in terms of performance that is accurate, but that's exactly why we're creating this focus.
Speaker Change #162: And that's where there's excitement in terms of turning the page as a company as a blended box auto parts retailer.
Speaker Change #162: We won't give specific guidance to the remain co until the Q three, but we did provide the EBITDA. The reason we added the 30 was that is additional EBITDA. That is held at the parent companies and net of some intercompany and costs that are held at the enterprise.
Speaker Change #162: So you should look at that as added into the hundred.
Speaker Change #162: That if, if we were to close the deal on world pack, think of that as close to 130 million.
Speaker Change #162: But in Q three year needs call, we'll come up a full picture of the remain co.
Speaker Change #162: Thanks, I mean.
Speaker Change #162: The next question comes from Brett Jordan from Jeffries right your line is open please go.
Speaker Change #162: Hey, good morning, guys.
Speaker Change #162: Morning, we're at the World Pack Working Capital situation.
Speaker Change #162: How much of the inventory that you carry is discrete to World Pack?
Speaker Change #162: And I guess what's the outlook as far as working capital reduction?
Speaker Change #162: Yeah, Bret.
Speaker Change #162: So it's roughly in the ballpark of a million dollars inventory, sorry, a billion, about a billion dollars of inventory for World Pack.
Speaker Change #162: Their coverage ratio is a little bit lower.
Speaker Change #162: We'll obviously share more on what that remain code looks like as we discard them in Q3, but that should give you a ballpark.
Speaker Change #162: Their coverage ratio is going to mix us down when they're in the consolidated.
Speaker Change #162: It'll mix us up a little bit when they're no longer with us, but it's about a billion dollars inventory.
Speaker Change #162: OK, and then the proceeds, I guess you've talked about debt reduction, and you've got a couple of debt tranches in the high five percent.
Speaker Change #162: Can you pay those down, or then you prepay them to penalties?
Speaker Change #162: I guess with the balance, you can look like post-close.
Speaker Change #162: Yeah, we'll definitely share more specifics around that at a later date.
Speaker Change #162: Right now, we're going to take that cash look at when we close the business, we'll look at bolster in the balance sheet, we'll definitely look at what debt we need to pay down, what we need to invest in the business, and what we need for going forward.
Speaker Change #162: So we'll probably share a little bit more, but if we do attack debt, you would think that we would attack those higher interest tranches.
Speaker Change #162: Yeah, and I'll touch on the x and do it in the end.
Speaker Change #162: That prepared remarks.
Speaker Change #162: Go ahead.
Speaker Change #162: Sorry, Brett.
Speaker Change #162: I said it's repurchased still in the use of proceeds.
Speaker Change #162: Yeah, over, I think, a reasonable period of time on that.
Speaker Change #162: The first priority is going to be the balance sheet and making sure we've got a good balance sheet for growth going forward, invest in our initiatives, and then absolutely over a reasonable period of time, returning cash to shareholders, excess cash to shareholders is important for us.
Speaker Change #162: And on the investment side of the house, three areas, stores, you're in the prepared remarks, we created a unified real estate team.
Speaker Change #162: We didn't have one, we had multiple teams.
Speaker Change #162: So we've got a very strong leader running that team, and we've been investing in creating a new store opening capability. That's a muscle that atrophied. So we want to get back to opening 100 stores a year, and we're looking at markets where we have a right to win as a way to think about where to put those stores.
Speaker Change #162: There's some refresh of existing stores that need a bit of a freshening.
Speaker Change #162: And then two other areas, on the IT front, we've got two POS systems. We still have a residual legacy POS system that we want to get all of our stores on one POS system. So there's an IT investment there.
Speaker Change #162: And then on the supply chain side, we're rolling out the market hubs, we're doing the DC consolidation.
Speaker Change #162: But even inside of the existing DCs, and think about this in terms of tick mods and conveyor systems, there's investment there.
Speaker Change #162: But also in terms of just getting inventory tracking through the system in particular as it goes from a DC to a hub to a customer.
Speaker Change #162: So there's some investment there.
Speaker Change #162: So there's a number of fruitful areas where we can put some of the proceeds that will help us on the journey, both in terms of improving our effectiveness.
Speaker Change #162: We're increasing our sales or both.
Speaker Change #162: Great, thanks.
Speaker Change #162: Thank you.
Speaker Change #162: The next question comes from Scot Ciccarelli, from Surest.
Speaker Change #162: Scot, you're a lot of time.
Speaker Change #162: Please go ahead.
Speaker Change #162: Good morning, guys.
Speaker Change #162: Can you outline maybe a bridge to your reduction in your EBIT margin?
Speaker Change #162: I mean, I know only over 150 base points or 150 base points or so, but it's a pretty sizable percent reduction.
Speaker Change #162: So maybe how much is from the sales change?
Speaker Change #162: How much from price investment?
Speaker Change #162: How much from strategic investments just to give a better idea of kind of what would change from a couple of months ago?
Speaker Change #162: Yeah, absolutely.
Speaker Change #162: So the large portion of that is volume.
Speaker Change #162: And then the other piece of that is the price investments and the margin rate.
Speaker Change #162: Those are really the two being drivers of it.
Speaker Change #162: SNA is coming in pretty much in line with what we expected.
Speaker Change #162: While we're pulling back on SNA relative demand.
Speaker Change #162: We're also making sure we continue our investments in supply.
Speaker Change #162: Chain and those key growth initiatives that we have.
Speaker Change #162: So SNA is going to come in about the same place we expected in the guide.
Speaker Change #162: The biggest drivers are going to be the volume on the top line and margin rate.
Speaker Change #162: Yeah, and it's got you made a good observation there.
Speaker Change #162: Based on where we sit, even small changes have outsized impacts.
Speaker Change #162: We are definitely seeing the headwind with the consumer. And it manifests itself in terms of either deferring the spend or trading down.
Speaker Change #162: And you guys know the stats right credit card defaults are at a high 9%.
Speaker Change #162: People are getting squeezed on rents and mortgage that's up year over year.
Speaker Change #162: And what we're seeing in the cohorts that are relevant for our company and think about that as households making 50 K or less or even 75 K or less.
Speaker Change #162: Their spend is diminishing or where they spend their spending less.
Speaker Change #162: And so we're sensitive to that, but that down tick hits us.
Speaker Change #162: And that's something that when you're in a turnaround, we're particularly sensitive to in terms of what that impact is on our bottom line.
Speaker Change #162: Very helpful.
Speaker Change #162: And then just quick follow up on world pack.
Speaker Change #162: How much of that hundred I guess we're supposed to use in 130 million dollar figure.
Speaker Change #162: How much of that is DNA?
Speaker Change #162: Yeah, we don't give specifically.
Speaker Change #162: Can we get a percent of sales?
Speaker Change #162: Well, the sales of of world pack was 2.1.
Speaker Change #162: EBITDA we're saying is close to the one theory that you would you would think about that's EBITDA.
Speaker Change #162: I understand how much of that is the actual depreciation memorization like, you know, can we assume that if world pack was 18% of total sales enterprise sales, it's about 18% DNA.
Speaker Change #162: Yeah, we're not giving out specific guidance relative to this option or different parts of this at this time.
Speaker Change #162: We'll do that in Q3.
Speaker Change #162: Okay, thanks.
Speaker Change #162: Next question comes from Michael Lasse from UBS.
Speaker Change #162: Michael, you're allowed to open please go ahead.
Speaker Change #162: Good morning.
Speaker Change #162: Thank you so much for taking my question.
Speaker Change #162: Again, how should the market think about the long term competitiveness of core advanced is it's going to have a mid single digit operating margin when its competitors are in the high team low 20% range.
Speaker Change #162: Does that put it at a disadvantage if the market becomes more competitive and it just doesn't have as much resource to invest to remain in lockstep with the other.
Speaker Change #162: Michael, great question.
Speaker Change #162: So we said mid-single digits and think about that as our next few years horizon.
Speaker Change #162: That's not going to be our permanent aspiration in terms of where we can take this company, but I would say that this is a huge market. It's an ocean of auto parts 287 million vehicles aged at 12.7 years.
Speaker Change #162: And if you look at the share of the folks that you have that higher operating margin, yes, they certainly they've been growing, but but in aggregate, there's still a large swath of the market that they don't touch and that we don't touch.
Speaker Change #162: So there's room for us to grow without ever taking a dollar or standing toe to toe with that.
Speaker Change #162: And I think that's that's important.
Speaker Change #162: Secondly, in terms of just sort of bones, in terms of our ability to be out in the market, we have 4700 retail locations.
Speaker Change #162: We work with 1100 independence.
Speaker Change #162: And if you look at where we are, there are there are many markets where we are the leading player.
Speaker Change #162: So structurally, it's not as though to go out and compete with them.
Speaker Change #162: We need to actually go have stores and and be in markets.
Speaker Change #162: We're there.
Speaker Change #162: This is a function of tuning our operating model and clearing our focus to be better at those fundamentals.
Speaker Change #162: And I think in the past, you know, perhaps that hadn't been where we were as focused.
Speaker Change #162: So I'm really optimistic about where the company can go.
Speaker Change #162: And as we move through this very tough phase, which we're doing now, which is in the turnaround.
Speaker Change #162: And I would call it, you know, those other players are still out there in that phase.
Speaker Change #162: As we go through this, we'll get to our point that we talked about that mid single digits and we'll continue to improve from there.
Speaker Change #162: Okay, my follow question is, as you are making these investments, either in frontline associates, distribution or price, do you have evidence to see that in those areas where you invest are investing, either on a few by few basis or store by store basis that are being connected to these new distribution assets.
Speaker Change #162: That they are outperforming that it sounds like your ability to get to a mid single digit margin is mostly sales dependent.
Speaker Change #162: Why are there not other opportunities to grow your margin more significantly, especially considering your gross margin is about a thousand basis points below the others in the industry.
Speaker Change #162: Another good question.
Speaker Change #162: I think there's opportunities in both.
Speaker Change #162: We certainly have opportunities as it relates to the margin sign.
Speaker Change #162: Just think about the supply chain.
Speaker Change #162: We talked about having 38 DCs on different operating systems.
Speaker Change #162: So even without an incremental dollar sales, we get to the consolidated 14 DC node with the with the market hubs and that takes out substantial money.
Speaker Change #162: That's a good example.
Speaker Change #162: We talked about the tech being on different POS systems and the friction that causes imagine being a district manager and you go to one store and your team members are trained on one operating system and you go to another store and it's entirely different and we have we have that in plenty of locations.
Speaker Change #162: So there's an efficiency gain in terms of what our team members do.
Speaker Change #162: So we certainly will look for operating improvements.
Speaker Change #162: PLR is by the way a huge component.
Speaker Change #162: We're conducting 130 of them and that's both in terms of making sure we got the right products, the right mix of private brand versus national brand, the right cost position. We're ordering in the right frequencies and quantities.
Speaker Change #162: So a litany of things there that that help us in terms of just the margin side without sales.
Speaker Change #162: But on those things that you talked about, you know, if you think about frontline investments, that helps us reduce turnover. There's a lot of hidden costs with turnover and and we've substantially reduced turnover and a number of our key jobs that that makes a difference.
Speaker Change #162: In terms of the distribution right, we get we as that investment comes through helps us with sales because we're able to say yes more frequently to customers and then on pricing.
Speaker Change #162: Touch on it earlier, we needed to be where the market's at and and it's very frustrating to to have customers tell you, hey, I like advance, I like your brand, I like your people, but but you're out of line as it relates to pricing.
Speaker Change #162: So moving to where the market is, we thought was a was really an important action.
Speaker Change #162: Thank you very much and good luck.
Speaker Change #162: Thanks, Michael.
Speaker Change #162: The next question comes from Chris Horvers from J.P.
Speaker Change #162: Morgan.
Speaker Change #162: Chris, your line is open, please go ahead.
Speaker Change #162: Hi, good morning, it's Christian Carlino, I want to press.
Speaker Change #162: Thanks for taking our question.
Speaker Change #162: Could you speak to how you're approaching these price investments, you know, advance wasn't known for its systems previously.
Speaker Change #162: So, peers will price it like a high single-digit premium to the WDs under car and engine management categories.
Speaker Change #162: Are you pricing below the national peers?
Speaker Change #162: No, we're not.
Speaker Change #162: So, that's not our goal to be below national peers.
Speaker Change #162: We're just looking to be at the market.
Speaker Change #162: We've looked at CPIs where we've been well above.
Speaker Change #162: I mentioned the radiator example before.
Speaker Change #162: We looked, you know, category and market specifically where we were.
Speaker Change #162: We've also, and you mentioned on the systems side, we've actually put a lot of emphasis on what our pricing tiers look like and creating the ability for our outside sales team members to be able to do exception pricing where warranted.
Speaker Change #162: So, we've built capabilities, we've benchmarked the markets, we've looked broadly and we've made the adjustments, but it is not to lead the market lower.
Speaker Change #162: And I think that's an important component.
Speaker Change #162: Got it, that's helpful.
Speaker Change #162: And on getting back to the mid-indulgent margin, I think you've said it hasn't been material, but what extent could you quantify the impact of grosses from the higher supply chain financing costs that you might get back when you de-leverage?
Speaker Change #162: And you're backing out about 25 million of charges for the material weakness and executive recruiting.
Speaker Change #162: So, what's the remainder of the world-packed advisory fees that you should get back?
Speaker Change #162: Yeah, so we're not ready to give specific details on those items there.
Speaker Change #162: I think in Q3 earnings call, we will lay out more specifically how our path to admit single digit OI rate. So, we'll come back with more details there and how we get there.
Speaker Change #162: Obviously, there are investments that we're making this year that might not recur, but we might have investments next year.
Speaker Change #162: We'll lay that out so you can understand our path to that number and where it's coming from.
Speaker Change #162: The key thing, when we think about our gap and our opportunity, it's really three buckets and that's where we're laying down our investments.
Speaker Change #162: It sales productivity is first cost margin, and it's our supply chain cost.
Speaker Change #162: Those are the three big areas that we are focused on.
Speaker Change #162: And that's where you're going to see the opportunity as we drive that OI rate.
Speaker Change #162: Got it.
Speaker Change #162: Thank you very much.
Speaker Change #162: That's a lot.
Speaker Change #162: The next question comes from Seth Seckman from Barclays.
Speaker Change #162: Seth Yolanda, so please go ahead.
Speaker Change #162: Great.
Speaker Change #162: Good morning, everyone.
Speaker Change #162: I wanted to just talk about trends over the last several months.
Speaker Change #162: Trends improved through the second quarter.
Speaker Change #162: Sounds like started off weaker in the third quarter.
Speaker Change #162: Can you just dissect that for us a bit more?
Speaker Change #162: Is that Fedon coming from the pro?
Speaker Change #162: Is that DIY?
Speaker Change #162: Is it weather?
Speaker Change #162: Is it the consumer deferring?
Speaker Change #162: Any more perspective on that's flowed down that you're seeing and how do you think about that playing out the risk?
Speaker Change #162: to the Year.
Speaker Change #162: Thanks.
Speaker Change #162: Yeah, absolutely.
Speaker Change #162: So the slowdown we're seeing is across both categories, DIY and pro, probably more on the DIY side.
Speaker Change #162: We're just seeing consumers pressured and they're putting off discretionary some maintenance that you typically want to see, but it's typical when you see these consumers pressured and Shane spoke to it earlier, just the pressure on some low to medium income consumer.
Speaker Change #162: And that's kind of in our guide is we're expecting those trends that kind of continue through the back half of this year.
Speaker Change #162: We did see nice positive movement through Q2. We ended the quarter higher than we started the quarter, and that really was driven by our pro initiative.
Speaker Change #162: We're seeing the up and down the street pro continue to outperform the rest of the business, but we did see the trends decelerate recently.
Speaker Change #162: And we think the large part, that's really the macro overhang of the consumer pressure that we're seeing.
Speaker Change #162: OK, got it.
Speaker Change #162: And then just my follow-up question, if I back out world pack, you know, I think it confirms the core productivity sales issues that you guys have talked a lot about and you're obviously trying to address.
Speaker Change #162: Can you just give us more perspective on what growth has looked like, excluding world pack at the very least for this quarter, but ideally, you know, some perspective on what that's looked like over time.
Speaker Change #162: We're not going to give specifics right now.
Speaker Change #162: We will in the Q3, but I'll give you just, we are seeing positive in Q2, the positive pro performance.
Speaker Change #162: We're seeing that in the blended box.
Speaker Change #162: And so when we talk about the up and down the street initiative, we talk about our pro comp and transaction, we're seeing a lot of that in the advanced blended box.
Speaker Change #162: And that's what we're really, that's where we see some possible momentum there.
Speaker Change #162: But we won't be more specific on the different units in the Q3 call, but we like what we're seeing the blended box in the initiatives that we roll it out.
Speaker Change #162: Okay, thanks, guys.
Speaker Change #162: Thank you, sir.
Speaker Change #162: The next question comes from Steven Zucone from CT Group.
Speaker Change #162: Steven Yolanda, please go ahead.
Speaker Change #162: Great.
Speaker Change #162: Good morning.
Speaker Change #162: Thanks very much for taking my question.
Speaker Change #162: I wanted to follow up on the price investments. So the last time you spoke to us, you said the price investments that you were doing at that time accounted for about 8% of the SKU count.
Speaker Change #162: So this 100 million, you know, what does that translate to SKU count today?
Speaker Change #162: And then what gives you confidence that you won't need to take another level of price investments, just given the comment there that some of these have been slower to to catch on with your pro customers.
Speaker Change #162: Yes, Steven, they are much more broad base.
Speaker Change #162: Don't necessarily want to share like with a percentage at this point, but it's definitely more broad base across all categories.
Speaker Change #162: We've wanted to make sure that we are invested in the right places, especially in the pro and seasonal areas.
Speaker Change #162: As far as incremental investments, we're always going to continue to look and make sure that we are competitively priced.
Speaker Change #162: Again, want to reiterate, we're not trying to leave the market here. We're just trying to remain competitively priced.
Speaker Change #162: So we have a better chance to say yes to the customer when we have the product.
Speaker Change #162: So there might be some additional investments, but from our perspective, a large portion of the investments, we're pretty much...
Speaker Change #162: Yeah, and we've talked to our customers regularly, and as you know, we've got a large initiative underway with up and down the street pros, and we get the feedback that our pricing's in line.
Speaker Change #162: Now, for customers where we're the first call, that's welcome news, and we continue to retain that business, where we're a second or a third call, being in line with pricing that provides the opportunity to get the marginal business.
Speaker Change #162: I think one of the things that's always good about being in the auto parts business is there are so many parts out there that nobody has them all.
Speaker Change #162: So, inevitably for even an entrenched, a customer who's entrenched with the competitor, there's some product that they don't have, but they don't have it with the requisite availability.
Speaker Change #162: We'll get that call.
Speaker Change #162: Now that we've got the price that's lined up, we get the business.
Speaker Change #162: So, we think where we need to be, we'll obviously be tuning it, but where we look at customers, we get feedback from customers, price isn't the objection in terms of why we are or aren't getting the business.
Speaker Change #162: OK, that's helpful.
Speaker Change #162: And then maybe to follow up on that, you know, you made the comment earlier that turn around to take time.
Speaker Change #162: And from following this industry, you know, we all know price is just one piece of the factor in that decision to get the business, right? There's also service, parts availability, delivery speed.
Speaker Change #162: Can you help us understand how you stack up among those other factors when you're trying to get that customer just to move up the call list?
Speaker Change #162: Thanks very much.
Speaker Change #162: Yeah.
Speaker Change #162: So in terms of where we've got great people, our locations, our products, we do well.
Speaker Change #162: And so we're excited by what this represents.
Speaker Change #162: We're turning the page as a company to put the focus on our stores.
Speaker Change #162: And we're seeing the early shoots from those investments.
Speaker Change #162: So talk about investing in the front line.
Speaker Change #162: We're hearing it from our team members.
Speaker Change #162: I go talk to a GM who said, Hey, I was able to raise the wage for one of my team members for a buck 50. That makes a difference for that team members staying around and being part of the company versus potentially leaving for the first opportunity to sell fast food somewhere else. So we're seeing better retention of our team members.
Speaker Change #162: We're seeing the energy that that that invokes.
Speaker Change #162: We're seeing it in terms of our product availability.
Speaker Change #162: We're seeing it in terms of our PLR impacts.
Speaker Change #162: We're seeing it in terms of vendor partnerships.
Speaker Change #162: Vendors are reaching out to us and say when they're saying, Hey, we're excited by where you guys are going.
Speaker Change #162: We want you to succeed.
Speaker Change #162: So the vendors are behind us.
Speaker Change #162: So at each sort of level of what we're doing, the improvements we're making are starting to get a little bit of traction.
Speaker Change #162: Now, we still have things that we want to do in places we want to go.
Speaker Change #162: So supply chain, we got to finish the consolidation.
Speaker Change #162: We got to roll out the market hubs.
Speaker Change #162: You know, in merchandising as Bruce gets traction with that team, we expect him to do more things.
Speaker Change #162: So there's upside in all the areas we're doing, but there's progress that that we're getting back from our own team and from our customers where people are indicating we're on the track.
Speaker Change #162: These are the things that we want to do.
Speaker Change #162: And importantly, internally, we're getting excitement.
Speaker Change #162: Okay, thanks for the detail.
Speaker Change #162: The next question comes from Brian Nego from Oppenheimer.
Speaker Change #162: Brian, your line is I can please go ahead.
Speaker Change #162: Good morning.
Speaker Change #162: Thanks for taking my questions.
Speaker Change #162: So my first question that I apologize for being repeated, but I also want to just touch on these price investments.
Speaker Change #162: So the question I have and you're recognizing, as you've said now, several times, you're not leading the sector or the lower.
Speaker Change #162: But the question is you as you've adjusted prices, and I know it's a case-by-case situation, but do you see a competitive reaction to those adjustments you've turned your taking on these eyes- Yeah Brian, we haven't seen competitors move on that because we're really just getting down to be competitive within the ballpark of that but we haven't seen them move to bring it down lower it's not kind of driving a race to the bottom here we've been able to make the adjustments and keep them in place as we monitor that price and the competitive position of that price.
Speaker Change #162: Got it because in my second question with with regard to the sale of world pack again recognizing your document full details at this point, but those you think about the remain co X world pack or there are other potential implications for the remain co and when I'm referring to specifically is that you know, as you then you'll go and fold you'll be a smaller company or you are you less than a scale buyer or they're not going to be able to do that.
Speaker Change #162: There are other leverage opportunities that you'll be for going at least near term.
Speaker Change #162: Yeah, we don't I don't see any I actually see the opposite which is our vendors are saying hey, it's great to see that you're you're getting advance going and keep in mind that your world pack was was substantially a separate company.
Speaker Change #162: So it's not as though that the procurement between the two entities was was consolidated.
Speaker Change #162: So the vendors are saying you guys are focused, you're getting some discipline, you're getting some accountability, you're serious about growing.
Speaker Change #162: We want to be part of that and I think that's a that's a great message.
Speaker Change #162: So what we will be marginally smaller we're still a huge player inside of auto parts you keep in mind that there are so many moms and pops and smaller distributors out there.
Speaker Change #162: We're still an absolutely significant player in the industry.
Speaker Change #162: We've got the support of the vendors we're building excitement internally we're going to start opening stores again.
Speaker Change #162: So this is you know, I view today as a is a watershed moment for this company in terms of selling world pack making the decision to keep Canada and then setting about the trajectory that we're putting forward.
Speaker Change #162: Thanks Shane, pretty sure the color.
Speaker Change #162: Thanks Brian.
Speaker Change #162: The next question is from Seth Bastion from WEDGUS.
Speaker Change #162: Seth, your line of open please go ahead.
Speaker Change #162: Thanks Ryan, good morning.
Speaker Change #162: My first question is just on the guidance for this year.
Speaker Change #162: How much of the EPS guidance would you consider the one time transitory items that will not recur next year?
Speaker Change #162: I give it a smaller portion not giving specifics on that one, but it's a smaller portion of the overall guidance, the real guide.
Speaker Change #162: Adjustment is driven by margin and margin related to our pricing investments and product cost, but mainly the price investments and then the volume on the top line, those are the real drivers of the EPS.
Speaker Change #162: The year over year impact of some of those items will probably lay out more of that on what that means going forward in our two, three call, but it's not a significant portion.
Speaker Change #162: Okay, and my second question is post sale of WorldPack, where do you want to take leverage?
Speaker Change #162: How much do you pay down to get to that?
Speaker Change #162: Libertration.
Speaker Change #162: The long term, we want to be at a two five.
Speaker Change #162: I mean, obviously, that's when we look at it for the main coast standpoint, when we close this transaction, we'll be evaluating what that looks like.
Speaker Change #162: But ultimately, we want to remain investment-grade long term, and we want to be at a ratio of about 2.5.
Speaker Change #162: So we'll continue to look at what that means from a balance sheet standpoint.
Speaker Change #162: Yeah, and I'll just say that you think about this in the context of a turnaround.
Speaker Change #162: So we pick up a billion five here, got close to five in terms of our internal generation.
Speaker Change #162: So strengthening the balance sheet is a key step. And as we think about the different potential uses, whether it's with debt or company investments or shareholders, it's exciting to now have that cash infusion to fuel the journey.
Speaker Change #162: I think again, I want to emphasize for everybody on the call, selling world pack and creating a singular focus.
Speaker Change #162: If you just look at key activities associated with a turnaround, right, you simplify the business, you create focus on what the company is going to do.
Speaker Change #162: You have a strategy that everybody understands, and then you set about doing it. And then, by the way, if you have the luxury of a strong balance sheet to help undertake that journey, all the better.
Speaker Change #162: Thank you.
Speaker Change #162: On a question we have time for today comes from Chris Plotiglary from BNP Paraba.
Speaker Change #162: Chris, your line is I can please go ahead.
Speaker Change #162: Hey guys, thanks for squeezing me in.
Speaker Change #162: Just wanted to kind of park the store opening point and it seems like something incremental.
Speaker Change #162: Just wanted to ask what the store opening plan is.
Speaker Change #162: I think you're going to spend, I think I would cost about a million to two million per box open the store free cash for this year is a hundred million X world pack probably break even to be my guess.
Speaker Change #162: But how do you think about funding the store growth?
Speaker Change #162: Is it going to come from the proceeds of world pack or is it going to be just contingent on improving margins and sales first and then you can get a return to the store.
Speaker Change #162: It's going to be in the time line in the funding of the store growth.
Speaker Change #162: Yeah, so good question.
Speaker Change #162: So it's a little both.
Speaker Change #162: So we actually open stores every year, right?
Speaker Change #162: But as we go forward, having a robust store opening capability is an important part of creating growth.
Speaker Change #162: And in terms of where you pick, where you open, and how you open, what we find makes all the difference. If you open in a market where you're already known and you have some regional market share that take off of that store tends to be much quicker than if you open in an area where you're the last guy in the market.
Speaker Change #162: So one of the things that we needed was to bolster our real estate team to make that happen.
Speaker Change #162: And that's occurred.
Speaker Change #162: And you got to think about that in terms of site selection.
Speaker Change #162: By the way, whether you're building or whether you're leasing in terms of how you go about your stocking programs, your kidding and fitting, your grand opening processes, all of those muscles needed to be rejuvenated and they have been and we've been opening some stores that have that have put that to practice.
Speaker Change #162: So now how do you go accelerated, right?
Speaker Change #162: So one of the things you do is you go to the team and you say, okay, go figure out how many stores we can open and they come back and say, hey, we can get to opening 100 stores a year and do that sequentially, right?
Speaker Change #162: That's an important important part of it.
Speaker Change #162: So that's what they've been doing.
Speaker Change #162: And now they're identifying the markets where we can go do that.
Speaker Change #162: So how do you pay for it?
Speaker Change #162: I think you offered some numbers as to what those costs look like.
Speaker Change #162: So some that comes from the proceeds.
Speaker Change #162: I think absolutely, right?
Speaker Change #162: That's a great way to get the engine going.
Speaker Change #162: Some would come from our traditional capex budget that we set aside.
Speaker Change #162: And I think Ryan's put us at 200 to 250, right?
Speaker Change #162: So there'll be money there. And then if you wanted to further amplify it and maybe you can get to something, you know, even a higher number of new store openings, then that comes from some of the growth or the benefit that we're creating from some of these turnaround activities.
Speaker Change #162: Yeah, make a lot of sense, and it's a good segue to my next question.
Speaker Change #162: How do you think about the store closures?
Speaker Change #162: Do you have like kind of a, is there a way to frame what percentage of stores are for while losing money?
Speaker Change #162: How do you kind of balance the needs of scale, particularly in a given market versus store closures?
Speaker Change #162: How do you balance like losing the scale from closing stores and the opportunity?
Speaker Change #162: Yeah, so, so it's sort of the reverse process.
Speaker Change #162: So look at, look at markets where we don't have regional market share, look at markets or individual stores where our performance is unprofitable or below where we want it to be or maybe where the sales productivity isn't coming.
Speaker Change #162: And by the way, the first thing we do is we look at say, Hey, is this a function of we don't have the right management in place right because often you know that the GM makes a huge difference in terms of of how a store performs or have you know what's the outside sales participation of the CPP's performance.
Speaker Change #162: We always look at those things first, but yeah, you could look at individual stores.
Speaker Change #162: We can stack them and we could say, Hey, here's a store where economically it's not where we want it to be.
Speaker Change #162: We don't think it's a function of making a leadership change, and so though, therefore we'll close it could be the location of the store based on how easy this again and out of the parking lot, it could be the market conditions in terms of what how we're doing generally.
Speaker Change #162: And so that's what we'll do and I think that's an important part of it and and if you close stores that are actually actually a cash flow drag.
Speaker Change #162: That's money that think you go to opening a store in a market where it's a cash flow benefit.
Speaker Change #162: Okay, I think we're at time and thank everybody for the for the call today.
Speaker Change #162: We appreciate your questions.
Speaker Change #162: Look forward to describing more when we get to the third quarter and know that on behalf of everybody advance, we're excited as we move forward in this next chapter of our journey.
Speaker Change #162: One blended box, one advance with our independence growing in the auto parts industry.
Speaker Change #162: Thank you.
Speaker Change #162: This concludes today's cool.
Speaker Change #162: Thank you very much for your attendance.
Speaker Change #162: You may now disconnect your life.