Q4 2024 Genuine Parts Co Earnings Call
Speaker Change: Good morning, ladies and gentlemen. Welcome to the Genuine Parts Company 4th Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require mated assistance, please press star zero for the operator. This call is being recorded on Tuesday, February 18, 2025. At this time, I would like to turn the conference over to Tim Walsh, Senior Director, Investor Relations. Please go ahead, sir.
Tim Walsh: Thank you and good morning everyone. Welcome to Genuine Parts Company's fourth quarter 2024 earnings call.
Speaker Change: Joining us on the call today are Will Stengel, President and Chief Executive Officer, and Bert Nappier, Executive Vice President and Chief Financial Officer.
Speaker Change: In addition to this morning's press release, a supplemental slide presentation can be found on the investor's page of the Genuine Parts Company website.
Speaker Change: Today's call is being webcast and a replay will also be made available on the company's website after the call.
Speaker Change: Following our prepared remarks, the call will be open for questions. The responses to which will reflect management's views as of today, February 18, 2025.
Speaker Change: If we're unable to get to your questions, please contact our Investor Relations Department.
Speaker Change: Please be advised this call may include certain non-GAAP financial measures which may be referred to during today's discussion of our results as reported under generally accepted accounting principles.
Speaker Change: A reconciliation of these measures is provided in the earnings press release.
Speaker Change: Today's call may also involve forward-looking statements regarding the company and its businesses as defined in the Private Securities Litigation Reform Act of 1995.
Speaker Change: The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release.
Speaker Change: The company assumes no obligation to update any forward-looking statements made during this call.
Now, I'll turn the call over to Will.
Will Stengel: Thank you, Tim, and good morning. Welcome to our fourth quarter and full year 2024 earnings call. Before we get into the details of our results, I want to take a moment to express my gratitude to our over 63,000 GPC teammates around the world.
Will Stengel: Your hard work, dedication, and unwavering commitment to serving our customers are the foundation of our success. Our people are at the heart of everything we do, and we have a culture of service, performance, integrity, and teamwork.
Will Stengel: In 2024, we made meaningful strides in strengthening our teams by making focused investments in talent across the globe at all levels. These people investments are helping build a stronger organization.
Will Stengel: As evidence of the strength of our culture, we're proud to share that in our most recent global engagement survey, a record 81% of our teammates reported being highly engaged with our company, up three points from the survey a couple years ago.
Will Stengel: Reflecting on 2024, our end markets did not perform at the levels we planned at the start of the year.
Will Stengel: But I'm proud the team stayed focused on what we could control as we advanced our strategic initiatives to improve the business and effectively manage our operations against a backdrop of challenging macroeconomic conditions.
Will Stengel: Our strategic investments continue to enhance the customer experience, improve productivity, and drive profitable growth as we leverage our global scale and teamwork to prioritize opportunities that make GPC smarter, faster, and better.
Will Stengel: Technology and data underpin our investment priorities with an emphasis on talent, sales, and supply chain.
Will Stengel: We're confident that our investments and actions continue to strengthen the business and create long-term value.
We complement our core investments with disciplined bolt-on acquisitions.
Will Stengel: In 2024, we acquired over 100 companies that added talent, geographic coverage, new capabilities, and value to GPC.
Will Stengel: I'd like to take a few moments to highlight some of our key accomplishments from 2024, and Bert will share more details on the fourth quarter and our 2025 outlook in a few moments.
Will Stengel: A few financial highlights for 2024 include total GPC sales were $23.5 billion, an increase of approximately $400 million or 1.7% compared to 2023.
Will Stengel: Included in our sales growth was a benefit of 260 basis points from strategic acquisitions which offset weak market conditions particularly in our industrial segment.
Will Stengel: Adjusted gross margin increased 70 basis points driven by acquisitions and our strategic pricing and sourcing initiatives.
Will Stengel: We generated strong cash flows with 1.3 billion of operating cash flow.
Will Stengel: and we executed a global restructuring to proactively offset softer market conditions, which led to $45 million in cost savings in 2024, with more to be realized in 2025.
Will Stengel: In addition to our investment in the business, we returned over $700 million, or nearly 60% of our operating cash flow to our shareholders, in the form of dividends and share repurchases.
Will Stengel: As a sign of confidence in the long-term outlook for GPC, this morning our Board approved a 3% increase to our dividend, marking the 69th consecutive year we've increased the GPC dividend.
Thank you for watching.
Will Stengel: Turning to our results by business segment, in 2024 total sales for global industrial were $8.7 billion, a decrease of 1.4% compared to last year, with comparable sales down 2% as weak market conditions resulted in reduced customer demand for the full year.
Will Stengel: Within motions business in 2024 our core MRO and maintenance business, which accounts for approximately 80% of motion sales, was essentially flat with the prior year.
Will Stengel: Our corporate account customers, which account for approximately 45% of motion sales, saw low single-digit growth.
Will Stengel: Looking at our diverse collection of industries served, we saw growth across four of our 14 end markets with strength in pulp and paper, mining, and DC and logistics.
Will Stengel: This growth was offset by softer demand in markets like equipment and machinery, automotive, and metals.
Will Stengel: The remaining 20% of Motion's sales originates from more capital-intensive projects, including our value-added service offering.
Will Stengel: This business was down mid to high single digits for the year.
Will Stengel: While we've seen customers delay certain capital-intensive projects given the environment, we remain bullish on the long-term opportunities in this portion of the business as customer spending rebounds.
Will Stengel: For the full year, Global Industrial Segment EBITDA was $1.1 billion, which was 12.6% of sales, a decrease of 20 basis points versus the prior year.
Will Stengel: While profitability continues to be impacted by sales deleverage and inflationary cost pressures, we're confident that our strategic initiatives and cost actions will drive margin expansion as market conditions improve.
Will Stengel: Despite the tough market in 2024, Motion North America improved gross margin and delivered EBITDA margin of approximately 13%, down only approximately 10 basis points versus prior year.
Will Stengel: Over the last five years, Motion has expanded its profit margin by over 300 basis points.
Will Stengel: While the industry faces temporary headwinds, we're energized about how motion is positioned in the market and the opportunities available to us.
Will Stengel: We operate in a large and highly fragmented market, and despite being the number one player in the industry, we still hold less than 10% market share, which reinforces the significant runway we have for continued profitable growth.
Will Stengel: During 2024, we executed a disciplined succession plan at motion by promoting James Howe as president.
Will Stengel: James has a 35-year track record in the industry and started in the business as a motion field sales rep.
Will Stengel: The Motion senior leadership team has 200 years of experience at Motion and 270 cumulative years of experience in the industry.
Will Stengel: Most importantly, we go to market with an unmatched team of local, highly technical account and product specialists that know our customers' operations and the equipment they utilize as they create tailored solutions to keep their businesses running smoothly.
Will Stengel: Recall, in many instances, our motion associates are physically located in customers' facilities.
Will Stengel: Motion leads the industry with its scaled technical capabilities, value added solutions, and local support offering.
Will Stengel: Complimented by our national network of both branches and distribution centers, as well as unparalleled investment in inventory, we believe Motion offers the best value proposition regardless of customer size, type, or location.
Will Stengel: In 2024, we further expanded our depth of inventory by over 60,000 SKUs while simultaneously improving inventory efficiency.
Will Stengel: Our network enables the right inventory strategically located in the right markets to ensure we're at our customer's facility promptly to get them back up and running.
Will Stengel: In addition to the traditional MRO and maintenance solutions, Motion also serves its customers with a robust value-added service offering, where we help our customers improve their operations, drive productivity, and create value.
Will Stengel: This includes designing and delivering solutions such as fluid power systems, electrical and automation systems, and conveyor systems to solve specific customer applications.
Will Stengel: Additionally, Motion offers its customers predictive and preventative maintenance solutions to help minimize the risk of an unexpected part failure.
Will Stengel: We've installed thousands of sensors into our customers' facilities that give them critical insights into the cycle times and the health of their operations.
Will Stengel: These solutions are designed to improve throughput and productivity, helping our customers optimize their operations.
Speaker Change: Motion extends its competitive advantage with its repair and service offerings, including our new state-of-the-art facility in Houston.
Speaker Change: This team works hand-in-hand with customers to diagnose the root cause of machinery problems, perform repairs, and train their teams on proper installation and maintenance of equipment.
Speaker Change: Key end markets where we provide these services include mining, steel, cement, and paper mills.
Speaker Change: In 2024, we realigned our value-add solutions team with our core distribution leadership to ensure a seamless and coordinated customer experience.
Speaker Change: This differentiated approach improves our ability to deliver our full motion offering to each customer.
Speaker Change: While industrial market conditions remain challenged, we're confident in Motion's ability to navigate the near-term headwinds and continue to drive value for our customers.
Speaker Change: Our leadership position, unmatched technical expertise, and broad portfolio of scaled solutions position us well to capitalize on growth opportunities as industrial activity recovers.
Speaker Change: This, coupled with opportunities with advancing trends around nearshoring, have us excited about what's ahead for motion.
Speaker Change: We're cautiously optimistic to see three months of sequential improvement in PMI with January at 50.9. However, we believe it's prudent to be cautious with our enthusiasm until additional evidence of a sustained market recovery is clear.
Speaker Change: Turning to the global automotive segment, total sales in 2024 were $14.8 billion, an increase of approximately 4% compared to last year.
Speaker Change: Automotive sales growth was comprised of a benefit of 370 basis points from acquisitions, largely in the U.S., and flat comparable sales growth.
Speaker Change: The moderation in the sales benefit from inflation continued to be a factor in our year-over-year comparisons.
Speaker Change: As expected, global automotive sales inflation remained below 1% throughout 2024.
Speaker Change: For the full year, Global Automotive's segment EBITDA was $1.3 billion, which was 8.7% of sales, a decrease of 70 basis points versus 2023.
Speaker Change: Our results for Global Automotive reflect ongoing pressures from the soft market environment and cost pressures, particularly in Europe and the U.S.
Now, let's turn to our Automotive Business Performance by Geography.
Speaker Change: Starting in the U.S., total sales were up approximately 3% in 2024, with roughly flat comparable sales growth.
Speaker Change: During the year, sales out to our commercial customers were flat, while sales out to do-it-yourself customers were down low single digits.
Speaker Change: Within commercial, we saw low single-digit growth in our NAPA auto care and other wholesale customer segments, while fleet and government was flat.
Speaker Change: Major account sales were down low single digits, but showed sequential improvement through the back half of the year.
Speaker Change: Looking at our comparable store sales, both sales out from company-owned stores and comparable sales into independent stores performed relatively in line with each other, approximately flat for the year.
Speaker Change: Turning to our product category performance for the year, we continue to see relative strength from our non-discretionary repair categories, which accounts for approximately 50% of NAPPA's business, up low single digits in 2024.
Speaker Change: General maintenance and service categories like braking, filters, and chemicals, which represents about approximately 35% of our business, were also up low single digits versus the prior year.
Speaker Change: And lastly, we continue to see softer demand in discretionary categories which represent approximately 15% of the business down mid-single digits from last year.
Speaker Change: While 2024 market growth proved to be softer than expected, we were encouraged by the progress we've made to improve NAPA's capabilities, service, and position in the market.
Speaker Change: Our back-to-basics mindset has driven material improvement in our internal metrics around inventory stocking levels, customer service, and on-time delivery.
Speaker Change: As an example, we're making notable progress improving the operations inside our current DCs.
Speaker Change: Our internal metric for service levels from our DCs to stores improved almost 800 basis points in 2024, and our safety metrics improved by approximately 20%.
Speaker Change: And we did all of this while investing in inventory and flowing more product through our facilities to ensure we have the right part in the right place at the right time.
Speaker Change: While much of the focus at NAPA in 2024 was ensuring we're executing the key aspects of the customer experience at a high level, we continued to make investments in the business to position us for long-term success.
Speaker Change: We're investing in the supply chain at Napa and completed the expansion of our Indianapolis Distribution Center, increasing capacity to support growing customer demand and improve delivery speed across key markets.
Speaker Change: This facility includes a significant technology and automation upgrade, which will drive cost efficiencies and inventory productivity.
Speaker Change: In addition, in 2025, we're leveraging our global scale to launch a professional hand and service tool and equipment offering that will allow us to further capitalize on a large and growing industry opportunity.
Speaker Change: Our acquisition of MPEC and Walker are on track relative to operational plans and financial targets.
Speaker Change: In total, we've integrated approximately 55% of the stores into NAPA technology platforms, which enables consistent control of local operations.
Speaker Change: In 2024, the transactions delivered sales, gross margin, and operating profit margin benefit as expected.
Speaker Change: We've been pleased with the progress to date and will continue to execute our post-close integration strategies.
Speaker Change: While the broader consumer continues to feel pressure from macro headwinds like high interest rates and persistent cost inflation, the automotive aftermarket industry fundamentals remain supportive of long-term growth, including increasing miles driven, an aging car park, and high in new and used vehicle pricing.
Speaker Change: In addition, we view commercial customers as the growth engine of the industry as the complexity of vehicles continues to increase.
Speaker Change: With this backdrop, Napa operates from a position of strength with 80% of our business concentrated in commercial, supported by our network of more than 6,000 store locations and approaching 20,000 auto care centers.
Speaker Change: In 2025, Napa will celebrate 100 years of history, a truly remarkable accomplishment.
Speaker Change: We're thrilled to celebrate this milestone, but we're even more excited for what the next hundred years is going to bring.
Speaker Change: As we look at our results outside the U.S., in Europe, throughout 2024, we navigated a weak economic backdrop which resulted in a lack of market growth for the aftermarket.
Speaker Change: In 2024, total sales were up 6% in local currency, with flat comparable sales growth.
Speaker Change: These results reflect ongoing execution of our initiatives, including key account wins, expanding the NAPA brand, and strategic bolt-on acquisitions.
Speaker Change: In 2024, we grew NAPA branded sales 16% versus 2023 to 500 million euro, a remarkable accomplishment since its launch five years ago and a testament to the power of the NAPA brand.
Speaker Change: The rollout of NAPPA across Europe has been a competitive differentiator, especially in a challenging market, and has far exceeded our expectations.
Speaker Change: NAPA branded sales now represent approximately 15% of our sales in Europe and we can see a path of this penetration climbing to over 20% over the next four to five years.
Speaker Change: In our other international geographies, Asia Pacific and Canada, we continue to enjoy leading market positions despite challenging market conditions.
Speaker Change: In Asia-Pacific, sales in 2024 increased 6% in local currency, with comparable sales growth up approximately 4%.
Speaker Change: Our Asia-Pacific team continues to execute at a high level, delivering their fifth consecutive year of double-digit profit growth.
Speaker Change: Their ability to drive market share gains, deliver strong operating leverage, and strategically and consistently invest for the future has been instrumental in their success.
Speaker Change: In Canada, total sales in 2024 increased approximately 1% in local currency, with comparable sales growth down approximately 2%.
Speaker Change: Our Canadian team continues to execute well, despite a softer macroeconomic backdrop and a more cautious consumer.
Speaker Change: As I mentioned, our accomplishments and results around the world are bolstered by investment in technology and complemented by strategic acquisitions.
Speaker Change: Acquisitions have been a hallmark of GPC and 2024 was no different. During the year we made progress on our initiative to own more of our NAPA stores here in the U.S., completing the acquisition of more than 500 stores, mostly from our independent owners.
Speaker Change: Our store footprint in the U.S. is now approximately 35% company owned, with the balance being our independently owned stores.
Speaker Change: Over time, we see a path to bring our network closer to a 50-50 mix, with our independent owers always continuing to play a critical role in our network, particularly in smaller and more rural markets.
Speaker Change: In addition, Motion acquired four bolt-on acquisitions in 2024 to build upon its technical and value-added solutions capabilities, and we've remained active to start 2025.
Speaker Change: Going forward, we believe M&A will continue to play an important part of our growth profile in both our automotive and industrial business.
Speaker Change: We play in two large and fragmented markets and enjoy the flexibility of a strong balance sheet.
Thank you for watching. See you next time.
Speaker Change: Beyond M&A, our global investments in technology are advancing well. This year, we're focused on improving catalog and search capabilities using Google Cloud, enabling us to deliver a more seamless experience, particularly for our commercial customers.
Speaker Change: As examples within our Automotive Catalog, we've made material enhancements that help our commercial customers find what they need, leading to lower order cancellations and returns.
Speaker Change: And we're now leveraging machine learning and automation to help our catalog continuously improve itself without the need for manual data entry.
Speaker Change: Within Search, we used Google Cloud to build an automotive-specific search experience focused on our commercial customers.
Speaker Change: Our search results are now four times faster, two times more accurate, all at half the cost.
Speaker Change: There are numerous other examples of progress within recent technology investments where we've leveraged our global scale to make us smarter, faster, better.
Speaker Change: For example, the recent completion of our global HR rollout with Workday to create a standardized company-wide platform that simplified 40 disparate HR platforms to one.
Speaker Change: In addition, we've ramped up our capabilities at our Poland Tech Center, now comprised of nearly 300 engineers that lead global technology initiatives across pricing, inventory, catalog, search, and cybersecurity.
Speaker Change: Not only has the Tech Center added capabilities and speed, but also resulted in material cost savings.
Speaker Change: Less visible, but critically important, we've made material progress to simplify our core tech infrastructure as we've improved stability, performance, and scalability.
Speaker Change: Looking ahead into 2025, we have opportunities to build on our momentum and drive organic growth by enhancing our customer value proposition, expanding market share, and improving profitability through cost discipline.
Speaker Change: While we expect soft market conditions to persist into the first half of 2025, we anticipate gradual improvement as the year progresses.
Speaker Change: A key aspect of our outlook is the improvement in marketing conditions for both industrial and a rebound in the European landscape.
Speaker Change: Burt will walk you through the details of our assumptions in a few minutes.
Speaker Change: Our continued investments in strategic initiatives reflect our commitment to driving growth and improving efficiency.
Speaker Change: We're confident these actions will support sustainable growth and long-term value creation.
Speaker Change: While committed to our long-term strategic investments, we're also balancing the current environment with prudent and urgent cost actions.
Speaker Change: Today we announce that we're targeting an additional $100 to $125 million of savings in 2025.
Speaker Change: These efforts continue our focus to simplify our operations and improve productivity.
Speaker Change: Collectively, our actions across 2024 and 2025 will position us for approximately $200 million in annualized cost savings beginning in 2026.
Speaker Change: In summary, while our full-year financial results were impacted by challenging market conditions, we're encouraged by the operational progress we've made across our business.
Speaker Change: GPC's legacy of operational excellence, exceptional customer service, and financial discipline continue to guide us.
Speaker Change: Our market-leading automotive and industrial businesses are well-positioned to capitalize on growth opportunities driven by supportive long-term industry fundamentals while leveraging our size, global scale, and expertise as a competitive advantage.
Speaker Change: We remain focused on creating value through a balanced capital allocation strategy, including reinvesting in our business, pursuing disciplined and accretive M&A, and returning capital to shareholders through our long-standing dividend.
Speaker Change: In closing, I want to thank our GPC teammates for their continued hard work and dedication to serving our customers, and to our shareholders for their continued trust and support. We look forward to building on our momentum in 2025 and well beyond.
And now, I'll turn the call over to Bert.
Bert Nappier: Thanks, Will, and thanks to everyone for joining the call. My remarks this morning will focus on two key areas, our fourth quarter performance, which was at the high end of our expectations, and our outlook for 2025.
Bert Nappier: Our fourth quarter results reflect revenue growth from the benefits of acquired businesses, which more than offset the negative impact of weak market conditions.
Bert Nappier: As expected, despite the revenue growth and gross margin expansion we realized, earnings were down in the fourth quarter due to headwinds from planned investments in the business and cost inflation.
Bert Nappier: Although further cost actions and better results from our global restructuring allowed us to finish 2024 modestly ahead of our expectations when we began the quarter.
Bert Nappier: Our discussion will focus primarily on adjusted results, which exclude the non-recurring costs related to our global restructuring program, costs related to the acquisition of MPEC and Walker, and a charge to write down inventory related to a global rebranding and relaunch of a key product category.
Bert Nappier: During the fourth quarter, these costs totaled $125 million of pre-tax adjustments, or $91 million after tax, with $62 million attributable to the inventory write-down.
Bert Nappier: Starting with sales, total GPC sales increased 3.3% in the fourth quarter, including a benefit from acquisitions of 320 basis points and the benefit of an additional selling day in the U.S. totaling 110 basis points.
Bert Nappier: These items were partially offset by slightly negative comparable sales growth as weak market conditions and lower customer demand, particularly in industrial and Europe, impacted our sales performance.
Looking at the quarterly sales by business unit.
Bert Nappier: Starting with our global industrial segment, sales in the fourth quarter decreased approximately 1% compared to prior year, with comparable sales down 2%.
Bert Nappier: During the quarter, we had one extra selling day compared to the fourth quarter of last year, which positively impacted sales growth by approximately 150 basis points.
Bert Nappier: Average daily sales were down low single digits in October and November and down mid single digits in December.
Bert Nappier: As expected, our December results were impacted by the timing of the holidays and extended customer idling during the last two weeks of the year given the weaker demand environment.
Bert Nappier: As we look at global automotive, total sales in the fourth quarter increased approximately 6% compared to the prior year, with comparable sales up slightly.
Bert Nappier: In addition to the benefits from acquired businesses, during the fourth quarter, we had one extra selling day in the U.S., which positively impacted global automotive sales growth by approximately 90 basis points.
Bert Nappier: By geography, starting in the U.S., total sales were up approximately 7% in the fourth quarter, aided by acquisitions, with comparable sales flat. The extra day versus prior year positively impacted sales growth by approximately 170 basis points.
Bert Nappier: Our average daily sales cadence through the quarter was positive in all three months.
Will Stengel: And within our DIY and DIFM customer segments, the trends in the fourth quarter were generally consistent with the full-year commentary that Will shared.
Will Stengel: In our international markets, sales in Europe during the fourth quarter increased 3% in local currency, with comparable sales down 1% as a result of weak macroeconomic conditions.
Will Stengel: In Asia-Pacific, sales in the fourth quarter increased 14% in local currency, with comparable sales up approximately 6%.
Will Stengel: Both commercial and retail segments delivered solid growth with notable strength in retail.
Will Stengel: And finally, in Canada, total sales in the fourth quarter increased 1% in local currency, with comparable sales down approximately 1%, driven by challenging economic conditions.
Will Stengel: As we turn back to our consolidated results, with respect to gross margin, after adjusting for the $62 million dollar charge to write down inventory related to our global product rebranding,
Will Stengel: Our adjusted gross margin was 36.9% in the fourth quarter, an increase of 50 basis points from last year.
Will Stengel: As expected, the improvement in gross margin was driven by acquisitions, primarily at U.S. Automotive.
Will Stengel: Our adjusted SG&A as a percentage of sales for the fourth quarter was 29.4%, up 210 basis points year-over-year and in line with our expectations.
Will Stengel: This de-leverage can be attributed to the following factors. First, approximately 80 basis points from cost inflation, primarily in salaries and wages, as well as rent and freight expense.
Will Stengel: Second, approximately 60 basis points from acquired businesses, which represents the isolated impact of the SG&A of these acquisitions.
Will Stengel: When taken together with the improved gross margin, the net operating profit benefit from acquisitions to GPC is positive.
Will Stengel: Further, as we capture the synergies we expect from these acquisitions, the SG&A impact will abate over time.
Will Stengel: Third, we experienced approximately 60 basis points of deleverage related to a reserve adjustment for product liability claims.
Will Stengel: This deleverage was partially offset by approximately 35 basis points related to our global restructuring efforts.
Will Stengel: Notably, the 60 basis point impact from the adjustment to our product liability reserve masks a sequential improvement in the deleverage in SG&A, as our cost actions and discipline in spending are having the intended effect of curbing the rate of increase.
Will Stengel: For the quarter, total adjusted EBITDA margin was 7.5%, down 180 basis points year-over-year.
Will Stengel: The decrease was primarily driven by the continued lower sales growth environment and higher cost inflation in wages, rent, and freight, partially offset by margin expansion driven by our acquisitions and a benefit from our restructuring efforts.
Will Stengel: Total adjusted EBITDA margin for 2024 was 8.5%, down 80 basis points from 2023.
Will Stengel: Our fourth quarter adjusted net income, which excludes non-recurring expenses of $91 million after tax, or $0.65 per diluted share, was $224 million, or $1.61 per diluted share.
Will Stengel: Our full year adjusted net income was $1.1 billion, or $8.16 per diluted share.
Will Stengel: In 2024, we took actions to better align our costs with the current environment and made significant progress on our global restructuring.
Will Stengel: We incurred restructuring costs of $220 million, and through our team's hard work, we realized approximately $45 million of cost savings in 2024 for a benefit of $0.24 per share.
Will Stengel: Turning to our cash flows, for the year, we generated $1.3 billion in cash from operations and $684 million in free cash flow.
Will Stengel: In 2024, we invested approximately $570 million back into the business in the form of capital expenditures as we continued investment in our supply chain and IT systems.
Will Stengel: In addition, we invested $1.1 billion in the form of strategic acquisitions, including the acquisition of our two largest NAPA independent owners, MPEC and Walker.
Will Stengel: Now, let's turn to our outlook for 2025. We expect diluted earnings per share, which includes the expenses related to our restructuring efforts, to be in the range of $6.95 to $7.45.
Will Stengel: and our adjusted diluted earnings per share to be in the range of $7.75 to $8.25.
Will Stengel: Our 2025 Outlook does not assume any changes in tariffs from the new administration and assumes current FX rates.
Will Stengel: Our outlook for 2025 has been developed based on current weak market conditions and lower customer demand levels, as well as our expectations around the pace and timing of an improvement in market conditions.
Will Stengel: While the industries where we compete continue to enjoy supportive fundamentals, the near-term market conditions remain muted as our customers navigate cost inflation, high interest rates, a dynamic foreign currency market, and the emerging potential for impacts from tariffs.
in addition, as further detailed in our earnings release.
Will Stengel: We expect to record when our U.S. pension plan termination settles, expected for late 2025 or early 2026, which we intend to treat as a non-GAAP adjustment.
Will Stengel: We've excluded the impact of this charge from our 2025 guidance given the uncertainty of when the plan termination will settle, which is dependent upon several regulatory steps and approvals.
Will Stengel: We will provide additional updates regarding the expected timing of completing the pension plan termination as we move through 2025.
Will Stengel: On slide 12 of our earnings presentation, we've included an illustration of the key business drivers impacting our 2025 outlook.
Speaker Change: Let me take a moment and walk through the details of these components, which collectively produce approximately $1 of EPS headwind in 2025 when compared to 2024.
Speaker Change: First, as I just mentioned, we have begun the process to transition our U.S. pension plan to a third-party insurance company, which we expect to complete in late 2025 or early 2026.
Speaker Change: In 2024, we recognized approximately $67 million of income from our U.S. pension plan.
Speaker Change: In connection with the transition, the plan's assets have been reallocated, and as such, our pension income in 2025 will be significantly lower, with an impact of an estimated $0.28 per share when compared to 2024.
Speaker Change: Second, through the fourth quarter we have seen notable moves in the foreign currency markets which have put downward pressure on the euro, Canadian dollar and Australian dollar.
Speaker Change: The strengthening of the U.S. dollar on a relative basis against these currencies is expected to have a negative impact of $0.15 per share year-over-year.
Speaker Change: Finally, our planned investments in the business will result in higher depreciation and interest expense.
Speaker Change: On a year-over-year basis, we expect these two items will negatively impact 2025 earnings per share by approximately 60 cents.
Speaker Change: While we do not provide quarterly guidance, I do want to share our views on the earnings cadence for 2025 and our expectations for the first half.
Speaker Change: Our sales outlook for 2025 is predicated on a steady improvement through the course of the year, with weak market growth continuing into the first half of 2025, before improving in the second half.
Speaker Change: The pace and timing of the recovery of activity in both segments is a key element of our outlook.
Speaker Change: Given our views on the sales backdrop for 2025, within the EPS guidance range we provided for the year, we expect earnings to be down in the first and second quarters, rebounding with earnings growth in the third and fourth quarters.
Speaker Change: with results improving sequentially across each quarter. Based on our current expectations, we would expect first half earnings to be down 15-20% and second half earnings to be up 15-20%.
Speaker Change: For the first quarter, we expect earnings to be down in a range of 20-30% from prior year, driven by several factors.
Speaker Change: One less selling day, lower pension income, higher depreciation and interest expense, the negative impact of a stronger U.S. dollar and a weaker industrial market when compared to the first quarter of 2024.
Speaker Change: For the second quarter, we expect earnings to be down and pressured by the negative impact of depreciation, foreign currency, and interest, as well as lower pension income.
Speaker Change: As we look to the specific elements of our outlook, we expect total sales growth to be in the range of 2 to 4 percent.
Speaker Change: Our outlook assumes that market growth will be roughly flat, and that the benefit from inflation will be approximately 1%.
Speaker Change: It also assumes the benefit from M&A carryover and about a point of growth from our strategic initiatives.
Speaker Change: These benefits are partially offset by the one less day in the first quarter and about a point of headwind from foreign exchange.
Speaker Change: For gross margin, we expect 40 to 60 basis points of full-year gross margin expansion driven by our continuous focus on our strategic sourcing and pricing initiatives, as well as a benefit from the independent store acquisitions in U.S. Automotive.
Speaker Change: Our outlook assumes that SG&A will deleverage between 20 and 40 basis points.
Speaker Change: Our SG&A Outlook is driven by continued cost inflation pressures and the impact of incremental SG&A from acquisitions in the U.S. automotive business.
Speaker Change: These impacts are partially offset by the expected benefits from our global restructuring activities.
Speaker Change: For 2025, we are expanding upon our restructuring initiatives and taking further cost actions.
Speaker Change: We expect to incur additional restructuring expenses in 2025 in the range of $150 to $180 million associated with these activities, with an expected benefit of $100 to $125 million.
Speaker Change: When fully analyzed in 2026, we expect our 2024 and 2025 restructuring efforts and cost actions
to deliver approximately $200 million in cost savings.
Speaker Change: By business segment, we are guiding to the following, 2% to 4% total sales growth for the automotive segment with comparable sales growth in the flat to up 2% range.
Speaker Change: The expectation for automotive segment EBITDA margin is to be flat to up 10 basis points from last year.
Speaker Change: For the industrial segment, we expect total sales growth of 2-4%, with comparable sales growth in the 1-3% range.
Speaker Change: We expect global industrial segment EBITDA margin to expand by approximately 20 to 40 basis points year over year.
Turning to a few other items of interest.
Speaker Change: We expect to generate cash flow from operations in a range of $1.2 billion to $1.4 billion and free cash flow of $800 million to $1 billion.
Speaker Change: For CapEx, we expect approximately $400 to $450 million, or approximately 2% of revenue in 2025 at the high end of the range.
Speaker Change: moderated from 2024 as we drive further rigor and prioritization into capital allocation in light of the market conditions.
Speaker Change: As we look at M&A, our global pipeline remains robust, and we will continue to remain disciplined in pursuing opportunities that create value.
Speaker Change: We expect our M&A capital deployment to moderate as well in 2025 to a range of $300 to $350 million as our investment in U.S. automotives returns to a more normalized level of activity.
Speaker Change: As we start 2025, we continue to operate in challenging market conditions and are taking actions, including advancing our global restructuring activities, to improve the profitability of the business.
Speaker Change: We believe the backdrop of lower sales growth is market-driven, not specific to our business, and we stand well positioned once the cycle turns more favorable.
Speaker Change: We remain confident in the underlying fundamentals of our business and will continue to invest in the business with a long-term focus.
Speaker Change: Thank you, and we will now turn it back to the operator for your questions.
and others. Thank you. Thank you.
Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys. We request that your callers limit their questions to one main question and one follow-up.
Speaker Change: Your first question comes from Scott Ciccarelli with Truist. Your line is now open.
Scott Ciccarelli: Thanks. You guys have made a lot of investments and management changes on the auto side, but North American comp growth has slowed further and it is lagging a bunch of the other industry leaders. Can you help us reconcile operational improvements for some of this underperformance, and when would you expect to see your operational improvements start to show through on relative sales or market share?
script
Scott Ciccarelli: Some of these are quick wins, some of these are longer efforts, and so in the in the aggregate I think we feel good about
Scott Ciccarelli: The body of work and as you know we're working with our independent owners more actively to make sure that they're energized and motivated to compete and sell in the market with us.
Scott Ciccarelli: making really good progress on our company-owned stores and feel really good about the team that we've got on the field. So, long-winded way of saying we're proud of the work that we're doing, pleased with the progress but not satisfied, and look forward to continuing to progress as we move forward.
Scott Ciccarelli: Yeah, Scott, I think what I described is we're proud of the progress that we're making, we're putting the right work into the business.
Scott Ciccarelli: We're seeing strength in parts of our commercial business as a result of our targeted work. And as we described, we're realizing some of the softness in some of the discretionary business.
Scott Ciccarelli: but pleased with the non-discretionary and doing the right work to advance us moving forward. So each and every month we're getting better and we're excited about the progress as we look forward.
Got it. I'll take the rest offline. Thanks, guys.
Speaker Change: Thanks, Scott. Your next question comes from Christopher Hovers with JP Morgan. Your line is now open.
guidance on how you think about the progression of...
Speaker Change: The comps over the year, you gave good discussion around, you know, the earnings forecast.
Speaker Change: But how are you expecting the ramping comps in motion in the U.S. Napa business in particular? And related to that, in Scott's question, you know, the U.S. business didn't really get any benefit from what turned out to be a pretty good winter in the month of December. So can you talk about what happened there as well?
Bert Nappier: Hey Chris, it's Bert. I'll give you a little bit more color on the cadence of 2025. I think at the highest level, just think about our sales outlook in terms of
Speaker Change: We exited the year with pretty weak conditions across the board, as I think we've talked about.
Speaker Change: You know, really one of the first times in GPC history where all five of our business units are feeling the downward cycle in the same way. We're going to start the year in that position, so we have expectations that this week's environment will persist.
Speaker Change: through the first half. We don't really get into giving individual sales guidance by business unit, but I will say that we're looking for the second half to be better, to improve.
Speaker Change: And we're looking for sequential improvement across the year, as I kind of outlined in my prepared remarks, with the cadence of earnings. And with that backdrop, obviously, we would have the expectation that sales and comp sales would progress.
Speaker Change: through the course of the year to support that improvement in earnings. So I think we'll be looking to the second half. There are a lot of moving pieces out there right now, in which I think the market is reacting to some pretty muted conditions, whether it's...
high interest rates, inflation, foreign currency.
Speaker Change: The emerging potential for tariff impacts, which we obviously did not include in our guide. There's some things to be very optimistic about, but cautiously optimistic and being prudent about sequential improvement in PMI and IP, which we've seen over the last three months.
Speaker Change: So that would be a benefit for motion. That has a lag to it, about a two to three month lag, and so if those things continue then that would put us right in the middle of the year in which we might see some improvement.
Speaker Change: And that would come alongside, hopefully, some improvement in the customer side of the house on the automotive business. But look, there's still things to watch. We're watching that industrial business, and we're watching Europe to a certain degree as well.
Speaker Change: Thanks. I guess on the two questions, one, follow up on the weather benefit in the U.S. now, but were you surprised not to see any improvement there? And second, on the motion side of the business, obviously the elections behind this, you saw the PMI pick up.
Speaker Change: But you know tariffs have gotten you know full front and center in the news. What are you hearing from your customers? Do you think this tariff is something that could remain an overhang until it fully goes away? Such that that pushes out that motion recovery in the PMI recovery
Speaker Change: Hey, Chris, I'll take the weather point and just say, look, don't forget the fourth quarter started with some pretty significant disruption.
Speaker Change: from the hurricanes. So as we started October, we were still feeling the impact in both segments of the hurricane. That persisted really through the month of October and perhaps into the first week of November where we got back on our feet.
Speaker Change: You top and tail that with some better weather in December from an automotive perspective in terms of winter weather and driving sales. And I would say that weather, which is why we really didn't call it out for the quarter, was a push.
Speaker Change: When you take those two factors together and I'll let Will give you some color on the tariff question around industrial Yeah, look, I think it's a wait-and-see
Speaker Change: Chris, honestly, I would say that the tone of the discussions are biased more positive as we've started the year. But I think everybody is cautious and staying agile.
Speaker Change: Obviously, as we think about the implications for motion associated with a stronger North American manufacturing base, that's a huge tailwind.
Speaker Change: If you think about our tariff exposure at Genuine Parts Company,
Speaker Change: I would tell you that it's definitely a fluid situation, but we've been prepared for this moment. Our merchandising teams around the world have done really good work to make sure that we've got a diversified global supply chain.
Speaker Change: And, in fact, even in the course of the fourth quarter, we analyzed the country of origin across 800,000 SKUs to make sure that we were exceptionally precise about how to manage the business. And if you look at the key takeaways from that analysis,
Speaker Change: For GPC overall as a global company, are tariff exposure as a percent of purchases?
Speaker Change: is about 7% in China and less than 5% in Mexico and Canada. Motion has almost 90 to 95% of its exposure in the U.S.
Speaker Change: the area of the business that has exposure to China, Mexico, Canada
Speaker Change: as a percentage of total GPC is Napa, where roughly 20 percent of purchases are China, 15 percent are Mexico.
Speaker Change: and less than 5% in Canada. So we've got a good handle on the facts.
Speaker Change: The discussions with the vendors right now, I would describe similarly to the way that I describe customers, which is
Speaker Change: Everybody's trying to make sense of which way the wind's blowing and the good news is the team's prepared to react accordingly as we did a couple years ago where we operate in rational markets that are structured where we have the ability to deliver service to the customer but also pass through price.
Thank you.
Thank you.
Speaker Change: Your next question comes from Greg Mellick with Evercore ISI. Your line is now open.
Speaker Change: Hi, thanks. I wanted to double-click on two things. One is that that sales progression you talked about. You know, obviously we exited last year week. It sounds like we started this year below the sales growth range that you're expecting for the year. Is that fair to say that it's below, maybe perhaps positive, but below the two to four range?
Speaker Change: Yeah, great, that's fair. I mean, we're looking at two to four for the full year with some, you know, back half waiting to that as I described in my prepared remarks, particularly when you think about the shape of the earnings. So we would start in a little lower position and end in a little higher position and that'll get you to the map of the two to four.
Speaker Change: Got it. And then maybe we'll double click on tariffs. Remind us your business proposition around tariffs and if you look to protect gross margin dollars or protect gross margin rate depending on how tariffs play out by country and product line.
Speaker Change: Yeah, Greg, I would say it depends, honestly. We talk a lot about category management and, you know, managing the assortment and the category at a pretty granular level, so...
There might be situations where you're thinking about growth.
Speaker Change: Margin dollars or profit dollars and there might be situations where you're talking gross profit rate
Speaker Change: So, it's a balancing act. Obviously, gross margin rate is important to the financial expression of our business. And so, all else equal, that's something that we consider.
Speaker Change: Got it. And if I could, I just want to make sure on interest expense, a housekeeping item, it's still $150 million this year. Does that include basically the lack of the pension income?
No.
Speaker Change: David. Not, no Greg, not in the interest expense number we gave you. Pension income is a headwind as I described in our prepared remarks. It's down from the year over year, 28 cents estimated headwind for the year, but that's not a part of the interest expense. Book that in another month.
Speaker Change: That's totally separate from that and that'll show up as soon as it's actually divested or before that.
Speaker Change: Yeah, it's actually before that. We had to reallocate and rebalance the portfolio of assets in connection with the transfer which is why we have the headwind.
Speaker Change: The actual settlement is subject to numerous regulatory and approval steps.
Speaker Change: which is why the timing we expect to be in the fourth quarter could slip into the first quarter of next year.
Speaker Change: We wanted to be clear about when that timing might occur because we go through that regulatory process, but to prepare the plan assets for the transition.
Speaker Change: We rebalanced the portfolio, much less equity weighted, and so in that respect, the income will be down significantly year-over-year, and you can think about that $0.20, $0.28, sorry, pretty radically across the year.
Thank you and good luck. Thank you, Greg.
Speaker Change: Your next question comes from Michael Lasser with UBS. Your line is now open.
Michael Lasser: Good morning, thank you so much for taking my question. One of the key debates on the genuine parts investment case
Michael Lasser: is this idea of market share, and why has the company's North American business, not only in the automotive business, but also seemingly on the industrial side, been losing market share? Is it service? Is it availability? Or some other factors?
Michael Lasser: So, A, could you give us some more detail on how the investments are going to close
Michael Lasser: some of these factors that may be driving underperformance, and B, is the expectation that you will see a progression over the course of the year predicated on an acceleration in market share or the industry accelerating? Thank you very much, and I will follow up.
Speaker Change: Michael, let me let me take that one and make a few points. First of all, you referenced North America automotive and for us, you know, our Canadian operations
Speaker Change: continue to perform very well and in line with the market, so that's a great business up there. It's got a leadership position and continues to extend its lead. I would respectfully disagree with your observation about Motion North America.
not competing effectively or losing market share.
Our closest competitor has a slightly different mix of business.
Regardless of that, I think if you look at
Speaker Change: Our performance relative to anybody in the market is as good or better, and we're excited to continue to prove that quarter after quarter throughout 25 and well beyond.
Speaker Change: On the U.S. automotive side of our business, I think we've been pretty clear about the areas where we're investing to take care of our customers and win market share.
Speaker Change: It starts with inventory, it starts with supply chain, it starts with talent, it starts with sales intensity, running great stores.
Speaker Change: As you know, we have a different operating model, so 35%
Speaker Change: of our stores are company owned, which is up 10 percentage points versus not that long ago, so we're evolving our mix.
Speaker Change: We can control those operations and compete effectively in the market. We partner on the balance of our stores with our independent owners.
Speaker Change: And as everybody knows, it's been a challenging couple of years in a higher interest rate environment. And we partner with those independent owners as small businesses to make sure they've got the right inventory, make sure they've got the right resources, and make sure that they're attacking the market effectively.
Speaker Change: And so whether you look at our MPEC and Walker acquisition to change the mix, whether you look at some of the investments we're putting in supply chain technology, we're doing all the right work.
Speaker Change: And there's no team more motivated than our Napa U.S. team to compete effectively.
and Wayne Marketshare.
Speaker Change: overlaid with what we hope will be an improving fundamental market backdrop as we move through 2025. So, to answer the last part of your question, it's both.
Speaker Change: Earning our fair share by taking care of our customers and then enjoying the fundamentals that we hope improve as we move forward through 2025.
Speaker Change: Thank you very much for that. My follow-up question is if the industry doesn't accelerate to the degree that you're expecting or some of the market share trends become more challenging, how should we model or think about the sensitivity of the earnings
Speaker Change: for GPC to the top line. Are there other elements of the P&L that you could manage in the event that sales fall short through the course of the year? Thank you.
Speaker Change: Thanks, Michael. Look, I mean, I think one of the things that we've been very thoughtful about is the expansion of our cost actions and restructuring in light of what we see as soft conditions starting the year.
Speaker Change: We've given a good estimate of what we think we'll do this year on the
Expansion of restructuring and additional cost actions.
Speaker Change: And we're doing that because we believe it's prudent to balance the long-term and the short-term right now. We do have an ability to lean further into those should we need to. Some of the things we're being very mindful of right now as we think about restructuring and cost actions is continuing to protect
customer-facing roles, protect customer service, and protect the customer experience.
Speaker Change: And so we've got an ability to lean in a little bit further if we want, particularly if we see things not changing. One of our key learnings from 2024 has been around this sense of urgency and moving faster, and so we're going to be much tighter on watching how things develop.
Speaker Change: Being transparent with all of you on how we see things developing, and if we need to accelerate more restructuring, we will.
Speaker Change: We do feel like we've found the sweet spot for 2025, as we bring in the rollover of 2024 actions, which give us a little bit more incremental benefit in 2025, and then the new actions.
Speaker Change: really split between things you would expect us to do on restructuring. A little heavier lift now though, some more facility actions.
Speaker Change: and leaning into streamlining our back office. We're also doing that with some cost actions where we're simplifying our operations and giving us the ability to be a little bit more nimble. So it's all about smarter, better, faster. And to the extent we need to, we can expand those activities and react to the market accordingly.
Speaker Change: Thank you very much and good luck. Thanks, Michael. Thanks, Mike.
Speaker Change: Your next question comes from Kate McShane with Goldman Sachs. Your line is now open.
Kate Mcshane: Hi, good morning. Thanks for taking our question. Just with regards to the automotive comments about same-store sales, what is driving EBITDA margins flat up? Is it the cost savings?
Kate Mcshane: And our second question is, you know, is there a target in cadence of buying back independents in 2025? And what kind of lifts have you seen in same-store sales comp as you've taken those businesses over?
Speaker Change: Hey Kate, I'll take the margin question then I'll let Will give you some color on the independent owners.
Kate Mcshane: But when we think about flat to up 10 bips on automotive for the guide for the year
Speaker Change: We kind of think about that through the prism of several things. One, we are going to see continued expansion of gross margin, so that will be a lift for sure. I think the sales backdrop will be a bit better, giving us...
Speaker Change: a little bit better ability to navigate the entirety of the P&L and make some better choices with that respect.
Speaker Change: And then also, these cost actions and restructuring, we'll see those benefit both segments, so it's not just unique to automotive. Both sides of the house are being disciplined and tightening the belt.
Speaker Change: And so when we take all that collectively, better sales environment, gross margin expansion, a normalized level of inflation in SG&A, we think we're returning to in 2025, and the cost actions.
Will Stengel: We believe that's the right backdrop to expand margin on the automotive side. And I'll let Will give you a little bit of color on the independent owner and cadence there.
Will Stengel: Yeah, Kate, it's a good question. So, just as a reminder, the M-TEC and Walker, those two transactions in 2024 were, at the time, our largest two independent owner groups.
Will Stengel: If you look at the Pareto of our independent owners at this moment in time,
Will Stengel: of which there's roughly 2,000. Our largest owner is somewhere in the 50 to 60 store range. We have a handful of folks.
Will Stengel: in the 30 to 40 range, and then the vast majority of our owners operate five or fewer stores. And so, as we look forward from an M&A standpoint in U.S. automotive,
Will Stengel: There will be less of a material impact to our financial statements associated with that activity. What we've seen in the performance post-close is
what we would have expected to see which is
Will Stengel: and everything in between. So, it's the right operational strategy, it's the right financial strategy.
Will Stengel: It's hard work. It takes time. You noticed in my comments where 55% of stores are integrated. You have to put the systems into the independent owner's store so that we can operate them effectively. And those activities are not technically in our comp.
sales growth yet given the recent nature of the acquisitions.
Thank you.
Will Stengel: Your next question comes from Seth Bisham with Wedbush Securities. Your line is now open.
Speaker Change: Thanks a lot and good morning. Will, in response to Michael Lassner's question you noted the challenges for independent NAPA customers.
Speaker Change: When you prepared remarks, you noted that the company-owned stores and independent stores weren't relatively in line.
Speaker Change: Can you just give us a little bit more color on whether or not you think that the company-owned stores are facing any additional challenges?
that might be leading to less strong performance than peers.
Thank you.
Speaker Change: No, Seth, I don't think there's anything uniquely different about our company-owned stores that disadvantage us relative to the market. Again, as I said, we've been...
Speaker Change: Very focused on executing the basics and working with our independent owners to that regard. Meaning, having the right inventory, having the right talent in the stores, having the right operational processes.
Speaker Change: And if you look at our company owned stores, we're highly energized because we've got a great number of stores that operate very effectively.
Speaker Change: And the opportunity set available to us is to quartile up
Speaker Change: the performance of the bottom quartiles of our store. So, it's a very tangible body of work.
There's nothing wrong with our company-owned stores.
Speaker Change: We've got some independent owners that have excellent stores, in many instances better stores than us, and so we're constantly learning from each other, and we can see the opportunities in front of us, and each and every day we've got to go to work and make sure that we're running great field operations and taking care of our customers, and that's what we're focused on.
Speaker Change: Got it. And then my final question is, with one large competitor exiting the West Coast, do you see any opportunity to gain market share out there?
Speaker Change: We do, Seth. Anytime I think you have changes in the competitive landscape, it presents opportunities.
Speaker Change: The thing that we can focus on, as I've said a few times today, is making sure that we're running a good business to capture those opportunities. So the fundamental execution is really important to seize the moment.
Speaker Change: We do have a big national account business. We are a national scaled partner. And so that presents opportunities to us. We obviously have a dedicated network of auto care.
Speaker Change: facilities and repair shops, which creates opportunities for us. And we also have independent owners. And so if you look at all the opportunities that are available, when we execute well locally in the markets, we're excited about what what could be.
Great, thank you.
Brett Jordan: And our last question comes from Brett Jordan with Jeffreys. Your line is now open.
Hey, good morning, guys.
Speaker Change: Hey Brent. In the prepared remarks you talked about internal metrics that you were working on the DCs that had picked up 800 basis points. Could you talk about you know what were those and off on what basis were you having fill rate issues that you were dealing with or you know I guess sort of...
what's happening at the DC level.
Speaker Change: Yeah, the DCs are performing as well as they ever have been. As we've talked about over the last couple years, you know, we've made changes to the way in which we've organized our operations teams.
Speaker Change: and made it more of a centralized function that's enabled us to put more consistent processes into the network and I think
Speaker Change: What you're seeing in the recent quarters is the results of basically really, really good discipline, hard work from our supply chain and operations teams around the country.
Speaker Change: We've got a great leader in that part of our business, and we have opportunities to continue to get better, so we're excited.
wondering if there was something that needed fixing.
Speaker Change: It really wasn't. It wasn't, Brett. I think, you know, quite frankly, some of these metrics that we put into in a more standardized way
Speaker Change: are new to the buildings. Not every building was using the same metrics, and so one of the nice things about having consistent processes is you can level up everybody across the network. So nothing really to read into the improvement.
Speaker Change: Okay, great. And then I think also, in prepared remarks, you talked about a tool offering. Is there any more color we could get on that? Is that a new category for 25?
Speaker Change: It's not a new category. It's a super important category. So, if you look at the tools and equipment industry, you know, we estimate it to be a ten plus billion dollar market opportunity. We played in that market space.
Speaker Change: forever, and as we looked at and listened to the feedback from our customers, we took that input to reimagine a more effective assortment strategy.
Speaker Change: and so we've got a brand today. We're making it better. It's targeting particularly the professional repair shop.
Speaker Change: So as the commercial leader, it's important to have this offering. It's about an 8% category T&E for us as part of our NAPA business.
Speaker Change: And this specific offering is a much smaller portion of that, but we think it's critically important to take care of that professional repair technician.
Speaker Change: So you're not adding SKUs, you're just emphasizing more of what you already have? We're simplifying and streamlining the assortment from, think of it as a good, better, best, to a more focused two-tiered brand strategy.
Okay, thank you.
Thanks, Brett.
Thank you for watching!
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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