Advance Auto Parts Inc.

Welcome to the Advanced Auto Parts Fourth Quarter 2018 Conference Call. Before we begin, Elizabeth Eisleben, Vice President, Investor Relations, will make a brief statement concerning four looking statements that will be discussed on this call.

Good morning, and thank you for joining us to discuss our fourth quarter and full year 2018 results. I'm joined by Tom Greco, our President and Chief Executive Officer, and Jeff Shepard, our Executive Vice President, Chief Financial Officer, Controller, and Chief Accounting Officer. Following their prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that our comments today may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. While actual results may differ materially from those projected in such statements due to a number of risks and uncertainties, which are described in the risk factor sections in the company's filings with the Securities and Exchange Commission, we maintain no duty to update forward-looking statements made. Additionally, our comments today include certain non-GAAP financial measures. We believe providing these measures helps investors gain a more complete understanding of our results and is consistent with how management views our financial results. Please refer to our quarterly press release and accompanying financial statements issued today for additional detail regarding the forward-looking statements and reconciliations of these non-GAAP financial measures to the most comparable GAAP measures referenced in today's call. The content of this call will be governed by the information contained in our earnings release and related financial statements. Now, let me turn the call over to Tom Greco.

Thanks, Elizabeth. Good morning, and thank you for joining us today to discuss our fourth quarter and full year 2018 results. This was an exciting year for Advance, and I want to personally thank the entire Advance team and our network of CarQuest independents for their unwavering commitment, focus, and dedication to deliver meaningful progress toward our long-term strategic objectives throughout the year. In the fourth quarter, net sales increased 3.3% to $2.1 billion, and comparable store sales were up 3.4%. Our adjusted operating income margin of 6% increased 45 basis points compared to the prior year quarter, and our adjusted earnings per share increased 51.9% to $1.17%. Regarding our full year 2018 performance, our net sales increased 2.2% to $9.6 billion, and we delivered a 2.3% increase in comparable store sales, our strongest annual growth rate since the acquisition of GPI. Adjusted operating income margin increased 51 basis points year over year to 7.8%, and our free cash flow was $617 million, an increase of $206 million year over year. Jeff will speak to our financial results for the quarter and the full year in more detail shortly. The continuous improvement we delivered throughout 2018 would not have been possible without our more than 70,000 team members truly living our cultural beliefs every day and reinforcing our mission, passion for customers, passion for yes. The hard work we've completed to date is building the foundation we need to win over the long term. Specifically in the fourth quarter, I'm very pleased with the consistent balance improvement throughout AAP on nearly every metric. Both our north and south divisions delivered positive comp sales with geographical growth led by our mid-Atlantic, Carolinas, Gulf Coast, Appalachian, and northeast regions. From a category perspective, we saw strong sales in brakes, engine management, oil and filters, and undercar. As we discussed last quarter, we're seeing meaningful improvements in key metrics across the enterprise, driving growth in both our professional and DIY businesses. In the fourth quarter, for the first time in recent history, our DIY business outcompt the professional business as our omni-channel initiatives continue to strengthen our customer value proposition and for DIYers. Turning to professional, we delivered growth across all professional businesses in both the fourth quarter and full year 2018, led by growth in WorldPack and our CarQuest independents. We remain focused on our commitment to deliver a best-in-class experience for our professional customers. With this objective front and center, we're building new capabilities to strengthen our partnerships with customers. ensuring future success for both their business and AAP. For example, with the launch of our unified professional portal My Advance in August, we're integrating multiple formally disparate online tools in a one-stop shop. This includes our advanced pro catalog, e-services suite, training resources, customer support, and many other value-added tools for professional customers. As a result, Usage of this platform increased over 50% in Q4. This unique advanced tool differentiates us from our competitors and provides a single location for our industry-leading product assortment as well as training and business solution advice. Expanding on our DIY omnichannel performance, we made significant investments in our online engagement and fulfillment platforms to further enhance the customer experience. We improved customer engagement by increasing page load speed streamlining search capabilities, and increasing customizations based on customers' vehicles and search inputs. We're also leveraging artificial intelligence and machine learning tools to improve our online attachment selling as well as product assortment. The significant investments we're making in our website are enabling improved customer confidence and that they are getting the right part for the job. If they buy online and pick up in-store, Our knowledgeable team members are available to provide trusted advice to our customers and ensure they have the complete and correct parts to get the job done. Aligned with our omnichannel focus, we're excited about the progress we've made with our recently announced Walmart partnership, which will significantly extend our reach to DIY customers and help drive market share growth for AAP. We've appointed a senior leader to lead the partnership, And we're building a talented team to work together with our Walmart partners to launch and grow this business. We're off to a strong start with the AAP and Walmart team members working well together and focused on delivering a compelling value proposition for DIYers. We're on track to begin rolling out our plans in the first half of this year. This will include the launch of a broad assortment of our industry-leading parts. Customers will be able to have the parts shipped to their home in the first phase of the rollout, while phase two will enable buy online and pick up today in an advanced store. Finally, last year we introduced three key elements of our end-to-end supply chain and footprint optimization strategy. First, a market-by-market approach to drive share. Second, repurposing our in-market store and asset base. and third, optimizing our distribution centers. Overall, I'm pleased with the progress we've made to improve our footprint over the last year. We're improving share performance through a market-by-market approach, which in 2018 included 14 new WorldPAC branch openings. We expect to continue this momentum in 2019 to further strengthen our customer value proposition and gain share. In addition, We closed and consolidated 101 stores during 2018. Consistent with previous quarters, we're approaching store closures very differently than in the past. Most importantly, our team is laser-focused on retaining our top-performing team members and ensuring that we maintain sales through the transfer to other AAP locations. Regarding optimizing our distribution centers, I'm pleased with our team's successful execution in closing our Gallman and San Antonio distribution centers in 2018. We're in the process of closing our Columbia, South Carolina distribution center and are on track to complete this in the first half of 2019. We're thrilled with Ruben Sloan joining our leadership team as we continue to make progress on supply chain. While we have significant opportunities to improve supply chain executions, we did increase transparency and collaboration between supply chain and other functions such as store operations and merchandising. We also rolled out new tools and technology in the fourth quarter, including our delivery dashboard, which leverages telematics and improves accuracy and reliability of pro-delivery for our customers. In summary, I'm confident in the supply chain team's ability to further improve execution in 2019 and deliver on our long-term goals, including the optimization of our entire distribution network. Finally, I'm pleased to report we published our inaugural Corporate Sustainability and Social Report in December and posted it on our website. This report highlights our progress in three primary areas within our ESG agenda, people, planet, and community. Once again, we made progress on people and culture in 2018 as we further increased diversity representation in leadership roles. We continue to invest in frontline team members through our Fuel the Frontline incentive program with more than 15,000 grants to date. Fuel the Frontline remains a unique program within our industry and broader retail. There's no question that this has been a driver of increased retention of our top performers in key store operations positions. We also appointed a world-class environmental health and safety leader, Mike Miller. Mike's built a talented team and launched several safety initiatives driving meaningful improvements, including a 10% reduction in the number of reportable incidents and an additional 13% reduction in our collision frequency rate. In terms of environmental, we reduced our greenhouse gas emissions by 7%. Long term, we expect our environmental health and safety agenda will drive significant productivity. In terms of community, we elevated our involvement in our communities by playing leadership roles in national organizations such as JDRF, the American Heart Association, and Building Homes for Heroes, an organization who constructs new homes for veterans and their families returning to the U.S. While we've delivered progress in each of these critical areas to date, we recognize we have a responsibility to do more. I look forward to continuing our momentum and sharing future updates on these efforts. In summary, performance improvements across the enterprise in 2018 translated to accelerated growth. As we've said previously, we continue to be encouraged by the improving macro indicators for the auto parts industry. and are confident in our ability to deliver top-line growth, margin expansion, and strong cash flow in 2019. With that, I'll turn it over to Jeff for details on our financial performance and our 2019 outlook.