Advance Auto Parts Inc.

Welcome to the Advanced Out-of-Parts First Quarter 2019 Conference Call. Before we begin, Elizabeth Eisleben, Vice President, Investor Relations, will make a brief statement concerning forward-looking statements that will be discussed on this call.

Good morning, and thank you for joining us to discuss our First Quarter 2019 results. I'm joined by Tom Greco, our President and Chief Executive Officer, and Jeff Shepard, our Executive Vice President and Chief Financial 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 details 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, everyone, and thank you for joining us today as we review our first quarter 2019. I'd like to begin with recognizing our more than 70,000 dedicated advanced team members and our superb network of CarQuest independents. Their unwavering commitment to say yes to our customers enabled Advanced to deliver progress in Q1 while making necessary investments to solidify the achievement of our long-term strategic goals. In the first quarter, net sales increased 2.7%. to $3 billion, and comparable store sales were also up 2.7%. Our adjusted operating income margin of 8.3% increased 46 basis points compared to the prior year quarter, and our adjusted diluted earnings per share increased 17.1% to $2.46. In a few moments, Jeff will speak to the details of our financial results However, I wanted to share some highlights from our Q1 performance first. In the first quarter, we delivered broad-based positive comp sales, with the highest growth coming from our Midwest, Mid-Atlantic, Appalachia, Carolinas, and Central regions. From a category perspective, we saw strong growth in brakes, motor oil, and batteries. In the first quarter, we experienced some weather-related volatility, primarily in the DIY segment. This is not unusual in this timeframe. At the same time, we're pleased that our comparable store sales were positive in both DIY retail and professional in Q1. In addition, our e-commerce team delivered meaningful growth throughout the quarter. We achieved this while delivering our fourth consecutive quarter of positive comp sales and an improvement on our two-year stock versus Q4. Our professional business was strong throughout the quarter. We believe that improving industry fundamentals are benefiting our professional business. We're seeing increased adoption and utilization of our unified front-end portal, MyAdvance, with our professional customers, which we expect will drive meaningful growth for both existing and new customers. As a reminder, MyAdvance is a one-stop shop of our full suite of tools for professional customers to build their business, including our new enterprise catalog, Advance Pro. Advance Pro has now been extended to fully support our CarQuest locations, bringing all the benefits of Advance Pro to more professional customers, as we've now enabled our independents to leverage many of the catalog features we've rolled out in our company-owned stores. Additionally, we recently expanded our TechNet program. TechNet is a business solutions partnership program designed to help independently owned repair facilities grow their business and develop customer loyalty while maintaining their own identities and serving their local communities. The enhancements will help us grow this network of more than 9,800 TechNet shops across the U.S. and Canada. Enhancements were created with direct input and requests from existing TechNet partners. We're committed to being the trusted first call for all of our customers and continue to leverage feedback from our professional field team, TarQuest independents, and TechNet customers to ensure they have the tools they need to succeed. In addition to investments we're making for professional customers, we're also cognizant of how DIY customer shopping patterns are evolving. We invested in key DIY platforms in Q1, including moving key capabilities to the cloud, enhancing our customers' digital experience, increasing site speed, and improving shipping capabilities. We also made several back-end investments, such as updating SKU availability and accessibility on our website. On the marketing side, we're making progress on elevating the advanced brand and are pleased with the rollout of our new campaign, Think Ahead, Think Advanced. Since launching the campaign, we've seen an increase in both purchase consideration and increases in website traffic, with year-on-year increases outpacing the vast majority of all retailers. Importantly, we've also seen continuous improvement in the overall awareness and brand recognition of advance through recent brand tracker surveys, which are the highest we've seen since we began tracking these metrics in the first quarter of 2017. In fact, our top-of-mind awareness scores improved both sequentially and year-over-year. This improvement is a direct result of our strategic focus on our omni-channel and an ongoing investment priority of our transformation. Finally, to round out our top-line growth initiatives, we're rolling out new tools for our frontline team members to make their daily tasks easier and allow them to focus on what really matters, serving and delighting our customers. One of our most important initiatives is our next-gen store network, updating outdated technology throughout our stores. Several of our legacy systems and capabilities create delays and frustration for our frontline team members when they're not able to easily view or rapidly toggle between necessary tools such as our catalog, delivery dashboards, and training modules. Our next-gen network significantly increases speed and reliability, including a new connected phone system that allows us to serve customers better than ever. As one example, our team members can look up parts much faster, with an average 85% improvement in the speed of catalog lookups, ultimately providing faster and more reliable service for our customers. Our next-gen network is an example of our focus on reducing non-value-added tasks. Unfortunately, our team members are spending an inordinate amount of time on these tasks, which takes them away from customer-facing value-added work. We're working to reduce these tasks throughout the enterprise, and as an example, in our stores we recently launched MyDay, a tool that groups several modules to manage and direct the administrative and back office work in our stores. Since early in Q1, our GMs report that they're reducing administrative work hours and can dedicate more time to customer-facing sales and team member training in their stores. We expect these investments will not only improve productivity in our stores and our customer support centers, we're also confident these initiatives will reduce turnover rates as we make it easier for all our team members to do their job. We continue to make excellent progress on improved retention, and in the first quarter, we reduced turnover by approximately 15% amongst our core four frontline team members. Our goal in 2019 is to reduce turnover in each of our core four frontline roles for the third consecutive year, as advanced finance builds a reputation of being the very best place to work for great parts people. As we drive sales at or above the industry's average, we're equally focused on our unique opportunity to expand margins in four key areas. First, in terms of improving sales and profit per store and our footprint optimization strategy, we remained consistent in our approach to store closures and consolidations in the first quarter. In line with this commitment, during the quarter, we closed and consolidated 38 stores while reducing the cost of our overall rent obligation as we right-sized our asset base. With our improved approach to store closures and consolidations, our overall rate of professional sales retention has consistently exceeded both historical and planned retention, and our field team is doing great work to retain top talent while working with our large network of stores to place team members. We've also had some significant wins on lease negotiations and have been successful in meaningfully reducing our lease liabilities. All of these factors will continue contributing to improved cash flow for AAP. In parallel, we also continue to look market by market for opportunities to drive growth. We're pleased with our execution of openings during the quarter, which included three new retail stores and three WorldPAC branches. We're also very excited to welcome 20 new independently-owned CarQuest locations that joined the Advanced family in the first quarter. we'll continue to look for opportunities to optimize our footprint and drive our sales and profit per store to targeted levels. Second, in terms of supply chain, we're focused on the long-term optimization of our distribution center footprint as we improve execution day in and day out. With respect to Q1, we made progress on our critical cross-banner replenishment initiative, which will enable us to ship parts from our legacy red DCs to legacy blue stores, and similarly with our blue DCs and red stores. This is a significant unlock that will reduce stem miles and improve customer service. Once fully implemented, we expect to improve product availability, drive inventory turns, and deliver significant cost productivity. In terms of execution, improving performance is primarily focused on standardization and what we describe as running common in terms of processes across all DCs. For a variety of reasons, including systems, we do not do this today. I remain confident in the supply chain team's ability to transform and integrate our supply chain while improving execution in 2019. Our third margin expansion opportunity is category management. where we're making progress in our ongoing material cost optimization efforts, development of private label, and strategic pricing. Finally, we remain focused on every single line within SG&A, once again leveraging store labor amid wage inflation, driving reductions in rent through our store footprint optimization efforts, while reducing insurance and workers' comp-related costs with our dedicated focus on the safety of our team members. In terms of safety, we're seeing meaningful improvements in our incident rates, which is translating to the P&L. We're committed to further improvement as we continue executing on our detailed health and safety agenda. Overall, our operating margins improved again this quarter. That said, we know we still have a material opportunity ahead and continue to focus on ensuring the customer is first in everything we do. With this disciplined execution, we're confident we'll drive revenue growth and margin expansion. Before turning over to Jeff, I want to thank him for his commitment to ensuring the financial success of Advance by serving in dual roles over the past year while we conducted an extensive search for the best candidate to succeed him in his controller and chief accounting officer role. After a thorough search, I'm pleased to announce that Andrew Page joined the Advanced Team as our Senior Vice President, Controller, and Chief Accounting Officer last week. Andrew brings over 25 years of broad-based accounting experience with him, most recently as Senior Vice President and Chief Accounting Officer for Under Armour, and we're thrilled to have him on the Advanced Team. With that, I'll turn it over to Jeff for details on our financial performance.