領先汽車配件 (AAP) 2017 Q1 法說會逐字稿

Welcome to the Advance Auto Parts First Quarter 2017 Conference Call.

(Operator Instructions) This conference is being recorded.

If you have any objections, you may disconnect at this time.

Before we begin, Zaheed Mawani of Investor Relations will make a brief statement concerning forward-looking statements that will be made on this call.

Good morning, and thank you for joining us on today's call to discuss our first quarter results.

I'm joined this morning by Tom Greco, our President and CEO; Tom Okray, our Chief Financial Officer; and Bob Cushing, our Executive Vice President for Professional.

Tom Greco and Tom Okray will open the call with prepared remarks regarding the quarter, and Bob will join them to answer questions for the Q&A portion of the call.

Before we begin, I'd like to remind you that our comments today contain forward-looking statements we intend to be covered by and we claim protection under the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements address future events, developments or results and are subject to risks, uncertainties and assumptions that may cause our results to differ materially.

Our comments today will also include certain non-GAAP measures, including certain financial measures reported on an adjusted basis to exclude the impact of costs in connection with the integration of General Parts International and the recurring amortization of General Parts' intangible assets.

Please refer to our earnings press release and the accompanying financial statements issued today for important information and additional detail regarding these forward-looking statements and the reconciliation of the non-GAAP measures referenced in today's call.

The company intends these forward-looking statements to speak only as of the time of this conference call and does not undertake to update or revise them as more information becomes available.

Now let me turn the call over to Tom Greco.

Thanks, Zaheed, and good morning.

I'd like to begin by acknowledging all of our team members and independent owners across the AAP family for their efforts to better serve our customers in the quarter.

Through their dedication, we're executing well against the 5-year plan reviewed at our investor conference last November.

In Q1, our comp store sales performance was down 2.7%.

This result reflects the impact of a series of factors we anticipated in Q1 as well as short-term headwinds that were not planned.

These headwinds impacted the entire industry in Q1.

Let's start with what we expected.

As we noted last quarter, our Q4 performance benefited from 2 significant factors: first, the shift of New Year's Day to Q1, which helped Q4 but reduced comp store sales in Q1; secondly, a substantial increase in winter-related demand was pulled forward into December and out of January.

In particular, our northern markets benefited from the cold December.

Given our geographic footprint, we disproportionately benefited from this in Q4, and it disproportionately hurt us in Q1.

None of this was a surprise, and the fact that our comps in Q1 were lower relative to Q4 was consistent with our 2017 operating plan and consistent with what we said last quarter when we reported comp sales of 3.1%, our strongest performance in the 12 quarters post the GPI acquisition.

We've been looking at our business across Q4 and Q1 combined for several months now.

This provides a normalized picture of sequential sales improvement.

For the 28-week period, we delivered positive sequential improvement in our comp sales performance.

The combined comp for Q4 and Q1 of down 0.3% was approximately a 70 basis point improvement versus the comp in Q3 2016.

The sequential improvement we've delivered in recent quarters demonstrates we're making real progress.

At the same time, we were not immune to the macro headwinds within the industry, which resulted in unexpected substantially softer consumer demand in the middle of Q1, as reflected in the publicly available data.

This time frame was worse than expected and resulted in a slow start to the spring selling season.

That said, these short-term variables tend to smooth themselves over time, and while we need to manage them as part of our day-to-day operations, they don't change how we're transforming the business and how we think about long-term growth.

The beginning of the quarter was in line with our expectations, as was the end of the quarter.

We, along with the rest of the industry, experienced softness in February and March.

The good news is we closed Q1 with stronger performance, and this is carried into Q2.

As a result, we expect sequential improvement in our top line growth once again in Q2 as compared with our Q4-Q1 combined number of down 0.3%.

So to reinforce the key points surrounding our top line performance, we're viewing Q4 and Q1 as one combined time frame in our transformation.

Q3 last year had comps of down 1%, and Q4 and Q1 combined had comps of down 0.3%.

While this was less than we planned, it represented sequential improvement, and we expect to deliver sequential improvement again in Q2.

Our steadily improving sales performance reflects the impact of decisive and consistent actions we've taken across 3 areas of focus, giving us confidence going forward.

First, our priority to put the customer first is permeating the organization.

It has been and will continue to be the key driver for consistent top line growth.

Second, our sustained investments in availability, customer service and our frontline is strengthening execution and engagement.

And third, better execution throughout our supply chain is driving increased bill rates, higher in-stocks and reduced order to delivery time.

Together, this is resulting in a better experience for customers in both professional and DIY.

Turning to operating income.

We've been clear our turnaround won't be linear.

It's important to note that while we're not managing our business quarter-to-quarter, our Q1 operating income results were generally in line with internal expectations at the beginning and end of the quarter, with the notable exception of larger-than-anticipated sales softness in February and March.

As in the past several quarters, our operating profit performance reflects deliberate choices to invest in our business and, specifically, in the customer to position AAP for the long term.

When sales slowed down in the middle of Q1, we could have made a short-term decision to pull back on customer service.

But in fact, we made a deliberate decision to sustain investment.

At times, we know that difficult choices need to be made to fully capitalize on the significant opportunity we have to drive growth and margins over the long term.

Given the early stage of our turnaround and focus on reinvigorating the customer experience, the choice to sustain investment in customer service in the middle of short-term weather-related softness was one of the easier decisions made in the quarter.

These investments are beginning to pay off as evidenced by sequential improvement of comp store sales, along with progress on core input metrics, including improved in-stock rates, significant reductions in turnover and faster delivery times to customers.

The other drivers of our operating margin decline resulted from fixed cost deleverage due to the comparable store sales decline and our continuing efforts to optimize our inventory.

Tom Okray will provide more color on the financials shortly.

At the same time, our productivity agenda is on track and ramping up nicely.

We're now executing against the framework we've been constructing over the past several months.

As the program moves from design to execution, we'll realize considerable productivity savings in the back half of the year per our annual operating plan.

As a result of these factors outlined, we delivered an adjusted operating margin rate of 7.1% and adjusted EPS of $1.60.

Taking all this into account, we remain confident with the progress we're making as we execute our plan and expect sales and customer momentum to continue with more operating leverage as we enter the back half of 2017.

We're performing well relative to our primary input metrics as the beginning and end of the quarter was in line with expectations.

Unfortunately, the middle of the quarter was below plan, as was broadly experienced across the industry.

We also believe the sales softness was short term in nature given recent trends.

Importantly, our productivity agenda is ahead of plan.

We've now concluded that we can drive more gross savings in a shorter period of time.

We'll do this while continuing to position the business to grow faster.

We'll begin to see improvements from our productivity initiatives in the second half of this year, which will help us meet bottom line targets.

With Q1 behind us, I'm pleased to report that we are now officially transitioning from Phase 1 of our transformation plan to Phase 2. Phase 1 had 3 overarching objectives: first, refocus the organization from top to bottom on the customer.

We've lost sight of this top priority and needed to regain a customer-first culture to ensure long-term growth.

Everyone at AAP needed to raise their game by putting the customer first in everything we do.

Across our businesses, we're now seeing adoption of a mindset that everyone's #1 priority is caring for the customer.

Second, develop and align the organization behind a clear strategy and 5-year plan to accelerate performance.

In addition, we've defined and are now executing against a new set of foundational cultural shifts we need to make.

And third, build a world-class leadership team that can execute our plan in the short term while transforming our business in the future.

We're reinventing Advance Auto Parts, and I'm excited by the fact that we've built a new and highly skilled leadership team by attracting top talent from multiple companies and industries.

This, when combined with deep parts experience throughout the organization, gives us a team which can both perform in the short term while transforming our business over the long term.

In Phase 1, we made deliberate and sustained investments in availability, customer service and our frontline.

This has improved input metrics and sales trends while getting market share performance moving in the right direction.

With Phase 1 complete, we're turning our attention to Phase 2.

Our objectives for Phase 2 include: first, elevate focus on the customer and continue to narrow the performance gap; second, flawlessly execute the multiyear productivity plan we've been developing, we have a significant opportunity to thoughtfully and permanently remove unnecessary costs; and third, challenge our new leadership team to elevate our focus on attracting and developing talent throughout the organization.

With stronger talent, we'll build new capabilities required to win in the future and evolve the culture to deliver value.

We've been hard at work with our growth agenda and, over the past 3 quarters, developing our Phase 2 initiatives.

We're very excited about the capabilities we're building as we test and learn new ideas throughout the country.

We're now beginning to scale the top performing initiatives.

First, we're improving the customer experience and driving consistent execution across our network for both professional and DIY customers.

In professional, it all starts with improving availability.

Here, we're building on the successful pilots we ran last year.

Our availability transformation positions the right parts closer to the right customers by store, reduces order to delivery time and drives growth.

We've now added more stores to the availability transformation, and we're seeing similar robust performance improvements that we saw in our lead markets in 2016.

As a result, we're expanding in select markets throughout the balance of the year.

We're also augmenting this improved availability with an enhanced technology platform.

We piloted this last fall with exceptional results and made the decision to invest in a back-end analytics engine combined with front-end consumer-facing technology for customer account managers to improve sales productivity.

With better insight into our customers, our customer account managers are able to more effectively manage their time with customers to better meet their needs.

This will be fully deployed in Q3.

In DIY, we're equally focused on improving our customer and team member experience.

We've been running DIY experience pilots in a number of stores and markets.

These pilots are aimed at standardizing the in-store customer experience store by store and region by region so every store has the same consistent processes, the same consistent training and the same consistent approach to servicing the customer.

In addition to making critical investments in the customer to drive growth, the second pillar of Phase 2 is the focus on our robust productivity pipeline.

Since we announced the productivity agenda and corresponding targets last November at our Analyst Day, we've been aggressively putting the structure and leadership team in place to execute a sustainable multiyear productivity program.

As we've said previously, the productivity muscle simply did not exist at AAP.

Our agenda includes thoughtful planning to change the work, investment in infrastructure and people to drive it and an intense focus on increasing visibility and performance management of costs.

Our new leadership team has been instrumental in applying both long-standing experience and fresh perspectives to build our productivity agenda.

As a result, we're updating the target we shared with you last November of $500 million in productivity over 5 years, and we now expect to achieve $750 million in gross productivity over 4 years, reflecting both a significant increase and acceleration.

Over the past several months, we've been aggressively challenging ourselves to think differently about the work and how to thoughtfully and permanently remove waste from our system.

The additional $250 million has resulted from our new leadership team challenging the status quo and will allow additional investments in our customers while expanding margins.

To be clear, the productivity target is not sales dependent.

It's a gross number, and some of this cost benefit will be used to fund growth initiatives while the vast majority of it will drive margin improvement.

Our productivity agenda continues to focus on the 3 pillars we shared last November: first, zero-based budgeting, or ZBB; second, the optimization of our supply chain; and third, reducing material input costs.

We're very excited about this work.

Allow me to share some examples.

First, on ZBB we're standardizing our approach to cost control while eliminating redundancies and unproductive spending.

There are substantial opportunities here throughout the company.

Our ZBB agenda includes fundamental process redesign, policy changes and a complete rethink of how work gets done.

This has been completed in many areas throughout the company, and we expect to realize cost savings from this in the back half of 2017.

Second, the simplification and optimization of our supply chain will drive both effectiveness and efficiency.

We're looking at our supply chain very differently than we have in the past.

We're starting with the customer and working back to better meet their needs while leveraging the formidable footprint we enjoy today.

In doing so, we're building new capabilities and leveraging the entirety of our asset base.

The great news here is that this approach provides the dual benefit of new capabilities and productivity without requiring additional investment in new buildings.

As an example of supply chain optimization, we've already consolidated fleet management companies, transitioning from 3 partners to 1. Previously, Advance, Worldpac and Autopart International negotiated fleet contracts separately, which resulted in 3 different suppliers and 3 different contracts.

We're moving to one.

In addition to significant savings, AAP will benefit from enhanced analytics and coordination across our entire fleet associated with having a single dedicated partner.

This is a material simplification opportunity that leverages scale, dramatically improves asset utilization and lowers costs.

Third, let's talk material input costs.

Again, we're taking a very different approach than in the past.

We're conducting deep dives on product categories to better understand the material cost of the SKUs in our assortment and what type of collaborative value engineering we can do with our suppliers or brand partners, as we now refer to them, who are helping us find the wins both of us need to drive accelerated growth.

This work has already been conducted on several product categories, resulting in increased cost transparency and an improved material cost structure.

We're working with our suppliers and partnership to apply this rigor and process across many categories throughout the balance of the year.

To date, we've been building the foundational elements of our productivity agenda and have a high degree of confidence in our plan.

We're now ready to drive execution of this plan, which will generate meaningful savings this year and beyond.

In summary, as we enter into Phase 2 of our transformational journey, we're investing in customer service and execution to narrow the top line growth gap versus the industry.

We're dramatically increasing the focus on our productivity agenda to drive margin expansion, and perhaps most importantly, we're increasing our proficiency in growing talent and evolving our culture.

This is not an overnight process, but we're pacing as expected and we'll continue improving each quarter.

As I've said from the beginning, the opportunity to drive shareholder value at AAP is substantial.

To fully capture the opportunity ahead, we're taking a focused, disciplined approach to accelerate long-term growth while staying laser-focused on improving execution and performance for the balance of the year.

With that, I'll pass it to Tom Okray to share financials.

Thanks, Tom, and good morning, everyone.

Our adjusted operating income came in at $204.9 million, with adjusted operating margins down 349 basis points over the same period last year to 7.1%.

Tom shared the high-level drivers of our operating profit decline, but allow me to provide some additional color on each.

First, our sales decreased 3.0%.

While we anticipated a sequential decline, the expense deleverage from the comparable sales decline accounted for slightly more than 20% of the 349 basis points operating margin decrease.

Second, our investments in the customer accounted for slightly more than half of the year-over-year operating margin decline.

We know these investments put short-term pressure on earnings, but we believe they are absolutely the right thing to do to enable us to better serve our customers and accelerate top line momentum in order to regain market share.

Before I move to the third driver, it's important to acknowledge the context of these customer investments versus the significant short-term cost reduction executed last year during the same period.

Last year, the aggressive cost reductions in Q1 came at the expense of critical investments to serve the customer, including labor in the field and the stores.

This hurt our ability to get the right part to the right place and dramatically impacted our ability to service our customers.

Compromising our service proposition is not the right approach for a company that is in the business of delighting the customer.

It is also not consistent with our renewed focus on driving sustainable performance improvement as we position the company for long-term growth and profitability.

In contrast to last year and under renewed focus of caring for the customer first, we are prioritizing customer service and making the necessary incremental investments and initiatives that enable our field and frontline teams to serve the customers significantly better than we ever have.

Our current productivity plan is also aimed at cost reduction, but we are acutely aware of the customer impact from cutting the wrong costs or cutting costs the wrong way.

We are taking a more constructive and sustainable approach focused on "no regrets" cost removal by fundamentally changing the way we work and removing costs while improving our service and execution, not at the expense of customer service.

This approach is fundamentally different than the prior practice and harder.

It takes more time to identify, to plan and to implement.

We have been hard at work for over the past 8 months constructing our productivity agenda in a thoughtful manner with the customer always at the forefront of our planning activities.

I'll come back to our productivity agenda in a moment.

The remaining component of our operating margin decline was related to our ongoing inventory optimization effort.

As we continued to take proactive steps to reduce inventory and optimize working capital, we maintained a very disciplined approach to inventory in the quarter.

We are managing inventory much smarter and, more importantly, in line with our sales plan.

While this is good news and another step forward in the right direction, it does create a year-over-year, short-term headwind to our operating margin.

We will continue to focus on thoughtful inventory reduction for the balance of the year without impacting the customer.

It is unquestionably the right choice for us to make.

Turning back to our productivity plan.

We have been maniacally focused on our agenda and are seeing the productivity mindset permeating the organization.

This dynamic, coupled with fresh ideas and industry best practices from new leadership that have recently joined AAP team, have changed the way we are running AAP.

We have been building momentum, and today we increased our initial gross productivity target to $750 million and accelerated the achievement from 5 years to 4 years.

With respect to the pacing of our results, we knew our transformation was not going to be linear.

We are in the midst of transforming both our top and bottom line performance, with a lot of exciting work underway, which we expect to build on throughout the balance of the year.

For 2017, we expect the operating performance impact of our collective actions will be weighted toward the back half of the year.

As we've said previously, we absolutely expect to get to the point where we will balance top line growth with bottom line expansion.

We are confident in the long-term opportunity as we build new muscles to drive productivity and accelerate margin expansion.

Before moving to Q&A, I would like to draw attention to the new accounting rule which we implemented in Q1.

Beginning January 1, 2017, the excess tax benefit for stock-based compensation is recognized as a component of tax expense rather than equity.

This change resulted in a decrease to our tax expense for the quarter and a corresponding increase to our net income and earnings per share.

Further disclosure on the impact of the adoption of this accounting change can be found in our Form 10-Q.

With that, we will open the call for questions.

(Operator Instructions) Our first question is coming from the line of Chris Horvers of JPMorgan.

I wanted to follow up a little bit on the expense conversations, especially as we think about the second quarter.

So last year, in the first quarter, the old management team levered expenses about 100 basis points despite comping down 2%.

So as you think about the 200 basis points or so decline in operating expense rate -- or increase in operating expense rate in this quarter, is that 100, basically, we have to give that back and so really about half of that operating expense deleverage in this quarter relates to the underspending last year?

Chris, yes, you're pretty much right on.

I mean, when we looked at the investments that were essentially needed to make in the first quarter of this year, we -- last year, the changes that were made in our customer-facing hours in the stores was quite negative for the overall customer experience, so we made the conscious decision to invest back in the customer in the quarter.

And so as you think about the second quarter, last year, they comped down 4%, but they only deleveraged operating expenses 20 basis points.

And actually, if you look at SG&A per store, it was down nearly 2%.

So I guess to help us out on the second quarter, what should have been that deleverage or -- last year in the second quarter?

Or what was the right rate of inflation and SG&A per store that we can base of off as we put in second quarter estimates?

Well, Chris, if you step back, I mean, what we've done in the construction of our strategic plan, we've obviously looked over a longer time frame than individual quarters.

And what we had concluded last year and we communicated to, I think, the analyst community in November, was the company had really lacked focus on the customer, period, for quite some time.

As you know, we've been losing market share for 7 years.

And over that time frame, habits get built up, our people take a different approach to the customer that we would have liked -- different than we would have liked.

And as we've built out the strategy itself, we wanted to make sure that we were changing that approach with the customer up and down the organization, so from a leadership team perspective, from a planning of our customer-facing hours, from the standpoint of how our stores interacted with customers.

So as we built out the 5-year plan, we looked at what we needed to do in 2017, in 2018 and beyond.

As you know, we started to make some of those investments last year in the back half of the year.

So we'll start to lap those as we get into the back half.

But without a doubt, as we planned the business in 2017, we knew that the first part of the year was going to require investment in the customer.

Our next question comes from Steve Forbes of Guggenheim Securities.

Maybe if you can start -- given the leadership changes that have taken place recently, can you just expand -- I know you touched on it, but can you just expand on where you are in the optimization cycle as it relates to the team, both at the executive level and store ops?

I believe you mentioned the foundation is in place.

So are you generally satisfied and that's why we're going into Phase 2 of the program here?

And I guess, lastly, if you can just expand on how that -- those new individuals, right, that have joined the team have integrated into the platform, both culturally and accepted and adopted the plan that you laid out back in November.

I mean, what -- it had to have been pretty smooth and optimistic?

Well, first of all, I'd tell you we're building a world-class team here at AAP.

And as I look around the room, most of the people in the room in here today weren't with Advance 9 months ago, so that part is dramatically different than when I arrived here.

The team we're building is committed to really building a performance culture up and down the organization, and that includes existing leaders at AAP who've been in the industry a long time and are really stepping up.

Bob Cushing is in the room here with us today.

He has got 30 years of parts business experience.

We also brought -- some of the new people we brought in have come from the parts business, people like Mike Broderick who similarly has 30 years of parts experience and is now our Chief Merchant.

Bob and Mike are really committed to dramatic improvement, performance improvement here at AAP.

So that part is really exciting.

I think we're also injecting smart, talented new leaders that have exceptional industry experience up and down the organization.

So we brought in Tom Okray from Amazon, as you know.

Leslie Keating joined us from Frito-Lay.

Natalie Rothman from Pepsi.

We brought in Maria Ayres to run one of our divisions from private equity.

Mike Creedon came to us from Tyco.

These are all global leaders who are bringing a completely different mindset and approach to transform AAP.

So that -- my fundamental leadership team is pretty much in place now.

And now of course, we're going the next level down.

And Tom himself who's sitting here -- there's 2 people in the room today that Tom has hired from other companies that have joined us that are going to add tremendous value.

How are they acclimating?

I think that's a great question in integrating to the company.

We still have work to do, I think, to build the teamwork and the energy around the opportunity going forward.

These are very talented individuals.

They're bringing different perspectives in.

But you can't snap your fingers and have the top 200 people in the company immediately jell.

So I think we've got a little bit of work to do there, but I feel terrific about the talent that's joining the organization, and I've been really excited by the fact that we've been able to recruit such talented people in.

We've been very successful with that.

And then just a quick follow-up.

Given the increase in the productivity goals right over the next 4 years here, has any of that impacted the anticipated CapEx spend for the year?

Or does the '17, I guess, guidance you laid out or, I guess, number still stand?

And if you can -- I'm not sure if you've done this in the past, but can you help us break down the $250 million into buckets, whether it be IT, supply chain, maintenance, new store?

Just some insight on where the CapEx spending is being allocated.

Yes.

Let me take that one.

No, we're going to stay with our guidance of approximately $250 million.

The additional gross productivity number is not dependent on that.

With respect to breaking down the $250 million, you hit on the key points.

It's IT, it's new stores, it's maintenance.

We're not going to go into further detail other than to bucket it that way.

Our next question comes from the line of Simeon Gutman of Morgan Stanley.

First question is a follow-up to Chris's earlier.

So since you're moving now into Phase 2, what does that imply for the margin outlook in the second quarter?

Simeon, we're not going to comment on the specific margin outlook in the second quarter.

We do feel really, really good about our ability to thoughtfully remove costs and improve our flow-through as we get to the back half of the year.

Okay, fair enough.

My second, maybe more strategic, and there's a couple of parts to it.

Tom, can you help us understand what's changing, if anything, from how you looked at this business 6 months ago to some of the actions you're taking today?

I know Bob Cushing has been elevated, and I'm just curious if some of the plans have evolved.

And the bigger question is, if there are these investments that need to be made, why wouldn't it have made sense to just rebase the earnings of the business this year and make these investments without promising any margin improvement until they can more fully ramp in the out year?

First of all, I'll let Bob talk a little bit about what's changing on the professional side of the business.

I think it's changing pretty dramatically.

Bob, can you talk about how you're pulling together the professional side?

Sure, Tom.

So we are certainly transforming our professional business by driving the culture of caring for our customers first, okay?

We have a number of key initiatives out there to transform our customers' experience.

What's it focused on?

It's focused on what our customers value most, and this will enable first-call capability.

Foundationally, our initiatives are centered on leveraging our enterprise value proposition across all banners.

So first, let me start with what do our customers value most, improved product availability.

So we're providing our industry-leading portfolio of brands and assortment quickly to the marketplace.

We have a number of new models that are out there that we're building out to deliver the right part at the right time.

And we're really excited about a new model that we basically developed for the professional business, and we're standing it up next week.

We're opening it next week, and this will provide and leverage the entire enterprise portfolio of products under one roof.

So we're excited about that and more to come on that.

Secondly, we've deployed our new catalog system called AAPEX in over half of our stores.

The catalog has rich content, multi-brand strategy, of course, the enterprise, better supply chain availability.

It's basically our enterprise catalog.

Third, we're focused on ease of doing business.

We have piloted with over 500 customers on our new B2B e-commerce platform.

It has enhanced features, deeper integration into shop software systems.

And fourth, to drive innovation and sales force effectiveness, we have deployed iPads to our entire field sales force.

Overall, we are transforming the capabilities for our customer.

And as a result of some of the actions we've already taken, we have had a number of major wins with strategic accounts that got us multiyear agreements due to the actions we're taking.

What I will tell you is simply this, we are staying maniacally focused on basically what drives customer value, and we're going to continue this transformation journey to succeed.

Yes.

And Simeon, let me get to your second question, which was around the phasing of the investment.

If you think back to what we showed last November, the company lacked focus on the customer, no cohesive strategy, inability to execute, notable capability gaps on the leadership team.

But as we laid things out and constructed the leadership team from Bob to Tom Okray, to Leslie Keating who's come into our supply chain, to Mike Roderick, I mean, we really saw an opportunity to drive the productivity agenda faster, and the opportunity there is significant.

We really see -- we have a line of sight to the entirety of the $750 million over the 4 years.

It's in the 3 buckets that were described in the prepared remarks.

We've planned it strategically, working from the customer back.

I mean, we're all -- we're rooting our productivity agenda in the customer.

It's not just taking costs out, but we're rooting it in the customer.

And then we've done a very rigorous bottoms-up planning exercise that essentially phases the productivity by year, by period, by geography.

So we feel really good about our ability to take the cost out without disrupting the customer.

Our next question comes from the line of Seth Sigman of Crédit Suisse.

I just wanted to clarify.

On the guidance, did you guys actually update the comps or EBIT margin targets you laid out previously?

So let me step back from this one, Seth, and provide some context.

Our approach is to provide guidance once a year.

And consistent with our focus on operating for the long term, we're not going to provide regular updates as a matter of course.

The long-term outlook for the industry remains very, very compelling for us, and we remain focused on executing the key elements of our transformation plan.

With respect to 2017, well, Q1 had a weak patch in the middle of the quarter that impacted the entire industry.

We've actually seen improved trends over the last several weeks, and based on this, we expect a more normalized environment for the rest of the year.

And our investments in the customer are clearly having an impact, and with our productivity initiatives kicking in, in the back half of the year, we feel all of this will drive significantly improved results.

That's helpful.

And then as you think about those long-term productivity targets that you updated today, does the timing change at all?

So you shortened the time frame.

Does that impact 2017 or more of the incremental savings in '18 and beyond?

Yes.

I'll take that one.

Yes, the timing from -- for the additional $250 million is primarily going to be in '18 and beyond.

As Tom stated, we're not going to change guidance in fiscal year '17.

We're comfortable with the outlook for OI adjusted that we provided.

Okay, got it.

And then my follow-up is on gross margin.

The 135 basis point decline this quarter seemed to be more significant than last quarter, obviously reflects the inventory optimization efforts you mentioned and higher supply chain costs, I think, from last year.

Assuming that's an ongoing process, but how does that stabilize through this year?

Can you sort of walk us through the time line and how to think about gross margins as we move through the year?

Yes.

Let me give you some additional color on the 349 bps deterioration.

We've been very consistent and clear that we need to make investments in our customer and drawing down our inventory.

In Q1, the impact of these investments were magnified by 2 main factors.

The first one was the softness in the middle of the quarter causing the deleverage.

The second one was the lapping of the 2016 Q1 initiative that are inconsistent with our current strategy.

Tom said the company was cutting customer service hours, which is just something that we're not going to do in the short term.

When we're going to be delighting the customer, we're going to smartly optimize our customer service hours.

And the second point, previous leadership was building up inventory.

As part of our end-to-end supply chain optimization, we are going to be optimizing our inventory.

We're going to be drawing it down.

How that plays out over the year, we're not going to break this down quarter by quarter.

Having said that, productivity is going to come in the back half -- largely in the back half of 2017.

Our next question is coming from the line of Scot Ciccarelli of RBC Capital Markets.

Just a quick clarification.

Tom, did you just say you are comfortable with the OI guidance that you previously provided?

Yes.

I mean, as a matter of course, we are going to update guidance -- we're going to give guidance once a year.

We're going to give a fiscal year guidance.

As Tom said, we're very comfortable with the industry dynamics.

We're very comfortable with the strategic initiatives that we've got, availability, our digital online plans are accelerating, customer experience on the DIY side.

We expect to see these improvements in the second half of the year, and it gives us confidence in our ability to drive top and bottom line performance.

Understood.

And then the follow-up would be, can you help us understand your expectations for the $750 million of productivity gains you just outlined?

We understand that the $750 million is a gross number, but you also suggested some of that will be reinvested.

And I guess what the investment group would basically want to know is, what's the right way to think about what we might see on a net basis?

Well, first of all, Scot, we're really excited about this productivity agenda.

I can't tell you how excited we are.

It's been 9 months in the making.

Obviously, we've been working on it with our entire team.

As Tom came in, in November, he really brought a new dimension to how we were thinking about it.

We started to accelerate some things that hadn't been accelerated.

We brought Leslie Keating in who's a terrific executive, track record of success with productivity; Mike Broderick with significant experience in interacting with the supplier community, being both on the supplier side and working on the parts side of the business.

So the construction of the productivity agenda is something that we're very, very excited about.

As we look forward, we're going to continue to look at ways to be ahead of where the customer is going.

Obviously, we want to go where the puck is moving.

And to that end, we're going to continue to look for places to invest to sustain long-term growth.

What we showed in November was our goal is to perform above the industry average in terms of sales growth and to expand margins significantly from where they are today.

That stands as we sit here today.

We're not going to update exactly how that's going to play out in the next 12 months.

But we should be able to update you towards the end of the year in terms of how that will unfold.

But the $750 million, obviously, is a 4-year number now.

So we're in '17, so '17, '18, '19, '20 is the time frame for the $750 million.

Our next question comes from the line of Michael Lasser of UBS.

Recognizing that you only want to update your guidance once a year.

So to achieve the prior objective of 15 to 35 basis points of margin expansion would imply that you're going to have to achieve anywhere from 200 to 300 basis points of margin expansion in the back half of the year.

The business hasn't really -- doesn't really have a history of doing that.

How would it be possible, even with those productivity metrics, to improve -- to achieve that type of margin expansion?

Well, Mike, I certainly understand the question.

I'm going to go back to, as we plan the business for 2017, knowing what we knew in November, which was the challenging situation we were dealing with in the front half of the year, reducing customer-facing hours, really an inability to execute.

We're still building out that productivity muscle, some gaps on the leadership team at the time, we obviously planned the business accordingly.

From our standpoint, if we hadn't reflected on the factors I just mentioned and used that in our plan, it would have been somewhat irresponsible.

So we did plan the business to be back-half loaded in terms of margin flow-through.

Obviously, we're mindful where we're tracking for on the year, but we can't really speculate on hypotheticals right now.

We're focused on executing our plan and really positioning the business to deliver long-term value, and that includes investments in the customer and building out the productivity.

So our transformation is well underway, and we're confident we're going to show the impact of our actions on both top and bottom line in the second half of '17 and beyond.

And you provided some examples of -- in your prepared remarks of where you're harvesting your productivity savings, such as consolidating fleet management down to one provider.

But in light of the fact that you don't really want to touch customer service and labor is your biggest expense bucket, can you provide other concrete examples of where you're going to get the productivity savings starting in the second half of the year?

Yes, a great, great question, Michael.

Labor is certainly a big cost, but we are going up and down the P&L.

And let me just take you back to the 3 buckets that we've got for productivity.

We've got material costs, supply chain and ZBB.

So I'll just go a little bit deeper on each one.

Material cost is significantly bigger than labor.

And we have started an entirely new clean sheet process with our brand partners where we are going deep dive into the cost structure, packaging, raw materials, to really work together in a collaborative way to optimize the specs and the offering from the customer, and we see tremendous potential in this to drive results.

We have a good start in the first quarter.

We see significantly more opportunity in the back half of the year and ongoing.

And then let's go to supply chain.

Supply chain, which is distribution centers and transportation.

Within the supply chain, we've got standardization of distribution centers where we can eliminate touches, have more efficient labor execution, better fixed cost performance by putting in networkwide subject-matter experts.

On transportation, in addition to going from 3 to 1 fleet companies, that's just the start.

We've got better utilization of our vehicle, we've got less miles, we've got fuel savings.

So there's on the supply chain.

Moving to ZBB, again, a ton of opportunity there.

Some of the things that we're doing, we're looking at our professional services, our consulting expenses, and doing from a zero-based approach, and really taking costs out there.

LED lighting in our stores, it looks better for our customers.

Our customers are delighted.

We've got a good ROIC on it.

So to really make this just a labor play is really not looking at the entire P&L.

And coming back to what Tom said, we are enabled to do this by the strong leadership team that we've brought in.

We're able to change the meeting forums.

We're able to bring different perspectives.

We're able to drive this deeper into the organization.

The depth of analysis is much greater.

So I couldn't be more excited.

When I first came in, in November, and we gave the 500, I've been here a couple of weeks.

Now that I've got a more of a lay of the land, there is just tremendous opportunity here.

Our next question comes from the line of Michael Baker of Deutsche Bank.

So just wanted to talk about 2017 and then longer term.

It did seem like -- and maybe correct me if we shouldn't take this comment too specifically, but it did seem like you're comfortable with the full year operating income number of up 15 to 35.

It also seems like the first quarter was probably below your plan because of that patch in February and March.

That would imply that something needs to be better in the second quarter or the second half.

Is that the right way to think about it?

Or if that's not the case, maybe the 15 to 35 isn't the right way to think about this year.

And then I'll ask a longer term follow-up question.

Well, just on your question on will it be better balance for the year, absolutely.

No question about that, Michael.

We haven't talked a lot about the sales number, but there was, as we said in our prepared remarks, we had the date flip, right?

The date flip is pretty basic.

We knew exactly what that was going to be worth in the fourth quarter last year.

We also had this significant pull forward of winter-related demand into December.

In particular, in our northern markets, which we had an idea that was happening, and obviously we finalized our plan in November and early December.

So we didn't know how big that, that December was going to be.

And when you look at some of the categories that performed well in the fourth quarter, they were winter-related categories.

And that -- a lot of that got drawn out.

So not all of that was planned as we planned the first quarter.

That said, in the last several months, as we continued to really work this productivity agenda hard, Tom Okray, Leslie Keating, Mike Broderick, Bob Cushing, we were really, really pressing hard to take real costs out of the business sustainably.

And that's why we feel very good about the long-term prospects to get at the margin expansion opportunity that exists.

Well, and I guess that would be a good segue into the longer-term question.

I don't know if you specifically reiterated on this call yet, if you did, I apologize, but I'll ask you your outlook for 500 basis points of margin expansion over 5 years.

Is that still the right way to think about it with the additional cost savings?

And as part of that, remind us what kind of sales lift you need to offset the reinvestment?

I think you had said comps getting to the mid-single-digit range by 2021.

Is that still the way you're thinking about it?

Yes.

I mean, our goal is to perform above the industry average, which, as you know, is 3% to 4%.

Everything we look at says this is a very healthy industry.

Car park, 2016 new vehicle sales, vehicles and operation, miles driven, average age, all of them say 3% to 4%, which means that we'd have to be above that in order to achieve our comp sales goal.

Okay.

If I could just talk to Mike and ask one follow-up to something you just said.

You talked about the vehicle aging.

I'm curious how you look at that.

What you think the sweet spot of vehicle maintenance is?

And if you look at the number of vehicles in that sweet spot, and how that might be changing on an annual basis.

When I look at that, certainly, what we look at is that vehicles in the bucket of 6 to 10 years old.

And when you look at -- since 2009, when we saw certainly new vehicle sales increased dramatically from the lull that we had then, that those vehicles are coming into play now.

So we see there's a tremendous upside over the next 5 years.

This growth as much as 10% to 20%.

So that's going to play well into the aftermarket side, fitting into that 6 to 10 year old bucket.

So we're pretty positive about the 3% to 4% range in guidance on the aftermarket sales growth, which we're certainly targeting ourselves, if not, certainly higher.

Our next question comes from the line of Matt Fassler of Goldman Sachs.

My first question relates to your investments in the customer.

I remain interested in what you're spending on, particularly since in the prior couple of quarters, the incentive comp seemed to be a piece of the acceleration in spend.

And with the revenues having been under pressure, I wouldn't imagine that would have been a big factor for the salesforce.

So can you talk about, just a little more detail on where that spend is coming from, please.

I'll start, and then I'll have Tom deconstruct it a little bit more.

But I would like to talk about the incentive comp and our team members.

Our customer-facing employees are so critical to the success of our company, in terms of their ability to connect with our customers and help them solve problems.

They love to solve problems.

As you know, we have been experiencing tremendous turnover in the company at these front-line customer facing roles, be that a commercial parts pro, a customer account manager, a general manager, a district manager.

And I'm excited to let you know that our turnover continues to go down dramatically there.

We're down 20% to 40% in turnover on those key roles in the first quarter.

And we're going to continue to stay focused on really getting our people excited about serving the customer and building that performance culture in the company.

Part of that was what we call our field of front-line incentive program for our customer-facing employees.

And we've continued to invest in that, and that was part of our customer-facing investments in the first quarter to drive that behavioral change, that cultural change that we feel is so important for the long-term success of the company.

I got to tell you.

I probably got 50 notes in the last couple of days of employees that have been recognized through our Fuel the Frontline Program, and that continues to grow and build momentum in the company overall.

So Tom, can you take a little bit more of a dive on how it was deconstructed?

Sure, sure.

Yes.

Matt, I think the way to look at it for investment in the customer is really 4 buckets.

The first one is customer service hours, referred to as labor.

The second one, Tom was just describing, is our Fuel the Frontline, our field incentives.

The third is parts availability and supply chain, making sure we're getting the right part at the right time to the right place.

And then the last one is promotion.

And just a little bit more color.

I mean, as Tom said, when we came in, and are looking at the company and this transformation, we really need to build the foundation.

So are we over-indexing in our investment in the customer?

Absolutely.

Is that going to get more surgical over time and optimized?

Certainly.

We're always going to invest in the customer.

But over time, we're going to be able to do it more efficiently.

As our productivity agenda catches up as well, this is all going to hit together, and we're going to have an inflection point.

So that's the way I think about the investment in the customer.

Understood.

And then I guess my second question relates to the integration with Carquest.

I know that there's a lot of work still to be done.

Can you talk about where that's sitting in, in terms of your activity levels, the financial consequences of the integration work that's going on, the integration work that's still to evolve over time?

A great question, Matt.

I mean, we're accelerating our efforts on this now.

As you know, we took a bit of a step back from what we had been doing, which was more of the old CCR work, which was consolidating stores, converting stores, relocating stores.

As Leslie's come on in conjunction with Bob, we've really starting to work from that customer back on our asset base.

We've got plenty of assets.

Leslie would say that, Tom would say that, I would say that.

We just haven't leveraged them the way that they could be leveraged into their potential.

So making sure we put the customer first in everything we're doing, and constructing our supply chain from that is where we're headed.

And we are making some pretty big strides on that.

I'm not going to get into all of the details for competitive reasons, but we're pretty excited about how our enterprise customer-facing tools, technology and supply chain will evolve over time, and really start to improve our key metrics on order to delivery time, having the right part in the right place, our availability in the market.

All of those are part of the plan.

And the idea is to leverage the entirety of our asset base, not to approach it from -- the previous approach was trying to integrate Advance and Carquest.

We're looking at it more broadly.

Our next question comes from the line of Brian Nagel of Oppenheimer.

Maybe to shift gears just a bit.

You talked a lot about the soft patch in sales here in Q1, and by no means are you the only company, you had a competitor yesterday talking about a too.

Just to maybe get your perspectives on what caused that, what was different this time around?

As the business ticked up, was that a rebound, or is that more of a normalization?

Yes, Brian.

Again, I'll reiterate, we've looked at every number.

The long-term variables are very positive.

They point to the 3% to 4% we referenced earlier.

The short-term impact of what happened in February and March, we looked at all the factors you'd expect.

We've looked at products, geographies, channels, customers, weather, tax.

Everything we look at says that this was a blip, not a trend.

We're going to continue to monitor it closely from an industry standpoint.

I mean if you look at the categories, and you look at how they played out, Brian, over the, really the last, call it 32 weeks, the Q4 numbers, then the Q1 numbers for us, then the early start of period 5, you go, wow, batteries had a huge Q4, soft in Q1, now we're seeing it bounce back.

It was very cold in Q4 in December.

We had a very warm Jan, Feb.

Now we had a very hot week, last week in the summer.

Those are the types of things that can swing quarter-to-quarter, but we really believe that 3% to 4% is solid.

And from an AAP standpoint, Q4 plus Q1 was sequentially better than the previous quarter, and we expect Q2 to be sequentially better than Q4 plus Q1.

And we're sitting here with $10 billion out of $135 billion in the category.

So the long-term outlook and opportunity ahead is substantial, and we feel we'll continue to sequentially improve.

Our next question comes from the line of Seth Basham of Wedbush Securities.

My question is around strategic accounts with multi-year agreements that you mentioned.

You picked up a bunch of these.

Could you provide some examples?

And is this a form of investment in price that you're referring to?

Yes.

So as you well know, many of the strategic accounts that put out RFPs in the industry, they are looking for multi-year agreements with their suppliers.

And so a number of those have come up over the last 6 months and so.

And I'd tell you that we basically have won certainly in every single one of them.

So we're winning.

And we're winning because of what we basically are bringing, the capabilities of the organization, and certainly what we're working on, which we share with them, because we see them as our strategic partners.

They basically have looked at us as certainly from what we've already been able to provide today.

And certainly now, certainly leveraging all the banners across the enterprise, they know what's coming as well.

And as I mentioned, that new model that we're putting out there, they're extremely interested in that, and we're going to leverage that as well with them.

But I would say, for the most part, customer by customer, we're winning, and we'll continue to win in that particular side of the business here.

And as I said, it's growing, and it will continue to grow.

Got it.

How material is this to the sales outlook for 2017?

Is it a material incremental boost to comps as these accounts ramp up?

And corollary to that, is it a weight on gross margin?

Obviously, we look really closely at those things, Seth, before we handle these RFPs.

I mean, I think it's a natural outcome that the large customers in the professional side of the business are going to get larger.

So we've got to manage that in our overall portfolio.

We're not going to comment specifically on the size of it.

We're pretty excited about the fact that Bob has come in with his background, with his leadership team.

They've done a great job packaging up what is -- what we consider to be the most -- the best portfolio of parts in the industry, including the training institutes that we're standing up.

Bob's standing up -- or sorry, integrating the Carquest Training Institute with the WORLDPAC Training Institute, which provides tremendous value to our large customers out there in the marketplace.

So we're going to continue to leverage the scale of all of our businesses to build a more attractive portfolio for our customer base.

And over time, we believe that, that will help us win in the market.

Our next question comes from the line of Dan Wewer of Raymond James.

I want to talk about the promotional pricing, and how that could be impacting gross margin.

As a Speed Perks' member, I was getting a 20% off anything online, it would seem aggressive.

Is that a change in strategy?

Well, we're pretty excited about Speed Perks, Dan.

We've got an opportunity to do a better job connecting directly with our Speed Perks' members.

I will tell you, that will evolve over time.

We want to make Speed Perks more sticky.

It should be more than just a promotional coupon off event.

And so I'll leave it at that.

But we're working pretty hard on how to better connect our physical and digital assets, and that includes the Speed Perks program.

Well, I know your competitors have claimed that there is minimal price elasticity for demand in this industry, and we've had this amazing gross margin expansion cycle over the last 10 years.

But do you think we're at the point now where it becomes necessary to use pricing to drive market share?

Yes.

It's certainly not a huge part of our agenda going forward.

We're looking very carefully at strategic pricing.

But in terms of a weight on gross margin, we don't see that.

And then just one follow-up question.

Can you talk about why you announced the higher productivity savings today?

It doesn't sound like we're going to see a much change in the second quarter, doesn't really begin to kick in until the third quarter.

And even then, it really doesn't really begin to gather momentum until 2018.

So curious as to why today was it necessary to talk about the savings, particularly when you're not comfortable talking about the net savings, only the gross savings?

Yes.

I mean the reason we're bringing it out today is, this is about 5 or 6 months since the entire leadership team has come together.

Myself, I've been on the ground 5 months.

Bob has been in position a little bit longer.

Mike Broderick has been in his position for a few months.

Leslie has got her feet on the ground in terms of supply chain.

And we're all coming together to really work on a daily basis on productivity, and we've been tracking this versus our $500 million target, and we're very optimistic.

So we have this opportunity with the investment community, and we wanted to make it public.

Nothing other than that.

We're excited about it.

We think it shows the leadership team how we're working together, and that's the reason.

Our next question comes from the line of Ben Bienvenu of Stephens.

Recognizing that the turnaround is unlikely to be linear, what are some of the things that we should be focused on to judge the progress you're making quarter-to-quarter in achieving your goals?

Is it ultimately comps improving sustainably?

Well, for sure, comps are the primary focus for us at the moment.

We're driving at customer investments.

We're driving at things that matter to our customers, both on the professional side of the business and on the DIY side of the business.

And our goal is to continue this sequential improvement which we talked about.

And obviously, relative performance is important within that.

Our market share, we don't get a lot of market share data, Ben, but where we do, we pay very close attention to it, and we're making progress there.

And we're not gaining share, okay, to be clear.

But we are narrowing the gap in terms of our performance, and we're going to continue to stay focused on that.

And over time, the goal is to narrow that completely.

And then, obviously, at some point, perform above the industry average.

So that is the primary focus.

Okay, great.

And then, thinking about the multi-year 500 basis point improvement in margins and mid-single digit comps, is it your inclination if you see comps slowing to intensify your spend in customer-facing roles and supply chain initiatives?

And similarly, if you have outperformed your comp assumptions, what is your inclination to try and leverage SG&A?

How should we think about ultimate long-term operating margin expansion once you get to a sustainable run rate of an improvement?

Well, first of all, the $750 million is literally down to the dollar, right?

The $750 million is planned out over the next 4 years.

We know exactly where that is in the vast majority of cases.

That $750 million is not sales dependent.

There's very little of it that moves up and down with sales.

When you go to 1 fleet company from 3 companies, that doesn't have anything to do with what we sell.

If I'm able to reduce the touches which are way too high in our current supply chain, if I can take the touches down, that's worth something.

If I can reduce the number of miles driven on the same number of deliveries and the same amount of sales, that takes costs out without driving sales.

So we've constructed the productivity agenda such that it is not sales dependent, okay?

So we're not looking for leverage on these cost-out measures, because they tend to be waste or redundancies or things that can be reduced.

And given where our relative margin is versus the industry average, I think you can probably see that we have pretty good opportunity to do that because we have peers in our industry that have already done it.

So we're focusing on essentially looking at our asset base, and our model, and how we invest with the customer, and how do we close the margin gap as we're driving at the customer agenda.

Our next question comes from the line of Kate McShane of Citi Research.

This is Chris filling in for Kate.

I was wondering, are you -- with the trends that you're seeing to date following the end of Q1, are you seeing comps running in line with your annual guidance for comp?

And I guess also, what's the comps lift benefit that you're getting from some of those, the availability test initiatives that you're rolling out?

And how big is that right now as a percent of your store base?

We're not going to comment specifically, Chris, on the quarter, I mean.

But we've seen a dramatic improvement in our comps, obviously, coming off a difficult Q1.

The -- your second question was on the -- repeat your second question?

Yes.

So you talked about some of the availability test initiatives that you're rolling out.

Just kind of curious what kind of comp lift are you seeing in those test markets?

Very strong.

Very, very strong lift.

We're now up to -- I think we're up to 5 markets, and we're continuing to see the same performance improvement.

We're not going to give a specific number, but it's very, very strong and very compelling.

And just on the Q1 gross margin.

Just curious if you could sort of break out a little bit maybe like how much of that decline was merchandise margin, and how much of it was just deleveraging on like occupancy costs and other fixed costs?

Yes.

I mean going back to our prepared remarks, a little over half was investing in the customer, a little over 20% was the comp sales impact, and the remainder was primarily inventory related, optimizing our inventory.

Our next question comes from the line of Bret Jordan of Jefferies.

Could you talk a little about the trend on the AP to inventory, and maybe at what point might we see the accounts payable begin to expand again?

Obviously, the debt-to-EBITDA at 2.8, is that getting to be an issue?

And maybe we're going to get an EBIT contraction in the second quarter.

Is there a point where that's sort of impairing your ability to leverage the working capital?

Yes.

No, great question.

I mean we still see a significant opportunity to improve our AP ratio over time.

We said on previous calls, we see that definitely in the 90% range.

That said, the AP ratio for the specific quarter was impacted by the lower sales environment, coupled with the lower AP balances, which were driven primarily by the inventory that was purchased last year in Q1 when the company was significantly building up the inventory.

Let me also just go back to the leadership that we brought in, in the company.

We now have single-threaded leaders on the key components of our cash flow.

This is something that we didn't have in the past.

We actually have a director of working capital now, which is an external hire.

We've got people on AP, AR, inventory that are single-threaded leaders, totally focused, and we're meeting twice a week now in terms of being able to really dive deep.

And this is something that we just didn't have before.

And I want to take you back to the prepared remarks.

We are running the company differently.

The insights that the new people are bringing is dramatic.

I'm not happy where the AP ratio is.

I'm not happy where our focus on cash is, trust that's going to get better.

We've got the foundation in place to make it better.

Would we expect AP to start to expand in the second half?

I guess, is it something that inflects this year, or is that something that's longer term?

Yes.

I'm not going to talk about a specific time frame just because it is so integrated to our end-to-end supply chain optimization.

So we could very easily do a short-term action to pull the inventory out.

But we've got very high guardrails because that would really hurt the availability for the customer.

And as we're repeating here, and you're getting the strategy, we're just not going to do that.

Availability is key for our customer, so we've got high guardrails there.

We're going to take the inventory out in a measured, smart way.

We grew 2% in Q1 versus 6% to 7% last year in Q1.

We're making progress.

It will get faster.

But I just don't want to be pinned down to a specific time frame right now for this year.

Our final question today comes from Chris Bottiglieri of Wolfe Research.

I was hoping to dig in on the supply chain.

What -- I'm kind of working the assumption that your 3 businesses, Worldpac, AI and Advance, are kind of 3 disparate businesses with 3 disparate customers.

So I get the sense that from DC to store, there's probably geographic synergies from stem miles, stuff like that.

But I guess first question is, would you agree with my assessment of 3 different disparate customers?

And then two, is there an opportunity to improve stem miles from store to customer, synergizing these 3 businesses?

First of all, a good, great question, Chris.

I mean, we're -- with Leslie coming on, we're taking a very different step back on the supply chain, again, starting with the customer.

She's actually conducted or our team has conducted a series of interviews with customers to better understand the needs.

We spent a lot of time on DIY consumer insights last year, professional customer insights last year.

We're augmenting that this year to really make sure we understand we're delivering against what the customer wants.

She's also looking at that end to end, okay?

So we're not looking at discrete parts of our supply chain.

We're looking at the entirety of the supply chain, because a lot of times, in supply chain, you can reduce costs in one area and increase it in another area.

So it's really an end-to-end look at it.

As part of that, we have -- she would say, we would say, Bob would say, all of us would say, we have significant inefficiencies in our current supply chain.

We have many nodes, many assets.

Obviously, our stores operate as fulfillment centers, as you know.

So taking a step back and looking at the entirety of our supply chain, and the seamless movement of parts across it is something that is very much on the agenda, and we're building out the plan to better integrate the various nodes we have within our supply chain, which ultimately will improve our order to delivery time to our customers, as you said, take miles out, take costs out and reduce our inventory overall.

So that's the goal, and more to come.

Got you.

And then you said you won't be adding buildings, but would you rule out subtracting buildings at this point?

You have a lot of hub stores, a large square foot footprint on DCs.

How do you think about that?

Yes.

We're not going to comment specifically on that.

But everything's on the table, to be clear.

We're going to operate as efficiently as we can.

Okay.

And then one, maybe challenging longer-term question, I want to get your perspective on.

Worldpac has kind of proven that you don't necessarily need stores to compete in this business.

Can you tell us what it is about that business that allows you not to have stores?

What make -- why doesn't that impact your core AAP stores?

Like what is it about Worldpac that allows the customer to accept a longer delivery window through centralized warehouse delivery rather than kind of like hot shopping in local markets?

Let me make a comment on that.

First of all, I think what customers want more than anything is they want consistency in execution of delivery.

So when they know that they're placing an order, they know when you have it.

So I think it's critically important at Worldpac, we've always basically focused on making sure that we have that same execution day in, day out.

So customers count on that, number one.

Secondly, they all have to do certainly with the product assortment as well.

Worldpac has the unique product assortment.

It certainly has the specialty repair shops throughout the entire North America, and so that also is another part of it where the lion's share of a lot of their business is basically scheduled.

So therefore, that fits well with the scheduled delivery.

However, there is, again, more and more pressure on reducing the order cycle time, and Worldpac is taking a number of steps to reduce the order cycle time as well.

So that's a part of the trend in the industry.

We're all doing it.

So I think, as I mentioned earlier, where we're transforming the professional experience with these new startup type of pilots that we have, one that we're starting next week, is having all of that capability under one roof, and that's going to transform and differentiate Advance from the rest of the industry.

At this time, there are no further questions.

I will turn the call back to Zaheed Mawani for any final comments.

Tom, go ahead.

Well, so thanks, operator.

We'd like to conclude our call by thanking all of our team members and independent owners across the AAP family for their efforts to better serve our customers in the quarter.

In addition, as we approach Memorial Day, we would like to thank all the members of our military for their service.

We're making major changes at AAP, and we remain focused on the substantial long opportunity we have to drive shareholder value.

We look forward to updating you on our progress once again in August.

Thanks for joining us.

That concludes our call today.

You may now disconnect.

Thank you for joining us.