領先汽車配件 (AAP) 2002 Q4 法說會逐字稿

Welcome to the Advance Auto Parts fourth quarter and 2002 fiscal year conference call.

Before we begin, Jeff Gray (ph), the senior vice-president of finance and controller will make a brief statement concerning forward-looking statements that will be made on this call.

Mr. Gray, please go ahead.

Good morning.

Certain statements that will be made during this conference call will contain forward-looking statements that incorporate assumptions based on information currently available to the company.

These statements discuss among other things expected growth, store development and expansion strategy, business strategies, future revenues and future performance including our future free cash flow in earnings per-share.

These forward-looking statements are subject to risks, uncertainties and assumptions including but not limited to competitive pressure, demand for the company's products, the market for auto parts, the economy in general, inflation, consumer debt levels, the weather and other risk factors listed from time to time in the company's filings with the Securities Exchange Commission.

Due to changing conditions should any one or more of these risk factors materialize or if any of the underlying assumptions prove incorrect, the actual results may materially differ from the anticipated results discussed in these forward-looking statements.

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

I will now turn the call over to Larry Castellani, our chief executive officer.

Good morning and welcome to our call.

With me this morning is Jim Wade, our president and chief financial officer, and Jeff Gray, our senior vice president and controller.

2002 was truly an exciting year for Advance Auto Parts.

We produced strong results including sales growth of 30.6%, a comparable stores sales increase of 5.5%.

A 230 basis points increase in operating margins to 7.2% and an increase in earnings per diluted share of 104.6% before integration expenses one times in '01 and extraordinary items.

Also, we generated $165 million in free cash flow and we reduced our net debt by approximately $250 million.

These strong results were accomplished as we moved forward on numerous initiatives including successfully integrating Discount Auto Parts, including completely integrating all the 164 stores in the non-Florida markets as well as 51 stores in the Florida markets.

These stores have received a complete physical makeover to our 2010 format, as well as new instore POS systems and a complete merchandise realignment.

For the remaining stores in the Florida markets, we completely remerchandised all of the stores, expanding the parts selection by thousands of hard parts.

We also began the instore POS systems conversion.

Since there has been considerable discussion about this, let me put the systems conversion issue into perspectives.

Yes, we had some difficulties.

We hit a speed bump, not a roadblock.

We assessed the problem, developed a game plan, slowed down the rollout processes and enhanced our training efforts.

Our team members continue to be dedicated to the success of this integration.

We are proud of what we have accomplished and are supporting them with additional training.

We continue to make progress with the Discount Auto Parts conversion.

In fact, just two weeks ago we had our first official grand opening of the completely converted Tallahassee markets as Advanced Auto - as Advanced Discount Auto Parts and we're very pleased with the results.

Jim will elaborate further on the Florida integration.

We also launched category management.

In 2002, we review 20% of our product categories representing approximately 50% of our sales.

We reviewed our core categories first.

The category management process is allowing us to build stronger partnerships with our suppliers to help us better understand consumer wants and needs, resulting in enhanced sales growth, better inventory turns and expanded contribution margins.

We have developed financial performance measures for all of these categories and we are on track with anticipated improvements in market share gains in contribution margins expansion for each of them.

We continue to roll out APAL (ph), our state of the art POS and electronic catalog system.

Currently it's installed in approximately 1135 stores, or almost half the chain.

We're seeing a positive effect on sales and gross margins in our Advance Auto Parts stores after a few weeks of installation.

Finally, we're nearing completion of the rollout of MPT, our labor management system.

This initiative was a key driver in helping us manage our labor in the fourth quarter as well as throughout the year.

The only remaining -- the only remaining stores are the unconverted stores in the Discount Auto Parts in the Florida markets which will be completed later this year.

Needless to say we have the people, product and systems to take Advance Auto Parts to the next level.

Yesterday at our regularly scheduled board meeting, Nicholas Taubman, our chairman, and Garnett (ph) Smith, our vice-chairman stepped down from our board of directors.

For over 40 years these gentlemen led this company with the highest level of integrity and excellence.

Although they always focused on finding ways to serve the customers better, they knew that the key to achieving that was treating employees with respect, like family.

For sure, Nick and Garnett will always be a part of the Advance Auto Parts family and only a phone call away.

I count Nick and Garnett as close friends and I know that they will be always available to support me and the team with their insight.

On behalf of all the Advance team, I would like to thank you both for all you have done to make Advance Auto Parts the special place that it is today.

It is with honor that I take on the additional responsibility of chairman of the board.

Also, our board member, John Rolf (ph), a partner with Freeman Spoley (ph), was named lead director at the board meeting yesterday.

Before I turn the call over to Jim Wade to discuss our financial results, I would like to again reaffirm our belief that the after market continues to be strong and growing.

Approximately 70% of our sales are non-discretionary.

The average age of light vehicles is over nine years old and more vehicles are moving into their high repair cycle.

We're also beginning to feel the impact of the aging of the SUV and light pickup truck population as more of these vehicles are coming out of warranty.

Our market is expanding and so are our opportunities.

As Jim will elaborate further, we assume lower comparable store sales in the fourth quarter and the first six weeks of our 16 week current quarter due to some tough weather comparisons and some disruptions resulting from the conversion of our Discount Auto Parts stores in Florida.

On a positive note, our sales see a lift when the weather is favorable, therefore we believe there is a significant pent-up demand and we should feel that benefit as the quarter progresses.

We would also like to point out we have not seen any significant changes in mix other than we are selling more hard parts and less washes and waxes in the first quarter, another indication that the slight slowdown in sales is weather related.

However, we are positive about the opportunities for our company.

Now, Jim Wade will review our results and after this review I'll wrap up the call with a few comments and then we'll take questions - Jim.

Thank you, Larry, and good morning.

Our team produced an increase in sales of 20.7% to 702.4 million in the fourth quarter.

Sales for the year increased 30.6% to over 3.2 billion.

The fourth quarter growth rate was lower than the year because Discount Auto Parts sales were in last year's sales for the last four weeks of the year.

Our retail segment sales grew 22.2% to 689.2 million in the fourth quarter and 32.4% for the year.

The retail segment as you recall includes both our DIY and our DIFM sales.

Also, our sales from our Western Auto dealer network continue their expected contraction in the quarter with a decline of 26.3% to 13.2 million.

For the year, wholesale sales were down 14.5% to 83.7 million.

These sales now make up only about 2.5% of our total business.

Our same-store sales grew by 3.1% in the fourth quarter on top of 5.2% in the same quarter last year.

Our Discount Auto Parts stores joined our comparable stores sales base for the last four weeks of the quarter.

During the fourth quarter, the majority of the increase in our comparable store sales came from an increase in average ticket.

As we discussed on our third quarter conference call and in our recent press release, our sales results were impacted by severe weather compared to last year reducing customer traffic.

Ice and snowstorms kept customers indoors rather than outside working on their vehicles versus last year's warmer, milder weather during that period.

To a small degree our same-store sales were impacted by the POS systems conversions in the Discount Auto Parts Florida markets in the fourth quarter.

The POS system controls many of the operating processes in our stores from how we look up a part, open the store, generate a customer refund to how we make a store deposit.

As we expected, these conversions caused disruptions in our stores as our team members learned both the new system and the new processes.

However, as Larry said, as a result of the learning curve being longer and the sales disruption greater then we have seen in other markets outside of Florida, we have adjusted a rollout schedule so our dedicated trainers can take more time with our team to assist them throughout the change over.

We believe this will mitigate the disruption that our stores have experienced .

There is only about 194 stores remaining to have their store systems converted in Florida and we're confident our team can quickly achieve the expected benefits.

We now anticipate that the POS conversion process will be completed by the end of the third quarter of 2003.

For the 2002 year, same-store sales grew five and a half percent compared to 6.2% in 2001.

Approximately two-thirds of the gain came from an increase in customer traffic with the remaining increase coming from a rising average transaction size.

For the quarter, our DIY same-store sales rose 2.7% and our commercial comps were up 5.3%.

For the full year, our DIY comps were up 5.6% compared to 5.4% last year and commercial comps were up 5% for the year compared to over 10% in 2001.

Last year's stronger growth in commercial comps was a result of adding some additional programs as well as increasing the number of delivery trucks in several of our stores.

Overall, our Discount Auto Parts stores produced solid results in the fourth quarter.

Same-store sales rose 3.3% compared to 2.7% in the same quarter of 2001.

The 164 stores outside of Florida, which have been completely converted, continue to produce strong results, almost 17%.

The comps for the Florida stores were flat due to the system's conversion and the colder than normal temperatures in the Florida markets.

As we move forward we'll continue to update you on the aggregate discount comparable stores sales growth.

For the year, our Discount Auto Parts stores generated same-store sales growth of 4.7% compared to 2.4% in 2001.

We continue to be extremely pleased with the performance of the 57 stores we acquired from Trak Auto Parts in the Washington, DC metro market.

These stores, which are not yet in the comparable stores sales base are producing sales gains in excess of 30% compared to the same shared last year and are already achieving the company's average sales volume.

All of these stores are completely converted to Advance Auto Parts by the end of November of 2002.

The entire conversion took 100 days from beginning to end.

During the fourth quarter we opened 49 new stores including 35 Trak Auto Parts conversions and we closed seven stores.

During 2002, we opened 110 new stores and closed 159 stores including 132 stores related to the Discount acquisition.

We entered the year with 2435 stores.

The Discount stores that we closed were primarily in overlapping markets outside of Florida.

During 2002, we also relocated 40 stores.

These relocations are a key part of our ongoing program to keep our stores well located and modern.

Our new stores opened at a significantly higher sales level than in our prior years.

We believe this is a result of our enhanced side selection criteria, increased hurdle rate of 20% as well as maintaining our plans to open stores in our existing markets.

We're also seeing the benefits of our 20/10 store format.

Through a combination of new stores, remodels, relocations and conversions, 360 of our stores now have our new 20/10 format and by the end of 2003 we expect to have over 700 of our stores with this exciting new look.

In 2003, we plan to open about 125 new stores and close 25 resulting in approximately 100 net new store openings.

This will generate a square footage increase of about 4%.

Our comparable gross margin rose 140 basis points to 44 and a half percent for the fourth quarter primarily due to the benefits of enhanced purchasing and distribution efficiencies.

For the year our gross margins rose 140 basis points on a comparative basis to 44%.

On a GAAP basis gross margins rose 160 basis points.

Comparable SG&A declined 50 basis points to 38.4% in the fourth quarter.

Due to our focus on managing expenses we leveraged our total expenses, especially our labor, with a 3.1% comparable stores sales increase.

We define comparable as excluding the integration expenses and the 2001 one-time items.

For the year our comparable SG&A declined 100 basis points to 36.8%.

Our Discount Auto Parts integration expenses for the quarter were 9.1 million, bringing the total for the year to 35.5 million but four and-a-half million below our original estimate.

We don't anticipate spending the money saved in future quarters.

These integration expenses include the store systems conversions as well as the remerchandising and the physical conversions of the stores.

As originally anticipated we expect to incur about 10 million in integration expenses in 2003.

Comparable operating margins for the fourth quarter rose 190 basis points to 6.1% due to increasing gross margins and leveraging of our SG&A expenses.

GAAP operating margins rose to 4.8%.

For the year, comparable operating margins rose 230 basis points to 7.2%, GAAP operating margins margins were 6.1%.

EBITDA as adjusted before integration expenses rose 54.1% in the fourth quarter to 65.8 million and increased 66.6% to 332.8 million for the year.

Our interest expense actually declined to 15.5 million in the fourth quarter from 16.7 million in the same quarter last year as a result of strong cash flow and lower interest rates.

This was achieved even though we took on over $400 million in debt last year to finance the Discount Auto Parts acquisition.

During the fourth quarter, we repurchased approximately 24 million in face value of our bonds, resulting an extraordinary charge of 1.7 million net of tax.

For the year, we repurchased 64.6 million in face value bonds and we prepaid about 162 million in bank debt.

Due to our early retirement of debt we incurred an extraordinary charge of 10.4 million which included the unamortized discounts, write-off of deferred loan fees and premiums paid to repurchase the bonds.

During the fourth quarter, we incurred 1.7 million in expenses associated with the secondary offering completed in December, reducing our earnings per-share by approximately three cents.

Because we didn't receive any proceeds from the offering, all of the costs were expensed and are included in our results for the quarter.

Our tax rate for the quarter and the year was 38.8% and we anticipate that approximate rate to continue in 2003.

This was a decrease from 39.7% in 2001 as a result of our continued focus on tax planning.

For the fourth quarter comparable earnings per diluted share rose 168.8% to 43 cents.

Included in the 43 cents is approximately three cents of expense related to the recent secondary offering.

GAAP earnings per diluted share rose to 23 cents.

For the year, comparable earnings per diluted share rose 105% to $2.68 from $1.31 last year.

GAAP earnings per diluted share were $1.80.

We'll now review the key components of our balance sheet and our cash flow statement.

I think you'll see we made tremendous progress in the fourth quarter and the year in generating both free cash flow and higher return on invested capital.

Our total cap-ex for the quarter was 29.7 million including 8 million incurred in the integration.

Cap-ex for the year was 98.2 million including 32.5 million related to discount.

Total cap-ex for 2003 is expected to be about 95 million.

Accounts receivable declined 29.4 million in the quarter as our receivables from vendors declined 27 million.

We generated these receivables during the Discount Auto Parts merchandise re-alignment process and as we returned inventory to our vendors for credit.

Our inventory at the end of the year was 1 billion 49 million down as we anticipated by 30.8 million during the fourth quarter in conjunction with the completion of a Discount merchandise re-alignment process.

We anticipate sales will grow faster than inventory in 2003.

Net inventory which is inventory less payables was up 4.5% to578.1 million at year-end as our accounts payable inventory ratio increased to 44.9% from 43.7% last year.

We anticipate our accounts payable to inventory ratio to increase to approximately 48% by the end of 2003.

Our total debt decreased by 220 million for the year to 735.5 million.

Our net debt decreased 249.9 million to 722.5 million.

Although we anticipate being a cash user during the seasonally lower fourth quarter, we use only about 2 million in free cash flow due to enhanced inventory management and the collection of vendor receivables.

As a result, for the year we generated $165 million in free cash flow.

We anticipate generating free cash flow of 150 million in 2003 which again will be used to repay debt.

Our return on invested capital rose significantly to 14.2% compared to 10.6% last year.

We continue to focus on enhancing our operating results, reducing our debt levels and effectively managing our working capital.

Now an update on our guidance for the 2003 year.

We anticipate producing four to 5% comparable store sales gains for the year and growing earnings per diluted share by 25% before integration expenses and a potential refinancing of our bonds.

This guidance excludes the impact of the additional 53rd week in 2003 which will positively impact our earnings per-share of 1.5%.

We're doing this call from New York today because after this call we'll be launching the refinancing of our bonds in a bank meeting.

At the meeting we'll be announcing that we plan to fund the $350 million existing capacity under our current bank agreement.

This $350 million plus approximately 15 million in cash will allow to us retire on April 15th, all but approximately $42 million of our bonds which we'll plan to retire from free cash flow as we go through the remainder of 2003.

The potential incremental savings in 2003 are estimated to be 20 cents per-share.

Although indications are very positive that we'll be able to successfully complete the refinancing, we'll not include this in our guidance until it's completed.

Now let me wrap up by providing some guidance for the first and second quarters of 2003.

For the first quarter we believe we can achieve earnings per diluted share before integration expenses of 70 to 75 cents compared to 55 cents last year.

These results can be achieved with comparable store sales growth of 3% for the quarter which reflects a flat start to the quarter with an anticipated increase as we go through the remainder of our 16 week first quarter and return to more normal weather trends.

As you may recall we had a 7.8% comp in the first quarter of last year.

For the second quarter we anticipate producing comparable earnings per share of 92 cents to 97 cents compared to 77 cents last year as we see comparable store sales growth return to the four to 5% range.

We look forward to a great 2003 and now I'll turn the call back to Larry.

Thanks, Jim.

2003 will be another great year for Advance Auto Parts.

We will continue to integrate Discount Auto Parts.

During the year we expect to physically convert 120 stores and complete our store system's conversion.

To date we have physically converted 47 stores in the Florida market and grand reopened the Tallahassee market.

Lastly I want to take the opportunity to introduce our new advertising program.

During the next few weeks we will be launching our new advertising program with the tag line, we're ready in advance.

You'll be able to see and hear our new ads all over the country because we'll be using the national networks to spread the news about what makes Advance Auto Parts unique.

We sincerely believe this new program is a significant upgrade and it will attract more customers to our stores.

Along with this enhanced electronic media advertising program, we're also putting a large emphasis on local community advertising, especially urban and Hispanic communities.

Thank you for participating in the call today and we look forward to answering your questions.

Operator, will you please open the floor to questions.

If you would like to ask a question, please press star than the number one on your telephone keypad.

We'll pause for just a moment to compile the Q and A roster.

Your first question is from Alan Risken (ph).

Congratulations, gentlemen, on a great quarter and an outstanding year.

Thank you, Alan.

A couple of questions.

How much of an impact on your fourth quarter comp did the POS conversions hurt you and given your comp guidance for both the first and second quarter, how much of a negative impact do you foresee as a result of the POS system's implementation in those two numbers?

Alan, I can take that question.

The impact in the fourth quarter was very minimal as I said in my remarks.

The comps in Florida were basically flat but within that -- those comps were only in the total comp for four weeks, so obviously they had a very minor effect.

I would anticipate the same type of thing as we go through the first quarter.

As we finish off the full 16 week quarter a little bit more effect in the early part of the quarter and lesser effect as we wrap up the quarter.

Okay.

As you slowed down the training on the part of some of the team members down in Florida, any sort of color as to what the long-term implications of that could be and then lastly, well, with respect to the APAL program, could you maybe shed some color on quantifying the positive impact of that implementation on both the revenues and gross margin?

Thanks a lot.

Alan, we think that the long-term positive impact of APAL is going to be a couple of percent of additional plus count store sells as we grow in our -- and our people become more familiar with it.

On a short-term basis, we are working diligently to reinforce the training in all of our stores, we actually have Hispanic trainers going back and doubling our efforts in those markets where it is warranted.

We believe in a relatively short period of time we'll be back on track and meeting the objectives that Jim stated.

Okay, thank you very much, Larry.

Thanks, Alan.

Your next question is from Brett Jordan (ph).

Hi, good morning.

A couple of quick questions and one is a follow-up on the Florida DAP conversions.

You said you had 194 stores remaining to be converted and I think I might have been discussing the POS systems, because I think early in the conversation you said you had converted 51 stores fully and that would leave -- I think there are 440 stores down there, more like 390 to go.

Could you just clarify that?

Brett, you're basically right.

The 194 stores were the remaining system converted stores to occur.

The total physical conversions are somewhat less than your number.

I think closer to about 350.

The reason for that is we have also already converted the panhandle part of Florida which we look at as really being an extension of the Mississippi, Alabama, Georgia market, so approximately 350 stores left to go which we'll do about 120 in 2003.

Okay, great.

And as far as the comps that you've seen year-to-date in '03, there has been some rough weather, have you seen any recent improvement or any regional differential I guess that would more closely tie it to weather in areas that have had more dramatic weather, have you sort of seen that tied and seen some reasonably strong performance in other markets?

We are where we should be in the areas where we have not been as negatively affected weather-wise.

Okay.

So you're not -- it probably is the weather as opposed to the economy.

Soft economy is not impacting wax sells?

We can see that part in our mix.

People don't have as much of an inclination to put their hand in a bucket of cold water as our people say when it is as cold as it is.

Even some of our Southern states relative to the last couple of years weather it is considerably different this year.

It's just work in progress and we have to work our way through it.

As the weather improves we're confident we'll get the mix back as well.

One last question.

As far as the timing, the refinancing you're starting out after this meeting, do you have a feeling when we're going to have more color on that when we can begin to think about reduced interest expense?

Well, I think what you'll see, Brett, is we'll be making the announcement today, as I said.

The first call for the bond is April 15th.

We have to give 30 days notice for calls, so certainly by the middle of March we'll have a lot more color on where we are.

Okay, thanks.

Your next question is from Anthony Rose (ph).

Hi, gentlemen.

Just a quick question in terms of comp and weather.

When weather does improve is it typically an immediate pickup or is there a lag in terms of weather improvement with the comp?

It can be a combination of both.

Bear in mind where there is a lot more severe cold weather than there has been historically, that takes its toll on an automobile.

For example, in the Northeast, an awful lot of more batteries are being drained now this time of the year and as the weather improves, the first warm spell, we historically and our suppliers will be the first to tell you that, we historically see an above average failure on the part of the battery thereafter.

It's not a one week event but it's something that pent-up demand unfolds throughout the weeks and months thereafter.

On the other hand, some of the product mix, the washes, waxes, et cetera, as soon as the first warm spell comes we also go through the medium impact of people coming in for the washes, waxes and things like that.

But clearly we have great sales when the weather picks up and historically we have seen that in areas of the country where it has been warm weather and very close to last year we have seen great sales in those areas.

Thanks.

Your next question comes from Michael Wisenberg (ph).

Yeah.

Michael Weissberg.

A couple of things.

The 20-cent benefit from the refinance, I think I heard you say that was an '03 benefit.

But in the past I thought that was an annualized benefit and you would only get a portion of that in '03.

That is right?

No, Michael, we're pleased to say the 20 cents is the eight and-a-half months roughly benefit in 2002.

The full benefit in -- excuse me in 2003.

Right.

The full benefit in 2004 would be closer to 30 cents a share.

I see.

So then on a year to year basis we're going to get an extra ten cents comparison in '04?

That's correct.

Great.

On the -- in terms of the quarter, the specifics are you're running about flat comps the first six weeks.

Is that -

That is correct.

How much -- how much of the -- of your rollout in the country, how much of your stores have really not had inclement weather?

How much of the store base hasn't been affected and what kind of comps did you see in those stores?

A very large part of our sales base and our store location base has been impacted by the weather.

Even Florida has been incremental to last year an awful lot colder this season than last season.

In some of the areas on the weeks that we have had good weather, our stores have been on budget and have seen the mid single digit comps that we had anticipated.

I see.

And so I guess the math would be you're hoping, expecting something like 5% comps for the rest of the quarter?

That would sort of get you the 3% number?

It actually doesn't take us that much for two reasons.

First of all, the first quarter is 16weeks and the second reason is the January timeframe is the lowest sales volume of the 16 workweek quarter.

So as our comps increase, it will not take us -- it will be more in the fourish type range than five to get us there.

I see.

Thanks very much.

Thank you.

Your next question is from Gary Balter (ph).

Hi, guys.

Hi, Gary.

Just a question on, you know, a lot of people are concerned over the efforts in DAP and the system issues which sound like they're progressing nicely but just a little slower.

Obviously you have great experience with the Western acquisition and other acquisitions.

Can you just walk us through maybe some of the transition in those and how, you know, it went, were there any hiccups and if possible, some of the results like of the smaller ones you've done in Southeast, how the results went just to probably rebuild some confidence in your ability to do this transition that seems to be waning at the present time.

Gary, you faded out there.

Can you repeat the last part of the question?

We're trying to get some confidence that this is not a long-term issue.

And given your experience with other acquisitions, maybe you can walk us through how the transition went with those and rebuild the confidence that investors should have in your ability to get the DAP remodels done.

Gary, the problems we had in Florida were systemic with the match-up of the product mix and because the warehouse in out-of-state in Bowman (ph), Mississippi was converted - shipped out and converted to our system, our warehouse management system and as a result of that there were no bridges necessary for the out-of-state stores and the panhandle stores.

In Florida, we had to create bridges necessary for us to align our product mix, our reorder system and our POS systems to interface with the replenishment mechanism until we could get the stores physically converted and the POS systems rolled out across the board.

It was in the process of doing that we encountered these problems as well as some of the training issues at store level as it was more of an impact to train and develop the people in the DAP stores.

In spite of the enthusiasm and the great leadership on the part of Kurt Schumacher (ph) and our team throughout Florida - for those of you that are familiar with the DAP organization, the DAP stores were laid out in such a manner that they actually had split counters, in the front of the stores they had cash registers and in the back of the stores they had the counter for the parts pros.

As a result of that, it took a considerable amount of additional training to teach the people that were used to just handling the cash part of the transaction more of the system's relative to parts than it did in the conversion of an Advance Auto Parts store where people all worked on the counter together.

So you combined the two initiatives together or the three, including some of the bridges that we had to get over and all that goes away as the system conversion gets implemented and we complete the warehouse management system and the Lakeland (ph) facility.

We're getting back on track with that and this is not something that is going to be months down the road.

This is probably going to be placed by days and weeks.

I can add to that as well, Gary.

I was a --one of the leaders in the Western Auto acquisition back in 1998 and when you do integrations there is some disruption and what we saw with Western Auto was disruption as we went through the merchandising system conversions, and we anticipated that when we did Discount and as you may recall we said that we expected to achieve low single digit comps in the Discount stores as we went through 2002 and, in fact, we did better than that.

I think again relating back to Western Auto what we saw was as we finished the system's conversions, converted those stores to Advance, those have been the base from which we have had very healthy comp store growth for the last several years both in the Northeast and Midwest.

The integration of those Western Auto stores gave us the base from which we have run the company in those regions and I think everything that we did in those markets has produced that result and we're seeing the same thing in Florida.

As we finish the integration and the conversion of those stores, I think we have a great future in the state of Florida as we start to grow the business and take the benefits of the merchandise that we have added to the markets, the benefits of the systems that we're putting in and the benefits of the Advance names.

So I think in a lot of ways there is some good solid similarities that tell us how successful we're going to be going forward.

Bear in mind, Gary, there are things that put us considerably ahead from a growth curve standpoint and even a Western Auto transaction.

First and foremost, bear in mind we are enjoying the highest retention rates of any acquisition or merger this company has ever done relative to the DAP team, and I think that is indicative of the fine leadership that's being provided down there, the motivation and development of our people, and as they get more familiar with this system, we're going to reap the benefits of that higher retention rate.

Great.

One other question, first of all, before going to that question, Larry, congratulations on your new title.

Thank you, Gary.

We're getting the question and we're trying to figure it out ourselves, your comps have slowed a little bit and you're pointing to weather - Auto Zone slowed as well and they're pointing to weather.

Could there be any other factors beyond weather?

Like you're coming off strong numbers, could. there be something --when you look at the factors, could there be other things in the sector that are causing some --either secular change or all of a sudden the slowing sales, how convinced are you that it is the weather?

Well, Gary, I think the best way to respond to you is numerically and fact based.

If you take a look at our hard parts in the catastrophic failure end of it, we're in target.

They're moving along relative to where we anticipated to be.

If you take a look at the waxes, the things that can be affected by the weather, that is where we're off the most.

We're off in accessories, and washes, waxes, and things like that.

So the same time you take into consideration the remarks I made about batteries and some of the other car issues, when the weather does get better, we're very confident we're going to get right back on track.

Bear in mind we shared this a number of times in our calls that a very high percentage of our customers don't have garages.

It's a difficult set of circumstances for the social economic group that we serve to actually work on their vehicle in the weather as it's existed this year relative to the last couple of years.

We are very confident that as soon as that changes and spring will come and it may come a little later than we all like but it will come.

We have the inventory, we have the spring merchandise in our stores.

Our distribution facilities are set to backup our stores so we have the right inventory in the right place.

Our people are motivated for it, our systems are falling right into place and we're very confident we'll get back on track relative to the numbers Jim shared with you.

Great, thank you very much.

Thank you, Gary.

Your next question is from Jack Balos (ph).

Hi, guys.

Jim, first of all you had a very strong improvement in your debt equity ratio during the year from about 77% debt down to 60% debt.

I was wondering what would you project it to be at the end of this year?

Jack, I can't give you a number off the top of my head.

What I will tell you is that as I said, the $150 million of cash flow that we're generating in 2003 will go towards debt repayment and we don't have any major investments or anything else that is going to change that in 2003l.

So what you're going to see is a continued significant improvement in that ratio and that is going to actually from a credit statistic standpoint be even more magnified with the successful completion of the refinancing.

Obviously, our interest expense is going to go down significantly and our debt coverages and interest coverages are going to be increased as well.

So it is part of the transition that we talked about in past calls from when we were a private company to one today where we're a publically traded, have a large majority of our stock publically traded and our capital structure is starting to reflect that.

Right.

When it comes to - just to clarify something, when it comes to the 194 stores left to go I guess in terms of your POS conversion, what about -- is that also the same number or is it a different number for installing the MPT system program?

No, the 194 stores are yet to be system converted.

The entire state still has to have NPT formally implemented into it and that will occur as and when the total system conversions are finished.

The state is all right working under what I call a modified version of the MTP on their existing systems but we'll complete that into the formal MTP program at the time system conversions are all finished.

So when the system's conversions are finished by the end of the third quarter, does that mean by the end of this year you'll have MPT in all the Florida stores?

That's correct by the end of the year, Jack.

Thank you.

Jack, bear in mind we do have a labor management system in place that is there now so it's not as if we're going from nothing to the MPT system.

Okay.

So in other words, you have got what, you say 300 odd stores in Florida that you have to put the MPT system in?

Yes.

That would be about right, 350 or so.

Now, I realize that you said you have, what, 1100 stores in APAL.

Going forward, how many of the Florida stores are going to be getting the APAL?

They're all getting the APAL.

That is the system we're implementing as we put in the systems.

So when we say 194 stores remaining, there is 194 stores yet to get the APAL system.

I see.

So actually Florida will have all the APAL before a lot of other states?

That's correct.

Thank you.

Your next question is from David Steno (ph).

Hi.

Good morning, David Steno with Gabelli (ph).

Two quick questions.

One, I was wondering if you could comment on talk or speculation about one of your competitors as far as moving toward a payable on sale or pay on scan system with regards to your vendors, is that something you would consider moving to or are you is one.

And two, of the four to 5% comp increase, is there any price modeled into that?

Thank you.

Well, first of all, bear in mind that we are clearly not going to be disadvantaged by any competitor relative to pay on scan or consignment selling.

I would share with you the fact that it's an issue that we will address, its work in progress.

It's something that has to take an awful lot of things into consideration from shrink to accounts reconciliation to supply chain.

It's an individual supplier issue and not something that anybody in our company would give you a quick yes or no about.

It's something we're presently evaluating.

Rest assured we will not be disadvantaged by any competitor or any supplier.

Relative to four or 5% comp that would -- we're confident we're going to get back to, that does not include anything on price.

We see a lot of price stability and rationalization the field, but we believe that our pricing structure will primarily stay within the boundaries of where we are at with some slight uptick in some of the categories that our category management are showing that we have some room in.

Just getting back to the pay on scan for just a second.

Is that just -- would you say there is momentum in the industry to move towards that model in the long-term?

We have a major competitor that appears to be making a major initiative towards it, that is something we have to evaluate and do what makes good common sense in the relationship between us and our suppliers.

Okay, thank you very much.

Thank you.

There are no further questions.

I would now like to turn the call over to management for closing remarks.

We're very excited about our future and we look forward to addressing any other concerns anybody may have on an ongoing basis and I appreciate everybody participating in the call today.

Thank you.

Thank you for participating in today's teleconference.

You may now disconnect.