領先汽車配件 (AAP) 2014 Q4 法說會逐字稿

Welcome to the Advance Auto Parts fourth-quarter 2014 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, Vice President 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.

I would like to remind you that our comments today contain forward-looking statements we intend to be covered by and we claim the 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; can typically use words such as believe, anticipate, expect, intend, will, plan, forecast, outlook, or estimate; 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 a comparable basis to exclude impacts of costs that were incurred in FY14 in connection with the integration of General Parts International and BWP distributors.

Please refer to our earnings press release and 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.

For planning purposes, our first-quarter 2015 earnings release is scheduled for May 21, 2015, before market open, and our quarterly conference call is scheduled for the morning of Thursday, May 21, 2015.

To be notified of the dates of future earnings reports, you can sign up through the investor relations section of our website.

Finally, a replay of this call will be available on our website for one year.

Now, let me turn the call over to Darren Jackson, our Chief Executive Officer.

Darren?

Thank you, Zaheed.

Good morning, everyone.

Thank you for joining us on our fourth-quarter conference call.

I'd like to start off by thanking all of our team members for their hard work and commitment to better serve our customers and grow our business.

Joining on the call today is our President, George Sherman, who will update you on our business operations, and Mike Norona, our Chief Financial Officer, who will update you on our financial performance.

I will begin my prepared remarks today updating you on our fourth-quarter performance followed by an outline of our organization objectives for 2015.

Our fourth-quarter objectives were the same as they've been all year.

We continued to focus on methodically improving our base business while successfully integrating general parts.

Overall, we were satisfied with our progress in the quarter, which capped off a very good year.

Our total sales, excluding the 53rd week, grew 48.1% in the quarter, compared to the third quarter of 2013, primarily as a result of the acquisition of General Parts, sales from new stores, and our comparable store sales increase of 1.1% in the quarter.

Our fourth-quarter comparable cash earnings per share of $1.37 increased 46% versus our fourth-quarter last year, driven again by the acquisition of General Parts, as well as our good base business performance.

Our overall sales trends for the quarter mirrored the prior three quarter trends.

The commercial business led the way during the quarter once again delivering strong comparable store sales gains.

This business showed consistent and steady strength throughout the quarter with notable increases in both traffic and ticket led by the strong sales increase in ride control and particular strength in our brakes category.

Geographically, there was consistent strength throughout our North American operations, including AAP, CARQUEST, and the WORLDPAC locations.

Conversely, our DIY business continued its uneven sales trends.

Our DIY business experienced significant positive to negative comparable store sales swing from November through the end of the year, consistent with the cold-weather patterns.

Geographically, the Northeast and the Midwest experienced the largest decline in comp sales.

Batteries and wipers saw the largest declines from a category view.

It is another reminder that weather has an immediate short-term impact, but evens out over the long term.

During the quarter, both our gross profit rate and our comparable SG&A rate declined.

Gross profit rate declined 495 basis points to 44.9%, and the SG&A improved on a comparable basis 510 basis points to 36.6%.

This was primarily due to the acquisition of General Parts and strong commercial comp sales growth.

Overall, both were in line with our expectations, and Mike will be discussing the financials in more detail shortly.

Turning to our integration, now having completed the first full year of integration activities, we are pleased with the overall achievement of our priorities we set at the beginning of the year.

We had a key focus on cultural assimilation of the businesses, customers and team member retention, which all contributed to our solid financial results.

I am most pleased with the assimilation of the cultures, which played a key role in our improved team member and customer retention in 2014.

The outcome is great service to our customers without any interruption.

Great service included maximizing our combined availability in our stores to close more transactions.

Our Advance and Carquest stores are cross-sourcing product at a steadily growing basis.

Similarly, over 3,700 Advance stores have access to WorldPac product as we begin 2015.

Improving our commercial value proposition included integrating our differentiated customer programs, including TechNet and CTI into Advance and introducing MOTOSHOP to Carquest.

These programs achieved record levels of performance in 2014, and we are very pleased with our start to 2015.

The Carquest independent business is an important strategic customer addition for Advance.

We were focused from the onset to ensure our independent customers understood our commitment and the benefits of being part of the Advance organization.

At year end, we are encouraged to see strong retention amongst our independents, and we'll look to continually improve and differentiate their business to help them be successful.

Operationally, we executed early consolidations with 100 Carquest and 11 Auto Part International locations.

The early returns are meeting our expectations.

Importantly, the teams are working exceptionally well together.

And we have learned some important lessons for the next wave of store conversions and consolidations.

Our market entry into Dallas in 2014 exceeded our expectations.

It was unique because it leveraged the Carquest systems and supply chain to open Advance Auto Parts stores.

We now have a total of 15 stores in Dallas through the new stores and market conversions.

We are happy with the performance of these locations, and we'll look to continue our expansion in Dallas and other Western markets using the Dallas approach.

Finally, in the fourth quarter, we began the intense work of harmonizing the product, brand, SKU, and price positioning of the businesses.

The lift replace and relabels our a Herculean effort that touches every part of our business.

This work will continue throughout 2015, and we are off to a good start.

Our methodical improvement in the base business, like our integration objectives, performed well.

Specifically, we were satisfied with the sales outcomes as the team delivered a 2% comparable store sales increase for the year led by the consistent strength of our commercial business all year.

The combination of effective execution from our field teams and the hard parts availability improvements from our merchant and supply chain teams supported the sales performance.

Notably, the first half of the year sales benefited from the favorable frigid weather conditions.

The business improved from our continued progress against our service objectives, including our training programs, business simplification, continued investments in our hubs, daily delivery growth, and supply chain initiatives.

George will talk in more depth shortly about these.

We are also very proud of our teams continuing to stay focused on expense management and taking those costs out furthest from the customer.

Financially, we outperformed expectations we set at the start of the year by delivering comparable cash EPS of $7.59, nearly 34% growth over last year.

Collectively, our base business had a good, but not a great year.

I say that because we felt short of our own internal financial ambitions that were meaningfully higher.

Most encouraging from my vantage point in 2014, it confirmed the growth and value creation potential of the Advance Auto Parts and General parts acquisition.

The cultural consistency, coupled with the complementary talent and capabilities, provides the most diversified growth platform in the aftermarket industry.

Correspondingly, the combination highlighted key challenges that are part of a large-scale acquisition, principally the IT complexity and balancing of the base business needs with the acquisition requirements.

2014 confirmed that once again the integrated Advance Auto Parts will be positioned as the largest commercial, online, import, and integrated aftermarket supplier with extraordinary organic growth potential as we look to the future.

Now turning to 2015, we remain relentlessly focused at the highest level on the same two objectives as last year, methodically improving the base business while delivering the next phase of the integration.

We enter into 2015 with reasonably optimistic outlook on the business based on the momentum we are building as a combined organization, the overall strategic positioning of our company, and the favorable industry fundamentals.

Now that is partially offset by last year's benefit from the cold weather.

That said, we are realistic about the extraordinary intense and complex integration work as well that lies ahead this year.

From a base business perspective, the macro environment should position the industry favorably in 2015.

The combination of steadily improving job market along with lower gasoline prices should help provide a positive impact over the course of the year.

As always, there are offsets, and the affordable care act could continue to challenge some of our customers in year ahead.

Industry fundamentals continue to be strong with miles driven showing steady improvement and should increase spending and select discretionary maintenance categories over time.

Our corporate office consolidations coupled with our recently completed sales and operation integration work will likely create some strain in the system as the teams adjust and reestablish to consistent rhythms in running their businesses.

Looking at our business specifically, we will continue to focus on the structural program improvements to further accelerate sales in our commercial business in 2015.

A combination of product, brand, and service initiative is being launched to enhance and further differentiate our already strong value proposition.

Our DIY business delivered inconsistent performance in 2014, albeit better than the prior two years.

I'd like to be clear that our DIY business has our full attention.

We will be focused on sustained improvement in our DIY business in 2015, principally through our Speed Perks launch and Omnichannel work.

We will focus on extending our leadership position in imports and making the necessary investments to continue to grow that business.

And George will talk a little more about our new-store growth as we look out into 2015.

We also continue to invest and further develop our e-service capabilities in 2015.

E-commerce is a capability that we have been investing in for some time and continue to believe is a key differentiator for our customers.

Now turning to our integration priorities in 2015, we are on the front end of unquestionably a more complex phase of the integration.

This was expected given we were undertaking one of the largest integration projects in our industry's history.

So we are realistic about the significant work ahead of us and have outlined our priorities to maximize our outcomes and minimize the risk to our customers.

The integration priorities this year will be focused in the following areas.

One, successfully executing the product, SKU, brand, price harmonization across Advance and Carquest businesses.

Two, we'll have to complete the corporate office consolidation and relocations, increasing efficiencies within these functions.

Three, we will integrate and assimilate the Advance Auto Parts and Carquest field and commercial sales team, which we launched at the beginning of the year.

Four, we will achieve the critical customer capabilities in the supply chain and IT integration work.

And then five, continue the integration activities in optimizing our assets through the market conversions and consolidation activities.

Our year-one integration efforts were successful and can be compared to changing our brakes.

Year two can be compared to rebuilding the transmission.

We will get it done, and it will be more complex, but I have all the confidence in the team to get it done.

In summary, 2015 must build on the 2014 methodical improvements in our business.

We are clear on our objectives for the year, as we continue to focus on our base business, while embarking on year two of our integration.

Our key outcomes for the year do not change in 2015.

Our focus on sales growth, service excellence, and profit growth underpin our path to being the best.

Advance has never been this well-positioned to grow its sales with our North American footprint and its great organic growth potential.

We have the value proposition, capability, set of talented team members to serve our customers better than anyone else in the industry.

And we are translating that into service excellence and profit in 2015.

Mike will give you more details shortly.

In closing, I'd like to express my thanks again and say how proud I am of our team for the outcomes they drove in 2014 and look forward to taking the next step in both our integration and, more importantly, towards our mission to be the best.

I'd now like to turn the call over to George Sherman, our President.

George?

Thanks, Darren.

First, I, too, would like to thank all of our team members for their contributions to customer service in the quarter and doing all the right things that show our customers that we put them first.

At the heart of executional excellence is customer service, and our team members drove our success this quarter through their commitment to the customer.

With my prepared remarks this morning, I'll provide a view on our fourth-quarter business performance together with perspectives on the year ahead.

Looking at sales, despite higher ambitions we had for the business, we are satisfied with our performance in the fourth quarter as the team delivered a comp sales outcome of 1.1%.

Our positive sales performance was once again led by solid performance in our commercial business and good execution by our field, merchant, and supply-chain teams as we navigated milder seasonal weather.

Our solid comp sales acceleration in our commercial business was led by our Northeast market, followed by our Mid-south and Great Lakes markets and benefiting overall from both transaction and ticket growth in the quarter.

Our B2B business continues to perform very well with double-digit growth once again in the fourth quarter versus the previous year.

We continue to be pleased with our national account growth and the partnerships we are both establishing and growing.

We have once again delivered good growth in the fourth quarter and solid double-digit growth with our national accounts for the full year.

As Darren referenced, we continue to make good progress with the integration of our commercial service programs between Advance and Carquest by adding Carquest Technical Institute and TechNet customers to the Advance [year] proposition.

And we're adding MOTOSHOP customers to the Carquest tool belt.

The total number of TechNet customers at the end of the fiscal year was over 6,000, a new record for the program.

Turning to our DIY business, as referenced earlier, our DIY performance was more uneven in this quarter.

We continued to see softer demand this quarter in seasonal and maintenance categories due to weather being unseasonably mild, partially offset by improvement in our average ticket.

That said, we still have higher expectations of our DIY business and are focused on continuous improvement and making the right investments to play to a different outcome.

One such investment is our Speed Perks loyalty program.

Speed Perks has been rolled out to nearly the entire country, and we're seeing very promising early results from the program.

Turning to integration, we're pleased with how our first full year of integration efforts have gone.

We're on track overall and achieved what we needed to this past year.

This integration is still in the early innings, and it's going to be a lot of hard work over the next couple of years.

But as I've said in the past, we expect to see visible proof points of progress along the way that positively impact our base business.

I'd like to now share some perspectives and additional color on integration in 2014 and some commentary on the priorities and expectations for 2015.

Our first 100 consolidations are performing at expectation.

We are not retaining 100% of the sales in these consolidations, nor did we expect to.

For example, we chose not to fill in every product in to our Advance store, but the Carquest store sales due to these being lower volume stores.

And we do see some variability between stores based on a number of factors.

But overall, these have met our expectations in terms of team and revenue retention and cost reduction.

Going forward, the vast majority of our conversions and consolidations will be converted by market.

We completed our first set of conversions in Dallas and Houston in late 2014.

And we will be completing our first consolidations in those markets in Q1.

The consolidations are going very well, and these markets are where we'll invest our resources and time.

We expect to do more consolidations, conversions, and relocations of stores across several markets in 2015 and will share them out once we are in execution.

We have completed the vast majority of our cross-sourcing connections, including WorldPac availability for Advance stores as of the end of 2014.

The Carquest Advance volume has a steady state and is becoming part of our standard market availability.

We expect WorldPac cross sourcing through Advance to continue to grow for 2015 as our team and customer understands that (inaudible) value proposition.

The benefits of this work are incorporated into our comp projection for the year.

Looking at systems, we are focused on connecting our systems to one as one organization.

We are in a race to replace the Carquest POS system with the Advances or vice versa, as both will live in our environment for several years.

This is heavy lifting without a doubt.

We are inheriting legacy systems that are over 25 years old.

And with that comes additional considerations and challenges.

That said though, we're pleased with what we're learning from both systems and perhaps, more importantly, the catalog associated with both systems and are prioritizing the integrations that bring the customer the most value first.

We are very pleased with our independent business and our independent customers.

This business represents an opportunity to penetrate portions of the automotive aftermarket that we've had a hard time doing with traditional Advance stores.

Clearly, the biggest change for the business in 2015 is working through the product conversions.

But we and our independent customers are confident that we're moving to a better product lineup that enables them to be even more successful in growing their businesses and their markets.

The final point I would like to touch on is how the integration has been progressing with our teams.

We continue to be very pleased with our cultural assimilation.

Our teams are coming together very well, and function by function, region by region we're finding that we can learn from each other.

And our teams gravitated to that, learning from each other, so we can be better for our customer.

The work of consolidating offices and relocations has overall gone positively.

The task of centralizing operations is not without challenges, and the experience has yielded more work than anticipated.

But the team has been working tremendously hard and has always been realistic of the journey towards building an organizational structure that can sustain year in and year out.

Moving on, I'd like to update you now on our supply chain initiatives.

We've been methodically progressing against our supply chain objectives.

The integration activities and our logistic optimization work continue to progress as expected.

The first step in our supply-chain optimization strategy is to align the product across all of our DCs and to connect the Carquest DCs and the AAP distribution centers systematically so that we can operate as one integrated supply chain.

That is the focus of our integration supply-chain work in 2015.

Our operational focus will continue to enhance our in-market availability and very deliberate capabilities and concentrating on the successful ramp up of our Hartford DC to keep moving the Advance network along the next level of benefits.

At the end of the fourth quarter, our Hartford DC was servicing 103 stores on daily delivery, and we estimate serving over 200 stores by the end of Q1 in 2015.

Second, we continue to drive improvement of in-market availability or hub-store strategy.

During the quarter, we added six hub stores to our combination of new stores and upgraded the existing stores.

At the end of the quarter, our hub-store count was 421, an overall increase of 47 from the fourth quarter last year.

Third, as we look at inventory, our inventory growth was up roughly 54% year over year in the fourth quarter, primarily due to the expected inventory growth as a result of the General Parts acquisition, increased inventory assortments, our increase in new stores and hub stores, and additional inventory to support the Hartford DC opening.

We continue to be focused on our goal of having superior availability, the deepest assortment, and investment in our strategy to get the parts closest to the customer.

Looking at our new store growth, during the quarter we opened 48 new Advance Auto Part international and Carquest stores and closed five stores including plain consolidations of 87 Carquest and BWP stores, brining the total company operated store count to 5,261.

We also added two WorldPac branches in the quarter, bringing our total branch count to 111.

In 2015 we expect to open approximately 100 to 120 new stores and branches, including 12 new WorldPac branches.

In closing, we are pleased with our 2014 outcomes as a whole.

Led by the strength of our commercial business, our base business has reversed the trends now having delivered five consecutive quarters of positive comp performance.

We're laser focused in looking towards our future, and rightly so.

But it's important to take a moment and reflect on our achievements in 2014.

Simply said, we got a lot done this year.

And it's a testament to the commitment shown by our entire Advance team.

From new loyalty and advertising programs for our DIY business and accelerating our e-commerce capabilities, to enhancing our availability through expansion of hubs and daily delivery at our Remington and Lakeland facilities, inclusive of opening our first hub store in Canada.

We're meaningfully moving the needle on our training initiatives in winning the AAIA head of the class award for commitment to team member education and training.

We also saw numerous integration achievements from entering our first new market in five years when we entered Dallas using combined Advance/Carquest assets from cross-sourcing initiatives, and our first 100 consolidations just to name a few.

As I close, I would like to say how proud I am of our Advance team members for staying focused on our priorities, delivering against our outcomes of growing our sales, giving our customers great service, and growing our profits.

Entering 2015, we'll continue to methodically continue to progress against our plan and carry the momentum we built in 2014 through to 2015.

We are optimistic about the year overall but remain balanced as we progressive through the heavier and more complex stages of the integration.

I'm confident Advance is a business that has the right people, the right market position, we make the right investments, and have a value proposition that is second to none as we continue to take steps toward being the best.

Now, I'd like to turn the call over to Mike Norona, our Chief Financial Officer.

Thanks, George, and good morning, everyone.

I'd like to start by thanking all of our talented and dedicated team members for their commitment to serving our customers in 2014 and helping our company deliver strong financial performance in our fourth-quarter and for the full year 2014.

I plan to cover the following topics with you this morning.

One, provide some financial highlights from our fourth quarter of 2014; two, put our fourth-quarter and full-year results into context with our expectations and key financial priorities that we use to measure performance; and three, share with you our financial outlook for 2015.

As a reminder, unless otherwise specified, Advance will present its financials and supporting commentary on a consolidated enterprise basis and will also discuss results on a comparable basis, which excludes the impact of one-time integration expenses related to the acquisition of both General Parts and BWP, along with any amounts related to the amortization of any intangible assets resulting from the acquisition of General Parts.

FY14 also includes an additional 53rd week of business.

The financial results have been reported on a comparable basis to exclude the 53rd week.

Please refer to the reconciliation of the financial results reported on a GAAP basis to comparable results in the accompanying financial statements in our press release.

Also, as mentioned on our previous earnings call this year, we had a conformity reclassification of supply-chain costs from SG&A to gross profit and would like to reiterate this reclass continues to apply to these fourth-quarter results.

For the fourth quarter, this reclassification was approximately 101 basis points, and for full FY14 this reclassification impact has been 89 basis points.

To summarize, for FY14, we previously communicated our full-year comparable cash EPS guidance of $7.50 to $7.60, and we are pleased to have delivered against the high side of those expectations with a comparable cash EPS of $7.59, a 34% increase from 2013.

This was driven by a 2% comp for the full year, strong commercial growth, $0.52 in total cost synergies achieved in the year, and continued focus and discipline on expense management.

We are encouraged by our continuous improvement as an organization as we finished our first year as a combined company and are well positioned to leverage our size and scale to grow our sales and operating profits for 2015.

On a GAAP basis, our 2014 EPS was $6.71, which included $0.61 of one-time integration costs for the year associated with the acquisition of General Parts, including $0.30 in Q4, $0.36 of intangible assets amortization for the year, including $0.08 in Q4, and $0.08 in one-time costs associated with the integration of BWP, including $0.01 in Q4.

2014 GAAP EPS also includes $0.17 related to the 53rd week results.

Turning to sales.

Our fourth-quarter net sales increased 48.1% to $2.09 billion compared to our fourth quarter of 2013.

This sales growth was principally driven by acquisition of General Parts, the addition of new stores, and our comparable same-store sales increase of 1.1%.

For comparison purposes only, net sales for General Parts in our fourth quarter, after adjusting for selling base and holidays this year versus last year, was essentially flat overall at $650.6 million based on 82 days this year versus 90 days last year.

For the same period, our company-operated General Parts locations grew at a rate of 1.6%.

Our positive same-store sales were driven by our strong performance in our commercial business and execution from our field and supply-chain teams, partially offset by the unevenness we experienced in our DIY business driven by lower seasonal category sales.

Total sales for FY14 increased 49.3% to $9.69 billion.

Turning to gross profit.

Our gross-profit dollars in fourth quarter increased 33.4% to $936.2 million from $701.8 million in our fourth quarter of 2013.

Our gross-profit rate of 44.9% was down 495 basis points compared to fourth quarter of 2013.

This year-over-year rate decline was primarily due to the acquisition of General Parts resulting in a higher mix of commercial sales that has a lower gross-profit rate.

Including in our gross-profit results this quarter is the approximate 101 basis point conformity impact that I mentioned earlier, which was partially offset by 87 basis points of synergy savings in the quarter.

For FY14, our gross-profit rate decreased 484 basis points to 45.2% versus 50.1% during FY13 as a result of the General Parts acquisition.

Turning to SG&A, our comparable SG&A rate was 36.6% in the quarter, which was down 510 basis points compared to fourth quarter of 2013.

This year-over-year rate decline is the result of the acquired General parts business having lower SG&A comps combined with lower incentive compensation expenses.

Comparable SG&A reflects the approximate 101 basis points of supply-chain conformity impact mentioned earlier.

For FY14, our comparable SG&A rate decreased 402 basis points to 35.4% versus 39.4% during FY13, again, principally due to the General Parts acquisition.

All in, our fourth-quarter operating income dollars on a comparable basis increased 50.8% to $171.7 million, and our operating income rate increased 15 basis points over the same period last year to 8.2%.

For FY14, the Company's comparable operating income rate was 9.9% versus 10.7% during FY13.

While we over delivered our one-time synergies in year one, our actual 2014 one-time GPI integration costs came in slightly higher than our estimate at $73.2 million.

This was partly due to our decision to accelerate some of the work and also having less than perfect information at the beginning of the fiscal year as we made our estimates.

Operating cash flow increased approximately 30% to $709 million in FY14 versus $545.3 million in the prior year.

Free cash flow increased 37.5% in FY14 to $480.5 million versus $349.5 million in the prior year.

Our AP ratio for the quarter was 78.6% versus 85.3% last year.

This decline was expected due to the acquisition of General Parts.

And as previously shared, we see continued opportunities to improve our AP ratio as a combined company.

At the end of fourth quarter, we had roughly $1.64 billion of debt on our balance sheet, and our adjusted debt to EBITDAR was 2.7 times and was in line with our expectations.

During the quarter, we paid down approximately $99 million of debt and are progressing as planned to quickly pay down debt with our free cash flow to get back below 2.5 times leverage ratio and maintain our investment-grade ratings.

We continue to measure our performance of our business and prioritize our investments to achieve growth, profit, and value creation.

Our growth engine continues to be our commercial business, which again delivered solid growth in the fourth quarter, helping us deliver our fifth consecutive quarter of positive comps.

We continue investing in new-store growth, new market development, and from our investments in inventory availability.

We also see growth from our service initiatives by relentlessly focusing on people investments through online team member training and customer retention programs, such as our Speed Perks loyalty program.

Turning to profit, we are pleased with our 50.8% comparable operating income dollar growth versus the previous year.

We're also pleased with our operating comparable income rate for the full year reaching approximately 10% as a combined company and see opportunities to achieve 12% through consistent sales growth, gross profit improvement, and leveraging our size and scale to provide cost efficiency.

We are also pleased to have exceeded our year-one cost synergies by delivering just over $61 million in FY14 and remain on pace toward achieving the total expected cost synergies of $160 million over the three years post-acquisition.

[Which affect] value creation, the acquisition of General Parts continues to provide us with a compelling opportunity to drive shareholder returns through incremental earnings and strong cash flows.

We saw this in our fourth quarter with a 45.7% increase in our comparable cash EPS.

We remain focused on improving our free cash flow for our disciplined capital deployment, consistent operating results, and working capital management, primarily in the ares of inventory management and AP ratio.

We are pleased with the free cash flow generated from these areas in 2014, which has enabled us to deliver on our commitment to pay down debt and to remain on pace to get back to our previously stated [leverage] of 2.5 times by the end of 2015.

Once achieved, we will have flexibility in our capital structure to continue to maximize shareholder value.

Before I share my commentary regarding our 2015 outlook, I would like to recognize that 2014 had some unique considerations due to the acquisition of GPI and the 53rd week that may make modeling challenging.

To assist with this, we would like to remind everyone that FY14 contain an extra week, the 53rd week, which will not occur in 2015.

This extra week is not included in our 2014 52-week comparable results, nor should this week be included in 2015 to maintain comparability.

Full details of the impact of this 53rd week can be found in our press release.

But the summary, the extra week included $150.4 million in sales, $21.1 million in operating income, and $0.17 in [EPS].

For clarity purposes, we have also included in our press release our expected tax rate range and share count that we expect and have based our outlook on.

Turning now to our 2015 annual outlook, we will again report results on a comparable cash [ETS] basis.

We are optimistic as we head into 2015 given the momentum we continue to build with our commercial business and an environment of improving consumer confidence supported by lower fuel prices and steady industry fundamentals.

Our optimism is somewhat tempered with the reality that the work in the second year of the integration will be more complex and challenging.

All in, we anticipate our comp-store sales to be in the range of low-single digits, including the impact of consolidations.

As a reminder, the GPI company-owned locations will be included in our comp-store sales calculation beginning in the second fiscal period of 2015.

This excludes sales to our independent customers.

Turning to new stores, as George referenced earlier, we plan to collectively open 100 to 120 new stores and WorldPac branches.

We will also continue the work of consolidating, converting, and relocating Carquest locations throughout 2015.

Turning to gross profit, excluding the impact of achieved synergy, we expect to see a modest improvement in the 2015 gross-profit rate, driven by improved merchandise margins, due to lower acquisition costs, increased global sourcing, and improved supply-chain efficiencies, partially offset by a higher mix of commercial sales, which has a lower gross-profit rate.

The annualization of the Hartford DC and pricing harmonization activities as we bring the banners together.

Looking our SG&A, excluding the impact of cheap synergies, we expect a modest improvement in our SG&A as we leverage our size and scale to continue to lower our support cost structure, improve our labor productivity, offset by the annualization of new stores in 2014.

Moving to synergies, consistent with our previous communications, we continue to estimate total net run-rate cost synergies to be $160 million by approximately the end of the third year post-close of the acquisition.

Specifically, in FY15, we expect to achieve approximately $45 million to $55 million in net synergies.

Also, as part of our previous communications, at the beginning of 2014 we estimated total one-time expenses to achieve synergies to be approximately $190 million over a five-year period, with the majority of the costs being incurred within the first three years.

We expect to incur approximately $75 million to $85 million in one-time costs related to the integration of GPI in 2015.

Turning to capital expenditures, we expect our capital expenditures, including base business and integration, to be approximately $325 million to $340 million, driven by new-store development, supply-chain investments, and IT systems.

We expect free cash flow to be a minimum of $475 million.

Our tax rate estimate for 2015 is between 37.5% and 38%.

As a reminder, our tax rate in 2014 included specific favorable items in FY14 that we do not expect to reoccur in 2015.

All in, we expect our 2015 annual comparable cash EPS outlook to be in the range of $8.35 to $8.55 per share.

This EPS outlook does not factor in any share repurchases.

In closing, we are pleased with our overall performance in 2014 and are proud of the teams for delivering on our base business outcomes and achieving our first-year integration milestones.

We head into 2015 with positive momentum and optimism balanced by the fact that we have a year of heavy lifting ahead of us as we go deeper into the operational stage of the integration work.

I would like to finish by thanking and recognizing our team members once again for their tremendous and tireless efforts in 2014 and for what they do every day to serve our customers, inspire our team members, and grow our company.

Operator, we are now ready for questions.

Thank you.

(Operator instructions)

Dan Wewer, Raymond James.

Thanks.

Mike, there appeared to be some confusion earlier this morning if the results were including or excluding the extra week.

So just to confirm, the $1.37 that was on your release excluded the benefit, the [17.7] benefit from the 13th week in the quarter?

Yes, Dan.

The number we released on the top of our headline, we did it on a 52-week cash EPS basis because that's consistent with how we gave the outlook for the year.

So if you remember, we gave the outlook for the year at $7.50 to $7.60.

That was on a 52-week basis, and we came in at the high end of that range at $7.59.

And yes, you're correct, we actually delivered [137] for the quarter on a comparable EPS basis in the quarter.

And then if you add the $0.17 with that, the number is [154] including the 53rd week.

Okay.

Darren, you made a comment that the base business was good, not great.

How should we reconcile that with the company's goals of improving 250 basis points of operating margin rate for the base business that you had outlined at the investor meeting back in Indiana a few years ago?

Yes, Dan.

Here's what I would say in terms of that comment.

When I look at our sales this year in terms of our comparable store sales performance, we absolutely were spot on where we said we would be.

I think where we were a little light this year was in our gross-margin rate, honestly.

And part of that is just going through the balancing act, as I said in my comments, of the base business driving that, making the price changes as we go through the integration efforts of the business.

And we came up a little short on our gross-margin rate.

We exceeded expectation in terms of our SG&A management.

So by the time you get to the bottom line, it was a good year.

And I would say it's typical for us to have higher expectations every year.

You would expect us internally to have higher expectations than some of the external ones.

That's just how we've gone to business every year.

And so what was reflected internally is that we didn't achieve our high internal expectations, but that does not take us off pace to achieve our longer-term objective of 12%.

George, would you add anything to that?

All I'd add Darren, is since that comment, the base line has been reset with the acquisition of GPI.

Okay.

Then just the last question I have, regards to this year's work on the vendor and product consolidation.

If you're able to achieve that without any disruptions, can you give us some type of a payback that we might see in the way of inventory per store?

Does that decline or increase in 2015?

And then also, in terms of margin benefit, how would that make up that $40 million to $55 million of synergies that you're looking for this year?

Yes, I would frame it this way, and then I have the team jump in.

I'd say, 2015, Dan, you should have taken away from our comments -- we were purposeful -- intense, complex, herculean.

And those could be a little bit -- they're not exaggerated in terms the work effort.

In 2015 we'll actually have somewhat of a bubble as we put in new vendors as we're taking out old vendors.

But that does not take away from the longer-term benefit over the next couple years, as we get into 2016, in terms of those inventory levels coming down.

But we're going to have this challenge this year as we put in new vendors, Monroe, take out the old vendor, as we work down some of that inventory.

And of course, some of it's going back to our vendor partners, but there will be timing challenges this year in terms of that transition.

But over the long-term, we see one of the bigger value creators in terms of cash flow is rationalizing down the overall amount of inventory per store.

And that will be principally driven, again, also by our daily replenishment efforts longer-term.

And it will be driven also by when we get the teams all consolidated in Raleigh in terms of our merchant teams, the more effective and efficient running of that business as well.

Charles, what would you add to that?

I think, Dan, in regards to a very formalized program on how we're tracking through the inventory as we move through the year.

From what we see today, we are on track around our expectations of what with the level that Darren has talked about and the speed at which we're going to move through that.

In certain markets we'll see improvement as we expand our [5X] capability across multiple DCs building on the 5X capability that we built this year.

So I think we have the right plan, and we have the right visibility to make sure that we're managing our way through.

To improve inventory productivity into 2016 and 2017, being driven by both consolidation and the positive impact that we're going to see from the expansion of our daily delivery through the Advance network.

Okay, great.

Thank you.

Scot Ciccarelli, RBC Capital Markets.

Good morning, guys.

So you talked about both gross margin and SG&A improvements that are expected for 2015.

But if you look at your 2014 adjusted earnings and call it $50 million or so in cost synergies, you get to roughly $8 in earnings for 2015.

So the implication is basically there's very little margin expansion for the balance of business.

So I guess the question guys is, is there something else acting as a drag on the profit margin guide for 2015?

Or is this simply a function of gross margins not coming in where you would've expected them and expecting that trend continuing?

Scot, let me start and then I'm going to turn it over to George.

First of all, we're pleased with our outlook because we're delivering synergies.

And as we said, over a three-year period we're going to deliver $160 million, and our outlook next year is $45 million to $55 million, so we're right on pace for that.

And as you say, that is going to drive operating income growth and EPS growth.

The base business is also growing, so let me just help you a little bit with math.

If you look at the outlook range that we gave [735] to [755].

And if you back out the midpoint of the range, I'd say $50 million in synergies, if you back that out.

Both -- and you look at the range -- sorry, [835] to 855] -- and you back out the $50 million in synergies, we see the base business growing at roughly 5% to 7%, if you use that same range.

Now, where are we seeing that?

Well, continued margin improvements through our merchandising, our global sourcing, SG&A improvements through our label productivity, and taking out costs in our support centers and building a more cost-effective model.

The other thing that's embedded in our numbers is we're accelerating the growth of WorldPac.

That costs us SG&A dollars.

We think that's good for the long-term growth of the business.

We're accelerating our supply-chain initiatives like daily replenishment.

So when you put those things in, those are all embedded in those numbers.

So we're really pleased with the growth that we're driving, and we're positioning the business for growth.

George, I don't know if you would add anything to that.

Yes, I think those are the key points, Mike.

I think the base business will grow next year independent of the synergies, a sizable investment in supply chain, a sizable investment in WorldPac branches.

You might think of that in terms of $0.20.

So there is a good investment into those two areas, the daily delivery and then adding 12 more WorldPac branches.

Yes, I actually think that's where the confusion is, Scot, is that we don't make it a habit to break out in it an EPS type of way where we're investing next year.

In the Advance DC network, we will double, nearly double the amount of stores being serviced by daily replenishment.

It's going to cost us up to $0.15.

And in WorldPac we're going to double -- I think they're up 50%.

We'll go from eight locations to 12 in terms of new stores.

It's going to cost us about $0.05.

And so that's embedded in the base business.

We think those are absolutely the right things to do in terms of growing our availability and accelerating our import business.

And that's part of what the confusion may be, but it's absolutely the right investment in terms of what we need to do for the base business.

And it will help our integration efforts too because as we grow WorldPac, it allows us to support more Advance and Carquest locations.

As we're doing daily replenishment, it also helps those markets that we are targeting conversion for.

So $0.05 on WorldPac growing it far more aggressively, [15] on supply chain.

The 5X deliveries, well the inventory benefits can really come from what Darren talked about earlier.

So we need to do that.

We need to accelerate that.

Got you.

That's all very helpful, guys.

And then, can you give us a better idea just in terms of how many stores at this point have the daily inventory replenishment, or where we're going during the course of 2015?

And then what kind of benefit could that end up generating?

I'm assuming those stores are more productive than those that are getting inventory once or twice a week?

Yes, generally all of the Carquest stores have daily replenishment already.

650 Advance Auto Parts stores run daily replenishment, and you can think in terms of our doubling the Advance count during the course of the year.

Got you.

All right, thanks a lot, guys.

Greg Melich, Evercore ISI.

Hi, thanks.

My first question was to dig a little deeper on the synergies, the $45 million to $55 million.

Why is this year net number less than last year's?

And how would you expect that to play out through the year, either quarter or by half?

Let me start out and say that it's going to be increasingly difficult to make a distinction between run the business benefits and synergy benefits related to the acquisition.

We are now knee-deep in the integration work.

So we've done, I think, a very good job for the first 12 months on trying to very separately manage run-the-business work streams and integration work streams.

It's fair to say that integration is in the field now.

So it is now something that -- the [run rate] throughout, obviously, with our stores and our customers, that's where the integration is now.

So it will get tougher to pin down what is an integration synergy versus what is a good run-the-business discipline.

Yes, and, Greg, I would add that we had a three-year plan.

And we shared that they would probably be fairly equal across those three years.

And we talked about the buckets.

And we thought more of the purchasing ones would come at the beginning.

And the fact of the matter is we over delivered a little bit more in year one in terms of purchasing and some of our internal sourcing.

And we didn't change our second-year numbers.

So we actually think it's a positive that we over delivered that first year and didn't change what we were kind of forecasting.

And again, these are estimates that we're doing.

And obviously, we always try to beat the estimates.

But we're pleased with the progress we're making.

And we're on track to deliver that $160 million in net synergies.

And maybe a different question, but somehow linked.

I can't remember in whose prepared comments it was.

You discussed how the comps are harder in the first half than the second half.

If we look at last year, once we take out everything, what do we think the real organic sales growth number of the business was?

You know if you had the two comp and you had some footage growth and then you had whatever the core business was doing.

Let's say it was organic whatever number, 4% or 5%.

How would you look at this year when you did your guidance?

Do you think this year, ultimately, organically would be the same, a little better, a little worse given the comparisons?

There's maybe three questions in there, Greg.

Greg, let me see if I could.

I tried my best, Darren.

Maybe I can try to parse through question number one.

In part one we said it'd be a little tougher.

All we're recognizing is that on the front end of this year, we had a weather benefit last year.

We saw nearly a 500 basis point swing from November to December in our DIY business, and it was cold weather.

We just sold fewer batteries.

Some of that will linger in to the front end of this year.

We feel good about our sales trend right now, so I don't want you to over react to that.

So that was, what will we face.

We're facing a little bit of a weather benefit.

It evens out.

Two, organically, maybe a way to think about it is that the 2% comp we reported this year was just an Advance typical comp.

Organically, if we had the Carquest numbers in last year, it would have gone up a little bit because the commercial business was stronger.

We're early into this year, and you could say, gee, the comp guidance feels light.

And that would be a reasonable comment.

What were recognizing is that we should expect the comp, just by virtue of adding in the Carquest commercial this year, gets better for sure.

You have to offset that against probably two things that we're seeing is that when you go to do the lift and replace and you do the re-box, relabel systems work, there tends to just be the reality of the team stop focusing for a period of time on the sales process.

They've got to get the work done.

And the other thing that we've gone through is that we reorganized our field organization.

And the teams are working through that process.

There just tends to be the reality of a little bit of disruption.

And the teams have to get back in rhythm with their business.

So we were trying to manage both the expectations in terms of working through the integration efforts, rebalancing that back with what the base business opportunity is this year.

And organically, by virtue of adding Carquest into the mix and the WorldPac locations into the mix, it's better, offset by the complexity of the work we're seeing.

Anything else you'd add, George?

Yes, Darren, I would add that we're off to a very good start.

So if you look at the integration of our field organization, first of all, culturally the teams have gotten along very well.

The two organizations have overlayed quite well, and I think the teams demonstrated the capacity to stay focused on sales while working through all of the heavy lifting of the integration.

All right, thanks.

Seth Basham, Wedbush Securities.

Good morning.

First, a clarification on some of your cost synergies guidance.

In your release today, you talked about net run-rate cost synergies related to the acquisition to be $160 million.

Previously, you had been talking about total run rate.

Can you just clarify the difference?

So Seth, let me give you a couple of examples.

In some cases gross, net are exactly the same.

So when we go in and negotiate a contract, for instance, a fleet services or one of our contracts, and we get a savings on that because of our new size and scale, those numbers are exactly the same.

So if we get $1 million in savings, then net and gross are the same.

Purchasing ones are a little bit more complex.

So our merchandising team now will go and negotiate a better rate, but when that flows through to the end consumer, obviously, sometimes we give our commercial customers or our best customer get better pricing if there's competitive pressures in the market.

So we look to estimate the net amount of that benefit that we negotiated.

So what we try to do is give you both sides of the entry.

But that's how we think about gross and net.

Yes, Mike, let me add.

Part of, Seth, part of that too is when we say there's price harmonization, in order to get all the product on the same product platform, same SKU, same brand, Coming into the acquisition we knew that in parts of the Carquest acquisition, the price was high.

You can see that for your own customer survey data.

So we're going through a process too where we're harmonizing the prices.

So when we have to take a price down, you don't get the immediate benefit the next day.

So what happens is you end up pushing out in that three-year window the velocity of the unit sales.

And in the immediate term, to Mike's point, we have more price harmonization this year than last year.

We'll see some of that headwind this year.

The benefit tends to show up in year three and year four of late -- and even some of later this year, as you get more unit sales on product.

Does that make sense?

Yes, that's really helpful.

Thanks.

Just in terms of some of the buckets of where your cost synergies are coming from, product synergies being a big one, can you maybe elaborate on where you think you are relative to your initial plan on some of the buckets?

Are you ahead or behind, and how do you look at it going forward?

Yes, Seth, this is Charles.

So merchant [fumes] have worked through most of the vendor negotiations around the new programs.

And now we're moving into the phase of actually changing overall [liquid] products (inaudible) with that unified program both from a private label and a national-brand perspective.

And we're on track.

We had a forecast, and we're delivering against that forecast.

As George talked about though, as we move into year three and year four, what becomes synergy in run the business that teams continue to do their vendor negotiations.

We continue to drive our private label development.

We've got good capability there.

And we're going to be investing in the Carquest brand.

And we'll continue to see those benefits come through as we grow our scale.

And so I'm very comfortable what the teams are delivering against the overall expectations that we expect.

Yes, and, Seth, I'll remind you.

We kind of talked about the synergies falling in three buckets, purchasing, scale and leverage, and supply chain.

And Charles just talked about some of the merchandising ones.

And then I would also add in merchandising as the internal sourcing, that shows up in our margin.

And in some of the SG&A buckets, obviously we're redoing a lot of our contracts.

We've got some supply optimization work in there.

So there's a number of things within our SG&A opportunities now -- it's potentially in the G&A lines, as we now put these businesses together.

As we look at doing our office consolidation, that has some benefits, a lot of our discretionary expenses.

So those are some of the bigger buckets.

All right.

So they all appear to be on track with the initial expectations.

There's not a lot of variability between where they're running relative to your expectations?

Yes, I think we're very pleased.

They're all on track.

And in particular, we've over delivered on our purchasing synergies.

Okay, and my last question, a follow-up on a related topic, just the product changeovers.

Can you give us an update on how far you are through the rollout of those?

And when you expect that process to be complete?

Yes, we think that the -- there's what we're calling a lift and replace.

So the key brands that we're adding into the portfolio.

We're about 20% of the way through.

We'll complete that by the early part of 2016.

The other part of the work is where we relabel so we have to get to a common pod type.

And we'll be completed with that work by the end of Q2.

So we're on track in terms of the timelines that we've set for ourselves, in terms of the conversions both by DC and then the conversions that we're doing with dropping new front-room product into the Carquest stores.

So that we can get the sales benefit in DIY.

And that's a good opportunity for us.

And we started those [new-room] conversions in the fourth quarter.

And we'll run that all the way through the end of 2015 and be complete with that process by the end of 2015.

Got it.

Thank you and good luck.

Michael Lasser, UBS.

Good morning.

Thanks a lot for taking my question.

I know your synergies are becoming blended with the base business.

But is there relationship between the complexity of the phase of the integration and the potential amount of savings that can be realized from that phase?

Basically, what my question is getting at is, it sounds like you've baked into your outlook for this year that you are getting into more of the heavy lifting of the integration so maybe you've baked in some more conservatism?

So couldn't there be some upside if it goes pretty well?

Yes.

Michael, here's the way I would explain it.

That the easiest synergies that we can get are the ones that we can execute through the central office.

Negotiating with the vendors, even some of the office consolidation work, those are pretty straightforward.

Negotiating a truck lease contract is a straightforward synergy.

You are right that the harder ones are the ones that are going to be in our field.

So for example, when we do consolidations and conversions and the like, part of it is the customer is going to decide.

And we have many more team members that are going to decide what the benefit is going to be in terms of retention rates of sales, overall the velocity of sales after we convert and consolidate a store.

And I'll use the example of pricing too and price harmonization.

Mike highlighted it.

So when we harmonize the prices across the entire Carquest/Advance portfolio, we are going to have a little bit of a window in there in terms of we've taken the price change and the unit sales.

The customer has to believe that's the new price.

And we have to sell against this new price.

And the units follow it.

So there tends to be a little more volatility as we're working through that change.

Same with product, so as we replace some of the vendors that were core Carquest vendors over time, and they're being replaced by another vendor, it's going to take time for the customers to say, I'm willing to take it.

Now we've seen in some markets -- we started in Canada with a key vendor of ours -- the uptake was immediate.

We've had other places where the uptake has been okay.

And so the synergies number that's out there in terms the volatility, yes we're going to have more volatility this year than last year.

But overall, what you should take away is that we're on pace.

We have every confidence that that $160 million number net of some of this volatility is still fine.

That's very helpful, and I guess this is kind of a follow-up to that.

As of now, you have the largest scale in the industry.

And when all is said and done with the integration, you're going to have amongst the most competitive capabilities.

So how long do you think it's going to take to close the comp performance gap with some of the peers in the industry?

Michael, I think if you look at last year to this year, there's 350 basis points of growth.

So we went from a streak of some negative quarters to five-in-a-row positive quarters.

It's progress.

It gives us a foundation to build upon for this year.

We'd expect to see continued acceleration, certainly off of what we did in 2014 going into 2015.

And that's reflected in the outlook.

So I think competitively -- and again, I think Mike mentioned it in his comments, beginning in period two, our comps are reflective of our entire organization, which is a largely commercial organization now.

That's been our best business.

That's been our best trend.

So on balance if you look at 2014 to 2015, we restored comp sales growth.

But we accelerated within the commercial space in particular.

So I'd say that we're very optimistic in terms of our capability to drive comps going forward, especially as a commercial business.

And George, what I would add is we don't see any gap in the industry in our commercial comps.

We'd say our commercial comps earned every bit as good.

And in some areas better than the industry.

The challenge, just to be blunt, has been our DIY business.

And as I said in my comments, having that unevenness is unacceptable.

We have made investments this year in terms of our Speed Perks programs and what we're doing at the store level to keep growing that business.

We've gotten better the last two years.

We've got to turn the corner on more consistency in our DIY business.

And that will close the gap besides the mix benefits that George has highlighted.

And we're doing it while managing an integration.

And we're doing it on two separate sets of systems.

And that's a reality that we're going to live with for several years as we work with the integration.

So not only do I believe that we're able to close that gap and that were delivering that from a commercial standpoint right.

Bow but I think we're doing it with a level of resiliency among our team that's going to strengthen us going forward.

Okay, that's extremely helpful.

And if I can just add one last one on the cash flow outlook.

Mike, maybe could provide a little more detail on what's pushing up the CapEx this year?

And where do you expect the AP inventory ratio to end the year at?

Thank you so much; I appreciate it.

Yes, I'll do the second one first.

So our AP ratio, if you remember when we combined our businesses together, we were a little over [80].

GPI was in the [50s].

When you combined them together, it was probably closer to [70] when we started this journey.

We finished at the end of this year at 78.6%.

We're very pleased with the progress, and we expect that to continue to climb next year.

We didn't give an exact number, but we expect that to continue to climb.

And it's going to climb on two fronts.

One is, our merchant teams are doing a great job on continuing to improve our terms.

And we're going to do a better job on managing our inventory, so both of those things impact our AP ratio.

In terms of the free cash flow expenditures, the three biggest buckets are ones you've heard us say before.

We're going to continue to open more stores.

And that's 100 to 120 new branches next year inclusive of WorldPac.

We also have supply-chain initiatives as we accelerate.

We're very pleased.

We're over 53% -- or 53% of our stores on daily replenishment.

We're going to continue to accelerate that, and that's where we'll be by the end of the year.

And then our IT systems.

There's considerable work in terms of systems work on integrating our -- whether it's POS systems, back-end systems.

But those are the three largest buckets.

And there was a little bit of timing this year on some of the capital.

We came in a little bit light in the capital in 2014.

Part of that was just timing as some of it moves in to 2015.

And you can think of the IT work as supporting the first two.

The consolidations, conversions, relocations, new-store openings, as well as the supply chain work in particular.

So as we talk about building connectivity between Carquest and Advance Auto Parts DCs, a fair portion of that is IT-related work.

So it goes right back to supporting supply-chain strategy.

All right.

Thank you so much.

Good luck with the year.

Thank you.

Aram Rubinson, Wolfe Research.

Hey, guys.

Thanks so much for taking the question.

So it sounds like we diagnosed the issue as DIY.

And I'm just hoping we can dive into a little bit more in terms of the treatment of it.

I know, George, you mentioned there's some proof points of progress.

Maybe somebody else said something about labor scheduling.

Just wondering if we can kind of dig into that DIY and see if and when it can turn this year?

I know the listing is a little heavy going in.

But what are we doing to get that business right?

I understand you're saying it's a source of disappointment, but what's the fix?

Yes, thanks.

I've got a couple of things that I think will have a effect on our DIY business.

Our start off with our Speed Perks loyalty program.

It's something that we fill our field team needed.

It was a gap that we had.

And we now feel like we have the best in the industry.

So it is now rolled out to the majority of our stores.

We're seeing some very nice growth, and it is clearly going to help us in terms of a bounce-back effect of customers coming back to our stores, as well as our ability to one-to-one market with our customers.

Training was clearly a focus for us as well.

That began last year; continues into this year.

We have to convert at the counter, and we have to convert with our car guy, our primary heavy-duty DIY customer.

And then we have some natural benefits coming out of the CCR work.

If you think about the consolidations, conversions, relocations, there is a DIY opportunity within some of these Carquest stores and businesses that we're pulling forward.

Okay, thanks.

Darren, yes?

The other thing is I think we have been off television now, Charles, for a couple years.

You probably saw us right before the Super Bowl.

And then, two, we have significantly upped even our television spend in the (technical difficulties).

And we have been light in both of those channels at reaching customers the last couple of years.

And then, the follow-up is just wondering about earnings cadence.

Is there anything abnormal that would make any one or two quarters grow faster or slower than the house?

And then I think you referenced four times how pleased you are to the start of 2015.

Is that because of fuel?

Is that because of something else?

And how pleased is please?

I don't want to get into fuel.

I think if you think about our industry, the fuel benefit is not because of an increase in discretionary income.

It's because of a increase in miles driven on the road.

So I think we're a little early in the game in terms of seeing that mileage effect on vehicles.

And we're also pleased with our commercial growth and the capabilities.

And so I think there's some optimism.

The consumer sentiment, obviously, is positive with the fuel prices.

And in terms of the case of the year, no, there's not a lot.

Darren hit that earlier.

I think we're going to build throughout the year.

There's a little bit of things going with some of the fieldwork that we've done.

George said it.

We're off to a good start with that team.

We're really proud of the work that team has done.

And we couldn't be more pleased with how the teams are coming together from a cultural standpoint.

But we expect it to build throughout the year.

It's going to be driven by commercial, and as George said earlier, we look to improve the choppiness in our DIY business.

All right.

Good luck guys.

Thanks very much.

Matthew Fassler, Goldman Sachs.

Thanks so much, and I appreciate you taking my question.

Two this morning.

The first, if you try to ex out, obviously, the noise with the extra week and such, it looks like the pace of expense growth moderated in the fourth quarter from the prior quarters.

I don't think synergies were a big part of that.

And I suspect that some of the store consolidations you have were a part of it.

But since we don't have clean footage numbers, anything you could talk to us about in terms of drivers of the more moderate expense growth relative to sales?

Yes, thanks, Matt.

I think we built some nice muscles in 2012 and 2013 in terms of our comp.

And we've got to do a lot more work on our costs.

But we were really proud of the teams.

I think the discretionary, as Darren said, the business slowed a little bit.

We didn't get -- especially after Thanksgiving.

And the teams did a nice job at pulling back on a lot of the discretionary expenses.

We had less travel.

We had less -- you know just a lot of the discretionary buckets.

The other thing that also impacts that number, and we'll be [anniversarying] obviously, next year.

An we mentioned it, is the incentive compensation.

From a field perspective, we paid out nice bonuses this year.

And we're always proud of that, and that's our ultimate goal.

Obviously, some of us at our corporate level have annual bonuses.

We always had higher expectations for us as a team.

And we had a little bit of incentive comp turn back that impacted the number and positively impacted our SG&A.

And we would expect next year, the incentive comp to more normalize.

So that will be a little bit of a headwind in Q4 of next year.

But it did help SG&A in our fourth-quarter.

Let's terrific color.

My follow-up question relates to store consolidations.

You gave us guidance to your net openings for Advance and for WorldPac.

Can you tell us whether there are any additional closings that we need to contemplate within the Carquest, the GPI organization more broadly, for 2015?

And then also, to what degree is some of the benefit to comps from recapturing some of those sales factored into the outlook?

Yes, Matt.

Here's a way to think about it is that are we going to do more consolidations next year?

Yes.

But during the first quarter of the year, we've actually slowed those efforts to allow the teams to better work together in the field, as we talked about our field organization.

We thought that's real important for our team members and our customers in terms of maintaining that consistency and building those rhythms that we talked about.

George, you can probably talk about -- we probably won't get started until Q2, Q3 in the overall consolidation process and conversion process again for next year.

And I think the run rate that we've talked about, when we get into the back half of the year, is roughly 115 stores a quarter, Matt.

And so I would say, as we get to further conference calls, we'll give you more color.

But we've made a decision that the most important thing in this first quarter of the year is to come out of this first quarter with a focus and consistency of how our teams are running their businesses after the reorganization.

And how they're focused on customer retention and growth.

And that consolidation effort will pick up with more intensity as we get to the second quarter and back half of the year.

Yes, Matt, maybe a little more color.

I think you'll see a change in how we go about consolidations beginning this year.

The first 100 stores that we did just happened to be low-volume Carquest stores.

They were opportunistic.

They were a learning opportunity for us.

They weren't the best business that we're looking to consolidate.

Those are actually ahead of us still.

Going into 2015, to Darren's point, we'll ramp up during the course of the year, and we'll establish a pretty good cadence of consolidation.

It will be by market.

So we'll go in and we'll -- for instance to the Dallas market, the Houston market, and complete them one major market at a time in more of a wave approach, as opposed to a fairly random one in 2014 that was really based upon the lower volume nature of the stores.

Thank you guys so much.

I very much appreciate it.

Thanks, Matt.

Thank you.

I'll now turn the call back to Zaheed Mawani for any final comments.

Thank you, Wendy.

And thanks to our audience for participating in our fourth-quarter conference call.

If you have additional questions, please call me at 952-715-5097.

Reporters please contact Shelly Whitaker at 540-561-8452.

That concludes our call.

Thank you.

That concludes our call today.

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