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Welcome to the Advance Auto Parts First Quarter 2024 conference call. Before we begin, Elisabeth Eisleben, Senior Vice President, Communications and Investor Relations will make a brief statement concerning forward-looking statements that will be discussed on this call.

Good morning, and thank you for joining us to discuss our Q1 2024 results. I'm joined today by Shane O'Kelly, President and Chief Executive Officer, and Ryan Grimsland, Executive Vice President and Chief Financial Officer. Following Shane and Ryan's prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including but not limited to statements regarding our strategic and operational review, initiatives, plans, projections, and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about forward-looking statements and the factors that could cause actual results to differ can be found under the captions, forward-looking statements in our earnings release, and risk factors in our most recent Form 10-K and subsequent filings made with the Commission. Now let me turn the call over to Shane O'Kelly.

Thanks, Elizabeth. Good morning and thank you for joining us for our first quarter earnings call. Before we review the quarter, I would first like to thank the entire Advance team for their continued dedication to serving our customers. Their passion and commitment make a difference each and every day. The year started off slower than anticipated across the industry. At Advance, we saw negative impact from weather, coupled with a challenged consumer who is experiencing diminished purchasing power, higher credit card debt, and uncertainty about the balance of the year in terms of macro conditions. As a result, our Q1 performance was lower than expected with comps down 20 basis points year-over-year. On a positive note, our professional business saw low single-digit improvements in both comp and transactions. We believe that winning in pro is important to our overall strategy and are pursuing that business across multiple segments, including up and down the street customers, strategic accounts, Carquest Independence and Worldpac. Regarding up and down the street customers, we are putting additional focus this year on winning with those accounts and recapturing lost customers. In terms of our turnaround, we continue to execute against our previously outlined decisive actions designed to simplify our business. Those decisive actions are, number one, continuing the sale process for Worldpac. Number two, reducing our costs to become more competitive while investing a portion of those savings back into the front line. Number three, making organizational changes to position us for success. Number four, improving the productivity of all assets. And number five, consolidating our supply chain. We believe these actions will have a long-term positive impact on our business. And let me share a few important updates on each. Starting with the potential sale of Worldpac, we are well underway with that process. We are very pleased to have healthy interest and we are looking to conclude the process before we report our second quarter results. As a reminder, we previously discussed the potential sale of our Canadian business and will evaluate that once the Worldpac sale is complete. Second, reducing and controlling costs is a major focus and we are beginning to see benefits from the actions we took in the fourth quarter. We delivered on the $150 million in annualized savings outlined on our previous calls. And this is evidenced by a reduction in our year over year SG&A of $21 million in this quarter, despite a softer top line. We're also beginning to see benefits from the $50 million reinvested into our frontline, including a more than 50% reduction in our district manager turnover. And we expect to see improvement in other key roles throughout the year. In addition, our indirect purchasing team is executing against our recently launched initiative to reduce a minimum of $50 million on an annualized basis. We have finished the diagnostic stage and are targeting reduced indirect expenditures in areas such as technology, transportation costs and corporate contracts. We expect to see the bulk of the savings beginning in 2025. Next, regarding our third decisive action on organizational changes, we are excited to announce that Bruce Starnes is joining the Advance team as Executive Vice President and Chief Merchant. This is part of an orderly succession plan, and in this role, Bruce will lead all aspects of our merchandising function. Bruce is an auto enthusiast and brings deep merchandising experience, having recently served at Target for nearly 20 years, most recently as Senior Vice President of Merchandising Capabilities and Operations. The expertise of one of our newest Board members, Tom Seboldt, who has over 30 years as a merchandising leader in the automotive aftermarket industry, will also help speed Bruce's onboarding. Bruce will be partnering with our outgoing chief merchant Ken Bush who will remain in an advisory role to help ensure continuity in the merchandising function. We want to congratulate Ken on his upcoming retirement after nearly 20 years with the company, and we want to welcome Bruce to the Advance Auto Parts family. Turning to our fourth decisive action regarding our asset productivity across the company. Improving this remains a top priority and includes both company stores and independently owned Carquest locations. In the first quarter, we closed 17 underperforming stores and opened seven new stores. Last quarter, we shared that we had notified over 100 Carquest independent locations that we were removing them from our program. And we completed this action in Q1. In addition, our IT team's focus on POS system reliability is enabling significant in-store productivity improvements for team members, and that's impacting their ability to better serve our customers. We will continue our efforts to elevate existing store operations across Advance and drive profitable growth. The last area I wanted to discuss in regard to our asset productivity is inventory. We have had recent success with the implementation of our new merchandising system. We put new leaders in charge of the project along with additional accountability on the work plan, resulting in the achievement of several key milestones in Q1. This new system will overhaul key merchandising processes including planogram sets and store replenishment. In the first quarter, we added 130,000 SKUs in the new system across nearly 500 suppliers. And by the end of the second quarter, we expect all of our actively replenished SKUs to be converted to the new system, which is well ahead of our previous expectations to be complete by the end of the year. This is one of several steps to enhance inventory availability and productivity. And finally, our fifth decisive action to consolidate our supply chain is underway with the long-term goal of operating as a single unified network. We've now mapped what this network will look like, and I'd like to take a few minutes to describe its components and our incremental progress. We expect our unified network to have 14 large DCs. We currently have 13 of the required replenishment DCs needed and are scouting the location for the 14th. These 14 facilities averaging approximately 550,000 square feet each will serve as our nationwide replenishment nodes. The next component of the unified network will be market hubs. As discussed last quarter, this is a new node of our network, and we recently completed a successful pilot. Our market hubs will have an average SKU count of more than 80,000 and will enhance our existing hub network. There are three ways that we will be adding market hubs. Number one, converting existing stores with sufficient footprint. Number two, converting smaller existing DCs. And number three, green-fielding new locations. We have completed four store to market hub conversions, utilizing the learnings from our successful pilot. By the end of 2024, we expect to have at least 20 market hubs in operation, including approximately half from the conversion of existing DCs. Three of these DC conversions are already underway. Those are Baton Rouge, Raleigh, and Memphis, and we expect to complete all of them by the end of the third quarter. Importantly, by using existing stores that have sufficient footprint and converting smaller legacy DCs, we believe we can accelerate this initiative with more rigor than if we were to green-field all locations. The third component of our unified network includes over 300 existing hubs that we currently operate. These hub locations currently serve and will continue to serve as sources for expanded availability for surrounding stores. On average, they have approximately 35,000 SKUs on hand compared with approximately 23,000 in our traditional blended box stores. The performance of our hubs and market hubs reinforces the benefit of having parts closer to customers. We expect the development of this unified network to take time and are planning to have the 14 large DCs and at least 60 market hubs added to our existing network of hubs by the end of 2026. Let me also provide a brief update on our implementation of our warehouse management system or WMS across our DC network. This is a key enabler of our unification and last quarter we indicated that there were three facilities still to convert. We have recently completed the implementation at our Delaware, Ohio DC and expect to complete the remaining two by the end of the year. While we are making early progress with all of our decisive actions, we recognize that we have substantial work to improve our business's performance. Our entire team is committed to fostering a disciplined approach in all functions, leading to increased accountability and internal clarity of our goals. Turning to the broader macro environment, we are fortunate to operate in an attractive, needs-based industry with stable fundamentals. However, we recognize that our business will still likely feel negative impacts as customers show signs of financial distress and if macro conditions deteriorate. Even with that backdrop, we are improving execution by remaining focused on our decisive action. We know this turnaround will take time, but I am encouraged every time I visit a store or DC and meet the team members who take care of our customers. We have established clear priorities and our leadership team is energized to deliver on our goals. Now I would like to turn the call over to Ryan to review our financial performance in the quarter. Ryan?

Thanks, Shane, and good morning everyone. Before I move to our financials, I would also like to thank our almost 70,000 team members for their continued dedication and hard work throughout the quarter. Q1 was challenging from a year-over-year perspective. However, we have instilled renewed P&L discipline and rigor and remain confident in our ability to capitalize on the significant opportunity ahead. In the first quarter, net sales of $3.4 billion decreased 0.3% compared with Q1 2023. The decrease was primarily driven by the reduction of Independence and store closures of about $11 million as we continue our focus on improving asset productivity. Comparable store sales decreased 0.2%. While we still have room for improvement in our assortment and availability levels, we are encouraged by the actions we have taken and relative to our Pro business, helped contribute to positive transactions and comp growth in the quarter. As anticipated, we saw continued pressure on DIY in Q1, resulting in low single-digit negative comparable store sales. From a category perspective, we saw strength in batteries as well as filters and engine management driven by improved availability. In the quarter, we experienced particular softness in several categories as we are seeing consumers adjust their buying behavior and looking to stretch every dollar they spend. This was evidenced by a year-over-year decline in discretionary categories as well as deferred maintenance in the quarter, such as brakes, where often purchased in combination with tire maintenance and installations, which have been down across the industry. The West and Midwest were our top performing regions, while the Mid-Atlantic Southeast, including Texas and Florida were our most challenged. As Shane mentioned, the weather impacted our sales as the country experienced a slower start to the spring season. In Q1, gross profit was $1.4 billion, or 42% of net sales, which declined 82 basis points from the prior year quarter. The deleverage was primarily driven by cost, not fully offset by price. In terms of price, we've also been reassessing our relative position in the market, as well as our approach to strategic pricing. We recognize circumstances where we have been notably uncompetitive and have been making appropriate adjustments focused on categories with higher visibility and elasticity. In Q1, we actioned on 8,500 SKUs, an investment of approximately $40 million on an annualized basis. We are committed to driving accountability to achieve and remain competitively priced. I'm confident the restructuring to align our pricing and merchandising teams will help provide the appropriate discipline to ensure success. In Q2, we continue our merchandising excellence initiative, including securing lower pricing from our vendors, assessing our assortment and its availability, as well as reviewing how we are priced in the market. Despite all these efforts, we believe that we will see pressure in Q2 as the consumer will likely face continued uncertainty impacting our top line. In addition, we will be lapping last year's actions, which will cause margin rates to be significantly more challenged than Q1. We expect to begin seeing improvement in the back half of the year as we will have cycled the prior year's pricing initiatives and begin to see an acceleration on units. In addition, we expect that our supply chain consolidation and ongoing merchandising productivity efforts, including key front room category resets and backroom hard part line reviews that were completed in Q1 will positively contribute to our supplier partner negotiations. In addition to pricing, warehouse capitalization costs and the planned investment in our DC consolidation negatively impacted gross margin in the quarter. Our overall supply chain productivity partially offset the deleverage driven by improved lines per hour, replenishment frequency, reduction of independent locations, and the previously announced closure of our Asheville DC. SG&A was $1.3 billion in Q1 2024, down $21 million compared with Q1 2023 and improved 48 basis points as a percent of our net sales. This was driven by cost saving efforts we discussed earlier and included a significant reduction in corporate expenditures and headcount executed in Q4 last year. Additionally, we have had one-time gain from an asset sale in Florida. As discussed previously, we are reinvesting a portion of these savings back into our frontline team members, which partially offset the savings we realized this quarter. We experienced higher year-over-year professional fees primarily related to continued remediation of our material weakness, which was a headwind to SG&A in Q1. Finally, similar to many retailers, we experienced ongoing inflationary pressure related to overall wages, occupancy costs, and transaction expenses. Our Q1 operating income margin decreased 34 basis points compared with the prior year quarter. In terms of the second quarter, we believe that this will be our toughest margin quarter of the year as a result of pricing actions taken last year that we are lapping. However, as the year progresses, we expect to see stronger margin improvement in the back half. Diluted earnings per share were $0.67 in Q1 compared with $0.81 in the prior year quarter. EPS was primarily impacted by the decrease in operating margin as well as a $0.05 impact related to discrete tax item related to stock based compensation. We have significantly increased the discipline around our capital spending process, focused on investing in high return initiatives aligned with our decisive actions. As a result, our Q1 2024 capital expenditures were $49 million compared with $90 million in Q1 of 2023. Free cash flow for the quarter was an outflow of $46 million compared with an outflow of $470 million in the prior year quarter. This was primarily driven by lapping the timing of payables in Q1 of the previous year. Our full year guidance remains unchanged. We are committed to executing against our decisive actions and believe they will enable steady performance improvement across Advance. Before I turn the call back to Shane and Q&A, I want to provide an update on our internal control remediation efforts. We continue to ensure we have the appropriate experienced personnel as we backfilled open roles and hired approximately 30 experienced personnel with the requisite accounting and internal controls knowledge and experience. We made some important hires in the first quarter who are quickly onboarded and are making progress in their roles. In addition, we've added redundant and compensating internal controls to enhance our internal control structure. We have been thoroughly testing our remedial efforts and are committed to completing the remediation. As you will see in our Form 10-Q, a prior significant deficiency identified in Q4 2023 has been elevated to a material weakness in a discrete area of controls. Similar to our material weakness regarding staffing, we are robustly testing to ensure our controls are working as designed over an appropriate amount of time. Our internal control environment remains a top priority for us, and we look forward to updating you on the completion of our remediation. And now I'll turn it over to Shane.

Thank you, Ryan. We have significant work to do in terms of turning around the business, but I am confident we are on the right path. I want to once again thank our team members for their unwavering dedication to supporting our customers while adapting to the challenges we face during the quarter. And in the wake of Memorial Day, it's always appropriate to reflect on the contributions of the brave men and women who gave their lives in the service of our country. With that, I would like to open it up to address your questions. Operator?

[Operator Instructions] And our first question today comes from Bret Jordan at Jefferies. Bret, your line is open. Please go ahead.

Did you talk about the cadence of the first five months that gives you comfort in your maintaining the comp guide for the year?

Great. And then on the Pro side, national account versus up and down the street, the positive comp you saw in the first quarter was there much difference between those two segments?

Yeah. We don't like to break – Bret, I appreciate it, but we don't like to break out the specifics of those two, but we did see positive growth positive growth -- positive comps.

In both sides?

Yep.

Okay. Thank you.

The next question comes from Michael Lasser from UBS. Michael, your line is open. Please go ahead.

Yeah, Michael, we definitely want to give you that perspective, but we've got to wait until there's actually a decision. And when we have that, we will -- if and when we do have a transaction there, we will update our guide and update the projections going forward for the RemainCo.

The next question comes from Simeon Gutman from Morgan Stanley. Simeon, your line is open. Please go ahead.

The next question comes from Greg Melich from Evercore ISI. Greg, your line is open. Please go ahead.

Yeah, Greg, I mean, it's about 3% of the enterprise SKU count right now. I think if we looked at Advance only it's about 8%. So it's not a significant portion of the overall, but it is just making sure that we get competitive in key areas.

Got it. And that $40 million, would you say that across the box, if the industry is still rational, that we're still seeing slight inflation in the comp in first quarter?

The next question comes from Scot Ciccarelli from Truist. Scot, your line is open. Please go ahead.

The next question comes from Chris Horvers at JPMorgan. Chris, your line is open. Please go ahead.

Yeah. I think the pricing actions are modest, and there's the other side of that equation, which is what our merchant team can do working with our vendors to make sure they're securing the appropriate source costs for our product. So I think we've got some opportunity there, and we'll look for Bruce as he comes on board to start putting programs in place for that.

Got it. Thank you very much. Best of luck.

The next question comes from

Got it. Thanks for the color. And then a couple of clarification questions. First, on the gain on the SG&A line, any quantification of the impact there and then second, any color on the slight notch up in the high end of your '24 sales outlook?

Yeah,

The next question comes from Aaron Reed at Northcoast Research. Aaron, your line is open. Please go ahead.

Yeah. So, hey Aaron, good to talk to you again. We would first put money towards deleveraging, getting back and getting closer to our leverage targets that we've talked about publicly of closer to 2.5 times over time. We would also put money towards our initiative, some of what Shane and Ryan talked about earlier in our prepared remarks. And of course, anything excess would go back to shareholders, and we would look to do that over time as well.

Yeah, Aaron, I think the biggest thing is we're going to be prudent on this one as well and the timing and sequencing of that. We know this is a multiyear turnaround for the company. And so the first debt priority of pay down the debt and then invest in the business for the turnaround, are the top priorities for us.

Okay. Great. Thanks. And then I guess just a follow-up question to go a little closer, you’re trying to get that closer to that target debt ratio. Does that mean that you don't believe that with the sale and allocation will be able to fully achieve your target debt ratio?

Yeah. Aaron, we're not ready to talk about the actual dollar amounts that we would get from the transaction. So we'll wait to be able to share that when and if we do have a transaction, if that's all right.

Yeah, great. Thank you very much.

Appreciate it. Thanks, Aaron.

The next question comes from Steven Forbes of Guggenheim Partners. Steven, your line is open. Please go ahead.

Thank you.

The next question comes from Max Rakhlenko from TD Securities. Max, your line is open. Please go ahead.

Yeah. Max, I'll add. Of those 8,500 SKUs, some of them, we actually brought price up, right? So this is about getting right priced across the portfolio. Obviously, the bulk of them were getting -- bringing prices down and being in a competitive place. But we did bring some up to Shane's point as well. And we said it's about 3% of the overall enterprise SKUs and 8% of Advance. Will that increase as Shane said, as the new merchant comes in as merchandising works through it? I'm sure that there will be more that will add to it.

The next question comes from Chris Bottiglieri from BNP Paribas. Chris, your line is open. Please go ahead.

Sale leaseback. Okay. And then just the last one, the capitalized supply chain costs you called out this quarter, can you quantify that and tell us what you're thinking in terms of like Q2 and the back half, that's something that should persist or not?

From an overall inflation standpoint, we expect that to be very moderate for the rest of the year from a product inflation rate. Obviously, we are -- in our guide originally, we said we wouldn't be able to capitalize on full inflation on the year because we were going to be taking pricing actions, and we'll continue to do that through the year. In fact, I think in our guide, we're talking about inflation being about 1% in the industry, and we expect that it would be still around 1%.

Yeah, okay. Thank you.

The next question comes from Carrick Irwin from Barclays. Carrick, please go ahead. Your line is open.

Just as a follow-up on a previous question. I guess, number one -- hey guys, sorry for confusion here. So two quick follow-ups, and I'll just ask from both up front here. So just on the guidance for Q2, just trying to think about more pressure year-over-year on operating margin. Can you just give us a little bit more flavor? Is that more on gross margin or SG&A? Or is it really a combination of both? So let's just clarify that. And then my real follow-up question is around the store footprint. It looks like the pace of closings starting to pick up a little bit here. How do you think about that? Do you have a view on the ultimate number of store closings and maybe any more color on what you're learning some of the characteristics of the units that you're closing, that would be great. Thanks.

All right. Thank you all so much for joining us this morning. That is all the questions we've received. We appreciate your time and continued support. I look forward to updating you again after we report Q2. Have a nice day.