With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are automotive retail, general merchandisers, internet retail, and specialty retail.

Fortune Sector Leaders: Retailing

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-301-Advance Auto Parts

As one of the leading aftermarket auto parts retailers, the company serves professional installers and vehicle owners with automotive goods and services at over 4,000 locations.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-330-Advance-Auto-Parts

The automotive retailer sells aftermarket parts, accessories, and maintenance items to both professional installers and do-it-yourself customers.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

Profit Ratios

Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Earnings Per Share (last Fiscal Year)

Earnings Per Share ($)

EPS % Change (from prior fiscal year)

EPS % Change (5 year annual rate)

EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

Total Return to Investors (5 year, annualized)

Total Return to Investors (10 year, annualized)

Advance Auto Parts is an automotive aftermarket parts provider. Founded in 1929, the company offers replacement parts, accessories, batteries, and maintenance items for a variety of vehicles including cars, vans, SUVs, and trucks. The company operates over 4,200 stores and serves more than 800 Carquest-branded stores across these locations.

Q2 2026

Q1 2026

Q4 2025

Q3 2025

Q2 2025

Q1 2025

Q4 2024

Q3 2024

Advance Auto Parts (AAP): Company Profile, Stock Price, News, Rankings

legacy

Advance Auto Parts

advance auto parts

Hello, everyone, and welcome to the Q3 2024 Advanced Auto Parts Earnings Conference Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. I'd now like to hand the call over to our host, Lavesh Hamnani, Vice President of Investor Relations to begin. Lavesh, please go

ahead. Good morning and thank you for participating in today's call. I'm joined by Shane O'Kelly, President and Chief Executive Officer and Ryan Grimseland, Executive Vice President and Chief Financial Officer. Before we begin, please be advised that management's 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 expectations for the future.

Actual results could differ materially from those projected or implied by the forward looking statements. Additional information about forward looking statements can be found under forward looking statements in our earnings release and risk factors in our most recent Form 10 ks and subsequent filings made with the SEC. During today's call, we will be referencing slides which are available to view via webcast. A copy of the slides have also been posted to our Investor Relations website. In addition, we have also filed historical financials for the Advance Remain Co that can be accessed on our website.

We will begin today's discussion with an overview of our Q3 2024 results. After that, Shane will provide an update on our strategic path forward. Then, Brian will discuss our financial objectives for the next 3 years. Following management's prepared remarks, we will open the line for questions. Now, let me turn the call over to Shane O'Kelly.

Thank you, Levesh, and good morning, everyone. This morning, Advance took a big step forward on its journey to operational excellence and value creation. Our entire management team is confident, focused and excited. Today, we will discuss Q3 results, our near term outlook and our strategic path forward through 2027. As you'll note from our earnings release this morning, we have provided you with a lot of information.

With the successful completion of the Worldpac transaction, we have outlined the financial position of Advance Auto Parts Remain Co, so that you have a clearer and fuller picture of where we are, where we are heading and how we will measure our progress along the way. I feel that what's been done so far is working. It is very satisfying for me to see that with the team effort involved, we now have line of sight to achieve our 20 27 outlook, which I'm delighted to share with you today. We are laying out a plan to deliver anticipated adjusted operating margin of approximately 7% by year end 2027. My confidence in achieving these goals stems from approximately 500 basis points of expected improvement that will be driven primarily by factors within our management team's control including merchandising excellence, internal supply chain transformation, and store efficiency.

Before we get into those details, I would like to express my gratitude to the more than 65,000 hardworking team members at Advance whose efforts during the recent hurricanes has been exceptional. We are thankful to our many associates who partnered with local communities to bring relief to those impacted with efforts ranging from helping reopening our stores to leading donation drives. This quarter results came in below our expectations as the sales softness that began in early Q3 persisted throughout the quarter. Macro headwinds and economic uncertainty continued to weigh on the consumer spending, while our results were also impacted by other events such as hurricanes and the CrowdStrike outage. We are pleased to have made progress on our strategic actions, including the completion of the sale of Worldpac and a comprehensive productivity review of our assets.

This review has identified opportunities to improve our adjusted operating income margin over the next 3 years through a broad range of actions including a realignment of our stores and DC portfolio. Over the past year, I have spent a considerable amount of time at our stores and in our distribution centers meeting with our team members, vendors and customers. Throughout these conversations, one common thread that emerged is Advance's rich legacy and the important role we play in the industry and in the lives of our customers. With that foundation, today we are excited to share our strategic and financial plan for the next 3 years. But first, let me pass it on to Ryan to discuss our Q3 results.

Thank you, Shane, and good morning, everyone. Following the successful sale of Worldpac, we have made certain changes in the presentation of our financial statements. First, our results show a breakdown of discontinued operations related to Worldpac and continuing operations reflecting results for the Advanced business. 2nd, to provide a better understanding of our underlying operational performance, we report certain financial measures on an adjusted non GAAP basis to exclude the impact of certain items.

Our guidance and financial plan for the next 3 years is based on these adjusted financial measures. Lastly, our results were also impacted by certain atypical items that are not included in the non GAAP adjustments, which I will discuss shortly. In our view, looking at our reported results through this lens will provide more helpful understanding of our performance. Now let's turn to reported results for Advanced Continuing Operations. Net sales from continuing operations were $2,100,000,000 a 3% decrease compared with Q3 last year.

Comparable store sales declined 2.3%, driven by continued softness in the overall consumer spending environment. In addition, 2 other events impacted us this quarter. First, our store and server systems were impacted by the global CrowdStrike system outage due to which stores were temporarily unable to serve customers and close transactions. 2nd, later in the quarter, Hurricane Helene impacted sales at over 300 stores. We estimate both these events combined accounted for approximately 50 basis point headwind to Q3 comp.

Without these events, our 2 year comparable sales growth would have been about in line with the Q2 and our expectations. In terms of channel performance, both pro and DIY declined in the low single digit range, with pro performing relatively better. Importantly, on a 2 year basis, our pro comp was positive and accelerated compared with last quarter. During Q3, transactions declined in the low single digit range led by a mid single digit decline in DIY transactions. Average ticket growth was positive in both channels.

From a category perspective, we saw strength in batteries, filters and engine management, while sales in discretionary categories were weaker. Gross profit from continuing operations was $908,000,000 or 42.3 percent of net sales, an improvement of approximately 5.40 basis points over the prior year. As a reminder, in Q3 last year, we had one time inventory adjustments. This contributed approximately 5.25 basis points of the year over year improvement. The balance was driven by stabilization of product costs offset by pricing investments from earlier in the year.

Adjusted SG and A from continuing operations was $891,000,000 or about flat year over year. As a percentage of net sales, adjusted SG and A was 41.5% compared with 40.2%, with 130 basis point deleverage attributed to lower sales. We incurred higher labor related expenses due to frontline investments, which were offset by our cost out efforts. Adjusted operating income from continuing operations was $16,700,000 80 basis points as a percent of net sales compared to negative 3.3 percent last year. Adjusted diluted loss per share from continuing operations was $0.04 compared with a loss of $1.19 per share in the prior year.

We estimate that the loss in sales due to the crowd strike outage and hurricane impacts accounted for approximately $0.13 of EPS headwind during the quarter. To conclude my discussion on Q3 results, I would like to provide some additional details of certain atypical items that influence Q3 results. As a reminder, these items are not part of our adjusted non GAAP results. We believe that explanation of these items is helpful to understand our performance. As you can see on this slide, we estimate atypical items amounted to 125 basis points of operating margin headwind and approximately $0.34 of EPS headwind during the Q3.

While Q3 performance was below our expectations, we believe that we have the right action plan to deliver improved results in the quarters ahead, and I look forward to sharing details of our financial plan later. Now let me hand it back to Shane to provide some insights in our strategic path forward.

Thank you, Ryan. It's an honor to lead this company and work alongside so many talented team members. I am confident in the team's ability to execute our strategic plan and deliver stronger results.

To that end, I would like to begin by highlighting the key drivers of our turnaround. Number 1, we're a leading player in the more than $150,000,000,000 auto aftermarket industry that has strong demand drivers. We believe that this plan will position us to grow by serving millions of customers through our extensive store network where we have the right to win. As a reminder, even incremental improvements in our performance can yield substantial results. Number 2, our strategy is centered on getting back to the fundamentals of selling auto parts.

The slope of our improvement will be determined by the multitude of smaller decisions made by our team. And we are embedding industry best practices in our operations and focusing on executing a clear strategic framework to elevate the performance of the advanced blended box. Number 3, our leadership team brings deep automotive experience with broad retail fundamental expertise. In addition, following the Worldpac sale, we will also have an enhanced liquidity position providing incremental capital to execute our plan. Number 4, we completed a thorough assessment of operational productivity across our asset base and identified opportunities to improve profitability.

We believe our plan including store footprint optimization will enable us to narrow our margin gap to the industry. And number 5, we are now introducing our goal to deliver approximately 7% adjusted operating income margin by the end of fiscal 2027. We expect to achieve this by stabilizing the business to deliver stronger productivity. This will provide a strong foundation to subsequently deliver value for our shareholders over time. Now let me discuss each of these drivers.

On slide 10, you see that Advance operates in an attractive sector with strong demand drivers and access to a large addressable market. In the U. S, vehicles in operation continues to grow with over 280,000,000 cars on the road and nearly 85 percent of those vehicles are at least 4 years old. The average age of these vehicles has continued to grow and is currently at 12.8 years as consumers continue to hold on to their cars longer. This trend is influenced by factors such as new vehicle acquisition costs and the high cost of insurance.

Despite volatility in energy prices, miles driven continues to grow creating the need for regular maintenance. These factors are expected to contribute to healthy consumer spending on auto repair and maintenance, supporting demand for parts and accessories and creating a strong backdrop for growth. In the near term, we are cognizant of the economic uncertainty that is weighing on consumer sentiment and we are planning our business accordingly. Next slide. To reposition Advance for growth, we are getting back to the basics, which starts with putting the customer first.

When I began this role a year ago, we started work on a cultural change to put greater emphasis on listening to the customer. We strongly believe that when we put the customer first and align the rest of the organization to meet the customer's needs, we win. With this focus in mind, we have taken several decisive actions over the last year. These include refocusing our efforts on the blended box, which drove our decisions to sell Worldpac and retain our Canadian business. We also reduced costs and then invested additional resources in our frontline to help reduce turnover and enable frontline team members to better serve our customers.

Through these efforts, turnover in 4 key field roles has been reduced by nearly 700 basis points over the past year. We initiated the consolidation of our supply chain, which has been accompanied by the rollout of market hubs to create economies of scale and enhance service levels for our stores. We are seeing early results that the market hubs and the stores served by the market hubs are comping better relative to markets without hubs. We also invested in pricing to improve our competitive position and are seeing improvement in unit sales trends. We also estimate that we've recovered approximately half of the investment of these pricing moves on an annualized basis.

From a talent perspective, our new leaders have been rebuilding teams and refreshing processes to focus on core retail fundamentals which is integral to our success during the turnaround. Next slide. Over the last year, we have refocused the organization's actions on improving efficiency of the blended box, which serves both DIY and Pro customers from the same store. In our view, our blended box focus will enable us to grow our share in the large fragmented market where the top 4 players account for just under 30% share. We are dedicating our efforts to provide pro and DIY customers with a mix of well recognized high quality national and private label brands including our popular Carquest and Die Hard lines of product.

We have a loyal base of more than 15,000,000 DIY Speed Perks members and tens of thousands of Pro Rewards members to support our growth. Based on industry estimates, Pro is expected to be the primary engine of growth due to shifting consumer preferences, which is in part being driven by increasing parts complexity. We have access to a large vendor community that is fully supportive of our turnaround efforts and our renewed focus on the blended box. With our merchandising initiatives, development of effective end to end supply chain capabilities and changes to our store operating model, we will enable our stores to serve pros faster. In our pro sales team, we have redesigned incentive structures and increased wages to market levels to improve retention and drive higher productivity.

In our DIY business, we are making investments in stores, team member training and e commerce capabilities to improve customer experience and conversion. On page 13, you can see that our executive team has nearly 300 years of combined relevant leadership experience. We have recently brought in talented leaders in finance, real estate and merchandising who possess fundamental expertise in executing retail operations. Not shown on this page, but important to mention is our store team where leaders including our field based regional vice presidents bring extensive automotive expertise. We have also augmented functional talent in merchandising and supply chain, and I'm confident that this team's blend of automotive and retail fundamental knowledge will successfully execute our strategic plan.

Next slide. Last week, we announced the successful completion of the Worldpac sale, adding $1,500,000,000 of additional liquidity to our balance sheet. As a result, we currently have approximately $2,000,000,000 of cash, which exceeds our aggregate debt position. As Ryan will describe in more detail later, we believe the combination of the Worldpac proceeds and the anticipated improvement in our operating cash flow will provide the requisite liquidity to run our business and fund our investments. In the coming years, we are focused on 2 main priorities.

The first is investing in activities to improve the business and the second is supporting our balance sheet including repaying debt at or before maturity. Next slide. In August, we began a comprehensive review of asset productivity. Our goal was to assess actions already underway and identify additional areas of structural changes that would establish a stronger foundation for our future. Following this review, we have anchored our strategic plan on 3 pillars to put us on the path to deliver consistent profitable growth as shown on the slide.

Starting with our store operations, as indicated in our release this morning, we made the decision to close certain non performing, non strategic stores in the U. S. To better position our asset base for long term sustainable growth. As we move along our turnaround journey with a revised asset base, we are also redesigning our basic store operating model to yield stronger labor productivity. The second pillar is merchandising excellence.

We are taking a fundamentally different approach to negotiating with vendors to lower our direct product costs. This involves working with our suppliers to show how a partnership with Advance can drive mutually profitable growth. Regarding assortment management, we already have work underway to improve our parts availability by market and to increase the speed of customer service. Earlier this year, we also made critical pricing changes to become more competitive, while avoiding unnecessary discounting in keeping with our industry's rational pricing practices. Our review has also revealed opportunities to improve margins by better managing promotions, including reducing unproductive promotions.

And the third is supply chain. We continue to make progress in consolidating our distribution centers to operate with a streamlined network of large distribution centers and as a result have closed or converted 10 small DCs. We have opened 18 Market Hub stores to date and are targeting to open 60 by mid-twenty 27. This is slightly behind our original expectation of 2026 as we pause the build out to complete the closure of stores and DCs announced this morning. While we consolidate DCs and build new hubs, we are simultaneously pursuing opportunities to optimize our DC store transportation routes to reduce costs and increase productivity.

Separately and in conjunction with other operational changes, we have made the difficult decision to eliminate certain positions across the organization to align our structure to current business requirements and the execution of our strategic plan. We expect this will yield around $50,000,000 in annualized savings in addition to the SG and A reductions announced last year. Let me now dig deeper and provide an overview of our strategic actions across each of these pillars. Next slide. A key component of our operational productivity review was evaluating the health of our stores.

Following the review, we have made the decision to close more than 500 advanced stores and exit our relationship with more than 200 independent locations. This reduction consists of complete market exits in certain Western states, coupled with the optimization of our footprint in other markets including the Eastern States where we have higher density. Further, there are 4 Western DCs that are included in the closures. Our decision does not impact locations in Canada. We considered multiple criteria during our evaluation process and I'd like to further discuss 3 store profitability, DC productivity, and operational execution.

Let's begin with store profitability. We evaluated the operating and financial performance of stores across our entire footprint along with their relative competitive intensity to determine the viability of each location. 2nd, distribution center productivity. Our 4 DCs on the West Coast serve a lower concentration of stores and we would need to allocate significant capital and resources to infill those markets. We do not believe this would be the best use of our capital and believe that investing in other core areas of the business will help deliver stronger profitability.

As a result, we decided to close the 4 DCs and associated corporate stores and independent locations in these less dense markets resulting in a complete exit of certain markets on the West Coast. And third, establishing a stronger foundation to simplify operational execution. Our objective was to improve store concentration in our strongest markets to conserve resources and be better positioned to grow in those markets. Following the closures, over 75% of our revised store footprint will be in designated market areas where we will have the number 1 or number 2 position based on store density. We expect to execute these closures by mid-twenty 25.

The 700 locations outlined for closure are dilutive to annual operating income by approximately $60,000,000 to $80,000,000 which we expect to recover following the closures. We expect to collaborate with landlords to exit leased store locations in a reasonable manner to manage the obligations on our balance sheet. Making the decision to close such a meaningful percentage of our store base was not an easy one as it affects a significant number of our team members. However, we believe this action is prudent to support the long term health of the company. Next slide.

As we execute our plans with an optimized store footprint, we expect to derive stronger value from our turnaround efforts. This page provides a financial overview of our revised store footprint. On an aggregate basis, our decision includes closure of approximately 10% of our corporate stores and approximately a 20% reduction in U. S. Independent locations.

The higher share of independents is primarily driven by our decision to exit the West Coast markets where there is a higher concentration of these locations. Based on financials over the last 12 months, the reduction of these 700 locations is expected to reduce our net sales by approximately $700,000,000 Our revised corporate store footprint base now implies about 4% higher sales per store compared to the store base pre closures. Next slide. This page shows an updated map of our store locations. We believe that our revised store base will enable us to generate higher returns from our turnaround efforts and support improved financial performance in the future.

In addition, we will focus new store growth in higher density markets and plan to achieve an annual opening cadence of 100 stores per year over time. Our real estate team is mapping out opportunities in each market, designing a plan to accelerate new store openings, while compressing our opening timeline. Opening new stores is a successful way of growing regional market share and gives vendors the opportunity to grow with us. Next slide. As a next step to maximizing productivity in our stores, we are redesigning our operating model with an emphasis on quality and speed of service.

Let's break this down by DIY and pro. Starting with DIY, we are adopting a data driven centralized approach to managing team schedules based on DIY traffic patterns, which enables general managers to dedicate more time to selling activities. We are also reducing the amount of manual paperwork that our GMs do. We are providing them with better reporting to track their performance and we're also replacing outdated RF scanners with Zebra devices. From a talent perspective, we recently launched centralized recruiting for stores in certain markets to give our GMs more operational flexibility and we plan to roll this out across all markets.

Last month, we also made the decision to sunset our UPS access point program. The time devoted to UPS drop offs and pickups took time away from serving our customers. To elevate the quality of our service, we have launched a mini training series for our team members so that they can build their knowledge faster and be better equipped to guide the customer with their repair and maintenance needs. Moving on to the pro, we are reallocating resources by sales volume, competitive intensity and customer demand. This includes a standardization of our driver vehicle schedules, a reduction in third party deliveries and the management of commercial parts pros in stores.

With regard to driver schedules, we are assessing store level performance to allocate resources to high volume stores and manage labor costs in lower traffic stores. This approach will drive stronger labor productivity, while ultimately lowering our time to service pro customers. Today, our time to serve is slower than what we want it to be and we are focused on lowering this over time. Next slide. To win in the aftermarket and enhance our reputation as a destination for high quality auto parts, we need to consistently make available thousands of parts for our customers.

We have successfully added new leadership with critical expertise to transform our merchant organization and reestablish Advance as a long term growth partner within the vendor community. This starts with changing our philosophy with vendors from what can you do for me to how can we grow together. We are undertaking joint business planning with our vendors discussing category strategies, placement for SKUs and mutually establishing roles to build trust. Our conversations with vendors have been constructive and we look forward to building our dialogue with the aftermarket vendor community at our summit in January. In addition, we are also focused on improving cross functional collaboration between our supply chain and merchandising teams to drive higher volumes and reduce costs.

To effectively serve the aftermarket based on different demand and service expectations, we need to provide parts coverage for thousands of SKUs at any given time. This begins with product line reviews that help us identify unproductive SKUs, introduce new products, evaluate private versus national brands, and assess supplier diversification to improve the speed with which we bring products to the market. We expect to undertake between 20250 line reviews this year and plan to pick up the pace over the next 2 years. Our ability to bring parts to the market faster also depends on the speed at which the parts are set up in our system. Our goal is to bring this timeline down significantly by breaking down existing processes and leveraging automation.

Setting up parts faster will enable us to capture demand signals faster and results in effective SKU management across the network. On assortment, our goal is to ensure accurate availability of parts in our network. Our assortment is complex and includes more than 90,000,000 unique store SKU combinations. We are addressing internally identified SKU gaps and building competitive intelligence to expand availability for our customers. This will also support higher labor productivity as our frontline team can reduce time chasing parts from surrounding stores that they do in order to complete an order.

We have also started measuring store availability through DC and store in stock depth. Today, this metric sits in the low 90s and we expect it to reach a high 90s level over time as we introduce technical capabilities to previously manual processes. Along with bringing parts to market faster, we are reevaluating our promotional and discounting mechanisms to provide relevant offers to our customers and reduce unproductive promotions. For our pro business, our team is designing new category based and customer segmented promotional models along with stronger technical testing capabilities to understand the impact of promotions. These models will consider factors such as customer spending volume, our speed of service and competitive density.

This data driven approach will enable us to be more targeted in our campaigns based on market characteristics. In our DIY business, we plan to run fewer, bigger and bolder promotions in store and online. Based on our estimates, the number of items sold at discount on our website is almost 2 times higher compared to others, while the ROI on these promotions has been inconsistent. We have also created execution challenges for our teams in managing SKU debt across multiple simultaneous promotions. To optimize this, our team is focusing on the fundamental goal of driving higher comparable margin dollars on a year over year basis and amplifying our vendor funded media campaigns to influence traffic.

Next slide. We are highly focused on optimizing our supply chain with one simple goal of reducing the time in which customers receive parts and doing so in the most economical manner. To achieve this, we are consolidating our DC infrastructure to create economies of scale. At the beginning of the year, we operated 38 DCs of varying sizes. By 2026, we plan to operate 13 DCs with each averaging about 500,000 square feet.

This is a change from our prior expectation of 14 DCs due to the exit of 1 large DC on the West Coast related to our asset optimization work. These DCs will operate on a single warehouse management system to establish better SKU tracking and inbound outbound inventory processes. We have successfully completed the conversion of our final DC to the new WMS system. As we consolidate the volume of smaller DCs in the larger ones, we begin moving more volume via truckload shipments compared to LTL shipments, which lowers our overall freight costs. For example, in our home state of North Carolina, our DC consolidation project has resulted in 15% more volume moving by truckload, which has lowered freight costs.

Operating fewer larger DCs also provides an opportunity to optimize our picking and outbound replenishment activities. We measure DC labor productivity through LPH or lines per hour, which shows the number of product lines picked and shipped on an hourly basis. This KPI is currently in the mid-20s range and our interim goal is to improve it by 15% percent to 20%. Along with the consolidation, we are building a multi echelon DC store hub network. Our new market hubs are designed to improve our speed of service by placing 85,000 SKUs closer to the customer, thereby increasing availability by 70% compared to a hub store and by more than 200% compared to a regular store.

While still early in our build out, this is a proven model in the industry and we are encouraged with the initial results. On a year to date basis, comparable sales growth for a market hub and its network of service stores has been outperforming DMAs with out market hubs. This network also helps reduce a number of touches per product driving higher labor productivity. For example, instead of a store driver going to multiple stores to fulfill a customer order, the order can be directly sourced from a single hub or market hub. While the consolidation and build out continue, we are also putting plans into action to lower fixed transportation costs in our replenishment model.

We plan to do this by optimizing routing from DCs to reduce the number of routes, adding more stops along a route and renegotiating carrier contracts. Separately, as part of the optimization, we are building capabilities to improve DC service levels for stores to support more sales in high volume stores or to win with availability in highly competitive markets. Next slide. We fully recognize that Advance has a significant operating margin industry and we are focused on narrowing that gap. We strongly believe that with our current plan, we can improve our ability to generate higher profits more consistently.

Based on cost factors alone, we have identified approximately 500 to 700 basis points of margin opportunity. This is associated with reducing supply chain and product costs, improving pricing and promotions management, and extracting SG and A efficiencies. Our largest gap to peers is sales productivity at the store level, which is almost equal in magnitude to the cost factors. As we take actions to improve our direct and indirect expense structure, we expect a greater percentage of our sales dollars to flow to the bottom line, which will enable us to further narrow the gap. I would also like to note that on the far right section of the chart, we show structural components within our financial profile that will limit our ability to fully close the gap in the long term.

These include a higher mix of rented store locations, the relative mix of Pro customers and margin considerations from sales through independent locations. That being said, we are confident in our ability to improve margins to attractive levels in the long run. Our productivity review has identified opportunities to generate over 500 basis points of margin over the next 3 years to reach our objective of delivering approximately 7% adjusted operating income margin by the end of fiscal 2027. These margin opportunities stem from actions within each of our strategic pillars. Ryan will share more details on our long term financial objectives and how we plan to track our progress.

As I wrap up my section, I would like to reiterate that each activity in our strategic plan reflects an operating philosophy based on core retail fundamentals. We will remain focused on executing and tracking the success of these actions to elevate the performance of the advanced blended box. I will now hand it over to Ryan to describe how these strategic actions drive our financial plan. Ryan?

I am excited to share our financial roadmap through fiscal 2027 and plans to deliver value for our shareholders. Our financial plan reflects progress on achieving greater operational productivity through our strategic actions. As we discussed our financial plan today, both Shane and I recognize that we need to build a track record of success. Over the past several months, we have dedicated our time to diving into the business, understanding the opportunities that lie ahead and building a plan backed by solid fundamental actions with measurable KPIs to track progress. We are focused on 4 key areas to enhance shareholder returns over the next 3 years and beyond.

First, we are optimizing our asset portfolio through store closures and SG and A reductions to provide a healthy foundation for long term growth. 2nd, as Shane mentioned, we have identified over 500 basis points of margin opportunity over the next 3 years from operational efficiencies in merchandising, supply chain and store initiatives. Importantly, we do not view this as the final destination, but the beginning of our continued operating margin expansion in the future. 3rd, we believe that we have ample liquidity for investment in high return projects across critical areas to support our growth. This includes building our multi echelon network and accelerating new store openings.

And 4th, we anticipate our strategic actions will enable us to improve cash generated from operations, driving an improvement in free cash flow even as we step up capital expenditures over the next few years. While we have already begun executing part of our plan this year, the largest portion of the implementation is not expected to begin in full earnest until 2025. As a result, we expect these benefits to start showing meaningful progress in 2026 and beyond. During the implementation, we'll be measuring the success of each pillar with clearly defined operational KPIs and holding our organization accountable to those goals. To monitor progress on these initiatives, we have set up internal work streams to manage the implementation and allocation of resources to achieve these goals.

We are keenly aware that the initiatives on this slide are frequently used concepts in retail. The difference between companies that are successful and those that are not is the quality of execution. As a management team, that is where we spend most of our time with a focus on getting the basics right. Before discussing our 3 year plan, let me provide some color on our financials adjusting for the full impact of store closures and the sale of Worldpac. Starting with the midpoint of our 2024 guidance and excluding stores planned for closure, our pro form a revenue is expected to be between $8,200,000,000 $8,400,000,000 As previously noted, the store closures reduced our net sales by approximately $700,000,000 However, we are rebasing our plan around $600,000,000 to $800,000,000 of net sales reduction.

The high end of this range assumes modest levels of sales transfer to locations and markets where we will continue to have a presence. The low end of this range bakes in potential headwinds associated with realignment of our sales team efforts due to the reduction in store footprint. In addition, we show the midpoint of our 2024 operating income margin guidance as well as the anticipated 70 to 90 basis points of savings associated with store closures, about 30 basis points of atypical items offset by the normalization of about 30 basis points of Worldpac intercompany margin. Over the next few slides, I will provide an overview of our 3 year financial plan with preliminary expectations for 2025. Starting with net sales.

For 2025, we expect net sales of approximately $8,400,000,000 to $8,600,000,000 We expect to begin closing stores later this year with full completion of this activity by mid-twenty 25. As a result, our 2025 net sales target includes a partial impact of lost sales. We also plan to open 30 new stores next year and grow comparable sales between 50 to 150 basis points, which is an improvement on our current run rate with modest contribution from strategic actions currently in flight. This rate of growth also includes the carryover of pricing actions, which we expect to be fully annualized in the first half of twenty twenty five. Over the following two years, we expect our rate of comparable sales growth to improve as we realize the benefits of our store operating model changes, improved parts availability and an overall improvement in customer service, including a reduction in our time to serve.

While we expect to deliver continuous improvement in our sales trajectory, the timing of the benefits from our initiatives are difficult to predict. As a result, our plan is based on comparable sales growth below industry levels. We also plan to gradually accelerate our pace of new store openings each year to ultimately achieve our long term target of opening 100 new stores post 2027. Now looking at adjusted operating margin. By the end of 2025, we are planning for adjusted operating margin between 2% to 3%, implying an expansion of 150 basis points to 2 50 basis points compared to the midpoint of our RemainCo 2024 guidance.

As indicated earlier, we expect to save approximately $60,000,000 to $80,000,000 in operating costs related to the store closures or about 70 to 90 basis points in margin. During 2025, we expect to recover about half of these savings due to timing of closures. The full run rate of operating cost savings is expected in the second half of twenty twenty six. The rest of our margin improvement in 2025 is being driven by cost savings from merchandising activities, including line reviews and product cost negotiations. We expect modest SG and A leverage in 2025 from labor productivity and indirect cost out initiatives offset by normal wage inflation.

Over the following 2 years, we expect operating margin to increase by another 400 to 500 basis points, which includes the full operational cost savings associated with the store closures. Our plan assumes fiscal 2027 gross margin in the mid-40s range and SG and A below 40%. The gross margin improvement is expected to be driven by 3 primary factors. First, strategic vendor negotiations. As Shane mentioned, we are conducting joint business planning discussions with our strategic suppliers to grow our business with them and improve the economic outcome for us and our suppliers.

2nd, DC productivity and transportation optimization. We expect to leverage supply chain costs and drive stronger DC productivity through higher inbound and outbound volumes by operating fewer large DCs. We also plan to optimize our store replenishment routes based on transaction volume and market needs. And 3rd, promotions. With the use of targeted promotions, we aim to remove unproductive offers and drive better gross margin returns through a disciplined promotional cadence that will yield higher returns.

At the same time, we plan to manage pro customer discounting through new pricing models to increase our wallet share from existing customers. Regarding SG and A, the margin improvement is expected to be driven by increased labor productivity from changes in our store operating model and higher fixed cost leverage supported by better parts availability. We remain committed to maintaining sufficient liquidity over our planning horizon. Our balance sheet is strong with approximately $500,000,000 of cash available at the end of Q3. The sale of Worldpac added approximately $1,200,000,000 of incremental cash to support our strategic plans.

While we expect to incur certain cash related costs associated with the execution of store closures, we are simultaneously evaluating options to unlock value from the closed locations to minimize the cash flow impact. Even after reflecting these costs, we expect we would have over $1,000,000,000 in cash on our balance sheet. This position I've just described does not take into account our revolving credit facility, which is currently undrawn. Our financial plans assume we will be able to generate strong operating cash flow to fund higher CapEx, which in turn would help deliver higher free cash flow. In 2025, we anticipate spending at least $300,000,000 in capital expenditure related to our strategic initiatives funded through operating cash flow.

As we execute our turnaround and improve the performance of the business, improving our leverage profile remains a key priority. Our objective is to reduce RemainCo leverage ratio from approximately 4 times at the end of Q3 to approximately 2.5 times no later than the end of 2027. We expect to reach this target by repaying our debt obligations at or before maturity along with the reduction in our lease obligations. On a preliminary basis, we expect to exit approximately 40% of these leases tied to closed stores over the next 12 to 18 months, partially offset by leases for new stores through 2027. I would like to note, we anticipate reaching our target leverage ratio regardless of outcomes from our efforts to reduce lease obligations.

Regarding supply chain financing, we currently have sufficient and growing capacity on the facility and our current 3 year planning horizon assumes we maintain approximately $2,800,000,000 of remain co payables under financing agreements with our banks. Separately, as it pertains to inventory, our payables coverage ratio has improved by approximately 300 basis points following the sale of Worldpac. Our 3 year financial plan assumes we maintain our current payables ratio. We expect to deliver further improvements in this ratio over time as we execute our merchandising strategies and enhance vendor relationships. This implies approximately 3.5 percent of net sales over our planning horizon.

We are allocating incremental CapEx to support our ongoing business needs, accelerate new store growth and invest in strategic initiatives to stabilize and grow the business. We will continue to spend toward the build out of our multi echelon supply chain and other merchandising projects to improve inventory availability. Additionally, a portion of capital will be allocated towards store and technology debt. These expenditures will be targeted primarily on the key maintenance items such as aged roofing, HVAC or technology systems. In summary, we believe we have the right strategy centered on core retail fundamentals to deliver our financial objective for 2027.

Shane and I are confident in this plan and the team's ability to execute this turnaround. We are focusing on execution and holding the entire organization accountable to delivering progress on our KPIs. As we solidify our foundation and work to achieve these targets in 2027, we believe we have further upside potential to narrow our gap to the industry and to exceed 7% adjusted operating margin beyond 2027. Moving to an update on our full year 2024 guidance before moving to Q and A. Our guidance is presented on an adjusted non GAAP basis for the Advanced RemainCo.

Net sales. We now expect net sales for the full year to come in approximately $9,000,000,000 including comparable store sales of approximately negative 1%. Quarter to date, our trends are tracking about in line with Q3 and our guidance assumes we continue at the same trend through the end of the quarter. The impact of store closures is not expected to be meaningful to 4th quarter comp trends due to timing of closures. We expect adjusted operating income margin for the full year to be between positive 25 basis points and 75 basis points.

Adjusted diluted EPS for the full year is now expected to be in the range of a loss of $0.60 to flat. We expect free cash flow of approximately flat at the end of the year, which includes cash outflow associated with the execution of store closures. Our guidance for capital expenditures is now expected between $175,000,000 to $225,000,000 as we continue to undertake projects to enhance our IT, stores and supply chain infrastructure. Understanding this is the first time we are providing Remainco guidance, let me share my thoughts on 4th quarter. Based on our guidance, 4th quarter adjusted operating margin is expected to be negative.

We expect gross margin to be up year over year, although due to the lower sales, we will experience some deleverage in fixed supply chain expenses. Q4 is traditionally the lowest gross margin rate of the year and I would expect that to continue. On SG and A, we expect dollars to be sequentially lower, although higher compared to last year due to lapping of certain favorable annual trips, which is expected to drive deleverage on lower sales. I would also like to note that our Q4 expectation assumes a temporary reprioritization to execute store closures that could potentially impact our day to day operations. We believe these strategic actions are the right path forward to establish a stronger foundation for future growth.

In summary, I would like to thank our entire team for their commitment to the turnaround and helping shape our strategy for the long term. We have a rich legacy and a trusted brand name along with an extensive network of stores to capitalize on strong industry drivers for our growth. Our strategic plan is focused on getting the basics right every day. We have a strong leadership team and talented frontline workforce to serve our customers. We have a solid balance sheet to support our investment needs.

We now have a clear pathway to narrow our margin gap to the industry and create value for our shareholders. I look forward to sharing more about our progress in the future. With that, I will now hand the call back to Shane.

Thank you, Ryan. In closing, I want to thank everybody for joining our call today.

We hope today's presentation provided a clearer view of our path forward and our opportunities for growth. Each leader in our organization is committed to delivering against our 3 year plan. I would like to thank our team members once again for their continued dedication to serving our customers while we take the required actions to fuel the improvement and long term growth of the company. With that, let's open up the call for questions. Operator?

Thank you. Our first question comes from Michael Lasser of UBS. Michael, your line is open. Please go ahead.

Good morning. Thank you so much for taking my question. It's on the long term outlook. How much reinvestment have you assumed that you will need to make from the cost savings into the business over the next couple of years? And as part of that, have you assumed that you will be able to maintain your vendor financing program as it currently stands moving forward?

Thanks, Michael. Yes, on the supply chain finance piece, yes, we are factoring in, we're maintaining the ability of the 2.8 is roughly where we're targeting. That might fluctuate up or down a little bit as we continue to work with our vendor partners. But we're targeting $2,800,000 targeting that we will have the capacity to support the $2,800,000 going forward. From a reinvestment standpoint, we feel like we're at a good SG and A level.

We'll have obviously some inflation going forward. But I think in our guide, we factored in incremental CapEx that will be part of that investment. So moving up to $300,000,000 on average per year, that might fluctuate a little bit depending on the timing of some of those initiatives, but that's the reinvestment we're making more on the CapEx side. On the cost savings side, we're bringing a lot of those cost savings to the bottom line, and that's somewhat offset by inflation going forward, but factored into our guide.

Got you. Thank you very much. My follow-up question is, philosophically, is the plan to say, hey, Advanced Auto can compete effectively in the marketplace as a leaner, more nimble, more regional type of organization. And there's evidence to support that from the fact that there are strong regional players in the market already, because closing stores, getting out of markets would suggest that the store growth, the ability to be a national retailer is going to be limited over time. So if you could just give us a sense of what the long term vision on how Advance is expecting to compete with this plan, that would be great.

Hey, Michael, it's Shane. Good morning. Thank you for the questions. We have no doubt that we can compete. And that evidence strongly exists today.

We don't need to look at regional players. We just look internally at our company. And where we have density, we perform and we see that in numerous markets. And if you look at how we'll be closed store closing, we'll be number 1 or number 2 in terms of density in 75% of our markets. So when you do a bell curve of our store performance, we see plenty of locations where we not only compete, we thrive, we win.

And so the idea is to focus on that, get back to winning, deliver the economic numbers that we've depicted today. And during that journey, we return to growth, which includes opening new stores. So I don't think about it in terms of national or not national. We just we think about it in terms of where we can win, where we can grow and then start doing that.

Thank you. Our next question comes from Chris Horvers of JPMorgan. Chris, your line is open. Please proceed.

Thanks. Good morning, everybody, and thanks for the presentation. So my first question is, understanding that you do have less sales in the Q4 and you're going to deleverage, but it seems like you're implying it down 5% operating margin. So I guess the question is, are there one time costs that are included in 4Q non GAAP that aren't per se recurring or continuing. So related to that on Slide 7, it seems like you're saying that the 0.8% adjusted operating margin in 3Q included like 125 basis points of what things that won't necessarily repeat next year?

Yes. Thanks, Chris. Yes, you're doing the math right. Q4 is going to be a little bit down close to what you're saying there. It's more of we're cycling a couple of things that happened last year.

We're factoring in some disruption given the turnaround right now. You'll see some disruption in sales. And our gross profit rate in Q4 is traditionally the lowest gross profit rate in the year. There's a couple of things impacting that gross profit rate, but nothing that's we're adjusting out the strategic initiatives. So that's out of that guide.

But we're factoring in just a little bit of risk adjustment in Q4 relative to us being prioritizing this turnaround and the store closures. But really the gross profit traditionally in Q4 is lower a lower rate and that's driving it as well.

And then so am I right on Slide 7 that 3Q had 125 basis points of stuff that you're putting in the adjusted, but you're saying won't necessarily recur next year. And as you think about the bridge to 25, you're modeling 200 basis points of operating margin expansion sort of midpoint to midpoint. How much of that expansion would you say is discrete lapse like one time cost, one time impact, whether it's the weather or that gets you to that level of expansion year over year?

Yes. The 125 basis points is just kind of those things that pop up in the year like the hurricane, the CrowdStrike impact on our system. There are other items in there. So they're kind of atypical items that aren't necessarily part of the normal run the business. So that's the 125 that we're calling out.

Advance Auto Parts (AAP) Q3 2024 Earnings Call Transcript

Company Participants