Advance Auto Parts, Inc. (AAP) Q4 2013 Earnings Report, Transcript and Summary

Welcome to the Advance Auto Parts Fourth Quarter 2013 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, Director 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'd 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 and 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. 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 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. Certain financial measures have been reported on a comparable basis to exclude the impact of costs that were incurred in fiscal 2013 in connection with the integration of B.W.P. Distributors and the General Parts International acquisition. A reconciliation of any non-GAAP financial measures mentioned on the call with the corresponding GAAP measures is described in our earnings release and our SEC filings, which can be found on our website at advanceautoparts.com. For planning purposes, our first quarter 2014 earnings release is scheduled for May 15 before market open, and our quarterly conference call is scheduled for the morning of Thursday, May 15, 2014. 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 1 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, and welcome to 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 me 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 financials. I'd also like to take this opportunity to convey a warm welcome to the new team members from General Parts that have now joined our Advance team, bringing our total team strength to approximately 71,000. The foundation of any business is its people, and I'm proud to be surrounded by an exceptionally talented team as we head into a special and transformative year for our company in 2014. Since our last conference call at the end of the third quarter, we are very excited to have closed the General Parts acquisition on January 2, 2014. The closing of this transaction was a historic day for our company. This investment positions Advance for leadership in the industry while broadening and accelerating our growth strategy. Advance's 80-year history has been a story of growth, and adapting to the changing industry and customer needs. This combination is another strategic step forward for our great company, and I couldn't be more pleased and privileged to be part of this next chapter in our journey. I will begin my prepared remarks today updating you on our fourth quarter performance, followed by my thoughts on our 2013 outcomes as well as our priorities for 2014. I am pleased to report that our results in the fourth quarter were better than expected, with total sales increasing 6% for the quarter. Our comparable earnings per share increased 6.8% versus the fourth quarter in 2012. Now I'm also very happy to report a positive comp sales, albeit slight, of 0.1% increase in the quarter. This increase was a 210 basis-point acceleration from our third quarter. Notably, both our DIY and Commercial same-store sales accelerated from the third quarter, with Commercial outpacing DIY. Entering the fourth quarter, we anticipated continued sales softness and that our comparable store sales would decline by low single-digits. However, we saw increased levels of customer demand in the back half of the quarter due to favorable winter weather, generating increased sales particularly in battery and the wiper categories. Sales in all of our markets accelerated from the third quarter, with our cold weather markets accelerating at a faster pace. The sales performance was also a testament to our supply chain and retail operations team for having strong inventory in-stock positions and delivering exceptional service to our customers. Clearly, the extended deep-freeze in the Eastern U.S. has and should benefit our business in 2014. During the quarter, our gross profit rate declined 8 basis points to 49.8% versus 49.9% in the fourth quarter of 2012. That was expected. Our SG&A performance in the fourth quarter was in line with our expectations, as comparable SG&A increased to 41.7%. Mike will discuss this in more detail shortly. Looking back on 2013, we continued to see favorable industry fundamentals as we witnessed an increase in miles driven, the average age of vehicles holding steady at over 11 years with approximately 80% of vehicles over 6 years old, and deferred maintenance reaching record levels in 2013. We are encouraged with the overall progress we made in the year despite navigating persistent headwinds from unfavorable macro factors, including a very apprehensive consumer that was experiencing uncertainty with employment, government health care reform and a very uneven economic recovery. In addition, we were faced with unseasonably warm winter temperatures during our first quarter, followed by a late start to the spring selling season. In light of all these challenges, we remained focused on what was in our control and concentrated on our objectives of driving growth, providing the best customer service and growing our profits. The back half of the fourth quarter brought extraordinary cold winter weather, which increased consumer demand and led to a strong finish to our fiscal year. As I've said before, weather balances out over the long term. Strategically, our greatest accomplishment was the acquisition of General Parts International, which closed just after our 2013 fiscal year end. The combined business will be more balanced with a growth platform for Commercial and DIY. We will be able to strengthen our market position and increase service levels to a broader and deeper customer base in the industry. The acquisition increases our reach with immediate coast-to-coast and North American market coverage. It also expands our platform to include the important independent customer channel, while building on our commitment to national accounts, large bay garages, heavy-duty fleet and government programs. The addition of WORLDPAC, combined with our existing Autopart International business, solidifies our position as the market leader in import parts. In addition, it will create an unparalleled e-commerce engine through our combination with the market-leading WORLDPAC and CARQUEST B2B platforms. Operationally, our focus and related achievements were concentrated on strengthening and executing on the fundamentals, aimed at driving sales growth, customer service and profitability. As we entered the year, our strategy at the highest level was unchanged in terms of our focus on service leadership and superior availability. Yet, we narrowed our priorities to concentrate on growing our Commercial Business, focusing on in-store execution and developing a more efficient operating model, with both the DIY and Commercial businesses working together. Overall, we are encouraged by our strong fourth quarter finish in sales, especially in the DIY business. Our focus in 2013 was managing our cost to the slower sales environment and making the necessary trade-offs as we balanced our profit management of our important DIY business while continuing to invest in our customers in key areas of the business. Specifically, our Commercial Business saw positive sales gains resulting from national and regional account growth, incremental growth in our e-commerce business and continued positive response to our leading e-services offers. Delivery speed and reliability continue to improve across the board. We continue driving improvements in our market availability and assortment through the support of 374 hub stores and the positive impact from our daily delivery capabilities from our Remington Distribution Center that met our expectations. Collectively, Advance and AI opened 172 new stores in 2013, a 35-store increase over 2012 openings. The performance of our new stores positions us well as we enter 2014. Concurrently, the integration of 124 BWP stores continues to be on track for completion by mid-2014. George Sherman joined our company as President in the first half of 2013 to lead the operations and day-to-day execution. His impact has been reflected in our second half results. We made significant strides with in-store execution improvements and took meaningful steps towards improved efficiency and effectiveness within our operating model. George and the team have been simplifying how we run our stores, driving productivity improvements and investing in our team members through comprehensive product and leadership training programs. George will speak more about this shortly. Overall, from an operational perspective, we are very proud of the progress we made as we remain focused on execution, and the team worked with intensity to deliver our priorities being capped off by a better-than-expected fourth quarter performance. Financially, we are pleased with our progress towards increasing our profitability as operating income on a comparable basis grew 5.5% in 2013 despite the challenging sales environment. Overall, comp store sales did decline 1.5%. However, total sales grew 4.7% due to the acquisition of BWP and new stores. Our teams worked diligently to drive year-over-year gross margin improvements of 15 basis points, including the cost of the first full year of operation from our Remington DC that opened in the third quarter of 2012. Collectively, our teams managed expenses and made the necessary edits, which helped drive our operating income results in line with our expectations for the full year. Turning to 2014. This is arguably the most exciting year in our 80-year history. The past 6 years have targeted growth of our Commercial Business through a series of deliberate, strategic and operational stair-steps. The acquisition of General Parts is a logical next step for Advance as we accelerate our growth strategy and capitalize on the fundamentals and structural shifts in our industry towards Commercial. Collectively, the acquisition of General Parts positions Advance as the largest automotive parts provider in North America. While being the largest is certainly an accomplishment in its own right, our sights are now set on being the best in the industry. Our primary focus areas in 2014 will be squarely set on successfully delivering on 2 overarching objectives: first, be manically focused on delivering on the core business; and second, the successful execution in 2014 of a multi-year General Parts integration plan. In 2014, we begin the never-ending mission of being the best. We will build on those successes that have gotten us to where we are today and continue to invest in those areas that will drive our sales growth, customer service excellence and profit outcomes. We are committed to improving our sales outcomes for both DIY and Commercial, through continued focus on our fundamentals, growing our store base, expansion of national and regional accounts, and investing in availability through the additional hubs and supply chain efficiencies. Our focus on improving our business profitability will leverage on our success in 2013 as we maintain our positive momentum with in-store execution and disciplined expense management. We expect to take meaningful steps in improving our overall customer service by putting our customers first and improving our ability to serve. Supporting that initiative will be our commitment to continue heavily investing in our team members that serve our customers day-in and day-out through relevant and comprehensive training and development. Notably, our acquisition of General Parts has immediately improved the strength of our overall team. The General Parts team members come with deep commercial industry and institutional experience and knowledge which will complement our overall talent as the teams begin sharing knowledge and experience. We are very excited to work as a combined team, one team in 2014. An additional area of focus and investment for us in 2014 will be our import business. Today, WORLDPAC, together with Autoparts International, position us as the leader in the import market, the fastest-growing automotive segment. The addressable market for imports continues to grow at a faster rate than domestic vehicles based on vehicle registrations. We will look to accelerate our leadership position in this important segment. In summary, I am upbeat and grounded in our view of 2014. I remain confident about our industry fundamentals, remaining positive, and appreciate the return of normalized winter season leading to a strong fourth quarter finish, giving us momentum as we enter 2014. That being said, the uneven economic recovery continues to affect the consumer, although modest signs of improvement are expected in 2014 with the anniversary of increased payroll taxes and steady gas prices. We remain balanced and we'll continue to manage our business accordingly as we monitor trends as they unfold throughout the year. We will be clearly focused on delivering on our core business outcomes while successfully integrating the General Parts acquisition. In simple terms, we'll continually improve our operational execution while investing in our capabilities to serve our customers better than anyone else in 2014. In closing, I would like to recognize a few of the leaders who were instrumental in the General Parts acquisition process. Transactions of this size and nature are complex and require cross-functional and organizational teamwork to successfully execute. I could not be more proud of the team that led the acquisition, which included more leaders than I could possibly name here. Yet the leadership and tireless efforts from several leaders, including Jim Wade, Bill Carter, Temple Sloan III, and David McCartney, were instrumental during the acquisition process. Along with these leaders, I'd like to recognize the human resource, finance and legal teams of each organization for carrying added responsibilities, keeping our focus each day and continuing to deliver great customer experience. I will now turn the call over to George to update you on the work he is leading on our key priorities that support our 2013 success and outline some of the goals for 2014. George?

Thanks, Darren, and good morning, everyone. First, I'd like to thank our team members for their commitment to customer service while continuing to make progress on our 2013 priorities during the quarter. I'd also like to extend a very warm welcome to the General Parts team members that have now joined the Advance team in 2014. With our closing announcement of the General Parts acquisition, we now have roughly 71,000 talented team members working together, as we look forward to delivering on the tremendous opportunity this acquisition enables while providing the best customer service each day. With my prepared remarks this morning, I'll provide a view on our fourth quarter sales performance, followed by an update on the key priorities that we focused on within the quarter and the full year. Finally, I'll share my thoughts on the business as we enter 2014. Looking at our sales, we are very encouraged with our performance in the fourth quarter as the team delivered a positive comparable store sales outcome of 0.1%, a sequential acceleration of at least 200 basis points from Q3 on a 1-year and 2-year basis. Our positive sales performance was attributable to solid execution by our field teams and the continuous improvements we are making to our operational infrastructure, which I'll talk more about in a moment. In addition, the winter weather trends during the second half of the quarter across our markets generated incremental customer demand in various product categories. Our continued investments and availability and superb execution for our merchant and supply chain teams allow us to be well-positioned to respond to a lifting customer demand. Our field team accelerated performance in both our DIY and Commercial businesses. Our positive comp sales performance was driven by growth in seasonal categories, driving improvements in both dollars per transaction and sales productivity, with Commercial seeing transaction growth within the quarter. All of our regions accelerated from the third quarter, with notable acceleration being strongest in the Plains and Great Lakes regions, 2 regions that were particularly challenged during the third quarter. As I mentioned previously, we've been on a mission to transform all operational D&A to one that is focused on outcomes: sales, great customer service and profitability. These outcomes are underpinned by fundamental business priorities and structural changes we have been systematically making to our business in order to position Advance for long-term success. We are continuing to see progress against those priorities, and the changes we are making not only help us deliver the positive results in the fourth quarter but also establish all-important momentum heading into 2014. I'd now like to update you on our progress against key priorities. But first, I'd like to highlight some areas where we're making positive structural changes. First, we've been hard at work simplifying and streamlining our operating structure and charting the course towards a field-centric operating model. We've been working diligently to decentralize decision-making so that we empower our field team members and effectively push decision-making closer to the customer. This will result in faster decisions that will improve our customer experience, but also allow our field leaders to tailor those decisions and strategies for the individual markets and customer needs. Second, we continue to put focus each day on improving our in-store execution and building an efficient operating model. As I previously mentioned, we're all in when it comes to investing in our team members through training and development. This is an investment in time and resources, and we're clearly committed to providing our team members with the knowledge, training and tools to equip them to deliver a fantastic customer experience while empowering them to deliver on our core business outcomes. Those business outcomes are now clear and concise and are focused on the most important performance metrics. We have been simplifying our business and removing non-valuated tasks, removing unnecessary reporting, redundant procedures and shifting our team members' time and focus towards being on the sales floor, at the counter or on the phone, engaging with our customers and looking after their needs. Third, we're developing a model of consistent disciplined execution and accountability. We have held firm to a recipe for success and are now seeing improvement in our core operations that give us confidence going forward. Our move to a positive comp in the fourth quarter was encouraging, but to be clear, we are working towards and aspire for a greater outcome. Turning around sales execution is not an overnight process but rather a series of building blocks, through a consistent execution day-in and day-out. The execution of our field leadership teams and their willingness to accept accountability and affect movement to a field-centric organization has been another brick in the foundation that we continue to build as we head into 2014. Turning your attention now to update you on other key priorities and business outcomes. Our Commercial Business continued to gain momentum in the fourth quarter with positive comp sales and a Commercial sales mix of 40.4% versus 38.1% in the same quarter last year. Our sales per Commercial program exceeded $700,000 per program. Our supply chain and availability work continues, and I'll take a moment to update you on: one, our Remington Distribution Center; two, our hub store initiatives; and three, updates on our ongoing focus on inventory availability. As we previously communicated, our goal is to service 400 stores through our Remington distribution facility. I'm happy to announce that we have not only met that objective, but have modestly exceeded it. Of those 400-plus stores being serviced, we have 178 stores that are receiving daily replenishment at the end of the fourth quarter. We had expanded the assortment of our daily delivery by adding additional categories and providing those service stores with the strongest in-stock positions, and we are increasingly encouraged by the performance of those stores receiving daily delivery as they exceed expectations and continue to show a positive momentum and increased sales lift. Daily replenishment continues to be a priority for us and aligns with our objective of driving availability and breadth of assortment. Further expansion of the daily delivery program will be considered in conjunction with a more holistic distribution network assessment study we'll be conducting in light of our recent acquisition and the 38 new General Parts distribution centers we will now operate. Second, our work continues towards improvement of in-market availability. A key component of this is our hub store strategy. During the quarter, we added 4 hub stores either through new stores or the upgrade of existing stores, strategically located to operate these hubs. And at the end of the quarter, our store count was 374, an increase of 35 from the fourth quarter of last year. Third, as we look at inventory, our inventory growth was up 10.7% year-over-year, primarily due to the increase in new store openings, our acquisition of BWP, our increase in hub stores and the ramp-up of our Remington Distribution Center. We also continue to drive improvements in our availability as we look to make strategic investments that get the parts closest to the customer. Looking at our new store growth during the quarter, we added 55 new Advance Auto Parts stores that bring our new store count over the past 12 months to 172. The performance of our 2012 and 2013 class of stores continue to perform at or above our expectations, primarily driven by a faster ramp-up of Commercial Business from previous classes of stores. We are once again pleased with the performance of our Autopart International business. The fourth quarter performance was once again led by strong execution, driving strong top line sales growth and diligent expense management, resulting in strong bottom line performance. Heading into 2014, we're excited about the continued growth of our leadership position in imports. Integration of the 124 BWP stores progressed largely as expected in the fourth quarter. We remain on plan to complete integration by mid-2014, consistent with the timeframe previously communicated at the beginning of the fiscal year. As of the fourth quarter, we successfully converted or consolidated a total of 33 stores and continue to capture the integration learnings which will be leveraged as we enter into our large integration of General Parts beginning in 2014. As we think about 2014, it's important to recognize where we have come from and where we are going. Since we began Advance 80 years ago, we've been on a continuous journey of growth, and we couldn't be more proud of our accomplishments. Fast-forward to today and we're now the biggest in the industry. However, as exciting as that is, we aspire for more. In 2014, we are focused on the journey towards being the best. The 2 overarching priorities for us in 2014 will be: first, to maintain an uncompromising focus on our core operations and delivering the best service to our customers; second, to successfully integrate the General Parts acquisition and achieve the benefits we conveyed at the time we announced the acquisition. We are clear on the absolute importance of successfully integrating the companies and minimizing the distraction factor to our core businesses. Of paramount importance was to keep our integration team and processes distinctly separate from our core day-to-day run of the business team to mitigate such distraction risk. Therefore, we'll be assigning a team to deliver the integration led by Bill Carter, Senior Vice President on our Advance leadership team. Bill brings an immeasurable level of experience to the table. From his combined experience, both prior to Advance while at Bain Consulting, where he led the Sterne Agee work in auto aftermarkets, post-merger integration and program execution, but also with Advance, where he has been instrumental in our Commercial strategy and the integration of our acquisition of BWP stores. This team will also include members from General Parts, which will provide not only deep institutional knowledge, but a forum for sharing the best practices within the group. We are pleased with our performance in 2013 as we made significant strides in our execution framework and drove strong sales performance in our fourth quarter. Our work on great execution will continue to build off our successes this past year, and we will continue to invest in and focus on the fundamentals. That begins first with our team. It starts with continuing focus on strong hiring, training and development, performance management and building on our work of developing a field-centric culture; next, concentrating on growth of our sales and service capabilities from national account growth, expanding our e-services offering, growing penetration of our Commercial credit program and our B2B platform; third, continuing to work to support availability-driven growth through a continued expansion of our hub stores and the inventory optimization as we look to continue improvement of in-stocks, and as I mentioned earlier, getting inventory where it matters most, closest to the customers. A key fundamental, and central to our overarching mission, will be a continuing -- will be continuing to focus on our customers and invest in those areas that will improve our ability to serve each and every day. In closing, I'd like to take a moment to communicate how thrilled I am to welcome 2 exceptionally talented leaders to my team: David McCartney and Al Wheeler. David McCartney will serve as President of our CARQUEST operations and has been associated with General Parts for 27 years, leading almost every aspect of the organization over his career. He has a passion for creating and enabling teams that focus on success for the organization as well as for our customers. Al Wheeler will serve as our Senior Vice President of our combined Commercial Business. Al has been with CARQUEST for over 30 years, and brings a rich experience set that will undoubtedly position us to accelerate our combined Commercial Business. Welcome to the team, David and Al. I'm excited about our synergy and the combined capabilities that we'll now bring to bear in the marketplace. 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 2013 and the better-than-expected finish they led us to in our fourth quarter. I would also like to sincerely welcome all the new team members from General Parts to the Advance team as we successfully closed the transaction on January 2, 2014. We entered 2014 with both momentum and excitement from this combination, which will allow us to leverage our new size and scale, combined capabilities and a team of roughly 71,000 talented team members to create value for our shareholders, customers and team members in 2014. I plan to cover the following topics with you this morning: one, provide some financial highlights from our fourth quarter of 2013; two, put our fourth quarter and full year results into context with our expectations and key financial priorities we use to measure our performance; and three, share with you our financial outlook for 2014. As a point of clarity, my commentary this morning regarding the 2013 financial performance will be solely related to Advance Auto Parts. The General Parts acquisition closed subsequent to our fiscal year end and we will begin consolidated reporting and commentary beginning with the first quarter of 2014. In addition, the 2013 results I will be speaking to, unless otherwise specified, will be on a comparable basis which excludes the impacts of BWP integration expenses and excludes any one-time transaction costs associated with the acquisition of General Parts. We began this year by communicating our 2013 EPS full year guidance of $5.45 to $5.60, excluding BWP integration costs, and we are pleased to have exceeded those expectations with a comparable EPS of $5.67, an 8.6% increase from 2012. This was driven by improvements in our operating profit performance as a result of both an increase in our gross profit rate and disciplined expense management. We are encouraged by the improvements in our operational execution, leading to a strong finish in the fourth quarter. On a GAAP basis, our 2013 EPS was $5.32, which included $0.07 of BWP integration costs for the year, including $0.03 in Q4 and $0.28 of transaction expenses, including $0.24 in Q4 associated with the acquisition of General Parts. At the start of the year, we estimated BWP integration costs would be $0.15 to $0.20. However, the actual integration costs of $0.07 came in under that estimate due to both the pacing of the integration and our actual expenses coming in lower than original estimates. We remain on track to complete the integration by approximately the end of our second quarter. Turning to sales. Our fourth quarter sales increased 6% to $1.4 billion, driven by the net addition of 151 new stores over the past 12 months, the acquisition of BWP, and a comparable same-store sales increase of 0.1%. Our positive comp store sales are attributable to the extreme winter weather in the back half of the quarter, combined with the strong execution from our retail and supply chain teams. Our total sales for fiscal 2013 increased 4.7% to $6.5 billion, and our full year comp store sales decreased 1.5%. Our fourth quarter gross profit rate decreased 8 basis points to 49.8% versus 49.9% in Q4 of 2012. The 8 basis-point decrease in gross profit rate was the result of a higher mix of Commercial, which has a lower gross profit rate, driven primarily by the acquisition of BWP, partially offset by increased merchandising margins due to lower acquisition costs and improvements in supply chain efficiencies. Our Commercial mix represented 40.6% of 2013 sales versus 38.1% last year. For the year, our gross profit rate increased 15 basis points to 50.1%. Our fourth quarter comparable SG&A rate of 41.7% increased 36 basis points versus fourth quarter of 2012, driven by higher incentive compensation and increased new store openings. As shared on our third quarter earnings call, the higher incentive comp was the result of better operating income performance this year versus last year as we anniversary lower incentive compensation in Q4 last year. This was partially offset by lower administrative support costs, specifically less professional fees and increased labor productivity. For the year, our comparable SG&A rate increased 7 basis points to 39.4% versus 39.3% over the same period last year, driven by higher incentive compensation, fixed cost deleverage due to the same-store sales decline, and the increase in new store openings. All in, on a comparable basis, our fourth quarter operating income dollars increased 0.6% to $113.8 million, and our operating income rate decreased 44 basis points over the same period last year to 8.1%. Our diluted earnings per share on a comparable basis increased $0.06 to $0.94 during the quarter versus $0.88 in the fourth quarter last year. For the year, on a comparable basis, our operating income dollars increased 5.5% to $693.3 million, and our diluted EPS increased 8.6% to $5.67. Our average diluted share count was 73.2 million shares for the quarter and 73.4 million shares for the full year. For the year, free cash flow was $183.1 million, a decline of 55.6% versus $412.3 million over the same period last year. Excluding the acquisition of BWP, free cash flow was $350.2 million, a $62.1 million decrease from 2012, driven by an increase in owned inventory, partially offset by a lower increase in accounts receivable. Our inventory increased 10.7%, primarily driven by our increase in new stores, our acquisition of BWP, investments in hubs, and our Remington DC. Our accounts payable to inventory ratio now stands at 85.3% versus 87.9% in 2012, and we continue our focus on driving continued AP ratio improvement on our new post-acquisition consolidated base in 2014. At the end of the fourth quarter, we had $1.1 billion in cash and $1.1 billion of long-term debt on our balance sheet. The increase in our fourth quarter cash position was largely driven by the proceeds of our $450 million bond issuance as part of our financing plan in preparation for the close of the acquisition of General Parts. As we embark upon this next strategic growth step of our business, our financial principles remain unchanged. We will continue to measure our financial performance through the financial priorities of growth, profitability and value creation. Our approach and philosophy has always been to prioritize growth as our primary use of capital in order to increase returns and drive shareholder value. The General Parts acquisition accelerates our Commercial growth, which is and continues to be the growth engine of the company, and positions us as the leader in the market, creating a pathway for further growth by opening up attractive new channel opportunities, diversifying and expanding our customer base and enhancing our geographic presence. It will also give us an expanded footprint to expand our DIY business. Turning to profit. Advance has been on a mission to improve profitability, and we are pleased with the progress made in 2013 with our 5.5% increase in operating profit dollars on a comparable basis, driven by our gross profit improvements, increased labor productivity and our disciplined expense management, specifically in reductions we made in our administrative support costs. Looking forward, our mission to improve profitability will continue with the General Parts acquisition and delivering on the estimated $160 million of cost synergies, primarily through the areas of procurement, as well as corporate, store and supply chain efficiencies. With respect to value creation, the General Parts transaction provides a compelling opportunity to drive shareholder returns through growth in our business that will drive incremental operating profit, earnings and cash flows. From a capital structure standpoint, we are committed to paying down our debt to get back to a maximum ceiling leverage ratio of 2.5x and maintaining our investment-grade ratings. Our investment-grade ratings will help us to make continued improvements in our combined AP ratio with GPI. I'd like to now discuss our 2014 annual outlook. To begin, I'd like to share 4 guiding principles that underline the basis of our outlook. One, the 2014 annual outlook is being provided on a total consolidated basis, combining Advance Auto Parts and General Parts results, given we see our combination with GPI as an integrated expansion of our Commercial assets and capabilities to grow with our existing customers and attract new ones. To assist you in understanding the outlook, we are providing you with the following 2013 estimated comparable consolidated information, including General Parts, which was used to develop our 2014 annual outlook. 2013 full year sales is estimated between $9.4 billion and $9.5 billion. 2013 full year gross profit is estimated between 45.5% and 46% of sales. And 2013 full year SG&A is estimated between 36.5% and 37% of sales. This 2013 comparable consolidated information has been provided solely for guidance purposes and represents Advance's current estimate and is subject to change pending the finalization of the close for GPI's 2013 year. Two, in 2014, Advance will also include results on a comparable cash EPS basis. Subsequent to the acquisition of General Parts, the company believes this non-GAAP information is significant to understanding trends and is important in analyzing the company's operating results and earnings and is providing this information to investors to assist in performing analysis of the company's operating results. Three, 2014 will be a 53-week fiscal year for Advance. However, the financial outlook provided today is based on a 42 -- 52-week fiscal year. Four, due to the timing of the General Parts acquisition close, we are still in the process of working through accounting elements of the acquisition and as a result, certain components within our annual outlook discussed today may change. We will continue to advise you of such changes throughout the year. Looking at 2014, we expect the strong industry fundamentals to continue and are encouraged by the sustained strong winter weather patterns and unseasonably cooler temperatures that have contributed to a good start to sales this year. However, it is still early, and we remain balanced in our view due to the challenging year we just completed and persistent uncertainty in the macroeconomic environment continuing to affect the consumer. As a result, we anticipate our comp store sales to be in the range of flat to low single-digits. As a reminder of our policy, stores are included in our comp store sales calculation once a store has been open for 13 complete accounting periods or approximately 1 year. Therefore, our comp store sales in 2014 will include Advance, BWP and Autopart International. Stores will exclude any General Parts locations. Turning to new stores. We plan to collectively open 120 to 140 new Advance Auto Parts stores, Autopart International stores and WORLDPAC branches. We will also continue the work of integrating the remaining BWP stores by the middle of 2014. Turning to gross profit rate. Excluding the impact of achieved synergies, we expect to see some improvement in 2014, combined entity gross profit rate driven by improved merchandise margins due to lower acquisition costs, increased global sourcing and improvements in supply chain efficiencies, partially offset by a higher mix of overall Commercial sales, which has a lower gross profit rate. Looking at SG&A, we expect our SG&A for the combined entity, excluding the impact of achieved synergies, to remain essentially flat, driven by new store growth, annualization of new stores in 2013, and somewhat offset by improved labor productivity and improvements in our administrative support costs. Moving on to synergies. Consistent with our acquisition announcement, we have estimated total run rate cost synergies of $160 million by approximately the end of the third year post-close of the acquisition and expect to achieve approximately $45 million to $55 million in synergy realization in 2014. Also, as per acquisition announcement, we have estimated total one-time expenses to achieve synergies to be approximately $190 million over a 5-year period, with the majority of the costs being incurred within the first 3 years. We expect to incur approximately $55 million to $65 million in expenses to achieve synergies in 2014. Turning to capital expenditures. We expect our capital expenditures to be approximately $325 million to $350 million, driven by new store development, supply chain investments, store systems and approximately $50 million to $60 million in capital related to the integration of General Parts. We expect free cash flow to be a minimum of $450 million, excluding the acquisition of General Parts. As mentioned earlier, our BWP integration program will continue in 2014, as we expect to complete the process by approximately the middle of 2014. We estimate our BWP integration expenses to be approximately $12 million to $15 million for the year. And as a reminder, our outlook is based on a 52-week basis. All in, we expect our 2014 annual comparable cash EPS outlook to be in the range of $7.20 to $7.40 per share. As a reminder, and as further detailed in our press release, this estimate includes synergies of $45 million to $55 million related to the acquisition of GPI, excludes the amortization of intangibles -- assets associated with the acquisition of GPI, excludes the impact of the 53rd week in fiscal 2014, excludes one-time integration costs associated with the continued integration of BWP, and excludes one-time expenses to achieve synergies related to the acquisition of GPI. In closing, we are pleased with our comparable operating profit improvement in 2013, along with the positive momentum we carry into 2014. We expect 2014 to be historic, and we are confident about our future as we begin the journey of integrating General Parts and continue to improve on our base business. I want to again welcome the new General Parts team members to the Advance team, and thank our entire team 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.

[Operator Instructions] The first question today is from Gary Balter with Crédit Suisse. Gary Balter - Crédit Suisse AG, Research Division: Just a -- you've owned BWP now for a little while, and that's the closest you've come in terms of having an in-depth knowledge of GPI. Could you talk about the learnings, and recognizing that's a little bit of a different situation because of the franchisee owning other franchisees? Can you talk about what you learn from the way they operate that gives you confidence in terms of things you could apply from GPII or other areas to Advance to improve performance going forward?

Yes, Gary. This is Darren. So there's a handful of things we learned. First of all, we learned, culturally, we're very similar to the -- whether it's GPI or BWP, and that early on, the work really is to retain the people that are serving our customers. What we've seen in the first 12 months is that our retention levels after acquisition were actually better than the year before. So the team members would clearly have a level of excitement about that. I would say the other thing that we learned is that we had to do some product transitions, and there were some product categories that the customer was very familiar with and very supportive of with their customers, and those product transitions went just fine. So we had to transition into some Advance private label product. We had to transition some of our belts programs and the stocking programs, and our retention levels were very good in terms of just product transitions. Three, it's not simply a real estate transaction that will take 1 of 3 types of transitions with BWP. I would tell you that the one that we're seeing just outstanding results with are the ones where we consolidate a BWP into the backroom of an AAP, what we call tuck and folds. It seemed to be working really well. We're retaining the revenues in much better rates than what we thought, and we're retaining the team members and the customers. There doesn't seem to be any customer retention challenges. Now if we move a little further down the road, we'll lose a little bit of business from those closest to us, but overall, it's exceeded our expectations. I'd tell you the conversions are just a little trickier. I would say those are meeting our expectations. There's fewer of those, and that's when we take an existing BWP and essentially inject a DIY business into it. And what happens is there's a lot more change management with that. And so I don't think it's a technical challenge. And one of the challenges we did have is that you have to put an AAP system because the legacy explorer system, which is the CARQUEST system, was going away. And one of the advantages we see of now owning GPI is that we have access to both systems now, so the change management curve isn't as challenging in some of those conversions overall. And I would say the fourth thing that we've learned overall is that positioning this integration with an integration team that's fully dedicated, we finished, what, 33 by the end of this year. We'll finish them all by the middle of next year. We're using that same integration team. Obviously, we'll have to augment it. And it's like anything in life, you learn with each one that you do, and we're able to execute them a little more seamlessly with each one we get done. That gives me more confidence in terms of how we're positioning for the overall GPI integration.

The next question is from Matthew Fassler with Goldman Sachs.

My primary question relates to synergies. So you quantified the year end number and it sounds like you're looking to book these ratably over the 3 years. Can you talk about the qualitative buckets that you would expect to access earlier in the integration process, whether one or the others is weighted more heavily in year 1 versus year 3.

Hey, Matt, it's Mike. So as we said, we expect to generate $160 million in synergies over the 3 years, and we guided to the range of $45 million to $55 million in 2014. If you break out those, the breakout of the synergies we talked about was purchasing or procurement, as we said in the script; scale and leverage, I'm sure kind of cost synergies; and then supply chain. So kind of the cadence around that, we would expect in 2014 to see some of the purchasing synergies a little bit earlier and also some of the scale and leverage. And then the supply chain, just given now, we're putting our -- their 38 DCs together with our 12 DCs and now 50 DCs, and we've got some studies to do there. The supply chain would come later on in that 3-year journey. But the ones you're going to see this year are going to be more from the purchasing categories and the synergies there, and then -- and some cost synergies.

That's very helpful. And then just by the way, a very quick follow-up. Thank you for quantifying the EPS impact of the extra week. Should we think about the sales impact of that week just as we build up the model as being sort of an average week in your fiscal fourth quarter? Or would there be a reason to think of it differently?

Exactly, Matt. And if that changes, and throughout the year, we'll give you that. It's just difficult to predict 1 week, especially in the fourth quarter just given the volatile that you sometimes see with the weather, but I think the assumption you've made is exactly what I would do.

Our next question today comes from Greg Melich with ISI Group.

I wanted to follow up a little bit on the cash flow and the CapEx investments you've done. Mike, could you highlight what portion of the cost of the integration are cash versus noncash, and also put that in the context of the CapEx going forward, whether it's the run rate we should expect or does it go up as you start to figure out supply chain?

Yes. So first of all, virtually all of those costs that we talked about of $190 million are all -- virtually all cash costs. So -- and then -- and we...

P&L costs.

P&L costs, and then the -- and then we've kind of broken out the capital separate. So when we -- so you can see when we guided this year, we guided our total capital lease year for $325 million to $350 million, and we said roughly $50 million to $60 million of that is related to the acquisition. Things like IT capital, conversion capital, stores, supply chain systems, so those are some of the capital buckets. And then some of the cost buckets, if you're interested in some of those buckets, I think that was your question, Greg, is we've got project costs, transition costs. Early on, we've got retention and severance costs, conversion costs and then the last big bucket is IT costs. So that gives you just the kind of the P&L versus capital.

And maybe if you could just tie that into the $450 million or more of free cash flow, I think you said that was x GPI. Presumably, that's x the GPI costs? Or that $450 million, that's consolidated?

Yes, that's an all-in -- so the cash flow number's an all-in number. The free cash flow number that we got it to, the minimum $450 million, that's an all-in number.

Okay. And included in that would be any working capital benefits, and if you have any guidance on that, and then I'll let you go.

Yes, it would be, Greg.

Okay. And how much working capital do you think we could get?

We haven't shared that out, but that's a good one.

Yes. And Greg, those build over time. I think we've had our first vendor meeting this week. So...

I mean, Greg, just to give you a little bit of clarity. I mean, the one thing that we said in the announcement of the deal, and I'll share with you again, is maintaining our investment-grade ratings was important. That will help us as we continue to improve our AP ratio. We see some opportunities with GPI. They have a lower AP ratio than we do in their base part of the GPI basis, excluding the WORLDPAC part, and we see some great opportunities improving that working capital through AP ratio with our investment-grade ratings. But it's still too early to tell and provide any further guidance than that.

And we do have time for one more question from Scot Ciccarelli with RBC Capital Markets.

Can you give us a concrete example of how you plan to leverage the capabilities and relationships that you kind of brought on board from GPI into the Advance store base? And then just kind of, hopefully it's a sidebar, how close are you to making any kind of meaningful decisions on store and DC consolidation plans?

Yes, Scot. I'll give you 2 examples on GPI. Last weekend, I was in Orlando with members of my senior management team, meeting with the TECH-NET customers and meeting with the independent channel customers. The TECH-NET customers, there's 5,300 of them, and they tend to be more of the large bay garages. If you look at the Motor Age, they -- the #1 garage in the country this year was the Pellman garage in Colorado Springs, and that's a TECH-NET customer. And so one of the things Advance did not develop is its own auto care program for garages. We don't need to. The TECH-NET program is 17 years old. Al Wheeler, who George spoke about earlier, has been with CARQUEST 17 years and helped build that program from the ground up. And we see that as a tremendous asset that we would build upon with all the assets of GPI. The other one is CARQUEST Technical Institute. They're a training institute, and to that point, the WORLDPAC Training Institute goes out. And when they train installers, it's not just training them on new technical things, but how to run a business. We could run those programs 52 weeks a year and have them sold out. Those are not capabilities that we build to help our -- our installers are more e-commerce-based. And conversely, our Moto shop suite are owned assets that we will offer through the CARQUEST organization and sales teams. So those are just 2 simple ones. I think as to the supply chain, I'll just say this at this point. We're just too early. We recently engaged a third party to help work with us. The LNO study has just begun, and the color on that will be forthcoming later this year.

And that's all the time we have for questions. I will now turn the call back to management for any final comments.

Thank you, Wendy, and thanks to our audience for participating in our third quarter earnings 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. You may now disconnect. Thank you for joining us.