Advance Auto Parts, Inc. (AAP) Q1 2017 Earnings Report, Transcript and Summary

Welcome to the Advance Auto Parts First Quarter 2017 Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today's call [Operator Instructions]. This conference is being recorded. If you have any objections, you may disconnect at this time. Before we begin, Zaheed Mawani 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 to discuss our first quarter results. I'm joined this morning by Tom Greco, our President and CEO; Tom Okray, our Chief Financial Officer; and Bob Cushing, our Executive Vice President for Professional. Tom Greco and Tom Okray will open the call with prepared remarks regarding the quarter, and Bob will join them to answer questions for the Q&A portion of the call. Before we begin, 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 are subject to risks, uncertainties, and assumptions that may cause our results to differ materially. Our comments today will also include certain non-GAAP measures including certain financial measures reported on an adjusted basis to exclude the impact of cost in connection with the integration of General Parts International and the recurring amortization of General Parts' intangible assets. Please refer to our earnings press release and the accompanying financial statements issued today for important information and additional detail regarding these forward-looking statements and the reconciliation of the non-GAAP measures referenced in today's call. The Company intends these forward-looking statements to speak only as of the time of this conference call, and does not undertake to update or revise them as more information becomes available. Now let me turn the call over to Tom Greco.

Thanks, Zaheed and good morning. I'd like to begin by acknowledging all of our team members and independent owners across the AAP family for their efforts to better serve our customers in the quarter. Through their dedication, we’re executing well against the five-year plan review that our investor conference last November. In Q1, our comp store sales performance was down 2.7%. This result reflects the impact of a series of factors we anticipated in Q1, as well as short-term headwinds that were not planned. These headwinds impacted the entire industry in Q1. Let’s start with what we expected. As we noted last quarter, our Q4 performance benefited from two significant factors; first, the shift of New Year’s Day into Q1, which help Q4 but reduced comp store sales in Q1; secondly, a substantial increase in winter related demand was pulled forward into December and out of January. In particular, our Northern markets benefited from the cold December. Given our geographic footprint, we disproportionately benefited from this in Q4 and it disproportionately hurt us in Q1. None of this was a surprise and the fact that our comps in Q1 were lower relative to Q4 was consistent with our 2017 operating plan and consistent with what we said last quarter when we reported comp sales of 3.1%, our strongest performance in the 12 quarters post the GPI acquisition. We’ve been looking at our across business across Q4 and Q1 combined for several months now. This provides a normalized picture of sequential sales improvement. For the 28-week period, we delivered positive sequential improvement in our comp sales performance. The combined comp for Q4 and Q1 of down 0.3% was approximately 70 basis point improvement versus the comp in Q3 2016. The sequential improvement we’ve delivered in recent quarters demonstrates we’re making real progress. At the same time, we’re not immune to the macro headwinds within the industry, which resulted in unexpected substantially softer consumer demand in the middle of Q1 as reflected in the publicly available data. This timeframe was worse than expected and resulted in a slow start to the spring selling season. That said, these short-term variables tend to smooth themselves overtime and while we need to manage them as part of our day-to-day operations, they don’t change how we’re transforming the business and how we think about long-term growth. The beginning of the quarter was in line with our expectations, as was the end of the quarter. We along with the rest of the industry experienced softness in February and March. The good news is we closed Q1 with stronger performance and this is carried into Q2. As a result, we expect sequential improvement in our top-line growth once again in Q2 as compared with our Q4, Q1 combined number of down 0.3%. So to reinforce the key points surrounding our top-line performance, we’re viewing Q4 and Q1 as one combined timeframe in our transformation. Q3 last year had comps to down 1% and Q4 and Q1 combined had comps of down 0.3%. While this was less than we planned, it represented sequential improvement and we expect to deliver sequential improvement again in Q2. Our steadily improving sales performance reflects the impact of decisive and consistent actions we’ve taken across three areas of focus, giving us confidence going forward; first, our priority to put the customer first is permeating the organization. It has been and will continue to be the key driver for consistent top-line growth. Second, our sustain investments and availability, customer service and our front-line is strengthening execution and engagement. And third, better execution throughout our supply chain is driving increased fill rates, higher in-stocks and reduced order to delivery time. Together, this is resulting in a better experience for customers in both Professional and DIY. Turning to operating income, we’ve been clear. Our turnaround won’t be linear. It’s important to note that while we’re not managing our business quarter-to-quarter, our Q1 operating income results were generally in line with internal expectations at the beginning and end of the quarter with the notable exception of larger than anticipated sales softness in February and March. As in the past several quarters, our operating profit performance reflects deliberate choices to invest in our business and specifically in the customer to position AAP for the long-term. When sales slowed down in the middle of Q1, we could have made a short-term decision to pull back on customer service. But in fact, we made a deliberate decision to sustain investment. At times, we know the difficult choices need to remain to fully capitalize on the significant opportunity we have to drive growth and margins over the long-term. Given the early stage of our turnaround and focus on reinvigorating the customer experience, the choice to sustain investment and customer service in the middle of short-term whether related softness was one of the easier decisions made in the quarter. These investments are beginning to pay-off as evidenced by sequential improvement of comp store sales along with progress on core input metrics, including improved in stock rates, significant reductions in turnover and faster delivery times to customers. The other drivers of our operating margin decline resulted from fixed costs deleverage due to the comparable store sales decline and our continuing efforts to optimize our inventory. Tom Okray will provide more color on the financial shortly. At the same time, our productivity agenda is on track and ramping up nicely. We’re now executing against the framework we’ve been constructing over the past several months. As the program boost and design to execution, we’ll realize considerable productivity savings in the back half of the year for our annual operating plan. As a result of these factors outlined, we delivered an adjusted operating margin rate of 7.1% and adjusted EPS of $1.60. Taking all this into account, we remain confident with the progress we’re making as we execute our plan and expect sales and customer momentum to continue with more operating leverage as we enter the back half of 2017. We’re performing well relative to our primary input metrics as the beginning and end of the quarter was in line with expectations. Unfortunately, the middle of the quarter was below plan as was broadly experienced across the industry. We also believe the sales softness was short-term in nature given recent trends. Importantly, Importantly, our productivity agenda ahead of plan. We’ve now conclude that we can drive more gross savings in a shorter period of time. We will do this while continuing to position the business to grow faster. We’ll begin to see improvements from our productivity initiatives in the second half of this year, which will help us meet bottom line targets. With Q1 behind us, I am pleased to report that we are now officially transitioning from Phase 1 of our transformation plan to Phase 2. Phase 1 had three overarching objectives. First, refocus the organization from top to bottom on the customer. We have lost faith of this top priority and needed to regain a customer first culture to ensure a long term growth. Everyone at AAP needed to raise their gain by putting the customer first in everything we do. Across our businesses, we are now seeing adoption of a mindset that everyone's number one priority is sharing for the customer. Second, develop and align the organization behind a clear strategy and five year plan to accelerate performance. In addition, we have defined and are now executing against the new set of foundational cultural shifts we need to make. And third, build a world class leadership team that can execute our plan in the short term while transforming our business in the future. We are re-advancing Advance Auto Parts and I am excited by the fact that we have built a new and highly skilled leadership team by attracting top talent from multiple companies and industries. This when combined with deep parts experience throughout the organization give us a team which can both perform in the short term while transforming our business over the long term. In Phase 1, we made deliberate and sustained investments and availability, customer service and our front line. This has improved input metrics and sales trends were getting market share performance moving in the right direction. With Phase 1 complete, we’re turning our attention to Phase 2. Our objective for Phase 2 include; first, elevate focus on the customer and continue to narrow the performance gap; second, flawlessly execute the multi-year productivity plan we have been developing. We have a significant opportunity to thoughtfully and permanently remove unnecessary costs; and third, challenge our new leadership team to elevate our focus on attracting and developing talent throughout the organization. With stronger talent, we will build new capacities required to win in the future and evolve the culture to deliver value. We have been hard at work with our growth agenda and over the past three quarters developing our Phase 2 initiatives, we’re very excited about the capabilities we’re building as we test and learn new ideas throughout the country. We’re now beginning to scale the top performing initiatives. First, we’re improving the customer experience and driving consistent execution across our network for both Professional and DIY customers. In Professional, it all starts with improving availability. Here we are building on the successful pilots we ran last year. Our availability transformation positions the right parts closer to the right customers by store reduces order to delivery time and drives growth. We have now added more stores to the availability transformation and we are seeing similar robust performance improvements that we saw in our lead markets in 2016. As a result, we’re expanding in select market throughout the balance of the year. We’re also augmenting this improved availability with an enhanced technology platform. We piloted this last fall with exceptional results and made the decision to invest in the back-end analytics engine combined with front end consumer facing technology for customer account managers to improved sales productivity. With better insight into our customers, our customer account managers are able to more effectively manage their time with customers to better meet their needs. This will be fully deployed in Q3. In DIY, we’re equally focused on improving our customer and team member experience. We’ve been running DIY experience pilots in a number of stores and markets. These pilots are standardizing the in-store customer experience store-by-store and region-by-region. So every store has the same consistent processes, the same consistent training and the same consistent approach to servicing the customer. In addition to making critical investments in the customer to drive growth, the second pillar of Phase 2 is the focus on our robust productivity pipeline. Since we announced the productivity agenda and corresponding targets last November at our Analyst Day, we’ve been aggressively putting the structure and leadership team in place to execute a sustainable multi-year productivity program. As we said previously, the productivity muscle simply is not exists at AAP. Our agenda includes thoughtful planning to change the work, investment and infrastructure and people to drive it and an intense focus on increasing visibility and performance management of costs. Our new leadership team has been instrumental in applying both longstanding experience and fresh perspectives to build our productivity agenda. As a result, we’re updating the target we shared with you last November of 500 million in productivity over five years and we now expect to achieve 750 million in gross productivity over four years, reflecting both the significant increase and acceleration. Over the past several months, we’ve been aggressively challenging our sales to think differently about the work and how to thoughtfully and permanently remove waste from our system. The additional 250 million has resulted from our new leadership team challenging the status quo and will allow additional investments in our customers while expanding margins. To be clear, the productivity target is not sales dependent, it’s a gross number and some of this cost benefit will be used to fund growth initiatives, while the vast majority of it will drive margin improvement. Our productivity agenda continues to focus on the three pillars we shared last November; first, zero based budgeting or ZBB; second, the optimization of our supply China; and third reducing material input costs. We’re very excited about this work. Allow me to share some examples. First, on ZBB, we’re standardizing our first to cost control while eliminating redundancies and unproductive spending. There are substantial opportunities here throughout the Company. Our ZBB agenda includes fundamental process redesign, policy changes and a complete rethink of how work it’s done. This has been completed in many areas throughout the Company, and we expect to realize cost savings from this in the back half of 2017. Second, the simplification and optimization of our supply chain will drive both effectiveness and efficiencies. We are looking at our supply chain very differently than we have in the past. We’re starting with the customer and working back to better meet their needs while leveraging the formidable footprint we enjoy today. In doing so, we’re building new capabilities and leveraging the entirety of our asset base. The great news here is that this approach provides the dual benefit of new capabilities and productivity without requiring additional investment in new buildings. As an example of supply chain optimization, we’ve already consolidated fleet management companies, transitioning from three partners to one. Previously, Advance, Worldpac and Auto Part International negotiated three contracts separately, which resulted in three different suppliers and three different contracts. We’re moving to one. In addition to significant savings, AAP will benefit from enhanced analytics and coordination across our entire fleet associated with having a single dedicated partner. This is a material simplification opportunity that leverages scale, dramatically improves asset utilization and lowers cost. Third, let's talk material input costs, again we’re taking a very different approach been in the past. We’re conducting deep dives on product categories to better understand the material cost of the skews in our assortment and what type of collaborative value engineering we can do with our suppliers or brand partners as we now refer them, who are helping us find the wins both of us need to drive accelerated growth. This work has already been conducted on several product categories, resulting in increased cost transparency and an improved material cost structure. We are working with our suppliers and partnership to apply this rigor n process across many categories throughout the balance of the year. To-date, we’ve been building the foundational elements of our productivity agenda and have a high degree of confidence in our plan. We are now ready to drive execution of this plan, which will generate meaningful savings this year and beyond. In summary, as we enter into Phase 2 of our transformational journey, we’re investing in customer service and execution to narrow the top line growth gap versus the industry. We’re dramatically increasing the focus on our productivity agenda to drive margin expansion and perhaps most importantly, we’re we are increasing our proficiency in growing talent and evolving our culture. This is not an overnight process but we’re pacing as expected and we will continue improving each quarter. As I said from the beginning, the opportunity to drive shareholder value at AAP is substantial to fully capture the opportunity ahead. We’re taking focused disciplined approach to accelerate long term growth, while staying lesser focus on improving execution and performance for the balance of the year. With that, I’ll pass it to Tom Okray to share financials.

Thanks Tom and good morning everyone. Our adjusted operating income came in at $204.9 million with adjusted operating margins down 349 basis points over the same period last year to 7.1%. Tom shared the high level drivers of our operating profit decline. But allow me to provide some additional color on each; first, our sales decreased 3.0%. While we anticipated a sequential decline, the expense to leverage from the comparable sales decline accounted for slightly more than 20% of the 349 basis points operating margin decrease. Second, our investments in the customer accounted for slightly more than half of the year-over-year operating margin decline. We know these investments put short-term pressure on earnings, but we believe they are absolutely the right thing to do to enable us to better serve our customers and accelerate top line momentum in order to regain market share. Before I move to the third driver, it’s important acknowledge the context of these customer investments versus the significant short-term cost reduction executed last year during the same period. Last year, the aggressive cost reductions in Q1 came at the expense of critical investments to serve the customer, including labor in the field and the store. This hurt our ability to get the right part to the right place and dramatically impacted our ability to service our customers. Compromising our service proposition is not the right approach for a company that is in the business of the delighting the customer. It is also not consistent with our renewed focus on driving sustainable performance improvement as we position the Company for long-term growth and profitability. In contrast to last year and under renewed focus of caring for the customer first, we are prioritizing customer service and making the necessary incremental investments and initiatives that enable our field and frontline teams to serve the customer significantly better than we ever have. Our current productivity plan is also aimed at cost reduction, but we are acutely aware of the customer impact from cutting the wrong cost, or cutting the cost the wrong way. We are taking a more constructive and sustainable approach focused on, no regret cost removal, by fundamentally changing the way we work and removing cost while improving our service and execution, not at the expense of customer service. This approach is fundamentally different than the prior practice and harder, it takes more time to identify to plan and to implement. We have been hard at work for over the past eight months, constructing our productivity agenda in a thoughtful manner with the customer always at the forefront of our planning activities. I'll come back to our productivity agenda in a moment. The remaining component of our operating margin decline was related to our ongoing inventory optimization efforts. As we continue to take proactive steps to reduce inventory and optimize working capital, we maintained a very disciplined approach to inventory in the quarter. We are managing inventory much smarter and more importantly, in line with our sales plan. While this is good news and another step forward in the right direction, it does create a year-over-year short-term headwind to our operating margin. We will continue to focus on thoughtful inventory reduction for the balance of the year without impacting the customer, it is unquestionably the right choice for us to make. Turning back to our productivity plan. We have been maniacally focused on our agenda and are seeing the productivity mindset permeating the organization. This dynamic, coupled with fresh ideas and industry best practices from new leadership that have recently joined AAP team, have changed the way we are running AAP. We have been building momentum, and today, we increased our initial gross productivity target to $750 million and accelerated the achievement from five years to four years. With respect to the pacing of our results, we knew our transformation was not going to be linear. We are in the midst of transforming both our top and bottom line performance with a lot of exciting work underway, which we expect to build on throughout the balance of the year. For 2017, we expect the operating performance impact of our collective action will be weighted toward the back half of the year. As we said previously, we absolutely expect to get to the point where we will balance top line growth with bottom line expansion. We are confident in long term opportunity as we build new muscles to drive productivity and accelerate margin expansion. Before moving to Q&A, I would like to draw attention to the new accounting rule, which we implemented in Q1. Beginning January 01, 2017, the excess tax benefit for stock based compensation is recognized as a component of tax expense rather than equity. This change resulted in a decrease to our tax expense for the quarter and a corresponding increase to our net income and earnings per share. Further discloser and the impact of the adoption of this accounting change can be found in our Form-10-Q. With that, we will open third call for questions.

Thank you. We will now being the question-and-answer session [Operator Instruction]. I would like to remind participants to please limit yourself to one question and one follow up. Our first question is coming from the line of Chris Horvers of J. P. Morgan. Your line is now open.

I want to follow up a little bit on the expense conversations, especially as we think about the second quarter. So last year in the first quarter, the yield management team levered expenses about a 100 basis points despite comping down too. So do you think about the 200 basis points or so decline in operating expense rate or increase operating expense rate in this quarter, is that 100 basically, we have to give that back and so really about half of that operating expense deleverage in this quarter relates to the under spending last year?

When we looked at the investment that we are essentially needed to make in the first quarter of this year, last year the changes that were made in our customer facing hours in the stores was quite negative for the overall customer experience. So we made the conscious decision to invest back in the customer in the quarter.

And so as you think about the second quarter, last year, they come down but they only deleverage operating expenses 20 basis points. And actually if you look at SG&A per store, it was down nearly 2%. I guess to help us out on the second quarter, what should been that deleverage or last year in the second quarter or what was the right rate of inflation and SG&A per store that we can base off of as we put in second quarter estimates?

Well, Chris let me step back, I mean we’ve gone in the construction of our strategic plan, we’ve obviously look overall longer timeframe than individual quarters. And what we concluded last year and we communicated to, I think the analyst community in November, was the company it really lack focus on the customer period for quite some time. As you know, we’ve been losing market share for seven years and over that timeframe, habits get built-up, our people take a different approach to the customer that we would have liked, different than we would have liked. And as we built-out the strategy itself, we wanted to make sure that we were change that approach with the customer up and down in the organization; so from a leadership team perspective; from a planning of our customer facing hours; from the standpoint of how our stores either active with customers. So as we build out the five-year plan, we look at what we needed to do in 2017 and 2018 and beyond; as you know, we started to make some of those investments last year in the back half of the year. So we’ll start to lap those as we get into the back half. But without a doubt, as we plan the business in 2017, we knew that the first part of the year was going to require investment in the customer.

Thank you. Our next question comes from Steve Forbes with Guggenheim Securities. Your line is open.

Maybe if you can start given the leadership changes that I taken place recently, can you just expand. I know you touched on it. But can you just expand of where you are in the optimization cycle as it relates for the team, both of the executive level and store ops? And I believe you mentioned the foundation is in place. So are you generally satisfied and that’s why, we’re going into Phase 2 of the program here? And I guess lastly, if you could just expand, how those new individuals that have joined the team have integrated in the platform, both culturally and accepted and as opt as a plan that you laid out back in November? I mean, have they been pretty smooth and optimistic?

Well, first of all, we’re building a world-class team here in AAP. And as I look around the room, most of the people in the room in here today work with Advanced nine months ago. So that part is dramatically different than when I arrived here. The team we’re building is committed to really building our performance culture up and down in the organization, and that excludes existing leaders at AAP, who’ve been in the industry a long time and are really stepping up. Bob Cushing in the room here with us today, he is got 30 years of parts business experience. We also brought, some of the new people we brought in, have come from the part of the business. People like Mike Broderick who similarly has 30 years of experience and is now our chief merchant. Bob and Mike are really committed to dramatic improvement, performance improvement here at AAP, so that part is really exciting. I think we’re also injecting smart talented new leaders that have exceptional industry experience up and down the organization. So we brought in Tom Okray from Amazon, as you know; Leslie Keating Frito-Lay; Natalie Rothman from Pepsi; we brought in Maria Reyes to run one of our divisions from Private Equity, Mike came to us from Tyco. And these are global leaders who are bringing a completely different mindset and approach to transform AAP. So that might fundamental leadership team is pretty much in place now and now of course we are going the next level down and Tom and self with sitting here, there is two people in the room today that Tom has hired from other companies that have joined us, that are going to add tremendous value. How are they acclimating, I think that’s a great question and integrating to the Company. We still have work to do, I think to build the team work and the energy around the opportunity going forward, these are very talented individuals. They are bringing different perspectives in. But you can snap your fingers and have the top 200 people in the company immediately gel. So I think we have got a little bit of work to do there, but I feel terrific about the talent that’s joining new organization. And I have been really excited by the fact that we have been able to recruit such talented people in, and we have been very successful of that.

And then a quick follow up. Given the increase in the productivity goals right over the next four years here, has any of that impacted the anticipated CapEx spend for the year or does the '17 I guess guidance you laid out or I guess number still stand. And if you can, I am not sure if you done this in the past. But can you help us breakdown the 250 million into packets whether be IT, supply chain, maintenance, new stores, just from insight and where the CapEx spending is being allocated?

Yes, let me take that one. No we’re going to stay with our guidance of approximately 250 million. The additional gross productivity number is not dependant on that. With respect to breaking down the 250million, you hit on the key points; it's IT; it's new stores; it's maintenance. We’re not going to go into further detail other than the bucket of that way.

Thank you. Our next question comes from the line of Simeon Gutman of Morgan Stanley. Your line is now open.

First question is a follow up to Chris's earlier, so since you’re moving now into Phase 2, what is that imply for the margin outlook in the second quarter?

We’re not going to comment on the specific margin outlook in the second quarter. We do feel really, really good about our ability to thoughtfully remove cost and improve our flow through as we get to the back half for the year.

My second maybe more strategic and into the couple parts to it. Tom can you help us understand at what changing of anything from how you looked at this business six months ago, just some of the actions you are taking today. I know Bob Cushing has been elevated, I am just curious, if some of the plans have evolved? And the bigger question is if there are all these investments that need to be made, why wouldn’t it made sense to just rebase the earnings of the business this year and make these investments without promising margin improvement until they can more fully ramp in the end here?

First of all, I’ll let Bob talk a little bit about with changing on the Professional side of the business. I think it's changing pretty dramatically. Bob, can you talk about how you are pulling together the Professional side.

So we are certainly transforming our professional business by driving the culture of care for our customers first. We have a number of key initiatives out there to transform our customers’ experience. What it's focused on, it's focus on what our customer value most and this will enable first call capability. Foundationally, our issues on standing on leveraging our enterprise value proposition across all band. So, first let me start with where do our customers value more, improve product availability. So we’re providing our industry leading portfolio of brand and absorbing quickly to the marketplace. We have a number of new models that are out there that we’re losing out to deliver the right part at the right time. And we’re really excited about a new model that we basically developed for the professional business and we’re standing it up next week, we’re opening it next week and this will provide and leveraging entire enterprise portfolio products under one roof. And so we’re excited about that more to come on that. Secondly, we’ve deployed our new catalog system called APAC at over half of our stores, as the catalog has reached content multi brand strategy of course the enterprise that is supply chain availability. It's basically our enterprise catalog. Third, we’re focused on either doing business. We have piloted with over 500 customers on our new B2B commerce platform, it has enhanced features, deeper integration and to shop software system. And fourth, to drive innovation in sales force effectiveness, we have deployed iPads to our entire field sales force. Overall, we are transforming the capability for our customer. And as a result of some of the actions that we’ve already taken, we’ve had a number of major wins with strategic accounts that guide us multiyear agreements due to the actions we’re taking. What I will tell you simply this, we are staying maniacally focused on basically what drives customer value and we’ve been continue this transformation journey to succeed.

And Simeon, let me get to your second question, which was around the pacing of the investment. If you think back to what we showed last November, Company lacked focus on the customer, no cohesive strategy inability to execute notable capability gaps on the leadership team. But as we laid things out and constructed the new leadership team from Bob to Tom Okray to Leslie Keating is come into our supply chain to Mike Roderick, I mean we really saw an opportunity to drive the productivity agenda faster. And the opportunity there is significant. We really see that a line of sight to the entirety of the 750 million over the four years, it's in the three buckets that we described in the prepared remarks. We plan it strategically, working from the customer back. I mean we’re routing our productivity agenda in the customer. It's not just taking cost out, so we’re routing in the customer. And then we’ve done a very rigorous bottoms up planning exercise that essentially phase of the productivity by year, by period, by geography. So we feel really good about our ability to take the cost out without disrupting the customer.

Thank you. Our next question comes from the line of Seth Sigman of Credit Suisse. Your line is now open.

I just wanted to clarify on the guidance. Did you guys actually update the comps or EBITDA targets you laid out previously?

So let me step back from this one Seth and provide some context. And our approach is to provide guidance once a year. And consistent with our focus on offering for the long term, we're not going to provide regular updates as a matter of course. The long term outlook for the industry remains very, very compelling for us and we remain focused on executing the key elements of our transformation plan. With respect to 2017, well Q1 had a weak patch in the middle of quarter that impacted the entire industry. We've actually seen improved trends over the last several weeks and based on this, we expect a more normalized environment for the rest of the year. And our investments in the customer are clearly having an impact and with our productivity initiatives kicking in the back half of the year, we feel all of this will drive significantly improved results.

And then as you think about those long-term productivity targets that you updated today, does the timing change at all, so you shorten the timeframe. Does that impact 2017 or more of the incremental savings in ’18 and beyond?

The timing for the additional 250 million is primarily going to be in ’18 and beyond. As Tom stated, we’re not going to change guidance in fiscal year ’17. We’re comfortable with the outlook for adjusted that we provided.

And then my follow-up is on gross margin. The 135 basis points decline this quarter, it seems to be significant in last quarter. Obviously, it reflects the inventory optimization efforts you mentioned in higher supply chain costs, I think from last year. Assuming that’s an ongoing process, but how does that stabilize through this year? Can you walk us through the timeline and how think about gross margin as we move through the year?

Let me give you on some additional color on the 349 bp deterioration. We’ve been very consistent and clear that we need to make investments in our customer in drawing down our inventory. In Q1, the impact of these investments were magnified by two main factor; the first one was the softness in the middle of the quarter causing the deleverage; the second one was the lapping of the 2016 Q1 initiatives that are in consistent with our current strategy. As Tom said, the Company was cutting customer service hours, which is just something that we’re not going to do in the short-term. When we’re going to be delighting the customer, we’re going to smartly optimize our customer service hours. And the second point previous leadership was building up inventory. As part of our end-to-end supply chain optimization, we are going to be optimizing our inventory. We’re going to be drawing it down. How that plays out over the year, wWe’re not going to break this down quarter-by-quarter; having said that, the productivity is going to come in the back half -- largely in the back half of 2017.

Our next question is coming from the line of Scot Ciccarelli of RBC Capital Markets. You may now ask your questions.

Just a quick clarification. Tom, did you just say you are comfortable with DIY guidance that you previously provided?

I mean, as a matter of course, we are going to update guidance. We’re going to give guidance once a year. We’re going to give the fiscal year guidance. As Tom said, we’re very comfortable with the industry dynamics. We’re very comfortable with the strategic initiatives that we’ve got availability. Our digital online plans are accelerating, customer experience on the DIY side, we expect to see these improvements in the second half of the year and it gives us confidence in our ability to drive top and bottom-line performance.

And then the follow-up would be, can you help us understand your expectation for the $750 million of productivity gains you just outlined? We understand that the $750 million is a gross number. But you also suggested some of that will be reinvested and I guess what the investment group would basically want to know is. What’s the right way to think about what we might see on a net basis? Thanks.

Well, first of all, Scot, we really excited about this productivity agenda. I can't tell you how excited we are, it's been nine months in the making. Obviously, we’ve been working on with our entire team. As Tom came in November, he really brought a dimension to how we were thinking about that we started to accelerate things that hadn’t been accelerated. We brought Leslie Keating in who is a terrific executive, track record of success with productivity Mike Roderick with significant experience interacting with the supplier community being both on the supplier side and working on the part side of the business. So the construction of the productivity agenda is something that we’re very, very excited about. As we look forward we’re going to continue to look at ways to be ahead of where the customers going. Obviously, we want to go over the path is moving and to that end we are going to continue to look places to invest to sustain long term growth. What we showed in November was our goal is to perform above the industry average in terms of sales growth and to expand margin significantly from where they are today, that stands as we sit here today. We’re not going to update exactly how that’s going to play out in the next 12 months, but we should be able to update you towards the end of the year and how that will in fall. But the 750 million obviously is a four year number now, so we are in '17, so '17, '18, '19, '20 is the timeframe for the 750 million.

Thank you. Our next question comes from the line of Michael Lasser of UBS. Your line is now open.

I recognize that you only want to update your guidance once a year, so to achieve the prior objective of 15 to 35 basis points of margin expansion, would imply that you are going to have to achieve anywhere from 200 to 300 basis points of margin expansion in the back half of the year. But this hasn’t really -- that doesn’t really have a history of doing that. How would it possible even with those productivity metrics to achieve that type of margin expansion?

Well Mike, I certainly understand the question. I am go back to as we planned the business for 2017, knowing what we knew in November, which was the challenging situation we were dealing within the front half of the year, reducing customer facing hours, really an inability to execute. We’re still billing out that productivity muscle, some gaps on the leadership team at the time. We obviously plan the business accordingly. From our standpoint, if we hadn’t reflected on the factors I just mentioned and used that in our plan, it would have been somewhat responsible. So we did plan the business to be back half loader in terms of margin flows through. Obviously, we’re’ mindful, we are attracting four in the year but we can’t really speculate on hypotheticals right now. We’re focused on executing our plan and really positioning the business to deliver long term value and that include investments in the customer and building out the productivity. So our transformation is well underway and we are confident we’re going to show the impact of our actions on both top and bottom line in the second half of '17 and beyond.

And you provide some examples of in your prepared remarks of where you are harvesting your productivity savings, such as consolidating fleet management down to one provider. But in light of the fact that you don’t really want to touch customer service and labors, your biggest expense bucket, can you provide other concrete examples of where you're get the productivity savings starting the second half of the year?

Michael, labor is certainly a big cost, but we are going up and down the P&L. And let me just take you back to the three buckets that we’ve got for productivity; we’ve got material cost; supply chain; and ZBB. So I'll just go a little bit deeper on each one. Material cost is significantly bigger than labor, and we have started an entirely new clean sheet process with our brand partners where we are going deep dive into the cost structure, packaging, raw materials to really work together in a collaborative way to optimize the specs and the offering from the customer. And we see tremendous potential in this to drive results. We have a good start in the first quarter. We see significantly more opportunity in the back half of the year and ongoing. And then let's go to supply chain, supply chain which is distribution centers and transportation. Within the supply chain, we’ve got standardization of distribution centers where we can eliminate touches have more efficient labor execution, better fixed cost performance by putting in network wide subject matter experts. On transportation in addition to going from three to one fleet companies that’s just the start; we’ve got better utilization of our vehicle; we’ve got less miles, we’ve got fuel savings. So there is on the supply chain. Moving to ZBB, again a ton of opportunity there some of the things that we’re doing. We’re looking at our professional services or a consulting expenses and doing from a zero based approach and really taking cost out there. LED lighting in our stores and looks better for our customers. Our customers are delighted we’ve got a good ROIC on it. So to really make this just a labor play is really not looking at the entire P&L. And coming back to what Tom said, we are unable to this by the strong leadership team that we brought in. We’re able to change the meetings forum; we’re able to bring different perspective; we’re able to drive the deeper into the organization; the depth of analysis is much greater. So I couldn’t be more excited. When I first came in, in November and we gave the 500, I've been here a couple of weeks. Now that I've got more of a lay of the land, there is just tremendous opportunity here.

Thank you. Our next question comes from the line of Michael Baker of Deutsche Bank. Your line is now open.

So just want to talk about 2017 and then longer-term. It did seem like and maybe correct me if we shouldn’t take this comment too specifically, but it did seem like you are comfortable with the full year operating income number of up 15% to 35. It also seems like the first quarter was probably below your plan because of that patch in February and March. That would imply that something needs to be better in the second quarter or the second half. Is that the right way to think about it? Or if that’s not the case maybe the 15% to 35% isn't the right way to think about this year? And then I'll ask the longer-term follow-up question. Thanks.

Well, just on your question on will it be better about the year, absolutely, no question about that Michael. We haven’t talked a lot about the sales number. But there was, as we said in our prepared remarks. We have the date flip, right? The date flip is pretty basically. We knew exactly what that was going to be worth in the fourth quarter last year. We also had this significant pull forward pull forward or winter related demand into December. In particular, in our Northern market, which we had an idea that was happening, and obviously we finalized our plan in November and early December. So we didn’t know how big that December was going to be. And when you look at some of the categories that performed well in the fourth quarter, they were winter related categories and a lot of that got growing out so not all of that was plan as we planned to first quarter. That said, in the last several months as we continue to really work this productivity agenda hard, Tom Okray, Leslie Keating, Mike Broderick, Bob Cushing, we were really, really pressing hard to take real cost out of the business sustainability and that’s why we feel very good about the long-term prospects to get at the margin expansion opportunity that exists.

And I guess that would biggest takeaway into the longer term question. I don’t know if you specifically reiterated on this call yet, if you did, I apologize. But last few year outlook for 500 basis points of margin expansion over five years. Is that still the right way to think about it with the additional cost savings? And is part of remind us what kind of sales list to be offset the reinvestment? I think you would say comps getting to a mid-single-digit range by 2021. Is that still the way you’re thinking about it?

I mean, our goal is to perform above the industry average, which as you know is 3% to 4%. Everything we look at, says this is a very healthy industry; car park, 2016 new vehicle sales; vehicles in operation; miles driven; average age; all of them say 3% to 4%, which means that we have to be above that in order to achieve our comp sales goals.

If I could just talk to Mike and ask one follow-up to something you just said, you talked about the vehicle aging. I’m curious how you look at that. What you think the sweet spot of vehicle maintenance is and if you look at the number of vehicles in that sweet spots and how that might be changing on an annual basis?

No, when I look at, it is certainly what we look at is the vehicles in the bucket of six to 10 years old. And when you look at since 2009, when we show certainly new vehicle sales increased dramatically from the low that we have been, those vehicles are coming into play out. So we see there is a tremendous upside over the next five years is both as much as 10% to 20%. So that’s going to play well into the aftermarket side into that six to 10 year old bucket. So we’re pretty positive about 3% to 4% range and guidance on the aftermarket sales growth, which we’re certainly targeting our sales, if not certainly higher.

Our next question comes from the line of Matt Fassler of Goldman Sachs. Your line is now open.

My first question relates to your investments in the customer. I’m mainly interested in what you’re spending on particularly since in the prior couple of quarters incentive comp, seemed to be a piece of the acceleration in spend. And with the revenues having been under pressure, I would imagine that would have a bit factor from a sales force. So can you talk about just a little more detail and where that spends is coming from, please.

I’ll start and then I’ll have Tom to be constructive little bit more. But I would like to talk about the incentive comp and our team members. Our customer facing employees are so critical to the success of our Company in terms of their ability to connect with our customers and help them solve problems they love to solve problems. As you know we had been experiencing tremendous turnover in the Company at these front line customer facing roles be that a commercial parts pro, a customer account manager, a general manager, a district manager. And I am excited to let you know that our turnover continues to go down dramatically there. We’re down 20% to 40% in turnaround over on those key rolled in the first quarter. And we’re going to continue to stay focus on really getting our people excited about serving the customer and building that performance culture in the Company. Part of that was what we call our field to front line incentive program for our customer facing employees and we continued to invest in that and that was part of our customer facing investments in the first quarter to drive that behavioral change that cultural change that we feel is so important for the long term success of the Company. I got to tell you, I probably got 50 notes in the last couple of days of employees that have been recognized through our fuel the front line program and that continues to grow and build momentum in the company overall. So Tom can you take a little bit more of a dive on how it was deconstructive?

Sure, yes Matt, I think the way to look at it for investment in the customer is really four buckets; the first one is customer service hours referred to its labor, the second how much is describing is our fuel the front line or filed incentive, the third is parts availability and supply chain, making sure we are getting the right part at the right time at the right place, and then the last is promotion. And just a little bit more color, I mean as Tom said, when we came in and are looking at the Company and its transformation we really need to build the foundation. So are we over indexing and our investment in the customer, absolutely. Is that going to give more surgical overtime and optimize; certainly. We are always going to invest in the customer, but overtime we are going to be able to do it more efficiently. As our productivity agenda catches up is well, this is all going to hit together and we are going to have an inflection point. So that’s the way I think about the investment in the customer.

And then, I guess, my second question relates to the integration with Carquest I know that there is a lot of work will be done. Can you talk where that sitting in terms of your activity levels, the financial consequences of the integration work that’s going on, the integration work is still to evolve overtime?

I mean, we’re accelerating our efforts on this now. As you know, we took a bit of step back from what we had been doing, which was more of the old PCR work which was consolidating stores, converting stores, relocating stores. As Leslie has come on in conjunction with Bob, we have really starting to work from the customer back on our asset base. We have got plenty of assets; Leslie would say that, Tom would say that, I would say that. We just haven't leveraged them the way that they could be leveraged and to their potential. So making sure we put the customer first in everything we are doing and construction our supply chain from that is where we’re headed. And we are making some pretty big strives on that. I'm not going to get into all of the details for competitive reasons. But we’re pretty excited about how our enterprise, customer facing tools, technology and supply chain will evolve overtime and really start to improve our key metrics on order to delivery time, having the right part in the right place, our availability in the market, all of those are part of the plan. And the idea is to leverage the entirety of our asset base, not to approach it from the previous approach which trying to integrate advance and Carquest, and we’re looking at it more broadly.

Thank you. Our next question comes from the line of Brian Nagel of Oppenheimer. Your line is now open.

Maybe to shift gears just sort of a bit, you talked a lot about the soft patch and sales during in Q1 and by no means you the only Company you have the competitor you actually talking about it a little bit. Maybe get your perspectives on what caused that, what was different this time around? As the business ticked up was the reason rebound or was that more of a normalization? Thanks.

Brian, again, I'll reiterate we’ve looked at every number. The long-term variables are very positive. They are point to the 3% to 4% we referenced earlier. The short-term impact of what happened in February and March, we looked at all of the factors you'd expect. We’ve looked at products, geographies, channels, customers, weather, tax; everything we look at says that this was a blip, not a trend. We’re going to continue to monitor it closely from an industry standpoint, I mean, if you look at the categories and you look at how they play out Brian over the really the last call it 32 weeks; the Q4 numbers than the Q1 numbers for us, then the early start of three or five you go well; batteries had a huge Q4, soft in Q1; now are seeing a bounce back, it was very cold in Q4 in December; we had a very warm Jan-Feb now we had a very hot week last week in the summer. Those are the type of things that can swing quarter-to-quarter, but we really believe that 3% to 4% is solid. And from an AAP standpoint, Q4 plus Q1 was sequentially better than the previous quarter, and we expect Q2 to be sequentially better than Q4 plus Q1 and we’re sitting here with $10 billion out of our $135 billion in the categories. So the long-term outlook and opportunity ahead is substantial and we feel we’ll continue to sequentially improve.

Thank you. Our next question comes from the line of Seth Basham of Wedbush Securities. Your line is now open.

My question is around strategic accounts with multiyear agreements that you mentioned. You picked up a bunch of these. Could you provide some examples and is this a form of investment and price that you're referring to?

So as you well know, many of the strategic accounts have put out or the industry there looking for both the year agreements with their suppliers. And so a number of those come up over the last six months and so. And I’ll tell you that we basically have one certainly in every single one of them, so we’re winning. And we’re winning because of what we basically bringing the capabilities of the organization and certainly what we’re working on, which we shared with them. And we see them as our strategic partners, they basically have looked at us certainly from what we’ve already been able to provide today. And certainly, now, certainly leveraging all the banners across the enterprise, they know what’s coming as well. And as I mentioned that new model that we’re putting out there, they’re extremely interested in that, we’re going to leverage that as well. But I will say, for the most part, customer-by-customer, we’re winning and we’ll continue to win in that particular side of the business there. And as I said, it’s growing, and it will continue to grow.

How material is this to the sales outlook through 2017? Is it a material incremental boost to comps as these accounts ramp up and a query to that, is that a weight on gross margin?

Obviously, we look really close that those things said before we handle these RFP. I mean I think it’s a natural outcome that the large customers in the Professional side of the business or growing get lager. So we’ve got to manage that in our overall portfolio. We reported not going to comment specifically on the size of it, we’re pretty excited about the fact that Bob has coming with his background, with his leadership team. They’ve done a great job packing up what we consider to be the most, the best portfolio in part in the industry, including the training institutes that we’re standing. Bob standing up, integrating the Carquest Training Institute with the Worldpac Training Institute which provides tremendous value to our large customers out there in the marketplace. So we’re going to continue to leverage the scale of all of our businesses to build a more attractive portfolio for our customer based. And overtime, we believe that will help us winning the market.

Thank you. Our next question comes from the line of Dan Wewer of Raymond James. Your line is now open.

I want to talk about promotional pricing and how that could be impacting gross margin, as in fact for member of Speed Perks, I was getting 20% off anything online would seen aggressive. Is that a change in strategy?

Well, we’re pretty excited about Speed Perks, Dan. We’ve got an opportunity to do a better job connecting directly with our Speed Perks members. I will tell you that will evolve overtime. We want to make Speed Perks more sticky it should be more than just a promotional coupon off events. And so I’ll leave it that but we’re working pretty hard on at a better connect, our physical and digital assets, and that includes the Speed Perks program.

Well, I know your competitors claim that there is minimal price elasticity for demand in this industry, and we’ve had this amazing gross margin expansion cycle the last 10 years. But do you think we’re at the point now where it becomes necessary use pricing to drive market share?

Yes. It certainly not a huge part of our agenda going forward, we’re looking very carefully and strategic pricing. But in terms of a weight on gross margin, we don’t see that.

And then just one follow-up question, can you talk about why the higher productivity savings today. It doesn’t sound like, we’re going to see much change in the second quarter, doesn’t really begin to kick into the third quarter. And even then, it really doesn’t really begin to gather momentum until 2018? So curious as to why today was it necessary to talk about the savings, particularly when you’re not comfortable talking about the net savings, on the gross savings?

Yes, I mean the reason we’re bringing it out today is this is about five or six months since the entire leadership has come together; myself, I have been on the ground five months; Bob has been in position a little bit longer; Mike Roderick has been in his position for a few months; Leslie has got a feet on the ground in terms of supply chain and we are all coming together to really work on a daily basis on productivity. And we’ve been tracking this versus our 500 million targets and we are very optimistic, so we have this opportunity with the investment community and we want it to make a public, nothing other than that. We are excited about it. We think it shows the leadership team, how we are working together and that’s the reason.

Thank you. Our next question comes from the line of Ben Bienvenu of Stephens. Your line is now open.

Recognizing that the turnaround is unlikely to be linear. What are some of the things that we should be focus to judge the progress you’re making quarter-to-quarter in achieving your goals? Is that ultimately comp improving substantially?

Well, for sure, comps are the primary focus for us at the moment. We’re driving at customer investments we’re driving at things that matter to our customers, both on the professional side of business and on the DIY side of the business. And our goal is to continue the sequential improvement which we talked about. And obviously relative performance is important within our market share. We don’t get a lot of market share data band. But what we do we pay very close attention to it and we are making progress there. We are not gaining share, okay, to be clear. But we are narrowing the gap in terms of our performance and we are going to continue to stay focused on that. And overtime, the goal is to narrow that completely and then obviously at some point perform above the industry average. So that is the primary focus.

And then thinking about the multiyear 500 basis point improvement in margins and mid single digit comps, is it your implication if you see comps slowing to intensify your spend in customer facing roles and supply chain initiatives. And similarly, if you outperform your comp assumptions, what is your inclination to try and leverage SG&A, how should we think about ultimate long term operating margin expansion once you get to a sustainable run rate of improvement?

Well, first of all, the 750 million is literally down to the dollar, right? The 750 million is planned out over the next four years. We know exactly where that is in the vast majority of cases, that 750 million is not sales, and there is a very little of that moves up and down with sale. When you go to one fleet company from three companies, that doesn’t have anything to do with what we sell. If I am able to reduce the touches which are way too high in our current supply chain, if I can take the touches down, that’s worth something. If I can reduce the number of miles driven on the same number of deliveries in the same amount of sale that takes cost out without driving sales; so we’ve constructed the productivity agenda such that is not sales dependant. So we’re not looking for leverage on these cost out measures, because they tend to be waste or redundancies or things that that can be reduced. And given where our relevant margin is versus the industry average, I think, you can probably see that we have pretty good opportunity to do that, because we have peers in our industry that have already done it. So we’re focusing on essentially looking at our asset base and our model and how we invest with the customer and how do we close the margin gap as we’re driving at the customer agenda.

Thank you. Our next question comes from the line of Kate McShane of Citi Research. Your line is now open.

This is Chris in for Kate. Thank you for taking my question. I was wondering with -- potentially you seem the date all at the end of Q1. Are you seeing comps running in line with your annual guidance for comp? And I guess, also what's the comp benefit that you are getting from some of those availability test initiatives that you’re rolling out and how big is that right now as a percent of your store base?

We’re not going to comment specifically Chris on the quarter, I mean but we’ve seen a dramatic improvement in our comp obviously coming up a difficult Q1. Your second question was on the -- repeat your second question?

So you talked about some of the availability type initiatives that you're rolling out. Just kind of curious what kind of comp lift that you're seeing in the test markets?

Very strong, very, very strong lift. We’re now up to I think we’re up to five markets and we’re continue to see the same performance improvement. We’re not going to give a specific number, but it’s very, very strong and very compelling.

And just on the Q1 gross margin, just curious if you could give sort of breakout a little bit maybe like how much of that decline was merchandize margin and how much of those deleveraging on occupancy costs and other fix cost?

Yes, I mean going back to our prepared remarks, a little over half was investing in the customer little over 20% was the comp sales impact and remainder was primarily inventory related optimizing our inventory.

Thank you. Our next question comes from the line of Bret Jordan of Jefferies. Your line is now open.

Could you talk a little bit about the trend on the AP inventory and maybe at what point might we see the accounts payable to begin to expand again. Obviously, debt-to-EBITDA of 2.8 is that getting to be an issue, and maybe we’re have an even contraction in the second quarter, is there a point where that sort of impairing or ability to leverage the working capital?

Yes, great question. I mean we still see a significant opportunity to improve our AP ratio overtime. We said on previous calls, we see that definitely in the 90% range. That said, of the AP ratio for those this is a quarter was impacted by the lower sales environment coupled with the lower AP balances, which were driven primarily by the inventory that was purchased last year in Q1 when the Company was significantly building up inventory. Let me also just go back to the leadership that we brought in the Company. We now have single credit leaders on the key component of our cash flow. This is something that we didn’t have in the past. We actually have a director of working capital now, which is an external higher. We’ve got people on AP, AR inventory that are single threaded leaders totally focused. And we’re meeting twice a week now in terms of being able to really dive deep. And this is something that we just didn’t have before and I want to take you back to the prepared remarks. We are running the Company different way. The insight that the new people are bringing is dramatic. I’m not happy where the AP ratio is. I’m not happy where our focus on cash is, trust that’s going to get better, we’ve got the foundation in place to make it better.

When we expect AP to start to expand in the second half? I guess is it something that reflects this year or I got something that longer term?

Yes. I’m not going to talk about a specific timeframe, just because it is so integrated to our end-to-end supply chain optimization. So we could very easily do a short-term action to pull the inventory out but we got very high guardrails because that would really hurt the availability for the customer. And as we’re repeating here and you’re getting the strategy, we’re just not going to do that. Availability is key for our customer. So we’ve got high guardrails there, we’re going to think the inventory out in a measured smart way. We grew 2% in Q1 versus 6% or 7% last year in Q1. We’re making progress it will get faster, but just don’t want to be pin down to a specific timeframe right now for this year.

Thank you. Our final question today comes from Chris Bottiglieri of Wolfe Research. Your line is now open.

I was hoping to dig in on the supply chain. I’m going to work in the assumption that your three businesses, Worldpac, AI and Advanced, are kind of three disparate businesses with three discrete customers. So I get the sense that from DC to store there’s probably geographic synergies from semi, stuff like that. But I guess first question is, would you agree at my assessment that three different disparate business that customers. And then two is there an opportunity to improve that semi’s from store to customer, synergizing these three businesses?

First of all, great question, Chris. I mean, we’re -- with Leslie coming on we’re taking a very different step back on the supply chain; again, starting with the customer. She is actually conducted or our team is conducted a series of interviews with customers to better understand the need. We spend a lot of time on DIY consumer insights last year, professional customer insights last year. We’re augmenting that this year to really make sure we understand we’re delivering against what the customers want. She is also looking at it end-to-end. So we’re not looking at discrete parts of our supply chain. We’re looking at the entirety of the supply chain, because a lot of times, in supply chain, you can reduce costs in one area and increase it in another area. So it’s really end-to-end look at it. As part of that, we have, she would say, we would say, Bob would say, all of us would say, we have significant inefficiencies in our current supply chain. We have many nodes, many assets. Obviously, our stores operate at fulfillment centers, as you know. So taking a step back and looking at the entirety of our supply chain and the seamless movement of parts across it, is something that is very much on the agenda and we’re building up the plan to better integrate the various notes we have within our supply chain, which ultimately will improve our order to delivery time for our customers. As you said, take miles out take cost out and reduce our inventory overall. So that’s the goal and more to come.

And then you said you won't be adding buildings. But what you roll out attracting buildings at this point, you got a hub stores, large square foot footprint of DCs. How do you think about that?

Yes, we are not going to comment specifically on that, but everything is on the table, to be clear. We are going to operate as efficiently as we can.

And then one challenging longer term question, want to get your perspective on, Worldpac going to proven that you don’t have to need stores to compete in this business. Can you tell us what is about that business that allows you not to have stores? What is that intact your core AAP stores like what is it about that Worldpac that allows the customer and expect a longer delivering window through centralized warehouse delivery rather than part shopping in local markets? Thank you.

Let me make a comment on that. First of all, I think what customers want wasn’t anything, if they want consistency and execution of delivery. So when they know there’s deflation in order they know when you are having. So I think critically important at Worldpac we have always remain to be focused on making sure that we have that same execution day in and day out. So customers count on that, number one. Secondly, they all have to do certainly with the product assortment as well. Worldpac has unique product assortment, certainly has dispatches repair shops throughout the entire North America. And so that also is not the part of where lion share of a lot of their business is basically schedule. And so therefore that it's valid to schedule delivery. However, there is again more and more pressure on reducing the order cycle time and Worldpac is taking the number of steps to reduce the order cycle time as well. So that’s part of the trends in the industry we’re all doing it. So I think as I mentioned earlier where we are transforming the professional experience with these new start up type of pilots that we have, one that we are starting next week is having all of that capability under one roof. And that’s going to transform and differentiate Advanced from the rest of the industry.

At this time, there are no further questions. I’ll turn the call back to Zaheed Mawani for any final comments.

Tom, go ahead.

Thanks operator. We would like to conclude our call by thanking all of our team members and independent our owners across the AAP family for their efforts to better serve our customers in the quarter. In addition, as we approach Memorial Day, we would like to thank all the members of our military for their service. We are making major changes at AAP and we remain focus on the substantial long opportunity we have to drive shareholder value. We look forward to updating you on our progress once again in August. Thanks for joining us.

That concludes our call today. You may now disconnect. Thank you for joining us.