Good morning and thank you for joining us to discuss our Q4 and Full Year 2023 results. I'm joined today by Shane O'Kelly, our President and Chief Executive Officer; and Ryan Grimsland, our Executive Vice President and Chief Financial Officer. Following Shane and Ryan's prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including but not limited to statements regarding our ongoing strategic and operational review, initiatives, plans, projections, and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about forward-looking statements and factors that could cause actual results to differ can be found under the captions Forward-Looking Statements in our earnings release and Risk Factors in our most recent Form 10-K and subsequent filings made with the commission. Now let me turn the call over to Shane O'Kelly.

Thanks, Elisabeth, and good morning. Before we dive into the details of the quarter, I want to take a moment to thank the entire Advance team for their dedication and continued focus on serving our customers throughout 2023. I continued to travel coast to coast during the past few months, meeting customers, meeting team members from our stores, and team members from our distribution centers. I remain impressed with our team's strong work ethic and their unwavering commitment to helping our customers. I want to introduce today our new Chief Financial Officer, Ryan Grimsland. We're pleased to have Ryan on the Advance team, and he brings vast experience in the omnichannel retail space, serving both DIY and professional customers. His deep knowledge in finance, strategy, and transformation will undoubtedly help lead our company forward. Now, on to the decisive actions we have been taking to turn around the business. We have continued to act with a sense of urgency to stabilize the business and position the company to return to profitable growth. All of the actions we are taking are geared to help us focus on the fundamentals of selling auto parts, and we will eliminate activities that distract us from that goal. Let me be clear, our results today are disappointing and not at all what I'm accustomed to delivering. We have spent the last several months analyzing how Advance got here, and we now have a better understanding of the work required to change our trajectory. It's important to note that in recent periods, including this one, there have been several atypical items contributing to our poor financial performance. Through disciplined execution and accountability, we will tighten the fundamentals of our business, which will help reduce and then eliminate elements that introduce noise to our core performance. On our last quarter's call, we discussed decisive actions. Let's take you through those actions as well as update you on new activities the company is taking today. Number one, initiating the sales processes for Worldpac and our Canadian business. Number two, significantly reducing our costs to remain competitive while investing a portion of those savings back into the frontline. Number three, making organizational changes to position us for success. And now introducing two additional decisive actions. Number four, assessing the productivity of all assets, including Carquest Independence, and number five, the consolidation of our supply chain. Let's take a moment and further discuss each of these decisive actions. First, we initiated separate sales processes for Worldpac and Canada. We are very pleased with the interest we have received in both businesses. The Worldpac process is underway and we are actively engaging with potential buyers. We currently expect to conclude the Worldpac process during our second quarter and look forward to sharing more information when that occurs. As it relates to the Canadian process, this is intentionally sequenced behind Worldpac and we have begun the internal work to explore separating the business. Next, as I discussed in our Q3 call, the company's costs have outpaced our sales growth during the past several years, which warranted changes in how we operate. In Q4, we implemented significant cost reductions by eliminating roles and initiatives that did not support our commitment to improve the fundamentals of the business and we will realize at least $150 million of SG&A savings in 2024. We're focused on our frontline team members and are reinvesting approximately $50 million of those SG&A dollars to increase wages, bonus programs, as well as enhancing our training. This represents approximately half of the dollars planned for 2024 for our frontline with additional funding coming from sunsetting previous programs. While we continue rolling out these investments over the next several months, we note that we are already seeing year-over-year improvement in turnover reduction of key frontline roles. In addition to the Q4 cost reductions, we are now launching an additional initiative focused on our indirect spend, with the goal of eliminating a minimum of $50 million on an annualized basis. We will continue to be prudent with our expense structure and are committed to building a cost-conscious culture. Going forward in every operational decision we make, if it isn't core to the business to help our frontline team members and service our customers, it's off the table. In terms of the third decisive action, I mentioned on our last call that we had streamlined our management structure and reorganized parts of my leadership team to drive collaboration and accountability. These changes further simplify our structure and upgrade talent in key positions to allow us to drive improvements in critical business areas. In addition to Ryan joining us as the CFO, another example of outstanding talent that we've recently hired is Elizabeth Dreyer, who joined the Advance team as our Chief Accounting Officer and Controller. Elizabeth brings a robust track record of building and leading high-performing accounting teams and I'm confident she and Ryan will work together to create a high-performing finance function. We also recently hired a new Chief Data Officer, Kunal Das, to significantly improve the quality, processing, and utilization of our data. In addition, we've also hired a new procurement leader who will help deliver against the indirect cost savings that I just mentioned. We've also made a number of changes within our organizational structure to better align certain departments with our strategic goals. For example, pricing is now part of merchandising. In addition, we have consolidated our real estate function from across multiple parts of the company to form a single enterprise-wide real estate team reporting directly to me. Further, our merchandising and inventory teams now directly report to me. They have been working diligently on the implementation of our new core merchandising and inventory system. We expect to complete the remainder of the vendor and SKU transitions to the new system this year. That effort involves transforming our current ordering and fulfillment processes, enabling us to move away from antiquated systems to more data-driven capabilities. The fourth decisive action, which we are introducing today, is improving the productivity of all assets in the company including company stores and independently owned Carquest locations. While we opened 61 stores in 2023, we do not plan to open as many this year as we focus on improving our existing store operations and driving profitable growth. In an effort to optimize our Carquest Independent business, we recently terminated our agreements with over 100 independently owned Carquest stores, which will help improve the overall profitability of our Carquest Independent program. In addition to improving store productivity, our IT department has made notable improvements in the reliability of our stores' POS systems. The improvement in our network and store system resiliency is allowing our frontline to better serve our customers. Lastly, we are announcing our fifth decisive action which is the consolidation of our supply chain to a single unified network. We know that our current network is inefficient and needs substantial work to improve our cost structure and inventory availability. We have long served our blended box stores through two distinct DC networks, one from the legacy Carquest business and one from Advance. The first step is completing the implementation of our warehouse management system or WMS across all of our large DCs. With only three DCs remaining, we will complete this by the end of the year. Step two, which we are conducting in parallel with step one, is the conversion of smaller legacy DCs from functioning as a replenishment node to operating as a market hub. With 38 DCs in our Advance and Carquest network today, we view the smaller DCs as valuable assets that can be leveraged more efficiently as market hubs where we will forward deploy the right inventory closer to the customer. We have recently started our first DC conversion to become a market hub and we will utilize our learnings to scale this key initiative across the network. By leveraging our current DCs we can move faster and more cost-effectively than if we green-fielded a new network. Importantly, once we complete this work, we will be able to order product into fewer DCs, which will help reduce costs and improve inventory productivity. We look forward to sharing more on all of these actions as we continue to improve our blended box strategy. Before I turn it over to Ryan, the last topic I want to touch on is the macro environment. The key drivers of this industry remain strong. These include the average age of vehicles, which continues to increase and is now at 12.5 years, as well as miles driven, both of which are projected to further increase this year. Combined with the strengthening Do It For Me demand, I'm confident that Advance can begin to capitalize on the strong fundamentals of the industry. Now I'd like to welcome and turn the call over to Ryan Grimsland, our CFO, who will review our financial performance in 2023 and discuss the 2024 guidance we provided in the release this morning. Ryan?

Thanks, Shane, and good morning. I'm pleased to be here for my first earnings call as CFO of Advance. Before I move to the financials, I would also like to thank our team members for their continued dedication, as well as the warm welcome I received from the team. Since my arrival at Advance, there are several swift changes we have made to allow for the necessary transformation of our finance function. As Shane discussed, we recently appointed Elizabeth Dreyer as our new Senior Vice President, Chief Accounting Officer, and Controller. Elizabeth's impressive track record in a variety of financial leadership roles will benefit us as we work to remediate our previously disclosed material weakness related to internal control, which I'll speak to in more detail in just a moment. In my first 90 days with Advance, I've had the privilege to meet and connect with our hard-working and talented finance and accounting teams. I'm committed to providing cohesive leadership as well as ensuring we have the needed incremental resources that will enable us to be a best-in-class retail organization. As you heard from Shane, we are focused on improving the fundamentals across the business to bring rigor, discipline, and accountability with a sense of urgency. We have begun to make changes and are committed to elevating ourselves to become a high-performing team. The first step has been filling critical roles, including hiring key leaders, as well as a thorough and time-intensive review of our reconciliations and processes across the company. Within this review, we've recently discovered additional work needed to fully realize the intended benefits of our finance ERP system, including potentially sunsetting certain legacy systems. The turnover of accounting personnel over the past 12 months has increased the challenge to operate as an effective finance organization. We have taken aggressive action to bring in resources around our internal controls, both hiring accounting professionals and insourcing contractors at varying levels to provide leadership and oversight. With these actions, we are making significant progress on remedying our material weakness related to people identified in early 2023. In addition, as disclosed in our release, we identified issues with certain previously reported financial results. We are correcting prior period financial results in our earnings release in upcoming Form 10-K. As you saw this morning, we filed for an extension. We do not expect the results we are discussing today to be impacted. However, we need additional time, principally to finalize our assessment of internal control over financial reporting and the related disclosures. Our financial results discussed today will compare our Q4 and full year 2023 results to the corrected results for the prior periods. Now on to our results. In the fourth quarter our net sales of $2.5 billion decreased 0.4% compared with Q4 2022 and comparable store sales decreased 1.4%. This was primarily driven by softness in DIY throughout the quarter, but particularly in the last four weeks of the year as we lapped tougher comparisons to the prior year. However, we continue to be encouraged by our performance in pro as we realized strong transactional growth in the quarter as a result of improved availability. The West and Northeast were our top performing regions, while the Mid-Atlantic and Midwest were our most challenged in the quarter, as they were impacted by unfavorable weather. From a category perspective, as we improved our availability, we saw strength in filters, heating and cooling, and engine management. In Q4, gross profit margin of 38.6% declined 504 basis points from the prior year quarter. There are business performance issues, along with several atypical drivers that contributed to the deleverage. Inventory-related items contributed approximately 280 basis points, of which roughly 170 basis points are related to changes in estimates, and 110 basis points from inventory-related capitalization costs. In 2022, we hired an external firm to identify and recover previously earned vendor incentives over a multi-year period. This resulted in approximately 120 basis points of deleverage. Lastly, elevated supply chain costs contributed approximately 50 basis points. SG&A was $999 million in Q4 2023 compared with $960 million in Q4 2022. As a percentage of net sales, our SG&A expenses deleveraged 176 basis points to 40.6%. The deleverage was driven by a year-over-year increase in occupancy costs, labor-related expenses from our intentional investments in our frontline team members, and new store expenses. These were partially offset by previously discussed productivity actions taken in Q4. Importantly, we also incurred approximately $8 million in expenses related to our restructuring, as well as $5 million related to the strengthening of our accounting resources. These results are not indicative of how we want to run the organization. As Shane mentioned, we are reducing expenses by building a cost-conscious mindset throughout Advance. Our Q4 operating income margin deleveraged 679 basis points compared with the prior year quarter. Diluted loss per share was $0.59 in Q4 compared with $1.39 earnings in the prior year quarter. This was primarily driven by lower net income as well as higher interest expense. For the full year 2023, net sales of approximately $11.3 billion increased 1.2% compared with prior year. Full year comparable store sales decreased 0.3%. Our gross profit decreased 8.3% year-over-year and gross profit margin contracted 414 basis points to 40.1%. Inventory-related items contributed approximately 157 basis points. Cost increases were not fully covered by price, contributed approximately 74 basis points to the full year decrease. As mentioned earlier, the initiative to recover previously earned vendor incentives negatively impacted full year gross margins by 60 basis points. Lastly, elevated supply chain costs contributed approximately 50 basis points. SG&A expense for the full year 2023 increased 3.5% compared with 2022. On a rate basis, SG&A as a percentage of net sales increased 85 basis points to 39.1%. This was primarily driven by expenses growing faster than sales throughout the year, as well as an incremental one-time SG&A expense related to headcount reductions and personnel changes. Our full-year 2023 operating income decreased 82.9% to $114 million. On a rate basis, our OI margin contracted 500 basis points to 1%. Full year earnings per share were $0.50 compared with $7.65 at the end of 2022. Our 2023 capital expenditures were $242 million compared with $424 million in 2022. The primary drivers of the reduced capital expenditures are related to fewer new store openings and IT-related expenses. We expect that our overall capital expenditures in 2024 will focus primarily on IT enhancements and supply chain optimization. We are committed to a disciplined capital allocation strategy on high-return initiatives that hold our teams accountable to time, budget, and financial targets. Free cash flow for the full year was $44 million. This year-over-year reduction was due to lower net income results despite lower capital spend. Since Shane and I have joined Advance, as you would expect, we have taken a deep dive into the business. While we have moved quickly to simplify the business and taken other actions to help put the company on a trajectory for improved performance, we clearly have more work to do. We are focusing on the optimization of our supply chain assets, implementing additional cost-cutting measures, particularly with indirect spend, and improving store productivity. We believe our efforts will begin to deliver incremental improvements this year, which is factored into our 2024 guidance while setting the stage for growth in the years to come. Our assumptions for 2024 include continued pressure on the DIY consumer offset by DIFM improvement and modest inflation. These factors, coupled with the solid industry fundamentals Shane discussed earlier, are considered in our full year 2024 guidance, which includes net sales of $11.3 billion to $11.4 billion, comparable store sales of 0% to 1%, operating income margin of 3.2% to 3.5%, diluted earnings per share of $3.75 to $4.25, capital expenditures of $200 million to $250 million, and a minimum of $250 million in free cash flow. With that, I'd like to turn the call back over to Shane.

Thanks, Ryan. There's no doubt that we've got our work cut out for us in 2024, but I am confident that with our decisive actions and a focused team coupled with favorable industry fundamentals, we can return to profitable growth. Advance has a proud 90-year legacy, a re-energized frontline team, and a leadership team committed to delivering a powerful comeback. I'd now like to open the call-up to address your questions. Operator?

Thank you. Our first question today comes from Chris Horvers at JPMorgan. Chris, your line is open, please go ahead.

Thanks, good morning and welcome to everybody on the management team. My first question is going to start at a low level and then I'm going to try to bring it up to a higher level from a margin perspective. You think about the fiscal year items, could you help us understand and in 4Q like the change in the estimate, the vendor incentive pressures, you know what exactly is going on there? Are you essentially writing inventory off that doesn't exist or are you writing inventory down to a lower market level, you know, such that perhaps when you sell it later, there's going to be some gross margin recapture? And on the vendor incentive side, totally unclear on what that is. You had accrued for vendor incentives and now you're writing them off. And what led to that?

Yeah, Chris, this is Ryan. And thanks for joining us today. Yeah, a couple of things. Those are two really the big drivers of our inventory changes. Some of it is inventory that we're shrinking out of the system. Some of it is changes in our excess and obsolete calculations. And then some of it is on the incentives, and so approved incentives. Some businesses we maybe no longer do business with, challenges in recovering. We're just making sure we get the right amount in there that we believe we're going to be able to recover.

Hey Chris, it's Shane. Not unsurprisingly, new CFO, new CAO, digging in in the business and looking at our different methods of estimating what we keep and what's dead and what's not and they're digging in to set us up for success and that's exactly what's occurring here.

And Chris, I'll add one more thing on that. We mentioned, you know, last year there was a prior initiative to go back and look at vendor income over a multi-year period incentives, et cetera. That we have up on the table. That had a positive impact last year that we're cycling over this year.

Okay. So then maybe to clean it up, as you think about on a fiscal year basis, like what are just clean laps, i.e. You going to get X basis points back, you know, in the gross margin line because it was a, you know, there's an impact this year that it's not going to affect next year and you'll get it back, you know, both in terms of the, you know, gross margin and SG&A lines.

Yeah, Chris, So I would expect roughly 157 basis points of those kind of atypical items that I don't anticipate us cycling again next year. So that's a COGS perspective there, a margin rate. From an SG&A perspective, about 12 million, really that's related to severance. And some of the expenses related to remedial and material weakness on the SG&A side.

Got it. Thank you very much.

Good morning. Thank you so much for taking my question. Given all the moving parts with your margin structure right now, what do you think an ongoing sustainable operating margin for the businesses in 2025 and beyond? Is the '24 levels something that you're working to grow off of?

Hey, Michael, it's Shane, and Ryan will add to this. So first, you heard some color from Ryan. We sat at a one OI in terms of what we published. You can kind of put together some of the things that might not be occurring this year to get to a bit of a baseline. We put out our guide, which we feel good about, and then later this year, look for us to give a multi-year perspective on where the business can go. As we sit in the trenches today, we're looking to be incrementally better every day. And that's the first step. And as we get that credibility, notably around this 2024 year guidance, we'll look to continue that journey to further points. But Ryan?

Yeah, Michael, good question. So that 157 basis points is what I would think from, you know, atypical items that we don't expect or anticipate to the lab again this year. So that's one data point. In our guide, we do have modest margin rate expansion as we continue to execute on these decisive actions that we talked about earlier in the call. So that's a modest increase there, as you can see in our OI margin. That's primarily that OI margin expansion is primarily coming from gross profit.

Okay. And then obviously we're going to get more information on the sale process in the second quarter. So two related questions to that. Can you give us a peek on how that's going to be impacting the financial performance of the business over the long term so we can get an assessment of what we should be modeling in terms of the ongoing sustainable margin rates for the core business you'll be holding on to as number one. And two, how are you thinking about balancing, maximizing the value of these assets with the need for resources to improve the business given that free cash flows under pressure, the rating agencies have downgraded your credit rating, and you have a lot of receivables that are factored. Thank you so much.

Yeah. Hi, Michael. Lots to unpack there. So let's start with your second question. Worldpac, a good business with good team members. This isn't a fire sale. There's no sort of urgency that we have to sell the business. It's really around strategy and where we're taking the company. We believe that the blended box model is our route to success, selling a pro and DIY customer from our core stores. And so that strategic review led to the idea of selling Worldpac, which I think is the right move for the organization. So there's not a, as it relates to value maximization, we don't have to sell. And that's why we say it's a potential sale process. The good news is the interest thus far has been significant. We're seeing a lot of players, both breadth and depth of players who are expressing interest. Centerview is running the process for us. And it's going at the tempo that I've seen. I've done 40 deals of one sort or another. And so as we get to price discovery and working with the potential buyers, we'll look to complete that process in the second quarter. Importantly, though, we do have and have started to think about what we would do with the proceeds. And I can kind of think about them in a couple of buckets. I think debt pay down figures into what we would disposition with the funds. And then secondly, there are some key initiatives. You've heard our decisive actions that we can potentially accelerate with additional proceeds. So our supply chain consolidation, I think that can be amplified with some of the Worldpac proceeds. You can think about our IT initiatives. You heard about our, we've got our new inventory system coming online, our PLS system work, that can be accelerated. And then lastly, just on our store infrastructure, either in terms of sprucing up existing stores or with our new real estate team, looking at what we can do in terms of our new store openings. On your first question, not ready to give a definitive depiction of what we look like as a remainder co without Worldpac. Again, we're tightly in a potential sale process at this point, but as we get closer, we get more information. We'll certainly provide that. But we feel good that in the wake of that sale process if it goes through, we have a company that's focused on selling auto parts out of a blended box. That's what we're going to do.

Thank you very much and good luck.

Hey, good morning, everyone. Hi, Shane. Hi, Ryan. Hey, Ryan, I wanted to look at the guidance in a little different way. If we annualize the fourth quarter EBIT, you get to about $160 million, and then when we add back the cost saves, which I get some of them may not fully annualize, you get back about, you're roughly a $360 million run rate. That's a tad below the guidance. So a couple of questions is partly like how much reinvestment is there in some of the savings and then, you know, what improves in the core business to get you the higher threshold. And some of this may be some of the things that don't repeat, I think to Chris's question earlier, but there doesn't seem to be a lot of reinvestment if you just take sort of that mass.

Yes, Simeon, so one of the things we did do is we invested in the front lines. We took some of the cost savings and we reinvested that back into the frontline. So that was about, of that 150, we invested about 50 million back-end. I think from a, if we look at our full year right now, I think we're coming in close on an EBIT perspective, 116, we take the 157 basis points, I would say, at that back plus 12 million in SG&A. You can get the kind of a normalized rate and then you take that 100 million in SG&A. Now our guide on the top line of 0% to 1%, we're going to work to manage inflation in our SG&A to get that flow through. So I think that's how we would think of where we got to our guide.

Hey, Simeon, just a couple quick follow up on the cost. Hey, welcome to the follow up, just a second. So on the cost, on the 150, that cost is out. So we made the tough call and never easy. Some 400 team members not with the company anymore. So that's in the run. That's not an ethereal number in terms of how we're thinking about the organization. And then as you think about what we need to do, you've heard Ryan's points, but in terms of actual physical initiatives on the ground, you're gonna see a renewed emphasis on the up and down the street pro from our organization this year. I think it's an area where we had our eye off the ball a little bit but I also think it's an area where on a relative right to win in terms of the capabilities of the team members we have out in the field and referring to our CAMS or our outside sales team members and our CPPs who are inside the store pros, that's an area that they're excited to go after.

Thanks for that. And the follow-up is, Shane, I'm intrigued by some of the things you're addressing and your diagnosis of what has been kind of holding this business back. So you mentioned a bunch of things, systems and supply chain. Curious about your take if there is an Achilles heel, whether it is supply chain or merchandising or process versus infrastructure, if you can elaborate a bit on that?

So I think some of it goes to culture and focus. And the good news is, as I meet the team members in the field, you see that 90-year heritage. You see men and women who sell auto parts who want to win. And so we need to unlock that by making sure that what we do as a company, and from my time in the service, call it the inverted pyramid, that we are geared not as a headquarter-centric organization, but we're a field-first organization. And if you spend time listening to the customers, they'll give you the feedback on what it takes to be successful. If you take time empowering our frontline associates, that's a key route forward for us. Additionally, it's the blended box model. We, I think, looked at different paths to heaven as a company in the past and didn't put the emphasis on the blended box. You can see, demonstrably, in the industry where the blended box works. It works in terms of the breadth of customers you could serve. It works in terms of the flow-through you get, when you get marginal sales in the same location. So that's really where we're going as a company in the future.

Thanks. Good luck.

Hi. Thanks and welcome guys. I guess my first question is, I'd just like to clarify a little bit. I know it's a potential sale. But in your guidance this year, how much of the free cash flow sales, et cetera, are coming from Worldpac or the businesses you're considering sale?

Yes, Greg, this is Ryan. In the guidance, we're not considering any impact from the sale. Our guidance is based on the current structure of the company, which includes Worldpac and Canada.

Yes. So we'll revisit with you at midyear if that process goes through, and then you'll see the breakout proceeds the RemainderCo and our plan for disposition of proceeds.

So just to be clear, whatever Worldpac is, if I ask the question differently, did the RemainCo generate free cash flow last year?

We're not going to talk about specific individual business units at this time, but we'll come back in Q2 to give you more details on that, Greg.

Yes, so that's the case. Thank you.

Fair enough. Please provide an update. Shane, I wanted to follow up on the steps taken to stabilize the business from a profit perspective, which I believe you mentioned. I would love to hear more about your interactions as you traveled across the country, speaking with the frontline staff and customers. It seems that the priority is engaging with them directly. What are their needs that have not been met by Advance in the past couple of years? Is it related to product quality, speed, or inventory availability? Could you elaborate on this a bit more?

Yes, that's a great question. I'll begin by discussing our team members. It's essential that they feel valued. Historically, we have not invested as much in our frontline workforce, which impacts wage rates, bonus programs, and training initiatives that enhance both their skills and sense of pride. We currently have a substantial effort aimed at improving conditions for our frontline staff, which has already led to a decrease in turnover rates. Additionally, regarding our spending and SG&A reductions, we have identified costly marketing programs that have not yielded results and are shifting our strategy to focus on customer success, listening to feedback, and improving product availability. For instance, we’ve received feedback from key customers indicating that if they call us first but find we don't have the product, they'll have no choice but to reach out to our competitors. Therefore, we've made significant progress in enhancing our product availability, with our in-stock levels improving by over 200 basis points this year. Meanwhile, our overall inventory has decreased, and Ryan has already shared insights on some of our inventory management strategies. Notably, we have added $300 million of additional inventory that our customers specifically requested, allowing us to respond better to demand signals and improve our in-stock performance. Furthermore, we aim to enhance our service delivery through our outside sales team, which involves a lot of ongoing efforts. It’s worth mentioning that previously, our pro services were split among different divisions of the company, but now they are consolidated, thus creating a unified approach as we serve our professional customers. This means that regardless of the customer's point of contact, they will receive a consistent experience. Lastly, on the merchandising front, we are actively engaging with our vendors to ensure we align on costs, product availability, and prioritize innovation. It's important to note that our discussions with vendors have been very positive regarding their support for Advance’s growth. They are enthusiastic about seeing Advance succeed, and we believe that fostering a strong partnership among our vendors, an engaged frontline, and our customers will help us get our fundamentals right in terms of product, pricing, and delivery.

Got it. And I think, Ryan, you mentioned as part of the guide, you expected a little bit of inflation in the numbers as we reinvest in that inventory and get the right stuff there. Is that fair? 1% or 2%?

Yes. Our inflation rate right now that we're looking at is about a 1% inflation rate that we're seeing and we're expecting.

Hey, good morning, guys. On the supply chain initiative, and obviously, that seems like it's been on for a while. The WMS should be done by the end of this year. At what point do you see actually having the DCs on a single ERP system? And when you use those smaller DCs as a sort of forward inventory, will there be an investment cycle in building more large distribution center infrastructure?

Yes. Thank you for the question, Bret. We will complete the implementation of our Warehouse Management System this year. The system we use is HighJump, and it will be operational in all of our replenishment distribution centers. The next step involves establishing market hubs, which is a model seen in other companies in the industry. We can utilize our smaller distribution centers to operate in this way. While we've made progress in our supply chain, we haven't yet achieved a fully integrated system. Previously, we relied on 38 distribution centers to serve as replenishment nodes, supplying every product to each store that needed it. However, not all products can be managed effectively at all 38 centers, and that number is excessive based on my experience. Our plan is to develop a national network of larger distribution centers. We haven't finalized the exact number yet, but looking at competitors, it's common to see 8 to 14 large centers that provide a national footprint. Additionally, by converting smaller centers into market hubs, we will establish more of these hubs since that model has proven effective. Combining these efforts, we will likely pursue further expansion of large distribution centers. More specific details about our goals will be shared in the coming months. The main point today is that we are committed to creating a unified supply chain with a single flow path, a cohesive system, and improved interactions for our vendors.

Do you have a feeling, I guess, internally for what your basis point impact has been to run to despair it pretty inefficient supply chains, like what's the incremental cost of running as you have been running? Or what might you pick up by consolidating?

I want to emphasize that it's significant. For anyone with experience in logistics, managing two separate supply chains compared to a single one is simply not the way forward for us. As we will explain in more detail later, we believe there are substantial financial benefits to be gained from this change. Moreover, it leads to improved product flow and increased availability for our customers. There are effective advantages to this approach that we will elaborate on in the future.

Good morning, Shane and Ryan. Shane, maybe a follow-up on the supply chain. You mentioned potentially using the sale proceeds to accelerate the migration to the single unified network. I was maybe just curious, like if we can think through the two scenarios here in terms of time frame to completion of that initiative, right? If the asset sale occurs, is there like a time frame in mind that you have to reach the goal? And then I guess, if the asset sale doesn't occur, sort of what is that change in the time frame that would result in maybe a difference in sort of the near-term free cash flow proceeds of the business?

Yes. This is my third experience with merging supply chains in companies, and we aim to accomplish this sooner rather than later. However, it is a multiyear project. This is simply the practical reality of the situation. Can we expedite the process? Certainly, and we plan to do so with the funds we receive. But this is not something that should be expected to be completed in 2024. We will extend our efforts into 2025 and likely into 2026. Specifically, we are focusing on our current initiatives, starting with the first 38 locations. We also need to establish new market hubs and assess where we have to introduce a large-scale distribution center, as those tasks require time. The key point for everyone to understand is that this journey has already begun, and our first market hub conversion is currently underway. Early feedback suggests that this will be very beneficial for us. We will progress as quickly as possible because we understand that achieving our goals will create value for our customers and enhance their profitability. There will be more updates, but please know that our supply chain team is committed and already making significant progress.

Thanks. And maybe just a quick follow-up for Ryan. As we think through sort of noncash and cash impact on the margin outlook, any sort of color around the fourth quarter LIFO either benefit or charge? And then sort of what's implied within the margin guide for 2024 in terms of LIFO?

Yes. So in Q4, we saw $5.2 million of income related to LIFO. And we expect it to be moderating in 2024, so a moderate expectation in 2024 in our guidance.

Hey, good morning, everyone. I wanted to follow up on the comps this quarter, down 1.4%. I'm just curious, as you started to implement changes, are you seeing a wider dispersion in performance across the store base? I'm sure it's noisy with weather, but anything you can point to and maybe quantify to say that some of the early initiatives are working?

Yes, absolutely. So as we saw availability improve, we did see improvement in the pro traction. So we're actually seeing good performance in the pro. We're excited about that, encouraged by our inventory availability. We still see DIY pressured. And so that kind of offsets some of the pro performance in that. And that's also kind of what's in our former guide going forward. We expect to see good improvement in the pro as we have improved availability while reducing DIY pressure going forward.

Got it. And then my follow-up question is about the difference in profitability compared to some of your peers and what guidance you might provide in the future. How much of the issue or opportunity is related to sales-driven four-wall profitability or volume, and how much of the profit gap might be due to inefficiency outside of the stores? I am curious about your perspective on this as we look ahead. Thank you.

Yes, that's a great question. It's partly about our supply chain conversion, which will certainly provide some benefits and help us manage that gap. Additionally, there's a mix factor; the type of products we are selling is skewed more towards professional than DIY, and that margin mix affects us as well. We also need to concentrate on merchandise excellence. Improvements in line reviews have been mentioned, and there are areas where we need to address. While I won't go into specifics on how we plan to address all those aspects, there is definitely work to be done to close that gap. The significant challenge we face is that mix impact, which may prevent us from fully closing it, but we do see opportunities ahead, particularly with our supply chain conversion efforts.

Ryan is exactly right. And one way to illustrate, and why we're focused on the blended box, if you look at revenue per store, and you think about us as a kind of a 1.7, 1.8. And you can look at other folks who have higher numbers. When you add revenue to a store, $100,000, $200,000, $300,000, that money drops to the bottom line at an incrementally larger level, right? So you've got your fixed costs covered. So that's a key for us. So I think your question is a good one, Seth. We need to do both. And as we do both, we see the path forward to continued success. And now that, as we look at where Advance is, we don't sit and say, hey, let's benchmark off the other guys. Our goal as an organization is to be incremental, to be incrementally better every day, take care of our customers, look after our team members. And I've seen this movie before in other industries, in fact, in my last organization, that's a recipe for success. And we'll look for that from us, and then look for us later this year to provide a perspective on what that might look like after a couple of years.

Okay. Great. Thank you, both and good luck.

Thank you for taking the question. I'm noticing some of these inventory adjustments and wanted to clarify something about Chris Horvers' question. Will these inventory write-downs and changes in estimates likely be reversed in future periods when you sell them, or are these permanent changes?

Yes, we don't expect to reverse it. The adjustments were made to estimates and vendor receivables during the process, and I wouldn't anticipate that these will be reversed at any time.

I was hoping you could elaborate on the independent businesses that you've divested. It seems you took on the first 100. Is this an immediate margin saving since you were losing money with these customers? Or does this allow you to close down some of these Carquest distribution centers because you wouldn't need them anymore if you stop serving in those particular markets?

I’ll begin, and then Ryan can join in. Independents play a vital role in our business as they can reach areas we can't and serve markets where their expertise surpasses ours. This is not about stepping away from the independent sector. At times, we were overly aggressive in adding independents, and upon reviewing the overall trade balance, it became clear that it wasn't beneficial for us, and in some situations, not beneficial for them either. After assessing the overall situation, we found that around 100 relationships didn't make sense to maintain. We view this as a positive move, and Ryan can discuss its impact. The feedback from the independent network has been positive as well. Those independents who excel in their work take pride in their business and expect those representing the Carquest name to align with our customers’ expectations. Overall, this adjustment has been well received, and we are satisfied with the independents we have retained.

Yes, Chris, I'll just add that well, we'll lose some sales on that, but we're actually going to gain on the bottom line and operating profitability, roughly $3 million to $4 million. So it's definitely a net positive for us.

Okay, that makes sense. Thank you.

Thanks a lot and good morning. My question is around the balance sheet leverage going forward. How do you expect that to play out over the next few quarters, including post sale of Carquest? And any implications for the vendor inventory financing program?

Yes, it's a good question. So as we said with the sale, and Shane talked about it, if we do get the proceeds from the sales, one of the first things we'll do is work to delever our balance sheet with some of those proceeds. That's one thing we'll look at it. But going forward, I think the business is generating good cash flow, and as part of that cash flow, we will continue to work to delever the balance sheet. We're going to first invest in the business, but also get that leverage target into a better place.

Okay. That's helpful. And as you look beyond '24, obviously, early, but with the supply chain transformation, should we expect CapEx to rise from '24 guide?

The CapEx guide that we put out contemplates actions we're taking in supply chain conversion. We're going to be much more focused on our capital expenditures and making sure we're investing in the right things that drive our business and then we focus on these decisive actions. So as we said earlier, the capital is really focused on IT and supply chain right now.

Thank you.

Yes, I'll just jump in there. The supply chain transformation is a big one. I think Ryan's got our guide exactly where it should be for '24. We could raise it in '25. And we'll feel either through the proceeds from Worldpac or just as the business performed better and we're able to deploy more, again, back to the previous questions, if we can accelerate or wherever we can accelerate the supply chain consolidation, we'll do it.

I just want to follow up on the 38 distribution centers you mentioned. I'm reviewing past annual reports and can't find a breakdown. In the past, you've discussed PDQs, which are the smaller distribution centers, but can you clarify how many of these 38 are larger centers? What defines a larger distribution center? How many are smaller? I'm trying to understand your plans regarding the larger distribution centers and any potential additions. Thanks.

Yes. So with the 38, I know it's hard to approach 38. 38 is the Advance and Carquest DC network. So I think in total, we're about 50, which would include the Worldpac as well. So that's, when we talk about 38, we're specifically talking about the Advance and Carquest DC network.

In the upcoming months, we will provide a detailed overview of all the facilities. I am hesitant to provide more specifics at this time. We have team members working in these distribution centers, and as we transition any of these centers into a market hub, we want to keep them informed throughout the process. We will outline the differences. Generally, the smaller distribution centers are suitable for the market hub conversion for Carquest, while the larger distribution centers from the Advance model show a significant difference in size. We believe we have the necessary large distribution center network, though we may fine-tune what the national footprint will ultimately look like.

So you had said to a previous question earlier that based on the other guy, somewhere between 8 to 10 to 12 to 14 is the right number of large DCs. And you're saying that you think you have those already from the Advance, the old Advance network, give or take, a couple? I just want to clarify that.

Yes, Michael, good job threading some questions and answers together. The 8 to 12 to 14, that's my experience in the past life, right? If we hired some of the firms that do the work on setting up national infrastructures, and you say, hey, I want to have a nationwide distribution network. That's what they're going to tell you. And that's what I've seen and I've lived. And so I think that's an appropriate range for us. And yes, we largely think we've got the facilities today. Thank you.

We are utilizing our existing resources, as we believe we possess what is necessary to establish the network we require.

Yes. If we came to you and said, hey, we got to put 10 new 500 to 1 million square foot DCs up in the United States, you guys can do the math on what those buildings cost and how long that takes. We're trying to do this both more quickly and efficiently using the facilities we have. And a national model might come out and say, gosh, the DC you have might be marginally better if it was located an hour this way or that way. That's a little bit of the trade-offs we'll make, which is minor in terms of the efficiency drag. But in exchange for the speed and the overall cost-effectiveness, that's the right way to go.

Yes, that makes sense. I would like to clarify something from the beginning of the call. You mentioned finding an additional $50 million for frontline employees through the sunset of certain initiatives. Can you elaborate on what that entails? Also, is this $50 million investment an incremental amount compared to the previous year, or is it accounted for elsewhere?

Yes. To simplify the math, we removed $150 million. We decided to allocate $50 million of that to frontline wages, bonuses, and training. There's an additional amount, approximately double that, coming from our regular expenditures. We have our merit plan for the year, but some funds are freed up by discontinuing certain HR programs that weren't focused on the frontline. We canceled those programs and redirected the funds towards bonuses and training. This does not add any net cost to the company; instead, it's a more effective use of funds that we're directing appropriately.

Thank you all. That is our last question for today. Thank you for joining us. We look forward to sharing more progress on our decisive actions that we covered today when we speak with you again in May. Have a great day. This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.