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Advance Auto Parts: Slow First Quarter Doesn’t Change Turnaround Story, CEO Says

Advance Auto Parts CEO Tom Greco said the company is keeping the big picture in mind after a slow first quarter marked by weaker-than-expected demand.

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Advance Auto PartsROANOKE, Va. – Advance Auto Parts CEO Tom Greco said the company is keeping the big picture in mind after a slow first quarter marked by weaker-than-expected demand.

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The company reported a 2.7 percent decline in comparable store sales for first-quarter 2017, along with drops in sales, profits and earnings. First-quarter sales were $2.9 billion, down from $2.1 billion in the previous quarter.

Greco said the company had expected to take a hit from the cold December, which pulled winter-related demand into the fourth quarter. The company also had anticipated the impact of New Year’s Day shifting to the first quarter.

But softer-than-expected sales in February and March “resulted in a slow start to the spring selling season” and hurt the company’s Q1 numbers as well, Greco noted during the company’s first-quarter conference call.

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“The beginning of the quarter was in line with our expectations, as was the end of the quarter,” Greco said during the call. “[But] we, along with the rest of the industry, experienced softness in February and March.”

Despite the “short-term headwinds that were not planned,” Advance Auto Parts delivered positive sequential gains in comp store sales for the 28-week period combining first-quarter 2017 and fourth-quarter 2016, Greco said.

The company was coming off a 3.1 percent uptick in comp store sales for Q4 2016, which marked the biggest improvement since Advance Auto Parts bought General Parts International in January 2014.

“The sequential improvement we’ve delivered in recent quarters demonstrates we’re making real progress,” Greco added.

‘Deliberate Choices’

Gross profit declined from $1.35 billion in Q1 2016 to $1.27 billion in Q1 2017, while operating income tumbled from $271 million to $180 million over the same period.

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Greco said the decline in operating profit “reflects deliberate choices to invest in our business and specifically the customer to position AAP for the long term.”

“When sales slowed down in the middle of Q1, we could’ve made a short-term decision to pull back on customer service, but in fact we made a deliberate decision to sustain investment,” Greco said during the conference call. “At times we know that difficult choices need to be made 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 in customer service in the middle of short-term weather-related softness was one of the easier decisions made in the quarter.”

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He added that the company’s investments are starting to pay dividends, “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 deliver times to customers.”

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