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Advance Auto Parts: Turnaround Plan ‘Beginning to Bear Fruit’

Advance Auto Parts (AAP) reported single-digit percentage increases in net sales, comparable store sales and operating income for full-year 2018, which marked the second full year of the company’s five-year transformation plan.

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Advance Auto Parts (AAP) reported single-digit percentage increases in net sales, comparable store sales and operating income for full-year 2018, which marked the second full year of the company’s five-year transformation plan.

Net sales increased 2.2 percent to $9.6 billion, comparable store sales increased 2.3 percent and operating income increased 6 percent to $604.3 million, according to Raleigh, North Carolina-based Advance.

Advance President and CEO Tom Greco said the company completed the second year of its transformation plan with “consistent, balanced improvement throughout AAP on nearly every metric.” The turnaround plan aims to make Advance more competitive by improving its inventory availability, supply chain, productivity and customer experience.

“ … The diligent efforts and strategic investments we made over the past two years are beginning to bear fruit in our improving results,” Greco said during the company’s Feb. 19 conference call. “While we have a lot of work ahead in our transformation journey, I’m confident we’re on the right path with the right plan and we have the best team members in the industry to help us capitalize on the significant opportunity ahead for AAP.”

Greco, who took over as CEO in April 2016, highlighted a number of technology investments aimed at streamlining the company’s operations and simplifying the customer experience. In August, Advance launched its MyAdvance website, which consolidated parts ordering, training resources, customer support and other online tools into “a one-stop shop” for professional customers. Usage of the online platform jumped 50 percent in the fourth quarter, according to Greco.

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“This unique Advance tool differentiates us from our competitors and provides a single location for our industry-leading product assortment as well as training and business-solution advice,” Greco added.

In the fourth quarter, Advance’s DIY-sales growth for comparable stores outpaced professional-sales growth “for the first time in recent history.” Greco attributed the jump to the company’s investments in its e-commerce capabilities.

“We improved customer engagement by increasing page-load speed, streamlining search capabilities and increasing customizations based on customers’ vehicles and search inputs,” Greco explained during the conference call. “We’re also leveraging artificial intelligence and machine-learning tools to improve our online attachment selling as well as product assortment.

“The significant investments we’re making in our website are enabling improved customer confidence that they’re getting the right part for the job. If they buy online and pick up in store, our knowledgeable team members are available to provide trusted advice to our customers and ensure they have the complete and correct parts to get the job done.”

Other investments are focused on integrating Advance’s various banners, which include Carquest Auto Parts, WorldPac and Autopart International. The company has shifted to a unified payroll system, and will be implementing a new ERP system to integrate its back-office functions over the next two years, CFO Jeff Shepherd noted during the conference call.

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Over 65 percent of the company’s fourth-quarter spending went toward IT and supply chain initiatives, according to Shepherd. That included adding wireless access and handheld scanners in Advance’s distribution centers to improve order accuracy.

“Our IT initiatives include critical system investments addressing longstanding integration opportunities and lack of capabilities,” Shepherd added.

In 2018, Advance unveiled a strategy for optimizing its supply chain and store footprint. As part of the plan, Advance opened 14 new WorldPac branches last year, and closed and consolidated 101 stores throughout its network.

Advance also closed its distribution centers in Gallman, Mississippi, and San Antonio. The company is in the process of closing its DC in Columbia, South Carolina, and is “on track to complete this in the first half of 2019,” Greco noted.

In August, the company appointed former Walgreens supply chain executive Reuben Slone to lead supply chain and procurement for Advance. Since coming on board, Slone has “brought a new dimension to our thinking” and has been focused on “a very rigorous standardization of the core processes,” Greco said.

“While we have significant opportunities to improve supply chain execution, we did increase transparency and collaboration between supply chain and other functions such as store operations and merchandising,” Greco said of Advance’s progress in 2018. “We also rolled out new tools and technology in the fourth quarter, including our delivery dashboard, which leverages telematics and improves accuracy and reliability of pro delivery for our customers.”

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Greco added: “I’m confident in the supply chain team’s ability to further improve execution in 2019 and deliver on our long-term goals, including the optimization of our entire distribution network.”

In its guidance for 2019, Advance said it expects to generate between $9.65 billion and $9.8 billion in full-year net sales.

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