Advance Auto Parts (AAP)

Q1 2011 Earnings Call

May 19, 2011 10:00 am ET

Executives

Kevin Freeland - Chief Operating Officer

Darren Jackson - Chief Executive Officer and Director

Joshua Moore -

Michael Norona - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Assistant Secretary

Jimmie Wade - President

Analysts

Daniel Wewer - Raymond James & Associates, Inc.

Greg Melich - ISI Group Inc.

Mark Mandel - ThinkEquity LLC

Anthony Cristello - BB&T Capital Markets

Gary Balter - Crédit Suisse AG

Matthew Fassler - Goldman Sachs Group Inc.

TheStreet Recommends

Scot Ciccarelli - RBC Capital Markets, LLC

Presentation

Operator

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Welcome to the Advance Auto Parts First Quarter 2011 Conference Call. Before we begin, Joshua Moore, Director of Finance and Investor Relations, will make a brief statement concerning forward-looking statements that will be made on this call.

Joshua Moore

Good morning, and thank you for joining us on today's call. I'd like to remind you that our comments today contain forward-looking statements. We intend to be covered by, and we claim the protection under the Safe Harbor Provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events, developments or results and typically use words such as believe, anticipate, expect, intend, will, plan, forecast, outlook or estimate, and are subject to risks, uncertainties and assumptions that may cause the results to differ materially, including competitive pressures, demand for the company's products, the economy in general, consumer debt levels, dependence on foreign suppliers, the weather, business interruptions and other factors disclosed in the company's 10-K for the fiscal year ended January 1, 2011, on file with the Securities and Exchange Commission. 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.

The reconciliation of any non-GAAP financial measures mentioned on the call with the corresponding GAAP measures are described in our earnings release and our SEC filings, which can be found on our website at advanceautoparts.com. For planning purposes, our second quarter earnings release is scheduled for Wednesday, August 10, 2011, after market close, and our quarterly conference call is scheduled for the morning of Thursday, August 11, 2011. To be notified of the date of future earnings reports, you can sign up through the Investor Relations section of our website. Finally, a replay of this call will be available on our website for 1 year.

Now let me turn the call over to Darren Jackson, our Chief Executive Officer. Darren?

Darren Jackson

Thanks, Joshua. Good morning, everyone. Welcome to our first quarter conference call. First, I'd like to thank our 52,000 team members for their hard work and dedication to serving our customers. We entered this year with considerable momentum and expected 2011 would be a continuation of a very strong 2010. Our "Service is our best part" plan was very ambitious, including the launch of our national advertising campaign, the company-wide rollout of our new district in commercial leadership model and the restart of our wave efforts. We made these decisions and began implementing them in the fourth quarter of last year, anticipating that our momentum and exceptional industry dynamics would position us for a strong first quarter and fiscal 2011.

Our momentum and overall performance proved to be different than we expected. We highlighted that during our Q4 conference call in mid-February, the change in momentum and the volatility principally driven by weather. We shared with you that we expected our Q1 comparable sales growth to be flat to up low single digits. Our comparable store sales were 1.4% for the first quarter of 2011. While they were in the range, quite frankly, we expected better top line and bottom line outcomes. That being said, our first quarter demonstrated the great resolve of our team as we achieved record customer satisfaction and team member engagement scores for the quarter. This bodes well for the future. However, our first quarter also highlighted the short-term bumps of accelerating the pace and the breadth of change in pursuit of long-term goals to differentiate ourselves and ultimately win with the customer.

The fundamentals of our business continue to be strong, and we benefit from the structural advantages of our industry. Advantages include the average age of vehicles, constraining new car sales and a fragmented commercial market. We continue to see opportunity for us to become a more differentiated, fully integrated service model focusing both on DIY and commercial customers.

To that end, our first quarter reinforced to us that our goals and objectives are the right ones to lead and service and to provide our customers with superior availability. Simply said, we are committed to providing our team the tools necessary to increase productivity and engagement, which will allow them to serve our customers better than anyone else.

We will continue our efforts to provide the products and services necessary to help our customers succeed. However, our slow start to the year has caused us to step back and examine our current business environment, which has been quite volatile. For sure, our prior-year sales comparisons are challenging. The weather has not cooperated and the sharp rise in fuel prices will cause challenges to both the consumer and business.

We have adapted our plans to this changing context. However, our strategic and financial commitments have remained the same for 2011. These commitments include delivering our earnings outlook for the year of $4.60 to $4.80 per share and improving our customer satisfaction and our team member engagement. Our path to those outcomes will flex down. Through the balance of the year, we will be making appropriate adjustments to the pace of change, initiatives and cost structure aimed at making us a more efficient while delivering our service promise. Ultimately, we will continue on the path to greater service levels and profitability over the foreseeable future. Mike will discuss these changes later in the call.

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