Advance Auto Parts, Inc. (

AAP

)

Q3 2010 Earnings Call Transcript

November 11, 2010 10:00 am ET

Executives

Joshua Moore – Director, Finance and IR

Darren Jackson – CEO

Jim Wade – President

Kevin Freeland – COO

Mike Norona – EVP and CFO

Tami Kozikowski – Chief Development Officer

Charles Tyson – SVP, Merchandising

Greg Johnson – SVP, General Manager DIY and Chief Marketing Officer

Analysts

Gary Balter – Credit Suisse

Alan Rifkin – Bank of America

Kate McShane – Citi

Matthew Fassler – Goldman Sachs

Scot Ciccarelli – RBC Capital Markets

Tony Cristello – BB&T Capital Markets

Dan Wewer – Raymond James

Gregory Melich – ISI

Presentation

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Operator

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» Advance Auto Parts, Inc. Q2 2010 Earnings Call Transcript
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» Advance Auto Parts, Inc. Q3 2009 (Qtr End 10/10/09) Earnings Call Transcript

Welcome to the Advance Auto Parts third quarter 2010 conference call. Before we begin, Joshua Moore, Director of Finance and Performance Management 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 “belief,” “anticipate,” “expect,” “intend,” “will,” “plan,” “forecast,” “outlook” or “estimate,” and are subject to risks, uncertainties and assumptions that may cause our 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 and other factors disclosed in the company’s 10-K for the fiscal year ended January 2, 2010 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 Web site at advanceautoparts.com.

For planning purposes, our fourth quarter earnings release is scheduled for Wednesday, February 9, 2011, after market close, and our quarterly conference call is scheduled for the morning of Thursday, February 10, 2011.

To be notified of the dates of future earnings reports, you can sign up through the Investor Relations section of our Web site. Finally, a replay of this call will be available on our Web site for one 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 third quarter conference call. First I’d like to thank our nearly 51,000 team members for delivering another record performance during our third quarter of 2010. Our positive momentum continues to build and we continue to focus on what matters most to our customers.

Our passion around serving our customers and growing our business has enabled us to capitalize on the strong industry fundamentals and consumer demand for auto parts. Our team members are doing a fantastic job executing our strategies resulting in a 9.9% increase in comparable store sales during the quarter, our largest quarterly increase in five years.

We continue to increase our profitability by growing our gross profit rate 110 basis points during the quarter, which helped drive another quarter of double digit operating income growth. Our operating income jumped 31% in the quarter compared to a year ago. The favorable market conditions and successful execution of our key initiatives drove an 11.4% increase in total sales. Store sales productivity reached a record $1.7 million per store on a trailing four quarter basis.

I am encouraged by the overall customer satisfaction scores as we strive to differentiate ourselves by leading in service and providing superior availability to our customers. Collectively the strategic and financial progress is evident in our customer experience and our bottom line results.

The past 11 quarters we’ve been squarely focused on becoming more competitive. We have embarked upon a journey to accelerate our commercial business, which has realized 11 consecutive quarters of double digit gains in comparable store sales.

Our performance in commercial is the direct result of our investments to better serve our customers through the additions of Parts Pros, delivery trucks, the right brands, and a national sales force. At the same time, we needed to become more competitive in terms of merchandising and supply chain in order to provide our customers with the right products at the right time.

Additionally, our operational focus is due in part to our increased efficiency and productivity. For example, inventory upgrades are no longer event driven, but rather simply part of our fueling the business. This work has allowed us to serve our customers better, and at the same time, we have expanded our gross profit rate more than 300 basis points since 2007.

Through our DIY and Superior Experience strategies we have been able to reignite our DIY business and improve the in-store experience delivered to our customers as evidenced by the growth in our customer satisfaction scores over the last several quarters. Jim, Kevin, and Mike will provide updates on some of these initiatives later in the call.

Our team is the most important factor in Advance’s success. Our highly engaged team members have a passion for serving our customers. We continue to assess engagement of our team members through our team calibration survey and we recently completed our second survey of the year. I continue to be pleased that those scores are at record levels across the company, which underpins our strong results in 2010.

We are excited about what we see in 2011 as we begin the next phase of our plan. We will continue to strengthen our business through our focus on team members and customers, while prioritizing differentiation through service and availability. Differentiation will require going to the next level of effectiveness on several key initiatives that have previously rolled out.

The key initiatives include global sourcing, our e-commerce platforms for both DIY and commercial, and our demand driven labor model, and our commercial customer growth and retention programs. These core capabilities continue to make a difference with customers and to our bottom line.

We will further intensify our work around service and availability, while delivering on value propositions that are driving these terrific results. We remain committed to the development of our team members. As I have said before, our team and the total collaboration of our team is the most important factor in our goal to lead the industry in service.

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