Tom Greco
President and Chief Executive Officer at Advance Auto Parts
Thanks, Elisabeth, and good morning, everyone. I'd like to start by thanking our entire team for their relentless focus on serving our customers. The dedication of our frontline team members has been a hallmark of the company for many years, and we're grateful for their ongoing commitment. I will review a couple of themes today and provide an update on our performance in the first quarter and outlook for the balance of the year.
First, we're putting the customer and our team members first in every decision we make. While our financial results in the first quarter were well below our expectations and there is still work to be done, our customer-focused investments in parts availability and price competitiveness resulted in improvements across key relevant performance indicators.
We are executing our plan to drive continued improvement in our transactions with Pro customers, highlighted by increased parts availability, sustaining competitive price targets and improved execution across the board. Secondly, as we look to the outlook for the balance of the year, we expect the competitive environment in the Pro channel to remain very challenging. As you saw in our release, we are reducing our annual guidance based on the shortfall we experienced in Q1 and our updated balance of year outlook.
Additionally, we believe it's prudent to enhance financial flexibility, and we've made the difficult decision to reduce our quarterly cash dividend. We remain committed to executing against our key initiatives to drive topline growth and improve operational performance.
In terms of our topline, Q1 net sales increased 1.3%, while comparable store sales decreased 0.4%. New stores contributed to net sales growth in the quarter, inclusive of the 21 stores and branches we opened in Q1. We saw net sales growth in both DIY, omnichannel and DIFM, with DIY omnichannel slightly outperforming DIFM, driven by a double-digit sales increase in our e-commerce business.
In terms of cadence, we believe that lower tax refunds pressured our business in March. From a category perspective, motor oil and brakes led the way as a milder winter impacted cold weather categories sales in some of our geographies, particularly in some of our northern geographies.
On a regional basis, our sales growth was led by the West. Overall, both net and comp sales growth were below our expectations for the quarter, driven primarily by our professional business. As I mentioned, we saw improvements in the KPIs we track to measure parts availability. In collaboration with our vendor partners, our supply chain fill rates improved in the quarter. In terms of availability, our on-hand rates improved by approximately 50 basis points in the quarter.
In terms of competitive pricing, we've talked in the past that based on our research, the most important criteria for an installer to make choices about their parts supplier starts with availability, followed by consistency of delivery and relationship. Pricing has historically been the third or fourth criteria for an installer.
However, if the gap between our price and competitors becomes too wide, price becomes a bigger factor. Last year we saw a relative price position within Pro climb to unacceptable levels as a result of changing competitive dynamics surrounding price related investments. We have done considerable work testing different price points across categories and geographies to determine the best approach to drive increased transactions and growth in our Pro business. This work helped us refine price targets for each category relative to competition, be it a traditional competitor or wholesale distributor.
As a result of improved availability along with the investments we made within Pro to achieve competitive price targets by category, we saw improved performance in both transactions and units relative to the fourth quarter. This was more than offset by less year-over-year growth in average selling price relative to the fourth quarter. In order to sustain our targeted competitive price position in Q1, we had less price realization than planned, which puts substantially higher pressure on our product margin rate.
Our gross margin rate declined 162 basis points, with the single biggest shortfall versus expectations being less than planned price realization within product margin. Separately, we also experienced a mix headwind within product margin, which Jeff will explain in more detail shortly.
These two primary headwinds within gross margin more than offset the benefits we saw from both channel and own brand mix.
In terms of SG&A, we incurred a headwind associated with the prior year adjustment which Jeff will discuss further. The combination of gross margin and SG&A deleverage resulted in an operating margin decline of 339 basis points in the quarter.
As we look to the back half of 2023, we're urgently focused on operational improvement. On the topline, we're continuing to drive our DIY omnichannel business, behind the strength of DieHard, our Speed Perks loyalty platform and strong growth in our e-commerce business.
In terms of Pro, we're focused on improving topline sales and driving gross profit dollars. This is highlighted by a back-to-basics approach and a heightened focus on execution across the board. The first big driver here involves further optimization of our inventory and parts availability to improve on-hand rates. In some cases, we plan to sell through owned inventory at discounted rates to transition to new higher-margin alternatives. The second driver involves our plans to sustain competitive price targets to ensure we close the sale.
On the margin front, we've talked about strategic sourcing within category management in the past. We're now taking a much more holistic approach, starting with the latest customer and category insights, and updating the role of each category within our business. We then apply a very disciplined approach to determine sourcing, distribution, shelf space, pricing and promotion.
Our category management process involves the engagement of our strategic suppliers with an overarching goal of accelerating our mutual sales growth and margin expansion. We are addressing opportunities here on a category-by-category basis with continued work plan balance of year and into 2024. In addition, we also executed a corporate restructuring in the first quarter which will provide savings balance of year within SG&A.
In terms of our balance of year outlook, we continue to be mindful of macroeconomic uncertainty and potential pressure on consumers. For our industry, the primary drivers of demand remain positive including an increasing car park, an aging fleet and a modest increase in miles driven compared with one year ago.
Our overarching goal for the balance of the year remains to improve operational execution to regain topline sales momentum, particularly in the professional sales channel. Regaining our share of wallet with existing customers has been challenging. However, we are elevating our focus on parts availability, sustaining competitive price targets and improving field execution.
Jeff will cover more details surrounding our revised guidance later in the call, but given what we've experienced year-to-date, we expect that sustaining our competitive price targets by category will require higher than planned price investments in Pro, and we factored this in to our full-year guide.
Before turning the call over to Jeff, I want to talk briefly about the newly expanded role of our Independent Board Chair, Gene Lee, and provide a quick update on the CEO search process. As you saw in our release this morning, Gene is now serving as Interim Executive Chair, and will be providing additional operational oversight and support to our management team during this time.
I look forward to working with Gene and continuing to leverage his experience as we work to deliver operational improvement in the business while helping to ensure a seamless CEO transition.
With respect to the CEO search, following a very thorough vetting and selection process, we've retained a leading independent search firm to assist with this work. Our succession committee is comprised of Board members with significant experience in retail, automotive, industrial and multi-unit operations. The committee is evaluating internal and external candidates and remains committed to identifying a candidate who is exceptionally fit for the role.
With that, I'll now turn the call over to Jeff to review our first quarter financials in more detail and provide our outlook for the full year. Jeff?
