Shane O'Kelly
President and Chief Executive Officer at Advance Auto Parts
Thank you, Lavesh, and good morning, everyone. I would like to start by expressing my appreciation for the hard work exhibited by our team members over the past several months. During the second quarter, our frontline team navigated a weak demand environment as consumers continue to feel the weight of an uncertain macroeconomic climate. Despite the headwinds, our team maintained focus on serving customers and driving progress on our strategic priorities. We ended the second quarter with positive comparable sales growth of 0.4% led by our pro business. DIY remained pressured, but improved sequentially.
Our second quarter comp performance is a step in the right direction. Moreover, the opportunity ahead of us to drive sustainable growth, recapture market share and position Advance for long-term value creation remain substantial. Turnarounds take time, but our team is solid and putting in the work. The macro environment is challenging, retailers are lowering expectations and we're starting from a lower baseline relative to the industry. On the other hand, we successfully managed through a difficult quarter and navigated a complex M&A process with a successful Worldpac transaction that substantially strengthens our balance sheet. We know what we need to do from here.
As you will hear later in this call, looking forward, some of our investments are around price, some are related to supply chain and others on optimizing productivity. All are focused on reigniting growth and improving our margins. The slope of the path will also be determined by 1,000 smaller decisions made by our team and not merely dictated by a top down projection. As a team, we keep in mind that even incremental improvements can yield substantial upside. Selling Worldpac and solidifying our balance sheet are early inning wins and it is an exciting time to be an Advance Auto Parts team member.
When I joined Advance last September, we had just. Initiated a strategic and operational review of the business. We have been executing against decisive actions to simplify our business and return to the fundamentals of selling auto parts. Progress in these actions is setting the stage for a new future for Advance. Let's review that progress and talk about the path ahead for the company. Number one, the strategic review of Worldpac and the Canadian business. We are pleased to have completed this process, which sharpens our focus on the blended box. Second, reducing our costs to become more competitive while investing in the front line. These investments are energizing the front line and in particular our pro sales teams.
Third, making organizational changes to position us for success. Through our internal promotions and our external hires, we are putting outstanding talent in key roles. Fourth, consolidating our supply chain, which unlocks better parts availability and service for our customers, which improves the cost position of the company. And fifth, improving the productivity of all of our assets, which will help narrow our operating margin gap to the industry. Starting with the first decisive action regarding Worldpac. Today we announced that we have entered into a definitive agreement to sell the Worldpac business for $1.5 billion in cash to the Carlyle group. The sale process generated strong interest and we are pleased with the outcome.
We plan to use the net proceeds to strengthen our balance sheet and invest in the core business. The transaction is expected to close before the end of the year and on behalf of everyone in Advance, I would like to thank the more than 5,000 Worldpac team members for their dedication over the last 10 years. Reaching an agreement to sell Worldpac is a major milestone for the company and our vision from here is to further our commitment to the blended box model servicing both pro and DIY customers with our well-established retail footprint augmented by our independence. That's our path forward and it's a proven service model in the auto parts industry.
The sale of Worldpac fuels our vision by improving our balance sheet, streamlining our operations and enabling us to focus on one business model. With the Worldpac review now complete, I also want to provide an update on our Canadian assets. During the second quarter, I traveled to Canada and was impressed by the deep expertise and market knowledge that our long-tenured Canadian team brings to the business. Our business model aligns well with our U.S. operations and that team has consistently delivered strong performance. As a result, we have made the decision to retain our Canadian operations. I would like to thank our Canadian team for their patience during the review where they maintained an unwavering focus on serving our customers and I look forward to working with this team to grow the business.
Moving to our second decisive action, reducing costs and reinvesting in our frontline. We have reduced costs and reinvested a portion of those savings in our frontline team. These investments have been particularly meaningful for our commercial account managers and our commercial parts pros as they are stepping up our pro business efforts. During Q2, comp sales to up and down the street pros turned positive year-over-year compared with a decline in the first quarter. Our strategic pro accounts also grew year-over-year and we remain committed to serving them and growing our share across all pro segments. Along with that, we are igniting the field culture to become more customer focused and are reducing time spent on non-sales tasks and we are putting greater emphasis on accountability.
As part of this, we are continually seeking feedback from our frontline team members to identify gaps and take swift actions to improve our business. Lastly, we remain on track to deliver $50 million of indirect procurement savings by next year. Our third decisive action is related to organizational changes. We welcomed our new Chief Merchandising Officer, Bruce Starnes, in the second quarter and now we've added talented individuals in additional critical merchandising functions. We have hired a new SVP leading assortment, digital merchandising and inventory management. We've added a new SVP for merchandising, operations and pricing and we've added a new VP of e-commerce.
We have also realigned our marketing and e-commerce functions to now report into Bruce's organization for stronger collaboration. These leaders are enhancing our capabilities with respect to fundamental retail operations and I look forward to the value that true merchandising excellence can bring to our business. Earlier examples include, number one, conducting more frequent and deeper line reviews to ensure that we have the right product depth, breadth and costs. This year, we are on track to do 130 line reviews. Number two, assessing front and backroom assortments to improve relevancy and availability. And number three, coordinating marketing efforts to deliver great offers for our customers.
An example of all three of these things coming together is our recent launch of our break bundle program. The merchandising team's work is being augmented by recent pricing actions and the implementation of our new inventory management system. We now have more than 300,000 actively managed SKUs in our new system. We began this effort earlier this year and completed it in July, a full six months ahead of our initial goal. Our fourth action, consolidation of our supply chain. At completion, our supply chain is expected to feature 14 large DCs operating on a single warehouse management system or WMS. This compares to our previous structure of 38 DCs of varying capacities operating with different systems.
We remain on track with our WMS implementation with the recent completion of the Thompson, Georgia DC conversion and expect our final DC to be completed by year's end. The 14 DCs will serve as nationwide replenishment nodes while the remaining DCs will either be closed or converted to market hubs. Speaking of market hubs, as of mid-August, we have 10 market hubs in operation. We are creating these hubs by converting smaller DCs, upfitting existing stores or green fielding new locations. The market hub is new to Advance and each market hub has the potential to make an average of 80,000 SKUs available to a supported radius of stores on a same day basis.
We are gaining critical insights on managing hub inventory along with determining efficient routes and replenishment frequencies. We now expect to open at least 17 market hubs by the end of 2024 and believe that this updated schedule will enable us to effectively apply learnings and develop the right operational model for our hub service stores. We still expect to open 60 market hubs by 2026. Lastly, our last decisive action is improving the productivity of all our assets. As we continue our strategic and operational review, we are amplifying our efforts to improve overall asset productivity.
We believe we can reposition the core Advance business to generate mid single-digit margins in the next few years. And as we consider our long-term margin goals, we believe the following building blocks will help drive our future success. These building blocks include generating sustainable positive comp sales. This is supported by competitive market-based pricing. It's supported by our energized frontline team and improved inventory availability. Note that sales productivity is our biggest opportunity to close our performance gap relative to the industry. Our second building block is store footprint. This also contributes to closing the sales productivity gap and now with our stronger combined real estate team, we are assessing our entire store footprint to identify markets where we can rationalize stores as well as where we can open new stores.
The team is currently scaling capabilities to put us on a path to open at least 100 new stores per year located in markets of strength. The next building block is improving gross margin. As mentioned, there are two primary tenants to unlocking better gross margins and they are merchandising excellence and supply chain. Value is created here from harmonizing first costs, improving DC throughput, optimizing transportation and many other activities. Our last building block is realigning our SG&A with our post Worldpac operating structure. We will continue to invest in the required areas of our business, but at the same time, we are putting greater emphasis with our leaders to manage expenses and create operating leverage for our future.
To conclude as we look to a post Worldpac Advance, we are now executing against a clear vision of operating a single business that is poised for success as we revitalize core processes that focus on the fundamentals of selling auto parts. We plan to share more details on our outlook for the remaining business at our next earnings call in November.
Now let me hand the call over to Ryan to discuss our financial results. Ryan?
