Shane O'Kelly
President and Chief Executive Officer at Advance Auto Parts
Thanks, Elisabeth. Good morning and thank you for joining us for our first quarter earnings call.
Before we review the quarter, I would first like to thank the entire Advance team for their continued dedication to serving our customers. Their passion and commitment make a difference each and every day. The year started off slower than anticipated across the industry. At Advance, we saw negative impact from weather, coupled with a challenged consumer who is experiencing diminished purchasing power, higher credit card debt, and uncertainty about the balance of the year in terms of macro conditions. As a result, our Q1 performance was lower than expected with comps down 20 basis points year-over-year.
On a positive note, our Professional business saw low single-digit improvements in both comp and transactions. We believe that winning in Pro is important to our overall strategy and are pursuing that business across multiple segments, including up and down the street customers, strategic accounts, Carquest Independence and Worldpac. Regarding up and down the street customers, we are putting additional focus this year on winning with those accounts and recapturing lost customers.
In terms of our turnaround, we continue to execute against our previously outlined decisive actions designed to simplify our business. Those decisive actions are, number one, continuing the sale process for Worldpac. Number two, reducing our costs to become more competitive while investing a portion of those savings back into the front line. Number three, making organizational changes to position us for success. Number four, improving the productivity of all assets. And number five, consolidating our supply chain. We believe these actions will have a long-term positive impact on our business. And let me share a few important updates on each.
Starting with the potential sale of Worldpac, we are well underway with that process. We are very pleased to have healthy interest and we are looking to conclude the process before we report our second quarter results. As a reminder, we previously discussed the potential sale of our Canadian business and will evaluate that once the Worldpac sale is complete.
Second, reducing and controlling costs is a major focus and we are beginning to see benefits from the actions we took in the fourth quarter. We delivered on the $150 million in annualized savings outlined on our previous calls. And this is evidenced by a reduction in our year-over-year SG&A of $21 million in this quarter, despite a softer top line. We're also beginning to see benefits from the $50 million reinvested into our frontline, including a more than 50% reduction in our district manager turnover. And we expect to see improvement in other key roles throughout the year.
In addition, our indirect purchasing team is executing against our recently launched initiative to reduce a minimum of $50 million on an annualized basis. We have finished the diagnostic stage and are targeting reduced indirect expenditures in areas such as technology, transportation costs and corporate contracts. We expect to see the bulk of the savings beginning in 2025.
Next, regarding our third decisive action on organizational changes, we are excited to announce that Bruce Starnes is joining the Advance team as Executive Vice President and Chief Merchant. This is part of an orderly succession plan, and in this role, Bruce will lead all aspects of our merchandising function. Bruce is an auto enthusiast and brings deep merchandising experience, having recently served at Target for nearly 20 years, most recently as Senior Vice President of Merchandising Capabilities and Operations.
The expertise of one of our newest Board members, Tom Seboldt, who has over 30 years as a merchandising leader in the automotive aftermarket industry, will also help speed Bruce's onboarding. Bruce will be partnering with our outgoing Chief Merchant, Ken Bush who will remain in an advisory role to help ensure continuity in the merchandising function. We want to congratulate Ken on his upcoming retirement after nearly 20 years with the company, and we want to welcome Bruce to the Advance Auto Parts family.
Turning to our fourth decisive action regarding our asset productivity across the company. Improving this remains a top priority and includes both company stores and independently owned Carquest locations. In the first quarter, we closed 17 underperforming stores and opened seven new stores. Last quarter, we shared that we had notified over 100 Carquest independent locations that we were removing them from our program. And we completed this action in Q1. In addition, our IT team's focus on POS system reliability is enabling significant in-store productivity improvements for team members, and that's impacting their ability to better serve our customers. We will continue our efforts to elevate existing store operations across Advance and drive profitable growth.
The last area I wanted to discuss in regard to our asset productivity is inventory. We have had recent success with the implementation of our new merchandising system. We put new leaders in charge of the project along with additional accountability on the work plan, resulting in the achievement of several key milestones in Q1. This new system will overhaul key merchandising processes including planogram sets and store replenishment. In the first quarter, we added 130,000 SKUs in the new system across nearly 500 suppliers. And by the end of the second quarter, we expect all of our actively replenished SKUs to be converted to the new system, which is well ahead of our previous expectations to be complete by the end of the year.
This is one of several steps to enhance inventory availability and productivity. And finally, our fifth decisive action to consolidate our supply chain is underway with the long-term goal of operating as a single unified network. We've now mapped what this network will look like, and I'd like to take a few minutes to describe its components and our incremental progress.
We expect our unified network to have 14 large DCs. We currently have 13 of the required replenishment DCs needed and are scouting the location for the 14th. These 14 facilities averaging approximately 550,000 square feet each will serve as our nationwide replenishment nodes. The next component of the unified network will be market hubs. As discussed last quarter, this is a new node of our network, and we recently completed a successful pilot. Our market hubs will have an average SKU count of more than 80,000 and will enhance our existing hub network. There are three ways that we will be adding market hubs.
Number one, converting existing stores with sufficient footprint. Number two, converting smaller existing DCs. And number three, green-fielding new locations. We have completed four store to market hub conversions, utilizing the learnings from our successful pilot. By the end of 2024, we expect to have at least 20 market hubs in operation, including approximately half from the conversion of existing DCs. Three of these DC conversions are already underway. Those are Baton Rouge, Raleigh, and Memphis, and we expect to complete all of them by the end of the third quarter. Importantly, by using existing stores that have sufficient footprint and converting smaller legacy DCs, we believe we can accelerate this initiative with more rigor than if we were to green-field all locations.
The third component of our unified network includes over 300 existing hubs that we currently operate. These hub locations currently serve and will continue to serve as sources for expanded availability for surrounding stores. On average, they have approximately 35,000 SKUs on hand compared with approximately 23,000 in our traditional blended box stores. The performance of our hubs and market hubs reinforces the benefit of having parts closer to customers. We expect the development of this unified network to take time and are planning to have the 14 large DCs and at least 60 market hubs added to our existing network of hubs by the end of 2026.
Let me also provide a brief update on our implementation of our warehouse management system or WMS across our DC network. This is a key enabler of our unification and last quarter we indicated that there were three facilities still to convert. We have recently completed the implementation at our Delaware, Ohio DC and expect to complete the remaining two by the end of the year. While we are making early progress with all of our decisive actions, we recognize that we have substantial work to improve our business' performance. Our entire team is committed to fostering a disciplined approach in all functions, leading to increased accountability and internal clarity of our goals.
Turning to the broader macro environment, we are fortunate to operate in an attractive, needs-based industry with stable fundamentals. However, we recognize that our business will still likely feel negative impacts as customers show signs of financial distress and if macro conditions deteriorate. Even with that backdrop, we are improving execution by remaining focused on our decisive action. We know this turnaround will take time, but I am encouraged every time I visit a store or DC and meet the team members who take care of our customers. We have established clear priorities and our leadership team is energized to deliver on our goals.
Now I would like to turn the call over to Ryan to review our financial performance in the quarter. Ryan?
