Key Points of Interest
In observing Advance’s ability to execute, I’m curious of the following:

• Integration problems are driving concerns: difficulty rolling out daily replenishment whilst preserving high fill rates, which leads to dissatisfied customers and potential loss of market share
• The absence of growth negates the prospect of unlocking shareholder value due to the high leverage structure in the business. Assuming constant costs, a !5% operating margin for AAP would require 6% revenue growth a 20% margin 13% revenue growth
• Working capital optimization has the capacity to enable cash flow growth. The business currently has high levels of inventory from opening a new DC (for worldpac) and consolidation of CarQuest stores – more importantly, where will the company allocate its cash flow, if and when it begins to strengthen?

Status Quo

• Abysmal comparable store sales (due to continued integration of CarQuest stores. Greco noted that they’ll slow down integration efforts to continually focus on best practices)
• Albeit improved versus recent periods, Gross Margin and SG&A still hostage to declining top-line performance