Advance Auto Parts, Inc., an automotive aftermarket parts provider in North America, announced that it has decided to focus on its “blended box business model” and initiate a separate sale process for Worldpac as well as its Canadian business. In its third-quarter financial report, Advance also said it is launching a new cost reduction program that is expected to generate at least $150 million in savings on an annualized basis.

“Since joining Advance, I have partnered with the board and management team to move with speed in conducting a comprehensive review of the business,” said Shane O’Kelly, who took over as president and CEO from Tom Greco on Sept. 11. “We are taking decisive actions to position Advance for long-term success and create meaningful value for our shareholders. Today we are announcing initial actions from our review process that will allow us to capitalize on significant opportunities ahead.”

O’Kelly noted the launch of Advance’s cost reduction program is expected to generate at least $150 million in savings on an annualized basis. The company plans to reinvest up to $50 million of these savings in team members with a clear focus on improving the retention of frontline team members. At the same time, O’Kelly announced the decision to start the sale process for Worldpac as well as Advance’s Canadian business

“We are committed to stabilizing the company and returning Advance to profitable growth, and our frontline team’s passion and extensive knowledge is integral to how we succeed,” he said. “Seeing our frontline team members in action delivering for customers, coupled with robust industry fundamentals and strong vendor relationships, has reaffirmed my optimism that by making rigorous strategic and operational decisions now, Advance will be well-positioned to capitalize on the opportunities ahead and deliver value for shareholders.”

Q3 Results

Advance reported that third quarter 2023 net sales totaled $2.7 billion, a 2.9% increase compared with the third quarter of the prior year. Comparable store sales increased to 1.2%. Gross profit decreased 16.3% to $1 billion. Gross profit margin was 36.3% of net sales compared with 44.6% of net sales in the third quarter of the prior year. This was primarily driven by a change in estimate for inventory reserves that resulted in a one-time impact of approximately $119 million. In addition, the company incurred higher product costs that were not fully covered by pricing actions and elevated supply chain costs. This was partially offset by a reduction in LIFO-related expenses.

SG&A expenses were $1 billion, which were 37.9% of net sales compared with 38.2% in the third quarter of the prior year. The company’s operating loss was $43.7 million, or (1.6)% of net sales, compared with 6.5% in the third quarter of the prior year.

The company’s effective tax rate was 24.4%, compared with 24.7% in the third quarter of the prior year. The company’s diluted loss per share was $(0.82), compared with diluted earnings per share of $1.92 in the third quarter of the prior year.

Net cash provided by operating activities was $30.4 million through the third quarter of 2023 versus $483.1 million in the same period of the prior year. This was primarily driven by lower net income and an increase in cash used in working capital. Through the third quarter of 2023, free cash flow was an outflow of $156.8 million compared with an inflow of $149.5 million in the same period of the prior year.

All comparisons are based on the corrected results of the same time period in the prior year as depicted in the financial tables herein, which include the correction of non-material errors the company discovered in previously reported results.

Strategic Review Update

Advance has initiated separate sale processes for the potential divestiture of Worldpac and the company’s Canada business. Worldpac, an automotive wholesale distributor of original equipment and aftermarket parts for all makes/all models, is recognized for its technology, catalog, product brand assortment and training. The company’s Canadian business, which predominantly serves commercial customers, goes to market under the Carquest banner, Advance said.

The company has engaged Centerview Partners to assist in the sale processes. Advance said it has not set a timetable for the conclusion of the sale processes and does not intend to comment on or provide updates regarding these matters unless and until the processes are concluded or it determines that further disclosure is appropriate or required.

Full Year 2023 Guidance

Tony Iskander, interim chief financial officer, said, “Based on our year-to-date results and current business trends, we are adjusting our previously provided full year outlook ranges. Our updates include the impact of non-recurring expenses in Q3 as well as continued pressure in Q4 from higher product costs that we do not expect to offset with price. We are taking significant steps to improve our cost structure and remain focused on returning the business to profitable growth.”

Personnel Changes

As part of changes to the company, O’Kelly announced that Ryan Grimsland has been appointed to executive vice president and chief financial officer, effective Nov. 27. Tony Iskander, who has served as interim chief financial officer since August 2023, will continue in his role as senior vice president, finance and treasurer.

Grimsland, 46, brings more than 20 years of corporate finance, treasury, financial planning, and retail strategy and transformation experience. Most recently, he served as senior vice president, strategy and transformation at Lowe’s Companies, Inc. During his 17-year tenure at Lowe’s he held leadership roles across all aspects of the finance organization, including senior vice president, corporate finance and treasurer; vice president, corporate financial planning and analysis; and vice president, stores finance. Prior to joining Lowe’s, he held positions in operations and finance at Haverty’s Furniture and UBS. Grimsland earned an MBA in accounting from Benedictine University and a bachelor’s degree in business administration from High Point University.

The company also announced that it is eliminating the position of executive vice president, merchandising, marketing and e-commerce, currently held by Jason McDonell, as part of its efforts to streamline the organizational structure. As a result, McDonell will depart from the company effective Dec. 1. McDonell’s responsibilities will be assumed by other members of the Advance leadership team, the company said.

This story will be updated.