Advance Auto Parts at Goldman Sachs 14th Annual Global Retailing Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

MATT FASSLER, ANALYST, GOLDMAN SACHS: Good morning. I'm Mat Fassler from Goldman Sachs and it's my pleasure today to introduce to you the management of Advance Auto Parts. Sitting directly to my left Jack Brouillard, Chairman of the Board, President and CEO of Advance. Many of you have probably are meeting Jack for the first time.

He was appointed to these positions on an interim basis after having served as Lead Director of Advance Auto Parts and a member of the Board since 2004. Prior to that he spent 14 years at HEB as Chief Administrative Officer and Chief Financial Officer at HEB as one of the leading private retailers in the U.S. and one of the finest supermarket companies in the world, and prior to that had a number of jobs -- a number of executive positions I should say in the retailing sector.

Sitting directly to his left is Elwyn Murray who's is the Executive Vice President at Advance of Merchandising, Supply Chain and Technology. And then finally on the far left Michael Moore who's also an Executive Vice President and the Chief Financial Officer of the Company. Advance as you know is a company in the midst of some transition and I would say is on the cusp of some really interesting opportunities. This has been a terrific growth and margin expansion story over the past six or seven years.

Advance at the turn of the decade was running operating margins at around 3% with a significant amount of financial leverage and significant acquisition integration activity ahead of it. It's since taken its margins close to 9% on an operating basis. The balance sheet significantly cleaner and the leverage share has been very significant as well, and over that period of time the Company gained a tremendous amount of market share both through new store growth and on a same store basis.

I would argue that the past couple of years have been a little bit tougher, but as I think you'll hear from Jack, and as we'll discuss during the Q&A session, the Company has compelling ideas for a repositioning effort that I think is quite promising and should set the Company off in a new direction going forward.

So with that, I'll turn the podium over to Jack for his introductory comments. Thank you.

JACK BROUILLARD, INTERIM CHAIRMAN OF THE BOARD, PRESIDENT AND CEO, ADVANCE AUTO PARTS: Morning, everyone. Thank you for attending today. Before we begin, I'd like you to please note the slides concerning forward-looking statements. Thank you. Currently at Advance Auto Parts we operate close to 3,200 stores spread across 40 states. As you can see from the map we have a distinct concentration of our stores in the southeast.

However, we have a number of markets that we're also growing in including Texas, the Midwest and up the eastern corridor. Important to note that we hold the number one or number two share in 75% of the markets that we're in. Recent years have shown a pretty strong track record of success. We've experienced significant organic store growth following a couple of large acquisitions such that stores have grown from over 2,400 to close to 3,200 now.

Likewise, total sales have grown nicely over this time period and will approach $5 billion this year. Something that we're proud of is that our total sales per store have grown and are at the top of the industry over the past couple of years as well as earnings per share. Of course we are also very disappointed in our sales and earnings growth in 2006 compared to 2005.

Taking a bit of a historical perspective the time frame from 1999 to 2005 was a period of growth and successful operating performance. Professional management of the Company brought improvements in parts availability, increased parts knowledge on behalf of our store staff.

Our real estate program balance still ends with adjacent market entry, and we accelerated the Do-It-For-Me or commercial business adding programs to our stores and growing programs once they were in our stores. This time frame also showed some significant developments in logistics and technology. Our APAL point-of-sale system, our custom mix capability, our labor management capabilities to name a couple.

Also during this time frame, the Company acquired and successfully integrated a couple of large acquisitions. Western Auto/Parts America came in late 1998. It was about 650 stores followed shortly thereafter by Discount Auto Parts, 671 stores including 437 in the state of Florida. A smaller acquisition of Trak Auto followed in 2002 which was 55 stores.

Things began to change a bit in 2005 and 2006 we had a change in focus and the business climate became more difficult. We did have a change in leadership which brought a change in emphasis. We had a distinct shifts to the front room or the sale floor portion of our business. Unfortunately, while this was occurring, less attention was paid to the parts business which is behind the counter part of our business.

Also during this time SG&A grew at a rate that was unsustainable and while we were building a nice commercial business we lacked the full strategic view of what the possibilities in this arena were. Also at the same time, economic forces began to affect our low …