Welcome to the Advance Auto Parts third quarter 2015 conference call. Your lines have been placed on listen only until the question and answer session of today's call. To ask a question, you may press star one on your touch-tone phone. This conference is being recorded. If you have any objections, you may disconnect at this time. Before we begin, Zaheed Mawani, Vice President of Investor Relations, will make a brief statement concerning forward-looking statements that will be made on this call.
Good morning, and thank you for joining us on today's call. I would like to remind you that our comments today contain forward-looking statements we intend to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events, developments, or results and are subject to risks, uncertainties, and assumptions that may cause our results to differ materially. Our comments today will also include certain non-GAAP measures, including certain financial measures reported on a comparable basis to exclude impacts of costs in connection with the integration of General Parts International. Please refer to our earnings press release and accompanying financial statements issued today for important information and additional detail regarding these forward-looking statements and the reconciliation of the non-GAAP measures referenced in today's call.
The company intends these forward-looking statements to speak only as of the time of this conference call and does not undertake to update or revise them as more information becomes available. Now let me turn the call over to George Sherman.
Thanks, Zaheed, and good morning, everyone. Before I turn it over to the team to review the quarter, I want to take a few minutes to discuss this morning's announcements regarding changes we are making to our leadership team and our board. Earlier today, we announced that George Sherman will assume the role of interim CEO of Advance Auto Parts following Darren Jackson's planned retirement from the company and the board at the beginning of the next fiscal year in January. In addition, the board has named me Executive Chairman, and we have appointed John Ferraro, who joined our board earlier this year, as Lead Independent Director. Since joining us nearly three years ago, George Sherman has been instrumental in our efforts to expand our commercial business, improve our operations, and integrate GPI.
Through all these efforts, George Sherman has demonstrated the breadth of skills, customer relationships, and leadership capabilities that make him the right choice to lead Advance during this transition period. On behalf of the board and the entire company, I want to express deep gratitude to Darren Jackson for his many important contributions to the success of the company over the last 11 years, and particularly the last eight in his role as CEO. Under Darren Jackson's leadership, Advance has doubled in size, successfully developed a leading presence in commercial to complement our DIY strength, and made critical investments in capabilities to drive efficiency and performance. In short, Darren Jackson has guided Advance well as we have transformed the company and positioned Advance Auto Parts into a clear industry leader.
Collectively, these efforts have resulted in increases in market value of over $10 billion and positioned Advance well strategically, operationally, and financially to capitalize on the opportunities that lie ahead. As Darren Jackson retires from his role as CEO, he leaves behind a great legacy and a company with a bright future. In my new role as Executive Chairman, I look forward to continuing to lead the board while also working closely with George Sherman and his management team during this transition period as we continue to execute on our strategic objectives. In addition to the new roles that John Ferraro and I will play on the board, we also welcome Jeffrey Smith of Starboard Value as a new board member.
We have had the opportunity to engage with Jeff and Starboard Value as a major shareholder, we are aligned around the opportunity and the need to deliver improved operating results to drive increased shareholder value at Advance. Jeff will be a valuable addition to our board, we look forward to working closely together going forward. Jeff, John, and I will lead the search for Darren Jackson's permanent successor. George Sherman will be considered as part of that process, which will also include an evaluation of external candidates as we look for the best leader to take the company forward. As we work through this transition, the board is confident that we will not miss a beat in the execution of our strategy to deliver improved operating performance. In addition to Jeff joining the Advance board, Starboard Value will designate two additional independent directors to the board as soon as practical.
We have also agreed that the Nominating and Corporate Governance Committee will name two additional independent directors for election at our next annual meeting in the spring. We expect that following the 2016 annual meeting, the board will have 12 to 13 members, which will include Jeff and these four new directors. I know we have provided you with a lot of information this morning, let me step back and provide you with a bit of perspective before I turn the call over to Darren Jackson and his team. Under Darren Jackson's leadership, we have made tremendous strides in positioning the company strategically, operationally, and financially. Advance has a solid foundation upon which we will continue to build going forward. We remain focused on delivering improved operating performance and increased shareholder value.
The board, including Jeff and the management team, are aligned around that effort and focused on redoubling our efforts to achieve those objectives. With that, let me turn the call over to Darren.
Thanks, George. George and Mike will cover the quarter. I'd first like to echo some of George's comments. George and I have worked closely together over the last several years. He has a deep understanding of our business and the needs of our customers. He has earned the respect of our team members. I have absolute confidence in his ability to lead this company. Second, despite the near-term challenges we face in the business, I have the utmost confidence in the company's ability to deliver on the improved operating targets we have previously outlined and to continue to increase shareholder value in the years ahead. Third, retiring at this time is something I've been intending for some time and have discussed extensively with our directors.
During my tenure, we have doubled sales, significantly grown our store count and team members, and transformed our business to be a leader in serving both the installer and do-it-yourself customers. Ultimately, growing our earnings per share and increasing our price per share sixfold. It has been a privilege to work with such a tremendous team. I'm extremely proud of what we have accomplished together. Finally, I want to thank all of you for your ongoing support over the years. I am confident that the company is in a great position to build on its past success and deliver even greater value to our customers, team members, and shareholders going forward. Now let me turn it over to George Sherman.
Thanks, Darren. Good morning, everyone. First, I'd like to acknowledge the significant contributions that Darren has made to Advance Auto Parts over his more than 11 years with the company. Darren has strategically positioned this company for leadership in the auto parts aftermarket while creating value for our shareholders over that period of time. He has lived the company's values to inspire, serve, and grow. Has always partnered with the community and charitable organizations to give back, as he saw that as a fundamental responsibility of the company and consistent with his personal values. I thank Darren for all his support and leadership over the years. Before I begin my prepared remarks, I'd also like to thank all of our team members for their continued focus and commitment to customer service in the quarter.
Looking ahead, I welcome the opportunity and look forward to working with our teams to realize the full potential of this company. We are on a course to combine as one company and we are on the right path. However, we must have a relentless bias for action, and that means pushing forward and finishing the things that we've started. It also means focusing on doing fewer things better and measuring ourselves by the outcomes we deliver and expecting higher levels of accountability at Advance Auto Parts. Turning to our third quarter. Overall, despite some optimism for incremental progression coming out of Q2, our third quarter performance highlighted the challenge of navigating the integration work while simultaneously rationalizing parts of our business.
We underestimated the cumulative effect of integration change, and while we are disappointed with our results and are not currently where we expected to be within our integration, we believe in where we are going and have confidence in our plan. I gain confidence from seeing pockets of performance from some of our regions that have gone through the integration and are delivering with strength. Seeing some of our product categories come through the product changes and delivering with strength. The knowledge that while we still have work to do, we are going to anniversary significant parts of the integration change from last year as we head into 2016. We will discuss this in more detail shortly. We are well into our integration and have a number of work streams in flight.
We are focused on finishing these activities as quickly as possible to position the two businesses to begin operating as one, focused on operational execution. That means moving fast on capabilities such as our daily delivery expansion, accelerating our store consolidations and our store profitability work, and by growing our Speed Perks and TechNet membership programs at a determined pace, to name a few. During the quarter, our sales grew a modest 0.3% to $2.29 billion. The comparable sales were up 0.5% led by commercial, with our DIY business essentially flat. On a constant currency basis, our comparable sales were up roughly 1%. Earnings per share on a comparable basis grew 3.2% in the quarter, on top of last year's 27.7% growth. Plainly said, we are not satisfied with these results. They are unacceptable to me and our entire team.
My upcoming remarks will address the actions we are taking in the areas of inventory availability, sales execution, and our integration in order to drive the sales outcomes that we expect. As we mentioned on our second quarter call, our core business had an encouraging start to the quarter. However, comp trends began to decelerate towards the middle of the quarter. The integration has continued to have a more prolonged impact on our core commercial business, resulting in lower sequential commercial comps this quarter compared to our second quarter. This was partly due to continued sales softness within our Carquest U.S. stores as the teams in those stores continued to work through a heavier share of the integration change, coupled with some category sales softness.
Our DIY business, in contrast, once again showed sequential improvement from our second quarter, delivering roughly a flat comp as we continue to focus on our Speed Perks program and our sustained marketing investments. We are encouraged by the continuing improvements in our DIY business. Notably, our Canadian business and import-focused businesses continue to deliver good overall results. Additionally, there are a few ongoing headwinds to our comp performance in the quarter, specifically an approximate 47 basis point impact from foreign currency related to our Canadian business and roughly 36 basis points of impact from Worldpac due to transferring of existing customers from the legacy branches to newly opened branches that are positioned to serve them more efficiently. This was partially offset by consolidation favorability.
The first half of the year for Worldpac was accretive to our comp performance, with the second half resembling more of a comp headwind as we realized the full effect of these new branch openings. Looking at our comp trends, we saw good performance in the Southeast and Texas markets. Conversely, our Upper Midwest and Great Lakes markets underperformed in the quarter, partially driven by weather, while our Puerto Rico market experienced continued softness as a result of economic uncertainty. From a product standpoint, we saw continued strength in our brake and battery business across the company with some softness in our undercar business. Regionally, however, our results continue to be uneven as our teams work through the integration. Not all our stores are where we need them to be. While we are disappointed with our sales progression in commercial, we also believe these disruptions are temporary and addressable.
I say this for two reasons. First, during my store visits this quarter, I saw just how hard our teams are working. They are progressing through their individual learning curves, and I'm confident that each quarter they will get stronger in their roles. Second, to help with some context around our comp performance, less than 10% of our store base accounted for approximately 120 basis points of sales shortfall. Part of this shortfall was our team members working through the integration changes, but part of it is clearly addressable through performance management to deliver the expected outcomes, which we're actively doing as part of our store assessments and profitability work that is well underway. Industry fundamentals continue to remain positive, including vehicles in operation, gas prices, miles driven, and a steadily improving economy.
With respect to our key customer segments, our TechNet customer marketing program continues to grow at a solid pace with over 7,300 members pacing double-digit sales growth year to date and mid-single digit growth for the quarter. The program is also experiencing record program retention rates. These results are a great example of our commercial sales team recruiting solid new members that find value in the program's marketing, training, business management, and other key components. The Speed Perks loyalty program continues to grow, and we have now surpassed the 8 million member mark, so we're about 80% of the way to our 2015 member acquisition goal. We couldn't be more pleased with this outcome, and it's having a tangible impact on our business as we've now seen our third quarter of sequential improvement in our DIY comps since we began scaling Speed Perks in January.
We're excited about entering 2016 with an established loyalty program and having a member base that's tenfold what we had coming into 2015 and still growing. We have also now started to roll out Speed Perks to our converted Carquest stores and have the program in several new markets, including Dallas, Portland, and Salt Lake City. These Carquest locations are now able to participate in our buy online, pick up in store program. This is significant as it raises the profile of those stores from what was historically an under-penetrated DIY and B2C profile prior to our store conversions. We continue to see very nice results from Speed Perks enrollments through our B2C channel since we launched that last quarter. Our key focus with Speed Perks program has been to drive acquisition in service of the broader objective, which is membership.
Membership is how we will build true loyalty to the brand and deliver unique, tailored customer service experiences to our membership base. We continue to see a good hard parts balance of sale accompanied by improved frequency of visit and a larger basket size. We're very pleased with the program performance and believe there is still significant runway for us to engage with the customer. We intend to capitalize on that. Turning to our integration, our commentary at the end of the second quarter suggested the effects of the integration were expected to abate. We did see abatement in certain areas of the business, it was not as broad as we expected. That said, we still absolutely believe we will continue to make progress in the near term. We can already see progress in markets where we have completed our integration work.
Both our Texas and Maine markets have gone through the integration changes earlier this year, and we are seeing third quarter comp performance improve by roughly 400 basis points and almost 900 basis points respectively in those markets versus their pre-integration performance. With that in mind, I'd like to share the status update with you across the five integration areas that we've been focusing on this year. As I mentioned last quarter, our support center consolidation is complete. The team member moves have been made. We are not introducing any new changes to the teams. We are not yet executing at the same level we were prior to the consolidation for a couple of reasons. Virtually all of our support center departments have new team members resulting from those consolidation efforts.
On some teams, as many as 40% of the team members are new to the organization. Many key capability areas are also contending with dual legacy systems that won't talk to one another until we ultimately move over to common platforms. We absolutely expected our teams would need to operate dual systems for a period of time. We didn't expect to have as many new team members based on our initial retention rate assumptions. One challenge we faced was hiring team members for a legacy system that is not a mainstream application, ultimately requiring new hires additional time to learn the nuances of the systems. The combination of newer team members managing complicated dual legacy systems has increased the slope of the learning curve for our team members. That said, our teams are working incredibly hard and making progress with each quarter.
Second, similar to our corporate teams, our field operations and sales teams also continue to settle into their routines and work through their new roles and aspects of the integration. These are large organizational changes, and we passed through the initial change and are now working through the settling-in process. Many of our store general managers are new in role or new to managing a dual model. We can see that because our stores that have more tenured GMs are generating much stronger comp performance. In our Carquest operations, our field leaders are getting more accustomed to running a dual model environment with both commercial and DIY responsibilities. This is different than just running a predominantly commercial box in the past. We are definitely making progress, and as I referenced earlier, time and role matters, and our team members are progressing through the learning curve at different paces.
Third, turning to our store consolidation, conversion, and relocation work. In the third quarter, we successfully completed 83 store integration projects across three markets. The markets completed were Portland, Indianapolis, and Memphis. The results to date have been very good, and we are pleased with the latest round of projects. The fourth quarter is slated for approximately 110 total projects between conversions, consolidations, and relocations across four markets. Execution in these markets is already underway, and initial indications are that performance is trending as expected. As I mentioned earlier, we are focused on finishing aspects of our integration as quickly as possible to get our teams into a rhythm where they can operate seamlessly across our entire store base.
One opportunity is to accelerate our consolidations, and we'll be pulling forward between 60 to 70 Carquest consolidations originally planned for further in 2016 to now be completed in Q1 of 2016. The fourth priority is our product changeovers. We continue to execute the remaining lift-and-replace product alignment work and expect to have this completed in the first quarter of 2016. That said, the lift-and-replace transition continues to provide some temporary headwinds relating to our forward execution on certain product lines. We are intensely focused on working with our suppliers and our collective supply chain teams to execute to the level we expect for our customers, and we expect to see continued improvement. Conversely, as I mentioned earlier, we're pleased with our strong brake category performance. This product category was not subject to a supplier change and incurred only minor relabel and repackaging work.
This provides us the ongoing confidence that our other brands, more heavily impacted by the product changeover, will emerge with strength as we work through the integration changes. Our battery business was another strong transition category that has moved through the change quicker than other product lines and is delivering good sales performance. Additionally, as we mentioned last quarter, we continue to work through the retention efforts for those customers that continue to have an affinity for certain brands that we no longer carry. Changing longstanding buying habits and building confidence with those customers is not an overnight process, but we are actively engaged in retaining those customers or replacing their business. We are proud of our product lineup and believe we have an industry-leading lineup that positions us to serve our growing customer base well into the future.
As I've also mentioned, our commercial price alignment work is effectively complete. As we discussed last quarter, the impact of price movement takes time to drive sales unit velocity to make up for the impact where we decrease prices. Our fifth key priority focuses on our systems and supply chain integration efforts. As mentioned previously, we continue with the development work for our common catalog, and we're on pace to be in pilot by Q1 of 2016. The catalog will be a key enabler for our integrated replenishment project, where we expect to begin the integration of the Carquest and Advance DC networks in the second half of next year. Finally, we are making good progress on the third of the core IT integration priorities, and that is our new point-of-sale system for our stores.
We are moving the development along and expect to have the new POS system in pilot by Q4 of 2016. Turning now to our efforts to expand our daily delivery program. At the end of the quarter, we had 804 Advance Auto Parts stores being serviced daily and are on track against our minimum objective of 1,000 stores. However, I challenged the team to accelerate the rollout in the fourth quarter, and as a result, we now expect to exceed our objective and service approximately 1,300 AAP stores by the end of the year. On average, those stores being serviced on a daily basis now have access to all the SKUs carried by the servicing DC, which typically translates to over 100,000 SKUs on a next-day basis. Also, our stores are able to access between 35,000-55,000 SKUs on a same-day basis from our over 400 in-market hub stores.
Overall, the benefits we are seeing from our stores on daily delivery are in line with our expectations, and we are focusing on accelerating the rollout. Moving on, we continue to focus on our base business execution in support of our profitability goal of 12% profitable operating income by 2016. As I mentioned on our last call, the number 1 building block of our performance culture starts with sales. Consistently delivering on our sales and service objectives is the highest priority for the team. We continue to focus on our sales execution and making those necessary changes to our business as we move to a field-led organization. We continue to take steps to simplify our business and allow our teams to focus on taking care of our customers while continuing to empower our teams to take intelligent risks and make those local decisions that will serve their customers best.
In the spirit of taking steps to build a solid, sustainable sales culture and structure, we'll be implementing the following changes. First, we've begun the transition over to a single-selling environment in our stores. Our current approach with staffing and labor management divides commercial and DIY into two distinct teams within our stores with little cross-capability leverage between the teams. The single-selling environment now organizes our stores so that each team member plays more broadly to serve all our customers, not strictly front room or strictly back room. Every team member must be able to play all roles and operate cross-functionally. The single-selling model is more efficient because it requires less labor in the store. It also provides our field leadership with more flexibility in how they schedule and staff the store so that customers receive the best possible service.
In early October, we began piloting new compensation plans for key field positions. The pilot centers on a more variable compensation plan to support our growing commercial sales model and provides more emphasis on growing compensation by growing the business and having a closer alignment to the organizational objectives and profit expectations. This change also fosters the strengthening of our internal bench of sales-focused, objective-driven team members. We are still very early in the pilot, and we'll have better insight on our fourth quarter call on the results and the timing of the rollout. We believe this change is another step forward in strengthening our sales culture, but we won't move forward until this is proven and absolutely right. We spoke on our last call about our broad work to review the profitability across our store base.
We continue the work of looking at those stores that are chronic underperformers and take up a disproportionate amount of our field leaders' time. Our assessments are still ongoing, but we're aggressively addressing the poorest-performing stores within our bottom 10%. Consequently, we've made the further determination to close another tranche of 30 stores that Mike will provide further financial detail on. We will be continuing with our assessments and examining performance across our store base. As we've said previously, where necessary, we will adjust our footprint accordingly. In closing, 2015 can best be characterized as a building year, essentially building Advance and Carquest into one business from our people, products, and offices through systems, supply chain, and stores. In hindsight, our agenda was aggressive and has temporarily slowed our core commercial business. That being said, we are doing the necessary work to combine these two companies into one.
These are foundational investments and changes we are making this year and are confident they will begin generating results for our business in 2016 and beyond. It is important for us to take meaningful steps toward finishing our integration as thoughtfully but aggressively as we can in order to get back to a business-as-usual environment with a more intent focus on operational execution with a higher degree of accountability that positions the company to achieve our 12% comparable operating profit target by 2016. I'd like to turn the call over to Mike Norona, our Chief Financial Officer.
Thanks, George, and good morning, everyone. I'd also like to start by thanking all of our talented team members for their commitment to serving our customers in our third quarter. In my remarks today, I plan to review the financial highlights from our third quarter and provide insights on the remainder of the year. Moving to our third quarter operating results, we delivered comparable cash EPS of $1.95, which was a 3.2% increase from our third quarter of 2014. Included in our comparable cash EPS was $9.2 million in incremental synergy realization. On a GAAP basis, our third quarter EPS was $1.63, which included $9.7 million of intangible asset amortization associated with the acquisition of General Parts and $28.6 million of one-time integration expenses related to General Parts and one-time support center restructuring costs.
Our comparable store sales were led by our commercial business together with our third consecutive sequential improvement in our DIY business, offset by the net 47 basis point impact from foreign currency. Our gross profit rate decline was primarily the result of higher inventory expenses related to the product integration, modest supply chain deleverage due to the lower comparable store sales growth, partially offset by lower product acquisition costs, inclusive of the company's ongoing cost synergy savings. Our comparable SG&A improvement was the result of lower incentive costs, overall lower administrative costs, and synergy savings, partially offset by expense deleverage as a result of our lower comparable store sales growth. All in, our third quarter operating income dollars on a comparable basis increased 2.9% to $243.8 million, and our operating income rate increased 28 basis points over the same period last year to 10.6%.
Our AP ratio for the quarter was 76.8% versus 78.4% at the same time last year. This decrease is principally driven by transitional inventory growth resulting from our product integration work, the Carquest consolidation work, and by our accelerated Worldpac growth. We expect the inventory growth to abate throughout 2016. At the end of the third quarter, we had approximately $1.29 billion of debt on our balance sheet, and our adjusted debt to EBITDAR was 2.5 times. During the quarter, we paid down approximately $160 million of debt and are slightly ahead of our planned timeline to get back below the 2.5 times leverage ratio and maintain our strong investment-grade ratings. On our last earning call, we outlined our accelerated plan as well as actions we have begun taking to grow our comparable operating income to 12% by the end of 2016. We remain very focused on this near-term objective.
As a reminder, getting to 12% comparable operating profit requires capturing the balance of our $160 million of cost synergies, delivering an additional 100 basis points of cost reductions through a combination of 45-55 basis points of G&A cost reduction initiatives and 45-55 basis points from our store productivity and profitability work, and additionally, driving gross margin improvements. We continue to make good progress against our G&A initiatives as we execute broad-based reductions across all our non-selling functional areas and aggressively cut discretionary costs across the enterprise, including simplifying our administrative cost structures, reducing professional services and travel costs, and essentially targeting all non-essential expenses. Our third quarter expense management affirmed our focus on disciplined G&A cost control, delivering cost leverage despite a softer top line.
We continue to work on improving the productivity and profitability across our store base, and where necessary, removing non-performing assets from our business. In the third quarter, we continued our ongoing assessment of serial underperformers within our store base, and we have made the decision to close an incremental 30 stores by the end of 2015. The one-time costs associated with these additional 30 closures are estimated to be between $10 million and $15 million. As a reminder, we announced the closure of 50 stores last quarter, now bringing our total store closures relative to our store profitability work to approximately 80 stores this year. We're also improving our store productivity and profitability by implementing a single selling model and piloting our new store compensation program.
The savings generated by these initiatives will largely be realized in 2016 and are already contemplated in the 45 to 55 basis points of store productivity and profitability expense leverage that we've previously outlined as part of our pathway to 12%. As we head into 2016, we expect to continue expanding our gross margin rate. We recognize after adjusting for our business' structural differences, including business mix and customer mix, we have further opportunity to improve our gross margins through leveraging our size and scale to improve our purchasing and grow our private label and global sourcing programs. Additionally, we are concentrating on value drivers such as competitive pricing programs, as well as driving efficiencies in our logistics and transportation programs and managing our inventory. We also expect benefits from our supply chain initiatives longer term led by our daily delivery program expansion.
Shorter term, we expect to offset the incremental costs and investments to expand our daily delivery through initiatives such as greater efficiencies across our logistics capability and improvements in supply chain productivity. We've already begun taking actions on these margin improvement areas and where we are slightly behind where we expected to be overall, we expect these initiatives to contribute towards our objectives in 2016. We continue to focus on our working capital and are concentrating on those opportunities to improve our AP ratio through better terms and improved inventory management as we progress through the product conversion and supply chain work. As I mentioned earlier, as of the end of our third quarter, our leverage ratio was 2.5 times. We stated that once we got back to a sustained leverage ratio of 2.5 times, we revert back to our previous capital allocation strategy.
We will continue to maintain a disciplined approach to capital deployment to maximize shareholder value. Turning to the balance of the year and given our third quarter results and the continued sales softness in our fourth quarter, we are revising down our annual comparable EPS outlook. We expect to see continued impact from our integration activities as evidenced by a softer than expected start to our fourth quarter, which is our lowest volume and most volatile quarter of the fiscal year, given the holiday season, which can result in lower demand for parts and unpredictable weather patterns. We have factored these considerations together with our third quarter earnings shortfall into our revised full-year outlook. Additionally, last year was a 53-week year with additional week in the fourth quarter that included the New Year's Day holiday.
This year, the New Year's Day falls in our fourth quarter and on a comparable basis will lower our sales approximately $15 million to $20 million. Taking all these factors into account, we now expect our comparable store sales in the fourth quarter to come in flat to slightly negative. Our gross margin outlook incorporates the revised lower sales estimate, and we also expect the margin softness from Q3 to continue through the balance of the year while we work through our integration. We expect our fourth quarter gross margin rate to be roughly flat year-over-year. Also, as a reminder, we will anniversary lower incentive compensation expense from our fourth quarter last year, estimated to be an approximate $5 million impact to our fourth quarter this year. All in, we now expect our full-year comparable cash EPS outlook to be $7.75 to $7.90.
Our synergy estimates remain unchanged at $45 million-$55 million for the full year. We expect our full-year estimate of one-time costs to increase from between $91 million and $105 million to now be between $101 million and $120 million as a result of the 30 additional store closures announced today. Finally, due to softer operating performance and higher owned inventory, we have made reductions to our capital expenditures and expect to maintain our free cash flow estimate of a minimum $475 million for the full year. As we look out to 2016, our priorities will largely remain unchanged. It starts with driving good top-line growth, and that must translate into bottom-line profit as we focus on delivering against our 12% comparable operating income objective.
Despite the current softness in our business, we remain confident as we will begin to annualize many of the significant integration changes from 2015, such as the office consolidations, the field integration changes, the brand and product changeovers, and the price harmonization changes. Also, our G&A and store profitability efforts are in progress as we enter 2016. We are well-positioned to deliver against our plans. We'll be going into the year with stronger availability resulting from our accelerated daily delivery expansion. We're expecting our conversion and consolidation stores to begin hitting their stride. We expect our top-line growth to be led by our commercial business, new store openings, membership programs, as well as continuing to steadily improve our DIY business and focus on continued improvements in our inventory availability. We expect the favorable industry tailwinds experienced this year to largely hold steady in 2016.
As outlined previously, we are committed to growing our comparable operating profit to 12% in 2016 by improving our gross profit rate, delivering on our G&A cost reductions and store productivity improvements, and achieving our remaining cost synergies. We will provide a more detailed annual outlook on our fourth quarter call. In closing, while our third quarter results were unfavorably impacted by the continuing demands of the integration, we remain focused on completing the integration and making the necessary changes to the business in order to achieve our objectives. I would also like to take a moment to acknowledge the meaningful contributions that Darren has made to our company over the past 11 years and the commitment he has shown towards driving value for our shareholders, customers, and team members.
I would like to finish by thanking our team members once again for what they do every day to serve our customers, inspire our team members, and grow our company. Operator, we are now ready for questions.
Thank you, sir. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To withdraw your request, press star followed by 2. Please limit your questions to 1 question and 1 follow-up. Thank you. One moment, please, for the first question. Our first question comes from Mr. Michael Lasser from UBS. Sir, your line is open.
Good morning. Thanks a lot for taking my question and best of luck to everyone on the next phase. My first question is on the disruption that you're seeing from the integration. If you look at your trends, your comp trend, even inclusive of the hit that you saw from FX and compare it to some of the others in the industry, it appears that the disruption you saw from the integration was greater this quarter than you've seen in the last few quarters, despite the price harmonization being under your belt for several periods. What got worse this quarter, and how long should we expect that this is going to weigh on the business? Because isn't it more difficult to win business back once you've lost it, than it is to lose it?
Michael, it's George. Thanks for the question. I'll start off with the first portion of the question, which is, what was different this quarter? Was it more difficult from an integration standpoint than previous? No, not entirely. I think we did see abatement of some of the activities in some areas. It just didn't slow down as much as we thought it was going to do. We have markets under physical construction now as part of the consolidation conversion relocation work. We did have some fill rate issues that really stems from some systems complexities combined with some new folks working on those systems, and that predominantly was the impact that we had during the quarter. We gave a lot of context on what's happening with the integration, new team members, product lifts. I want to be clear.
The integration is not an artificial entity out there hurting Advance Auto Parts. It's our integration. We did it. Integration is entirely about process, pacing, and execution. We control all three of those levers. It's our process that we're executing right now. We've had to change it. We've had to go back to certain areas and redevelop our processes to have less impact on our stores. Where the construction portion of it is concerned, we feel we've done that. We feel that we've made nice progress and that we're doing better market conversions now as we go forward. From a pacing standpoint, that's an area that we're going to have to give some attention to as well. In some areas, like consolidations, we're going to have to go faster in some cases.
A Carquest store that was not particularly sound beforehand is not going to become so because we bought the company. We need to move those consolidations forward faster. There's going to be clearly areas that we have to slow down on as well. We took on an awful lot, and I think it's fair to say that it was disruptive to us and perhaps too aggressive in some areas. In terms of execution, once again, that's something that we control that we need to do a better job of. It really was a combination of in-stock and disruption from the physical aspects of the integration work. That, again, is something that we own fully. I'm sorry, Michael, go ahead.
I was just going to ask, how long will it take to have some of these integration challenges alleviate?
We certainly expect that we're going to begin to have some significant progress under our belt as we go into 2016, we're going to cycle some events that are going to be significant as well. We're now moving past that period where we made pricing changes. We're about to enter into the period where we began the product lifts. We're about to enter into the period where we began the relabeling. We're about to cycle that time period where we change sales territories. We're about to cycle the timeframe where we changed our leadership structure and our sales territories. That's coming up very quickly. Again, we can't wait. We're making improvements now on the physical process portion of this and on in-stocks.
Certainly to go find where we have fill rate issues and get that fixed is something that we believe we've already done, as we've seen, particularly in the case of Carquest, fill rate begin to cross the level of now being better than last year. I think the other thing, Michael, that gives us a lot of confidence is those markets that are fully through the integration. All the market work is done, the product assortment work is done, they're now finished, have very good results. We're very encouraged by our major markets in Texas, Dallas-Fort Worth, San Antonio, and Houston, we've seen pretty significant increase in their comp performance as they've now cleared the major aspects of the integration.
The same is true with Bangor, which has historically been a poor-performing market, that is now running some mid-single-digit comps because they're finished with the integration work as well. Our confidence level that when you're through the integration change management, you're going to see good business outcomes, that we control aspects of this and can correct quickly, and that we're going to cycle some major events next year, has us optimistic.
Okay. My quick follow-up is, as you look toward next year with the 12% operating margin, how much of that goal is dependent on your sales? You outlined some productivity metrics, some G&A metric measures that'll get you there. It sounds like there are elements of achieving that goal that are sales dependent. To what degree could that be at risk? Thank you.
Our sales assumptions were modest, and we did that just to make sure that we had a fully achievable goal. We did not have aggressive sales assumptions. They were very modest. We will hit our 12% objective, and that is still well within our sights. With that said, we expect to see revenue growth next year. We certainly expect to see putting more stores on 5X delivery, putting more inventory in, having 10 million SpeedPerks members versus less than a million last year at this time, all are going to have an impact on our revenues and that we're going to begin to get that back on track.
Okay. Best of luck. Thank you so much.
Thanks, Michael.
Our next question comes from Simeon Gutman from Morgan Stanley. Your line is open.
Thanks. Good morning. There appears to be some EBIT margin upside for this business over time. Where that is, I think, is very debatable, but there seems to be some upside. Given the underperformance that we've seen over the course of this year, especially this quarter, why is 12% in the near term attainable? In thinking about building something for the future, and I think, George, you mentioned a lot of things about strengthening culture, et cetera, isn't there a risk that you make some near-term decisions here just for the sake of getting to this target in the very near term?
Simeon, we're very confident in the 12% objective. Again, we do not have aggressive sales assumptions in there as part of it intentionally. Again, I have to repeat, we expect to see revenue increases come. We certainly expect to see all the things align that we need to get to 12%, and frankly, we need to begin to look beyond that as well. We're very confident in that aspect of our plan.
Yeah. Simeon, let me do this. Let me give you a couple of the buckets that give us confidence. First of all, we've talked about our SG&A, and there's two big components of that. There's 45 to 55 basis points of just G&A takeout, non-essential costs, furthest away from the customer, and we started that work. The fact that we leveraged SG&A on a pretty low comp tells you that we're making good progress, and we're going to continue that work. That's one bucket. The second bucket is our store profitability and productivity work, where we're closing stores. We're closing down the underperformers. That will help us improve our operating margins. We're going to close 80 stores by the end of the year and performance manage those other stores that aren't performing at the same rate and get their rates up. That's the second one.
The third component is gross margins. We're going to leverage our size and scale, get better purchasing synergies, more competitive pricing, global sourcing, private label. We've talked about those areas, and again, those are all areas directly within our control that we can do that give us confidence that we can get to 12%, building off of what George said.
Okay, my follow-up is how do you assess some of the temporary market share losses? I think there was a comment mentioned that maybe in some of the transfers from Carquest, maybe there was some friction there. If you're not retaining that business at the same level, or if you're losing some business, how can you assess that it's temporary? Maybe there was a disruption in service or availability versus that business going out the door and then getting sticky at some other place.
Yeah, Simeon, some of that loss is just inherent in the consolidations that we're doing. When you have a customer that is doing business with both Advance Auto Parts and Carquest, which historically have had different product lines, and you converge those two businesses, and you converge the product lines as part of it, not every customer is comfortable. There are certain lines, certain brands they've done business with their entire careers that they still have an affinity towards. We know that when those consolidations happen, that there is some share loss potential, and that we have to maximize the retention. Not in every case can we get them over the hump to make a move from one product brand to the other. We try. We keep working with that customer. We try to replace that revenue, but that certainly is some share at risk.
We're not retaining 100% sales, obviously, when we consolidate those two stores. Some of it's going to the market.
Okay, thanks. Good luck, Darren and the team.
Thank you.
Our next question comes from Chris Horvers of JPMorgan. Sir, your line is open.
Thanks. Good morning. One follow-up on the 12% margin target. Maybe this is a question for George. That 12% target, which you're expressing a lot of confidence in, the management team is. What precludes a potential external CEO from coming in and changing this outlook as we think about next year?
Thanks for your question, first. We've viewed the 12% as a step along the way to higher performance, and we're confident that we can get to the 12% or beyond next year. It's premature to speculate what somebody who's not here would do. George is here, and George is going to get us to the 12% next year.
Understood. George, question for you. As you sit here today, are there strategies that aren't being executed, or tactics or culture change that's not being executed that you think are necessary to accelerate the performance? Or is your view that basically what you're doing here today is the right strategy, and it's just a matter of sticking to it and following it through?
Yeah. Thank you. If you look at the integration work, I think we have the right work streams. Again, I think we're very open-minded to the possibility that we went too aggressively on some of them and created too much competing work streams at the same time. We're going to look at that, we're going to make the appropriate changes. I also think that as you look at our organization, and I've said this before, we have to become more and more of a field-led organization. I believe Advance operated on a corporate-out basis for many years, and that, especially as a commercial business, we have got to revolve more around our stores, have more local autonomy, have great local leadership, and have a support center that supports stores and customers every single day.
That is a cultural shift that we are making, and I think is a very important one. I also want to say, this really goes back to a bit of one of Simeon's follow-on questions. If you look at the 12% plan, we're not going to make foolish decisions to get to 12%. We're not closing stores for the sake of closing stores, for instance. We're closing stores that aren't full loss positive, that are just a drag on the overall profitability. Frankly, they're a drag on our field leadership. There's a lot of time that's spent exception managing stores that in some cases just aren't going to get there. The last thing I'd say, which I think is very important, and this is a change, we're just going to do fewer things better.
We're going to do fewer things better, plain and simple, and we're going to finish them, get them all the way to done. We have sometimes taken on too many projects, had too big of an appetite, and just not executed everything to its full extent. We're going to do fewer things better, and we're going to get them done.
Understood. Last question. Just a clarification, that $50 million impact from the New Year's shift, that impacts comp this year, about 70 basis points. Now that you're at 2.5 times, do you anticipate starting to execute on the buyback? Thanks.
Maybe I'll take that. The holiday that was in the 53rd week last year falls into the 52nd week, and it'll be a headwind. Yes, it will impact comp. I think your question was on buyback. We've mentioned at the end of the third quarter, our leverage ratio was at 2.5 times. We've stated it in the past that we get back to a sustained leverage ratio of 2.5 times. We'd revert back to our previous capital allocation strategy. What we're most proud of is we got back to 2.5 times, and we got back there. We said we were going to do it. We did it, and we did it a little bit earlier than we had planned. This now puts us in a position to revert back to our previous allocation policy.
Historically, we prioritize growth as the first use of our capital, and we've also effectively used buybacks to create shareholder value. We'll consider these options as part of our capital allocation as we go forward. Most importantly, we'll continue to maintain our disciplined approach to capital deployment to maximize shareholder value.
Understood. Thanks.
Our next question comes from Greg Melich of Evercore ISI. Sir, your line is open.
Hi, thanks. I wanted to follow up on supply chain and getting in-stocks improved and some of the things I think you mentioned in your prepared comments, George. If I remember correctly, you have combined about 50 DCs, and there was meant to be a plan later last year as which ones to consolidate and when. You had some changes there. Do we have a plan now as to how many DCs we're going to have and where they're going to be as we're starting to figure out which stores to close?
Yeah, we do, Greg. We continue to work through that. The long and short of it is that we have some landlord issues with some of the legacy Carquest distribution centers. The negotiations with those landlords will continue at least through the end of the year. That impacts our ability to make some of the changes that we've wanted to. What I can tell you is we have signed a lease for a new facility in Nashville, so we'll be opening up what we would consider to be our goal for a state-of-the-art DC in Nashville in 2017. We're still working through some works and negotiations. At that point, we'll be able to be a bit more transparent on what the exact changes are.
I guess the follow-on to that would be, you found 50 stores about three months ago, now found another 30. Understanding that it's hard to identify what the stores would be, sort of conceptually from the top down, should we be thinking that if 10% of the stores were over 100 basis points of the comp miss, I think I heard that ultimately the number of stores that we should be rationalizing measures could be, say, 500, given that's about 10% of the store base. Am I thinking about that the right way?
No, I wouldn't make that linear connection. I think if you look at that group of stores, 400 and some odd stores, clearly some of them are going to fall into the consolidation work that's been accelerated. Some are going to be closures, and some are simply going to be exception managed. Not all stores are bad stores on that list. They're just not performing correctly. Yes, some of them will be addressed via actions we're taking in the fourth quarter. All will be addressed by some level of exception management by our field team.
Great. Well, good luck, Darren, George, and Mike. Hope you enjoy retirement, Darren, and good luck. Look forward to following up.
Thanks, Greg.
Thanks.
Our next question comes from Seth Basham of Wedbush Securities. Your line is open.
Thanks a lot, and good morning. First of all, good luck, Darren. It was great working with you.
Thank you.
My first question revolves around what's going on with brands in the stores. George, you alluded to some brands that weren't resonating with commercial customers. As you go forward, do you think you have the right set of brands? Do you think you'll make some significant changes?
Yes, Seth, we're very confident in our brand mix. Really, we don't have any brands that are being questioned. Broadly, we're happy with the house of brands that we built, and broadly, more importantly, our customer base is as well. That doesn't mean 100% agreement. There's always some outliers there. We switched from KYB to Monroe in ride control in Carquest stores. There's always going to be some KYB loyalists out there. They're the minority. By and large, we're very pleased with the brand selection that we've built. There's going to be some outliers.
Okay, fair enough. Then following up on Greg's question regarding the 10% of stores that were pretty impactful to your comps, is there a common theme among them besides just weak performance? Was there some regional concentration, some systems issues, some distribution issues associated with those?
Yeah, the most common theme, Seth, is Midwest. The majority of them tend to be concentrated in the Midwest. Now, there's a mix of rural and urban. They're generally older stores. A few of our new stores that are in the seven, eight-year range are in there as well. That's the most common thread, is that they're Midwestern by nature, and just a combination of both Carquest and Advance stores. If you look at the closures, almost a split.
Got it. Okay. Thank you very much, and good luck.
Thank you.
Our next question comes from Scot Ciccarelli of RBC Capital Markets. Sir, your line is open.
Hi, guys. Two questions. First, Mike, can you explain what you mean by higher inventory expenses that impacted gross margin? I'm not sure if there's a nuance there. Second, I guess this is for George. George, can you give us an example of why commercial disruption would've been more severe in the third quarter than, say, the first when the changes were already implemented? In theory, you would think the integration disruption should be moderating, not accelerating. I guess I'm just not following why we've seen that deterioration.
Hey, Scot. I'll start. What we mean by that is, as we've talked about, we're doing lots of product changeovers, and we're doing consolidations and conversions. Whenever you do that, you're moving a lot of inventory around. What we mean by inventory expense is a couple of areas is we had some core value adjustments in relation to some of our vendors, and we also had some defective inventory. We think those are short-term items as we work through some of those items. We think they're short-term, and our outlook reflects that in Q4, but we believe those are short-term.
On the commercial side, I think we're just seeing a lag impact here that's been building during the course of the year. We're now in full stride in terms of doing the market work. There's a bit more going on market by market. Again, we mentioned that there have been some fill rate issues. That certainly is the business that we're in, but it's on the rise now, and we believe we're working our way through it.
Mike, just to follow up, you talk about defective inventory, et cetera, whether you know it or not initially, are you guys sitting on a bunch of inventory that needs to get marked down, cleared, sent back to vendors, et cetera?
No. What I would tell you, Scot, is whenever you're doing a lot of inventory movement, you're going to run into a few issues. With defectives, you're going to run into returns back to vendors. We don't go into our programs with vendors on the phone here. We ran into a few issues with defectives higher than we planned. I think that's what it is. It was a little bit higher than we planned. We'll work through that. The other thing that impacted our gross margin is we had about $5 million when we annualized the Hartford costs that weren't there last year.
All right. I'll follow up after. Thank you.
Our next question comes from Mr. Matt Fassler of Goldman Sachs. Sir, your line is open.
Thanks a lot, and good morning. My first question relates to the move to a common platform, presumably common systems platform, at your corporate offices. If you could talk about what the challenges in getting that finalized have meant tangibly for the business, what your people have a harder time doing, and once that's fully addressed, how you think that will enhance operating results, please.
Yeah, Matt, I'll hit a couple of things that are the three biggest projects that we're working on right now. We have two sets of catalogs across our store operations. As you know, the commercial business works out of the catalog day in and day out. Say Advance has just been more of a legacy system, and we don't have shared communication between those two catalogs yet. We'll pilot that in Q1 of next year, toward the end of the first quarter. The biggest one is the integrated availability project, which connects the inventory and sales systems between the stores and distribution centers. That's our work in progress, and that's what keeps us on two different sets of both merchandising and replenishment systems.
The biggest impact from that is you have two replenishment teams effectively, one working a legacy Carquest system that's proprietary, and one working a more mainstream replenishment system. Obviously, the latter is easier to staff for. We can go find folks that have worked on these systems before. It's fairly commonplace. For the Carquest system, it's not. It is difficult from a training standpoint, a little bit of a longer ramp-up for the team. The change going forward is when we complete that work, we will migrate to one replenishment team across the whole company. We'll be on systems that are plainly understood by anybody in the replenishment business, and we'll be in a much, much better place.
What is the timing for getting those issues resolved in your view?
There's a domino effect in terms of how these initiatives have to be sequenced.
Right.
The catalog, again, begins in Q1 of next year. The point-of-sale system launches, which is the dependency as well, in the third quarter of next year, toward the second half of next year. At the same time, we're ready to start to pilot the integrated availability project.
Got it. By the way, a follow-up on this point very quickly. I know this has come up a bit before. It sounds like the complexity of what you're trying to do is very significant. How do you drive that with taking G&A dollars out of the organization above and beyond the synergies that you initially contemplated associated with the deal? Presumably, you hit a lot of the obvious redundancies there. Does it make it harder to tackle this degree of difficulty if you're simultaneously trying to take out more headcount?
No. There's a small impact. I will tell you that if you look at where dual systems impact staffing or impact G&A, it is pretty simple. It's on our accounting team, it's on our replenishment team, and to a small degree, it's on our IT team. That's the extent of it. That is a measurable, fairly finite, relatively, in the overall scheme of things, small amount of G&A. We have a large opportunity. We are able to do what we said we're going to do with the 12% work, cut our costs back. We're keenly aware of that. We're very focused on it. We've made good progress on that. We have more to do. We have a pretty good handle on when the timing is that we can take that additional G&A out and how much it is, and it's not overly material.
Got it. One very quick other question on the numbers. There's a bit of noise from Worldpac this quarter. There's FX. Obviously, the Carquest business is under some pressure. I'm not sure if we're able to look at the business this way anymore, but if you were to isolate legacy Advance stores and think about the underlying same-store sales local currency that you think you're generating from the parts of the business that are least impacted, least damaged, certainly, by the work that you're doing, any senses to where those might be running?
Yeah. If you look at the better-performing elements, it is the Southeast and Northeastern U.S., and then certainly markets that we mentioned, like Texas, that have improved and done a good job. In the case of Texas, you're through the integration. In the case of the Southeast, you really haven't begun too much of the heavy lifting of it yet. Those are markets that are all performing from a comp standpoint better than the rest of the organization. As for Worldpac was a tailwind to comps for the first half of the year and really for the better part of the first two quarters almost entirely. That is just the buildup of new branches. We've said we're going to open up 12 new Worldpac branches this year.
In the first quarter, that number was small enough that they were still able to drive some good comp growth. By the end of the second quarter and now the third quarter, you're up to nine branches opened. The movement of customers has become much more significant. The growth story is tremendous, but it has become a bit of a headwind in terms of comps.
Got it. Thank you. Darren, all the best to you.
Thanks, Matt.
Our next question comes from Dan Wewer of Raymond James. Sir, your line is open.
Thank you. George, I wanted to ask you about Starboard's position. What was the thought process in their receiving three board positions, given they own less than 4% of the company? Second, as part of their presentation on September 30th, they called it unlocking value. They make a case for selling the Worldpac division, given that it's getting lost in the Advance organization. With Worldpac beginning to see cannibalization impacts on same-store sales, what are your thoughts about their proposal of perhaps putting that business up for sale?
Well, let me start with the second part of your question, and thanks for your question. Worldpac is a strategic asset of the company and one of the highest potential growth vehicles that we have. There is no current feeling that we should not keep Worldpac and grow Worldpac. As far as the involvement now with Starboard and Jeff on the board, we've had a number of meetings and conversations
With Jeff and his team. Personally, our entire board has been impressed with Jeff's approach to business. He has a definite commitment to excellence. Importantly, he's willing and able and going to learn our business in a deep way, to the point of visiting stores and getting to really know the business. All of that's going to bring a fresh perspective to us, we think it's going to be good for the company and all of our shareholders.
Okay, thank you.
Our final question today comes from Michael Baker of Deutsche Bank. Sir, your line is open.
Okay, thanks. A couple of questions. Just to clarify, this year it looks like you're reducing your implied margin guidance by about 40-50 basis points from what it otherwise would have been in your previous EPS guidance, yet you're keeping the 12% for next year. Is the implication there that you just think the issues right now are timing, and that you're going to make it all back up at some point next year? Is that the right interpretation?
Yes, it is, Mike.
Okay.
Absolutely.
To follow up on a timing question. I heard a couple things. In some ways you said you went too fast, so you have to slow things down, bit off more than you can chew. On the other hand, there were a couple instances where you're talking about accelerating the pace and going even faster. I guess I'm trying to reconcile those two things. Is it just some areas you went too fast, some areas not fast enough, or can you help me put those together?
That's correct, I'll give an example of an area where we think that going faster might be the right thing to do for the business. We've laid out a consolidation timeline that goes for several years. If you look at some of the stores that were scheduled to consolidate in the later half of 2016, they're just not performing well. They become a drag on the business, and we knew that they would have a good financial outcome when they consolidated. Right now, as a standalone business, it's a drag on comp, it's a drag on profitability, and it's again tough on our field leadership team. We're pulling those things forward. We think that's a healthy change for the business, and we know that we have a team that can do that consolidation work. It's not construction this time.
You're now moving the team into another store, shutting down the building, that we're capable of taking that on and taking some disruption out of the system. On the flip side, there's some more process-based work that affects our teams in the support centers as well as the stores that we think we can back off the pacing on.
Okay. That makes sense. One more if I could ask. You spoke about understanding or acknowledging there are some structural issues between you guys and the other guys in terms of mix, customer mix, et cetera. In your internal thoughts, what do you think the structural differences are, and can you quantify that? In other words, maybe you can't get to the other guys' 18%-19% margins, where ultimately do you think you can get?
Yeah, we're going to build a view internally of where we think we can go as an organization and work our way backwards. Michael, I think you know some of the structural differences. There's differences in our lease versus own versus some of our competitors. That has a difference. We acknowledge we have a ways to go in terms of closing this gap. We've set 12% out there as the first objective to begin to get there. We know that there's space well beyond that. We're going to come to our own internal conclusion on what that number is, and again, work our way backwards.
Okay. Thanks for the time on the call and the caller. Appreciate it.
At this time, there are no further questions. I will turn the call back to Zaheed Mawani for any final comments.
Thank you, Cheryl, and thanks to the audience for participating in our third quarter earnings conference call. That concludes our call. Thank you.
That concludes our call today. You may now disconnect. Thank you for joining us.