Good morning, everyone, and welcome to the Advance Auto Parts Investor and Analyst Day. My name is Zaheed Mawani , and I head up our investor relations department. On behalf of myself and the entire Advance Auto Parts management team, we're very, very pleased to have you here with us today. First of all, I'd like to take a moment to run through our agenda and introduce our speakers. We will have Darren Jackson, our CEO, who will provide you with a strategic overview. George Sherman, our President, will then provide you with a business overview, and Mike Norona, our EVP and Chief Financial Officer, will provide you with a financial overview. Upon the conclusion of the management remarks, we will go into a Q&A session, and we'll open it up to the floor.
Before we begin, however, I'd just like to remind everyone today that our comments may contain forward-looking statements subject to certain risks and uncertainties that may cause results to differ materially, and as such, they're governed by the forward-looking statement slide that you see in front of you today. To kick things off this morning, we'd like to have a short video that'll highlight the history and growth stories of both Advance Auto Parts and General Parts International. I think it's going to provide you a very interesting view on the background and of each of the organizations and serve as a useful frame for the balance of the day. We'll move directly then to our speakers. If we're committed to building the best machine.
If we're committed to building the best machine, we will win. We will have 4,000 stores, and we will have a $100 stock price. That's what I know.
Just three months into his role as CEO of Advance Auto Parts, Darren Jackson made a bold declaration knowing he was standing on a solid foundation.
I wanted to please every customer and give them honest value.
Arthur Taubman learned very early that customer service is the key to success in business. With self-confidence and determination, the 31-year-old bought three failing stores in Virginia during the Great Depression. By 1938, his business of sporting goods, auto parts, and accessories was expanding into neighboring states.
Every year, our volume increased, some years quite substantially. It kept going that way, and it still is going that way. It's never stopped.
World War II couldn't stop the growth of Advance, even though rationing made auto parts and many other quality products nearly impossible to obtain. By the end of the 1950s, there were more than 50 Advance stores, earning more than $60 million in sales.
We're not a successful company. We're a company of successful people.
In 1956, Arthur's son, Nick, joined the company and earned his way through the ranks with a reputation for hard work and a commitment to people. He would soon learn of a young competitor with the same reputation.
Hello, I'm Temple Sloan.
Temple was still in college in 1961 when he purchased General Parts Warehouse in North Carolina. In his first full year in business, the company reached over $650,000 in sales with a net profit of just over $200.
That's $200 for the year. Ever since, we have had a sales increase and continued to produce a profit.
Both General Parts Warehouse and Advance stores enjoyed strong growth through the '60s. In 1969, Nick Taubman became president of Advance while Temple Sloan was developing plans for an alliance of independent auto parts stores. In 1973, he and his team rolled out Carquest.
We signed our first store late in that year in my hometown of Sanford.
When America moved to the suburbs in the 1970s, Advance Auto moved with her, opening updated stores focused on the retail do-it-yourself auto parts customer. Carquest was concentrating on the needs of the professional installer with a network of 100 stores generating more than $29 million in sales in the first year. By the late 1970s, Advance was still thriving in a difficult economy and growing by 20 stores a year.
I introduce our newest store. Give us a try.
GPI would purchase General Trading Company and Valley Motor Supply in the early 1980s, giving them the confidence to develop the joint venture store program that helped thousands of teammates own a significant piece of the stores that they would work so hard to grow. A devastating flood washed through the Advance headquarters and warehouse in 1985, nearly destroying the company. The entire team rallied and quickly got back into business with minimal loss of sales and an accelerated growth plan. The remarkable recovery was spurred by the construction of a massive new warehouse that would enable the company to more than double the store count.
We literally thought we could do anything. In fact, we had this saying that as long as we work together, we can do anything, we can accomplish any goal, we can overcome any obstacle.
It seemed that both companies could do anything. 1998 saw Advance purchase Western Auto Parts America, doubling the company's size again to 1,500 stores, reaching Puerto Rico and the Virgin Islands. While GPI had crossed the border into Canada and acquired Republic Automotive and Big A Auto Parts, adding more than 900 stores to the Carquest family and raising net sales to over $1 billion in five years.
No company in the automotive aftermarket has ever tackled so much growth in such a short period.
They weren't done yet. By the end of 2002, Advance had acquired several more regional chains, including Discount Auto Parts, and became a publicly traded company with more than 2,000 stores. GPI also made another huge move in 2004 when they purchased Worldpac, the largest distributor of import automotive products in the U.S. No deal rings the bell like the Advance Auto Parts, General Parts International agreement.
It's the right transaction with the right companies at the exact right time.
With over 5,000 stores and more than $9 billion in sales, Advance is now the largest automotive aftermarket supplier in North America. Thanks, sir. You have a good day.
You too.
It's not enough.
Being the biggest, you can write checks to become the biggest. You have to earn, every day, the right to be called the best.
With the legacy of our founders deeply rooted in our mission, we will earn the right to be the best for our customers, our team members, and our shareholders, continuing to grow as a company of one.
Our greatest opportunities and our greatest days are still ahead of us.
Good morning. Welcome to our 2014 Investor Day. The video I just showed you, I showed you for a couple of reasons. It's a video we use with our training teams to welcome new team members to the company, and we used it in our integration process. That integration process actually began with culture and cultural consistency. I can tell you what it's not. The front end of it wasn't to tell you that we're good at predicting stock prices five years out at $100 because we missed it. We did a little better. It was to communicate what are those points of consistency and what are the cultural advantages that we want to bring out in the organization. I'd say that overall, what we've seen in terms of our strategy is probably best depicted here over the last decade.
We began to reposition Advance nearly 10 years ago to focus on the commercial business. What you're seeing is a couple of things, here's the messages I'd have you take away is, 1, it's about being able to evolve and adapt a company. That means moving with our customers and the changing competitive dynamics. You can see we've doubled our store count in the last decade. More importantly, as customers have evolved and the market's evolved, probably the thing I'd highlight is the change in the mix of our business. Seeing our DIY business, which used to be 84% of our business a decade ago, is now 43% of our business. Our commercial business has grown to 57% as we start this year.
As you translate that down to the bottom line, we've seen the growth in our earnings per share grow four and a half times over the last decade. Underneath that, it really has been this evolution in terms of change and adapting. I think about the Carquest enterprise and the Advance enterprise, one of the constants has been we've been a catalyst for the consolidation of our industry. You saw that in the video. Whether it was DIY and Western Auto, Parts America, you saw that in terms of Discount Auto Parts and Trak Auto. On the commercial side, in General Parts, it was Big A, it was Worldpac, and more recently, it's been BWP and now GPI. That constant of change with the customer, growing our business is something that underpins the culture and part of what we'll talk about today.
Probably the key takeaway is between both organizations, we have a proven track record of nearly a dozen acquisitions of bringing businesses together, and on the other side of it, being a stronger and more competitive business, producing those returns long term. I'd say one of the things that drove the strategy and continues to drive our strategy today is the overall industry tends to be stable, tends to have a consistency of growth. Ultimately, what underpins that are things you already know about. There's 250 million cars out there today that are 11 years old. I know there's been a lot written about in 2008 and 2009, the decline in new car sales will affect the parts business.
Part of the way we think about it is you extend out the age, you can see in deferred maintenance, the deferred maintenance number continues to hang up around $60 billion. As that durability and quality stretches out the age of vehicle, we're also seeing it stretch out the deferred maintenance cycle, too. It just tends to flow in a consistent manner over time. The other thing you see is that with increasing complexity of a vehicle, along with what I'll call is some automotive incompetency, the inability to fix a car, continues to shift the market. We know that the commercial market today, if it's AAIA, says it's $60 billion in commercial, $47 in DIY, but it's the growth rates that are important.
You can see that the commercial market continues to outpace the DIY market 3 to 1, that is certainly part of our view in terms of the long-term rebalancing of our business model. Underneath that, in terms of complexity, it continues to drive ASPs. We have seen unit challenges, principally on the DIY side, not on commercial. Underpinning that is parts complexity continues to drive the overall growth of the market. When you think about our history as a company in terms of acquisition and growth, how the industry is positioned, the acquisition of General Parts, in a word, is just compelling in many ways. It allows this combined organization to do a few things.
I know some of you have seen this before, what I draw out is, yes, we're the largest in the industry at $10 billion, it does create scale, but it also gives us a fantastic opportunity in the import space, where we are the number one player with Worldpac and AI. In the Internet space, we're approaching $2.5 billion in the Internet space between B2B and B2C, in terms of having a head start, in terms of the evolution of B2B in our space. In terms of our footprint, it gives us the ability to go across North America. Prior to the acquisition, 88% of our stores used to be east of the Mississippi. It gives us a longer runway west of the Mississippi in terms of growth, I'll talk about that in a minute.
It certainly adds other growth opportunities, whether it be fleet or heavy duty, and it allows us to take the strengths of each organization, whether it's our DIY strength and add that to the Carquest organization or Carquest strengths and their brand capabilities and add it to our organization in the form of TechNet and CTI. Collectively, there's many opportunities both in the here and now, which we'll talk about, and longer-term growth options from putting these businesses together. That only makes sense if you pay the right price. When we look at the overall acquisition price of the GPI acquisition, both in terms of what we can see, top line, bottom line synergies and balance sheet, we think it's compelling in terms of the financial proposition. Mike will talk about that in a minute. Where do these combined organizations position us as we start this integration?
I'd highlight two things. I think about balance and diversity. Balance really shows up in the balance of our business now being 57% commercial and 43% DIY. But it also gives us balance in terms of the talent mix of the organization. I'll talk in a minute about many of the fantastic senior leaders that we've added, but many with 30 years of aftermarket experience in commercial that adds to our balance as a team. In terms of diversity, it helps us diversify the number of customers and types of customers we serve, whether that be independent customers, which we now have 1,400 today, or broader large-bay customers in terms of our business. We see that this starting point for our organization not only gives us growth options, but it creates a better balance to our business, and it gives us better diversity in terms of the overall team.
Someone asked me before the presentation, "Darren, how do you spend your time? How does your senior team spend their time?" And it's five things. We spend our time in terms of our report card is, when you bring businesses together, we've all read the statistics about the chances of success in acquisitions, and generally speaking, they're not high. When they're not high, what's gone wrong? When we bought General Parts, one of the things we talked about is that this isn't a real estate acquisition. It's an acquisition of talent and capabilities and team. In order for that to come true, you got to make sure the culture works. We also know that you got to get the leadership right, but when you get the leadership right, one of the key things to get right are leadership roles. Who's accountable for what and what needs to get done?
Three, we'll talk a lot about the acquisition today, but the core business is 90-plus % of the profitability. You got to keep that core business on track and building momentum. George will spend more time in the business overview talking about that. And you've got to do the integration in a way that the organization isn't disrupted. What are the simple outcomes you got to get right by when we pay attention to? And lastly, you're always going to be forced, and it's good hygiene to think about there's still strategic choices for growth, and there are a few simple ones, and they tend to be, what do we know how to do that we're focused on today to keep moving the business forward?
This is our top five scorecard as to how we're spending our time, my time, in terms of assessing and guiding the organization forward through this. First on culture, as Lou Gerstner said, "Culture is everything." Early on in the process, we went out to the broader organization, and this would have been general managers, VPs, mid-level managers, and asked them, whether they were in Worldpac, Advance, AI, Carquest, "Help us understand, give us a diagnostic of the culture." This might be our version of Match.com. All good. You guys got it. There's simple things. There are many important things on here, the ones that I pay attention to include customer-focused, externally focused, integrity. You can see across virtually all parts of the cultural diagnostic, the good news is we're starting with a good starting point organizationally.
The strengths and the differences tend to be aligned and understanding them give us that confidence to say, as we go out and integrate this company, let's pay attention to what's special about the culture and make sure we understand where the points of difference are as well. Two, get the leadership team right. Part of getting the leadership team right and giving clarity to the organization in terms of roles started with securing some of the outstanding leaders of General Parts. You saw in the video, Temple Sloan III, the existing CEO, works with me today, works for me today, and is also a member of our board. Part of it is how do we maintain that 50 years of family experience, but also use it in terms of growing our business. David McCartney, who is going to raise his hand here in the back, came with us.
He heads up our North American operations for Carquest and now oversees Canada and the independent business. Al Wheeler has assumed the role of commercial for the entire enterprise of Advance and Carquest. Bob Cushing leads our Worldpac operations. Steve DeShetler, who's not with us, heads up Canada, and John Kakacek continues to run our independent business. Collectively, the average experience of these leaders is 30 years in the industry, and many of them, 30 years within the Carquest organization. I would say from my end, they're off to a fantastic start with our organization in terms of the fit and leadership of our company. The other piece of the work is naturally you've got to bring organizational clarity. Part of that clarity is in any acquisition, you have duplicate functions. You got to be clear about who's staying, who's going, and where they're going to be located.
You may have seen last week our organizational announcement that we're going to rationalize our corporate centers down to two. That includes Roanoke, Virginia, where we are headquartered today. It's the bulk of our support center. We'll have 1,000 teammates in Roanoke. That will principally be our enterprise-wide shared services, I've listed a few of the functions that will be included in Roanoke. Raleigh, which is the existing Carquest headquarters, will house roughly 600 team members and the senior management team. That will include functions that are principally supporting the customers and our field teams. These two facilities are three hours apart in terms of a bus ride, ultimately, we're able to take advantage of the strengths of each business. Obviously, Carquest, with its deep commercial and independent strength, it will also facilitate easier travel in and out for our customers, vendors, and our field organizations.
Lastly, we consolidated our e-commerce facility onto the campus of Worldpac. Thinking about that is now more of a digital technology center of excellence in California. Also creates better career paths for our teammates in Raleigh and in California by bringing all those organizations together. We are closing our Minnesota office. The executives in that office will relocate either to Raleigh, Roanoke, or California, including myself. Three and four, I'll briefly touch on. George will go in more detail. You focus on the culture, you get the leadership right to what end? That includes maintaining our focus and momentum on the base business and successfully integrating the core General Parts into the organization. That base business momentum, we've talked about this routinely on our calls now, is really three outcomes. Get the sales right, get the service right, get the profitability right.
Overall, that base business momentum is about driving comparable store sales consistency and operating income dollar growth. Our service outcomes are about getting that feedback loop from our stores and our customers to improve our day-in, day-out service capabilities in our store, and profitability is about that consistency as well. Overall, what we've seen as a result of the General Parts acquisition is we've seen opportunities to enhance our base business. I'll just give you a quick tour. You'll get more detail in a minute, it includes opening up availability between all of our businesses. One of our first focuses is how do we open up cross-sourcing between Worldpac, Carquest, Autopart International, and Advance Auto Parts? Think about it collectively, we have the best in-market availability in the industry.
Two, in terms of national accounts, whether it's Sears, Goodyear, CarMax, or others, how do we leverage our proximity and store count to provide even greater service to those stores that we may not have been able to reach, whether it was Carquest or Advance before? We've opened up the stores to better serve our national accounts. Daily delivery, I'll use this example, you'll hear more later, is that in Dallas, we are actually leveraging the General Parts International distribution center that has daily delivery to open our Advance Auto Parts stores in our Dallas market. How do we leverage existing capabilities to accelerate our base business? Early on, we can see daily delivery benefits, too.
Finally, how do we take customer programs, whether it's TechNet, CTI, ProRewards or MotoShop, which are all customer programs, and make them available, not just within one part of our business, but broadly across the enterprise. From an integration point of view, like our base business, someone said you got a lot going on. We do. Our job is to take a lot going on and boil it down to simple outcomes. Those simple outcomes in our integration are three. They're really time-boxed in a sense that early on it was just stabilize the business. I talked about this before, get out early and communicate to the independent customers, the large customers, the team, and get the leadership roles right. From my point of view, we exceeded expectations in the stabilize phase. Focus on where you can get quick wins.
We just talked about four. From a quick wins point of view, they go from cross-sourcing to completing some of the first stage of the vendor negotiations. Similarly, we're through quick wins in terms of initiating and even some of them completing, and I would say they are a meet or exceed expectations at this point. The operational work is heavy lifting, and that's the heavy lifting that will occur over the next three years. George will talk a little bit more about that in a minute. You saw some of that kick off last week when we announced 100 of the first set of consolidations will begin this year.
I'm really pleased because as I look at the operational work, what you hope to achieve in six months is that do you have the right teams and the right resources pointed in the right direction to get the work done? Are you launching it in a way that makes sense in terms of prioritization? The first 100 stores are an example of that. I'd say collectively, when you bring the culture, the leadership-based business, and integration together, what is the collective measure of success? I would say in the near term, it's just really simple. We've got to run an operationally excellent $10 billion organization and keep the team focused on that. Not drift from that mission to run an operationally excellent $10 billion organization to start.
As we look out, our vision is to get to $15 billion and make the choices that make sense to get us there. There are a handful of choices. I would say the decision criteria is this straightforward. They have to be things that are in our control. We know how to do well. There are four. It really begins with, I'm back to running a really good base business, driving the comparable store sales with consistency and operating income growth with consistency. Two, we can see with our expanded footprint, the opportunity to get to $15 billion includes the opportunity to add roughly 1,300 net stores to our current owned network today over the next several years. We know how to open stores. We open them successfully. Three, we're going to double Worldpac. Worldpac today is a billion-dollar business, 106 locations.
That business, we know how to open branches. That team knows how to execute. The import market's growing faster than the domestic market. Lastly, we'll consider future acquisitions. It's not at the top of the list, but we're not ruling it out. As I talked about earlier, is that when you peer into our culture, acquisitions have been integral part of our growth. We're here today because of successfully acquiring and integrating businesses. We'll continue to look at future acquisitions as part of our vision to get to $15 billion. I'd say in summary, our progress report, we're 180 days in. I would say from a cultural point of view, we are on track. Culture is not something you get done as an activity. It's a perpetual process.
We're early, and as a team, I can tell you that being the best is our mission. Our core values haven't changed. Both teams have come to that mission in a way that makes sense for both organizations to go forward. The leadership decisions have been made and been communicated, and the roles are complete. I would say early on, we're on track as well. Our base business, as you saw in our first quarter, and we said as we began the second quarter, certainly on track from a top line, bottom line in synergies. Our integration work, certainly on track. I would say the longer term, how do we get from the $10 billion that we're pointed at currently to $15 billion? We're in the early stages of both the financial roadmap and the strategic roadmap to get there.
What I'd like to do now is I'd like to welcome George Sherman up to the stage to talk about our base business and a little more of the details as to the things driving the overall base business and our integration efforts. George?
Thanks, Darren. Morning, everyone. Thanks for coming. Thanks for the chance to hear us talk a bit about our business, our base business, our integration, and our current business trends and how they're going along. When we talk about glide path and going at the same one, we think about these as having two very different sets of business rhythms. We've been very purposeful on trying to separate the integration moving rhythms from the base business. The majority of operating income comes from running a great base business during the course of this year, and the laser-focused on that business while having a team that is dedicated to integration and getting that worked on as quickly and as effectively as possible.
To drive our base business, we've been working on a series of building blocks, ways to improve our core offering, ways to improve our execution, ways to get better in the parts business, and it starts with the team. It has the absolute most fundamentals possible in here, and it has some complicated things as well. It starts with hiring the right people. We have become absolutely relentless around the hiring and promotional disciplines. Making the right choice upfront across nearly 5,300 locations across the U.S. If we get that one right, it makes our business quite a bit easier. We put guidelines in place, certifications in place as to how we hire, how we interview, who's certified to do so, and really made this a big part of how we do business, getting the right team on board.
We believe in performance management, and we've installed that really deeply in our organization. We have expectations for our business. When those are met or exceeded, we reward our team. If not, there are consequences, and we performance manage. We built that muscle deeply into the organization, and I'll talk more about that as to how that permeates its way all the way into the store. We're a field-centric organization, and that's maybe one of the largest fundamental shifts over the last 12 months. We became a little bit too corporate out. We became a bit too centralized. We were calling a play out of the corporate office and trying to run it across thousands and thousands of locations, and that's not how our business works when you're going more and more toward the commercial customer.
We're rallying around our profit centers, rallying around our stores, rallying around our field teams, and rallying around our field teams to give them the best offering possible, the best support possible to drive this business the right way. We're making localized decisions. We're viewing it more and more granularly. Looking at it by DMA by DMA, and giving the right resources to make those markets successful. Our capabilities largely apply to the commercial business. We're in a different place than we were a year ago from a commercial standpoint. Our national accounts team is now a combined team. Al Wheeler's team runs that for the entire organization, both Carquest as well as the Advance organization. We have one view, and we're being very, very successful in that space, winning more and more national accounts and growing that business. We have new capabilities at Carquest Technical Institute, TechNet.
Our MotoShop, wheel and lube services continue to get more and more comprehensive and becomes a future differentiator for us in this business. We're learning from each other. In the case of B2B, for instance, we're learning that from Carquest. Huge customers buying online from us, doing the ordering themselves on the commercial side of the business. It's being done at a far higher penetration rate at Carquest than it had been historically at Advance. We're learning from that. We're learning that out. We're iterating that process and getting better and better at it. Availability, I think we've talked about fairly consistently. Getting more in-market availability of product, having the answer yes to the question, do you have the part when the customer asks? That's what we are doing.
We're continuing to build out our hub network, our Super Hub network, our overall in-stock position, and we're moving as quickly as we can to build the capability across our chain. We're listening to our customer. At the heart of it, at the very base of our business, we're becoming more and more customer-centric and really listening to our retail customer, but our commercial customer especially. We rarely have a meeting in our corporate office now where we don't invite where our field team comes in or a commercial customer doesn't come to the meeting as well. We rarely go to market where we don't come to the commercial customer. We call our best customers via call center, and we ask them how we're doing, and we ask them to rate us. We get better based on that.
We take that feedback, we roll it back into our cooperating processes, we deliver at the last mile, getting better at the last mile. Having the part is great. Getting the part to the customer is the next step, we continue to improve upon that. Commercial is our deepest change in the company, I think we've been very clear in saying that is our growth strategy, we're going to go after it very, very aggressively. Just a few things that have changed in the last six months as the integration has progressed.
We've been able to make some changes in the area of loyalty, a ProRewards program actually designed by the Advance team, it's now rolling out across the organization to stay closer to our best customers, to reward them for doing business with us, to go on trips together as part of the reward program. Get closer and closer and build a more deeply personal relationship with our customers to know them all the way through the organization, not just top of the house, but at every level down, including into the stores and having a corresponding relationship with somebody on the Advance team or the Carquest team with that commercial customer. Our TechNet program is a banner program, something that we didn't have before.
We know that if a garage affiliates with us, joins our TechNet program, uses our systems, uses some of our processes, they will have a deeper buying relationship with us, they'll have a longer-term relationship with us. We have now rolled this program out across Advance Auto Parts. It's obviously a Carquest program, a lot of them own Carquest, but now being sold actively by Advance. Carquest Technical Institute allows us to help customers build their business. That is a change for us. We are not just trying to sell to customers. We are trying to help them build a better and more successful business. Carquest Technical Institute teaches.
It is the capability to go into a garage or go into a business or go into a classroom, bring our customers' workforce together, teach them on new trends going on in the automotive industry. It's something that we didn't have before. It's something that brings us very, very close to the customer. It's something that changes the whole dynamic of the relationship from buy, sell, buy, sell to grow, let's grow together. Stocking programs. Just getting product into the customer shop and replenishing that gets us in a very steady back-and-forth rhythm of traveling and seeing the customer on a very regular basis, but having almost an annuity of business inside that shop that we continue to replenish. We care about DIY as well. I know we've spoken an awful lot about commercial and how we're going commercial, that is the case.
We are going hard after commercial. DIY is our legacy from an Advance Auto Parts standpoint. It's an important part of the business, and it shows great asset optimization to have those drive-in and walk-in sales in our stores. We are brand positioning around the heavy-duty DIYer, the top graphic. That's our customer. That is our core customer on the DIY side, and we're very clear about it. The hobbyist, the person that works on cars because they love to do so. The person who will buy an older model car because it's easier to work on, and if it's well on me, they can still do that work. We are targeting our message directly to this group of customers, who are heavy shoppers, heavy repeat shoppers to bring them into our stores. We are seeing great growth in our omnichannel business.
Our B2C business is at an inflection point. We are seeing great growth there, the majority of B2C business is buy online, pick up in-store. Over 80% of the time, when that e-comm sale is made, that customer is walking into a store for fulfillment. We're being very aggressive, and we're very clear on what that value prop looks like. We're marketing things like buy online, pick up in-store within 30 minutes. Having the part on the shelf ready to go for that customer and just encouraging that online growth as we see customers more and more gravitate towards it. Lastly, loyalty to our customers. We are piloting a loyalty program in select markets. We're driving more aggressive one-to-one marketing to our customers.
We're building a database of our best customers communicating to them via the internet, via email on a regular basis, also testing rewards programs in stores to build that repeat traffic. I've been asked this question quite a bit on operational focus. What are we doing to strengthen basic execution? How are we getting better at the operational processes day in and day out? This kind of tells the story. At the heart of it, we've become very focused on three key outcomes: sales growth, great customer service processes and results, profit. Quite candidly, we had too many messages out there. We had too many metrics out there. We had too many conflicting messages out there. This is what it's all about. The stores can tell you that these are the three things that they're focused on. These are the overall outcomes that they're driving.
This is how we begin every store walk. This is how we end every store walk. It's talking about sales, talking about profit, talking about the customer. We have a very good sense and a very good feeling of healthy tolerance for poor sales days now. The team does not feel good for even a bad day or two bad days. We get fairly worked up internally about that now. That is a good behaviors. We like the progress that's been made around the urgency and the accountability for driving sales. We've empowered our team. Field-centric is not just a buzz term. It is a series of metered actions, giving more and more responsibility to our field leaders who are closest to the customer. They can make labor invest and divest decisions. They can make decisions around hub deliveries.
They can make decisions around their financial forecasting and building their budgets, that comes with accountability. They're responsible for hitting those outcomes. Again, we performance manage the work, but we encourage and help the team as much as possible to get to those outcomes. We have meeting rhythms at every level of the organization. The merchandising team, the stores team, the commercial team meet every Monday to talk about the business. We go deep into the business, again, down to the DMA level. We have a store assessment process where our district leaders go in and just do a comprehensive review of how well the store is performing. That's on a regular cadence. We have quarterly business reviews.
Once a quarter, every RVP in the organization comes in to talk about their business and present their results for the previous quarter and explain why they're successful or what they need to be successful and how we can pull up fuel on the fire, if it's turning in the right direction, or how we can go ahead and help rebuild if we have opportunities that we have to address. You're accountable to come in and speak to your business on a quarterly basis. We do the same thing with truly business reviews, in the organization as well. We put a big focus on simplification, making our stores easier to run. We've eliminated reporting. We've eliminated redundant processes. We've eliminated non-value-added processes in the store. There are probably 50, 55 less reports today than there were a year ago in our stores.
That provides less fragmentation of attention span in our team and keeps us focused on that bar across the top, sales, customer, and profit. We train pretty relentlessly. From position-based training, where this week we have the last of our district leaders going through training. We'll have trained everyone in the company as of this week. Our regional vice presidents, when they come in for their quarterly business reviews, go through training. We're on 4.0 now. We're on our fourth round of training with our RVPs. We have 1,000 general managers per year that come through our support center in Roanoke for position-based one-week investment training. We build and build upon that, and the same thing is true with our sales teams. We've got a very good penetration of position-based training.
We have very in-depth, very intense automotive systems training, that is meant to directly impact the DIY business in our stores. If you're going to work with heavy-duty DIYers, you have to talk to them about the project that they're working on. If you're going to talk about the project they're working on, you have to understand the project that happened under the hood of a car. It is module-based training, 18 modules strong that is very difficult. It's very comprehensive. How to do a great job end to end. How to replace a water pump end-to-end all the way through, and it's building our muscle at the counter as to how well we can engage in the customer. Training is something that we've really, really invested in and gone deeper and deeper. Our integration, we're very pleased.
We've had good early wins. I think at the very top of the list, we've maintained people. In the stores, the sales teams in the field, and key leadership, many of whom are here and on our overall team now, have stayed with us and want to be part of this journey and go forward with this organization. The same thing's been true with our independent customers. We're very pleased with the retention of independents across the organization. We've also been able to show our team some early proof points of what this partnership can be. It's showing up in form of driving local scale in terms of market availability of product. Cross-sourcing among Advance Auto Parts stores, Carquest stores, and in two markets right now, Worldpac as well.
It allows us to have the part more often. It allows us to keep it inside the family when finding that part. It was a very early, almost immediate proof point of the value of this integration that was rolled out within 60 to 90 days of closing the deal. There'll be more going forward. We're going to open the Dallas-Fort Worth market using a Carquest distribution center in Lewisville, Texas. Using their DC, using their store systems, using their POS system, using their processes in many cases, and opening up Advance on the western edge of our market, of our footprint, using their facility to go forward and build out in the market. Our supply chain progress has been pretty methodical. It starts with running, just like Darren said, a great $10 billion business, executing our DCs day in, day out to run well.
Layering in market availability strategies, continuing to build out our hubs and Super Hubs, moving as quickly as we can to daily delivery. Of course, the Carquest network is entirely on daily delivery, as are any new DCs that we open, and then capturing the synergies from the acquisition. Our before and after footprint has changed pretty dramatically. You've seen these numbers, you know these numbers. We will continue to grow. We will build more stores in the Western U.S. We will build more Carquest stores in Canada. We will build more Worldpac branches across the U.S. and across North America. We have 50 DCs now. We'll close some, no doubt. We'll open some, no doubt. We'll close some stores. We'll open some new ones. We'll consolidate stores. In every case, we'll tell our teams first.
In terms how we're going to sequence out what's going to happen next, what's going to happen to those facilities, we'll begin internally. Our team hears about it first. Then we'll share those changes coming forward. We have lots of room to grow. We have great potential across the U.S. and all of North America. Our team has moved, just in terms of the cultural needle. We've become more commercial. We got there pre-acquisition quite a ways as Advance Auto Parts. We're clearly accelerating now with the GPI influence. We are better prepared to go after the commercial business. We are being more successful in going after the commercial business. We have a strong, high degree of confidence that we are well-positioned to be the leaders in the commercial business. How are we doing? How well are we on track right now?
From a sales standpoint, we're pleased with ourselves. The new store openings have been very successful on tracking. We are pleased with the BWP stores. We're pleased with how our overall growth has gone and our ability to continue to do so. There'll be an obvious focus on the conversions and the consolidations of Carquest stores going forward, but we'll still open roughly 120 stores a year while converting and then get back to more normal aggressive growth afterwards. Our comp, we are on track. We are on track in terms of delivering a better, more competitive comp. We like it higher, but it was a negative 3.2 Q1 last year and was a positive 2.4 Q1 of this year. It's moving in the right direction. It's a building block approach.
If it was as simple as a switch, somebody would have the good sense we'll flip it on already. Foundationally, we're getting better and better at executing, doing the things that we do, and we are focused on continuous improvement as it applies to comp sales, closing the gap, converging the trend lines to get closer and closer, and we're very confident we're on the right track. Our customer service, we've asked our customers, we feel good about the service that we're providing, that we're getting better, that we're on track to be an industry leader in commercial. Our DIY customer is a 97% likelihood to recommend based off our POS customer service. Our operating income has been strong in terms of growth. The synergies, we're on track again. We are very confident in our ability to deliver the financial synergies that we've previously announced.
Charles and the team are doing a terrific job working on the financial outcomes with our vendor community. We're finding some great wins on the Goods Not For Resale side that capture the synergies of the combined companies, and we're on track and confident in delivering that. Our overall integration process, same thing. Just one word on culture. That's where it all begins. That's where integrations succeed or fail. We think that we've gotten along terrific as these two organizations coming together. We've integrated leadership now. The video, I think, showed the cultural overlay of these two organizations. We're in very much cut from the same cloth and are in a very nice cooperative relationship now, and we're very confident that we'll continue all the way through. Bill Carter and team will talk more about integration later on, but they're on track doing a great job.
That's the current state of the base business and how the integration's coming along. I want to turn it over now to Mike Norona, our CFO, to talk about our financial position.
Morning, everyone. Thanks, George. It's great to be here with you this morning. What I'm going to do is translate the strategies that Darren talked about, the operations that George talked about into the financial measures we use to track our performance and the outcomes that we expect. I'm going to cover three things with you. First of all, I'm going to give you a historical perspective of our financial results. Then I'm going to walk into the GPI acquisition and how that accelerates our growth and our trajectory. Finally, I'm going to talk about the measures that this management team is focused on, and there's three measures, and the outcomes we expect. Historically, Advance has done well financially, and what you see is the three big measures that we use to track our performance, growth, profit, shareholder returns or value.
We've invested significantly in the business over the last number of years in terms of commercial, in terms of availability, in terms of new stores. Our execution by our field teams has been fantastic. Let's be clear, we operate in a great industry. You can see that on a compounded basis, our sales have grown 5% over that period of time. We've really accelerated our new stores, especially more recently. From a profit standpoint, we've watched our gross margin go up over 300 basis points, and we've also translated that while we've been investing in the business to a better bottom line with an OI over 200 basis points. I think the other thing that we talk about, and I'm going to share with a little bit later, it's been good for the shareholder, and we've watched good growth on our EPS.
The other measure that's very important to us is shareholder returns. Whether that's managing our balance sheet, whether that's making sure that we're investing in proven returns, as Darren said, that gives us a good return on our invested capital, and that we also have a good balance sheet and leverage ratio. We've gotten to investment grade, and that's driven a lot of value in terms of free cash flow. By the way, it's been great for the shareholder. You look at what the S&P has done over that period of time. We used the end of 2007, Darren became the CEO of the company, and the S&P over that period of time has grown about 27%, and you can see what our stock is up over 200%.
The other thing that we're really proud of is we've really been able to grow the value of the company. You can see 2007, our enterprise value was about $4.3 billion, and you can see today it's over $10 billion. Again, that's defined as our market cap backing off the cash and adding in our debt. We're proud of what we've been able to do for the shareholder. We're really excited about our acquisition of General Parts, and Darren and George both talked about it. We've talked about it, and you've heard a lot about it. I wanted just to talk about why we're so excited about it, not only strategically, operationally, but financially.
It now gives us the size and scale from a sales perspective, and you can see what it's done to our sales, taking us from a $6.5 billion company to almost a $10 billion company. A lot of capabilities and a lot of opportunities to continue to grow that, as Darren talked about. Profitably, we were already a profitable company. We bought a profitable company. You put those two things together, it's a pretty compelling EBITDA story. Now as we look forward, we get a chance to leverage more stores with a fixed cost structure, and we're expecting that EBITDA to continue to grow. When you put these businesses together, it generates some great synergies. We've talked about $160 million of synergies over the next three years, primarily in the buckets of merchandising purchasing, supply chain, and scale and leverage.
Just with that size and scale, we'll be able to run a better and more efficient cost structure. It's going to cost to get those synergies, we've talked about $190 million over that same period of time, and you can see the buckets. Store conversion costs, severance and retention, we talked a little bit about that last week. Project costs, things like professional fees. We're getting some help. Then also systems integrations. IT systems is one of the big areas where we'll be investing in our business, not to just integrate, but also invest in our stores with POS systems as we bring these two companies together and choose the best systems from each company. Oh, by the way, getting back to the shareholder, it drives good returns.
You can see in our first year, you can see the EPS, this ties directly to the outlook that we've given you, $7.30-$7.50. On average, that's about a 30% return we're expecting to get from an EPS perspective. You can see why we think this deal was compelling for the shareholder. First of all, it was an all-cash transaction. We didn't dilute the shareholder during this. One, it generates a lot of free cash flow looking forward. This year, we're saying a minimum of $450 million. Then really important, we were able to do this and maintain our investment grade. I'll talk a little bit about that, how we're going to do that.
That was really important to us, especially as we run our business, things like supply chain financing, things like opening more real estate, buying more real estate, having investment grade is very important to us. Living up to our commitments to the rating agencies, very, very important to us to maintain our investment grade. Then obviously, the significant cash EPS, which I showed you previously. We released our Q1 results. It was our first quarter as a combined organization. I was going to hit some of the highlights of that. As this slide says, we're off to a great start. A couple of things we were proud of is when you put these companies together, there's just a lot of good stuff going on, and you want to keep the team focused on the base business.
We were really pleased that both of our businesses at AAP and General Parts both grew. We did a comp of 2.4, as George said, also we drove good, strong profits. Our OI was up 38.2%, and our EPS was up 35.5%. We're pleased with the start. We've also shown you here a little bit of just what are some of the assumptions for the outlook and just remind you of some of the assumptions for this year. We're going to deliver a positive comp store sales. That's what our expectations are. We're going to open somewhere between 120 and 140 stores. We're expecting our gross profit rate to modestly grow by the things like merchandising capabilities and supply chain, that'll be somewhat offset by, as we now mix in more commercial. We're expecting our SG&A this year to be roughly flat.
We're going to continue our SG&A and our cost work that we've been talking about at Advance. The good news is, GPI is very focused on cost. The offset to that is we're going to continue to invest in the business, like new stores. That's what offsets that, and it'll be roughly flat this year. As we've talked about, we're expecting synergies. Of the $160 million over the next three years, we're expecting roughly $45 to $55 to show up in this year. We're off to a great start. We're expecting cost to get those synergies this year of about $55 to $65 million. We're on track right now. As I mentioned earlier, we're expecting free cash flow of a minimum of $450 million. Finally, you can see the EPS that we're expecting somewhere between $7.30 and $7.50.
This is probably the slide that's probably going to be your favorite slide. A lot of you have asked about the GPI sales cadence from last year and seasonality. I want to just remind you of a couple of things. We're operating one segment. We put these two businesses together, and we view ourselves as one team and one business. We're going after existing customers and new customers to grow with those customers. That's the business we're in. When we report out, we're reporting out as one company. However, some of you had asked and are interested in, just generally from a sales perspective, how is GPI doing? As you can see, as we shared with you, they did positive growth. They're not in our comp this year. You got to be with us for 13 periods in order to get in our comp.
They're not in our comp. What we've shown you here is GPI was actually on a calendar, not on a fiscal like we were. What we've given you here is, this is last year, their calendar sales. What we've done is we've broken it to you on an average. You can see their average daily sales. When we release our results, you know our periods, and you can use that, and you can now do your math, and we'll just make it a little bit easier for you. We've given you all the information in our filings, but this just gives you a quicker way to get there. Okay? You now have the sales for GPI last year. I'm going to finish on a couple of things, this is a very important picture of the outcomes we expect.
Darren and George talked about the strategy and the operations. Really, when you boil down of how we look at our business in terms of growth, profit, and value creation, you can see the outcomes that we're expecting as a leadership team. From growth, we're expecting to deliver consistent positive comp store sales. I think the important word there is consistent and positive. George talked about that. Some of the drivers of that is commercial is our growth engine. Some of you have asked about revenue opportunities with these base businesses. This is where this is going to show up. While there's cost synergies that we've shared with you, this is a growth story. When we put in daily replenishment, when we convert stores, as we look over the horizon, this is where we'd expect to see it in that top line.
You can see whether it's new stores, whether it's availability. The other one up here that's very important is execution, and George talked a lot about it, but we're investing in our people, and execution will play a big part in terms of that growing that top line. From profitability perspective, we're expecting to consistently grow our operating income dollars. Some of you ask about rate. Do you have a goal for rate? It's really, really difficult to get a team of 74,000 people jazzed up about rate. It's easy to get them wrapped up against growing dollars, and that's what we're focused on as a company. Some of the drivers around that, we talked about the deal synergies that we expect to deliver. You can see gross profit rates. We're expecting to grow our gross profit rates. Charles and the team are doing a great job.
A lot of the synergies will come into that gross profit rate. That'll be somewhat offset by now we're mixing in more commercial business. We're expecting to grow or to reduce our SG&A. We'll continue to look at our productivity. We'll continue to look at our variability. We'll continue to look at where we spend the dollars and taking those dollars furthest away from the customer and investing in areas closest to the customer. We see lots of opportunities to continue to improve our profitability. The last item on that profitability is, oh, by the way, the quickest way to be profitable is to grow your sales. Leverage the scale and size.
The last area, since I've been with the company, our balance sheet at this particular point in time is probably, I wouldn't call it in worse shape, but it's been in much better shape because we've spent a lot of effort to improve our balance sheet over the last six years, in terms of our working capital, in terms of our AP ratio, in terms of our generation of free cash flow, in terms of the investments we've made. One of the biggest goals and opportunities we have as we look out on the horizon is to improve our balance sheet, paying down our debt. That's the number one thing that we're going to do over the next couple of years to get back to that leverage ratio of a maximum two and a half. The other thing is improving our working capital.
Things like AP ratio, lowering our own inventory. There's a number of things that are within our control that we're going to get back to ensure that we do now that we've put these two business together and we get the size and scale, improving our balance sheet will be one of them. Improving and generating strong free cash flow is the second thing to generate value. Obviously, in areas like managing our inventory and our AP ratio are two big generators of cash. The other one is, and George talked about it is, running a good business and growing our business, another way to generate good, strong free cash flow. Then the last one is, disciplined capital allocation. Historically, and you saw it on a previous slide, we've done a good job investing and getting good returns.
We have a hurdle rate of roughly 20%. When we make investments, we're going to be disciplined around that. I think Darren said it, investing in things that we know how to do. Then a couple of other things is making sure we continue to keep our eye focused on the returns to the shareholder. In closing, we know that it's very, very important to grow our business, to grow our profits, to take care of our customers. What you've heard from our team today is strategically, we are well-positioned to grow, and Darren talked about all the aspects of what gives us confidence and why we're positioned well to grow. George talked about that we're operationally focused around execution, around consistency, field-centric. George and Darren also talked about we're culturally aligned as a leadership team, which is very, very important.
I've covered with you that we're financially driven on the outcomes that I spoke about. Positive comps, growing profit dollars, and delivering double-digit EPS growth for the shareholders. What this slide shows you is our PE. Historically, we've traded at a discount to our industry. We believe that over the last short period of time, we've repositioned the company to change that. We also know that to get a better PE, you got to have good growth potential, and you got to deliver profits and sales. We also know we've shared a lot of things with you today, and we'll get measured on what we do, not necessarily what we say. This management team is very confident with the things that we've spoken about today, that we're going to drive good shareholder returns.
We don't believe that today, that is covered and captured in our PE and how we shape up against the market. What this slide tells you is we still think Advance Auto Parts is a great investment opportunity. I want to finish with where Darren started. We think we have a tremendous opportunity to grow and really it all gets down to our people. I wanted to finish by thanking all of our 74,000 team members that are part of our team. They're enabling the results that we've all shared with you today, and thank them for their service for their company and how they're taking care of our customers. With that, we're going to stop our pre-remarks.
I'm going to ask Darren and George to come up and join me on stage, and we're going to open it up for Q&A, and I'll turn it over to Zaheed.
Thanks, Mike. Just as we kick off the Q&A here, we've got a couple of mics and we've got a couple of team members that are going to help run these mics over. If you could just please wait until you get a microphone in front of you before you ask your question so that everyone can hear it appropriately.
Come on here, Mike. You're not going to sit down.
Could as well see you and if we start over here, Michael.
Thanks, guys. Michael Lasser with the UBS. Mike, one question I wanted to ask. Two questions. One, I want to ask Mike, you targeted team jazz about rate, and more excited about operating profit dollars. Should we expect over time that your margin rate should increase?
Absolutely.
Okay.
Yeah.
Darren, in your prepared remarks, you talked about acquisition. What should we expect the focus of an acquisition strategy might be from here? Will it be a real estate strategy? Will it be a complementary capability strategy? How are you thinking about that?
Yeah. The way to think about it, Michael, I think there's 17,000 independents that are out there today. Part of natural course for us is to look at things that are a natural extension of what we're already doing today. It's more likely real estate strategies that are out there. When we have done capabilities, MotoShop being one of them, we'll look for small tuck-in capabilities, but my comments are really directed towards as we expand our footprint. Next question. Jimmy? He's right behind you.
Okay. First, Mike, just to confirm, is this 24 P multiple the official guidance?
No PowerPoint can make everything look good. Yeah.
You talked about the 100 stores that are set to be consolidated. Have you identified the total number? Can you share that with us? If you haven't or you can't, can you outline the timeframe for which that work is supposed to be completed?
Yeah, sure.
Yeah. We're not prepared to share the number. The 100 stores are what we call holy consolidations. We think they were relatively easy ones. Easy from a geographic proximity, easy from a prototype standpoint, and just easy in terms of determining the financial outcome. That's our first round. There will be more going forward. We have to assess fully 1,200-plus stores across the country. There will be a large group of consolidations, but there will be a lot of conversions where we flip the banner, and there'll be some relocations. Again, that's one of those things where before we get into numbers and geographies, we need to manage that internally as part of the process.
Yeah, you get that right, Jimmy. Some of you came today saying, "Well, boy, how many distribution centers are going to go down? How many stores are going to be converted?" We're not trying to sidestep the question. What happens is that our teammates are listening to this webcast. They're all trying to figure out, "Is it going to be my store?" When we start talking about those things, we create disruption in the base business. Like last week, once we were able to talk to our team members about closing offices, and you can bet we already had talked to the teams at those 100 stores. Part of that's in your best interest, too.
We're trying to make sure that the base business doesn't get disrupted because, again, it's not about the real estate, and we're going to need many of those teammates to come over and work in the Advance stores, and in some cases, go to work in the Carquest stores. That's how we're trying to balance it. We're not trying to sidestep it, we're trying to protect the base business, and we're trying to do this effectively. Can you come over here? Yeah.
Thanks a lot. Good morning. Matt Fassler from Goldman Sachs. Your sector has been one of the most impervious to e-commerce so far over the years, certainly in hard lines. You've talked a lot today about some of the opportunities you see in e-commerce. The competitive set in the sector seems to have different views on that. What do you think you're doing better and differently than the competitive set at large that's opening up this opportunity to you?
Mm-hmm. I'll give you my perspective, Matt, you want to jump in, team. Matt, it's complex. George said something that's real important. We've got over 80% of our customers on the B2C side that buy online and pick up in store. You can begin to see some patterns, in particular the heavy DIYer. If it's a project that you can plan further out, we can see that showing up in the applications that they're choosing. If it's a brake job and they got it up in the driveway, they're not waiting for overnight delivery. On the B2B side, what you can see is it takes time to change. Many of our commercial shop owners, they have really great relationships with our parts pros, and even though they're ordering online, they still like to get on the phone. I would contrast that with Bob's business.
Bob, you got onto the internet in 1998. Your first customer was Al Gore, right? The learning there would be there's not many other options to buy from Worldpac except online, and they have been training their customers for, we're getting on nearly 20 years. They have trained them to the point that nearly 88% of the business done at Worldpac is done online. I think when you look at technical, the complexity of the SKUs and the fit required in combination with the change curve makes it a little more difficult to navigate the space. Overall, as you said, do you spend time thinking about Amazon and their focus on the space? You bet we do, because they're not to be underestimated.
Part of our consolidation of our team into Worldpac is to recognize that we have to lead that instead of being potentially a victim of it. Do you have anything, George?
Yeah, we based our team out in Northern California for good reason. We think we have a very good team that executes online quite well. When you start to look at things like optimizing search keywords and being in the right place, we think we have a very good capability. We've actually been more up front about marketing directly the buy online pickup in-store capability. It's part of our radio campaign now. We're going with it to record markets, and I don't think you can try to prevent or deny channel shifts. It happens when it happens, and it's happening now more encouraging than experienced.
You can just go ahead.
You. Oh, okay.
Good morning. Robert Hyman with Goldman Sachs. Question on store conversions. How are you currently thinking about the incremental DIY opportunity? Maybe you could reference what you're seeing out of recent B2B conversions. Are there any space or map limitations for the opportunity you might be in?
Yeah. Let me start at the top. We absolutely think it's a great opportunity for us. To take those Carquest conversion stores, bring in a larger sales floor and more meaningful sales floor presence is absolutely something that we're going after. We have a team as part of Bill Carter's integration effort, we have a team focused specifically on the DIY opportunity. They're writing the playbook on how we're going to do that as we convert across the country. We do have pretty good info from B2B. It may seem counterintuitive because it's a larger store base, obviously, this time. We think it's easier. We think in terms of going after a comparable Carquest, it's easier. We're not changing POS systems. We're not radically changing any brand hierarchy type work. It is, I think, a pretty straightforward one for us.
We're going to try not to go too over the top with it. It is a good opportunity to take what is relatively low DIY penetration and raise it. Store-by-store question as to how large a footprint we can do, our box is going to be toward hard part availability still. I think in virtually all cases, we will be able to build some version of a DIY sales floor that will clearly be more meaningful than it is today.
Yeah. I think you would agree, George, that we're not counting on DIY sales productivity in these converted stores to equal an Advance store for a couple reasons. Even though they're in good locations, they're probably not, many of them, in optimal locations. We can do some business. The other thing you have to think about is the change curve. We have many men and women running those stores that are supposed to be on a commercial box. We'll actually bring the training, bring the development and all that, but it takes time to climb that curve in terms of the DIY business. We absolutely see it as an opportunity. If everybody ran out and said, "I got to model in AAP DIY productivity," we'd be thrilled to get it, but we're not counting on it.
Okay. We'll take one over here.
We're not NAPA.
Well, he can hit you if it's a bad question.
I think you're on great TV, Darren.
Yeah.
What a lot of us, I think, are trying to get to is, we heard the synergies and the expectation, but really what we're trying to figure out is, do you get to the operating margins of your competitors with all the steps that you're taking? When does that happen, essentially? What are the biggest impediments to starting to closely match with O'Reilly and AutoZone or NAPA at Carquest? Because even though there's a lot of data on the steps you're taking with the Dallas experiment through the program, but I think if you were able to put some numbers around those, it would help us build the roadmap again to get to much stronger numbers. Because they're opportunities when you said it. We haven't seen the operational certainty.
Yeah, I'll start, Darren. We've already started. We put a business together that had operating margins were about 5.8%, and we were 10.7%. You smash that together, it comes out with just around 9, a little bit. We were, I think, 9.6% in Q1. Our expectation is the operating margins this year will grow over that base. If you take the synergies of $160 million, put it on a base of $10 billion, you can do the math on what the basis points is of what you would expect that growth to come at. We're very focused on growing that op income rate. There's also some things like depreciation. Some of you must look at our depreciation and how it stacks up. Over the last early years, we put a lot of money into leasehold, kind of shorter-term lived assets.
As I look out now, we'll see a little bit of depreciation favorability, especially as we started to get into last year as that five-year horizon comes out. I think we've got some things that are coming that are going to help us. I think our focus, though, is to improve our base business, to improve the drivers of growth. What are the two drivers? Margin rate and in terms of SG&A. Probably the biggest opportunity for us, and I had it up on the slide there, when you've got 5,500 stores, the variability about those stores in a lot of areas is improving. George, with his business performance rhythms that he set in motion that we're doing quarterly, we'll look to improve our SG&A. I think, Gary, we've got a lot of things that we're focused on.
I said it earlier, we expect that rate to improve. I don't know if we're shooting for an AutoZone or an O'Reilly rate, but I think from where our starting point now that our base is being reset, we're definitely committed to growing our operating income rate.
Thank you.
I'd agree with that, Mike. Gary, if your question is, do we have 16% written on a board, and is that what we're shooting for? The answer is no. Do we have 8%, which is the bottom end of the range in automotive? The answer is no. Within our business, structurally, our mix of business is very different than an AutoZone today. It's actually 10 points different than O'Reilly. Within our business, with our 1,400 independent customers, that will structurally change the margin, too. Over time, what we've said is, look, a year ago or when we were in Indiana together, we said, organizationally, will this business get to 12% over time? Absolutely.
What we're trying to do within the organization is that certainly we'll still have structural impediments. We know our real estate cost, our occupancy cost, will structurally be with us for a period of time. We're actually making very good progress on cost of an hour. We know it's not a teammate challenge, so we're making systematic progress there. What I'm trying to do, we recognize we're confusing the team when they say, "Well, do I have 12 points of that, 12%, or is it 98 basis points?" We said, "Team, we're going to rally around a simpler message. Just keep growing this operating income, it should take us through the rate expectations that we had out there. Let's not artificially set something out there that structurally that we'll be fighting against because of the mix of our business going forward.
Two questions, one for Mike and then the other for George. Mike, you mentioned the word two times now, variability, and I'm trying to understand financially how you're looking at the dispersion of results across the stores and even just the total store column or total stores GMA, I don't want to go in one particular way. Can you give a sense of the dispersion of results that gives us confidence about the consistency and how and what specifically are being achieved?
Thanks, Aaron. At the beginning of this year, when we put the teams together, we had the chance to land some key messages around sales, profits, and service, the messages Darren talked about. We want to share the same message internally as we do externally. One of the things we spoke about was just the variability. Let me give you some specific examples in terms of variability. If you take our stores and stratify them into size of store, every store that's, say, $1.2 million box, and you take our labor productivity in those stores, the variability across those stores is absolutely mind-numbing. You would expect it when you've got so many stores. In some cases, we've got some stores that are really productive and some stores that are early in that productive, and some stores that just are missing the boat.
When you look at the variability, and it's not getting everyone up to the top, it's just moving everyone and improving everyone. We look at labor productivity. We look at productivity of trucks, and we start looking at the crop. We start looking at dot com penetration, as Darren says, B2B penetration. Our average, I think, is a little over 13%. We got stores significantly doing better than that. One of the opportunities you have when you have 5,500 stores is to improve the variability across those stores, and that's exactly why we do business performance management rhythms, is to do that. The great news is when you go into those rhythms, you don't have to actually come in with new things.
It's actually taking the things that our best stores that are doing and actually teaching and training the stores that maybe they're not using some of those best practices. Aaron, that's the variability, and the dollars will come with that as we move and as we tighten up those variability gaps.
Is it relatively new, the amount of variability?
No, I think it's new. The variability has always been there. I think the performance management rhythms and the discipline around accountability of outcomes, I think that's the change.
Okay. I have two questions for George. I know you mentioned again you want that comp to be maybe better than it is, can you talk about little wins? You said you're going to review this sort of DMA by DMA. I just want to see an example or two of, hey, here's an example of a market in which we did better. I don't know if you have that information off the top of your head, but just in terms of a little win, so we get a sense of there's a way this program is being used.
Sure. I'll go back to your question for Mike. If you're looking for a geographic pattern, I don't think that's there. We actually have pretty good balance right now across the country. It really is, to Mike's point, just specific prototypes, specific slices of the overall store count that we work to close the variability on. We have had some good examples, and I think broadly, we're very pleased with our commercial business overall. Specifically, we worked hard on the Jacksonville, Florida market. It was one where we felt that we had some execution issues in the marketplace, and we felt that we could control the outcome more. We had a really good collaborative effort among the commercial team, the merchandising team, and the local store team to turn that business around.
Aaron, maybe the last piece to button this together, it connects to the consolidation question. Part of the way you've taken variability out of the system, they tend to sit in the smaller boxes. $1.2 million would be small at Advance store. Many markets, we got a small Advance, a small Carquest. When you get the scale, you take out variability. What drives variability a lot of times is the high fixed costs in terms of the rents and things. Consolidations give you an opportunity to bring local scale. That local scale shows up in the customers that we serve and the stores that we serve, collectively eliminating some of that variability you face when you actually don't have that buffer of local scale at a customer and a store level. We have time for one more, James. Maybe we'll come to this table over here. Scott?
I don't know if this will be addressed later. Can you talk about the overlap that you have with Advance stores and the independents, then how do you manage those relationships? Because presumably those independents were in areas where Carquest didn't have a location, but Advance may. How do you manage those relationships over time?
Should I take Charlotte?
Yeah, one at a time. Really, one at a time.
I would say that the Carquest team knows every independent customer intimately. They know their family. They've known them for years and years, decades and decades, there's just a deep relationship there. I think there's been an awful lot of one-on-one management. We've tried to find ways to accommodate overlap issues, and obviously, that's mostly on the East Coast. If you look at the Southeast and the Northeast, especially the Southeast, that's where the majority of our overlap tends to be, and it's smooth sailing out West. Our relationship with independents on the West Coast, there's just really no conflict whatsoever, but we try to find ways to strengthen their value proposition, just first and foremost.
When you're an independent business and when you're buying your inventory, it is pretty nice to have an Advance Auto Parts store down the road that you can second source from. We've really tried to rely on the synergies, which is just parts availability at a local level to help those customers. We will continue to have one-off type things where we have markets where the overlap is so great that we're literally right next to each other, and we manage through those.
Okay.
There's an account executive in the Carquest structure at localized levels, and they have a series of independents. If there are any market conflicts regarding customers, the playbook is to go to that account executive. I'll back it up and we'll go back to January of this year. We brought our field teams together in three major markets across the country, Orlando, Atlanta, Washington, D.C. We had every field leader from Carquest together. We had the independent team from Carquest there. We had the field leadership team from Advance there, and we just talked about the synergies of the business, then we actually business planned. We sat down and we talked about ground rules of engagement, both for Carquest and Advance. As we compete in the same marketplace while we work through the integration and with independents.
If there are any market conflicts where we're competing over a specific customer, you escalate to an account executive who manages the issue.
Yes, Scott, George, you and I were in Nashville two weeks ago, visiting stores. We were at our Super Hub. Our Super Hub literally is 1,000 yards down the street is the Carquest independent, and we went and visited. They're right on top of each other. As we talked to the independent owner, they had only been up to the Super Hub three times that day. Part of the way we've tried to build this relationship, I talked about cross-sourcing, is the most important thing when we surveyed independents, and that's been part of the work early on, build the relationship, survey them as to what's on their mind in terms of critical needs. Availability was number one.
Our focus, even in these situations where we're thousands of yards away, is really to have that conversation that says, "This market, you can add our businesses together, we don't even have 15% of it. How do we open up our availability that the competition is the competition, and we're working together? When their business is getting better, our business is getting better." Are there some where personalities are such that, what are you doing talking to my customer, that customer? I got to do that today between AI and Advance. That's just a natural outgrowth of competition. I would say the majority of those few hundred where we have that type of overlap, we're in a very good position. I think what we committed to them is to work on the things that they told us are most important to them.
Availability, number one. Two, we've got some work to do with them in terms of rolling out some of the new brand hierarchy. I think they're going to be excited about some of the product availability that they haven't had access to before in terms of new brands. Three, everybody in every industry wants better pricing. Our scale will get them better pricing over time. I'm very pleased as I look at the scorecard and what we scorecard against our wins and losses. Our track record of adding independents and losing independents this year is roughly in line with what we saw the last five years.
Great. Thanks, Darren. Thank you, everyone. That concludes our webcast portion of the event. Just for your information, the webcast information will be on our website for a period of one year. Thank you.
We will now be taking a 15-minute break. We will resume to hear the second part of our agenda for the day. Thank you.