Welcome to the Advance Auto Parts 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, Director 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. Please refer to slide number two of the presentation materials for important information and additional detail regarding forward-looking statements. Our comments today will also include certain non-GAAP measures. Please refer to slide number two of the presentation materials for important information regarding these measures. Finally, a replay of this call will be available on our website for one year. Now, let me turn the call over to Darren Jackson, our Chief Executive Officer. Darren?
Thanks, Zaheed. Good morning, and thank you for joining us on today's call. Today marks a significant day in the history of both Advance Auto Parts and General Parts International. I'm delighted to be here to discuss this historic combination with you. This morning, we announced a $2.04 billion enterprise value cash transaction to acquire General Parts. General Parts is privately held and a leading distributor and supplier of original equipment and aftermarket replacement products. They operate under Carquest and Worldpac banners. This is an exciting opportunity for both organizations' customers, shareholders, and 70,000-plus team members. This combination creates the largest automotive aftermarket provider of parts, accessories, batteries, and maintenance items in North America. Strategically, it provides a compelling opportunity to expand our geographical presence, channels of distribution, and commercial capabilities to better serve customers and deliver value to our shareholders.
Now, we have a short presentation that provides some background and context regarding this transaction. I will provide you with a strategic overview. I will then turn it over to our CFO, Mike Norona, who will provide more financial details of this transaction. We will then open up the call to take your questions. Please now turn your attention to slide three. Our growth strategy over the last six years has targeted our commercial business. The acquisition of General Parts is another strategic step forward for Advance as we accelerate our growth strategy. Specifically, we are continuing to expand our commercial business to capitalize on consolidation trends, maximize the opportunities to serve customers, and deliver value to shareholders. We are confident that the strategy we are executing today can be game-changing from a company and industry standpoint.
The combined business will be a more balanced growth platform for commercial and DIY. We will be able to strengthen our market position and increase service levels to a broader and deeper customer base in the industry. The acquisition increases our reach with immediate coast-to-coast market coverage. It also expands our platform to include the important independent customer channel while building on our commitment to national accounts, large bay garages, heavy duty, fleet, and government programs. The combination of Worldpac and our Autopart International businesses solidifies our position of market leader in import parts. In addition, it will create an unparalleled commercial e-commerce engine through the market-leading Worldpac and Carquest B2B platforms. Financially, the transaction offers compelling value. On a combined basis, Advance will have pro forma revenue exceeding $9.2 billion.
Collectively, this transaction is estimated to deliver significant free cash flow, cash EPS accretion, which results from anticipated annual synergies of $160 million within three years of closing. We anticipate maintaining our investment-grade ratings given the strong combined financial profile. Mike will provide more detail on these financial elements of the transaction shortly. Turning to slide four, this investment will create the largest automotive aftermarket parts provider in North America. Further, it opens up a broad range of new growth opportunities in the U.S. and Canada. The opportunities are from joining two highly complementary businesses and leveraging their proven capabilities to accelerate growth and profitability. Overall, the company will grow to over 5,200 company-owned stores and over 1,400 independent customer locations, including 102 Worldpac branches and a strong Canadian business. We will materially enhance our geographic and customer diversification across North America.
Notably is General Parts' presence in the Western U.S. with over 600 independent customer locations, which has limited overlap with our existing geographic footprint. Collectively, this enables a structural rebalancing of our revenue mix to approximately 55% commercial and 45% DIY. General Parts' strong share in commercial sales will position Advance to capitalize on the positive industry fundamentals. We will also leverage our existing capabilities to strengthen our competitive position in DIY, principally through selective company-operated store conversions. Turning to slide five, Carquest and Worldpac may not be familiar to everyone on the call because they are a private company. By way of background, they are two of the largest and most respected automotive aftermarket parts suppliers in North America. Together, their sales in the last 12 months were $2.9 billion.
Each senior executive has nearly 30 years of commercial industry experience. I'm pleased to confirm Temple Sloan III and key senior leaders in each of the businesses will continue to play key leadership roles in the combined organization. Over the past 50 years, the Carquest brand has come to stand for quality and service to both commercial and retail customers alike. Currently, more than 1,200 company-operated Carquest stores and over 1,400 independently owned locations are positioned to serve both commercial and retail customers. Worldpac is the market leader in wholesale delivery of import parts and notably, the customer service leader for the industry per Frost & Sullivan. They will provide a strong position in the fast-growing market of aftermarket import, OES, OEM car parts. Worldpac has over 40 years of import experience and expertise with unmatched import vehicle coverage.
In addition, Worldpac and Carquest deploy industry-leading technology and e-commerce solutions to meet the demands of commercial customers. I will discuss this in more detail shortly. We are excited about the opportunity to serve customers through the transfer of Carquest's commercial capabilities into Advance stores and the opportunity to expand DIY capabilities in select company-operated Carquest locations. By bringing our companies together, we are combining two common cultures focused on customer service to enhance our position in the marketplace and accelerate our growth and profitability. Turning to slide six. This combination is a continuation of our strategy to capitalize on attractive growth prospects across our markets. Looking at the industry fundamentals, the core indicators provide a stable environment for growth. One, the average age of vehicles has eclipsed 11 years, with approximately 80% of the vehicles over six years old. Two, deferred maintenance has reached record levels.
Three, the increasing complexity of vehicles and parts is prompting customers to entrust complex repairs with independent repair facilities. These fundamentals provide incremental growth opportunities while adding to the overall share with our current customers. More specifically, the combination will allow us to capitalize on the following specific trends in the industry. First, commercial market growth. The commercial market growth rates continue to outpace DIY market growth rates. Carquest and Worldpac are commercial leaders, with Carquest's commercial mix at over 85% and Worldpac at 100%. Second, strength of imports. The import car population and installer base is growing. The growing number of new light import vehicle registrations continue to outpace the overall market trend. I will talk more about this in a moment. Third, national change and traditional installers are fueling growth. They accounted for approximately two-thirds of the growth in this service market.
The combined national footprint extends the sales and service coverage for national accounts like Sears that we serve today. Turning to slide seven. Worldpac, together with our Autopart International business, has approximately $1.3 billion in sales. They will be the largest scale import distributor in the country. They provide the widest range of products, deep industry expertise, and leading online programs. The import part market is both large and growing. This large import platform will be better positioned to benefit from the positive trends and drive future growth. Turning to slide eight. General Parts will provide advantages beyond scale, including new sources of growth. Notably, they include new product lines, attractive new customer segments, customer loyalty programs, and the ability to expand and enhance our supply chain.
We are very excited to serve the independent Carquest locations across the U.S. and Canada and earn the opportunity to add the independent channel as a source of future growth. General Parts' commercial strength and long-standing customer relationships will further our commitment to the commercial national accounts program. Bringing together our combined assets and experience will enable Advance to continue making strides towards the goal of earning and retaining first-call status. Currently, Advance does not have significant heavy-duty truck or fleet programs. This combination immediately positions us as an important provider in these attractive customer segments and allows us to continue to grow our commercial presence with a more diverse customer base.
The addition of General Parts' 38 DCs located throughout the U.S. and Canada will potentially accelerate our expansion of daily delivery strategy. Our focus on Advance is providing the best customer experience possible and earning the right for repeat business. Carquest TechNet banner program serves over 5,000 TechNet automotive service centers. The Carquest customers that use the TechNet program remain loyal to the brand with measurable repeat purchases and incremental spend activity. Turning to slide nine, e-commerce is a critical capability in every industry today. The acquisition advances our capabilities as an industry leader in e-commerce. The robust platform of the combined company will serve as an important source of differentiation in driving sales growth and customer loyalty. Worldpac's exclusive online and fulfillment ordering system is the most widely used and advanced program in our industry, and essential for conducting business with import installers.
As the industry evolves, the demands towards greater flexibility, more robust e-commerce, and value-added services will be very important in providing holistic value-added service. The three platforms together create an unparalleled engine for e-commerce and will enable us to effectively and efficiently meet our customer needs and allow our customers to have the flexibility to do business with us on their terms. Turning to slide 10. Strategic acquisitions have been a key part of our growth story at Advance. We have a proven track record of successfully integrating and growing acquired companies. They include Western Auto, Discount Auto Parts, Autopart International, BWP, and others. We expect the General Parts acquisition will be no different. The experience and lessons from these prior acquisitions have also provided us with the ability to develop solid integration plans and improve the accuracy of our estimates for synergy savings.
Looking ahead, we see a competitive advantage in bringing together our family of proven businesses. Carquest and Worldpac clearly have tremendous value propositions and long-standing customer relationships. That said, as a part of our preliminary integration plan, we expect to continue to operate Worldpac independently, to continue to service Carquest's independent customers under the Carquest brand, and to individually assess Carquest's company-operated locations and determine where it makes sense to convert or consolidate those locations into Advance Auto Parts. We will provide additional details post-close as we continue to evaluate and refine our integration strategy. Turning to slide 11. Advance and General Parts have parallel histories. Both organizations have successfully grown through acquisitions and greenfields supported by our outstanding team members. More importantly, we recognize that our two companies share a common set of values and approach to the business.
That is critical for this combination to succeed, and it will. Our confidence and our conviction is, in large part, the result of our December 2012 acquisition of BWP. BWP was the second-largest operator of owned and independent Carquest stores. Over the past 12 months, we have been building deeper relationships with General Parts while gaining valuable insights and experience of the numerous operational strengths through the BWP integration. This experience will provide us immediate, mutually leverageable advantages during this larger integration process. The bottom line is that we already know this relationship works. Together, we collectively have over 130 years of experience in the industry, and we have the unique opportunity to extend our reach to benefit our shareholders, employees, and customers.
I couldn't be more excited about this opportunity for our team members, our customers, and our shareholders, and I look forward to this next step in Advance and General Parts' journey. I will now turn it over to Mike to discuss the financial aspects of this transaction.
Darren, good morning, everyone. I'd like to start by saying how excited we are to be partnering with the General Parts team, and I share Darren's enthusiasm for today's announcement and the transformational opportunities it presents for value creation. This is an exciting strategic transaction that, from a financial perspective, is very compelling. Let me take a few minutes to walk you through the high-level transaction details. Turning to slide 12. The purchase price for the transaction represents an enterprise value of $2.04 billion to be paid in cash. This represents a transaction multiple of 9.3x adjusted EBITDA, excluding the benefits of synergies, and 5.4x adjusted EBITDA, including the benefits of run-rate cost synergies. On a combined basis, Advance will have pro forma revenue for the last 12 months through Q2 2013 of over $9.2 billion, and EBITDA for the same period of $1.1 billion.
Including the benefits of run-rate cost synergies, Advance will have pro forma EBITDA on a last-12-month basis through Q2 2013 of $1.3 billion. We anticipate achieving $160 million of annual run-rate cost synergies by year three post-closing of the transaction. This transaction is expected to be significantly accretive, with estimated FY 2014 cash EPS accretion of greater than 20%, excluding the cost to achieve synergies, and low teens accretion, including the cost to achieve synergies. Furthermore, we expect to maintain our investment-grade ratings following this transaction, given the compelling financial combination this transaction creates. We expect the transaction to close following customary approvals by late 2013 or early 2014. Turning to slide 13. On a combined basis, we expect the transaction will enhance our top-line growth prospects, provide further opportunities to drive operating margin improvement, and deliver strong cash flows.
This new partnership will create combined pro forma sales of $9.2 billion through the last 12 months as of Q2 2013, representing an incremental $2.9 billion in sales. The acquisition accelerates our expansion into the commercial space and diversifies our reach geographically, enhancing our platform and positioning us to deliver solid long-term growth. Pro forma for the transaction for the last 12 months as of Q2 2013, we will have approximately $1.1 billion of EBITDA and a significant opportunity for synergy realization. I will talk about synergies in more detail shortly, but we see meaningful opportunity to leverage economies of scale to generate cost efficiencies and drive continuous improvement to our margin profile. We also see opportunities to make capital investments in areas such as store growth, supply chain, Worldpac expansion, and partnerships with independent customers, to name a few, to drive growth and value creation.
All in, from a cash flow perspective, we expect to generate combined cash flow that will allow us to maintain our investment-grade ratings. Turning to slide 14. We expect that this transaction will create significant opportunities for synergy realization. We anticipate run rate cost synergies of $160 million by the end of year three, which translates to approximately 5% of General Parts' last 12 months revenue as of Q2 2013, and is in line with other past transactions in the sector and the retail space. If you look at the bar chart, we show the buildup of synergies over the next three years. The synergies can be allocated on a run-rate basis between three primary areas, which include purchasing, store and corporate scale and leverage, and supply chain.
We also estimate we will require a total of approximately $190 million in one-time costs, with the majority incurred over three years, to achieve these synergies in the areas of project costs, integration and system costs, and store conversion costs. These synergies are both significant and achievable. We have been prudent and conservative in our estimates, both in terms of dollars and timing, and have leveraged our previous acquisition experience, including insights gained from our most recent BWP acquisition, to facilitate improved estimation accuracy of the synergy potential. Turning to slide 15. We have a strong balance sheet, and our strong cash flow positions us and provides us the financial flexibility to pursue the compelling strategic opportunity that we announced today. We have developed a comprehensive financing strategy from this transaction and have already discussed these plans with the rating agencies.
We expect to maintain our investment-grade ratings post-closing of this transaction due to the strong cash flow that this transaction creates and the flexible financing structure we have put in place, allowing us to pay down debt. JPMorgan has provided us committed financing for the transaction. We anticipate financing the transaction with a combination of bank debt, bonds, and cash on hand, which is expected to occur prior to closing. Our pro forma adjusted debt-to-EBITDA leverage ratio at closing is expected to be 3.2 times. We are committed to rapidly paying down debt with the strong cash flows from this combination to get back below our publicly stated financial ceiling of a maximum 2.5 times leverage ratio. Turning to slide 16. Our partnership with General Parts positions us for a strong financial future that will create long-term value for our shareholders.
As we embark upon this exciting transformation of our business, our financial principles remain unchanged. We will continue to measure our financial performance through the financial dimensions of growth, profitability, and value creation. Our approach and philosophy has always been to prioritize growth as our primary use of capital in order to increase returns and drive shareholder value. This strategic investment accelerates our commercial strategy and positions us as the leader in the market, creating a pathway for further growth by opening up new attractive channel opportunities, diversifying and expanding our customer base, and enhancing our geographic presence. This acquisition continues to accelerate our commercial growth, which is and will continue to be the growth engine of our company. It will also give us expanded footprint to expand our DIY business. Turning to profit.
Advance has been on a mission to improve our profitability through sales growth, gross profit margin improvement, and improving our cost structure. This mission will continue with this acquisition, and we see opportunities to incrementally improve the profitability of this newly combined entity. From a sales perspective, we see compelling growth opportunities in the commercial space as we get into new channels and expand our geographic footprint. From a bottom-line perspective, we see improvement opportunities through the realization of significant and achievable synergy opportunities of this transaction. Focusing on leveraging the economies of scale and efficiencies of this acquisition to improve our profit margin and cost structure. With respect to value creation, this transaction provides a compelling opportunity to derive shareholder returns through growth in our business that will drive incremental operating profit, earnings, and strong cash flows.
We will maintain our disciplined approach to capital deployment and continue to invest in new store growth, driving availability improvements, and supporting our supply chain strategy. As I mentioned earlier, from a capital structure standpoint, we are committed to quickly paying down debt with the strong cash flows from this combination to get back below our publicly stated financial ceiling of a maximum 2.5 times leverage ratio. This is important not only to maintaining our strong financial foundation, but also important in maintaining our investment-grade ratings, which will support the continued improvement opportunities and our AP ratio that we see with this transaction. Turning to slide 17. Let me summarize by saying how very excited we are about the value creation opportunities generated by this combination.
With increased scale, geographic breadth, and a stronger position in the commercial space, we expect to capitalize on the continued strong trends in the industry and expanded customer opportunities. At the same time, access to new products and channels will provide additional sources of growth and our broader service offerings as we continue to work to meet the needs of our customers. We believe this combination is financially accretive and will drive substantial synergies. We will work aggressively to capture the value of those synergies through economies of scale and efficiencies. We also remain focused on our current day-to-day business operations, delivering on our company objectives, and executing against our customer promise. We feel confident about the integration efforts as Advance and General Parts have very strong management teams, complementary operational strengths, and Advance's deep experience of growth through acquisitions and historical successful integrations.
We, along with General Parts, are committed to delivering value for our customers, shareholders, team members, and our communities. We are confident that together, we can drive significant growth and profitability. Finally, today, we also released some preliminary financial results from our third quarter. We felt this appropriate given how close we are to our third quarter earnings release and to provide transparency. We do not plan to provide additional information about our third-quarter earnings until after our scheduled earnings call on October 31st. This concludes our presentation and prepared remarks this morning. Operator, we are now ready for questions.
Thank you. At this time, to ask a question, please press star one on your touch-tone phone. You will be prompted to record your name. To withdraw your question, please press star two. Also, please limit yourself to one question and one follow-up question. The first question today is from Simeon Gutman with Credit Suisse.
Thanks. Good morning, congratulations, Darren, Mike, and team on the acquisition.
Thanks.
You're welcome. First, strategically, Darren, you mentioned some of this in the prepared remarks. Can you talk about the plans for Worldpac and AI potentially together over time? What are the integration plans for those two businesses? The second issue on the strategic side is, how the franchise model could coexist, I guess, with the full retail model. I heard the commitment to it, but I'm curious if you can shed some more details on that.
Yeah. Thanks, Simeon. I'm sure you can appreciate we're still early in the integration planning. The way we think about your first question, Worldpac and AI, Worldpac is run by a fantastic leader, Robert Cushing. Bob has been doing this for 27 years, our first thought is to have Bob spend some time with our Autopart International team. That's Roger Patkin, that is also Jim Durkin. If you recall, the difference between the models is principally Worldpac is branded OEM fit, OES fit product, Autopart International is private label import product. That allows us to do, if you think about it, is that, in many ways, the private label product allows us to serve a broad group of customers.
As cars age, even in the import space, though the import space is probably closer to nine years versus the 11-year average, it will give us additional breadth in many markets that Autopart International doesn't cover today. Worldpac, on the other hand, is principally branded, though they have some private label product. I think those two businesses, both of which combined are nearly 80 years in the business. We see synergies principally from a customer point of view, but also potentially from product sourcing as well. Again, it's early, and I think the starting point is to put them together. I think in terms of the independent channel, as you know, the independent channel, when you step back and look at our market, it's still the largest part of the market. Carquest runs simply one of the best independent programs in the market.
The way we look at it, as we mentioned in the prepared remarks, 600 of those locations are west of the Mississippi, 600-plus. There's really no
Conflict at that point, we see an opportunity to actually be in that market that we didn't see before. Many of those locations, though they do compete in major metropolitan areas, they also serve smaller communities, too. I think similar to my last set of comments, what we are saying is that we are committed to that channel and those customers. We see the Carquest brand as being very important to it. With time in the integration process, we also see the opportunity to grow that channel, too. Inherently, there's always conflicts in business, whether it's AI and AAP, but I think we'll absolutely be able to work through it because the benefits for the independent customers will be the larger scale, the marketing, and the capabilities that we will bring as a combined enterprise.
If I can just ask the follow-up on the financial side, can you just shed some light, if you can, on margin profile for the General Parts business and any recent trends over the past year or two?
Okay. Yeah, I'm not going to give you. I'll give you maybe a high level. I think their business, remember, their business is primarily commercial. I think like all of us in 2012, they had a challenging year, and actually 2013, their business has come back nicely. That's born in the numbers that we gave, the $2.9 billion number that Darren gave in his remarks and I gave in our remarks. We're really pleased with the growth of their business currently and the trajectory we see in the future. From a margin perspective, obviously they have lower margins than us, because they're obviously the index more in the commercial business. I think the only other thing I would say on margin is in terms of operating margins, I think we see opportunities to continue when we put the combined business together.
Obviously, we'll have a lower starting point now, but we see opportunities to continue to grow that through some of the things that I said in my remarks in terms of some of the synergy opportunities that you get when you put this combination together.
Okay. Thanks for the color.
Thanks, Simeon.
Thank you. The next question is from Matthew Fassler with Goldman Sachs.
Thanks a lot. Good morning, congratulations.
Thanks, Matt.
One question, one follow-up. The first question really relates to the retail footprint, specifically regarding brand name and store closings. The brand name question, really, my goal is to understand what kind of advertising and marketing synergies you will get through one or both of the names you currently come to market with.
Matt, we still have considerable work to do in the brand space in the integration plan. The things I can confirm is what we talked about in our prepared remarks. Certainly, Worldpac, we're going to maintain that brand as is, and it's going to operate independently. The Carquest independent channel customers, that's absolutely going to be the Carquest brand in terms of servicing those customers. I would say when we get to the owned stores, the master brand of the company is going to continue to be Advance Auto Parts. Similar to our BWP acquisition is what we've been doing is, as we convert those stores, we're converting them into Advance, or we're consolidating them into an Advance store. Where the work is, and we see the opportunity, is other parts of the brand. For example, TechNet is a terrific brand with Carquest customers.
There are brand elements. The Carquest product brand, we did extensive customer research around the product, the service, and the reliability of that brand in terms of the commercial customers. Quite frankly, Worldpac scored off the charts, and Carquest scored ahead of many in the industry, highest in the industry in many categories. There will be elements of that Carquest brand that, quite frankly, attracted us in terms of the commercial customers that we'll be leveraging within the Advance Auto Parts footprint. That is more detailed integration planning ahead at this point.
Thank you. The follow-up is from Mike, as it relates to the synergies, and we got what we could from your very helpful slide. Just to confirm, the pace of getting to the $160 is sort of evenly over three years. Also, if you could allocate the synergies at all to the three different buckets, that you gave us, it'd be very helpful.
Matt, I'm not going to give you the level of precision because we're still in the early phases, and we haven't closed the transaction yet. I'll give you a little bit of context. I think Darren, in his remarks, talked about the tremendous growth opportunity we see in this business from a growth standpoint, whether it's commercial, national player, North American player. The size and the scale that gives us, that kind of falls into the first bucket of purchasing synergies. When you put these two business, just the size and scale now that we're going to have, that's one bucket. When you talk about synergies, I think that's a synergy we're very confident in because for our vendors and for our customers and for our company, it's all about growth. The second bucket will be scale and leverage synergies.
When you put these organizations together, there's just opportunities just by size and scale. When you grow, you get leverage. Also, we're going to have duplicate computer systems, duplicate purchasing in terms of GNFR purchasing and in terms of admin and contracts and things like that. There's opportunities on the SG&A side. In terms of supply chain, and this is one that we've talked about a lot. Availability is key in this industry. We're now going to have 50 DCs when you put our businesses together. The opportunities, and again, we've got a lot of work ahead of us to assess those opportunities, but we think there's good synergies in our supply chain areas. Those are the three areas. That's how we think about it, but it's too early to get into the precision of the mix.
Thank you so much.
Thank you. The next question is from Bret Jordan with BB&T Capital Markets.
Good morning.
Good morning.
One question, just following up on that last comment about distribution infrastructure, how many of the acquired DCs can service your existing Advance store footprint?
Yeah. Bret, that's a great question. Matter of fact, first part of the integration process, candidly, is looking at the distribution network. As I said, there's 38 in total. Their facilities are supported. Their DCs support daily replenishment today, albeit manual. As you know, we only have one of those facilities up today, another one coming up in Connecticut. What we'll be looking at is that how we leverage that entire supply chain network. You can appreciate, it's not just the supply chain you're looking at when you're doing that work. You're also looking at the information systems and how you're supporting customers. Undoubtedly, we'll have more capacity, one could say more than we need, but ultimately we'll need some of that capacity for growth, too.
Job one will be actually getting the experts in a room together on the integration plan to just see what the ideal network will look like going forward.
Okay, a follow-up, I guess, working capital and the inventory in those DCs. Was GPI running any AP to inventory strategy? Essentially, what do you think you can pick up leveraging their existing inventory on extended accounts payable? I guess on the shorter term, is there any reduction in your AP to inventory as you, on a short term, take the debt up to 3.2 times?
We don't see any impact to Advance's AP ratio. In terms of Carquest, theirs is lower. As part of putting this combination together, that'll be one of the opportunities, is to bring theirs higher. The average will come down when you combine our business on day one, we look to improve that as we improve their AP ratio.
Okay, great. Thank you.
Thanks, Bret.
Thank you. Our final question today is from Michael Montani with Evercore ISI.
Hey, guys. Good morning. Thanks for taking the question.
Hi, Michael.
I wanted to ask about, if you look at the company-owned stores, can you just flesh that out a little bit in terms of sales per store and what the mix is, DIY, DIFM, and maybe your goals for where you can take that?
Yeah, Michael, we can do that. These are averages. A typical owned Carquest store is going to be $1.1 million, a little bit over $1.1 million a box. Roughly 85% of that is going to be commercial. The balance is going to be the DIY walk-in business. What you can see, even within the 85% that is commercial, they just have a heavier mix of larger bay customers. They also will serve the paint customers and other channels that a typical Advance store doesn't today. One of the opportunities, as I talked about before, is mix of customers. That will be an opportunity for Advance. Also, in certain locations, given the low penetration of DIY, we can see and we have seen in the BWP acquisition conversion opportunities where one of the growth opportunities is the DIY business in select locations.
Can you talk about maybe where the sales per store can get to? Can you get it to your own chain average, which is more like $1.6 million, $1.7 million? How hard is that to do, and over what period of time, maybe?
I can in the future, but I can't today. We've made some pretty conservative assumptions and feel great about the assumptions that we've made. We feel good about the synergies. It's actually a unique situation that you get to try before you buy in terms of BWP has helped inform both synergies and growth opportunities. To get to that level of precision would be giving you false precision at this time. We certainly see a much higher growth potential in the future. We've got to give the operating teams time to kind of do that on a store-by-store basis as we look out.
Right. Maybe just one of the concerns that I've been hearing is just in terms of potential need to divest stores. We've run overlaps in the past and found sort of 53% type overlap nationally, but it would imply perhaps higher in some markets. How comfortable are you all about the need to maybe divest stores? How comfortable with respect to maintaining that investment-grade credit rating, because that is so critical.
Yeah. Maybe I'll talk about the second one, and Darren, you can talk about the first one. As part of this, we have modeled out and the strong cash flow that this combination creates from the tremendous growth opportunities, the EBITDA opportunities, and the free cash flow opportunities will allow us to pay down debt in a hurry. We don't anticipate any impact to our investment-grade ratings. We feel very confident about that.
Yeah. As to the question in terms of the government review process, we feel good about that, too, Michael. I think our BWP process, we found it very effective working with the government to get through that process. We didn't divest of any locations in that. We would expect, but can't guarantee a similar process here. We are busy at work, working through the government filings and look to complete the transaction on the timeframe that Mike talked about.
Okay, good luck, and we'll be in touch. Thank you.
Thank you.
Thanks, everyone.
Thank you. I will now turn the call back over to Zaheed Mawani for closing comments.
Thank you, Wendy. Thanks to our audience for participating in our call this morning. If you have additional questions, please call me at 952-715-5097. Media, please contact Shelley Whitaker at 540-561-8452. That concludes our call.
Thank you. That concludes our call today. You may now disconnect. Thank you for your participation.