During the fourth quarter and full year results call, Advance Auto Parts CEO Shane O’Kelly provided information on the sale of its Worldpac and its Canadian business, operating as Carquest Canada.

While O’Kelly emphasized that they are still officially referring to the Worldpac and Canadian business as “potential sale process,” he added that there has been significant interest, with initial focus on the Worldpac business.

“The Worldpac process is underway and we are actively engaging with potential buyers. We currently expect to conclude the Worldpac process during our second quarter and look forward to sharing more information when that occurs.

“As it relates to the Canadian process, this is intentionally sequenced behind Worldpac and we have begun the internal work to explore separating the business.”

Newly appointed CFO Ryan Grimsland offered additional insights.

“Worldpac a good business with good team members. This isn’t a fire sale. There’s no sort of urgency that we have to sell the business. It’s really around strategy and where we’re taking the company. We believe that the blended box model is our route to success, selling a pro and DIY customer from our core stores. And so that strategic review led to the idea of selling Worldpac, which I think is the right move for the organization. So there’s not a, as it relates to value maximization, we don’t have to sell. And that’s why we say it’s a potential sale process. The good news is the interest thus far has been significant.

“We’re seeing a lot of players, both breadth and depth of players who are expressing interest.”

Grimsland, who says he has been involved in some 40 deals over the years, and offers that at the pace the Worldpac deal is coming together, a conclusion is likely in Q2.

“Importantly though, we do have and have started to think about what we would do with the proceeds. And I can kind of think about them in a couple of buckets. I think debt pay down figures into what we would disposition with the funds. And then secondly, there are some key initiatives. You’ve heard our decisive actions that we can potentially accelerate with additional proceeds. So our supply chain consolidation, I think that can be amplified with some of the Worldpac proceeds. You can think about our IT initiatives. You heard about our, we’ve got our new inventory system coming online, our POS system work, that can be accelerated. And then lastly, just on our store infrastructure, either in terms of sprucing up existing stores or with our new real estate team, looking at what we can do in terms of our new store openings.”

He says that it’s too early to give a definitive picture of what Advance will do with the proceeds of the Worldpac sale.

“But we feel good that in the wake of that sale process if it goes through. We have a company that’s focused on selling auto parts out of a blended box. That’s what we’re going to do.”

Why the focus on the “blended box” model?

“We, I think, looked at different paths to heaven as a company in the past and didn’t put the emphasis on the blended box.” says O’Kelly. “You can see, demonstrably, in the industry where the blended box works. It works in terms of the breadth of customers you could serve. It works in terms of the flow-through you get, when you get marginal sales in the same location. So that’s really where we’re going as a company in the future.

“And one way to illustrate, and why we’re focused on the blended box, if you look at revenue per store, and you think about us as at 1.7, 1.8 [million USD per store]. And you can look at other folks who have higher numbers. When you add revenue to a store, $100,000, $200,000, $300,000, that money drops to the bottom line at an incrementally larger level, right? So you’ve got your fixed costs covered. So that’s a key for us.”

About Carquest independents

“The independents are an important part of the business, right? They could serve geographies we can’t get to,” says O’Kelly. “They can serve end markets where their depth of capability exceeds ours. So this isn’t a play around exiting the independent arena. This is one where, at times, we were exuberant in terms of adding independents, and as we looked at the sort of balance of trade, if you will, in terms of the benefit to each party, it wasn’t working for us. In some cases, it wasn’t working for the independent either. And so we looked at the aggregate number, and there are about 100 folks that at the end of the day, that didn’t make sense for us to continue that relationship. And as we did that, it’s a good move for us.

“But it’s also been received well in the independent network. The independents who are good at what they do, and by the way, they exhibit a lot of pride in their business. They don’t want folks representing the Carquest name and doing it in a manner inconsistent with what our customers would expect. So it’s been a well-received adjustment, and we’re happy with the independence that we have.”