Bert Nappier: Look, on the capital allocation side, this will show up as M&A. These are small acquisitions. And so that won’t really be a CapEx number, but more of an M&A number. And look, they’re very attractive to us. We have got a great balance sheet a lot of financial strength and flexibility to be able to lean in here and we’ll have the ability to do that. These are attractive in terms of being accretive almost immediately as we recapture some of the margin we were sharing previously with an independent owner. We get to reduce some of the structural costs and the way we serve our customers. We’ll capture some SG&A synergies, particularly on the IT side and with some of the team members and the overhead and back office ranks.
And we’ll drive some incremental sales, as Will mentioned. We really have an ability to partner our commercial activities where also with an independent owner, they may not be fully NAPA sourced, we’ll be able to increase that as well. These are asset deals and always and generally in high-performing markets. So we like the lean here, and we think there’s a lot to love.
Bret Jordan: Great. And then you commented that December, in particular, you saw independent volumes down or purchasing down. Is there anything — was that a weather impact? Was that a sort of compounding effect of high rates on their cost of carrying inventory, sort of what do you attribute that air pocket and the independence too?
Will Stengel: Bret, I think you nailed it. I think it was a cumulative effect of both of those cumulative effect of rates through the year, getting to year-end, closing the books, if you will, softer weather and then just getting ready for maybe a more robust 2024. So as we said in our comments, we’re encouraged by the first 3 or 4 weeks of the year here and hoping for a more normal 2020 for as we move forward.
Bret Jordan: Great. Thank you.
Will Stengel: Thanks, Brett.
Operator: Your next question comes from Greg Melich with Evercore. Please go ahead.
Greg Melich: Hi, thanks. I’d like to circle back on the restructuring activity. So Bert, could you help us understand the $100 million to $200 million? Is it cash, noncash? What’s the portion there? And in terms of the synergies, what segments do they show up? Where will we see that in the P&L over time?
Bert Nappier: I’ll start maybe with the second part of that. So in terms of where will they show up in the P&L, this is a global restructuring. So we’ll have all the business units participating. In terms of breakdown of where you’ll see things — the biggest part of our SG&A cost is people cost. And so you’ll see the vast majority of the benefit. About 2/3 of the benefit we expect to get will come out of the people side. It will be about half of the cost. It starts already. So we’ve announced last week, a voluntary retirement program here in the U.S. That is the preponderance of the activity, and you’ll see that show up in our U.S. business results as we move forward. The offer period for that closes here in the first quarter.
So we won’t expect any Q1 benefits of that, but you’ll see those build as we get through the second half or last 3 quarters of the year. In terms of cash, noncash, I would say it’s predominantly cash. We do have DC and facility consolidation. Some of that will be a noncash charge. But I would say at this point, particularly with the voluntary retirement offer in the U.S., it’s predominantly cash. And then we both report it all at the nonrecurring expense as we move forward and call that out for you guys.
Greg Melich: Got it. I appreciate that. And I guess, back on the business, could you just level set us now I know we’re up to the 1,500 stores that are company owned. Could you level set us on what isn’t company-owned, Well, how many independents there are, what’s company-owned and then also the mix of business that’s NAPA AutoCare major accounts and then up and down the street.
Will Stengel: Yes. So today, Greg, for the NAPA business here in the U.S., it’s about 25%, 30% company-owned and the balance independent owned. We have over 2,000 independent owners roughly. So that gives you some perspective. In total, we’ve got 6,000 stores in the U.S. So that gives you all the math there. As you look around the world, we have the independent owner model in Europe, obviously, it’s about 1/3, 2/3 company-owned to independent on and about that same ratio in our Canadian business. And then we’re a 100% company owned in our Asia Pac business.
Paul Donahue: Greg, this is Paul. I’ll jump in on the second part of your question regarding the business breakdown, major accounts roughly in the high teens, 20% range. NAPA AutoCare, which we’re incredibly excited about the progress we’re seeing in NAPA AutoCare. We’ve had a big surge in memberships over the last 90 days. That’s about 20% of our overall commercial business. You mentioned small kind of mom and pop up and down the street. We’ve got a program as well in place where we’re focusing in on getting back some of that business. That’s about 20% roughly. And then you’ve got government and fleet, which for us, Greg, that’s a significant part of our commercial business and one that — we have long been incredibly strong and that’s about the balance of your 40% of your commercial business. So I hope that helps.
Greg Melich: It does. Thanks, and good luck, guys
Paul Donahue: Thanks, Greg.
Operator: Your next question comes from Seth Basham with Wedbush. Please go ahead.
Seth Basham: Thanks a lot, Anne. Good morning. My question is on sell-in versus sell-through to independents in 2024. So as we sit here today, are you anticipating your guidance, those to be pretty equivalent?
Bert Nappier: Seth, I’m not sure I fully follow that. Run that one more time.
Seth Basham: Sell-in versus sell-out for your independents. How they finished destocking from your perspective so that we should see more pressure on comps from that effect?
Will Stengel: Yes, I think we’re expecting 2024 to be a more normal year coming off of 2023, which was clearly challenged and different than our expectations.
Seth Basham: Got it. And then my follow-up is, Paul, you talked about the up and down the street customers. Perhaps that’s 1 area where you’ve seen some of the most pressure on your business. Are there competitive dynamics there that you didn’t anticipate? And what are your plans for getting back to that business specifically?
Paul Donahue: So I think Will mentioned, Seth, in his prepared remarks, he made some comments about our sales force restructuring more of and also taking an opportunity to learn a bit from our industrial team with an inside sales group that is focused on that type customer. There’s nothing new on the competitor said, look, Seth, we’ve got great competitors, and they’re tough and they ultimately raise the bar on us and make us better. And that’s exactly how we’re responding. So we think there’s an opportunity to go back and capture some of that business, and we’ve got programs, incentives and people in place to make that happen. So again, encouraged 6 weeks into the year, early days, but we are encouraged with what we’re seeing.
Seth Basham: Got it. Thank you.
Paul Donahue: Thank you.
Operator: Your next question comes from Daniel Imbro with Stephens. Please go ahead.
Daniel Imbro: Yes, hi. Good morning, everybody. Thanks for taking our questions.
Paul Donahue: Good morning, Daniel
Daniel Imbro: Well, I want to start on the industrial side. I did get disconnected during Q&A, so apologies if you said this but obviously, industrial growth continued to outperform, I think, the broader market. I guess, what end markets are showing the most relative strength? And is that just share gains? And then when we look at the monthly cadence, this low single digit, is that the right exit rate as we think about 1Q and organic growth in the industrial side?
Will Stengel: Daniel, I’ll take the first part of your question. I think previously, we’ve shared some commentary with you on the end markets that we track here internally. There are about 14 of them. And as I said in my prepared remarks, it’s similar to Q3, it’s a mixed mosaic as it relates to kind of growth versus contraction. Having said that, just maybe a few additional data points. As we look at the fourth quarter relative to the third quarter across those 14 in the fourth quarter, we had 9 of 14 in growth mode, which is an increase of 2 versus the prior quarter. And if you decomp that growth, we’ve got low single digits in 3 of them mid-single digits and 2 of them high single digits in 1 of them and double-digit growth in 3 of them.
So on balance, we’re encouraged by the sequential improvement versus third quarter and even in the 5 of 14 that are declining, we saw 3 of those 5 improve in the fourth quarter versus the third quarter. So hopefully, that gives you a little bit of perspective of, call it, the last 6 months’ trends on all things end markets.
Paul Donahue: And then, Daniel, you asked about Q1. As you know, we don’t give out quarterly guidance. What I would tell you, Q1 will be our toughest comp of the year, Daniel. And I think as Bert mentioned in his prepared remarks, we’re looking for really a strong — much stronger second half. But I will tell you this, our industrial team is focused, you hit it in your question. I do believe we’re taking share. We’ve got the best team in the industry, and I have no doubt they’ll deliver for us in Q1 as well.
Daniel Imbro: Great. I appreciate that. And then for a follow-up, I wanted to follow up on the restructuring. You talked about in the previous question, maybe where we’re going to see it in the reported numbers. But I’m curious if we dig into like what kind of jobs are we actually reducing across the business? And how do you weigh that against the risk of service levels? It feels like some of your auto peers are investing into stores and into distribution. And so curious how you guys think about the competitive dynamics and how you view that risk in ’24 as you try to maybe gain back some of the share?
Bert Nappier: Daniel, thanks for the question. Look, I would tell you that the big construct here is to protect the field customer-facing selling organization. It’s super important to how we go to market how we can stay very competitive. And so as we look at the voluntary program in the U.S., which is, as I said earlier, the substantial majority of all the activity we’re taking that voluntary program is very thoughtful. It’s targeted to those that are closer to retirement, which is why it’s a voluntary retirement offer. And mostly focused on management and back office spans and layers. And so I would just say that we feel really good about the thoughtfulness that was put in by our teams of how to make sure that we strike the balance here between continuing to serve our customers and deliver every single day, but at the same time, do the right thing for the business for the long term and streamline some of our costs.
Daniel Imbro: Thanks, Bert. Good luck, you all.
Bert Nappier: Thanks, Daniel.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
