Scot Ciccarelli : Okay. And then secondly, I know Tony talked about expectations for payables inventory to improve during the course of the year. But, I think someone asked about it. Is there any kind of target ratio for end of year? I don’t think I caught that.
Tony Iskander: Now we haven’t identified a targeted ratio, but we’d expect to see improvement in that accounts payable to inventory ratio throughout the year and into next year.
Scot Ciccarelli : And no magnitude you can provide us?
Tony Iskander: Not today.
Scot Ciccarelli : Okay. Thank you.
Operator: Thanks, Scot. Our next question comes from Seth Basham from Wedbush. Seth, your line is now open. Please go ahead.
Seth Basham: Thanks a lot, and good morning. Within your professional business, are you currently seeing more gross margin rate pressure in national accounts or up or down the street customers?
Tom Greco: Yeah. I mean, it’s really when we look at the competitive price index, Seth, we look at it in multiple ways, obviously. And so we are matching with our targeted in each of those channels. So, there’s no major difference between the two.
Seth Basham: Got it. And then, in terms of your balance sheet with the decline free cash flow, do you see risk that your credit rating could be down rating from investment grade?
Gene Lee: Yeah. So, we can’t speak on behalf of the agencies, but we are in active dialogue with them all the time. We do believe that the free cash flow that you see in the year is reflective of the inventory investments we’ve made. And if you look at in prior years, we do believe that that’s a good indication of what this company can return to.
Operator: Thanks, Seth. Our next question comes from Zach Fadem from Wells Fargo. Zach, your line is now open. Please go ahead.
Zachary Fadem: Hi. Good morning. Is there any extra color you can provide on how the up and down the street business has been performing relative to your national accounts? And just from an infrastructure perspective, can you talk about what you think your competitive advantages and disadvantages are today for serving these particular customers relative to your peers?
Tom Greco: First of all, the up and down the street business, as we mentioned earlier, I mean, there’s a lot of customers, Zach. We look at how many customers we’re selling to every week. We look at the dollars per customer every week, and we are seeing progress there. I think longer term, our belief is that the larger strategic accounts are going to grow faster than the up and down the street business. But, at the moment we are seeing strength on both sides of that business. And can you repeat the second part of your question again? I just want to make sure I understood it right.
Zachary Fadem: Yeah. What do you think your advantages or disadvantages are hard for serving these particular customers versus your peers?
Tom Greco: I think it’s similar to what we’ve said. I think it’s similar on both sides of the business. I mean, it’s about having an enterprise assortment. We’ve got a great footprint. We’ve got terrific brands and high quality parts. And we’re going to continue to leverage our availability, our visibility of our products, our service and delivery. We grew up in the professional business. Carquest is a professional brand, and we’ll continue to leverage all of the things that we have to win the professional business. As Gene said, the idea from here is to improve the asset productivity of our business and ensure that as we drive growth, we’re able to flow it through better to the bottom line.
Zachary Fadem: Got it. And I know that the strategic review is ongoing. So, the answer to this question may change, but as you come through all the short-term noise this year around your P&L, pricing, investment etcetera. Can you talk through what you think the right structural EBIT margin is for this business over the long-term?
Tony Iskander: I think that — as we sit here today, that’s impossible to pinpoint. What I believe today is I get more involved in and this is — there’s a lot of room for incremental improvement year-over-year. We do have some structural differences then to our other big competitors. I think they’re well documented. But we know that we can improve from where we are today significantly. And I think putting a number out there is unfair to Shane and the rest of the management team. We need to go through more so the operational review to understand what the true opportunities are to service our customers and take care of our team members and provide the best service we can to every one of our customers. That’s got to be the goal long-term.
Operator: Thanks, Zach. Our next question comes from Michael Baker from DA Davidson. Michael, your line is now open. Please go ahead.
Michael Baker: Okay. Thanks. Gene, if I could just follow-up on that last point, can you remind what do you see as the structural differences between your margin structure and the other guys. We know there’s different rent versus own situation, which may be drags down your margins a little bit versus competitors, but even if you look at it on like an EBITDAR basis, there’s a huge gap and that gap is widened over time. So, what are the structural differences besides you guys rent more stores, than they do?
Gene Lee: Well, I think it’s the mix of the business. Remember, we’ve got a very large business inside our business, which is the independence which the margin structure is very, very different, but it’s a very lucrative business. I would say the biggest thing that impacts our margins overall is the asset productivity. Right? We’re doing approximately 1.7 a box and the other guys are doing approximately 2.3, 2.4. So, I mean, if you just look at that productivity increase it just to 2 million what it does to our margins. The flow through on that additional sales is fantastic. And, also when you look at the way our distribution centers are set up, that’s a huge structural disadvantage that will need to be addressed at some point.
How that gets prioritized? I don’t know today, but it needs to be dealt with. And so, I keep reverting back to and I describe as asset productivity. Our assets are not productive enough to create the right margin structure. Then you get into own versus rent channel mix, our independent business, but the first priority is to improve the productivity of all the assets. That will then have the biggest impact on margins.
Michael Baker: Yeah. I completely agree. And I would say that some of that isn’t necessarily structural. So that’s the opportunity. If I could ask one other question, I guess that was my follow-up to the first question. Is my main question. Talk to us about, the qualities that you thought made Shane O’Kelly the right pick. Is it his distribution capabilities or operational capabilities? It’s been a while since — I assume you looked at auto — people who are in the auto parts business, how much does that factor in, or how much did you consider that and what made Shane better than anyone within the business?
