Q3 2019 Earnings Call

Welcome to the advance auto parts third quarter 2019 conference call before we begin Elisabeth Eisleben Senior Vice President Communications, and Investor Relations well make a brief statement. That's any forward looking statements will be discussed on this call.

Good morning, and thank you for joining us to discuss our third quarter 2019 result, I'm joined by Tom Greco, Our President and Chief Executive Officer, and Jeff Shepherd, Our executive Vice President and Chief Financial Officer.

Following their prepared remarks, we'll turn our attention to answering your question.

Before we begin please be advised that our comments today may include forward looking statements as defined by the private Securities Litigation Reform Act of 1995.

Well actual results may differ materially from those projected in such statements due to a number of risks and uncertainties, which are described in the risk factor section in the company's filings with the Securities and Exchange Commission, we maintain no duty to update forward looking statements made.

Additionally, our comments today includes certain non-GAAP financial measure.

We believe providing these measures helps investors gain a more complete understanding of our results and it's consistent with how management views our financial results.

Please refer to our quarterly press release, an accompanying financial statement issued today for additional details regarding the forward looking statements and reconciliations of these non-GAAP financial measures for the most comparable GAAP measures referenced in today's call.

The content of this call will be governed by the information contained in our earnings release and related financial statements.

Now, let me turn the call over to Tom Greco.

Thanks, Elizabeth Good morning, and thank you for joining us today to discuss our third quarter 2019 results.

I'm proud to report another quarter of good progress towards our long term strategic objectives.

This would not be possible without the relentless dedication of our more than 70000 team members and network of Carquest independents.

I want to take a moment the thank them for their unwavering commitment and passion for the customer.

In the third quarter net sales increased 1.6% to $2.3 billion in comparable store sales increased 1.2%.

This is now our sixth consecutive quarter of revenue growth.

Our two year stack on third quarter comp sales accelerated to 5.8% and was the strongest we've delivered in eight years.

We also expanded margins as our adjusted operating income margin of 8.9% increased 36 basis points compared to the prior year quarter.

Our adjusted diluted earnings per share increased 11.1 person to $2.10.

Jeff will speak more about our financial results shortly.

First I will highlight some details around our third quarter performance.

Consistent with recent trends our professional business was strong in the quarter.

We grew in each of our professional businesses with woolcock and our independent business, leading the way.

In addition to opening nine worldpac branches, and adding 29 net new independence over 2019 are dynamic assortment rollout is enabling topline improvements.

As a reminder, dynamic assortment leverages machine learning to better understand customer demand and improve the quality of our assortment.

We married look up by location with several other variables and we expect this will drive increased turns and profitability of our industry, leading assortment of national brands, Oh eat products and own brand private label.

Dynamic assortment together with advanced CRO and cross banner visibility enable us to improve stock and close rates in the quarter in those categories that have been deployed.

We expect to complete the deployment of our top 25 backroom categories by year end.

Separately, we've implemented multiple enhancements to our online my Dad's block for.

Including integrated promotions and connected customer service.

This includes continuing improvements to advance pro our catalog for pro customers within my advance.

Let's now as customized versions for strategic accounts.

In fact, we saw double digit increases in my best user sessions in the third quarter.

Well, it's still early in implementation initiatives, we've launched over the past several quarters are resulting in continued improvement in our ability to stay yeah sure professional customers.

Moving to de Iwai Omni channel, we continue to deliver impressive sales growth in e-commerce with strong double digit growth once again in Q3.

We continue to see substantial increases in website traffic along with steady progress in conversion rates.

We know speed and convenience are critical to the omni channel customer and remain committed to delivering a frictionless experience.

In Q3, we improved the customer experience for buy online pick up in store.

This included enhancements in the mobile experience such as improved order status via text messaging.

We also rolled out a standardized area for order pickup in stores close to the front door for easy access and convenience.

As part of our DIY Omni channel strategy. We also made progress with our Walmart Dot Com partnership.

In Q3, we continued to build our assortment and we're on track to enable additional customer fulfillment options.

Since the launch of our partnership traffic units and sales have accelerated each month.

Notably the majority of customers, who order through the Walmart Dotcom site are new to advance.

Our deal why retail business remains a work in progress.

In Q3, we saw pressure in transactions, which were negative in the quarter, although improved versus Q2.

In Q3, we rolled out our new speed perks to Donald loyalty program. Following successful pilots in to lead markets. During the first half of 29 team.

Steeper too, though isn't important platform to help us improve the out why performance, both short and long term.

Our goal here is to improve customer loyalty and share of wallet by leveraging first party data to personalize our offerings.

Prior to watch speed perks transactions were approximately 25% of total yeah why transactions.

This is low versus loyalty programs across broader retail.

In the third quarter, we began to address this by providing new and improved benefits for our DIY customers.

In addition speed perks to Dato includes technology enhancements for our team members to see speed perks members data at the point of sale.

Our team did an outstanding job launching the program delivering an 80% increase in new member sign ups, 45% growth and the number of speed perks transactions and improved the U.P.T. performance versus year to date trends.

These are all important elements to the long term success of our loyalty program.

In total our Q3 launch resulted in sequential improvements in DIY transactions and unit sales in Q3.

As part of our investment in this new program. We also saw a significant increase in reward redemptions during the quarter.

Well this was expected given our test market experience the investment in our new loyalty program resulted in incremental coupon redemptions in Q3 and exceeded the lead markets.

The incremental investment year over year was approximately $14 million in the quarter impacting both net sales and gross margin.

We expect this to be over the next few quarters and believe this is a good investment to delight existing customers and attract new customers.

I'm confident that as we sign up more speed perks members and increase speed perks transactions as a percentage of sales.

We will leverage this first party data to drive sales and share of wallet.

Well this was expected given our test market experience the redemptions during our national rollout exceeded those of the lead markets and resulted in a coupon redemption headwind in the quarter impacting both net sales and gross margin.

We expect us to abate over the next few quarters and believed this is a good investment to delight existing customers and attract new customers.

I'm confident that as we sign up more speed perks members and increased speed perks transactions as a percentage of sales.

We'll leverage this first party data to drive sales and share of wallet.

To summarize our topline results by channel professional and ecommerce continued to perform well and well yeah why retail improves sequentially, we're not satisfied at all with our results here and remain focused on addressing traffic loyalty and overall performance as rapidly as possible.

All channels accelerated on a two year stack basis, and other category level, we saw the strongest growth in breaks and batteries with high single digit growth, while delivering sequential improvement in cooling optics and engine management.

From a geographic perspective, we saw the strongest growth in our Midwest West coast, an awful lot or regions.

In addition to making important improvements and the customer experience. We continued our footprint optimization efforts in Q3 to drive profitability and cash flow as we closed or consolidated an additional 23 stores, bringing the total number to 82 stores year to date.

We've made meaningful progress over the past 18 months to fix and or close underperforming stores and we'll continue to be very disciplined and optimizing our store footprint in a market by market approach.

All of our topline initiatives are focused on driving sales and profit per store, which is the first of four pillars in our margin expansion plans.

In the quarter, we completed the rollout of my day, enabling us to get to a single labor management system.

This unified and improve system will help but staff our stores more efficiently to meet customer demand.

In Q3, we also made great strides in our second margin expansion territory supply chain.

For the first time in eight quarters, we leveraged supply chain expenses as a percentage of net sales in Q3.

We accomplished this while absorbing incremental costs attributable to the work stoppage in kutztown.

Well, we clearly did not planned for or wants to work stoppage, ensuring our long term supply chain cost structure is competitive throughout our entire network was a critical objective and our negotiations in cuts town.

We're pleased we came to an amicable resolution, which enables us.

Separately, the consolidation and integration of our multiple supply chains is well underway.

In terms of advance and Carquest, we're now in execution mode of cross manner replenishment as we transition stores to the most freight logical distribution center in a disciplined market by market approach.

Substantial savings are expected here as we reduce stem miles and further optimize our advance and Carquest DC network with the completion date of mid 2021.

In addition, the integration of Worldpac and Autopart International It's also now underway.

Here, we expect additional savings and growth related benefits to be fully captured by the end of 2020.

Finally, riven Sloan and his team are laser focused on improving operations across our supply chain.

Execution is improving as we standardized processes reduce turnover and improve fill rates.

As we build the performance culture throughout supply chain, we expect efficiency gains to drive cost savings.

Moving onto our third pillar of margin expansion, we remain disciplined in our material cost optimization and category management efforts.

Despite material cost headwinds this year from inflationary costs, we continue to work diligently with our supplier partners to mitigate increases and our pricing to cover inflation in a rational environment.

We remain focused on increasing skew count, including expanding our offerings for late model vehicle coverage.

Additionally, we're making great progress on improving Carquest private label offerings, and increasing private label as a share of our mix.

I'm confident these efforts will enable topline growth on our well respected carquest private label brands as well as meaningful margin improvement over the next several years.

The fourth pillar of our margin expansion strategy includes SGN a productivity.

Jeff will expand on other cost savings, we saw within SSG and ended the quarter. Shortly however, I want to highlight our performance on team member safety and the benefit this is delivering across our business.

Our team has been incredibly disciplined and creating a safety first culture, including building awareness through education and training programs to ensure our team members are empowered to do their job without incident and return home safely each and every day.

The detailed focus of this team is benefiting all areas of advance including significant improvements in our accident and incident rates.

Our emphasis on safety has reduced our total year to date recordable injury rate by 11% and our last time rate improved by 14% this quarter.

Importantly, our vehicle collision rate has improved by 19% year to date, surpassing our target for the year.

More broadly I'm very proud of the progress we've made and building a performance culture at advance this year and confident we're creating an environment where team members can excel.

Improving our competitiveness every day with a stronger more experienced leadership team and through innovative offerings, such as our fuel the frontline program, which rewards top performing frontline team members with advanced stock.

We've also made important wage investments in our supply chain, which has dramatically reduce turnover to ensure we are as effective and efficient as possible within supply chain.

The investments, we're making and our team members inclusive of ongoing training and development as evidenced by the continued improvement in our overall annualized average turnover, which declined by 14% in Q3 compared to year end 2018.

I'm pleased with the progress we've made to date and look forward to sharing more details about our ESG focus as well as our people first culture. When we publish our second annual corporate sustainability and social report in 2020.

With that I'll turn it over to Jeff for details on our financial performance.

Thanks, Tom and good morning, everyone.

In the third quarter per adjusted gross profit was $1 billion, an increase of nearly 1% from the prior year quarter.

On a rate basis, our adjusted gross profit margin of 43.9% declined by 39 basis points from the prior year quarter, primarily driven by the increasing investment in our loyalty program and the incremental cost related to the work stoppage been could stop.

Despite the work stoppage, we were very pleased with her ability to leverage supply chain in the quarter.

As Tom also mentioned or investment in speed perks to Dido negatively impacted gross margins in Q3, we remain confident this new program will significantly increase customer loyalty.

We expect this investment will normalize over the next few quarters.

Our adjusted SGN, a performance was very strong at $810 million in the third quarter.

That's compared to $814 million a year ago.

On a rate basis, our adjusted EPS DNA as a percentage Thats sales was 35% an improvement of 74 basis points compared to the prior year quarter.

This was a direct result of our focus on cost controls and driven by improvements in occupancy.

Labor related costs.

And a reduction insurance claims from continued progress in team member safety.

These excellent results more than offset important long term investments and information technology.

As we've consistently communicated we expect information technology costs will remain elevated through the balance of the year and into 2020, because we work to build new digital capabilities and fully integrate.

Multiple technology platforms across the enterprise.

Adjusted operating income in Q3 was $205.1 billion, a 5.9% increase from Q3 2018.

Our adjusted Oi margin rate increased 36 basis points to 8.9% in the quarter.

Adjusted diluted EPS for Q3 was $2.10 an increase of 11.1 for Scott.

During the third quarter, we continued to be extremely disciplined in managing our cash.

This is clearly illustrated as we improved our APC ratio to 77.5%, which is an increase of nearly 530 basis points compared to the prior year quarter.

Our APC ratio has now improved 840 basis points since the first quarter of 2017.

We remain laser focused on working capital management.

And are confident in our ability to continue generating meaningful cash growth to drive shareholder value.

Our free cash flow for the third quarter was $539 million compared to 576 million in the third quarter of 2018.

The year over year decrease of free cash flow was primarily result of increased capital investments to drive sustainable sales growth and continued margin expansion going forward.

Year to date.

We increased our capital spending by 61% to $169 million.

We continue to make investments in our stores, where health system consolidations and other information technology initiatives, such as our finance ERP system as part of our business transformation.

Our leverage ratio was 2.0, which is in line with our capital allocation priorities of maintaining an investment grade rating.

Reinvesting in the business and returning excess cash back to shareholders.

During the third quarter, we returned nearly $340 million to our shareholders through the repurchase of 2.4 million shares of advanced stock.

In addition, I'm pleased to announce an additional 700 million dollar share repurchase authorization.

This new authorization is further evidence of the confidence we have and delivering on our sales and margin objectives.

As well as our ability to generate significant free cash flow and drive shareholder value.

Consistent with our commitment to provide transparency with our transformation plans and expectations for this year I want to take a moment to provide an update to our outlook for the balance of the year.

We remain confident in our ability to deliver results within the full year guidance. We provided early this year and updated last quarter.

Also recognized at the top end of our comparable store sales may now be challenging to achieve as a result of the continued investment in our loyalty program.

Higher than anticipated coupon redemptions impacting net sales and gross margin.

In the fourth quarter.

Therefore, we believe it's prudent to narrow the top end of our sales guidance, while maintaining the bottom of our current comp sales range.

Our updated guidance includes net sales in the range of $9.65 billion to $9.75 billion.

Comparable store sales range of 1% to 1.5%.

Our adjusted Oi margin guidance is unchanged with an adjusted Oi margin expansion of 20 to 40 basis points for the year.

Similarly, we're confident that with the continued strength of our working capital efforts that we can deliver our free cash flow dying of a minimum of $700 million, which we increased in the second quarter.

I'm proud of what we've accomplished through the first three quarters in our Tiger team is focused on additional progress in the fourth quarter.

With that let's open it up to addressing your questions operator.

As a reminder, test a question you need to press star one of your telephone.

To withdraw your question press the pound key.

Please stand by what we've compiled acuity roster.

Our first question comes from Michael Lasser with CBS . Your line is open.

Good morning, Thanks, a lot for taking my question Tom in your pure prepared remarks, you referred to some of the pillars of your long term plan. How do you respond to those to see now you've had two consecutive quarters of gross margin degradation and you've made a lot of progress over the last few years.

Harvesting cost savings to how realistic is it that you will get to a low to mid teens operating margin over the long run as you've outlined previously.

Well first of all I think the gross margin just to give you some background on that Michael it's important to explain this we had a couple of atypical elements in the gross margin in the quarter.

The biggest a factor within gross margin was our investments in our loyalty program.

The coupon redemptions in the quarter were up 14 million versus year ago, which is what we outlined in our prepared remarks. We knew this is going to be higher in the quarter as we planned investment behind speed perks to though to the auto but.

The sign ups and the transactions as a percentage of our total transaction significantly exceeded that of our lead markets. So.

The coupon redemption redemptions were more than we expected over the long term. This a very good thing, we're absolutely committed to winning and DIY Omni channel and we had meaning we invested in our loyalty program prior to Q3.

Customer and team member response abuse speed perks to the auto has been fantastic and it positions us well for the long term.

We're going to leverage the first party data, we got from speed perks to personalize our offerings and we expect the incremental investment on speed perks to subside over the next few quarters as incremental growth. So that was a very big factor on gross margin in the quarter and secondly, we incurred onetime incremental costs within supply chain related to the works.

Stoppage and could style. So we don't think this what happened in the quarter is something that is going to have any impact in our ability to achieve our long term margin goals, both within gross margin and in essence DNA. We just we had a couple of a typical elements in the quarter on gross margin.

Indeed, the launch of speed perks to Dato drive incremental sales in the quarter and this is important because the comps spread versus those others in the industries is back to wining and should we take that as a signal that some of your reference to efforts to close the performance gap or no slipping and would you attribute.

All of that to speed perks to though.

While we certainly benefited from speed perks in the quarter, but it's difficult to say how much.

With that with a number of increased sign ups. We had obviously the purchase frequency in our categories much lower than typical categories. So we'll see that over time, we also had a higher percentage of our transactions much higher than we've seen historically and even in the lead markets. So that's going to benefit us overtime, because we use the data.

At a personalized.

The overall 14 million if you do the math, that's about a 60 basis point.

Headwind off both Pos sales right from our total number so that that's the value of the coupons clearly somewhere between zero and 61.

We benefited from speed perks, but it's in the in the quarter the cost the coupons outweighed the benefit of speed perks.

Okay.

Just to clarify that so you can you can you help us understand how it was a net positive if youre seeing $14 million did to sales, but it drove incremental.

Or incremental sales.

Yeah, it's difficult to quantify the incremental sales at this point, what we've modeled that over time I'd be incremental revenue associated with speed perks is gonna be significant you're essentially increasing your member base. We started out 11 million. We added a significant number of new members in the quarter, we had a net increase.

In our membership base in the quarter, we're going to increase the percentage of transactions. So we're talking about a substantial improvement in our DIY sales over time in the short term would you can't really measure Michael is how many of existing customers that were already coming in the store are now transacting espeed person.

Customers, it's very difficult for us to break that out, but we know the value of the program in terms of the impact it has on the piano and overtime. This is a meaningful benefit for us we're very excited about it.

Okay. Good luck with fourth quarter. Thank you very much.

Thank you. Our next question comes from Simeon Gutman with Morgan Stanley . Your line is open.

Thanks, Good morning.

My first question is for Q4, you provided a fairly wide range of comps I think zero to one half for one six depending on the math can you give us a sense I mean, there's only six weeks left.

Where where we're headed so far and then it looks like if we hold the SGN day rate from the third quarter, which may or may not be the right assumption that gross margin could be up a decent amount in the fourth quarter 2030 basis points.

Can you comment on those 2.2 points.

Sure Simeon good morning, I'll, let Jeff handle the second question on the sales guide, yes, I mean were essentially.

Guiding inline with what we expect obviously the last six weeks of the year can be very volatile, but we like what we see so far and we're well positioned to deliver within the sales guide as we said.

We will have continued coupon redemptions in the fourth quarter.

The reason is we've got a number of coupons from the original program that are still on redeemed. So once the ended the year.

It comes into play those are no longer available and will only be dealing with the coupons from speed for Institute auto. So that's essentially the reason I want Jeff answer. Your second question, Yes, just to build on the gross margin were and continue to see the coupon headwinds the Tom talked about the original speed Perks program. Those coupons have a six month life. So those are going to roll off.

Basically.

In the fourth quarter, a little bit of bleed into the first quarter, but not much but.

But we were still modeling those headwinds as well as the headwinds associated with a commodity and tariffs right now we don't see any changes in the tariff into the fourth quarter. So we still think we're going to have those headwinds having said that everything we're seeing right now in SGN, a it's still positive.

We got excellent controls in place to control our cost.

Consistent with what we did here in the third quarter and we fully anticipate we'll be able to do that into the fourth quarter.

So just to clarify that point it sounds like there's still going to be headwinds to gross margin, but its SGN a that if that will provide the leverage to the margin in the fourth quarter, yes, Yeah. That's right I mean, it just to make it really clear I mean and speed perks hurts same store sales because coupons gold.

Against net sales right and in the quarter in the third quarter that was a 60 basis point.

Impact on same on same store sales. So we might have gotten a few more transactions, but it hurts net sales on a net basis in the short term overtime when people return more frequently.

We benefit from speed perks than in the short term internet sales headwind.

Got it Okay and then my follow up question the supply chain transformation, you mentioned briefly in the prepared remarks, Tom can you talk about where you're in its what what you've accomplished so far what are the tests that are going to get done next and then it can you assess any execution risk in some of the next next steps. Please.

Yeah really exciting progress on supply chain same in I think Rubin is really getting some momentum there.

You know, we've obviously has begun to execute the cross banner replenishment initiative, which is a is a significant productivity driver for us it allows us to reduce.

Stem miles to the stores and to optimize our DC network. So that's well underway. We've had a pilots in the respect of Red and Blue networks, and we're now beginning to move stores through the relevant Dcs that we've got a number of those plan for the balance of this year, there will be hundreds of them executed next year.

And into the front half of 2021, and we will finish it at that point.

Just in terms of raw execution.

We are seeing a very good progress there across all the key metrics.

We're also.

Beginning our work on a on a standardization of our warehouse management system.

That ruben as leading that'll allow us to improve our labor management in the distribution centers. Finally, we began to integrate the worldpac and AI organizations and supply chains.

Including Yea I stores, so that'll help us over time, so very confident in our ability to deliver the supply chain productivity that we've discussed and.

We are beginning to see the benefits of it as I said in the in the prepared remarks, we actually leverage supply chain in the quarter in spite of a pretty significant cost associated with the cuts down work stoppage.

And just to clarify one more follow up on that Tom is we keep talking about the benefits are these initiatives won't be done until I think the middle of 2021.

But does that mean the benefits from some of these initiatives don't show up until 2021 or they start to show up now enrolling into next year.

Yeah, we'll start to see something on the supply chain will start to see benefits next year as we execute the DC store changes that I mentioned in in terms of the full benefits of the cross and banner the full benefit of the warehouse management system implementation. It starts to come later, but we will see benefit from supply chain next year.

Great. Thank you.

Thank you. Our next question comes from Seth Sigman with Credit Suisse. Your line is open.

Hey, guys. Good morning, just first on the pro business I think you categorize it as strong in the quarter can you just discuss how it performed relative to the second quarter. It did it actually accelerate and then I think you highlighted worldpac and independence as the strongest channels within what's working there and maybe different than what you're seeing at core ATP and carquest.

Thanks.

First of all SAP or our pro business did accelerate versus the second quarter, we had a terrific a two year stack the best we've ever seen on our pro business by the way on the APC business as well not just the the other businesses.

I think that what's working well broadly inside a pro as Bob bringing together all of the key elements of our pro offering.

Everything from the catalog.

Which we obviously call advance pro we're getting increased usage on the catalog people are seeing the merits of our assortment.

We're executing against dynamic assortment across the enterprise, which is enabling us to improve our stock rate and close rate on key items in the back room, a cross banner is benefiting US you know continued.

Benefits from cross banner, so we're able to source from the various entities at higher levels than we used to in the past. So we're very happy with where our pro business as when we look at you know the reported results to date.

We feel good you know we feel like we're performing at or above the market and our independent business. There were able to you know presents some of the things that Bob's pulling together for the broader corporate entity here and present them potentially new independents, who want to fly the Carquest flag and then that benefit.

There were starting to see as well so strong conversions in the quarter on the independents side, but also good comp sales for our independence existing independents, which is very important.

Worldpac is just a terrific business you know they've got a great model their online platform as best in class Vivus built that over many years with a terrific team out there of Worldpac that we've opened more branches. This year than we've ever opened before they're driving topline growth, they're expanding margins they're focused on you know.

Being very complementary to the broader enterprise.

There's a lot of things that are working well with worldpac.

That we're taking and bringing to the broader enterprise. So I'd say generally speaking those are the things that are that are helping us on the pro side.

Okay. That's helpful. So given some of the positive changes happening in the store, presumably that should be helping DIY also what do you view is the fundamental challenge facing the DIY business. Obviously online is growing for you, but just I guess store level DIY why some of the challenges that you may be facing there. Thanks.

Yeah, I think first of all we did improve our transactions and unit performance in the quarter on DIY. The net sales numbers. We said obviously the coupons are entirely attributable to the DIY business weighed down the net sales number in DIY in the short term as we said.

But I think Jason Mcdonald's come and these are new CMO, we couldn't be more excited about having Jason here. He is focused on traffic job one improving our traffic inside the DIY business.

He's done a lot of work in the short time that he's been here I I feel very good about the plans that are coming together for 2020.

We've done a lot of work on the customer journey to develop integrated programming I think that was an opportunity SAP to your point you know to make sure that the marketing that we're spending is very well integrated with the merchandising plans in the in store execution.

Speed perks to not all will be a driver of topline growth next year, you know as we start to bring more people into speed perks, and we start to get a higher share transactions were able to personalize our offering and we know there's a big share of wallet opportunity there.

Third the media plans, Oh big opportunity there again, Jason's working that very hard right now we're going to shift a.

Non working dollars that we were spending in marketing to working and that'll drive awareness, which we made progress on last year, but we kind of stalled at 32% and now we need to take that off because were significantly behind the industry leader on that one and finally, the partnership that developing with Walmart will.

Start to be a factor as we get into 2020, so theres a lot of things that are happening right now in D. ally that we feel really good about as we head into next year.

And then it'll give us what we need on the other side of the box. If you will as Bob continues to drive the pro business.

Got it alright, thanks, Tom.

Thank you. Our next question comes from Christopher Horvers with Jpmorgan. Your line is open.

Thanks. Good morning, So first a couple of follow ups on the comp time, what specifically is implied comp guide for Q, because if you held the two year stack it would imply a bigger number than the range that was asked in the prior question.

And could you quantify how much cookstown actually impacted gross margin.

Yeah, we're not going to we're going to <unk> not going to talk Kutztown, Chris I'll, just I'll, just say that obviously, it's important that we have a very very competitive cost structure and our supply chain. So we we had to do they had to do and cuts down and we accomplished it and we feel really good about where we ended up there, but we're now.

We're not going to break that out.

In terms have been in seating.

No is the cookstown sustain no no no no let's say, it's it's obviously we've had several week work stoppage right. So you've got you've got all the costs associated with that that that are built up in there and you know we knew we were going to have those costs in the quarter and they ended up being where they ended up being so.

In terms of that the stacks, we're obviously going to continue to drive as high of a two year stack as we can the big factor is the.

Is the is the coupons, which we've talked about several times Oh, we also look at the three year stacks, you'll see it more in line with the with the third quarter. So that's essentially where we ended up but I I think thats thing to call out as the is the net sales the coupon impact on on net sales in the fourth quarter.

You know based on the lower sales number and the redemptions, it's probably going to be in kind of a similar number which is as a percentage higher.

Got it so just to clear so she really looking into three year and that's what was the sort of guiding light for the for the fourth quarter comp guide.

That's right that's right I mean, we've seen as you know we've seen continued improvement on that on that three or stock. So we're we're kind of focusing on that to factor out.

Back half of 17, which we all know it was it was a difficult time for us.

Got it.

And then another.

On on that on the DIY why did did that also accelerate despite the coupon headwind, which is about a 120 basis point headwind.

The comps in the third quarter on the DIY front.

Yeah, It absolutely accelerated on POS sales, yes, and that's why the transactions improve the units improved in fact, our unit share Chris you know when we look at our relative performance on unit share through syndicated data also improved by about that similar you know the relative growth improved by 150 Bips. So on.

Same store basis in the most recent period, we actually held share on units, which I feel great about and we haven't done not on a long time. So you know selling for units are getting more people signed up to speed perks higher percentage of transactions overtime. This is going to be a good thing.

Got it lastly, and then can you talk about Jeff can you talk about how much LIFO was a headwind in the quarter. It was about 70 basis points in the in the second quarter. Do you expect was that we didn't end up in Threeq and how are you thinking about LIFO into fourth quarter and then you know into next year really as how does that play out over the year.

Assuming the price environment stays as it is <unk>, yeah. So for third quarter, a LIFO was the impact of $34 million, you'll see them, we published our.

Our 10-Q later on today.

Those were.

100% offset by what we call some of the inventory related costs warehouse costs capitalization, we saw improvement there along with no store store NBC cost changes. So the net impact of that was zero, obviously that 34 million.

Well the headwind in the third quarter on a stand alone basis the.

Fourth quarter I would expect to see a similar level just given the fact that we're still in this higher rising cost environment. So I would anticipate that into the fourth quarter and I do think in the fourth quarter. It couldn't be more of a headwind, especially on a year over year basis. If you remember last year.

We purchased a bunch of inventory as a result of dynamic assortment and some early buying related to the spring selling season, or they gave us a little bit of a headwind or tailwind and we're not going to see that again. This year for this quarter for sure. So on a year over year basis, it's certainly going to be a headwind.

Going into 2020.

Plus stabilization I would expect to see.

A similar level of impacted as long as we get it stabilized we can drive down that inventory, obviously will pick up that headwind, but we're still working through our plan for 2020 will have a lot more detail when we talk to you next quarter.

And so when you see similar level is that similar dollar. So the rate impact moderates are you, saying the rate impact should be the same over the year.

Similar dollars in terms of what we're seeing.

In the third and fourth quarter.

Got it understood thanks very much.

Thank you. Our next question comes from Matt Mcclintock with Raymond James Your line is okay.

Yes. Good morning, everyone. Tom you mentioned that you expect Walmart to be the Walmart partnership to be material next year or I don't know if used his words, but I assume that's what you met could you maybe talk a little bit about how you've improved customer experience now that you've launched there. The improvements that you have been trying to make there and then and then how far away or we before buy online pick up in store.

Options are available through that partnership thanks.

Sure Yeah, just to clarify I don't think I used the word material you know, we definitely feel that it can be.

Helpful next year, it's definitely going to be bit material over time.

I think the big things that we've done so far is on the in engagement.

On the engagement from we've obviously stood up the web site Theres significant branding on the web site for us that the Walmart team has been terrific and helping us enable I wouldn't be gun to work the fitment work with them to make sure that.

We experienced the customer has when they're buying a specific product is world class and I know the Walmart team is very committed to that outcome, we don't want to start adding parts and jobs when the would be.

Experience for the customers and World class. So that's what we're working on with them right. Now we've made a lot of progress we're adding skews all the time as they build fitment capability in the various categories.

We're very excited about getting in store pickup stood up.

We haven't got a firm date on not at this point, but you would we're shooting.

For the first quarter of 2020, that's the goal.

And then kind of as a follow up can you maybe discuss the engagement levels that you've seen with your current I'm improvements of the buy online pick up in store I'm experience.

Yeah definitely seen great progress there I mean, we're getting a excellent growth on in store pickup we're now paying the customer right away as soon as day.

No send us their order, we're letting them know the the orders ready the team is executing extremely well and making sure that the product is ready for them when they come in the door. So we're beginning to see that and you know we've had obviously a cold snap here in a parts of the country. We can see it you know we can see the benefit of the in store pickup starting.

To have an impact on our overall sales because of that and increasing as a percentage of our sales. So we're very excited about the opportunity. There I know Jason is also thinking through how to engage consumers and build awareness on that capability. Because it's you can get it very quickly and we want to make sure people know that.

That not only can you pick them up quickly at a basket will install your battery for you will.

I'm sorry, your wiper blades should we can do other things when you're there. So excited about the new capability we're building there.

Thanks, a lot for that best of luck.

Thank you. Our next question comes from Gregory Melich with Evercore ISI. Your line is open.

Hi, Great and a couple of questions first on the topline Tom you'd you'd mentioned a on the cross banner initiatives.

In categories that have been converted to have advanced pro and the cross banner items, you're seeing a nice improvement how many of the top 25 categories have been converted already.

Well good morning, Greg first of all we've we've done is we've rolled out the top 25 into stores. So it's really a case of how many stores have received at right. So when we when we do it we put all all 25 categories and we do a basically do a change over in the store that we've done the top 20.

So we're pretty much through.

All of the chain I think we got to you know all of the.

So called Red stores by the end of the year the blue stores come in the first quarter next year.

But the top 25 will be rolled out completely by the first quarter I think I think what we said in prepared remarks is that if you take the store and product combinations. It's about 11% of the backroom sales. So that gives you a sense for it and we're just going to continue to use this and we're seeing a couple of points about two points of growth associated with it.

Because they have items that were adding obviously are contributing a lot more than the items that word the leading.

Is it just to be simple on that does that mean, it if it's 11% you're getting two points of growth as any it's 20% lifts in the stores when you do this.

In that category.

We are seeing big lessen the categories were doing using yes, that's correct.

For it to the limit no two points in the category and the carrier I just want to make sure I didn't.

Okay I understand.

And then second inflation I know a lot of ebbs and flows yours.

When you are different things from different people anything from 150 Bips to 300 Bips. What is your perspective now on the amount of the pass through the tariffs and other cost input inflation that you've seen.

Yeah, we look at cost per unit, Greg that's the best way to measure at because when you see average ticket price enpro and as a whole bunch of other factors come into play, but its 2.5% to 3% on a per unit basis is what we're seeing.

Got it and then last and Jeff maybe more on the free cash flow side. When you guys are using the 700 million plus.

How much of that is from the working capital improvements and how much of it it would be from from everything else me My rough math gets to sort of 750, then take off Capex of 270, and you get around 500 550 million of free cash flow before working capital gains is that right.

Yeah, that's right most of its going to come from our working capital initiatives. If you look at what we've done most specifically in the area of payable.

We've increased that substantially our APC ratios at an all time high it at a 77.5% and we think thats going to continue to improve.

So you know the working capital as we increase our inventory turns but that's that'll help us as well, but we really think we're going to get the vast majority that improvement through.

The working capital that we're going to that were not only doing but it's going to continue to manifest itself through the fourth quarter and into 2020. So yes, that's exactly the way to think about it and then lastly on that that point of the buyback a lot in this quarter it looks like you're sort of opportunistic.

How should we think about that now that you're down to the other two times leverage I guess you include leases, maybe two and a half but well how do you think of that going forward. This is all the free cash flow come back as buyback or would you ever take a look at the dividend again.

Yeah, I mean dividends something that we talked about quite a bit we do have the 700 million additional so that gives us a lot of flexibility.

We're still in the transformation, we still have are saying.

Investment priorities, we want to continue to invest back into business. This year with a heavy investment year next year is going to continue to be a heavy investment you're having said that though we want to continue to be opportunistic into 700 million gives us that flexibility to be opportunistic as we work here in the third quarter.

Great. Good luck guys. Thanks. Thanks.

Thank you. Our next question comes from Daniel Enbrel Stephens, Inc. Your line is open.

Yeah, Hey, good morning, guys. Thanks for taking my questions.

Wanted to start on the supply chain you had mentioned the work stoppage that lasted about two weeks, but as you guys progress on your supply chain rationalization from here. Tom you mentioned those costs shouldn't continue but in your updated long term plan do you think that those kind of negotiations could lead to other higher wage pressures and your supply chain or.

Thinking about the impact into your other distribution centers from that work stoppage you had.

Yeah. Good question, Daniel I mean, obviously, that's the point, we only have five.

Union facilities out of our 50 Ibcs and that's why it was important in this case too you know make sure that the cost structure. There was was competitive so that theres no essentially sphere of influence for our non union sites. So we were able to accomplish that and we feel very confident in.

Our first of all we made an investment this year as you know in DC wages proactively you know not nothing to do with what happened in goods town to make sure that we reduce turnover and Rubens done a great job. There we've dropped our turnover basically in half in the Dcs and that's why we're getting much better.

Execution in the Dcs were not turning as many people.

So it it for sure.

The glide path on on supply chain is very clear the productivity agenda as it's been laid out and we're executing against that it obviously contemplates the relevant wage increases that we need to do over time in order to be competitive so.

No change there really.

I've got a quick follow up to I guess, you mentioned turnover coming down significantly. So do you think the issue that led to the work stoppage in the you've been through kind of negotiations were facility specific or are these.

Push backs, you're getting from employees and other facilities as you push more product and rational and budgeting.

No very much facilities has specific unfortunately in that case, and you know where we're committed to rebuilding the team and cuts down. It's a great group of people I know our leadership team has spent a lot of time with them.

This was a longstanding situation that been going on literally for years and we we owe it to our people too you know, it's a really do a better job of engaging with them directly and that's the plan from here, but it's very much facility specific.

Got it and then last one from me just on working capital I think it to the fourth quarter of actual inventory dollar growth on the balance sheet as a result of dynamic assortment as we lap over that in the fourth quarter from last year should we begin to see inventory levels resumed their kind of trickle down as you guys work that out for should inventory continued to grow.

As you invest in parts availability. Thanks.

No I think we're going to start to see that to stabilize and then work itself down I think back in the fourth quarter I think we're going to see inventory come down from where they're at today.

Probably be inline with what we saw that this at the end of last year and then.

As we have that dynamic assortment stabilized, we'll continue to triple that down going into 2020.

Hi, Thanks best of luck.

Thank you. Our next question comes from Chris Bottiglieri with Wolfe Research. Your line is open.

Hey, guys. Thanks for taking my question.

So wanted to dig into like congrats on improving market share data on the DIY side I was wondering if you held your market share in Q3 equal to Q2.

What would that impact of tops event like how much the market share in DIY.

Help your comps this quarter.

Yeah, I think the the change would be the wet the relevant number I think there Chris would be about 30, bips something like that that change the improvements.

Okay. I think it's it's NPD doesn't capture everything so to be clear I'm, just giving you the NPD number.

But its 29 categories. It it's not everything in the front room, but it's it's a good proxy but that that that's the number.

Okay. That's helpful and then.

Obviously, there's a lot of innovation, you're making a lot of changes but.

Would you attribute would you attribute that improve in a market share from was it speed perks was it's kind of like Walmart was it just everything else you're doing online just any thoughts there.

Well, we for sure believed that speed perks contributed.

To improve transactions in the quarter I mean, we saw the 150 change now some of that was industry related.

You know in terms of the improvement in transactions.

But for sure speed Perks had something contribution I think the in store pickup was well executed.

Our team is very focused on these initiatives I mean to speed perks itself.

We called out the changes I mean, we we challenge the field to do a good job executing speed perks in the lead market, we had a 30% increase in sign ups in international rollout it was 80% okay.

Transactions as a percent of sales lead market, 28%, a national rollout, 40%. So I do feel the field team is executing better than they ever have we see that in our net promoter scores. That's that's obviously, helping us until we launch something like in store picked up.

It's a it's much more.

It happens faster you know our ability to get it done happens faster. So I mean, as we continue to build the initiatives or Chris on DIY I'm much more confident that we'll execute them well.

Got you, Okay, and then big picture I mean, I think you're very much ahead of your peer group on line.

Doing a lot of great work, there, but I went to this industry has historically been kind of online resistant which frankly.

Certainly the last couple of years, but.

Big picture, what do you see the online.

Since this category growing over the next several years.

Are you, making a calculated method online penetration picks up or eat or is this is where you think you could be most differentiated so any thoughts there be helpful.

Well, absolutely we expected to pick up I mean, if I also think about online Chris as pro as well right. It's not just D. Why so your your pro experience you know we've got obviously Worldpac, which is primarily all online right. You know then you have the.

Hey, P. business, which is much lower I think on average for something like 38% of R.R. Bard Pro orders come in through online platform. So we we expect that number to go up and obviously that has you know overtime benefits for us because we're not on the phone handling handling the customer over the phone so that number.

Goes up each year, we see that number going up each year.

On the DIY side Weve, you know certainly quantify what we believe the online penetration is going to be you know, we think it grow substantially both shipped at home and buy online pick up in store overtime and that's why we want to make sure the buy online pickup in store experience is world class, because that's where we think we can really differentiate our.

Yes.

Thanks, a lot of since thinking.

Thank you. Our next question comes from Kate Mcshane with Goldman Sachs. Your line is open.

Hi, good morning, Thanks for taking my question.

I wondered if you could talk a little bit about what you're seeing with labor cost efficiency improvements you're able to make in the labor related costs during the quarter and is this a dynamic we can see for the next several quarters.

Yeah, we've done a really good job Kate managing a wage inflation, we talked about supply chain earlier on the call that we did make an investment there and that was intended to reduce the turnover inside of supply chain. Meanwhile, on the on the store side, which is of course the majority of.

Our people we have a unique program that no one else in the industry has which is feel the frontline. We're now up to 18000 grants of company stock.

We are absolutely convinced that this is lowering our turnover meaningfully in the key jobs that we have that's the general managers in our stores the customer account managers, the a commercial parts pros and the can so.

Dams, rather so those four comprised 15000 people there critically important for our company we want the very best parts people in the industry and those those four jobs are central to the success. So we make sure that were highly competitive there and we've seen our turnover drop across the board there so to me.

It's the best.

Acid test if you will on how your compensating your people the type of roles, you're providing and Oh, well well, we're still seeing inflation, obviously in wages and we've got.

You know states that are increasing minimum we contemplate all of that as we package our value proposition employee value proposition together and we use the fuel the front line to really augment that so we can keep our best people.

Thank you.

Thank you. Our next question comes from Scot Ciccarelli with RBC capital markets. Your line is open.

Good morning, guys.

Turning to side.

So we've talked a lot about kind of speed perks morning, and how is the 40 million drag a $40 million drag both sales and gross profit in the corner, but can you help us better understand why the sales and gross margin drag would actually decline as the membership in usage at the program grows because I thought that was the implication.

Yeah. The biggest factor is we still have outstanding coupons unredeemed from the original speed perks, Scott and they'll basically be gone by the end of year. So that's a that's a big factor because were redeeming not only the coupons from speed perks to not all but from the original program. So I'd say.

Year ends those coupons are no longer eligible they expire so as we get into 2020, we'll see that subside, but we contemplated it for the fourth quarter and as we get into 2020, we start to see incremental revenue, we see more frequency people come back more often we signed more people up and by the way we have people less people leave.

TV, we're we're all we're seeing improvement across the board on each one of those he think about.

How do I track New members, how do I graduate members from one tier to the next year and how do I retain existing members and will the way we measure that Scott as did somebody transact in the past year. So we saw an 80% an increase in new you know we saw significant improvement in our retention.

The people would that are that are a brand speed perks and then obviously, we're trying to graduate people up this year. So that's the intent and which you'll see is revenue going up with everything we've modeled everything we've seen in the lead market. The revenue will be going up and the cost will be coming down.

Got it so in other words, you have two parallel programs, where you are kind of getting hit but only one kind of revenue source and then over time that first these kind of goes away and then you're going I just have a higher contribution margin on incremental sales as you build that base, yeah, I mean, the pure speed perks program the math on the pure steeper two data.

Very attractive it just didn't this interim period, we knew coming into the back half of the year that we're gonna have to deal with these existing unredeemed coupons from the original program, which now you've got a whole bunch of awareness to them and there was a lot of 'em out there.

Got it okay, all right understood. Thank you.

Thank you. Our next question comes from Liz Suzuki with Bank of America. Your line is something.

Great. Thank you I'm can you talk about that monthly trajectory of comps are there any particular mine in coronary that I hear that were significantly better or worse, because I know it can be volatile or more so far for advanced semi appears just given your geographic expansion.

Yeah, no there wasn't a huge swing lives as there have been in the past quarters. I think the you know it started out very strong in kind of our northern geography than that I did tail off in our northern geographies and of course now in the last week, we've seen that bounce back. So if you think about our periods eight 910, eight and nine were better than 10.

You know you, it's not unusual for us to see that especially in the northern geographies and when we called out our top performing areas West Coast Midwest, We were a little challenged in the back end on in the in the northeast from Great Lakes, which is again up in those northern locations.

Great and just sort of longer term I mean can you explain some of that bigger gas than your margins versus peers. You on gross margin in particular Christiana mix inside My question is anti last question is proud just can you talk about some of that low hanging fruit on the margin side that overtime. You think you can get.

Closer to some of your peers.

Yeah, well, we've called out for key territories lives that you know, we're executing against so sales and profit per store.

Where we're making good progress we started this journey at a million five.

We want to get to a million eight and then there's a number of initiatives to drive profit per store, including you know everything that you would expect inside the four walls of our of our stores themselves.

The supply chain is a very big factor.

We talked about that earlier on the call we're executing against the initiatives. There are the category management piece is one that we're excited about where we're standing up essentially a strategic pricing capability next year, we've made up a pretty big investments in a new pricing engine, which is going to allow us for regional pricing and then.

Directive pricing approach to omni channel, that's going to deliver a seamless customer experience. We're also driving a private label.

Our customers are really responding well to carquest I wish we could roll it up faster to be honest, we've got a number of categories that were.

You know initiating now that are we going to continue to drive that but a private label as a percent of sales is a big opportunity for us so inside of category management, you've got the ongoing material cost optimization, you've got strategic pricing you've got.

A private label as a percent of sales and then in terms of SGN at feel great about where we are theres a number of of initiatives underway. There you saw the performance in the quarter, you're going to continue to see that going forward and then there's you know the ERP system that that Jeff is executing against for finance, where we're essentially.

A lot of U.S. DNA initiatives are about the though the integration of the company, which is now well underway. Okay. We are integrating the company in many places.

We've already done workday in terms of HR systems, when the process of ERP talked about warehouse management systems, and Sri Donte, who is our chief Technology Officer is doing a lot of things and the I.T. world to bring the systems together.

On on the private label point, specifically I mean, what percentage of your sales is that now and how how banks you think that can ultimately get.

Yeah, I mean, where we're in it depends how you look at this time really have different different different categories, where we see a big opportunities there, but we think were.

You know, we're well underpenetrated versus peers, I know that theres been a lot of commentary on that but when we do the benchmarking.

We feel that Theres theres, an opportunity for us to significantly grow private label as a percentage of sales and I think this year were up were up about a point lives.

But there's still a lot of room to grow in terms of percentage of sales.

Okay, great. Thank you.

Thank you. Our next question comes from Mike.

Your line is okay.

Thank you two questions one if I'm right about my math it looks like the fourth quarter. The midpoint of the guidance you just you sales and the implied operating profit it looks like you're looking for an operating profit.

Increase is better than you've done year to date I get about 60 basis points at the midpoint and I guess from we've got an improvement in the operating profit dollar growth is that right and if so why should the fourth quarter margins on a year over year basis look better than they have year to date.

Yeah, No I think the you know your your Directionally correct again.

We know we're gonna have headwinds in the gross margin, we're going to be working very hard to overcome those would ideally like to see a positive gross margin kind up there.

From a rate basis year over year, but a lot of the efforts that were seeing within as you know you talked about standing up the myday being able to leverage labor in the fourth quarter.

Fourth quarter, it's a volatile quarter, but what we've seen so far going into the quarter. We think we'd get a significant amount of leverage in terms of the SGN day, that's really going to drive that that growth on a year over year basis.

Okay. So it's in the Sinead sorry.

Don't forget about supply chain, you know look we leveraged slightly and now that included these onetime costs that were not going to see again in the fourth quarter. So our expectation is that supply chain is going to continue to leverage and even more significantly the fourth quarter.

Okay understood and then what one more if I could just just on the speed perks. What are you. It's it's just a catch up in terms of the offering to customers relative to your competitors or are you now getting more aggressive in prices has always been a space has been thought of as being being very rational and pricing, but you're talking automotive.

New loyalty program, and then presumably better for the customer so where are we in pricing the space.

Are you getting more aggressive versus pairs or you just catching up to them.

Yeah, I think it is a rational environment, let me start by saying that but we do feel we have the best offer in the industry.

Theres a number of drivers to that Mike that we feel pretty good about and the receptivity has been fantastic I mean, our team members are incredibly enthusiastic about it they're talking to the customers about it they can see the we've allowed them to see the status of the customer on the point of sale systems. So there talk.

And it up in the stores.

We think we can get the percentage of transactions up significantly if you if you benchmark.

Versus broader retail.

We are very low and it's important that we have that first party data we want to know what kind of car somebody drives we want to know what what everything about that person the terms of what they're buying in our stores and today.

We have a lot of customers that come in where we don't know that so this is our opportunity to get them into the program and make our offering much more sticky. So that's the intent behind it that's what we saw in the lead markets and that's what you're going to see us do.

Okay, so effectively you're getting more people to sign up by giving them a better offering.

Yeah. Our offer is we believe the best in the industry right now we do.

And so is there the risks out others follow you in terms of that offering.

Yeah, I I can't comment on what others are going to do I just feel that our program is one that can really help us a you know get the first party data, we need to drive share of wallet with existing customers. We know that they don't buy all of their auto parts needs in our stores. That's a fact, we've got a very clear picture on the very.

Yes levels, we've got three levels within the platform.

We have our lead members we have our VIP, we have our club members and we have a pretty good good idea.

Our share of wallet is in each of those fears and the goal obviously is to drive more more people up graduate people up the ladder, so that their share of wallet increases.

Okay. Thank you understood.

Thank you. Our next question comes from Seth Basham with Wedbush. Your line is open.

Thanks, a lot and good morning, and then a couple of questions diving into gross margin was it more deeply first of all in terms of the supply chain leverage in the quarter, Hey would you care to quantify it and be could you give us some color as to where it's coming from as it from.

Great rates here.

To your stem miles et cetera.

Yeah, It was relatively minimal.

Now granted we didnt have the cost of the work stoppage that we called out that was in the number and we still leverage so I feel pretty good about itself I, if I take that cost out we actually did pretty well I, it's really across the board I mean, you know we're executing better in the Dcs I think we're managing our.

Turnover much better in the Dcs as we said and that allows us to you know get our piece.

A unit per hour all of those picking packing receiving all of those things that need to be done flawlessly.

We're making progress on.

Clearly, we are starting to see benefits by optimizing our fleet.

You know, we're going to see much more of that overtime, even as we start to get to cross bad or that's where you're going to see the big numbers come out.

We have fewer distribution centers now I mean, we're now up to we've announced a total of four are we still got the Armani facility to to close in the in bouts of this year early part of next year.

But that will be for less buildings right. So you've got all of the reduce costs associated with that.

I think we're working much better across the banners. So rubin is looking across all of the banners that have a P to figure out how to be more productive in terms of how we move things around we move a lot of auto parts around in this company. So moving around last is going to save us money. So.

Finally safety is a is is improving inside of our buildings that doesn't show up necessarily in supply chain, but its important it shows up in SGN, a so I think the productivity agenda for supply chain is when we feel really good about and I think we're starting to see the benefits from.

Got it Thats helpful color and just the other piece of gross merchandize interests and as the impact from Nick.

Mix shift to online channel first any category.

Mix shifts that you experienced this quarter.

Yeah, we did see headwinds associated with mix and we look at it sort of two different ways. One is that the channel or banner mix and as expected. We continue to see the shift from from the iwai to pro or to your question on the product mix. We did see it in two categories. One was in batteries in the other was again.

Wipers and the first one was just a mix within the category. All the second one was just broader of volume out of the category, which is a very.

I'm very high margin categories. So.

That's what we thought in terms of category mix got ended either of those mix shift impact your gross margins more or less than last quarter.

They are about the same.

Thank you and just to add one thing on that stuff I mean, obviously, we did question came up earlier, but we fully contemplate.

All the mix changes that are going on inside the industry. As we you know guide and look at our go forward plans, whether that's our long term plan or 2020, so all of the.

The shift to online.

The shift to pro the shift a large customers enpro those are all contemplated and we end up netting out is are you know from from that so those are those are known headwinds that we believe are going to happen one way or the other.

Thank you.

Thank you. This includes the question answer session I would now like turn the call back over to Tom Geisel for closing remarks.

Well, thanks, everyone for joining us today as you heard this morning, we're going to continue to work diligently to execute our strategic objectives, and we're confident we're putting the necessary steps in place to deliver growth and the balance of 2019 and beyond we recognize you stop work to do particularly in DIY, but we believe we're on the right path to succeed.

I'm proud of the team, we have an advance and I'm grateful for our team members unrelenting focus on saying, yes to the customer while creating significant long term shareholder value growth before we conclude and in honor of veterans day yesterday I want to take a moment to thank our veterans from all branches the military for their service it goes without saying that.

We're all deeply embedded for their sacrifices, including our more than 6000 advance team members, who previously served we're honored to partner with several organizations to recruit support and engage with service members, including building goes for heroes, the U.S., so and hiring our heroes.

We're committed to fully further the partnership with these great organizations working together to support our veterans. Thanks for joining US. This morning, and we look forward to sharing our fourth quarter results and 2020 outlook with you in February .

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.