Q4 2021 O'Reilly Automotive Inc Earnings Call

Speaker 1: Welcome to the O'Reilly Automotive Inc. fourth quarter and full year 2021 earnings conference call. My name is James and I'll be your operator for today's call. At this time all participants are in listen only mode. Later we will conduct a question and answer session. During the Q&A session if you have a question please press star 1 on your phone and I'd now like to turn the call over to Tom McPhall. Mr. McPhall you may begin.

Welcome to the O'reilly Automotive, Inc, fourth quarter and full year 2021 earnings Conference call. My name is James and I'll be your operator for today's call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the Q&A session. If you have a question. Please press star one on your phone.

And I'd now like to turn the call over to Tom Mcfall. Mr. Mcfall, you may begin.

Speaker 2: Thank you, James. Good morning, everyone, and thank you for joining us.

Thank you James Good morning, everyone and thank you for joining us.

Speaker 2: During today's conference call, we'll discuss our fourth quarter 2021 results and our full year outlook for 2022.

During today's conference call, we will discuss our fourth quarter 2021 results and our full year outlook for 2022.

Speaker 2: After our prepared comments, we'll host a question and answer period.

After our prepared comments, we'll host a question and answer period.

Speaker 2: Before we begin this morning, I'd like to remind everyone that our comments today contain poorly.

Before we begin this morning, I'd like to remind everyone that our comments today contain forward looking statements and we intend to be covered by and we claim the protection under the Safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 995.

Speaker 2: and we intend to be covered by, and we claim the protection under, the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Speaker 2: You can identify these statements by four living words such as estimate, may, could, will, believe, expect, would, consider, should, anticipate, check, plan, intend or similar word feeling and accurate.

You can identify these statements by forward looking words, such as estimate May could will believe expect would consider should anticipate project plan intend or similar words.

Speaker 2: The company's actual results could differ materially from any forward-looking statements, due to several important factors described in the company's latest annual report on Form 10-K for the year ended December 31, 2020 and other recent SEC filings.

The company's actual results could differ materially from any forward looking statements due to several important factors described in the Companys latest annual report on Form 10-K for the year ended December 31, 2020, and other recent SEC filings. The company assumes no obligation to update any forward looking statements made during this call.

Speaker 2: The company assumes no obligation to update any forward-looking statements made during this call. At this time, I'd like to...

At this time I'd like to introduce Greg Johnson.

Speaker 3: Thanks Tom. Good morning everyone and welcome to the O'Reilly Auto Parts fourth quarter conference.

Thanks, Tom.

Good morning, everyone and welcome to the O'reilly auto parts fourth quarter conference call participating.

Speaker 3: Participating on the call with me this morning are Brad Beckham, our Chief Operating Officer, and Tom McFall, our Chief Financial Officer.

Participating on the call with me. This morning are brand Beckham, our Chief operating officer, and Tom Mcfall, Our Chief Financial Officer.

Speaker 3: Greg Hensley, our Executive Chairman, David O'Reilly, our Executive Vice Chairman, and Brent Kirby, our Chief Supply Chain Officer, are also present on the phone.

Greg Henslee, our executive Chairman, David O'reilly, our executive Vice Chairman and Brent Kirby, our Chief supply chain Officer are also present on the call.

Speaker 3: I'd like to begin our call today by congratulating Team O'Reilly on your tremendous results in the fourth quarter, which capped off another record setting year.

I'd like to begin our call today by congratulating team O'reilly under tremendous results in the fourth quarter, which capped off another record setting year.

Speaker 3: This year marked our company's 65th year since our founding and our 29th year as a publicly traded company. And I feel very comfortable saying it was our best year yet driven by the truly remarkable contributions of our team of over 83,000 hardworking professional parts.

This year marked our company's 65 years since our founding and our 29th year as a publicly traded company and I feel very comfortable saying it was our best year, yet driven by the truly remarkable contributions of our team of over 83000 hardworking professional parts people.

Speaker 3: Our team's performance in 2021 was highlighted by our comparable store sales growth of 13.3% and diluted earnings per share growth of 32%

Our team's performance in 2021 was highlighted by a comparable store sales growth of 13, 3% and diluted earnings per share growth of 32%.

Speaker 3: This outstanding performance is even more impressive when you consider that our team delivered these results on top of a record sitting year in 2020, when we achieved comparable store sales increase of 10.9% and growth in earnings per share of 32.

This outstanding performance is even more impressive when you consider that our team delivered these results on top of record setting year in 2020, when we achieve comparable store sales increase of 10, 9% and growth in earnings per share of 32%.

Speaker 3: There are a number of different metrics I could provide to highlight the strength of our business, and we'll talk through many of those details in our customary updates during the call today. However,

There are a number of different metrics that could provide the highlight the strength of our business and we will talk through many of those details on our customary updates during the call today. However.

Speaker 3: There are two specific numbers that I'd like to provide an incredible picture of just how much growth team O'Reilly has generated for our shareholders over the past two years.

There are two specific numbers that I would like to provide an incredible picture of just how much growth team O'reilly has generated for our shareholders over the past two years.

Speaker 3: In 2021, our average store generated sales of $2.3 million, which represents an increase of over 23% from the average store sales volume just two years ago at 29.

For 2021, our average store generated sales of $2 3 million, which represents an increase of over 23% from the average store sales volume just two years ago in 2019.

Speaker 3: During this same time period of time, our operating profit dollars per store has grown by an incredible 42% as our store and distribution teams leveraged our dual market business model to drive a very strong operating profit flow.

During this same time period of time, our operating profit dollars per store has grown by an incredible 42% as our store and distribution teams leveraged our dual market business model to drive very strong operating profit flow through.

Speaker 3: I want to take this opportunity to thank Team O'Reilly for your tremendous back-to-back annual performance.

I want to take this opportunity to thank team O'reilly for your tremendous back to back annual performance.

Speaker 3: One of the guiding principles of our culture is our team's dedication to our customers and fellow team members. And that commitment was truly on display in 2021.

One of the guiding principles of our culture is our team's dedication to our customers and fellow team members and that commitment was truly on display in 2021.

Speaker 3: Rolling up the numbers for over the $13 billion of sales, it can be easy to lose sight of the context of what it takes to deliver these results.

Rolling up the numbers for over $13 billion of sales it can be easy to lose sight of the context of what it takes to deliver these results.

Speaker 3: These big growth numbers are made up of millions of individual interactions with our customers where our team members constantly go the extra mile to provide the best customer service in our industry to earn our customers current and future business.

These big growth numbers are made up of millions of individual interactions with our customers where our team members constantly go the extra mile to provide the best customer service in our industry to earn our customers' current and future business.

Speaker 3: Our team truly lived the never say no philosophy in 2021.

Our team truly lived and never say no philosophy in 2021.

Speaker 3: While at the same time consistently executing on best practices to protect the health and safety of our customers and team members and tackle head on the significant challenges brought on by the pandemic.

While at the same time consistently executing on best practices to protect the health and safety of our customers and team members and tackle head on the significant challenges brought on by the pandemic.

It's taken a monumental effort and I again want to express my gratitude for the selfless dedication hard work and sacrifice of each member of team O'reilly.

Speaker 3: He's taken a monumental effort and I again want to express my gratitude.

Speaker 3: for the selfless dedication, hard work, and sacrifice of each member of Team O'Reilly.

Speaker 3: Now I'd like to take a few minutes and provide some color around our fourth quarter results.

Now I'd like to take a few minutes and provide some color around our fourth quarter results are.

Speaker 3: Our comparable store sales for the fourth quarter grew 14.5%.

Our comparable store sales for the fourth quarter grew 14, 5% from.

Speaker 3: From a cadence perspective, we continue to see steady trend of elevated cell levels throughout the quarter.

From a cadence perspective, we continue to see steady trend of elevated sales levels throughout the quarter.

Speaker 3: continuing the consistent broad-based strength we've experienced since the second quarter of 2020.

Continuing the consistent broad based strength, we've experienced since the second quarter of 2020.

Speaker 3: As a result, our sales results were fairly consistent throughout the quarter, with December being the strongest month on a two and three year stack basis.

As a result, our sales results were fairly consistent throughout the quarter with December being the strongest month on a two and three year stack basis.

Speaker 3: We've continued to see solid sales volumes. The results thus far in 2022 have been impacted by the Omicron variant and by some inclement weather given choppiness in certain regions of the country.

We've continued to see solid sales volumes the results. Thus far in 2022 have been impacted by the home crowd variant and buy some inclement weather given the choppiness in certain regions the company country rather.

Speaker 3: I'll spend more time on this in a few minutes on our sales outlook for 2022, but I'd like to add that we're always pleased to see this type of harsh weather as the wear and tear it inflicts on vehicles benefits us throughout the year.

I spend I'll spend more time on this in a few minutes on our sales outlook for 2022, but I would like to add that we're always pleased to see this type of harsh weather as the wear and tear it inflicts on vehicles benefits us throughout the year.

Speaker 3: Our comparable store sales results were driven by somewhat stronger growth on the professional side of our business, which continues to trend.

Our comparable store sales results were driven by somewhat stronger growth on the professional side of our business, which continues to trend.

Speaker 3: which continues the trend we experienced in the second and third quarter.

Which continues the trend we experienced in the second and third quarters. However, our DIY business was also very strong in the fourth quarter and our expectations against difficult compares from the prior year.

Speaker 3: However, our DIY business was also very strong in the fourth quarter, and our expectations against difficult compares from the prior years.

Speaker 3: For the quarter, we're very pleased to see the solid growth on both average ticket and comparable ticket counts in both our professional and DIY businesses, with average ticket being 1. Lod escalates toDef succeed

For the quarter were very pleased to see the solid growth on both average ticket and comparable ticket counts in both our professional and DIY businesses with average ticket being the larger contributor.

Speaker 3: The average ticket growth was aided by heightened inflation with the benefit we realized from same-skew selling prices landing in the high single-ditch...

The average ticket growth was aided by heightened inflation with a benefit we realized from same SKU selling prices landing in the high single digits.

Speaker 3: However, we continue to be pleased to see growth in average ticket beyond the positive impact of same-skew inflation driven by the long-term increased complexity of automotive technology.

However, we continue to be pleased to see growth in average ticket beyond the positive impact of same SKU inflation driven by the long term increased complexity of automotive technology.

Speaker 3: Demand in our industry has remained very resilient for the past two quarters, even as price levels and the broader economy have risen sharply.

Demand in our industry has remained very resilient for the past two quarters, even as price levels and the broader economy have risen sharply.

Speaker 3: The acquisition cost increases we saw in 2021 were consistent with the cost pressures experienced across the automotive aftermarket, and the industry continues to be very rational in passing through the inflationary price.

The acquisition cost increases we saw in 2021 were consistent with the cost pressures experienced across the automotive aftermarket and the industry continues to be very rational and passing through the inflationary pricing.

Finally.

Speaker 3: Even though average ticket was the larger contributor to our comparable store sales for the quarter, we also were pleased to capitalize on solid ticket count comps, which were positive for both the professional and the consumer. We also were pleased to capitalize on solid ticket count comps, which were positive for

Even though average ticket was the larger contributor to our comparable store sales for the quarter. We also fleet. We are pleased to capitalize on solid ticket count comps.

Which were positive for both the professional and DIY businesses.

Speaker 3: We've been encouraged by the stability of our customer traffic, especially as we continue to move further past the major macro level demand tailwinds provided by the government

We've been encouraged by the stability of our customer traffic, especially as we continue to move further past the major macro level demand tailwind provided by the government stimulus.

Speaker 3: We believe we're very clearly benefiting from the market share gains and an increased willingness of customers to invest in their existing vehicles.

We believe we're very clearly benefiting from the market share gains and an increased willingness of customers to invest in their existing vehicles.

Speaker 3: Next, I want to transition to a discussion of our 2022 sales guidance, as well as our 2021 gross profit performance and outlook for gross profit for 2022.

Next I want to transition to a discussion of our 2022 sales guidance as well as our 2021 gross profit performance and outlook for gross profit for 2022.

Speaker 3: As we disclosed in our earnings release yesterday, we're establishing an annual comparable stores sales guidance for 2022 at the range of 5 to 7 percent.

As we disclosed in our earnings release yesterday, we are establishing an annual comparable stores sales guidance for 2022 at the range of 5% to 7%.

Speaker 3: Our expectations are to generate positive comparables to our sales growth on both sides of our business with stronger growth on the professional business.

Our expectations are to generate positive comparable store sales growth on both sides of our business with stronger growth on the professional business.

Speaker 3: This range in corresponding expectations for the coming year are higher than we can remember ever providing in our initial annual guidance.

This range and corresponding expectations for the coming year are higher than we can remember ever providing in our initial annual guidance.

Speaker 3: So I want to spend some extra time to provide color on the basis for our forecast relating both to our general outlook for the coming year as well as our planned strategy to further invest in pricing on the professional side of our business.

So I want to spend some extra time to provide color.

On the basis for our forecast relating both to our general outlook for the coming year as well as our planned strategy to further invest in pricing on the professional side of our business.

To begin from a macro perspective.

Speaker 3: Again, from a macro perspective, we remain very confident about the health of the automotive aftermarket and believe the stable, robust growth trends experienced in our industry are indicative of ongoing core underlying stream.

Remained very confident about the health of the automotive aftermarket and believes a stable robust growth trends experienced in our industry are indicative of ongoing core underlying strength.

Speaker 3: The value proposition for consumers to invest in their existing vehicles remains very strong. Driven by scarcity of new vehicle supply, high demand for used vehicles, and the quality of engineering and manufacturing of vehicles currently on the road merits a higher mileage of goods and services.

The value proposition for consumers to invest in their existing vehicles remains very strong driven by scarcity of new vehicle supply high demand for used vehicles and the quality of engineering and manufacturing of vehicles currently on the road.

It's higher mileages.

Speaker 3: Our industry history has proven that in times of economic uncertainty, motivate consumers to take more cautious financial outlook and allocate additional share of their wallet to maintain their existing vehicle.

Our industry history has proven that time in times of economic uncertainty motivate consumers to take more cautious financial outlook and allocate additional share of their wallet to maintaining their existing vehicles.

We believe this has been a positive for our business since the onset of the pandemic.

Speaker 3: We believe this has been a positive for our business since the onset of the pandemic.

Speaker 3: and that this value proposition will continue to support solid demand in our industry.

And that this value proposition will continue to support solid demand in our industry.

Speaker 3: We are also encouraged by the resilience of the strong sales trends in our business. We've moved, as we move further past the injection of government stimulus into the economy and believe that economically consumers remain relatively healthy with employment increasing and miles driven steadily recovering.

We are also encouraged by the resilience of the strong sales trends in our business. We've moved as we move further past the injection of government stimulus into the economy and believes that economically consumers remain relatively healthy with employment increasing in miles driven steadily recovering.

Speaker 3: Beyond this positive macroeconomic backdrop, it is also clear to us that our extremely strong sales results are driven by significant share gains.

Beyond this positive macroeconomic backdrop. It is also clear to us that our extremely strong sales results were driven by significant share gains.

Speaker 3: with our outperformance, the direct result of significant competitive advantages afforded by the strength of our business model and supply chain.

With our outperformance the direct result of significant competitive advantages afforded by the strength of our business model and supply chain.

For the DIY side of our business, we anticipate delivering generally stable to slightly negative ticket counts with the headwind coming from lapping the positive impact of government stimulus on the first half of 2021 and.

Speaker 3: For the DIY side of our business, we anticipate delivering generally stable to slightly negative tick accounts with a headwind coming from lapping the positive impact of governance stimulus on the first half of 2021 and expected pressures from increased price.

And expected pressures from increased prices.

Speaker 3: we remain cognizant of the impact of sustained inflation on the economically challenged DIY consumers who have historically deferred non-critical maintenance and traded down the product value spectrum as prices dramatically increase.

We remain cognizant of the impact of sustained inflation on the economically challenged DIY consumers, who have historically deferred noncritical maintenance and traded down the product value spectrum as prices dramatically increase.

Speaker 3: We expect this pressure to ticket comp counts to be more than offset by increased average ticket as our forecast includes an assumption of mid-single digit same skew inflation.

We expect this pressure to ticket comp counts to be more than offset by increased average ticket as our forecast includes an assumption of mid single digit same SKU inflation.

Speaker 3: The anticipated benefit from same-sue inflation does not include significant incremental increases in price levels from this point forward in 2022, consistent with our historical approach to issuing God.

The anticipated benefit from same SKU inflation does not include significant incremental increases in price levels from this point forward in 2022, consistent with our historical approach to issuing guidance.

Speaker 3: Our projection reflects the static prices from current levels with the expected benefit of same-skew inflation being stronger in the first half of the year as we compare price levels that ramp throughout 2021.

Our projection reflects the static prices from current levels with expected benefit of same SKU inflation being stronger than the first half of the year as we compare price levels that ramp throughout 2021.

Speaker 3: On the personal side of our business, our guidance expectations assume robust growth and comp tick accounts supported by four factors.

On the principal side of our business our guidance expectations assume robust growth.

Ticket counts supported by four factors.

Speaker 3: stronger economic resilience of the end user customers on this side of the business.

The stronger economic resilience of the end user customers on this side of the business.

Speaker 3: incremental improvement and miles driven from consumers generally returning to an in-person work post-pandemic.

Incremental improvement in miles driven from consumers generally returning to an in person work post pandemic.

Speaker 3: a long-term industry demographic trend for faster growth from the professional side of our business.

The long term industry demographic trend for faster growth on the professional side of our business.

Speaker 3: and anticipated accelerated growth from the Professional Pricing Initiative, which I will discuss next.

An anticipated accelerated growth from the professional pricing initiative, which I will discuss next.

Speaker 3: Throughout our history, we've been steadfast in earning our professional customers business by providing excellent customer service from highly trained professional parts people with rapid access to industry leading inventory at competitive prices.

Throughout our history, we have been steadfast in earning our professionals customer our professional customers business by providing excellent customer service from highly trained professional parts people with rapid access to industry, leading inventory at competitive prices.

Speaker 3: This unwavering commitment to customer service has allowed us to drive exceptional value for our customers and capitalize on competitive advantages to earn a pricing premium in many of our markets.

This unwavering commitment to customer service has allowed us to drive exceptional value for our customers and capitalize on competitive advantages to earn a pricing premium in many of our markets.

Speaker 3: Our service over price philosophy remains unchanged, but we believe we have an opportunity to accelerate our professional share gain through targeted, competitive adjustments to our professional pricing strategy.

Our service over price philosophy remains unchanged, but we believe we have an opportunity to accelerate our professional share gain through targeted competitive adjustments to our professional pricing strategy.

The past two years in the automotive aftermarket had been very turbulent characterized by volatility in customer demand customer demand as a result of the pandemic significant supply chain shocks and an evolving competitive landscape. These factors have been more disruptive on the do it for me side of the business, which remains very <unk>.

Speaker 3: The past two years in the automotive aftermarket have been very turbulent, characterized by volatility and customer demand as a result of the pandemic, significant supply chain shocks, and an evolving competitive landscape. These factors have been more disruptive on the do-it-for-me side of the business, which remains very fragmented, and where the ability to respond to challenging environments has differed significantly between market participants.

<unk> and where the ability to respond to challenging environments different significantly between market participants.

Speaker 3: Against this backdrop, we have been very successful in gaining professional market share and growing substantially faster than the overall market through the strength of our industry-leading inventory availability, tiered distribution and hub network, and world-class professional parts.

Against this backdrop, we have been very successful in gaining professional market share and growing substantially faster than the overall market through the strength of our industry, leading inventory availability tiered distribution hub network and world class professional parts people.

Speaker 3: However, we believe that the current disruptive environment presents an opportunity for us to enhance our competitive positioning and leverage our competitive advantages to drive accelerated long-term market share.

However, we believe that the current disruptive environment presents an opportunity for us to enhance our competitive positioning and leverage our competitive advantages to drive accelerated long term market share gains.

Speaker 3: Over the course of the past few quarters, we've tested several professional pricing strategies in multiple markets.

Over the course of the past few quarters, we've tested several professional pricing strategies in multiple markets. We've been very encouraged by the results of our testing and after dialing in our strategy, we rolled out the professional pricing initiative companywide at the beginning of February .

Speaker 3: We've been very encouraged by the results of our testing, and after dialing in our strategy, we rolled out the professional pricing initiative company-wide at the beginning of February .

Speaker 3: For 2022, we expect to see a meaningful benefit to our professional customer comps from share gains which we've incorporated into our comparable sales growth expectation.

For 2022, we expect to see a meaningful benefit to our professional customer comps from share gains, which we've incorporated into our comparable sales growth expectations.

Speaker 3: professional pricing initiatives will pressure our gross margin rate, which we have also incorporated into our gross profit guide.

The professional pricing initiatives will pressure, our gross margin rate, which we have also incorporated into our gross profit guidance.

Speaker 3: While we continually adjust pricing by location, by customer, and by product line to reflect changing market conditions, we believe the professional pricing initiative we put in place appropriately positions us to enhance the value proposition we offer to our professional customers and solidify our position on the top of the call list for 2022 and beyond.

While we continually adjust pricing by location by customer and by product line to reflect changing market conditions. We believe the professional pricing initiative, we put in place appropriately positions us to enhance the value proposition, we offered our professional customers and solidify our position on the top of the call list.

For 2022 and beyond.

Speaker 3: Next, I'd like to provide some color on our fourth quarter gross margins and additional details supporting our full year 2022 guidance.

Next I'd like to provide some color on our fourth quarter gross margins and additional details supporting our full year 2022 guidance.

Speaker 3: Our fourth quarter gross margin of 52.7% was a 66 basis point improvement from our fourth quarter of 2020, which exceeded the expectations we discussed on the third call.

Our fourth quarter gross margin of 52, 7% was 66 basis point worth of 66 basis point improvement from our fourth quarter of 2020, which exceeded the expectations. We discussed on the third call third quarter call.

Speaker 3: For the full year, gross margin also came in at 52.7%, which was a 23 basis points higher than last year and at the upper end of our guidance range instead of the bottom half of the range as previously expected.

For the full year gross margin also came in at 52, 7%, which was a 23 basis points higher than last year and at the upper end of our guidance range instead of the bottom half of the range as previously expected.

Speaker 3: The principal driver of the better than expected performance was lower than expected distribution cost.

The principal driver of the better than expected performance was lower than expected distribution costs.

Speaker 3: As we discussed on previous calls, our distribution infrastructure is facing inefficiencies due to extremely high sales volumes, the difficult labor environment, and global logistics challenges.

As we've discussed on previous calls our just our distribution infrastructure is facing inefficiencies due to extremely high sales volumes, the difficult labor environment and global logistics challenges.

Speaker 3: While we continued to take targeted actions in the fourth quarter to respond to these pressures, we did not incur the level of incremental expense that we anticipated.

While we continue to take targeted actions in the fourth quarter to respond to these pressures we did not incur the level of incremental expense that we had anticipated.

Speaker 3: For 2022, we expect gross margin to be in the range of 50.8 to 51.3 percent.

For 2022, we expect gross margin to be in the range of 58 to 51, 3%.

Speaker 3: year-over-year pressure to our gross margin rate is driven by the impact of our professional pricing initiative, a reduced LIFO benefit, and a headwind from higher mix of professional business which we expect to grow faster than DIY.

The year over year pressure to our gross margin rate is driven by the impact of our professional pricing initiative, a reduced LIFO benefit and a headwind from higher mix of professional business, which we expect to grow faster than DIY.

Speaker 3: We expect these headwinds to be partial offset by leverage of our distribution cost as supply chain conditions begin to normal.

We expect these headwinds to be partially offset by leverage of it just by leverage of our distribution cost of supply chain supply chain conditions begin to normalize.

Speaker 3: Before turning the call over to Brad, I'd like to highlight our fourth quarter earnings per share increase of 41% to $7.64.

Before turning the call over to Brad I'd like to highlight our fourth quarter earnings per share increase of 41% to $7 64.

Speaker 3: full year 2021 increase of 32% to $31 and 10.

With the full year 2021 increase of 32% to $31 10.

Speaker 3: For 2022, our guidance is $32.35 to $32.85.

For 2022, our guidance is $32, 37% and 35.

To $32 85.

Speaker 3: representing an increase of 5% versus 2021 at the mid

Representing an increase of 5% versus 2021 at the midpoint.

Speaker 3: After delivering earnings per share growth of 32% in both 2021 and 2020, our forecasted annual increase for 2022 diluted earnings per share represents a three-year compounded annual growth rate of 22%. And is a testament to the historical results our team has been able to generate and repeat through consistent, excellent execution.

After delivering earnings per share growth of 32% in both 2021 and 2020, our forecasted annual increase for 2022 diluted earnings per share represents a three year compounded annual growth rate of 22% and is a testament to the historical results. Our team has been able to generate.

And repeat through consistent excellent execution.

Speaker 3: To wrap up my comments, I want to again thank Timo Riley for an outstanding year. Your dedication to living out our culture and taking care of our customers every day drives our continued success. I'll now turn the call over to Brad.

To wrap up my comments I want to again, thank team O'reilly for an outstanding year your dedication to living out our culture and taking care of our customers everyday drives our continued success.

I'll now turn the call over to Brad Burke Bret.

Speaker 4: Thanks, Greg. And good morning, everyone. I want to begin my comments today by echoing Greg and congratulating Team O'Reilly on another amazing year. After our record breaking year in 2020, we came into 2021 knowing just how difficult it was going to be to sustain that same level of performance.

Thanks, Greg and good morning, everyone.

I want to begin my comments today by echoing drag and congratulating team O'reilly on another amazing year. After our record breaking year in 2020, we came into 2021, knowing just how difficult it was going to be to sustain that same level of performance. However, our team once again.

Speaker 4: However, our team once again proved they were up to the challenge and generated even more impressive growth in 2021.

They were up to the challenge and generated even more impressive growth in 2021.

Speaker 4: The core driver of our success is our team's relentless focus on providing excellent customer service, and we are very excited about the opportunities we have in front of us in 2022.

The core driver of our success is our team's relentless focus on providing excellent customer service and we are very excited about the opportunities we have in front of us in 2022.

Speaker 4: Greg previously discussed our Strategic Professional Pricing Initiative, but I want to add one more point before we move on to the rest of my prepared comments.

Greg previously discussed our strategic professional pricing initiative, but I want to add one more point before we move on to the rest of my prepared comments anyone who has participated in our earnings calls or attended our analyst days for any length of time has heard us say on multiple occasions that price is not.

Speaker 4: Anyone who has participated in our earnings calls or attended our analyst days for any length of time has heard us say on multiple occasions that price is not the most important factor on the professional side of the business and that you cannot win sustainable business solely on price.

The most important factor on the professional side of the business and that you cannot win sustainable business solely on price.

Speaker 4: We want to be very clear that this rule still holds true for our business and our industry.

We want to be very clear that this rule still holds true for our business and our industry.

Speaker 4: We strongly believe that the lion's share of the professional business in the marketplace is one day in and day out through exceptional customer service and rapid inventory availability.

We strongly believe that the lion's share of the professional business in the marketplace is one day in and day out through exceptional customer service and rapid inventory availability.

Speaker 4: However, we believe we can generate solid, long-term returns by further investing in professional pricing. As an important part of our professional pricing initiative, we are intentionally not positioned as the lowest-priced competitor in each market, and our store and sales teams remain as committed as ever to earning our customers' business by out-hustling and out-servicing our competitors.

However, we believe we can generate solid long term returns by further investing in professional pricing is an important part of our professional pricing initiative. We are intentionally not positioned as the lowest priced competitor in each market and our store and sales teams remain as committed as ever.

To earning our customers' business buy out hustling and out servicing our competitors.

Speaker 4: Our team fully realizes that business won with price alone is easily lost to a lower price a competitor may decide to offer. This initiative is geared to position us more quickly to gain professional market share based on all the services we offer along with a very competitive price.

Our our team fully realizes that business one with price alone is easily lost to a lower price competitor may decide to offer. This initiative is geared to position us more quickly to gain professional market share based on all the services, we offer along with a very competitive price.

Speaker 4: Now I'd like to take some time covering our SG&A and operating profit performance in 2021, as well as our outlook for 2022. For the fourth quarter, we generated an impressive increase in operating margin of 165 basis points and operating profit dollar growth of 27%.

Now I'd like to take some time to covering our SG&A and operating profit performance in 2021 as well as our outlook for 2022 for.

For the fourth quarter, we generated an impressive increase in operating margin of 165 basis points and operating profit dollar growth of 27%.

Speaker 4: For the full year, we generated a 21% increase in operating profit dollars, yielding a new annual record of 21.9% operating margin.

For the full year, we generated a 21% increase in operating profit dollars, yielding a new annual record of 21, 9% operating margin.

Speaker 4: This increase in operating profit results for 2021 was driven by our team's ability to generate exceptional comparable store sales results of 13.3% while limiting our per store SG&A growth to under 9%.

This increase in operating profit results for 2021 was driven by our team's ability to generate exceptional exceptional comparable store sales results of 13, 3%, while limiting our per store SG&A growth to under 9%.

Speaker 4: The result was improved leverage of SG&A expenses of 81 basis.

The result was improved leverage of SG&A expenses of 81 basis points.

Speaker 4: Our 2021 results are even more impressive considering we delivered these results on top of leveraging SG&A by 263 basis points in 2020.

Our 2021 results are even more impressive considering we delivered these results on top of leveraging SG&A by 263 basis points in 2020.

Speaker 4: The dollar growth in our SG&A spend per store in 2021 was significantly higher than our typical growth in operating expenses driven by expenses incurred in store payroll, incentive compensation, and variable operating expenses to support our sales growth.

The dollar growth in our SG&A spend per store in 2021 was significantly higher than our typical growth in operating expenses driven by expenses incurred in store payroll incentive compensation and variable operating expenses to support our sales growth over.

Speaker 4: Over the last year and a half, our focus has been to match the tremendous opportunities we've had to gain share and drive very strong sales growth by delivering on the excellent customer service standard that is at the core of our business, all while micromanaging our expense structure. it.

Over the last year and a half our focus has been to match the tremendous opportunities we've had to gain share and drive very strong sales growth by delivering on the excellent customer service standard that is at the core of our business all while micro managing our expense structure.

Speaker 4: The result has been an enhanced level of profitability that candidly has exceeded our previous expectations for our ability to execute our model effectively at this level of SG&A productivity.

The result has been an enhanced level of profitability that candidly has exceeded our previous expectations for our ability to execute our model effectively at this level of SG&A productivity.

Speaker 4: However, our top line growth for the last seven quarters has been both robust and remarkably consistent.

Oliver our topline growth for the last seven quarters has been both robust and remarkably consistent.

Speaker 4: This stability in strong sales volumes coupled with high fixed, low variable cost structures for our stores generates very favorable leverage for our business model.

This stability and strong sales volumes, coupled with high fixed low variable cost structures for our stores generates very favorable leverage for our business model.

Speaker 4: As we capitalize on lessons learned as we've navigated record high sales and productivity gains and look forward to 2022, we are more confident than ever that our seasoned, experienced teams will continue to be able to execute at this step change of increased profitability.

As we capitalize on lessons learned as we've navigated record high sales and productivity gains and look forward to 2022.

We're more confident than ever that our seasoned experienced teams will continue to be able to execute at this step change of increased profitability.

Speaker 4: Our estimated per store SG&A reflects our confidence in our ability to effectively control expenses moving forward.

Our estimated per store SG&A reflects our confidence in our ability to effectively control expenses moving forward.

Speaker 4: Our teams have demonstrated this ability to leverage SG&A even as we have faced significant wage rate pressures.

Our teams have demonstrated this ability to leverage SG&A, even as we faced significant wage rate pressures.

Speaker 4: Our SG&A expectations for 2022 include continued pressure from inflation and wage rates.

Our SG&A expectations for 2022 include continued pressure from inflation and wage rates at.

Speaker 4: at trends consistent with what we saw in 2021 more than offset by efficiency gains, leverage on fixed costs and incentive compensation planned at target level.

It trends consistent with what we saw in 2021 more than offset by efficiency gains.

Leverage on fixed costs and incentive compensation planned at target levels for.

Speaker 4: For 2022, we estimate per store SG&A will grow by approximately 2.5%, which is solidly below our comparable store sales we expect to generate.

For 2022, we estimate per store SG&A will grow by approximately two 5%, which is solidly below our comparable store sales, we expect to generate.

Speaker 4: As always, our top priority is to ensure we are providing excellent customer service, enabling us to develop long-term loyal customer relationships.

As always our top priority is to ensure we are providing excellent customer service, enabling us to develop long term loyal customer relationships.

Speaker 4: Based upon the pressure to gross margin Greg outlined earlier, partially offset by improved SG&A leverage, we expect operating profit to decline between 80 and 130 basis points from 2021's phenomenal results.

Based upon the pressure to gross margin, Greg outlined earlier, partially offset by improved SG&A leverage we expect operating profit to decline between 80, and 130 basis points from 2020 one's phenomenal results.

Speaker 4: However, we expect operating profit dollars at the midpoint of our guidance to increase approximately 2.5% in our operating profit guide of 20.6 to 21.1% of sales brackets our 2020 operating profit, which represented an all time high for our company before we expanded the record by another 100 basis points in 2021.

Yes.

However, we expect operating profit dollars at the midpoint of our guidance to increase approximately two 5% and our operating profit guide of 26 to 21, 1% of sales brackets. Our 2020 operating profit, which represented an all time high for our company before we expanded the Rex.

Third by another 100 basis points in 2021.

Speaker 4: Our capital expenditures for 2021 were $443 million, which was lower than our typical capital spend and below our original plan going into 2021.

Our capital expenditures for 2021 were $443 million, which was lower than our typical capital spend and below our original plan going into 2021, the lower Capex was driven by a few different factors, including a heavier weighting of leased versus owned stores the delay.

Speaker 4: The lower capex was driven by a few different factors, including a heavier weighting of leased versus owned stores, the delay of certain expenditures limited by constraints on availability of vehicles and equipment, and the timing of certain store-level strategic initiatives that had to be pushed back as our teams prioritized supporting the current strong sales volume.

If certain expenditures limited by constraints on availability of vehicles and equipment and the timing of certain store level strategic initiatives that had to be pushed back as our teams prioritized supporting the current strong sales volumes.

Speaker 4: As we set our expectations for 2022, our plan is to deploy capital for the initiatives that were delayed in 2021, as well as support new store and DC development to support our long-term growth strategies in the US and Mexico.

As we set our expectations for 2022, our plan is.

Deploy capital for the initiatives that were delayed in 2021 as well as support new store and DC development to support our long term growth strategies in the U S and Mexico.

Speaker 4: For 2022, we are setting our capital expenditure guidance at 650 to $750 million. We have also established a target of 175 to 185 net new store openings.

For 2022, we are setting our capital expenditure guidance at $650 to $750 million.

We have also established a target of 175 to 185 net new store openings.

Speaker 4: Outside of our new store and DC development, we have also identified several exciting projects and initiatives in 2022 to enhance the service we provide our customers and improve our efficiency to drive strong returns. Our CapEx guidance includes planned investments in DC and store fleet upgrades, and additional

Outside of our new store and DC development. We have also identified several exciting projects and initiatives in 2022 to enhance the service, we provide our customers and improve our efficiency to drive strong returns. Our capex guidance includes planned investments in DC and store fleet.

Great.

Speaker 4: store projects to enhance the image, appearance, and convenience of our stores, as well as strategic investments in information technology projects.

Store projects to enhance the image appearance and convenience of our stores as well as strategic investments in information technology projects.

Inventory per store at the end of 2021 was 637000.

Speaker 4: Inventory per store at the end of 2021 was $637,000, which was down 2% from the end of last year. As we've discussed on previous calls during the course of 2020 and 2021, our intent has been to aggressively add incremental dollars to our store-level inventory.

Which was down 2% from the end of last year as we've discussed on previous calls during the course of 2020 and 2021, our intent has been to aggressively add incremental dollars to our store level inventories.

Speaker 4: During the strong sales environment the past seven quarters, rolling out the full scope of these initiatives has had to take a back seat to the day-to-day replenishment needs of our stores.

During the strong sales environment, the past seven quarters rolling out the full scope of these initiatives has had to take a backseat to the day to day replenishment needs of our stores.

Speaker 4: We still see significant opportunity to build upon our industry leading parts availability and our plan for 2022 includes the deployment of additional inventory in our store and hub network above and beyond our normal new store and typical product addition.

We still see significant opportunity to build upon our industry, leading parts availability and our plan for 2022 includes the deployment of additional inventory in our store and hub network above and beyond our normal new store and typical product additions.

Speaker 4: As a result of this plan to catch up on delayed initiatives for 2022, we are planning our per store inventory to increase over 8%. This level of inventory growth is significantly above our historical run rates and is driven in part by our focus on meeting the extremely strong sales demand in a supply constrained market environment.

As a result of this plan to catch up on delayed initiatives for 2022, we are planning our per store inventory to increase over 8%.

This level of inventory growth is significantly above our historical run rates and has driven in part by our focus on meeting the extremely strong sales demand in a supply constrained market environment.

Speaker 4: Our ongoing inventory management is geared to deploy the right inventory at the optimal position within our tiered distribution network and includes continual adjustments to push out and pull back inventory to achieve this objective.

Our ongoing inventory management is geared to deploy the right inventory at the optimal position within our tiered distribution network and <unk>.

Includes continual adjustments to push out and pull back inventory to achieve this objective. However, our overriding goal is to have the best local inventory offering and that priority drives how we manage our inventory and in turn is the primary reason for the higher levels of inventory additions planned.

Speaker 4: However, our overriding goal is to have the best local inventory offering, and that priority drives how we manage our inventory and in turn is the primary reason for the higher levels of inventory additions planned for 2022.

For 2022.

Speaker 4: Before I turn the call over to Tom, I want to once again thank Team O'Reilly for their dedication and hard work in 2021. Now, I'll turn the call over to Tom.

Before I turn the call over to Tom I want to once again, thank team O'reilly for their dedication and hard work in 2021, now I will turn the call over to Tom.

Speaker 2: Thanks Brad. I'd also like to congratulate Kim O'Reilly on another outstanding...

Thanks, Brad.

Also like to congratulate chemo Riley on another outstanding year.

Speaker 2: Now we'll take a closer look at our fourth quarter results and provide some additional guidance for 2020.

Now, we'll take a closer look at our fourth quarter results and provide some additional guidance for 2022.

For the quarter sales increased $463 million comprised of a $398 million increase in comp store sales.

Speaker 2: For the quarter, sales increased $463 million.

Speaker 2: comprised of a $398 million increase in comp store sales, a $56 million increase in non-comp store sales, and a $9 million increase in non-comp non-store sales.

$56 million increase in non comp store sales and a $9 million increase in non comp non store sales.

Speaker 2: For 2022, we expect our total revenues to be between $14.2 and $14.5 billion.

For 2022, we expect our total revenues to be between $14 to $14 5 billion.

Speaker 2: Greg covered our gross margin performance earlier, but I want to provide additional details on our positive LIFO...

Greg covered our gross margin performance earlier, but I want to provide additional details on our positive LIFO impact.

Speaker 2: For the full year 2021, the LIFO impact was $80 million, compared to $11 million in the prior year.

For the full year 2021, the LIFO impact was $80 million compared to $11 million in the prior year.

Speaker 2: As a reminder, the positive LIFO impact is a byproduct of the reversal of our historic LIFO deficit.

As a reminder, the positive LIFO impact is a byproduct of the reversal of our historic LIFO debit.

Speaker 2: 2013 due to negotiated acquisition price...

Since 2013 due to negotiated acquisition price decreases.

Speaker 2: Our calculated LICO inventory balances exceeded the value of our inventory at replacement.

Calculated LIFO inventory balances exceeded the value of our inventory at replacement cost.

Speaker 2: and we elected the conservative approach to not write up inventory value beyond our opinion.

And we elected the conservative approach to not write up inventory value beyond replacement cost.

Speaker 2: As a result of this accounting, we've seen a benefit from rising costs and price levels via the sell-through of lower cost inventory purchased prior to the recent costs.

As a result of this accounting we've seen a benefit from rising costs in price levels via the sell through of lower cost inventory purchased prior to the recent cost increases.

Speaker 2: However, during the third quarter of 2021, our LIFO reserve flipped back to a credit balance as a result of inflation and acquisition costs.

However, during the third quarter of 2021, our LIFO reserve flip back to a credit balance.

As a result of inflation and acquisition costs.

Speaker 2: And moving forward, we expect to be back to typical LIFO accounting and no longer valuing inventory at a lower place.

And moving forward, we expect to be back to typical LIFO accounting and no longer value inventory at a lower replacement cost.

As a result, we anticipate a limited benefit of less than $10 million in 2022 for the final sell through of the remaining lower cost inventory, which creates a headwind to our gross margin rate.

Speaker 2: As a result, we anticipate a limited benefit of less than $10 million in 2022 for the final sell-through of the remaining lower-cost inventory, which creates a headwind to our gross market.

Speaker 2: Our fourth quarter effective tax rate was 19.4% of pre-tax...

Our fourth quarter effective tax rate was 19, 4% of pretax income comprised of a base rate of 24% reduced by 1% benefit for share based compensation.

Speaker 2: comprised of a base rate of 20.4%, reduced by 1% benefit for shear-based compensation.

Speaker 2: This compares to the fourth quarter of 2020 rate of 21.4% of free tax income, which was comprised of a base tax rate of 21.8%, reduced 5.4% benefit for share-based compensation.

This compares to the fourth quarter of 2020 rate of 21, 4% of pretax income, which was comprised of a base tax rate of 21, 8% reduced by a 4% benefit for share based compensation.

Speaker 2: fourth quarter of 2021 base rate as compared to 2020 benefited from a higher level of renewable energy tax.

The fourth quarter of 2021 base rate as compared to 2020 benefited from a higher level of renewable energy tax credits as a result of the timing of these projects, which was in line with our expectations.

Speaker 2: as a result of the timing of these projects, which was in line with our expectations.

For the full year, our effective tax rate was 22, 2% of pretax income comprised of a base rate of 23, 5% reduced by one 3% for share based compensation.

Speaker 2: For the full year, our effective tax rate was 22.2% of pre-tax income, comprised of a base rate of 23.5%, reduced by 1.3% for share-based compensation.

Speaker 2: For the full year of 2022, we expect an effective tax rate of 23.2%, comprised of a base rate of 23.7%, reduced by a benefit of 0.5% for share-based compensation.

For the full year of 2022, we expect an effective tax rate of 23, 2% comprised of a base rate of 23, 7% reduced by a benefit of <unk>, 5% for share based compensation.

Speaker 2: we expect the course quarter rate to be lower than the other three quarters due to the expected timing of benefits from renewable energy tax credits and tolling of certain tax periods.

We expect that fourth quarter rate to be lower than the other three quarters due to the expected timing of benefits from renewable energy tax credits and tolling of certain tax periods.

Speaker 2: These expectations assume no significant changes to existing tax.

These expectations assume no significant changes to existing tax codes.

Speaker 2: Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly

Also variations in the tax benefit from share based compensation can create fluctuations in our quarterly tax rate.

Speaker 2: Now we move on to free cash flow and the components that drove our results and our expectations for 2022.

Now I'll move on to free cash flow and the components that drove our results and our expectations for 2022.

Speaker 2: Free cashflow for 2021 was $2.5 billion versus $2.2 billion in 2020.

Free cash flow for 2021 was $2 5 billion.

Versus $2 2 billion in 2020.

Speaker 2: The increase of $359 million, or 16%, was driven by an increase in operating income and a higher reduction in net inventory in 2021 versus the prior.

The increase of $359 million or 16% was driven by an increase in operating income and a higher reduction in net inventory in 2021 versus the prior year.

Speaker 2: For 2022, we expect free cash flow to be in the range of $1.3 to $1.6 billion, with the year-over-year decrease primarily due to increased net inventory investment and increased capex as Brad previously outlined.

For 2022, we expect free cash flow to be in the range of one three to $1 6 billion with the year over year decrease primarily due to increased net inventory investment and increased capex.

<unk> previously outlined.

Speaker 2: Our APD inventory ratio at the end of the fourth quarter was 127%

Our AP to inventory ratio at the end of the fourth quarter was 127%, which set an all time high for our company and was heavily influenced by the extremely strong sales volumes and inventory turns in 2021.

Speaker 2: seven all time high for our company and was heavily influenced by the extremely strong sales volumes and inventory turns in 2021.

Speaker 2: We anticipate our AP to inventory ratio to moderate off of this historic high as we complete our additional inventory investments and sales growth moderate.

We anticipate our AP to inventory ratio to moderate off of this historic high as we complete our additional inventory investments in sales growth moderate.

Speaker 2: Our current expectation is to finish 2022 at a ratio of approximately 120.

Our current expectation is to finish 2022 at a ratio of approximately 120%.

Speaker 2: Moving on to debt, we finished the 4th quarter with an adjusted debt to EBITDA ratio of 1.69 times as compared to our end of 2020 ratio of 2.03

Moving on to debt, we finished the fourth quarter with an adjusted debt to EBITDA ratio of 169 times as compared to end of 2020 ratio of two three times.

Speaker 2: reduction driven by the significant growth in EBITR during 2021 and a decrease in adjusted debt, including the redemption of $300 million of senior notes in the second half of 2021.

With the reduction driven by the significant growth and EBITDAR during 2021, and a decrease in adjusted debt, including the redemption of the $300 million of senior notes in the second quarter.

We continue to be below our leverage target ratio of two five times and we will approach that number when appropriate.

Speaker 2: continue to be below our leverage target ratio of 2.5 times and we will approach that number when approached.

Speaker 2: We also continue to execute our share repurchase program. And for 2021, based on the strength of our business, we were able to repurchase 4.5 million shares of an average share price of $545.78 for a total investment of $2.5 billion.

We also.

Continue to execute our share repurchase program and for 2021 based on the strength of our business, we were able to repurchase four 5 million shares at an average share price of $545 78.

For a total investment of $2 5 billion.

Speaker 2: Subsequent to the end of the year and through the date of our press release, we repurchased 0.3 million shares at an average share price of $660.23.

Subsequent to the end of the year and through the date of our press release, we repurchased 3 million shares at an average share price of $660 in 'twenty three.

Speaker 2: we remain very confident that the average repurchase price is supported by the expected future discounted cash flows of our business.

We remain very confident that the average repurchase price is supported by the expected future discounted cash flows of our business.

Speaker 2: and we continue to view our buyback programs as an effective means of returning excess capital doors.

And we continue to view our buyback program as an effective means of returning excess capital to our shareholders.

Speaker 2: As a reminder, our EPS guidance for 2022 includes the impact of shares repurchased through this call, but does not include any additional share repurchased.

As a reminder, our EPS guidance for 2022 includes the impact of shares repurchased through this call, but does not include any additional share repurchases.

Speaker 2: Before I open up our call to your questions, I'd like to thank the O'Reilly team for their dedication to our company and our customers.

Before I open up our call to your questions I'd like to thank the O'reilly team for their dedication of our company and our customers.

Your hard work and commitment to excellent customer service continues to drive our outstanding performance.

Speaker 2: commitment to excellent customer service continues to drive our outstanding performance.

Speaker 2: This concludes our prepared comments and this time I'd like to ask James, the operator, to return the line and we'll be happy to answer your questions.

This concludes our prepared comments and at this time I would like to ask Jane to the operator to return to the line and we'll be happy to answer your questions.

Speaker 1: Thank you. We can now begin our Q&A session. If you have a question, please press star one on your phone. If you wish to be removed from the question key, you may press the pound sign or the hash key. We ask that you please limit your questions to one question and one follow-up question. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star one on your phone.

Thank you we can now begin our Q&A session. If you have a question. Please press star one on your phone.

If you wish to be removed from the question queue, you May press, the pound sign or the husky.

We ask that you. Please limit your questions to one question and one follow up question.

Youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star one on your phone.

Speaker 1: Our first question is from Scott Ciccarelli of Trist Securities.

Our first question is from Scot Ciccarelli of Trust Securities.

Speaker 5: Good morning guys, hope you're well. I think we can appreciate that price isn't the most important factor in driving a customer's decision. But I guess my questions are number one, why are we making these price investments now as in what has changed? And then number two, why couldn't we see this round of price cuts become another set of price cuts at some point in the future potentially threatening one of the key investment pillars of this vertical? Thanks.

Good morning, guys hope you're well.

I think we can appreciate that price isn't the most important factor.

And driving our customers' decision.

My questions are number one why are we making these price investments now I think what has changed and then number two.

Why couldn't you see this round of price cuts become another set of price cuts at some point in the future potentially threatening why they key investment pillar.

That vertical.

Speaker 3: Yes, Scott, this is Greg. I'll take that one and see if Tom and Brad may have something to add to it.

Yes, Scott this is Greg I'll take that one and then see if Tom and Brad may have something to add to it.

Speaker 3: You know, as to, first of all, I want to reiterate what you said. You know, our philosophy hasn't changed. We always lead with service. Service is most important, followed by inventory availability and then PRI.

As to <unk>.

First of all I want to reiterate which you said our philosophy hasn't changed we always lead with service services. Most important followed by inventory availability and then price as far as why now.

Speaker 3: As far as why now, when you look at the past couple of years, we've been through two years of inflation, price increases. We've seen rising prices. We've seen supply chain disruption. And I think we've performed better than a lot of our competitors over the past couple of years, especially our smaller competitors.

When you look at the past couple of years, we've been through two years of inflation price increases we've seen rising prices, we've seen supply chain disruption.

And I think we've performed better than a lot of our competitors over the past couple of years, especially our smaller competitors.

Speaker 3: When you look at the professional side of our business as a whole, as you know, it's very, very fragmented. There's a lot of players out there on that side of our business, some of which are the large national players, some of which are the smaller WDs and two-steppers. We compete against each of those every day in every market that we operate.

When you look at the professional side of our business as a whole as you know it's very very fragmented.

There's a lot of players out there on that side of our business some of which are the large national players some of which are the smaller <unk> and two steppers, we compete against each of those every day in every market that we operate in.

Speaker 3: So we felt like coming off of a couple of years of inflation and supply chain disruption, again, where we've performed well, and the anticipation that some of the supply chain disruption may moderate in the back half of the year, timing was right to implement this change. And we...

So we felt like coming off of a couple of years of inflation and supply chain disruption again, where we have performed well and the anticipation that some of the supply chain disruption may moderate in the back half of the year timing was right to implement this change.

Speaker 3: What we did here is really no different than what we do day in and day out with our pricing team. Our pricing team constantly monitors pricing on both sides of our business and makes tweaks to pricing at both the professional and the DIY level across our customers. And this initiative specifically targets our DIFM.

What we did here is really no different than what we do day in day out with our pricing team our pricing team constantly monitors pricing on both sides of our business and make tweaks to pricing at both the professional and the DIY level across our customers and this initiative.

Specifically targets are.

Tim.

Speaker 3: customers and just we feel like this will enable us to take additional market share on that side of the business. So that's why now Brad did you want to add anything to that or take the second part of the question.

Customers and just we feel like this will enable us to take additional market share on that side of the business. So that's why now.

Brad do you want to add anything to that or take the second part of the question.

Speaker 4: Yeah, hey, good morning, Scott. I would just really echo what Greg said, Scott, in terms of you as well as anybody on the call knows how fragmented the DIF inside the business is.

Yes, Hi, good morning, Scott I would just really echo what Greg said Scott in terms of.

You as well as anybody on the call knows how fragmented the <unk> inside of the businesses.

Speaker 4: You know how really little share when you add up us and our public competitors on the really the addressable DIFM.

Know, how really little share when you add up us in our public competitors on the really the addressable <unk> share in the United States is still very small and so I would just reiterate really what you said and what Greg said that it's so important for us to convey that this is not a change in terms of.

Speaker 4: share in the United States is still very small. And so I would just reiterate, you know, really what you said and what Greg said, that it's so important for us to convey that.

Speaker 4: This is not a change in terms of our focus. We have built our company on service.

Our focus we have built our company on service, we have built our company on relationships and as you know we built our company on the professional customer and retail came later and so that this is not abandoning all the things that got us where we are and the things that are going to get us into the future.

Speaker 4: We have built our company on relationships and as you know we built our company on the professional customer and retail came later.

Speaker 4: And so this is not abandoning all the things that got us where we are and the things that are gonna get us into the future. To your point on the timing of it, you know, Greg had some great comments there. And the other thing I would say, Scott, is with everything that our industry and really everybody in the world has been through the last couple years, especially our professional customers, whether it be a shade tree mechanic to an independent garage to the national and regional accounts, you know, we have not.

Your point on the timing of it Greg had some great comments, there and the other thing I would say Scott is.

With everything that our industry and really everybody in the world has been through the last couple of years, especially our professional customers whether it be.

Shade tree mechanic to independent garage to the national and regional accounts.

We have not backed off of being out there calling on them, meaning actually visiting their shops day in day out weekend week out.

Speaker 4: backed off of being out there calling on them, meaning actually visiting their shops, you know, day in day out, week in week out.

Speaker 4: And an opportunity that we saw the last couple years is, our shops are telling us. I mean, our service is where it needs to be. Our team's in the stores.

And an opportunity that we saw the last couple of years as our shops are telling us I mean, our services where it needs to be.

Our teams in the stores.

Speaker 4: you know, everything that you know we've done with inventory availability. And when it comes to the independents out there and the two-step type model competitors, as well as some of the specialty type competitors that maybe just focus in on a couple categories.

Everything that we've done with inventory availability and.

When it comes to the independents out there and the two step type model competitors as well as some of the specialty type competitors that may be just focus in on a couple of categories.

Speaker 4: We just simply see an opportunity from our sales team and in the field to go out and with a rifle approach, target those areas and with existing customers that may be buying a certain amount from us, may be buying a certain amount from an independent and another amount from a true specialty company, consolidating that customer and truly getting a first and only call and we feel very good about that. And Scott, just on the second part of your question.

Simply see an opportunity from our sales team and in the field to go out in with a rifle approach target those areas and with existing customers that may be buying a certain amount from us maybe buying a certain amount from an independent and another amount from an from a true specialty company consolidating that customer and truly getting a <unk>.

First and only call in we feel very good about that and Scott just on your the second part of your question I want to reiterate that this is a targeted approach. This is a very scientific approach. We're taking this is not across the board.

Speaker 3: You know, I want to reiterate that this is a targeted approach. This is a very scientific approach we're taking. This is not across the board.

Speaker 3: This price enhancement was done by category by SKU.

This price this price enhancement was done by category by SKU.

Speaker 3: And you know, we still feel like that based on our performance, our supply chain strength, that we can still charge a premium to our professional customers. So we do not feel like this is a race to the bottom. We do not feel like we are lowballing costs. We're just getting competitive with some of our competitors out there in the markets to take additional market share. Thanks a lot for the time.

And we still feel like that based on our performance our supply chain strengths that we can still charge a premium to our professional customers. So we do not feel like this is a race to the bottom and we do not feel like we are low borrowing cost. We are just getting competitive with some of our competitors out there in the markets take us.

<unk> market share.

Got it thanks, a lot for that.

Hi, guys.

Thanks Scott.

Speaker 1: Our next question from Christopher Horvers of JP Morgan.

Our next question from Christopher <unk> of JP Morgan.

Thanks, Good morning all.

Speaker 2: Thanks. Good morning. I'll be the second to ask about the pricing. I thought that was a great answer. I just want to focus on a couple things. So first, you going back to the introductory comment that you and you intentionally try not to be the lowest price in the market because you have the leading service model. Do you still expect that to be true going forward?

The second asking about the pricing I thought that was a great answer I just wanted to focus on a couple of things so first.

<unk> back to the introductory comment that UN you intentionally try not to be the lowest price in the market. Because you have the leading service model do you extend expect that to be true going forward.

Speaker 2: You know, and if some of this is just you're not passing along the inflation that you're experiencing, what's the risk that you actually lower the market, lower the low range of the market price range? You know what I mean?

And if some of this is just you're not passing along the inflation that.

That you are experiencing what's the risk that you actually lower the market lower the low range of the market price range, you know what I mean.

Speaker 3: Yeah, Chris, on the first, we absolutely feel like that this makes us competitive in the marketplace.

Yes, Chris.

On the first we absolutely feel like that that just makes us competitive in the marketplace.

Speaker 3: And as far as lowering, again, we are not doing this to be the lowest price in the marketplace. We feel like that there is tremendous value in the services that we provide and the relationship.

And as far as lowering again, we are not doing this to be the lowest price in the marketplace. We feel like that there is tremendous value in the services that we provide and the relationships you have to remember the professional customer while price is important we're not saying price is not important.

Speaker 3: You have to remember the professional customer, while price is important, we're not saying price is not important.

What's more important to that professional customer is the relationship we have with them the inventory availability that we have and our consistent performance and ability to get that parts of them timely. So they can complete the jobs. They are working on our professional customers will always prioritize that over price again.

Speaker 3: that we have and our consistent performance and ability to get that part to them timely so they can complete the job they're working on. Our professional customers will always prioritize that over price, again, assuming that we're competitive on price. So we feel like this move will enable us to take additional market share, both from existing customers and gain market share from customers we may not be getting business from today. Chris, to address your second part of your question, you're absolutely right.

Assuming that we're competitive on price. So we feel like this move will enable us to take additional market share both from existing customers and gain market share from customers, we may not be getting business from today.

Speaker 3: Chris, to address your second part of your question, you're absolutely right. In many cases, due to the significant inflation, same-sue inflation, it varies across product line. In many cases, this isn't reducing the street price. It's just not taking that acquisition increase to the street.

Chris.

Dress your second part of your question, you're absolutely right in many cases due to the significant inflation same SKU inflation.

And it varies across product line.

Many cases this isn't reducing the street price, it's just not taking that acquisition increase to the street and price.

Speaker 2: Got it. And then as a follow up, you know, you talked about sort of

Got it.

And then as a follow up you talked about sort of.

Speaker 2: targeting certain sort of product lines and categories, you know, where you see, you know, some specialty players having shares. So can you maybe expand on that? Is this targeted at share with like national accounts?

Targeting certain sort of product lines and categories, where you see some specialty players having share. So can you maybe expand on that is this is this targeted at share with like national accounts.

Speaker 2: Is it up and down the street mechanics? And to what extent is it something like, I don't know, like fuel injection lines that maybe have a certain degree of specificity where that specialty player provides differentiated sort of product.

It up and down the street mechanics and.

And to what extent it is something like I don't know like fuel injection lines that maybe.

Have a certain degree of specificity where that specialty player provides differentiated.

Sort of product.

But Chris this is Tom I am going to start with the answer. So you know that the answer is going to be we're not going to give that.

But I really want to make sure that we're.

We're talking about a broad pricing strategy, we don't communicate the details of our pricing strategy.

Yes.

Speaker 4: A lot of science, a lot of work goes into it, a lot of history. So we're not going to get down into the details of what the program is, but in general, I'll turn it over to Brad for his comments. Yeah, Chris, I think what's important to talk about here is that this isn't a...

Lot of science, a lot of work goes into it a lot of history.

So we're not going to get down into the details of what the program is.

But in general I will turn it over to Brad for his comments, yes, Chris I think I think what's important to talk about here is this.

This isn't a.

Speaker 4: Again, new strategy or initiative that's focused on one.

Again, new strategy or initiative that is focused on one one customer group again. This is going to this is our commitment to everybody from the shade tree to the independent garages to the regional players to the national accounts and Chris as you know, we still have a gap in footprint and a part of the.

Speaker 4: commitment to everybody from the shade tree to the independent garages to the regional players to the national accounts and Chris as you know you know we still have a gap in footprint in a part of the Northeast part of the country that keeps us from really being the the first call for some of the national guys from a matchup standpoint but what I would say again to remember is that while we have new opportunity for new customers always you know one of the things that we really like about this is our existing cup customers that are buying you know a piece from us maybe a piece from our public competitors a really big piece from the independents and then another people

Northeast part of the country that.

It keeps us from really being the first call for some of the national guys from a matchup standpoint, but what I would say again to remember is that.

We have new opportunity for new customers always.

One of the things that we really like about this is our existing customers that are buying a piece from us maybe a piece from our public competitors are really big piece from the independents and then another piece of their monthly purchases from a specialty company and we're already delivering to these shops in some cases, we're delivering.

Speaker 4: public competitors, a really big piece from the independents, and then another piece of their monthly purchases from a specialty company. And we're already delivering to these shops. In some cases, we're delivering part of the job that maybe they had to get another item from somewhere else. And so we just see tremendous opportunity. And our customers are telling us that with our inventory availability, our service, our people, if we can make some adjustments there, we really have a huge opportunity to turn into the first and only call for those garages.

Part of the job.

Maybe they had to get another item from somewhere else and so we just see tremendous opportunity and our customers are telling us that with our inventory availability our service our people.

If we can make some adjustments there we really have a huge opportunity to turn into the first and only call for those for those garages.

Speaker 2: make sense. Thanks very much.

Makes sense, thanks very much.

Thanks, Chris Thanks, Chris.

Speaker 1: Our next question from Brett Jordan of Jeffries.

Our next question from.

Bret Jordan of Jefferies.

Speaker 4: Hey, good morning, guys. Morning, Brett. I'll jump from pricing to supply chain. Could you talk about maybe the cadence of supply chain disruption or I think in prior quarters we talked about some categories specifically being really hard from an import or production standpoint. Could you talk about how you saw your availability of inventory in the fourth quarter?

Hey, good morning, guys good morning, Brett.

From pricing to supply chain.

You talk about maybe the cadence of supply chain disruption or I think in prior quarters, we've talked about some categories, specifically being really hard from import or.

Production standpoint could you talk about how you saw your availability of inventory in the fourth quarter.

Speaker 3: Yeah, Brett, I'll start that and then I'll see if Brent has anything to add because he lives that day in and day out.

Yes, Brett I'll start that and then I'll see if Brent has anything to add because he lives that day in and day out.

Speaker 3: You know, we have seen improvement and you know, when you talk about supply chain constraints over the past

We have seen improvement and when you talk about supply chain.

Constraints over the past several months.

Speaker 3: several months. It's bigger than just supply and demand. There's been a lot of facets to it.

It's bigger than just supply and demand there has been a lot of a lot of facets to that.

Speaker 3: I would say that it has improved from overseas, container availability has improved, we still have some port challenges.

I would say that that it has improved from overseas container availability has improved we still have some port challenges.

Speaker 3: We still have some targeted suppliers.

We still have some targeted suppliers.

Speaker 3: Primarily suppliers that are operating in smaller markets domestically that are still having some labor issues.

Primarily suppliers that are operating in smaller markets domestically that are that are having still having some labor issues, we got some raw material.

Speaker 3: We got some raw material challenges that some of our suppliers are having.

The challenges that some of our suppliers are having overall I would tell you that our fill rate from our Dcs to our stores has improved I would tell you that our in stock position at our stores Hasnt continues to improve and most of our suppliers overall fill rate has improved.

Speaker 3: Overall, I would tell you that our fill rate from our DCs to our stores has improved.

Speaker 3: I would tell you that our in-stock position at our stores has and continues to improve and most of our suppliers overall fill rate has improved. Now that's it.

Speaker 3: We still have some suppliers that are challenged, and we still work with those. I know Brent and his team, some of our suppliers they're meeting with weekly or even multiple times a week to work through those constraints. Brent, did you want to add anything to that?

We still have some suppliers that are challenged and we still work with those on a Brent and his team some of our suppliers there meeting with.

Weekly or even multiple times a week to work through those constraints Brent did you want to add anything to that yes.

Speaker 4: Yeah, Brett, Greg gave a good summary. I mean, I think we are seeing general trends of improvement as he alluded to. We still have some spotty suppliers that we're working more closely with than others, but generally we're encouraged by what we're seeing and we anticipate.

Yes.

<unk>.

Greg gave a good summary.

We are seeing general trends of improvement as he alluded to.

We still have some spotty suppliers that we're working more closely with than others, but generally.

We are encouraged by what we're seeing and we anticipate.

Speaker 4: know that improvement to continue hopefully as we work through the first half of the year and into the back half of the year. Okay great.

That improvement to continue hopefully as we work through the first half of the year and into the back half of the year.

Okay, Great and my follow up question is going to be on price.

Speaker 4: But you said you're going to be competitive in the markets. And I guess given your higher service levels and historically higher in stocks than peers, can you be priced still above those peers just given the other values you offer in the transaction? Or are you thinking that by competitive, do you mean you'll be priced on a dollar basis in line?

Right.

You said youre going to be competitive in the markets and I guess given your your higher service levels that are historically higher in stocks than peers can.

Can you be priced still above those peers just given the other values you offer in the transaction or are you thinking that by competitive do you mean youll be priced on a dollar basis in line.

Speaker 3: No, Brett, we still feel like we can be priced at a higher price point than our competitors based on the services we provide, which has been our historic stance on this. Tom, did you? The thing that I point to, Brett, is we have a wide range of competitors, and Brad touched on them earlier. Some compete solely on price. A lot of specialty one-line suppliers, they get business by being absolutely the lowest price, and that's not our position.

No Brian we still feel like we can be.

Can be priced at a higher price point than our competitors based on the services, we provide which has been our historic stance on this Tom did you.

The thing that I'd point to Brett is we have a wide range of competitors and Brad touched on them earlier, some compete solely on price.

There's a lot of specialty one line suppliers, they get business by being absolutely the lowest price and thats not our business model.

Speaker 2: So when we say we're gonna be more, we're gonna be within a competitive range. Obviously it depends on how expensive the part is. If it's a dollar part and you're a dollar over, that's a heck of a lot. If you're a dollar over and it's a hundred dollar part, that's a different thing. And what we gotta remember is the biggest cost for our professional installers is their labor. And that ability to turn those bays is what turns their profit. So we wanna make sure that we're pricing holistically.

<unk>.

When we say, we're going to be more we're going to be within a competitive range. Obviously it depends on how expensive. The part is if it's a dollar partner dollar over that is a heck of a lot. If you are a dollar over and it's a $100 part that's a different different thing and what we got to remember is the biggest cost of our professional installers is there later.

And that ability to turn those bays is what turns their profit. So we want to make sure that we're pricing holistically for the debt.

Speaker 2: for the quality of the product, the availability of the product, the team that we offer, the services that we offer. So we look at it in aggregate. But there is always going to be someone, and we talked about it in our prepared comments, who will be the lowest price. And if that's how you sustain your business, if somebody comes along and decides to drop the price, you're going to be in trouble. And we want to have a relationship and a partnership with our professional shops that help them make money over the long term. Thank you.

The quality of the product the availability of the product the team that we offer the services that we offer so we look at it in aggregate, but there is always going to be someone and we talked about it in our prepared comment who will be the lowest price and if that is how you sustain your business. If somebody comes along decides to drop the price youre going to be troubled and we want to have a real.

<unk> shipped in a partnership with our professional shops that help them make money over the long term.

Great. Thank you I appreciate it.

Thanks, Brett.

Speaker 1: And our next question from Greg Melich of Evercore ISI.

And our next question from Greg Melick of Evercore ISI.

Yes.

Speaker 2: Thanks. I guess I'd love to go to the guidance on the top line, the five to seven comp guide. You said it was mid single-digit inflation in that. And assuming that mix is still positive, is it fair to say units will be flat or even slightly down?

Hi, Thanks.

I guess I'd love to go to the guidance on the topline the 5% to seven comp Guide you said it was mid single digit inflation.

In that and assuming that mix. It's still positive is it fair to say you have to be flat or even slightly down.

Speaker 2: this year. So five to seven, that mid single digit within the five to seven was specifically for the DIY side of the business and we would expect it to be on the Tic account there. Because of the price.

This year, so five to seven.

That mid single digit within the five years to seven years, specifically for the DIY side of the business and we would expect that to be sure on the ticket count there because of the price.

Speaker 2: professional price initiative, we won't see as robust of an increase in same-skew inflation on the professional side. So we need to generate a meaningful increase in average ticket on the professional side. So that, your numbers are right, but that was just for the DIY.

Professional price initiative, we wont see as robust of an increase in same SKU inflation on the professional side. So we need to generate a meaningful increase in average ticket on the professional side. So that your numbers are right, but that was just for the DIY side.

Speaker 6: Got it, thanks. And then I guess the follow up link to that is if we look at the gross margin rate in your guidance this year versus last year, I guess like those maybe 50 bits, could you give us how much of it is the pro pricing initiative versus just the normal mix change you would expect to pro out performance?

Got it thanks, and then I guess the follow up.

To that is if we look at the gross margin rate.

In your guidance this year versus last year.

I guess like those maybe 50 bps could you give us how much of it is the pro pricing initiative versus just the normal mix change you would expect.

Pro outperformance.

Speaker 2: So Greg, you picked up on a good point. Part of it is going to be just a next shift as professional grows faster than DIY. Because they're buying on volume, the gross margin is lower. We also have the benefit of the supply chain. I would tell you that.

So Greg you've picked up on a good point part of it is going to be just a mix shift as professional grows faster than DIY. It because they are buying on volume the gross margin is lower.

We also have the benefit of the supply chain.

I would tell you that.

Speaker 2: The professional pricing is larger than LIFO, but we're not going to get into parsing out because the next thing you know we'll be talking about our distribution costs and that's something we just don't do.

The professional pricing is larger than LIFO, but we're not going to get into parsing out because the next thing that we'll be talking about our distribution costs and that's something we just don't do.

Got it that's helpful. Thanks, and good luck.

Thanks, Greg.

Speaker 1: and that's question from michael baker of the davidson

And our next question from Michael Baker of da Davidson.

Speaker 3: Hi, thanks a lot. I wish I could ask something, you know, not about pricing, but this is a topic.

Hi, Thanks, a lot.

I wish I could ask something not about pricing, but budd.

This is a topic so.

Speaker 7: what do you expect to be competitive response to be uh... do you have any precedent offered doing something like this and and what have you seen competitors do and i guess related to that to just to clear who who is what we've who do you think you're taking share from from the position of the public more about taking care from smaller players rather than your big public competitors but but uh... i thought that too i'll confirm that

What do you expect the competitive response to be do you have any precedent for doing something like this and what have you seen competitors do and I guess related to that just to be clear.

Who do you think youre taking share from from this initiative. It sounds like it's more about taking share from smaller players rather than your big public competitors, but I just wanted to.

Confirm that.

Sure.

Speaker 4: Hey Mike, this is Brad. I'll jump in there and see what Greg and Tom have to say about it. But you know, I'll answer the share question. And on the share, it's hard a little bit to always tell exactly where it's coming from.

Hey, Mike This is Brad I'll jump in there and see what Greg and Tom have had to say about it but.

I'll answer the share question.

And on the share.

As hard a little bit to always still exactly where its coming from but I would say that what we're seeing it's more from the.

Speaker 4: But I would say that what we're seeing, it's more from the, you know, the more the mid tier of maybe the mediocre, maybe the weaker independent competitors that have struggled the last couple years with supply and things like that. Mike, as you know, as good as anybody, I mean, we have tremendous public competitors that...

The more of the mid tier maybe the mediocre maybe the weaker independent competitors that have struggled the last couple of years with supply and things like that.

Mike as you know as good as anybody I mean, we have tremendous public competitors that they have.

Speaker 4: that we have the utmost respect for. And then we have these regional competitors that are these strong, strong, independent, two-step type competitors that not too long ago, we were in the Ozarks and kind of our old part of the company. But I would just say on the share that we're seeing a lot of different things. But the majority of the opportunity we see is with the smaller independents and the ones that have struggled the last couple of years.

We have the utmost respect for and then we have these regional competitors that are the strong strong independent to two step type competitors that.

Not too long ago, we were in the in the Ozarks and kind of are all part of the company, but I would just say on the share that we're seeing a lot of different things, but the majority of the opportunity. We see is with the smaller independents and the ones that have struggled the last couple of years, yes, Mike on what the.

Speaker 3: Yeah, Mike, on what the reaction would be, I can tell you based on the test that we ran in multiple markets before rolling this out, the reaction was obviously favorable or we wouldn't have rolled it out company-wide.

Reaction would be I can tell you based on the tests that we ran in multiple markets before rolling this out the reaction was obviously favorable or we wouldn't have rolled it out companywide.

Speaker 7: When you say the reactions, I mean the competitive reaction, not the customer reaction. So when you say the competitive reaction was favorable, I presume that means you didn't necessarily see them drop price as well.

And you say the reactions have been the competitive reaction not the customer reactions. So when you say the competitive reaction is favorable I presume that means you didn't necessarily see them drop price as well.

Hum.

That's correct Michael.

Canada.

Speaker 2: Obviously our competitors are going to do what they do with their price. I think we just want to stress that we are not setting the low market.

Obviously, our competitors are going to do what they do with their price I think we just want to stress that we are not setting the low market.

Speaker 2: price here. So it's not as if competitors that are winning business on price alone are not going to still be the look.

Price here, so it's not as if competitors that are winning business on price alone are not going to still be the lowest.

Speaker 7: understood make make make something clinton i think i think all the data clarified the strategy quite a bit so i appreciate that thank you

Understood.

Seth.

I think all of these answers clarify the strategy quite a bit so I appreciate that thank you.

Thank you.

Speaker 1: Our next question from Chris Bottigieri of BMP Paribus.

Our next question from Chris.

Chris <unk> of BNP Paribas.

Speaker 7: Hey guys, I was checking the question. So my question is going to be, I guess, on inventory slash inflation. So the inventory investment you spoke of plus 8%. It sounds like your guidance assumes kind of like flattish inflation, maybe even deflation for Q422, I would think with the price investments.

Hey, guys. Thanks, taking the question.

So my question is going to be I guess inventory slash inflation.

So the inventory investment you spoke of plus 8% it sounds like your guidance assumes kind of like flattish inflation, maybe even deflation for Q4 2002, I would think with the pricing.

Speaker 7: So are you effectively just raising in store inventory units by 8% by year end and then do I have that right first and then how do we think of the cadence of that inventory? Is it going to be pretty smooth as you build that throughout the year? Is it front half loaded? Any contacts that would be helpful?

So are you effectively raising in store inventory units by 8% by year end.

Do I have that right first and then how do we think of the cadence of that inventory.

It would be pretty smooth as you build throughout the year is it front half loaded any context, there would be helpful.

Sure.

Speaker 2: This is Tom. Let me take a shot at that one. So when we talk about 8% increase, we don't have, and we talked about it for the last seven quarters, we're not sitting on as much inventory as we would normally sit on because of supply constraints and because of the high volume. So part of it is to get back to where we normally would be. And part of it, these initiatives go back to our 2020.

This is Tom let me take a shot at that one.

When we talk about 8% increase we don't have and we talked about it for the last seven quarters, we're not sitting on as much inventory as we would normally sit on because of supply constraints and because of the high volume. So part of it is to get back to where we normally would be in part of these initiatives to go back to our 2020.

Speaker 2: guidance and I guess it would be the end of 2019 fourth quarter call where we had a plan to add to the hub and spoke network so it's a combination of those two items

Our guidance and I guess it would be the end of 2019 fourth quarter call, where we had a plan to add to the hub and spoke network. So it's a combination of those two items. When we look at how fast we can roll this inventory in everybody in this room and everybody on our team I'd like to have it tomorrow. The question is how fast.

Speaker 2: When we look at how fast we can roll this inventory in, everybody in this room and everybody in our team would like to have it tomorrow. The question is, how fast can suppliers supply it? How fast can we push it through the distribution network? So this is, as Brent said earlier today, and he can add to this, this is gonna be an all year project. We're gonna move a lot of units.

Asking supplier supply at how fast can we push it through the distribution network. So this is Brent said earlier today and he can add to this this is going to be an all year project, we're going to move a lot of units. Yes again, Chris. This is not a not a new strategy is something we had planned for a couple of years, but supply chain constraints.

Speaker 3: Yeah, again, Chris, this is not a not a new strategy. It's something we've had planned for a couple of years, but supply chain constraints and the volumes we've pushed our DCs the last couple of years, it just prohibited us from getting the cemetery rolled out.

And the volumes, we've pushed our Dcs in the last couple of years. It just prohibited us from getting this inventory rolled out.

Got you that makes sense and then.

Speaker 7: Gotcha. That makes sense. And then related question, on the LIFO, the 10 million, is that more like kind of a Q1-ish event or are these slow turning SKUs that would cause you to take that throughout the year and then like, yeah, that's it for me. A great question. That should all roll in in the first quarter. Gotcha. Okay. Thanks, guys. Really appreciate it. Thank you, Chris.

Related question on the LIFO, the $10 million does that.

More like kind of a Q1 issue then or is it at least slow turning skus that would cause you to take that throughout the year and then yes.

That's it for me.

It's a great question that should all roll in in the first quarter.

Got you Okay. Thanks, guys really appreciate it thank.

Thank you Chris Thanks, Chris.

Next question from Michael Lasser of UBS.

Speaker 7: Good morning, thanks a lot for taking my question. What as you were laying out your plan for 2022, what did you assume that the overall industry is going to grow at in the year ahead?

Good morning, Thanks, a lot for taking my question.

As you were laying out your plan for 2022, what did you assume that the overall industry is going to grow at in the year ahead.

Speaker 2: That's an interesting question, Michael. I think what we looked at is when we look at inflation...

That's an interesting question Michael.

I think what we looked at is when we look at inflation.

Speaker 2: what we're going to anniversary and same skew inflation. I think that's a

What we're going to anniversary in same SKU inflation.

I think thats a.

Speaker 2: Pretty reasonable number for the industry. I think we'll be pressured more on the DIY side. Professionals will continue to grow faster, more resilience to those price increases. Of course, we build our plan from product line and store up, and it's really independent of what the market's going to do. But our expectation, as you know, has always been that we are going to grow faster than the market.

Pretty reasonable number for the industry I think will be pressured more on the DIY side professional will continue to grow faster more resilience to those price increases of course, we build our plan from product line and store up.

It's really independent of what the market's going to do but our expectation is as you know has always been that we are going to grow faster than the market.

Speaker 7: Obviously, the intent of the question was to try and size.

Yes, obviously the intended the question was to try and size.

Speaker 7: how much market share you expect to get for the price investments that you're going to be making. Is there another way to frame that out? And then I'll let you ask that and then I have one quick follow up.

How much market share you expect to get for the price investments that youre going to be making so is there another way to frame that out and then well.

Yes.

One quick follow up okay.

Speaker 2: Okay, so there are a lot of puts and takes within what we think is going to happen with the business both on the DIY and the professional side of the business. And we're confident that when we look at our gross margin dollars that this is going to be a winner for us. And we rolled it out here in February and we are very optimistic it's going to exceed our expectations.

Okay. So there are a lot of puts and takes within.

What we think is going to happen with the business both on the DIY and the professional side of the business.

And we are confident that when we look at our gross margin dollars that this is going to be a winner for us.

We've rolled it out here in February and we are very optimistic it's going to exceed our expectations.

Speaker 7: And my follow-up question is, do you expect this strategy which will weigh on your gross margin and drive market share to be unique to 2022? Your guidance implies that your gross margin rate this year is going to get back to levels that it would last at in 2013, 2014. So what are the chances that you will have to...

And my follow up question is do you expect this strategy, which will weigh on your gross margin and drive market share.

Be unique to 2022 your guidance implies that your gross margin rate. This year is going to get back to levels that it was less debt in 2013 2014. So what are the chances that you will have to.

Speaker 7: continue to execute this pricing and investment strategy beyond 22 such that your gross margins are going to float lower even after this year.

Continue to execute this pricing and investment strategy beyond 'twenty two such that your gross margins are at a floor.

Even after this year.

Speaker 2: Well, the thing I guess I would point out is that, you know, percents are nice and dollars pay the bills. So, you know, I did see a note where in 2014 the gross margin percent was the same, but I would say that we're about 98% more gross margin dollars, which is a little bit more than what we're currently seeing. So, you know, I think that's a good thing. I think that's a good thing. I think that's a good thing.

Well the thing I guess I would point out is that 2% are nice and dollars pay the bill so.

I did see a note where in 2014 the gross margin percent was the same but I would say that we are about 98% more gross margin dollars, which is.

Speaker 2: you know, three and a half billion dollars. You know, at the end of the day, we're trying to figure out how we build a sustainable business that generates increasing operating profit dollars year over year. We think that this initiative continues to move us in that direction. You know, after the number exercise, I'll turn it over to Greg.

$3 5 billion.

At the end of the day, we're trying to figure out how we build a sustainable business that generates increasing operating profit dollars year over year, and we think that this initiative.

<unk> continues to move us in that direction. After the number of exercises I'll turn it over to Greg.

Speaker 3: Yeah, Mike, we don't we don't have any any planned.

Yes, Mike we don't we don't have any any planned.

Speaker 3: initiatives like this beyond this year. That said, as I said earlier, our pricing team consistently, day in and day out, looks at pricing in the marketplace. And we tweak this skew up, this skew down just to optimize our margin. So there's always changes in our pricing structure on both sides of our business. But we don't anticipate future larger scale price reductions.

Initiatives like this beyond this year that said.

As I said earlier, our pricing team consistently day in and day out looks at pricing in the marketplace and we tweak this skew up this skew down.

Just to optimize our margins. So there's always changes in our pricing structure, both on both sides of our business, but we don't anticipate future.

Larger scale price reductions like this.

Speaker 7: So Greg, just to clarify that you expect this year you're going to make some price tweaks, it will weigh in your gross margin, and then after this it will be normal course of business to continue with what you've done in the past. That is correct. Okay, thank you very much.

Okay, So Greg just to clarify that.

This year, you're going to make some price we weigh on your gross margin and then after that it will be normal course of business.

To continue with what you've done in the past that.

That is correct.

Okay. Thank you very much.

Thanks, Michael.

Our next question from <unk>.

<unk> Steven.

Yeah, Hey, good morning, guys. Thanks for taking our question.

Speaker 6: Yeah, hey, good morning, guys. Thanks for taking our question. I'll ask one not on pricing. Greg, wanted to ask one just on the on the customer. I think you mentioned, you know, the potential for customer repair deferrals during periods of inflation or maybe economic uncertainty. Just as we head into this year, as low end consumer feels pressure from broader inflation, are you seeing any indication early on of repair deferrals or something that make you think that could happen this year? And is anything like that baked into the comp guidance you given?

Not on pricing.

Greg wanted to ask one just on the on the customer I think you mentioned the potential for customer repair deferrals during periods of inflation or maybe economic uncertainty as we head into this year.

Low end consumer feels pressure from broader inflation are you seeing any indication early on.

Repair deferrals or something that would make you think that could happen this year end or anything like that baked into the comp guidance you've given.

Speaker 3: Yeah, Daniel, we call that out, you know, as we often do because historically we've seen those changes to that lower income consumer being one of the first things they do. We have not. We have not seen any signs of our DIY or our professional customers for that matter trading down or deferring maintenance at this point.

Yes, Daniel.

We call that out as we often do because historically, we've seen those changes to that lower income consumer being one of the first things. They do we have not we have not seen any signs of of our DIY or our professional customers for that matter training trading down or.

During maintenance at this point.

Speaker 2: What I would add to that is we've seen pretty significant price increases and to the extent when we look historically when that's happened, DIY especially on the lower end.

What I would add to that is we've seen pretty significant price increases.

To the extent when we look historically when that has happened.

Especially on the lower end.

Speaker 2: based headwinds on customer transaction counts. And we anticipate some of that this year and have built that into the floor.

<unk> faced headwinds.

Customer transaction counts.

We anticipate some of that this year and have built that into the forecast.

Speaker 6: Got it. That's helpful color. And then talking to ask a follow up on SG&A. I think SG&A per store, it looks like at the midpoint, call it 3% to 4% increase. I guess one, is that right? And then two, with wages being this inflationary, you know, Tommy, you mentioned efficiency benefits earlier and kind of fixed costs, but are there any other initiatives you guys are doing to keep that at such a muted pace? I think we expect there to be more SG&A growth given the wage backdrop we're seeing. So trying to understand what's driving that improvement. Thanks.

Got it that's helpful color and then.

To follow up on SG&A, I think SG&A per store it looks like at the midpoint call. It three 3% to 4%.

I guess, one is that right and then two with wages being it's inflationary Tommy you mentioned efficiency benefits earlier than kind of fixed cost, but are there any other initiatives you guys are doing to keep that at such a muted pace I think we expect them to be more SG&A growth given the wage backdrop, we're seeing I'm trying to understand what's driving that improvement.

Speaker 2: So I think in our prepared comments or math is around 2.5% increase. Last year we were significantly above that and sales were significantly above that. As Brad talked about in his prepared comments, we manage our SG&A at a micro level, especially store payroll, which is our biggest variable expense, to make sure that we are able to

So think of it in our prepared comments, our math is around two 5% increase.

Last year, we were significantly above that and sales were significantly above that.

As Brad talked about in his prepared comments.

We manage our SG&A at a micro level specialty store payroll.

Which is our biggest variable expense to make sure that we're taking opportunities to gain share, but not getting out over our skis.

Speaker 2: we're taking opportunities to gain share, but not getting out over our skis. So this is based on the sales forecast. To the extent that we exceed the sales forecast, it'll be higher than this to the expense of the hour.

So this is based on the sales forecast to the extent that we exceed the sales forecast it'll be higher than this to the extent we are.

Speaker 2: less than the sales forecast, you better believe it will be less than this. So more of a normal...

Less than the sales forecast you better believe it will be less than this so.

More of a normal.

Speaker 2: actually higher than our normal run rate because our comp guide is higher than our normal run rate. and yes, gain efficiency

Actually higher than our normal run rates, our comp guide is higher than our normal run rate.

Jay and efficiencies.

Speaker 2: eight, nine years ago we used to talk a lot about our initiatives. Then they seemed to become other people's initiatives, so we tend not to go into detail on those. Fair enough. Appreciate it.

Eight nine years ago, we talk a lot about our initiatives then they seem to become other people's initiatives. So we tend not to go into detail on those fair.

Fair enough I appreciate the color and best of luck.

Thank you.

Speaker 1: And we have restarted a lot of time for questions. I will now turn the call back over to Mr. Greg Johnson for closing remarks.

And we have reached our allotted time for questions I will now turn the call back over to Mr. Greg Johnson for closing remarks.

Speaker 3: Thank you, James. We'd like to conclude our call today by thanking the entire O'Reilly team once again for their unwavering commitment to our customers and for their incredible performance in 2021.

Thank you James we'd like to conclude our call today by thanking the entire O'reilly team once again for their unwavering commitment to our customers and for their incredible performance in 2021.

Speaker 3: We look forward to another strong year in 2022. I'd like to thank everyone for joining our call today, and we look forward to reporting our 2022 first quarter results in April . Thank you.

We look forward to another strong year in 2022.

Thank you everyone for joining our call today, and we look forward to reporting our 2022 first quarter results in April Thank you.

Okay.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.

Speaker 1: Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.

[music].

[music].

Speaker 1: Welcome to the O'Reilly Automotive Inc. fourth quarter and full year 2021 earnings conference call. My name is James and I'll be your operator for today's call. At this time, all participants are in listen only mode. Later we will conduct a question and answer session. During the Q&A session if you have a question, please press star one on your phone. And I now like to turn the call over to Tom McPhall. Mr. McPhall, you may begin.

Welcome to the O'reilly Automotive, Inc, fourth quarter and full year 2021 earnings Conference call. My name is James and I'll be your operator for today's call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the Q&A session. If you have a question. Please press star one on your phone.

And I'd now like to turn the call over to Tom Mcfall. Mr. Mcfall, you may begin.

Speaker 2: Thank you, James. Good morning, everyone, and thank you for joining us.

Thank you James Good morning, everyone and thank you for joining us.

Speaker 2: During today's conference call, we'll discuss our fourth quarter 2021 results and our full year outlook for 2022.

During today's conference call, we will discuss our fourth quarter 2021 results and our full year outlook for 2022.

Speaker 2: After our prepared comments, we'll host a question and answer period.

After our prepared comments, we'll host a question and answer period.

Speaker 2: Before we begin this morning, I'd like to remind everyone that our comments today contain poorly.

Before we begin this morning, I'd like to remind everyone that our comments today contain forward looking statements and we intend to be covered by and we claim the protection under the Safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 995.

Speaker 2: and we intend to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. By mushrooms and Swco and the public of Balboa, Inc., refuse it. This long period of time, we are in the both we and the government's stationed at take country lines for symmetry in thisasp worried that the voters of that election plan want to listen to what has happened. That man was an engineer named Fairiden, the CEO of this government- dwarf city, a visitingARC curses self TSA on Saturday Fellowswood Avenue. The last group gathered on Friday night and problematic for two pinch laws in Correctionswhich Garc revealed an almost net dead prehistoric fashion mered goes Genetics out of it. After the amendment by Recordsuel

Speaker 2: You can identify these statements by four living words such as estimate, may, could, will, believe, expect, would, consider, should, anticipate, object, plan, intend or similar work.

You can identify these statements by forward looking words, such as estimate May could will believe expect would consider should anticipate project plan intend or similar words.

Speaker 2: The company's actual results could differ materially from any forward-looking statements, due to several important factors described in the company's latest annual report on Form 10K for the year ended December 31, 2020 and other recent SEC filings.

The company's actual results could differ materially from any forward looking statements due to several important factors described in the Companys latest annual report on Form 10-K for the year ended December 31, 2020, and other recent SEC filings. The company assumes no obligation to update any forward looking statements made during this call.

Speaker 2: the company assumes no obligation to update any forward-looking statements made during this call. At this time, I'd like to...

At this time I'd like to introduce Greg Johnson.

Speaker 3: Thanks Tom. Good morning everyone and welcome to the O'Reilly Auto Parts fourth quarter conference.

Thanks, Tom.

Good morning, everyone and welcome to the O'reilly auto parts fourth quarter conference call participating.

Speaker 3: Participating on the call with me this morning are Brad Beckham, our Chief Operating Officer, and Tom McFall, our Chief Financial Officer.

Participating on the call with me. This morning are brand Beckham, our Chief operating officer, and Tom Mcfall, Our Chief Financial Officer.

Speaker 3: Greg Hensley, our Executive Chairman, David O'Reilly, our Executive Vice Chairman, and Brent Kirby, our Chief Supply Chain Officer, are also present on the phone.

Greg Henslee, our executive Chairman, David O'reilly, our executive Vice Chairman and Brent Kirby, our Chief supply chain Officer are also present on the call.

I'd like to begin our call today by congratulating team O'reilly under tremendous results in the fourth quarter, which capped off another record setting year.

Speaker 3: I'd like to begin our call today by congratulating Team O'Reilly on your tremendous results in the fourth quarter, which capped off another record setting year.

Speaker 3: This year marked our company's 65th year since our founding and our 29th year as a publicly traded company. And I feel very comfortable saying it was our best year yet driven by the truly remarkable contributions of our team of over 83,000 hardworking, professional parts.

This year marked our company's 65 years since our founding and our 29th year as a publicly traded company and I feel very comfortable saying it was our best year, yet driven by the truly remarkable contributions of our team of over 83000 hardworking professional parts people.

Speaker 3: Our team's performance in 2021 was highlighted by our comparable store sales growth of 13.3% and diluted earnings per share growth of 32%

Our team's performance in 2021 was highlighted by a comparable store sales growth of 13, 3% and diluted earnings per share growth of 32%.

Speaker 3: This outstanding performance is even more impressive when you consider that our team delivered these results on top of a record sitting year in 2020 when we achieved comparable store sales increase of 10.9% and growth in earnings per share of 32.5%.

This outstanding performance is even more impressive when you consider that our team delivered these results on top of a record setting year in 2020, when we achieve comparable store sales increase of 10, 9% and growth in earnings per share of 32%.

Speaker 3: There are a number of different metrics I could provide to highlight the strength of our business, and we'll talk through many of those details in our customary updates during the call today. However—

There are a number of different metrics that could provide the highlight the strength of our business and we will talk to you and many of those details on our customary updates during the call today. However.

Speaker 3: There are two specific numbers that I'd like to provide an incredible picture of just how much growth team or rally is generated for our shareholders over the past two years.

There are two specific numbers that I would like to provide an incredible picture of just how much growth team O'reilly has generated for our shareholders over the past two years.

Speaker 3: In 2021, our average store generated sales of $2.3 million, which represents an increase of over 23% from the average store sales volume just two years ago in 2019.

For 2021, our average store generated sales of $2 $3 million, which.

<unk>, an increase of over 23% from the average store sales volume just two years ago in 2019.

Speaker 3: During this same time period of time, our operating profit dollars per store has grown by an incredible 42% as our store and distribution teams leveraged our dual market business model to drive a very strong operating profit flow.

During this same time period of time, our operating profit dollars per store has grown by an incredible 42% as our store and distribution teams leveraged our dual market business model to drive very strong operating profit flow through.

Speaker 3: I want to take this opportunity to thank Team O'Reilly for your tremendous back-to-back annual performance.

I want to take this opportunity to thank team O'reilly for your tremendous back to back annual performance.

Speaker 3: One of the guiding principles of our culture is our team's dedication to our customers and fellow team members. And that commitment was truly on display in 2021.

One of the guiding principles of our culture is our team's dedication to our customers and fellow team members and that commitment was truly on display in 2021.

Speaker 3: Rolling up the numbers for over the $13 billion of sales, it can be easy to lose sight of the context of what it takes to deliver these results.

Rolling up the numbers for over $13 billion of sales it can be easy to lose sight of the context of what it takes to deliver these results.

Speaker 3: These big growth numbers are made up of millions of individual interactions with our customers where our team members constantly go the extra mile to provide the best customer service in our industry to earn our customers current and future business.

These big growth numbers are made up of millions of individual under interactions with our customers where our team members constantly go the extra mile to provide the best customer service in our industry to earn our customers' current and future business.

Speaker 3: Our team truly lived the never say no philosophy in 2021.

Our team truly lives and never say no philosophy in 2021.

Speaker 3: While at the same time consistently executing on best practices to protect the health and safety of our customers and team members and tackle head on significant challenges brought on by the pandemic.

While at the same time consistently executing on best practices to protect the health and safety of our customers and team members and tackle head on the significant challenges brought on by the pandemic.

Speaker 3: He's taken a monumental effort and I again want to express my gratitude for the selfless dedication, hard work and sacrifice of each member of Team O'Reilly.

It's taken a monumental effort and I again want to express my gratitude for their selfless dedication hard work and sacrifice of each member of team O'reilly.

Speaker 3: Now I'd like to take a few minutes and provide some color around our fourth quarter results.

Now I'd like to take a few minutes and provide some color around our fourth quarter results are.

Speaker 3: Our comparable store sales for the fourth quarter grew 14.5%.

Our comparable store sales for the fourth quarter grew 14, 5% from.

Speaker 3: From a cadence perspective, we continue to see steady trend of elevated cell levels throughout the quarter.

From a cadence perspective, we continue to see steady trend of elevated sales levels throughout the quarter continuing the consistent broad based strength, we've experienced since the second quarter of 2020.

Speaker 3: continuing the consistent broad-based strength we've experienced since the second quarter of 2020.

As a result, our sales results were fairly consistent throughout the quarter with December being the strongest month on a two and three year stack basis.

Speaker 3: As a result, our sales results were fairly consistent throughout the quarter, with December being the strongest month on a two and three year stack basis.

Speaker 3: We've continued to see solid sales volumes. The results thus far in 2022 have been impacted by the Omicron variant and by some inclement weather given choppiness in certain regions of the country.

We've continued to see solid sales volumes the results. Thus far in 2022 have been impacted by the Homochrome variant and buy some inclement weather given the choppiness in certain regions of the company country rather.

I spend I'll spend more time on this in a few minutes on our sales outlook for 2022, but I would like to add that we're always pleased to see this type of harsh weather as the wear and tear it inflicts on vehicles benefits us throughout the year.

Speaker 3: I'll spend more time on this in a few minutes on our sales outlook for 2022, but I'd like to add that we're always pleased to see this type of harsh weather as the wear and tear it inflicts on vehicles benefits us throughout the year.

Speaker 3: Our comparable store sales results were driven by somewhat stronger growth on the professional side of our business, which continues to trend.

Our comparable store sales results were driven by somewhat stronger growth on the professional side of our business, which continues to trend.

Speaker 3: which continues the trend we experienced in the second and third quarter.

<unk>, which continues the trend we experienced in the second and third quarters.

Speaker 3: However, our DIY business was also very strong in the fourth quarter, and our expectations against difficult compares from the prior years.

However, our DIY business was also very strong in the fourth quarter and our expectations against difficult compares from the prior year.

Speaker 3: For the quarter, we're very pleased to see the solid growth on both average ticket and comparable ticket counts in both our professional and DIY businesses, with average ticket being...

For the quarter were very pleased to see the solid growth on both average ticket and comparable ticket counts in both our professional and DIY businesses with average ticket being the larger contributor.

The average ticket growth was aided by heightened inflation with a benefit we realized from same SKU selling prices landing in the high single digits.

Speaker 3: The average ticket growth was aided by heightened inflation with the benefit we realized from same skew selling prices landing in the high single-ditch...

Speaker 3: However, we continue to be pleased to see growth in average ticket beyond the positive impact of same-skew inflation driven by the long-term increased complexity of automotive technology.

However, we continue to be pleased to see growth in average ticket beyond the positive impact of same SKU inflation driven by the long term increased complexity of automotive technology.

Demand in our industry has remained very resilient for the past two quarters, even as price levels and the broader economy have risen sharply.

Speaker 3: Demand in our industry has remained very resilient for the past two quarters, even as price levels and the broader economy have risen sharply.

Speaker 3: The acquisition cost increases we saw in 2021 were consistent with the cost pressures experienced across the automotive aftermarket, and the industry continues to be very rational in passing through the inflationary price.

The acquisition cost increases we saw in 2021 were consistent with the cost pressures experienced across the automotive aftermarket and the industry continues to be very rational and passing through the inflationary pricing.

Finally.

Speaker 3: Even though average ticket was the larger contributor to our comparable store sales for the quarter, we also were pleased to capitalize on solid ticket count comps, which were positive for both the professional and the consumer.

Even though average ticket was the larger contributor to our comparable store sales for the quarter. We also fleet. We are pleased to capitalize on solid ticket count comps.

Which were positive for both the professional and DIY businesses.

Speaker 3: We've been encouraged by the stability of our customer traffic, especially as we continue to move further past the major macro level demand tailwinds provided by the government

We've been encouraged by the stability of our customer traffic, especially as we continue to move further past the major macro level demand tailwind provided by the government stimulus.

Speaker 3: We believe we're very clearly benefiting from market share gains and an increased willingness of customers to invest in their existing vehicles.

We believe we're very clearly benefiting from the market share gains and an increased willingness of customers to invest in their existing vehicles.

Speaker 3: Next, I want to transition to a discussion of our 2022 sales guidance, as well as our 2021 gross profit performance and outlook for gross profit for 2022.

Next I want to transition to a discussion of our 2022 sales guidance as well as our 2021 gross profit performance and outlook for gross profit for 2022.

Speaker 3: As we disclosed in our earnings release yesterday, we're establishing an annual comparable stores sales guidance for 2022 at the range of 5% to 7%.

As we disclosed in our earnings release yesterday, we are establishing an annual comparable stores sales guidance for 2022 at the range of 5% to 7%.

Speaker 3: Our expectations are to generate positive comparable store sales growth on both sides of our business with stronger growth on the professional business.

Our expectations are to generate positive comparable store sales growth on both sides of our business with stronger growth on the professional business.

Speaker 3: This range and corresponding expectations for the coming year are higher than we can remember ever providing in our initial annual guide.

This range and corresponding expectations for the coming year are higher than we can remember ever providing in our initial annual guidance.

Speaker 3: So I want to spend some extra time to provide color on the basis for our forecast relating both to our general outlook for the coming year as well as our planned strategy to further invest in pricing on the professional side of our business.

So I want to spend some extra time to provide color.

The basis for our forecast relating both to our general outlook for the coming year as well as our planned strategy to further invest in pricing on the professional side of our business.

Speaker 3: So again, from a macro perspective, we remain very confident about the health of the automotive aftermarket and believe the stable, robust growth trends experienced in our industry are indicative of ongoing core underlying stream.

To begin from a macro perspective, we remain very confident about the health of the automotive aftermarket and believes a stable robust growth trends experienced in our industry are indicative of ongoing core underlying strength.

Speaker 3: The value proposition for consumers to invest in their existing vehicles remains very strong. Driven by scarcity of new vehicle supply, high demand for used vehicles, and the quality of engineering and manufacturing of vehicles currently on the road, merits a higher mileage seeing the redux of the vehicle.

The value proposition for consumers to invest in their existing vehicles remains very strong driven by scarcity of new vehicle supply high demand for used vehicles and the quality of engineering and manufacturing of vehicles currently on the road merits of higher mileages.

Our industry history has proven that time in times of economic uncertainty motivate consumers to take more cautious financial outlook and allocate additional share of their wallet to maintaining their existing vehicles.

Speaker 3: Our industry history has proven that in times of economic uncertainty, motivate consumers to take more cautious financial outlook and allocate additional share of their wallet to maintain their existing vehicle.

Speaker 3: We believe this has been a positive for our business since the onset of the pandemic.

We believe this has been a positive for our business since the onset of the pandemic.

Speaker 3: and that this value proposition will continue to support solid demand in our industry.

And that this value proposition will continue to support solid demand in our industry.

Speaker 3: We are also encouraged by the resilience of the strong sales trends in our business. We've moved, as we move further past the injection of government stimulus into the economy and believe that economically consumers remain relatively healthy with employment increasing and miles driven steadily recovering.

We are also encouraged by the resilience of the strong sales trends in our business. We've moved as we move further past the injection of government stimulus into the economy and believes that economically consumers remain relatively healthy was employment increasing in miles driven steadily recovering.

Beyond this positive macroeconomic backdrop. It is also clear to us that our extremely strong sales results were driven by significant share gains.

Speaker 3: Beyond this positive macroeconomic backdrop, it is also clear to us that our extremely strong sales results are driven by significant share gains.

Speaker 3: with our outperformance, the direct result of significant competitive advantages afforded by the strength of our business model and supply chain.

With our outperformance the direct result of significant competitive advantages afforded by the strength of our business model and supply chain.

Speaker 3: For the DIY side of our business, we anticipate delivering generally stable to slightly negative tick accounts with a headwind coming from lapping the positive impact of governance stimulus on the first half of 2021 and expected pressures from increased price.

For the DIY side of our business, we anticipate delivering generally stable to slightly negative ticket counts with the headwind coming from lapping the positive impact of government stimulus on the first half of 2021.

And expected pressures from increased prices.

Speaker 3: we remain cognizant of the impact of sustained inflation on the economically challenged DIY consumers who have historically deferred non-critical maintenance and traded down the product value spectrum as prices dramatically increase.

We remain cognizant of the impact of sustained inflation on the economically challenged DIY consumers, who have historically deferred noncritical maintenance and traded down the product value spectrum as prices dramatically increase.

We expect this pressure to ticket comp counts to be more than offset by increased average ticket as our forecast includes an assumption of mid single digit same SKU inflation.

Speaker 3: We expect this pressure to ticket comp counts to be more than offset by increased average ticket as our forecast includes an assumption of mid-single digit same skew inflation.

Speaker 3: The anticipated benefit from same-sue inflation does not include significant incremental increases in price levels from this point forward in 2022, consistent with our historical approach to issuing God.

The anticipated benefit from same SKU inflation does not include significant incremental increases in price levels from this point forward in 2022, consistent with our historical approach to issuing guidance.

Speaker 3: Our projection reflects the static prices from current levels with expected benefit of same-skew inflation being stronger in the first half of the year as we compare price levels that ramp throughout 2021.

Our projection reflects the static prices from current levels with expected benefit of same SKU inflation being stronger than the first half of the year as we compare price levels that ramp throughout 2021.

Speaker 3: On the personal side of our business, our guidance expectations assume robust growth and comp tick accounts supported by four factors.

On the personal side of our business our guidance expectations assumed robust growth.

Ticket counts supported by four factors.

The stronger economic resilience of the end user customers on this side of the business.

Speaker 3: stronger economic resilience of the end user customers on this side of the business.

Speaker 3: incremental improvement in miles driven from consumers generally returning to an in-person work post-pandemic.

Incremental improvement in miles driven from consumers generally returning to an in person work post pandemic.

Speaker 3: the long-term industry demographic trend for faster growth on the professional side of our business.

Long term industry demographic trend for faster growth on the professional side of our business.

Speaker 3: and anticipated accelerated growth from the Professional Pricing Initiative, which I will discuss next.

An anticipated accelerated growth from the professional pricing initiative, which I will discuss next.

Throughout our history, we have been steadfast in earning our professional customer.

Speaker 3: Throughout our history, we've been steadfast in earning our professional customers business by providing excellent customer service from highly trained professional parts people with rapid access to industry leading inventory at competitive prices.

Our professional customers business by providing excellent customer service from highly trained professional parts people with rapid access to industry, leading inventory at competitive prices.

Speaker 3: This unwavering commitment to customer service has allowed us to drive exceptional value for our customers and capitalize on competitive advantages to earn a pricing premium in many of our markets.

This unwavering commitment to customer service has allowed us to drive exceptional value for our customers and capitalize on competitive advantages to earn a pricing premium in many of our markets.

Speaker 3: Our service over price philosophy remains unchanged, but we believe we have an opportunity to accelerate our professional share gain through targeted competitive adjustments to our professional pricing strategy.

Our service over price philosophy remains unchanged. We believe we have an opportunity to accelerate our professional share gain through targeted competitive adjustments to our professional pricing strategy.

Speaker 3: The past two years in the automotive aftermarket have been very turbulent, characterized by volatility and customer demand as a result of the pandemic, significant supply chain shocks, and an evolving competitive landscape. These factors have been more disruptive on the do-it-for-me side of the business, which remains very fragmented and where the ability to respond to challenging environments has differed significantly between market participants.

The past two years in the automotive aftermarket had been very turbulent characterized by volatility in customer demand customer demand as a result of the pandemic significant supply chain shocks and an evolving competitive landscape. These factors have been more disruptive on the do it for me side of the business, which remains.

Very fragmented and where the ability to respond to challenging environments is differed significantly between market participants.

Speaker 3: So against this backdrop, we have been very successful in gaining professional market share and growing substantially faster than the overall market through the strength of our industry-leading inventory availability, tiered distribution and hub network, and world-class professional parts.

Against this backdrop, we have been very successful in gaining professional market share and growing substantially faster than the overall market through the strength of our industry, leading inventory availability tiered distribution hub network and world class professional parts people.

Speaker 3: However, we believe that the current disruptive environment presents an opportunity for us to enhance our competitive positioning and leverage our competitive advantages to drive accelerated long-term market share.

However, we believe that the current disruptive environment presents an opportunity for us to enhance our competitive positioning and leverage our competitive advantages to drive accelerated long term market share gains.

Speaker 3: Over the course of the past few quarters, we've tested several professional pricing strategies in multiple markets.

Over the course of the past few quarters, we've tested several professional pricing strategies in multiple markets. We've been very encouraged by the results of our testing and after dialing in our strategy, we rolled out the professional pricing initiatives company wide at the beginning of February .

Speaker 3: We've been very encouraged by the results of our testing and after dialing in our strategy, we rolled out the professional pricing initiative company-wide at the beginning of February .

Speaker 3: By 2022, we expect to see a meaningful benefit to our professional customer comps from share gains which we've incorporated into our comparable sales growth expectation.

For 2022, we expect to see a meaningful benefit to our professional customer comps from share gains, which we've incorporated into our controllable comparable sales growth expectations.

Speaker 3: professional pricing initiatives will pressure our gross margin rate, which we have also incorporated into our gross profit guide.

The professional pricing initiatives will pressure, our gross margin rate, which we have also incorporated into our gross profit guidance.

Speaker 3: While we continually adjust pricing by location, by customer, and by product line to reflect changing market conditions, we believe the professional pricing initiative we've put in place appropriately positions us to enhance the value proposition we offer our professional customers and solidify our position on the top of the call list for 2022 and beyond.

While we continually adjust pricing by location by customer and by product line to reflect changing market conditions. We believe the professional pricing initiative, we put in place appropriately positions us to enhance the value proposition, we offered our professional customers and solidify our position on the top of the call list.

For 2022 and beyond.

Speaker 3: Next, I'd like to provide some color on our fourth quarter gross margins and additional details supporting our full year 2022 guidance.

Next I'd like to provide some color on our fourth quarter gross margins and additional details supporting our full year 2022 guidance.

Speaker 3: Our fourth quarter gross margin of 52.7% was a 66 basis point improvement from our fourth quarter of 2020, which exceeded the expectations we discussed on the third call. Third quarter

Our fourth quarter gross margin of 52, 7% was 66 basis points or 66 basis point improvement from our fourth quarter of 2020, which exceeded the expectations. We discussed on the third call third quarter call.

Speaker 3: For the full year, gross margin also came in at 52.7%, which was a 23 basis points higher than last year and at the upper end of our guidance range instead of the bottom half of the range as previously expected.

For the full year gross margin also came in at 52, 7%, which was a 23 basis points higher than last year and at the upper end of our guidance range instead of the bottom half of the range as previously expected.

Speaker 3: The principal driver of the better-than-expected performance was lower-than-expected distribution cost.

The principal driver of the better than expected performance was lower than expected distribution costs.

Speaker 3: As we discussed on previous calls, our distribution infrastructure is facing inefficiencies due to extremely high sales volumes, the difficult labor environment, and global logistics challenges.

As we've discussed on previous calls our just our distribution infrastructure is facing inefficiencies due to extremely high sales volumes, the difficult labor environment and global logistics challenges.

Speaker 3: While we continued to take targeted actions in the fourth quarter to respond to these pressures, we did not incur the level of incremental expense that we anticipated.

While we continue to take targeted actions in the fourth quarter to respond to these pressures we did not incur the level of incremental expense that we had anticipated.

Speaker 3: For 2022, we expect gross margin to be in the range of 50.8 to 51.3 percent.

For 2022, we expect gross margin to be in the range of 58 to 51, 3% the.

Speaker 3: year-over-year pressure to our gross margin rate is driven by the impact of our professional pricing initiative, a reduced LIFO benefit, and a headwind from higher mix of professional business which we expect to grow faster than DIY.

The year over year pressure to our gross margin rate is driven by the impact of our professional pricing initiative, a reduced LIFO benefit and a headwind from higher mix of professional business, which we expect to grow faster than DIY.

Speaker 3: We expect these headwinds to be partial offset by leverage of our distribution cost as supply chain conditions begin to normal.

We expect these headwinds to be partially offset by leverage of just by leverage of our distribution cost of supply chain supply chain conditions begin to normalize.

Speaker 3: Before turning the call over to Brad, I'd like to highlight our fourth quarter earnings per share increase of 41% to $7.64.

Before turning the call over to Brad I'd like to highlight our fourth quarter earnings per share increase of 41% to $7 64.

Speaker 3: full year 2021 increase of 32% to $31.10.

With our full year 2021 increase of 32% to $31 10.

Speaker 3: For 2022, our guidance is $32.35 to $32.85.

For 2022, our guidance is $32, 37% and 35.

To $32 85.

Speaker 3: representing an increase of 5% versus 2021 at the mid

Representing an increase of 5% versus 2021 at the midpoint.

Speaker 3: After delivering earnings per share growth of 32% in both 2021 and 2020, our forecasted annual increase for 2022 diluted earnings per share represents a three-year compounded annual growth rate of 22%. And is a testament to the historical results our team has been able to generate and repeat through consistent, excellent execution.

After delivering earnings per share growth of 32% in both 2021 and 2020, our forecasted annual increase for 2022 diluted earnings per share represents a three year compounded annual growth rate of 22% and is a testament to the historical results. Our team has been able to generate.

And repeat through consistent excellent execution.

Speaker 3: To wrap up my comments, I want to again thank Team O'Reilly for an outstanding year. Your dedication to living out our culture and taking care of our customers every day drives our continued success. I'll now turn the call over to Brad.

To wrap up my comments I want to again, thank team O'reilly for an outstanding year your dedication to living out our culture and taking care of our customers everyday drives our continued success.

I'll now turn the call over to Brad <unk> Brad.

Speaker 4: Thanks, Greg. And good morning, everyone. I want to begin my comments today by echoing Greg and congratulating Team O'Reilly on another amazing year. After our record breaking year in 2020, we came into 2021 knowing just how difficult it was going to be to sustain that same level of performance.

Thanks, Greg and good morning, everyone I.

I want to begin my comments today by echoing drag and congratulating team O'reilly on another amazing year. After our record breaking year in 2020, we came into 2021, knowing just how difficult it was going to be to sustain that same level of performance. However, our team once again.

Speaker 4: However, our team once again proved they were up to the challenge and generated even more impressive growth in 2021.

They were up to the challenge and generated even more impressive growth in 2021.

Speaker 4: The core driver of our success is our team's relentless focus on providing excellent customer service, and we are very excited about the opportunities we have in front of us in 2020.

The core driver of our success is our team's relentless focus on providing excellent customer service and we are very excited about the opportunities we have in front of us in 2022.

Speaker 4: Greg previously discussed our Strategic Professional Pricing Initiative, but I want to add one more point before we move on to the rest of my prepared comments.

Greg previously discussed our strategic professional pricing initiative, but I want to add one more point before we move on to the rest of my prepared comments anyone who has participated in our earnings calls or attended our analyst days for any length of time has heard us say on multiple occasions that price is not the.

Speaker 4: Anyone who has participated in our earnings calls or attended our analyst days for any length of time Has heard us say on multiple occasions that price is not the most important factor On the professional side of the business and that you cannot win sustainable business solely on price

The most important factor on the professional side of the business and that you cannot win sustainable business solely on price.

Speaker 4: We want to be very clear that this rule still holds true for our business and our industry.

We want to be very clear that this rule still holds true for our business and our industry.

Speaker 4: We strongly believe that the lion's share of the professional business in the marketplace is one day in and day out through exceptional customer service and rapid inventory availability.

We strongly believe that the lion's share of the professional business in the marketplace is one day in and day out through exceptional customer service and rapid inventory availability.

Speaker 4: However, we believe we can generate solid, long-term returns by further investing in professional pricing. As an important part of our professional pricing initiative, we are intentionally not positioned as the lowest-priced competitor in each market, and our store and sales teams remain as committed as ever to earning our customers' business by out-hustling and out-servicing our competitors.

However, we believe we can generate solid long term returns by further investing in professional pricing is an important part of our professional pricing initiative. We are intentionally not positioned as the lowest price competitor in each market and our store and sales teams remain as committed as ever.

To earning our customers' business buy out hustling and out servicing our competitors.

Speaker 4: Our team fully realizes that business won with price alone is easily lost to a lower price a competitor may decide to offer. This initiative is geared to position us more quickly to gain professional market share based on all the services we offer along with a very competitive price.

Our our team fully realizes that business one with price alone is easily lost to a lower price competitor may decide to offer. This initiative is geared to position us more quickly to gain professional market share based on all of the services, we offer along with a very competitive price.

Speaker 4: Now I'd like to take some time to covering our SG&A and operating profit performance in 2021, as well as our outlook for 2022. For the fourth quarter, we generated an impressive increase in operating margin of 165 basis points and operating profit dollar growth of 27%.

Now I'd like to take some time to covering our SG&A and operating profit performance in 2021 as well as our outlook for 2022.

For the fourth quarter, we generated an impressive increase in operating margin of 165 basis points and operating profit dollar growth of 27%.

Speaker 4: For the full year, we generated a 21% increase in operating profit dollars, yielding a new annual record of 21.9% operating margin.

For the full year, we generated a 21% increase in operating profit dollars, yielding a new annual record of 21, 9% operating margin.

Speaker 4: This increase in operating profit results for 2021 was driven by our team's ability to generate exceptional comparable store sales results of 13.3% while limiting our per store SG&A growth to under 9%.

This increase in operating profit results for 2021 was driven by our team's ability to generate exceptional exceptional comparable store sales results of 13, 3%, while limiting our per store SG&A growth to under 9%.

Speaker 4: The result was improved leverage of SG&A expenses of 81 bases.

The result was improved leverage of SG&A expenses of 81 basis points.

Speaker 4: Our 2021 results are even more impressive considering we delivered these results on top of leveraging SG&A by 263 basis points in 2020.

Our 2021 results are even more impressive considering we delivered these results on top of leveraging SG&A by 263 basis points in 2020.

Speaker 4: The dollar growth in our SG&A spend per store in 2021 was significantly higher than our typical growth in operating expenses driven by expenses incurred in store payroll, incentive compensation, and variable operating expenses to support our sales growth.

The dollar growth in our SG&A spend per store in 2021 was significantly higher than our typical growth in operating expenses driven by expenses incurred in store payroll incentive compensation and variable operating expenses to support our sales growth over.

Speaker 4: Over the last year and a half, our focus has been to match the tremendous opportunities we've had to gain share and drive very strong sales growth by delivering on the excellent customer service standard that is at the core of our business, all while micromanaging our expense structure.

Over the last year and a half our focus has been to match the tremendous opportunities we've had to gain share and drive very strong sales growth by delivering on the excellent customer service standard that is at the core of our business all while micro managing our expense structure.

Speaker 4: The result has been an enhanced level of profitability that candidly has exceeded our previous expectations for our ability to execute our model effectively at this level of SG&A productivity.

The result has been an enhanced level of profitability that candidly has exceeded our previous expectations for our ability to execute our model effectively at this level of SG&A productivity.

Speaker 4: However, our top line growth for the last seven quarters has been both robust and remarkably consistent.

Our topline growth for the last seven quarters has been both robust and remarkably consistent.

Speaker 4: This stability in strong sales volumes coupled with high fixed, low variable cost structures for our stores generates very favorable leverage for our business model.

This stability and strong sales volumes, coupled with high fixed low variable cost structures for our stores generates very favorable leverage for our business model.

Speaker 4: As we capitalize on lessons learned as we've navigated record high sales and productivity gains and look forward to 2022, we are more confident than ever that our seasoned, experienced teams will continue to be able to execute at this step change of increased profitability.

As we capitalize on lessons learned as we've navigated record high sales and productivity gains and look forward to 2022.

We're more confident than ever that our seasoned experienced teams will continue to be able to execute at this step change of increased profitability.

Speaker 4: Our estimated per store SG&A reflects our confidence in our ability to effectively control expenses moving forward.

Our estimated per store SG&A reflects our confidence in our ability to effectively control expenses moving forward.

Speaker 4: Our teams have demonstrated this ability to leverage SG&A even as we have faced significant wage rate pressures.

Our teams have demonstrated this ability to leverage SG&A, even as we faced significant wage rate pressures.

Speaker 4: Our SG&A expectations for 2022 include continued pressure from inflation and wage rates.

Our SG&A expectations for 2022 include continued pressure from inflation and wage rates at.

Speaker 4: at trends consistent with what we saw in 2021, more than offset by efficiency gains, leverage on fixed costs and incentive compensation planned at target level.

At trends consistent with what we saw in 2021 more than offset by efficiency gains.

Leverage on fixed costs and incentive compensation planned at target levels for.

Speaker 4: For 2022, we estimate per store SG&A will grow by approximately 2.5%, which is solidly below our comparable store sales we expect to generate.

For 2022, we estimate per store SG&A will grow by approximately two 5%, which is solidly below our comparable store sales, we expect to generate.

Speaker 4: As always, our top priority is to ensure we are providing excellent customer service, enabling us to develop long-term loyal customer relationships.

As always our top priority is to ensure we are providing excellent customer service, enabling us to develop long term loyal customer relationships.

Speaker 4: Based upon the pressure to gross margin Greg outlined earlier, partially offset by improved SG&A leverage, we expect operating profit to decline between 80 and 130 basis points from 2021's phenomenal results.

Based upon the pressure to gross margin, Greg outlined earlier, partially offset by improved SG&A leverage we expect operating profit to decline between 80, and 130 basis points from 2020 ones phenomenal results.

Speaker 4: However, we expect operating profit dollars at the midpoint of our guidance to increase approximately 2.5% in our operating profit guide of 20.6 to 21.1% of sales brackets our 2020 operating profit, which represented an all time high for our company before we expanded the record by another 100 basis points in 2021.

However, we expect operating profit dollars at the midpoint of our guidance to increase approximately two 5% and our operating profit guide of 26 to 21, 1% of sales brackets. Our 2020 operating profit, which represented an all time high for our company before we expand.

The record by another 100 basis points in 2021.

Speaker 4: Our capital expenditures for 2021 were $443 million, which was lower than our typical capital spend and below our original plan going into 2021.

Our capital expenditures for 2021 were $443 million, which was lower than our typical capital spend and below our original plan going into 2021, the lower Capex was driven by a few different factors, including a heavier weighting of leased versus owned stores the delay.

Speaker 4: The lower capex was driven by a few different factors, including a heavier weighting of leased versus owned stores, the delay of certain expenditures limited by constraints on availability of vehicles and equipment, and the timing of certain store-level strategic initiatives that had to be pushed back as our teams prioritized supporting the current strong sales volume.

Certain expenditures limited by constraints on availability of vehicles and equipment and the timing of certain store level strategic initiatives that had to be pushed back as our teams prioritized supporting the current strong sales volumes.

Speaker 4: As we set our expectations for 2022, our plan is to deploy capital for the initiatives that were delayed in 2021 as well as support new store and DC development to support our long-term growth strategies in the US and Mexico.

As we set our expectations for 2022, our plan is to deploy capital for the initiatives that were delayed in 2021 as well as support new store and DC development to support our long term growth strategies in the U S and Mexico.

Speaker 4: For 2022, we are setting our capital expenditure guidance at $650 to $750 million. We have also established a target of $175 to $185 net new store open.

For 2022, we are setting our capital expenditure guidance at $650 to $750 million. We have also established a target of 175 to 195 net new store openings.

Speaker 4: Outside of our new store and DC development, we have also identified several exciting projects and initiatives in 2022 to enhance the service we provide our customers and improve our efficiency to drive strong returns. Our CapEx guidance includes planned investments in DC and store fleet upgrades.

Outside of our new store and DC development. We have also identified several exciting projects and initiatives in 2022 to enhance the service, we provide our customers and improve our efficiency to drive strong returns.

Our Capex guidance includes planned investments in DC and store fleet upgrades.

Speaker 4: store projects to enhance the image, appearance, and convenience of our stores, as well as strategic investments in information technology projects.

Store projects to enhance the image appearance and convenience of our stores as well as strategic investments in information technology projects.

Speaker 4: Inventory per store at the end of 2021 was 637,000, which was down 2% from the end of last year. As we've discussed on previous calls during the course of 2020 and 2021, our intent has been to aggressively add incremental dollars to our store-level inventory.

Inventory per store at the end of 2021 was 637000, which was down 2% from the end of last year as we've discussed on previous calls during the course of 2020 and 2021, our intent has been to aggressively add incremental dollars to our store level inventories.

Speaker 4: During the strong sales environment the past seven quarters, rolling out the full scope of these initiatives has had to take a back seat to the day-to-day replenishment needs of our stores.

During the strong sales environment, the past seven quarters rolling out the full scope of these initiatives has had to take a backseat to the day to day replenishment needs of our stores.

Speaker 4: we still see significant opportunity to build upon our industry-leading parts availability, and our plan for 2022 includes the deployment of additional inventory in our store and hub network above and beyond our normal new store and typical product edition.

We still see significant opportunity to build upon our industry, leading parts availability and our plan for 2022 includes the deployment of additional inventory in our store and hub network above and beyond our normal new store and typical product additions as.

Speaker 4: As a result of this plan to catch up on delayed initiatives for 2022, we are planning our per store inventory to increase over 8%. This level of inventory growth is significantly above our historical run rates and is driven in part by our focus on meeting the extremely strong sales demand in a supply constrained market environment.

As a result of this plan to catch up on delayed initiatives for 2022, we are planning our per store inventory to increase over 8%.

This level of inventory growth is significantly above our historical run rates and has driven in part by our focus on meeting the extremely strong sales demand in a supply constrained market environment.

Speaker 4: Our ongoing inventory management is geared to deploy the right inventory at the optimal position within our tiered distribution network and includes continual adjustments to push out and pull back inventory to achieve this objective.

Our ongoing inventory management is geared to deploy the right inventory at the optimal position within our tiered distribution network and <unk>.

<unk> continual adjustments to push out and pull back inventory to achieve this objective. However, our overriding goal is to have the best local inventory offering and that priority drives how we manage our inventory and in turn is the primary reason for the higher levels of inventory additions planned.

Speaker 4: However, our overriding goal is to have the best local inventory offering, and that priority drives how we manage our inventory, and in turn is the primary reason for the higher levels of inventory additions planned for 2022.

For 2022.

Speaker 4: Before I turn the call over to Tom, I want to once again thank Team O'Reilly for their dedication and hard work in 2021. Now, I'll turn the call over to Tom.

Before I turn the call over to Tom I want to once again, thank team O'reilly for their dedication and hard work in 2021, now I will turn the call over to Tom.

Speaker 2: Thanks Brad. I'd also like to congratulate Kim O'Reilly on another outstanding...

Thanks, Brad.

Also like to congratulate chemo Riley on another outstanding year.

Speaker 2: Now we'll take a closer look at our fourth quarter results and provide some additional guidance for 2020.

Now, we'll take a closer look at our fourth quarter results and provide some additional guidance for 2022.

Speaker 2: For the quarter, sales increased $463 million.

For the quarter sales increased $463 million.

Speaker 2: comprised of a $398 million increase in comp store sales, a $56 million increase in non-comp store sales, and a $9 million increase in non-comp non-store sales.

Comprised of the $398 million increase in comp store sales.

$56 million increase in non comp store sales and a $9 million increase in non comp non store sales.

Speaker 2: For 2022, we expect our total revenues to be between $14.2 and $14.5 billion.

For 2022, we expect our total revenues to be between $14 to $14 5 billion.

Speaker 2: Greg covered our gross margin performance earlier, but I want to provide additional details on our positive LIFO...

Greg covered our gross margin performance earlier, but I want to provide additional details on our positive LIFO impact.

Speaker 2: For the full year 2021, the LiPo impact was $80 million, compared to $11 million in the prior year.

For the full year 2021, the LIFO impact was $80 million compared to $11 million in the prior year.

Speaker 2: As a reminder, the positive LIFO impact is a byproduct of the reversal of our historic LIFO depth.

As a reminder, the positive LIFO impact is a byproduct of the reversal of our historic LIFO debit.

Speaker 2: 2013 due to negotiated acquisition prices.

Since 2013 due to negotiated acquisition price decreases are calculated LIFO inventory balances exceeded the value of our inventory at replacement costs.

Speaker 2: Our calculated LICO inventory balances exceeded the value of our inventory at replacement...

Speaker 2: And we elected the conservative approach to not write up inventory value beyond our...

And we elected the conservative approach to not write up inventory value beyond replacement cost.

Speaker 2: As a result of this accounting, we've seen a benefit from rising costs and price levels via the sell-through of lower cost inventory purchased prior to the recent cost.

As a result of this accounting, we seen a benefit from rising costs in price levels via the sell through of lower cost inventory purchased prior to the recent cost increases.

Speaker 2: However, during the third quarter of 2021, our LIFO reserve flipped back to a credit balance. As a result of inflation and our loss of capital, our reserve flipped back to a credit balance.

However, during the third quarter of 2021, our LIFO reserve flip back to a credit balance as a result of inflation and acquisition costs.

Speaker 2: And moving forward, we expect to be back to typical LIFO accounting and no longer valuing inventory at a lower place.

And moving forward, we expect to be back to typical LIFO accounting and no longer value inventory at a lower replacement cost.

Speaker 2: As a result, we anticipate a limited benefit of less than $10 million in 2022 for the final sell through of the remaining lower cost inventory which creates a headwind to our gross market.

As a result, we anticipate a limited benefit of less than $10 million in 2022 for the final sell through of the remaining lower cost inventory, which creates a headwind to our gross margin rate.

Speaker 2: Our fourth quarter effective tax rate was 19.4% of pre-tax...

Our fourth quarter effective tax rate was 19, 4% of pretax income.

Speaker 2: comprised of a base rate of 20.4%, reduced by 1% benefit for share-based compensation.

Comprised of a base rate of 24% reduced by 1% benefit for share based compensation.

Speaker 2: This compares to the fourth quarter of 2020 rate of 21.4% of pre-tax income, which was comprised of a base tax rate of 21.8%, reduced 5.4% benefit for share-based compensation.

This compares to the fourth quarter of 2020 rate of 21, 4% of pretax income, which was comprised of a base tax rate of 21, 8% reduced by 4% benefit for share based compensation.

Speaker 2: fourth quarter of 2021 base rate as compared to 2020 benefited from a higher level of renewable energy tax.

The fourth quarter of 2021 base rate as compared to 2020 benefited from a higher level of renewable energy tax credits as a result of the timing of these projects, which was in line with our expectations.

Speaker 2: as a result of the timing of these projects, which was in line with our expectations.

Speaker 2: For the full year, our effective tax rate was 22.2% of pre-tax income, comprised of a base rate of 23.5%, reduced by 1.3% for share-based compensation.

For the full year, our effective tax rate was 22, 2% of pretax income comprised of a base rate of 23, 5% reduced by one 3% for share based compensation.

Speaker 2: For the full year of 2022, we expect an effective tax rate of 23.2%, comprised of a base rate of 23.7, reduced by a benefit of 0.5% for share-based compensation.

For the full year of 2022, we expect an effective tax rate of 23, 2% comprised of a base rate of 23, 7% reduced by a benefit of <unk>, 5% for share based compensation.

Speaker 2: We expect the course quarter rate to be lower than the other three quarters due to the expected timing of benefits from renewable energy tax credits and tolling of certain tax periods.

We expect the fourth quarter rate to be lower than the other three quarters due to the expected timing of benefits from renewable energy tax credits and tolling of certain tax periods.

Speaker 2: These expectations assume no significant changes to existing tax.

These expectations assume no significant changes to existing tax codes.

Speaker 2: Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly

Also variations in the tax benefit from share based compensation can create fluctuations in our quarterly tax rate.

Speaker 2: Now we move on to free cash flow and the components that drove our results and our expectations for 2022.

Now I'll move on to free cash flow and the components that drove our results and our expectations for 2022.

Speaker 2: Free cashflow for 2021 was $2.5 billion versus $2.2 billion in 2020.

Free cash flow for 2021 was $2 5 billion.

Versus $2 2 billion in 2020.

Speaker 2: The increase of $359 million, or 16%, was driven by an increase in operating income and a higher reduction in net inventory in 2021 versus the prior.

The increase of $359 million or 16% was driven by an increase in operating income and a higher reduction in net inventory in 2021 versus the prior year.

Speaker 2: For 2022, we expect free cash flow to be in the range of $1.3 to $1.6 billion, with the year-over-year decrease primarily due to increased net inventory investment and increased capex as Brad previously outlined.

For 2022, we expect free cash flow to be in the range of one three to $1 6 billion with the year over year decrease primarily due to increased net inventory investment and increased capex as Brad previously outlined.

Speaker 2: Our APD inventory ratio at the end of the fourth quarter was 127%

Our AP to inventory ratio at the end of the fourth quarter was 127%, which set an all time high for our company and was heavily influenced by the extremely strong sales volumes and the inventory turns in 2021.

Speaker 2: set an all-time high for our company and was heavily influenced by the extremely strong sales volumes and inventory turns in 2021.

Speaker 2: We anticipate our APE to inventory ratio to moderate off of this historic high as we complete our additional inventory investments and sales growth moderate.

We anticipate our AP to inventory ratio to moderate off of this historic high as we complete our additional inventory investments and sales growth moderate.

Speaker 2: Our current expectation is to finish 2022 at a ratio of approximately 120.

Our current expectation is to finish 2022 at a ratio of approximately 120%.

Moving on to debt, we finished the fourth quarter with an adjusted debt to EBITDA ratio of 169 times as compared to end of 2020 ratio of two three times.

Speaker 2: Moving on to debt, we finished the fourth quarter with an adjusted debt to EBITDA ratio of 1.69 times as compared to our end of 2020 ratio of 2.03.

Speaker 2: reduction driven by the significant growth in EBITR during 2021 and a decrease in adjusted debt, including the redemption of $300 million of senior notes in the second half of 2021.

With the reduction driven by the significant growth and EBITDAR during 2021, and a decrease in adjusted debt, including the redemption of $300 million of senior notes in the second quarter.

Speaker 2: continue to be below our leverage target ratio of 2.5 times and we will approach that number when approached.

We continue to be below our leverage target ratio of two five times and we will approach that number when appropriate.

Speaker 2: We also continue to execute our share repurchase program. And for 2021, based on the strength of our business, we were able to repurchase 4.5 million shares with an average share price of $545.78 For a total investment of $2.5 billion.

We also continue to execute our share repurchase program and for 2021 based on the strength of our business, we were able to repurchase four 5 million shares at an average share price of $545 78.

For a total investment of $2 5 billion.

Speaker 2: Subsequent to the end of the year and through the date of our press release, we repurchased 0.3 million shares at an average share price of $660.23.

Subsequent to the end of the year and through the date of our press release, we repurchased 3 million shares at an average share price of $660 23.

Speaker 2: we remain very confident that the average repurchase price is supported by the expected future discounted cash flows of our business.

We remain very confident that the average repurchase price is supported by the expected future discounted cash flows of our business.

Speaker 2: and we continue to view our buyback programs as an effective means of returning excess capital to our state lengths.

And we continue to view our buyback program as an effective means of returning excess capital to our shareholders.

Speaker 2: As a reminder, our EPS guidance for 2022 includes the impact of shares repurchased through this call, but does not include any additional share repurchased.

As a reminder, our EPS guidance for 2022 includes the impact of shares repurchased through this call, but does not include any additional share repurchases.

Speaker 2: Before I open up our call to your questions, I'd like to thank the O'Reilly team for their dedication to our company and our customers.

Before I open up our call to your questions I'd like to thank Neal Riley team for their dedication to our company and our customers.

Your hard work and commitment to excellent customer service continues to drive our outstanding performance.

Speaker 2: commitment to excellent customer service continues to drive our outstanding performance.

Speaker 2: This concludes our prepared comments and this time I'd like to ask James, the operator, to return the line and we'll be happy to answer your questions.

This concludes our prepared comments and at this time I'd like to ask James the operator to return to the line and we'll be happy to answer your questions.

Speaker 1: Thank you. We can now begin our Q&A session. If you have a question, please press star one on your phone. If you wish to be removed from the question key, you may press the pound sign or the hash key. We ask that you please limit your questions to one question and one follow-up question. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star one on your phone.

Thank you we can now begin our Q&A session. If you have a question. Please press star one on your phone.

We wish to be removed. The question queue, you may press, the pound sign or the hash key.

We ask that you. Please limit your questions to one question and one follow up question.

Youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star one on your phone.

Speaker 1: Our first question is from Scott Ciccarelli of Trist Securities.

Our first question is from Scot Ciccarelli of Trust Securities.

Speaker 5: Good morning guys, hope you're well. I think we can appreciate that price isn't the most important factor in driving a customer's decision. But I guess my questions are number one, why are we making these price investments now as in what has changed? And then number two, why couldn't we see this round of price cuts become another set of price cuts at some point in the future potentially threatening one of the key investment pillars of this vertical? Thanks.

Good morning, guys hope you're well.

I think we can appreciate that price isn't the most important factor.

And driving our customers' decision, but I guess my questions are number one why are we making these price investments now I think what has changed and then number two.

Why couldn't you see this round of price cuts become another set of price cuts at some point in the future potentially threatening why they key investment pillar.

That vertical.

Speaker 3: Yes, Scott, this is Greg. I'll take that one and see if Tom and Brad may have something to add to it.

Yes, Scott this is Greg I'll take that one and then see if Tom and Brad may have something to add to it.

Speaker 3: You know, as to, first of all, I want to reiterate what you said. You know, our philosophy hasn't changed. We always lead with service. Service is most important, followed by inventory availability and then price.

As to <unk>.

First of all I want to reiterate which you said our philosophy Hasnt changed we always lead with service services. Most important followed by inventory availability and then price.

Speaker 3: As far as why now, you know, when you look at the past couple of years, we've been through two years of inflation, price increases, we've seen rising prices, we've seen supply chain disruption, and I think we've performed better than a lot of our competitors over the past couple of years, especially our smaller competitors.

As far as why now.

When you look at the past couple of years, we've been through two years of inflation price increases we've seen rising prices, we've seen supply chain disruption.

And I think we've performed better than a lot of our competitors over the past couple of years, especially our smaller competitors.

Speaker 3: When you look at the professional side of our business as a whole, as you know, it's very, very fragmented. There's a lot of players out there on that side of our business, some of which are the large national players, some of which are the smaller WDs and two-steppers. We compete against each of those every day in every market that we operate.

When you look at the professional side of our business as a whole as you know it's very very fragmented.

There's a lot of players out there on that side of our business some of which are the large national players some of which are the smaller <unk> and two steppers, we compete against each of those every day in every market that we operate in.

Speaker 3: So we felt like coming off of a couple of years of inflation and supply chain disruption, again, where we've performed well, and the anticipation that some of the supply chain disruption may moderate in the back half of the year, timing was right to implement this change. You know, we...

So we felt like coming off of a couple of years of inflation and supply chain disruption again, where we've performed well and the anticipation that some of the supply chain disruption may moderate in the back half of the year timing was right to implement this change.

Speaker 3: What we did here is really no different than what we do day in and day out with our pricing team. Our pricing team constantly monitors pricing on both sides of our business and makes tweaks to pricing at both the professional and the DIY level across our customers. And this initiative specifically targets our DIFM.

What we did here is really no different than what we do day in day out with our pricing team our pricing team.

Constantly monitors pricing on both sides of our business and make tweaks to pricing at both the professional and the DIY level across our customers and this initiative.

Specifically targets are.

<unk> cut.

Speaker 3: customers and just we feel like this will enable us to take additional market share on that side of the business. So that's why now.

Customers and just we feel like this will enable us to take additional market share on that side of the business. So that's why now.

Speaker 3: Brad, did you want to add anything to that or take the second part of the question?

Brad do you want to add anything to that or take the second part of the question.

Speaker 4: Yeah, hey, good morning, Scott. I would just really echo what Greg said, Scott, in terms of you as well as anybody on the call knows how fragmented the DIF inside the business is.

Yeah, Hey, good morning, Scott I would just really echo what Greg said Scott in terms of.

You as well as anybody on the call knows how fragmented the <unk> inside of the businesses.

Speaker 4: you know how really little share when you add up us and our public competitors on the really the addressable DIFM share in the United States is still very small. And so I would just reiterate you know really what you said and what Greg said that it's so important for us to convey that.

<unk> really little share when you add up us in our public competitors on the really the addressable <unk> share in the United States is still very small and so I would just reiterate really what you said and what Greg said that it's so important for us to convey that this is not a change in terms of our.

Speaker 4: This is not a change in terms of our focus. We have built our company on service.

Focus we have built our company on service, we have built our company on relationships and as you know we built our company on the professional customer and retail came later and so that this is not abandoning all the things that got us where we are and the things that are going to get us into the future.

Speaker 4: We have built our company on relationships and as you know we built our company on the professional customer and retail came later.

Speaker 4: And so this is not abandoning all the things that got us where we are and the things that are gonna get us into the future. To your point on the timing of it, you know, Greg had some great comments there. And the other thing I would say, Scott, is with everything that our industry and really everybody in the world has been through the last couple years, especially our professional customers, whether it be a shade tree mechanic to an independent garage to the national and regional accounts, you know, we have not.

To your point on the timing of it Greg had some great comments, there and the other thing I would say Scott is with everything that our industry and really everybody in the world has been through the last couple of years, especially our professional customers whether it be.

A shade tree mechanic to independent garage to the national and regional accounts.

We have not backed off of being out there calling on them, meaning actually visiting their shops.

Speaker 4: backed off of being out there calling on them, meaning actually visiting their shops, you know, day in day out, week in week out, and an opportunity.

Day out weekend week out and an opportunity that we saw the last couple of years is.

Speaker 4: that we saw the last couple years is, you know, our shops are telling us. I mean, our service is where it needs to be. Our team's in the stores.

Our shops are telling us I mean, our services, where it needs to be.

Our teams in the stores.

Speaker 4: you know, everything that you know we've done with inventory availability. And when it comes to the independents out there and the two-step type model competitors, as well as some of the specialty type competitors that maybe just focus in on a couple categories.

Everything that we've done with inventory availability and.

When it comes to the independents out there and the two step type model competitors as well as some of the specialty type competitors that may be just focus in on a couple of categories.

Speaker 4: We just simply see an opportunity from our sales team and in the field to go out and with a rifle approach, target those areas and with existing customers that may be buying a certain amount from us, may be buying a certain amount from an independent and another amount from a true specialty company, consolidating that customer and truly getting a first and only call and we feel very good about that. And Scott, just on the second part of your question.

Simply see an opportunity from our sales team and in the field to go out in with a rifle approach target those areas and with existing customers that may be buying a certain amount from us maybe buying a certain amount from an independent and another amount from an from a true specialty company consolidating that customer and truly getting a <unk>.

First and only call in we feel very good about that and Scott just on your the second part of your question I want to reiterate that this is a targeted approach. This is a very scientific approach. We're taking this is not across the board.

Speaker 3: You know, I want to reiterate that this is a targeted approach. This is a very scientific approach we're taking. This is not across the board.

Speaker 3: This price enhancement was done by category by SKU.

This price this price enhancement was done by category by SKU.

Speaker 3: And, you know, we still feel like that based on our performance, our supply chain strength, that we can still charge a premium to our professional customers. So we do not feel like this is a race to the bottom. We do not feel like we are lowballing costs. We're just getting competitive with some of our competitors out there in the markets to take additional market share. Thanks a lot for the...

And we still feel like that based on our performance our supply chain strengths that we can still charge a premium to our professional customers. So we do not feel like this is a race to the bottom and we do not feel like we are low borrowing cost were just getting competitive with some of our competitors out there in the markets take us.

<unk> market share.

Got it thanks, a lot for that.

Hi, guys.

Thanks Scott.

Speaker 1: Our next question from Christopher Horvers of JP Morgan.

Our next question from Christopher <unk> of JP Morgan.

Speaker 8: Thanks. Good morning. I'll be the second to ask about the pricing. I thought that was a great answer. I just want to focus on a couple things. So first, you going back to the introductory comment that you and you intentionally try not to be the lowest price in the market because you have the leading service model. Do you still expect that to be true going forward?

Thanks, Good morning.

The second asking about the pricing I thought that was a great answer I just wanted to focus on a couple of things so first.

<unk> back to the introductory comment that you and.

You intentionally trying not to be the lowest price in the market because you have the leading service model do you extend I expect that to be true going forward.

Speaker 8: You know, and if some of this is just you're not passing along the inflation that you're experiencing, what's the risk that you actually lower the market, lower the low range of the market price range? You know what I mean?

And if some of this is just you're not passing along the inflation.

That you are experiencing what's the risk that you actually lower the market lower the low range of the market price range, you know what I mean.

Speaker 3: Yeah, Chris, on the first, we absolutely feel like that this makes us competitive in the marketplace.

Yeah, Chris on.

First we absolutely feel like this makes us competitive in the marketplace.

Speaker 3: And as far as lowering, again, we are not doing this to be the lowest price in the marketplace. We feel like that there is tremendous value in the services that we provide and the relationship.

And as far as lowering again, we are not doing this to be the lowest price in the marketplace. We feel like that there is tremendous value in the services that we provide and the relationships you have to remember the professional customer while price is important we're not saying price is not important.

Speaker 3: You have to remember the professional customer, while price is important, we're not saying price is not important.

Speaker 3: What's more important to that professional customer is the relationship we have with them, the inventory availability that we have, and our consistent performance and ability to get that part to them timely so they can complete the job they're working on.

What's more important to that professional customer is the relationship we have with them the inventory availability that we have and our consistent performance and ability to get that part to them timely. So they can complete the jobs. They are working on our professional customers will always prioritize that over price again <unk>.

Speaker 3: Our professional customers will always prioritize that over price, again, assuming that we're competitive on price. So we feel like this move will enable us to take additional market share, both from existing customers and gain market share from customers we may not be getting business from today.

Assuming that we're competitive on price. So we feel like this move will enable us to take additional market share both from existing customers and gain market share from customers, we may not be getting business from today.

Speaker 2: Chris, to address your second part of your question, you're absolutely right. In many cases, due to the significant inflation, same skew inflation, it varies across product line. In many cases, this isn't reducing the street price, it's just not taking that acquisition increase to the street.

Chris to address your second part of your question, you're absolutely right in many cases due to the significant inflation same SKU inflation.

It varies across product line in many cases this isn't reducing the street price. It's just not taking that acquisition increase to the street and price.

Speaker 8: Got it. And then as a follow up, you know, you talked about sort of

Got it and then as a follow up you talked about sort of.

Speaker 8: targeting certain sort of product lines and categories, you know, where you see, you know, some specialty players having shares. So can you maybe expand on that? Is this targeted at share with like national count?

Targeting certain sort of product lines and categories, where you see some specialty players having share. So can you maybe expand on that or is this is this targeted at share with like national accounts.

Speaker 8: Is it up and down the street mechanics? And to what extent is it something like, I don't know, like fuel injection lines that maybe have a certain degree of specificity where that specialty player provides differentiated sort of product.

Is it up and down the street mechanics and.

And to what extent it is something like I don't know like fuel injection lines that may be.

Have a certain degree of specificity.

Where that specialty player provides differentiated.

Sort of product.

Speaker 2: Well, Chris, this is Tom. I'm going to start with the answer. So you know that the answer is going to be, we're not going to give that. But I really want to make sure that we're, we're, you know, we're talking about a broad pricing strategy. We don't communicate the details of our pricing strategy.

Chris This is Tom I am going to start with the answer. So you know that the answer is going to be we're not going to give that.

But I really want to make sure that where we are.

We're talking about a broad pricing strategy, we don't communicate the details of our pricing strategy.

Yes.

Speaker 2: A lot of science, a lot of work goes into it, a lot of history. We're not going to get down into the details of what the program is, but in general, I'll turn it over to Brad for his comments. Yeah, Chris, I think what's important to talk about here is that this isn't a...

A lot of science a lot of work goes into it a lot of history.

So we're not going to get down into the details of what the program is.

But in general I'll turn it over to Brad for his comments, yes, Chris I think I think what's important.

To talk about here is.

This isn't a.

Speaker 4: again, new strategy or initiative that's focused on one

Again, new strategy or initiative that is focused on one one customer group.

Again this is going to this is our commitment to everybody from the shade tree to the independent garages to the regional players to the national accounts and Chris as you know, we still have a gap in footprint and a part of the.

Speaker 4: commitment to everybody from the shade tree to the independent garages to the regional players to the national accounts and Chris as you know you know we still have a gap in footprint in a part of the northeast part of the country that keeps us from really being the the first call for some of the national guys from a matchup standpoint but what I would say again to remember is that while we have new opportunity for new customers always you know one of the things that we really like about this is our existing cup customers that are buying you know a piece from us maybe a piece from our public competitors a really big piece from the independence and then another piece

Northeast part of the country that.

Keeps us from really being the first call for some of the national guys from a matchup standpoint, but what I would say again to remember is that while we have new opportunity for new customers always.

One of the things that we really like about this is our existing customers that are buying a piece from us maybe a piece from our <unk>.

Speaker 4: public competitors, a really big piece from the independents, and then another piece of their monthly purchases from a specialty company. And we're already delivering to these shops. In some cases, we're delivering part of the job that maybe they had to get another item from somewhere else. And so we just see tremendous opportunity. And our customers are telling us that with our inventory availability, our service, our people, if we can make some adjustments there, we really have a huge opportunity to turn into the first and only call for those garages.

Public competitors are really big piece from the independents and then another piece of their monthly purchases from a specialty company and we're already delivering to these shops in some cases, we're delivering part of the job.

It may be they had to get another item from somewhere else and so we just see tremendous opportunity and our customers are telling us that with our inventory availability our service our people.

If we can make some adjustments there we really have a huge opportunity to turn into the first and only call for those for those garages.

Speaker 8: Thanks very much.

Makes sense, thanks very much thanks.

Thanks, Chris Thanks, Chris.

Speaker 1: Our next question from Brett Jordan of Jeffries.

Our next question from.

Bret Jordan of Jefferies.

Hey, good morning, guys good morning breath.

Speaker 2: Hey, good morning, guys. Morning, Brett. I'll jump from pricing to supply chain. Could you talk about maybe the cadence of supply chain disruption or I think in prior quarters, we talked about some categories, you know, specifically being really hard from an import or, you know, production standpoint. Could you talk about, you know, how you saw your availability of inventory in the fourth quarter?

From pricing to supply chain could you talk about maybe the cadence of supply chain disruption or I think in prior quarters, we've talked about some categories, specifically being really hard from import or.

Production standpoint could you talk about how you saw your availability of inventory in the fourth quarter.

Speaker 3: Yeah, Brett, I'll start that and then I'll see if Brent has anything to add, cuz he lives that day in and day out. Isn't it sending you everything in your pocket?

Yes, Brett I'll start that and then I'll see if Brent has anything to add lives that day in and day out.

Speaker 3: You know, we have seen improvement and you know, when you talk about supply chain constraints over the past

We have seen improvement and when you talk about supply chain constraints.

Constraints over the past several months.

Speaker 3: several months. It's bigger than just supply and demand. There's been a lot of facets to it.

It's bigger than just supply and demand there has been a lot of a lot of facets to that.

Speaker 3: I would say that it has improved from overseas, container availability has improved, we still have some port challenges.

I would say that that it has improved from overseas container availability has improved we still have some port challenges.

Speaker 3: We still have some targeted suppliers.

We still have some targeted suppliers.

Speaker 3: Primarily suppliers that are operating in smaller markets domestically that are still having some labor issues.

Primarily suppliers that are operating in smaller markets domestically that are that are having still having some labor issues.

Speaker 3: We got some raw material challenges that some of our suppliers are having.

Get some raw material.

<unk> that some of our suppliers are having overall I would tell you that our fill rate from our Dcs to our stores has improved I would tell you that our in stock position at our stores Hasnt continues to improve and most of our suppliers overall fill rate has improved now that said.

Speaker 3: Overall, I would tell you that our fill rate from our DCs to our stores has improved.

Speaker 3: I would tell you that our in-stock position at our stores has and continues to improve and most of our suppliers overall fill rate has improved. Now that's it.

We still have some suppliers that are challenged and we still work with those although Britain. His team some of our suppliers there meeting with weekly or even multiple times a week to work through those constraints. Brent did you want to add anything to that.

Speaker 3: We still have some suppliers that are challenged and we still work with those. I know Brent and his team, some of our suppliers they're meeting with weekly or even multiple times a week to work through those constraints. Brent, did you want to add anything to that?

Speaker 4: Yeah, I know Brett, Greg gave a good summary. I mean, I think we are seeing general trends of improvement as he alluded to. We still have some spotty suppliers that we're working more closely with than others, but generally we're encouraged by what we're seeing and we anticipate.

Hi, Brett.

Brett.

Greg gave a good summary.

I think we are seeing general trends of improvement as he alluded to.

We still have some spotty suppliers that we're working more closely with than others.

But generally we are encouraged by what we're seeing and we anticipate.

Speaker 4: you know, that improvement to continue hopefully as we work through the first half of the year and into the back half of the year.

That improvement to continue hopefully as we work through the first half of the year and into the back half of the year.

Okay, Great and my follow up question is going to be on price.

Speaker 4: But you said you're going to be competitive in the markets. And I guess given your higher service levels and historically higher in stocks than peers, can you be priced still above those peers just given the other values you offer in the transaction? Or are you thinking that by competitive, do you mean you'll be priced on a dollar basis in line?

You said youre going to be competitive in the markets and I guess given your your higher service levels that are historically higher in stocks than peers can.

Can you be priced still above those periods just given the other values you offer in the transaction or are you thinking that by competitive do you mean youll be priced on a dollar basis in line.

Speaker 3: No, Brett, we still feel like we can be priced at a higher price point than our competitors based on the services we provide, which has been our historic stance on this. Tom, did you? The thing that I point to, Brett, is we have a wide range of competitors, and Brad touched on them earlier. Some compete solely on price. A lot of specialty one-line suppliers, they get business by being absolutely the lowest price, and that's not our position.

No Brian we still feel like we can be.

Can be priced at a higher price point than our competitors based on the services, we provide which has been our historic stance on this Tom did you.

The thing that I'd point to Brett is we have a wide range of competitors and Brad touched on them earlier, some compete solely on price.

There's a lot of specialty one line suppliers, they get business by being absolutely the lowest price and thats not our business model.

Speaker 2: So when we say we're gonna be more, we're gonna be within a competitive range. Obviously it depends on how expensive the part is. If it's a dollar part and you're a dollar over, that's a heck of a lot. If you're a dollar over and it's a hundred dollar part, that's a different thing. And what we gotta remember is the biggest cost for our professional installers is their labor. And that ability to turn those bays is what turns their profit. So we wanna make sure that we're pricing holistically.

<unk>.

When we say, we're going to be more we're going to be within a competitive range. Obviously it depends on how expensive. The part is if it's a dollar partner dollar over that is a heck of a lot. If you are a dollar over and it's a $100 part that's a different different thing and what we got to remember is the biggest cost of our professional installers is there later.

And that ability to turn those bays is what turns their profit. So we want to make sure that we're pricing holistically for the that.

Speaker 2: for the quality of the product, the availability of the product, the team that we offer, the services that we offer. So we look at it in aggregate, but there is always going to be someone, and we talked about it in our prepared comments, who will be the lowest price. And if that's how you sustain your business, if somebody comes along and decides to drop the price, you're going to be in trouble. And we want to have a relationship and a partnership with our professional shops that help them make money over the long term. Thank you.

The quality of the product the availability of the product the team that we offer the services that we offer so we look at it in aggregate, but there is always going to be someone and we talked about it in our prepared comments, we will be the lowest price and if that is how you sustain your business. If somebody comes along decides to drop the price youre going to be troubled and we want to have a real.

<unk> shipped in a partnership with our professional shops that help them make money over the long term.

Great. Thank you I appreciate it.

Thanks, Brett.

Speaker 1: And our next question from Greg Melich of Evercore ISI.

And our next question from Greg <unk> of Evercore ISI.

Yes.

Speaker 2: Thanks. I guess I'd love to go to the guidance on the top line, the five to seven comp guide. You said it was mid single digit inflation in that and assuming that mix is still positive, is it fair to say units will be flat or even slightly down?

Hi, Thanks.

I guess I'd love to go to the guidance on the topline the 5% to seven comp Guide you said it was mid single digit inflation.

In that and assuming that mix. It's still positive is it fair to say you have to be flat or even slightly down.

Speaker 2: this year. So five to seven, that mid single digit within the five to seven was specifically for the DIY side of the business and we would expect it to be on the Tic account there. Because of the price...

This year, so five to seven.

That mid single digit within the 5% to seven was specifically for the DIY side of the business and we would expect that to be sure on the ticket count there because of the price.

Speaker 2: professional price initiative, we won't see as robust of an increase in same-skew inflation on the professional side. So we need to generate a meaningful increase in average ticket on the professional side. So that, your numbers are right, but that was just for the DIY.

Professional price initiative, we wont see as robust of an increase in same SKU inflation on the professional side. So we need to generate a meaningful increase in average ticket on the professional side. So that your numbers are right, but that was just for the DIY side.

Speaker 8: Got it, thanks. And then I guess the follow-up link to that is if we look at the gross margin rate in your guidance this year versus last year, I guess LIFO is maybe 50 bps. Could you give us how much of it is the pro pricing initiative versus just the normal mix change you would expect to pro out performance?

Got it thanks, and then I guess the follow up.

To that is if we look at the gross margin rate.

In your guidance this year versus last year.

I guess like those maybe 50 bps could you give us how much of it is the pro pricing initiative versus just the normal mix change you would expect.

Pro outperformance.

Speaker 2: So Greg, you picked up on a good point. Part of it is going to be just a next shift as professional grows faster than DIY. Because they're buying on volume, the gross margin is lower. We also have the benefit of the supply chain. I would tell you that.

So Greg you've picked up on a good point part of it is going to be just a mix shift as professional grows faster than DIY. It because they are buying on volume the gross margin is lower.

We also have the benefit of the supply chain.

I would tell you that.

Speaker 2: The professional pricing is larger than LIFO, but we're not going to get into parsing out because the next thing you know we'll be talking about our distribution costs and that's something we just don't do.

The professional pricing is larger than LIFO, but we're not going to get into parsing out because <unk> will be talking about our distribution costs and that's something we just don't do.

Got it that's helpful. Thanks, and good luck.

Thats correct.

Speaker 1: And our next question from Michael Baker of DA Davidson.

And our next question from Michael Baker of da Davidson.

Speaker 9: Hi, thanks a lot. I wish I could ask something, you know, not about pricing, but this is a topic.

Hi, Thanks, a lot.

I wish I could ask something not about pricing, but budd.

This is a topic so.

Speaker 9: what do you expect to be competitive response to be uh... do you have any precedent offered doing something like this and and what have you seen competitors do and i guess related to that to just to clear who who is what we've who do you think you're taking share from from the position of the public it's more about taking care from smaller players rather than your big public competitors but but uh... i thought that too i confirmed that

What do you expect the competitive response to be do you have any precedent for doing something like this and what have you seen competitors do and I guess related to that just to be clear.

Who do you think youre taking share from from this initiative. It sounds like it's more about taking share from smaller players rather than your big public competitors, but I just wanted to.

Confirm that.

Sure.

Speaker 4: Hey Mike, this is Brad. I'll jump in there and see what Greg and Tom have to say about it. But, you know, I'll answer the share question. And, you know, on the share, you know, it's hard a little bit to always tell exactly where it's coming from.

Hey, Mike This is Brad I'll jump in there and see what Greg and Tom have had to say about it but.

I'll answer the share question.

And on the share.

As hard a little bit to always tell exactly where its coming from but I would say that what we're seeing it's more from the.

Speaker 4: But I would say that what we're seeing, it's more from the, you know, more the mid-tier of maybe the mediocre, or maybe the weaker independent competitors that have struggled the last couple years with supply and things like that. Mike, as you know, as good as anybody, I mean, we have tremendous public competitors that we have the utmost respect for, and then we have these regional competitors that are these strong, strong, independent, two-step-type competitors that, you know, not too long ago we were in the Ozarks and kind of our old part of the company, but I would just say on the share that, you know, we're seeing a lot of different things, but the majority of the opportunity we see is with the smaller independents and the ones that have struggled the last couple years.

The more of the mid tier maybe the mediocre maybe the weaker independent competitors that have struggled the last couple of years with supply and things like that.

Mike as you know as good as anybody I mean, we have tremendous public competitors that they have.

We have the utmost respect for and then we have these regional competitors that are the strong strong independent to two step type competitors that.

Not too long ago, we were in the in the Ozarks in kind of our old part of the company, but I would just say on the share that we're seeing a lot of different things, but the majority of the opportunity. We see is with the smaller independents and the ones that have struggled the last couple of years, yes, Mike on what the.

Speaker 3: Yeah, Mike, on what the reaction would be, I can tell you based on the test that we ran in multiple markets before rolling this out, the reaction was obviously favorable or we wouldn't have rolled it out company-wide.

Reaction would be I can tell you based on the tests that we ran in multiple markets before rolling this out the reaction was obviously favorable or we wouldn't have rolled it out companywide.

Speaker 9: When you say the reaction, so I mean the competitive reaction, not the customer reaction. So when you say the competitive reaction was favorable, I presume that means you didn't

And you say the reaction so I mean, the competitive reaction not the customer reactions. So when you say the competitive reaction is favorable I presume that means you didn't necessarily see them drop price as well.

Hum.

That's correct Michael.

Can that.

Speaker 2: Obviously our competitors are going to do what they do with their price. I think we just want to stress that we are not setting the low market.

Obviously, our competitors are going to do what they do with their price I think we just want to stress that we are not setting the low market.

Speaker 2: price here. So it's not as if competitors that are winning business on price alone are not going to still be the look.

Price here, so it's not as if competitors that are winning business on price alone are not going to still be the lowest.

Speaker 9: understood make make make certain ku ku i think i think all the best clarified at the

Understood.

Makes sense and I think I think all of these answers clarify the strategy quite a bit so I appreciate that thank you. Thank.

Thank you.

Speaker 1: Our next question from Chris Bottigieri of BMP Paribus.

Our next question from.

Chris Jerry.

<unk> Paribas.

Speaker 9: Hey guys, I was checking the question. So my question is going to be, I guess, on inventory slash inflation. So the inventory investment you spoke of plus 8%. It sounds like your guidance assumes kind of like flattish inflation, maybe even deflation for Q422, I would think with the price investments.

Hey, guys. Thanks, taking the question.

So my question is going to be I guess inventory slashing solution.

The inventory the best when you spoke of plus 8%. It sounds like your guidance assumes kind of like flattish inflation, maybe even deflation for Q4 'twenty two it I would think with the price investments.

Speaker 9: So are you effectively just raising in store inventory units by 8% by year end and then do I have that right first and then how do we think of the cadence of that inventory? Is it going to be pretty smooth as you build that throughout the year? Is it front half loaded? Any contacts that would be helpful?

So are you effectively raising in store inventory units by 8% by year end.

I don't have that right first and then how do we think of the cadence of that inventory.

Is it going be pretty smooth as you build that throughout the year is it front half loaded any context, there would be helpful.

Speaker 2: This is Tom. Let me take a shot at that one. So when we talk about 8% increase, we don't have, and we talked about it for the last seven quarters, we're not sitting on as much inventory as we would normally sit on because of supply constraints and because of the high volume. So part of it is to get back to where we normally would be. And part of these initiatives go back to our 2020.

This is Tom let me take a shot at that one so when we talk about 8% increase we don't have and we've talked about it for the last seven quarters, we're not sitting on as much inventory as we would normally sit on because of the supply constraints and because of the high volume. So part of it is to get back to where we normally would be and part of it. These initiatives go back.

Our 2020.

Speaker 2: guidance and I guess it would be the end of 2019 fourth quarter call where we had a plan to add to the hub and spoke network so it's a combination of those two items

Guidance and I guess it would be the end of 2019 fourth quarter call, where we had a plan to add to the hub and spoke network. So it's a combination of those two items when we look at how fast we can roll this inventory in.

Speaker 2: When we look at how fast we can roll this inventory in, everybody in this room and everybody in our team would like to have it tomorrow. The question is, how fast can suppliers supply it? How fast can we push it through the distribution network? So this is, as Brent said earlier today, and he can add to this, this is gonna be an all year project. We're gonna move a lot of units.

Body in this room and everybody on our team I'd like to have it tomorrow. The question is how fast can supplier supplier how fast can we push it through the distribution network. So this is Brent said earlier today and he can add to this this is going to be an all year project, we're going to move a lot of units. Yes again, Chris. This is not a not a new strategy is something we've had planned for a couple of years.

Speaker 3: Yeah, again, Chris, this is not a new strategy. It's something we've had planned for a couple of years, but supply chain constraints and the volumes we've pushed to our DCs the last couple of years, it just prohibited us from getting the cemetery rolled out.

But supply chain constraints and the volumes we've pushed our Dcs in the last couple of years. It just prohibited us from getting this inventory rolled out.

Speaker 7: Gotcha, that makes sense. And then related question, on the LIFO, the 10 million, is that more like kind of a Q1-ish event or are these slow turning SKUs that would cause you to take that throughout the year and then like, yeah, that's it for me. A great question. That should all roll in in the first quarter. Gotcha, okay. Thanks guys, really appreciate it. Thank you, Chris.

Got you that makes sense and then.

Related question on the LIFO, the $10 million does that.

Is that more like kind of a Q1 issue then or is it at least slow turning skus that would cause you to take that throughout the year and then.

That's it for me.

That's a great question that should all all roll in in the first quarter.

Got you Okay. Thanks, guys really appreciate it.

Thank you Chris Thanks, Chris.

Next question from Michael Lasser of UBS.

Speaker 7: Good morning, thanks a lot for taking my question. What as you were laying out your plan for 2022, what did you assume that the overall industry is going to grow at in the year ahead?

Good morning, Thanks, a lot for taking my question.

As you were laying out your plan for 2022, what did you assume that the overall industry is going to grow at in the year ahead.

Speaker 2: That's an interesting question, Michael. I think what we looked at is when we look at inflation...

That's an interesting question Michael.

I think what we looked at is when we look at inflation.

Speaker 2: what we're going to anniversary and same skew inflation. I think that's a

What we're going to anniversary in same SKU inflation.

I think that's a.

Speaker 2: Pretty reasonable number for the industry. I think we'll be pressured more on the DIY side. Professional will continue to grow faster, more resilience to those price increases. Of course, we build our plan from product line and store up, and it's really independent of what the market's going to do. But our expectation, as you know, has always been that we are going to grow faster than the market.

Pretty reasonable number for the industry I think will be pressured more on the DIY side professional will continue to grow faster more resilient to those price increases of course, we build our plan from product line and store up.

It's really independent of what the market's going to do but our expectation is as you know has always been that we are going to grow faster than the market.

Speaker 7: Obviously, the intent of the question was to try and size.

Yes, obviously the intent to the question was to try and size.

Speaker 7: how much market share you expect to get for the price investments that you're going to be making. Is there another way to frame that out? And then I'll let you ask that and then I have one quick follow up.

How much market share you expect to get for the price investments that youre going to be making so is there another way to frame that out.

And then.

Yes.

I have one quick follow up.

Speaker 2: Okay, so there are a lot of puts and takes within what we think is going to happen with the business both on the DIY and the professional side of the business. And we're confident that when we look at our gross margin dollars that this is going to be a winner for us. And we rolled it out here in February and we are very optimistic it's going to exceed our expectations.

Okay. So.

There are a lot of puts and takes within.

What we think is going to happen with the business both on the DIY and the professional side of the business.

And we are confident that when we look at our gross margin dollars that this is going to be a winner for us at <unk>.

We've rolled it out here in February and we are very optimistic it's going to exceed our expectations.

Speaker 7: And my follow-up question is, do you expect this strategy which will weigh in your gross margin and drive market share to be unique to 2022? Your guidance implies that your gross margin rate this year is going to get back to levels that it would last at in 2013, 2014. So what are the chances that you will have to...

And my follow up question is do you expect this strategy, which will weigh on your gross margin and drive market share.

To be unique to 2022 your guidance implies that your gross margin rate. This year is going to get back to levels that it was last at in 2013 2014. So what are the chances that you will have to continue to execute this pricing.

Speaker 7: continue to execute this pricing and investment strategy beyond 22 such that your gross margins are going to float lower even after this year.

<unk> strategy.

<unk> 22, such that your gross margins that are lower even after this year.

Well the thing I guess I would point out is that 2% are nice and dollars pay the bill so.

Speaker 2: Well, the thing I guess I would point out is that, you know, percent are nice and dollars pay the bills. So, you know, I did see a note where in 2014 the gross margin percent was the same, but I would say that we're about 98% more gross margin dollars, which is a little bit more than that.

I did see a noteworthy in 2014, the gross margin percent was the same but I would say that we are about 98% more gross margin dollars, which is three.

Speaker 2: you know, three and a half billion dollars. You know, at the end of the day, we're trying to figure out how we build a sustainable business that generates increasing operating profit dollars year over year. We think that this initiative continues to move us in that direction. You know, after the number exercise, I'll turn it over to Greg.

$3 5 billion at the end of the day, we're trying to figure out how we build a sustainable business that generates increasing operating profit dollars year over year, and we think that this initiative.

<unk> continues to move us in that direction. After the number exercise I'll turn it over to Greg Yes.

Speaker 3: Yeah, Mike, we don't we don't have any any plans.

Yes, Michael we don't we don't have any any plans.

Speaker 3: initiatives like this beyond this year. That said, as I said earlier, our pricing team consistently, day in and day out, looks at pricing in the marketplace. And we tweak this skew up, this skew down just to optimize our margin. So there's always changes in our pricing structure on both sides of our business. But we don't anticipate future larger scale price reductions.

Initiatives like this beyond this year that said as I said earlier, our pricing team consistently day in and day out looks at pricing in the marketplace and we tweak this skew up this skew down.

Just to optimize our margins. So there's always changes in our pricing structure, both on both sides of our business, but we don't anticipate future.

Larger scale price reductions like this.

Speaker 7: So Greg, just to clarify that you expect this year you're going to make some price tweaks to weigh in your gross margin and then after this it will be normal course of business to continue with what you've done in the past. That is correct. Okay. Thank you very much. Thank you.

So Greg just to clarify that you expect this year youre going to make some tweaks to weigh on your gross margin and then after that it will be normal course of business.

To continue with what you've done in the past.

That is correct.

Okay. Thank you very much thank.

Thank you Michael.

Our next question.

ROE at Stephens.

Speaker 6: Yeah, hey, good morning, guys. Thanks for taking our question. I'll ask one not on pricing. Greg, wanted to ask one just on the on the customer. I think you mentioned, you know, the potential for customer repair deferrals during periods of inflation or maybe economic uncertainty. Just as we head into this year, as low end consumer feels pressure from broader inflation, are you seeing any indication early on of repair deferrals or something that make you think that could happen this year? And is anything like that baked into the comp guidance you given?

Yeah, Hey, good morning, guys. Thanks for taking our question.

Not one not on pricing.

Greg wanted to ask one on the customer I think you mentioned the potential for customer repair deferrals during periods of inflation or maybe economic uncertainty.

Heading into this year at the low end consumer feels pressure from broader inflation are you seeing any indication early on of repair deferrals or something that would make you think that could happen. This year and is there anything like that baked into the comp guidance you've given.

Speaker 3: Yeah, Daniel, we call that out, you know, as we often do, because historically we've seen those changes to that lower income consumer being one of the first things they do. We have not. We have not seen any signs of our DIY or our professional customers, for that matter, trading down or deferring maintenance at this point.

Yes, Daniel.

We call that out as we often do because historically, we've seen those changes to that lower income consumer being one of the first things. They do we have not we have not seen any signs of of our DIY or our professional customers for that matter trainee trading down or <unk>.

During maintenance at this point.

Speaker 2: What I would add to that is we've seen pretty significant price increases and to the extent when we look historically when that's happened, DIY especially on the lower end.

What I would add to that is we've seen pretty significant price increases.

To the extent when we look historically when that's happened DIY, especially on the lower end.

Speaker 2: faced headwinds on customer transaction counts. And we anticipate some of that this year and have built that into the floor.

<unk> faced headwinds.

Customer transaction counts.

We anticipate some of that this year and have built that into the forecast.

Speaker 6: got it. That's helpful color and then I can ask a follow up on SG&A. I think SG&A restore it looks like at the midpoint call it three to 3% to 4% increase, I guess one is that right? And then two, with wages being this inflationary, you know, Tommy, you mentioned efficiency benefits earlier and kind of fixed fixed costs. But are there any other initiatives you guys are doing to keep that at such a muted pace? I think we expect there to be more SG&A growth given the wage backdrop we're seeing. So trying to understand what's driving that improvement. Thanks.

Got it that's helpful color and then can I ask a follow up on SG&A I think SG&A per store it looks like at the midpoint call. It three 3% to 4%.

I guess, one is that right and then two with wages being disinflationary, Tommy you mentioned efficiency benefit earlier in kind of fixed cost, but are there any other initiatives you guys are doing to keep that at such a muted pace I think we expect them to be more SG&A growth given the wage backdrop, we're seeing I'm trying to understand what's driving that improvement.

Speaker 2: So I think in our prepared comments or math is around 2.5% increase. Last year we were significantly above that and sales were significantly above that. As Brad talked about in his prepared comments, we manage our SG&A at a micro level, especially store payroll, which is our biggest variable expense, to make sure that

So I think of it in our prepared comments, our math is around two 5% increase.

Last year, we were significantly above that and sales were significantly above that.

As Brad talked about in his prepared comments, we we manage our SG&A at a micro level.

Specialty store payroll.

Which is our biggest variable expense to make sure that.

Speaker 2: we're taking opportunities to gain share, but not getting out over our skis. So this is based on the sales forecast to the extent that we exceed the sales forecast, it'll be higher than this to the extent we are.

We're taking opportunities to gain share, but not getting out over our skis.

So this is based on the sales forecast to the extent that we exceed the sales forecast it'll be higher than this to the extent we are.

Speaker 2: less than the sales forecast, you better believe it will be less than this. So more of a normal...

Less than the sales forecast you better believe it will be less than this so.

More of a normal.

Actually higher than our normal run rates, our comp guidance higher than our normal run rate.

Speaker 2: actually higher than our normal run rate because our comp guide is higher than our normal run rate. And yes gain efficiency.

Yes, Jay and efficiencies.

Speaker 2: eight, nine years ago we used to talk a lot about our initiatives. Then they seemed to become other people's initiatives, so we tend not to go into detail on those. Fair enough. Appreciate it.

Eight nine years ago, we talk a lot about our initiatives and then they seem to become other people's initiatives. So we tend not to go into detail on those.

Fair enough I appreciate the color and best of luck.

Thank you.

Speaker 1: And we have restarted a lot of time for questions. I will now turn the call back over to Mr. Greg Johnson for closing remarks.

And we are restarting a lot of time for questions I will now turn the call back over to Mr. Greg Johnson for closing remarks.

Speaker 3: Thank you, James. We'd like to conclude our call today by thanking the entire O'Reilly team once again for their unwavering commitment to our customers and for their incredible performance in 2021.

Thank you James we'd like to conclude our call today by thanking the entire O'reilly team once again for their unwavering commitment to our customers and for their incredible performance in 2021.

Speaker 3: We look forward to another strong year in 2022. I'd like to thank everyone for joining our call today, and we look forward to reporting our 2022 first quarter results in April . Thank you.

We look forward to another strong year in 2022.

Thank you everyone for joining our call today, and we look forward to reporting our 2022 first quarter results in April Thank you.

Sure.

Speaker 1: Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.