Q3 2025 Advance Auto Parts Inc Earnings Call

Good morning, and thank you for participating in today's call I'm joined by Shane Kelley, President and Chief Executive Officer, and Ron Grimsson Executive Vice President and Chief Financial Officer. During today's call, we will be referencing slides, which have been posted to our investor relations website. It.

Speaker #2: And ready to help .

Speaker #3: This is how we advance

Speaker #3: .

Before we begin please be advised that managements remarks today will contain forward looking statements.

[Company Representative]: Now at Advance, get a free set of Carquest standard brake pads when you buy two Carquest rotors. Upgrade to Carquest premium gold pads for only $10 more or Carquest professional platinum pads for an additional $20. We're right around the corner and ready to help with quiet, long-lasting Carquest brakes at Advance Auto Parts and participating Carquest. Hello and welcome everyone to the Advance Auto Parts Inc. third quarter 2025 earnings conference call. I would now like to turn it over to Lavesh Hemnani, Vice President, Investor Relations. Good morning and thank you for participating in today's call. I'm joined by Shane O’Kelly, President and Chief Executive Officer, and Ryan Grimsland, Executive Vice President and Chief Financial Officer. During today's call, we will be referencing slides which have been posted to our investor relations website. Before we begin, please be advised that management's remarks today will contain forward-looking statements.

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All statements other than statements of historical fact are forward looking statements, including but not limited to statements regarding initiatives plans projections guidance and expectations for the future.

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Actual results could differ materially from those projected or implied by the forward looking statements.

Additional information can be found under forward looking statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the SEC.

Speaker #1: Hello and welcome everyone to the Advance Auto Parts third quarter 2020 Earnings Conference Call . I would now like to turn it over to Lavesh Hemnani Vice President , Investor Relations .

Shane will begin today's call with an update on the business and our strategic priorities later, Ryan will discuss results for the third quarter and provide an update on full year guidance. Following management's prepared remarks, we will open the line for questions now, let me turn the call over to our CEO Shayne Kelley Chin.

Speaker #5: Good morning , and thank you for participating in today's call . I'm joined by Shane OKelly President and Chief Executive Officer and Ryan Grimsland Executive Vice President and Chief Financial Officer .

Speaker #5: During today's call , we will be referencing slides which have been posted to our Investor Relations website . Before we begin , please be advised that management's remarks today will contain forward looking statements .

Thank you lavash and good morning, everyone I want to take a moment to acknowledge and thank the team for their hard work and dedication their unwavering focus on delivering exceptional customer service and advancing our strategic priorities helped us achieve our strongest quarter in over two years for the third quarter, we reported comparable sales growth of 3%.

Speaker #5: All statements , other than statements of historical fact , are forward looking statements , including but not limited to , statements regarding initiatives , plans , projections , guidance and expectations for the future .

[Company Representative]: All statements other than statements of historical fact are forward-looking statements, including but not limited to statements regarding initiatives, plans, projections, guidance, and expectations for the future. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information can be found under Forward-Looking Statements in our earnings release and risk factors in our most recent Form 10-K and subsequent filings made with the SEC. Shane will begin today's call with an update on the business and our strategic priorities. Later, Ryan will discuss results for the third quarter and provide an update on full-year guidance. Following management's prepared remarks, we will open the line for questions. Now let me turn the call over to our CEO, Shane O’Kelly. Shane, thank you Lavesh, and good morning everyone. I want to take a moment to acknowledge and thank the team for their hard work and dedication.

Speaker #5: Actual results could differ materially from those projected or implied by the forward looking statements . Additional information can be found under forward looking statements in our earnings release and risk factors in our most recent form 10-K and subsequent filings made with the SEC .

<unk> with both pro and DIY channels delivering growth adjusted operating margin expanded by 370 basis points year over year to four 4% demonstrating progress in the execution of our strategic plan.

Speaker #5: Shane will begin today's call with an update on the business and our strategic priorities. Later, Ryan will discuss results for the third quarter and provide an update on full-year guidance.

During the quarter, we also strengthened our balance sheet by proactively reorganizing our debt capital structure, we raised nearly $2 billion in cash which provides enhanced liquidity for the business as well as the path to return to an investment grade credit rating in the future.

Speaker #5: Following management's prepared remarks , we will open the line for questions . Now , let me turn the call over to our CEO , Shane OKelly Shane .

As anticipated tariff related price increases have accelerated in the auto aftermarket and in our view the industry has been responding rationally by adjusting prices in response to rising product costs. We saw some variability in performance as prices moved higher during the quarter, although on a two year basis, both transaction and use.

Speaker #6: Thank you . And good morning , everyone . I want to take a moment to acknowledge and thank the team for their hard work and dedication , their unwavering focus on delivering exceptional customer service and advancing our strategic priorities helped us achieve our strongest quarter in over two years .

[Company Representative]: Their unwavering focus on delivering exceptional customer service and advancing our strategic priorities helped us achieve our strongest quarter in over two years. For the third quarter, we reported comparable sales growth of 3% with both PRO and DIY channels delivering growth. Adjusted operating margin expanded by 370 basis points year over year to 4.4%, demonstrating progress on the execution of our strategic plan. During the quarter, we also strengthened our balance sheet by proactively reorganizing our debt capital structure. We raised nearly $2 billion in cash, which provides enhanced liquidity for the business as well as a path to return to an investment-grade credit rating in the future. As anticipated, tariff-related price increases have accelerated in the auto aftermarket, and in our view, the industry has been responding rationally by adjusting prices in response to rising product costs.

Speaker #6: For the third quarter , we reported comparable sales growth of 3% , with pro and DIY channels delivering growth adjusted operating margin , expanded by 370 basis points year over year to 4.4% , demonstrating progress on the execution of our strategic plan .

Trends were relatively stable as we look to the balance of the year. We believe there is potential for temporary volatility in sales trends as consumers manage household budgets and in an inflationary backdrop. Our teams are prepared to navigate this dynamic environment and provide consistent high quality service to our customers the long term.

Speaker #6: During the quarter , we also strengthened our balance sheet by proactively reorganizing our debt capital structure . We raised nearly 2 billion in cash , which provides enhanced liquidity for the business as well as a path to return to an investment grade credit rating in the future .

Fundamental drivers of the industry remain healthy more than 90% of our sales are driven by maintenance and break fix repair, which gives us confidence for the long term.

Based on our performance to date and expectations for the remainder of Q4, we have updated our full year guidance, we have reaffirmed the midpoint of our prior comparable sales growth and adjusted operating margin guidance, which implies approximately 200 basis points of margin expansion for the year.

Speaker #6: As anticipated , tariff related price increases have accelerated in the auto aftermarket and in our view , the industry has been responding rationally by adjusting prices in response to rising product costs .

Speaker #6: We saw some variability in performance as prices moved higher during the quarter. Although on a two-year basis, both transaction and unit trends were relatively stable.

[Company Representative]: We saw some variability in performance as prices moved higher during the quarter, although on a two-year basis both transaction and unit trends were relatively stable. As we look to the balance of the year, we believe there is potential for temporary volatility in sales trends as consumers manage household budgets in an inflationary backdrop. Our teams are prepared to navigate in this dynamic environment and provide consistent, high-quality service to our customers. The long-term fundamental drivers of the industry remain healthy. More than 90% of our sales are driven by maintenance and break-fix repair, which gives us confidence for the long term. Based on our performance to date and expectations for the remainder of Q4, we have updated our full-year guidance. We have reaffirmed the midpoint of our prior comparable sales growth and adjusted operating margin guidance, which implies approximately 200 basis points of margin expansion for the year.

I want to recognize the team for their tremendous effort in delivering operational stability and maintaining focus on our turnaround priorities. We still have considerable work ahead of us as the initiatives underlying our strategic pillars continue to build through 2026, we remain committed to the steady execution of our plan to expand.

Speaker #6: As we look to the balance of the year , we believe there is potential for temporary both inflationary backdrop . Our teams are prepared to navigate in this dynamic environment and provide consistent , high quality service to our customers .

Margins and create long term value for shareholders.

Speaker #6: The long term fundamental drivers of the industry remain healthy . More than 90% of our sales are driven by maintenance and break , fix , repair , which gives us confidence for the long term .

The advanced team is prioritizing actions to successfully execute the basics of selling auto parts, while strategically utilizing innovative technological assets to position the company for the future. Our technology team has designed a multiyear roadmap to support the effective execution of our plan. These include using generative AI content.

Speaker #6: Based on our performance to date and expectations for the remainder of Q4 , we have updated our full year guidance . We have reaffirmed the midpoint of our prior comparable sales growth and adjusted operating margin guidance , which implies approximately 200 basis points of margin expansion for the year .

Deploying AI based applications and routine processes and providing sharp analytical data for our teams to improve service levels. Some of the areas, where we are leveraging these applications include processes within merchandising to power, our SKU placement decisions and within our supply chain to determine optimum demand forecasting for millions of SKU.

Speaker #6: I want to recognize the team for their tremendous effort in delivering operational stability and maintaining focus on our turnaround priorities . We still have considerable work ahead of us as the initiatives underlying our strategic pillars continue to build through 2026 .

[Company Representative]: I want to recognize the team for their tremendous effort in delivering operational stability and maintaining focus on our turnaround priorities. We still have considerable work ahead of us as the initiatives underlying our strategic pillars continue to build through 2026. We remain committed to the steady execution of our plan to expand margins and create long-term value for shareholders. The Advance team is prioritizing actions to successfully execute the basics of selling auto parts while strategically utilizing innovative technological assets to position the company for the future. Our technology team has designed a multi-year roadmap to support the effective execution of our plan. These include using generative AI content and deploying AI-based applications in routine processes and providing sharp analytical data for our teams to improve service levels.

Combinations in our network. These are just a couple of examples among other projects, where we believe we will collectively establish a foundation for stronger execution across fundamental retail operations.

Speaker #6: We remain committed to the steady execution of our plan to expand margins and create long term value for shareholders . The advance team is prioritizing actions to successfully execute the basics of selling auto parts , while strategically utilizing innovative technological assets to position the company for the future .

Next let's turn to an update of our strategic plan to recap our turnaround goals are built on three pillars. Each supported by targeted initiatives that we believe will position us to deliver profitable growth I will share updates on the progress we have made within each pillar and then Ryan will discuss our financial performance.

Speaker #6: Our technology team has designed a multiyear roadmap to support the effective execution of our plan . These include using generative AI content and deploying AI based applications in routine processes , and providing sharp analytical data for our teams to improve service levels .

Let's begin with merchandising throughout the year, we have taken deliberate and strategic actions to position advance as a trusted long term growth partner for our vendors with a sense of urgency we have streamlined legacy processes reduce complexities in order management restructured our distribution center footprint and prioritized operational excellence to.

Speaker #6: Some of the areas where we are leveraging these applications include processes within merchandising to power our SKU placement decisions and within our supply chain to determine optimum demand forecasting for millions of skew combinations in our network .

[Company Representative]: Some of the areas where we are leveraging these applications include processes within merchandising to power our SKU placement decisions and within our supply chain to determine optimum demand forecasting for millions of SKU combinations in our network. These are just a couple of examples among other projects where we believe we will collectively establish a foundation for stronger execution across fundamental retail operations. Next, let's turn to an update of our strategic plan. To recap, our turnaround goals are built on three pillars, each supported by targeted initiatives that we believe will position us to deliver profitable growth. I will share updates on the progress we have made within each pillar, and then Ryan will discuss our financial performance. Let's begin with merchandising.

Since the overall vendor experience our vendor community is reacting positively to the bold decisive actions, we've made such as exiting underperforming markets and investing in new stores and market hubs. They are actively engaging in strategic business planning exploring supply consolidation opportunities and collaborating on joint marketing efforts.

Speaker #6: These are just a couple of examples , among other projects where we believe we will collectively establish a foundation for stronger execution across fundamental retail operations .

Speaker #6: Next , let's turn to an update of our strategic plan to recap our turnaround goals are built on three pillars , each supported by targeted initiatives that we believe will position us to deliver profitable growth .

To support our transformation. This alignment has already begun to deliver improved product margins and we expect additional cost benefits in the future I am proud of the team's progress, especially given the added complexities of navigating a new tariff environment.

Speaker #6: I will share updates on the progress we have made within each pillar , and then Ryan will discuss our financial performance . Let's begin with merchandising .

Speaker #6: Throughout the year, we have taken deliberate and strategic actions to position Advance as a trusted long-term growth partner for our vendors, with a sense of urgency.

[Company Representative]: Throughout the year, we have taken deliberate and strategic actions to position Advance as a trusted long-term growth partner for our vendors with a sense of urgency. We have streamlined legacy processes, reduced complexities in order management, restructured our distribution center footprint, and prioritized operational excellence to enhance the overall vendor experience. Our vendor community is reacting positively to the bold, decisive actions we've made, such as exiting underperforming markets and investing in new stores and market hubs. They are actively engaging in strategic business planning, exploring supply consolidation opportunities, and collaborating on joint marketing efforts to support our transformation. This alignment has already begun to deliver improved product margins, and we expect additional cost benefits in the future. I am proud of the team's progress, especially given the added complexities of navigating a new tariff environment.

Another key priority for the company has been enhancing the availability of hard parts. We are pleased to report the successful completion of the rollout of our new assortment framework across our top 50, <unk>, which cover approximately 70% of our sales. We achieved this ahead of schedule by leveraging proprietary assortment planning tools.

Speaker #6: We have streamlined legacy processes , reduced complexities and order management , restructured our distribution center footprint , and prioritized operational excellence to enhance the overall vendor experience .

Speaker #6: Our vendor community is reacting positively to the bold , decisive actions we've made , such as exiting underperforming markets and investing in new stores and market hubs .

That have significantly improved our ability to make data driven decisions and quickly adapt SKU requirements to meet specific market needs. We expect this initiative to deliver incremental growth over and above the initial 50 basis point uplift as these markets mature over the next 12 to 18 months along with refreshing our.

Speaker #6: They are actively engaging in strategic business planning , exploring supply consolidation opportunities and collaborating on joint marketing efforts to support our transformation . This alignment has already begun to deliver improved product margins , and we expect additional cost benefits in the future .

Store assortment, we have also improved DC stocking programs to drive greater effectiveness and store replenishment processes for each market. These activities have enabled us to achieve our store availability target and ensure improved depth of hard parts in stores and distribution centers with this major milestone accomplished we are now focused on improving the.

Speaker #6: I am proud of the team's progress , especially given the added complexities of navigating a new tariff environment . Another key priority for the company has been enhancing the availability of hard parts .

[Company Representative]: Another key priority for the company has been enhancing the availability of hard parts. We are pleased to report the successful completion of the rollout of our new assortment framework across our top 50 designated market areas (DMAs), which cover approximately 70% of our sales. We achieved this ahead of schedule by leveraging proprietary assortment planning tools that have significantly improved our ability to make data-driven decisions and quickly adapt SKU requirements to meet specific market needs. We expect this initiative to deliver incremental growth over and above the initial 50 basis point uplift as these markets mature over the next 12 to 18 months. Along with refreshing our store assortment, we have also improved distribution center stocking programs to drive greater effectiveness in store replenishment processes for each market.

Speaker #6: We are pleased to report the successful completion of the rollout of our new assortment framework across our top 50 Dmas , which cover approximately 70% of our sales .

The speed at which we bring new parts of the market to expand our breadth of coverage. We have already introduced tens of thousands of new skus into our network. This year and our work has uncovered additional opportunities to enhance our responsiveness to market demand signals, increasing the breadth of hard parts coverage will enable us to further improve service.

Speaker #6: We achieved this ahead of schedule by leveraging proprietary assortment planning tools that have significantly improved our ability to make data-driven decisions and quickly adapt SKU requirements to meet specific market needs.

Levels for our pro customers.

Speaker #6: We expect this initiative to deliver incremental growth over and above the initial 50 basis point uplift . As these markets mature . Over the next 12 to 18 months , along with refreshing our store assortment , we have also improved DC stocking programs to drive greater effectiveness in store replenishment processes for each market .

Moving to pricing and promotion management as a company. Our goal is to offer competitive pricing supplemented with seasonally relevant promotions to engage customers and drive repeat purchases. We are in the initial stages of testing a new AI powered pricing matrix to informed pricing decisions for skus within the DIY.

Speaker #6: These activities have enabled us to achieve our store availability target and ensure improved depth of hard parts in stores and distribution centers . With this major milestone accomplished , we are now focused on improving the speed at which we bring new parts to market to expand our breadth of coverage .

[Company Representative]: These activities have enabled us to achieve our store availability target and ensure improved depth of hard parts in stores and distribution centers. With this major milestone accomplished, we are now focused on improving the speed at which we bring new parts to market to expand our breadth of coverage. We have already introduced tens of thousands of new SKUs into our network this year, and our work has uncovered additional opportunities to enhance our responsiveness to market demand signals. Increasing the breadth of hard parts coverage will enable us to further improve service levels for our professional (PRO) customers. Moving to Pricing and Promotion Management, as a company, our goal is to offer competitive pricing supplemented with seasonally relevant promotions to engage customers and drive repeat purchases.

<unk> pro channels separately, we have also built guidelines for field discounting programs to take advantage of select market growth opportunities. In this regard we are adopting a fundamental retail approach by installing a centralized price management system for segmenting categories markets Skus and customer chat.

Speaker #6: We have already introduced tens of thousands of new SKUs into our network this year, and our work has uncovered additional opportunities to enhance our responsiveness to market demand signals. Increasing the breadth of hard parts coverage will enable us to further improve service levels for our pro customers.

<unk> consistent with prior expectations, we expect this initiative to deliver a larger benefit in 2026 and beyond.

Turning to supply chain, our U S distribution center consolidation plan is progressing on schedule and we expect to end the year with 16 Dcs in the U S, which is a significant reduction from 38 Dcs just two years ago, we will enter the next phase of consolidation in 2026 and as.

Speaker #6: Moving to pricing and promotion management. As a company, our goal is to offer competitive pricing supplemented with seasonally relevant promotions to engage customers and drive repeat purchases.

Speaker #6: We are in the initial stages of testing a new AI powered pricing matrix to inform pricing decisions for SKUs within the DIY and Pro channels .

[Company Representative]: We are in the initial stages of testing a new AI-powered pricing matrix to inform pricing decisions for SKUs within the DIY and PRO channels. Separately, we have also built guidelines for field discounting programs to take advantage of select market growth opportunities. In this regard, we are adopting a fundamental retail approach by installing a centralized price management system for segmenting categories, markets, SKUs, and customer channels. Consistent with prior expectations, we expect this initiative to deliver a larger benefit in 2026 and beyond. Turning to supply chain, our U.S. distribution center consolidation plan is progressing on schedule, and we expect to end the year with 16 DCs in the U.S., which is a significant reduction from 38 DCs just two years ago. We will enter the next phase of consolidation in 2026, and as part of our planning process, we are evaluating our operational capabilities across the network.

Our planning process, we are evaluating our operational capabilities across the network DC productivity measured through product lines per hour has improved in the mid single digit percentage range compared to last year and our team is putting incremental focus on the execution of key functions in our Dcs. These include product picking <unk>.

Speaker #6: Separately , we have also built guidelines for field discounting programs to take advantage of select market growth opportunities . In this regard , we are adopting a fundamental retail approach by installing a centralized price management system for segmenting categories , markets , SKUs , and customer channels .

<unk> and routing to drive additional productivity, we believe our current DC network is well positioned to support strong service levels and the continued growth of our multi echelon network.

Speaker #6: Consistent with prior expectations . We expect this initiative to deliver a larger benefit in 2026 and beyond . Turning to supply chain . Our US distribution center consolidation plan is progressing on schedule , and we expect to end the year with 16 DCS in the US , which is a significant reduction from 38 DCS .

A key element of this growth is opening new market hubs approximately 75% of our stores are in markets, where we have the number one or number two position based on store density. Our team has made great strides in accelerating market hub openings, which is enabling us to capitalize in markets of strength.

Speaker #6: Just two years ago , we will enter the next phase of consolidation in 2026 as and as part of our planning process . We are evaluating our operational capabilities across the network .

During Q3, we opened six locations and concluded the quarter with 28 market hubs. We now expect to open a total of 14 market hubs this year, including 10 conversions and four greenfield locations with these openings, we expect to end the year with 33 locations a market hub typically carries between.

Speaker #6: DC productivity measured through product lines per hour , has improved in the mid-single digit percentage range compared to last year . And our team is putting incremental focus on execution of key functions in our DCS .

[Company Representative]: DC productivity, measured through product lines per hour, has improved in the mid-single-digit % range compared to last year, and our team is putting incremental focus on execution of key functions in our DCs. These include product picking, packing, and routing to drive additional productivity. We believe our current DC network is well positioned to support strong service levels and the continued growth of our multi-echelon network. A key element of this growth is opening new market hubs. Approximately 75% of our stores are in markets where we have the number one or number two position based on store density. Our team has made great strides in accelerating market hub openings, which is enabling us to capitalize in markets of strength. During Q3, we opened six locations and concluded the quarter with 28 market hubs.

Speaker #6: These include product picking , packing and routing to drive additional productivity . We believe our current DC network is well positioned to support strong service levels , and the continued growth of our Multi-echelon network , a key element of this growth is opening new market hubs .

75000 to 85000, Skus expanding same day parts availability for our service area of about 60 to 90 stores. Thus far in Q4, we have opened one greenfield location in the Atlanta area built from the ground up this facility is poised to serve as a model for future hub development we.

Speaker #6: Approximately 75% of our stores are in markets where we have the number one or number two position based on store density . Our team has made great strides in accelerating market hub openings , which is enabling us to capitalize in markets of strength during Q3 , we opened six locations and concluded the quarter with 28 market hubs .

We're particularly enthusiastic about the opportunities presented by Greenfield openings as these facilities enable us to establish new points of distribution within designated market areas. This strategic expansion not only enhances our ability to provide additional hard parts coverage in previously underserved regions, but it also creates incremental.

Speaker #6: We now expect to open a total of 14 market hubs this year , including ten conversions and four greenfield locations . With these openings , we expect to end the year with 33 locations .

[Company Representative]: We now expect to open a total of 14 market hubs this year, including 10 conversions and 4 greenfield locations. With these openings, we expect to end the year with 33 locations. A market hub typically carries between 75,000 to 85,000 SKUs, expanding same-day parts availability for a service area of about 60 to 90 stores. Thus far in Q4, we have opened one greenfield location in the Atlanta area. Built from the ground up, this facility is poised to serve as a model for future hub development. We are particularly enthusiastic about the opportunities presented by greenfield openings, as these facilities enable us to establish new points of distribution within designated market areas. This strategic expansion not only enhances our ability to provide additional hard parts coverage in previously underserved regions, but it also creates incremental opportunities to gain market share.

<unk> gained market share we will continue to open new market hubs in 2026 and stay on the path to opening 60 market hubs by mid 2027.

Speaker #6: A market hub typically carries between 75,000 to 85,000 SKUs , expanding same day parts availability for a service area of about 60 to 90 stores .

Moving to store operations as we've previously communicated throughout the year, we have been testing a refreshed store operating model designed to enhance productivity and ensure the delivery of consistent high quality service to our customers I would like to thank our frontline team for their collaboration and adaptability during the testing phase.

Speaker #6: Thus far in Q4, we have opened one greenfield location in the Atlanta area, built from the ground up. This facility is poised to serve as a model for future hub development.

As we work to identify a more effective path forward. We are now prepared to launch this model in Q4 as part of the first phase of the rollout with full implementation anticipated during the first half of 2026.

Speaker #6: We are particularly enthusiastic about the opportunities presented by Greenfield Openings as these facilities enable us to establish new points of distribution within designated market areas .

Speaker #6: This strategic expansion not only enhances our ability to provide additional hard parts coverage in previously underserved regions , but it also creates incremental opportunities to gain market share .

This updated operating model enables us to improve driver in store team labor hours, along with vehicle allocations aligning them more effectively with demand patterns to better serve our customers. We expect this model to provide three key benefits first it will enable us to instill greater confidence in our pro customers while strengthening.

Speaker #6: We will continue to open new market hubs in 2026 and stay on the path to opening 60 market hubs by mid 2027 . Moving to store operations .

[Company Representative]: We will continue to open new market hubs in 2026 and stay on the path to opening 60 market hubs by mid-2027. Moving to store operations, as we previously communicated, throughout the year we have been testing a refreshed store operating model designed to enhance productivity and ensure the delivery of consistent, high-quality service to our customers. I would like to thank our frontline team for their collaboration and adaptability during the testing phase as we work to identify a more effective path forward. We are now prepared to launch this model in Q4 as part of the first phase of the rollout, with full implementation anticipated during the first half of 2026. This updated operating model enables us to improve driver and store team labor hours along with vehicle allocations, aligning them more effectively with demand patterns to better serve our customers.

Our reputation as a trusted and reliable parts provider in the aftermarket second it strengthens the collaboration between our customer facing outside sales team and our internal store teams, who play a critical role inefficiently procuring and delivering parts and third from an economic standpoint, this model should support.

Speaker #6: As we've previously communicated throughout the year , we have been testing a refreshed store operating model designed to enhance productivity and ensure the delivery of consistent , high quality service to our customers .

Speaker #6: I would like to thank our frontline team for their collaboration and adaptability during the testing phase . As we work to identify a more effective path forward .

Greater transaction velocity improved labor utilization and enable us to compete more effectively the.

Speaker #6: We are now prepared to launch this modeling Q4 as part of the first phase of the rollout , with full implementation anticipated during the first half of 2026 .

The introduction of this new operating model combined with the expansion of new store locations and our delivery commitment of 30 to 40 minutes naturally positions us to accelerate growth in each pro account. Our team is putting added emphasis on strengthening relationships with main street and regional accounts. The main street customer group represents.

Speaker #6: This updated operating model enables us to improve driver and store team labor hours , along with vehicle allocations , aligning them more effectively with demand patterns to better serve our customers .

Speaker #6: We expect this model to provide three key benefits . First , it will enable us to instill greater confidence in our pro customers while strengthening our reputation as a trusted and reliable parts provider in the aftermarket .

[Company Representative]: We expect this model to provide three key benefits. First, it will enable us to instill greater confidence in our PRO customers while strengthening our reputation as a trusted and reliable parts provider in the aftermarket. Second, it strengthens the collaboration between our customer-facing outside sales team and our internal store teams who play a critical role in efficiently procuring and delivering parts. Third, from an economic standpoint, this model should support greater transaction velocity, improve labor utilization, and enable us to compete more effectively. The introduction of this new operating model, combined with the expansion of new store locations and our delivery commitment of 30 to 40 minutes, naturally positions us to accelerate growth in each PRO account. Our team is putting added emphasis on strengthening relationships with Main Street and regional accounts.

Our single largest opportunity for higher margin market share in the pro channel to further boost our sales within this cohort we are providing our account managers with enhanced visibility on customer data and additional training resources to increase our transaction volumes for our national accounts, we are actively collaborating with them to opt.

Speaker #6: Second , it strengthens the collaboration between our customer facing outside sales team and our internal store teams who play a critical role in efficiently procuring and delivering parts .

<unk> parts availability in specific categories by market, which will enable us to improve service levels.

Speaker #6: And third , from an economic standpoint , this model should support greater transaction velocity , improve labor utilization , and enable us to compete more effectively .

Shifting to DIY as we refocus on the core fundamentals of selling auto parts and work to execute each initiative. We have asked our store team members to embrace significant changes. The fact that our team members are committed to supporting our customers and the sequential improvement in DIY transactions on both a one year and two year basis.

Speaker #6: The introduction of this new operating model , combined with the expansion of new store locations and our delivery commitment of 30 to 40 minutes , naturally positions us to accelerate growth in each Pro account .

Speaker #6: Our team is putting added emphasis on strengthening relationships with Main Street and regional accounts . The Mainstreet customer group represents our single largest opportunity for higher margin market share in the Pro channel .

<unk> is a testament to their customer focused mindset as a management team. We have launched a renewed effort to simplify store tasks and streamline communication to the stores to improve the experience for our team. This initiative is being managed through a centralized execution team, which oversees weekly communications and provides.

[Company Representative]: The Main Street customer group represents our single largest opportunity for higher margin market share in the PRO channel. To further boost our sales within this cohort, we are providing our account managers with enhanced visibility on customer data and additional training resources to increase our transaction volumes for our national accounts. We are actively collaborating with them to optimize parts availability in specific categories by market, which will enable us to improve service levels. Shifting to DIY, as we refocus on the core fundamentals of selling auto parts and work to execute each initiative, we have asked our store team members to embrace significant changes. The fact that our team members are committed to supporting our customers and the sequential improvement in DIY transactions on both a one-year and two-year basis is a testament to their customer-focused mindset.

Speaker #6: To further boost our sales within this cohort, we are providing our account managers with enhanced visibility on customer data and additional training resources to increase our transaction volumes for our national accounts.

Organizational visibility in the tasks being assigned to the stores by prioritizing only the most critical activities. We expect to drive further operational efficiency. We believe this new level of operational discipline will create additional capacity within our stores, allowing teams to dedicate more time to training and customer.

Speaker #6: We are actively collaborating with them to optimize parts availability in specific categories by market , which will enable us to improve service levels .

Speaker #6: Shifting to DIY as we refocus on the core fundamentals of selling auto parts and work to execute each initiative , we have asked our store team members to embrace significant changes .

<unk> service.

Separately to monitor the performance in our stores. We have also launched a new net promoter score or NPS metric that is collected through customer transactions. In addition to providing visibility into the impact of strategic actions being executed by the stores. The data is used by store and district managers to drive targeted service.

Speaker #6: The fact that our team members are committed to supporting our customers and the sequential improvement in DIY transactions on both a one year and two year basis is a testament to their customer focused mindset as a management team , we have launched a renewed effort to simplify store tasks and streamline communication to the stores to improve the experience for our team .

[Company Representative]: As a management team, we have launched a renewed effort to simplify store tasks and streamline communication to the stores to improve the experience for our team. This initiative is being managed through a centralized execution team, which oversees weekly communications and provides organizational visibility into tasks being assigned to the stores. By prioritizing only the most critical activities, we expect to drive further operational efficiency. We believe this new level of operational discipline will create additional capacity within our stores, allowing teams to dedicate more time to training and customer service. Separately, to monitor the performance in our stores, we have also launched a new Net Promoter Score, or NPS, metric that is collected through customer transactions. In addition to providing visibility into the impact of strategic actions being executed by the stores, the data is used by store and district managers to drive targeted service improvements.

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We expect to focus on operational discipline, along with our ongoing effort to upgrade store infrastructure to enhance the overall experience for team members and for our customers. We continue to upgrade HVAC systems roofing parking lots and signage in our stores as part of a multi year asset management plan year to.

Speaker #6: This initiative is being managed through a centralized execution team which oversees weekly communications and provides organizational visibility into tasks being assigned to the stores .

Speaker #6: By prioritizing only the most critical activities , we expect to drive further operational efficiency . We believe this new level of operational discipline will create additional capacity within our stores , allowing teams to dedicate more time to training and customer service .

We have invested about $50 million in store upgrades, which is more than double the total capex allocated to these projects last year to date, we have updated more than 4500 stores compared to 440 stores upgraded in all of 2024. In addition to these critical store upgrades we are.

Speaker #6: Separately to monitor the performance in our stores , we have also launched a new Net Promoter Score or NPS metric that is collected through customer transactions .

Also building a pipeline of new store openings for the future and continue to target at least 100, new store openings over the next two years.

Speaker #6: In addition to providing visibility into the impact of strategic actions being executed by the stores , the data is used by store and district managers to drive targeted service improvements .

So wrap up my section I want to once again recognize the team for their hard work and for the progress achieved thus far we remain focused on prioritizing actions to deliver sustained improvement in our turnaround I will now hand, the call over to Ryan to discuss our financials Bryan.

Speaker #6: We expect to focus on operational discipline along with our ongoing effort to upgrade , store infrastructure to enhance the overall experience for team members and for our customers .

[Company Representative]: We expect to focus on operational discipline along with our ongoing effort to upgrade store infrastructure to enhance the overall experience for team members and for our customers. We continue to upgrade HVAC systems, roofing, parking lots, and signage in our stores as part of a multi-year asset management plan. Year to date, we have invested about $50 million in store upgrades, which is more than double the total CapEx allocated to these projects last year. To date, we have updated more than 1,400 stores compared to 440 stores upgraded in all of 2024. In addition to these critical store upgrades, we are also building a pipeline of new store openings for the future and continue to target at least 100 new store openings over the next two years.

Speaker #6: We continue to upgrade HVAC systems , roofing , parking lots and signage in our stores as part of a multiyear asset management plan .

Thank you Shane and good morning, everyone I want to begin by thanking our frontline associates for their commitment to serving our customers and delivering strong Q3 results.

Speaker #6: Year to date , we have invested about $50 million in store upgrades , which is more than double the total CapEx allocated to these projects last year .

For the third quarter net sales from continuing operations were $2 billion.

Speaker #6: To date , we have updated more than 1400 stores , compared to 440 stores upgraded in all of 2020 . For . In addition to these critical store upgrades , we are also building a pipeline of new store openings for the future and continue to target at least 100 new store openings over the next two years .

Which declined 5% compared to last year.

This decline was mainly attributable to the store optimization activity that was completed during Q1 comparable.

Comparable sales grew 3% during the quarter with positive weekly performance throughout the quarter.

Sales trends were strongest during the first four weeks followed by a moderation during the last eight weeks from a category perspective breaks under car components and engine management led performance. We have made significant progress in improving our coverage and availability of hard parts, which is helping us deliver better.

Speaker #6: To wrap up my section, I want to once again recognize the team for their hard work and for the progress achieved thus far.

[Company Representative]: To wrap up my section, I want to once again recognize the team for their hard work and for the progress achieved thus far. We remain focused on prioritizing actions to deliver sustained improvement in our turnaround. I'll now hand the call over to Ryan to discuss our financials. Ryan, thank you Shane and good morning everyone. I want to begin by thanking our frontline associates for their commitment to serving our customers and delivering strong Q3 results. For the third quarter, net sales from continuing operations were $2 billion, which declined 5% compared to last year. This decline was mainly attributable to the store optimization activity that was completed during Q1. Comparable sales grew 3% during the quarter with positive weekly performance throughout the quarter. Sales trends were strongest during the first four weeks, followed by a moderation during the last eight weeks.

Speaker #6: We remain focused on prioritizing actions to deliver sustained improvement in our turnaround . I'll now hand the call over to Ryan to discuss our financials .

Speaker #6: Ryan . Thank you , Shane , and good morning , everyone . I want to begin by thanking our frontline associates for their commitment to serving our customers and delivering strong Q3 results .

Service to customers.

For the quarter ticket was positive and largely driven by tariff related price adjustments that expanded throughout the quarter. Our industry has been reacting rationally to rising product costs and we have been adjusting prices in response to market dynamics.

Speaker #6: For the third quarter , net sales from continuing operations were $2 billion , which declined 5% compared to last year . This decline was mainly attributable to the store optimization activity that was completed during Q1 .

In aggregate same SKU inflation was about 3% in Q3 compared to about 2% last quarter.

Transactions were down but improved sequentially as we cycled through discrete events from last year on a two year basis transactions and unit productivity were relatively stable to last quarter.

Speaker #6: Comparable sales grew 3% during the quarter , with positive weekly performance throughout the quarter . Sales trends were strongest during the first four weeks , followed by a moderation during the last eight weeks .

Speaker #6: From a category perspective , breaks Undercar components and engine management led performance . We have made significant progress in improving our coverage and availability of hard parts , which is helping us deliver better service to customers .

<unk> the team's continued focus on delivering consistent high quality service.

[Company Representative]: From a category perspective, brakes, undercar components, and engine management led performance. We have made significant progress in improving our coverage and availability of hard parts, which is helping us deliver better service to customers. For the quarter, ticket was positive and largely driven by tariff-related price adjustments that expanded throughout the quarter. Our industry has been reacting rationally to rising product costs, and we have been adjusting prices in response to market dynamics. In aggregate, same SKU inflation was about 3% in Q3 compared to about 2% last quarter. Transactions were down but improved sequentially as we cycled through discrete events from last year on a two-year basis. Transactions and unit productivity were relatively stable to last quarter, reflecting the team's continued focus on delivering consistent high-quality service. Now let's look at channel performance.

Now, let's look at channel performance Pro comps grew by just over 4% as we cycled through the softness from last year on a two year basis. The pro channel recorded its fifth consecutive quarter of positive performance and relatively consistent two year trends in each month.

Speaker #6: For the quarter ticket was positive and largely driven by tariff related price adjustments that expanded throughout the quarter . Our industry has been reacting rationally to rising product costs , and we have been adjusting prices in response to market dynamics .

Our DIY channel delivered positive low single digit comps in the quarter and improved sequentially on a two year basis.

Speaker #6: In aggregate , same skew , inflation was about 3% in Q3 , compared to about 2% last quarter . Transactions were down , but improved sequentially as we cycled through discrete events from last year .

Moving to margins adjusted.

Adjusted gross profit from continuing operations was $913 million or <unk> 44, 8% of net sales resulted in gross margin expansion of about 260 basis points compared to last year.

Speaker #6: On a two year basis . Transactions and unit productivity were relatively stable to last quarter , reflecting the team's continued focus on delivering consistent , high quality service .

The year over year margin expansion was driven by savings associated with our footprint optimization activity completed in March and reduction in product costs, driven by our strategic sourcing initiatives.

Speaker #6: Now let's look at channel performance . Pro comps grew by just over 4% as we cycled through the softness from last year on a two year basis .

[Company Representative]: Pro comps grew by just over 4% as we cycled through the softness from last year on a two-year basis. The professional (PRO) channel recorded its fifth consecutive quarter of positive performance and relatively consistent two-year trends in each month. Our DIY channel delivered positive low single-digit comps in the quarter and improved sequentially on a two-year basis. Moving to margins, adjusted gross profit from continuing operations was $913 million, or 44.8% of net sales, resulting in gross margin expansion of about 260 basis points compared to last year. The year-over-year margin expansion was driven by savings associated with our footprint optimization activity completed in March and reduction in product costs driven by our strategic sourcing initiatives. I want to recognize the merchandising team for their solid execution this year.

I want to recognize the merchandising team for their solid execution. This year, they have been able to secure competitive product costs, while managing prices and a higher tariff environment to offset incremental cost pressures, which is yielding stronger merchandise margins.

Speaker #6: The Pro channel recorded its fifth consecutive quarter of positive performance , and relatively consistent two year trends in each month . Our DIY channel delivered positive , low single digit comps in the quarter and improved sequentially on a two year basis , moving to margins , adjusted gross profit from continuing operations was $913 million , or 44.8% of net sales , resulting in gross margin expansion of about 260 basis points compared to last year .

During the quarter, we cycled through approximately 70 basis points of atypical margin headwinds from last year.

We also experienced a benefit of approximately 50 basis points related to capitalized inventory cost driven by our strategic decision to carry more inventory through the year rig.

Regarding product cost as previously anticipated, we expected LIFO expenses to move higher due to cost inflation.

Speaker #6: The year over year margin expansion was driven by savings associated with our footprint optimization activity , completed in March and reduction in product costs driven by our strategic sourcing initiatives .

This resulted in total LIFO expenses of 33 million for Q3.

Shifting to operating expenses.

Adjusted SG&A from continuing operations was $823 million or.

Speaker #6: I want to recognize the merchandising team for their solid execution . This year . They have been able to secure competitive product costs while managing prices in a higher tariff environment to offset incremental cost pressures , which is yielding stronger merchandise margins .

Or 44% of net sales and was consistent with our expectations.

[Company Representative]: They have been able to secure competitive product costs while managing prices in a higher tariff environment to offset incremental cost pressures, which is yielding stronger merchandise margins. During the quarter, we cycled through approximately 70 basis points of atypical margin headwinds from last year. We also experienced a benefit of approximately 50 basis points related to capitalized inventory costs driven by our strategic decision to carry more inventory through the year. Regarding product costs, as previously anticipated, we expected LIFO expenses to move higher due to cost inflation. This resulted in total LIFO expenses of $33 million for Q3. Shifting to operating expenses, adjusted SG&A from continuing operations was $823 million or 40.4% of net sales and was consistent with our expectations. The year-over-year reduction in SG&A expense is primarily related to operating fewer stores compared to last year.

The year over year reduction in SG&A expense is primarily related to operating fewer stores compared to last year.

Speaker #6: During the quarter , we cycled through approximately 70 basis points of atypical margin headwinds from last year . We also experienced a benefit of approximately 50 basis points related to capitalized inventory costs , driven by our strategic decision to carry more inventory through the year .

As a result, adjusted operating income from continuing operations was $90 million or four 4% of net sales resulted in about 370 basis points of year over year operating margin expansion.

Our strongest operating margin in over two years.

Speaker #6: Regarding product costs, as previously anticipated, we expected LIFO expenses to move higher due to cost inflation. This resulted in total LIFO expenses of $33 million for Q3.

Adjusted diluted earnings per share from continuing operations was 92 <unk>.

Compared with a loss of <unk> <unk> last year.

Year to date free cash flow is negative $277 million.

Speaker #6: Shifting to operating expenses , adjusted SG&A from continuing operations was $823 million , or 40.4% of net sales , and was consistent with our expectations .

Largely driven by payments for inventory purchased in Q3 last year, which is in line with our typical cadence for managing payables.

Also during the quarter, we spent an additional $20 million on cash costs related to our store optimization activity for a total of approximately $130 million incurred through the year.

Speaker #6: The year over year reduction in SG&A expense is primarily related to operating fewer stores compared to last year . As a result , adjusted operating income from continuing operations was 90 million , or 4.4% of net sales , resulting in about 370 basis points of year over year .

[Company Representative]: As a result, adjusted operating income from continuing operations was $90 million or 4.4% of net sales, resulting in about 370 basis points of year-over-year operating margin expansion. Our strongest operating margin in over two years, adjusted diluted EPS from continuing operations was $0.92 compared with a loss of $0.05 last year. Year to date free cash flow is negative $277 million, largely driven by payments for inventory purchased in Q3 last year, which is in line with our typical cadence for managing payables. Also, during the quarter, we spent an additional $20 million on cash costs related to our store optimization activity for a total of approximately $130 million incurred through the year.

Looking at year to date free cash flow more closely we have only seen a modest change in operating cash flow between Q2, and Q3, which shows the stability of our operational execution, while we continue to allocate higher capex to strategic investments.

Speaker #6: Operating margin expansion . Our strongest operating margin in over two years , adjusted diluted earnings per share from continuing operations was $0.92 , compared with a loss of $0.05 last year .

Turning to an update on full year guidance, starting with net sales. We expect net sales of $8 505 to $8 $6 billion, including comparable sales growth between <unk> seven to one 3% Q.

Speaker #6: Year to date free cash flow is -$277 million , largely driven by payments for inventory purchased in Q3 last year , which is in line with our typical cadence for managing payables .

Q4 is typically our most volatile quarter of the year and our guidance includes trends through the first three weeks, which have started off soft.

Speaker #6: Also , during the quarter , we spent an additional $20 million on cash costs related to our store optimization activity , for a total of approximately 130 million incurred through the year .

While the pro channel continues to attract positive the DIY channel is seeing pressure with more week to week variability in transactions. We believe this is being driven primarily by adjustments in consumer purchasing habits in response to rising prices.

Speaker #6: Looking at year to date , free cash flow , more closely , we have only seen a modest change in operating cash flow between Q2 and Q3 , which shows the stability of our operational execution while we continue to allocate higher CapEx to strategic investments .

[Company Representative]: Looking at year-to-date free cash flow more closely, we have only seen a modest change in operating cash flow between Q2 and Q3, which shows the stability of our operational execution while we continue to allocate higher CapEx to strategic investments. Turning to an update on full year guidance, starting with net sales, we expect net sales of $8.55 to $8.6 billion, including comparable sales growth between 0.7% to 1.3%. Q4 is typically our most volatile quarter of the year, and our guidance includes trends through the first three weeks, which have started off soft. While the PRO channel continues to track positive, the DIY channel is seeing pressure with more week-to-week variability in transactions. We believe this is being driven primarily by adjustments in consumer purchasing habits in response to rising prices.

Same SKU inflation is expected to move higher compared to Q3, and we remain cautious in our planning assumptions based on recent trends.

In addition, I wanted to highlight two sales related items that are unique to Q4 <unk>.

Speaker #6: Turning to an update on full year guidance . Starting with net sales , we expect net sales of 8.55 to $8.6 billion . Including comparable sales growth between 0.7 to 1.3% .

First last year in Q4, we generated $74 million in non reoccurring liquidation sales related to our store optimization activity.

And second we expect between $100 million to $120 million in sales from the 50 <unk> week.

Speaker #6: Q4 is typically our most volatile quarter of the year , and our guidance includes trends through the first three weeks , which have started off soft .

As a reminder, neither of these items impact comparable sales growth.

Moving to margins, we expect adjusted operating income margin between two four to two 6% reaffirming the midpoint of our prior guidance range.

Speaker #6: While the Pro channel continues to track positive , the DIY channel is seeing pressure with more week to week variability in transactions . We believe this is being driven primarily by adjustments in consumer purchasing habits in response to rising prices .

Given the typical seasonality of the business through the end of the year, we expect Q4 gross margin to moderate compared to Q3.

Speaker #6: Same skew inflation is expected to move higher compared to Q3 and we remain cautious in our planning assumptions based on recent trends . In addition , I want to highlight two sales related items that are unique to Q4 .

[Company Representative]: Same SKU inflation is expected to move higher compared to Q3, and we remain cautious in our planning assumptions based on recent trends. In addition, I want to highlight two sales-related items that are unique to Q4. First, last year in Q4 we generated $74 million in non-recurring liquidation sales related to our store optimization activity, and second, we expect between $100 million to $120 million in sales from the 53rd week. As a reminder, neither of these items impact comparable sales growth. Moving to margins, we expect adjusted operating income margin between 2.4% to 2.6%, reaffirming the midpoint of our prior guidance range. Given the typical seasonality of the business through the end of the year, we expect Q4 gross margin to moderate compared to Q3.

We are planning for Q4 gross margin slightly below 44%, which includes the benefit of higher capitalized inventory cost continuing through the end of the year as inventory levels are expected to be higher than previously planned.

Speaker #6: First , last year in Q4 , we generated $74 million in non-recurring liquidation sales related to our store optimization activity . And second , we expect between 100 to $120 million in sales from the 53rd week .

Strong coverage of parts across our network is critical for our long term success and we are working to ensure we provide our customers access to the right depth and breadth of parts. However.

Speaker #6: As a reminder , neither of these items impact comparable sales growth . Moving to margins , we expect adjusted operating income margin between 2.4 to 2.6% , reaffirming the midpoint of our prior guidance range .

However, this inventory benefit is expected to be offset by higher than previously planned LIFO expenses that is driving 80 to 100 basis points of added pressure.

We currently estimate total fourth quarter LIFO expense of approximately $70 million based on cost trends through Q3.

Speaker #6: Given the typical seasonality , the business through the end of the year , we expect Q4 gross margin to moderate compared to Q3 .

For SG&A, we expect Q4 expense dollars to decline in the high single digit range compared to last year, which is in line with prior expectations.

Speaker #6: We are planning for Q4 gross margin slightly below 44%, which includes the benefit of higher capitalized inventory costs continuing through the end of the year.

[Company Representative]: We are planning for Q4 gross margin slightly below 44%, which includes the benefit of higher capitalized inventory costs continuing through the end of the year, as inventory levels are expected to be higher than previously planned. Strong coverage of parts across our network is critical for our long-term success, and we are working to ensure we provide our customers access to the right depth and breadth of parts. However, this inventory benefit is expected to be offset by higher than previously planned LIFO expenses that is driving 80 to 100 basis points of added pressure. We currently estimate total fourth quarter LIFO expense of approximately $70 million. Based on cost trends through Q3 for SG&A, we expect Q4 expense dollars to decline in the high single-digit range compared to last year, which is in line with prior expectations.

As a reminder, we are also lapping approximately 280 basis points of atypical margin headwinds, which will drive favorability and the year over year operating margin expansion.

Speaker #6: As inventory levels are expected to be higher than previously planned . Strong coverage of parts across our network is critical for our long term success , and we are working to ensure we provide our customers access to the right depth and breadth of parts .

Moving to the other items in our guidance, we have updated our adjusted EPS guidance to a range of $1 75 and $1 85.

Which includes slightly higher interest income compared to prior expectations.

Speaker #6: However , this inventory benefit is expected to be offset by higher than previously planned LIFO expenses . That is , driving 80 to 100 basis points of added pressure .

For Q4, our interest expense is expected to move higher due to a full quarter impact of the debt refinancing transaction that was completed in Q3.

Speaker #6: We currently estimate total fourth quarter LIFO expense of approximately 70 million , based on cost trends through Q3 for SG&A , we expect Q4 expense dollars to decline in the high single digit range compared to last year , which is in line with prior expectations .

For capital expenditures, we have revised our target to approximately $250 million for the year compared to the prior expectations of approximately $300 million.

About half of the change is associated with the allocation of spend between PP&E and other assets on our balance sheet, which is a net neutral from a free cash flow perspective, the balance of the Capex reduction is related to shifts in timing of projected spend from Q4 into next year as we continue to execute initiatives across.

Speaker #6: As a reminder , we are also lapping approximately 280 basis points of atypical margin headwinds , which will drive favorability in the year over year operating margin expansion .

[Company Representative]: As a reminder, we are also lapping approximately 280 basis points of atypical margin headwinds, which will drive favorability in the year-over-year operating margin expansion. Moving to the other items in our guidance, we have updated our adjusted EPS guidance to a range of $1.75 to $1.85, which includes slightly higher interest income compared to prior expectations. For Q4, our interest expense is expected to move higher due to a full quarter impact of the debt refinancing transaction that was completed in Q3. For capital expenditures, we have revised our target to approximately $250 million for the year compared to the prior expectations of approximately $300 million. About half of the change is associated with the allocation of spend between PP&E and other assets on our balance sheet, which is a net neutral.

Speaker #6: Moving to the other items in our guidance , we have updated our adjusted EPs guidance to a range of $1.75 and $1.85 , which includes slightly higher interest income compared to prior expectations for Q4 .

Our three strategic pillars.

Regarding free cash flow, we have revised our expectations to a range of negative 90% to $80 million for the year.

As I indicated earlier, we expect to carry higher than previously planned inventory through the end of the year. This is being driven by our strategic decision to improve the depth and breadth of assortment across our network and to support new store growth. Despite the higher inventory, we expect positive working capital contribution in the fourth quarter.

Speaker #6: Our interest expense is expected to move higher due to a full quarter impact of the debt refinancing transaction that was completed in Q3 for capital expenditures .

Speaker #6: We have revised our target to approximately 250 million for the year , compared to the prior expectations of approximately 300 million , about half of the change is associated with the allocation of spend between P and E and other assets on our balance sheet , which is a net neutral from a free cash flow perspective .

Which is in line with our planning assumption at the start of the year.

We continue to expect full year cash expenses of approximately $150 million related to our store optimization activity adjusting for this spend our core free cash flow would have been positive for the year, which gives us confidence in our ability to deliver positive free cash flow in 2026 and beyond.

[Company Representative]: From a free cash flow perspective, the balance of the CapEx reduction is related to shift in timing of projected spend from Q4 into next year as we continue to execute initiatives across our three strategic pillars. Regarding free cash flow, we have revised our expectations to a range of negative $90 million to $80 million for the year. As I indicated earlier, we expect to carry higher than previously planned inventory through the end of the year. This is being driven by our strategic decision to improve the depth and breadth of assortment across our network and to support new store growth. Despite the higher inventory, we expect positive working capital contribution in the fourth quarter, which is in line with our planning assumption. At the start of the year, we continue to expect full year cash expenses of approximately $150 million related to our store optimization activity.

Speaker #6: The balance of the CapEx reduction is related to shift in timing of projected spend from Q4 into next year , as we continue to execute initiatives across our three strategic pillars regarding free cash flow , we have revised our expectations to a range of -90 to 80 million for the year .

In summary, we are pleased with our year to date financial performance and remain on track to end the year with solid margin expansion. After two consecutive years of decline we have enhanced our liquidity position to fuel our turnaround and the team is doing a commendable job by staying nimble and a dynamic macro backdrop.

Speaker #6: As I indicated earlier , we expect to carry higher than previously planned inventory through the end of the year . This is being driven by our strategic decision to improve the depth and breadth of assortment across our network , and to support new store growth , despite the higher inventory , we expect positive working capital contribution in the fourth quarter , which is in line with our planning assumption .

Before moving to your questions I want to address a recent industry concerns stemming from the bankruptcy proceedings of a supplier.

In our view this is an isolated situation and not a broader concern regarding the health of the aftermarket industry.

Speaker #6: At the start of the year . We continue to expect full year cash expenses of approximately 150 million related to our store optimization activity .

Over the last 12 months to 18 months, our merchant team has worked to diversify our vendor base, including consolidation of product lines and we currently source less than 2% of our cost of goods from this supplier.

Speaker #6: Adjusting for this spend , our core free cash flow would have been positive for the year , which gives us confidence in our ability to deliver positive free cash flow in 2026 and beyond .

[Company Representative]: Adjusting for this spend, our core free cash flow would have been positive for the year, which gives us confidence in our ability to deliver positive free cash flow in 2026 and beyond. In summary, we are pleased with our year-to-date financial performance and remain on track to end the year with solid margin expansion after two consecutive years of decline. We have enhanced our liquidity position to fuel our turnaround and the team is doing a commendable job by staying nimble in a dynamic macro backdrop. Before moving to your questions, I want to address a recent industry concern stemming from the bankruptcy proceedings of a supplier. In our view, this is an isolated situation and not a broader concern regarding the health of the aftermarket industry.

Given the risks associated with the bankruptcy proceedings, we have recorded a noncash charge of $28 million to cost of sales in the third quarter.

Speaker #6: In summary , we are pleased with our year to date financial performance and remain on track to end the year with solid margin expansion .

This charge reflects an estimate for future credit losses on certain other receivables due from the supplier and is recorded in our GAAP income statement. It does not impact adjusted results and full year guidance.

Speaker #6: After two consecutive years of decline , we have enhanced our liquidity position to fuel our turnaround and the team is doing a commendable job by staying nimble and a dynamic macro backdrop .

Speaker #6: Before moving to your questions , I want to address a recent industry concern stemming from the bankruptcy proceedings of a supplier . In our view , this is an isolated situation and not a broader concern regarding the health of the aftermarket industry .

Following this charge, we have reserved against the risks associated with potential credit losses.

We are maintaining a positive dialogue with the vendor and continue to work with them.

We also source products from hundreds of other suppliers and maintain alternate sources of supply to minimize any disruption to our operations.

Speaker #6: Over the last 12 to 18 months , our merchant team has worked to diversify our vendor base , including consolidation of product lines , and we currently source less than 2% of our cost of goods from this supplier .

[Company Representative]: Over the last 12 to 18 months, our merchant team has worked to diversify our vendor base, including consolidation of product lines, and we currently source less than 2% of our cost of goods from this supplier. Given the risk associated with the bankruptcy proceedings, we have recorded a non-cash charge of $28 million to cost of sales in the third quarter. This charge reflects an estimate for future credit losses on certain other receivables due from the supplier and is recorded in our GAAP income statement. It does not impact adjusted results and full year guidance. Following this charge, we have reserved against the risk associated with potential credit losses. We are maintaining a positive dialogue with the vendor and continue to work with them. We also source products from hundreds of other suppliers and maintain alternate sources of supply to minimize any disruption to our operations.

Separately, we have also heard market concerns related to our supply chain finance program in the aftermath of financial issues related to the supplier.

Speaker #6: Given the risk associated with the bankruptcy proceedings , we have recorded a non-cash charge of 28 million to cost of sales in the third quarter .

We do not believe these concerns are applicable to us I want to emphasize advances suppliers continue to receive early payments on their confirmed invoices through our network of large reputable banks.

Speaker #6: This charge reflects an estimate for future credit losses on certain other receivables due from the supplier , and is recorded in our GAAP income statement .

As a reminder earlier this summer we raised nearly $2 billion in cash to support the operations of our supply chain finance program and asset backed lending facility.

The execution of the facility our vendor programs continue to operate smoothly, we have a strong balance sheet and more than ample liquidity with over $3 billion in cash and have access to $1 billion revolving credit facility that is currently undrawn.

In closing I want to recognize the team once again for delivering our strongest financial results in over two years. This quarter was also our third straight quarter of delivering results in line with expectations. As we look ahead to next year, we expect to build on our recent performance to drive further progress across the business.

[Company Representative]: Separately, we have also heard market concerns related to our supply chain finance program and the aftermath of financial issues related to the supplier. We do not believe these concerns are applicable to us. I want to emphasize Advance suppliers continue to receive early payments on their confirmed invoices through our network of large reputable banks. As a reminder, earlier this summer we raised nearly $2 billion in cash to support the operations of our supply chain finance program, an asset-backed lending facility. Following the execution of the facility, our vendor programs continue to operate smoothly. We have a strong balance sheet and more than ample liquidity with over $3 billion in cash and have access to a $1 billion revolving credit facility that is currently undrawn. In closing, I want to recognize the team once again for delivering our strongest financial results in over two years.

I will now hand, the call back to Shane.

Thank you Ryan we believe we have the right strategy centered on core retail fundamentals along with a talented team driving execution of our strategic initiatives. We appreciate your interest in advance auto parts and look forward to reconnecting in the new year. Thank you.

Operator, we can now open the line for questions.

If you have a night to ask a question you may do so by pressing star one.

Can you Pat now.

Change in RMP Peskov led by team. Please limit yourselves to one question and a follow up on teeth and show your line is muted locally.

Our first question today comes from Simeon Gutman from Morgan Stanley. Please go ahead Simeon Your line is now open.

[Company Representative]: This quarter was also our third straight quarter of delivering results in line with expectations. As we look ahead to next year, we expect to build on our recent performance to drive further progress across the business. I will now hand the call back to Shane. Thank you, Ryan. We believe we have the right strategy centered on core retail fundamentals along with a talented team driving execution of our strategic initiatives. We appreciate your interest in Advance Auto Parts Inc. and look forward to reconnecting in the new year. Thank you, operator. We can now open the line for questions. Thank you. If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad. Now, if you do change your mind, please press star followed by two. Please limit yourselves to one question and a follow-up.

Yeah.

Hey, good morning team, Hey, I wanted to ask first about elasticity of demand the health of the consumer and then maybe even throwing something about weather can you put all together because it sounded like your quarter started off strong and then b cell and now it sounds a little soft and it makes sense given prices come up not just in this category.

Across the board, but how much also was weather a factor and then can you talk about the things youre doing the internal initiatives, how you can see and measure progress and those outside of these variables.

Hey, good morning, Simeon Thanks for the question I'll start and let me start with the consumer because I think it's important.

In general we're keeping an eye on the overall health of the low end low to mid end consumer where our that's where our customer base is.

[Company Representative]: Please ensure your line is unmuted locally. Our first question today comes from Simeon Gutman from Morgan Stanley. Please go ahead, Simeon. Your line is now open. Hey, good morning, team. Hey, I want to ask first about elasticity of demand, the health of the consumer, and then maybe even throw in something about weather. Can you put all together because it sounds like your quarter started off strong and then decelled and now it sounds a little soft and it makes sense given prices come up not just in this category but across the board. How much also is weather a factor? Can you talk about the things you're doing, the internal initiatives, how you can see and measure progress in those outside of these variables? Good morning, Simeon. Thanks for the question. I'll start with the consumer because I think it's important.

Broadly you see some data points that suggest that they may be depressing their spend in aggregate across general merchandize and think about that as the subprime auto market the general consumer sentiment where discretionary spends going.

Cards and so.

That impacts how they spend the good news about our industry is the core is the linchpin of how they get to work in their social activities and much of what we sell is break fixed and non discretionary. So I think that's important but I do think consumers are adjusting their budgets in response to the inflationary.

Environment and I think the cost of some routine jobs has moved up a bit which may make them reconsider.

[Company Representative]: In general, we're keeping an eye on the overall health of the low end, low to mid end consumer. We are. That's where our customer base is. Broadly, you see some data points that suggest that they may be depressing their spend in aggregate across general merchandise. Think about that as the subprime auto market, the general consumer sentiment where discretionary spend's going, credit cards, and that impacts how they spend. The good news about our industry is the car is the linchpin of how they get to work and their social activities, and much of what we sell is break fix and non-discretionary. I think that's important. I do think consumers are adjusting their budgets in response to the inflationary environment.

Some other intervals in which they do maintenance with us, but I would describe it as a noisy situation for them.

But long term feel good about what's going on in our industry and what we're doing so to the second part of your question then turn it over to Ryan for sort of the elasticity specifically, we've got a lot going on as it relates to what we're doing in our stores to to create an environment. That's positive for DIY and what we found is we were over.

Tasking, our stores with a lot of tasks that took them away from being attentive to customers as they as they come in they've got a great note actually last night.

From our customers that came in your store I was greeted right away.

Our team member took the time to diagnose what their situation was spending an additional 20 minutes going through what the options and then ultimately selling apart and so we need to be there for our customers and so freeing up their time, so that each visit results.

[Company Representative]: I think the cost of some routine jobs has moved up a bit, which may make them reconsider some of their intervals in which they do maintenance with us. I would describe it as a noisy situation for them. Long term, I feel good about what's going on in our industry and what we're doing. To the second part of your question, I'll turn it over to Ryan for the elasticity specifically. We've got a lot going on as it relates to what we're doing in our stores to create an environment that's positive for DIY. What we found is we were overtasking our stores with a lot of tasks that took them away from being attentive to customers as they come in. I got a great note last night from a customer who said, I came in your store, I was greeted right away.

More likely conversion to a transaction that's that's what we're doing Ryan on the on the <unk>.

The specifics on.

On the elasticity piece, it's still early for us to gauge exactly what the impact is on the consumer but more broadly we see the consumer impacted across retail.

More recently.

<unk> heard from other retailers how much of that is the government shutdown and that impact how much of that is price inflation that you see in the industry. We're still.

Trying to understand that I think the industry is still trying to understand that but we're watching it closely but one thing you did ask was how do we measure our initiatives in the midst of this stuff going on around us and the way we do that as we take a very measured approach to that by looking at tests versus control. So when we go out.

[Company Representative]: Our team member took the time to diagnose what their situation was, spent an additional 20 minutes going through what the options were, and then ultimately selling a part. We need to be there for our customers, and freeing up their time so that each visit results in a more likely conversion to a transaction. That's what we're doing. Ryan, on the specifics? Yeah. On the elasticity piece, it's still early for us to gauge exactly what the impact is on the consumer. More broadly, we see the consumer impacted across retail. More recently, we've heard from other retailers how much of that is the government shutdown and that impact. How much of that is price inflation that you see in the industry? We're still trying to understand that. I think the industry is still trying to understand that, but we're watching it closely.

And rollout whether thats the assortment, we're looking at a market hubs, we look at how these perform versus like stores that perform similarly in the past and we're able to gauge the success of those and the traction of that get learnings from that before we rollout. So we do test and control here around our initiatives before we start rolling things out more broadly and that helps.

US better understand whether it's working what is working what's not working as we roll those things out so that helps a little bit because the pricing piece is more macro across our store fleet.

To isolate the discrete initiatives that we're putting in place.

Yeah.

[Company Representative]: One thing you did ask was how do we measure our initiatives in the midst of this stuff going on around us? The way we do that is we take a very measured approach to that by looking at tests versus control. When we go out and roll out, whether that's the assortment work or looking at our market hubs, we look at how these perform versus like stores that perform similarly in the past, and we're able to gauge the success of those and the traction of that, get learnings from that before we roll out. We do test and control here around our initiatives before we start rolling things out more broadly. That helps us better understand whether it's working, what is working, what's not working as we roll those things out.

Okay. My quick follow up is on inventory Shane can you talk about where you are versus where you want to be it sounds like you've pivoted a little bit in 'twenty. Five you bought more than I think you were expecting you can clarify if that's the case and why wouldn't that makes sense to do in 2006, I know you talked about driving free cash flow.

But why would it make sense to invest more in inventory to drive the business.

Well just as a reminder, we're doing our assortment rollout so theres a lot of activities going on here and we're pleased that we've got all 50 dnas that we originally planned to do done and if you think about that there are hundreds of skus coming in and out of stores and so we want to make sure that.

[Company Representative]: That helps a little bit because the pricing piece is more macro across our store fleet and we're able to isolate the discrete initiatives that we're putting in place. My quick follow up is on inventory. Shane, can you talk about where you are versus where you want to be? It sounds like you pivoted a little bit in 2025. You bought more than I think you were expecting. You can clarify if that's the case. Why wouldn't that make sense to do in 2016? I know you talked about driving free cash flow, but why would it make sense to invest more in inventory to drive the business? Just as a reminder, we're doing our assortment rollout, so there's a lot of activities going on here. We're pleased that we've got all 50 DMAs that we originally planned to do done.

We've got the right amount of product going into those stores keep in mind also that in the tariff environment. We bought ahead, we wanted to make sure that we had the inventory we needed perfectly at the price.

Out and and that impact, how much of that is uh, price uh, inflation that you see in the industry. We're still uh, trying to understand that. I think the industry is still trying to understand that but we're watching it closely. The 1 thing you did ask was how do we measure our initiatives in, in the midst of this stuff going on around us. And and the way we do that is we take a very uh, measured approach to that by looking at tests versus control. So, when we go out and roll out, whether that's the assortment work or looking at our Market hubs, we look at how these perform versus like stores that perform similarly in the past and we're able to gauge, you know, the success of those and the traction of that get, learnings, from that before we roll out. So we do test and control here around our initiatives. Before we start rolling, things out more broadly and that helps us better understand, whether it's working. What is working? What's not working? As we roll those, those things out so that helps a little bit because the the pricing piece is more macro across our store Fleet.

Pre moves so that we could be in good position. So we're focusing on having the part for our customer which means investing to get it in our system. Both at the DC and the store level, Yes, and I'll just add we're really focused on the breadth I think the depth is one that we've been really hitting on.

Uh, and we're able to isolate the discreet initiatives that we're putting in place.

Getting the right depth, but now it's the number of Skus and making sure that we've got the right assortment at the different levels within the supply chain echelon.

Okay, and my quick follow-up is is on inventory. Shane, can you talk about where you are versus where you want to be? It sounds like you pivoted a little bit in 205 you bought more than I think you were expecting. You can clarify if that's the case and why wouldn't that make sense to do in 26? I know you talked about driving free cash flow but why wouldn't it make sense to invest more in inventory to

So I think that inventory can come down and then some inventory investment will be needed, but that's more of a mix.

Drive the business.

[Company Representative]: If you think about that, there are hundreds of SKUs coming in and out of stores. We want to make sure that we've got the right amount of product going into those stores. Keep in mind also that in the tariff environment, we bought ahead. We wanted to make sure that we had the inventory we needed, preferably at the price pre moves so that we could be in good position. We're focusing on having the part for our customer, which means investing to get it in our system both at the DC and the store level. Yeah. I'll just add we're really focused on the breadth. I think the depth is one that we've been really hitting on and getting the right depth, but now it's the number of SKUs and making sure that we've got the right assortment at the different levels within the supply chain echelon.

As we get the right depth and breadth for the consumer so not a big investment needed going into next year. We've already made some pretty big investments now it's managing through that will have some sell through with that earlier buys that we made in the assortment work, we've done and that will afford us the ability to invest in the other areas of <unk>.

<unk> that we need.

Okay. Thanks, guys. Good luck.

Thanks, David.

Yeah.

Thank you. The next question comes from Chris <unk> from Jpmorgan. Please go ahead, Chris Your line is now open.

Thanks, guys and good morning. So my first question is on the inflation front can you talk about what did the exit look like an inflation in the quarter is it still your expectation we get to that to the higher end of the mid single digits in the fourth quarter.

[Company Representative]: I think that inventory can come down and then some inventory investment will be needed. That's more of a mix as we get the right depth and breadth for the consumer. Not a big investment needed going into next year. We've already made some pretty big investments. Now it's managing through that. We'll have some sell through with that earlier buys that we made and the assortment work we've done, and that will afford us the ability to invest in the other areas of breadth that we need. Thanks guys. Good luck. Thanks, Simeon. Thank you. The next question comes from Chris Horvers from JPMorgan. Please go ahead. Chris, your line is now open. Thanks guys and good morning. My first question is on the inflation front. Sir, can you talk about what did the exit look like on inflation in the quarter?

Well, just as a reminder, we're doing our assortment roll out. So there's a lot of activities going on here and we're, we're pleased that we've got all 50 dma to do done. And if you think about that, there are hundreds of skus coming in and out of stores. And so, we want to make sure that we've got the right amount of product going into those stores. Keep in mind. Also that in the Tariff environment, we bought ahead, we wanted to make sure that we had the inventory. We needed preferably at the price, uh, uh pre moves, so that we could be be in good position. So we're we're, we're focusing on having the part for our customer which means investing to, to get it in our system, both at the DC and, and the store level. Yeah. And I'll just add, we're really focused on the breath. I think the depth is 1 that we've been really hitting on and getting the right depth, but now it's the number of skus and making sure that we've got the right assortment at the different

There's a big debate out there amongst investors when when that inflation year over year inflation benefit peaks.

One of your peers is saying it's in the fourth quarter. Another one of your peers are saying, Hey, we don't we turn inventory every 10 months so.

It wouldn't be until the spring. So can you help us out with that that that mystery as well. Thank you.

Yeah, absolutely Chris Thanks, Brian.

Levels within the supply chain Echelon. Uh, so I think that inventory can come down and then some inventory investment will be needed, but that's more of a mixed, uh, as we get the right depth and breadth, uh, for the consumer. So, not a big investment needed going into next year. We've already made some pretty big Investments now. It's managing through that. We'll have some sell through it with that earlier buys that we made and they still haven't worked, we've done and that will afford US. The ability to invest in the other areas of

Of breath that we need.

In place now, but we finished Q3 just under 3% so close to 3% Q4, we expect it to be around 4%.

Thanks guys. Good luck.

Thanks Jimmy.

But going into Q1 of next year, we expect that to increase.

Increased slightly but not at the same rate of increase and then by that point in time.

Thank you. The next question comes from Chris hores, from JP Morgan. Please go ahead, press your line is now open.

We'll be getting more to a normalized state obviously theres a lot.

[Company Representative]: Is it still your expectation we get to the higher end of the mid single digits in the fourth quarter and there's a big debate out there amongst investors when that inflation year over year inflation benefit peaks. One of your peers is saying it's in the fourth quarter. Another one of your peers is saying, hey, we turn inventory every 10 months so it wouldn't be until the spring. Can you help us out with that mystery as well? Thank you. Yeah, absolutely, Chris. Thanks, Ryan. On the inflationary front, we finished Q3 just under 3%, so close to 3%. Q4 we expect it to be around 4%, but going into, say, Q1 of next year, we expect that to increase slightly, but not at the same rate of increase. By that point in time I think we'll be getting more to a normalized state.

And that can play out I mean, we just had a China deal overnight that we still have to think through so this thing is ever evolving but for the most part we are substantially done with our negotiations with our vendors around that few left so substantially done and as those have gone into the system. The prices are going into the system.

So I would expect.

There is some balance between what our peers are saying and somewhere in between there is probably where we reached the peak, but obviously, it's an evolving landscape.

Thanks guys and and good morning. So my first question is on the inflation front. So can you talk about? You know, what did the exit look like on inflation? Uh in the quarter? Is it still your expectation. We get to the to the higher, end of the, the mid single digits and the fourth quarter. And you know, there's a there's a big debate out there amongst investors when when that inflation year-over-year, inflation benefit Peaks uh you know 1 year peers is saying it's it's in the fourth quarter. Another 1 of your peers are saying, hey you know, we don't, we turn him inventory every 10 months. So

We think and 4% in Q4, and then a slight increase in Q1 of next year.

It wouldn't be until the spring, so could you help us out with that? That mystery as well? Thank you.

Yeah.

Got it that is super helpful. And then as we think about the path to the 7%.

Operating margin can you can you help us maybe on the linearity of that and as a part of the question.

Yeah, absolutely. Chris. Thanks, it's Ryan, um, on the inflationary front. We've finished Q3 just under 3%, so close to 3% Q4. We expect it to be around 4%.

[Company Representative]: Obviously there's a lot that can play out. I mean, we just had a China deal overnight that we still have to think through. This thing is ever evolving. For the most part we are substantially done with the negotiations with our vendors around that, few left, so substantially done. As those have gone into the system, the prices are going into the system. I would expect there's some balance between what our peers are saying and somewhere in between there is probably where we reach the peak. Obviously it's an evolving landscape. We're thinking 4% Q4 and then a slight increase in Q1 of next year. Got it. That is super helpful. As we think about the path to the 7% operating margin, can you help us maybe on the linearity of that and as a part of the question?

Always hard to put a LIFO question in to the call, but what is sort of the net LIFO headwind in 'twenty.

Five between LIFO and the capitalized inventory cost and how do you think about.

The recapture.

Of that next year, and then more broadly that the linearity of the path to 7% by 'twenty seven thanks, so much.

Just quickly Chris.

Chris on the strategy, we think we've got the right strategy for the company, we've got the right focus areas.

And our goal is unchanged for 2027, having said that theres a lot of space between now and then.

And you used the word linear I would say turnarounds are non linear in terms of how things go there's puts and takes some initiatives go faster some go slower.

Um, somewhere in between, there is probably where we reached the peak, but, obviously, it's an evolving landscape. But I, I, we're we're thinking 4% Q4, and then a slight increase in q1 next year.

[Company Representative]: It's always hard to put a LIFO question into the call, but what is sort of the net LIFO headwind in 2025 between LIFO and the capitalized inventory costs and how do you think about the recapture of that next year and then more broadly the linearity of the path to 7% by 2027? Thanks so much. Just quickly, Chris, on the strategy. We think we've got the right strategy for the company. We've got the right focus areas and our goal is unchanged for 2027. Having said that, there's a lot of space between now and then and you use the word linear. I would say turnarounds are nonlinear in terms of how things go. There are puts and takes. Some initiatives go faster, some go slower, market receptivity. We view 2025 and 2026 as building block years.

Market receptivity, So we view 25, and 26 building block years, and if you look at what's happened. This year I mean, just think about it two quarters ago, we were closing stores exiting California, we're going through the world pack TSA transitions.

Got it that that is super helpful. And then as we think about the path to the 7% uh operating margin can you can you help us maybe on the linearity of that and and as a part of the question, I it's always hard to put a life of question into the call but what is sort of the the net lifo headwind in 20

Doing our assortment.

This year, we will go from from 28% to 16 Dcs I mean, these are huge muscle mover activities and 2006 will feature a lot of of building block tough things that we're doing to continue for it. So we're really pleased with the products.

5 between lifo and the capitalized inventory costs. And and how do you think about, uh, the recapture, uh, of that next year? And then more broadly that the linearity of the path to 7% uh, by 27. Thanks so much. Yeah.

Really pleased with the team and we're focused on closing 2025 strong.

But as we go forward 2026, the building block here and I would I would emphasize the non linear nature of turnarounds as for LIFO.

Just you quickly. Uh, Chris on the strategy. We think, we've, we've got the right strategy for the company. We've got the right, Focus areas. Uh, and our goal is, is unchanged for for 2027 having said that there's a lot of space between now and then.

Over to Ryan for that Hey, Chris Yeah. So just to give you a net of the warehouse capitalization cost obviously that netted out LIFO was still a headwind is roughly 60% to 80 basis points.

[Company Representative]: If you look at what's happened this year, just think about it, two quarters ago we were closing stores, exiting California, we were going through the WorldPAC TSA transitions, doing our assortment. This year we'll go from 28 to 16 distribution centers. These are huge muscle mover activities. 2026 will feature a lot of building block tough things that we're doing to continue forward. We're really pleased with the progress, really pleased with the team and we're focused on closing 2025 strong. As we go forward, 2026 is a building block year and I would emphasize the nonlinear nature of turnarounds. As for LIFO, I'm going to go over to Ryan for that. Hey, Chris. Just to give you a net of the warehouse capitalization cost, obviously that netted out some of it. LIFO was still a headwind, roughly 60 to 80 basis points.

Expect it to be by the end of the year of 60 to 80 basis points of headwind in 2025.

That's helpful for you.

Uh, and you use the word linear. I, I would say turnarounds are non-linear in terms of of how things go. There's puts and takes some initiatives, go faster, some go slower, uh, market receptivity. So we view 25 and 26 as building block years. And and if you look at what's happened,

Got it thanks, so much.

Thanks, Chris.

Thank you.

Jordan from Jefferies. Please go to hope that your line is now open.

Hey, good morning, guys.

One of the Brunswick.

Working capital.

And on the working capital programs it doesn't sound from channel checks like Theres any contraction in availability, but have you seen any increase in risk spreads in the short term related to that particular supplier issue.

No actually we haven't seen any change in the risk spreads there are supply chain finance program, if youre, if youre talking about the budget finance program rates, they're getting obviously, that's a decision between the banks and the vendor but the.

[Company Representative]: We expect it to be by the end of the year. 60 to 80 basis points of headwind in 2025. Hope that's helpful for you. Got it. Thanks so much. Thanks, Chris. Thank you. The next question comes from Bret Jordan from Jefferies. Please go ahead, Bret. Your line is now open. Hey, good morning, guys. One quick question on the working capital. On the working capital programs, it doesn't sound from channel checks like there's any contraction in availability, but have you seen any increase in risk spreads in the short term related to that particular supplier issue? No, actually we haven't seen any change in the risk spreads there. Our supply chain finance program, if you're talking about the supply chain finance program, raise they're getting. Obviously that's a decision between the banks and the vendor.

The work we did this summer.

Created a lot of stability within that program.

This year, I mean, just think about it, 2 quarters ago, we were closing stores. Exiting California. We were going through the world pack, uh, TSA transitions. Um, you know, doing our assortment, uh, this year, we'll go from from 28 to 16 DCS. I mean these are huge, muscle, mover activities and 26 will feature a lot of of building block tough things that we're doing to, to continue forward. So we're we're really pleased with the progress. Uh, really pleased with the team and we're focused on closing 2025 strong. Um, but, you know, as we go forward, 2026 is a building block year and I would, I would emphasize the non-linear nature of turnarounds, as for for lifo. Uh, I'm going to go over to Ryan for that. Hey, Chris, yeah, so, uh, just to give you net of the warehouse capitalization cost, obviously, that netted out some of it, lifo was still a headwind is roughly 60 to 80 basis points. Uh, we expect it to be by the end of the year, 60 to 80 bucks.

Ben.

<unk> very positive movement, we've had other discussions with the banks around rates that ready to.

Basis points of headwind uh, in 2025, hope that, that's helpful for you.

Any further information around that but we haven't seen the spreads increase we've had positive discussions around all the the other side of that.

Got it. Thanks so much.

Thanks Chris.

Given the stability of this program now with a structure that we've put in place we're supporting that program with the cash in assets on our balance sheet.

Thank you. The next question comes from Brett. Jordan from Jeffrey's. Please go ahead. Brett. Your line is now open.

Hey, good morning, guys.

Which provides.

Risk.

Downward risk pressure for the banks for that program kind of unique relative to the other programs in the industry right now as we're bridging ourselves back to investment grade.

Just to add to that as Bryan said, we're really pleased with the with how we've got supply chain financing setup with the capital raise we did with the cash support we provide for it but as it relates to that vendor in particular.

1 question on the working capital like on the working capital programs. It doesn't sound from Channel checks, like there's any contraction in an availability. But have you seen any increase in Risk spreads in the short term related to that particular supplier issue?

[Company Representative]: The work we did this summer created a lot of stability within that program and it's been a very positive movement. We've had positive discussions with the banks around rates. Not ready to provide any further information around that, but we haven't seen the spreads increase. We've had positive discussions around probably the other side of that. Given the stability of this program now with the structure that we put in place, we're supporting that program with the cash and assets on our balance sheet, which provides a risk, downward risk pressure for the banks for that program, kind of unique relative to the other programs in the industry. Right now as we're bridging ourselves back to investment-grade credit.

Because I do think it's a it's a one off situation first merchandising excellence is a key pillar for us Bruce storms and his team.

<unk> introduced the DLR process and real rigor as it relates to how we develop plans and partnerships with vendors and so they had engaged with this vendor and long before these current circumstances and as a result of that had started to move certain product.

Categories away to other vendors.

So cogs exposure.

Small, 2%, maybe a little under 2%.

We're still in active dialogue with them.

[Company Representative]: Just to add in that, as Ryan said, we're really pleased with how we've got supply chain financing set up with the capital raise we did with the cash support we provide for it. As it relates to that vendor in particular, because I do think it's a one-off situation. First, merchandising excellence, a key pillar for us. Bruce Starnes and his team, they've introduced the PLR process and real rigor as it relates to how we develop plans and partnerships with vendors. They'd engaged with this vendor long before these current circumstances and as a result of that had started to move certain product categories away to other vendors. COGS exposure, pretty small, 2%, maybe a little under 2% now. We're still in active dialogue with them and we'll continue the relationship and wish them well. If they come through, then I think there'll be continued relationships there.

And so and we will continue the relationship and wish them well and if they come through then I think there'll be continued relationships there, but in general across merchandising and that and that emphasis we have.

No. Actually, uh, we haven't seen any change in the risk spreads. There are are supply chain Finance program. If you're if you're talking about the supply chain Finance program rates, they're getting obviously, that's a decision between the banks and the vendor. But uh, the work we did this summer, uh, created a lot of stability within that program. And it's been a a very positive movement. We've had positive discussions with the banks around rates. Not ready to provide any further information around that but we haven't seen the spreads increase. We've had positive discussions around, probably the other side of that uh given the stability of this program. Now with the structure that we put in place, you know, we're supporting that program with the cash and assets on our balance sheet, um, which provides uh a risk, uh, downward risk pressure for the banks, uh, for that program kind of unique relative to the other programs in the industry right now, as we're

Bridging ourselves back to investment grade.

Alternative sources of supply is also a key tenant.

So for anything we buy we look to say, hey, where else would we buy it where else should we buy it and that would apply with this vendor as well. Thank you.

Uh just to add in that was Ryan. So we're really pleased with the with how we've got supply chain financing set up with the capital raise. We did with this, the cash support we provide for it.

Great and then a quick question on the Atlanta hub Greenfield.

Could you give us color sort of as to the performance of stores in that market I think as you build the perfect Todd what is the.

What's the outcome and sort of what's the timing on developing further greenfield hubs like that want it.

Yes, so great question. So it's open so and by the way our market hubs opened with a store nested inside as a reminder, 75 to 85000 skus in aggregate, we view it as a 100 basis point lift play for the for the supported stores and then the market hub typically.

Had started to move certain product uh categories away to other vendors, um, and so cogs exposure, um, pretty small 2%, maybe a little under 2%.

[Company Representative]: In general, across merchandising and that emphasis, we have alternative sources of supply is also a key tenet. For anything we buy, we look to say, hey, where else would we buy it? Where else should we buy it? That would apply with this vendor as well. Thank you. Great. A quick question on the Atlanta hub, greenfield, could you give us color sort of as to the performance of stores in that market? I mean, you build the perfect hub. What is the, what's the outcome and sort of what's the timing on developing further greenfield hubs like that one? Yeah, great question. It's open. By the way, our market hubs open with a store nested inside as a reminder, 75,000 to 85,000 SKUs in aggregate.

<unk> in and of itself thrives as a store just because you have literally all of that inventory sitting sitting onsite. So so we really like what we're doing with the market hubs. We originally.

Plan for 29 this year the idea that we said this is a good thing we want to keep accelerating so we'll get to 33, we're now moving past the phase of where we were doing we did some smaller DC conversions, we're moving past that phase to where we're now green fielding.

Now, we're still in active dialogue with them, um, and so, and we'll continue the relationship and, and, uh, and wish them well. And if they, they come through, then then uh, I think they'll be continued, uh, relationships there. But in general across merchandising and that and that emphasis we have um, alternative sources that supplies. Also a key tenant. Uh, so for anything we buy we look to say, Hey, you know, where else would we buy it? Where else should we buy it? And and that would apply with this vendor as well. Thank you.

And we've got four greenfield market hubs, you'll you'll start to see that be more prominent in the in the opening paradigm and theres a lot of excitement around that because instead of repurposing something we can now specifically pick where we needed to best support this.

Great. And then a quick question on the Atlanta, uh, Hub Greenfield. Um, you know, could you give us caller sort of, as to the performance of stores in that market? I mean because you built the perfect Hub. What is the, uh, what's the outcome? And sort of What's the timing on developing further, Green Field, hubs like that 1?

[Company Representative]: We view it as a 100 basis point lift play for the supported stores, and then the market hub typically in and of itself thrives as a store just because you have literally all that inventory sitting on site. We really like what we're doing with the market hubs. We originally planned for 29 this year. The idea is that we said this is a good thing, we want to keep accelerating so we'll get to 33. We're now moving past the phase where we were doing some smaller distribution center conversions. We're moving past that phase to where we're now greenfielding, and we've got four greenfield market hubs. You'll start to see that be more prominent in the opening paradigm. There's a lot of excitement around that because instead of repurposing something, we can now specifically pick where we need it to best support the stores.

Stores so.

Our real estate team has been digging into to start identifying those sites. So it doesn't create a slower trajectory. So 100 basis points is what we see is the network.

Keep you apprised.

If that goes up or down and then more greenfields going forward.

Yeah, so so great question. Uh, so it's open. So and by the way, our Market hubs, uh, open with a, a store nested inside, as a reminder, 75 to 85,000 skus in aggregate. Uh, we view it as a 100 basis, point lift play for the, for the supported stores and then the Market Hub typically, in and of itself thrives as a store, just because you have literally all that inventory sitting sitting on site. So

In real estate looking to keep that tempo moving 60 in mid 'twenty seven is where we want to be and we will keep you updated on that as well.

Great. Thank you.

Yeah.

Thank you. The next question comes from Steven Forbes from Guggenheim. Please go ahead, Steven Your line is now open.

Good morning, Shane Ryan.

Good morning.

A follow up question.

Just a follow up question on gross margin it was Chris's question.

[Company Representative]: Our real estate team has been digging in to start identifying those sites so it doesn't create a slower trajectory. 100 basis points is what we see as the network. We'll keep you apprised as to if that goes up or down, and then more greenfields going forward and real estate looking to keep that tempo moving. 60 in mid 2027 is where we want to be, and we'll keep you updated on that as well. Great, thank you. Thank you. The next question comes from Stephen Forbes from Guggenheim. Please go ahead, Stephen. Your line is now open. Good morning, Shane, Ryan. Morning, Stephen. I guess a follow-up question. Just a follow-up question on gross margin. I think it was Chris's question.

I think if you back out the LIFO charge in the quarter you guys are sort of exceeding that mid 40% range that that underpins. The long term guide here. So curious just if.

If there is a takeaway for us today on some of the structural gains that you are capturing.

On the back of your initiatives.

Or if that sort of mid 40%.

Ish level is still where you guys see the business trending to over over the next couple of years here.

Uh, so we we really like, what we're doing with the market hubs, you know, we originally, uh, planned for 29, uh, this year. The idea that we said, you know, this is a good thing we want to keep accelerating, so we'll get to 33. We're now moving past the phase of where we were doing. You know, we did some smaller DC conversions, uh, we're moving past that phase to to where we're now, green Fielding. Um, and we've got 4 Green Field Market hubs you'll you'll start to see that be more prominent in the, in the opening Paradigm. And and there's a lot of excitement around that because of repurposing, something we can now specifically pick where we need it to, to best support. Uh, the stores. So, um, and the our real estate team has been digging into to start identifying those sites. So it doesn't create a, a slower trajectory so, 100 basis points is what we see is, the network will will keep you apprised uh, as to

Yes, good question, yes.

Yes in Q3 tends to be a little bit better rate as well just seasonality wise we will.

If that goes up or down and then more green fields going forward, uh, and and real estate looking to to keep that Tempo moving 60, in in mid, 27 is where we want to be and and we'll keep you updated on that as well.

See that come down a little bit in Q4, our goals are still the same long term, we still like that spot long term and we're making good progress. The merchant team has done an excellent job this year, making progress towards that.

Great. Thank you.

Thank you. The next question comes from Stephen Forbes. From Google home. Please go ahead, Stephen. Your line is now open.

Still our auto Jerry at 25, and 26% or build gears as we're building against that so I wouldn't say, it's perfectly linear and you can see that in in our Q4 would have some LIFO expense is going to have an impact on it.

[Company Representative]: I think if you back out the LIFO charge in the quarter, you guys are sort of exceeding that mid 40% range that underpins the long-term guide here. Curious if there is a takeaway for us today on some of the structural gains that you're capturing on the back of your initiatives or if that sort of mid 40% level is still where you guys see the business trending to over the next couple years here. Yes, good question. Yes, in Q3 tends to be a little bit better rate as well, just seasonality wise. We'll see that come down a little bit in Q4. Our goals are still the same long term. We still like that spot long term, and we're making good progress. The merchant team's done an excellent job this year making progress towards that. We still are on a journey.

Good morning. Shane Ryan.

A follow-up question.

Just just a follow-up question on, on gross margin. I think it was Chris's question.

But net net we are we're happy with the progress we are making still committed to that goal, we think thats a good.

Yeah, I think I think if you back out the the lifo charge in the quarter, you guys are sort of exceeding that mid 40.

Strategic long term play for us.

We want to be from a gross margin perspective.

Percent range, that that underpins the long-term guide here. So, so curious just

And then just another follow up on them.

I'm really sort of the comp message. This morning. So if we think about like for like inflation same SKU inflation going to 4%, maybe four 5% in the first quarter of next year.

If there is a takeaway for us today on some of the structural gains that you're capturing, uh, on the back of your, your initiatives, you know, or or if that sort of mid 40.

Levels still, where you guys see the business trending to over over the next couple years here?

The guidance for the fourth quarter, the implied comp guide is one to three and.

So what is the sort of takeaway today around transactions or are you are you guys seeing weakness in pro transaction or or sort of the spread and moderation expected between same SKU inflation consolidate count really just DIY related any sort of color on sort of comp complexion and message around that for the fourth quarter specifically.

[Company Representative]: 2025 and 2026 are build years as we're building against that. I wouldn't say it's perfectly linear. You can see that in our Q4 we're going to have some LIFO expense, it's going to have an impact on it. Net net, we are happy with the progress we're making, still committed to that goal. We think that's a good strategic long-term play for us and where we want to be from a gross margin perspective. Just another follow-up on really the comp message this morning. We think about like-for-like inflation, same SKU inflation going to 4%, maybe 4.5% in the first quarter of next year. The guidance for the fourth quarter, the implied comp guide is 1% to 3%. What is the takeaway today around transactions?

Yes, I think in Q4 moderating both of them, both pro and DIY, but we are seeing a little bit more on the DIY side, we kind of talked about.

Yeah, it's a good question. I mean, yes, in Q3 tends to be a little bit better rate as well, just seasonality wise. Uh, we'll see that come down a little bit in Q4. Our goals are still the same long term. We still like that spot long term, and we're making good progress, the merchant teams done, an excellent job this year, making progress towards that. Uh, we still are on a journey. 25 and 26 are Bill gears. Uh, as we're building against that, so I wouldn't say it's perfectly linear. You can see that in, in our Q4, we're going to have some light flow expense

Some pressure we think the consumer is feeling right now and still trying to understand is there.

Is this short term in nature, what could be some of the drivers is it price elasticity I think we've heard in the industry. There are some questions around that as well, but more on the DIY side, but we're seeing moderation in both of them going into Q4 also Q4 is the most volatile quarter of the year <unk> got a lot of whether that impacts the quarter.

Just going to have an impact on it. Um, but net, Ned. We are, uh, we are happy with the progress. We're making still committed to that goal. We think that's a good, uh, strategic long-term play for us and where we want to be, uh, from a gross margin perspective.

And then, just another follow-up on.

[Company Representative]: Are you seeing weakness in PRO transaction or is the spread and moderation expected between same SKU inflation and the consolidated comp really just DIY related? Any color on comp complexion and message around that for the fourth quarter? Specifically, yes, I think in Q4 moderating both of them, both PRO and DIY. We are seeing a little bit more on the DIY side. We talked about some pressure we think the consumer is feeling right now and still trying to understand if this is short term in nature, what could be some of the drivers. Is it price elasticity? I think we've heard from the industry. There are some questions around that as well, but more on the DIY side. We're seeing moderation in both of them going into Q4 also. Q4 is the most volatile quarter of the year.

<unk>.

We see it every year from a seasonality standpoint.

On really sort of the the the comp message this morning. So we think about um like for like inflation, same SKU inflation going to 4% maybe 4 and a half percent in the first quarter of next year.

And when it's colder out there people are less apt to the oil change just natural seasonality so.

We expect that to be a little volatile we've seen a little softness we've seen both moderate but more pressure on the DIY side in the quarter.

But still all of those scenarios play out within the guidance, we just provided.

Thank you.

transaction or or is sort of the the spread in moderation expected between same SKU inflation and the the Consolidated comp really just DIY related any any sort of color on sort of complexion and and and message around that for the fourth quarter specifically

Yeah.

Thank you. The next question comes from Michael Lasser from UBS. Please go ahead, Michael Your line is now open.

Good morning. Thank you so much for taking my question to what extent did the decision to trade some margin for sales or vice versa impact the quarter, meaning in foregone, some lower margin business. So that could have negatively impacted your sales, but boosted your gross.

[Company Representative]: You've got a lot of weather that impacts that quarter. We see it every year from a seasonality standpoint. When it's colder out there, people are less apt to do their oil change, just natural of the seasonality. We expect it to be a little volatile. We've seen a little softness. We've seen both moderate but more pressure on the DIY side in the quarter. All those scenarios play out within the guidance we just provided. Thank you. The next question comes from Michael Lasser from UBS. Please go ahead. Michael, your line is now open. Good morning. Thank you so much for taking my question. To what extent did the decision to trade some margin for sales or vice versa impact the quarter? Meaning you foregone some lower margin business that could have negatively impacted your sales but boosted your gross margin?

And if you could quantify any of those actions in the third quarter and the degree to which that might impact your fourth quarter that'd be super helpful.

Yes, Mike.

All right. The question so what we're doing from a pricing standpoint, just want to talk about our strategy around pricing, we are going to remain a competitively priced.

Our business here, we're not trying to be low in the market, we're not trying to be higher than the market. So we're not trying to find ways to get margin out of that so we're staying competitively priced we like our pricing position.

Yeah, I think in Q4 moderating both of them both Pro and DIY but we are seeing a little bit more on the DIY side. We kind of talked about, uh, some pressure, we think the consumer is feeling right now and still trying to understand is the is the short term in nature. What could be some of the drivers? Is it you know, price elasticity I think we've heard from an uh in the industry. There's some uh questions around that as well, but more on the DIY side, but we're seeing moderation in both of them going into Q4. Also, Q4 is the most volatile quarter of the year. You've got a lot of whether that impacts that quarter um we see it every year from the seasonality standpoint. Um, and when it's colder out there, people are less apt to do their Oil Change, uh, just just natural of the seasonality. So, um, we expect it to be a little volatile. We've seen a little softness, we've seen both moderate, but more pressure on the DIY side in the quarter, uh, but still uh, all those scenarios play out within the guidance. We just provided

Thank you.

We think we are.

We are a fast follower in the market so not trying to harvest margin.

Appropriate way, we're sticking to that strategy going forward. So we're not we're not doing that there are.

Thank you. The next question. Comes from Michael Lasser from UBS. Please. Go ahead, Michael. Your line is now open.

Some areas of our business that we will look to make more profitable look at certain accounts et cetera that we're working through.

[Company Representative]: If you could quantify any of those actions in the third quarter and the degree to which it might impact your fourth quarter, that'd be super helpful. Yeah, Mike, appreciate the question. What we're doing from just a pricing standpoint, I just want to talk about our strategy around pricing. We are going to remain a competitively priced business here. We're not trying to be low in the market, we're not trying to be higher in the market. We're not trying to find ways to get margin out of that. We're staying competitively priced. We like our pricing position. We think we are a fast follower in the market. Not trying to harvest margin, not in the appropriate way. We're sticking to that strategy going forward. We're not doing that. There are some areas of our business that we will look to make more profitable.

And I'll, let Shane talk a little bit more about that but we're going to stick to our strategy, which is we're going to be competitively priced in the market or a fast follower and that's what we'll continue to do.

And Michael just touching on the pro side.

Our biggest opportunity is with main street. So those are those are smaller accounts.

Good morning. Thank you so much for taking my question to what extent did the decision to trade some margin for sales or vice versa impact the quarter, meaning you foregone some lower margin business, that could have negatively impacted your sales but boosted your growth margin. If you could quantify any of those actions in the third quarter and the degree to, which it might impact your fourth quarter, that'd be super helpful.

Typically the margins a little bit higher.

We certainly appreciate our national account on larger customers and we're working closely with them and we've got a series of initiatives, but we don't want that to come at the expense of seeing the small 2% or three bay garage at the end of main street and so we're making sure that our outside sales team members arent skipping by those accounts and we're making.

Yeah. My uh appreciate the question. So what we're doing from a just a pricing standpoint just want to talk about our strategy around pricing. We are going to remain a competitively priced uh, business here. We're not trying to be low in the market, we're not trying to be higher in the market so we're not trying to

Sure that as we interact with them they understand the breadth of capabilities that we offer.

[Company Representative]: Look at certain accounts, et cetera, that we're working through and I'll let Shane talk a little bit more about that. We're going to stick to our strategy, which was we're going to be competitively priced in the market. We're a fast follower and that's what we're continuing to do. Hey, good morning, Michael. Just touching on the professional (PRO) side. We think our biggest opportunity is with Main Street. Those are smaller accounts. Typically the margin's a little bit higher. We certainly appreciate our national account and larger customers and we're working closely with them and we've got a series of initiatives, but we don't want that to come at the expense of seeing the small two or three bay garage at the end of Main Street.

To include things like our Tech net services and so as we do that we're gaining traction. So so that's something we will look to do going forward.

As a current emphasis as well.

Find ways to get margin out of that. So we're staying competitively priced. We like our pricing position. Uh, we think we are, uh, we are a fast follower in the market, so not trying to harvest margin uh not in the appropriate way. We're sticking to that strategy going forward. So we're not we're not doing that there are uh some areas of our business that we will look to make more profitable uh uh look at certain accounts Etc.

Yeah.

Thank you very much my follow up question is can you consistently and repeatedly used the term non linear to describe the path forward for advanced auto parts, how should we.

Interpret that from a numbers perspective does that mean there'll be some quarters may be when it's hot on the east coast and Theres outperformance in those markets that advance can rip off a three comp and.

[Company Representative]: We're making sure that our outside sales team members aren't skipping by those accounts and we're making sure that as we interact with them, they understand the breadth of capabilities that we offer to include things like our TechNet services. As we do that, we're gaining traction. That's something we will look to do going forward and as a current emphasis as well. Thank you very much. My follow-up question is, Shane, you consistently and repeatedly used the term nonlinear to describe the path forward for Advance Auto Parts Inc. How should we interpret that from a numbers perspective?

Report several hundred basis points of gross margin expansion and then vice versa.

Quarter, it might be a flat to one.

<unk>.

Fourth for less gross margin expansion, how would you characterize that non linearity.

You would use to describe how the path forward might look over the next couple of years. Thanks.

I think if you are okay, Michael I'm going to talk about it sort of tangible activities. So think about it.

That we're working through. Um and I'll let Shane talk a little bit more about that, but what we're going to stick to our strategy, which is, we're going to be competitively priced in the market, we're a fast follower, uh, and that's what we're continuing to do. Hey, good morning, Michael just touching on the, on the pro side. Uh, we think our biggest opportunity is with Main Street so those are, those are smaller accounts. Uh, typically the margins a little bit higher. Uh, we certainly appreciate our our national account and larger customers and we're working closely with them and we got a series in of initiatives but uh we don't want that to come at the expense of seeing the small 2 or 3 Bay uh, garage at the end of The Main Street. And so we're making sure that our outside sales, team members aren't skipping by those accounts. And we're making sure that, uh, as we interact with them, they understand the breadth of capabilities that we offer, um, to include things like our TechNet services and so as we do that, we're gaining traction. So so that's something we will.

You've closed the DC and you'd say, okay. If I'm going to combine this do you see what that DC, there ought to be X dollars of value that comes from it but when we start to do that process. We anticipate with the closure expenses will be but we might take several hundred stores of replenishment from the old DC the new DC.

Look to do going forward uh and as a current emphasis as well.

[Company Representative]: Does that mean there'll be some quarters, maybe when it's hot on the East Coast and there's outperformance in those markets that Advance can rip off a 3% comp and report several hundred basis points of gross margin expansion, and then vice versa, the next quarter it might be a flat to 1% and far less gross margin expansion? How would you characterize that nonlinearity that you would use to describe how the path forward might look over the next couple of years? Thanks. Yeah, I think if you're okay, Michael, I'm going to talk about it. Sort of tangible activities. Think about if you close a distribution center and you'd say, okay, if I'm going to combine this distribution center with that distribution center, there ought to be X dollars of value that comes from it.

And there is cost there there is friction in terms of getting the routing setup.

Maybe there is particular products at the closing <unk> had that we need to get sourced and so it's lumpy, it's not something where we say okay. We can take the cost is a $100. We'll say it's $20 a month over the next five months. We may have more cost sooner. We may have cost that emerged at the and similarly the benefits may.

Thank you very much. My follow-up question is, can you consistently and repeatedly? Use the term nonlinear to describe the path forward for Advanced Auto Parts? How should we interpret that from a numbers perspective? Does that mean there'll be some quarters maybe when it's hot on the east coast and there's outperformance in those mod?

Not may not and nor at the tempo that we've indicated so there is a sort of micro example, now imagine you're undertaking big moves like that across everything we do maybe there is a big software implementation that we want to do as part of routing and so that might take months to implement.

[Company Representative]: When we start to do that process, we anticipate what the closure expenses will be. We might take several hundred stores of replenishment from the old distribution center to the new distribution center and there's costs there, there's friction in terms of getting the routing set up. Maybe there's particular products that the closing distribution center had that we need to get sourced. It's lumpy. It's not something where we say, okay, you know, we could take the cost of $100, we'll say it's $20 a month over the next five months. We may have more costs sooner, we may have costs that emerge at the end. Similarly, the benefits may not inure at the tempo that we've indicated. There's a sort of micro example now. I'm undertaking big moves like that across everything we do.

In the months past that as we do the assortment, where we like the lift we've got but reminder, we're changing out hard parts across the network and so.

Some of these are slower term products. It takes time for it to infuse will go into mainstream customers, but the first time you walk in if they're if they're working with another supplier. They may be happy to see us, but maybe it takes four visits five visits 10 visits before they say hey, well, we'll give you a truck so.

Discrete predictability on exactly what the cost will be and when the benefit comes is hard and so so we ended up with fits and starts there are periods, where we've got benefit that comes at a quicker tempo.

[Company Representative]: Maybe there's a big software implementation that we want to do as part of routing. That might take months to implement and then months past that as we do the assortment we like, the lift we've got. Reminder, we're changing out hard parts across the network. Some of these are slower term products. It takes time for it to infuse. We're going to Main Street customers, but the first time you walk in, if they're working with another supplier, they may be happy to see us. Maybe it takes four visits, five visits, ten visits before they say, hey, we'll give you a try. Discrete predictability on exactly what the cost will be and when the benefit comes is hard. We end up with fits and starts.

There are situations, where we have costs that are are less or more and so that's why I emphasize the non linear part of it. What we are pleased with though is when you look back over periods of time, you can see clear progress on those three strategic pillars. We think we've got the right pillars. We think we have the right.

Do you see what that DC? There ought to be X dollars of value that comes from it but when we start to do that process you know we anticipate what the closure expenses will be but we might take several hundred stores of replenishment from the old DC to the new DC and there's costs. There there's friction in terms of getting the routing set up, uh maybe there's particular products that the the the closing DC had that we need to get sourced. And so it's lumpy it's not something where we say, okay? You know, we could take the the cost is a hundred dollars. We'll say it's $20 a month over the next 5 months. We may have more cost sooner. We may have costs that emerge at the end. Similarly, the benefits may not may not endure at the tempo that we've we've indicated. So there's a, a sort of micro example. Now, imagine you're undertaking, big moves like that across everything we do. Maybe there's a big software implementation that we want to do as part of routing and so that might take you know, months to implement

Subset of activities.

And we're setting against it and if you know the strategy is right. If you know you've got the large muscle mover activities and if you know the industry backdrop is a good. One then then we're going to keep at it.

And Michael I'll, just add just tangible ones that have happened this year big initiatives.

<unk> accelerated the assortment work because we saw good load it so thats acceleration, but then on the store operating model.

And then months passed that, as we do the assortment, we're, we, we like the lift we've got, but reminder we're changing out hard parts of the network and so um, uh, you know, some of these are slower term products. It takes time for it to infuse, we're going to Main Street customers, but the first time you walk in, if they're, if they're working with another supplier, they may be happy to see us, but maybe it takes 4 visits 5 visits 10 visits for the before they say, hey we'll we'll give you a try.

so, so

[Company Representative]: There are periods where we've got benefit that comes at a quicker tempo and there are situations where we have costs that are less or more. That's why I emphasize the nonlinear part of it. What we are pleased with, though, is when you look back over periods of time, you can see clear progress on those three strategic pillars. We think we've got the right pillars, we think we have the right subset of activities and we're setting against it. If you know the strategy's right, if you know you've got the large muscle mover activities and if you know the industry backdrop's a good one, then we're going to keep at it. Mike, I'll just add just tangible ones that have happened this year, big initiatives. We accelerated the assortment work because we saw good learning. That's acceleration.

Pause to test longer and further to learn more than what we really so we knew when we roll it out we've got the right operating model now.

Didn't go with our plan and the stores.

The teams had to overcome the challenges in productivity that we would have likewise at seeing if we would have rolled it out earlier with the right model. So it's not perfectly linear because we're testing our way into things and some are going to be delayed.

We purposely delaying them for the right reasons and some of them will accelerate when we can and so that's some of the new ones that we're talking about less about whether more about the initiatives the rollout of those and the science point when do we move up the call us with a problem.

Thank you very much and good luck.

Thanks, Michael.

Um, the street predictability on exactly what the cost will be and when the benefit comes is hard. And so, so we end up with, with fits and starts, there are periods where where we've got benefits that that comes at a, at a quicker Tempo. Uh, there are situations where where we have costs that are are less or more and so that's why I emphasize the, the non-linear part of it. What we are pleased with though is when you look back over periods of time, you can see clear progress on those 3, strategic pillars. We think we got the right pillars. We think we have the right subset of activities uh and we're setting against it. And and if you know the strategies, right if you know you've got the the the large muscle mover activities and if you know the industry backdrops a good 1 then then we're going to keep at it.

[Company Representative]: On the store operating model, we paused to test longer and further to learn more than what we really. We knew when we roll it out, we've got the right operating model. That didn't go with our plan and the stores and the teams had to overcome the challenges and productivity that we would have likewise had seen if we would have rolled it out earlier with the right model. It's not perfectly linear because we're testing our way into things and some are going to be delayed and we're purposely delaying them for the right reasons. Some of them will accelerate when we can. That's some of the nuance that we're talking about. Less about weather, more about the initiatives, the rollout of those. To Shane's point, you know, when do we move up the call list with the PRO? Thank you very much and good luck. Thanks, Michael.

And Mike, I'll just add just tangible ones that have happened this year big initiatives.

Thank you. The next question comes from Mike Baker from D. A Davidson. Please go ahead, Michael Your line is now open.

Yeah.

Hi, Thanks, maybe maybe following up on <unk> question, you used the language a couple of times of 2025, and 2026 being billed years. What is it what is build years I mean does that mean in a way.

Obviously margins are.

Our expanding already but are you still investing more and then the idea is that it really the.

The margin expansion really kicks in more in 2027 is that the right way to interpret build year.

We accelerated the assortment work as we saw good learning, so that's acceleration. But then on the store, operating model, we pause to test the longer and further to learn more and then what we really what we sow we do when we roll it out, we've got the right operating model. Now that's didn't go with our plan and the stores uh and the teams had to overcome the challenges and productivity that we would have. Likewise had seen if we would have rolled it out earlier uh with the right model. So it's not perfectly linear because we're testing our way into things and some are going to

Yes, so bill here it means we're still.

Doing large scale activities to set the company up for success. So let's do an example, so market hubs.

We didn't have any and so we'll end the year with 33, but thats half of what we envision having by by mid 2027, so there's going to be a ton of activity in the real estate team around making that happen.

Going to be, uh, delayed, and we're purposely delaying them for the right reasons. Some of them will accelerate when we can. And so that's some of the nuance that we're talking about—less about whether, more about the initiatives, the rollout of those, and, as Shane's point, you know, when do we move up the call list with the pro?

Thank you very much and good luck.

[Company Representative]: Thank you. The next question comes from Michael Baker from D.A. Davidson. Please go ahead. Michael, your line is now open. Hi. Thanks. Maybe following up on Mike Vassar's question, you used the language a couple times of 2025 and 2026 being build years. What does build years mean? Does that mean in a way? Obviously margins are expanding already, but are you still investing more? The idea is that it really, you know, the margin expansion really kicks in more in 2027. Is that the right way to interpret build year? Yes. By build year it means we're still doing large scale activities to set the company up for success. Let's do an example. Market hubs, we didn't have any and we'll end the year with 33, but that's half of what we envision having by mid-2027.

Thanks Michael.

So that's a good example on our DC consolidation, we're continuing now as we as we move to the smaller network, how do we optimize that how do we optimize our routing how do we optimize our our lines per hour on our new store opening.

Thank you. The next question comes from Michael Baker from Baird Davidson & Co. Please go ahead, Michael. Your line is now open.

Put out 30, msos, but we want to continue to amplify the number that we do for that and so by the way. If you want to open a single story you Gotta go prospect 10 sites. So there is huge activity going on in each of the pillars to get to more of what that run rate will be longer term and thats really what.

Creates that that non linear dimension.

Hi, uh, thanks, maybe, maybe following up on on, Mike lasher's question. You you use the language a couple times of 2025 and 2026 being billed years. What is, what is build years mean? Does that mean in a way? Uh, obviously margins are are are expanding already, but, are you still investing more and then the idea is that it really, you know, the the the margin expansion really kicks, in more in 2027 is that the right way to interpret build your

It's the initiatives that we've laid out the three pillars. We've laid out was not a 2025 and done and then see the benefit is a three year plan that we laid out that strategy unchanged.

[Company Representative]: There's going to be a ton of activity in the real estate team around making that happen. That's a good example on our distribution center consolidation. We're continuing now as we move to the smaller network. How do we optimize that? How do we optimize our routing? How do we optimize our lines per hour? On our new store opening, we put out 30 NSOs, but we want to continue to amplify the number that we do for that. By the way, if you want to open a single store, you got to go prospect 10 sites so there's huge activity going on in each of the pillars to get to more of what that run rate will be longer term and that's really what creates that nonlinear dimension. I think it's the initiatives that we've laid out.

And we're going to continue to execute against that I think we just talked about the operating model being one in our stores that we're going to start rolling out in Q4, which will rollout into next year and thats getting our assets right. The trucks in the right place the hours.

Yes. So by build here, it means we're still uh doing large-scale activities to set the company up for Success. So let's do an example. So Market hubs, um, we didn't have any and so we'll end the year with 33. But that's half of what we we envision having by by mid 2027. So there's going to be a ton of activ.

To meet the demand in our stores. There is technology built we're building different technology capabilities think of our pricing tools that are coming in later this year and into next year, we're partner with volunteer as part of some of the AI work that we're implementing a lot of that technology. It takes time to build and that will start building into next year as well so.

The build over the next two years as we ramp up our strategy three pillars, it's not a 12 months and Don It is it's going to be a two year plan to really start to see the fruits of it.

[Company Representative]: The three pillars we've laid out was not a 20, 25 and done and then see the benefit. It is a three year plan that we've laid out, that strategy unchanged, and we're going to continue to execute against that. I think of, we just talked about the operating model being one in our stores that we're going to start rolling out in Q4, which will roll out into next year, and that's getting our assets right, the trucks in the right place, the hours to meet the demand in our stores. There's technology built, we're building different technology capabilities. Think of our pricing tools that are coming later this year and into next year. We're partnering with Palantir as part of some of the AI work that we're implementing. A lot of that technology takes time to build and that'll start building into next year as well.

Yes.

Okay that makes sense and if I could ask one more follow up and maybe not a fair question for you guys. So if not feel free to pass but.

Edwards Martha consensus estimates aren't even close to a 7% margin in 2027 and all your conversations with investors or and also what do you think people are missing relative to your plan.

Well I'll start and I'll, let him jump in I'll just say the first thing is our strategy is unchanged, it's still our goal.

But it is early we're two quarters away from when we closed our stores. So we're still early in this turn and so I think there is a need to see proof points and Thats why we are.

[Company Representative]: The build over the next two years is as we ramp up our strategy on these three pillars. It's not a 12 months and done. It's going to be a two year plan to really start to see the fruits of it. Okay, that makes sense. If I could ask one more follow up and maybe not a fair question for you guys, so if not, feel free to pass. For whatever it's worth, the consensus estimates aren't even close to a 7% margin in 2027. In all your conversations with investors or analysts, what do you think people are missing relative to your plan? I'll start and I'll let Shane jump in. I'll just say the first thing is our strategy is unchanged, it's still our goal, but it is early. We're two quarters away from when we closed our stores. We're still early in this turn.

Our giving more met.

Metrics and data around what we're seeing as we're going through this process and to meet two quarters past closing all of our stores and the decisions that we've made around accelerating the assortments work accelerating market in August we bought them or opening more of market hubs. This year, we're trying to get proof points of how things are working now.

Open a single store, you got to go Prospect 10 sites so there's huge activity uh going on in each of the pillars to get to to more of what that run rate will be longer term. And and that's really what creates that that nonlinear Dimension. Yeah, I think it's the initiatives that we've laid out the 3 pillars, we've laid out was not a 2025 and done and then see the benefit. It is a 3 year plan that we've laid out that strategy unchanged. Uh, and we're going to continue to execute against that. I think of we just talked about the operating model being 1, in our stores that we're going to start rolling out uh, in Q4 which will roll out into next year and that's getting our assets, right? The trucks in the right place the hours. Uh, to meet the demand in our stores. There's technology built we're building different technology capabilities. Think of our pricing tools that are coming later this year and into next year or partner with pallante, as part of some of the AI work. That we're implementing a lot of that technology.

Takes time to build and that'll start building into next year as well. So those the build over the next 2 years is as we ramp up our strategy. I need 3 pillars. It's not a 12 months and done. It is it's going to be a 2-year plan to really start to see the the fruits of it.

We have to show it in our numbers and it's still early but you'll have to ask everyone else why they don't believe in that goal, but I think to us as they build yes.

And.

I don't know what goes into any analysts specific assessment, but as.

Okay. Uh, that that makes sense. And if I could ask 1 more follow up and and maybe not a fair question for you guys, so if not, you know, feel free to pass but for whatever it's worth. The consensus estimates aren't even close to a 7% margin in 2027 and and all your conversations with investors or analysts. What do you think? People are missing relative to to your plan?

As leaders and as a company we have to build a track record we have to demonstrate what the say do ratio is and so early on our pledge is we're focusing on auto parts.

[Company Representative]: I think there's a need to see proof points and that's why we are giving more metrics and data around what we're seeing as we're going through this process. To be two quarters past closing all of our stores and the decisions that we've made around accelerating the assortment work, accelerating market halls we brought in, we're opening more market hubs this year. We're trying to get proof points of how things are working now. We have to show it in our numbers and it's still to me early, but you'll have to ask everyone else why they don't believe in that goal. I think to us this is a build. Yeah. I don't know what goes into any analyst's specific assessment, but as leaders and as a company, we have to build a track record. We have to demonstrate what the say do ratio is.

Oh well, I'll start and I'll let you jump in. I'll I'll just say the first thing is our strategies then change. It's still our goal.

Auto parts retail second is we're trying to create a clear strategy that fits that and thats understandable externally more importantly, it's understandable internally and by our customer.

Third we're being decisive in our approach in getting there and we will make tough decisions and we will do those things again, what would an auto parts retailer do to be successful in a particular situation and then lastly, we will be transparent we will share with you what our progress is.

You guys have to then take all of that and say hey, too.

What degree do I think that that's going to occur or not and then put it in the long term perspective, but we'll be out here doing that each and every day and notably.

[Company Representative]: Early on, our pledge is we're focusing on auto parts. We're on auto parts retail. Second is we're trying to create a clear strategy that fits that and that's understandable externally. More importantly, it's understandable internally and by our customer. Third, we're being decisive in our approach in getting there and we'll make tough decisions and we'll do those things again. What would an auto parts retailer do to be successful in a particular situation? Lastly, we'll be transparent. We'll share with you what our progress is. You guys have to then take all of that and say, hey, to what degree do I think that that's going to occur or not? Then put it in the long term perspective. We'll be out here doing that each and every day.

Um, but it is early. We're 2 quarters away from when we closed our stores. So we're still early in this turn and so I think there's a need to see proof points and that's why we are, uh, are giving more, uh, metrics and data around what we're seeing, as we're going through this process and to be 2 quarters, past closing, all of our stores and the decisions that we've made around. Accelerating the assortments work, uh, accelerating Market house. We brought in, we're opening more of a market hubs this year. We're trying to give proof points of how things are working now. We have to show it, uh, in our numbers and it's still to me early, uh, but you'll have to ask everyone else. Why they don't believe in that goal, but I think to us, this is a build. Yeah. And, and um, again, I I don't know what goes into any analysts, um, specific, uh, assessment, but

In our footprint now where one or two in terms of store density getting our stores better that's really it.

We are.

Operating under the mantra of an inverted pyramid, which is our customers come first and then by the way everything runs through the frontline and so we will keep doing that.

And focusing on auto parts with decisive activities and hopefully there'll be some closure in terms of what you guys think and what we're saying and we will look forward to sharing that along the way.

As leaders. And as a company, we have to build a track record, we have to to demonstrate what the say do ratio is. And so early on our our pledge is we're focusing on Auto Parts. We're on Auto Parts. Retail second is, we're trying to create a clear strategy that fits that and that's understandable. Externally more importantly, it's understandable, internally. Uh, and by our customer

Yeah.

Awesome. Thank you I appreciate all the time and color.

Thanks, Michael.

Okay that does conclude our Q&A session for today, So I'll hand back to <unk> and Kenny for closing remarks.

We want to thank everybody in particular, thank the men and women of advance auto parts for what Theyre doing.

[Company Representative]: Notably in our footprint now where we're one or two in terms of store density, getting our stores better, that's really where operating under the mantra of an inverted pyramid which our customers come first and then by the way, everything runs through the front line. We'll keep doing that and focusing on auto parts with decisive activities and hopefully there'll be some closure in terms of what you guys think and what we're saying and we'll look forward to sharing that along the way. Awesome. Thank you. I appreciate all the time and color. Thanks, Michael. Thank you. That does conclude our Q&A session for today. I'll hand back over to the CEO Shane O’Kelly for closing remarks. We want to thank everybody. In particular, thank the men and women of Advance Auto Parts Inc. for what they're doing as we complete this turnaround journey.

As we complete this turnaround journey.

And we'll look forward to sharing additional updates on both the closeout of the year and what we see for 2026 and our end of year call. In February. So we appreciate you joining us today, thanks, very much take care bye bye.

This does conclude today's call. Thank you for joining you may now disconnect your lines.

Uh, third, we're being decisive in our approach in getting there, and we'll make tough decisions and we'll do those things again. What, what would an auto parts retailer do to to be successful in a particular situation? And then, lastly, we'll be transparent. We'll share with you what our progress is. You guys have to then take all of that and say, hey to, to what degree do? I think that that's going to occur or not? And then, and then put it in in the long term, uh perspective, but we'll be out here doing that, uh, each and every day and and notably um uh, in our footprint now where we're 1 or 2, and in terms of store density getting our stores better. That's really, you know, we're we're we're we're

Operating under the mantra of an inverted pyramid, which is our customers come first. And then, by the way, everything runs through the front line, and so we'll keep doing that, um, and focusing on auto parts with decisive activities. And, uh, and hopefully, there'll be some closure in terms of what you guys think and what we're saying, and we'll look forward to sharing that along the way.

Awesome. Thank you. I appreciate all the time and color.

Thanks Michael.

Thank you that does conclude our Q&A session for today. So, we'll hand back over to the CEO. Say no Kelly for closing remarks.

[Company Representative]: We'll look forward to sharing additional updates on both the close out of the year and what we see for 2026 in our end of year call in February. We appreciate you joining us today. Thanks very much. Take care. Bye bye. Thank you. This does conclude today's call. Thank you for joining. You may now disconnect your lines. Get ready for colder days ahead. Cleaning your engine with one oil change. New Mobil 1 Advance Clean Oil Change bundles for $37.99 are now sold at Advance Auto Parts right now at Advance Auto Parts. Get 5 quarts of Mobil 1 Advanced Clean Motor Oil and an oil filter for just $37.99.

We want to thank everybody. Uh, in particular, thank the the men and women of advanced auto parts for what they're doing, uh, as we complete, this turnaround Journey. Uh, and we'll look forward to sharing additional updates on both the clothes out of the year and what we see for 2026 in our uh end of your call in February. So we appreciate you joining us today. Thanks very much. Take care. Bye. Bye.

Thank you. This does conclude today's call, thank you for joining. You may now disconnect your lines.

get ready for colder days ahead, cleaning your engine with 1 oil change new Mobil 1, Advanced clean oil change bundles for 37.99 are now sold at Advanced Auto Parts right now at Advanced Auto Parts, get 5, quarts, of Mobil, 1, Advanced Clean motor oil, and an oil filter for just 37.99