Welcome to the Advance Auto Parts third quarter conference call. Before we begin, Elisabeth Eisleben, Senior Vice President, Communications and Investor Relations, will make a brief statement concerning forward-looking statements that will be discussed on this call. Good morning, and thank you for joining us to discuss our Q3 results. I'm joined by Tom Greco, President and Chief Executive Officer, and Jeff Shepherd, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements regarding our initiatives, plans, projections, and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about factors that could cause actual results to differ can be found under the captions Forward-Looking Statements and Risk Factors in our most recent annual report on Form 10-K and subsequent filings made with the Commission. Now, let me turn the call over to Tom Greco. Thanks, Elisabeth, and good morning, everyone. Before we begin, I'd like to thank our entire Advance team and Carquest independent partners for their dedication throughout Q3. In particular, our teams throughout the Southeast who are still working diligently to get their communities back to normal after the damage caused by recent hurricanes. Our team always rises to the occasion in situations like this, and I could not be prouder of how we've helped others in a time of great need. We simply could not do what we do without our team's unwavering focus on the customer. I'll begin my remarks today with an overview of our Q3 performance and how we're thinking about the balance of 2022. This includes the factors that led us to reiterate our full- year guidance on net sales growth, comparable store sales, and adjusted operating income margin, while revising adjusted diluted earnings per share and free cash flow. Based on the updated full year guidance we provided in our press release last night, 2022 will be our second consecutive year of sales growth and adjusted operating margin expansion on the back of our strong performance in 2021. We believe we'll be one of very few retailers delivering back-to-back years of sales growth and adjusted operating income margin expansion. Secondly, I'll briefly discuss some of the actions we're taking in the fourth quarter. These actions reflect our analysis of year-to-date performance and were informed by our early thinking surrounding 2023. Finally, I'll conclude with a review of the progress we're making on primary strategic initiatives before turning the call over to Jeff. Starting with the third quarter, net sales were up 0.8% and comparable store sales declined by 0.7% in line with previous expectations. We're expanding our footprint, new stores are providing incremental net sales growth. Increasing own brand penetration is an important part of our margin expansion plans. However, own brands have a lower price point, reducing net sales growth by 78 basis points and comp sales by 88 basis points in the quarter. In terms of category growth, batteries, fluids, and chemicals, as well as brakes, were the top performers in Q3. Regional sales performance was led by the West, Mid-Atlantic, and Florida. Both pro and DIY omnichannel comp sales were in line with overall comp performance. Moving to profitability, we're pleased that we were able to deliver a 98 basis point increase in our adjusted gross profit margin rate in Q3. This was primarily driven by our focus on category management, which is our largest initiative to drive profitable growth. Strategic pricing initiatives and higher margin rates associated with own brands were key enablers to adjusted gross profit margin expansion. In Q3, own brands as a percent of total net sales were up nearly 230 basis points. SG&A costs were up 5.4% year-over-year, and given limited net sales growth more than offset adjusted gross margin expansion in the quarter. Higher SG&A was primarily driven by inflationary costs. Overall, in Q3, adjusted operating income margin was 9.8%, which was down 68 basis points versus Q3 2021. As we lap strong net income growth in Q3 2021, adjusted diluted earnings per share of $2.84 was down 11.5% versus the prior year quarter. Both GAAP and adjusted diluted earnings per share included a headwind of approximately $0.20 per share from foreign currency impacts in Q3. Importantly, we continued to invest in the business while maintaining our strong commitment to capital stewardship by returning approximately $860 million in cash to shareholders through share buybacks and dividends during the first three quarters of 2022. Turning to guidance, there are a couple of factors which led to our updates in the press release yesterday. First, we reiterated full- year guidance on net sales growth, comparable store sales, and adjusted operating income margin rate. We revised full-year adjusted diluted earnings per share to reflect both the foreign currency headwind in Q3 along with the estimated impact in Q4. Our full-year guidance reflects an expansion of adjusted operating income margin and a range on adjusted diluted earnings per share growth of 5%-6%. This is on top of a 48% increase in 2021 versus 2020 on a comparative 52-week basis. Secondly, we revised our free cash flow outlook for the year to a minimum of $300 million due to updates in our working capital assumptions, primarily related to inventory. Jeff will further outline the drivers of these changes to our free cash flow guidance later. While our full-year 2022 guidance affirms that we believe we will expand margins, we're lagging the market in top line growth in 2022. We're not at all satisfied with this outcome as it's inconsistent with our target of growing at or above the market over the long- term. As we develop plans for 2023 and beyond, we've done a deep dive on the competitive environment and the actions necessary to accelerate growth. From our analysis, two opportunities came to the forefront, particularly in the Professional Sales channel. First, we have opportunities on availability in certain categories which require inventory investment to enable us to get more SKUs closer to the customer. Secondarily, while our research has consistently indicated that price is not the most important driver of choice for professional customers, we've tested and will make surgical pricing actions in certain categories to enable us to better address changes in competitive pricing dynamics. We believe of these two that targeted inventory investment is by far the most important step needed to set us up for improved top-line performance and share gains in 2023. As you know, 2023 will be the final year of a three-year strategic plan we outlined in April 2021 that focused on growing at or above market, expanding margins, and returning excess cash to shareholders. We established three-year performance ranges for several financial metrics and an overarching goal of delivering top quartile total shareholder return. We achieved that TSR goal for 2021 and continue to believe that we will achieve the majority of the three-year goals outlined. In terms of adjusted operating income margin rate, we've delivered significant margin expansion since the start of 2021. We're also executing strategic initiatives to enable further margin expansion. However, we now expect that reaching the targeted three-year range for margin by the end of 2023 will be very challenging. We're not satisfied that we've lagged industry growth in 2022, and we're taking actions to accelerate growth. If the current competitive environment in the professional sales channel extends into 2023, it will make achieving the targeted margin and earnings per share thresholds shared at the start of 2021 even more difficult. All that said, we remain optimistic about the fundamentals of our industry. We also believe we'll deliver against the majority of the three-year goals outlined in 2021, and importantly, we're building plans to accelerate growth in 2023. It's also critical to reinforce that margin expansion remains an integral part of our TSR strategy, and we believe that we still have significant opportunity to drive profitable growth over the long- term. Shifting back to 2022 and specific to our professional business in Q3, strategic accounts and TechNet led our growth. As discussed in August, we're carefully monitoring how and where we're investing within Pro, which includes deploying resources to our fastest-growing and most profitable categories and customers. Overall, we remain highly focused on what customers value most, extensive parts availability, excellent customer service both online and in their shops, as well as consistent and reliable delivery. As we strive to improve customer service and delivery reliability, we recognize our professional customers' weekend car counts are growing as a percent of their overall business. During the quarter, we deployed new delivery software to leverage the gig economy as well as our extensive vehicle fleet. This enables us to improve delivery speed and consistency on the weekend when our Pro customers are relying on us while reducing fixed costs over time. As we build additional capabilities in our Advance and Carquest Professional B2B platforms, our online penetration has reached record levels. Strategic partnerships are also enabling us to drive our Connected Shop initiative, which enables customers to access tools and data resources, generate faster repair order approvals, deliver higher conversion rates, and improve shop efficiency. With our Connected Shop, Advance Pro and Carquest Pro are directly integrated into Tekmetric, our exclusive partner and industry-leading shop management system. This powerful workflow combination allows our Pro shops to purchase parts and drop them directly into repair shop work orders quickly and easily. With the integration of our diagnostic and service information, MotoLogic, we have a powerful operating platform for our customers that helps drive shop efficiencies and increases work order conversion rates. For DIY omni-channel in Q3, our highly regarded own brands are a differentiator for Advance. Specific to DieHard, we continue to build this brand and delivered another quarter of double-digit sales growth. This ongoing strength is due in part to the combination of strong consumer regard and our commitment to building brand equity with innovation. Our latest product innovation, launched earlier this year, is the exclusive first-to-market DieHard EV battery, optimized for the growing number of hybrid and electric vehicles on the road. The combination of trust, reliability, and innovation for DieHard sets us apart. In addition, the enhancement of Speed Perks through the launch of Gas Rewards has been a highlight for DIY this year and is helping drive increased loyalty. Year-to-date, active Speed Perks members have increased to over 13 million. In Q3, Speed Perks as a percent of both sales and transactions significantly increased compared with the prior year quarter. In addition to the double-digit growth in new members, we're also delivering double-digit growth in graduations to our VIP and E lite Tiers. Finally, we're making meaningful progress on expanding our footprint. Altogether, we opened 37 new locations this quarter, bringing our total to 115 new locations year- to- date. We expect that we will be within our guidance range of 125- 150 new stores and branches for 2022. This will be the largest number of new locations we've opened in eight years. I'll now shift to the progress we're making to capitalize on our margin expansion opportunity. We continue to execute our category management strategy, which includes having the right brands, quality products, and the optimal mix of good, better, and best options. In addition, growing own brands and implementing strategic pricing actions to cover cost increases are key enablers of margin expansion. Our new strategic pricing capabilities also enable us to respond with targeted and precise actions. This means we can both eliminate unprofitable discounts to improve gross margin rate and at the same time, make calculated investments elsewhere to drive sales. Within supply chain, we're ramping up the new San Bernardino DC to increase capacity to support our West Coast expansion. This DC will be a critical consolidation point for supplier shipments and enhance our e-commerce capabilities. Our new Toronto DC went live shipping in late October and is now fully operational. In this DC, we have both Worldpac and Carquest parts, which consolidates two buildings in Toronto and the surrounding Southern Ontario area to one large DC. We've also completed a major expansion of the DC in Thomson, Georgia, increasing the size by 40% and optimizing the building layout to significantly improve productivity. While these investments drive growth and productivity, we're also exiting four DCs as planned. In summary, while this was a difficult quarter for Advance, comp sales and adjusted operating income margins were generally in line with our expectations. Based on our updated guidance, we'll deliver the second consecutive year of net sales growth and adjusted operating margin expansion. However, we're not satisfied with relative top-line performance versus the industry this year and are taking measured, deliberate actions to accelerate growth in 2023. It's important to reinforce that we still see significant opportunity to drive total shareholder return over the long- term through sales growth, margin expansion, and returning excess cash to shareholders. I'll now turn the call over to Jeff to review Q3 financials and updated outlook for the balance of the year. Jeff? Thanks, Tom, and good morning. I would also like to start by thanking our team members for their hard work while navigating this challenging environment. In Q3, net sales of $2.6 billion increased 0.8% compared with Q3 2021, driven by strategic pricing and new store openings. Comparable store sales declined 0.7%. Adjusted gross profit margin expanded 98 basis points to 47.2%. In the quarter, same SKU inflation was approximately 7.9%, and we expect this to continue through the balance of the year. Q3 adjusted SG&A of $989 million grew 5.4% and was 37.5% of net sales. This compares to $938 million or 35.8% of net sales in Q3 2021. The largest SG&A headwinds in the quarter were higher inflation in store payroll, medical, and fuel. This, coupled with softer top-line performance, resulted in deleverage. It's important to note that we did not see significant headwinds from our California expansion in Q3 and expect this will contribute to SG&A leverage in Q4. Our Q3 adjusted operating income was $258 million, a decrease of 5.8% compared with Q3 2021. Our Q3 adjusted OI margin rate was 9.8%, a decrease of 68 basis points compared with Q3 2021. Our adjusted diluted earnings per share of $2.84 decreased 11.5% compared with our Q3 2021. Our diluted EPS on both a GAAP and adjusted basis was negatively impacted by approximately $0.20 from foreign currency. Free cash flow yea- to- date was $149 million compared with $734 million in the same period of 2021. As Tom mentioned, we are making strategic inventory investments to improve availability in the back half of 2022, which are important to accelerate growth in 2023. In addition, through process and technology improvements, we are now processing aged and disputed payables more efficiently. These changes to our working capital expectations have led to a reduction of our 2022 free cash flow guidance, with inventory being the primary factor. In addition, we continue to invest in the business, and Q3 capital expenditures were $122 million, bringing year-to-date capital expenditures to $334 million. As stated in our press release, we're increasing expectations for CapEx this year, which is primarily due to higher inflation impacting construction costs related to new store openings. While expectations for free cash flow have changed, our capital allocation priorities remain the same, and we are delivering on them. We continue to return cash to shareholders through a combination of share repurchases and our quarterly cash dividend. In Q3, we returned $75 million to shareholders through the repurchase of approximately 444,000 shares at an average price of $168.93, and approximately $91 million through our quarterly cash dividend. Our Board also recently approved our quarterly cash dividend of $1.50. Year- to- date, we've returned approximately $860 million to shareholders in line with our capital allocation priorities. Moving to guidance, we anticipate slight gross margin deleverage in Q4, driven by higher product costs coming off the balance sheet as expected, which will be offset by significant SG&A leverage. This will enable full- year adjusted operating income margin expansion between 20-40 basis points as guided in August. We believe that we will be one of the few companies in all of retail to deliver adjusted operating income margin expansion in 2022. In summary, we're reiterating the following elements of our August guidance. Net sales of $11 billion-$11.2 billion. Comparable store sales of -1% to flat. Adjusted operating income margin rate of 9.8%-10%. Income tax rate of 24%-26%. 125-150 new stores and branch openings. However, we're making the following updates to adjusted diluted earnings per share of $12.60- $12.80, which is entirely attributable to the estimated full- year impact of foreign currency. Minimum CapEx of $350 million. Minimum free cash flow of $300 million. Share repurchases of up to $600 million. With that, let's open the phone lines to questions. Operator? If you would like to ask a question, simply press Star, then the number one on your telephone keypad. Again, if you would like to ask a question, simply press Star one on your telephone keypad. Your first question is from the line of Christopher Horvers with JP Morgan. Please go ahead. Hi, good morning. It's Christian Carlino in for Chris. Just trying to better understand the decision to build inventory. Are there particular regions or categories where you were previously starved, and how should we think about the margin implications of putting those extra units to work? Well, first of all, you know, our goal is to grow at or above the market and we didn't achieve that in Q3. We did a pretty deep dive on the underperformance and it was really concentrated in a couple of professional categories. The analysis that we did identified two primary drivers. First of all, getting more inventory closer to the customer was a key opportunity, and we also talked about relative price. The much larger opportunity is inventory availability and getting parts closer to the customer. The focus is really on a couple of areas. First of all, the categories that we transitioned over the last couple of years to own brand, these are big categories. That's where a lot of the underperformance was in professional. We're making sure that we improve our on-hand position on those categories. We're still not exactly where we want them to be. We spent a lot of time with our suppliers and our team on this, and we're focused on making sure that we're in a really strong position on these categories we've transitioned. We benefited from the own brand margin expansion. Now we need to get the top line going in some of those categories. We're also adding some depth to high velocity SKUs and also some breadth to certain applications and getting them closer to the market. We feel the inventory investment's really important for us to accelerate our growth, which is the number one priority we have right now. Got it. That's really helpful. I guess, you know, on the capitalized inventory costs, you know, could you speak to your level of visibility going into the first half of next year? And should the headwinds abate in the first half? As it relates to our LIFO costs, you'll see it later on, but we had about $67 million of LIFO costs in the third quarter. We expect that to continue into the fourth quarter. Fourth quarter will largely look like it did last year. You know, that's gonna put us on track to have capitalized costs in sort of the $275 million-$300 million range. Under the assumption that costs are gonna come down over the back half of the year, we would largely recognize these over the first half of 2023. That's the way we're looking at it right now. Obviously, it's a very dynamic situation, having a, you know, good understanding in terms of, you know, what these product or input costs are gonna do and how they're gonna shape up over the, balance of 2023. Your next question is from the line of Simeon Gutman with Morgan Stanley. Please go ahead. Hey, everyone. I wanna ask about pricing. You made the business healthier over the last few years because you've taken out these price match overrides, and I think it sounds like you've been more disciplined in general. So can you talk about pricing? Your peers have obviously engaged in some discounting. You haven't used that lever, and I know you're attacking the problem with inventory. Curious how you think about price versus assortment or depth of inventory. Good morning, Simeon. Our analysis suggests that the majority of the underperformance in Pro is driven by availability and inventory positioning. You're right on interpreting that. Availability is the number one driver of choice for the professional installers, and as we said many times, price is much lower down the list. In general, we are continuing to execute our category management strategy, and much of that remains the same. We are gonna remain very disciplined in how we price in the marketplace. We have so much more in terms of sophisticated tools to manage pricing than we did when all of us arrived here a few years ago. I feel really good about where we're positioned there. The new capabilities allow us to price by region, by market, by channel, by store. We're still focused on removing unprofitable discounts in really in all channels. That doesn't change. I think what is new is we successfully tested some surgical pricing actions in some of the more challenged categories, and we're going to essentially continue to do that and expand that more broadly. Our goal overall is to price to cover cost increases. However, we're gonna make some investments in key categories where we expect to drive incremental top line growth. Okay, thanks. My follow-up is a little bit of clarification on the prior question. If you're buying more inventory, wouldn't that lower capitalized costs at least for the first part in theory. I think if that's right, that would help your gross margins earlier on. It may be too early for this, but can you give us any type of preview for gross margin broadly next year, balancing the capitalized costs against, I don't know if it's LIFO or other factors along with your initiatives, the direction for growth? I think you've said it should still be, you know, up in that direction next year. Just curious if you can comment on that. Yeah. I mean, you know, certainly, you know, those costs are gonna come off the balance sheet over the balance of next year. We, you know, we think this is gonna be a challenging headwind for us, as we go into 2023 and, you know, try to continue to grow our margins. Both the product costs as well as the capitalized costs, you know, whether it's freight costs being capitalized, whether it's supply chain costs being capitalized, you know, that'll land on the balance sheet with the inventory as we acquire it and will come off over the balance of next year. Again, we think most of this will roll off in the first half of the year. You know, we will give an update on 2023 in terms of, you know, how we're thinking about our margins. We know that this is gonna be a significant headwind as we go into next year. Okay, fair enough. Thank you, and good luck. Thank you. Your next question is from the line of Kate McShane with Goldman Sachs. Please go ahead. Hi. Good morning. This is Mark Jordan on for Kate. Just wondering if you can talk about your category management initiative and, you know, specifically the removal of these unprofitable discounts. How far along are you in removing these discounts, and how much of a headwind might have been to comps in the quarter? We're really pleased with the progress we've made on category management over the last couple of years. It's the single biggest driver of gross margin. It's been a huge contributor to the fact that right up until Q3 we had expanded margins overall for nine straight quarters. The execution of that plan continues. There's a couple of elements. There's strategic sourcing. There's the own brand penetration, which improved in the quarter. We were up a couple hundred basis points in terms of our own brand penetration. Then on the pricing front, as I mentioned on the previous question, you know, we're being very surgical in how we act. You know, we're able to remove unprofitable discounts where it doesn't make sense, and we're able to invest where we need to in order to drive profitable top line growth. It's really leveraging all the tools that we've put in place over the past couple of years. This was the single biggest driver of the margin expansion plan that we laid out over the last couple of years, and we're continuing to execute against it. Great. Thank you. Your next question is from the line of Elizabeth Suzuki with Bank of America. Please go ahead. Elizabeth, your line's open. Please, check to see if maybe you're on mute. Okay, we will move on to the next question that comes from the line of Steven Zaccone with Citigroup. Please go ahead. Thanks very much for taking my question. Good morning, everyone. Question on the own brand impact to same-store sales. How do you expect that to trend in the fourth quarter? And should that continue to be a drag into next year? At what point is that kinda in the baseline? Sure. Well, we've been expanding for, you know, several quarters now as you know. We called out roughly 80 basis points, pardon me, of net sales and 90 of comp sales. The big categories that are contributing are the ones that we've been transitioning, which is engine management and undercar. We still have a ways to go yet, you know, in terms of our reaching our goals there. We would expect that to continue on, but it's a comp sales headwind, but it's a good thing in that we are driving significant improvement in gross margin. That's the opportunity for us. I mean, margin expansion remains very, very important to us, and this is a key part of that. The good thing here is our customers love this product. I mean, we're building strong brands. DieHard is a terrific brand. It had another great quarter. We're at the number one most highly regarded battery in the country. We've extended that into other categories such as tools. The Carquest brand is very popular with professional installers. The quality that we put in place for our Carquest product is very much respected by our customers. We have much lower return rates, so you know, it's a very positive story, and we'll take the comp sales headwind along with, you know, obviously the margin expansion that we're getting from it. Okay, thanks. Second question, more of a strategic question. If you plan on accelerating growth in 2023 because of the potential share loss you've seen, what does that mean for the strategic importance of margin expansion next year? I know you're not providing guidance, but given your commentary about, you know, difficulty achieving that margin rate that you previously talked about for 2023, you know, should we be thinking a pause in margin expansion is the right way to think about the model for 2023? Sure. Well, let me speak to the targets we talked about. It's about 18 months ago, if you recall, in April 2021. What we did at that point was we outlined three overarching goals to drive total shareholder return. Comp sales growth, expand margins, and returning excess cash to shareholders. We also established 6 financial metrics associated with that TSR drivers. In 2021, we performed really well against the TSR drivers and all 6 of those metrics we achieved. We ended up in the top quartile in terms of TSR performance relative to the S&P. We're now, you know, up until now, we had nine straight quarters of sales growth and margin expansion. As we got into 2022, the macroeconomic and competitive environment changed, and it really impacted us in the third quarter. While we expect to expand margins full- year this year, and we've already returned about $900 million in cash to shareholders, our 2022 sales are below our expectations, and we are taking the actions now to address that underperformance. As we look forward to 2023, to your direct question, we believe we can get inside the 2023 ranges on most of the metrics that we outlined. However, the margin rate and EPS ranges are really dependent on the competitive environment that we'll see in 2023, which is hard to predict right now. If the competitive environment in professional particularly looks like it does in 2022, achieving the low end of the range of those two areas, margin rate and earnings per share, is unlikely. Now, if we look beyond 2023, we're building the plans that will include all the key elements of the current TSR agenda, and we're gonna continue to target top quartile TSR growth, including all of those elements. We still have plenty of upside to drive TSR going forward. We're just being cautious about 2023 given the competitive environment that we're in right now. Okay. Very helpful. Thanks. Thanks for the detail. Your next question is from the line of Michael Lasser with UBS. Please go ahead. Good morning. This is Atul Maheshwari on for Michael Lasser. Thanks a lot for taking our questions. Advance has taken a lot of steps over the years to improve its business, yet it seems like the pace of market share losses are now accelerating. Why do you think that is the case? And are some of the factors that are causing the underperformance simply structural in nature and cannot be fixed? Well, as we said earlier, we've done a pretty deep dive on what drove the underperformance. You know, we performed well right up until the third quarter in terms of our agenda. Our strategy is unique. Our goal is to drive total shareholder return through comp sales and margin expansion and returning excess cash to shareholders, which has worked well for us up until the third quarter. We're not happy that we didn't expand margins in the third quarter, but I am very pleased that the team has worked very hard at accelerating growth going forward, and that's where we're focused in 2023. The underperformance, we've identified a couple of key areas, and that is to, you know, get more targeted inventory investment closer to the customer and take some surgical pricing actions, and that'll help us get our top line where it needs to be. Got it. It's very helpful. As a follow-up question, I had one on your inventory investments. We're looking for inventory investments going forward. At the same time, the inventory growth has outpaced sales growth for a while now. Does that mean that there are certain categories where you have the inventory, but simply not the right inventory? If you could provide color on what categories those are. Sure. The focus is in a couple of areas, as I mentioned earlier. You know, we wanna make sure that we get these large categories that we've transitioned to own brand over the past couple of years to an on-hand rate that, you know, we're comfortable with. While we've improved over the last year, we're still not where we need to be in these big categories. That's job one. We're also improving the depth of high velocity SKUs and getting those closer to the customer. Then in some cases, adding breadth that's closer to the customer. It's really through our analysis of, you know, the professional channel, how we're positioned in the market, what's our assortment rate, what's our close rate? We've done a very deep dive on where we are, and we're confident that the plans we're building are gonna help us accelerate growth in 2023. Thank you. Your next question's from the line of Zach Fadem with Wells Fargo. Please go ahead. Can you walk through the mechanics around the FX hit in a little more detail? Considering this is primarily a domestic business in terms of your sales, maybe talk through transaction versus translation impacts, and how should we think about the Q4 impact and anything lingering into 2023? Yeah, sure. First of all, the impact is completely transaction versus translation, and it really comes from two sources. The first and more significant is our Taiwanese purchasing entity that's domiciled in Taiwan. What it does, it essentially purchases inventory and gets it over to us, so we can sell it here in the U.S. What that does is it creates sort of a one-sided exposure because there aren't any receivables to naturally offset that. It's a Taiwanese dollar entity, purchasing inventory in currencies, including the U.S. dollar. The Taiwanese dollar has weakened substantially in the quarter against the U.S. dollar, and that's what's created this exposure, which quite frankly is not something we've seen in the past. We've known we've had this exposure forever. What we haven't seen is this level of change between either the Taiwanese dollar or the other impact, which was the Canadian dollar. On the Canadian dollar side, it's really a similar story. We do purchase in Canada, which is a Canadian dollar functional entity, and it's buying certain inventory in U.S. dollars. The Canadian dollar also weakened against the US dollar. A similar story, while we do have receivables in Canada, those are all in Canadian dollars, so you don't get that, you know, natural hedge. We don't do any hedging here as an organization, quite frankly, 'cause we haven't needed to. You know, we didn't anticipate this level of change between the U.S. dollar and those two foreign currencies. That's what drove the $0.20 decrease in our EPS in the third quarter. You know, the easy way to think about the fourth quarter is you can look at the midpoint of EPS between our August guidance and our current guidance. You'll see we're estimating another $0.10 of EPS in the fourth quarter. Got it. That's helpful. With your Q4 operating margin outlook implying about 130 basis points of expansion, can you walk through the SG&A levers here in a little bit more detail that give you confidence in the sharp year-over-year improvement from here? How should we think about SG&A leverage as we move our way through 2023? Yeah. The fourth quarter, you know, there's a couple of things that are gonna drive this significantly. The first is the startup costs associated with our footprint expansion, namely in California. We're gonna be lapping that. You know, we've opened 37 stores here in the third quarter. We've got a robust agenda to open stores in the fourth quarter and get well within our range of 125-150 stores. And that will help give us the leverage on the SG&A related to new stores. The other is really just we're starting to lap, you know, the wage inflation that we saw in the fourth quarter. On a year-over-year basis, that starts to even out and help us out on a year-over-year basis. Those are gonna be the two primary drivers. Now, keep in mind, fourth quarter is incredibly volatile, and so we're gonna be managing our costs very, very closely. You know, certainly our store labor costs. In addition to that, looking very closely at travel and any other discretionary cost that we really don't think we need going into the, you know, the last 12 weeks of the year here. It's gonna be a combination of those that really give us the confidence that we're gonna leverage SG&A in the fourth quarter. You know, look into 2023, you know, we'll give you more guidance as we work through our AOP in February. You know, we will be lapping a number of these costs, and we're gonna take that into consideration as we put together our plan for next year. Got it, Jeff. Appreciate the time. Sure. Thanks. Your next question's from the line of David Bellinger with MKM Partners. Please go ahead. Hey, thanks for the question. Just following up on that last one. On the annual guidance, you lowered the EPS range by about $0.30 at the midpoint. Based on your comments just now, so the FX headwind was $0.20 in Q3, expected another $0.10 in Q4. Just absent the FX factor, is there anything else really changing in your fundamental view? Or should we just think about this guide down being all FX driven and the underlying fundamentals Q3 to Q4 not really seeing any change? Hey, look, the short answer is yes. I mean, it's entirely driven by the FX, and that's the $0.30 that you've called out, $0.20 in Q3 and $0.10 in Q4. Everything else is in line with the expectations and the guide that we put out in August, which is why we haven't changed, you know, the rest of the P&L guide, if you will, for Q4. Got it. Just my follow-up here. Any comment on sales trends through the quarter? Implied in that Q4 guide, I think there's a pretty wide range of outcomes there. You'd be slightly positive all the way down to - 4% on the comps. Can you give us some indication of where trends are through mid-November? I know we're hearing some overall softening in retail sales in recent weeks. Are you seeing any of that show up in your business? Hey, good morning, David. First of all, just to round out Q3, our strongest period of the quarter was the last period. We saw improvement. You know, in the summer, we talked about, you know, making sure that we are removing these unprofitable discounts, that was gonna have a bigger impact and would dissipate over time. We expect that will happen. As we get into the fourth quarter, this is a highly volatile quarter. That's really the origin of the guide. This is a very resilient industry. You've heard that from us before. We expect that the category will continue to grow at the rates that it has been growing. It's been a robust year for the industry. We just need to be growing faster at Advance. That's why we're taking the actions that we're taking. Relative to what you're hearing about in total retail, we're not seeing that. I think that you'll continue to see strength in the automotive aftermarket. The DIY segment performed well at the end of the quarter for us. You know, we feel like the industry performance will continue to be strong, you know, with the caveat that the fourth quarter is our smallest of the year and it has the most volatility. Great. Thanks, Tom. Thank you. Your next question is from the line of Mike Montani with Evercore ISI. Please go ahead. Hey, guys. Good morning. Thanks for taking the question. It's Mike on for Greg Melich. Just wanted to ask if I could first off, just for some additional color, if you could share it in terms of the comp trend for DIY versus pro, as well as, you know, ticket versus transaction count. Then I had a follow-up question. Sure. I'll start with the channels. You know, we basically said DIY, pro were in line with each other, which would imply actually an acceleration of DIY for us in the quarter. We're actually pretty happy with what's going on in DIY. We're strengthening. Our expansion in the West has helped us there. We are gaining a lot of market share in our West market. We're gonna continue to focus on DIY. It's a very important part of our business. DieHard continues to do well. You know, overall, we saw strength in the DIY. Where we saw, you know, weakness relative to the second quarter was in professional, and that's why, you know, we're taking the actions that we're taking, targeted inventory investment, surgical pricing actions. It really, DIY is getting a lot stronger for us. Pro got weaker overall. Ticket versus transaction, more of the same versus the second quarter, Mike. Our tickets were down in both Pro and DIY, and obviously, transactions continue to grow in terms of, you know, average ticket. That's the tale of the tape there. Got you. Thank you for that. Then, just on the market share front, just wanted to hit on, you know, number one, if you can give some updates to the progress that you've been seeing for the Pep Boys converted stores. Then number two was, you know, you had mentioned, you know, increasing inventory availability. So I was wondering if there was anything you could share in terms of, you know, industry benchmark fill rates versus yourselves, you know, to help us kinda gauge what kind of improvement we could anticipate, you know, from the additional coverage. Sure. A couple of things in your question there. On the Pep Boys conversion, Jeff called out, you know, this is gonna be the largest number of new store openings Advance has had in many years. We've got that, you know, moving much more so. We've got a new Head of our Field Operations, Junior Word. He's a terrific leader. He started out in stores 20 years ago. He's done all the key jobs inside of Advance. He's distinguished himself. He's done this before. We're very excited to have Junior take on the role of leading the field organization, including, pardon me, those stores that we're converting in the West. Each period, our market share grows. In those West stores, we still got lots of room for growth out there, so, you know, more to come there. Second question was, Mike, again, remind me. Sorry. Just on the fill rates, I guess, on shelf availability. Yes. you know? Yeah. What we've seen there, we really expected the on-hand rate, which is the ultimate measure, right? In the stores themselves, you know, do you have it when the customer calls to get better in those categories that we converted? It just hasn't. I mean, we obviously have targets for each category. We also have targets by velocity band, so A SKUs, B SKUs, C SKUs, et cetera. What I can tell you is we've worked very collaboratively with our suppliers on this topic, and they've been extremely helpful. You know, we stood up a number of new suppliers literally all over the globe to enable this expansion. As we said earlier, we're very pleased with the margin expansion and the quality of the products. You know, we're still not happy with where we are in terms of our on-hand rates. All I can tell you is we're below where we need to be, and that is the focus is to get to a better on-hand rate in these key categories. As I said earlier, there's some other things we're doing with inventory as well. The biggest one is to get our on-hand rate up in these converted categories of own brand. Thank you. Your next question's from the line of Seth Basham with Wedbush Securities. Please go ahead. Thanks a lot, and good morning. Tom, maybe you could just provide a little bit more perspective on what changed in terms of the competitive environment to drive these inventory and price investment decisions, here. Was there, you know, a significant change in the third quarter? Relatedly, do you expect a competitive reaction to these moves? Well, first of all, you know, we were executing our strategy as you know, Seth, and you know, which is a different strategy than our peers. I think obviously the inventory investments that have been made inside the industry and the widely documented pricing investments were out there. As it started to have a greater impact on us, I think that's when we had to you know, respond. We're responding with primarily targeted inventory investments. That's the biggest one. That's where we really are focused here because we believe that's the most important thing, getting the right part in the right place at the right time. We will take those actions, and we think that's gonna have a big impact on improving our growth in 2023. The pricing piece, because of our tools, you know, we're able to respond surgically. It's not as important to our customers as the, as the availability is, so we're gonna be very thoughtful and disciplined about that pricing piece. We are going to take some actions to respond to that. In terms of competitive response, you know, we'll see what happens there. We're optimistic that the inventory investment that we're making will accelerate our performance in these key categories, which has really been a drag on us over the course of the year. Got it. As a follow-up, you talk about the investments in these key categories being ones that you have been focused on, migrating more to private label. Does that mean that you need to be more aggressive in bringing national brand inventory back in these categories? Generally speaking, we are very pleased with where our assortment is in the categories. Where we're focused is getting the on-hand rates where they need to be. It's not that we have a brand issue necessarily. It's really more about getting the right part in the right place at the right time. Fair enough. Thank you. Your next question's from the line of Bret Jordan with Jefferies. Please go ahead. Good morning, guys. Good morning, Bret. Do you have any data to support the commercial customers' enthusiasm for the private label products? I mean, maybe sort of a turnover in SKUs, assuming that's a category you probably have in stock, you know, the velocity of that product versus your prior strategy would add a bit more nationally branded product in that mix. We do. Essentially when we have it, Bret, you know, the close rates are very strong. The return rates are much lower, so we do have a positive reaction from our customers on this. It really is more about on-hand rate. Okay. Then a question, I guess, as far as what inning in the inventory growth you're at. I mean, a lot of your suppliers were saying you were, you know, really appearing to manage your inventories down until recently. I guess when we think about going into 2023, you know, where do you see the inventory build being, or how out of stock are you, I guess is the question? Yeah. As we look at it right now and our analysis would suggest that we need to make investments that we've made some in Q3 and we need to make some more in Q4. You know, obviously that's dynamic and we'll continue to assess that, but that's the way we're looking at it right now is it's really a back half investment to get that availability as close to the customer as possible. Yeah. I'll add one thing to that, Bret. I mean, as we looked at this earlier in the year, we obviously knew we were consolidating suppliers. We were reducing some redundancy in our SKU base. So there was a belief that inventory could come down in the back half. Through the analysis we've done, we just, you know, we've gotta refine that and adjust that assumption. Q4 will likely be the inventory growth period, at which point we're not gonna be growing too much, not gonna be a use of cash in 2023 as much? Yeah. We're investing in the inventory here in the back half. You know, obviously, depending on the terms, you'll get some carryover into Q4, and we'll take that into consideration as we're generating our free cash flow assumptions for next year. Great. Thank you. Your next question is from the line of Mitch Ingles with Raymond James. Please go ahead. Hey everyone, this is Mitchell Ingles on for Bobby Griffin. Hope you're all well. To start, could you give us an update on your Canadian operations? How do you see the Carquest and Worldpac Canadian operations fit into your long-term plans? With the recent Forex impact, is this business overall dilutive today to your performance? How should we think about Forex exposure going into 2023? Thank you. We see a lot of opportunity with our Canadian business. We made a big investment up there in a distribution center that is now carrying the Worldpac and Carquest parts. It is not dilutive to our overall business. It is a strong performing business, and we believe that we're going to be able to grow that business significantly as we've made a pretty big change up there in Ontario, which is the largest market. You mentioned the forex. I mean, obviously it dropped down to a level that we haven't seen in a while, but over time, you know, there's a lot of room for growth for us up in Canada, and we're gonna continue to drive that growth. We expect 2023 to be a very strong year up there. We've got, you know, the largest assortment of parts in southern Ontario in that building. You know, a combination of OE parts from Worldpac, our own brand portfolio of DieHard and Carquest, and some great national brands. Optimistic about Canada for 2023. Got it. As a follow-up, as you now expand your store footprint again this year, fastest growth in eight years, how should we think about the comp sales benefit as these new stores roll into your comp base? Should we expect a similar opening cadence next year? Thank you. Yeah, I mean, we're working through our store count for next year, but our plan is to expand our footprint. We think we have a number of opportunities, both in terms of infill, where we have a lot of density and areas where we have a lot of opportunity, namely out west. You know, we're gonna work through that. You know, in terms of comp, you know, we absolutely expect that to give us a lift next year. It does take time. You know, these stores generally reach their maturity over a three to four-year timeframe. We expect that to be an ongoing benefit. As we continue to open stores, it'll continue to build onto our comp store base. Appreciate the color. Thanks, guys. Your next question comes from the line of Chris Bottiglieri with BNP Paribas. Please go ahead. Hey, guys. Thanks for taking the question. The first one is like just given the competitive dynamics in Pro and your own heaviest market share dynamics, I wonder if you consider the idea that focusing on margin expansion could be a distraction that is offsetting a lot of your hard work and significant accomplishments. Have you considered adjusting the TSR algorithm to focus on EBIT dollar growth rather than rate? Well, we've always had a balanced approach, Chris, to this topic. I mean, there are three levers to our TSR equation. Finishing in the top quartile in 2021 was driven by sales growth, margin expansion, and returning excess cash. You know, this year, you know, we clearly have not performed at the sales level that we would have liked, particularly over the last two quarters. You know, as we look ahead, we're factoring that into the equation. Over time, we still have a very significant opportunity to expand margins. Margins remains very, very important. We're not adjusting, you know, how we're looking at building long-term shareholder value, which remains significant for Advance. That's a combination of driving sales growth, making sure that our margins continue to expand over time and returning excess cash. The equation will remain the same, and we will continue to target top quartile TSR growth. Gotcha. Thank you. Follow-up question on kind of price investments. It seems like your peers have taken price investments. I think, you know, both have lower pro-mix than you do, and it seems like the gross margin headwinds, at least for one of them, seem to be, you know, somewhere in the 75 to 100 basis point, you know, headwind rate. How do you think about the level of price investment and margin reinvestment you need to make a comparable price investment? There's certain categories where you feel like you're further behind, and you don't need quite as much of a price investment. Like, how do you just frame the size of this investment? Good question, Chris. I mean, we use the word surgical for a reason. The tools that we've built and the team that we have to manage pricing is at the highest level we've ever had in this company. We are very confident that we can make decisions here that are right for the business, and that includes removing unnecessary discounts where it makes sense, redeploying resources to our highest growth and largest strategic customers. Then at the same time, making surgical price investments in very specific categories and even in the case of stores. The analysis we've done has been very granular, and we know where we need to make those price investments. Our overall goal continues to be price to cover margin rate. That is the goal. Obviously, the competitive environment plays a role in how that will unfold next year, and we intend to be very thoughtful about how we price relatively speaking. Our goal remains price to cover rate, and we'll see how that unfolds. Gotcha. Okay. Thank you. Well, thanks for joining us today. As we've discussed, Q3 did not meet our expectations in terms of top line growth, and we're not satisfied with where we're positioned at the moment. However, we continue to believe we have significant opportunity to drive long-term TSR growth. As we build our plans for 2023, we're taking measured steps to accelerate growth while pursuing our margin expansion initiatives. We look forward to sharing our expectations for 2023 in February. In addition, we have a lot to be grateful for during this season of giving thanks, including celebrating Veterans Day last week. I'd like to take a moment to recognize and thank all of the nation's military heroes for their service, including the thousands of Advance team members who currently or have previously served. We're grateful for your ongoing support, and I wanna wish you and your families a happy Thanksgiving holiday. We look forward to sharing our 2022 results and 2023 guidance in February. Thank you. This does conclude the Advance Auto Parts third quarter conference call. We thank you for your participation. You may now disconnect.