Welcome to the O'Reilly Automotive, Inc. Q3 2021 Earnings Conference Call. My name is Adrian, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then one on your touchtone phone. I'll now turn the call over to Tom McFall. Tom McFall, you may begin. Thank you, Adrian. Good morning, everyone, and thank you for joining us. During today's Conference Call, we'll discuss our Q3 2021 results and our updated outlook for the full- year. After our prepard comments, we'll host a question-and-answer period. Before we begin this morning, I'd like to remind everyone that our comments today contain forward-looking statements, and we intend to be covered by, and we claim the protection under, the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend, or similar words. The Company's actual results could differ materially from any forward-looking statements due to several important factors described in the Company's latest annual report on Form 10-K for the year ended December 31, 2020, and other recent SEC filings. The Company assumes no obligation to update any forward-looking statements made during this call. At this time, I'd like to introduce Greg Henslee. Thanks, Tom. Good morning, everyone, and welcome to the O'Reilly Auto Parts Q3 conference call. Participating on the call with me this morning are Brad Beckham, our Executive Vice President of Store Operations and Sales, and Tom McFall, our Chief Financial Officer. Greg Henslee, our Executive Chairman, David O'Reilly, our Executive Vice Chairman, and Jeff Shaw, our Chief Operating Officer and Co-President, are also present on the call. As we announced on last quarter's call, Brad will be providing prepared comments today on today's call in Jeff's normal spot as we anticipate and prepare for Jeff's upcoming retirement in early 2022 after more than 33 years of distinguished and dedicated service to the company. It's my pleasure to congratulate Team O'Reilly on yet another incredible performance in the third quarter and to thank every member of our team for their unwavering commitment to our company and to our customers. The highlights of our Q3 results include a 6.7% increase in comparable store sales on top of an impressive 16.9% increase in the Q3 of last year and a 14% increase in diluted earnings per share, which is all the more impressive considering we grew EPS 39% in the Q3 last year. We'll walk through the details of our performance in our prepared comments today, but I don't wanna miss an opportunity at the beginning of the call to express my sincere gratitude to our team for their relentless hard work and dedication as we continue to weather the pandemic. Our team has been incredibly resilient to the challenges we faced over the last year and a half, and it would be very easy to take this for granted, their ability to respond so well to this difficult environment. This is especially true since our team has been able to deliver quarter after quarter of record-breaking results. I can assure you it has been anything but easy, and our track record of consistency doesn't diminish the massive undertaking by Team O'Reilly to protect our customers and fellow team members while driving the highest sales and transaction volumes in the history of our company. Thank you, Team O'Reilly, for your outstanding performance in the Q3. I'd now like to take a few minutes and provide some color around our sales performance for the quarter. Our comparable store sales performance has continued to track well ahead of our expectations, and we have been very pleased with both the consistency and broad-based nature of the strength of our top line. From a cadence perspective, our sales results were fairly consistent throughout the quarter with solid, positive comparable store sales growth each month. September was the strongest month of the quarter, but the variability from month to month throughout the quarter was not significant on a two or three-year stack basis. These very steady elevated sales levels continued the trend we drove in the second quarter despite not having the tailwind from government stimulus payments we saw in previous quarters. This top-line sales strength has continued thus far in October, and we continue to be pleased with the durable nature of the strong sales volumes we've been able to achieve. The components of our comparable store sales growth in the Q3 are consistent with our second quarter results, with strong growth on the professional side of our business paired with solid growth from DIY. While our professional business faced easier comparisons from the prior year than the DIY business, we were still up against a challenging comparison and are very pleased with our team's availability to drive historically strong comparable store sales on a one- and two-year stack basis. We also continue to be very happy with the performance of our DIY business, as this side drove the greater outperformance as compared to our expectations against extremely difficult compares in the prior year. Total ticket count comp for the third quarter were better than our expectations but slightly negative as a result of pressure to DIY transaction counts due to the difficult comparisons and rising prices, which were partially offset by the growth in professional ticket counts. On last quarter's call, we commented that we expected to see increased inflation in the back half of the year. However, third-quarter inflation was even higher than our expectations. Our Q3 average ticket increase was aided by an increase in same-SKU selling prices of approximately 5.5% as acquisition cost increases were passed along in selling price. As price levels have risen in the broader economy, demand in our industry has been resilient, and we continue to see strength in average ticket on a one- and two-year stack basis beyond the impact of same-SKU inflation. However, we remain cautious in regard to our inflation outlook as we would expect some partial offsets to same-SKU benefit as continued rising prices may cause more economically challenged customers to defer non-critical maintenance or trade down the product value spectrum. Finally, we drove solid sales volumes across all of our product categories with especially strong performance in undercar hard part categories, offsetting some of the pressure in appearance and accessory categories, which are up against extremely strong comparisons after growing at historically high levels in 2020. On a year-to-date basis for the first nine months of 2021, our comparable store sales growth of 12.9% and our two-year stack comp of 23.6% were well above our expectations coming into this year. As the pandemic recovery has progressed, we've remained cautious as to the lasting effect of demand tailwinds of our industry has experienced, and candidly had anticipated more moderation off the historically high growth rates we generated in 2020. Each month, as we move further past the significant government stimulus and enhanced unemployment benefits, the stability of demand in our business is very encouraging and reflects the continued willingness for consumers to invest in repairing and maintaining their vehicles in the face of an overall shortage of new and used vehicles and continued economic uncertainty. Similarly, we believe the strength of our professional business reflects the return to more daily commutes for many of the vehicle owners who our professional customers serve. We expect the gradual improvement in miles-driven trends to continue and provide a benefit to the aftermarket as the recovery moves forward. Beyond the macroeconomic tailwinds in our industry, it is also clear to us that we are taking share and capitalizing on the opportunities to meet our customer needs in a very challenging environment. As we discussed in our earnings release yesterday, we're increasing our full year comparable store sales guidance to a range of 10%-12% from our previous range of 5%-7%. This increase reflects our year-to-date performance through our press release and also anticipates solid business trends through the end of the year. As I've already indicated, we've seen a high degree of consistency in our top-line sales volume for several months now, and we felt it appropriate to revise our expectations as we near the completion of the fiscal year. However, the Q4 can be a volatile period, especially in light of possible further impacts from the pandemic, rising price levels, variability in winter weather and the holiday shopping season, and potential economic shock from the higher gas prices. Now I'd like to move on to the gross margin performance for the quarter. Our third quarter gross margin of 52.3% was a 13 basis point decrease from our Q3 2020 gross margin and was in line with our expectations we discussed on the second quarter call. While the stronger performance of our professional business put mixed pressure on the gross margin percentage, I wanna spend a little time walking through two other dynamics that drove our gross margin results. First, we have seen higher than normal broad-based increases in acquisition and input costs in our industry. One of the defining features of the automotive aftermarket throughout our history is the ability of the industry to leverage pricing power to pass through cost increases to end user consumers with minimal impact to demand due to the essential nondiscretionary nature of the products we sell. The cost increases we've seen during the current inflationary environment represent broader-based inflation than we've seen for some time. However, we did see significant inflation during 2018 and 2019 on certain product lines caused by tariffs. Consistent with the 2018, 2019 time period, we've continued to see rational pricing in our industry and are very confident this will continue moving forward. Our pricing philosophy over time is to attempt to achieve consistent gross margin rates as a percentage of sales and higher gross profit dollars in line with the sales growth, which serves to offset similar cost pressures in SG&A expenses. However, as we've discussed in the past, similar to the 2018, 2019 period of rising acquisition costs, we are currently benefiting from an enhanced gross margins as a result of increased pricing, increased prices on the sell-through of products purchased prior to the cost increases. The second gross margin dynamic I wanna discuss today is the continued pressure we're seeing on distribution costs. As we discussed on last quarter's call, our distribution infrastructure is facing inefficiencies due to the massive sales spikes over the past six quarters, the difficult labor environment, and global logistics challenges. We operate a high service, high touch distribution model, and we are fully committed to protecting and enhancing our competitive advantage in industry-leading parts availability. Our dedicated supplier partners, corporate supply chain team, and extraordinarily hardworking distribution center team members continue to do an amazing job navigating one of the most challenging supply chain environments we've seen in our careers. We have taken specific targeted steps and incurred incremental expense to respond to the hurdles we're facing. Ultimately, we do believe these pressures will abate and conditions will normalize and be more conducive to driving appropriate leverage of our distribution cost. We'll continue to prioritize inventory availability and take necessary steps to ensure excellent customer service, which is a fundamental driver of our long-term success. As the result of these puts and takes, we are maintaining our gross margin guidance of 52.2%-52.7% for the full year. We now anticipate finishing the year in the bottom half of that range. Before handing the call off to Brad, I'd like to highlight our third quarter earnings per share increase of 14% to $8.07 with a year-to-date increase of 29% to $23.45. Our Q3 EPS growth comes on top of our growth of 39% in the third quarter of 2020, resulting in a two-year compounded quarterly growth rate of 26%. We're raising our full-year earnings per share guidance to $29.25-$29.45, which at the midpoint now represents an increase of 25% compared to 2020 and a two-year compounded annual growth rate of 28%. This increase in full-year guidance is driven by our strong year-to-date results, updated sales expectations for the remainder of 2021, and excellent operating profit flow through which Brad will provide more detail on shortly. As a reminder, our EPS guidance includes the impact of shares repurchased through this call, but does not include any additional share repurchases. To conclude my comments, I want to again thank Team O'Reilly for their tremendous hard work and dedication to living our culture and taking care of our customers every day. I'll now turn the call over to Brad Beckham. Brad? Thanks, Greg, and good morning, everyone. I'd like to begin today by echoing Greg's comments and congratulating Team O'Reilly on another outstanding quarter. As I step into Jeff's role on this call and provide commentary on our operating performance, I consider it a huge privilege to represent our team of over 80,000 dedicated professionals in our stores, field operations, distribution centers, and offices. Team O'Reilly has established a tremendous history of consistently excellent performance, building on the foundation established by the O'Reilly family beginning in 1957. The last year-plus of record-breaking results has been truly amazing. The single biggest driving factor of these results is the quality of our team and our unrelenting commitment to excellent customer service. As Greg previously discussed, our sales growth was very consistent throughout the quarter and solid on both sides of our business. Our team's commitment to our dual market strategy and our culture of excellent customer service has us well-positioned to capitalize on the strong industry backdrop. We have been able to leverage our competitive advantages to meet the challenges of operating in an extremely difficult environment and deliver an attractive value proposition to our customers, including many customers who are new to O'Reilly. As strong as our results have been, we know we still have significant opportunities to enhance the great service we provide to customers and gain additional market share, and our teams are dedicated to improving our business every day. I'd now like to provide some color on our SG&A expenses and operating profit for the quarter. Operating profit dollars in the Q3 grew by 4% compared to the Q3 2020 and are up an incredible 41% above our operating profits we generated two years ago in 2019. Our SG&A dollar spend per store for the Q3 was up 8% over 2020, which is significantly higher than our typical growth in operating expenses. This is a result of the cost reduction measures we executed last year in response to the uncertainty around the pandemic, as well as expenses incurred in 2021 in-store payroll, incentive compensation, and variable operating expenses to drive our sales growth. While our Q3 2021 SG&A expense of 30.6% of sales represented a 78 basis point increase over 2020, it significantly outperformed our expectations as a result of our robust sales performance and solid expense control. As a reminder, last year's third quarter SG&A expense levered 344 basis points and generated a level of profitability that was unique to the specific circumstances that we were facing at the point in the pandemic and was not sustainable nor appropriate for our long-term business. While this unusually difficult comparison created pressure on our year-over-year SG&A expense rate, we are very pleased with the improvement in our profitability on a two-year stack. On this basis, our SG&A percentage is 266 basis points lower than our third quarter 2019 SG&A rate as our team was able to drive significantly higher top-line sales growth than the rate of our SG&A increases. Based upon our results year to date and our expectations for the fourth quarter, we are now estimating our full year increase in SG&A per store to be approximately 8%, which is below our comparable store sales guidance despite the extremely difficult comparisons. We are also increasing our operating profit guidance by 50 basis points to a range of 21%-21.4%. Expense control is a core value of our culture, and we manage operating expenses on a store-by-store, month-to-month basis. While our levels of SG&A growth and our improvements in operating profitability are larger than we've seen in recent history, our priorities for how we deploy operating expenses remain unchanged. Our top priority is to ensure we are providing excellent customer service and ensuring we lead the industry in the value we provide our customers. We have a very high standard for service, and we are relentless in developing long-term and loyal customer relationships through consistent daily execution of our business model. These relationships are the foundation of our business and the key to future growth. We also prudently manage our expenses to capitalize on opportunities to grow market share and operating profit dollars through enhancements to the customer service tools we provide our teams. Next, I'd like to provide an update on our store growth during the quarter. During the Q3, we opened 30 new stores, bringing our year-to-date total to 146 net new store openings across 40 states. This pace sets us up well to achieve our plan of 165-175 net new stores for 2021. Logistical, supply, and governmental challenges continue to make new store development difficult, but our teams are diligently grinding away to open great new store locations with outstanding teams, and we continue to be pleased with our new store performance and our opportunities for future growth. For 2022, we expect to open between 175 and 185 net new stores in the U.S. and Mexico, and these store openings will again be in both new and existing markets as we have capacity to support profitable growth across our distribution footprint. In addition to investments we're making to grow our business with expansion into new markets, we continue to reinvest in our existing stores and distribution infrastructure with a particular focus on supporting and enhancing our industry-leading inventory availability. Our ability to provide our customers all the parts they need to complete their repair faster than our competitors is critical to earning repeat business and gaining new market share. The vast number of different parts needed to service the U.S. light vehicle fleet means no store could ever stock enough parts to service any given trade area. Every store in our chain has a unique inventory tailored to that store's specific trade area that we deploy to provide immediate access to those products with the highest demand. To further enhance our availability, we are pursuing ongoing initiatives to aggressively add incremental dollars to our store-level inventories above the typical annual investment for new stores and product updates. During the strong sales environment this year, rolling out the full scope of these initiatives had to take a back seat to the replenishment needs of our stores, but we still see significant opportunities to increase our market share by beefing up the inventory that sits closest to our customers and will execute on a larger investment in 2022. To support the demand for less requested parts, our stores receive overnight deliveries from one of our 28 regional distribution centers, supplemented by multiple deliveries per day, seven days a week if the store is located in the market area of one of our DCs. For stores that aren't located in close proximity to a DC, including stores in a very large metro area with a longer drive time to the DC, we utilize a hub-and-spoke network with hub stores stocking additional parts depth to support surrounding stores through multiple daily deliveries. Hub stores carry between two and four times the SKU count of a normal store, depending on the market area. We continue to aggressively enhance our hub network with not only upgrades but the addition of new hubs, which are typically of the larger variety. These large investments are critical to support our store team's ability to provide exceptional customer service. Before I turn it over to Tom, I wanna thank Team O'Reilly for their continued dedication to our company's success. With one quarter left in twenty twenty-one, we've had an amazing year so far, but we will continue to stay focused on finishing the year strong. As always, the key to our success is providing unwavering customer service that surpasses expectations and continues to earn our customers' business, and I am confident in our team's ability to continue our tremendous success. Now, I'll turn the call over to Tom. Thanks, Brad. I'd also like to thank all of Team O'Reilly for their continued hard work and commitment to excellent customer service, which drove our tremendous third quarter and year-to-date performance. Now we'll take a closer look at our third quarter results and add some additional color to our updated 2021 guidance. For the quarter, sales increased $272 million, comprised of a $210 million increase in comp store sales, a $58 million increase in non-comp store sales, a $4 million increase in non-comp non-store sales. For the full year of 2021, we now expect our total revenue to be between $12.9 billion and $13.2 billion, up from our previous guidance of $12.3 billion to $12.6 billion based on our strong year-to-date top-line performance and our continued confidence in our team. Greg covered our gross margin performance earlier, but I wanna provide additional details on our positive LIFO impact. For the third quarter, the LIFO impact was $43 million compared to no material benefit in the prior year. As a reminder, the positive LIFO impact is a byproduct of the reversal of our historic LIFO debit. Since 2013, due to negotiated acquisition price decreases, our calculated LIFO inventory balances exceeded the value of our inventory at replacement cost, and we elected the conservative approach to not write up inventory value beyond our replacement cost. As a result of this accounting, we've seen a benefit from rising costs and price levels via the sell-through of lower cost inventory purchased prior to the recent cost increases. However, during the Q3 2021, our LIFO reserve flipped back to a credit balance as a result of inflation and acquisition costs. Moving forward, we expect to be back to typical LIFO accounting and no longer valuing inventory at a lower replacement cost. As a result, we anticipate a benefit from the final sell-through of the remaining lower cost inventory will hit primarily in the fourth quarter of 2021 and will no longer be a tailwind beyond that. We will provide gross margin guidance for 2022 on our Q4 earnings call, but wanted to outline this switch back to a LIFO credit since it will have the impact of being a declining benefit moving forward, which we anticipate will in part be offset by expected future normalization in distribution costs. Our third quarter effective tax rate was 22.5% of pre-tax income, comprised of a base rate of 24.2%, reduced by a 1.7% benefit for share-based compensation. This compares to the Q3 of 2020 rate of 23.2% of pre-tax income, which was comprised of a base tax rate of 24.4%, reduced by a 1.2% benefit for share-based compensation. The Q3 2021 base rate was in line with our expectations, and for 2021 full- year, we continue to expect to see a lower fourth quarter base tax rate due to the expected tolling of certain tax periods and realizing benefits from renewable energy tax credits. For the full year of 2021, we continue to expect an effective tax rate of approximately 23%. These expectations assume no significant changes to existing tax codes. Also, variations in the tax benefit from share-based compensation can create fluctuations in our tax rate. Now we'll move on to free cash flow and the components that drove our results, as well as our updated expectations for 2021. Free cash flow for the first nine months of 2021 was $2.2 billion, up from $1.9 billion for the first nine months of 2020, with the improvement driven by an increase in net income, a larger benefit from our net inventory investment, and a larger prior investment in solar projects, partially offset by a reduced benefit from accrued tax withholdings, resulting from the ability to defer certain payroll tax payments in 2020 under the provisions of the CARES Act. We do anticipate additional investments in solar projects in the Q4 2021. For the full- year of 2021, we now expect free cash flow to be in the range of $2 billion-$2.3 billion, up $500 million at the midpoint from our previous guidance, based on our strong year-to-date operating profit and cash flow performance and our net inventory performance. Inventory per store at the end of the third quarter was $633,000, which was down 3% from the beginning of the year, but up 1% from this time last year, driven by the extremely strong sales volumes and supply chain constraints. Our AP to inventory ratio at the end of the third quarter was 126%, which matched the all-time high our company set at the end of the second quarter and was heavily influenced by the extremely strong sales volumes and inventory turns over the last year. We now anticipate our year-end AP to inventory ratio to finish near a similar level. However, over time, as we increase inventory levels, we expect to see moderation in this ratio. Capital expenditures for the first nine months of 2021 were $341 million, which was down $23 million from the same period of 2020, primarily driven by the timing of expenditures for new store and DC development activities and strategic initiatives. As we look to the remainder of the year, we still see tremendous opportunity to deploy capital to enhance our service offerings and capitalize on growth opportunities, but we would now expect for some of those investments to be pushed into 2022. As a result, we're revising our CapEx forecast to come in between $450 million and $550 million for the year. Moving on to debt, we finished the third quarter with an adjusted debt-to-EBITDA ratio of 1.75 times as compared to our end of 2020 ratio of 20.3 times, with the reduction driven by a decrease in adjusted debt, including the redemption of $300 million of senior notes in the second quarter, as well as substantial growth in our trailing 12-month EBITDA. We continue to be below our leverage target of 2.5x, and we will approach that number when appropriate. We continue to execute our share repurchase program, and during the third quarter, we repurchased 1.6 million shares at an average share price of $595.96 for a total investment of $943 million. Year to date, through our press release yesterday, we repurchased 4.1 million shares at an average price of $534.60 for a total investment of $2.2 billion. We remain very confident that the average repurchase price is supported by the expected future discounted cash flows of our business, and we continue to view our buyback program as an effective means of returning excess capital to our shareholders. Before I open up our call to your questions, I'd like to thank the O'Reilly team for their dedication to our customers and our company. Your hard work and commitment to excellent customer service continues to drive our outstanding performance. This concludes our prepared comments. At this time, I'd like to ask Adrian, the operator, to turn to the line, and we'll be happy to answer your questions. Thank you. We'll now begin the question-and-answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Please limit your questions to one question and one follow-up question. Once again, if you have a question, please press star then one on your touch-tone phone. Our first question comes from Brian Nagel from Oppenheimer. Your line is open. Hi. Good morning. Morning. Morning. Congratulations on a nice quarter. Another nice quarter. Thanks, Brian. Thanks. The first question I want to ask, and just, you commented, it was commented in the prepared remarks, about, you know, pricing and, and the impact upon demand. I'm recognizing that, there's some conservatism as you look forward. I guess the question I have is, are you seeing indications now that as prices have risen, that consumers are either shifting away from products or there's some hesitation to buy certain items in your stores? Yeah, Brian, what I would tell you is we have not seen any significant movement thus far. W e called that out as a possibility, going forward if fuel prices continue to rise and you know, continue to be challenges within the general economy. So far, we haven't. what might happen or what has happened historically, you know, during times where consumer spending drops off to a degree is consumers may defer things like oil changes out beyond their normal oil change intervals, or trade down the value spectrum. We really haven't seen that. W e have over the last several quarters, we have really done a nice job of promoting some of our proprietary branded products. We've seen a shift to some of those proprietary brands, like, for example, Syntec motor oil. What we've seen is those shifts are more related to us promoting those products than a shift downward in buying habits. Those are really planned shifts. I would say unpredicted shifts or surprises, we have not seen those thus far. That's really helpful. The second or the follow-up question I have, a separate different topic, but with and maybe even kind of bigger picture in nature. With regard to sales, I mean, clearly, the business is performing extraordinarily well here, and it continued to perform well from a sales perspective, you know, as we move past, like you said, past the benefits of stimulus, you know, past while COVID-19 is still a factor, maybe past some of the, the disruptions or even benefits of COVID-19. As you look at your business and compare it now to, say, pre-pandemic levels, what do you think is really driving? I mean, are there certain factors you can point to that are just kind of underpinning this continued better than pre-pandemic sales levels? Yeah, I'll start that, and then I'll see if Brad might have something to add. Brian, there are several things that are going on right now in the economy that short term are probably impacting that. A couple of those things I called out is, the availability of new cars, and the availability and extended pricing on used cars today. It's just not cost-effective. People are paying as much for a two-year-old used car as what sticker price is on a new car because new cars are not available. I think that's driving more people to maintain their existing vehicles more so than perhaps they did pre-pandemic. Also, I think during the pandemic, we saw a trend of more, you know, traditional white-collar, you know, employee, employees and employers and people in general doing some of the things themselves that historically they may not have done. You know, that trend may be extending as well, which would support the DIY side of our business. I think those things in combination are drivers that are positively impacting our sales volume, as of recent and throughout the pandemic. Brad, did you want to add anything to that? Yeah. Hey, good morning, Brian. The only other thing I'd add to what Greg said is just, what I mentioned earlier just about new customers. W hen I'm out, in the field, and I have been quite a bit here lately, seeing our teams and patting them on the back and talking to customers on both sides of the business, you know, we're seeing a lot of new customers, Brian, and on both sides of the business. B ack to your original question, what we're seeing is a huge need, while prices are higher, we're seeing a huge need for value. As you well know, with the, nondiscretionary nature of our business, like Greg mentioned, with us totally focused on our supply chain, executing better than anybody else out there, our delivery times and turning those bays for the customers and all the value that we know we can create on that front counter, with our professional parts people, highly focused on retention right now. We just see our teams doing a great job winning those new customers. Then when we win them over, we impress them with our service levels. Brian, one more additional thing. You know, I think part of the growth we're seeing is we're taking some market share. I said that in our prepared comments, and when you look at industry reporting, on our performance across the board against remainder of market, we continue to outperform in most categories. I think that we are taking market share. I think, as challenged as our supply chain has been, as large of a company as we are and the buying power that we represent, I have to think that some of these smaller companies are having more supply chain challenges perhaps than we are, which is supporting our market share gains. That's all very helpful. Congrats again. Thank you. Thanks, Brian. Thanks. Our next question comes from Zachary Fadem from Wells Fargo. Your line is open. Hey, good morning, guys. First one for Tom. Your ex-LIFO gross margin was about 51% in Q3, which is about a hundred basis points step down versus Q2, if I'm calculating that right. First question is, how much would you view the step down as transitory due to the supply chain factors today? Then as we look to 2022, is it fair to expect the core ex-LIFO gross margin to hover around this 51% level or is a return to the 52% level the right way to think about it? Well, Zach, there's a lot of moving parts in margin right now as prices have gone up dramatically in a short period of time. To answer your first question, ex LIFO, would that have been the margin? You know, I think that because we have product that we purchased at a lower cost, it allows us to maybe be a little more prudent in the timing of raising prices and doing that in a smart way with our customers to make sure that we don't have a shock value. I'm not sure that I would say that that's how, absent that ability to leverage that benefit, that we may have run prices through a little bit different, not saying we're not gonna eventually run all the prices through. The second item I tell you is that, you know, when we look at our gross margin, we had a big LIFO benefit, but we also had a similar headwind from distribution. Over time, you know, we will balance those. You know, we feel like we've been pretty consistent in the gross margin percentage we've run over time. Obviously since, over the last 10 years since we purchased CSK and worked on a lot of sourcing to the most economical countries and private label, we've increased our gross margin substantially over that period, over the last couple of years, we've been pretty consistent. Although we're not gonna give guidance on this call for next year, we wouldn't anticipate dramatic changes in our overall gross margin. Got it. In terms of the broader laundry list of supply chain and inflationary pressures across all of retail, you know, you've called out product and DC costs. You know, we're also dealing with higher freight and port delays and labor and product availability issues. When you think about all these pinch points impacting your business today, could you talk about which ones are most front and center for you? Which aspects have been, more manageable and would you say we've reached peak pressure or do you still think there's incremental headwinds from here in the upcoming months? Yeah, Zach, this is Greg. I'll take this one. I don't think we're near the end of this, unfortunately. Obviously, the backlog you watch the news of ships in China at port in the U.S., various ports in the U.S. and on the water continues to be pressured and challenged. When you talk about our supply chain, you know, you have to think about it sequentially. Really, the pressure started in the DC just based on the sheer volumes that they've experienced over the past several quarters. To compound that, those volumes came at a time where the supply and demand of human capital was way out of balance. It's very, very difficult, as everyone knows, to hire in the environment that we've been in the last several months or past few quarters. Now, we have seen some improvements since some of the government stimulus and unemployment benefits have subsided, but we're still having some challenges staffing up in some of our DCs. The good news is, from a DC perspective, we're showing continued improvement and our DCs are getting caught up, and we're working hard to make sure we're positioned, you know, to be prepared for future growth in 2022 and make sure that our staffing levels are adequate and, we're working on continued productivity gains and get our distribution costs more in line with where they were. That was really the initial component of the supply chain crisis. You compound that with increased freight charges. I think most everyone's heard the variation in container shipping costs from, you know, as low as $3,000 in 2021, up to recently as high as $18,000-$20,000, you know, per container equivalent. That has been a challenge. I t just everything that we face seems to compound. Now there's rationing of electricity in China. So all these things have compounded the issues and the timing has been a challenge, the way these things have layered on. What I will tell you is that, w e, from a distribution perspective, we're in much better shape than we were this time last quarter as recently as then. From a supply chain perspective, you know, we continue to work on our strategy is to have multiple suppliers for most of our major product categories to mitigate any risk, and we're leveraging current suppliers and additional suppliers in order to try to get product. We're seeing improvement on product flow, but it's still a lot longer tail from order to delivery than what it typically is. Thanks for the color. Appreciate the time. You bet. Our next question comes from Greg Melich from Evercore. Your line is open. Hi. Thanks. Really, two questions. One first on the pricing. You mentioned you came in stronger than you thought for all the cost reasons. Tom, would it be fair to say that 5.5%, if that's what was realized in the third quarter, it should actually be more than that year-over-year as we look into the fourth quarter and beyond, just given the way pricing flows through? Well, we would expect it to be a strong number again in the fourth Q4. We're optimistic that some of these supply chain items will right themselves, but we will have more view on that, on our fourth quarter call for next year. Got it. Then I think you mentioned that your second quarter EBIT margin was, you know, unsustainable and really not good for the long-term health of the company or something like that. So Just for clarification on that, Greg. If this year ends up at 21%-21.5%, I guess that's a new range. Is that a good, healthy level to grow from? Greg, just for clarification, the prepared comments were related to the Q3 2021 where we landed- Got it. 344 basis points. That's not the right SG&A leverage level for the company long term. W e said that then, and we're back more in a SG&A spend that's appropriate for the sales we're generating. I would say, given that that was unusual, would you say now we're at a right base, this year's margin at 21%-21.5%? Given the comp levels that we are at, yes. We're a multi-unit specialty retailer with a high fixed cost base, and we're able to generate exceptionally high sales volumes and increases. We see great leverage. All right. I guess my last on this is just to make sure I got the math right. If the comp was 6%-7% in the quarter and price was 5.5% and traffic was slightly down or ticket counts, is the difference just mix and units in the basket? Well, we have a long-term trend of increasing average ticket as the technology and complexity of parts on newer vehicles become more expensive, and that trend has continued. Got it. Thank you. Thanks, Greg. Our next question comes from Simeon Gutman from Morgan Stanley. Your line is open. Thanks, everyone. Good morning. Hey, Tom, is there a way to think about or how we should think about the impact of higher distribution costs, the weight of it on the gross margin? I guess the second question on that is, the gross came in at, I think, 53.1% pre-COVID, and I'm sure there was a LIFO impact in there. Now that your volumes are much higher, once supply chain things get back to normal, and I don't know when that is, why shouldn't your gross margin end up being higher than where we were pre-pandemic since there's just more volume in the system? Simeon, would you repeat your first question again? It's basically can you help us quantify the impact on gross margin from higher distribution or supply chain costs or inefficiency? Got you. I in a previous question, I commented that the LIFO benefit and the distribution headwinds were similar. The second question, when we look at our distribution centers, they're primarily a variable cost item. There is some leverage from having higher volumes to a point, and I think Greg talked about that on the last call and this call. If we get too much volume within our system, we end up with inefficiencies. The other part I would add to that is, you know, we are already one of the major suppliers of auto parts, so increased volumes don't necessarily mean a lower cost in the products we purchase at this point in our company's life cycle. Okay, thanks. Maybe just a follow-up, maybe to Greg Henslee. Should market share gains continue at this outsized rate, or now that there's so much that has happened, it's just gonna be hard to maintain the level of outsized market share gains? Thank you. Yes, Simeon, that's a great question. I wish I had a great crystal ball answer for you. I mean, I think that first of all, this year when we started the year, we projected, you know, flat to negative comps. We certainly didn't expect for our comp growth to continue to be as strong as they have been in 2022. Considering that a lot of the stimulus and benefits have subsided and our sales have remained strong, you know, our expectation would be for the aftermarket as a whole to continue to perform well going forward, and we'll certainly continue to be a consolidator and continue to try to grow our market share going forward as well. Thank you. The next question comes from Mike Baker from D.A. Davidson. Your line is open. Hey, guys. Thanks. I suspect I know the answer to this question, but when you do the implied sort of fourth quarter comp in your full year guidance, you get somewhere, at least I get somewhere in the midpoint around 2%-3%, which would be a pretty big slowdown on both a two- and three-year basis relative to the first three quarters, which saw remarkably consistent trends on the two- and three-year basis. All your commentary is suggesting that things are continuing. Why the lower guidance? Is it just conservatism? Is it just, you know, the unknown of not having the government stimulus, even though that doesn't seem to be impacting your business? Or is it something, you know, else that, you know, I'm not thinking about? Thanks. Well, I guess I better answer that one because it sounds like a math question. We kept the 2% full year guidance range because that's what we had given all year and or at 10%-12%. The math for what the variability for the fourth quarter needs to be to reach those is pretty extensive. We'll have to look at whether we want to do that next year or tighten the range. I'd say the math for us works out a little different, that it works out 1-9. Obviously, we don't anticipate that wide of a range of outcomes. Okay, so you're saying, just to clarify, I got an implied range of somewhere around -1% to +6% and 2%-3% at the midpoint. You're saying that the better math would be somewhere around 1% to 9%, or about, what is that? About 5% at the midpoint. A, is that what you're saying? Just so we're all clear. Then B, that again, that does imply a pretty big slowdown on a two-year basis. Just conservatism in that? The implied range is one to nine. The width of the range was unintended. It was more based on continuing giving annual guidance in the same fashion we gave it in the first three quarters. Okay. Understood. I appreciate that. Thank you. Our next question comes from Bret Jordan from Jefferies. Your line is open. Hey, good morning, guys. Morning, Bret. On the topic of share gain, I mean, it sounded as if you guys were picking up some share in undercar hard parts last quarter, which I think you guys called out as a strong category. Could you talk maybe about the cadence? Are you seeing the smaller or larger competitors, you know, seeing increasing difficulties, or are things getting better in the supply chain that's allowing them to hold share, better as the quarter progressed? Yeah, Bret, I would. I'll say a few things here and then let Brad comment on what he's hearing from the field. He's closer to the store operators than I am on a day-to-day basis. Generally, you know, as I said, while we really have no way of knowing other than the more macro view by category on industry reporting, the perception is and we feel pretty strongly that this is the case, that considering the supply chain pressures that we're facing, the smaller players would have to be facing at least equal to, if not much greater pressures, which would be impacting their in-stock position and their, you know, their ability to comp as strongly as we have. Brad, you wanna add anything to that? Yeah. Hey, good morning, Bret. As you well know, we have a tremendous respect for all our competitors. You know, I've been here 25 years this year, and I grew up competing against some very strong independents. You know, the independents that are still alive and well in the United States are pretty tough competitors and very tough on the professional side, as you know better than anybody. We have equal amount of respect for our larger retail competitors that you know have gotten better in some areas of professional. When I think of share gains, I definitely think there's something to what Greg mentioned in terms of some of maybe the struggling independents and maybe some of the mediocre or weaker independent competitors. Again, as the big, strong independents in the United States are very tough. Bret, me and my team, what we spend our time on is a little bit less of, you know, where the share gains are coming from and more about what we know works and what we're doing right now that is equaling share gains. Those things are just around some of the things we mentioned earlier. W e talked about supply chain struggles, but as you well know, the supply chain struggles are a level playing field for everybody, us and our competitors in the United States, and it's about who's gonna step up and execute better under the conditions. I'm just extremely proud of our supply chain team, from distribution to merchandise to inventory control, that gives my team in the stores not many excuses. You know, they've done a tremendous job backing us up. W hen it comes to what Greg said earlier, they're getting better every month, even though we still do have challenges, and they're ensuring we have the right part at the right place at the right time. We feel like that's a big part of the gains. We also feel like that, as you've always heard us talk, you know, our professional parts people, what we're doing with our shops, creating value, better delivery times, helping them get a car off the rack, and just really our professional parts people and everything we focus on in our stores is really what's equaling those gains. Appreciate that. I guess last quarter, you guys talked about some standout suppliers or issues with suppliers in certain categories that were material challenges. Are you seeing, I guess, the supply chain issues moderating? I mean, are there big holes in in-stocks, or is it just sort of tough across the board, but no real areas to call out? Yeah, Bret, I mean, some of the categories we talked about last quarter, we're still having challenges with. Maybe some of those challenges have changed or evolved. S ome of those challenges may have been labor-related for domestic suppliers last quarter, and it's transitioned more to raw material or component challenges now coming from China. But our suppliers as a whole are doing a good job. We've got some suppliers, especially those with products coming out of China that continue to struggle. Another challenge, and I keep sounding like a broken record here of all the woes and challenges we're facing, but it has been the most challenging supply chain year in my 40-year career in the industry, you know, on top of everything else. Some of the things we haven't talked about was simple things that you might not consider like the freeze in Houston earlier this year that's impacted the production of plastic bottles and additives for oil, and some of those things still linger within the industry. Some of the issues have subsided or lessened. Some of them have become more material. I think on a category by category basis, supplier by supplier as a whole, we're starting to see the light at the end of the tunnel. It's just how much farther is the track to get us to that light is what we're trying to determine now. Great. Thank you. Yep. Our next question comes from Kate McShane from Goldman Sachs. Hi, good morning. Thanks for taking our question. Tom, you had mentioned towards the end of the prepared comments about reducing the CapEx and pushing some investments out. Is there a way to quantify or not quantify, but list what some of those investments would be? When we look at our store DC growth, just getting some of the work done has been a challenge. W hen we look at updating our over-the-road truck fleet and our store fleet to more fuel-efficient vehicles with safety features, that was a big initiative this year. Obviously, getting new small, like, cars and trucks doesn't end up this year. Some of our store development isn't quite as far ahead as we would like. You know, there are supply chain issues within construction materials, and there's a lot of construction going on. Those are the general items that have been pushed into next year. Okay. Great. Thanks. If we could just go back to the question on what the comp guidance implies for Q4. I wondered if you could tell us what you're thinking with regards to how much price would influence that comp range in Q4. We would expect that it would be at least as much as this quarter. Thank you. We have reached our allotted time for questions. I'll now turn the call back over to Mr. Greg Henslee for closing remarks. Thank you, Adrian. We'd like to conclude our call today by again thanking the 80,000 team members of Team O'Reilly for their hard work and dedication to our ongoing success. You have proven time and time again that the relentless focus on providing consistent excellent customer service is the key to long-term profitable growth. I'd like to thank everyone for joining our call today, and we look forward to reporting our Q4 earnings and full-year results in February. Thank you. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.