Welcome to the O'Reilly Automotive, Inc. third quarter 2022 earnings call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct our question and answer session. During the question and answer session, if you have a question, please press zero then one on your touch-tone phone. I will now turn the call over to Jeremy Fletcher. You may begin. Thank you, Vanessa. Good morning, everyone, and thank you for joining us. During today's call, we will discuss our third quarter 2022 results and our outlook for the remainder of the year. After our prepared comments, we will host a question and answer period. Before we begin this morning, I would 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, 2021, and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I would like to introduce Greg Johnson. Thanks, Jeremy. Good morning, everyone, and welcome to the O'Reilly Auto Parts third quarter conference call. Participating on the call with me this morning are Brad Beckham, our Chief Operating Officer, and Jeremy Fletcher, our Chief Financial Officer. Brent Kirby, our Chief Supply Chain Officer, Greg Henslee, our Executive Chairman, and David O'Reilly, our Executive Vice Chairman, are also present on the call. I'd like to begin our call today by thanking Team O'Reilly for your hard work and commitment to providing excellent customer service, which drove our strong results in the third quarter. Our quarterly results were highlighted by a 7.6% increase in comparable store sales, resulting in an impressive two and three year comp sales stacks of 14.3% and 31.2% respectively. Before we walk through the details of our performance and our prepared comments, I wanna begin the call today by acknowledging all of those affected by Hurricane Ian. On behalf of all of Team O'Reilly, I wanted to express our greatest sympathies for the devastation and loss being felt by so many families in the regions impacted by the hurricane. As a company, we were very fortunate to have incurred only limited damage, and our teams were simply incredible in their rapid response to the recovery from the storm. I am always extremely proud of the way Team O'Reilly shines during these challenging times, and we are all incredibly appreciative of how our team members, once again, stepped up in the aftermath of Hurricane Ian to serve their communities with critical supplies necessary in the recovery efforts. Thank you to each of our over 84,000 team members for living our culture of excellent customer service so well, for truly being the friendliest parts store in town, and producing the outstanding results we will discuss today. Now I'd like to turn to our comparable store sales performance and provide some color on what we saw on both sides of our business as we moved through the quarter. We started the quarter in July with improving volume trends driven in part by warm weather across many of our markets, and we're pleased to see these trends continue through the quarter with positive comparable store sales growth on both the DIY and professional side of the business each month of the quarter. Our sales volumes accelerated as we moved through the quarter and exceeded the guidance we communicated on our second quarter call. On a three-year stack basis, our comparable store sales were strong each month, with September finishing as the strongest month of the quarter. Our professional business again outperformed in the third quarter, producing double-digit comparable store sales growth on robust growth in both ticket counts and average ticket size. Our third quarter professional comparable store sales growth was a continuation of the strength we saw in the second quarter, with a continued benefit from average ticket growth supplemented by accelerating ticket count gains, and we're very pleased to see the strong durable nature of our professional sales volume. We're very excited about the momentum we've seen in our professional business and remain highly confident in our competitive advantages in customer service and inventory availability on this side of our business. We expect to continue to consolidate the industry and grow our professional share, and our team is highly motivated to outperform the competition in all of our market areas. Shifting to the DIY business, we were pleased to generate positive results in the third quarter against extremely difficult two and three year comparisons, reversing the trend of pressure to DIY sales in the first half of the year and outperforming our guidance forecast. As I previously noted, our DIY business was positive each month of the quarter, with comparable store sales increases driven by growth in average ticket being partially offset by anticipated traffic pressures, with both metrics outperforming our expectations for the quarter. We saw improvement in ticket counts on the DIY side as we progressed through the quarter while calendaring very challenging prior year comparisons, and we are pleased to see the resilience in our DIY customer base in spite of continued pressure from broad-based inflation. Although the professional side of our business continues to be the stronger performer, the improvement in our DIY business was the larger driver in surpassing our expectations for the third quarter. In total, our combined DIY and professional comparable store sales growth was again driven by strength in average ticket, which was approximately 10% on both sides of the business and consistent with what we saw in the second quarter. Same-SKU inflation benefit in the third quarter were also consistent with the second quarter levels, coming in at similar levels to our average ticket increases, which was above our expectations. In the third quarter, we began to anniversary the acceleration of higher inflation in 2021. However, we did not see as much moderation as originally expected in this benefit on a year-over-year basis. We have continued to experience increases in product acquisition and operating costs that we are passing through in selling price increases. Pricing in our industry remains rational, and we continue to be pleased with our ability to pass through cost increases, but also maintain an element of caution as our consumers face persistent inflation across the economy that could result in traffic headwinds for our business. From a category standpoint, we saw broad-based support across our business, including strength in the categories that normally benefit from summer heat as we experienced warm temperatures at the beginning of the quarter. However, the benefit in weather-related categories was modest in relationship to our total business. As such, we do not view weather as a significant contributor to our outperformance in the quarter. From a regional perspective, our performance was fairly consistent across our market areas with widespread outperformance versus our expectations as we moved through the quarter. Now I'd like to turn to our updated sales guidance and industry outlook. As noted in our press release yesterday, we have updated our full year comparable store sales guidance to a range of 4.5% - 5.5%. This increase in our expectations for the full year is primarily a result of updating for third quarter performance. Looking ahead to the fourth quarter, we are pleased to see the volume trends we have experienced thus far in October, which have been in line with our third quarter results. We have seen sustained resilience in consumer demand, but remain cautious as we face continued broad-based inflation, the upcoming holiday season and spending pressures that places on consumers and weather dynamics that can vary significantly for the remainder of the year. While gas prices have retreated from the peaks we experienced in June, providing some level of relief to many consumers, we recognize that current fuel prices remain very volatile and well above where we started the year, as well as this time last year. It is important to note that the fact these factors can influence demand in the short term, such as fuel price spikes, weather, and economic uncertainty, can be distinguished from the long-term fundamental drivers of demand in our industry. We continue to be confident in the health of the automotive aftermarket, supported by steady recovery in miles driven and very favorable U.S. vehicle fleet dynamics. We still view our customer base as healthy and believe consumers are in a stronger position now than in recent periods of economic uncertainty, with continued support from strong employment and wage growth. Consumers continue to be able to capitalize on the strong value proposition of investing in their existing vehicles at higher and higher mileages as a result of the increasing quality of manufacturing and engineering of vehicles on the road. We expect for demand in our industry to remain resilient as consumers who are facing high inflation and economic uncertainty prioritize the maintenance of their existing vehicles in order to avoid taking on a payment for a higher priced, newer vehicle. Now turning to gross margin. For the third quarter, our gross margin of 50.9% was a 132 basis point decrease from the third quarter 2021 gross margin, but in line with our guidance expectations. Our year-over-year margin continues to be primarily impacted by the rollout of our professional price initiative, combined with pressures from a reduced LIFO benefit, which Jeremy will discuss in more detail in his prepared comments, and a faster growth of our professional business. After incorporating our third quarter results, we continue to expect full year gross margin to be in the range of 50.8%-51.3%. Our team worked relentlessly to translate the strong top-line results into outstanding earnings per share growth, with third quarter diluted EPS increasing to $9.17, a 14% increase over strong comparison in 2021. While the year-over-year increase is impressive alone, on a three-year compounded basis compared to 2019, our third quarter EPS increased 22% per year, highlighting our team's ability to deliver consistent, profitable growth through executing our business model regardless of the tough comparisons we have faced. We are increasing our full year 2022 EPS guidance to $32.35-$32.85, reflecting our year-to-date results and fourth quarter expectations. As a reminder, our EPS guidance includes the impact of shares repurchased through this call, but does not include any additional shares. To wrap up my comments, I want to again thank Team O'Reilly for never backing down from a challenge and providing consistent excellent customer service to our customers each and every day. It is your commitment to our culture, your fellow team members, and our customers that drives our success and makes you the best team in the business. I'll now turn the call over to Brad Beckham. Brad? Thanks, Greg, and good morning, everyone. I would also like to personally thank Team O'Reilly for their commitment to our continued success and dedication to delivering excellent customer service by out-hustling and out-servicing our competition. Our top-line results for the quarter are a testament to our team's ability to compete, and I am proud of the way our team members in our stores and distribution centers go to market each and every day to win. Our team has repeatedly proven they are up to any challenge, and I wanna join Greg in showing my appreciation for the way our supply chain teams, as well as our store operations and D.C. leadership in the Southeast, took care of our teams and our customers in the aftermath of Hurricane Ian. Since safety has always been a critical culture value for Team O'Reilly, our primary focus during a weather event like Ian is ensuring our team members and their families are safe. As soon as we can safely make our way back to our store locations, our leaders and teams waste no time getting their stores back up and running, often on generator power with no communication systems. This incredible hard work and sacrifice creates tremendous goodwill with our customers, who often have limited options to source the critical parts and supplies they need to meet the basic needs, not only with their vehicles, but at home with their families to start recovering from the storm. Now I'd like to give some additional color on our professional sales performance for the quarter. As Greg previously discussed, strength in our professional business underpinned our comparable store sales growth for the quarter, and we are extremely pleased to continue to see robust growth in both ticket and traffic on this side of our business. Our commitment to the professional customer has been ingrained in our company's DNA since our founding in 1957. The momentum we've generated on this side of our business is a result of solid, fundamental execution of the same core competitive advantages that have driven our business for 65 years. Our professional customers rely on us to be an integral partner in the success of their business. We focus on developing long-lasting, durable relationships with our customers by providing exceptional service from highly qualified, knowledgeable, professional parts people who are committed to overcoming any obstacle to take care of our customers. Our team's sense of urgency, professionalism, and dedication to our customers allows us to leverage the significant investments we've made in distribution, hub infrastructure, and inventory to provide industry-leading inventory availability, which is absolutely vital to the success of our customers. Our partnerships with our professional customers go even deeper as we support all aspects of their operations through our investments in technology platforms, shop management systems, as well as technical and business management training. Above and beyond technical training for technicians, this training includes things like how to grow and manage a profitable business, effectively write service, how to market and advertise, and effective strategies to retain the best technicians. It's our execution on these foundational priorities that not only earn the retention of existing business, but give us the opportunity to earn new professional customers' business, all aided by a competitive pricing strategy that all equals the best overall value in the automotive aftermarket. We've discussed our professional pricing initiative at length this year, and we remain very pleased with the results we've seen from our competitive positioning within the broader aftermarket. We are confident that this was the right time to invest in professional pricing, and we continue to see a rational overall pricing environment and normal competitive dynamics. Our sales teams know we provide a premium service delivered by the best teams in the industry, and we go to market with the confidence that our value proposition is an attractive one for both our existing and future new professional customers alike. Next, I'd like to discuss our DIY business as well as the opportunities we see to grow share on the retail side of the business. While the DIY market is much more consolidated than the professional business, we see tremendous share growth opportunity. The key value components of parts availability, excellent customer service provided by professional parts people, and strong relationships that drive our professional business are also critical to our DIY business. Our DIY customers heavily rely on the service we provide, and you can really see this play out in the highly consulted nature of a DIY customer's visit to one of our stores. The professionalism of our team is on display during a typical customer encounter. Greeting a DIY customer when they walk in the door or pull in our parking lot and providing technical information and advice to walk them through the total job. This often includes standing side by side with a customer at their vehicle to test an existing part or read a trouble code. Our professional parts people are committed to ensuring our customers have identified the right solution for their problem and have all the parts, tools, and knowledge necessary to complete the job correctly the first time. When this work is beyond our DIY customers' ability, our professional customers in each market come into play. With our shop referral program that we established many decades ago, simply put, the growth of our DIY and DIFM business go hand in hand. We believe it was our team's intense focus on fundamental execution of our business model and excellent customer service, coupled with continued improvements in fill rates and store in-stock inventory position that drove our results above our expectations in the third quarter. The DIY environment continues to be challenging with the pressures these customers are facing on a broad scale, in turn placing pressure on our DIY ticket counts. We have also faced extremely difficult comparisons from the surge in DIY transaction counts we've generated over the past 2.5 years and are pleased with our team's ability to grow our DIY share and earn our customers repeat business. The professional parts people we have standing ready at every green counter in every one of our stores across the country are ingrained with the understanding that our never say no philosophy is so very important. It means not only putting a part in a customer's hands for a sale today to solve their immediate need, but earning their business the next time they are taking on an automotive repair or maintenance job. Now I'll turn to our SG&A and operating profit results for the third quarter and our updated expectations for the full year. SG&A as a percentage of sales was 29.8%, a leverage of 80 basis points from the third quarter of 2021. Total SG&A spend for the quarter came largely in line with the expectations given the better than expected sales volumes. On an average per store basis, our SG&A was up 3.2% for the quarter. For the full year, we now expect SG&A per store to grow between 3% and 3.5% with the increase reflecting incremental variable operating expenses on better than expected sales volumes in the third quarter, as well as ongoing cost inflation. Our teams continue to be very prudent in managing expenses in the face of significant inflationary impacts while also being appropriately responsive to current sales trends to ensure we are able to optimize both our service levels and our operating margins. We are raising our full year operating profit guidance and now expect to be in the range of 20.3%-20.6%, which is reflective of both our adjustment to SG&A per store growth and our increased comparable store sales range. Now I'll provide an update to our store growth during the third quarter. We opened 37 net new stores across 20 states in the U.S. and one new store in Mexico, bringing our year-to-date total to 154 net new store openings. This puts us on track to achieve our target of approximately 180 net new store openings for 2022. As we noted in our press release yesterday, we are pleased to announce our 2023 new store opening target of 180-190 net new stores, providing us the opportunity to expand our footprint across the U.S. and Mexico. We continue to be pleased with our new store performance and see store and distribution growth as an attractive deployment of capital. These new store openings will again be spread across new and existing markets supported by our industry-leading distribution network. This allows us to continue to build on the superior parts availability our existing and future customers value and expect. Having the right part at the right place at the right time for each one of our DIY and professional customers in every single one of our markets is more important than ever, and we are fully committed to continue to build on our world-class supply chain. While we make further investments to enhance our distribution network, we are also making investments in our local inventory position to improve overall inventory availability. We finished the quarter with an average inventory per store of $697,000, which was up 10% from this time last year and 9% from the beginning of the year. Our plan when we entered 2022 was to aggressively add incremental dollars to our store level inventories throughout the year with a target to finish the year with an average per store inventory up over 8%. We are now looking to finish 2022 with average per store inventory at levels consistent with our current position. This would have us finishing with a slightly higher inventory increase than originally expected due to cost inflation above our expectations pushing up unit price while overall units are in line with expectations. These continued strategic investments into our inventory position focused around having the right local combination of common and hard to find parts for every single market, store, and customer are a critical component of our success. Deploying additional inventory dollars into and incrementally enhancing our hub network, now at approximately 380 hubs strong, has also supported growth on both sides of our business, particularly with our professional customers, where turning their bays, keeping their technicians productive, and in turn, keeping their end DIFM customer truly happy is paramount. You've heard us say it repeatedly, time is money for our professional customers. The quicker we can put the right part in their hands, the faster they can turn their base, get their customers back on the road, and in turn, the more profitable we become together. To close my comments, I wanna once again thank Team O'Reilly for their hard work and dedication to our customers. Excellent customer service is who we are, but that doesn't mean it comes easy. It takes hustle, hard work, commitment, and dedication to every single customer every single day in each of our 5,900 plus stores, and I am thankful to work with a team who is truly dedicated to make this happen. Now, I will turn the call over to Jeremy. Thanks, Brad. I would also like to add my thanks to all of Team O'Reilly for your performance in the third quarter and continued dedication to our company's long-term success. Now we will cover some additional details on our quarterly results and updated guidance for the remainder of 2022. For the quarter, sales increased $319 million, comprised of a $257 million increase in comp store sales, a $60 million increase in non-comp store sales, a $4 million increase in non-comp non-store sales, and a $2 million decrease from closed stores. For 2022, we now expect our total revenues to be $14.1 billion-$14.3 billion, which is an increase from our previous range of $14.0 billion-$14.3 billion and is in line with the updated comparable store sales guidance range Greg discussed earlier. Greg covered our gross profit performance earlier, noting that gross margin for the third quarter was in line with our expectations with anticipated year-over-year pressure from the rollout of the pro pricing initiative, LIFO comparisons, and accelerated professional sales mix headwind. Since I'm sure you are all anxiously awaiting a detailed accounting discussion, I want to provide some additional details on the LIFO comparison and how we view the flow through of acquisition cost inflation in our gross margin results. We think it is helpful to contrast the impact of our earlier LIFO reporting prior to 2022, when we were still in a debit LIFO position, versus the current situation where we have returned to a traditional LIFO credit balance. As we discussed throughout 2021, the application of LIFO accounting meant that as acquisition costs and selling prices went up, we realized a benefit from the sell-through of existing on-hand inventory that we carried at a lower historical cost due to our debit LIFO position. This non-recurring benefit is a comparison headwind for 2022, which we anticipated in our gross margin guidance, and we've seen results in line with those expectations. Since our LIFO reserve flipped back to a credit balance in the third quarter of 2021, we are now back to typical LIFO accounting, and I think it is useful to clarify how we view the application of LIFO and the treatment of inventory acquisition costs in our gross margin results. Under last in, first out accounting, the cost of goods sold that runs through our reported gross margin results most closely reflects our current acquisition costs, and we believe this is the best picture of our gross margin performance. This reporting aligns with how we manage our process of evaluating and adjusting prices based on changes in inventory costs. Our teams diligently work to pass along cost increases in a timely manner, consistent with or ahead of our actual receipt of cost increases from suppliers. From a balance sheet perspective, in periods when costs are rising, we see an increase in our LIFO inventory credit balance, which reflects the application of the LIFO calculation. However, because we evaluate gross margin performance on the basis of current acquisition costs and selling prices, we do not view the normal application of LIFO as a discrete charge to our gross margin results. Since we take this approach, we can see some temporary impact in our gross margin results to the extent that the timing of cost changes and corresponding pricing movements do not align perfectly. The last several years have created volatility in our reported results, driven by the exhaustion of our debit LIFO balance, as well as significant inflation in acquisition costs and disruptions in supply chains. Ultimately, we expect to see a much more muted impact from LIFO moving forward as our reported results reflect a more consistent, relevant picture of gross margin performance. Our third quarter effective tax rate was 23.2% of pre-tax income, comprised of a base rate of 24.3%, reduced by a 1.1% benefit for share-based compensation. This compares to the third quarter of 2021 rate of 22.5% of pre-tax income, comprised of a base rate of 24.2%, reduced by a 1.7% benefit for share-based compensation. The third quarter of 2022 base rate was in line with our expectations. For the full year of 2022, we continue to expect an effective tax rate of 23.0%, comprised of a base rate of 23.5, reduced by a benefit of 0.5% for share-based compensation. Our fourth quarter and full year expected tax rate is expected to be below our year-to-date rate of 23.6% due to anticipated benefits in the fourth quarter from our continued commitment to renewable energy investments and the tolling of certain tax periods. Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly tax rate. Now we will move on to free cash flow and the components that drove our results. Free cash flow for the first nine months of 2022 was $1.9 billion, versus $2.2 billion for the first nine months of 2021, with the decrease driven by higher capital expenditures in 2022 versus 2021 and differences in accrued compensation. Capital expenditures for the first nine months of 2022 were $389 million versus $341 million for the first nine months of 2021. We now expect CapEx to come in between $550 million-$650 million for the full year, with the balance of the spend for the remainder of the year continuing to support new store and DC development projects, initiatives to enhance the image, appearance, and convenience of our stores and strategic investments in information technology projects. The reduction in our expected CapEx from our previous guidance range of $650 million-$750 million is primarily the result of ongoing supply chain challenges to acquire new fleet vehicles and complete various store and DC projects. Our AP to inventory ratio at the end of the third quarter was 135%, which once again has set an all-time high for our company and was heavily influenced by the extremely strong sales volumes and inventory terms, along with the impact from increased inflation in product acquisition costs. We do anticipate our AP to inventory ratio to moderate off of this historic high as we complete our additional inventory investments, but we now expect to finish the year slightly below our third quarter ratio. After generating $1.9 billion in year-to-date free cash flow and based on our updated net inventory and CapEx spend expectations for the remainder of the year, we are increasing our expected full year free cash flow guidance to a range of $1.8-$2.1 billion, an increase of half a billion dollars from our previous guidance of $1.3 billion-$1.6 billion. Moving on to debt. In September, we retired $300 million of maturing ten-year senior notes using available cash on hand. As a result of the maturity, we finished the third quarter with an adjusted debt to EBITDAR ratio of 1.84 x, which is down from our second quarter ratio of 1.95 x, but above our end of 2021 ratio of 1.69 x. We continue to be below our leverage target at 2.5 x, and we'll approach that number when appropriate. We continue to be pleased with the execution of our share repurchase program, and during the third quarter, we repurchased 1 million shares at an average share price of $683.09 for a total investment of $710 million. Year to date, through our press release yesterday, we repurchased 4.6 million shares at an average share price of $650.43 for a total investment of $3 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. Finally, before I open up our call to your questions, I would like to again thank the entire O'Reilly team for their commitment to our customers and our company. This concludes our prepared comments. At this time, I would like to ask Vanessa, the operator, to return to the line and we will be happy to answer your questions. Thank you. We will now begin the question-and-answer session. If you have a question, please press zero, then one on your touchtone phone. If you wish to be removed from the queue, you can press zero, then two. If you're using a speakerphone, please pick up your handset first before pressing the numbers. We also ask that you please limit your questions to one question and one follow-up question. Once again, if you have a question, please press zero, then one on your touchtone phone. We have our first question from Greg Melich with Evercore ISI. Hi. Thanks. Just, to kick it off on the current trends into the quarter, when you say that it's as strong as it was in the third quarter, is that on a three-year view or year-over-year or, how are you measuring that? Yeah, Greg, thanks for the question. I think really when we think about that, it's versus our expectations, as we've kind of moved through the year and those factor in the comparisons we're up against. You know, we've just been in this unique environment where you really do have to look at kinda two-year, three-year performance. What we'd say is it's up kinda on that basis. The nominal comps do move around just based upon the comparisons. Got it. Second, could you give us a little more color on inflation and average ticket size between pro and DIY? It seems like it would be a little higher in DIY and a little less in pro because of PPI, but any color there would be great? Yeah, Greg, I think you're thinking about it the right way. You know, we're seeing similar inflation benefits when we think about SKU level year-over-year, when you exclude the specific strategic moves that we've made on the professional side of our business. You know, that's the largest driver of the shrink that we've seen in average ticket. Average ticket always has other components to it as well. When we think on the professional side, just because of the success of what we've seen in the pro pricing initiative, we've benefited from you know, growing our average ticket beyond just the price that we've seen. That's probably a little bit of a helper, but we continue to view both sides very favorably given the ability to pass through cost increases really very effectively all year long. Last is trade down. Have you seen anything through the box on either side of the business? You know, Greg, we really haven't seen anything material that stands out. We look at this very closely, both, you know, on a consolidated basis and category by category. Where we have seen movement, either up or down, it's really been more a result of supplier performance and inventory availability, you know, trading across brands of oil, for example, or up and down the value perspective, for both our proprietary brands and national brands. That's great. Thanks, guys, and good luck. Thanks, Greg. Thanks, Greg. We have our next question from Christopher Horvers with JP Morgan. Thanks. Good morning, guys. Following up on the question about cadence. It was the best month on a three-year basis. Basically is September sort of an eight handle comp, and then as we look in the fourth quarter, we degrade that by a few hundred basis points for the inflation comparison, and then you're basically some plus or minus around the consumer and the holidays and weather uncertainty versus accelerated pro-pricing gains? Yeah. Yeah, Chris, I think you're thinking about this right. As we called out, you know, we were pleased with our third quarter performance. We're pleased with quarter to date through October, without a doubt. The challenge we have is the unknowns and the volatility and frankly, the challenges that we may very well experience in the back half of the quarter. When you look at fourth quarter, we always worry about weather, you know, volatility. You layer on the volatility in fuel prices. You layer on beyond the weather, just the uncertainty of the consumer and what they're gonna do. And frankly, Chris, we just haven't seen an inflationary environment around the holidays in many, many years. And the holidays are always a wild card in the fourth quarter as well. You layer on the inflation component. Those are all the reasons we're cautious in our outlook for the fourth quarter. Got it. Maybe gross margin and open up LIFO a little bit, which everybody loves. Basically, you know, as you go forward, your expectation is product acquisition costs go lower, so there should be really, and you've lapped through all the LIFO headwind from last year or substantially, maybe there's a little bit left in the fourth quarter. As you go forward, if you expect lower product acquisition costs, getting into 2023, does that mean that you could start to see actually some gross margin tailwinds on the product acquisition side? Yeah. Yeah, Chris, I don't know that we really would view it that optimistically. You know, we're always going to work with our supplier base to ensure that we're walking in lockstep with any relief from pressure that they've seen from an input cost perspective. You know, a lot of what we've seen so far over the course of the last year plus has been driven by several factors, including, you know, raw materials costs, wage rates, pressures, obviously from freight that our suppliers have seen. You know, we're always going to work to be sure that we're realizing appropriate reductions in rolling back cost increases where we can. We're pretty cautious in building any expectation that that's going to be a significant helper for us as we move forward. Obviously, we'll see that play out. We do feel very confident that to whatever degree that we do see any relief on the cost side that the industry will be able to maintain those selling prices. That's certainly our intent, and we'll obviously see how that plays out as well. You know, some of these cost increases are probably around to stay. Got it. Then just one quick one, Jeremy, on the LIFO side. I mean, can you maybe give us some numbers in terms of how many basis points that was in the third quarter? I mean, we're around 120, and does that go down to really a de minimis amount in the fourth quarter? Yeah, Chris, I think the best way to look at that is just really kinda what we called out as positive good guys last year. We still have headwind in the fourth quarter. It softens up a little bit. You know, for us now, it's really more a function of as the cost environment moves around, you know, how quickly in sync can you be sure to adjust prices. Sometimes we're out ahead, other times we're just in line. But the more significant comparison headwinds for how we would've looked prior to when our LIFO credit flowed back will largely be behind us after fourth quarter, a little bit less than fourth quarter, and then first quarter of next year, a little bit less than that. Great. Thanks so much. Best of luck. Thanks, Chris. We have our next question from Bret Jordan with Jefferies. Hey, good morning, guys. Good morning, Bret. Morning, Bret. Question around fill rates, I guess, my usual. You know, are you guys back to where you'd like to be from an inventory standpoint versus pre-COVID? I guess, how do you see your fill rates versus the broader market? Are the WDs and some of the other competitors in this space relatively in stock as well, or is that still helping your market share? Yeah, Brent, do you wanna start that and then maybe Bret to talk about the competitive situation? Yeah, sure, Bret. Great question. Yeah, fill rates have improved sequentially from suppliers. We got some suppliers that are really back to healthy fill rates. We've got a few that still are making sequential improvements, but aren't fully back to where they were pre-COVID. You know, I give our supply chain team a lot of credit for the work with our suppliers to make sure we've got the parts available that our customers need, both DIY and professional. You know, we feel good with our availability position given the market backdrop that we're operating in. Yeah, sequentially, we're continuing to get better, but still a little work to do in some areas. Okay. Another question on- Yeah, Bret, can I add on? Okay. Go ahead, please. Hey, sorry, Bret. Just real quick, I'll just back up what Brent said, you know, maybe from the street and from the sales and store operations standpoint. You know, Brent hit it pretty good. We're basically pleased, especially in some categories that we needed to get better, we got better. We have a few that we still have some work to do, but really just from a, you know, competitive landscape, Bret, you know, we feel like our, you know, large competitors, you know, they're great competitors that, you know, we always say we have tremendous respect for. They've done a good job. We hope we've done as good or better, but we are feeling like there's some share gains maybe against some of the smaller players for sure. Okay, great. Thank you. A question on the supplier cost or pricing side. I mean, obviously the rates are hitting factoring expenses. Do you see a step up in pricing again to offset that or some of the other expenses like shipping that have come down gonna offset that? Yeah, I think, Bret, maybe to add a little to Jeremy's color around that on the previous question, you know, while we've seen, you know, costs certainly can't go up forever, and we are seeing some of that begin to normalize with suppliers and in the market. You know, if you think about wage inflation, it is pretty much baked into some of the cost of goods now. Yeah, we've seen ocean rates go down some, but we've seen rail rates come up. We've seen some domestic lanes come up. Trans is still, you know, highly elevated versus historicals and probably is gonna remain that way. To Jeremy's point earlier, we remain cautious there and we remain confident in our ability to be able to pass those increases on in the event we see any more of those. I guess specifically around rates, though, since most of the suppliers are saying they're gonna ask for pricing to offset the factoring expense, is that a near-term incremental inflation or do you not see that necessarily the case? Bret, there's the potential that it could work out that way. It's I think going to be determined a little bit by more broadly in the market where it hits. Those rates have more of a relative impact supplier to supplier than maybe some of the other things that go into the cost of providing the products that we buy, and some won't have the same pressure that others may have. I think competitively, you'll see some ability to push back on some of those and in other instances they will flow through. You know, we're obviously active in those conversations and we'll work. There'll probably be some equilibrium that gets struck at some point. In the grander scheme of things, I think it is a part of how we think about acquisition costs. Some of the other things that Brent identified are obviously the bigger drivers and we you know our views on that is that we do expect it to continue to stay around for a while. Great. Thank you. Thanks, Bret. Our next question is from Simeon Gutman with Morgan Stanley. Good morning, everyone. First topic is on pricing and inflation and maybe the outlook. Trying to think about how you're thinking about the cadence, we're about to lap some heavier price increases or inflation from a year ago. I think based on the prior answer, it seems like we're not gonna have any material step down in the rate of inflation. It feels like it's structural, and if it subsides, it doesn't feel like there will be a shock where we lose five points. Is that a fair way to think about it? I have a follow-up. Yes, Simeon, I think that's fair. You know, as we came into this year, just from a purely comparison standpoint, we had expected moderation really in third quarter and fourth quarter from that year-over-year benefit. As we moved through the year, we've had continued incremental cost increases. We've passed them through. It's, you know, as you know, it's benefited our top line. I think that's been pretty rational. Because of that, you know, we end up with more of a positive for that than we would have expected. We'll see, you know, where the rest of the year plays out. I think versus where we would have thought at the beginning of the year that year-over-year pressure won't be as significant in the fourth quarter. There's still some extent to where it's there. Moving forward, we'll see. You know, I think our caution is on an expectation that we're gonna see dramatic rollbacks that match some level of the volume or magnitude that we've seen since really the middle of 2021. We don't anticipate that. Hopefully we'll work to get some of the cost improvements moved down. But from a pricing to the street perspective, we would continue to expect that to be resilient, the market to be rational and for that not to change. Maybe the follow-up, thinking about gross margin, this is directionally obviously not in magnitude. It does feel like maybe some headwinds go away. I wouldn't jump to say they're tailwinds, and I wanted to hear the reaction to it. Greg Johnson mentioned. You know, some of the pricing may hold, industry's been rational, so that in theory should be a good guide to the margin if pricing holds and there are some cost pullbacks. You're lapping PPI, it doesn't become an incremental headwind. Then to whatever extent freight and even some raw material costs moderate, that could be favorable for you. Is it fair to say that some of the headwinds maybe go away? They may not flip to tailwinds per se, I think you're being, you know, hesitant to acknowledge that, but at least the removal of headwinds. Yeah, the one thing maybe I would caution on that, Simeon, is as you think about those being headwinds, we, you know, we've worked, I think, appropriately and aggressively to stay out in front of those pressures, as we pass along the pricing really since the middle of last year. You know, our approach has always been from a pricing perspective to highly scrutinize anything we see from our suppliers to make sure that, you know, we're making them provide the right justification for sending a cost increase through to us. Then often we've got some ability to hold off the impact of that, through the course of the negotiations that we've had and not see it for, you know, a month or two. You couple that with, you know, really during the tail end of last year, we also had some supply chain delays that pushed those costs back further. That's given us ample opportunity, we feel like, to be sure that, you know, by the time we really see the impact of that, we've already started to float those prices to the street. I think for us, they maybe have not created the same level of headwinds that, because of just our approach in doing that, you might otherwise expect. Yeah. Simeon, one other thing maybe to add on that topic. You know, as you think about growth in our proprietary brands and our offering across good, better, best in those brands, we're able to further diversify that supplier base than we are a national supplier base. That kind of speaks to some of the point Jeremy just made as well, if you think about it that way. Yep. Thanks, guys. Good luck. Thanks, Simeon. Thanks. Our next question is from Michael Lasser with UBS. Good morning. Thanks a lot for taking my question. One of the key debates on. Good morning, Michael. Morning. One of the key debates on O'Reilly and the auto parts retail sector more broadly is whether or not it can generate growth in 2023 in the absence of passing along all these price increases that have been the principal driver of growth up until now. A, do you think that there is elasticity within the category, whereas the pricing pressure abates, there will be elasticity of demand, so volumes will improve? B, even if the industry doesn't pick up and see elasticity next year, can O'Reilly's share continue to grow at what seemed like an accelerating rate in the third quarter, likely in response to delayed reaction to the pro-pricing initiative that you implemented earlier this year? Michael, it's Jeremy. Thanks. There are a lot of questions within that question. So just, you know, maybe want to take a little bit of a step back. You know, we haven't actually guided to 2023 yet, and we're in a unique situation where there continue to be cost impacts, cost inflation impacts, pricing inflation that are being passed through. I think what we would tell you is, you know, we'll see where that flattens out or what it does. I think for us, our expectation is if we see modest inflation or we see more elevated inflation, that we will continue to be able to effectively pass that through to our customers, and that becomes very rational and relatively inelastic. To whatever degree that we see that any relief from that type of pressure, you know, I don't know that we would say that we think it bounces back. For us, from a broader perspective, we think that the automotive aftermarket is just from an industry perspective in pretty good shape, and have an expectation that the prospects for our industry in general grow and for all the things that Greg talked about within his prepared comments, the vehicle fleet dynamics, the, you know, miles driven, I think, continue to recover and be positive. The, you know, the incredible value proposition for consumers to invest in their existing vehicles. Those things we all feel like will be a positive and where that shakes out, you know, for the pieces of what drives the comp, we think that that's helpful. We continue to think that we have the ability to grow our share. That's always been our approach and we will aggressively pursue that. Yeah, Michael, just to add to that, you know, we remain very bullish on both the industry as a whole, as I said in my prepared comments, and our ability to continue to take market share. I don't want anyone to think that our growth this year has been purely the result of inflation or price inflation. We feel very confident that we're taking market share on both sides of the business, and we'll continue to do so into 2023. Just to follow up on that one, Greg, you're not gonna quantify what you think the impact has been from the return on investment in the pro-pricing initiative, but could you qualify it to say that you think the impact was greater in the third quarter than it was in the second quarter? Is it reasonable, just given the lag that it might take for your commercial customers to recognize some of these pricing changes that the impact could grow in the fourth quarter and into the beginning of next year? Yeah, Michael, I'll generally answer your question and then kick it across to Brad. He's obviously living these professional pricing programs day in and day out and dealing with our competitors and out in the marketplace. You know, we said from the very beginning that it was gonna take time to gain traction, that this was not as easy as flipping a switch, and everybody realizes our pricing's better, and all of a sudden, miraculously, our sales grow. We knew it was gonna take time, and I think it did compound in the third quarter and will continue to grow over a reasonable period of time. At some point, it'll stabilize, but we do expect to see continued benefit from that. Brad, do you wanna talk to any specifics or anything you've seen? Yeah. Hey, Michael, Greg said it pretty well. You know, really what we saw in our testing, as we mentioned, I think both after we rolled it out in last quarter is we saw some immediate impact, but we also saw a delayed impact. To answer your question directly, as Greg did, yes, we do feel like there's a building effect for sure. You know, kind of what we see, Michael, just maybe at the street level is if you have a really big repair shop in a particular market that has bought from an independent maybe on the traditional side of the business for a couple decades, and maybe we're second or third or fourth call even, just because we lower our price to be a lot more competitive with that two-step independent competitor, that doesn't mean that they just start buying from us, you know, the day after we call on them. It means that what may happen if we combine our pricing with the best team in town, the best service, the best availability and sense of urgency and everything that goes along with the relationship, then what happens is we may just move up the call list. We may move from fourth to third or third to second, and then it could be, you know, a month later, it could be six months later, it could be a year later. If one of our independent competitors, for example, drops the ball, that could be the time that, you know, we moved us from second to first. There's some immediate impact, but there's also that building effect. Awesome. Thank you so much. Thanks, Michael. Thanks, Michael. Thanks, Michael. Our next question comes from Scot Ciccarelli with Truist Securities. Thanks, guys. I guess I have a follow-up on, you know, Michael's question. You know, basically, it sounds like there's a, let's call it almost a new store maturity curve that occurs with these pricing changes. You know, is that fair? I mean, a typical store is gonna kinda, you know, mature that pro business over what, a five, six kinda year timeframe. Like, are we talking about that kind of, you know, waterfall, or is it something, you know, presumably much shorter than that? Yeah, Scot, I think that's a hard comparison to draw. The dynamics are just different. It's definitely a ramp, but I think the best way to guide you on that from our perspective is those are harder to gain, so they're incremental improvements that build over time. They're, you know, they're not huge level steps up. So to Brad's point, you know, we think that will continue to get a little bit better as we move through that. Then at some point, I think we'll have realized the benefit of it. To try to you know make the same analogy I think is a little bit tough. Yeah, Scot, I wanna add to that. You know, let's keep in mind that pricing's only one component of market share growth, and it's a smaller component than execution of service level inventory availability, and we continue to focus on those items as well, you know, to ensure market share growth. It's a lot more than just the pricing piece. As you guys have gained share with some of those customers that maybe you weren't doing business with or as much business with, are there any other changes outside of the pricing initiative that, you know, we're all familiar with that you guys started to make where, you know, maybe there was a reluctance on, you know, O'Reilly's, you know, kind of game plan for, you know, one piece or another? No, Scot, I don't know that we've pointed out any real fundamental differences to what we do. Brad talked about it earlier. The key to success, and it was in our prepared comments, the key to success on the professional side of our business are helping our customer partners run a more profitable business. The things that we do to be sure that we're the best partner with our customers are the same things we've talked about for a long time. I think for us, you know, continuing to push inventory availability, the investments that Brad talked about in his script in terms of the stores we've added this year, continued improvements to supply chain, I think those have helped us reap some of the benefit too. This is a blocking and tackling business. Yeah, Scot, the only thing I might add to that is, you know, we've been able to get back to a lot of our in-person relationship type things with supplier customers. Our training programs are back fully in place. Some of the things that we haven't been able to do because of the pandemic, we're back to doing day in and day out, and that's probably helped from a relationship and strengthening perspective. Yeah, Scot, this is Brad. I just wanna real quick add nothing new. Jeremy said it best, blocking and tackling. You know, we work in a simple business. It's not easy, but it's simple. You know, really, you know, we had our regional managers from the field into Springfield last month, and you know, our focus was on our fundamental execution. That didn't start in that meeting, but really all year, our battle cry from our EVP of stores, Doug Bragg, has been, you know, we're gonna get out of the COVID funk and not accept where we may have high turnover in stores, high team member turnover, high store manager turnover. That's just not acceptable with the way we built our business, getting out, seeing more customers, not having that excuse that unfortunately we made for ourselves the last couple years, that we're just getting back to the execution that built our company and making sure that we don't have that hangover from COVID in everything we do. Understood. Thanks, guys. Thanks, Scot. We have reached our allotted time for questions. I will now turn the call back over to Greg Johnson for closing remarks. Thank you, Vanessa. We'd like to conclude our call today by thanking the entire O'Reilly team for your continued hard work in the third quarter. I'd like to thank everyone for joining our call today, and we look forward to reporting our fourth quarter and full year results in February. Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.