Commercial Sales Challenges
Q: How are current trends in the commercial business affecting sales?
A: The commercial business has been choppy due to wet and cooler spring weather affecting hot weather categories like AC chemicals and batteries. The last four weeks were more challenging, and we didn't see expected performance in those categories. -

Inflation Impact on Pricing
Q: What is the outlook for inflation and its impact on pricing?
A: We're moving away from prior years of hyperinflation; average unit retail same-SKU inflation is returning to normal growth levels. We expect inflation numbers to normalize over time, especially in the later quarters of the calendar year. -

Gross Margin Improvement
Q: Can you discuss gross margin trends and vendor negotiations?
A: Our gross margins have improved due to easing supply chain issues and inflationary pressures. We're negotiating for deflation with vendors as freight costs decrease. We're in early innings but in a much better position than a year ago. -

Mega-Hub Expansion Plans
Q: What are the plans for Mega-Hub openings and their impact?
A: We plan to have over 200 Mega-Hubs at full build-out. Last year we opened 20, fewer this year, but the pipeline is strong. Openings will accelerate in FY '25 and beyond. Mega-Hubs have been great assets, performing better than normal stores, aiding both commercial and DIY markets. - -

Pricing Strategy Discipline
Q: Will you consider price investments to boost sales if trends remain sluggish?
A: We've been very disciplined on pricing and like where we are today. We don't see a need to adjust pricing to accelerate sales growth. The industry's demand is relatively inelastic, and we believe our current pricing strategies are appropriate on both DIY and commercial sides. -

Consumer Pressure on Big-Ticket Items
Q: Are you seeing pressure on lower-income consumers affecting shopping patterns?
A: Big-ticket items have been challenging across retail, including for us. While necessary repairs must be purchased, discretionary categories have been under pressure. Maintenance items may increase as consumers aim to take care of their cars to save money in the long run. -

Store Growth Acceleration
Q: Will there be an acceleration in store openings domestically and internationally?
A: Yes, we're planning to significantly expand store growth. Domestically, we aim to accelerate beyond the historical 150 stores per year. Internationally, we're pleased with growth in Mexico and prospects in Brazil, and we plan to go faster there as well. -

Initiatives to Accelerate Sales
Q: What can you do to improve sales trends?
A: We're doubling down on customer service and execution. Investing in hard parts coverage, Hubs, and Mega-Hubs drives sales. On the commercial side, we're enhancing service with better and faster delivery, leveraging technology, and expanding assortments. - -

Inflation Trends Muted
Q: How is current inflation affecting ticket growth?
A: Inflation is significantly lower than last year, leading to muted ticket growth. We expect inflation to normalize over time, but currently it's running lower than historically. We're staying disciplined in pricing where inflation exists. - - -

Weather Impact on Sales Outlook
Q: How has weather affected sales, and what is the outlook?
A: Challenging weather, including wet and cooler conditions, has impacted sales in hot weather categories. We expect the summer to heat up, improving category mix and boosting sales as we move forward. Better weather should help improve sales. - -

Comparisons to 2017 Aftermarket Trends
Q: How does this year's aftermarket compare to 2017's challenges?
A: We've had soft winter weather patterns for the last two years, affecting part failures and sales in certain categories. Without prior inflation benefits, it's undetermined how sales will trend, but we expect a better category mix in the summer. -

Gross Margin Outlook Amid LIFO Charges
Q: Can you offset LIFO headwinds affecting gross margin next quarter?
A: We've improved gross margins through merchandising and supply chain efforts, but such high improvements may not continue. We believe we'll have potential to offset most of the LIFO pressure, but margin gains may be muted as inflation benefits wane. -

Improving Trends in Tire Centers and Dealers
Q: Are trends improving with tire centers and other customer segments?
A: The tire segment remains under pressure, although the downward trend has flattened a bit. Buy here, pay here lots and used car centers have also been challenged due to slower used car sales and economic pressures on consumers, especially for big-ticket items like new tires. -

FY '25 Sales Sequencing
Q: Will fiscal '25 sales be second-half weighted due to various factors?
A: While we don't give guidance, we're excited about the upcoming summer improving sales through better merchandise categories and mix. Our commercial initiatives are maturing, but turnaround will take time; it's not going to be a hockey stick that turns around in six weeks. - -

Speed Initiative Rollout
Q: Can you discuss the pace of the speed initiative rollout?
A: We've been working on it for about a year and a half, seeing positive results earlier this year. We're probably in the middle innings of rolling it out to stores and will continue adding incremental stores. We believe better customer service and faster delivery will help gain new customers and grow share of wallet. - -

Mega-Hub Opening Challenges
Q: Is slower Mega-Hub opening due to structural issues or execution?
A: Mega-Hubs are large boxes in hard-to-find locations. While challenging, we've worked through issues and expect openings to accelerate into FY '25. We know where we want to be and are working to get there despite the time it takes. - -

Consumer Trading Down in Commercial
Q: Are commercial customers trading down due to economic pressures?
A: It's tough to determine customer migration in commercial. Segments like tires and used car dealers are challenged. Customers may be moving down the cost curve, but it's hard to understand precisely on the commercial side. - -

Potential to Accelerate Sales in Near Term
Q: Are there building blocks to strengthen the business in the near term?
A: Comparisons get easier in the fourth quarter. We're focused on jamming more parts into local markets, improving service and delivery speed, and leveraging our growth initiatives. Despite macro challenges and pressure on big-ticket items, we're underpenetrated and have opportunities to accelerate growth. - -

Underlying Gross Margin Potential
Q: How much room do you have to improve gross margin amid uncertainties?
A: We've improved gross margins significantly through merchandising and supply chain efforts, but such high improvements may not continue. We believe we can offset most of the LIFO pressures, but margin gains may be muted as inflation benefits wane. -

Inflation Details in Commercial Sector
Q: Can you elaborate on inflation trends in the commercial sector?
A: Ticket growth is lower than historically due to lower inflation. We don't have the inflation tailwind now. Inflation is significantly lower than a year ago and lower than historical levels. The industry remains disciplined in pricing, passing through inflation when it exists. -

Discipline in Pricing Despite Low Inflation
Q: You expect inflation to normalize, but right now it's muted?
A: Yes, currently inflation is pretty muted. We're disciplined in pricing dynamically where we see inflation. We believe inflation will return over time, but it's currently lower than historical norms. -

Sales Gap Between DIY and Commercial
Q: Is the commercial end customer slowing more than DIY due to trading down?
A: It's hard to assess, but commercial segments like tires and used car dealers are challenged. Customers might be trading down or moving along the cost curve, but it's difficult to pinpoint in the commercial side. -

Addressing Sales Slowdown
Q: Is there anything else you can do to accelerate sales trends?
A: We're enhancing customer service, execution, and investing in key areas like hard parts coverage and Mega-Hubs. On the commercial side, we're improving delivery speed and leveraging technology. We don't see the need to adjust pricing to boost sales. -

Store Capacity and Demand Weakness
Q: Is demand weakness due to your current store base's volume?
A: We continue to optimize our store footprint and augment with Hubs and Mega-Hubs to bring more parts closer to customers. This strategy supports growth in both DIY and commercial. The current store capacity isn't causing demand weakness; we're focusing on expanding availability and accessibility. -