Gross Margin Outlook
Q: What is the outlook for gross margin improvement?
A: Management expects to continue driving gross margin improvements through strong merchandising and supplier negotiations. While there's a slight early drag from adding a couple of distribution centers, they believe merchandising margin improvements will power growth moving forward. They are closely watching industry pricing and anticipate that as inflation returns, they can push retails harder. They remain disciplined and have a positive outlook for FY '25. -

Earnings Growth Algorithm
Q: Can you return to double-digit EPS growth soon?
A: Management maintains that the long-term algorithm of consistent, steady growth and margin expansion remains unchanged. Near-term factors like FX headwinds and LIFO may impact quarterly results, but they believe growth initiatives and macro improvements will accelerate the top line, key to achieving the algorithm. They feel good about business fundamentals but acknowledge that in the current environment, it's tough to achieve double-digit EPS growth quarter-over-quarter. Long term, they expect to return to it. -

FX Impact and LIFO Credits
Q: How will FX and LIFO affect EBIT growth?
A: Management highlighted about $40 million of LIFO credits this year, becoming headwinds next year. Depending on inflation, about half might be offset. On FX, they are transparent about current spot rates and potential P&L impacts but are not predicting where FX will land. With significant international profitability, FX swings can impact results, but they will update as the year progresses. -

Commercial Sales Growth and Hubs
Q: When will commercial sales accelerate?
A: Management anticipates sequential improvement in commercial sales, viewing it as a progressive build due to the pressured consumer impacting both DIY and commercial segments. They are enhancing store assortments, opening more Hubs and Mega-Hubs to bring inventory closer to customers, and streamlining customer service to improve speed on hard-to-find parts. They are confident in their strategies and expect continuous growth. - - -

Impact of Consumer Behavior
Q: How are DIY and commercial markets performing?
A: The DIY market is down low single digits, mainly due to pressure on discretionary categories like accessories and performance parts, and slower ticket growth amid lower retail inflation. Improvement is expected when the pressured consumer gains economic relief and confidence improves. In the commercial market, which has been flat to slightly declining, they have accelerated sales growth and are excited about initiatives like more Hubs and Mega-Hubs to enhance growth. -

Pricing Dynamics and Ticket Average
Q: Is competitive pricing affecting ticket averages?
A: Management hasn't seen radical changes due to competitors investing in price. They monitor pricing closely and focus on wholesale distributors in their strategies, seeing no material changes. The lack of average ticket growth is attributed to cost factors rather than competitive pricing. As costs increase, they will pass them to consumers, resulting in retail average ticket inflation. -

Investments in SG&A
Q: How will SG&A growth be managed in 2025?
A: Management will continue to invest in a disciplined way to support growth initiatives, including store payroll and IT to improve customer and employee experience. They are responsible in managing SG&A, ensuring efficiency, especially in a softer sales environment. They balance investment in growth while being disciplined when the top line is softer. -

Car Park Dynamics
Q: Is there an air pocket in car park growth?
A: Management doesn't anticipate an air pocket or headwind from cars coming off warranty or lower new car sales during the pandemic. Cars are lasting longer, with the average vehicle age increasing to 12.6 years, and expected to rise further. Fewer cars are being scrapped, and technological improvements mean cars stay on the road longer. They view this as a positive tailwind for the business. -

Inflation Returning
Q: When will inflation return and what are the drivers?
A: Historically, the industry has seen 3% to 5% inflation in average ticket and 1% to 3% decline in transactions, driven by parts inflation and technology enhancements. Over the last year, product costs haven't increased much due to hyperinflation during the pandemic. They expect inflation to return in 2025 and revert to normal trends. If tariffs occur, they will pass those costs to consumers, leading to price increases and potential gross margin improvement. -

Q1 and FY '25 Outlook
Q: What is the outlook for Q1 and store growth?
A: Management expects Q1 to be similar to the last quarter, with the consumer under the same pressure. They anticipate modest improvement but don't see catalysts for significant change until possibly after the December timeframe. They plan to open 20-plus Mega-Hubs in FY '25, with the majority opening in the latter part of the year. Store growth will reaccelerate but is back-end loaded due to timing. -