Welcome to the Advance Auto Parts Fourth Quarter 2016 Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today's call. This conference is being recorded. If you have any objections, you may disconnect at this time. Before we begin, Zaheed Mawani of Investor Relations will make a brief statement concerning forward-looking statements that will be made on this call.

Good morning, and thank you for joining us on today's call to discuss our fourth quarter results. I'm joined this morning by Tom Greco, our President and CEO; Tom Okray, our Chief Financial Officer; and Bob Cushing, our Executive Vice President for Professional. Tom Greco and Tom Okray will open the call with prepared remarks regarding the quarter, and Bob will join them to answer questions for the Q&A portion of the call. Before we begin I'd like to remind you that our comments today contain forward-looking statements 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. Forward-looking statements address future events, developments or results and are subject to risks, uncertainties, and assumptions that may cause our results to differ materially. Our comments today will also include certain non-GAAP measures including certain financial measures reported on an adjusted basis to exclude the impact of cost in connection with the integration of General Parts International and the recurring amortization of General Parts' intangible assets. Please refer to our earnings press release and accompanying financial statements issued today for important information and additional detail regarding these forward-looking statements and the reconciliation of the non-GAAP measures referenced in today's call. The company intends these forward-looking statements to speak only as of the time of this conference call, and does not undertake to update or revise them as more information becomes available. Now let me turn the call over to Tom Greco. Tom.

Thanks, Zaheed. Good morning, everyone, and welcome to our fourth quarter conference call. I'd like to begin by acknowledging all of our team members and independent owners across the broader AAP family as our initiatives to improve top line performance drove meaningful progress in Q4. As we closed out our fiscal year we accelerated growth, building momentum from the previous quarter, and delivering comp sales growth of 3.1%; our strongest quarterly comp performance in the 12 quarters post the GPI acquisition. We're taking decisive actions to improve performance and better serve our customers, and I'm confident we're on the right track. Before I review the drivers of our comp sales acceleration, it's important to note that our Q4 sales performance benefited from the year-over-year holiday shift as New Year's Day moved from Q4 in the previous year to Q1 of this year. We also had a very strong finish to the quarter as a result of exceptional winter-related demand in December. These factors had a positive impact on the end of year performance in Q4 and will have a negative impact on the beginning of the year performance in Q1 of this year. Net, it will be important to look at our business across Q4 and Q1 combined to get a true picture of our sales growth improvement. Regardless, we're very pleased with our improving comp sales performance, specifically the acceleration of sales growth we've achieved over the past two quarters is attributable to three primary areas of focus. First, we've been very clear up and down the organization that everyone's number one priority is caring for the customer which drives top line sales growth. Across all of our businesses, we're seeing adoption of this mindset. Second, we're driving positive results from sustained investments in availability, customer service, and frontline…

Thanks, Tom, and good morning, everyone. Total sales for the fourth quarter increased 2.4% to $2.08 billion as compared with total sales during the fourth quarter of fiscal 2015. The sales increase was driven by comparable store sales growth of 3.1%, inclusive of a positive impact of the year-over-year timing of the holiday shift. As Tom referred to earlier, our gross profit rate decline of 114 basis points was primarily driven by headwinds associated with reducing inventory levels and our productivity agenda that is still gaining traction. As planned, our adjusted SG&A rate increased 58 bps year-over-year, driven by continued investments in customer service initiatives related to store labor, frontline incentive compensation and improvements in availability. All in, our fourth quarter adjusted operating income came in at $125.6 million. Adjusted operating margin decreased 172 basis points over the same period last year to 6%. As Tom referred to earlier, approximately 1/3 of the adjusted operating margin decrease was related to reducing our inventory levels. Approximately another 1/3 of the adjusted operating margin decrease was driven by our investments to better serve our customers. Finally, just less than 1/3 of the adjusted operating margin decrease was related to performance shortfalls in a few concentrated cost lines. These included items that will not be part of our long-term cost structure. As Tom indicated, we have tremendous visibility on cost performance opportunities and great confidence we will address these shortfalls as we ramp up our productivity pipeline. Free cash flow for fiscal 2016 was $241.3 million versus $454.9 million last year, primarily driven by the combination of increased (21:45) inventory versus the previous year and lower sales. Now, turning our attention to the full year outlook for 2017. We expect to deliver comparable store sales in the range of 0% to 2% and…

We will now begin the question-and-answer session. Our first question comes from Simeon Gutman of Morgan Stanley. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Thanks. Good morning. On the – I thought – on the Q3 or the call or the meet-and-greet, we talked about gross margin being weighed down similarly by some of the inventory capitalization costs. But I thought the commentary was that Q4 should not be as bad as – Q4 shouldn't be as bad as Q3. So, is that right? And what changed for Q4?

Well, first of all, we definitely signaled that it was going to continue to be a drag, Simeon, in the fourth quarter. On the gross margin side, we really look at the total picture, right? We're looking at our operating margin broadly. And with regards to that, as we said in our prepared remarks, over 2/3 of the overall margin contraction was a function of some deliberate choices we made; first of all, to reduce inventory; and, secondly, to invest in our customers. So, we're really managing the business for the long-term. On the balance of the shortfall in our overall margin, we're disappointed but not surprised by the fact that we had some cost performance shortfalls. We've got a new muscle to build here on productivity, and we've got to figure out a way to reduce costs thoughtfully over time. So, the net of it is we significantly increased the visibility of these costs in the organization, and we have a plan to fix the performance of the cost. We've provided very clear, relevant metrics to measure performance. We've dramatically increased visibility throughout the organization. So, I can tell you that the muscle to drive cost out of the organization is being developed. It really hasn't been part of our DNA in the past, and it's going to take some time. So, the new team is running the business very differently than before. The zero-based budgeting process is helping us build a very disciplined productivity pipeline, where we're going to really change the work and permanently remove those costs. So, I have tremendous confidence that we're going to balance the top and bottom line over time, including the gross margin. It's actually the most straightforward aspect of our strategic agenda. Simeon Ari Gutman - Morgan Stanley & Co. LLC: So, as my follow-up, I'll just make it two parts. So, following up to that answer, does that mean – does this capitalization expense now roll off? Are we through it and, therefore, we should see that improve, meaning the gross margin rate improve from the global act of that (26:58) headwind? And then, second part of the follow-up. If you take the 15 basis points to 35 basis points of margin expansion in next year's guidance, is that purely a function of the leverage from the comp ranging 0% to 2% or is there anything contemplated in the timing of – as you get some of these SGA savings, if that goes better, is that in that guidance range as well?

Yeah. Simeon, let me take that one. With respect to the capitalization and supply chain cost, that's going to continue as we right-size and optimize our inventory. Quite frankly, it's the right thing to do for the shareholders, it's the right thing to do for the company and we're going to make that decision every day of the week. So, it's going to be lumpy over time, but that's something that we need to do as we're building this transformation for the long haul. There's tremendous amount of cash flow opportunity by getting our AP ratio in line, definitely underperforming our peers not where we want to be. With respect to the guidance, I think it's going to be both of the things that you said. One is it's going to be the top line growth of the 0% to 2%. And as we build this productivity muscle that Tom described, we expect to also see benefits from not only SGA, but also the gross profit line. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Okay. Thanks.

Our next question comes from Michael Lasser of UBS.

Good morning. Thanks a lot for taking my questions. I guess, what the market wants to see over the long run is that you can generate sales, gross margin expansion, SG&A leverage consistently on a quarter-to-quarter basis. Have you seen anything in the business that would prevent you from doing that over time? And how long do you think it's going to take for you to get to be able to be sustainably producing that algorithm?

Well, thanks, Michael. First of all, we really are excited about the performance in the fourth quarter on the comp sales. That was the most difficult piece that we had to tackle, was to improve our comp sales performance and start to regain share momentum with our customers. This is a turnaround situation, and we're building new muscles throughout the organization. We've got to build a cohesive strategy that we stick to. We've got to elevate the operating intensity across the organization to drive better execution and to improve cost management. Both of those are extremely important. So, we're building those muscles as we go. Part of that is to get some talent into the organization that can help us with that to build new capabilities. And what you do first, second and third is really important in this type of situation. So, we've made some conscious choices along the way. But to answer your question directly, I don't see anything getting in the way of what we shared with you in November. We're building momentum on the top line. We see tremendous opportunities to take cost out of the organization. Tom has come in, Tom Okray, and really helped us with thinking through the productivity agenda. We sequenced it over the five years. We're very confident we can take the costs out over time. It's just a matter of sequencing them in the right order.

And my follow-up question is that you gave a lot of moving pieces around the margin during the quarter. You mentioned that 2/3 of the margin decline was due to inventory disposition and incentive comp increases. Another 1/3 was due to the early stages of the turnaround. Are those distinct factors, so that accounts for 100% of the margin decline? And maybe another way to say it, would you have levered your 3.1% comp had it not been for those factors?

Well, as I mentioned in the prepared remarks, we're not satisfied with the operating leverage by any stretch of the imagination. If you deconstruct it, as I – as you just articulated, about 2/3 of it was very planful and thoughtful. We entered the quarter knowing exactly what was going to happen in terms of inventory, knowing exactly what was going to happen in terms of the investments in the customer. And the investments in the customer are obviously pretty broad ranging. We're investing in parts availability. We're investing in our employees. We're investing in delivery. So, all of those things are factors that drove the lion's share of the operating margin contraction. The other 1/3 is just this building out this muscle on costs. I mean, we don't have structural impediments to taking costs out of the organization. We just lack overall leadership to really take on these cost issues. We lack the visibility that would normally be in a company that's performing at a really high level, and we lack the action plans that we needed to drive the costs out. I feel very confident that we can address those cost shortfalls that we had in the fourth quarter. It's concentrated in a few areas. It wasn't a huge surprise to us because we're still building out those muscles, but they're not structural and they're just process-driven, basic things that we can tackle over the course of the strategic plan.

Thank you, and good luck.

Thank you.

Our next question comes from Steve Forbes of Guggenheim.

It's actually John Heinbockel on for Steve. So, Tom, two things. One, if you think about permanently changing work, where do you think the biggest opportunities are? Is it store level? Is it regional level? And what type of tasks would have the greatest potential?

It's really pretty broad-ranging. I mean, we're looking at – from a process flow standpoint, I think, in November, we shared the six major cost buckets that we're looking at, how we distribute throughout our distribution center network from DC to store, how we're operating inside of the stores, how we're distributing parts from our stores to our customers. All of those cost lines are integrated. And so, we're looking at how we can build a much more meaningful and impactful way to effectively and more efficiently deliver parts to our customers. So, we're looking at the processes holistically, and we're looking inside the four walls as well. So, inside of a distribution center, how many times are we touching parts, how many deliveries are we making from a store to customers throughout the week, what's the average size of those deliveries. I mean, there's a number of things that we're working on that are going to address both the holistic approach in terms of our total value chain to the customer and inside each cost area, such as a store, to try and drive costs out. So, we're looking at it very broadly, and we've got very clear plans. We've sequenced our productivity agenda for 2017 across each period, so we know how the year is going to unfold and we also have a pretty clear idea of how the $500-million-plus that we're going to be removing over the strategic plan horizon is going to unfold. We've got that pretty well – I think about 80% mapped out at this stage. So, it's pretty comprehensive. We are leveraging zero-based budgeting, which is a very effective tool, and it's really revealed some of the big opportunities that we have inside the company.

All right. Then, as a follow-up, I know you've done some consolidation in the field level organizational structure. If you look at it today, are you generally satisfied with where the structure is right now? Or do you anticipate some further changes as we look out over the next year, two, three?

Yeah. I mean, obviously, we're not going to talk about specific changes we're complementing – or contemplating inside of the organization. But everything is on the table, okay? We're looking at every aspect of our business as we consider how to work more effectively and efficiently with our organization and with our customers. So, you can draw your own conclusions from that.

Okay. Thank you.

Our next question comes from Seth Sigman of Credit Suisse. Seth I. Sigman - Credit Suisse Securities (USA) LLC: Thanks. Good morning. Obviously, a lot of good progress in the quarter. And, Tom, you mentioned a number of focus areas that seemed to be helping. As you sort of isolate the core drivers of the improvement across various markets and channels, how would you rank those sources of improvement between the external environment that seemed to get a little bit better late in the quarter in December, as you mentioned, versus some of those specific focus areas?

Yeah. I want to reiterate. We clearly benefited from the holiday shift and the increased winter-related demand in December. We're going to give some of that back in January and in Q1, which I think you've heard from some others. That said, we're very excited about our progress. I think the organization is really rallying around a care for the customer-first message and that, I think, has been a big driver. I think we're getting an extra level of discretionary effort from our own team members and from our independent operators out there in the marketplace. And the heightened focus on the customer is driving improved execution, and it's contributing meaningfully to the top line. So, as I think I've said before, we focused the entire field organization on input metrics we hadn't been as focused on, important input metrics like fill rate, like order-to-delivery time. Our turnover is down dramatically. I think that's been a big factor. We're delivering the part faster to the customer. So, I think we are creating somewhat of a virtuous circle here. As we improve our service, we're getting more traction with our customers. So, we're going to continue to be absolutely relentless in ensuring we delight the customer. And when we do, we're confident that we'll grow faster. Seth I. Sigman - Credit Suisse Securities (USA) LLC: And then, just given the calendar dynamics you mentioned with Q4 and Q1, in light of that, well, does that imply that Q1 would fall below the 0% to 2% comp range? And I'm just wondering if there's any other considerations as you think about the cadence for comps throughout the year.

Yeah. I don't – I'm not going to comment specifically on Q1, but I think it will be important given the dynamics I just mentioned to look at performance over 28 weeks to include Q4 and Q1, just by virtue of what happened at the end of the year. We're not managing this business quarter-to-quarter. We're building a very long-term approach to the business. We're focused on what we control. We're focused on doing what needs to be done today to ensure maximum value creation for the long-term. Having said that, these kind of short-term, macroeconomic, winter-related shifts that can move volume around from week-to-week and quarter-to-quarter, those aren't things that we're tremendously focused on. We're focused on the long-term. Seth I. Sigman - Credit Suisse Securities (USA) LLC: Okay. Great. And then, just one quick follow-up. You gave us your long-term productivity improvement target. It sounds like a lot of the planning is done. Just curious, are you able to give us a sense of how much you're targeting for 2017 and what's built into that margin guidance?

Yeah. Obviously, we gave you $500 million over five years. Just do the math. I mean, we would expect to get at least $100 million into this year, and we're setting our goal higher than that, I can tell you that. So, we're really focused on building this thing out in a way that's sustainable. And as was asked earlier, that involves changing the work fundamentally, which is honestly harder than just, hey, let's just cut a bunch of things, let's cut travel or whatever the case may be. We're building out a productivity muscle that just didn't exist here, and I couldn't be more excited about it. Seth I. Sigman - Credit Suisse Securities (USA) LLC: Okay. Great. Congrats on the progress.

Our next question comes from Chris Horvers of JPMorgan.

Thanks, and good morning. A couple of margin follow-up questions. So, first, on the capitalized inventory costs, I mean, essentially (40:06) understanding that you'll drive working capital through AP to inventory, but do we just have to get to a point where the inventory growth is less than the sales growth and that capitalized inventory pressure should go away? And how should you think – how should we think about that occurring during the year?

Yeah. Chris, how you should think about that is once we stop reducing inventory versus the prior period then we will no longer have this hit to margin. We're not going to get into specifics about how that's going to play out during the year. Just understand that a priority for us is optimizing our inventory, getting our inventory right-sized because it's just so key in taking care of our customer and getting the right part to them in the right time. But obviously, this will not be part of our long-term cost structure going forward.

Understood. And then, on the SGA front, so a couple of things there. Tom, you mentioned at least $100 million this year of cost. As you think about the discrete items in the fourth quarter that you're attacking, do those turn quickly such that you could see an impact to those line items in the first quarter, or does that build out over the year? And then, just broadly, in that $100 million, does it take time to build that muscle out, such that that $100 million sort of – it grows at an increasing rate over the year?

Well, we certainly have a plan to layer productivity on top of productivity. That is the plan. And as I said earlier, Chris, I mean we're trying to make sure that this is sustainable. So, to do that, you do have to make changes in fundamental work processes and design it. You've got to manage change. You've got to move it through the year. And it's not just in SG&A. We're doing that throughout each of our cost lines. So, I think you should expect to see it unfold and build momentum as we drive this thing out. That's what I've experienced in the past. Productivity, when it's – when the muscle is lacking, as I mentioned earlier, it has to be built up. The visibility has to be high. You've got to put experts in charge of very specific cost line items inside the organization that can drive best practices that can increase the visibility and really put the kind of action plans in place that are going to take it out permanently, and we've just begun to do that starting at the end of the year, beginning of this year, so you can draw your own conclusions from there.

And then, just on the fourth quarter items, were they – I guess, were those – can you attack those quickly? Would you consider those discrete to the fourth quarter, or does that require some muscle build-out?

A little bit of both, to be honest. I think, in some cases, we need to build a new muscle that just doesn't exist today. In other cases, we should be able to attack them fairly quickly. And honestly, part of it was just straight, nonrecurring. But we're not happy with it. We've got to address it quickly, and we're going to attack these costs with a tremendous amount of intensity, and I'm pretty excited about being able to get those out so we can invest in the customer, which is where we want to make our investment choices.

Understood. Best of luck, guys. Thanks.

Thanks.

Our next question comes from Ben Bienvenu of Stephens, Inc.

Thanks. Good morning. I'm curious. On some of the frontline improvements that you've made, how far along are you in implementing performance-based compensation? And then, ultimately, what balance of fixed versus variable compensation do you expect to roll out? And then, the turnover trend shift that you mentioned says a lot, but I'm curious if you can provide some additional color on what you're hearing from customer-facing employees in response to those changes you're making.

Okay. Well, a lot there, Ben. I'll try to be concise. I mean, I think, in terms of the performance-based elements of the compensation, we did introduce more performance-based elements into the compensation last year and we had tremendous response from our team members. They like to be measured on how well they're doing versus their peers versus their goal, and that's something that was lacking, to be honest. So, I feel really good about that. The fixed versus variable, obviously, when you move to – more to performance, you're moving more towards variable. We're going to continue to look at ways to do that. We're doing that throughout the organization, not just in our frontline team members. We're doing it in our executive population as well. And the turnover numbers that we've seen in the field have dropped dramatically. We're talking about significant reduction in turnover. And when you're out there with the stores, they're excited. Their CPPs, their commercial account managers, their general managers are really, really excited about the future of the company, and they're much more engaged in the key things that we're trying to drive through the organization. So, the frontline of our organization, the independent operators that sweat blood in every single day to drive our business are just central to the success of this business and they are the key lynchpin in the turnaround effort. And getting that moving in the right direction was the critical priority for me, and we're going to continue to stay focused on it.

That's great. Thanks. And then, Tom, in an answer to an earlier question, you had alluded to improving share momentum. Can you comment – is your sales improvement a function of slowing share loss or winning share? And if it's winning share, where do you think that share is coming from? Is it bigger share of wallet with existing customers, new business? And then, to the extent you can tell, are you winning from independents or larger competitors?

Yeah. Obviously, difficult for us to say there, Ben, with this industry where you don't have the kind of market share visibility that I'm accustomed to. So, you're sort of reduced to a fairly limited number of sources including when other people report their sales, which is probably the simplest way to look at it. But we do know that we're making a lot of progress on both sides of our business. Sequentially, we improved comparably, DIY and professional. We know how many customers we're selling to every week. We know what our average sale per customer is on the professional side and we know the parallel metrics on DIY, and we are seeing progress on pretty much every one of those metrics. So, in terms of geographic performance, it's much more difficult for us to measure that but we improved in every geography in the country. And as I said on the prepared remarks, we had a bigger surge in the North East and the Upper Midwest, and part of that I think was related to the winter demand that we've talked about. But overall, we look very closely at each region of the country every single week and we measure their performance against defined metrics on each of the items that I just mentioned.

Great. Congratulations on the progress, and best of luck.

Our next question comes from Dan Wewer of Raymond James. Dan R. Wewer - Raymond James & Associates, Inc.: Thanks. Tom, in light of where the fiscal year 2016 EBIT margin finished, can you help recalibrate your five-year target? Are we still thinking 500 basis points on top of the 9.4%?

That's correct. Dan R. Wewer - Raymond James & Associates, Inc.: And one reason I'm asking that is, it's just a modest improvement. In FY 2017, that implies about 150 basis point (48:37) and 120 basis point annual increase for the following four years, which looks a bit aggressive.

Yeah. I'll give this to Tom.

Yeah. Well, let me comment on that. I mean, first of all, I haven't said this yet on the call. While we're happy with the progress we made on the top line, from my perspective, the bottom line is totally unacceptable to us and not where we want to be. With respect to the aggressiveness, when I was on the last earnings call, I'd been in position a couple of weeks. I can tell you that, since I've been here 100 days or so, there's even more opportunity than I had imagined before I started as well as in those first two weeks of time. There is just a tremendous opportunity for productivity and changing the culture here. The important thing – I've got the privilege of working with a great CEO and a great board that doesn't want to do this short-term, wants to do it thoughtfully, understands that we cannot hurt the customer by doing this. So, long story short, I don't think it's aggressive at all. If anything, I am very bullish on our productivity agenda. It's just going to take a while to build the muscle, to go in the depth that we need to go in, to get the right level of focus, to get the right bandwidth and leadership. And I am extremely confident that we will be putting big points on the board. Dan R. Wewer - Raymond James & Associates, Inc.: So, you're not backing off of the 500 basis point increase?

Oh, it hasn't crossed my mind once. Dan R. Wewer - Raymond James & Associates, Inc.: And then, just kind of related to that, Advance does own a few businesses that have inherently lower EBIT rates think about a WORLDPAC, vast capital term but (50:32) lower operating margin rate. So, when you set forth that goal of a 14% to 15% EBIT rate, you were including the impact of those lower EBIT businesses that you own. Is that correct?

Yes, absolutely. And I'll let Bob talk a little bit about WORLDPAC and Autopart International. These are great businesses for us. When we look at the overall math of the company, of course, we're going to look at the portfolio of businesses and arrive at that margin increase based on the expected growth rates within each of those businesses so that, ultimately, what you look at from a total AAP standpoint ladders up to that overall margin improvement. But I'll let Bob talk a little bit about WORLDPAC and AI because he's overseeing all of our professional businesses, and I think it's important for all of you to understand how he's pulling together a much more cohesive strategy on our professional business.

Thanks, Tom. And so, importantly for ourselves is we're looking at the customer market-by-market, looking at customer segmentation, who's best served to end up servicing that customer, the requirements of that professional customer. Importantly, when you look at the holistic view of this and you look at the brand and product portfolio that's out there, it's industry-leading. So, from our vantage point, we're going to the market to ensure that we provide the professional customer all that they need. And so, we're building out the technology. We're building out the catalog. We're building out the B2B portal. We're driving all of that technology to make sure that we have all the business use (52:14) the best of all of them coming to the marketplace to create first-call capability across the enterprise. And I think, both – for all of North America, Tom mentioned earlier, independents are another critical part to all of that. We're working with them as well. But I think, importantly, we're bringing the best of all the business units together and taking what we know works best. We have a lot of years of legacy experience on a technology front, certainly, on the catalog over 30 years, on the B2B portal with speed dial over 20 years. So, we know what it takes the demand analytics to drive availability into the marketplace. All of that is being brought to the marketplace today, again, to drive first-call capability across the enterprise. Dan R. Wewer - Raymond James & Associates, Inc.: Okay. Great. Thank you.

Our next question comes from Greg Melich of Evercore ISI.

Hi. Thanks. I really have two questions. One, just to make sure, on the top line, I'm getting it right. The holiday shift and weather, you have to put the two quarters together. But did you say – should we just assume the holiday was 100 basis points just a selling day or how should we think about that?

Good morning, Greg. I'm not going to give any specifics on that but it's a day, (53:32) January 1 moved, as you know, from 2016 into 2017, which means it's a lower sales day. But it's not insignificant when you consider the professional side of the business, so it's a reasonably good-sized number.

Okay. So, we'll assume it's a normal selling day. That will be our estimate. But the – so, bigger picture, what I wanted to talk about was the three buckets of margin that got hit in the quarter just to think about what's sort of ongoing and what isn't. So, if you had 50 bps each, if the inventory, the investments to serve customers which I guess a lot is the incentive and how you're paying people and then the shortfall in execution, it sounds like the first two buckets of that – well, the part to serve customers will stay with us. The part to inventory will happen again, but we're not sure when it will happen and then the last bit is the stuff that you can really control and fix. Am I interpreting that correctly?

You're pretty close. I think, first of all, reducing inventory is absolutely the right thing for our business. We have too much, and we have a lot of duplication. So, we're going to do that thoughtfully, Greg. We – given the turns of our business and I think you know this, I mean, we've got to be really, really thoughtful about how we reduce inventory and do it in a way that doesn't disrupt our customers and our customer service. But we are going to take our inventory down over time. So, you're going to continue to see that one be a drag. Obviously, part of the math here is, in the fourth quarter, as we were taking our inventory down, it was lapping a period when we were taking our inventory up. So, that dynamic changes over time, but we are going to continue to reduce inventory. You are correct, we're going to continue to make investments in our customer. In our overall capital capability, as Bob just said, we want to make sure that we're providing world-class service for our customers, for our independent partners, for our team members to go out there and win in the marketplace. The third bucket, as you indicated, which was about 30% of the overall margin contraction, that bucket is the one that we're attacking with a tremendous amount of energy on the productivity side. And that will definitely not be part of our long-term cost structure. That's where we're going to get the basis point improvement over time, and that's where we're constructing a zero-based budgeting, overall five-year productivity pipeline to take out.

That's great. And then, if I could, in terms of them (56:15) converting to free cash flow, how are you guys thinking about the capital structure, whether it's a year, two, three or four out? Do you have a debt-to-EBITDA target you think is right for the business? Or how should we think about what happens with this $400-million-plus free cash flow, are we just paying down debt? What's...(56:31)

Yes. Yeah, Greg, I'll take that one. Our first priority is maintaining our leverage ratio of 2.5% – I mean, 2.5, I'm sorry. That's our number one priority. Second, investing back in the business, primarily investing in the customer. And then, third, as we said back in November, distributing cash to the shareholders with the preference of share buybacks. Recognizing that this is a fairly general way of portraying this. We're in discussions with our board and expect a more detailed policy coming out later in the year related to the share buybacks and our capital structure.

That's great. Good luck.

Thank you.

Our next question comes from Scot Ciccarelli of RBC Capital Markets.

Good morning, guys. Scot Ciccarelli. Tom, you indicated that a lot of your cost improvement should come from materially changing how you do some of your work. I think we all kind of get the zero-based budgeting. But can you provide maybe one specific example of a process change that you're implementing to drive that productivity improvement?

Sure, Scot. A best example is probably just how we're delivering parts to customers. We don't use a formal transportation management system to deliver parts at the moment, and we're going to. So, that's just a simple change that I think is fairly common within the industry, where you're able to be a lot more thoughtful about miles driven and more efficient with your driver network.

And is that something that should wind up being kind of an interim process, you make some changes and then you continue to roll out those changes? Or is that kind of a one-time step function?

Well, just – that example is probably a little bit unique. In some cases, we're going to get some experience before we roll out. Other ones are kind of no-brainers. So, in this case, that one is. So, we're not going to have a lot of testing on something like that. We know that if I drive 50 miles and I drive 40 miles the next time, that's a good thing. So, those are different situations. They're different situations. But we are going to be very thoughtful about those that affect customer service or potentially compensation-related changes. Those are very, very important and ones you want to absolutely get right. And then, there are some others where just a higher level of visibility, a more focused agenda, a leader who's driving it hard can just drive cost out without that type of testing and that kind of thing.

Got it. All right. Thanks a lot, guys.

Thank you.

Our next question comes from Seth Basham of Wedbush Securities.

Thanks a lot, and good morning. My question is first around the guidance for operating margin improvement in 2017. I wonder if you could provide any more color between gross margin and SG&A leverage. In other words, would you expect any gross margin improvement in 2017?

Yeah. Seth, I'm going to go back to what Tom said earlier in the call. Quite frankly, we're just not running the business that way. We're not looking at chunking into gross margin and SG&A. We're looking at productivity agnostically throughout the P&L. And we're more focused on aligning it to the right person in the organization, making sure that it doesn't hurt the customer, making sure that it provides end-to-end synergies. So we're just not looking at it from a gross margin and an SG&A perspective.

Okay, fair enough. And my second question is thinking about the distribution center structure going forward. Could you provide a progress update on where you are in terms of integrating the Carquest and the Advance DCs?

Yeah. We've obviously integrated that agenda into our overall strategic plan. We've got a very clear strategy for the next five years. Within the strategy, we've identified what we call Tier 1 priorities as a fairly small list of those that we're executing against. And part of that is to what we formally called as integrated availability – we're now calling it streamline supply chain – is very much a part of that agenda and it's sequenced at the appropriate time. So we're looking at all of the priorities that we have and, again, as I mentioned, what you do first, second, and third is important, so we have to sequence it because there's an organizational capacity question, and we've worked through that sequencing very deliberately. So it's part of the five-year plan, we absolutely see an opportunity to reduce stem miles and simplify things for the organization, and we'll update you on that when we're in a position to have more clarity on it for you

All right. Very good. Thank you.

Our next question comes from Matt Fassler of Goldman Sachs. Matthew J. Fassler - Goldman Sachs & Co.: Thanks a lot, and good morning. My primary question relates to incentive compensation structure. If you could just talk about how much more variable if there's a bit of quantified or described that the comp structure is getting – just as we think about flow through of incremental sales improvement. So was the fourth quarter an aberration in that regard? Or to the extent that you continue to comp at or above the high end of your range, does the SG&A or at least that piece of the SG&A move fairly closely, aligned with the top line?

Hey. Morning, Matt. Matthew J. Fassler - Goldman Sachs & Co.: Good morning.

First of all the – what we introduced, really, in the back half of the year is – does give some more variable compensation for our frontline team members which, as I mentioned, we are so excited about. We had tremendous energy from the team to really grasp a hold of that, so it's now part of our base, certainly, in the back half of the year and we have rolled out a variance on it for 2017 which has, again, has been very well-received by our team members and will drive the kind of discretionary effort that is necessary for us to win customers over time. So we think it's very important, and ultimately having team members who really know our business, who build genuine relationships with their customers, who go the extra mile to get that part to the customer when they need it is an important part of our agenda. And that cultural shift that we're enacting, of accountability, of taking action, of really driving for results is something that the incentive plan is designed to enable, and I believe it's working. Matthew J. Fassler - Goldman Sachs & Co.: Very helpful. My second question just is another follow-up on the inventory and gross market question, and I know you've gotten a bunch on this. How much is left in the system for you to flush? Is this all aged inventory? In your view, is this an issue that has a finite end date or at least a finite quantity or – just trying to understand when we work through this because I know you've talked about it for a while, you've driven it for a while, and you guys have been in place for a while to be able to work through this issue. So are we most of the way, some of the way through this as a drag on the margin rate?

Well, I mean, we're really looking, Matt, differently, I guess, how we approach this question. We work from the customer back; that's how we're approaching it. We need to get the parts we need closer to our customers, which has required a very different set of rules and principles and thinking, and to do that we're looking at our whole network. We're not looking at, well, gee, I've got this many stores; we're saying, well, wait a minute, I have 40 million square feet of buildings throughout this country that I can position inventory and get parts closer to the customer. So that order-to-delivery time, which is so critical in our business on the professional side of the business, we're taking that number down. It was down substantially in the fourth quarter and we're going to continue to drive that number down into 2017 and beyond because that's how you win business. That's how you do as Bob talked about in terms of driving first-call advantage. So it is a very holistic approach on the inventory. We're looking at it broadly and, candidly, we don't have inventory in the right place at the moment, and that's what we're continuing to work through over time. We're going to do it thoughtfully and deliberately, and the goal is to get the parts closer to the customers so we can drive more top line. Matthew J. Fassler - Goldman Sachs & Co.: So is the gross margin impact of that then, essentially, the cost of moving that inventory around as opposed to clearing older inventory which sounds like it might have caused the pressure over the past couple of quarters?

It's really more of the latter, honestly, in the case of the fourth quarter. It really is this move from the balance sheet to the income statement... Matthew J. Fassler - Goldman Sachs & Co.: Okay.

...by virtue of taking it down on the Advance side of the equation, by the way. Matthew J. Fassler - Goldman Sachs & Co.: Got it. All right. Thank you guys so much.

Thank you.

Our next question comes from Michael Baker of Deutsche Bank.

Thanks. Two real quick in the interest of time. One, you said you expect better execution each quarter of the year. Does that mean operating margins up each quarter in the year or is it more likely down in the first half, up in the second half in terms of the operating margins?

Yeah. Michael, we're not going to give specific quarterly looks. But you know what our laps look like, so I'll let you figure that one out.

Okay. But we can't necessarily take the comment of expect execution to improve every quarter – better execution doesn't necessarily mean up year-over-year operating profit. Is that fair to say?

That's fair.

Okay. Second question, you talked about some of the lead markets getting a meaningful sales lift. How many stores are in those lead markets and so then – can you quantify the sales differential going forward?

We have a statistically significant number of stores in the lead markets, I can tell you that. We measured it very – in a very disciplined fashion, and the sales growth is substantial. So a very, very significant amount of growth experienced based on where we were. We're able to drive meaningful sales lift. And we took elements, we had multiple lead markets that we tested, different elements of the plan, and we've packaged up those elements of the plan into a Blue Book that we're rolling out into stores across the country.

And that roll-out will be complete in 2017?

It's going to be over, really, over two years. It's not something you can just immediately do because you've got to make sure – we're not going to take this to a market unless we're absolutely ready to execute it flawlessly which requires us to look at the leadership team, look at the district managers, look at the general managers, making sure that we've got everything that contributes to success in place, then we're going to roll it out. We obviously have a plan to do that, but we have also have a readiness assessment that has to be done and has to be passed. It's not an automatic that's coming to a market near you; it has to be passed by the leadership team locally in order for them to get that benefit.

Okay. Finally, and I think it says something about your company's specific turnaround, about an hour and 10 minutes in, and Amazon hasn't been mentioned but, I guess, I'll just ask. As you talk to your field leadership and the people in the stores, how big of an issue do they see Amazon? Is that something that store managers are talking to you a lot about or are they focused elsewhere?

I've asked the question a lot. I've asked it to hundreds of team members when I'm out there. I'm always interested in how we're doing and who's impacting you and if you noticed and that type of thing. I've talked to a lot of professional customers. I've read all the industry work. Whether it's a DIY customer or professional customer, we've done the – our own version of that to understand what drives choice for them in key situations. Amazon's not new to auto parts; they've been around for a long time, and when we benchmark our performance, Bob mentioned speed dial earlier versus Amazon in different aspects of our value proposition, there's some things they do better than we do and there's some things that we do better than they do. But I haven't seen an impact. We have not seen an impact of Amazon on our business at the moment, and we don't see material disruption in the near term from online competition. So I will say that with disruption comes opportunity for us. So we look at these types of situations as ways for us to rethink our business model and how can we capitalize on the growth, which is clearly we're seeing more move to online, and we want to participate vigorously in that growth but we're doing it on our front foot. We're very excited about the opportunity to pick up more of that business. But we haven't seen a material impact on our business at the moment.

Okay. Appreciate the color. Thank you.

Our next question comes from Bret Jordan of Jefferies.

Hey. Good morning, guys.

Good morning.

Question on the supply chain question earlier. I guess as far as integrating the IT and coming up with a common catalog, is that – you mentioned that was a high priority, but is that not necessarily a 2017 priority anymore?

That common catalog, Bret? I want to make sure I understand your question.

Basically having access to Advance and Carquest inventory across both distribution networks.

Yeah, that is what I was talking about earlier. We do have it on the roadmap. The way it was designed originally, we're refining, let's just say. We see an opportunity to get the benefits of an integrated supply chain without necessarily the kind of cost that was originally contemplated in the plan, and we're pretty excited about that. We want to make sure that our stores have access to the inventory that's closest to them, but we want to do it in a way that is – that makes sense and without the kind of investment that was originally contemplated. So we're working through that, and more to come.

Okay. And then a question for Tom on the accounts payable. It's sort of low 70%s and the debt-to-EBITDAR is just over 2.5 times. Is that something you see getting more leverage out of the AAP and getting the leverage on the balance sheet down in the shorter-term or is that something we'd see more in 2018?

I'm not going to comment on the timeframe. It's – all the discussion on the inventory, it's obviously a big area of focus for us. Not happy with the accounts payable ratio of 71.3%; don't like that at all. We're going to work both the numerator and the denominator very hard.

Is that 2.6 times debt-to-EBITDAR a limiting factor? I mean, I guess your supply chain or the vendor receivable programs are more expensive as your leverage gets up or is that really not impacting the cost of the program yet?

No. Really not a factor at this point.

Okay. Great. Thank you.

Thank you.

Our next question comes from Chris Bottiglieri of Wolfe Research.

Hi. Thanks for taking the question. Couple of clerical questions to start off with. How many DCs to lead the go to the reduce in (1:13:33) the daily delivery frequency? Are you through that yet or is there still more to come?

We're pretty much done, Chris. We executed that in the third quarter and fourth quarter. We feel really good about it. Our stores are getting better service. Their accuracy is up, the fill rates are up, and primarily, I think you'll recall, that was in the Northeast. So we're done.

Got you. Okay. And then it's been a while since you commented on this, but to what extent are Super Hubs still a part of your strategy? Can you quantify how many you have today or – and how those may or may not be working?

Yeah. Again, we're working a little bit differently than we have in the past, Chris. We're starting with the customer and we're working back. And the deployment strategy of when in doubt build a Super Hub, we're just not doing that anymore because it doesn't necessarily give us what we need to serve the customer better. So we've rethought the supply chain and the fulfillment process from the customer back, and we're looking at it in the context of what we believe is important for our DIYers and what's important for the professional customers, and we're building it out from there. And, again, it's not just about, gee, I've got this – I've got a Hub, I've got a Super Hub, I've got stores, I have 40 million square feet of fulfillment centers that I'm going to use to get my inventory positioned properly, and I'm going to get it in a place where I can get it to the customer faster and more accurately and more reliably and predictably than before. So it's a bit of a terminology shift for us. I appreciate that from your side of the desk, but we're really excited about that approach and so are our people.

Okay. Cool. And then just one big picture question. It seems like, from my outside perspective, that it seems like a lot of the suppliers in the news more recently. So one, that you had this unique opportunity to come in as a fresh face to the industry and meet with a lot of the suppliers for the first time. How would you characterize overall industry dynamics in relationship between suppliers and retailers? And then secondly, could it be, anecdotally, tell us on – in some ways that suppliers are supporting you in your turnaround?

Well good question. I mean, first of all we are really reliant on our suppliers. They're really partners to us in this journey. Bob can speak to some of the ones that we've forged the strongest partnerships with over the years. But I can tell you all of them want to see AAP do well in the marketplace. I think that's important for them, and it's important for us, and we want to see them do well. It's really important that their partnership allows us to really drive our agenda. We have a wide range of brands in our house with Bob's leadership of WORLDPAC, with our private label at Autopart International, and with the many branded players that we have. They're critical for our success, so we've been very excited about how engaged they've been as we've built out our journey, and we're going to build on that. I think there's an opportunity for us to forge even deeper relationships with our supplier partners, and you can count on us to do that going forward.

Okay. Great. Thanks for the help. Appreciate it.

Our final question today comes from Carolina Jolly of Gabelli.

Oh, great. Thanks for sticking me in last minute. Just wanted to ask about the do it for me versus do it yourself. I know they performed similarly this quarter. Can you talk about if you've seen any segment kind of performed better relative to self? So any stronger improvement in either segment?

Sorry. Segment performed better to what? Sorry, Carolina?

Do it yourself (1:17:29). So has either of them kind of – have you seen accelerated improvement in either of those segments?

Yes. We saw it in both and it was proportionately similar. We've had really good success, as Bob alluded to in the professional side, regaining momentum with professional customers, picking up more customers, and also selling more to the customers we have on the professional side. On DIY, honestly, we're – our team members are really helping us here. They've always wanted to serve our customers better, and we're now giving them the tools to do that. We measure our performance there, obviously, in terms of our customer hotline; we measure it in terms of social media reviews. I can tell you our social media reviews in DIY are up by a factor – not by percentage terms; they're up by a factor – and we're really excited about that because our team members are really putting the customer first and they're caring about them, as are our independent partners. So when we put the customer first on the professional side, we gain more business; and when we do so on the DIY side we earn that extra trip, that extra item in the basket. So we're growing proportionately with the two groups, and both are critical to our long-term success.

Perfect. Thanks.

At this time there are no further questions. I will turn the call back to our CEO, Tom Greco, for closing comments.

Well I'd like to thank all of you for joining the call. As we step back and think about 2016, it was a challenging year for Advance. I mean, our team members experienced just a tremendous amount of change last year starting with my appointment in April, but given the level of changes we implemented I'm very encouraged with the overall progress. And I'd like to thank all of our team members and all of our independent partners who care for our customers every day out there in the marketplace. They're putting the first back in customer first, and it was really their dedicated commitment and focus on the customer in the back half of the year that enabled us to deliver a strong finish and a positive top line that improves share. So going forward, our overarching focus is clear: we're going to put the customer first, we're always going to do that, and our goals remain clear. And we plan to accelerate sales growth to above the industry average, and we're going to close the margin gap versus our competition. So to achieve it, we're evolving the culture of the company to one that's excessively focused on the customer and one with an exceedingly high level of accountability, ownership, and drive for results. So we're really excited about 2017. We'll be working with a high level of urgency to deliver on our objectives, and we look forward to updating you again on our progress next quarter. And thanks, again, for joining our call.

That concludes our call today. You may now disconnect. Thank you for joining us.