Hello and welcome to the Advance Auto Parts Fourth Quarter and Full Year 2022 Conference Call. Before we begin, Elisabeth Eisleben, Senior Vice President, Communications and Investor Relations, will make a brief statement concerning forward-looking statements that will be discussed on this call. You may now begin.

Good morning, and thank you for joining us to discuss our Q4 and full year 2022 results. I'm joined by Tom Greco, President and Chief Executive Officer; and Jeff Shepherd, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will turn our attention to answering your questions. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements, other than statements of historical fact are forward-looking statements, including, but not limited to, statements regarding our initiatives, plans, projections and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about factors that could cause actual results to differ can be found under the caption Forward-Looking Statements and Risk Factors in our most recent annual report on Form 10-K and subsequent filings made with the commission. Now let me turn the call over to Tom Greco.

Thanks, Elisabeth, and good morning, everyone. Before getting into the details of the fourth quarter and full year 2022 results, I'd like to begin by addressing our CEO succession news announced this morning. After months of deliberation, I've informed the Board that I plan to retire at the end of the year. I believe that now is the right time to begin transitioning leadership for Advance's next chapter, not only for my family and me, but for the business for two important reasons. First, we're in the final year of our 3-year strategic plan and are in the process of updating our next multi-year strategy. The timing will help enable my successor to play a role as we undertake this work to ensure the long-term success of Advance. Second, the timing of this leadership transition will allow ample time for me to work with the Board's succession committee to identify my successor. The committee will be conducting a thorough and comprehensive search that considers both internal and external candidates and facilitate a smooth transition. We are focused on finding a candidate, who can ensure that we continue to deliver for customers and drive long-term shareholder value. In the meantime, I'm committed to the execution of our '23 plan to ensure Advance will continue our trajectory and capitalize on the significant opportunity ahead. With this in mind, we have a lot to cover on our call today, so let me provide the key themes you'll hear from us. First, while we're not happy with our overall results in 2022, the decisive actions we took in the latter half of the year, led to improved performance in Q4, and we expect that to continue into 2023. Second, after several years of significant investments in complex transformation initiatives and with the majority of…

Thanks, Tom, and good morning. I would also like to start by thanking our team members for their commitment to Advance this past year. While the year was not without challenges, our team members continue to put our customers first. In Q4, net sales of $2.5 billion increased 3.2% compared with Q4 2021, driven by strategic pricing and new store openings. Comparable store sales increased 2.1%. Adjusted gross profit margin expanded slightly to 46.9% compared with 46.8%. This was driven by strategic pricing, channel mix favorability and own brand expansion. In the quarter, same-SKU cost inflation was approximately 6.9%. Q4 adjusted SG&A of $943 million was flat compared with the prior year. As a percent of net sales, adjusted SG&A improved 136 basis points. This was primarily driven by a year-over-year decrease in incentive compensation and marketing expenses. In terms of marketing, we improved efficiencies in the quarter by shifting to higher return investments within the marketing mix. We also incurred lower start-up costs versus the prior year as a result of the ramp-up of our new store openings in California. These benefits were partially offset by inflation in store labor and higher medical costs. Our Q4 adjusted operating income was $219 million, an increase of 23.6%. Our Q4 adjusted OI margin rate was 8.8%, an increase of 146 basis points, and our adjusted diluted earnings per share increased 39.1% to $2.88. The EPS improvement was driven by stronger operational results and a Q4 benefit of approximately $0.16, due to a change in the functional currency of our subsidiary in Taiwan. For the full year 2022, net sales of $11.2 billion increased 1.4%, compared with the prior year. Our adjusted gross profit increased 4.4% and adjusted gross profit margin expanded 135 basis points to 47.3%. Adjusted SG&A expenses for the…

Thanks, Jeff. Since I joined this team in 2016, I've seen this company make terrific progress. I believe we have a strong team in place and a sturdy foundation for growth and profitability both in 2023 and beyond. With the heavy lifting of the integration behind us, I'm confident we're better positioned now for growth and value creation than ever before. With that, let's open the phone lines to questions. Operator?

Hey. Good morning, everyone. Tom, wishing you well. I'm sorry, I forget the timing, if its too soon, then I wish you well again. My question is on the margin. The GAAP EBIT margin around 8-ish percent, give or take, is not that different from where this business was several years ago. So the question is, is there some gap [ph] of inefficiency relative to peers? Or should we think about margin expansion from here is more ratable with sales growth going forward?

Good morning, Simeon. We still see a substantial opportunity to grow margins and drive EPS and therefore shareholder value. The fact that we've moved to GAAP doesn't change that. We're going to be working through our strategic plan in '24 through '26. One of the things that we're excited about is have the integration behind us. And that means the transformation costs that we've been calling out are going to be coming down over time. You've heard in the prepared remarks that the amortization is exhausted completely by 2025. The integration costs will come down. So that will help us with margin expansion. We talked about changes in the competitive landscape last fall that impacted the Pro sales channel, but we're confident that we can continue to grow margins from here. Right now, we're obviously focused on 2023 and delivering our guidance for the year.

And then a follow-up on the free cash flow. Is this year's number encumbered by inventory purchases and then that doesn't repeat? Or is this a reasonable framework, I guess, both CapEx as well as working capital. And then that grows ratably with the earnings power of the business.

Yes, really, it's the - it's what you said in the beginning there in terms of our investment in inventory in 2022 and in the early part of 2023, we're just responding to that change in competitive landscape with regards to inventory investment. So we're going to be investing in our inventory to compete more effectively and really better serve our customers. This is primarily within professional. So we expect this to be a 2023 investment, and we would see changes going forward. And we're working through that right now as we work on our SPP for '24 through '26.

Okay. Thanks, Jeff. Thanks, Tom, and good luck.

Thank you. Our next question comes from Chris Horvers of JPMorgan Chase. Chris, your line is now open. Please go ahead.

Hi. It's Christian Carlino on for Chris. On the fourth quarter, could you just give us some sense of how much you think weather benefited the quarter? And any color on quarter-to-date performance?

Hey, good morning. We had a really strong quarter in DIY. We talked -- called out the mid-single digit growth there. We did gain share in DIY in the quarter. December was obviously colder than it was the previous year in the northern market. So we did benefit from that. So overall, weather was a slight benefit to us, I would say, in the fourth quarter. That said, we gained share. So we feel good about our relative performance in DIY, which is the one that tends to move more with weather. But we're not going to comment on specific quarter-to-date results. December was colder. January was warmer and you all know that, but we've fully contemplated that in our full year guide. And we said that we expect our comp sales to improve this year as the year goes on. That's an important point. The inventory availability investments that we've been making are going to benefit us more as the year goes on.

Got it. And then on the margin guidance, could you help us understand the complexion of gross margin versus SG&A outlook? And more specifically, do you still expect the capitalized cost headwinds to primarily hit in the first half? Or should continue inflation – should continued inflation drag that out into the second half potentially?

Yeah, I'll take the second part of that question first. In terms of inflation, particularly product inflation, we do think it's going to be more of a first half versus a second half, so that's the way we've sort of modeled it here internally. We haven't broken out the contribution of gross margin and SG&A, specifically for the year in terms of the 140 to 180 basis point expansion, but we do believe that we'll get margin contribution from both gross margin and SG&A. Overall, we think gross margin will likely contribute more, but we're laser-focused on both growing our gross margin while controlling our cost base.

Thank you. That’s very helpful. Best of luck.

Thanks.

Thank you. Our next question for today comes from Elizabeth Suzuki from Bank of America. Elizabeth, your line is open. Please go ahead.

Great. Thank you. So regarding your distribution network and getting the right part to the customer at the right time. You talked about the Toronto DCs that were consolidated and that there's more opportunity. So what percentage of your distribution network, do you think is due for an upgrade or consolidation/replacement at this point?

Hey, good morning, Liz. Let me give you a bit of context on how we're thinking about our longer-term strategy and growth. We feel very well positioned to execute the next generation of our go-to-market strategy. Our vision is really to leverage the entirety of our enterprise assets to provide a superior customer experience within Pro as we accelerate growth and profitability. I know all of you know that the DIFM business has a lower gross margin than the DIY business. We're uniquely positioned to be able to grow top line sales from here and continue to improve our margins even though you're growing the DIFM business faster. And that's because we've got plenty of assets to compete out there. In the past, they just weren't as connected as they were - sorry, as they are today. We used to have four disparate supply chains or technology platforms. That's all behind us. So to your direct question, we're testing variations of this end-state vision now. We talked about Toronto. We've got all the enterprise assortment located into a single building. We think this has application much more broadly across the entire enterprise. We've got to still prove that out, but we feel really good about what's happening in Toronto. And I think look for us to replicate that in markets across North America.

All right. Great. Thank you.

Thank you. Our next question comes from Bret Jordan of Jefferies. Bret, your line is now open. Please go ahead.

Hey. Good morning, guys.

Good morning.

Good morning.

On the Pro performance, I guess, sort of relatively underperforming versus peers. Could you talk about, sort of, what you see as the major impact? I mean is it an availability issue? Is it, sort of slow traction on the private label program? And I guess are you seeing competition where IMC against Autopart International Worldpac, is there other sort of French competitors that are changing the environment? But if you could sort of lay out how you see the Pro business maybe trailing a little bit and what the factors are that would be great.

Sure. I mean, we talked a little bit about our - the actions we're taking, Brett, on the call, and we expect Pro to accelerate through the year. Really three elements to the plan. I mean we've done a lot of work to identify what's driving the underperformance, and there's really a couple of things. First of all, the availability opportunity that we talked about on the last call, we've made targeted inventory investments to improve that. And that spans both high velocity SKUs, which we're plusing up in both our stores and our distribution centers and in some cases, adding breadth and coverage to hubs and super hubs and in-market nodes. So first of all, inventory investments to improve availability is job one, that's the biggest opportunity. Secondly, we talked about surgical price investments to close the competitive price gap, and we've made a lot of progress there. We monitor that every week. It's done really account-by-account and category-by-category. But the actions we're taking are enabling us to drive more top line sales in Pro and still show margin expansion. And then third, we've got a pretty robust customer sales activation plan that the field is executing. Obviously done by customer based on performance, competitive intensity, all the things you would expect. We leverage the quality of our parts and all of the things that we bring to the table. So the good news is we are seeing improvement in our hard parts categories on a year-to-date basis, and we expect that to accelerate through the balance of the year.

Okay. So your internal data, I would say that Carquest private label brands has fraction equal in Pro to DIY?

Sorry, say it again?

The private label program, you'd say its penetration in Pro is equal to the DIY penetration. It's accepted as much for the DIFM customer?

Yeah, absolutely, absolutely. I would say it's more accepted in Pro. The brand is the name on the door for our independents that are out there. It has a heritage that started in the professional installer community. The installers love the product, that's not the issue. We just got to make - improve the availability and make sure we're competitively priced and we will grow that business.

Great. Thank you.

Thank you. Our next question comes from Michael Lasser from UBS. Michael, your line is now open. Please go ahead.

Good morning. Thanks a lot for taking my question. So over the last few years, you've taken a number of steps to improve the margin profile of the business, integrating the supply chain, working on strategic pricing. You've gotten your private label penetration now above 50%. So what's going to drive margin growth from here? Is it just a function of generating sales growth and leveraging your fixed expenses?

Good morning, Michael. For sure, we've got to accelerate our top line. I mean the original plan that we laid out in 2021, contemplated higher growth certainly than we delivered last year. So for sure, we need to accelerate our top line sales growth. That's an important part of the plan. And we still have a lot of opportunity to expand margins. I think, uniquely, given what I mentioned earlier, to the earlier question on Pro, we can grow the Pro business and grow margins while we're doing that through private label penetration through continued actions on category management, we're raising our game on category management for sure, driving sales and profit per square foot in the stores, all the things that you would expect. So we do expect to continue to drive margin expansion through category management. We expect to drive it through continued supply chain efficiencies. And then as you said, we want to drive our top line sales growth to leverage SG&A.

Thank you. Our next question from today comes from Michael Montani of Evercore ISI. Michael, your line is now open. Please go ahead. Michael, your line is now open. Please go ahead. My apologies, we are not receiving any audio. We will move on to the next question from Brian Nagel of Oppenheimer. Brian, your line is now open. Please go ahead.

Hi, good morning. Tom congratulations on the retirement.

Thank you.

So my first question, just with regard to inflation. So you and a number of others in your sector have talked about this expected trajectory or inflation, so to say, ease in the second half of 2023. So as we think about that forthcoming dynamic, what are the likely impacts to Advance [ph] both from a sales and margin perspective? You're recognizing there's, a lot of other pieces moving parts with your P&L. But if we isolate that inflation dynamic, how should we think about the impacts there?

Yeah. I think first, the important part is the cadence, the way we're thinking about it, really break it into a first half, second half. We think inflation is going to continue to be elevated as we're seeing today in the first half and then that's going to come down over time. You saw Q4 sequentially improved slightly for us, at least on product cost inflation. And as that comes down, given that we're now on LIFO, you incur those costs as we - as the inflation hits. So inflation is steady is what we saw in Q4, that's going to be more impactful to our gross margin, as those costs continue to abate, you get that relief over the course of the year. So I think guidance - sorry, cadence is the biggest component to that. And I think the biggest driver really is the product cost inflation. We've got inflationary estimates on the rest of the P&L, but wage inflation for example we think it will be fairly static. You'll see that kind of variation that you'll see in product cost inflation.

Perfect. This is a follow-up. So is it still the base case assumption that even as input costs moderate, that the pricing at your stores, the price in the consumer will largely stay the same?

Yeah. We obviously look at that very closely. We want to make sure we stay competitive. We have assumptions around how much price we can maintain when costs come down. There's obviously elasticity depending on the category that you're seeing those costs deeply or inflate for that matter. So we look at that on a category-by-category basis. And we're going to make sure we stay competitive as we see, hopefully, the cost structure start to improve.

I appreciate the color. Thank you.

Thank you. Our next question comes from David Bellinger from MKM Partners. David, your line is now open. Please go ahead.

Hey, thanks for the question. And Tom, congrats on the announcement. Could you just help us contextualize the top line acceleration Q3 to Q4? How much of that is internal versus external? Or are we seeing the payback from these inventory investments already? And I don't think you called out the shift to private label parts as a comp sales headwind. Was that still a sizable impact in the Q4 period?

Hey. Good morning, David. Yeah, first of all, the acceleration in Q4 was largely DIY. We're really happy with our DIY business in the fourth quarter. As you know, it's a very profitable part of our business. We paid a lot of attention to it. We had a strong quarter on DieHard. We continue to build that brand. Our Speed Perks platform is really starting to generate some returns for us. We've added members, we're graduating members. So our ability to drive DIY, and by the way, through e-commerce, our e-commerce business is now back in double-digit land [ph] again, which is really important for us over the long-term. So we think we can continue to grow that DIY business as we get into 2023. And obviously, that helps us on the margin front. We didn't get a lot of benefit on the Pro side in the fourth quarter from the investments. We're going to do that in a very disciplined fashion. We've got a very robust plan to drive growth in Pro, and we want to do it the right way. And it's done, as I say, very targeted inventory investments, very surgical price investments. And we're confident that, that will drive growth in Pro as the year unfolds, but we didn't see a lot of benefit from that in the fourth quarter.

Just on the owned brand mix, in particular, on the top line, that was a headwind, but consistent with the third quarter, it was a benefit to our gross margin rate. So relatively consistent with what we saw in the third quarter.

Yeah. It's kind of in our base now, David. That's why we're not calling it out as a specific headwind. It's in our base now, so we're going to continue to grow it from here. But it's - the impact is less.

Got it. Okay. And then the follow-up on the share repurchases being paused, I think that's around 7% of your market cap based on what you did in this year. So what would you need to see to buy back stock again? Are there any specific metrics you need to hit? And is there a certain point in the year where you could go and step back into the market and beginning repurchases again?

Yeah, for sure. We - first of all, I think it's important to point out that we think the share repurchase to be temporary. We're going to be executing our capital allocation priorities, investing in the business, both CapEx and working capital that we talked about. And we're still really excited about the fact that we're paying a very strong dividend. Having said that, we'll be monitoring is our free cash flow. We don't have any plans to take out debt to repurchase shares. And so we're going to be laser focused on improving that free cash flow as we navigate through the year. But we're going to prioritize making sure we have the very best availability. And so as we work through that, if that improves top line higher than expectations and improve the free cash flow, we'll be back in the market. It's just a matter of making sure we have the free cash flow to support it.

Great. Thank you, both.

Thank you. Our next question comes from Zach Fadem from Wells Fargo. Zach, your line is open. Please go ahead. Zach

Hi, good morning and thank you. So Tom, could you talk us through your take on the industry growth rate in 2023? How that breaks down between DIY versus Pro? And then how you bridge the gap both for your DIY and do-it-for-me expectations relative to the industry growth rate?

Sure. Well, first of all, we expect kind of 4-ish for the industry on a full year basis. That's kind of our current projection. We expect Pro to outperform DIY. Now that's an interesting dynamic this year. Obviously, you've got a lot of factors at plays back with some macroeconomic uncertainty and pressure on the low to middle income consumer, which tends to shift business to DIY. So as we sit here today with 10 months to go, those are the numbers that we see. We believe we can continue to drive growth in DIY and in particular, benefiting from some of the digital investments we've been making over time to grow share in DIY. And as we said a couple of times here, the Pro business to ramp up through the year and get to the industry growth rate or above by - as we get into the back half.

Got it. And when you think about your historical non-GAAP margin goal of 10.5 to 12.5, can you walk through what that would equate to on a GAAP basis? And then for 2023, could you talk about your expectations for the LIFO benefit and also the transformation costs that you're embedding in the outlook today?

Yeah, sure. I mean it's a little bit of apples and oranges as you know, but as Tom mentioned earlier, the initiatives really don't change. And they don't change our ability to expand margins here in the short term and even longer term, whether we're on a GAAP or non-GAAP. Thinking about the sort of reconciliation, if you will, really there is three primary components. You've got your - our transformation costs, restructuring costs. We have the amortization associated with GPI and the LIFO. First two are a little bit easier. The transformation and restructuring as we move into 2023, we think that going to be roughly the same in terms of what we saw in 2022 from a cost standpoint. Amortization is - it's straight line. So you should expect that to be the same, and that will exhaust in 2025. The difficult one, as you pointed out is LIFO. And if you take a step back, last year, we started LIFO, and we thought it could be roughly in line with 2021, which is $120 million roughly and we were nearly 3x that. So we're not giving any guide around LIFO. What we did say is we expect product cost inflation, which is a big driver, there's other components. But we expect that to moderate throughout the year. So what I can tell you is we don't expect LIFO to be another $300 million headwind, but we're not going to provide any guidance beyond that.

Maybe similar in Q1?

I'd like to add Zach. Go ahead, Zach. You asked your question.

I just wanted to clarify, would Q1 be similar to Q4. And then - sorry, go ahead, sorry to interrupt.

Yes. Again, we're not going to break out the LIFO on a quarterly basis. It will be dependent on what those supply chain and product costs come in at.

Got it.

Yeah. Zach, I wanted to add that you'll see on our website, we've broken out and we've had so many questions over the years on this GAAP to non-GAAP comparison. We've broken out the last 5 years, you can clearly see the relative performance GAAP versus non-GAAP. If you look at our adjusted EPS growth over the last five years, it's basically 2.4 times. It's more than double what it was in 2017. It's got about a 19% CAGR. And this year, at the mid-point of our 2023 guide on a GAAP basis, you see a similar number. So it's all there. We want to make sure that it's clear to everyone. And back to the transformation costs, we're excited about the fact that they're coming down over the next couple of years. And that will enable us to expand margins through that alone.

Got it. Appreciate the time, guys.

Thank you.

Thank you. [Operator Instructions] (Operator Instructions) Our next question for today comes from Scot Ciccarelli from Truist. Scot, your line is now open. Please go ahead.

Good morning, guys. Scot Ciccarelli. So how should we be thinking about the pricing investments that you guys mentioned last quarter relative to, let's call it, the price optimization efforts you implemented over the last few years. Like how are we supposed to kind of reconcile, if you will, kind of the price investment versus, let's call it, raising prices over the last couple of years, which I think has been a pretty big gross margin driver.

Yeah. So a couple of things there. We talked about the unprofitable discounts. We've worked through the vast majority of that. That's going to be an ongoing process. It's really something that doesn't go away. It did not have a significant impact in the fourth quarter. In fact, we saw a very slight benefit, meaning that we didn't lose those customers, and we were still getting the sales and the - an improved margin because we weren't giving it away through an unprofitable discount. More broadly, in terms of the competitive set, Tom mentioned this earlier, but we're going to be very surgical in the pricing investments that we made to close the competitive gap and we use the word surgical for a reason. We look at CPI and peak last summer, and as we were into the fourth quarter, we're back to where we want to be. And we're testing in different markets. We're monitoring this on a daily and a weekly basis, and we're clearly seeing results. So we're going to make sure we're competitive. We're not going to lose on price, and we're going to improve our availability. And we think that sets us up for a very strong year.

That's helpful. And then Jeff, any more color on the first quarter outlook, given your comments in your prepared remarks about 1Q being more challenging?

I mean not a whole lot. I mean it really is the three drivers that we called out. It's the inflation, it's the availability. We do have some transformation related costs that we anticipate we'll be in Q1. We'll be able to talk about that a little bit more the next time we meet in whatever is April or May. And those are really the three drivers. I mean obviously, the product costs when they come in, we're going to incur them under LIFO. And the availability, as we talked about, just it takes some time to get that into our network and get it forward deployed. It's one thing to get into your distribution center, but we need to get it throughout the network, to make sure we're available all the time for our customers.

Got it. Okay. Thanks, guys.

Thank you. Our next question comes from Steven Zaccone from Citigroup. Steven, your line is now open. Please go ahead.

Great. Thanks for taking my questions. Tom, best wishes in the next step. Just to clarify on the first quarter, just to follow-up on that last question. Would you expect first quarter comps to be at the low end of the full year range? Or will they actually be slightly below that full year guidance range?

Yeah. We're not going to break out the comps. We feel really good about the 1 to 3 over the course of the year. It's really difficult at this point. I mean January, December, these timeframes are incredibly volatile. And to try to put some sort of analysis around the first four, six weeks and say that's going to make our quarter, which, by the way, is our longest quarter, is our 16-week quarter spring selling season. Sometimes it's Q1, sometimes, it's Q2. We're - the least here in Raleigh [ph] we're off to an early spring. But it just is premature to really say whether or not we think comps will be on the low or high end of that range.

Okay. Fair enough. Thank you. Then, second question I had was could you talk a bit more about the outlook for SG&A leverage in 2023? What's the puts and takes? Wages are a pressure point across retail, so curious for your input there? And then, as we shift to GAAP, how should we think about the ability to drive leverage on SG&A? What level of comp growth do you really need on a go-forward basis?

Yeah. I mean, when it comes to SG&A, you have those transformation and amortization costs that are going to test themselves there. They're going to be relatively flat. So we don't expect any significant volatility with those in particular. In terms of some of the puts and takes, you certainly called out the biggest factor, which is the wage inflation. We're cognizant of that. We've modeled wage inflation yet again for 2023. We do think we have some opportunities in terms of overall cost takeout, leveraging some of our - sorry, I'm blanking on the term or - I got My Delivery [ph] and …

My Day [ph].

Yeah. Thank you. So the online - I'm sorry, the automated payroll and getting the hours into - really getting the hours associated with the revenue. And so we've been working through that for a number of years. We've got some significant opportunities there. So we do feel good that we can get some improvement in our, what we call sales and profit per store. Another big one that we called out, were the start-up costs that we had with our California expansion. And those were sizable in 2022. Good news is we're beginning to get those stores open. We've got nearly 90 stores open. We've got a little less than 20 to go. So there's still going to be some start-up costs there, but it won't be nearly as sizable as what we saw in 2022. So the combination of all those, gives us a reasonable level of confidence that we're going to leverage SG&A in 2023.

Great. Thank you.

Thank you. Our next question comes from Seth Sigman of Barclays. Seth, your line is now open. Please go ahead.

Great. Thanks for taking the question and nice to talk to everybody. Tom, congrats to you. Some of these are follow-ups, but I just wanted to clarify, when we think about that 8% operating margin for '23, I guess, on an apples-to-apples basis, how does that compare to what your prior expectations were for 2023 and maybe what some of those big differences could be?

Yeah. I mean, again, the big drivers between GAAP and non-GAAP are the things that we talked about, the transformation, the LIFO obviously being the biggest one. We had $300 million - over $300 million of LIFO. So those you have to factor back in, but the initiatives that we have in place don't change. So our ability to drive margins through own brand expansion doesn't change our ability to take costs out through our My Day through My Delivery don't change. So those - we really don't see it any different. We really think the timing to go from non-GAAP to GAAP is appropriate, given that we're seeing the non-GAAP items beginning to moderate eventually go away. So for all those reasons, that's why we wanted to make the change. And there are no change in the underlying assumptions in terms of our margin growth outside of going from non-GAAP to GAAP.

Got you. Okay. That's helpful. And then just two quick follow-ups on the different channels. On the DIY business, did you actually say whether the momentum that you saw in the fourth quarter had continued into Q1? And then just quickly on the Pro business, I'm just curious as you sort of step back and look at the underperformance of that business, how broad based is that underperformance? Or maybe you could speak to like different customer types, different sizes, regions, et cetera? I'm just trying to understand where the GAAP [ph] may be within that? Thank you.

Sure. Well, first of all, in DIY, we do believe we can sustain the momentum that we have on DIY in 2023. Once again, based on all the things I talked about at DieHard, Speed, Parts, et cetera and again, the e-commerce business. We believe that our digital business can grow nicely this year. We've sort of dealt with the discount we used to have and effectively got that business in a very good spot from a profitability standpoint. So now we're building that business the right way. On the professional side, we're very clear on where our opportunities are. We did make some decisions, as we said last year, to reduce unprofitable discounts. In some cases, that was a large account. In some cases, that were smaller accounts. But as we start to lap those decisions, we'll see some accelerated growth at Pro. And once again, we want to do it the right way. We want to do it in a way that is sustainable over the long-term, which is through inventory availability and making sure we got the right part in the right place. So that's kind of the tail of the take there.

Thank you. Our next question for today comes from Seth Basham of Wedbush. Seth, your line is now open. Please go ahead.

Thanks a lot. Good morning, and best wishes, Tom. My question is a follow-up just to make sure I understand the guidance on a GAAP basis in terms of margin improvement in 2023. It seems like there's a small piece from lower start-up costs in the Cali stores. But the biggest piece of that step-up is going to be from LIFO. Is that the right way to think about it?

Yeah, that is. That's the right way to think about it. We think we've gotten through the majority of the inflationary costs on a LIFO basis. There's still going to be some. And that's why we want to be real clear about the cadence in terms of what we're expecting. Q1 for sure, being the most challenging for the reasons that we pointed out. But yes, we definitely think we're going to see improvement in gross margin. It will be largely led by LIFO. We have our other initiatives that are also going to help us contribute whether it's the own brand expansion, the availability. We think we have opportunities there as well, but you are thinking about it correctly.

All right, great. Thank you. And then another question on the guidance in terms of your store growth. Ex the 20 additional California stores you still have to open, you're looking at doing only 40 to 60 net new stores, which is pretty low relative to your store base. I know that a year or two ago, you guys had a stated goal of starting to accelerate store growth. Can you just tell us how you're thinking about growth in the future from a store base standpoint?

Sure. Well, this year, we want to make sure that we really dial the completion of the California openings. We talked a lot about the delays we experienced last year. And now that we're open, we're gaining market share out there. We've got some really strong team members that came to us from Pep Boys that have a lot of content knowledge and geographic knowledge, product knowledge for that market. So we want to really drive growth and market share gains out in California and obviously continue to grow the new stores that we have planned for the year. What I would tell you is that we're doing our strategic plan, and I alluded to this earlier, Seth. We're taking a very close look at our - the entirety of our asset base to drive our Pro business and leveraging everything that we have. We've got over 300 buildings at Worldpac and Autopart International, over 300 hubs in super hubs. So we believe there's a way to further optimize our asset base in Pro, and that has an impact on how we think about new store openings in the future. So as we construct our plan, for 2024 through 2026, we'll obviously be considering how that unfolds in the future. But for this year, we guided the way we guided.

Understood. Thank you.

Thank you. That was the last question for today. So I'll hand back to CEO, Tom Greco for any further remarks.

Well, thanks for joining us today. Our 2023 guidance reflects growth in comp and net sales, as well as GAAP margin expansion. We're pleased to have the bulk of the integration behind us so we can focus on execution and update our strategy. Our goal is to win in the future and continue to drive strong earnings per share growth and shareholder value. Thank you.

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