Welcome to the Advance Auto Parts Second Quarter 2011 Conference Call. Before we begin, Joshua Moore, Director of Finance and 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. 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 typically use words such as believe, anticipate, expect, intend, will, plan, forecast, outlook or estimate and are subject to risks, uncertainties and assumptions that may cause the results to differ materially, including competitive pressures, demand for the company's products, the economy in general, consumer debt levels, dependence on foreign suppliers, the weather, business interruptions and other factors disclosed in the company's 10-K for the fiscal year ended January 1, 2011 on file with the Securities Exchange Commission. 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. The reconciliation of any non-GAAP financial measures mentioned on the call with the corresponding GAAP measures are described in our earnings release and our SEC filings, which can be found in our website at AdvanceAutoParts.com. For planning purposes, our third quarter earnings release is scheduled for Wednesday, November 9, 2011, after market close. And our quarterly conference call is scheduled for the morning of Thursday, November 10, 2011. To be notified of dates of future earnings reports, you can sign up through the Investor Relations section of our website. Finally, a replay of this call will be available on our website for one year. Now let me turn the call over to Darren Jackson, our Chief Executive Officer. Darren?

Thanks, Joshua. Good morning, everyone, and welcome to our Second Quarter Conference Call. I'd like to thank our 52,000 Advance team members for delivering an outstanding performance in the second quarter through their dedication and service to our customers. We are pleased with our second quarter results that include our commercial sales growing at double-digit comp rates and our DIY business showing incremental improvements from our first quarter, both combined to generate a 2.5% comparable store sales gain in the quarter. Our external measures for customer satisfaction continued their upward trends for both our commercial and DIY businesses. Collectively, our service and operations focus is reflected in our 66-basis point improvement and our operating income rate, which rose to 12.8% for the quarter, as well as our earnings per share, which grew 26% to $1.46 during the quarter. These results are very encouraging despite a consumer environment filled with economic uncertainty. Our expectations reflect the current reality of the more challenging economic landscape, including escalating gas prices that are over $1 per gallon higher than a year ago, miles driven trending downward and a clear slowdown in the industry growth rate versus the record pace last year. The counter balance to the economic pressure is the continued aging of the vehicle fleet, which stands at 10.5 years, lower new car sales and pent-up deferred maintenance cost that have more than offset the economic obstacles. It is important to say our teams have done a terrific job retooling our operations and financial plans without compromising our strategic investments which has allowed us to be successful in the current economic environment. Our ability to balance solid execution in the short term, with our efforts to evolve our operating model to differentiate in the long term, is a delicate one, especially when the…

Thank you, Darren, and good morning. I'll start again by thanking and congratulating our team for the sales and profit results we are reporting this morning. Their hard work in leading and inspiring our teams and serving their customers better than anyone else produced our improved results for the second quarter. Our total comp store sales grew by 2.5% in the second quarter compared to 5.8% during the same quarter last year. We saw an improvement in both our DIY and Commercial sales trends over the first quarter. Overall, the comp increase was primarily due to an increase in average transaction size. We saw a rebound in the Northeast and Mid-Atlantic regions where we were impacted most by weather in the first quarter. We're encouraged by these results and see many positive signs that we can continue to build on our momentum as we've gotten off to a solid start in the third quarter. The overall market remains mixed but certainly remains positive over the longer term. The vehicle population continues to age and will continue to age for many years to come, as a result of the slowdown of new vehicles coming into the market. The unemployment rate and higher car gas prices are currently challenging consumer spending and driving habits and causing consumers to, again, defer maintenance but that maintenance will eventually have to be done as it has in the past. Our Commercial sales returned to double-digit comps in the second quarter after a very slight dip into single digits in the first quarter. This resumed our record of double-digit comps 13 of the last 14 quarters in our Advance stores. We continue to outperform the market and gain significant market share in this growing business. Commercial represented 37.2% of our total sales in the second quarter.…

Thanks, Jim, and good morning. I'd also like to thank the team for their hard work in the second quarter. I'll take a moment to highlight a few of our accomplishments during the quarter as well as update you on our initiatives to support our superior availability strategy. Availability has been a key strategy for us over the past 3 years and is high on the list of what our customers tell us they expect of us. Furthermore, when we have the products our customers want at the store, our customer conversion rates are in excess of 90%. However, when we have to pick up the product somewhere else, resulting in longer delivery times, this drops considerably. Since Q1 of last year we've been aggressively working to forward our position of inventory and the failure in maintenance categories and position ourselves to meet the demands of the customer and lead the industry in availability. As a result, we've worked aggressively to add to our number of hub stores, which sits at 253 today, including 14 that were opened during second quarter and over 77 opened year-to-date. We've also greatly increased the number of inventory upgrades at store level in order to maximize our storage capacity. During the second quarter, we upgraded inventory at 266 stores and 652 year-to-date. In addition to our efforts to increase the quantity of product availability for our customers since 2008, we've been working aggressively to ensure we have the right brands, quality of parts and the right assortment in the right store. The quality of our offerings has never been better. Our inventory position increased in the second quarter of last year and we ended the second quarter of fiscal 2011 up 15.1%, down from 21.3% increase of inventory in Q1. Our in-stock levels were…

Thanks, Kevin, and good morning, everyone. I'd like to start by thanking all of our talented and dedicated team members for their contributions to the financial outcomes we delivered during our second quarter of 2011. I plan to cover the following topics with you this morning. One, provide some financial highlights from our second quarter of 2011. Two, put our second quarter results into context with the key financial dimensions that we use to measure our performance. And three, share with you what we see for the remainder of 2011 and beyond. During the second quarter, our revenue increased 4.4% driven by 130 net new stores over the past 12 months and a comparable store sales increase of 2.5%, which was on top of a 5.8% comp sales increase last year. Our second quarter also marks our 13th out of the last 14 quarters of double-digit Commercial comp sales growth in our Advance stores. Autopart International also delivered a solid second quarter. As Kevin mentioned, our gross profit rate in the second quarter was 49.7% versus 50.4% in the second quarter last year for a decrease of 72 basis points. The decline versus prior year was driven by increased shrink as a result of short-term execution and operational challenges in managing our accelerated pace to lead in inventory availability, increased supply chain expenses due to investments in HUBs and higher fuel costs, inflation this year compared to last year and the increased mix of Commercial. The margin decrease was partially offset by our continued improvement in merchandising and pricing capabilities. Year-to-date, our gross profit rate increased 10 basis points to 50.2%. While we expected a gross profit rate decline during the second quarter, the decrease was slightly larger than we expected due to the higher shrink. We have developed a…

[Operator Instructions] Our first question is from Dan Wewer with Raymond James. Daniel Wewer - Raymond James & Associates, Inc.: So in the first quarter when same store sales rep, 1.5%, you had noted they probably should have been up around 5% but the shortfall was probably evenly split between weather challenges on the East Coast as well as some of the company-specific disruptions. So we've been pretty sequentially about a percentage point from the first quarter. Do you think that was primarily the reversal in the weather challenges and that perhaps the disruptions from changing the coverage of your District Manager responsibilities probably had less of a negative impact than you had thought?

Yes, Dan. I think the majority of it, to be honest, is our teams settling into their new roles and the DLs. We knew we wouldn’t solve it in a quarter and when we look at regionality and in the first quarter we said regionality was about 1.5 points of the outcome. When we look at regionality this year, maybe a simple way to think about it is that 90% of our stores are East of the Mississippi, 10% of our stores are West of the Mississippi. When we look at the industry data, the industry in total, what we can see, is if you take DIY, East of the Mississippi the industry versus West of the Mississippi the industry, the East lagged the West by roughly 250 basis points in DIY. And so what we're still seeing and that's just, we say, you can't change who your parents are, and you can't change the fact that 90% of our stores are East of the Mississippi. And we're still seeing some of that regionality impact in terms of the concentration of our stores. Now in the Commercial business, it's the same saying. There's very little difference East of the Mississippi or West of the Mississippi. And as we said in our prepared remarks, what we can see is the Commercial business, as an industry, remains very strong. The DIY business has slowed and it has slowed particularly East of the Mississippi relative to West of the Mississippi. So if you math it out, we still have a drag in our overall numbers as a result of some of that regionality. But what we are seeing, and that's part of our comments in terms of certainly as we come into the third quarter as the teams are settling into their jobs, as the Commercial cams, which I think were up 50 year-to-date versus a year ago, they settle into those relationships, that's helped propel Commercial growth and certainly, has helped with our DL structure, allow us more time in stores to work with our teams. Daniel Wewer - Raymond James & Associates, Inc.: Okay. And so then just as a follow-up for Kevin, on your payables inventory rate. You have increased modestly year-over-year about 3 percentage points. In past meetings you talked about eventually taking your payables to 100% of inventories. What will be needed to accelerate it via the pace of that improvement? Is it just simply slowing the rates of your gross inventory investments?

Two things. You're correct, essentially the net number as we have days of supply of inventory and days of payables. And essentially, what we had in this quarter was that the rise in debt payable days was being constrained by a 15% increase in overall inventory which is increasing the days of total inventory. As we roll forward, that delta, year-over-year, in days of inventory will moderate by the end of the year and quite frankly, reverse as you get in the first quarter. Additionally, we are improving programs vendor-by-vendor, week-by-week as we move forward. I think those numbers, most notably as you get out of the first quarter of next year, will reflect a sizable and nice improvement in the AP ratio.

Your next question is from Gary Balter with Crédit Suisse. Gary Balter - Crédit Suisse AG: It's Gary in for me and I'll start and then lots of follow-up. A question that we get a lot, I’m hoping you can address it on the call, is your comps were better but they're still running a little bit behind your competitors’. And one of the concerns seems to be that in all this labor shuffling that you've done with some of the new programs that perhaps you've actually pulled up too much labor from the stores and that’s having an impact especially in the DIY business. Could you address that?

Yes. Gary, I can. We went through the quarter this year -- well actually, the beginning of the year, we have been executing on a plan that we actually developed last year. So last year, we went through a holistic review of our cost structure. And it's no secret, you can just do the SG&A per store and you can see that our SG&A per store is higher. But I'll remind everyone our sales at the end of this quarter per store was about $1.7 million on a trailing 12 basis. So near at the top of the industry, too. As we looked across the cost structure and even the SG&A leverage we saw this quarter, a big chunk of that came out of support center costs, professional fees and a lot of the great work they did last year to identify where we could make those cost cuts. And we made some edits in terms of our store operating model. The truth is, is that over time, whether we had a $5 million store or whether we had a $1.2 million store, we had similar management structures. And you know what, it was a hard decision but we added it out in, I would say, more appropriately sized those management structures for the volumes of those stores. What we didn't do is then double back and cut the hours and so what we do is store-by-store, we do a buildup in terms of the hours per store based on the transactions that they do. What we did do is variabilize some of the cost structure across our store operating model and that's part of what sits in the numbers. Did we edit some hours and store operations in AGMs and did we probably lose a little bit of sales…

Okay, yes. Maybe I'll talk about gross profit first. So what we've said for the year is that we now expect for it to be down versus what we said before for the year it was modestly up. And the drivers of that is we have deliberately, and we said at the beginning of the year, we are protecting our supply chain. That is the largest driver. And the great news is in the out years that's going to give us great efficiency, that's why we're doing it. But in these years when we're investing, so that's a big driver. The other driver will be inflation, some level of inflation. And that's made up of fuel costs and then commodity pricing and Charles will talk a little bit about that. And that's volatile. In this uncertain environment right now, we've been watching those things move around, so there's some volatility there so that becomes harder to predict. And then shrink, that was -- over the last couple of years and we said in our remarks that we're extremely proud of our progress we've made in shrink. And we believe we lead the industry in terms of our shrink performance. That said, we set some high expectations and we fell a little bit short. We got a little bit away from our execution and operational practices. And the good news is that's something we're in full control of. But that will take us a little bit so that will be a little bit of a headwind. So the way I would think about gross profit for the balance of the year is we're traveling currently up 10 basis points on a year-to-date basis. We anticipate on being down so probably you'd expect to see the similar kinds of declines that we…

Our next question is from Greg Melich with ISI.

And just to follow up on the SG&A improvements, sort of how they layer in on execution. Both of you, I think, talked about the portion in the support center and the headquarters versus the stores. Where are you now in terms of executing on taking those costs out, both at the store level and at the headquarters? Are we 100% done now on close through? Are we 60% done or does the second quarter, because of timing, actually have a little bit more improvement than you thought? Because it sounds like you made a lot of gains in the second quarter but with SG&A still flat to up 2 per store, that you expect that actually to pick up a little bit for the rest of the year.

Yes, so Greg, I think the way that we think -- I don't know if that work will ever be over for us. We're always going to look to build a competitive business model. I would say, we're in the early innings. And the early innings may be that you're going to take the costs out furthest away from the customer, that may not last as long. Actually, getting cost out of things that are less productive and moving them into more productive, I think that will go on for a foreseeable period of time but we did the work last year. We don't provide anything beyond this year. And we're comfortable with the outlook that we've shared with you previously. But we see, over the last couple of years, we've built up our cost. We have the highest cost in the industry and I think that our goal is to make sure those costs are as productive as they can be. And I think the work is continuing to make sure that we take the unproductive cost out. So I still think we're in the early innings of that work.

Yes, Mike. You would also say -- Greg, this is Darren. I don't see us being the cost leader in the industry. I agree with Mike that there's perpetual work and there's more work in the near-term for sure to continue to work on that cost structure and, like our margin story, that didn't unfold in a year. I think it will build over the next several years in terms of striking that right balance between productivity and growth and service levels. And so we see an opportunity in many of our stores right now, to be honest, that there's still investments to make because the service levels and growth opportunities are still high, that's why. And principally they'll sit in wave stores but they also sit in other markets. The other example I would give that might not be as clear is that in our supply chain today, we talk about the headwinds that we're facing from investments. We’ve got headwinds in supply chain for the 3 years that the team has been running that and we've been able to offset those headwinds with gains from those capabilities. We have probably our largest single investment in CapEx happening right now in our supply chain. It's pointed us towards much more efficient, cost-efficient model. It isn't going to land in our P&L this year. We'll start to see glimpses of it probably a year to 1.5 years out. But these things take time in terms of us changing things structurally versus just changing things on a temporary basis. So there are still pieces out there in terms of the long-term cost structure that will show up in the margin that are headwinds today, for sure, benefits tomorrow as we look out over the horizon. And in our SG&A structure, just found if you do it 10% across the board, that's not the right way to approach it. So systematically approaching it and doing it at a pace, where you're both able to ensure growth service levels and productivity, is the path that we're on.

And if I could follow up quickly on the buyback pace. You did over $600 million last year, the business appears to at least generate $400 million-plus of free cash flow if you're getting the working capital improvement. I know that turns around a little bit this year but I assume that the back half will continue to have a slower pace just given that seasonally is not when you get as much cash coming in the door or how are you thinking about it? Is it just manage it to that 2.5x debt to EBITDAR or?

Yes. I mean, I think you start there. We’re committed to keeping within our investment grade and making sure we maintain our leverage ratio and we said it in our remarks. We trade at a significant discount and the other side of that entry is this management team has a very large confidence in our team members and in our ability to continue to create value and we never comment on what we're going to buy going forward. But we won't hesitate to continue to buy back our stock. And at the end of the day, that's always the last thing we think about. We've piled a lot of dollars into this business and built up capabilities and you've seen it in our growth and you've seen it in our margin expansion. And if there are opportunities to put dollars in to continue to grow our business, that's what we look for first and then our buyback is kind of how we think about it, kind of what's left. We typically don't comment, Greg. But we bought back about 10% of our sales again this year on top of the 13.6% we bought back last year. And we are pleased that we're getting it and we're a little perplexed on our value to be honest with you.

Our next question is from Matthew Fassler with Goldman Sachs.

My first question relates to pricing. You intimated that you had made some adjustments over the course of the quarter and that there are lots of moving pieces as it related to input costs and also to competitive dynamics. If you can give us a sense as to the nature of those adjustments. Where they in commodity items, were they up and down, the mix of the business and what kind of impact do you think they had to your top line and to your margin rate?

Yes, Matt. This is Kevin. We've seen a pretty significant dose of inflation come through and it's gone through our entire industry. It's anchored on commodities. So it's products like -- what sits underneath our products like lead, steel, oil and has generally led to price inflation at retail. That said, there has also been competitive pressure across the industry as the entire industry is seeing those increases at a time when the pace of growth of the industry is more modest than it was last year. Those conspired to put pressure on us and we have excellent systems to know what the competitive and prevailing price of products are in the marketplace. So we stayed with a strategy that we've been on for many years of maintaining our competitiveness and essentially got impacted in the squeeze. I do not know inflationary impacts as we go forward. Obviously, there's an awful lot going on in the world these days that would suggest uncertainty. But what I can tell you is the way that we approach things, which is we are going to maintain our competitive position in pricing and maintain the programs that we have through global sourcing and price optimization to maintain the margins as high as we can.

And my second question relates to inventory. As you exited the first quarter, inventory was up a good deal. You sounded somewhat dissatisfied at the time at the levels of those inventory and a bit concerned with the consequences of those levels for margin going forward. As we're a quarter further in, you seem more contented with inventory levels. So if you could just talk to us how the inventory increase relative to sales relates to some of the programs you spoke about, be it in stock, parts availability and others, and whether in fact, there has been or will be any consequences to margin from the overage that you had there a quarter ago.

Yes, couple of things. One, we overshot the runway in first quarter beyond our own expectations and had undershot the runway the year before. So we were -- if you went back a full year ago, we've had a great first quarter and ended the quarter lower in inventory than our desire and we made the opposite correction and adjustment this past year. Those investments are in our part business. It's a reflection of inventory upgrades, HUB expansions and quite frankly, additional inventory and safety stock beyond what we perceive was needed. We're pleased to say that the things that we look at which is the customer perception of availability are high and competitively in a wonderful place. If we look at in-stocks, they have never been higher. That said, we don't believe that it was necessary to have that significant increase in inventory to maintain those positions and that became true at the end of this quarter. We're not up 21%, we're up 15% and yet we're hitting all the numbers that we aspire to hit. And those numbers will be on their way down in the quarters ahead as we maintain the goal, which is product availability for our customer with the most prudent investment of inventory that we can have. So I think you'll see that moderate for the next several quarters.

And consequences for grosses, I think you had alluded to some, perhaps, last quarter. Did that pan out?

I'm sorry, say that again?

Consequences to gross margin rate as you work through that for markdowns, which I wouldn’t imagine would be a big deal, or a leverage of any kind of fixed cost over the inventory base?

Yes. We model out the sale of our products over long periods of time. And basically, as the fleet of cars hit the road, they begin to fail as the out years occur. It builds to a peak and then moderates down but it occurs over about a 10-year horizon. So unlike a business that would be apparel or high-technology products, the rate of obsolescence is very, very slow in our industry. So generally, this was not a risk to margins or a risk to obsolescence. It was more of getting ahead of ourselves in availability and we are selling off that inventory into a more preferred position over a period of several quarters.

Our next question is from Kate McShane with Citi Investment Research.

If I could just follow up on the last question. How much success did you have during the quarter in tapping some of these higher prices through? And are you trying to pass through 100% of the cost increases that you're seeing? And in regards to the price competition, what are the categories where you're seeing the most pressure?

Yes. Essentially, our ability to pass the price increases through is generally good in this industry. This is not a highly price-sensitive industry and it has been that the majority of the inflation that we've seen then ends up reflecting on the prices that we charge. That said, I would say that as is obvious, the increases in prices that we're getting caused by inflation are happening at a higher rate, at this point, than we’re successfully able to pass them on through. If you stand back and look at it over time, time is on our side. And generally, the true cost of the products ultimately is reflected at retail. And I think this has more to do with a quarter-to-quarter impact more so than a long-term structural issue. It is also uncertain at this point with just the global economy what the underlying prices for steel, lead and oil will be. So that's not something I'm skilled at predicting at this point. In terms of the specific categories, where the inflation’s coming in is products that have a lot of lead, a lot of steel and a lot of oil, but we don't give specific category breakdowns of what we're seeing in terms of pricing.

Okay, great. And then my second question is on the E-commerce business since it's still somewhat a recent event since you relaunched your site. Are there any significant investments that you have left that's contributing to your SG&A spend for this year?

I think the investment profile that we have in the E-commerce business is likely to be similar ahead of us as it has been behind us. We are very early in that cycle. The growth rates that we're seeing are -- we're delighted with and are unusually high. Some of that is playing catch-up for competitors that put E-commerce businesses on years ahead of us. But I don't see that as a factor in a growth of SG&A. It's more of a consistent investment profile in the quarters ahead.

And our final question today comes from Tony Cristello with BB&T Capital Markets. Anthony Cristello - BB&T Capital Markets: I guess what I wanted to dig a little bit more into was the cost side of things. You talked about the 138 basis points of expense savings or leverage. I was wondering if you could maybe quantify, a little bit, the variable component versus the incentive comp versus what you're anniversary-ing? And what we should think about sticks versus what may have to come back to drive sales and what’s a much more challenging comp environment for the second half of the year?

Yes. So Tony, I'm not going to break out the basis points for you but I'll tell you there were kind of 3 areas that we talked about. And the first one is our incentive comp programs. And here's the thing. We design our incentive compensation programs for growth. And this year, we grew at 44, last year we grew at 72. So you would expect that our incentive comps, across our business including at our SSC [ph], were lower than last year so we were able to leverage that in the quarter. If you ask me, do I hope we leverage that looking forward? The answer is no because we want to grow. And that's why we design those programs is to grow. And then the other components in terms of productivity that we're going to see from our programs' previous investments we've made like in Commercial, and I talked to you about the productivity we're seeing in the sales per program, we'd expect that to continue. We've made great investments and our teams continue to deliver and bring on new customers and grow our Commercial programs. I think they're incented and [indiscernible] this will be our fourth consecutive year of double-digit Commercial growth. So we'd expect to continue to see more productivity. I think the biggest donor is building a more cost-competitive structure and taking costs out of our business that aren't productive. And I think that's where we're going to see the best and the most amount of progress and we started to see that. That was a piece of our SG&A leverage. I don't anticipate we're going to take out 138 basis points every quarter but I would anticipate the largest portion is going to be coming from taking costs that don't matter to our customers…

Yes. So I might go back to what we said. We are extremely proud of the progress we've made, and in fact, we haven't changed any of our practices. We still do full physical so a lot of our processes in how we measure shrink haven't changed at all. And I think you named a few of them. We have a little bit more inventory. We're actually doing some tweaks to our operating model. I would call those -- we're not going to use those as excuses. We're extremely proud of the capability we’ve built up in our team. And it's not one person or 2 people, it's our entire field team and our stores support teams that have worked in collaboration to actually get to that outcome. And I think what happened is we have a lot of stuff going on and it's just like any other business that sometimes when you take your eye off something, the results can wander a little bit and that's what’s happened. And what we've said is we're going to get back to operations, we're going to get back to execution and the good news is this is within our control. The challenge is it’s not an on-off switch, so that's why we said it's going to be over the next few quarters.

And that's all the time we have for questions. I will turn the call back to management for any final comments.

Thank you, Wendy, and thanks to our audience for participating in our Second Quarter Earnings Conference Call. If you have any additional questions, please contact me, Joshua Moore, at (952) 715-5076. Reporters, please contact Shelly Whitaker at (540) 561-8452 and that concludes our call. Thank you.

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