Welcome to the Advance Auto Parts First Quarter 2024 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.

Good morning, and thank you for joining us to discuss our Q1 2024 results. I'm joined today by Shane O'Kelly, President and Chief Executive Officer, and Ryan Grimsland, Executive Vice President and Chief Financial Officer. Following Shane and Ryan's 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 strategic and operational review, initiatives, plans, projections, and future performance. Actual results could differ materially from those projected or implied by the forward-looking statements. Additional information about forward-looking statements and the factors that could cause actual results to differ can be found under the captions, forward-looking statements in our earnings release, and risk factors in our most recent Form 10-K and subsequent filings made with the Commission. Now let me turn the call over to Shane O'Kelly.

Thanks, Elizabeth. Good morning and thank you for joining us for our first quarter earnings call. Before we review the quarter, I would first like to thank the entire Advance team for their continued dedication to serving our customers. Their passion and commitment make a difference each and every day. The year started off slower than anticipated across the industry. At Advance, we saw negative impact from weather, coupled with a challenged consumer who is experiencing diminished purchasing power, higher credit card debt, and uncertainty about the balance of the year in terms of macro conditions. As a result, our Q1 performance was lower than expected with comps down 20 basis points year-over-year. On a positive note, our professional business saw low single-digit improvements in both comp and transactions. We believe that winning in pro is important to our overall strategy and are pursuing that business across multiple segments, including up and down the street customers, strategic accounts, Carquest Independence and Worldpac. Regarding up and down the street customers, we are putting additional focus this year on winning with those accounts and recapturing lost customers. In terms of our turnaround, we continue to execute against our previously outlined decisive actions designed to simplify our business. Those decisive actions are, number one, continuing the sale process for Worldpac. Number two, reducing our costs to become more competitive while investing a portion of those savings back into the front line. Number three, making organizational changes to position us for success. Number four, improving the productivity of all assets. And number five, consolidating our supply chain. We believe these actions will have a long-term positive impact on our business. And let me share a few important updates on each. Starting with the potential sale of Worldpac, we are well underway with that process.…

Thanks, Shane, and good morning everyone. Before I move to our financials, I would also like to thank our almost 70,000 team members for their continued dedication and hard work throughout the quarter. Q1 was challenging from a year-over-year perspective. However, we have instilled renewed P&L discipline and rigor and remain confident in our ability to capitalize on the significant opportunity ahead. In the first quarter, net sales of $3.4 billion decreased 0.3% compared with Q1 2023. The decrease was primarily driven by the reduction of Independence and store closures of about $11 million as we continue our focus on improving asset productivity. Comparable store sales decreased 0.2%. While we still have room for improvement in our assortment and availability levels, we are encouraged by the actions we have taken and relative to our Pro business, helped contribute to positive transactions and comp growth in the quarter. As anticipated, we saw continued pressure on DIY in Q1, resulting in low single-digit negative comparable store sales. From a category perspective, we saw strength in batteries as well as filters and engine management driven by improved availability. In the quarter, we experienced particular softness in several categories as we are seeing consumers adjust their buying behavior and looking to stretch every dollar they spend. This was evidenced by a year-over-year decline in discretionary categories as well as deferred maintenance in the quarter, such as brakes, where often purchased in combination with tire maintenance and installations, which have been down across the industry. The West and Midwest were our top performing regions, while the Mid-Atlantic Southeast, including Texas and Florida were our most challenged. As Shane mentioned, the weather impacted our sales as the country experienced a slower start to the spring season. In Q1, gross profit was $1.4 billion, or 42% of…

Thank you, Ryan. We have significant work to do in terms of turning around the business, but I am confident we are on the right path. I want to once again thank our team members for their unwavering dedication to supporting our customers while adapting to the challenges we face during the quarter. And in the wake of Memorial Day, it's always appropriate to reflect on the contributions of the brave men and women who gave their lives in the service of our country. With that, I would like to open it up to address your questions. Operator?

[Operator Instructions] And our first question today comes from Bret Jordan at Jefferies. Bret, your line is open. Please go ahead.

Hey, good morning guys. Shane O’Kelly: Good morning, Bret.

Did you talk about the cadence of the first five months that gives you comfort in your maintaining the comp guide for the year?

Yeah, I think the cadence, I think we started out a little bit slower due to weather. It started to pick up throughout the quarter. I think Q2, we're seeing similar trends from Q1, but really expect the back half of the year we'll have more favorable compares. And some of the initiatives we're putting in place, Bret, we are expecting to see that continue to bear fruit, especially as we've seen in the Pro business coming out of Q1. Shane O’Kelly: Yeah, as I think about it, positive Pro comp and transactions, I think we'll look to continue doing that. As Ryan mentioned, we've got initiatives specifically targeting Pros, notably up and down the street customer. But I also think on the DIY side, the US consumer, the US consumer is facing a bit of an inflection point as they look at their personal debt loads, as they look at where their purchasing power is. So I think there's some reticence there in terms of how they're spending. And so we think that continues as well.

Great. And then on the Pro side, national account versus up and down the street, the positive comp you saw in the first quarter was there much difference between those two segments?

Yeah. We don't like to break – Bret, I appreciate it, but we don't like to break out the specifics of those two, but we did see positive growth positive growth -- positive comps.

In both sides?

Yep.

Okay. Thank you.

The next question comes from Michael Lasser from UBS. Michael, your line is open. Please go ahead.

Good morning. Thank you so much for taking my question. The challenging outcome with DIY, how are you thinking about that segment over the course of the year? And what are going to be the key drivers that improve the performance of DIY sales from here? Shane O’Kelly: So I think there's a macro story here, and good morning Michael, that affects where the consumer goes. I think the US consumer, the good news is there's a needs-based function for our business. And so those staples where you can't put off doing things, e.g., my car won't start, it needs a new battery. So we'll continue to see those kinds of plays. But there's also a tendency now for consumers to defer maintenance if they can as they wrestle with their checkbooks at the end of the month. I don't see anything changing that in the near term. And so I think the trend that we see continues. We're obviously doing a number of things in terms of how we get to them. We've done some creative marketing programs. We're using our website. We do training with our in-store associates in terms of how they greet customers and understand needs and do appropriate attachment sales. So there's certainly not a lack of activity on our part to make sure we're maximizing opportunities where we interact with consumers. But I just think fundamentally, at a macro level, there's a bit of a, as I said before, an inflection point.

Okay. My follow-up question is on the Worldpac sale. Is there any risk that it won't close or won't be announced in the second quarter and can you give us some sense of what your guidance might look like for this year, if you were to close the deal before the end of the year? Obviously, the intent of the question is to get some sense of how the underlying AAP business is doing outside of Worldpac, so we can have a thesis to understand what the transformation is looking like there? Thank you. Shane O’Kelly: Yeah. So, great question, Michael, and certainly understandable that you'd want to get behind that. We don't do segment reporting and I've used an expression in the 40 acquisitions that I've done, deal is not a deal until a deal is a deal. So when we have something to announce, we will absolutely announce it. But I'll just go to the big picture, which I think is important for everybody, just got to respect the process. So we're very happy with where we are. We're in the middle of it. We believe we'll have it wrapped up before our next earnings announcement, and that's what we've got. And as soon as something is different, e.g., we complete the transaction, we'll let you know, and then we'll look to Ryan to pick what Remainder Company looks like.

Yeah, Michael, we definitely want to give you that perspective, but we've got to wait until there's actually a decision. And when we have that, we will -- if and when we do have a transaction there, we will update our guide and update the projections going forward for the RemainCo.

Thank you very much. Shane O’Kelly: Thank you.

The next question comes from Simeon Gutman from Morgan Stanley. Simeon, your line is open. Please go ahead.

Hey, good morning everyone. Shane, maybe one more try at Worldpac, and I will respect the process. Can I ask, is the decision to sell it still the decision is the right one for the business? Or is it price dependent? And then connected to that, the positive low single-digits that I heard for commercial, that -- I assume, does that include Worldpac or you're separating them out from how you're conveying the message to the Street? Shane O’Kelly: You want to take that?

Yeah. So, Simeon, appreciate that. We're not going to speak about Worldpac versus the rest of the business at this time. We are in the midst of working through the process here. So we'll keep that off the table until we have something where we can't speak to them. We are happy with our Pro business. We are happy with the process and where it's at to date and we'll be able to give you more updates as we actually affirm something up. The decision on this one is still, from a strategic standpoint, we still have the same strategy. We're focused on the blended box and Worldpac is not necessarily tied to that decision. That’s why we’re exploring this opportunity, and we'll continue to explore. We're happy with the where it's at right now. Shane O’Kelly: Yeah, thanks for asking the question. Yeah, thank you. Go ahead.

Sorry, yeah, the follow-up, you hired a new merchant. I wanted to ask about the opportunity with merchandising. If the SKU mix is aligned properly to the vehicle population? And then how should we think about you're doing supply chain consolidation, if you decide to make changes with merchandising, does that have any -- is there a timing or sequencing effect with supply chain? Are there two different activities? Shane O’Kelly: Yeah. I would say there are two different activities. So first, thanks for asking the question. We're thrilled to have Bruce Starnes joining. And I think there's a couple of things that are worth unpacking here. First, in terms of his leadership and his fit, his energy level, he's personally an auto enthusiast, we view that as very important. His merchandising fundamentals in terms of skills he's learned at Target, we have really, really enjoyed getting to know him in this process. I think worth mentioning in terms of how we're doing the transition. We have Tom Seboldt on the Board who joined us 30 years as a merchant in the industry. He will help with Bruce's onboarding. Ken Bush is sticking around through a transition period through his retirement. So this is very much an orderly transition. And so we're very excited to have him come on board. There's always work we can do as it relates to the SKU mix and the vehicle population. I think there's an ocean of auto parts out there. And so as Bruce puts his Mark on the merchandising team, we'll always review what our availability is and having the right part in the right time frame for our customers. So you can imagine a body of work going on there. It doesn't come at the expense of nor is it a sequencing set of activities with supply chain. So supply chain is moving now rapidly. They spent -- Steve Szilagyi, our supply chain leader spent about a year putting our plan together. He is now running in terms of getting our large DC infrastructure established, getting everybody on WMS, introducing market hubs as a node inside of our system. And so as that process goes on, changes to our assortment can occur within it and occur within our business every day today.

Thanks, good luck. Shane O’Kelly: Thank you.

The next question comes from Greg Melich from Evercore ISI. Greg, your line is open. Please go ahead.

Hi, thanks. I wanted to follow up on inflation, deflation and specifically the price investment you referenced. So could you just help frame the 8,500 SKUs? What percentage of the total SKUs that is and the $40 million investment assuming that's about 30 or 40 bps a year of deflation. Is the whole box still have a little bit of inflation? Or how would you frame that? Shane O’Kelly: So the impetus for the $40 million came from both our own data assessments and then getting feedback from customers -- there are Pro customers and consumer customers where we were just fundamentally out of the market in terms of being competitive. And I think this is important. I think the conduct in this industry is a rational one. We're a rational player in terms of what we do. But in instances where our pricing just simply doesn't make sense relative to the market, we made some surgical moves to make sure our pricing reflected what the market is, so that we're viewed as a legitimate source from where customers will buy. So 8,500 as a percentage of SKUs is our relatively small percentage. Ryan, if you want to add some.

Yeah, Greg, I mean, it's about 3% of the enterprise SKU count right now. I think if we looked at Advance only it's about 8%. So it's not a significant portion of the overall, but it is just making sure that we get competitive in key areas.

Got it. And that $40 million, would you say that across the box, if the industry is still rational, that we're still seeing slight inflation in the comp in first quarter?

Yes. There's still a little bit of inflation, I think, in the industry, just slight inflation in the quarter. It is very rational. Like we said, we want to be competitive from a pricing standpoint. And I think the overall industry is fairly rational. Shane O’Kelly: Yeah. I would use the term disinflation. So I don't think we've hit deflation, but certainly, that tempo of inflation has metered.

Thanks, and good luck. Shane O’Kelly: Thank you.

The next question comes from Scot Ciccarelli from Truist. Scot, your line is open. Please go ahead.

Good morning, guys. Can you provide any more color on the amount of margin pressure you're expecting for 2Q, just given the moving pieces out there? And then help us understand the bridge to getting to better margins in the back half. Shane O’Kelly: Yeah, absolutely. So we are going to see a little bit more pressure in Q2. Some of these pricing actions we've taken are going to cycle a full quarter, and there's probably some more that we need to take to get competitive across the board. So we'll take additional pricing actions where it makes sense to be competitive in the marketplace. So we expect to see margin rate decelerate in Q2. Also, we're cycling last year where price was a lever that was pulled last year in Q2. And so we're cycling that. So it's not as much about, A, we're just bringing prices down, but it's also about the comparison year-over-year. In Q1 of last year, it wasn't as much of a price action. In fact, they were actually trying a little bit to get more competitive last year in Q1. So the cycle in comparison wasn't as significant. But in Q2, we're comparing against some pricing actions last year. So that kind of compounds on it. I'm not going to give specifics guide around the quarter, but I would say you would expect that rate from Q1 to decelerate. Now what we're doing, a couple of things. One is all the PLRs that we've done in the first part of the year, we're going to start to see the benefit of those take place in the back half of the year. We're going to see the unit start to take on. We have seen where we've made changes in price, we started to see some of the unit start to take hold. That takes a little bit of time as consumers start to see that. So we'll see some of that. And then we're continuing to work with our supplier partners on cost-out that's going to help impact the second half of the year. And then as our supply chain consolidation takes hold, we'll see some of that benefit start to hit in the back half of the year. So these things take a little bit of time to come up in the back half. We also have better comparisons in the back half than we do in the first half. We mentioned that going into the year that our first half would be more pressured than the back half really due to some of these pricing actions we're cycling and comparing against. Hopefully, that was helpful, Scot.

Super helpful. Just to clarify though, like you do expect 2Q operating margin could be lower than your 1Q operating margin? Shane O’Kelly: Yeah. Year-over-year.

[indiscernible] that's sequential. Shane O’Kelly: Yeah. I mean from a year-over-year basis, the deleverage, yeah.

Got it. Understood. Thank you. Shane O’Kelly: Thanks, Scot.

The next question comes from Chris Horvers at JPMorgan. Chris, your line is open. Please go ahead.

Hi, good morning. It's Christian Carlino on for Chris. Are you thinking about what structural gross margins might look like any differently now that you're investing in price or presumably this has been part of the plan and you still have visibility to eclipsing that 42% over the near medium term, once you recapture some of the onetime costs from last year. Thanks. Shane O’Kelly: Yeah. We -- this is definitely part of the plan as we continue to investigate competitively priced, and we still are committing to our guide for the year, and we still have line of sight to that. So we're still comfortable with where we believe we'll end the year given the macro backdrop. But this is part of the plan, and we're going to invest where we can to be competitive.

Yeah. I think the pricing actions are modest, and there's the other side of that equation, which is what our merchant team can do working with our vendors to make sure they're securing the appropriate source costs for our product. So I think we've got some opportunity there, and we'll look for Bruce as he comes on board to start putting programs in place for that.

Got it. That's helpful. And understanding there's not much to update us on the transaction at this point, could you speak to how you're thinking about the potential use of proceeds from the sale? Is there a level of leverage where you'd be more comfortable stepping up the investments in the DC conversions or some of the other turnaround efforts you're undertaking? Shane O’Kelly: Yeah. So we think about three potential uses. I think the first Ryan working with our Treasurer, Tony Iskander, will look to de-lever the company to some degree. So they'll look at our various debt tranches and decide which ones we'd potentially take out. So I think that's an important -- that's the first use. And then the second use, which we've started to ask our different functional areas is where we would accelerate investment for already underway initiatives that we can bring about a faster conclusion. And you could think about a couple of candidates here. So from a supply chain perspective, we've got this ongoing new market hub development, our large DC network build-out. So Steve would likely be a candidate for proceeds. Technology, we talked about POS stability. We still have some stores that are on a legacy POS system. We could do POS unification be an example. And then as you think about stores in terms of our new store opening capability, condition of our stores, Junior Ward, there would be -- there'd likely be some opportunities there. So those three constituents, I think, are at the top of the list of where we would put money to move faster with things that we've got going on. And so that's kind of the two priorities. Third, we'll be thinking about our shareholders in some way. But those are the three.

Got it. Thank you very much. Best of luck.

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

Hey, good morning. Can you talk a bit more about the game plan for market hub conversions? You mentioned some successful pilots Curious what you saw that gave you confidence and any early color you can share in terms of what you would expect in terms of lifts on the Pro or DIY customer. Shane O’Kelly: Yeah. So -- and I think you see this elsewhere in the industry. But the premise is that if you have parts closer to customers and you're more responsive, you get more orders. And so what we did is we looked at how we fit in that regard in terms of what can we get you in 30 minutes, what can we get you in two hours, four hours, same day, next day. And we found there's a significant shortfall in the number of parts that we can get you at those requisite time frames. So we said, well, how do we accelerate that? How do we be more competitive. And so what a market hub does is it pushes parts closer to the customer to where we can get it to other hubs or stores where it would otherwise have to come from the DC. And our DC works in two ways. We have replenishment orders, which go to stores with some frequency. We also have developed a parts delivered quickly program for one-offs, which was expensive and time consuming. And so by using the hub, we can get it to a store more quickly than if it was coming from the DC. And so that's what we've seen. And what we see both physically within that store, that actual hub, where we have those parts, we get sales. And then the surrounding stores, if you could think about that as about 100 stores, they're now getting better service because they were previously relying on only the DC. So that's the premise. I think just another comment here. Sometimes in a business, being a fast follow could be an effective strategy. And so beyond our own pilot results, I think the effectiveness with this market hub concept elsewhere in the business also points to the idea that it's a good one.

Got it. Thanks for the color. And then a couple of clarification questions. First, on the gain on the SG&A line, any quantification of the impact there and then second, any color on the slight notch up in the high end of your '24 sales outlook?

Yeah, Zach. I appreciate you bringing that up. When the press release was issued, we noticed immediately the error, we're going to send an amendment out. We are confirming our guide at the top end of that sales guide should be 11.4%, not 11.5%. The rest of the numbers are accurate. So you should see that come through shortly. As far as the gain, the gain was $18 million in the quarter. It was also implied in our guide that was a P1 gain.

Got it. Appreciate the time guys. Shane O’Kelly: Likewise. Thank you.

The next question comes from Aaron Reed at Northcoast Research. Aaron, your line is open. Please go ahead.

Yeah. Thanks for taking my call. I just wanted to follow up on the sale of Worldpac, and it sounds like you had the initiative once the proceeds come in, it's the amount of reducing debt, really improving some of the stores. And it sounds like an additional component is possibly returning funds to shareholders. My question is, is that going to be largely dependent on the price that you get for it? Or is this something to where it's an order tier or debt first and then store improvement, if it's going to be, I mean how should we look at that allocation when that's all said and done? Shane O’Kelly: Yeah. I'll start and then Ryan and Tony joined us this morning, he can jump in. Debt first. I think that is the best early use of proceeds and so we'd go there. And again, Tony and Ryan will figure out exactly where we draw the line in terms of how much we would pay off. Our sense though is that there's monies for all three of those potential use buckets based on our assessment of Worldpac's value. But gentlemen?

Yeah. So, hey Aaron, good to talk to you again. We would first put money towards deleveraging, getting back and getting closer to our leverage targets that we've talked about publicly of closer to 2.5 times over time. We would also put money towards our initiative, some of what Shane and Ryan talked about earlier in our prepared remarks. And of course, anything excess would go back to shareholders, and we would look to do that over time as well.

Yeah, Aaron, I think the biggest thing is we're going to be prudent on this one as well and the timing and sequencing of that. We know this is a multiyear turnaround for the company. And so the first debt priority of pay down the debt and then invest in the business for the turnaround, are the top priorities for us.

Okay. Great. Thanks. And then I guess just a follow-up question to go a little closer, you’re trying to get that closer to that target debt ratio. Does that mean that you don't believe that with the sale and allocation will be able to fully achieve your target debt ratio?

Yeah. Aaron, we're not ready to talk about the actual dollar amounts that we would get from the transaction. So we'll wait to be able to share that when and if we do have a transaction, if that's all right.

Yeah, great. Thank you very much.

Appreciate it. Thanks, Aaron.

The next question comes from Steven Forbes of Guggenheim Partners. Steven, your line is open. Please go ahead.

Good morning. This is Rene Marin on for Steve Forbes. I want to focus on the DC to market conversions. Can you help us think through the KPIs you are focused on as you think through the ROI of such progress and whether these conversions can drive the improvement you need. Thank you. Shane O’Kelly: I missed the very last part of your sentence. If you could just say that one more time, please?

Yeah. And whether these conversions are driving the improvement you need? Shane O’Kelly: Yeah, fantastic. So as we think about metrics, sales per square foot, service interval for SKUs available, sales are all important in terms of what we do it along with the cost to convert and then the ongoing operating costs. So those are some of the key metrics. Let me also talk qualitatively about what goes on. One of the challenges in our network is we previously made the decisions that we would treat all DCs equally. So we have 38 DCs serving the boxes and the disparity in their size ended up with huge inequities in terms of what stores saw in terms of their replenishment. So you could be a store manager and have 1 million square foot DC that's a few hours away that's servicing your store or you could be a store manager and have a 100,000 square foot DC servicing you and your facility. So the breadth and depth of what was available to you as a store was fundamentally different depending on which DC was serving you. But we declared them all to be replenishment nodes, which creates an issue. By the way, we declare them all to be intake nodes, which we would go to our vendors and say, hey, we need you to ship product into 38 DCs, which meant some DCs could take a truckload and other DCs would take an LTL skid. So we knew structurally, that's just not a good way to operate a supply chain. So with that backdrop, as we've gone in and modeled it, it also makes sense from some of the metrics that we just alluded to. So what we're doing with the market hub is we're taking 40,000 to 50,000 square…

Thank you.

The next question comes from Max Rakhlenko from TD Securities. Max, your line is open. Please go ahead.

Great. Thanks a lot. So first, the 8,500 price action SKUs, is that the biggest chunk of the SKUs? Or is it that just the start and the SKU count could ultimately look quite a bit bigger over time? Shane O’Kelly: So, one of the things that we did in the company is we moved pricing into merchandising. So previously, those had been disjointed functions. And so the way I think about pricing is we want to be competitive. We don't want to lead the market down. We don't want to be inappropriately highly priced to where our customers don't want to buy from us. And I mentioned before, we think it's a logical industry with good conduct. And so what you can expect from us is good merchants will be talking to their vendors to make sure that we're sourcing at the right cost. I think we have opportunities there. And good merchants are looking at their portfolio. In some instances, they'll say, hey, I think were higher relative to the market and we move down. In other instances, they're going to say, actually, we have opportunity to move price up. I think the key message you could take away from us is that we'll have capable pricing teams working very closely with merchants to be at the market, and we'll look to make sure we're sourcing to hit the margins that we need to hit.

Yeah. Max, I'll add. Of those 8,500 SKUs, some of them, we actually brought price up, right? So this is about getting right priced across the portfolio. Obviously, the bulk of them were getting -- bringing prices down and being in a competitive place. But we did bring some up to Shane's point as well. And we said it's about 3% of the overall enterprise SKUs and 8% of Advance. Will that increase as Shane said, as the new merchant comes in as merchandising works through it? I'm sure that there will be more that will add to it.

Got it. It's very helpful. And then can you speak to a competitive environment and progress you're making with your up and down the street accounts? And then what are some of the key initiatives besides price? And how should we think about the cadence of acceleration as the year goes on? Shane O’Kelly: Yeah. So if you look at our 92-year history, I think throughout Advance's history, we view the Pro customer as a market that we have a right to participate in. And so it's a perfectly natural set of activities for us that we have a lot of steep capability. And so there's a whole series of activities going on. So first, we use outside sales team members, CAMS. We've rejuvenated their compensation program. And if you think about -- we've talked about investing in the front line, CAMS and CPPs, CPPs being commercial parts pros, and they're the in-store pro conduit, we're investing in both of those roles in terms of compensation. We're investing in those roles in terms of training. We're investing in those roles in terms of career trajectories. We're doing a lot in terms of understanding our market. So in the proximity to where a store exists, what are -- who are all the Pro customers? And what's our relative penetration with those customers, what is the visit frequency. What is it -- what products are we propositioning to that customer. Those are all things that go on. We have TechNet, which is a warrant service and capability builder for our Pro customers that we bring to the market. And so there is a whole litany of activities. Our Pro website. Our equipment program, our recognition trips. So we -- across the spectrum of what a Pro customer would find attractive we have an answer for their needs. And it's just about being organized and highlighting those needs, and we're really pleased with the direction that's taking place.

Great. Thanks a lot. Best regards. Shane O’Kelly: Thank you.

The next question comes from Chris Bottiglieri from BNP Paribas. Chris, your line is open. Please go ahead.

Hey, thanks for taking the question. Just a couple of clarifying ones. The $18 million, was that a sales leaseback or something else? And then on Worldpac, is there -- do the accounting control or mediations, does that influence the Worldpac sale? Like, does that need to be resolved first for the finance to be relied on? I just want -- curious if that's having an impact on the asset sale. Shane O’Kelly: Yeah, Chris. No, the Worldpac piece is not going to impact the transaction there from that perspective. That's kind of kept separate from a sale gain on asset with sale leaseback. Yeah.

Sale leaseback. Okay. And then just the last one, the capitalized supply chain costs you called out this quarter, can you quantify that and tell us what you're thinking in terms of like Q2 and the back half, that's something that should persist or not?

From an overall inflation standpoint, we expect that to be very moderate for the rest of the year from a product inflation rate. Obviously, we are -- in our guide originally, we said we wouldn't be able to capitalize on full inflation on the year because we were going to be taking pricing actions, and we'll continue to do that through the year. In fact, I think in our guide, we're talking about inflation being about 1% in the industry, and we expect that it would be still around 1%.

Yeah, okay. Thank you.

The next question comes from Carrick Irwin from Barclays. Carrick, please go ahead. Your line is open.

Hey, guys. It's Seth Sigman. Hopefully, you could hear me. Shane O’Kelly: Hey, Seth.

Just as a follow-up on a previous question. I guess, number one -- hey guys, sorry for confusion here. So two quick follow-ups, and I'll just ask from both up front here. So just on the guidance for Q2, just trying to think about more pressure year-over-year on operating margin. Can you just give us a little bit more flavor? Is that more on gross margin or SG&A? Or is it really a combination of both? So let's just clarify that. And then my real follow-up question is around the store footprint. It looks like the pace of closings starting to pick up a little bit here. How do you think about that? Do you have a view on the ultimate number of store closings and maybe any more color on what you're learning some of the characteristics of the units that you're closing, that would be great. Thanks.

Yeah. Great question, Seth. A couple of things. The pressure in Q2 will be mainly driven on gross margin. That's where we're going to see the pressure. It's mainly driven by the pricing actions, cycling those pricing actions from last year and just -- and some of the timing of us working to get some of the cost out and product costs, supply chain benefits, et cetera, and the unit lift that will take time as the consumers recognize our new pricing -- competitive pricing. So it's mainly going to be realized in gross profit on that perspective. Shane O’Kelly: I'll talk on the store closing. Thanks for asking the question. So first, we don't have an eye to go out and just say, hey, we want to shut x number of stores, it's all part of our asset productivity assessment. And so we're looking across the network. We're looking at every asset that we own and say, hey, what does this do for the company? And is it where it should be? And is it doing what it could be? So when we identify it as it relates to a store, the first thing we say is, hey, can we turn the store around? I mean that's the preferred lens. And so we look at what the management is and how the management is performing. We look at -- we talked about our Pro efforts, and we say, hey, our Pro efforts grounded there, what's going on with the outside sales, team member in that geography, the CPPs. So first flush with the store's performance is always to say, can we make this a healthy store. There are some instances where if you look at our regional market share we're just -- structurally, we're in a situation where we just can't make the math work, and that's where closing becomes an option. And so we don't publish a number in terms of, hey, we think this is how many we think we are going to close or could close. It's just an ongoing management of the business that's now one of the items in the toolbox. By the way, so too is opening a new store. And in that regard, we haven't published an NSO number, but I think I want people to know that our real estate team in terms of its capabilities is really -- we've really made a number of improvements there. We've unified real estate under one leader. We've looked at our real estate management process in terms of buy versus lease in terms of site selection, in terms of timeline to get a facility up in terms of hit out and fit out in terms of new store opening processes. And so we're really seeing for the new stores we opened a much better process that is something that we'll look to leverage in the future.

All right. Thank you all so much for joining us this morning. That is all the questions we've received. We appreciate your time and continued support. I look forward to updating you again after we report Q2. Have a nice day.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.