Welcome to the O’Reilly Automotive, Inc. Fourth Quarter and Full Year 2022 Earnings Call. My name is Paul and I will be your operator for today’s call. [Operator Instructions] I will now turn the call over to Jeremy Fletcher. Mr. Fletcher, you may begin.

Thank you, Paul. Good morning, everyone and thank you for joining us. During today’s conference call, we will discuss our fourth quarter and full year 2022 results and our outlook for 2023. After our prepared comments, we will host a question-and-answer period. Before we begin this morning, I would like to remind everyone that our comments today contain forward-looking statements and 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 Reform Act of 1995. You can identify these statements by forward-looking words such as estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend or similar words. The company’s actual results could differ materially from any forward-looking statements due to several important factors described in the company’s latest annual report on Form 10-K for the year ended December 31, 2021 and other recent SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. At this time, I would like to introduce Greg Johnson.

Thanks, Jeremy. Good morning, everyone and welcome to the O’Reilly Auto Parts fourth quarter conference call. Before we begin our discussion on our results and our plans for 2023, I’d like to take a few moments to discuss the announcement we made in January regarding the promotion of Brad Beckham and Brent Kirby to Co-Presidents. Our company is extremely focused on identifying and developing leaders who in turn are relentless in building the very best team in our industry. Our long-term commitment to succession planning is a critical component of our human capital strategy. In line with that strategy, we are extremely pleased to have Brent and Brad assume the elevated positions of Co-Presidents. Brad and Brent are exceptional leaders and are both driven by their passion for perpetuating our O’Reilly culture and providing excellent service to our customers. Brad and Brent bring diverse and broad experience to their roles of Co-President. Brad’s career with O’Reilly began 26 years ago when he joined the company as a parts specialist in Wagoner, Oklahoma. He has progressed through every leadership role in our store operations group, from Store Manager through Executive Vice President of Store Operations and Sales, before assuming the role of EVP and Chief Operating Officer and now Co-President. Brad’s leadership has been instrumental in the growth and expansion of our company and his impact is evident throughout the leadership ranks of our operational teams, many of whom have been mentored and promoted directly by Brad. As Co-President, Brad is responsible for the company’s domestic and international store operations and sales, real estate and expansion, human resources, training, legal, risk management, loss prevention and finance. Like Brad, Brent brings decades of retail leadership experience to his role as Co-President. Brent began his 35-year retail career with Lowe’s Companies and progressed…

Thanks, Greg and good morning everyone. I would also like to begin my comments this morning by congratulating Team O’Reilly on another great year in 2022. Our team’s focus on providing consistent, excellent customer service allowed us to generate the outstanding results we reported yesterday and we were excited about the opportunities we see to continue to grow our business. Now I’d like to provide some additional color on our fourth quarter comparable store sales results and outline our guidance for 2023. As we discussed on our third quarter conference call, we started the fourth quarter with strong sales volumes in line with trends we saw as we exited the third quarter. Those robust sales volumes continued through the end of the year, delivering results solidly above our expectations on both the professional and DIY sides of our business each month of the quarter. From a cadence perspective, the monthly comp was steady throughout the quarter with December being the strongest month of the quarter on a 2 and 3-year stack basis. As we finished the year, we saw broad-based strength across all of our markets in weather-related categories, such as batteries, cooling and antifreeze as well as our other core non-weather-related categories. We saw strength in both our DIY and professional businesses, with professional again leading the way with double-digit comparable store sales growth on robust increases in both ticket counts and average ticket size. As we finished 2022, we were very pleased with our professional performance and we believe the momentum we have created is the direct result of our team executing our proven business model at a high level and providing industry-leading customer service. We were also pleased to see the improved performance in our DIY business, which accelerated on a 1, 2 and 3-year comparable store…

Thanks, Brad, and good morning, everyone. I would like to begin my remarks today by congratulating Team O’Reilly on yet another strong year. Once again, your commitment to consistent, excellent customer service drove outstanding results in 2022. As Greg and Brad have already shared, it was a privilege to be able to get together with our industry-leading team professional parts people at our leadership conference in January, and we are all incredibly excited about the strength of our business moving forward in 2023. Today, I’m going to discuss our fourth quarter and full year gross margin and supply chain results and our outlook for 2023 and provide color on our capital investments. Starting with gross margin. Our fourth quarter gross margin of 50.9% was 183 basis point decrease from the fourth quarter of 2021, but in line with our guidance expectations. For the full year, gross margin came in at 51.2%, which was 145 basis point decrease from last year. Our year-over-year margin results were primarily impacted by the rollout of our professional pricing initiative, combined with anticipated comparison headwinds to the LIFO benefits that we realized in 2021. We are pleased to generate a full year gross margin rate in the upper end of our guidance range. However, we’re even more excited to drive strong gross profit dollar growth. Our price investments and superior execution of our business model paid off in a solid 5% increase in gross profit dollars in 2022, which represents a 3-year compounded annual growth rate of 11%. I want to thank our supply chain store operations and sales teams for their hard work in driving these results in a dynamic and very challenging market environment. For 2023, we expect gross margin to be in the range of 50.8% to 51.3%, which is consistent with…

Thanks, Brent. I would also like to congratulate Team O’Reilly on another outstanding year. Now we will fill in some additional details on our fourth quarter results and guidance for 2023. For the fourth quarter, sales increased $353 million, comprised of a $288 million increase in comp store sales, a $65 million increase in non-comp store sales, a $2 million increase in non-comp non-store sales, and a $2 million decrease from closed stores. For 2023, we expect our total revenues to be between $15.2 billion and $15.5 billion. Brent covered our gross margin performance and guidance earlier, but I want to provide a quick reminder on how we view the application of LIFO in our gross margin results. We view our reported gross margin as the best measurement of our performance. Since the GAAP cost of goods sold under the LIFO method most closely matches our current acquisition costs, as a result, we don’t view the normal application of LIFO as a discrete charge in our evaluation of gross margin. In the first quarter of 2022, we did receive a limited benefit of just under $10 million, resulting from the reversal of our historic LIFO debit balance and the final sell-through of inventory purchased prior to acquisition cost increases. This comparison headwind is a component of our gross margin expectations that Brent outlined earlier. Our fourth quarter effective tax rate was 18.2% of pretax income, comprised of a base rate of 19.9%, reduced by a 1.7% benefit for share-based compensation. This compares to the fourth quarter of 2021 rate of 19.4% of pretax income which was comprised of a base tax rate of 20.4% reduced by a 1% benefit for share-based compensation. The fourth quarter of 2022 base rate as compared to 2021 was lower as a result of an…

Thank you. [Operator Instructions] And the first question today is coming from Michael Lasser from UBS. Michael, your line is live.

Good morning. Thanks a lot for taking my question. So prior to the pandemic [indiscernible], O’Reilly would consistently guide its comp in the 3% to 5% range. This year, that outlook calls for 4% to 6% increase. Are you backing into that based on the investments that you’re making in SG&A such that you need this sales level in order to drive leverage to cover the buildup of cost? And if so, does that create some downside comp risk kind of similar to how last year played out?

Yes, Michael, this is Greg. I mean, the answer to your question is absolutely not. Brad and – talked a lot about our bullish thesis on both the industry and what we expected from our company in 2023. And the fact that miles driven has improved, not to the point of pre-pandemic levels, fuel prices have stabilized, new car sales and used car sale prices have been elevated, and overall sales have been softer over the past few years, I think there’ll be some recovery there in 2023, but we still see a tremendous opportunity just because new car sales may improve, that doesn’t mean that the millions of cars that are on the road today will just simply vanish. Cars are built better, they are lasting longer. And for all those reasons that Brad laid out. We’re very, very optimistic about the future. But as always, we’re cautious. First and fourth quarters are more volatile. And I don’t know what’s going to happen with the economy. The onset of spring impacts our volumes. But overall, on an annual basis, we remain very bullish for our future.

Michael, maybe the only thing I would add there is we continue to expect to an average ticket benefit that’s greater than normal years as we roll over some of the pricing changes that happened within our business and our industry last year. But even as we step behind or beyond some of those macro factors, we feel very positive about how we think about the opportunities we have from a share perspective as we move through next year. And those are things that we have confidence in because of the trends that we’ve seen for the last couple of quarters as we’ve seen the – I think our customer base be really resilient and respond, and we’ve seen traction and momentum on both sides of our business.

That makes sense. My follow-up question, and you’ve gotten this a lot recently, is that costs have come down quite a bit, whether it’s supply chain costs in the form of lower containers, petroleum prices. Can you quantify the savings that O’Reilly is experiencing from these lower input costs? And are you passing along the savings in the form of lower prices or is that helping the profitability in offsetting some of the other pressures that you had identified?

Yes, Michael, maybe let me answer your question backwards and the second part first. Yes, we’re absolutely – whenever we see any potential benefits, we’re – we’ve been able to take that to the bottom line. We have not seen to date any market movements to roll back some of the increases that we’ve seen and if there is been any relief on pressures. And Brent talked about that as a positive within his prepared comments. We do expect some benefits there this year. I think to the first part of your question, we haven’t quantified – we won’t. And I would maybe caution a little bit to treat that as a big factor moving in one direction. There continues cost pressure on balance. We think that we will see more cost increases this year than decreases as our suppliers continue to stay under pressure. And while we’ve seen some reductions, and those are good, and we’re positive about that. We’re very cautious in how we think about that moving forward and the benefits that we would bake in. And I think you see that reflected and really how – I think we’ve talked about this for the last couple of quarters, but then also as we’ve laid out our outlook.

Thank you so much and good luck to Brad and Brent in their new roles, and the entire team.

Thank you, Michael.

Thank you, Michael.

Thank you. The next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.

Hey, guys. I’m going to ask the one and a follow-up now. The first question on SG&A growth. Is this a 2023 event or – are the spending on the stores and people? Or do you foresee some of this spilling into next year? And then to clarify, if product the second is to follow up, if product acquisition costs start coming down, because you didn’t record a charge, does that create – does that – do we start creating a new debit balance? Just I think that, that won’t help the gross margin then since you didn’t create a charge you just build up another reserve. I just want to make sure that’s right.

Yes. Simeon, I will take – I will start the SG&A response here, and then maybe Jeremy or Brent will want to chime in. We haven’t changed our focus. Our focus continues to be growing operating margin dollars. Our focus continues to be to grow top line faster than we grow SG&A. None of that’s changed. We still talk about our core culture value of expense control day-in and day-out. This change this year was a deliberate and a prudent effort to try to position us for future growth. There is a lot that’s changed over the past 2 years in the retail market and industries as a whole across all industries, actually. And we faced wage pressures, there is no secret there. We faced turnover. And we really looked ourselves in the mirror this year and had conversations with our team members about what is important. We want to stop the turnover, get back to normalized rates, make sure we have the ability to recruit, promote and retain the best talent, which is what we have been successful with for also – so part of that initiative, and I am not going to go into all of it, perhaps Brent or Brad would want to go into more detail. We called out the initiative on the PTO. That’s one example of us listening to our team members as to what’s important to them and an effort for us to position ourselves for future growth. I don’t know, Jeremy, if you had anything to add?

Yes. Maybe the only thing I would say is we establish our SG&A guidance 1 year at a time, and I don’t want to guide from a pure dollar perspective, what we look like beyond that. I think what Greg points to, though, is that we remain highly committed to making sure that we are driving the right results out of every part of what we invest in our business from an expense control standpoint. And so as we move beyond this year, we intend that these investments pay off, that we lever SG&A as a result of them. And I think what you would expect to see from that perspective hasn’t changed from a long-term standpoint. Does that mean we won’t find other things as we continue to move forward and invest in, we will continue to evaluate that. It is our intent to do what we can do to build the long-term strength of our business. And I think what you see in our guidance and what we talked about matches up with that. Maybe just briefly to address your second question around the LIFO perspective, to the extent we see cost decreases in the coming year, we again, don’t expect that on balance substantially. They are going to offset cost increases. It would require a magnitude of change there that’s far in excess of what we would expect for our LIFO accounting to push back into a debit balance. So, we will be on a credit LIFO for the foreseeable future and the impact of that is as we see cost increases that will get reflected pretty rapidly within our reported results.

Thank you.

Thanks.

Thank you. The next question is coming from Greg Melich from Evercore ISI. Greg, your line is live.

Great. Thanks. I guess my first question was on wages. What was the inflation in average hourly wage that you saw last year? And what are you expecting this year in the guidance?

Yes. It was significant in 2022. It was in the mid to high-single digit range for inflation. It depends on market and type of position for us. We expect that to moderate off of those levels. We will have some carryover impact there from a comparative situation evolves. But we are still building in an expectation of somewhere in mid-single digit range from a wage perspective because of those factors. What I would tell you is that we see that is the ongoing regular management of our business. And we expect that, as we saw in 2022, that we will have the ability to pass along the cost increases to the extent that we have planned. And if that number ends up being different than what we foresee at this point in time, we will have the ability to pass it along as well.

Got it. And then my second question is on mix shift. You mentioned that as being a slight headwind to gross margin, I would love to have a little more detail on that and color within DIY and pro. Is there any trade-down occurring? What sort of behaviors are you seeing from your customers on both sides of the house?

Yes. Greg, this is Brent. I can start on that and then others can chime in. We really – net overall, we haven’t seen a lot of trade-down. In some categories, we have actually seen trade up as cars become more sophisticated and OE requirements on batteries as an example, with AGM, and some of the higher price points that are required on a lot of replacement batteries today. So, we have seen a lot of that actually move the consumer from the best to the better in a lot of cases – or better to best, rather. We have seen a little bit a category where we still had some – a lot of inflation in the oil category, and we have had majors that have still struggled with their supply chain. In some cases, we have seen customers trade-down to some of our proprietary brands on oil. And quite frankly, they are happy with what they are getting and we are seeing some stickiness there with those customers with some of our proprietary brands, which long-term is a good thing for us. But net-net, we haven’t seen any violent move, one way or the other, in terms of trade-up or trade-down.

And Greg, maybe specifically to your question, in Brett’s prepared comments, when you talked about some modest headwinds there, that’s really on the professional versus DIY mix, because we anticipate professional and our top line grows faster in that that creates just the mathematical pressure on…

That’s a category mix effect, not within the two sides.

That is side of business mix effect, not within each side from a category.

The expectation is that the DIFM is going to outperform DIY.

Got it. Perfect. Well, good luck and thanks.

Thanks Greg.

Thank you. The next question is coming from Seth Basham from Wedbush. Seth, your line is live.

Thanks a lot and good morning. And my question is around the DIY side of the business. You mentioned that you see some opportunities for ticket growth, but you are more cautious. Now, even with the easier comparisons there in the first half of the year, would you expect ticket growth – ticket account growth, I should say, in the first half of 2023?

Yes. Just to clarify, Seth, in Brad’s comments, we said we expect DIY tickets to be slightly down. Now, we see some benefit as we continue to perform well against the marketplace, we are gaining share on the DIY side of our business. And we will have some easier comparisons in the first part of the year because of the pressures we saw last year that you mentioned. That’s really all partial offsets against the longer term industry trend that we and others have talked about that pressures ticket count comps because of the increasing costs and complexity of vehicle parts that supports the average ticket price, but possibly lead to service intervals and repair cycles that extend out. So, we anticipate that, that is a bigger impact for us as we move through the year. But – and that is kind of consistent with how we would normally think about DIY tickets.

Got it. Okay. So, a little bit less pressure in the first half of the year and then more normal thereafter?

Correct.

Thank you very much.

Thanks Seth.

Thank you. The next question is coming from Brian Nagel from Oppenheimer. Brian, your line is live.

Hi. Good morning. Thanks for taking my questions. Congratulations on the promotions.

Thanks Brian.

Thank you, Brian.

So, the first question, I guess it’s pretty simple, but the business did accelerate just from the comp perspective, even stacked up nicely here in Q4. And then the commentary you made suggests that strength has continued here to Q1. You mentioned weather is a driver. Is there – I guess, can we maybe quantify the benefits of weather within that acceleration? And are there other factors that could help to explain why the business has strengthened further off of already strong levels?

Yes. Brian, thanks for the question. The weather is a part of the acceleration, I would tell you, it’s not all of the acceleration. So, we continue to see traction. And maybe I will start here and the other guys can jump in. We continue to see strong traction within our professional business and the trends there we have seen, we are very encouraged by. From a DIY perspective as we move further out in the middle part of the year when we saw pressure that, that customer has proven to be resilient and stabilized quite a bit. And we have seen some incremental improvements there that are positive. Obviously, as we think about those things, we look at them on a stack basis because of the comparison questions. But those types of things were positive. As we got to the last couple of weeks of the year, we had a cold snap that stretched across a lot of the country and we can see that pretty clearly. But even in that period of time, what we saw was broad-based across a lot of our regions and markets and customers. And we have been pleased with how we continue to see strength in the first quarter.

Brian, I think one of the things we called out that I think you are referencing is the strength in winter categories. And we did see – actually it was the expected strength where we saw cold weather, snowy weather. Obviously, up in North, snow is probably better for us than it is in the South, but the recovery component after the snow gets cleared in the South helps us out as well.

Got it. And then helpful. Then my second question, look, I know it’s early. We have been talking about it as an investment community inflation and within your business for a while. But maybe as you are starting to see those inflationary pressures begin to abate and recognizing you are not lowering prices, but prices may not be going up as much as they once were, are you seeing consumers react favorably to that? In other words, I am asking, are you starting to see the early indications of what may be sort of say, an elasticity of demand here?

Yes. It’s kind of tough to see that, Brian. I think it lays into a lot of other factors with the consumer. We don’t see the same types of pressure on our customers when we have those things pass through. The shocks are a big deal. We saw shocks in 2022. But pretty quickly, our consumer adjusted to that. They have a real non-discretionary need for what they buy from us. They got to keep their car on the road to be able to get to work, to take their kids to activities, to do so many things that are part of American life. So, as we move past that, we have, I think some benefits. Before we were a little bit more constrained, maybe we have more of an opportunity to add items to a job or to sell them up on the value perspective, and we feel positive. But I think our positivity is just around the overall strength of how we view that consumer.

Brian, and to Brent’s earlier comments about a trading up, trading down, we just really haven’t seen evidence of a significant trade-down to drive us to think that there was tremendous cost pressure on the consumer. Some of the trade-up, trade-down, trade-across, as I have said in previous quarters, was about inventory availability. Perhaps we didn’t have the particular brand they wanted. But a lot of that subsided with the improvement in our supply chain. So, really haven’t seen any evidence of elasticity or trade-down.

Got it. Alright. Guys, congrats again. Thank you.

Thanks Brian.

Thank you. And the next question is coming from Mike Baker from D.A. Davidson. Mike, your line is live.

Okay. Thanks guys. We sort of danced around this, I think a little bit, but I wanted to ask you about any concern about a price war or aggressive pricing? We talked about it a year ago, there was a big concern. It never really materialized. But now as auto is talking about getting more investment in pricing, your gross margin, the midpoint is down, can you just address how you talk about or think about pricing amongst your close-end competitors? Thanks.

Yes, Mike. We – as we said last year when we introduced this concept of adjusting our prices, it was a very scientific process we went about. It was thought out, it was tested, it was evaluated. And it wasn’t across the board. It was directed to individual SKUs across individual categories. And we did not see any movement from our competitors at that time. Since then, we have clearly taken some market share. So, what our competitors do going forward, we don’t know. We have no control over it. But we have seen no evidence of that today. Brad, you live this day-in and day-out. What are your thoughts?

Yes. Hi, good morning Mike. Yes. As you know, as we talked for a long time, all of us here have been in this industry a long time. We have been with the company a long time. That’s the first time in my 26-year career that we have really moved our framework down the way we did. And we have no plans to do that again. We felt like, as you know, there was a huge opportunity. We work in a $130 billion industry, and we do – we have 10% share. And as you know, on the professional side, it’s so much more fragmented. And with the disruption we saw the last couple of years in supply chain and some other things that hit the independents and some of the smaller players harder, especially some of the weaker ones, it was very strategic for us to make the decision we made. And we feel not only as good as we did a year ago, but we feel better in the decision we made. But it’s made, we did it, we rolled it out. And there is no plans to do that again. And just to remind you, Mike, our team’s pro-price initiative is probably fifth or sixth down the list when our operational and sales teams go to market. They are focused on having relationships with the installers. They are focused on having relationships with the decision makers, given the best delivery service in town, helping them turn their base. And I don’t necessarily contribute a large portion success last year to just pricing, it’s backing up the pricing with the top two, three, four things that make the pricing pay-off. And we feel really good about how that’s going to continue to build in 2023.

Yes. Sorry, go on.

Yes. This is Brent. I was just – the only thing I would add to the comments Greg and Brad have already made on professional pricing is the framework remains intact and we monitor it on an ongoing basis. We monitor all our pricing on an ongoing basis. But we have stayed very rigorous around being competitive, but winning on service and parts availability. That’s how we win.

Yes. Makes perfect sense. Appreciate the color.

Thank you.

Thank you. The next question is coming from Chris Horvers from JPMorgan. Chris, your line is live.

Thanks for squeezing me in. Dovetail on a couple of earlier questions. I guess on that DIY acceleration, you got past – gas prices came down, you had some favorable weather in December. But I guess as you would look at DIY, do you think your share gains accelerated sequentially? Like, to what degree was the acceleration some more of like non-specific to O’Reilly factors versus share gains that you have been driving?

Yes. Really hard to say, Chris. And I think, especially on the DIY side of the business, the pace of what we see from a ticket perspective, more modest than on the professional side. I think we talked about where it’s very clear that we know we are outperforming the market. We think that likely throughout the course of all of ‘22 and, frankly, 2021 and 2020, we have been outperforming the market and taking in share gain. So, I don’t know that we have seen a net incremental acceleration there. I think it would be hard to see. And maybe you would have to watch it for a few more quarters. I do think that a lot of what we have seen is our customers just continued to be strong and healthy. And the industry continues to prove out that there is a lot of value in investing in your vehicle at higher mileages that it’s – there is a good payback on that for customers. And I think that’s been a positive as well for us.

And so I have sort of a two-part follow-up. So, one is, I guess on the PTO program, to what extent is this sort of a competitive need where direct competitors, companies like Walmart are – had a higher PTO option that you are reacting to in the environment? And then just second, as you think about the first half, obviously, weather always has an impact. It hasn’t been that great of a winter so far. Is the expectation as you lap that gas shock that is essentially muting what’s been a relatively warm winter?

Hi Chris, this is Brad. I will touch on the PTO and then kick it over for the other. But as you know, Chris, we work in a people business. You have heard us talk for a long time about the importance of having tenure and knowledge and professional parts people. And quite frankly, we are very proud. When Brent and I talk, whether it’s the store teams or DC teams, we are very proud of our ability to retain and cut down on turnover amongst everything that’s happened in the last couple of years. But frankly, Chris, we are getting ahead. We are going to invest in our people. We are looking at human capital. We are looking at things that we are less looking at what maybe competitors do or other parts of retail is we feel like this is very strategic. We feel like our people value their time off. We feel like we need to be more flexible in the way we give them that time off. And so really, this for us is getting ahead, not following anybody. We are being proactive and we are going to invest in our people.

And then maybe on the weather part of your question Chris. I would say, obviously, we have had some positives there at the end of our fourth quarter just maybe more on balance, we would view weather as neutral. I think depending upon market, we see things, plus or minus, there is nothing from a significant change perspective that at least at this point, we would call out as having an overhang effect as we move through to the next couple of quarters as we think about cadence during the year, and I know Brad mentioned it in his comments. We do expect more strength in the first half of the year because of some of the opportunities on average ticket in the comparisons from a DIY and professional ticket count perspective is as we run up against some more opportunities there. But on balance, I think weather, we would say it’s favorable constructive for the type of demand we would like to see in 2023.

Thanks so much. Have a great spring.

Thanks Chris.

Thank you. And the next question is coming from Scot Ciccarelli from Truist. Scot, your line is live.

Hi guys. Scot Ciccarelli. Thanks for squeezing me in as well. Just – I guess one more question regarding kind of the same SKU inflation comments you guys have already made. Are some vendors actually reducing product costs, or are we just talking about reducing the magnitude of increases, because obviously, that’s two different things.

Yes. Chris, this is Brent – Scot, rather, this is Brent. I would tell you it’s a little bit of a mixed bag out there. There are some suppliers that have been more impacted by wage rates and raw material costs than others, obviously. We are always going to negotiate hard. We are always going to negotiate for best first cost. None of that stopped. We are relentless with that. We are going to continue to be. I hit on in the prepared comments, we have seen transportation costs abate from what they were from the peak. We have seen some benefit from that. So, we have also still seen some continued inflation even later in the cycle on petroleum products. So, it’s a mixed bag out there, but our guide anticipates that we are not going to see any tailwinds from acquisition costs. We are going to negotiate hard, and we are going to do everything we can to control cost. And then where we do have to absorb any increases, we will be able to pass those along to our customers.

And just to be completely clear on that one, Scot, when we say our guide, it does include some benefit from cost reductions. I think what Brent is saying there is that we are not anticipating a lot of incremental things versus what we haven’t seen already.

Got it. Okay. That’s very helpful. And then just clarity on the $28 million PTO charge in SG&A. Was that treated as a charge because that was like an accrual catch-up of some sort and then we are basically on a run rate basis for ‘23?

Yes. Scott, we did have an accrual catch-up. As we converted to the plan, we had some existing balances and some other types of sick and personal time items that as we enhanced, we had a one-time catch-up for team members. And then our run rate will be higher as a result of what we have seen. On a comparative basis, it will have normal comparisons there with the difference, obviously, that it will be a run rate throughout ‘23 as opposed to a fourth quarter charge in ‘22.

Very helpful. Thanks guys.

Thanks Scot.

Thank you. We have reached our allotted time for questions. I will now turn the call back over to Mr. Greg Johnson for closing remarks.

Thank you, Paul. We would like to conclude our call today by thanking the entire O’Reilly team once again for their unwavering commitment to our customers and for our strong results we have posted in 2022. We look forward to another strong year in 2023. I would like to thank everyone for joining our call today, and we look forward to reporting 2023 first quarter results in April. Thank you.

Thank you. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.