Welcome to the O'Reilly Automotive, Inc. Third Quarter 2025 Earnings Call. My name is Matthew, 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, Matthew. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our third quarter 2025 results and our outlook for the remainder of the year. 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 Litigation 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, 2024, 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 Brad Beckham.

Thanks, Jeremy. Good morning, everyone, and welcome to the O'Reilly Auto Parts third quarter conference call. Participating on the call with me this morning are Brent Kirby, our President; and Jeremy Fletcher, our Chief Financial Officer; Greg Hensley, our Executive Chairman; and David O'Reilly, our Executive Vice Chairman, are also present on the call. I'll begin our call today by expressing my appreciation to more than 93,000 team members across all in North America for the hard work they put in to deliver the third quarter results we released yesterday. . Team O'Reilly continues to win in each of our markets. In our team's dedication to excellent customer service drove the solid comparable store sales increase of 5.6% we generated in the third quarter. This performance was at the high end of our expectations, and we are pleased with the momentum our teams have been able to sustain on both sides of our business. The combination of our strong sales results with a 9% increase in operating income and a 12% increase in diluted earnings per share demonstrates our team's focus on driving profitable growth. Thank you, Team O'Reilly for your commitment to our culture, and absolute dedication to taking care of our customers. Now I'll walk through the details of our comparable store sales performance for the third quarter. Our professional business continues to be the more significant driver of our sales results with an increase in comparable store sales of just over 10%. We continue to be pleased with the strength in our Pro ticket count growth, which was the primary driver of our professional comp increase and the biggest contributor to our outperformance relative to our expectations. We also saw increased benefit in the quarter from average ticket on both sides of our business that I will…

Thanks, Fred. I would like to start by thanking Team O'Reilly for their outstanding work during the quarter. Our team continues to outperform and remain steadfast in their focus on our culture and our customers to drive our success. Today, I will start by discussing our third quarter gross margin and SG&A results as well as provide an update on capital expansion and our updated outlook on these items. Starting with gross margin. For the third quarter, our gross margin of 51.9%, was up 27 basis points from the third quarter of 2024 and in line with our expectations. Our team was able to offset the gross margin headwind resulting from our customer mix from faster growth on the professional side of the business with prudent supply chain management and solid distribution productivity. . While the third quarter gross margin rate was above our full year gross margin guidance range, we expected a higher gross margin rate in the third quarter as compared to the rest of the year, which is typical for the seasonal composition of our product mix and consistent with our results in 2024. We are maintaining our full year gross margin guidance range of 51.2% to 51.7% and expect to see a similar progression of gross margin rate from the third to fourth quarter as we experienced last year. Our supply chain teams continue to work diligently, both internally and with our supplier partners to navigate the evolving tariff environment. Our ability to maintain consistent gross margins with the amount of change we have faced during the year is a true testament to their hard work and dedication. As expected, we realized significant acquisition cost pressure from tariffs in the quarter. The impact from product cost inflation in the quarter closely mirrored in timing the adjustments…

Thanks, Brent. I would also like to begin today by thanking Team O'Reilly for another successful quarter. Now we will take a closer look at our third quarter results and update our guidance for the remainder of 2025. For the third quarter, sales increased $341 million, driven by a 5.6% increase in comparable store sales and a $101 million noncomp contribution from stores opened in 2024 and 2025 that have not yet entered the comp base. For 2025, we now expect our total revenues to be between $17.6 billion and $17.8 billion. Our third quarter effective tax rate was 21.4% of pretax income comprised of a base rate of 22.2%, reduced by a 0.8% benefit for share-based compensation. This compares to the third quarter of 2024 rate of 21.5% of pretax income, which was comprised of a base tax rate of 23%, reduced by a 1.5% benefit for share-based compensation. As we noted in our press release, during the third quarter, we accelerated the payment timing of transferable renewable energy tax credits that were originally planned to settle in 2026. Our full year income tax rate guidance has been revised to reflect the incremental benefits we expect from the accelerated payment. Accordingly, for the full year of 2025, we now expect an effective tax rate of 21.6% versus our prior expectation of 22.3%. The updated tax rate guidance includes an anticipated benefit of 1% for share-based compensation. We expect the fourth quarter rate to be lower than the first 9 months of the year due to the tolling of certain open tax periods. Also, variations in the tax benefit from share-based compensation can create fluctuations in our quarterly rate. Now we will move on to free cash flow and the components that drove our results. Free cash flow for the…

[Operator Instructions] Your first question is coming from Greg Melich from Evercore.

I wanted to start with I think a comment you guys made on the 4% same SKU inflation that you've seen the lion's share of it. Does that -- does that mean that from here, there's none? Or is there still some residual we flow through the next couple of quarters?

Yes, Greg. This is Jeremy. Thanks for the question. We still think that we'll see a tailwind from same SKU as we move through fourth quarter and first quarter we talked to the mid-single-digit range. As we move through third quarter, a lot of what we saw was came along pretty early on in the quarter, but there was some ramp during the course of the third quarter. As we look at incremental changes in prices moving forward, there's always a potential for some of that. And obviously, the tariff environment is is a little bit more static now, but has the potential to move and change. But we think from what we've seen so far under the current regime, most of that cost has flowed through to us. The adjustments that we needed to make are mostly behind us, and we don't see the same level of substantial incremental changes in how we go to market to what we've seen so far in 2025.

Got it. And then my follow-up is really on the price elasticity. I think you mentioned that, that can take some time to play out. What have you seen historically from price elasticity, particularly on the DIY side?

This is Brad. Thanks for the question. Yes. So in the past, things can always change. But what we've always seen in our industry, at least in my years this year working for O'Reilly and in this industry is when we've seen shocks like this, there can be some deferral, failure, our hardest part categories from a failure standpoint are obviously break fix, but you do have those larger ticket jobs that can be deferred somewhat. You have -- if a great job, if the pads are metal on metal, the most likely it is what it is, and that job has to be made. If it's a chassis job, for example, and there's some more alcohol joints or control arms or something like that, that's something that can be put off normally for weeks, months, but obviously not years. And so kind of what we're seeing right now is what we -- Brent and I talked about in our prepared comments is there's a lot of movement. Generally, we feel really good about what we're seeing on both sides of the business from a repair and maintenance standpoint. But to your question on the DIY side, what we did see a little bit of that we hadn't seen thus far this year, we saw in the third quarter was what we feel like could be some deferral of those larger ticket jobs. And there's a lot of moving pieces. You have not only -- it's not always a direct line just to what we feel like is a little bit of elasticity or what could be deferred. You have different weather patterns. You have 2- and 3-year stacks on some of those categories that have been extremely strong for us the last couple of years. but we still do think that we are seeing customers that are maybe putting some things off, and we'll just have to see how that plays out in the fourth quarter.

Your next question is coming from Chris Horvers from JPMorgan.

I wanted to follow up on the elasticity concerns, mid-single-digit inflation for the fourth quarter. That's basically in line with where you're implying comps are in the fourth quarter. So is like as you think about guiding based on what you've seen over the past 2 months is that elasticity function getting worse? Or I guess, why wouldn't your comp be higher than the inflation that you expect in the fourth quarter?

Yes. Thanks, Chris. This is Jeremy. Lots of different things, obviously go into how we think we'll finish out the full year and that pushes us into I know how you guys read an implied guide in the fourth quarter. When we think about our outlook, just to finish out the year there are a lot of moving pieces. You have to remind everyone that it's our most difficult comparison as we think about where we finished up the year last year. As we look specifically at the question around the benefit from where prices have gone to and where we see in the same SKU, it's clearly a net incremental benefit to us in the third quarter. there's nothing about a potential build within any of those pressures that might impact the DIY consumer that we're implicitly forecasting how we think about fourth quarter to directly answer the question. To Brad's earlier point, you go into the back half of the year for us, there's always a lot of different factors. There can be volatility that we see just from how weather plays out, how some of the Christmas shopping season plays out. And then we do have just, I think, a cautious view to how consumer might might continue to react. But kind of understanding all those component pieces, there's nothing about how we've at least started in the fourth quarter that that really puts us in a changing environment. We're really still early stages on some of how we're viewing where the customer is going to go at these price levels, and we're cautious but still feel good about the overall trends in the business.

Makes a lot of sense. I wanted to ask a longer-term question. Can you -- you are accelerating the unit growth next year. It looks like it will be over 4% in 2016 based on you mentioned earlier. Can you talk about your latest thoughts around the U.S. store potential? And maybe Mexico and Canada as well to the extent that you have some thoughts there? And do you think as we look out over the next few years, could international accelerate enough that you bend that 4-ish type unit growth rate higher?

Yes. Great. Great question, Chris. This is Brad. So first off, we feel extremely good about our new store cohorts. We continue to be extremely pleased with the way that our field teams are opening up new stores, just from the quality of the team, professional parts people putting in place the right store managers, the right district managers that absolutely drives the quality of our new store locations. Obviously, there's a lot more that goes into it than just the teams, but that's primarily how we make those decisions is our ability store count wise to staff them with great teams. We're also extremely pleased with the way our design and development teams have continued to develop here in the corporate office, not just from a U.S. perspective, but how those teams have matured and really understanding what the machine -- how the machine runs, what it really looks like as we ramp up internationally. To your question about where we can go in the U.S. we haven't put a new fine point on that. But I would just tell you, every year that goes on, we continue to ramp that number up of what we feel like our store count could be in the U.S., not just from a really not just from the way we've always looked at it, but as consolidation continues in the industry, which we believe it will continue to do so. We feel really good about continuing to ramp up and and continue to have a higher number in the U.S. and where we feel like that could be in 5 and 10 years. We're very excited about our international opportunities, continue to look at Mexico as such a huge opportunity for us mid- to long term. We lost a little bit of time during the pandemic in terms of our ability to build the muscle that we wanted to build in-country, in Mexico and the inability to really get down there, build the muscle from a people standpoint, a structural standpoint, supply chain systems, et cetera. But we've made a lot of progress over this last couple of years. Chris, and really excited about what the future holds in virtually an untapped market for us in Mexico over the next many years. Really, same thing for Canada. We're early stages in Canada, excited to make the announcement that Brent mentioned earlier in his prepared comments that our expansion is officially going to start in the Canadian market in 2026. And while that doesn't hold the total addressable market that in Mexico or obviously the U.S. does. The car park is very similar in Canada. We feel like that is an untapped market from a retail and DIFM standpoint in terms of our scale and size and ability to build the right teams, especially off that BaaS platform that's such an amazing people platform for us in Canada. So excited about all those markets and really excited about our target for 2026.

Your next question is coming from Scott Ciccarelli from Truist Securities.

Hopefully, 2 quickies. Any notable differences in terms of geographic performance given some of the weather patterns that we've seen? And then secondly, you did spend a little bit more time than usual talking about supplier health. So can you directly address any risk or exposure you may have to the first brand situation?

Scott. Yes, I'll take the first portion of that on regional performance and kick it over to Brent brand. So actually, we didn't see a lot of material differences in our geographies and regional performance in Q3. there's always going to be some differences. But directionally, they weren't much different than what we originally had planned with our internal plan month-to-month by region. So no material differences. There was I had bit of difference in our north south and a little bit east and west, but . [Audio Gap] In terms of First Brands specifically, they're a little bit more than 3% of our COGS. So it's not a huge material thing when you think about the fact that we've got we're dual and triple and quadruple sourced on most of our lines. We do that by DC. Again, over 50% of our revenue is in our proprietary brands, which gives us a lot of ability to multisource with multi suppliers. So -- and quite frankly, a lot of the brands that First Brands has acquired over the last several years, we had long-standing relationships with those brands even before they were acquired by the parent company of First brands. And we're still working with a lot of those same teams and feel very confident that in our ability to work with them and with our -- the rest of our supplier base to manage through what we don't really see as any disruption from wherever that may land. So we feel good overall again about the overall supplier health in the industry. Scott, I'll make just follow up really quick for -- Scott, I may just a follow up really quick. We have really good engagement with the new leadership at First Brands and a lot of leaders that have been there for some time. We also have great engagement from their competitors, meaning that to Brent's point, when you think about the majority of the lines that they provide to us, we have our distribution network split up, meaning that whether it be a first brands or one of their competitors in some of these categories, we are dual and triple source, sometimes quadrupled to Brent's point, and so we have our DC split up accordingly. So we're hopeful that first brands really gets where they need to be on fill rates, which we believe they will, but we also have opportunities to fill in with backfill orders, and we also have opportunities with other existing suppliers that compete in those categories to take on another DC or 2 here and there, and we don't feel like we'll have a material impact.

Your next question is coming from Simeon Gutman from Morgan Stanley.

First, a follow-up, Brad, you mentioned some of the deferral that's happening in DIY. To what extent is that just price elasticity? And is there any sense that it could be the timing of when prices are moving around in the marketplace. It sounds like you've narrowed it down, but curious if that that's 1 of the potential maybe a head fake that's happened I mean, with some of the demand.

Yes. Great question. Well, the reason we want to be balanced on that, and we just -- we wanted to characterize as some categories and the potential for some deferral is because it's to Jeremy's point earlier to another question, it's still so early, and there's enough factors with weather, seasonality, the way the weeks played out in Q3. And as we get into Q4, again, just really the first time we've seen some pressure to some of those larger ticket jobs, but it wasn't across the board, Simeon. And it's not always directly tied to the exact categories lines or sublines that we're seeing the tariffs. And so that line is not direct. And where we saw some pressure to some categories, we didn't see it in others. And so really, on the professional side, we continue to have a lot of conviction, even though the DIFM consumer can be a little bit cautious that we're not seeing any pressure there. And when we look at the DIY side, the thing that gives us balance on the other side of it is just the fact that we are seeing it in some categories, not seeing it in others. And again, it's not directly tied to to tariff-driven cost pressures always by line, by category, but also we continue to see strength in a lot of our DIY categories. Like we mentioned, oil changes, oil filters, chemicals, fluids, et cetera. And so we just want to sit back a little longer and really see how the fourth quarter plays out. Our teams are always just focused, as you know, just continue to take share. and just watching that closely. The other thing we didn't say in our prepared comments, Simeon, is we're really not seeing any trade down. We're seeing some pressure to those bigger ticket categories potentially those bigger ticket jobs. But the way we look at good, better, best, we're really not seeing any material shifts. If anything, we continue to see -- while some people may be moving down, so to speak, on the price side, we continue to seek even the lower to middle income consumers on the DIY side, trading up because they're looking for value, not just the cheapest price. They're trading up in areas like batteries and things like that to get a better warranty. And so long answer, I said a lot of things there. But I think the key is we just want to continue to take a balanced look and see how the rest of the year plays out.

Okay. And my follow-up is on your investment posture. We've had SG&A per store elevated for the better part of the last, call it, 2 years, and now you're stepping up your store growth. So is there maybe a shift from per store to new stores. And then within that, any different way you're approaching the operating margin of the business, either holding it or even letting it go down to take advantage of disruption or opportunities in the market.

Yes, Simeon, good questions, and maybe take the second 1 first. There's not been, I think, any fundamental shift as we think about our operating margin, our profile for how we go to market. Having said that, I think it's less of a question or consideration for where we see the potential kind of competitive balance or market opportunities so much as it does how do we run and operate our business, what do we think allows us and puts us in a position to be competitive. And I think much of what you've seen over the course of the last couple of years when we think about the investment profile of how we thought about our business has been really geared around where we see opportunities to continue to strengthen our operating posture to help put our teams in the best position to also support the teams that we've got taking care of our customers within our stores. some of what we've seen candidly in the current year are just more inflation-driven cost pressures in some of the areas of our business that I think have put pressure on us that we were not maybe as anticipated as as being as significant as it was when we came into the year, ultimately, those things from time to time are going to -- are going to move in flex. We will obviously have to take a hard look at that and think about where that sits for the for the next year. But that hasn't really changed our outlook on how we think about the right way to manage the business to take care of our customers and grow our share.

Simeon, the one thing I'd add to that is really just -- when I think about the controllables within our 4 walls, we're very pleased. Jeremy, Brent and I are very pleased with the way that our internal teams are managing SG&A to sales, walking the fine line between acceptable SG&A profitability and taking our service levels to the next level. . Some of the things we saw throughout the year and for sure in Q3 was just some of that inflation in some of the medical and some of the self-insurance stuff that's somewhat out of our control. There's always things we can do better and different from a safety and health and well-being of our team members, but some of that's out of the control of the team, and we feel really good about the way the teams are managing SG&A.

Your next question is coming from Michael Lasser from UBS.

You talked about a mid-single-digit inflation benefit in 4Q, which it sounds like that will be the peak of the inflation contribution So, a, is that right? Is that the way we should think about it? And b, overall, is this as good as it gets that O'Reilly can do a mid-single-digit comp under the right conditions. It's just a -- it's a different model than it's been in the past.

Yes, maybe I can address the question there, Michael. At this point in time, when we think about the current tariff and pricing environment, we would think that most of the benefit that we might expect to see moving forward would be in the fourth quarter numbers. And I think both with Brad and Brent spoke to that. it's always a little bit of a crystal ball exercise to say exactly what happens from this point forward. And we're obviously going to be very sensitive and responsive to making sure that from a market perspective, we're priced right in where we need to be. Ultimately, that -- while it's an important consideration, it's a factor that, obviously, we're all paying pretty close attention to that historically has not been what's driven our business and the ability to grow share. And we feel -- we still feel very bullish about our opportunity over the course of time. to be able to be a consolidator of the industry to pro forma model that's the best within our industry and to be able to gain share over the course of time. . And we feel good about our performance, particularly when you look at it on a 2-, 3-year stack perspective. And so ultimately, it is -- as we've talked many times, a very grinded-out business and and the long-term trajectory of what we can deliver as we consolidate the industry and gain share is dependent upon executing day in and day out and growing faster than the marketplace. We'll see ultimately where those numbers push out. But there have been -- there have been plenty of years within our history where the results that we're producing. This year have been in line with that long-term growth rate, we feel good about it.

Yes. No, Michael, Well, Jeremy, I think the key is the reason we don't want to talk in absolute if we've seen everything. It's because we don't know what's going to be in the headline next week or next month. It is still fluid. We feel good about what we said about the majority being already in but we don't know what's next. What I do know and this Parley is in the kind of your second part of your question, what I do know is when I look at Brent and our merchandise teams and our pricing teams they are operating at a very high level. I feel very good about the way that they are navigating not only from a negotiation with our suppliers the way we're thinking about pricing. But the overall way that we look at the fine line between walking all those things. And just the way we can continue to compete the value proposition we provide. And we never think internally here teams, the way our supply chain runs, new DCs, hub stores, all the things we do from a culture standpoint, promote from within and supply chain, we really feel good about what we can do over the next many years.

Got you. My follow-up question, what conditions would be necessary in order for O'Reilly to restore its SG&A per store growth back to the 2% range, that was consistent for a long period of time prior to the last couple of years. And as a management team, how focused are you on deploying technology or making proactive investments today in order to ease some of the pressures from health care costs and other factors in order to restore that level so you can generate the margin expansion that the market has known to from [indiscernible].

Yes, Michael. I appreciate that question. It's a little bit of, I think, a challenge for us to to really address a hypothetical around kind of a lot of the other broader conditions that contribute to how we might think about SG&A moving forward. For sure, when we look at where we sit today versus other periods of time, where wage rate inflation was much more muted where we weren't seeing some of the other inflation pressures where we weren't seeing kind of rising price levels, I think more broadly around the economy. Those were some of the, I think, broader macro conditions that we would have seen during the course of time there that I think play into the consideration. I think from our perspective, we've always had, I think, a pretty intense expense control focus as a company. And ultimately, those are all things that we manage for the long-term growth rate and the success and health of our business. While we're always, I think, pushing to be more efficient and more effective, and there are always ways in which you can do that within our business. . It's also important to note that I think one of the core strengths of our business is the ability to provide a high service level in an industry where that's still, I think, a critical factor in how consumers perceive value, how they make buying decisions. And so for us, there's always going to be some level of understanding that the strength of our business is built around running the best model that ultimately our ability to grow operating profit dollars from a long-term perspective means that we're going to want to to manage our business in the right way, and we're not going to view it necessarily as just an offset [indiscernible]. Let's go find cuts and reductions that don't otherwise make sense because some other components of the business have seen inflation. So that's really from a philosophy perspective where we see it. Some of the -- where we've seen lower nominal numbers in different environments still reflected that same philosophy. And ultimately, I think that's the right way to manage the business for the long term.

Yes. And Michael, I may just real quick add, Jeremy said it very well. We we have a lot of pride in our ability to lever when we have a comparable store sales level that we've had. We have a lot of pride in the operating profit rate that we've delivered over a long period of time, and that's going to continue to be our focus. That said, for the mid and long term back to the 10% share across North America, we are going to continue to invest in our business in a very disciplined way when it comes to technology, when it comes to our teams. When it comes to our supply chain, we are going to continue to play from a position of strength we continue to feel like we have a unique opportunity over the next many years to do all that within the discipline we have with our capital allocation, the discipline we have with our OpEx and we're going to continue to balance the 2 sides of what I just said as good as we possibly can over the next year.

Your next question is coming from Bret Jordan from Jefferies. .

If you look at the expectations for 4% same-SKU inflation, are supply chains in the industry sort of creating a delta between your expectations maybe versus a peer, I think that NAPA guys were saying maybe 2.5 million, is that because they're sourcing out of different regions and markets and have less tariff exposure? Or is it really sort of a relatively even playing field on a same SKU basis?

Yes. Brett, this is Brent. I'll start and the other guys can chime in. I think we talked about supplier diversification for years now. And again, the team. Our merchandise team has done a fantastic job continuing to diversify that supplier base. And we've talked a little bit about China, what that looks like specifically for us. We're in the mid-20s. Some others may report somewhere in that range or a little bit less. But generally speaking, we feel like we're very diversified globally and the teams continue to get more diversified. That number is down hundreds of basis points from where it was a few years ago and continues to fall. What's interesting, though, when you look at some of the other countries right now in the tariff environment that we've been operating in, especially in 2025, some of the -- when you think about 25%, you look at some of those other countries, Vietnam, Thailand, India, some of the other countries that a lot of sourcing has moved to -- supply has moved to Mexico as well and some South American countries, that 25% or more is the same rate. So what I would tell you is it's less about what's that China number look like, and it's more about the blend and the ability to multisource from multiple countries of origin and to manage that dynamically and to work with suppliers that are managing that dynamically. And I feel like our team has done a great job with that. . It continues to be a challenge. And Brad mentioned earlier, and we've talked about on the call in the prepared comments about what we feel like the lion's share passed through in Q3 from tariffs, but I think we all know, we all listen to the news. I mean there's still some uncertainty about where that may go in the future with some of these countries until it's all said and done. So we feel like we're very well positioned to respond and react to whatever comes our way. The teams have done a great job with sourcing across the globe, and we're going to continue to do that and work with suppliers that are doing a great job of that.

Yes, Brett, I may just jump in real quick. In terms of us directly to other competitors, we don't know. I mean we don't we don't spend near as much time frankly, looking at trying to parse the details of anybody else. That would be up to them to explain what we know is our merchandise teams and our pricing teams. Like I mentioned earlier, just doing a masterful job managing through this. We feel good about our scale, our negotiating power, our pricing power feel really good about the way that we have worked with our suppliers to mitigate all of this, I feel really good about where we're at from a pricing perspective versus our versus all our competitors, both small and big. WD independent all the way up to the other big 3, I feel really good about all that. So hard to say in differences of COGS and all those things. But -- we feel really good about where we're at, the way we've negotiated and just so proud of the teams managing through this. .

Okay. And then as sort of a follow through on that. And that 10% inventory per store growth is something maybe 4 of that is on a same SKU basis. The other 6, are you buying ahead of expected further price increases sort of getting a lower cost inventory into the DC ahead of additional expansion? Or are you adding units just from a strategic standpoint of a better fill rate and take more share? I guess, what's the growth in inventory ex the price factor?

Yes, Brett. It's really more just us executing on our inventory strategies and how we think about deploying incremental inventory enhancements. Price has a little bit less of an impact on on the inventory balances just from the standpoint of being a LIFO reporter of this. You really only see inflation have an impact to the extent that you're kind of adding layers on top and there's been some of that, but not the same magnitude of what runs to the income statement. And I think conversely, no real change changes in that strategy as it relates to the broader cost environment, which we think is pretty stable. But obviously, those are decisions that we make based upon upon the objective of being the best in the industry from an availability perspective. Obviously, the cadence and timing of that can change period to period. It's not always does always roll out in the same kind of schedule as you were because we're pretty active about how we think about the right time and where we see opportunities to be able to execute that strategy.

Brad, yes, just to add on to what Jeremy said too, Brett, specifically speaking we're going to continue to optimize our network. We talk all the time about our -- the strength of our tier distribution network, our regional DCs our hub stores and how we continue to optimize that network of SKU count and depth and breadth by secondary tertiary market, even the ones outside of the reach of our regional DCs. The other thing though is consider and think about for Q3 is we were stocking up our new DC in Stafford, Virginia as well, that's another component that brings more dollars into a system in a given quarter that may prove to be a little bit lumpy quarter-to-quarter with the investments in a new DC. .

We've reached our allotted time for questions. I will now turn the call back over to Mr. Brad Beckham for closing remarks. .

Thank you, Matthew. We would like to conclude our call today by thanking the entire O'Reilly team for your continued dedication to our customers. I would like to thank everyone for joining our call today, and we look forward to reporting our fourth quarter and full year results in February. 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.