Q4 2016 Real-Time Call Brief

Highlights

As we closed down our fiscal year, we accelerated growth building momentum from the previous quarter, and delivering comp sales growth of 3.1%, our strongest quarterly comp performance in the 12 quarters post the GPI acquisition.

We chose to sell down inventory in order to optimize our inventory mix and improve working capital.

We invested to better serve our customers.

These two decisions drove over two-thirds of our adjusted operating margin deterioration versus the prior year.

The end results of the three factors resulted in an adjusted operating margin rate of 6% and adjusted EPS of $1.

We are extremely energized about productivity pipeline we've constructed for the future as we remove at least $500 million of unnecessary costs over the strategic business plan horizon.

Total sales for the fourth quarter increased 2.4% to $2.08 billion as compared with total sales during the fourth quarter of fiscal 2015.

The sales increase was driven by comparable store sales growth of 3.1%.

Our gross profit rate decline of a 114 basis points was primarily driven by headwinds associated with reducing inventory levels and our productivity agenda that is still gaining traction.

Our adjusted SG&A rate increased 58 basis points year-over-year.

Our fourth quarter adjusted operating income came in at $125.6 million.

Adjusted operating margin decreased 172 basis points over the same period last year, to 6%.

Approximately one third of the adjusted operating margin decrease was related to reducing our inventory levels.

Approximately another third of the adjusted operating margin decrease was driven by our investments to better serve our customers.

Less than a third of the adjusted operating margin decrease was related to performance shortfalls in a few concentrated cost lines.

Free cash flow for fiscal 2016 was $241.3 million versus $454.9 million last year.

We expect to deliver comparable store sales in the range of 0% to 2% and an adjusted operating margin increase between 15 to 35 basis points for the year.

We expect to open between 75 to 85 new stores inclusive of new Worldpac branches, capital spending of approximately $250 million, and an effective tax rate between 37.5% and 38%.

We're also focused on generating cash flow improvement over 2016 and expect to deliver a minimum of $400 million of free cash in 2017.