[Management View]
Advance Auto Parts completed its store footprint optimization ahead of schedule, concentrating 75% of its store footprint in markets where it holds the No. 1 or No. 2 position by store density. The Pro segment delivered sustained positive comparable sales growth for eight consecutive weeks during Q1 FY2025, continuing into Q2. Management is focused on implementing initiatives across merchandising, supply chain, and stores to drive improvements in operational performance.

[Outlook]
Fiscal 2025 guidance reaffirmed, projecting net sales of $8.4 billion–$8.6 billion, comparable sales growth of 0.5%–1.5%, adjusted operating income margin of 2%–3%, and adjusted diluted EPS of $1.50–$2.50. Plans to accelerate store-based assortment rollout to 30 of the top 50 DMAs by August 2025 and to open more than 100 new stores over the next three years.

[Financial Performance]
Net sales from continuing operations were $2.6 billion, a 7% decrease year over year, attributed to store optimization activities. Comparable store sales declined 60 basis points, with the Pro segment growing in the low single-digit range while DIY declined in the low single-digit range. Gross margin contracted 50 basis points due to liquidation sales linked to store optimization activities.

[Q&A Highlights]
Question 1: Can you tell us what the expectation is for DIY versus DIFM performance within the comp guidance? How has it changed based on Q1 performance?
Answer: DIFM is expected to be the driver of performance, with DIY still somewhat pressured. The guidance reflects different scenarios, but DIFM will lead while DIY remains slightly pressured.

Question 2: How does the improvement in comps relate to store closures and sales transfer to remaining stores?
Answer: The comp difference between closing and remaining stores wasn't material. Transfer sales mainly occurred in the Pro area, planned and achieved as expected.

Question 3: How are tariffs impacting your P&L, and what are your pricing strategies?
Answer: The blended tariff rate is about 30%, affecting approximately 40% of sourced products. Mitigation strategies include vendor negotiations, alternative sourcing, and pricing adjustments.

Question 4: What is the inflation impact on the same SKU basis in Q1, and how does LIFO influence the P&L?
Answer: Inflation impact in Q1 was immaterial, with scenarios modeled in low mid-single digits. LIFO had a minor impact, with forward buys helping manage costs.

Question 5: Can Advance Auto Parts achieve margin expectations if DIY sales remain flat?
Answer: Low single-digit comp growth is expected, led by DIFM. The margin target is achievable through merch excellence, supply chain productivity, and store productivity.

Question 6: What are your expectations for non-GAAP adjustments for the rest of the year?
Answer: $150 million cash expenses are expected, with $90 million already incurred. Non-GAAP adjustments are not specifically guided.

Question 7: What is driving gross margin improvement for the balance of the year?
Answer: Procurement cost improvements, SG&A leverage, and supply chain savings are key drivers.

Question 8: How much of the Pro segment improvement is due to industry growth versus internal execution?
Answer: Internal initiatives, including incentive plans, training, and improved availability, are making Advance more relevant to Pro customers.

Question 9: How should we think about the build of transactions versus ticket in Q2?
Answer: Trends in DIFM are expected to continue, with monitoring of demand elasticity in the tariff environment.

Question 10: What does being No. 1 or No. 2 in store density mean for market share?
Answer: It signifies a right to participate and win in those markets, with proximity to customers and logistical advantages.

[Sentiment Analysis]
Analysts expressed cautious optimism about the company's strategic initiatives and ability to navigate tariff impacts. Management maintained a confident tone, emphasizing strategic execution and operational improvements.

[Quarterly Comparison]
| Metric | Q1 FY2025 | Q1 FY2024 |
|--------|-----------|-----------|
| Net Sales | $2.6 billion | $2.8 billion |
| Comparable Store Sales | -0.6% | +0.3% |
| Gross Margin | 42.9% | 43.4% |
| Adjusted Operating Loss | -$8 million | +$92 million |
| Free Cash Flow | -$198 million | -$49 million |

[Risks and Concerns]
Risks include ongoing challenges in the DIY channel, potential consumer goods inflation, and tariff impacts. Negative free cash flow and gross margin contraction due to liquidation sales are concerns.

[Final Takeaway]
Advance Auto Parts is navigating a challenging retail environment with strategic initiatives focused on store optimization and Pro segment growth. While DIY remains pressured, the company is leveraging its market position and operational improvements to drive future growth. Management's reaffirmed guidance reflects confidence in overcoming tariff challenges and achieving long-term profitability.