Advance Auto Parts has halted its 2010 store remodel program. It has discontinued its Advance TV Network in its stores. The firm eliminated advertising expenditures that it determined were not productive. The firm continues to test and measure other portions, including its print advertising program and it is implementing a plan for 2008 that will shift expenditures away from print towards more electronic media. In addition, the firm will be increasing the portion of its total spend targeted to the Hispanic customer. In partnership with its new ad agency, the firm believes that it can achieve greater results in 2008 with less expenditure. The company has eliminated IT, logistics, and other investments that did not demonstrate an acceptable return.

Key questions and answers from the third quarter fiscal 2007 earnings call conducted by Advance Auto Parts Inc. on November 1, 2007.

Matthew Fassler (Goldman Sachs): Could you comment on the decline in gross margin this quarter? Do you expect moderation in growth going forward?

Elwyn Murray: The Q3 was obviously a tough comparison versus last year, with 3Q 2006 being 100 basis points higher versus the entire year around 50 basis points. The firm did see some softness in discretionary categories, in particular things like appearance accessories, appearance chemicals, interior accessories, exterior accessories, things of that nature that carry with them around a 60% or so gross margin. Some of that is reflective of a softer consumer wallet and some of it as well is specifically linked to some of the drier conditions as far as less car washing and things of that nature.

We did see some lower volume discounts as we work to bring our inventory in line with sales so we''re consciously working hard to be more disciplined in what we''re bringing in while we''re at the same time investing in more parts. I would reiterate our guidance going forward of ten to 15 basis points. We certainly see continued cost of goods reduction opportunities and are working hard to identify those. In addition, continuing to work with AI on synergy opportunities there. We continue to see logistic improvement opportunities while simultaneously strengthening the capability of our supply chain.

Overall, Q3 is interesting to observe from a year-ago perspective, but we''re confident going forward that there''s ten to 15 basis points of growth. But again, we don''t see 50 to 100 basis points growth year over year like it had been.

Matthew Fassler (Goldman Sachs): On the expense reductions, where are you from a run rate perspective in terms of harvesting the $50 million that you discussed? Did the third quarter’s results reflect the full annualized impact of that number? Is there still some of that to come as you come into Q4?

Elwyn Murray: We had $20 million that would benefit 2007 out of the $50 million that we put in place and certainly, a sizeable portion of that $20 million favorably impacted the third quarter.

Armando Lopez (Morgan Stanley): The CapEx expectations continue to come down. Could you talk about what drove the difference from your current expectations relative to what you were forecasting?

Michael Moore: Certainly this year, we have reduced the amount of new stores that we originally had planned to open. We have reduced the amount of relocated stores from originally 35 to 30 stores; we''ve eliminated all remodels so there''s no more CapEx earmarked for remodels. We have some of our new projects we''re spending a bit less on, so it''s primarily store development related reduced spending.

Armando Lopez (Morgan Stanley): In terms of the pricing environment, what are you seeing from a competitive perspective on the commercial side? Could you provide an overall inflation perspective?

Elwyn Murray: We continue to monitor pricing with all competitors, certainly on the DIY and the commercial side, and we are not seeing any significant shifts there but continue to position ourselves competitively.

Danielle Fox (Merrill Lynch): Could you comment about the decision to slow unit growth in 2008? Is this decision being driven by the performance of your new stores or is it being driven by the desire to focus on execution at your existing stores?

Jim Wade: It''s a combination of factors. As we''ve gone through the strategy review this past year and we''ve done a lot of customer research, both on the DIY and commercial customer, we are using that to identify better where we should be opening our new stores. Through that process, as we focus on maximizing both DIY and commercial potential, we''re looking at the opportunity to have somewhat less main-on-main type of locations and still get us in the right position for our customers so we can manage our occupancy costs at a better rate.

What we''ve seen happen over the last few years is our sales in our new stores have continued to increase and we''ve seen that continue, but the cost of occupancy has gone up at a faster rate than our sales increase; we''re working through that. With the slower pace in 2008, by the time we get to 2009, we''ll be in a position to better locate our stores relative to the potential of both DIY and commercial, and at the same time, do that at a lower occupancy cost than we have in the past. It makes sense from our standpoint to open fewer stores in 2008 while we''re working through that.

David Cumberland (Robert W. Baird): What was revenue for AI in Q3? In 2008, how many AI locations do you expect to add?

Jim Wade: In 2008, the guidance that we provided in total is 110 to 120 stores. We don''t know specifically how that will break down yet but likely AI would be in probably the 15 range. Sales for AI for the quarter were approximately $34 million.

David Cumberland (Robert W. Baird): Related to the parts availability initiative, what types of changes do you foresee in terms of leveraging existing supply chain assets, meaning distribution centers, warehouses; and also perhaps in your relationships with suppliers?

Elwyn Murray: Obviously parts availability is a huge area of focus for us. Nearly 5% of our total inventory from a growth standpoint being what we''re looking to invest here and it''s close to $75 million of incremental parts. We''re working very hard with our suppliers and our supply chain to accomplish this in a way that is relatively neutral to overall inventory and also that we can digest and do this effectively with our supply chain.

In addition to introducing incremental parts and having greater parts coverage in our network, we''re also working very hard to ensure that our supply chain is flexible and nimble and capable enough to have those parts available in the markets and close to the customer. Simultaneous to the investments in dollars of pure inventory, we''re working our supply chain to ensure that it is laid out and operates in a way that accomplishes what we want. We''ve completed about an eight-week study looking at our supply chain independent of what it is we have today. Some exciting opportunities that we see will allow us to provide greater coverage in our various markets, through our supply chain with some enhancements that should allow us to operate at a lower cost with improved coverage and availability. We''re very excited about the future of this initiative.