# DEAR FELLOW SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_AAP_2017/NYSE_AAP_2017.mmd` · pages 2-8_

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DEAR FELLOW SHAREHOLDERS

In 2017, we embarked on the first full year of our five-year transformation plan focused on long-term growth and increasing shareholder value. In this critical first year, we significantly narrowed the comparable sales growth gap versus our peers, and drove a 56 percent increase in free cash flow. The entire team across all banners of Advance Auto Parts, Inc., as well as our network of Carquest Independents, performed with unrelenting focus throughout the year to ensure Customers remained our primary focus.

While the competitive landscape is evolving, we have an existing asset base that has been underutilized. Our goal is to dramatically improve execution across our base business while building competitive advantages in growth areas such as rapid delivery of parts to professional shops and ease of online ordering for both Do-It-Yourself (DIY) and Professional Customers.

## INVESTING IN
LONG-TERM GROWTH

Throughout 2017, we made investments in our Customers, Team Members and technology to solidify our Value Proposition and build the foundation for long-term growth for the business and shareholders. This will remain our highest priority as we transform Advance.

We are committed to the long-term opportunity ahead for our business and believe these investments are integral to our transformation efforts as we provide the best brands for our Customers and deliver on our Mission:
Passion for Customers...Passion for Yes!

Financial Highlights for 2017 include:

<table><tr><td></td><td>2017</td><td>2016</td></tr><tr><td>Total Net Sales (in billions)</td><td>\(9.37</td><td>\)9.57</td></tr><tr><td>Diluted EPS</td><td>\(6.42</td><td>\)6.20</td></tr><tr><td>Adjusted EPS</td><td>\(5.37</td><td>\)7.15</td></tr><tr><td>Free Cash Flow (in millions)</td><td>\(411</td><td>\)264</td></tr></table>

## PASSION FOR CUSTOMERS...
PASSION FOR YES!

Throughout 2017, we remained steadfast in our mission to improve our Customer Value Proposition. We recognize that winning long term requires an unwavering commitment to delivering what matters most to our DIY and Professional Customers. More importantly, understanding the demand drivers for different Customers enables us to prioritize key initiatives within our long-term strategic plan.
We will be uncompromising in improving the experience for both Professional and DIY Customers. Investments in online and e-commerce capabilities along with new tools and training for our Team Members are important elements of this plan.

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The increasing use of online search and ordering required necessary improvements across our digital footprint. To better serve our Customers and capture the growing online demand, we launched our improved website in mid-2017, providing a

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faster and more frictionless experience while increasing the number of SKUs available for online shoppers. Third-party reviews of industry websites have noted our improved online capabilities.

We've also improved the in-store customer experience from the moment DIYers come through the doors. Independent mystery shoppers have reported progress throughout the year resulting from our diligent efforts to improve the store experience in conjunction with the rollout of our new website. Our Team Members leveraged enhanced training, enabling better execution.

In 2017, we began the roll-out of Cross Banner Visibility which enables all Professional Customers, as well as all Advance, Carquest, and WorldPac Team Members, to see our entire catalog, regardless of banner. This capability benefits both DIY and Professional Customers and was completed in the first quarter of 2018.

Further, we introduced AdvancePro, our e-commerce engine for Professional Customers. This digital platform provides full access to our common catalog across all four banners, extending our enterprise-wide assortment to all Customers.

These are major steps forward that reinforce the importance of our outstanding assortment of brands, fast and consistent delivery and the best parts people in the industry. Most importantly, these initiatives enable us to say "YES" more often!

## DRIVING CASH FLOW...
ACTING LIKE OWNERS

Given the substantial margin gap we have with industry peers, we've embraced frugality as a tenet of our corporate culture. In 2017, we made progress in productivity improvements, reducing material costs and implementing zero based budgeting. We expect this agenda to continue to advance into 2018 and beyond. We're strengthening, optimizing and streamlining our supply chain from end to end. Our supply chain strategy is about differentiation, improving the customer experience and structural cost reduction.

In order to improve cash flow, we implemented dramatic enhancements to our working capital processes, focused on receivables, payables, and inventory. This is already yielding significant benefits, driving both free cash flow and return on invested capital.

We're confident about the progress we'll make in each of these areas in 2018 and into the future. Without question, our productivity and cash agenda is well underway and critical to long-term growth.

## HIRING AND DEVELOPING
THE BEST...THROUGHOUT ADVANCE

Our Team Members are critical to our success both in the field and in our Customer Support Center. We need the best parts people in the business in our stores and are excited about the substantial reductions in turnover we achieved in 2017. In corporate roles, we are hiring terrific new leaders while promoting and empowering others from within to strengthen our entire organization. People are at the core of all our initiatives, and ultimately, our Team Members' knowledge,

dedication, and focus will set
Advance apart from both retail
and online competitors.

As a result, we have invested, and will continue to invest, in our Team Members. In 2016, we launched Fuel the Frontline, which rewards high-performing EMPOWER OUR PEOPLE BECAUSE THEY ARE OUR BEST PART

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store and field Team Members with shares of Advance stock for meeting or exceeding their goals. In 2017, we continued to grow Fuel the Frontline with literally thousands of Team Members earning shares of Advance stock throughout the year. We also launched Be An Owner in 2017 to recognize top performers in our Customer Support Center

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and Supply Chain teams. Similar to Fuel the Frontline, Be An Owner enables Team Members to earn Advance stock based on outstanding, differentiated performance. Over time, this important initiative drives ownership and will help reduce turnover.

Building on the evolution of our Cultural Beliefs that began in 2016, we continued to focus on Inclusion and Diversity throughout 2017. In line with this emphasis across Advance, I am honored to be a part of the CEO Action collective. With more than 400 participating organizations, we are taking an active role to partner with like-minded individuals and companies to improve inclusion and diversity while sharing and leveraging best practices, and ultimately strengthening our focus on our people.

During the first full year of focus on the critical Inclusion and Diversity initiative, we made substantial progress. In 2017, the representation of females and minorities in leadership roles increased by 40 percent. This includes an increase in our Executive Committee from 25 percent to nearly 55 percent as well as an increase among our field-based store operations leadership to nearly 42 percent. I am extremely proud of the growth in the first year, but remain committed to further evolution as we continue to advance our cultural beliefs.

Our Team Member Networks (TMNs) expanded to nine official groups to further increase our collective focus on inclusion and diversity across our entire organization. TMNs are open to anyone who has an interest and enable Team Members with similar backgrounds, experiences, and/or interests to come together to create a high-performance and inclusive culture. TMNs enable networking with others across the organization, participation in leadership opportunities, engagement with local communities in impactful ways, and create a collective voice to express ideas and concerns. In addition, TMNs inspire innovation and build capabilities we believe increase our competitive advantage.

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These nine networks embody the Cultural Beliefs of Advance and are an important outlet for leveraging the skills that our Team Members have to offer.

## GIVING BACK
TO OUR COMMUNITIES

As a company committed to corporate citizenship, we understand the important role we play in the lives of people and the communities where we live and serve. During 2017, our Team Members dedicated their time and talent to help those in the areas of need as North America was impacted by some of the most severe natural disasters seen in recent memory.

We also continued our corporate level partnerships with several national charitable organizations, including JDRF and its fight to improve the lives of those living with type 1 diabetes. We're also proud of our continued support of Building Homes for Heroes and the brave servicemen and servicewomen they assist who have sacrificed so much. With more than 6,000 military veterans as fellow Team Members and a commitment to hire 10,000 additional veterans over the next five years, supporting our veterans is something very important to all of us at Advance.

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## ENVIRONMENTAL COMMITMENT

In addition to supporting the communities where we live and operate, we are acutely aware of the environmental responsibility we have as a leader in our industry. As an organization, we are committed to working with our Customers and suppliers to implement environmental and socially responsible initiatives.

As part of these ongoing efforts in 2017, we recycled approximately 130,000 tons of lead acid batteries and nearly six million gallons of motor oil, both of which increased as compared to the previous year. In addition to increased recycling efforts, we continue to focus on overall energy efficiency and are pleased with the progress we have made during the last five years. This includes a 30 percent reduction in energy usage realized at our more than 5,000 stores through a variety of initiatives such as LED lighting systems and signage, centralized energy management systems, and installation of high efficiency HVAC systems.

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LED LIGHTING SYSTEM IMPLEMENTATIONS

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ENERGY MANAGEMENT SOLUTIONS

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HIGH EFFICIENCY HVAC SYSTEMS

While we're proud of our accomplishments to date, we have an obligation to do more. We take this responsibility extremely seriously and are looking at ways to reduce and improve our environmental impact across our entire organization. We are committed to continuing our efforts in this area and look forward to sharing additional improvements in the future.

## ADVANCING IN 2018

We're excited about our plans for 2018 and optimistic about the long-term outlook for the industry. In addition, we are confident the transformational steps we have taken to date have resulted in a stronger Advance and will improve our competitiveness going forward.

Notably, our ability to provide Professional Customers access to a robust assortment of brands from both aftermarket and Original Equipment Manufacturers (OEM) is an important differentiator. We're ensuring that working with us is easy and efficient so that Customers get the parts they need, at the right time, and at a fair price.

No matter what DIY Customers desire, we've got them covered with high-quality products. Whether in-store or online, we will provide them with the products, service, support and information they need and trust.

We are still early in our transformation and remain laser focused on solidifying and expanding our Customer base. We're also strengthening our value proposition across the entire Customer Demand Journey in both physical and digital assets. We're investing in technology, improved customer service and in our people to ensure a differentiated experience. We continue to remove unnecessary costs from our system and maintain a relentless focus on cash.

In summary, 2017 was an integral first step in our transformation. We move forward into 2018 with increased determination to achieve our short-and long-term goals, and our team is talented, focused and ready to win.

Thank you for your continuing support, trust and confidence.

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Thomas R. Greco
President & Chief Executive Officer

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Jeffrey C. Smith
Chairman of the Board