## Explanation

At the core, this formula extracts the number, adds the increment, and joins the number to the original text in the right format.

Working from the inside out, this formula first extracts the numeric portion of the string in column B using the RIGHT function:

```
RIGHT(B5,3) // returns "001"
```

The result returned is actually text like "001", "003", etc. but when we add the numeric value from C, Excel automatically changes the next to a number and performs the addition:

```
RIGHT(B5,3)+C5 // returns 2
```

Next, this numeric result goes into the TEXT function as the value, with a number format of "000". This pads the number with zeros as needed:

```
TEXT(2,"000") // returns "002"
```

Finally, this text string is joined to the text "Item " using concatenation:

```
="Item "&TEXT(2,"000")
```

Which returns a final result of "Item 002".