Operator: Good morning, and welcome to the AutoZone Conference Call. Your lines have been placed on listen-only until the question-and-answer session of the conference. Please be advised today's call is being recorded. If you have any objections, please disconnect at this time.
This conference call will discuss AutoZone's second quarter financial results. Bill Rhodes, the Company's Chairman, President and CEO will be making a short presentation on the highlights of the quarter. The conference call will end promptly at 10.00 am Central Time, 11.00 am Eastern Time.
Before Mr. Rhodes begins, the Company has requested that you listen to the following statements regarding forward-looking statements.
Certain statements contained in this presentation are forward-looking statements. Forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, positioned, strategy, and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments, and other factors that we believe to be appropriate.
These forward-looking statements are subject to a number of risks and uncertainties, including without limitation, credit market conditions, the impact of recessionary conditions, competition, product demand, the ability to hire and retain qualified employees, consumer debt levels, inflation, weather, raw material costs of our suppliers, energy prices, war and the prospect of war including terrorist activity, availability of consumer transportation, construction delays, access to available and feasible financing, and changes in laws or regulations.
Certain of these risks are discussed in more detail in the Risk Factors section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 25, 2012, and these risk factors should be read carefully.
Mr. Rhodes, you may now begin.
William C. Rhodes, III - Chairman, President and CEO: Good morning and thank you for joining us today for AutoZone’s 2013 second quarter conference call. With me today are Bill Giles, Executive Vice President and Chief Financial Officer, IT and ALLDATA; and Brian Campbell, Vice President, treasurer, Investor Relations and Tax.
Regarding the second quarter, I hope you had an opportunity to read our press release and learn about the quarter’s results. If not, the press release along with slides complementing our comments today is available on our website, www.autozoneinc.com. Please click on Quarterly Earnings Conference Calls to see them.
To begin this morning, I want to thank all AutoZoners across the globe for another very solid quarter in spite of a great deal of volatility across the 12 weeks. We continue to execute on our strategies to improve the customer shopping experience. The initiative we call great people providing great service. We also grew our commercial program count, sales and profitability. We expanded 10 additional hub locations during the quarter to take our total remodeled hubs to 77 locations. These remodels entail adding additional inventory into the market that benefits both our retail and commercial sales. Additionally, we accelerated our efforts to further leverage the internet with the closing of our purchase of AutoAnything in December.
We are very excited about having this wonderful business and team join our organization, and we believe their expertise in online retailing will help us grow this category. We believe combining their knowledge and the expertise with the AutoZone e-Commerce team will create material sales growth in this sector in the future.
While we felt we made advances during the quarter, sales have remained inconsistent and below our desires and expectations. On the last call we noted that the last couple weeks of the first quarter showed improving sales trends in our Midwest and Northeast markets. However, we remain cautious on our outlook. We understood we were facing our most challenging same-store sales comparison for the fiscal year during the second quarter. Basically, this quarter felt very similar to last quarter on a sales basis through the first 10 weeks. Our same-store sales results through 10 weeks were basically flat. However, historically, we have experienced significant sequential week-to-week growth in sales during the last two weeks of our second quarter. This year we saw some modest growth but not to the level we have historically experienced, and during those two weeks our total domestic same-store sales were down 8%.
We believe the sharp falloff in sales for those two weeks were attributable in large part to the delay in income tax refunds being processed by the IRS. According to Nick Colas, Chief Market Strategist at the ConvergEx Group, the delay in the IRS accepting returns for processing until January 30th compared to January 15th last year meant $30 billion less in refunds to individuals through February 9th as compared to last year. From all indications, we expect the same amount of dollars will be refunded this year as last, and we expect our sales to respond as more refund dollars are distributed into the economy. Unfortunately for us, our fiscal quarter finishes at an odd time in early February. Historically we have benefitted from a ramp in sales due to income tax refunds and that ramp typically carries through to the usual increases from the spring selling season. This year that was not the case.
Aside from the severely challenged last two week, our northeast and Midwest markets on a two-year same-store basis did show some improvement. However, they were still negative and approximately 500 basis points worse than the western and southern store markets. Before the last week of January sales were sequentially improving in these markets. Maintenance categories, especially brake-related categories, continued to be our worse performing categories. The merchandise that we sell under the banner of maintenance related remains our biggest opportunity for improvement.
This category experienced high single-digit percentage growth in 2009, '10 and most of 2012. But starting in 2012 this category slowed markedly. At approximately 40% of our merchandise mix on the retail front, it has been the primary reason our sales have slowed over the last 12 months. Excluding the impact from delayed tax returns, although we were not pleased by our same-store sales performance, we were encouraged to see our business stabilize and begin to show some signs of improvement.
As we look forward to the back-half of our fiscal 2013 we are enthusiastic about the progress we're making on many of our initiatives. We've increased the availability of inventory throughout our hub network and satellite store, we further expanded our commercial program openings, and we continue to grow our Mexico, ALLDATA, e-commerce and Brazil businesses. We are encouraged by our learnings and feel we can have improving sales trends for the remainder of the year. Our belief is, as stated on the last quarter's call, this past Q2 would be a low-point and we could see growth again in the back-half of the year.
The most recent quarter’s results marked our 26th consecutive quarter of double-digit earnings per share growth. We are very pleased with our ability to consistently deliver strong EPS growth to drive financial model of steady mid-single-digit EBIT dollar growth or better along with high single-digit reductions in diluted share count through our share repurchases.
Our goal quarter-over-quarter continues to be to provide consistency to our shareholders, our AutoZoners and of course our customers. We feel this targeted consistency in both financial performance as well as execution of our key initiatives results in stability and confidence for our shareholders, AutoZoners and customers.
Next I’d like to discuss our sales results for this past quarter in more detail. Our sales were up 2.8% and same-store sales were down 1.8%. This quarter's same-store sales results compared to last year's second quarter comps of 5.9%. Our same-store sales results are a combination of both our retail and commercial businesses. I should point out our total commercial sales were up 9% over last year second quarter driven by a combination of existing programs and the addition of 321 net new programs over the trailing 12 months. Commercial was negatively impacted by having Christmas and New Year's Day shift to Tuesday from Sunday last year. On average Sunday is the substantially lower commercial selling day than Tuesday, we estimate excluding this shift commercial sales would have been up approximately 10%.
Our overall sales performance for the quarter was softer than we had hoped but aside from the last week, it was not entirely unexpected. Our sales patterns for commercial tracked basically in line with retail sales trends. For the first 10 weeks of correlation was tied to the regional performance differences between the Northeast and Midwest and the rest of the country. The last two weeks were correlated to we believe income tax refund delays.
On last quarter's conference call, we spent time discussing how we felt the differences in sales results experienced between the Northeast and Midwest were primarily a weather phenomenon. The substantial differences in sales by regions similar to the last two quarters continued for us during this second quarter. The three regions of the Northeast, Midwest and Plains states continued to track materially below the remainder of the country for the quarter. In fact, the 5 percentage point difference in same-store sales between the remaining seven regions and the three affected areas was basically present through the first 10-weeks of the quarter. It was – in the last two weeks where the whole country's results weakened. As we have stated previously, we will know for sure about weathers impact this spring and our business regionally weakened starting in April 2012. We feel our comparisons are most favorable starting at that time.
This morning we want to call out some key accomplishments this past quarter. We completed 10 additional hub projects this quarter, taking our hub resets like to-date to 77. We continue to be quite pleased with the sales benefits from these reset hubs as we've increased the size and/or improved the location allowing us to expand the number of SKUs offered on a same-day basis in the market. These SKUs have benefited both retail and commercial customers. Due to our hub strategy and more specifically what the additional hub space offers, we were able to place additional hard parts inventory into the local markets, allowing us to better meet the ever increasing needs of our customers.
I know many of you have read how inventory per store has increased within our industry over the last few years and not in a small way. This is due to the proliferation of unique makes and models constantly being rolled out each year. Our listeners should expect us to talk about proper inventory placement for years to come. We believe our evolving hub strategy better position us to address this need.
Regarding Mexico we opened nine stores this quarter and finished with 334 stores. Sales in our other businesses achieved very solid sales results. Our ALLDATA and e-Commerce business which includes AutoZone.com and AutoAnything.com continue to perform well increasing 43.1% over last year. There are great opportunities for e-Commerce sales growth on both the business-to-business basis and to individual customers or B2C. While both businesses are relatively small for us, we are experimenting to understand where the most potential exists. At this point, we still view our traditional AutoZone.com DIY e-Commerce business as a complement to our walk-in business. What we want is the best website possible for our customers to research their vehicle needs. We continue to spend our resources on this design element.
I also wanted to officially recognize and welcome AutoAnything's wonderful team to AutoZone as we closed on our acquisition at the end of calendar 2012. Thus far I can unequivocally say the management and philosophical fit could not be better. I am very excited about what we can do together going forward. For the second quarter AutoAnything had two months of results in our consolidated financials.
With the continued aging of the car population and suddenly improving miles driven, we continue to feel positive trends exist for our industry. We continue to remain bullish on our industry's sales growth opportunities on both retail and commercial over the long-term. As the vehicle population remains at an all-time high and consumer continue to look for good values while maintaining their vehicles, we see AutoZone's opportunity to sell to these customers only growing.
Now let me review our highlights regarding execution of our operating theme for 2013, One Team Delivering Well. The key priorities for the year are great people providing great service, profitably growing our commercial business, leveraging the Internet, hub store improvement and leveraging technology to improve the customer experience while optimizing efficiency.
On the retail front this past quarter under the great people providing great service theme, we continued with our intense focus on improving execution. We also invested in technology to enhance information available at the point-of-sale as well as tools to better optimize our execution.
In regards to commercial, we opened 56 programs during the quarter, year-to-date we opened 93 versus 166 to the second quarter last year. We rolled the majority of these additional programs after January 1st. We do not expect to open quite as many programs as last year which was the most we have opened in a single year in recent history. However, we are on-track to open approximately 300 programs for the year which is consistent with our annual plan. We continue to see commercial as the material sales driver – growth driver for us for many years to come. Our results continue to provide us confidence to be aggressive in adding additional resources and new programs to this important growth initiative.
Take a moment now to talk more specifically about our second quarter performance in more detail. Our domestic same-store sales declined 1.8% for the quarter as noted earlier our second quarter which ended March the 9th did experience some variability in month-to-month sales results more importantly the impact of our regional basis continued. This separation results began in April for us and continued through this quarter. As we’ve said previously the category of sales we defined as maintenance are the most challenging comparison on the quarter.
With approximately 40% of our sales in this classification, sales of this category were soft particularly in the subset of geographic regions previously discussed. As we experienced more normal winter patterns in these parts of the country this past winter, we continue to feel there is upside opportunity as we move into the spring and summer months. This regional difference in results carried through to our commercial business as well. Our small market share and current growth trajectory from our newer programs continues to give us confidence in our future build out potential. We will continue to invest to grow our commercial business and penetrate a larger percentage of our existing store base.
As I said earlier, ALLDATA and e-Commerce, which now includes AutoAnything had another fine quarter up 43% in sales from this time last year. AutoAnything included in this bucket drove the majority of this growth. This portion of our business whilst small as a percentage of our overall sales mix continues to experience faster sales growth than the Auto Parts Stores.
We should also highlight another strong performance in return on invested capital. As we were able to finish the quarter at 32.4%, we strive to improve on this metric over time as it reflects our efforts to efficiently use the capital we deploy is important to reinforce that we will always maintain our diligence regarding capital stewardship as the capital we invest is our investors capital.
Before I pass the discussion over to Bill Giles to talk about our financial results, I'd like to state how proud we are of our entire organization efforts to manage the business appropriately the past few quarters. I'm very proud of our team for their commitment to great service and for their commitment to success. As we look forward, we will continue to aggressively manage our cost structure, while simultaneously executing our initiatives to drive productive sales growth.
Now, here is Bill.
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: Good morning everyone. To start this morning, let me take a few moments to talk more specifically about our retail, commercial and international results for the quarter. For the quarter, total auto parts sales which includes our domestic retail and commercial businesses, our Mexico stores and our one store in Brazil increased 1.9% on top of last year's second quarter's growth of 8.6%. Regarding macro trends, during the quarter nationally unleaded gas prices started out at $3.43 a gallon and ended the quarter at $3.61 a gallon, an $0.18 increase. Last year gas prices increased similarly by $0.15 per gallon during the second quarter starting at $3.37 and ending at $3.52 a gallon. We continue to believe gas prices have a real impact on our customers' abilities to maintain their vehicles and we will continue to monitor prices closely in the future.
We also recognize that the impact of miles driven on cars over 10 years old, the current average, is much different than on newer cars in terms of wear and tear. Miles driven were up in both October and November, 0.4% in October and up 0.8% in November. December showed miles driven were down 2.8%. For 2012 miles driven were up slightly plus 0.3% from last year. The other statistic we highlighted, the number of seven-year-old and older vehicles on the road, which continues to trend in our industry's favor. Another key macro issue facing our customers today is the reinstitution of payroll taxes back to historic norms. This reduction in our customers' take-home pay just began at the beginning of the new calendar year and at this point combined with the delay in income tax refunds, it is hard to objectively quantify the ramifications of this change.
For the trailing four quarters, total sales for Auto Parts Stores was $1,715,000. This statistic continues to set the pace for the rest of the industry. Total commercial sales increased 8.8% for the second quarter and represented 15.6% of our total sales, growing $23 million over last year's Q2. Last year's commercial sales mix percent was 14.8%.
As we have said previously, overall we have been very pleased with the progress we are making in our commercial business both operationally and financially and we remain on-track with our plans. We believe there are ample opportunities for us to continue to improve many facets of our operations and offerings and therefore we’re optimistic about the future of this business and continue to believe we can grow revenues in existing stores and we will continue to open additional commercial programs. This past quarter we opened 56 new programs versus 92 programs opened in our second quarter of last fiscal year. We now have our commercial program in 3,146 stores supported by 152 hub stores.
Approximately 800 of our programs are three years old or younger with only 66% of our domestic stores having commercial program and our average revenue per program materially below several of our competitors, we believe there is ample opportunity for additional program growth in addition to improved productivity opportunities in current programs. While we recognize that our commercial sales productivity per program is well below our peers, we do not believe there are any structural impediments that prevent us from achieving similar productivity numbers.
In regard to our future, we are focused on building upon the commercial initiatives that we have in place for the last few years. We continue to watch our sales force mature, we're also enhancing training and introducing additional technology to optimize the productivity of our sales force. We have increased our efforts around analyzing customer purchasing trends and in stock trends. We feel our product distribution model is scalable going forward and we are continuing to test additional enhancements to our offerings.
In summary, we remain committed to our long-term growth strategy. We have accelerated the growth of our commercial programs again having opened over 800 programs over the last 36 months effectively 26% of the programs are three years old or younger. We believe we are well-positioned to grow this business and capture market share. The regional variances in our commercial sales results give us comfort. Our underperforming markets are not solely the direct cause of something we have specifically done. We believe we can scale this business in a profitable manner. We continue to be excited about our opportunities in this business for many years to come.
Our Mexico stores continued to perform well. We opened nine new stores during the second quarter. We currently have 334 stores in Mexico. We remain resolute on a strategy to open stores at a steady pace while managing our Mexico business for the long run. We've operated stores in Mexico now for over 14 years and we continue to see great opportunity for growth going forward. Our returns and profit growth have been in line with our expectations.
Regarding Brazil, our first store is up and running and then we look forward to opening another here in the third quarter. We are currently in various stages of development on future stores. Our plans are to open 10 to 15 stores over the next couple of years and then slow additional development as we refine our offerings and prove that our concept works for our customers and financially then we will determine our long-term growth plans.
Recapping our second quarter performance for the Company in total, our sales for the quarter were $1.855 billion, an increase of 2.8% from last year's second quarter. Domestic same-store sales or sales for stores opened more than one year were down 1.8% for the quarter.
Gross margin for the quarter was 51.9% of sales, up 51 basis points compared to last year's second quarter. The improvements in gross margin were attributable to higher margins on merchandise growth. The increased merchandise margins were primarily due to lower acquisition cost. In regards to inflation, we have seen some increases in costs year-over-year, but at a much slower pace than last year at this time. At this point, our assumption is we'll experience subdued producer pricing heading into the new calendar year. Therefore, we feel cost will be predictable and manageable. We will remain cognizant of future developments regarding inflation and will make the appropriate adjustments should they arise. Looking forward we continue to believe there remains opportunity for gross margin expansion within both the retail and commercial business. However, we do not manage to a targeted gross profit margin percentage. As the growth of our commercial business has been a steady headwind on our overall gross margin rate for a few years, we have to continuously work strategies to offset this.
Additionally AutoAnything had a slight drag on our gross margin this past quarter. AutoAnything runs at a lower gross margin than our base business and we expect it will be a slightly larger drag once they are in our numbers for a full reporting period. Our primary focus remains growing absolute gross profit dollars in our total auto parts segment, which for the quarter increased approximately $30 million.
SG&A for the quarter was 34.7% of sales, higher by 6 basis points from last year's second quarter. Operating expenses as a percentage of sales increased slightly due to the lower sales growth rate, partially offset by lower incentive compensation expense. As we entered the second quarter we were mindful of the current sale environment and due to this cautious nature we aggressively managed our costs during the quarter. I want to take a moment to thank our entire team for their incredible diligence on cost control, which ultimately was a significant contributor to our performance in Q2. We continue to believe we're well-positioned to manage our cost structure for the foreseeable future.
Earnings before interest and taxes for the quarter was $318 million, up 5.6% over the last year's second quarter. Our EBIT margin improved to 17.1% or up 45 basis points versus the previous year's second quarter. Interest expense for the quarter was $41.3 million compared with $38.9 million in Q2 a year ago. Debt outstanding at the end of the quarter was $3.998 billion or approximately $530 million more than last year’s second quarter balance of $3.464 million.
Our adjusted debt level metric finished the quarter at 2.6 times EBITDA while in any given quarter, we may increase or decrease our leverage metric based on management’s opinion regarding debt and equity market conditions. We remain committed to both our investment grade rating and our capital allocation strategy and share repurchases are an important element of that strategy
For the quarter our tax rate was approximately 36.2% flat with last year's second quarter of 36.2%, we expect our full-year rate to be approximately 37%. Net income for the quarter of $176 million was up 5.6% versus the prior year second quarter. Our diluted share count of $36.9 million was down 8.3% from last year's second quarter, a combination of these factors drove earnings per share for the quarter to $4.78 up 15.1% over the prior year second quarter.
Relating to the cash flow statement, for the second fiscal quarter of 2013 we generated $193 million of operating cash flow. Net fixed assets were up 8% versus last year, capital expenditures for the quarter totaled $89 million and reflected the additional expenditures required to open 41 new stores this quarter, capital expenditures on existing stores, hub store remodels and work on development of new stores for upcoming quarters. For all of fiscal 2013, our CapEx is expected to be approximately $400 million.
With new stores opened we finished this past quarter with 4,735 stores in 49 states in District of Columbia and Puerto Rico, 334 stores in Mexico and one in Brazil for a total store count of 5,070.
We also had a cash outflow during the second quarter of $115 million due to the AutoAnything acquisition. Depreciation totaled $52.3 million for the quarter versus last year's second quarter expense of $47.5 million.
With our excess cash flow, we repurchased $185 million of AutoZone stock in the second quarter. At the end of the quarter, we had $603 million remaining under our share buyback authorization. Our leverage metric was slightly above 2.5 times EBITDA this past quarter. We ran higher than usual this past quarter due to our completed acquisition for AutoAnything. We have traditionally remained right at 2.5. Again, I want to stress we manage to appropriate credit ratings and not anyone metric. The metric we report is meant as a guide only as each rating firm has its own criteria. We continue to view our share repurchase program as an attractive capital deployment strategy. Accounts payable as a percent of growth inventory finished the quarter at 110%.
Next, I'd like to update you on our inventory levels in total and on a per store basis. We reported an inventory balance of $2.8 billion, up 7% versus the Q2 ending balance last year. Increased inventory reflects new store growth along with additional investments and coverage for select categories. Inventory per store was up 2.6%, reflecting our continued investments in hard parts coverage. Finally, as Bill previously mentioned, our continued disciplined capital management approach resulted in return on invested capital for the trailing four quarters of 32.4%. We have and will continue to make investments that we believe generate returns that significantly exceed our cost of capital.
As a last point, I'd like to point out that this year, fiscal year 2013, has an extra week in it. More specifically, the extra week will fall during the fourth quarter, already our longest quarter in terms of number of weeks. This year's fourth quarter will have an extra week taking us to 17 total weeks in Q4.
As a result our year will end this year on August 31st. The last time we had an extra week on our financials was fiscal 2008 and we would encourage each of you to review the impact this extra week had on our performance in Q4 2008 to better understand the impact this extra week will have on our fourth quarter and fiscal 2013 results.
Now I'll turn it back to Bill Rhodes.
William C. Rhodes, III - Chairman, President and CEO: Thanks Bill. We are pleased to report our 26th consecutive quarter of double-digit earnings per share growth and the reported EPS growth rate of 15% for our fiscal second quarter. Clearly our sales performance has not met our expectations as we have experienced softer sales over the past few quarters. In large part we believe it has primarily been attributable to macro factors.
Now regarding current sales trends, we report our earnings 2.5 weeks after the end of our quarter. Historically we've had a practice of not discussing our results for the current quarter because it is such a short timeframe. It just isn’t prudent to try to assess our trajectory off such a short period of time. We did attribute our performance in the last two weeks to the two-week delay in tax refunds. The reason we called out that two-week period's performance was because it was such a significant change. Recently we have begun to see some of those refunds show up in our performance but from the information we have, tax refunds are still significantly below the prior year.
As an organization we don't want to be victims of a challenging macro environment, nor do we want to be reliant on strong macro trends to drive our success. We must continue to modify our game plan in order to succeed in good and not-so-good selling environments. We've historically been able to do that and we're built to do that going forward. Our organization is well adept at quickly altering our activities to appropriately respond to the current sales environment, while doing so we also have a strong commitment to continue to deliver WOW! Customer Service and drive sales.
We believe the initiatives we have outlined are accomplishing that objective and our customer surveys reinforce that belief. Keep in mind that roughly half of our product sales are failure related. What’s great about that statistic is in good times and bad we will sell those items. We cannot (insist) customers to proactively replace those parts.
Last year's mild winter we believed it contributed to less failures and lower levels of maintenance as we begin to experience the effects from a more normalized winter this year we expect trends to improve. Again we're excited about our initiatives around inventory assortments, hub stores, commercial growth in Mexico, ALLDATA, e-Commerce and Brazil. Our charge remains to optimize our performance regardless of market conditions and continue to ensure we are investing in the key initiatives that will drive our long-term performance.
In the end delivering strong EPS growth in ROIC in every quarter is how we measure ourselves. Despite this quarter's sales weakness we are quite pleased with our earnings per share growth and our return on invested capital for Q2. Our long-term mode was to grow new store square footage at a low single-digits growth rate and we expect to continue growing our commercial business at an accelerated rate. Therefore, we look to routinely grow EBIT dollars in the mid-single-digit range or better in times of strength. And we leveraged our very strong and highly predictable cash flow to repurchase shares, enhancing our earnings per share growth into double-digits.
This model has been quite successful for an extended period of time. Finally, I want to again thank our entire organization for their dedication to our customers, fellow AutoZoners, stockholders and communities. Our approach remains consistent. We are focused on succeeding in the third quarter of 2013 and we are excited about the next two quarters' opportunities. Thank you for your time.
Now we'd like to open up the call for questions.
Operator: Kate McShane, Citi Research.
Kate McShane - Citigroup: My question is on the commercial business. I think you had said during the prepared comments that you expect 300 new programs for 2013. Is that correct?
William C. Rhodes, III - Chairman, President and CEO: That's correct.
Kate McShane - Citigroup: Okay, which sounds in line with what you did in 2012, so I was just wondering with your investment, your emphasis on investment in commercial and the hub system and the sales force, why we can't see an acceleration in this program growth this year?
William C. Rhodes, III - Chairman, President and CEO: Yeah. Actually, it's going to be down this year, but that's consistent with our plan. Last year we opened 400 programs. This year we are saying we are going to open roughly 300 programs. We want to make sure that we – the most important part of opening a commercial program is to make sure that we have the right resources in place and particularly the right people resources. One of the things we learned last year when we opened 400 programs, it was a strain to make sure that we had the right people in place to start those programs. This year we've decided to back off a little bit, but opening 300 programs is still a pretty aggressive growth trajectory. We just want to make sure that we do it right. We are in this for the long-term and we think 300 program growth, which is roughly 10%, is pretty aggressive.
Kate McShane - Citigroup: Can you comment at all on any changes that may be different in the competitive environment in commercial this year versus last year?
William C. Rhodes, III - Chairman, President and CEO: Yeah, I don’t think that there's any significant competitive changes in the commercial environment. I think everybody is out there fighting in a pretty tough environment, particularly in the northeast and the Midwest. What we hear from our customers on the commercial side is car counts are down. It's a tough business right now and so everybody is out there and we're out there trying to give our best to make sure we provide them great service.
Operator: Matthew Fassler, Goldman Sachs.
Matthew Fassler - Goldman Sachs: A couple questions. First of all, obviously lots of other retailers from Walmart to many restaurants and others have discussed tax refunds, but this is not the first time I guess in the history of your business that we've seen tax refunds fluctuate in the environment. So is there anything that you see about ticket or the kind of transaction that you're witnessing that would suggest to you that beyond the environmental influences that this is actually the culprit for the recent drop-off?
William C. Rhodes, III - Chairman, President and CEO: Yeah, first of all, as you know, I've been in this business for 18 years. I've never seen this what we experienced in those last two weeks. Now we've always known that we had this huge round typically in the last two weeks of our quarter and so we've always been frankly pretty darn nervous obviously and what happens if that ramp doesn’t mature at some point in time. Well guess what, we found out this year, and it hurt us. Fortunately we had very effectively managed our business before that point in time and we still delivered pretty reasonable results considering the sales environment. Yes, in the last two weeks, we saw a material degradation in the ticket because people are not doing the kinds of jobs that they typically do when they get that flow of money which is their tax refunds. That’s the only reason we have ever been to a point for the reason our sales spike so much in those last two weeks and so I think we found this year.
Matthew Fassler - Goldman Sachs: And then the second question, if you look at your commercial sales per store from peak to trough, you probably have seen a bit of a bigger dip in growth rates than you have in DIY and as you think about the maturation of your rollout, you think about the fact that the incremental stores opening might be in regions where we have already feel some initial penetration. What’s your up-to-date thinking on the white space that you have and the ability to continue to comp from commercial say once weather normalize as a factoring new business?
William C. Rhodes, III - Chairman, President and CEO: First of all I will say we opened the most productive programs first, so as we get deeper in the cycle those store programs there are in the markets that don't have the same kind of potentials the ones we did in the first part. Now we still think they have great potential and we still have 2.5% market share. So, we think that white space is amazing as we look out. Look, our performance in commercial has been disappointed. We are down from going 20% to growing roughly 9% this quarter, 10% when you adjust for those days. But what we have seen is we are continuing to grow pretty significant market share in commercial. We think we have a long-term plan to grow it and we think we are going to be able to do just fine.
Matthew Fassler - Goldman Sachs: Just lastly and to clean up. You obviously have the regional differences and if you could just update us, if you look at cold weather market first in the rest of the country, whether their commercial DIY relationship is different in those two groups of markets.
William C. Rhodes, III - Chairman, President and CEO: It is not different, the numbers are different because as you highlighted the growth trajectory of commercial has been different, but directionally the trends are very, very similar.
Operator: Dan Wewer, Raymond James.
Dan Wewer - Raymond James: Bill, you note that your productivity per program is 40%, 50% lower than some of your competitors, but there is not any inherent reason for it because to run that they have a discount. When we talk with some of the technicians and ask them why they choose AutoZone, why they choose some of your competitors? The one pushback that we hear on AutoZone is the quality of the parts that are available and delivery times and certainly AutoZone has not made the same investments in distribution than some of your competitors have with the exception of the hub stores. So, when you think about closing that productivity gap, is it going to require a significant capital investment on the part of AutoZone?
William C. Rhodes, III - Chairman, President and CEO: At this point in time, we think our strategy is fantastic. The biggest thing that we are working on is the continued evolution of these hub stores. Yes, in local market, availability is critical to our success. Frankly, in commercial and retail, and so what we're trying to do is leverage our hub stores, so that we can have the best in local market availability in the industry and we think when we do that we will be fine.
Dan Wewer - Raymond James: Then just as a follow-up question. Your comments about the weakness in brakes and rotors and the other three cold weather market is consistent with your competitors, but can you draw a link between what happened with warmer weather last February and March to why brake replacement rates have been dropping so quickly in that region of the country? You mean after all the changes in gasoline prices are about the same in the north or say in your Sunbelt markets, miles driven is not significantly different in the North than it is in Sunbelt market. You would think that the failure rate or the replacement needs for brakes will be almost identical?
William C. Rhodes, III - Chairman, President and CEO: Yeah. Intuitively, I would have thought that as well, Dan and I had never seen this kind of an issue in the past, but as we've gotten out and talked to our AutoZoners, we were talking to their customers and talked particular to our commercial shops, what we're hearing is the road conditions had a big part of it last year. The lack of salt and brine and the things that they do to deal with high levels of snow put less wear and tear on those brake components, the fewer holes and potholes on the road, the less wear and tear on chassis components and the like, and it's been remarkable how significantly poor those categories have performed just in the Midwest and the northeast. And so at this point in time that's our best thinking. And as we've said before, we're going to know in April. Frankly, if we find we get to April and they are not improving, we were wrong and we've got to figure out what's going to take to grow in the future.
Dan Wewer - Raymond James: Are you working on a contingency plan now if (sales don’t) come back in April?
William C. Rhodes, III - Chairman, President and CEO: No, as you talked about, everybody is saying the same thing. So I don’t think we’re standing on this island by ourselves.
Operator: Gary Balter, Credit Suisse.
Simeon Gutman - Credit Suisse: It's Simeon for Gary. You mentioned inflation in the prepared remarks. I think you said some cost increases for next year at a slower rate. In the past we've also talked about innovation driving the ticket and granted the recent trends were obscured by weather, but can you talk about where we are in that cycle? Is there more innovation coming through product so that when we the maintenance and repair or some of the deferred maintenance pick back up you could get a bigger inflation or innovation lift?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: And I think that's a good way to think about it Simeon. I mean we have not seen a lot of inflation and our expectation is that we will not see inflation certainly from quantity based product standpoint. But from an innovation standpoint we continue to see that as the newer cars continue to work their way through from an ageing perspective, we continue to see some, I hate to call it inflation but inflation in the pricing from an innovation standpoint. So, our expectation is that and it's very consistent with our model overtime is that traffic has been down consistently overtime in this industry through a very long period of time. And we continue to see either commodity price inflation which we are now seeing a lot of now or product innovation inflation which we continue to see but our expectation is that will continue in the future.
Simeon Gutman - Credit Suisse: Okay. And then following onto the question that was asked about infrastructure, I think Bill Rhodes mentioned that the speed to market and end market availability is important. And I think the speed to market that AutoZone delivers is pretty good. But what about the selection, does the hub model give you the ability to go deep as you want or as you can in terms of product selection?
William C. Rhodes, III - Chairman, President and CEO: We have spent a lot of time looking at that and if you look at the sales trends of the SKUs, the percentage of sales that we get in the velocity SKUs versus the tail SKUs it's remarkable how quickly that tail goes down. How slower moving products turn. But we have to have those slow moving products because we need them to be able to build the relationship with our customers. So, we believe the thing that we need to do is continue to build out our hub stores as I said in our prepared remarks, we now have 77 hub stores that we have expanded the size of so we can significantly increase the assortment. And as we continue to build those larger expansions, we go deeper and deeper, so that we can find where that sweet spot is.
Simeon Gutman - Credit Suisse: And are you able to track if you don't have a product because it's either not carried, is that a number that you track and is that number, small number trending down?
William C. Rhodes, III - Chairman, President and CEO: Yeah. Absolutely, we can track it and as we continue to improve these hub stores, yes, it goes down in those hub stores. Our hub penetration continues to grow and frankly meet – exceed our expectations.
Operator: Greg Melich, ISI Group.
Gregory Melich - ISI Group: I have a housekeeping question and then a bigger picture follow-up. The AutoAnything acquisition, how much did that add in terms of sales in the quarter, can you help us back out how much that ALLDATA and e-Com line was excluding the acquisition?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: Yeah. I think AutoAnything was probably sub $20 million for the quarter overall in sales and from an earnings perspective, it was negligible impact overall.
Gregory Melich - ISI Group: So, if I just push back the envelope, I put in $15 million of that ALLDATA and e-Commerce line back that out and maybe 5% or 10% growth is that about right?
William C. Rhodes, III - Chairman, President and CEO: Probably in the neighborhood.
Gregory Melich - ISI Group: Then second maybe a little big picture is, I think in the release and Bill on your prepared comments, you talked about getting back to a more normalized volume. What would you consider normalized volume?
William C. Rhodes, III - Chairman, President and CEO: That's a great question, Greg. Obviously, over the last four years, our industry had seen significant strength and you've certainly seen that in our same-store sales performance over the last three years before the last 12 months. I think there were clear industry tailwinds during that period of time that benefited all of us. I think right now, we've got some pretty significant industry headwinds. So, my personal point of view is it's probably somewhere in between.
Gregory Melich - ISI Group: So, if we were to say normalized volume was slightly positive still, 1% or 2%, would you (indiscernible) up of that some normal inflation?
William C. Rhodes, III - Chairman, President and CEO: Yes, I think the normalized volume is definitely positive and I think on the DIY business, the components of that maybe that customer count continues to be pressured but is offset by the structural increases in average ticket due to the technological advancements in parts and the innovation that Bill Giles was talking about a few minutes ago.
Gregory Melich - ISI Group: And Bill maybe on the inflation, a follow up…
William C. Rhodes, III - Chairman, President and CEO: Greg, I can hardly hear you. If you can speak up.
Gregory Melich - ISI Group: I am sorry, to follow up on Simeon's question on inflation, just as a reminder, what was it a year ago? Right now it's basically flattish. Was it 2% a year ago?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: Yeah, I'd say it's probably just 2% year ago, maybe little bit less than and I think the year before that it was much higher.
Operator: Aram Rubinson, Nomura.
Aram Rubinson - Nomura Securities: A question just around the types of vehicles that you're seeing, as you were to look at the business by class of vehicle whether it's SUVs versus sedans or age of vehicle, just trying to get a sense on shifting vehicle populations effect on the business? And then I had a follow up.
William C. Rhodes, III - Chairman, President and CEO: We don’t look at it that specifically on those things. The thing we do look at the most is the age of the vehicles, but we don’t see any material shift as you've seen from AAIA's numbers, the average age of vehicles continues to eek up a little bit, I think, (it was at) 10.6 to 10.8. So I don’t think there's any material changes in the mix of products we sold.
Aram Rubinson - Nomura Securities: And then as a follow-up, I had once thought that ALLDATA could be kind of a useful tool in getting into the commercial business since you've kind of got your network kind of installed in the garages already. Can you talk about how you've either decided to use that or not use that and whether or not it's been effective or maybe it wasn’t quite as I laid it out.
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: that’s a good question, I mean we think that ALLDATA is a standalone business, have been very effective for us, a bit of very high market share from our repair diagnostic standpoint. And they continue to add additional products whether it be sharp management or market etcetera, so they have done a great job of continuing to penetrate it. We continue to seek opportunities to be able to bridge some of the synergies that exist between ALLDATA and our overall commercial business. They are not probably as prevalent as you could think intuitively because they are very different businesses and they are providing different things to the shops and very different sales force, very different skillset from the sales force, perspective. So, I’d say that there are some synergies probably not as I as you are thinking.
Operator: Chris Horvers, JPMorgan.
Chris Horvers - JPMorgan: I did wanted to just follow-up with it on the past 2.5 weeks the commentary that you said Bill, it looks like tax refunds have flattened out here in the past couple of weeks. So, should we interpret that these weeks look a lot more like the first 10 weeks of the quarter you just reported or how should we think about that?
William C. Rhodes, III - Chairman, President and CEO: Yes, I’m going to go back to what I said in the prepared remarks, I don't want to – we call that those specific two weeks because they were in the quarter and they were vastly different than our other experience and we felt like we had a good handle on what drove it. But this time a year there is such volatility in our business because the weather patterns change day-to-day and week-to-week. What we see is that overall tax refunds are still substantially behind last year and we don't necessarily know what the trajectory (or copy) we are going to spend this tax refunds are. But I don't want to get in any further into that 2.5 week period a time expect to say clearly we are not running to negative 8 that we called out before, but there is still a lot of variability in our sales at this point.
Chris Horvers - JPMorgan: So, is there a way to say – how are you thinking about what you get back from these deferred refunds. So is there a way to say – is it simple enough to say, hey, discretionary is X percentage of sales this time of year and that's what we could potentially forego or how do you think about it?
William C. Rhodes, III - Chairman, President and CEO: I think that we don't have a good way to think about it because we haven't experienced it before. We believe when money flows in the economy, particularly to our kind of customers that they get caught up on a lot of their maintenance and repair work, and I see no reason that that won't happen again this year, but then you do worry about the timing changes. Hopefully, that will benefit us even more. If we can get some nice breaks in the weather and people won't get out and work on their car, it might be to our benefit. We just don't know at this point.
Chris Horvers - JPMorgan: That's a good segue. On the warm weather side, do you think that that sequential increase into weeks 11 and 12 last year and likely February and March, have you done any analysis to say how much of that was just warm weather pull forward out of that April-May timeframe?
William C. Rhodes, III - Chairman, President and CEO: Yes, clearly, the mix of business that we did last year in those weeks was very different. We were experiencing a lot of – we talked last year about the fact a lot of the spring categories got pulled forward into that period of time, but the overall trajectory of the business in weeks 11 and 12 is very consistent with last five or six years that we had. Now the mix we might have been selling batteries where this last year we were selling brake pads, but overall we have always seen that significant ramp and it didn't happen this year.
Chris Horvers - JPMorgan: And then finally Bill Giles, maybe could you talk about how you – the long-term EPS double-digit outgrowth algorithm, I guess how long would you have to stay flat or negative for that algorithm not to hold true?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: I think if you look back historically I mean the organization has done a very good job of managing our expense structure in line with our environment that we are performing at. And so I mean this was a good example of our company virtually every facts of the organization doing a really good job of assessing their expense structure needs and cutting back where they need to. And so if you look back even before our business took off in '09, we were successful in growing our EPS growth at a double-digit rate in the flat comp, and so obviously we don't believe that a flat comp is in our future. We believe the industry will remain healthy and it will continue to gain market share, but we certainly believe that we can model that Bill articulated in his prepared remarks is the model that we can operate into the future and certainly at a slightly positive comp we can perform very well.
Operator: Michael Lasser, UBS.
Michael Lasser - UBS: Can you provide us with the mix of business between maintenance, failure, discretionary for the commercial side versus I think you've provided the overall?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: Yeah. We typically stick with the overall in fact I don't even have the commercial numbers in front of me to give you a view that although that's going to be probably a little bit more weighted towards failure of non-DIY side, but I don't have the – we don't disclose those numbers exactly. It's clearly, the discretionary side would be way down, so that would change.
Michael Lasser - UBS: When you look at the performance of sales to existing commercial customers, how did that compare, how is that compared over time, is that basically tracked the overall performance of commercial or is that been higher or lower?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: I would say it's basically tracked the overall performance of commercial. I think that what we are seeing is that we're still gaining good traction out of our existing customers and more importantly our older programs continue to perform well. Obviously, we clearly have opportunities based on this quarter's performance to improve our overall performance, but existing customers continue to do well.
Michael Lasser - UBS: And then the last question on that, are you also seeing – because you indicated that some of the newer programs haven't been as productive, are you seeing any increases in cannibalization rates as a result?
William T. Giles - CFO and EVP, Finance, IT and ALLDATA: Yeah, I think overtime we will see some impact of cannibalization that will probably affect the overall numbers, but the reality of it is, is that, as Bill said before, we've got a very small market share and we've got a lot of work to do to order and capture more and more market share. One thing I would mention on the newer programs, (when someone) said newer programs are less productive, we have a higher percentage of newer programs in the mix and as a result of that from a math perspective, it winds up taking down your average weekly sales for the total 3,000 programs.
Operator: I would now like to turn the call over to Mr. Bill Rhodes for any closing comments.
William C. Rhodes, III - Chairman, President and CEO: Great. Before we conclude the call, I'd like to take a moment to reiterate that our business model continues to be solid. We're excited about our growth prospects for the year. We will not take anything for granted as we understand our customers have alternatives. Our culture remains our key point of differentiation from our competition and we must not lose sight of the importance of basic store execution in order to remain very successful. We have a solid plan to succeed for the remainder of 2013, but I want to stress that this is a marathon and not a sprint. As we continue to focus on the basics and focus on optimizing long-term shareholder value, we are confident AutoZone will continue to be very successful. We thank you for participating in today's call.
Operator: Thank you. This does conclude today's conference. Thank you very much for joining. You may disconnect at this time.