汽車地帶 (AZO) 2009 Q4 法說會逐字稿

Good morning and welcome to the AutoZone Conference Call.

(Operator Instructions) This conference call will discuss AutoZone's fourth quarter financial results.

Mr.

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 a.m.

Central Time, 11 a.m.

Eastern Time.

Before Mr.

Rhodes begins, the Company has requested that you listen to the following statement regarding forward-looking statements.

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, perception of historical trends, current conditions, expected future developments, and other factors we believe to be appropriate.

These forward-looking statements are subject to a number of risks and uncertainties including, without limitation, competition, product demand, the economy, credit markets, the ability to hire and retain qualified employees, consumer debt levels, inflation, weather, raw material cost of our suppliers, energy prices, war and prospect of war including terrorist activity, availability of consumer transportation, construction delays, access to available additional financing and changes in laws or regulations.

Forward-looking statements are not guarantees of future performance, and actual results, developments, business decisions may differ from those contemplated by such forward-looking statements, and such events could materially and adversely affect our business.

Forward-looking statements speak only as of the date made.

Except as required by applicable by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual results may materially differ from anticipated results.

Please refer to the Risk Factors section on AutoZone's Form 10-K for fiscal year ended August 30, 2008 for more information related to those risks.

In addition to the financial statements presented in accordance with GAAP, AutoZone's provided metrics in this presentation are not calculated in accordance with GAAP.

For a reconciliation to these metrics, please see AutoZone's press release in the Investor Relation section at www.AutoZoneInc.com.

Mr.

Rhodes, you may now begin.

Good morning and thank you for joining us today for AutoZone's fiscal 2009 fourth quarter conference call.

With me today are Bill Giles, Executive Vice President, Chief Financial Officer, Store Development and IT, and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax.

Regarding the fourth quarter I hope you've had an opportunity to read our Press Release and learn about the quarter's results.

If not, the press release along with slides complimenting our comments today is available on our website www.AutoZoneInc.com.

Please click on quarterly earnings conference calls to see them.

We are very pleased to announce for the quarter a same-store sales increase of 5.4% and an EPS increase of 14.2% in comparison to last year's fourth quarter.

Adjusting for the extra week in last year's results, our earnings per share increased 22%.

This past quarter we continued our relentless focus on executing the basics extremely well, as we believe this translates to a superior customer experience.

I'd like to sincerely thank and congratulate our 57,000 plus AutoZoners across North America for their tremendous dedication and commitment to excellence that led to us achieving our 12th consecutive quarter of double digit EPS growth.

Additionally I would like to recognize them for delivering a very strong fiscal year, highlighted by a same-store sales increase of 4.4%, and an EPS growth adjusted for the extra week of 19.7%, all while providing superior trustworthy advice and great customer service.

And as evidenced that we are focused on managing capital prudently, we increased our return on invested capital to 24.4% on a trailing four quarter basis.

As we begin fiscal 2010, we feel we're well positioned to take advantage of continuing growth opportunities that exist in each of our businesses, US retail, commercial, Mexico, and Alldata.

We worked very hard this past year to execute aggress every on our tactics, as the macro environment turned in our industry's favor.

And as we head into a new fiscal year, we remain optimistic we can enjoy strong sales results.

We believe consumers are trying to save money and repairing your car is a very simple way of doing just that.

While Cash For Clunkers certainly was successful at selling approximately 700,000 vehicles through August, the remaining 200 plus million registered vehicles and their drivers continue to look for ways to save money during these very difficult times.

We certainly are hopeful consumers have changed their mind sets for years to come and will continue to properly maintain their vehicles, by either doing it themselves or using one of our highly qualified commercial customers.

However, we also see where many of the initiatives we have undertaken are resulting in increased market share in each of our four businesses.

As our retail and commercial businesses began to improve last winter, we elected to capitalize on the opportunity to strengthen our position for the future.

As consumer buying behaviors began to shift when the economy became more difficult, we saw an opportunity to accelerate some operating investments.

Examples of these included a more aggressive expansion of our hub store operating model, an acceleration of our store maintenance efforts, and increase in the amount of formal training, and an expansion in the size of our commercial sales force.

We also deployed additional capital in areas we believe will have future impacts, such as enhanced IT infrastructure, continued additions of late model products, while focusing on reducing less productive inventory.

And we began an effort to purchase more of our new properties versus leasing those new locations.

Lastly, we added more selling hours to our stores.

These investments were made to optimize short-term performance, but equally as important to benefit future quarters and years.

These efforts we believe will help us build on our recent successes.

Over the last year, I've had the privilege of working in many of our stores across the country.

And I can say with confidence that our store presentation and service is industry leading.

We have worked diligently to differentiate ourselves at the point-of-sale.

And we will continue on those efforts going forward.

However, we make no assumptions that our competition is unwilling or unable to gain market share from us, if we don't remain intensely focused on the customer.

We are not trying to reinvent ourselves.

We simply are looking to continually improve our customers experience through better, more knowledgeable AutoZoners who can help the customer do the job right the first time.

And it's working.

We will now try to address some of the questions we expect you have this morning.

First, regarding sales results.

We're excited about the prospects for Fiscal 2010.

We continue to feel good about our retail business opportunities, and we absolutely believe we can build on our recent commercial successes.

We believe AutoZone's future can be one of continued solid sales growth, combined with strong operating margins.

Now, we are realistic that there will be a more difficult sales comparisons beginning in our second fiscal quarter, as we anniversary the acceleration that began last winter.

However we are optimistic that we can continue to deliver strong performance, as long as we focus on improving the customer experience.

Secondly, with respect to gross margin rate, it was consistent with the prior year, and we continue to see opportunities to expand our gross margins as we begin the new year.

This past quarter's mix of merchandise sold negatively impacted our overall gross margin rate, but expanded gross margin dollars, just as it did last quarter.

We continue to feel confident in our positioning versus the competition, and [filled] our cost opportunities heading into the new year, as commodity costs have seen some declines.

Also, we are continuously expanding our import initiatives to reduce cost further.

Finally, pricing did not play a major story in our sales or margin results this past quarter.

From an expense standpoint as mentioned earlier, we purposely decided to accelerate some of the initiatives that we began -- that we have been testing faster than we may have otherwise in an effort to capitalize on current market conditions.

This clearly kept us from realizing additional leverage on the incremental sales, but we believe it was the right approach and has contributed to our sales momentum.

That being said, our organization knows how to manage expenses.

If the sales environment warrants a change we stand prepared to quickly make any necessary adjustments to this approach.

Regarding our commercial business, our trends remain positive as we continue to build our sales force, refine our parts assortment, and focus our efforts on our most profitable customers.

As with our retail business our market share growth trends are exceeding pace of growth of the overall commercial market.

However, we recognize that with only a 1.5% market share, there is significant opportunity for growth.

And we are encouraged but not satisfied with our current performance levels.

We continue to feel confident in our strategy and we look forward to capitalizing on this tremendous opportunity in 2010 and beyond.

As I have traveled to our stores in many markets in recent months, I've been very impressed with the progress we are making in improving our execution on a variety of fronts.

I see highly motivated AutoZoners who are very excited by the acceleration in their store's performance, especially in this macro environment.

I see improvements in our store's appearance both internal and external.

I see us providing our customers with very compelling offerings that our customers appreciate.

The store AutoZoners share with me that they see a significantly improved parts assortment, both in their stores and available through our hub stores.

I also see a new sense of confidence across the store, but particularly with AutoZoners who primarily serve our commercial customers.

They recognize the significant increase in tools and resources they have been provided over the last couple of years.

Now, our businesses are consumer oriented businesses, and any customer oriented business, you are only as good as your last customer interaction.

I continue to see ample opportunity for us to improve in every store with every customer every day.

We cannot and will not get complacent due to three quarters of improved sales performance.

Lastly I'd like to take a moment to mention we're hosting our national sales meeting here in Memphis next week.

Our entire field leadership will be here to learn about key initiatives for 2010.

This year's theme is "Going the Extra Mile." It is a continuation on last year's theme of "great people providing great service." It's at this meeting where we'll recognize our top performing store managers as we induct them into our President's Club.

It's also at these meetings where I'll thank our AutoZoners and reinforce how important their efforts are to this organization.

We will focus on our initiatives to provide the best service levels, sell the complete job, and continue to refine our product knowledge to support our customer's needs.

I can not wait to thank everyone for a great year, and to challenge them to push even harder to provide trustworthy advice and superior customer service in 2010.

Now I'll take a few moments to talk more specifically about our retail, commercial and Mexico results for the quarter.

And then Bill Giles will review our gross margin results, operating expense results, balance sheet and cash flows.

For the quarter, total auto parts sales increased 1% after adjusting for the extra week last year, sales were up 7.1%.

During the fourth quarter, we continued to focus on driving sales and profits through improving the customer experience.

This quarter, we updated 26 of our 40 plus major merchandise categories, and for the year completed at a minimum one full line review per major category.

Refinement of our merchandise assortment is a core element of improving our ability to say yes more frequently to our customers, and to meet or exceed their needs.

We will remain committed to the timely execution of merchandise updates.

I'll break my comments regarding retail sales up into four major categories, excuse me, five categories.

Specifically I'll address what we're seeing from the merchandise sales perspective that's helping to drive our performance.

And then I'll touch on our new hub store operating model.

Next I'll discuss our continuing initiatives on training.

I'll then spend a moment on new marketing themes for the retail customers, and finally I'll address the macro trends we've seen.

Regarding merchandise mix, we experienced trends that were generally consistent with the last two quarters.

We continue to see items categorized, as maintenance outpaced the growth in failure and discretionary categories.

Typical examples of product categories we classify as maintenance would be oil and filters, brake pads, wiper blades and shocks and struts.

We attribute this trend to consumers changing their perspective on the importance of their vehicle, and their likelihood of holding on to that vehicle for a sustained period of time.

For the quarter, failure type items represented approximately 40% of our sales and continued to grow, but at a lesser rate than maintenance categories.

As parts fail based on relatively predictable timelines, we wouldn't expect to see the economy as a major contributor to failure rates.

Also sales of discretionary related items remain under pressure.

As the name implies, these categories are more want than need based purchases.

And our customers have come under pressure from the economy they have elected to defer more of these types of purchases.

Discretionary products represent less than 20% of our customer's purchases today.

We expect this trend will continue as consumers remain challenged by the macro environment.

Now I'd like to take a moment to update everyone on our enhanced hub concept.

We converted an additional 15 hub stores to our new model by expanding the hard parts assortment, and increasing the delivery frequency to our satellite stores.

Today we've converted just under half of our 143 hubs to this new operating model.

The results primarily measured by sales lift in the combined store market have been encouraging and sufficient for us to continue to expand the number of locations on this program.

Based on the success of the program and our improved performance overall, we accelerated the expansion of this program.

By increasing the hard parts assortment and the frequency of deliveries to our satellite stores, our AutoZoners are now in a position to say yes with confidence more frequently to our customers.

Secondly, the enhanced hub offers us the ability to improve the productivity of inventory, particularly slower turning inventory.

We no longer have to retain certain slower moving SKUs in our satellite stores, because we can access the slower turning SKUs from our hub stores thereby reducing working capital.

Currently we're redeploying these inventory investments to add more late model products.

As this is a relatively new initiative for us we will continue to look for opportunities to refine and expand the service.

And we believe this enhancement offers us opportunities to continue to profitably increase our sales.

Third, training continues to be a key priority to improve customer service and grow sales.

This past quarter we invested in a formal leadership training program for store managers and their leaders.

We continue to challenge AutoZoners to energize others, and help teams succeed while putting customers first.

This two day session was very well received by the participants.

The fourth item I'd like to talk about is our marketing message for the retail customer.

We continued with our just because you're doing it yourself, it doesn't mean you have to do it alone" theme in our radio and television ads during the fourth quarter, and will continue to focus on this message heading into 2010.

We believe doing it yourself will be a poignant theme in 2010, as saving money remains paramount to shoppers.

We continue to believe marketing AutoZone's strengths, trustworthy advice, great merchandise and the right price will continue to positively resonate with our customers.

Regarding macro trends, during the fourth quarter, unleaded gas prices started out at $2.24 a gallon, and steadily climbed to $2.61 a gallon by the last week of our quarter.

This creep in prices is not uncommon during the summer driving season.

While the prices at the pump remain approximately 35% below last year's fourth quarter average of $3.93 a gallon.

It is noteworthy that prices were up again from just last quarter's average price of $2.02 a gallon.

Forward prices on gasoline for the next 12 months continue to indicate flat pricing year-over-year.

We believe in these ranges of mid $2.00 a gallon gas prices will not be a material driver of miles driven in 2010.

Regarding miles driven we saw basically flat results in miles driven in April and May.

However we saw a marked improvement in driving in June as comparisons continue to ease versus the prior year.

While recently we've seen minimal correlation in sales performance with miles driven, historically it has been one of the two key statistics that correlates our sales results better than anything else over the long term.

The other is the number of seven-year-old and older vehicles on the road.

Regarding vehicle count of our kind of vehicles or OKVs, it has continued to increase over time.

Our trade association, AAI, recently reported more registered vehicles on the road than ever before, with the vehicle population at 242 million.

And based on POKE data, the average age of the vehicles continues to increase, as does the number of vehicles seven years old and older.

Regarding weather, we believe it had a slight negative impact on our results, especially in the northeastern and Midwestern states, due to cooler weather this year versus last year.

I'd also like to talk about the high rate of unemployment our country is currently experiencing, and its possible impact on our sales results.

Unemployment has increased steadily over the past several months with August ending at 9.7%.

At this point we don't believe the rise in unemployment has negatively impacted our performance, and in fact it is likely helping.

We are obviously mindful of this rise and continue to monitor it closely.

Lastly, we should address the government's Cash For Clunkers program recently completed.

While the results for the car makers have been positive, we did not see a material impact from this program on our sales results, in either our commercial or retail businesses.

We believe the percentage of car population affected by this trade-in program was immaterial to the overall car population.

With that said, as previously stated we were not proponents of this program.

For the trailing four quarters, total auto parts sales per square foot were $239.

This statistic continues to set the pace for the rest of the industry.

Now let's turn to commercial.

For the quarter, total commercial sales increased 0.3%.

However the business increased 5.7% versus last year's quarter on a comparable 16 week basis.

We are encouraged by the momentum we have experienced in this business over the last year, and we believe we're positioned for continued growth in 2010 and beyond.

As we analyze our commercial sales growth across the country, we were pleased to see growth has come from both existing and new customers.

As we continue to increase market share, we've grown our sales force and improved our parts coverage.

With improved tools in place, combined with constant enhancements, we're continuing to build a platform for long term growth.

We now have our commercial program in 2303 stores, supported by 143 hub stores.

During the quarter, we opened 27 additional programs.

However of the 27 programs, 19 opened in the last couple of weeks of the quarter.

Our main focus remains on building and developing our sales force.

We are targeting sales growth through first, increased penetration of existing customers.

And second, on acquisition of new customers in our existing service radius.

We operated approximately 1900 programs, a majority of the 2303, with what we've previously described as additional resources such as an outside sales force, incentive compensation and more extensive marketing collateral.

These programs continued to materially out perform the results of our remaining programs.

The majority of our business is derived from up and down the street customers, which experienced high single digit growth throughout the quarter.

We continue to work closely with our national account customers, and have developed a strong business relationship with many of these customers.

Also, we continue to develop our public sector business, and have experienced substantial growth over the previous year in this customer segment, although it's currently small in comparison to our other segments.

Over the past quarter with the success we were seeing, we again added to our commercial sales staff, while reducing our store to sales person ratios.

We believe more intense personal focus on existing account management will drive continued results.

We also continued to add delivery vehicles to support existing and future growth.

Finally, we continue to see opportunities to leverage technology as a point of differentiation in this business.

During the quarter we implemented a new sales force management tool that allows us to direct our sales force to specific accounts, and provides us with meaningful data on the outcome of those sales calls.

In summary, we believe we are constantly enhancing our offering in this business and as a result, we believe we can build on this momentum heading into 2010.

Lastly, I'll introduce a concept that seems logical but we think it has real customer satisfaction and top line implications for both our commercial and retail businesses in 2010.

We coined the phrase "one team." We believe we have to stop referring to AutoZoners as either being commercial or retail.

We feel by teaching all our AutoZoners to support both our retail and commercial customers, we can become more efficient and be better partners with all of our customers.

While this concept is in the early stages, the few test stores we've implemented show very promising results.

Our Mexico stores continue to perform well.

However the story for Mexico this past year has been the weakening peso.

At the end of the fiscal year, the peso traded at over 13 to 1 US dollars versus last year at 11 to 1.

This weakness has challenged the US Dollar's compares for both the top and bottom lines versus last year.

We opened 20 new stores during the fourth quarter, and currently have 188 stores in Mexico.

For the year, we opened 40 new stores, a significant acceleration from last year's record number of 25 new stores.

We believe that we have an appropriate strategy to manage our Mexico business for the long run, while minimizing foreign currency risk.

Our ongoing commitment remains to prudently and profitably grow the Mexico business.

Now I'll turn it over to Bill Giles to discuss the remainder of the income statement, cash flow and the balance sheet.

Bill?

Thanks, Bill.

Before I begin, let me remind you that last year, the fourth quarter consisted of 17 weeks as fiscal year 2008 was a 53 week year.

As I discussed our financial results for the quarter, I will compare the 16 week period this year to the comparable 16 week period last year.

Regarding the fourth quarter for the 16 weeks ended August 29th, we reported sales of $2.232 billion, an increase on a comparable 16 week basis of 7.1% from last year's fourth quarter.

Same-store sales were sales for stores open more than one year were up 5.4% for the quarter.

We experienced similar sales growth, from both our retail and commercial customers.

Additionally, our sales trends throughout the quarter remained generally consistent.

Over the quarter there were no material regional sales differences, other than the weather impacts previously mentioned.

Net income for the quarter was $236 million, an increase of 3.6% on a comparable basis versus last year's fourth quarter.

And diluted earnings per share increased 22% to $4.43, from $3.63 on a comparable basis in the year-ago quarter.

Our continued disciplined capital management approach resulted in return on invested capital for the trailing four quarters of 24.4%.

We're proud to report that this metric continues to improve over last year's already industry leading rate.

Return on invested capital is a key measure of our success.

We have and will continue to make investments that we believe will generate returns that significantly exceed our cost of capital.

And we want to assure all investors, we understand the capital we deploy in this business as your capital.

Based on our historic and current ability to generate strong cash flow, we are able to strategically invest in those assets we believe will generate an appropriate return.

Gross margin for the quarter was 50.3% of sales, flat compared to last year's fourth quarter.

In the fourth quarter, gross margin was impacted positively by leverage on distribution cost due to improved efficiencies and lower fuel cost, which was largely offset by an increase in sales categories that typically carry lower margin -- lower than average margin.

This quarter's margin played out very similar to last quarter's results.

While we have not seen a material shift down to our good categories from our better and best categories as the economy weakened, we have seen a move to maintenance categories over more discretionary merchandise categories.

Commodity-related categories continued to be strong growers for our business.

And they typically have lower gross margins than hard parts categories.

While we have recently begun to see cost decreases from several of our commodity vendors, these cost decreases either did not flow through our weighted cost quickly enough to make a difference on the quarter.

Or they simply weren't big enough decreases to move the needle.

Our Duralast, Duralast Gold and Valucraft product lines continued to show sales increases in both our retail and commercial businesses.

Our customers continue to recognize the value proposition these high quality brands offer.

Looking forward, we believe there continues to be opportunity for gross margin expansion.

We do not manage to a targeted gross profit margin percentage, as our key focus is on increasing absolute gross profit dollars.

SG&A for the quarter was 31.6% of sales, flat with the comparable period last year.

Unique to this quarter's results was the fee paid for unwinding our swap agreement, tied to the prepaid of our $300 million bank term loan.

The expense of $3.6 million should be considered one-time in nature, and did negatively impact SG&A by 16 basis points.

Additionally, we experienced leverage on many operating expenses due to the higher sales volume.

However as Bill previously mentioned, we accelerate some other initiatives that offset a significant amount of this leverage.

We feel we are appropriately balancing our expenditures to enhance the customer experience, while being fiscally prudent.

EBIT for the quarter was $418 million, up 7.1% over last year's fourth quarter adjusting for the extra week.

Interest expense for the quarter was $47.8 million, compared with $32.4 million a year ago as adjusted for the extra week.

Much of this increase was due to a combination of increasing our debt outstanding by 20% versus last year, plus our terming out a majority of our commercial paper borrowings in late June, coupled with additional costs associated with our new three year revolving credit facility.

We would expect this higher interest [expense] run rate to continue heading into the new fiscal year.

Debt outstanding at the end of the quarter was $2.727 billion, or approximately $480 million more than last year's balance of $2.250 billion.

Our adjusted debt levels at 2.5 times EBITDAR, adheres to our targeted leverage ratio on an ongoing basis of 2.5 times.

We purposely manage our capital structure relative to our cash flow in order to maintain our credit ratings at investment grade, while optimizing our cost of capital.

For the quarter, our tax rate was approximately 36.2%, basically flat with last year's fourth quarter.

For the first quarter, we expect to run a higher rate closer to 37%.

Net income for the quarter of $236 million was up 3.6% versus the prior year's quarter adjusted for the extra week.

Our diluted share count of 53.3 million was down approximately 15% from last year, a combination of these factors drove earnings per share for the quarter to $4.43, up 22% over the prior year.

Just to clarify, I should add that excluding the swap repayment penalty falling within our operating expenses, we would have reported $4.47 per share in earnings.

Related to the cash flow statement, in the fourth quarter we generated $924 million of operating cash flow.

We continue to see opportunities to increase operating cash flow going forward.

We purchased $587 million of AutoZone stock.

And at the end of the fourth quarter, we have $310 million remaining under our share buyback authorization.

For the quarter -- for the year, pardon me, for the year AutoZone repurchased $1.3 billion of stock, or 9.3 million shares.

We continue to view our share repurchase program as an attractive capital deployment strategy.

Next I'd like to update you on our inventory levels in total, and on a per store basis.

We recorded an inventory balance of $2.2 billion, up 2.7% versus the Q4 ending balance last year.

On a per store basis, we were down 1.4% at $500,000.

We believe our enhanced hub model will allow us to continue to manage our inventory levels more efficiently.

We do, however, expect to offset some of these inventory reductions with new hard parts coverage.

Accounts payable as a percent of gross inventory finished the quarter at 96% versus 95% in last year's fourth quarter.

And for the quarter, total working capital was a negative $145 million versus last year's balance of a positive $67 million.

Net fixed assets were up 2.8% versus last year.

Capital Expenditures for the quarter totaled $112 million, and reflect additional expenditures required to open 81 new stores this quarter, maintenance on existing stores and work on development of new stores for upcoming quarters.

We have also seen a shift in openings to more purchased sites from leased, as we have attempted to take advantage of our credit position and purchase more real estate.

We expect the shift to continue heading into 2010.

Specifically related to new store openings, our new stores remain on track.

And we continue to see opportunity to open new stores at a low to mid single digit growth rate for the foreseeable future.

We believe opening stores during this more difficult economic time can be beneficial.

We opened 57 net new domestic stores in the quarter for a total of 4229 stores in 48 states, the District of Columbia and Puerto Rico.

Depreciation totaled $57.2 million for the quarter, higher than last year's fourth quarter expense of $53 million, due primarily to higher capital expenditures during this past year.

AutoZone continues to be one of the few players in our industry to have investment grade debt ratings.

Our senior unsecured debt ratings from Standard & Poor's is BBB, and we have a commercial paper rating of A2.

Moody's investor services assigned us a senior unsecured debt credit rating of Baa2, and a commercial paper rating of P2.

And Fitch assigned us a senior unsecured rating of BBB as well, and a commercial paper rating of F2.

Now I'll turn it back to Bill Rhodes.

Thank you, Bill.

Before we conclude, I want to take the opportunity to reflect on fiscal 2009.

In my opinion, our organization performed extremely well for the year, both operationally and financially.

I'm very proud of what our organization accomplished along with the support of our vendors.

And I would like to recap a few of those key accomplishments in recognition of the terrific job our AutoZoners continue to do.

We completed the year with our highest same-store sales since 2002 at 4.4%.

We continued to enhance our team, processes and commitment to the commercial business building good growth momentum.

We grew market share in each of our four businesses.

We opened a total of 180 new stores with 40 of those locations in Mexico.

On a comparable basis, we grew EBIT at 7.2% and grew EPS at 19.7%.

Our return on invested capital ended the year at 24.4%, close to an all-time high.

Our core execution levels across the organization have continued to improve significantly.

We completed the previously announced change to our capital structure, and ended the year at 2.5 times adjusted debt to EBITDAR.

And successfully completed in these very challenging credit markets a $500 million bond offering and renewed our revolving credit facility.

And just as importantly, our organization is very healthy.

I would characterize the organization as motivated, team oriented, talented, and highly committed to excellence.

Our approach has been very consistent, disciplined and methodical, with a focus on continuous improvement.

Fiscal 2010 will have the same approach.

We have very clear goals heading into 2010.

Our operating plan theme reinforces this approach by leveraging one of our cultural corner stones, going the extra mile.

Our commitment to our customers, each other, and each of you is that we will continue to go the extra mile in everything we do.

2009 is now in the history books.

We cannot rest on last year's performance.

We have to write new history, set new records and exceed customer's expectations.

We believe we are very well positioned to do just that.

Our major objectives in 2010 will sound very familiar.

They are a relentless focus on hiring, retaining and training our AutoZoners to make sure we're delivering trustworthy advice.

And in this environment we have a unique and incredible opportunity to retain our great AutoZoners, and strengthen our team with very talented new additions.

As we continue to say, it's great to be an AutoZoner.

Continually refine our product assortment would be our second objective, especially for late model products.

Third, we'll deploy inventory more effectively across our network, with specific emphasis on utilizing our hub network even more effectively.

Fourth, commercial sales growth, appropriately paced profitable growth, across our up and down the street national account and public sector customers.

This will be accomplished through a combination of continual development of our sales team, and refinement of our product assortment and service offerings.

This year, will also include work to refine our store operating model to blend our store AutoZoners across both businesses.

In other words, our one team initiative.

We believe there can be real power in managing our stores as one cohesive unit.

We believe having all AutoZoners supporting commercial and retail customers will enhance our service level to all customers.

I thank you today for letting us share with you our Company's results and touch on a few of our ongoing initiatives.

We look forward to keeping you abreast of our results well into the future.

Finally, before we move to Q&A, I want to again thank and congratulate our entire organization for everything they do for our customers, fellow AutoZoners, shareholders and communities.

It is a distinct honor to work alongside such passionate, committed team members.

Now we would like to open up the call for questions.

Thank you.

(Operator Instructions) Our first question comes from John Lawrence, Morgan Keegan.

Your line is open.

Thank you.

Good morning guys.

Good morning, John.

Bill, would you -- I guess a couple things on the sales side.

First of all, would you talk a little bit about that discretionary customer less than 20%.

I know it's hard with the expanded hard parts coverage over the last few quarters, but what is a normal rate?

Or how high did that discretionary mix get at -- I guess when that customer was spending freely?

John, it wasn't terribly higher than it was.

We've experienced pressure in that business pretty much over the last year.

And it's down but it's not changing that mix significantly.

So just the opportunity is there when that product mix comes back?

Yes.

There will be continued opportunities there and we look forward to taking advantage of that.

But I'm very encouraged by what's going on with the maintenance items in our business.

Obviously there appears to be a mind set change in our customer's behavior on how long they keep their vehicle, and that they need to continue to maintain it.

And our hope is that that will continue even as the economy improves.

Great, thanks.

And secondly, if you look at SG&A, I know -- and thanks for that break down of sort of where you spent that money.

Can you give us any step of clarification there or just help -- that $50 million increase there of SG&A, when you X out the extra week.

What buckets would you put those on, as far as people versus the hubs, and then investment?

Can you give us any kind of sense of the magnitude of that investment?

Yes, it's difficult to break it out specifically.

I think we had given some guidance before on some of the hubs, but a lot of this is people related.

And I mean we think we're improving our customer service levels.

We're certainly supporting our sales growth overall, by increasing some of our payroll levels.

And some of the hub investments do require headcount a little bit from increasing deliveries to the satellite stores.

So if I had to put it to a number, I'd say more than half of that is more people related than asset related.

Great.

Thanks a lot.

Good luck.

Thank you.

Our next question comes from Dan Wewer, Raymond James.

Your line is open.

Yes.

Thanks.

Bill, you'd noted that the change in merchandise mix precluded AutoZone from improving gross margin rate.

Do you think that this change in mix is prevalent throughout the industry or is it Company-specific to Zone?

Oh, I think we have seen -- obviously we see market share information through NPD.

And what we see from that is there has been some overall shift in the industry to those maintenance related categories, but believe we're seeing maybe an increased penetration versus the overall market.

But the overall market is increasing.

And you'd noted that gross margin rate could improve in 2010 in part due to lower commodity costs, but is there a risk that that lower inflation rate might adversely impact same-store sales growth?

That's a good question, Dan.

I don't see that.

We haven't experienced that before.

We've had some similar circumstances in years past.

So I think overall though, I think we see some opportunities in lower commodity costs increasing our import activity.

And so we believe there's ample opportunity to lower acquisition costs from a merchandise perspective, but we don't necessarily see that as a top line risk.

Okay.

And then just a final quick question.

You sound relatively optimistic on same-store sales in 2010, despite the more difficult year-over-year comparisons.

I'm not expecting you to provide any guidance on comp sales growth, but is there some kind of range that you're thinking about for the new year?

Obviously, internally we're thinking about ranges but as you know, we don't share guidance going forward.

What I do know is that we are able to act and react very quickly at AutoZone to whatever the business dynamics are.

We don't have to have a three or six-month time frame to be able to react.

So we're certainly optimistic there's been a change in consumer behavior.

We're also optimistic that we've introduced ourselves to new customers who are doing new jobs, and we think we've done a good job with that.

And we're optimistic about the future.

What does that look like?

We'll see as the year unfolds.

All right.

Great.

Thank you.

Our next question comes from Tony Cristello, BB&T.

Your line is open.

Thank you, good morning gentlemen.

Good morning.

One of the questions I had, when you talked about the sort of accelerated investment spend for this quarter, how should we look at from an investment spend for your current quarter?

Or then going out, I mean have you pretty much caught up to where you wanted to be from an initiative, spend initiative standpoint?

I think that when we mentioned some of the acceleration, some of the maintenance programs, I think we feel as though we caught up.

We think our stores are looking good.

That's certainly something we're very focused on.

There's still opportunity for us to continue to expand some of the enhancements that we're making to the hub stores.

And as we mentioned in the call, we're seeing sales momentum from those changes and so that momentum breeds momentum.

And we'll continue to invest there as we continue to get those results.

And at the same time our commercial business continues to build strong momentum.

And we're making investments in there as Bill mentioned before, particularly in the sales force area.

And so, we've seen good results from the investments that we've made.

So I expect it to be at a diminished rate, but I also expect us to continue to do what we believe is necessary to continue to capture market share.

So let's -- if you were to put up another 5% or 6% type comp number in this upcoming quarter, we shouldn't expect maybe the same $50 million or some area or magnitude of that, or maybe a little bit less than that, but you would take advantage of sort of perhaps a more aggressive initiative on the spending front?

I think that's exactly right.

And as Bill mentioned before, we're going to make game day decisions as we approach it, and as we see our sales trends.

But at the moment, we've got the sales momentum this past quarter.

And so we spend into that because again we're spending money for what we believe on a long term basis we'll continue to capture market share.

Are there incremental costs that are flowing in from a hub-related standpoint that are hitting the cost of goods line rather than the SG&A line?

Less so.

I would say it's more SG&A related than cost of goods sold related.

And one last question.

When you look at sort of unemployment, and you look at the SAR, how should we think about the impact on the DIY business?

I know we talk about the average number of cars on the road that are six, seven, eight years, and we talk about the miles driven and what that's doing.

But let's -- if you make the assumption, if for the next six to 12 months whether unemployment is at 9% or 10%, or SAR is only at 11 or 12 down from 16 million.

What impact do you think that has on your business versus a SAR being at 14, 15 or 16 million?

Tony, it's challenging to decide exactly what the impact is going to be.

But clearly, the age of the vehicles are continuing to grow, even despite Cash For Clunkers.

We think that's good for our industry, both in the short-term and long term.

Secondly on unemployment, we have seen strong correlations with our sales, as unemployment increases, and substantially increases.

Interestingly we haven't seen correlations on a historical basis that it drops back off after that happens.

And I think there's some of that that is driven by mind set shift in consumer behavior.

That we're not going to go back to the go-go days, just because unemployment drops down by a point.

So that's part of where our thoughts are on what the future looks like, and part of the reason why we're generally optimistic about what our future holds.

And these initiatives that you put in place did that give you a little bit of ability to lever at some point, at an even lower same-store sales comp than maybe you would have 12 months ago?

I think I would characterize it differently.

In the 12 months ago, we were levering on very low sales levels.

We've elected to make some decisions over the last 12 months as we've seen market conditions be opportunistic, and therefore we ramped up our expenditures.

I think we'll be able to very effectively manage cost on a long term basis but we see a unique opportunity at this point in time with some initiatives we have a high level of confidence in and that's one thing I want to make sure and reiterate.

We -- certainly, the trends in the market have gone at our industry's favor over the last nine months.

But we've gained market share.

And we're very encouraged at the initiatives we've done have lead to that gain in market share, and we look to continue to do that going forward.

Great.

Thanks guys.

Thank you.

Our next question comes from Gary Balter, Credit Suisse.

Your line is open.

Hi.

Just following up on Tony's questions.

What SG&A have -- what comp do you need to leverage SG&A next year?

How should we be thinking about that?

I think that historically that we have said, that it's around 3%, all things being equal.

So what I think is that -- that's probably not a bad way to continue to think about it over a short-term basis.

But it's taken into account there maybe opportunities for us where we see momentum in sales from certain initiatives that we may accelerate certain issues.

But at the moment that's probably the easiest way to think about it.

Okay, because this quarter obviously then, we didn't see that because it affected your --

That's right, and we did that consciously.

We kind of went through this process.

We thought what a terrific opportunity for us to be able to enhance some things that have really worked for us.

And also get ahead a little bit on some of the maintenance things.

To make sure that our physical plans, our physical property is looking good for the long term.

And you may have said this on the call, but could you talk about the LIFO and FIFO impacts?

Not much of an impact at all really.

There really wasn't a significant impact on LIFO this quarter.

As you know, we don't record LIFO reserves, so no impact in our SG&A, or excuse me, our profit.

As we look forward, the question we get as someone who has a buy on your stock, is after next quarter when the comparison gets more challenging, if they could only comp at historical levels on a two year basis, that would be 0-2 and then they aren't going to get leverage.

How do you respond?

I'm sure you get asked the same question.

Well the first way I'd respond is, Gary, we've gone through several cycles in the economy over the last 12 quarters.

And we've grown EPS double digits in each of the last 12 quarters in very different economic cycles.

So we have changed our approach a little bit over the last twelve -- nine months.

And we've been more aggressive on the initiatives.

And I believe that aggression has lead to us increasing our market share.

If the sales environment changes, we stand ready to make sure we make the necessary adjustments in this business to continue to provide very strong performance, and I'm highly confident we'll do just that.

Okay.

Thank you.

Thank you.

Our next question comes from Alan Rifkin, Banc of America.

Your line is open.

Thank you.

Bill, the decision to increase your ownership of a store base in the current quarter, is that more so a reflection of the weak real estate environment today?

Or do you think that going forward over the longer term, a greater concentration of owned stores could be possible?

I think that it's probably a little bit of the former.

It's always been our posture that we would prefer to own than lease where appropriate.

And so, we did see more opportunities over the last 12 months, and I suspect that that will continue for the next 12 months or so.

So where we have opportunities we would prefer to own versus lease.

That's always been our viewpoint, and I think the marketplace is allowing us to increase that.

So just as a follow-up there, how do you balance a decision to own versus rent?

(multiple speakers) If you lease, it's debt anyway, because you're signing 10, 20 year lease.

And we're baking that into our overall capital structure.

So we capitalize an operating lease, and then look at it as debt and make your analysis that way.

At the end of the day, is it more opportunistic for us to own versus lease.

And then Bill, what was the impact on earnings from the weaker dollar, if any?

We didn't quantify that necessarily.

It did have an impact.

It's not material enough to break out at the moment, but it certainly had a negative impact to our earnings results.

Okay, and then maybe a question for Bill Rhodes if I may.

Bill, the decision to accelerate the store growth in Mexico, could you maybe just show a little bit more color there, on whether or not this could be a sign of a continued acceleration down there?

Yes.

It's a great question, Alan.

We've continued to accelerate our growth in Mexico on a per store basis.

We haven't necessarily grown it significantly as a percentage of the underlying store base.

But I would expect us to continue to grow it generally consistent on a percentage basis, which means as we added 40 stores.

We'll grow it more next year.

We may accelerate it a little bit more aggressively than that.

We're clearly pleased with the operating performance of that team down there.

They're doing a great job.

They've got some challenges right now with the weakening peso and weakening macro environment in Mexico.

But they've done a great job of building and managing that business.

Great.

Thank you very much.

Alright.

Thank you.

We have a question from Kate McShane, Citi Investment Research.

Your line is open.

Hi, good morning.

Good morning.

Do you have any better sense of how the closure of dealerships are going to impact your business going forward?

Yes, I think clearly, it's going to be impactful to the commercial market, more so than the DIY market.

From what we're seeing so far, it's more concentrated generally speaking in the rural areas.

And it's going to make it more difficult for people that live in rural areas to have a convenient dealership location to have their cars repaired at.

So I think that will be beneficial to the commercial market.

We're not spending a tremendous amount of time on it, because as I mentioned in our prepared remarks we only have 1.5% market share.

So we control our destiny in that market more so than a few thousand dealerships closing.

But I think it will be beneficial overall to the commercial market.

Okay, thank you.

And I'm not sure if this was mentioned in your prepared comments, but with the interest expense up sequentially from the drawdown of the credit agreement.

Should we expect interest expense to come down in the next few quarters?

Or remain at this level going forward?

I think it will remain at this level going forward.

I mean we're probably at about 80% or better on a fixed basis at the moment.

And so, I would probably think of it as kind of a similar run rate.

Thank you.

Thank you.

We have a question from Matt Fassler, Goldman Sachs.

Your line is open.

Thanks a lot, and good morning.

Good morning.

First of all, on the commercial side you spoke about sort of the up and down the street customers, driving high single digit same-store growth.

Is the difference between that and the reported numbers still the cycling of some national accounts that you're rolling off?

Yes, we have one significant national account that is impacting that number.

And if you want to break it out, it was roughly 5%.

So without that account it would have been up another 5%.

And at what point do we finish cycling that?

Matt, it's not a particular specific point because it was a multilocation arrangement; many multilocation arrangement.

So we're starting to cycle some of it, but we're really finishing it around Q3.

Q3 of next year, got it.

So it's with you for a little while longer.

Yes, but it does get smaller from this point going forward.

From this point -- I got it, okay.

And then secondly, you're talking about seeing some lower cost of goods.

We are sort of seeing most of the commodity price declines transpire over the past number of months, if anything commodity prices have firmed up a bit.

So does this reflect when the inventory is actually running through the P&L?

Or is there some other explanation for the lag in the commodity price declines and the change to your cost of goods today?

Yes, I think it's probably a bit of a lag relative to how it turns through the inventory.

So I would agree with you, that we've seen a majority of the commodity price declines, but we still see some coming down the road.

Great.

And then finally, on the margin front, you talked about mix issues.

Have you seen anything on the competitive front as it relates to different kinds of pricing or different levels of private label penetration in the DIY business, particularly where you have transitions going on at one or two of your competitors?

Yes, I mean I would say for the most part, that we haven't seen any changes in pricing.

When you look at the high velocity items, we're not really seeing kind of change in pricing.

Certainly in some of the conversion areas going on in the country, we see some pressure in pricing.

But obviously, we have a view that we're not going to be under sold until we approach the market.

And we've operated that way all the time, and we've been competing with these competitors for a long time.

Got it.

Thank you so much.

Thank you, Matt.

We have a question from Chris Horvers, JPMorgan.

Your line is open.

Thanks and good morning.

Good morning.

Guys, I've a couple questions on sales.

Can you talk about the rebate check compares?

I know you mentioned that sales were relatively consistent.

It seemed like other retailers had underestimated that boost, so when you say relatively consistent, was July your weakest month for the quarter?

Yes, clearly -- first of all we said in opening comments that it was generally consistent.

But if you characterize it more specifically it was a little bit softer in the middle of the quarter, than it was on either end.

And we correlate that to the fact there was a stimulus checks that came out last year.

And last year's call, we called out that we thought the stimulus check should have added about 1% to our comps last year.

Okay, and nothing in retrospect would make you change that estimate?

No.

And do you think that on the kind of the sequential slowdown in comps, and slightly on the two year -- not too much to report there -- but do you think some of the deferred maintenance that was pent-up, let's say in '07, '08 is playing itself out, and that's why you're seeing a little bit of a slowdown?

To me, I don't characterize it as that.

I think there's really been more of a mind set shift on maintenance versus there was a big pent-up amount of deferred maintenance.

My reaction would be that the difference is primarily related to what we just talked about the stimulus checks being in last year's quarter, and not being in this year's quarter.

Okay.

And then finally, because I think we could try -- is there any comment on September trends?

You've mentioned it sounds like it's continued.

Are we still talking like a 5?

As you think about, Bill, your optimism for this upcoming year, how should we think about it?

Is that optimism against a tough compare or optimism in terms of being able to put up positive comps?

Let me start with the first part of that.

And that is I don't ever want to get into discussing the two and a half to three week period of time, because I think it's not relevant to what the long term success of us is going to be.

So I don't want to get into what's happened so far in September.

But we do remain confident for the year, that we will be able to continue to perform well.

And a lot of that confidence comes from what we've looked at on a long term basis, as economic cycles have changed.

And then also the fact that we've grown market share.

And we have spent a significant amount of money on new initiatives in the last six months.

And we see where those initiatives are paying off, and so we remain optimistic that we ought to be able to continue to grow.

Thanks very much.

Alright.

Thank you.

And I'd like to turn it back to Mr.

Rhodes for closing comments thank you.

Thank you.

Before we conclude the call, I'd just like to reiterate that we are excited about our growth prospects for the upcoming year.

We cannot take anything for granted, as we understand we have to earn our customers business every day.

Our culture remains the key point of differentiation from us and our competition.

And I want to stress that our efforts have a long term focus, we view ourselves as in a marathon, and not a sprint.

Our focus is on our critical success factors.

As we continue to focus on the basics, and manage our capital appropriately, we are confident AutoZone will continue to be incredibly successful.

Thank you very much for participating in today's call.

Have a great day.

That does conclude today's conference.

Thank you for participating.

You may disconnect at this time.