汽車地帶 (AZO) 2011 Q4 法說會逐字稿

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 fourth-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 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.

Certain statements contained in this press release are forward-looking statements.

Forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, position, strategy, and similar expressions.

These are based on assumptions and assessments made by our management, life experience, 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 an Item 1A under part one of our annual report on Form 10-K for the year ended August 28, 2010 and these risk factors should be read carefully.

Mr.

Rhodes, you may now begin.

Good morning and thank you for joining us today for AutoZone's fiscal 2011 fourth-quarter conference call.

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

Regarding the fourth quarter, I hope you have 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 call conference calls to see them.

We are very pleased to announce another very strong quarter and fiscal year performance both financially and operationally.

Our EPS for the fourth quarter increased 26.9%, another strong financial quarter for us as our domestic same-store sales increased 4.5%.

This marks the 11th consecutive quarter of EPS growth in excess of 20% and the 20th consecutive quarter of double-digit EPS growth.

Although you have heard me say this many times before, it is important to again recognize and thank our AutoZoners who are operating as one team, delivering a consistent and superior shopping experience for all of our customers every day.

The results that we have delivered this quarter and for the full year reflect the consistent execution and constant focus on improvement by our team as well as the ongoing investments we've made in our business.

As an organization we routinely measure all activity to ensure that our investments are generating an adequate return.

The consistency in our execution produces a superior shopping experience for our customers.

The critical components of that experience are having the right AutoZoners delivering trustworthy advice and giving those AutoZoners the parts and products their customers need or desire.

I am pleased with the progress our Company has made over the past several years and our continued growth in market share further validates our strategies and the strong performance of our AutoZoners.

Our store execution strategy is not only -- is to not only be consistent but be incrementally better quarter-over-quarter.

We are continually refining the store and back office systems.

We are spending both capital and operating expense dollars on improving the physical store appearance.

We have invested in our hub stores to improve product availability in the marketplace.

We have also increased our spend on training.

While many items we sell are commodities like oil and anti-freeze, we are continually trying to create a unique shopping experience from other retailers.

We have also over the years invested in our commercial business and believe we have significantly improved our position and are excited about our progress to date and continued growth opportunities.

We are striving to improve retail market share, grow our commercial business, add stores in the United States and Mexico, and refine the ALLDATA model to add customers for many years to come.

We did that this quarter and this fiscal year.

We have very good competitors in the marketplace but due to the efforts of our great AutoZoners, we've delivered four consecutive years of sequential improvement in sales, same-store sales, and EPS percentage growth.

There is no doubt we have benefited from the macro economy.

However, it's important to highlight that we are increasing market share in this environment.

As new and used car prices, gas prices, and unemployment have all remained high, consumers have been looking for ways to save money while using their cars and trucks as an integral part of their daily lives.

What many are wondering and attempting to financially model this morning is where does AutoZone and our industry go from here?

I am certainly not going to commit this morning to another year of sequential growth across the board.

That's a very tall order.

But what I am willing to promise everyone is we are steadfastly committed to the challenge of improving.

We remain optimistic with regard to our strategies and we are confident in our ability to continue to execute at a high level.

At the same time, we remain cautious as we currently face our most difficult quarterly same-store sales comparison in a long time.

We are kicking off our new fiscal year with our 2012 national sales meeting here in Memphis this week.

This year as with previous years we've invited our senior field leadership to Memphis to celebrate our financial and operational performance, launch our theme for 2012, and reiterate the key priorities for our organization.

While I am happy to talk results with you on the phone today, I am more excited to greet and thank AutoZoners from across North America for their efforts that led us to delivering our results.

We continue to execute our strategies and we need to and will enthusiastically say thank you and congratulations to our organization.

These results are their results and they should take great pride in their performance.

At the meeting we will announce our 2012 operating plan theme, 1TEAM Driving Our Future.

The emphasis will remain in 2012 on seamlessly incorporating our store level commercial and retail business models.

I have previously mentioned how staying consistent with our strategies has helped to define our success.

But in establishing our key objectives for 2012, I couldn't help but notice how much behind-the-scenes work we've done on challenging our status quo.

We are always challenging every aspect of our business.

We are constantly testing new ideas.

The result is investments that will continue to position our Company for sustained growth.

This work has also helped shape our 2012 key priorities.

Number one, great people providing great service; two, profitably growing our commercial business; three, leveraging the Internet; and four, hub store improvements.

It goes without saying that we will continue to focus on efforts to gain market share in retail while driving commercial performance even higher.

We will recognize our store management teams for opening 145 net new domestic stores, a 3.3% growth rate, and our Mexico team for opening 41 new stores in 2011, a 17% store growth rate.

And we will recognize ALLDATA for growing their business yet again in 2011.

Finally and probably the activity I look forward to most all week, we will recognize our best managers with a celebratory event and say thank you.

During this event, we will host an open Q&A session discussing the obstacles that are getting in their way for future improvements.

These managers are incredibly successful and the input they give us in this and other forums is invaluable.

Our continuing message will be focused on executing on the fundamentals.

We are committed to having the right AutoZoners providing the right customer service along with the right products at the right prices every day.

Regarding our fourth-quarter results, our total auto parts segment made up of both our domestic and Mexico businesses delivered an 8% increase.

Our other businesses made up of ALLDATA and e-commerce were up 11.8%.

While we have been pleased with this past year's performance, we know there are alternative locations to shop.

That is why we focus on not only improving inventory coverage and our ability to say yes more frequently but also on delivering trustworthy advice.

Over the last several quarters not only have we delivered EPS growth in excess of 20% each quarter, we have increased our investments in areas we believe will drive long-term growth.

We continue to open new stores both in the United States and Mexico at a combined annual growth rate of approximately 44%.

We have expanded our emphasis on hub store operations and are relocating or expanding many of our hub stores in order to ensure they have the physical capacity to execute the vision we have for them.

We have made considerable investments in our commercial business, expanding our sales force, improving our technology, opening new programs at an accelerating rate, and increasing labor.

We have also intensified our training efforts and added labor in specific areas.

Finally, we have continued to refine our merchandise placement efforts, adding more late-model products while continually reducing less productive inventory.

While many of these efforts aren't radical shifts from our historical efforts, combined they have been significant albeit low risk enhancements to our offerings.

I will take a moment now to talk more specifically about our fourth-quarter performance in a little more detail.

As I mentioned, our domestic same-store sales grew 4.5% for the quarter.

Our fourth quarter which ended August 27 did not experience the same type of variability in sales from week to week and region to region that our third quarter did.

Approximately 1.5 percentage points separated our four periods of same-store sales performance over the quarter.

While last year we estimated the severe heat contributed a couple percentage points to the overall comp store sales results, this year we estimated weather was neutral to last year, therefore not contributing or hurting our comp store results.

We estimated the biggest headwind to sales performance during the quarter came from higher gas prices relative to last year's fourth quarter.

Our increased emphasis on the commercial business again resulted in quite impressive results.

Our fourth-quarter commercial sales growth of 23.4% represents our largest rate of growth in recent history.

This represents our fifth straight quarter of 20% plus sales growth and our 11th straight quarter of accelerating sales growth rate in this sector.

The fact that this quarter was our highest rate of growth is even more impressive when you consider that the comparison was against a 20.2% sales growth in the fourth quarter of last year.

Although we are pleased with our commercial rate of growth, we recognize that we currently have a small market share.

We understand this remains a tremendous opportunity for us.

Therefore, we have and expect to continue to invest in order to grow sales and further capture profitable market share.

As we accelerate our investments to grow commercial and as commercial becomes a larger portion of our overall business, our gross margin and SG&A rates likely will continue to come under some pressure as these sales currently deliver lower margins.

However, as we have stated in the past, as we grow commercial, we are focused on growing operating profit dollars at strong levels of the return -- of returns on the capital we deploy.

I would also like to recognize our other businesses, ALLDATA and e-commerce for having another fine quarter, up 11.8% in sales from this time last year.

We experienced faster sales growth in our other businesses both on the quarter and for the year than the auto parts stores, and that's saying something considering we were quite pleased with our store's performance.

Now let me give some color on our mix of sales.

The mix continued to be led by failure in maintenance-related categories as discretionary sales were a smaller contributor.

Failure remained the largest portion at 45% of our total sales, up from last year's fourth quarter of 44%.

Maintenance category sales represented 39% of sales while discretionary purchases were 16%.

There was not much shift change over the fourth quarter of last year.

Discretionary sales were down 1% to the mix versus last year while failure was up 1%.

As with last quarter, we've begun to see a slowdown in general maintenance repairs being done.

While we did increase sales in maintenance-related categories, we attribute the slowdown in the pace of growth more to the macro economy and higher gas prices throughout the quarter than weather, which was the key driver in Q3.

Again, while this segment of sales continues to show growth, it is not at the pace experienced back in 2010.

We will continue to create marketing messages around this category to educate our customer base on the importance of routine maintenance.

This quarter regarding our retail customer count and average ticket growth rate, our average ticket remained strong, better than previous quarters.

However, transactions were down versus last year's fourth quarter.

This deceleration of transactions count in the DIY business can be attributed to several factors but the slowdown in maintenance-related transactions was a strong contributor.

Transactions with maintenance items attached are traditionally smaller ticket transactions.

With maintenance-related categories showing slower growth, the direct result has been a slowdown in overall transactions.

Before we leave this point, I think it's important to highlight that there are structural forces at work in this industry that by themselves put pressure on transaction count while simultaneously driving increases in average ticket.

Specifically, parts today are generally built to last longer and perform better than those built 10 or 20 years ago.

But to achieve those lengthened and improved performance intervals, they have enhanced technology and those enhancements come at a higher cost.

We have been very successful dealing with these industry dynamics for more than a decade and don't see that changing for the foreseeable future.

Regarding our execution, we continue to believe that superior execution can be a sustainable point of differentiation in an industry where changes to vehicle technology, brands and systems are constant.

We have been keenly focused on evaluating the most efficient ways that we can fulfill our customers' needs.

We have been pleased with the enhancements we've made to our hub stores over the past year along with improved inventory coverage.

In addition with the average age of cars on the road increasing the last few years, we are seeing the distribution by age of parts sold widening at both ends.

While a seven-year old and older vehicle is our kind of vehicle on the retail front, it is noticeable that customers with considerably older than seven-year-old vehicles remain key customers for us.

And the demands from our commercial customers continue to offer us opportunities to drive parts additions earlier in the vehicle lifecycle, which benefits both DIFM and DIY.

Additionally, we have been very focused on leveraging the Internet across a variety of fronts.

We've been very pleased with our progress on developing our Internet offerings, but we are in the very early innings of tapping into these growing customer segments that utilize this venue for ordering their parts and products.

Lastly on the people front, we improved our training efforts and we continue to add AutoZoners to grow the business both for retail and commercial.

Next I will give an update on our 2011 initiatives that supported our operating plan theme of 1TEAM Going the Extra Mile.

1TEAM is about our desire to ensure that we are providing the very best customer service experience to every customer regardless of how they interact with us.

This effort is around streamlining systems, removing obstacles and in reinforcing to all AutoZoners to always put customers first regardless of how they interact with us.

1TEAM Going the Extra Mile was supported by our 2011 key priorities -- great people providing great service, continual refinements and improvements in our hub strategy, leveraging the Internet, profitably growing commercial, ever improving inventory management, and improved product assortments.

Let me go into a little more depth on our hub initiatives.

At this time a year ago, we had completed the hub store conversions of our hub base at the time of 145.

We converted all our remaining hub locations to multiple daily deliveries to their respective satellite stores.

As we discussed previously, the next phase is to expand many of our current hub stores which currently are space-constrained.

This past year we expanded or relocated 20 hub stores.

We finished the year with 144 total hub locations, opening one new location and consolidating two locations into one during fiscal 2011.

We have active efforts to relocate or expand approximately 40 additional hub locations and we are working on solutions for the remainder of our hub stores that don't currently meet our needs today.

These efforts are more impactful on capital expenditures going forward than operating expenses.

While the hub conversions and their enhanced delivery model created pressure on SG&A as a percentage of sales during 2011, we see that pressure generally abating as the new year begins.

We continue to rely on our hub store network to supplement our replenishment efforts.

We continue to deploy new domestic and import parts coverage in our hub stores to be able to say yes even more frequently.

Parts proliferation in our industry is not stopping and our hub initiatives are allowing us to more strategically deploy our inventory assortments.

We do expect inventory per store levels to increase over time but we will manage that growth with an eye towards appropriate capital deployment.

I want to reiterate, our financial performance has been solid.

We are taking nothing for granted.

Our commitment to our ongoing planning efforts allows us good visibility into business trends and our team is committed to managing to those trends appropriately.

We have been very deliberate in how we manage expenses and capital in order to deliver consistent strong financial performance while at the same time positioning our business for long-term growth and we will continue with this strategy well into the future.

We should also highlight another strong performance in return on invested capital as we were able to grow this metric to 31.3% on a trailing four quarter basis which represents another new all-time high for our organization.

One of the big drivers of this growth has been the EBIT growth of the commercial business.

While having a lower EBIT margin as a percent of sales, which creates some margin rate pressure, the capital requirements of the commercial model are minimal.

The investments are mainly operating expense-related; AutoZoners who develop relationships and sell to our customers and other AutoZoners who provide great service to these important customers.

The ability to leverage our existing assets primarily AutoZoners, store locations, inventory, and information systems across this additional customer base provides us with a terrific opportunity to grow operating profit dollars and drive incremental returns on capital.

It should be reiterated, we will always maintain our diligence regarding capital stewardship as the capital we spend is our investors' capital.

Now I will turn it over to Bill Giles to talk about our financial results for the quarter.

Bill?

Thanks, Bill, and good morning, everyone.

To start this morning, let me take a few moments to talk more specifically about our retail, commercial, and Mexico results.

For the quarter, total auto parts sales increased 8% on top of last year's fourth quarter's growth of 9.6%.

This segmentation includes our domestic retail and commercial businesses and our Mexico stores.

This quarter we completed category line reviews in 23 of our 40 major merchandise categories; improving our parts coverage remains a key priority.

Regarding macro trends, during the fourth quarter, unleaded gas prices started out at $3.97 a gallon and declined steadily, finishing the quarter at $3.63 a gallon.

Last year gas prices declined similarly during the fourth quarter, albeit from a substantially lower beginning point starting at $2.91 and ending at $2.68 a gallon.

The difference however of a barrel of oil is not as material from last year to this year on the last day of the quarter.

Last year, a barrel of oil was $75.

The last day of this year's quarter was $85 a barrel, which may imply prices at the pump could or hopefully should decline around $3 a gallon to be in line with last year.

But the good news in the story is oil is down from $97 a barrel at the end of our third fiscal quarter in early May.

While lower gas prices certainly should benefit our customers' ability to spend going forward, we are still cautious [and] that uptick in purchasing behavior did not materialize during the last couple weeks of the quarter as gas did decline slightly.

At the same time with high gas prices, we have an opportunity for us to communicate with our customers on steps they can take to improve their gas mileage.

Miles driven remains less of a story to our near-term sales results than in previous years.

Recently May and June were negative 1.9% and negative 1.4% respectively.

Year-to-date through June, miles driven are down 1.1%.

While recently we have seen minimal correlation in our sales performance with miles driven, historically it has that been one of the key statistics which correlates to our sales results over the long term.

The other is the number of seven-year-old and older vehicles on the road which continues to trend in our industry's favor.

We also recognize that miles driven on cars over 10 years old, the current average is much different than on newer cars in terms of wear and tear.

For the trailing four quarters, total auto parts sales per square foot were $258.

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

Over the last three years due to the strength in our DIY same-store sales, significant improvements in our commercial business, and the improvement in our new store productivity, our average annual new store volume has increased by 11%.

This impressive improvement is a key contributor to our record EBIT margin percent and our record ROIC.

For the quarter, total commercial sales increased 23.4%.

Our strong results, which began to accelerate in Q1 of fiscal 2010 continued throughout the year.

For the fourth quarter, commercial represented 14.1% of our total sales.

While last fiscal year we generated $880 million of commercial sales, this year we finished with $1.076 billion in sales for commercial.

Our entire organization is very proud of surpassing the $1 billion mark, a key objective for fiscal 2011 but we realize we have much work to do as our market share remains small.

As we have said previously, we have been very pleased with the progress we are making in this business both operationally and financially.

We believe there are ample opportunities for us to continue to improve many facets of our operations and offerings and therefore we are quite optimistic about the future of this business.

Our sales growth has come from both existing and new customers.

We continue to believe we can grow revenues in existing stores and we will continue to open additional commercial programs.

This past quarter we opened 104 new programs.

For the year, we opened 235 new programs, up from 121 programs during fiscal 2010.

We now have our commercial program in 2659 stores supported by 144 hub stores.

With only 59% of our domestic stores having a commercial program and our average revenue per program materially below several of our competitors, we believe there's ample opportunity for additional program growth in addition to improved productivity opportunities from existing and current programs.

Our focus this past year was to build upon the commercial initiatives that have been in place for well over a year.

We continue to watch our sales force mature from its inception just three years ago.

We are also enhancing training and introducing additional technology to optimize the productivity of our salesforce.

We have increased our efforts around analyzing customer purchasing trends and in stock trends.

We have had 17 consecutive quarters of sales growth.

We have a model that is successful and we are continuing to test additional enhancements to our offerings.

In addition to our focus on further developing our sales force, we have continued to add significant resources to our commercial business from additional late-model import and domestic coverage both in satellite and hub stores to additional labor hours and trucks.

In summary, we remain committed to building a platform for long-term growth at a deliberate pace, growth in both sales and profits.

Our commercial business remains on track and we are excited about our continuing opportunities.

Our Mexico stores continued to perform well.

We opened 18 new stores during the fourth quarter and currently have 279 stores in Mexico.

We remain resolute on our strategy to open stores at a steady pace while managing our Mexico business for the long run.

We have operated stores in Mexico for over 12 years and we continue to see great opportunity for growth going forward.

Our returns and profit growth has been in line with our expectations.

Our customers as well as our employees have embraced the AutoZone culture.

Regarding the announcement of future store growth in Brazil, we are targeting opening our first store there late in calendar 2012.

Beyond that, there's nothing new to report.

Recapping our fourth-quarter performance for the Company in total, our sales for the fourth quarter were $2.642 billion, an increase of 8% from last year's fourth quarter.

Domestic same-store sales or sales for stores open more than one year were up 4.5% for the quarter.

Gross margin for the quarter was 51.2% of sales, up 69 basis points compared to last year's fourth quarter.

The improvement in gross margin was attributable to lower shrink expense and higher merchandise margins.

Shrink results continue to be favorable.

Our field and loss prevention teams have undertaken several initiatives over the past few years that have led to improving our results.

While we have benefited in the last three quarters from lower shrink expense, we recognized savings only after we physically counted our stores and distribution centers and there can be no guarantee that this trend will continue although we were pleased with our results throughout 2011.

The increased merchandise margin benefited from retail price increases on commodity-based products which were partially offset by the increased penetration of commercial sales.

In regards to inflation, we have seen rising costs in commodity-related products although certain categories have experienced some higher levels of inflation.

Taken as a whole, inflation hasn't been a material component of our overall gross margin improvements.

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, however we do not manage to a targeted gross profit margin percentage.

We are focused on growing absolute gross profit dollars and gross profit dollars in our total auto parts segment were up 9.6% for the quarter.

SG&A for the quarter was 31.4% of sales, up 19 basis points from last year's fourth quarter.

The increase in operating expenses as a percentage of sales was the result of higher self insurance costs and higher fuel costs primarily related to commercial deliveries partially offset by leverage due to higher sales volumes.

While our operating expense percentage growth has increased faster than square footage growth over the last three years, we have purposefully invested these dollars to position the Company for future sales and profit growth.

This organization takes great pride in our disciplined approach to managing our cost structure and leveraging our culture of thrift and we remain committed to appropriately managing expenses in line with our overall performance.

We continue to believe we are well positioned to manage our cost structure for the foreseeable future.

EBIT for the quarter was $524 million, up 10.8% over last year's fourth quarter.

Our EBIT margin improved to 19.8% or 50 basis points versus the previous year's fourth quarter.

Interest expense for the quarter was $53.8 million compared with $49.4 million in Q4 a year ago, an 8.9% increase.

Debt outstanding at the end of the quarter was $3.352 billion or approximately $443 million more than last year's balance of $2.908 billion.

I will point out that just last week we amended our existing three-year credit agreement and extended it to five years, now expiring in 2016.

We appreciate the partnerships we have with our bank group and we were happy to have this transaction complete, allowing for additional borrowing capacity if necessary starting this fiscal year.

Our adjusted debt level metric finished the quarter at 2.4 times EBITDAR.

While in any given quarter, we may increase or decrease debt levels 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 35.9%, down from last year's fourth quarter of 36.5%.

We expect to be closer to 37% on an ongoing basis.

Settlements of discrete tax items helped our results this past quarter.

Net income for the quarter of $301 million was up 12.1% versus the prior year's fourth quarter.

Our diluted share count of 42 million was down approximately 12% from last year's fourth quarter.

The combination of these factors drove earnings per share for the quarter to $7.18, up 26.9% over the prior year's fourth quarter.

Relating to the cash flow statement for the fourth fiscal quarter of 2011, we generated $395 million of operating cash flow.

Fiscal 2011, we generated a record $1.292 billion of operating cash.

This represented an 8% increase over last year and approximately $1 billion more than our cash outflows from investing.

With the excess cash flow, we repurchased $433 million of AutoZone stock in the fourth quarter.

For the fiscal year, we repurchased 5.6 million shares of common stock for $1.5 billion.

At the end of the quarter, we had $219 million remaining under our share buyback authorization.

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

[Live] to date, we crossed over $10 billion in stock purchases this past quarter.

Accounts payable as a percent of gross inventory finished the quarter at 112% versus 106% in last year's fourth quarter.

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

We reported an inventory balance of $2.5 billion, up 7% versus the Q4 ending balance last year.

Increased inventory reflects new store growth along with additional investments and coverage for select categories.

In total, our inventory balance is down from our third quarter.

Net fixed assets were up 6% versus last year.

Capital exposures for the quarter totaled $121 million and reflected the additional expenditures required to open 91 new stores this quarter, capital expenditures on existing stores and work on development of new stores for upcoming quarters.

With the new stores opened, we finished this past quarter with 4534 stores in 48 states, the District of Columbia, and Puerto Rico, and 279 stores in Mexico for a total store count of 4813.

Depreciation totaled $62 million, $62.9 million for the quarter versus last year's fourth quarter expense of $62.2 million.

Finally as Bill previously mentioned, our continued disciplined capital management approach resulted in return on invested capital for the trailing four quarters of 31.3%.

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

Now I will turn it back to Bill Rhodes.

Thank you, Bill.

Before we conclude, I want to take the opportunity to reflect on fiscal 2011.

Our organization built on the successes of the last few years and delivered even better results this past year.

We are very pleased with these accomplishments and I would like to review a few of those accomplishments in recognition of the dedication, passion, and commitment of our AutoZoners.

We built on the last two years strong same-store sales results by growing 6.3% versus last year's 5.4% and fiscal 2009's 4.4%, our best three-year comp performance since 2000 to 2002.

We continued to build our commercial business, growing sales by 22.3% and our program count by 235 or 10% over the ending count in 2010.

And as previously mentioned, we surpassed $1 billion in commercial sales for the year.

We opened a total of 188 stores including 41 stores in Mexico.

We grew EBIT 13% and EPS by 30% on top of 28% last year.

This year's EBIT margin of 18.5% represents an all-time high exceeding last year's 17.9%.

Our return on invested capital reached, as Bill said, a record 31.3% at the end of the year.

We also generated approximately $1.3 billion in operating cash flow.

We repurchased stock representing over 10% of the current market capitalization for the third year in a row.

And lastly, none of this could have been possible without our AutoZoners' continued dedication to providing the industry's best customer service.

Their dedication defines who we are and they are directly responsible for these record-breaking results.

Our major objectives for 2012 will sound very familiar.

They are great people providing great service, profitably growing our commercial business, leveraging the Internet, and continuing to refine our hub strategy.

I should stress our industry has had favorable macro factors these past few years and this positively contributed to our success.

But what helped our performance specifically was our organization being well-positioned and prepared to capitalize on these favorable trends.

How long will these factors positively influence our performance?

We don't know the answer, but we do know that we can manage our business effectively and profitably regardless of the economic cycle as evidenced by our string of 20 consecutive double-digit EPS growth quarters.

Unfortunately, our past successes are just that -- in the past.

We cannot rest on our laurels and you have our commitment that we will not.

Finally before we move to Q&A, I want to again thank and congratulate our entire organization for their dedication to our customers, fellow AutoZoners, stockholders, and the communities we serve.

Our approach remains consistent.

We are focused on succeeding in the first quarter of 2012 and we are optimistic and excited about our new fiscal year.

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

(Operator Instructions).

Gary Balter, Credit Suisse.

Thank you, it's Gary and Simeon.

First of all, congratulations on a very strong quarter again.

Thank you very much.

And hopefully you liked my picture with Elvis.

I did.

But can you talk -- commercially you keep on showing better and better numbers and you obviously have some strong momentum.

When you look at the market share that you have, it's obviously quite small and it's still very fragmented.

Who do you think you are taking it from?

Are you taking it from two step or three step?

Are you taking it from some of the bigger players?

Where is that share coming from?

Well, if you look at the -- let's start with the NPD information that we have.

The whole market is growing on the NPD side and growing fairly robustly.

We are just outpacing that market fairly significantly in our performance.

I don't think we are quote unquote taking share from them.

What I see is the whole market is growing.

We are just having outpaced growth.

And then we don't have good visibility into the piece that's outside of NPD but my suspicion is that is where we are probably having the most impact.

Maybe said another way, where is the value add that you are providing that's creating that traffic and that's leading to the share gain or leading to just stronger results?

How are you approaching the market differently than what's out there?

I think for us, we went back a couple of years ago, really about 3.5 years ago now and really focused and defined a new strategy.

And a big element of that new strategy was number one, getting the foundational elements of our business right.

What does that mean?

That means making sure we've got the right parts coverage, making sure that we have the right people with the right set of training and tools capable to deliver excellent customer service.

We also supplemented it with our hub stores, which have significantly improved our coverage, especially on late-model coverage.

And then we have rolled out and developed this really fantastic outside sales force that is continuing to mature.

So it wasn't any trick plays.

It was just doing the basics of the business, which is what we have learned in retail is what works.

That's our strength, is just doing it day in and day out.

Poor execution can be a point of differentiation.

It's Simeon.

Can I just ask two follow-ups?

One tied to that question, can you separate out the number of new accounts you are picking up in commercial versus increased penetration of existing?

And then second unrelated, on gross margin I looked back at the press releases.

It looks like second quarter this year you started calling it out as a benefit.

So what's the opportunity left there?

It looks like the comparisons will just get more difficult when you get to Q2 next year, or are there more savings and a higher ramp to come?

All right, I will take the first part and then Bill Giles will answer the second.

When we look at our business as far as new customers, further penetration of retained customers and frankly lost customers, we are seeing improvements in each one of those metrics.

And we are seeing them kind of quarter-over-quarter and year-over-year.

So that's a good indication for us that we're continuing to improve on all fronts.

Simeon, on the gross margin when you said that we called it out in the second quarter, I'm going to assume you meant shrink.

So we have had some good shrink results in Q2, 3 and 4, and we have put some things in place in the field level, some initiatives in place that we really believe provide us a better ability to manage shrink going forward.

So there's no guarantee as to what shrink will be on a go-forward basis, but we believe that we have a process in place that is somewhat sustainable.

So although we may not achieve incremental improvements over what we have reported, our objective is to maintain where we are and make some incremental improvements along the way that might be a little bit smaller.

Thanks.

Alan Rifkin, Barclays.

Congratulations, gentlemen, on a nice quarter and nice year.

The 104 programs on the Commercial side that were added in the fourth quarter marked some pretty significant acceleration over what you had done in the prior quarter.

Is that a run rate that we should think is achievable going forward?

That's a great question, Alan, and obviously we have gained over the course of the year more and more confidence in our ability to open very productive new commercial programs.

But as you would expect from us, we are going to be methodical about it.

We have plans to grow at a rate similar to the way we grew this year, but those plans aren't set in stone.

We're going to look at the stores we opened in the fourth quarter, continue to work on them, make sure that they continue to improve.

And once they do, then we will go to the next batch, and we're going to continue that all along the way.

If for some reason they continue to accelerate, we might accelerate our plans.

If for another reason they slow, we'll slow down and we'll go focus on the elements that are making them not be as successful as we want.

So our plans in that regard are somewhat fluid, but we certainly see a tremendous opportunity for more programs over time.

So then Bill, based on that commentary, can we infer from your remarks that you are actually seeing greater benefits than what you thought, which was a reason for you accelerating the program -- recently?

Well, I think we opened about three times the number of programs in 2011 than we had in the previous several years and it doesn't take a rocket scientist to look that we up 22.3% in our commercial business.

So we have a much higher level of comfort in our plans going forward than we did a couple of years ago.

Okay, a question for Bill Giles.

Bill, I know that you said that about 59% of your stores today had the commercial program in them.

What do you think that that number can ultimately become?

And if we do the calculation, your revenues per store on the commercial side are still below that of some of your competitors.

Is there any reason for us to believe that you cannot achieve revenues on the commercial side per store that are on par with some of your competitors out there?

Yes, we certainly don't believe that there are any structural barriers that would prevent us from improving the productivity of our commercial program significantly over what they have been already.

In fact, we have had very good performance in improving the productivity of the existing base stores in addition to the 9% openings that we have had just over the last year or so.

And relative to what the percentage is, we haven't targeted a percentage exactly.

One thing for sure is that the trade areas of the commercial programs are broader than the trade area of the individual AutoZone stores.

So we don't envision ourselves ever getting to 100% but certainly we believe that we can increase the 59% significantly over the next few years.

Okay and just one last question if I may.

With you folks rightfully so focused on returns, what is the return period that you are seeing once you do add a commercial program to the store?

How long does it take you to earn your money back?

Well, it's relatively quick.

I couldn't give you -- I'm not going to give you a specific timeframe because again the model continues to evolve and we are opening a lot of stores just as of recently.

But think about it this way, is that the incremental investment on a commercial program is relatively small.

We are utilizing the existing base assets of the store, we're adding a truck or two or three, a few people to support that.

There is a little bit of incremental inventory, although obviously on our (inaudible) inventory ratio of over 100% (technical difficulty) I will pick up the pace because I know you've got to run for a plane.

Thank you very much.

I'm sorry about the background noise there, guys.

So overall the investment is relatively small and so we can -- that's actually what helps drive the ROIC, as we mentioned before.

The productivity of the overall box is up over 11% over the last couple of years and a lot of that is the commercial programs driving it.

We are really excited about what we see in front of us relative to our ability to open more programs, improve the productivity of our existing base programs, and it's a unique model in this industry to be able to have two businesses out of one box.

Kate McShane, Citi Investment Research.

Thank you, good morning.

With your investment in commercial, you had mentioned the expansion of some of the hub stores and that will be more CapEx than SG&A-related and that SG&A dollar growth could be abating a little bit next year.

So can you help us reconcile how we should think about SG&A going forward as you continue to focus on the investment in commercial?

I think the investment Commercial really be able to support the new programs, so some of the things that I was articulating in the last question relative to adding some payroll dollars from a commercial perspective to support the commercial business in the store, some trucks.

There's some operating expenses there but they are not as significant.

On the hub stores, what we had always talked about in the last couple of years was when we went to multiple deliveries that increased some of the SG&A cost and that's why you saw maybe close to a 10 basis points of deleverage in SG&A we articulated over the last several quarters.

We think that we will begin to anniversary that and then that won't be as much of a headwind going forward.

You are right, the work that we are going to do on the hubs as far as expanding them and making them larger will be more from a CapEx perspective, so there will be CapEx dollars to expand the hubs.

We don't see a significant SG&A investment in the hubs going forward relative to where we are today.

But some of the investment will be in the commercial programs, expanding new programs, not necessarily the existing programs.

Okay, great.

Thank you.

With commercial leveraging your store base and increasing productivity, how do you view fulfillment of orders through e-commerce as that becomes a bigger portion of your business?

Well, you know, the most important thing for us is being able to provide the customers the most convenient way for them to conduct business.

And many customers prefer to be able to process their orders electronically.

So on azpro.com they have the ability to get on and process their orders and there's no telephone call involved.

The stories get those orders immediately and fulfill them just as if they had answered them over the telephone.

So they will get in an order that will print out in the stores and they will fulfill those orders out of the commercial program and deliver them directly to the customer.

So it's a seamless operation and we are somewhat indifferent.

We would love to see the electronic orders continue to improve because we think it's more efficient for both us and our customers.

But more importantly, we want to be able to provide the customers with however they want to conduct business the most efficient way possible.

Okay, great.

And then if I can ask one final question.

With the multiple deliveries and the way the commercial business is structured, is there any way to mitigate the impact of higher fuel costs?

I think that would be a challenge.

We haven't really identified a way.

There's ways for us to improve some of the routes etc.

but that's more in line on the hubs.

From a Commercial perspective not so much, because it's mostly a hotshot business.

Aram Rubinson, Nomura.

Good morning.

Two things.

One, could you remind us why we take margin on commodity prices when it's inflationary out there to begin with?

And then I had a follow-up.

Sure, some of that is that you have some retail prices that you raise as you get increased cost and in certain instances, the retail price may come ahead of when the weighted average cost flows through the system, so you wind up with some improvement in margin.

And that normalizes over time?

How philosophically does that balance let's say over the course of a somewhat of an inflationary period?

Depending on the term of the product.

For example on some of the commodity-based products that turn a little bit faster, that timeframe would be fairly short.

And are you seeing the competitors out there?

I know you mentioned it's always a difficult competitive environment.

I guess the motivation behind it and what you are seeing the competitors and are you providing them a little bit of an umbrella by doing that?

Well, everybody is going to get priced somewhat the same.

It's very difficult to have a competitive advantage on pricing on a sustained basis.

So everybody will wind up pricing about the same.

Okay, then my second question is just on payables.

By our calculation, your AP days are a little north of 250 days.

I assume there's a wide range around that.

Do you have any of that touch 365?

And if so, is there a geography on the balance sheet where those begin to appear?

And then looking at the total vendor funding, do we capture it all looking at just the APs, which are a short-term liability?

They are a short-term liability.

We have some that are approaching but nobody that is over what you would consider long-term.

Okay, so we don't need to look for other long-term liabilities or anything like that just yet?

That's correct.

Thank you, Bill.

Have a good day.

John Lawrence, Morgan Keegan.

Good morning, guys.

Congratulations.

Could you comment, Bill, just a little bit -- you made a comment on the cost side, but can -- following up on another question, can you -- if you look at those stores on the commercial side that have been expanded now for several years, what would that range of success be over the last year from stores that are newly expanded or enhanced for those programs that have been out there for a period of time?

I would say that we are seeing significant improvements in the stores that have been open for eight or 10 years, our programs that have been open for eight or 10 years and we are also seeing improvements in the stores that we opened over the last two or three years.

And we are also seeing improvements in the productivity of the stores that we opened this year.

So on all fronts, we are seeing improvements and I think it goes back to what we talked about earlier that we continue to make significant improvements in those foundational elements.

That work is not finished.

We will continue to refine our offerings.

But we have made some pretty significant progress on that front and I think the customers have seen it.

That has benefited us across the board.

And I apologize, I ask it all the time but when you look to the progress of some of those areas and those trade areas, there's a lot of factors that people are coming back to you and either using you for the first time or giving you a shot at that business.

Is there anything in particular you can point to that -- is it expanded coverage or the real -- I know there's not a silver bullet.

But what really drives that decision as some of these decisions are coming back to you now that weren't, say, two or three years ago?

Yes, unfortunately I can't point to one.

I think it is a holistic approach and it is the rising tide lifts all boats.

They have confidence in the quality of our products.

They have confidence in our store AutoZoners being able to deliver.

We have much improved coverage, so our ability to say yes more frequently now is significantly higher than it was four years ago.

And then we have got a great sales force that is out there telling our story and is in those shops reminding them every day that we want to earn their business.

And so I think it's a culmination of all of those that's really driving our performance.

Thanks, guys.

Matthew Kessler, Goldman Sachs.

Good morning to you.

A couple of follow-up questions.

The first on the commodity price dynamic.

What will happen as input prices start to level off or come down?

Do you typically see the list price come down and consequently the margin follow?

Or is there a period of even better margin performance where the inputs are down and the street price is a bit sticky?

I would say it is also dependent upon what happens in the marketplace as well because obviously we don't operate in a [silo] so it depends on how everyone else reacts from a pricing perspective.

But overall, I would say is that there might be a little bit of a margin pressure if prices were to come down fairly significantly fairly quickly.

And have you seen periods before where commodity inflation has actually helped margin rate or is this fairly unique to this moment?

No, I'd say we've seen it before.

I would say we have seen it before and it's not surprising necessarily when it happens.

Got it, and then my second follow-up just relates to your self-insurance number.

If you could give us a little bit of color on that, is that --?

How often could that recur, might that recur?

Is that just sort of an occasional item of sort of a truing-up if you will?

I would classify it as an occasional item.

It is incident-based and so we probably had some favorability last year that wasn't overly significant.

This year we had a couple of unfavorable incidents during the quarter that drove up the expense for this quarter.

So on a year-over-year compare, it was a little bit more significant.

So if everything were level and it was kind of business as usual next year, this wouldn't be part of the base, it would be an easier compare on the expense side?

Slightly.

Got it, thank you.

Scot Ciccarelli, RBC Capital Markets.

Hi, guys.

This is Patrick Palfrey sitting in for Scot.

Thanks for taking my question.

I guess just first off, you mentioned that sales in the quarter were less variable than in the prior quarter.

Would it be safe to assume that the consistent trends carried into September?

As we have done on every one of our calls, we don't really want to get into what's happening with the current quarter sales trajectory because we release our earnings and do this conference call so early in the quarter.

We are only three weeks into our quarter and so I really don't want anybody to try to read anything into short, very short-term sales trends.

Okay, fair enough.

I guess just digging a little more into the structural changes in the ticket and transaction.

I guess how much do you think you can offset some of the structural transaction pressures from increasing the commercial sales transaction count?

And I guess just looking at tickets?

How much is the increasing ticket coming from the structural improvements that you were talking about versus increasing commercial sales?

Let me refine that.

When we were talking about transaction versus average ticket, we were talking about the DIY business on a stand-alone basis.

So the challenge that we have there is over time, parts are lasting longer so the number of cycles that you get on a starter or alternator or spark plugs or whatever the case may is fewer than it used to be but the cost of those products because they are improved are significantly more expensive.

And that's a trend -- we were actually looking at it again yesterday -- that's a trend that's been going on since 1995 and we've been able to very effectively manage our way through it.

So it's not anything that is alarming to us.

Okay, thank you for taking my questions.

Chris Horvers, JPMC.

Thanks, good morning.

The best for last.

I'm trying to understand not necessarily asking about the current quarter but that 150 basis points of variability, was there any kind of better at the back end of the quarter versus the front end of the quarter or is it just kind of normal noise in monthly numbers?

I think it's absolutely normal noise in monthly numbers.

You also -- when you are looking at monthly numbers, it depends on what happened last year as well and there was a lot of very warm days in this year and in last year.

And so if they weren't hitting at the same time -- so I wouldn't call anything in there significant.

The only thing that we would say was significant is the gas prices were up quite a bit.

And that was for the most part over the whole quarter.

But I think Bill mentioned that the discretionary -- it didn't sound like that really had an impact positive or negative to your business over all, the gas prices.

Weather or gas prices?

Gas prices.

No, I think gas prices absolutely hurt us during the quarter.

So you didn't necessarily see a rebound in the discretionary side at the end of the quarter?

No, but I don't think you are necessarily going to see gas prices only affect the discretionary side of the business.

I think it is going to affect maintenance more so than anything else.

Okay, so then the leading question is is that fair to think that the maintenance side improved as gas prices receded?

I think it's too early to tell.

The gas price changes were very short at the end of the quarter and we are not really watching it that close every day.

We are just trying to make sure we are doing what's right for the long-term of our business.

Got you, and then just on the inflation side.

I guess some people in your industry have talked about not wanting to lead on price and some of the inflation hitting their costs but not passing it through or wanting to pass it through on a delayed basis.

Is the -- what you are talking about today on the commodity pass-through, is that jive with what they are saying, meaning that yes it's being finally passed through on the lag or is this just a whole other topic?

Well, the way I would address it is, number one, we are not doing anything different than we have done for a very long period of time.

When we look at our business and our trajectory and what's going on with our cost, we make pricing decisions that are based on the facts that we have in hand but we are also willing to go out and move our prices up even before the rest of the market moves.

Now if they don't move, we are not going to be in a noncompetitive position on price.

So we are willing to move first but if others don't move, then we're going to make sure that our prices are competitive.

Thank you very much.

All right, thank you.

Well, before we conclude the call, I would like to take a moment to reiterate that our business model remains very solid.

We remain excited about our growth prospects for the upcoming year.

We cannot 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 for 2012 and as usual our team cannot wait to get started.

But I want to stress that this is a marathon and not a sprint.

As we will continue to focus on the basics and never take our eye off of optimizing long-term shareholder value, we are confident AutoZone will continue to be incredibly successful.

We thank you for participating in today's call.

Hope you all have a great day.

Thank you.

This does conclude today's conference.

Thank you for participating.

You may disconnect at this time.