Q2 2013 earnings call at 10: 00 a. m. on February 26, 2013. Rhodes -
William T. Chairman, Chief Executive Officer and presidentGiles -
Executive Vice President and Chief Financial Officer
Financial, it, all data and financial analysts
Matthew J. , Citigroup Research Department. Fassler -
Goldman Sachs Group Limited
Daniel R. Research DepartmentWewer -
Gutman\'s Research Department
Credit Suisse bank, Research DepartmentMelich -ISI Group Inc.
Research Department aram Rubinson-
Nomura Securities Co. , Ltd. Ltd.
Research Department christopher Horvers-
Michael Lasser, research arm at JPMorgan Chase-
Good morning, UBS Investment Bank, the operator of the Research Department, welcome to the AutoZone conference call. [
Please note that today\'s call is being recorded.
If there is any objection, please disconnect at this time.
This conference call will discuss the financial performance of AutoZone in the second quarter.
Bill Rhodes, chairman, president and CEO of the company, will give a brief introduction to the highlights of the quarter.
The conference call will end at 10. m.
11 Central Timem. Eastern Time. Before Mr.
Starting with Rhodes, the company asks you to hear the following statement on forwarding
Look at the report.
The Brian bergellcertain statement contained in this presentation is forwarded-
Look at the report. Forward-
Statements that appear generally use words such as belief, expectation, should, intention, plan, expectation, estimate, project, positioning, strategy, and similar expressions.
These are assumptions and assessments based on our management\'s experience and perceptions of historical trends, current conditions, expected future developments and other factors that we consider appropriate. These forward-
There are many risks and uncertainties in the outlook statements, including but not limited to the conditions of the credit market;
The impact of economic recession conditions; competition; product demand;
Ability to hire and retain qualified employees;
Level of consumer debt; inflation; weather;
Cost of raw materials for our suppliers; energy prices;
War and War prospects, including terrorist activities;
Availability of consumer transport;
Access to available and viable financing;
Changes in laws and regulations.
Some of these risks are discussed in more detail in our Annual Report on table 10, Part I, risk factors included in Item 1A.
For annual K as of August 25, 2012, these risk factors should be read carefully. OperatorMr.
Rhodes, you can start now. William C.
Good morning Rhodes, thank you for attending the AutoZone 2013 second quarter conference call today.
With me today is Bill Giles, executive vice president and chief financial officer of IT and all data;
And Brian Campbell, vice president of investor relations and taxation.
With regard to the second quarter, I hope you have the opportunity to read our press release for the results of the quarter.
If not, press releases and slides that supplement our comments today can be found on our website www. autozoneinc. com.
Please click on the quarterly earnings call to view.
Starting this morning, I would like to thank all the car dealers around the world, and despite the volatility in 12 weeks, they have ushered in a very solid quarter.
We continue to implement the strategy of improving the customer\'s shopping experience, which we call the initiative of the great people who provide quality service!
We have also increased the number, sales and profitability of our business projects.
In the quarter, we expanded 10 more hub locations, expanding the total number of hubs we transformed to 77 locations.
These reshapes require additional inventory in the market, which is good for both our retail and commercial sales.
In addition, we accelerated our efforts to further utilize the Internet, ending our purchase of Autozone autoany in December.
We are happy to have such a good business and team to join our organization and we are confident that their expertise in online retail will help us develop this category.
We believe in their knowledge and expertise with AutoZone E-
The business team will create material sales growth in this area in the future.
While we feel we have made progress this quarter, sales are still inconsistent and below our wishes and expectations.
At the last conference call, we noticed that in the last weeks of the first quarter, sales trends in our Midwest and Northeastern markets improved.
However, we remain cautious about the prospects.
We understand that the challenges we face are the same.
The second quarter compared store sales for the current fiscal year.
Basically, based on sales over the last 10 weeks, this quarter is very similar to the previous one. Our same-
The sales performance of the store in 10 weeks was basically flat.
However, historically, we have experienced an important week in a row. to-
Our sales growth in the last two weeks of the second quarter.
This year, we have seen some moderate growth, but have not reached the level we have experienced historically, and our total domestic growth rate is the same over the past two weeks --
Store sales fell by 8%.
We believe that the sharp decline in sales over the past two weeks is largely due to the IRS\'s delay in processing income tax refunds.
According to Nick Colas, chief market strategist at ConvergEx Group, the IRS\'s delay in accepting returns was postponed to January 30 compared to January 15, as of February 9 compared with last year, personal refunds were reduced by $30 billion.
From all indications, we expect to refund the same amount of dollars this year as last year, and we expect our sales to respond as more refund dollars are allocated to the economy.
Unfortunately, our fiscal quarter ended at a strange time in early February.
Historically, due to income tax rebates, we have benefited from the growth in sales, which usually continues to the usual growth in the spring sales season.
This is not the case this year.
In addition to the serious challenges of the past two weeks, our Northeast and Midwest markets are in 2-year same-
The base of the store has indeed improved.
However, they are still negative, about 500 basis points worse than the store market in the west and south.
Before the last week of January, sales in these markets were rising.
Maintenance categories, especially brake
Related categories, continue to be our worst-
The goods we sell under the banner of maintenance-
This is still our biggest opportunity for improvement.
This class has experienced high orders.
The percentage increase for most of 2009, 10 and 2011.
But this category has slowed significantly since 2012.
In retail, about 40% of our merchandise portfolio is the main reason why our sales have slowed over the past 12 months.
Does not include the impact of delayed tax returns, although we are not satisfied with our impact --
We see that our business is stable and we are beginning to show some signs of improvement.
As we look forward to the latter half of our fiscal 2013, we are passionate about the progress we have made on many initiatives.
We have increased our inventory in our hub network and satellite stores, we have further opened up our business projects and we continue to develop our all data E-Commerce in Mexico
Business and Brazilian enterprises.
We are encouraged by our experience and think we can improve sales trends for the rest of the year.
As stated in the conference call last quarter, our belief is that the past second quarter will be a low point and we can see growth again in the second half of the year.
The performance of the last quarter marks our 26 consecutive quarters.
Earnings per share growth.
We are very satisfied that we can continue to achieve strong EPS growth through a stable, medium-term financial model.
Dollar or better growth, and high orders
Through our stock repurchase, the number of diluted shares has been reduced by several digits.
Our target, quarter. over-
In the quarter, continue to provide consistency to our shareholders, our car dealers, and of course our customers.
We believe that in terms of financial performance and the implementation of key plans, this targeted consistency will bring stable Thymopentin for Injection to our shareholders, cars and customers.
Next, I would like to discuss in more detail the results of our sales in the past quarter.
Our sales have grown. 8% like us.
Sales of stores have declined. 8%.
This quarter, the same.
Compared with the second quarter of last year, the store\'s sales performance was 5. 9%. Our same-
Store sales performance is a combination of our retail and business operations.
I should point out that our total commercial sales grew by 9% in the second quarter of last year. Over the past 12 months, the combination of existing projects and the addition of 321 Net new projects have driven this trend.
Last year\'s Christmas and New Year\'s Day shift from Sunday to Tuesday has had a negative impact on business.
On average, Sunday\'s Business Day is much lower than Tuesday\'s.
We estimate that business sales will grow by about 10%, excluding this shift.
Our overall sales performance for the quarter was weaker than we expected.
But this is not entirely unexpected except for the last two weeks.
Our business track sales model is basically in line with retail sales trends.
In the first 10 weeks, this correlation was associated with regional performance differences in northeast and central and western regions, as well as in other parts of the country.
We believe that the last two weeks have been linked to the delay in income tax rebates.
During the conference call last quarter, we took the time to discuss how we felt about the difference in sales results between northeast and central and western, which was mainly a weather phenomenon.
Similar to the past two quarters, sales differences by region continued in the second quarter.
The three regions of the Northeast, Midwest and Plains states continued to fall sharply below the rest of the country this quarter.
In fact, the same difference of 5 percentage points
Store sales between the remaining 7 regions and 3 affected regions were largely present in the first 10 weeks of the quarter.
In the past two weeks, the results of the whole country have weakened.
As we said before, we will definitely know the impact of the weather this spring.
As the region of the business began to weaken in April 2012, we felt the most favorable starting point.
This morning, we would like to point to some of the key achievements made in the past quarter.
We completed another 10 hub projects this quarter, enabling our hub to reset its lifecycleto-date to 77.
As we increase the size and/or improve the location, we continue to be very pleased with the sales advantages of these reset hubs, allowing us to expand the number of SKUs available on the same platform
Day basis in the market.
These SKUs benefit both retail and commercial customers.
Thanks to our hub strategy, more specifically, what is provided by the additional hub space, we are able to put additional hard parts inventory into the local market, allowing us to better meet the growing
Customer demand is increasing.
I know many of you have read how the inventory of each store in our industry has increased over the past few years, not in a small way.
This is due to the continuous introduction of unique brands and models every year.
Our listeners should expect us to talk about proper stock arrangements in the coming years.
We are confident that our evolving hub strategy will better meet this need.
About Mexico, we opened 9 stores this quarter and completed 334 stores.
The sales of our other businesses have achieved very solid sales results.
All our data and electronics
Business including autozone.
Com and autoanything.
Com, continue to perform well, increase 43.
Up 1% from last year.
They are a great opportunity for e-commerce.
Business sales growth of the two companiesto-
Business base and through individual customers or B2C.
While both businesses are relatively small for us, we are trying to find out where there is the most potential.
At this point, we still think of our traditional autozone. com DIY E-
As a supplement to our walk, business
But we want to provide the best website for our customers to study their vehicle needs.
We continue to spend our resources on this design element.
I would also like to officially endorse and welcome autoany\'s excellent team to AutoZone as we ended the acquisition at the end of calendar 2012.
So far, I can make it clear that there is no better fit between management and philosophy.
I am very excited about what we can do together in the future.
In the second quarter, AutoAnything achieved two months of results in our consolidated finances.
With the continued aging of the automotive population and the sudden increase in mileage, we continue to feel a positive trend in our industry.
In the long run, we continue to be optimistic about sales growth opportunities in the retail and commercial sectors.
Since the number of vehicles is still a whole
Over time, consumers continue to look for good value while maintaining their vehicles, and we see that opportunities for AutoZone to sell to these customers will only grow.
Now, let me review the execution highlights of our operational theme for delivering WOW for the 2013: 1 Team!
This year\'s focus is on outstanding employees who provide quality service!
Make use of the Internet, Hub store improvements and technology to improve customer experience while optimizing efficiency to monetize our business.
In the retail sector in the past quarter, led by excellent employees who provide quality service!
The theme is that we continue to focus on improving execution.
We have also invested in technology to enhance the information available at the point of sale and the tools to better optimize execution.
In terms of business, we have opened 56 projects this quarter. Year-to-
By the second quarter of last year, we had opened 93, compared with 166.
After January 1, we launched most of these additional projects.
We don\'t expect open programming to be as much as we did last year, which is the most we \'ve ever had in recent history.
However, we will open about 300 projects this year, which is in line with our annual plan.
We continue to see business as a driving force for material sales. -
Our growth momentum for many years to come.
Our results continue to provide us with confidence to actively increase additional resources and new projects in this important growth plan.
I\'ll take a moment now to talk in more detail about our performance in the second quarter.
We have the same domestic
Store sales fell by 1.
This quarter was 8%.
As mentioned earlier, the second quarter we ended in March 9 did go through some changes in a month. to-
Monthly sales performance.
More importantly, the impact on our region continues.
This separation of performance began in April and continued until the current quarter.
As we said before, we define the sales class for maintenance as the most challenging comparison in the quarter.
In this category, our sales account for about 40%, and sales in this category are soft, especially in the geographic sub-concentration discussed before.
As we have experienced more normal winter patterns in these parts of the country in the past winter, as we enter the spring and summer months, we continue to feel the opportunity to rise.
Our business also has this regional difference in results.
Our smaller market share and the current growth trajectory of our new project continue to give us confidence in the future development potential.
We will continue to invest in developing our business and penetrate a larger proportion of our existing store base.
As I said before, all the data and electronics
Now commercial companies, including autoany, have another good quarter, with sales up 43% from the same period last year.
The addition of Autoany has driven much of this growth.
While this part of our business accounts for a small proportion of the overall sales portfolio, it is still growing faster than the sales of auto parts stores.
We should also highlight another strong performance in return on investment capital, as we were able to complete this quarter at the age of 32. 4%.
Over time, we strive to improve this indicator as it reflects our efforts to effectively utilize the capital we deploy.
It is important to emphasize that we will always maintain our diligence in capital management, because the capital we invest in is the capital of investors.
Before I hand the discussion over to Bill Giles to talk about our financial results, what I want to say is that in the last few quarters, we are very proud of the efforts made by our entire organization to properly manage the business.
I am very proud of our team\'s commitment to quality service and commitment to success.
Looking ahead, we will continue to actively manage our cost structure while executing our plans to drive sales growth.
It\'s bill now. William T.
Good Morning, everyone.
Starting this morning, let me take a moment to talk more specifically about our retail, commercial and international performance this quarter.
Total auto parts sales including our domestic retail and commercial business, our stores in Mexico and 1 store in Brazil increased by 1 in the current quarter.
It grew 9% from the second quarter of last year. 6%.
With regard to the macro trend of the quarter, the price of unleaded gasoline began to be $3 nationwide.
$43 a gallon ended the quarter at $3.
$61 a gallon, $0. 18 increase.
Gas prices also rose $0 last year.
$15 a gallon for the second quarter, starting at $3.
Ended at $3. 52 a gallon.
We continue to believe that gas prices will have a real impact on our customers\' vehicle maintenance capabilities and we will continue to monitor prices closely in the future.
We also recognize that the impact of more than 10 years of car mileage, the current average, is very different from the new car in terms of wear and tear.
In October and November, mileage increased.
In October, 4%, up 0. 8% in November.
According to December data, mileage dropped by two miles. 8%.
2012, with a slight increase in mileage plus 0 miles.
3% more than last year.
Another statistic we highlight is 7-year-
Old vehicles and old cars on the road, this is an ongoing trend for our industry.
Another key macro issue facing our customers today is the re-incorporation of payroll taxes into historical norms.
Our customers\' consumption is reduced.
At the beginning of the new calendar year, household wages were only just beginning, and at this point, coupled with the delay in income tax rebates, it is difficult to objectively quantify the impact of this change.
In the following four quarters, total sales at auto parts stores were $1,715,000.
This statistic continues to set the pace for the rest of the industry.
Total commercial sales growth 8.
The second quarter was 8%, accounting for 15.
Accounting for 6% of total sales, up $23 million from the second quarter of last year.
Business sales last year were 14. 8%.
As we said before, in general, we are very satisfied with the progress we have made in our business, both in terms of operations and finance, and we maintain our plans.
We are confident that we have sufficient opportunities to continue to improve many aspects of our operations and products, so we are optimistic about the future of this business.
We continue to believe that we can increase revenue in existing stores and we will continue to open more business projects.
Last quarter, we opened 56 new projects and 92 new projects in the second quarter of the previous fiscal year.
We now have 3,146 hub stores in 152 stores to support our business plan.
About 800 of our projects are 3 years old or under 3 years old, only 66% of our domestic stores have commercial projects, and our average revenue per project is much lower than several of our competitors, we believe, in addition to the opportunities to increase productivity in current projects, there are ample opportunities to achieve additional project growth.
While we recognize that the commercial sales productivity of each of our projects is well below that of our peers, we do not believe that there are any structural barriers that prevent us from achieving similar productivity figures.
Regarding our future, we focus on building on the business plans we have implemented over the past few years.
We continue to focus on the maturity of the sales team, and we are also strengthening training to introduce more technologies to optimize the productivity of the sales team.
We have increased our efforts in analyzing customer sourcing trends and the followingstock trends.
We believe that our product distribution model will be scalable in the future and we will continue to test other enhancements to our products.
All in all, we are still committed to our long term
Long-term growth strategy.
Once again, we have accelerated the growth of commercial projects, and in the past 36 months we have opened more than 800 projects, 26% of which are 3 years old or under 3 years old.
We believe that we have the ability to expand this business and seize market share.
Regional differences in our business sales results give us comfort.
Our poor performing market is not just a direct reason for what we do in particular.
We believe that we can expand this business in a profitable way, and we continue to be excited about our opportunities in this business for many years to come.
Our stores in Mexico are doing well.
We opened nine new stores in the second quarter and currently have 334 in Mexico.
We are still firmly committed to the strategy of steadily opening stores while managing our business in Mexico for a long time.
We have been running stores in Mexico for more than 14 years and we continue to see great opportunities for future development.
Our return and profit growth are in line with our expectations.
Regarding Brazil, our first store has opened and we look forward to opening another one here in the third quarter.
We are currently at different stages of development for future stores.
Our plan is to open 10 to 15 stores in the next few years, and then, while we improve our products and prove that our concepts are effective for our customers and finances, slow down additional developments.
Then we will decide our long term
Long-term growth plan.
Looking back on our company\'s second-quarter results, our sales for the quarter were $1,855,000,000, up 2.
It was up 8% from the second quarter of last year. Domestic same-
Sales or sales of stores for more than one year have declined, 1.
This quarter was 8%.
Gross profit margin for the quarter was 51.
Sales of 9%, up 51 basis points from the second quarter of last year.
The increase in gross profit margin is due to higher profit margins for commodity growth.
The increase in commodity profits is mainly due to lower acquisition costs.
With regard to inflation, we see an increase in the cost Year --over-
This year, but at this time, it is much slower than last year.
At this point, our assumption is that we will experience a downturn in producer pricing during the calendar year, and therefore, we believe that costs are predictable and manageable.
We will continue to understand the future development of inflation, and we will make appropriate adjustments if inflation arises.
Looking forward, we still believe that there are still opportunities for gross margin expansion in retail and commercial businesses.
However, we did not reach the target gross margin percentage.
Since the growth of our business has been a stable headwind of our overall gross profit margin for several years, we must constantly develop strategies to offset this impact.
Also, autoany has been a slight drag on our gross profit margin in the last quarter.
Autoany\'s gross profit margin is lower than our base business and we expect it to be a slightly larger drag once they enter our numbers throughout the reporting period.
Our main focus remains on increasing the absolute Gross profit dollar in our auto parts division, which increased by about $30 million in the quarter.
SG & A was 34 this quarter.
Sales of 7% were six basis points higher than in the second quarter of last year.
Due to the lower sales growth rate, operating expenses as a percentage of sales increased slightly, partially offset by lower incentive compensation costs.
As we entered the second quarter, we noticed the current sales environment, which we actively managed costs during the quarter due to this prudent nature.
I would like to take a moment to thank our entire team for their incredible efforts in cost control, which ultimately is an important contribution to our performance in the second quarter.
We continue to believe that we are doing well.
Be able to manage our cost structure in the foreseeable future.
Pre-tax profit for the quarter was $0. 318 billion, up 5 year on year.
It was up 6% from the second quarter of last year.
Our profit margin for EBIT has increased to 17.
Compared with the second quarter of last year, it rose 45 basis points to 1%.
Interest payments for the quarter were $41.
Compared to $38, it was 3 million.
9 million in the second quarter a year ago
As of the end of the quarter, outstanding debt was $3,998,000,000, about $0. 53 billion higher than the balance of $3,464,000,000 in the second quarter of last year.
In this quarter, our adjusted debt level indicator was completed by 2.
6x EBITDAR, while in any quarter we may increase or decrease leverage metrics based on management opinions on debt and stock market conditions, we are still committed to our investments --
Rating and our capital allocation strategy and stock repurchase are an important part of the strategy.
We have a tax rate of about 36 this quarter.
2%, flat with 36 in the second quarter of last year. 2%.
We expect our annual rate to be around 37%.
Net income for the quarter of $0. 176 billion increased by 5.
It was up 6% from the second quarter of last year.
Our share of dilution is 36.
9 million fell by 8.
It was up 3% from the second quarter of last year.
Combined with these factors, earnings per share for the quarter were $4. 78, up 15.
It was up 1% from the second quarter of last year.
Regarding the cash flow statement for the second fiscal quarter of 2013, we generated operating cash flow of $0. 193 billion.
Net fixed assets increased by 8% compared with last year.
Capital expenditure totaled $89 million this quarter, reflects the additional expenses needed to open 41 new stores this quarter, capital expenditures for existing stores, re-modelling of central stores, and developing new stores for the upcoming quarter.
In fiscal 2013, our capital expenditure is expected to be around $0. 4 billion.
With the opening of the new store, we ended sales in 4,735 stores in 49 states, the District of Colombia and Puerto Rico in the past quarter;
There are 334 stores in Mexico;
There is a store in Brazil with a total number of 5,070.
Due to the acquisition of autoany, we also had $0. 115 billion in cash outflows in the second quarter.
The total depreciation is $52.
Compared with $47 in the second quarter of last year, the quarterly expenditure was 3 million. 5 million.
Due to excess cash flow, we bought back $0. 185 billion of AutoZone shares in the second quarter.
By the end of the quarter, we had $0. 603 billion left under our share repurchase authorization.
Our leverage index is slightly higher than 2.
Five times the last quarter.
As we completed our acquisition of autoany, we were higher than usual in the past quarter.
We have traditionally stayed at 2. 5x.
I would like to stress again that we have managed to get the proper credit rating, not any of the metrics.
The indicators we report are only used as guidelines, as each trading company has its own standards.
We will continue to see the share repurchase program as an attractive capital allocation strategy.
Accounts payable accounted for 110% per cent of total inventory.
Next, I would like to introduce you to our inventory level. store basis.
We report an inventory balance of $2.
8 billion, up 7% from the final balance of the second quarter of last year.
The increase in inventory reflects new store growth, as well as additional investments and coverage for specific categories.
Inventory increased by 2 per store.
6%, reflecting our continued investment in hard parts insurance.
Finally, as Bill mentioned earlier, our continuous and rigorous approach to capital management results in a return on investment capital for 32 quarters. 4%.
We have and will continue to invest, and we believe that these investments will yield returns that far exceed our capital costs.
Finally, I would like to point out that there is still a week left for this year, the fiscal year 2013.
More specifically, the extra week will fall in the fourth quarter.
In terms of the number of weeks, the fourth quarter of this year is already our longest quarter and there will be an extra week, which gives us a total of 17 weeks in the fourth quarter.
So our year will end in August 31.
The last time we spent an extra week financially was fiscal 2008, we encourage each of you to review the impact of this additional week on our fourth quarter 2008 performance, to better understand the impact of this extra week on our fourth and 2013 fiscal year results.
Now I\'ll give it back to Bill Rhodes. William C.
Thanks, Bill Rhodes.
We are happy to report our double for 26 consecutive quarters.
Earnings per share rose in the second quarter, reporting a growth rate of 15% per share.
It is clear that our sales did not meet our expectations as our sales have declined in the past few quarters.
To a large extent, we believe this is mainly due to macro factors.
Regarding the current sales trends, we report our revenue.
5 weeks after the end of our quarter.
Historically, we have a practice of not discussing the performance of this quarter because the time is short.
It is not prudent to try to assess our trajectory in such a short period of time.
We do attribute the performance of the past two weeks to 2-
Tax refund is delayed by one week.
The reason we say 2-
Because this is a big change.
Recently, we started to see some refunds showing up in our show.
But from the information we have, the tax refund is still much lower than the previous year.
As an organization, we do not want to be the victims of challenging macro environments, nor do we want to rely on strong macro trends to drive our success.
We must continue to revise our game plan in order to succeed in good and unsuccessful situations. so-
Good sales environment.
Historically, we have been able to do this, and we have built it to do so in the future.
Our organization is very good at quickly changing our activities to respond appropriately to the current sales environment.
In doing so, we also-
We also have a strong commitment to continue to deliver WOW!
Drive sales with customer service.
We believe that the plan we have put forward is achieving this goal, and this belief is reinforced by our customer survey.
Keep in mind that about half of our product sales have failed. related.
The advantage of this data is that we will sell these items at good times or at bad times.
We cannot ask the customer to take the initiative to replace these parts.
We believe that the mild winter last year resulted in fewer failures and lower maintenance levels.
As we begin to experience the impact of a more normal winter season this year, we expect the trend to improve.
Again, we have focused on our inventory classification, hub stores, business growth, Mexico, all data, E-
Business and Brazil.
Regardless of market conditions, our responsibility remains to optimize our performance and continue to ensure that we invest in key initiatives that drive our long-term growth
Finally, how we measure ourselves is to provide strong EPS growth and ROIC every quarter.
Despite weak sales this quarter, we are very pleased with earnings per share growth and return on investment capital for the second quarter. Our long-
The long-term model is to increase the new store area at a low order.
We expect to continue to grow our business at a faster pace.
So we want to add EBIT dollars on a regular basis in the medium term
In power, the range of single digits, or better.
We use our very strong and highly predictable cash flow to buy back our shares, bringing our earnings per share growth to double digits.
This model has been very successful for a long time.
Finally, I would like to thank once again our entire organization for its dedication to our customers, automotive peers, shareholders and communities.
Our approach is consistent.
We are focused on success in 2013 and we are excited about the opportunities for the next two quarters.
Thank you for your time.
Now, we want to ask questions. Question-and-
Our first question today comes from Kate McShane at Citi Research. Kate McShane -
My question is about business.
I think you in prior ready of comments in said you is expected to 300 a new project there will be 2013 A on? William C.
Rhodes is right. Kate McShane -
It sounds like it\'s consistent with what you did in 2012, so I\'m just wondering, your investment ---
You highlight business investment in hub systems and sales teams, why can\'t we see an acceleration in project growth this year? William C.
Actually, Rhodes yes, there\'s going to be a drop this year, but that\'s in line with our plan.
We opened 400 projects last year, and this year we will open about 300 projects.
We need to make sure we--
The most important part of opening a business project is to ensure that we have the right resources, especially the right human resources.
One thing we learned last year when we opened 400 projects was that it was a pressure to make sure we had the right people to start those projects.
This year, we decided to step back a little bit, but opening up 300 projects is still a very positive growth trajectory.
We just want to make sure we\'re right.
This is what we do in the long run, and we think 300 of the project growth, about 10%, is very positive. Kate McShane -
Can you comment on any changes in this year\'s business competition environment that may be different from last year? William C. RhodesYes.
I don\'t think there is any major competitive change in the business environment.
I think everyone is fighting in a tough environment, especially in the Northeast and in the Middle West.
What we hear from our business customers is that the number of cars has dropped.
It\'s a tough business right now, so everyone is out there and we are doing our best to make sure we provide them with quality service.
The next question comes from Matthew faisler of Goldman Sachs. Matthew J. Fassler -
Goldman Sachs Group Limited
There are several problems in the research department.
First of all, it is clear that many other retailers and others from Wal-Mart to many restaurants have discussed the issue of tax refund.
But, I think, this is not the first time in the history of your business to see tax rebates fluctuate in the environment.
So, in addition to the environmental impact, do you have any views on the ticket or the transaction you are witnessing? Is this actually the culprit of the recent decline? William C. RhodesYes.
Matt, first of all, I have been in this industry for 18 years, as you know.
I have never seen this and what we have experienced in the last two weeks.
Now, we already know that we have this huge ramp in the last two weeks of our dorm.
So we have been very nervous, frankly.
Always say, \"What happens if the ramp is immature at some point in time?
\"Well, guess what?
We found out this year and it hurt us a lot.
Fortunately, we had managed our business very effectively before that, and given the sales environment, we still provided very reasonable results.
Yes, in the last two weeks we have seen a substantial drop in tickets because people are not doing the work they usually do when they get the flow of money, which is their tax refund.
That\'s the only reason we were able to appoint, because our sales have soared so much over the last two weeks, so I think we \'ve found this out this year. Matthew J. Fassler -
Goldman Sachs Group Limited
The research department learned.
Then, the second question is, if you look at the commercial sales of each of your stores from peak to trough, you might see a much bigger decline in growth rate than DIY?
When you think that your promotion is mature, you will think that the incremental store you are opening may be in areas where we have achieved some initial penetration. What\'s your up-to-
Dating thinking about the blank space you have and the ability to continue to compensate in business once weather normalization becomes a factor in your business? William C. RhodesYes.
The first thing I want to say is that we started the most productive projects first.
So when we go deeper in this cycle-
Projects, their potential in the market is not the same as what we did in the first part.
Now we still think they have a lot of potential and we still have 2.
5% of the market share, so we think the blank space is amazing in our opinion. Look, we --
Our performance in business is disappointing.
We have grown from 20% to about 9% growth this quarter, up 10% when you adjust these days.
But what we see is that our market share in the business sector continues to grow.
We think we have a long time.
We will be able to do a good job with the semester plan to develop it. Matthew J. Fassler -
Goldman Sachs Group Limited
Finally, I have to clean it up.
You obviously have regional differences.
If you can update us if you look cold
Weather market compared to the rest of the country, whether the business DIY relationship between the two groups of markets is different. William C.
Rhodes, yes, it\'s no different.
These numbers are different because, as you have highlighted, the growth trajectory in the business sector is different.
But from a square perspective, the trend is very, very similar.
The next question is Dan Wewer and Raymond James. Daniel R. Wewer -
You notice that the productivity of each of your projects is 40%, 50% lower than some of your competitors, however, it has no inherent reason to run at such a large discount.
When we talk to some technicians, ask them, why did you choose AutoZone, or why did you choose some competitors?
One resistance we hear on AutoZone is the quality of the part and the delivery time.
Of course, in addition to the Hub store, AutoZone does not make the same investment in distribution as some of your competitors do.
So when you consider closing the productivity gap, does AutoZone require a lot of capital investment? William C. RhodesYes.
At this time, we think our strategy is very good.
The biggest thing we are working on is the continued development of these hub stores. Yes, in-
Frankly, the availability of the local market is critical to our success in the business and retail sectors.
So we are trying to take advantage of our hub store so that we can have the best
Local market within the industry.
When we do this, we will be fine. Daniel R. Wewer -
And then, like a follow-up
The problem is, your comment on the brake and rotor and the other 3 cold weaknesses
The weather market is in line with your competitors.
But could you please contact the reason for the warming on last February and 3? Why is the brake change rate in the region of the country going down so fast?
I mean, after all, the change in gasoline prices is similar in the north to your sunshine market.
In the north, the miles drive is not much different from the Sunshine Market.
Would you think that the failure rate or replacement requirements of the brakes are almost the same? William C. RhodesYes.
Intuitively, I would think the same way, Dan, I \'ve never seen such a problem in the past.
But when we go out and talk to our car dealers, they are talking to their customers, especially with our business stores, and what we hear is, road conditions accounted for a large part last year, the lack of salt and salt water and what they did to deal with high levels of snow reduced the wear of brake parts.
The less holes and potholes on the road, the less wear and tear on chassis parts and so on.
How important this is--
How bad these categories are in the Midwest and Northeast.
So this is our best idea at this time.
As we said before, we will know in April.
Frankly, if we are by April and they are not making progress, we are wrong and we have to figure out what is needed for future growth. Daniel R. Wewer -
, If April sales are still not back, are you working on an emergency plan now? William C. RhodesNo.
As you said, everyone is saying the same thing.
So I don\'t think we\'re on this island alone.
Next, we will continue to discuss the next issue, Gary Balter of Credit Suisse. Simeon Gutman -
Credit Suisse bank, Research Department, Simeon, Gary.
You mentioned inflation in your prepared comments, and I think you said some of the cost growth rates for next year are slow.
In the past, we also discussed innovation driving the box office and acknowledged that recent trends were overshadowed by the weather.
But can you talk about where we are in that loop?
Are there any more innovations in the product so that when we see repairs or some delayed repair recovery, you can get a greater inflation or innovation boost? William T.
GilesYes, I think it\'s a good way to think about the problem, Simeon.
I mean, we don\'t see much inflation, and our expectation is that we don\'t see inflation, of course, from commodities.
Based on product position.
But from the perspective of innovation, we can still see this.
As the new car continues to work from an aging perspective, we continue to see some--
I don\'t want to call it inflation, but in terms of innovation, inflation in price.
So what we expect is-
Over time, this is very consistent with our model, that is, the flow of this industry has been declining for a long time, and we continue to see inflation in commodity book prices, we don\'t see a lot of inflation right now, and we don\'t see the product innovation inflation that we continue to see.
But our expectation is that the future will continue. Simeon Gutman -
Research Department of Credit Suisse bank.
Then, after talking about the issue of infrastructure, I think Bill Rhodes mentioned the speed and the end result of the market.
Market supply is important.
I think speed --to-
The market provided by AutoZone is very good, but what about the choice?
Does the Hub model allow you to go as deep as possible in product selection? William C.
RhodesYes, Simon, we spend a lot of time watching this.
If you look at the sales trend of SKUs, the percentage of sales we get in high speed SKUs and tail SKUs, how fast the tail drops is amazing, how slow it is-
Move the product.
But we have to have these slow.
Mobile products because we need them to be able to build relationships with our customers.
So what we think we need to do is continue to build our hub stores.
As I said in our prepared comments, we now have 77 hub stores and we have expanded in size so that we can significantly increase the variety of items.
As we continue to build greater expansion, we get deeper and deeper so that we can find where that sweet spot is. Simeon Gutman -
Credit Suisse bank, Research Department, can you follow--
If you do not have a product because it is either not carried, is this the number you are following?
That number is--
Is it a small number or a downward trend? William C.
We can track it, of course.
As we continue to improve these hub stores, yes, the number of these hub stores has declined.
The penetration rate of our hub continues to grow, frankly, to meet--
Beyond our expectations.
The next question is Greg Melich from the ISI Group. Gregory S. Melich -ISI Group Inc.
I have a domestic problem and a bigger prospect. up.
Autoany acquisition, how much has this increased in terms of quarterly sales?
Or help us figure out the number of all the data and emails
Com line apart from the acquisition, right? William T.
GilesYes, I think autoany might be sub-
Sales for the entire quarter were $20 million.
From a revenue perspective, its overall impact is negligible. Gregory S. Melich -ISI Group Inc.
Okay, research. So if I just --
If I put in $15 million, just drop out a little bit, all the data and e-commerce.
Could the business line grow by 5% or 10%?
Right? William T.
GilesYes, probably close. Gregory S. Melich -ISI Group Inc.
Second, I think in the release and Bill, in the comments you have prepared, you talked about going back to a more standardized volume.
What do you think is the normalized volume? William C.
This is a great question, Greg.
Obviously, in the past 4 years, our industry has seen great strength, and you must have seen our strength --
Store sales in the first three years of the past 12 months.
I think that during that time there was a clear post-industry trend for all of us.
I think we have some very important industry resistance now.
So my personal point is that it may be in. Gregory S. Melich -ISI Group Inc.
So if we say that the standardized volume is still slightly positive, 1% or 2%, you will--[indiscernible]
Normal inflation? William C. RhodesYes.
I think the standardized volume is definitely positive.
I think the number of customers may continue to be under pressure in the DIY business, however, due to the technological advances in parts and the innovations Bill Giles talked about a few minutes ago, structural growth in average fares was offset. Gregory S. Melich -ISI Group Inc.
The research department is great.
Maybe on inflation, Bill. up. . . . William C.
I can barely hear you, I don\'t know if you can speak out loud. Gregory S. Melich -ISI Group Inc.
I\'m sorry, but a follow-up research department.
On Simeon\'s question about inflation
Remind me, what was a year ago?
Now it\'s basically plain. Is it a few percent a year ago? William T.
GilesYes, I would say it was probably a few percent a year ago, probably a little less than that.
I think it was much higher in the year before that.
The next question comes from Aram Rubinson in Nomura. Aram Rubinson -
Nomura Securities Co. , Ltd. Ltd.
, The research department raises a question around the type of vehicle you see.
Is there a way to look at the business by vehicle category, suv and car or vehicle age?
Just want to understand the impact of the changing number of vehicles on the business.
Then I have oneup. William C. RhodesYes.
We don\'t think these things are specific. -
What we are most concerned about is the age of the vehicle, but from the AAIA figures we are not seeing any substantial changes, and I think the average age of the car continues to grow a bit, starting at the age of 10. 6 to 10. 8.
So I don\'t think there is any substantial change in the product mix we sell. Aram Rubinson -
Nomura Securities Co. , Ltd. Ltd.
Then, as a follow-up
I used to think that all data could be a useful tool to get into a business where you already have the network installed in the garage.
Can you talk about how you decided to use it or not, and whether it worked or if it might not be like me ---as it laid out? William T.
This is a good question.
I mean, we think all the data
This is very effective for us.
From the point of view of maintenance and diagnosis, they have a high market share and they continue to add additional products, whether it\'s store managers ---
Market and so on.
So they did a good job and kept going deep into it.
We continue to seek opportunities to bridge some of the synergies that exist between all data and our overall business.
They may not be as problematic as you intuitively think, because they are very different businesses, they offer different things to stores, very different salespeople, from the point of view of the salesperson, the skill setting is very different.
So I would say there may be some synergies that are not as high as you think.
Operatour Horvers\'s next question with JPMC Chris.
Chris Christopher Hofer
J. P. Morgan, research, I do want to follow up on the past 2 years.
5 weeks, the comment you said, Bill.
In the past few weeks, the tax refund seems to have become bland.
So, should we explain that these weeks look more like the first 10 weeks of the quarter you just reported?
Or what should we think? William C.
Rhodes is, I will go back to what I said in my prepared statement.
I don\'t want--
We call these two weeks a specific two week because they were in the first quarter, very different from our other experiences, and we feel we have a good grasp of the reasons for driving this process.
But at this time of year, our business fluctuates so much because the weather patterns change every day --to-day and week-to-week.
What we have seen is that the total tax refund is still significantly behind last year, and we don\'t necessarily know how people will consume the trajectory of these tax rebates.
I don\'t want to go in--
Any further 2. 5-
During the week, except to say, obviously, we didn\'t run negative 8 as before, but at this point, our sales still changed a lot.
Chris Christopher Hofer
Research is fair enough at JPMorgan Chase.
So is there a way to say--
Or what do you think about the return on these deferred refunds?
So, is there a way to say, hey, at this time of year discretion is x percentage of sales and that\'s what we might give up?
Or what do you think? William C.
Rhodes thinks we don\'t have a good way to think about it because we haven\'t experienced it before.
We believe that when the market-
When the money flows in the economy, especially through our customers, they are busy with a lot of maintenance and repair work.
I don\'t see any reason why this will happen again this year.
But you do worry about the change of time.
We hope this will benefit us even more.
If we can get some good rest in the weather and people want to go out to work, it may be good for us.
We just don\'t know at this point.
Chris Christopher Hofer
JPMorgan Chase is a good research department, do you think it increased to 11 and 12 weeks in a row last year in terms of warm weather? February and, are you there? -
Have you ever done an analysis of how many just warm weather pulled-
May it be the time range from April? William C. RhodesYes.
Obviously, our business portfolio was very different over the last few weeks.
We went through a lot--
We talked about us last year--
During that time, many spring categories were advanced.
But the overall trajectory of the business for 11 weeks and 12 weeks is very consistent with our last 5 or 6 years.
We may be selling batteries, but last year we were selling brake pads.
But overall, we have seen this significant improvement, which has not happened this year.
Chris Christopher Hofer
JPMorgan Chase, research, and finally, Bill Giles, maybe, can you talk about how you--the long-EPS double term
Digital growth algorithm.
I guess, how long do you have to stay steady or negative in order for this algorithm to not work? William T.
GilesI believes that if you look back on history, I mean that the organization has done a very good job of managing our cost structure in accordance with the environment we are implementing.
So I mean, this is a good example of our company, and actually every aspect of the organization is very good at assessing their expense structure needs and cutting them where they need them
So if you look back on our business before taking off in 09, we have managed to double the EPS growth rate
Digital rate and unit compensation.
So obviously we don\'t believe our future is flat.
We believe the industry will remain healthy and we will continue to gain market share.
But we believe we can. -
The model bill set out in his prepared speech is the one we can operate in the future.
Of course, we can play very well in a slightly more positive game.
The next question comes from Michael Lasser of UBS. Michael lather.
UBS Investment Bank, Research Department, can you provide us with a combination of business maintenance, failure, discretion and the overall business you provide? William T.
GilesYes, we usually stick to the whole.
In fact, there is not even a business figure in front of me that you can see.
Though, this may be more inclined to fail than the DIY side.
But I don\'t--
We do not disclose these figures.
Obviously, the discretionary side is going to go down and that will change that. Michael lather.
UBS Investment Bank, research, how does this compare when you look at the sales performance of existing commercial customers ---
How does this compare over time?
Does this basically track the overall performance of the business?
Or higher or lower? William T.
GilesI says it basically tracks the overall performance of the business sector.
I think what we\'re seeing is that we\'re still getting good traction from existing customers and, more importantly, our old projects continue to perform well.
Obviously, based on our performance this quarter, we obviously have an opportunity to improve our overall performance.
But existing customers continue to perform well. Michael lather.
The last question is the research arm of UBS Investment Bank.
Did you see it too? -
Since you pointed out that some newer programs are not that efficient, do you see any increase in the rate of diners? William T. GilesYes.
I think, over time, we will see the impact of diners.
This may affect the overall number, but the fact is that, as Bill said before, our market share is very small and we still have a lot of work to do to get more and more market share.
One of the things I will mention in the updated program is that I will not say that the updated program is less efficient, but that we have a higher proportion of updates in the combination.
So, from a mathematical point of view, this will eventually reduce the average weekly sales of your total of 3,000 items.
OperatorI now wants to transfer the phone to Mr.
Any concluding remarks by Bill Rhodes. William C. RhodesGreat.
Before we finish the call, I would like to take a moment to reiterate that our business model is still solid.
We are excited about the growth prospects this year.
We don\'t take anything for granted because we know our customers have other options.
Our culture remains a key point that distinguishes us from our competitors, and in order to remain very successful, we cannot ignore the importance of basic store execution.
We have a solid plan for success for the rest of 2013.
But what I want to stress is that it\'s a marathon, not a sprint.
As we continue to focus on the basics and focus on optimizing the long term
As shareholder value, we believe AutoZone will continue to succeed.
Thank you for attending today\'s conference call.
This concludes today\'s meeting.
Thank you very much for joining us.
You may disconnect at this point.
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