Bill Rhodes - Chairman, President and CEO Bill Giles - EVP and Chief Financial Officer, IT and ALLDATA Brian Campbell - VP, Treasurer, IR and Tax.

Alan Rifkin - Barclays Robert Higginbotham - SunTrust Dan Wewer - Raymond James Aram Rubinson - Wolfe Research Seth Basham - Wedbush Securities Matthew Fassler - Goldman Sachs Greg Melich - Evercore ISI.

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 first quarter financial results.

Bill Rhodes, the Company's Chairman, President and CEO will be making a short presentation on the highlights of the quarter. The conference call will end promptly at 10:00 am Central time, 11:00 am Eastern time. Before Mr. Rhodes begins, the company has requested that you listen to the following statement regarding forward-looking statements..

Certain statements contained in this presentation are forward-looking statements. Forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, positioned, strategy and similar expressions.

These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate.

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

Certain of these risks are discussed in more detail in the Risk Factors section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 30, 2014, 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 2015 First Quarter Conference Call. With me today are Bill Giles, Executive Vice President and Chief Financial Officer, IT and ALLDATA, and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax.

Regarding the first quarter, I hope you’ve had an opportunity to read our press release and learn about the quarter’s results. If not, the press release along with slides complementing our comments today is available on our website, www.autozoneinc.com. Please click on Quarterly Earnings Conference Calls to see them.

To begin this morning, I want to thank all AutoZoners across the globe for another solid quarter and a very good start to the new fiscal year. We remained focused this past quarter on several key initiatives and on growing our business on a variety of fronts.

I thought I'd begin this morning recapping the various aspects of our business as it has become more complex in recent years. We have diversified our portfolio with the emphasis on building additional legs of growth. First, we have our retail domestic business which generates approximately 70% of our revenue.

This business performed quite well on Q1 and we continue to see opportunities for future growth in store count and same-store sales. Secondly, we have our commercial domestic business which has been growing sales by double digits for five years and continues to be a tremendous growth opportunity.

We also have international retail and commercial businesses in Mexico and Brazil. We've been doing business in Mexico since late 1998 and our model has proven to work quite well. In Brazil, we are still in test phase but our sales had continued to grow nicely.

We also have an growing internet business supported by both AutoZone.com and AutoAnything and we have our all data business which is the leading diagnostic and repair business in the United States. We have expanded that business to both Canada and Europe in recent years.

And finally we recently acquired IMC which focuses on the import parts business and provides us with a new growth opportunity in new avenues to invite AutoZone customers who often expanded product assortment. This past quarter, our U.S. retail business expanded with the opening of 22 new stores.

We also opened 61 net new commercial programs our commercial business continue to gain traction growing sales 13% for the quarter. We now have commercial programs in 78% of our domestic stores having opened 816 new programs in just the past two years and we have opened four new stores in Mexico during the quarter.

In Brazil, we continue to operate five stores and expect to open a couple of new ones over the next few months. We currently have approximately 8% of our total stores outside of the United States. We believe we have growth opportunity in the U.S. and outside the U.S for many years to come.

In the first quarter, our sales accelerated on a same store basis compared to last quarter. We reported a same stores sales increase of 4.5% up from 2.1% in Q4 of last year.

We were pleased to see we gained traction in sales categories where we’ve added merchandize and our commercial business benefited from both the inventory additions and a diligent focus on growing sales in our older programs with particular emphasis on mature customers.

We were pleased with our sales performance throughout the quarter but our DIY business was particularly strong in the last two weeks when much of the country experienced the first significant cold weather spell.

Our results were also generally consistent across all regions of the countries while the weather experience at the end of the quarter accelerated our growth even further, our sales throughout the quarter were noticeably improved from Q4 in virtually every week.

Our beliefs is at the reduce gas prices are giving our customers additional disposable income and helping drive our sales. Additionally and more importantly, we believe the work we’ve been doing over the last year of inventory availability is also contributing to improve sales performance.

Over the last year, we have implemented our new algorithms for inventory assortments and those products have been in our stores now for over 6 months. These are generally slower moving products but as our customers experience the improved debt of our inventory these products are continuing to gaining traction.

Overall we were quite pleased with our sales performance in Q1. Our inventory per store increased over our Q4 2014 levels the primary driver of this increase was the inventory added through the acquisition of IMC. The IMC stores carry on average eight to ten times the inventory per location are basic AutoZone stores do.

While we are more aggressive with our inventory additions this past year, we feel future investments will be more targeted and refined.

Additionally, when we implemented our new assortment methodology last year we made a decision to only execute half of the deletes of underproductive merchandize in order to mitigate the potential risk of such a significant change. We are in the process of executing the additional deletions over the next few quarters.

Overall, we believe our growth in inventory per store will continue but at a low modest pace than last year. We will continue to assess and analyze our changes and we will continue to refine our methodologies overtime. But the majority of this initiative will be completed once the additional deletions are removed.

Secondly, as we mentioned during the last several quarterly calls, we have been testing different delivery frequencies from our distribution centers. Our ongoing tests have shown us that increased delivery frequency increases sales and improves inventory productivity while reducing safety stock.

The important takeaway here is we continue to expand these tests and have added more stores to these test. As we’ve been testing for about a year, our results to date have been encouraging and we plan to further expand the test in Q3.

Once we have confirmed our bindings we will develop a long term plan and explain our strategy and its ramifications to you. We would expect to do this in the next couple of quarters.

Ultimately, assuming our findings are confirmed we would expect to increase the delivery frequency to most of our stores and we would expect to add two to three additional distribution centers to do this cost effectively and on a timely basis.

Additionally, we’ve been testing what we call mega hubs, mega hubs have substantially increased product assortment and they leverage those increased product assortments across other hub network providing stores across large geography access to this expanded assortment. We have been testing two mega hubs for about a year.

Both of them have been performing well and we will be opening three additional mega hubs over the course of this fiscal year. This too is still in test phase but we are pleased with the performance to date. All of our inventory availability initiatives are designed to significantly increase our ability to meet our customer’s needs.

In this business, the inventory availability is a must and we believe once this work is completed we will materially improve our ability to fulfill our customers request. As our commercial business has grown, our need for expanded assortments has grown even more.

Again, we are continuing to test and we are expanding our test to validate our findings to date. We will keep you abreast with these developments. This has been important and difficult work and I would like to thank everyone in the organization who has been involved with this initiative for their excellent work today.

Last quarter, we held our national sales meeting here in Memphis. This year's operating plan theme, wow, every customer, everywhere was very well received. The customers are simply focused on everything we do or like we say at AutoZone, AutoZoners always put customers first.

We've always been focused on service but this annual operating theme adds intensity and renewed focus. We've made significant systems investments and enhancements this past year in order to capture more data about our customer shopping patterns across all of our platforms.

We understand we have to be able to toggle between the store, the shop the phone and online experience in order to meet our customer’s needs.

At the national sales meeting, my favorite event every year is our recognition luncheon hosting our award winning store managers, or as we call them our President's Club, it's an opportunity for our officers to meet and answer questions from our best and brightest store AutoZoners. This year was certainly no exception.

These store award winners deserve our gratitude for their efforts each and every day. Now I will take a moment to discuss our recently completed acquisition of Interamerican Motor Corporation doing business in the marketplace as IMC. They are the second largest distributor of OE quality import replacement parts in the United States.

They specialize in parts coverage for European and Asian vehicles. While considerably smaller than the number one participant in the industry, IMC with 17 branches today offers a terrific growth opportunity for us. Not just because of the parts coverage, but also because of a very strong management team. They are an exceptional team.

We closed on the acquisition in September and we have been fast at work on getting our integration plan in place. While it's very premature, I will mention our plans include opening more IMC branches in incorporating their parts catalog into our AutoZone's Z-Net parts catalog.

We will continue go-to-market as IMC and expect to open a handful of new IMC branches over the next 12 months. We also expect to have their catalog available in our stores by early spring 2015. I do want to point out; there was very little customer overlap with our commercial customer base.

Now let me stress the IMC brand is very important to us and we will grow that brand and its presence in the future in the many more markets than what it is in today. IMC has been in a growth mode recently and has built an infrastructure to support a substantially larger footprint.

Therefore it currently doesn't enjoy the operating margins that we experienced, so it will lower our overall EBIT margins by approximately 40 basis points on an annual basis. We are very excited to have IMC as part of our organization and very optimistic about our future together. Now let's turn to our first quarter results.

Our sales increased 8% and our domestic same-store sales were up 4.5%. As mentioned previously, our sales improved significantly from Q4 and each month both retail and commercial experienced positive same-store sales growth. That consistency was across all regions of the country.

We believe we benefitted from both macro tailwinds, our work on inventory availability and solid execution. While our value related and maintenance merchandise categories performed well. We were especially happy to see the growth in our maintenance category.

Regarding traffic versus tickets in DIY business, traffic was negative while ticket was positive. While only slightly negative traffic improved in the quarter well along and was nicely positive at the end. Our average ticket improved significantly and has returned to more normalized levels after about a year of subdued growth.

The hard parts of this since we've added to our stores have held ticket growth. Over the last two decades, our traffic count has been challenged.

The primary driver of this challenge is the improvements in the product quality which has led to fewer failures or longer maintenance intervals but those improvements have come from technological advancements and those enhancements have significantly increased the price of the products we sale.

We have been managing through these phenomena as mentioned for over two decades and expect to continue to do so quite well. We are having 61 new commercial programs in the quarter versus 125 programs in the comparable period last year. We have a commercial program in 78% of our domestic store base.

Our commercial sales excluding items were up 13% this quarter. Lastly, I always like to recognize how effective our team delivers consistent earning in good sales environment and not so good. And that practice has allowed us to deliver an impressive 33 consecutive quarters of double-digit EPS growth.

That consistency allows us to be both shareholder friendly with solid earnings growth and bondholder friendly through a targeted investment grade rating and strong cash flow. We continue to manage this business for both short term and long term optimum performance.

As part of our strategy to increasing inventory levels in local markets closer to our customers this past quarter we opened five additional hub locations. Overtime, we do expect to open more hub locations and we believe our strategy on inventory deployment at the store level allows us to keep the number of openings at a moderate level.

Regarding Mexico we opened four stores this quarter. Sales in our other businesses for the quarter were up 6.4% over the last year’s first quarter. As a reminder our all data in e-commerce which includes autozone.com and autoanything make the segment of sales.

Regarding online sales opportunities there continued to be great opportunities for growth on both business-to-business and to individual customers who are beginning to see. While these businesses are small for us we expect them to grow at a faster rate in our brick and mortar business for the foreseeable future.

With the continued ageing of the car population, we continue to be optimistic regarding trends for our industry in both the DIY and DIFM. While new car sales have been very strong these past two years, we have seen those traded in vehicles to be resold to new owners who are repairing or enhancing their new vehicles.

With gas prices on average down materially year-over-year for the first quarter, we are beginning to see miles driven increase. Decline in prices at the pump have benefited our customers especially those most financially strapped.

The lower end consumer benefits the most from lower gas prices relative to income; this trend is encouraging but only one of several factors that impact sales. I know many of this has asked about our sales expectations for the second and third quarters. The comparisons are considerably more difficult.

Our certain markets and categories outperformed during last winter, others underperformed. We believe we should improve in those regions in our maintenance categories shift the weather patterns be considerably different. As our history has shown we managed this business focusing on both the short and long term performance.

As we entered the second quarter we are keenly focused on delivering consistent strong performance and extending our streak of 33 consecutive quarters of double-digit EPS growth.

Our operating theme for 2015 is wow, every customer everywhere and our key -- for the year are, one, great people providing great service; two, profitably growing our commercial business; three, leveraging the Internet; four, leveraging technology to improve the customer experience while optimizing efficiencies and five, improving inventory availability.

On the retail front last quarter under the great people providing great service theme, we continued with our intense focus on improving execution. Along with the improvements to our catalog assortment we’re incorporating more training tools to help our store AutoZoners provide trustworthy advice.

Training will continue to be a larger effort for us at the store level. Behind the scenes, we have reset our expectations on technology investment and challenge ourselves to make sure our offerings are relevant across all shopping platforms.

We realize that customers have become much more tech and mobile savvy we have to have a sales proposition that touches all the way as they desire to interact with us. Our current and future technology investments will lead to sales growth across all of our businesses. In regards to commercial, we opened 61 programs during the quarter.

Our expectation is we will continue to open new programs and grow our percentage of stores with commercial programs although our pace of growth will likely moderate. We expect to open approximately 300 programs this year versus 424 last year.

As we continue to improve our product assortment and availability and as we make other refinements to our offerings, we expect that the sales potential will continue to increase.

Our results continued to provide us confidence to be aggressive in adding additional resources and new programs to this important growth initiative, which also highlight another strong performance in return on invested capital as we were able to finish Q1 at 31.7%.

We are very pleased with this metric as it is one of the best if not the best in all of hard lines retail. However, our primary focus has been and continues to be that we ensure every incremental dollar of capital that we deployed in this business provides an acceptable return well in excess of cost to capital.

It is important to reinforce that we will always maintain our diligence regarding capital stewardship as the capital we invest is our investors’ capital.

Before I pass the discussion over to Bill Giles to talk about our financial results, I’d like to recognize our entire organization for their efforts to manage the business appropriately and prudently. We have an amazing team and our initiatives for 2015 are exciting.

With our ongoing supply chain initiatives as well as the inclusion in upcoming expansion IMC, we are ready to continue to provide wide customer service to all our customers and we are ready to continue to prudently manage our cost structure providing our shareholders with a consistency we have exhibited. Now here is Bill..

Thanks Bill. Good morning everyone to start this morning let me take a few moments to discuss our retail, commercial and international results for the quarter. During the quarter total auto parts sales which include our domestic retail, IMC and commercial businesses, our Mexico stores and our five stores in Brazil, increased 8%.

Regarding the macro trends during the quarter, nationally unleaded gas prices started out at $3.46 a gallon and ended the quarter at $2.82 a gallon, a $0.64 decrease. Last year, gas prices decreased $0.31 per gallon during the first quarter, starting at $3.60 and ending at $3.29 a gallon.

We continue to believe gas prices have a real impact on our customers’ abilities to maintain their vehicles and as cost reductions help all Americans, we hope to benefit from an increase in disposable income.

We also recognize that the impact of miles driven on cars over 10 years old, the current average, is much different than on newer cars in terms of wear and tear. Miles driven increased 2.3% in September I don’t have October, November data yet.

The other statistic we highlight is the number of seven-year and older vehicles on the road, which continues to trend in our industry’s favored. For the trailing four quarters, total sales per auto parts locations was $1,746,000. This statistic continues to set the pace for the rest of the industry.

For the quarter, commercial sales increased 13% commercial represented 17% of our total sales and grew $45 million over last the year of Q1. Last year’s commercial sales mix percent was also 17%. This past quarter, we opened a 61 new programs versus 125 programs opened in our first quarter of last fiscal year.

We now have our commercial program in 3,906 stores supported by 171 hub stores. Approximately 1,200 of our programs are three years old or younger. Let me take a moment and discuss our commercial program performance.

As I mentioned our commercial sales were up 13% this past quarter, a nice acceleration versus last quarter while our average sales per program is below some peers in our industry at $8500. We feel we are on the right track and methodically close that gap.

It’s important to highlight that we accelerated our new program growth over the past few years as approximately 30% of our programs are younger than three years old. These openings have impacted our average sales metric and cannibalized some of our older programs.

However, our focus is on growing market share and improving our service levels by having more programs closer to our customers. This year we are increasingly focused on measuring and growing sales in our older programs and the specific emphasis on our long-term customer growth.

Looking specifically at our matured programs, those at least five years old, they grew in a high single digit range this past quarter. Additionally, we still have significant opportunity to open additional programs over the next several years. We feel good about the successes we have had and probably growing the commercial business.

In summary, we remain committed to our long-term growth strategy. We believe the improvements we have made in upcoming additional improvements from our inventory availability initiatives enhance our prospects and we believe the addition of IMC will provide us with additional avenues to service our commercial customers very effectively.

We believe we are well positioned to grow this business and capture increased market share. Our Mexico stores continue to perform well. We opened 4 new stores during the first quarter and we currently have 406 stores in Mexico. We expect to open a similar of stores in Mexico this fiscal year that we open last year.

Our returns and profit growth continue to be in line with our expectations. Now regarding Brazil, we are currently operating five stores we didn’t open any stores this quarter our plans remains open a few more stores and then refine our offerings improves our accounts of more for our customers and is financially viable.

Our sales growth has been very encouraging and on plan. We continue to operate a considerable loss this is due to expected to having such a small store base and carrying distribution capabilities and overhead that can handle far more stores.

Once we refinance our offerings in operations and value at the performance we will provide you with an update on our long-term growth plans.

Recapping this past quarters performance for the company in total our sales were $2,260 million and increase of 8% domestic same stores sales or sales were stores are for more than year were up 4.5% for the quarter. Gross margin for the quarter was 52.1% of sales up 20 basis points.

The improvement in gross margin was attributable to higher merchandize margins and lower strength expense. Partially offset by the impact on margin from the IMC acquisition. And regards to inflation is been basically non-existing for couple of years now of certain categories have had some price increases in general.

We have slightly more decreases at this point our assumption is we experience of produce for pricing heading into the new calendar year and therefore we feel cautiously predictable and manageable. We will remain confident in the future development regarding inflation and we’ll make the appropriate judgment should they arrive.

Looking forward, we continue to believe the remains opportunity for gross margin expansion within both retail and commercial businesses, however, we do not manage through a target growth margin percentage, as the growth of our commercial business has been a steady headwind and our overall gross margins rate for few years was not bother to call out the headwind quarterly and it is part of our operating model.

Additionally, until the anniversary of the acquisition, IMC will present a headwind on a gross margin of approximately 30 basis points over the next three quarters as this business model operates to lower gross margin rates. Our primary focus remains growing absolute gross profit dollars in our total auto part segment.

SG&A for the quarter was 33.8% of sales higher by 45 basis points from last year's first quarter. The increase in operating expenses as a percentage of sales was primarily due to higher legal cost and self-insured medical cost. Now IMC will also have approximately 10 basis points of deleverage on SG&A in the upcoming quarters.

We continue to believe we are well positioned to manage our cost structure in response to our sales environment. EBIT for the quarter was $409 million, up 6.5% over last year's first quarter. Our EBIT margin was down 25 basis points at 18.1%. Interest expense for the quarter was $37.1 million compared with $42.4 million in Q1 a year ago.

Debt outstanding at the end of the quarter was $4.422 billion or approximately $250 million more than last year's balance of $4.174 billion. Our adjusted debt-level metric finished the quarter at 2.5 times EBITDAR.

While in any given quarter, we may increase or decrease or leverage metrics based on management's opinion debt regarding debt and equity market conditions, we remain committed to both our investment grade ratings and our capital allocation strategy and share repurchases are an important element of our strategy.

For the quarter, our tax rate was approximately 35.9%, down slightly from last year's first quarter. We expect our annual rate to be closer to 36.7% on an ongoing basis as the deviation in results this quarter was primarily driven by the resolution of discrete tax items that arose. Net income for the quarter was $238 million, up 9.3%.

Our diluted share count of 32.8 million was down 5.5% from last year's first quarter. The combination of these factors drove earnings per share for the quarter to $7.27, up 15.6% over the prior year's first quarter. Relating to the cash flow statements in the first fiscal quarter, we generated $375 million of operating cash flow.

Net fixed assets were up 8% versus last year. Capital expenditures for the quarter totaled $92 million and reflected the additional expenditures required to open 27 new stores this quarter, capital expenditures on existing stores, hub store remodels, work on development on new stores for upcoming quarters and information technology investments.

With the new stores opened, we finished this past quarter with 5,006 stores in 49 states, the District of Columbia and Puerto Rico. 406 stores in Mexico, 17 IMC locations and 5 stores in Brazil for a total count of 5,434.

Depreciation totaled $61 million for the quarter versus last year's first quarter expense of $56 million; this is in line with recent quarter growth rates. With our excess cash flow, we repurchased $300 million of AutoZone stock in the first quarter.

At the end of the quarter, we had $517 million remaining under our share buyback optimization and our leverage metric was 2.5 times. Again, I want to stress we manage through appropriate credit ratings and not any one metric. The metric we report is meant to guide only of each rating firm has its own criteria.

We continue to do view our share repurchase program as an attractive capital deployment strategy. Accounts payable as a percentage of growth inventory finished the quarter at a 112.5% and includes of IMC reduced AP ratio of approximately 150 basis points.

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 $3.3 billion of 11% versus the Q1 ending balance last year. Increased inventory reflects the recent IMC acquisition, new store growth and additional investments and coverage.

Inventory per store was up 6.7% at $604,000 per store, reflecting our continued investments and hard parts coverage and the IMC acquisition. The increase in inventory per store this quarter from last quarter was predominantly IMC driven which added just over $10,000 per store to this metric. Excluding IMC, inventory was up 9% over the last year Q1.

Finally, as Bill previously mentioned, our continued disciplined capital management approach resulted in return on invested capital for the trailing four quarters of 31.7%. We have and will continue to make investments that we believe will generate returns and significantly exceed our cost of capital. Now I will turn it back to Bill Rhodes..

Thank you, Bill. We are pleased this morning to report our 33rd consecutive quarter of double digit EPS growth growing this quarter at a rate of 15.6%. Our company has continued to be successful over the long run. That success is attributable to our approach to leveraging our unique and powerful culture and focusing on the needs of our customers.

At the end of the day our customers have choices and we must innovate to ensure they turn to us for the rate of corporate needs. As we continue to invest in our businesses and monitor the results from our ongoing inventory initiatives, we are optimistic about our future. We feel like we continue to be on the right track.

Again we’re excited about our initiatives around inventory assortment, hub stores, commercial growth Mexico, all data, e-commerce Brazil and now IMC. Our long term model is to grow new stores square footage at a low single digit growth rate and we expect to continue growing our commercial business at an accelerated rate.

Therefore we look to grow EBIT dollars in the mid-single digit range or better in terms of strength. And we leverage our very strong and predictable cash flow to repurchase shares enhancing our earnings per share growth in the double digits. We feel the track we are on will allow us to continue winning for the long run.

We believe our steady consistent strategy is correct. It is the intention to details and consistent execution that will matter. Our belief is solid consistent strategy combined with superior execution is a formula for success.

Our charge remains to optimize our performance regardless of market conditions and continue to ensure we are investing in the key initiatives that will drive our long-term performance. In the end, delivering strong EPS growth in ROIC each and every quarter is how we measure ourselves.

We are pleased with our results this past year, but we must remain committed to delivering on our strategic and financial objectives. Now we’d like to open up the call for questions..

Thank you. [Operator Instructions] The first question is from Alan Rifkin with Barclays..

Thank you very much and congratulations on a very nice quarter. First question is for Bill Rhodes.

So with all of the new initiatives that you’re presently undertaking whether it’s increasing delivery frequency, investment in the mega hubs or the IMC acquisition, it seems like there is much greater willingness on part to possibly take on more risk and grow the business at a greater rate.

Can you maybe just provide a little bit color on why that seems to be at this pointing time and if there anyone of those programs where you have greater confidence than the others. Thank you..

That’s a terrific question. I think I would say the -- has moved modestly I don’t want to send the message that we’ve changed our investment profile significantly.

But working with our terrific Board of Directors we’ve made a decision to take on a little bit more risk and diversify our portfolio a little bit and you mentioned -- all the winning thing is also another great example of that which has allowed us much better insights into the online retail market and provided us with another great team and a good solid business.

I think you asked also, which one do we think is the biggest as most potential, I would tell you that inventory availability has the most potential, because it impacts roughly $8 billion of our revenue today.

IMC and all the winning thing are clearly smaller businesses and good solid businesses in growth aspects but the inventory availability initiatives can also significantly impact the overall business.

Also let out that we’ve been growing in Brazil as well and as we mentioned it’s cost us significant amount of money and operating loss is down there as we try to get stand up and go on but at the same time that happen when we were in Mexico initially now we seat here with over 400 stores in a very solid business model in Mexico..

Okay.

So Bill as to continue to target inventory availability and you has different delivery frequencies, what are you learning and obviously it increases revenues at think that’s probably clear but what are the cost associated with testing those different delivery frequencies and ultimately you believe that this can be accretive to EBIT margin as well as accretive to comps and revenues?.

This is terrific question. I’ll give you some color on it, but the reason we’re not saying it today here is what we’re going to do is because we don’t know all of those answers yet. So on delivery frequency for instance we tested two times a week, we’ve tested three times a week, we’ve tested five times a week.

We don’t know what the right answer is yet. The cost profile of going twice a week is very different and going five times a week. Similarly with mega hubs we’re finding how far can we go out on a same day basis versus an overnight basis and the cost profile is very different.

I’ll tell you that I would not expect this initiative would be EBIT margin accretive, in fact I would expect it to be dilutive I can’t tell you today how much it will dilutive I wouldn’t expect massively dilutive, but it’s hard when you hold yourself to a 19% roughly annual EBIT margin to say you’re going to do new initiatives that are going to meet that.

We do not want to hold ourselves for that standard..

Just one last one if I may and I'll pass it on. Is it possible that some stores might be better served with two times a week as opposed to three or five? Can there be some variability in the delivery frequency? I'm having a lot of difficulty with that word this morning..

Yes it is a difficult word [indiscernible] prepared comment..

I think that’s a question that we’re asking ourselves right now if so we have a distribution center in Dallas, Texas and we have a $70,000 store in Dallas going there five times a week seems pretty easy. But we have to far go North Dakota does it makes sense to go five times week? Those are question that we just haven’t answered at this point. .

Okay. Thank you let me pass it on to somebody else..

Thank you. The next question is from Robert Higginbotham with SunTrust..

Good morning everyone. You mentioned the potential for two to three more DCs or that you expect it to put into two to three more DCs to increase your inventory availability. That seemed to cover a broad range of potential frequencies for deliveries.

What kind of range would that two to three cover? Would that go up to daily, would that be two to three times a week, how should we think about that?.

Well the most were attempting today’s five times I wouldn’t call it daily. But we would be able to briefs the networks that we think we need to reach on a two to five time a week basis from, if we added that those three distribution centers..

Okay fair enough.

And then have you talked about what kind of lift do you see on sales at the stores you tested to the five time?.

No we haven’t because we’re testing around the 150 stores and we’re testing with different profiles. And frankly the results were mix were all positive but the range of results were different, different markets are performing different ways.

So we need to get a better handle on it that’s why we’re going to expand the test to further validate our results. These are big decisions that we will make and we’re taking our time to make sure we make the right decisions. .

Okay and one last one on IMC. Beyond the next 12 months where you said you'd add a handful how do you think about the potential number of warehouses, obviously advances put out some pretty aggressive numbers out there for world Pac with IMC being at least a similar concept.

Any reason you couldn't over time maybe reach something close to those levels of locations and then as part of that, could you talk about how capital intensive the new IMC warehouse is, any numbers we can share on unit economics would be helpful, thanks..

Sure on the number of locations we think we will have over a 100 at some point of time not see like anybody else would have more than we do.

So that will be our plan overtime but we’re going to open a handful this year, this is a new business for us, new endeavor for us and we’re going to work with the IMC team to figure out how can invest leverage each other and open a few make sure that we get the performance that we want and then we will accelerate from them..

And then from the capital perspective on the stores or the locations are typically non-retail and more warehouse locations so there are typically certainly less than retail locations with cost..

Thank you. The next question is from Dan Wewer with Raymond James. .

Thanks. So Bill, in expanding the daily delivery or the delivery capabilities of two to five times a week that would still be I guess less frequent than your three largest competitors in the commercial channel.

What do you think that you would be leaving on the table by not going to maybe a multiple daily delivery rate?.

Well just to clarify we will be doing multiple times a day from our hub stores and our mega hubs in those markets. And so I don’t think we would be if we win a five times a week I don’t think we would be at any competitive disadvantages at that point in time..

So the two to five times per week is from the large distribution center and then you'd top off additionally from the hubs and mega hubs?.

Three times a day typically within a week more approximately to the store..

So when you look at roughly the 30% gap in revenue per program, do you think this is the game changer that will get you to that 11-$12,000 a week level?.

I don’t know the answer to that yet Dan. But what I do know is this will be a material change in our ability to fulfill our customers need.

We are seeing significant improvements in sales performance my personal expectations is that we’ll grow overtime as our commercial customers in particular experience us being all to fill their needs at higher level.

And I think it can make a big difference Whether or not that's a silver bullet I don’t think there is a silver bullet I think we’ve got to stick to our net and continue to improved business every day and get letter..

Separate question on the legal expenses that appears to be about $0.09 a share after-tax.

Is this a one off issue tied to the lawsuit that was in the papers a few weeks ago or do you think this is going to be an ongoing higher expense rate tied to just the legal environment that you're in?.

That’s not a former we want to talk about anything in particular. But obviously during the quarter we believe we had a onetime non-recurring cost and just you pointed is roughly about 22 basis points SG&A for just this quarter. .

The final question for Bill Rhodes.

When you think about the benefits of the drop in gasoline prices compared to the headwinds from the favorable weather last year which went in that tug of war?.

I am sorry, can you say it loud [indiscernible]. .

Which is the most relevant, the benefit from the drop in gas O loan prices or the headwind from the more difficult sales comparison from the ideal weather last year..

Clearly we had terrific performance last year in the second quarter. We saw in specific categories the weather related categories performed exceedingly well. However, some of the other categories did not perform well. We talked about that last year in the second quarter. So it's going to be, the weather is going what it's going to be.

There is not material changes that we need to make our business. So we are going to just go up and slug it up the best we can. Gas prices really dropped precipitously just recently and we are beginning to see some of the benefits.

I expect the benefits to be bigger overtime if they remain at these levels or even go over but as far as comparing the two I think you have just as good insight on that as I do..

Thank you. The next question is from Aram Rubinson with Wolfe Research. .

Hi good morning. Thanks for taking the question. A couple of really good questions already asked. Just want to tie it towards the cash flow if we can.

I think back in 2012, you reduced your share counts by 9% and then the following year by 8% and following year by 7% and this year we're kind of 5.5 so what I'm wondering is where does that go and implicit is where does CapEx need to go to accommodate these that you've got on the docket?.

Yes, I think that's a good question. I think if you look at it over the last several years, we obviously had some benefits on working capital and you look at AP to inventory.

And as we've kind of headlined over the last several quarters, that we feel great about where we are from AP to inventory ratio well over a 100% and we think there is some moderate opportunities for us to continue to improve AP to inventory but we do not anticipate having the kind of increases in AP to inventory going forward that we experienced over the last several years, some of that attributed to helping us from a share repurchase perspective.

I think relative to capital investments in terms of distributions et cetera, as Bill mentioned, we may add two to three distribution centers of the next several years and we still have work to do to determine whether when we will do it, how many we will do it et cetera.

But also keep in mind that we would have added one or two distribution centers overtime anyway just to support our footprint across the United States, I mean you can clearly get out of map and see that we really don't have a lot of distribution capabilities necessarily in the North West relatively to the amount of stores we've opened over the last five years.

So some of that is inherent in our model overall. So we will give you a little bit more color on the inventory initiative over the next couple of quarters as we finish up the test and have the better plan.

I think from a share repurchase perspective, we think we are in a pretty good position right now and we will continue to seek opportunities to improve working capital but I think that's kind of gap existing over the last several years. .

Well without giving us a number can you tell us where you might have flex room inside of CapEx if you did decide to step it up on the DC side what things might be able to come out to accommodate it? Thank you. .

I am sure there are some things in there nothing significant to be excited at the moment. I mean one thing for sure that we want to make sure we're doing is looking down the road, so we're going to continue to make sure that we are making information system investments in order to support our growth long-term both domestically and internationally.

We are very diligent about according our pledge making sure that our stores look right and are going to continue to invest in our maintenance and training of our AutoZoners. So there will be opportunities for us to eat the CapEx a little but we will definitely have some costs relative to distribution centers..

Thank you. The next question is from Michael Lasser with UBS..

Hi this is Max on your Michael Lasser. Congrats on the quarter and thanks a lot for taking my question.

How far do you think your current inventory initiatives can take you in closing the commercial sales per program gap with your peers?.

I think it's too early for us to tell. As I mentioned our performance so far, with everything is performing well but there's a pretty wide band of how they are performing. I also think it's going to take time just because we are proving availability it's going to take time to further deepen those relationships with our commercial customers.

I think we are doing a lot of great things in our commercial business as I mentioned in the prepared remarks. We've grown commercial double digits for five straight quarters and I think that's pretty impressive and also we will continue to do this. .

Thanks a lot.

Also, just kind of as a follow-up, can you maybe dimension some of the cannibalization you're seeing from your younger programs at all?.

We can internally. We don't necessarily discuss it externally. I think the key is to focus on for this quarter is that we've obviously improved the productivity of our commercial programs on an average weekly sale basis which is along the way as we measure some 8,500 versus 8,300 last year.

We're seeing a high single digit growth out of our material programs, so we feel pretty good about the programs as they mature and we recognize the 30% of our overall programs three years old and younger.

And so there will continue to be some cannibalization on those more from just transferring mature customers around, but overall we feel pretty good about the growth rates that we’ve achieved on commercial and we feel pretty good about the trend rates that we’ve seen on commercial..

Thank you. The next question is from Seth Basham with Wedbush Securities. .

You guys had same-store sales accelerate 240 basis points from Q4 to Q1.

Could you try to break down the drivers of that acceleration between inventory availability whether industry growth, etc?.

One of the things we thought weather was probably worth around a point or so. I think from a GAAP perspective or lower fuel cost as Bill mentioned before, lot of that happen late in the quarter so I suspect that benefited some.

So those items and I think the progression you saw from comp store sales in really a result of lot of the initiatives that we put in place and we think back on inventory optimization the algorithms that we changed that inventory into the stores et cetera now that take itself for just about a little over a year now.

We feel pretty good about that and as mentioned before on many of these initiatives it’s going to take time for the customers to recognize the changes that we’ve made. So that inventory optimization is a great example of one where it took several months and now we believe that we’re starting to see some benefits they can drive results..

Got it and as you look forward obviously you don't provide guidance but from the outside in should we be thinking about consistent two year stack comps for the next couple quarters?.

Yes, that we don’t really look at it that way.

We’re kind of looking at how we’re doing right now this past quarter and what we have in front of us and as Bill mentioned before clearly next quarter has a high comp because we have some severe weather and that impacted a lot of failure related categories in lot of the northeast market, at the same time there are lot of maintenance categories that underperformed and there were market outside of the northeast that underperform.

So we’ll have to wait and see how it all shakes out but we think that there is opportunities from a category in region perspective and if gas prices stay down that can only be helpful..

Okay and then lastly on deflation, would you expect to see more deflation running through your business with oil prices down, impact on oil and chemicals specifically as well as products with steel input?.

Intellectually a little bit, we would expect to see some deflation that we haven’t seen it yet. So there is some little bit of deflation at oil, there are other categories that have experienced some inflation still on the whole.

We’ve seen relatively the nine inflation or deflation in total we have to wait and see how it shake out, right now we don’t really see a big change..

Thank you. The next question is from Matthew Fassler with Goldman Sachs..

Thanks a lot, good morning. I want to start out by focusing if we could on SG&A. Even when we isolate out the two discrete items that you called out healthcare and legal, the growth rate in SG&A looks to have picked up a bit and I guess just slightly from where you were earlier in the year.

How should we think about your expense comparison going forward and how much discretionary investments would you say is in bedded in the underlying SG&A number here in the November quarter?.

I think it’s a good question Matt I think that obviously we have the legal insurance to put IMC cost and there we didn’t call out, expose things our which probably get flat SG&A rate year-over-year but you had a 4.5 comp.

So you’d expect to have had some leverage on SG&A above that I would think it’s a way to think through that is we probably at a little bit from a discretionary perspective and that’s a much discretionary as these inventory initiatives although we haven’t quantify them.

There are a little bit headwind from an operating cost perspective and we would expect those to continue over the next couple of quarters as we continue access those out.

So there are some dollars there I’m not going to quantify exactly what the percentages are but I think we can run flattish for the quarter if willing back out some of those items and then probably had a little bit of investments on our initiatives. .

Just to follow that through a little bit you've had a track record over the past couple years of tightening your belts a bit when the business has been tough as was the case in your fiscal 13 and then investing a bit more in the business has been better so because you did that last year, your expense compare looks easy if you will just given you had the sizeable increase, so should we consider then perhaps to compare might be easy but the investments should persist into the middle of this year given the Supply Chain dynamics or Supply Chain investments remain very much under way?.

Exactly right..

And then a follow-up, just trying to work with some of the numbers you gave us to understand the intrinsic profit ability of IMC today and where it could be headed so presuming that it's about a 1.5% "business pro forma, you talked about a 30 basis point drag on gross margin and I believe you talked about the 10 basis point drag going forward in SG&A.

Should that spell out something like a mid-single digit operating margin for that business as we speak?.

I would say not as we speak I think we think of them in growth note and so they’ve got some immature businesses. We’re going to continue to invest in those businesses et cetera. And so we will need to improve the profitability of IMC and then more importantly we also need to overtime help our own commercial customers through IMC product. .

And I know it's a small business but given that it's sort of tough to get at a precise number would you say that business is in the black today just to get clear on that..

Now to be clear on that Matt just not to talk around it, it is in the slide 1..

Got it and the profit potential of that model overtime, as you think about intrinsic gross margins and term potential et cetera..

Yes obviously that’s probably close to what you’re thinking before versus probably a mid-single digit kind of a number. But the bigger opportunity would be the broader base..

Understood. Thank you so much..

Thank you. The next question is from Greg Melich with Evercore ISI..

Hi thanks. A couple follow-ups I think. One was on the sequential improvement in the comp trend.

How much of that was I heard traffic was still a little bit negative but how much of that sequential improvement was traffic versus ticket?.

I think it was both and I’ve talk about it earlier. The ticket for on the less from year it’s been really quick it’s being continuing to grow it’s been some due. And let trend changed back to the time normalize trends this quarter.

But traffic also improved as we’re looking and talking about the acceleration from Q4 I’d also remind as us all that, nobody was really happy with Q4 and remember this July was really poor and August was poor as well. So I wouldn’t necessarily the base line if you will..

Okay great and then just to understand a little bit more I think I heard in your comments that you had lower product acquisition costs. What's driving that and if you think about it going forward I think you mentioned inflation just isn't back at all.

Do you think there's actually deflation likely to come into next year?.

Yes I think our merchandizing organization pretend this to do a great job both and identifying new vendors for existing product where we can reduce our cost in direct import opportunities overseas, doing things directly or finding new vendors overseas as well.

So I think the merchandizing organization is done a great job from flowing our acquisition costs. Haven’t seen in total lot of deflation necessarily but we haven’t seen inflation either obviously.

Going forward right now our expectations is that there won’t be much deflation or inflation but clearly in some categories we expect we’ll be all to the deflation. I think overall be relatively flat..

And were most where you are now in terms of direct import as a percentage?.

It’s out of significant percentage certainly well below 20%..

Okay and Duralast, do you have a number for that?.

Our 10 granted products was value throughout the last year last 12 products see max are represent to serve a 50% of all of our sales..

Thank you. That’s all time we have for questions. I’d like to turn call over to Bill Rhodes for final comments..

Before we conclude the call, I’d just like to take a moment to reiterate that we have a long and strong heritage of consistent impressive performance. While we are excited about our growth prospects for the year. We will not take anything for granted as we understand our customers have choices.

We have a solid plan to succeed this fiscal year but I want to stress that this is a marathon and not a sprint. As we continue to focus on the basics and focus on optimizing long term shareholder value, we are confident AutoZone will continue to be very successful. We thank you for participating in today’s call.

And we like to wish everyone a very happy and healthy holiday season and a prosperous New Year. Thank you. .

Thank you. This does conclude today’s conference. Thank you for joining. You may disconnect at this time..