William Rhodes - Chairman, President and Chief Executive Officer William Giles - Chief Financial Officer and Executive Vice President, Finance, Information Technology and ALLDATA.

Seth Sigman - Credit Suisse Michael Lasser - UBS Matthew Fassler - Goldman Sachs Alan Rifkin - BTIG Simeon Gutman - Morgan Stanley Bret Jordan - Jefferies.

Good morning and welcome to the AutoZone Conference Call. Your lines have been placed on listen-only until the question-and-answer session of the conference. Please be advised today’s call is being recorded. If you have any objections, please disconnect at this time. This conference call will discuss AutoZone’s Fourth Quarter Financial Results.

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

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

These are based on assumptions and assessments made up by 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 cost of our suppliers, energy prices, war and the prospect of war including terrorist activity, construction delays, access to available and feasible financing, the compromising of the confidentiality, availability or integrity of information including cyber security attacks 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 the Annual Report on Form 10-K for the year-ended August 27, 2016, and these risk factors should be read carefully.

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

Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Actual results may materially differ from anticipated results..

May I introduce your speaker for today, Mr. Bill Rhodes. Please go ahead..

Yes! We’ve Got It. The key priorities for the year are great people providing great service, profitably growing our commercial business, leveraging the Internet, Yes! We’ve Got It and leveraging IT. On the retail front, this past quarter under the great people providing great service theme, we continued with our intense focus on improving execution.

We are focusing on enhanced training to store-level AutoZoners and increasing the share of voice regarding ability to say Yes! We’ve Got It.. We have been aggressive on our technology investments and believe these investments will help differentiate us on a go-forward basis.

We realize as customers have become much more tech and mobile savvy, we have to have a sales proposition that touches all the ways they desire to interact with us. Our current and future technology investments will lead to sales growth across all our businesses.

The focus is on making sure, AutoZoners can see inventory availability across the entire organization, not just their store, swiftly and accurately. Many question how susceptible our industry is to online encroachment, and how bigger the role that is playing in this current industry “soft spot”.

Clearly, every sector of retail has been and likely will continue to be impacted by this new rule. We have certainly studied the ramifications and continue to do so.

While some portions of our industry have migrated in small part to online, we believe that the trustworthy advice elements combined with the sense of immediacy insulates us much more than most sectors of retail and to-date that certainly has proven to be the case.

Our real focus is how we substantially enhance our omni-channel efforts to increase our competitive position with online and brick-and-mortar competitors. I think, we should also try to put some definition around our industry and specifically our sales performance in this soft spot.

There’s been tremendous dialogue around our and our industry sales performance in recent months. Clearly, our sales growth while positive has been lower than the last three years, but our sales performance historically runs in cycles. We had one quarter in fiscal 2017 with a negative same-store sales.

And the last time we had negative same-store sales for the year was 2005. Our same-store sales have averaged 1.9% over the last five years. This year, we ended the year with 0.5% growth, or 140 basis points below our recent average. In fiscal 2013, our same-store sales were flat. By the way that followed a very mild winter.

So, yes, we see our sales softer than normal, but still within a normal band and we have several contributors to the 140 basis point departure from average, two consecutive mild winters followed by a cooler summer, tax refund delays that never materialized in our sales, also the slower growth in our commercial sales, primarily due to lower new program growth has slowed the overall comp increases.

We believe these items have been the drivers of our sales soft spot and not a substantial online encroachment. In regards to commercial, we opened 99 net new programs during the quarter and 202 for the year.

Our expectation is, we will continue to open new programs in the range of 150 in 2018, as we continue to improve our product assortments and availability and as we make other refinements to our commercial offerings. We expect that the estimated sales potential from the market will grow.

As I’ve said on last quarter’s earnings call, we embarked on a new strategic planning exercise focused solely on how we can profitably accelerate our market share growth in this very important sector of our industry.

While while were quite pleased that we have been able to in essence triple our sales and more than triple our profitability in commercial in the last nine years, we know we have to continue to involve our model to accelerate commercial sales to the next level.

We are assessing how we can more effectively provide merchandise to our customers and reduce friction across all of our customer touch points. Commercial continues to be the most significant mid-term growth opportunity for the company, as we currently have approximately 3% market share and we are determined to substantially grow that over time.

We should also highlight another strong performance on return on invested capital as we were able to finish our fourth quarter at 29.9%. We continue to be pleased with this metric and this is one of the best in all of hardline’s retailing.

However, our primary focus has been and continues to be that we ensure every incremental dollar of capital that we deploy in this business provides an acceptable return well in excess of our 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 thank and reinforce how appreciative we are of our entire team’s efforts to continue to meet and exceed our customers’ wants, needs and desires. We are bullish on 2018’s sales potential, because we have a great business operated by exceptional AutoZoners.

Now, I’ll turn the call over to Bill..

Thanks, Bill, and good morning, everyone. To start this morning, let me take a few moments to talk more specifically about our retail, commercial and international results for the quarter.

For the quarter, total auto parts sales, which includes our domestic, retail and commercial businesses, our Mexico and Brazil stores, and our 26 IMC branches, increased 3.5%. For the trailing 52 weeks ended, total sales for AutoZone store were $1,756,000. For the quarter, total commercial sales increased to 5.9%.

Commercial represented 19% of our total sales and grew $37 million over last year’s fourth quarter. This past quarter, we opened 99 net new programs versus 116 programs opened in our fourth quarter of last fiscal year.

We now have our commercial program in 4,592 stores, or 84% of our domestic stores, supported by 186 hub stores; approximately 750 of our programs are three years old or younger. In 2018, we expect to open again approximately 150 new programs. As Bill mentioned just a moment ago, we remain focused on growing this business.

We are committed to having a great sales team, supplemented with stronger engagement of our store managers and district managers. We remain confident we will continue to gain market share with our commercial customers and we are encouraged by the initiatives that we have in place and feel we can further grow sales.

As previously mentioned, we’re in the midst of a strategic review as we are supplementing our talented team’s thoughts with those of a talented third-party, giving us the opportunity to look at our business through a new and more objective lens.

While our teams have done tremendous work and have developed tremendous insights and hypothesis, we haven’t determined where we go from here. And once we do determine our new strategies and tactics, they won’t be rolled to the chain, that’s not the Autozone way, we will put manageable test in place to determine if these are the right strategies.

And we are highly confident that they will have to be tweaked and some will work and others won’t. We expect to be testing and refining those tests for a year or so, and we will keep you informed as these progress. Our Mexico stores continue to perform well on a local currency basis. We opened 25 new stores during the fourth quarter.

At the end of the quarter, we have 524 stores in Mexico. We again expect to open approximately 40 new stores in fiscal 2018. As Bill had said in the past, Mexico’s business has been challenged throughout 2016 and 2017 by weakening peso foreign exchange rate relative to the U.S. dollar.

Fortunately, this quarter, the peso strengthened again and finished close to where it started the year. This fluctuation can have a more meaningful impact on earnings, as our store base continues to grow. The Mexico leadership team has done a terrific job managing the peso-denominated business.

Now regarding Brazil, we opened five new stores and currently are operating 14 stores. Our plans are to grow between 20 and 25 total stores over the next few years. While Brazil currently runs at an operating loss, we are encouraged by the sales per store being generated.

We expect Brazil will grow its store base and even surpass Mexico store count over time if we can prove the operating model produces sufficient returns. Gross margin for the quarter was 52.8% of sales, down just 2 basis points.

The slight decline in gross margin was attributable to higher supply chain costs, associated with current year inventory initiatives, partially offset by higher merchandise margins. While our supply chain and trick expense have been higher in support of our inventory availability initiatives, this past quarter showed tighter management of expenses.

We continue to feel we can manage these expense categories throughout fiscal 2018, and our primary focus remains growing absolute gross profit dollars in our total Auto Parts segment. SG&A for the quarter was 32.6% of sales, higher by 53 basis points from last year’s fourth quarter.

The increase in operating expenses as a percentage of sales are primarily due to deleveraging of occupancy cost and domestic store payroll, driven by a higher wage pressure. EBIT for the quarter was $708 million, a 0.6% over last year’s fourth quarter. Our EBIT margin was 20.1%.

Interest expense for the quarter was $51.4 million compared with $45.8 million in Q4 a year ago. As we completed the $600 million 10-year bond deal during the third quarter, we’re planning interest of $39 million in the first quarter of fiscal 2018 versus $33 million last – in last year’s Q1.

The higher expense is due to tenor and size of the bond issued this past April. Debt outstanding at the end of the quarter was $5.081 billion, or approximately $160 million more than last year’s balance of $4.924 billion.

Our adjusted debt level metric finished the quarter at 2.6 times EBITDAR, while on any given quarter, we may increase or decrease our leverage metric based on management’s opinion regarding debt and equity market conditions.

We remain committed to both our investment grade rating and our capital allocation strategy and share repurchases are an important element of that strategy. For the quarter, our tax rate was 33.9% versus last year’s Q4 of 35.1%.

I want to take a moment and remind listeners of our first quarter adoption of a new accounting standard, the new standard requires us to recognize the tax benefit received from the gains, from employees have on stock options exercised as a credit to income tax expense on the P&L. This past quarter, it lowered our tax rate 62 basis points.

This accounting change also increases the diluted share count calculation. Net income for the quarter was $433.9 million, up 1.7% over last year. Our diluted share count of $28.4 million was down 4.8% from last year’s fourth quarter.

The combination of these factors drove earnings per share for the quarter to $15.27, up 6.8% over the prior year’s fourth quarter. Excluding the impact of the previously mentioned change in accounting for stock option exercises, our EPS would have increased by 6.1% for the quarter.

Relating to the cash flow statement, for the fourth quarter, we generated $561 million of operating cash flow. Net fixed assets were up 8% versus last year.

Capital expenditures for the quarter totaled about $196 million and reflected the additional expenditures required to open 115 new locations this quarter, capital expenditures on existing stores, hubs and mega hub store remodels or openings, work on development of new stores for upcoming quarters, investments in our new domestic DCs and information technology investments.

With the new stores opened, we finished this past quarter with 5,465 stores in 50 states, the District of Columbia and Puerto Rico, 524 stores in Mexico, and 14 in Brazil for a total AutoZone store count of 6,003. We also had 26 IMC branches open at fiscal year-end, taking our total locations to 6,029.

Depreciation totaled $103.1 million for the quarter versus last year’s fourth quarter expense of $93.9 million. This is generally in line with recent quarter growth rates. We repurchased $227 million of AutoZone stock in the fourth quarter.

At quarter-end, we had $824 million remaining under our share buyback authorization, and our leverage metric was 2.6 times at quarter-end. Again, I want to stress, we manage to appropriate credit ratings and not any one metric. The metric we report is meant as a guide only, as each rating firm has its own criteria.

We continue to view our share repurchase program as an attractive capital deployment strategy. Next, I’d like to update you on our inventory levels in total and on a per-store basis. The company’s inventory increased 6.9% over the same period last year, driven primarily by new store openings.

Inventory per location was $644,000 versus $625,000 last year, and $653,000 last quarter. Net inventory, defined as merchandise inventories less accounts payable on a per location basis was a negative $48,000 versus a negative $80,000 last year, and a negative $47,000 last quarter.

As a result, our accounts payable as a percent of gross inventory finished the quarter at 107.4%. Finally, as Bill previously mentioned, our continued disciplined capital management approach resulted in return on invested capital for the trailing four quarters of 29.9%.

We have and will continue to make investments that we believe will generate returns that significantly exceed our cost of capital. Now, I’ll turn it back to Bill Rhodes..

Thank you, Bill. Before I conclude, I want to take this opportunity to reflect on fiscal 2017. The year was clearly more challenging than recent years, but our team continued to deliver some very impressive accomplishments and milestones.

In recognition of the dedication, passion, innovation and commitment of our AutoZoners, I want to highlight that our sales grew to a record $10.9 billion this year, and we grew same-store sales at 0.5%. We opened our 6,000 store and had the incredible honor to do so in our hometown of Memphis, Tennessee.

In May, we opened our 500 store in Mexico, a tremendous accomplishment by that talented team. We restarted our store development work, as we enter the next phase of testing in Brazil and we expanded to 14 stores in and around Sao Paulo.

Our supply chain is undergoing tremendous expansion with the opening of our second distribution center in Mexico and the opening of our ninth domestic D.C. in the U.S. and Pasco, Washington. Additionally, our 10th domestic D.C. is currently being built, and we are significantly expanding one of our older DCs.

We continue to expand our highly successful mega hub strategy opening five new mega hubs this year, ending the year with 16. and our AutoZone.com online efforts continue to gain significant traction, most importantly our customers are visiting our website at increasingly accelerated rates and using that research to inform their in-store visits.

Unfortunately 2017 marked the year we broke out 10-year double-digit quarterly EPS earnings stream. And while that was disappointing, it is equally important to recognize the incredible accomplishment the Street represented.

We’ve done deep analyses to understand the key drivers of our profitability change, while some of them were sales related, the larger impact came from increasing costs. We made decisions to increase our investment profile and some of those investments haven’t yet borne fruit, specifically the multiple frequency of deliveries.

At the same time, we had a disproportionate amount of changes that were working against us, increased wages and shrink, interest expense and the like. Our focus is to deeply understand the key drivers of our business and manage those factors that we control.

Over time macro factors will work for you and against you and fiscal 2017 was one of those times that they worked disproportionately against us.

While we will continue to challenge ourselves, our decisions, processes and strategies, we will always invest to reinforce our guiding principles, leveraging our methodologies of evolution, over revolution and superior execution with consistent strategy is a formula for success.

After so many years of unprecedented performance, I’m proud of our team for their steadfast commitment to our culture, strategy and approach and from their passion to deliver a materially better 2018.

We have an exceptional team that executes extremely well, our focus remains on being successful over the long run that success will be attributable to our approach to leveraging our unique and powerful culture and focusing on the needs of our customers. To execute at level, we have to consistently adhere to living the pledge.

We cannot and will not take our eye off execution. We must stay committed to executing day in and day out on our game plan. Success will be achieved with an attention to detail and exceptional execution. Our customers have choices and we must exceed their expectations in whatever way they choose to shop with us.

We are fortunate to operate in one of the strongest retail segments and we continue to be excited about our industry’s growth prospects for 2018 and beyond. As consumers continually look to save money while taking care of their cars, we are committed to providing the trustworthy advice that they need and expect.

It truly is the value-add that differentiates us from any faceless transaction. Customers have some to expect that advice from us. It is with this focus we will implement more enhancements on both our DIY and commercial websites and in-store experience to provide even more knowledgeable service.

We don’t ever expect an online experience to replace the advice our customers want, but today’s customers do expect more information on repairing their vehicles. This aspect of service has always been our most important cultural cornerstone and it will be long into the future.

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 and ROIC each of every quarter is how we measure ourselves.

This formula has been extremely successful over the last 38 years and we continue to be excited about our future. Now I would like to open up the call for questions..

Thank you. [Operator Instruction] Our first question is coming from Seth Sigman of Credit Suisse. Your line is open..

Good morning.

My question is around the commercial strategy, I know you are in the midst of the strategic review right now, but what do you think is the biggest driver of the gap today versus your competitors, is it availability? Is it service? Is it brands? Or is it really just awareness and developing those relationships? And then the second part of the question is, I guess I’m just wondering what are some of the potential outcomes of the review and could it actually mean an acceleration in investments? Thank you..

Yes, thank you Seth for the question. Unfortunately, I think it’s too early, it’s premature for us to get into those specific details.

We are looking at all those individual factors that you talked about whether it’s availability and enhancing our service model, how do we work with them digitally and on and on and on, there is a lot of different – we’re are looking at leaving no stones unturned, but at this point in time, it’s premature for us to really talk about where we see those improvement opportunities.

And as Bill Giles mentioned in our remarks, it’s also once we decide what we’re are going to do, we are going to have to go test it and put it in market and see what works and tweak things along that way, so I think it’s going to be a year or so before we really have a solid game plan.

We say here’s what we’re going to go do and what the cost of it will be. Will it have an increased investment? Potentially certainly, but I think it’s too, too early for us to even put any kind of guard rails around that..

And you did see an improvement in the commercial business this quarter relative to past quarters even while reducing your frequency and I think you also mentioned that you think your market share gains are accelerating, so can you just help us better understand what you think is driving that, where that market share maybe coming from and is it retail and commercial, or is it really just commercial? Thanks..

Boy, you have a lot of different things in that question, let me try to jump in. First of all, we grew our commercial business at 5.9% that is clearly substantially over what the market is growing, so that makes us happy. 5.9% also is not at our aspirations for how rapidly we want to grow this business.

We have a 3% market share and we would like to grow at significantly more than 5.9%, which is why we are in the midst of this strategic review.

You also mentioned something about the fact we grew – well, this quarter over last quarter, one of the reasons and I mentioned it in the prepared remarks was Q3 had a big dividend for the tax refunds that we thought we would get in Q3 that never materialized, so I think it was more of the anomaly than Q4 at 5.9%.

You did mention that you felt like multiple frequency of delivery would be a headwind for us going to commercial business and that was something that a lot of people were concerned about after our last call and I look to addresses that for a second. Multiple frequency of delivery is replenishing the merchandise it in the stores today.

One of the reasons why it has not been a successful as we had hoped is because particularly in the commercial business, our commercial drivers, they don’t have that part available in this store, they run to the store closest to them and still service that demand.

I don’t think that slowing down our multiple frequency of delivery has been a meaningful headwind to our commercial business growth. Now, that said, we’re still trying to refine it, so that we can find a way for multiple frequency of delivery to be a contributor to both DIY and commercial growth at accelerated rates..

I think you hit it all, thanks so much..

Thank you..

Thank you. Our next question is coming from Michael Lasser of UBS. Your line is open.

Good morning, thanks a lot for taking my question.

Bill you talked about cost going up, the pressure that you are feeling from investments and the focus you still have on generating earnings growth, do you think based on all of those factors that you are going to resume a double-digit EPS growth any time soon, even if your comps recurrent to normal?.

Yes, I think a couple of things there, one of which is that, think about the model being broken down into two ways; one, EBIT growth and then share repurchase. We still have very strong cash flow generation and are able to generate EPS growth through share repurchase.

On the other side of the equation, and you are right, we have made some investments and we have some cost headwinds in the immediate term, but on a long-term basis, we’ll anniversary a lot of those which is held in our investments and we’ll get a more normalized growth rate in cost and as we resume to more normalized growth rate in comp store sales, our expectation is is that our EPS growth rate would certainly increase over where it is today.

Now whether or not it gets to a double-digit number we’ll wait and see, we won’t going to need support both from the commercial side of the business as well as just a good expense management and I think we can achieve both of those things over time.

In the meantime we’re making some nice investments and we’re testing out the markets in order to continue to gain market share on both sides of the business, retail and commercial. So it remains an incredibly healthy industry with an incredibly healthy model and our expectation is it will continue to improve our earnings growth rate..

Understood, and my follow-up question is, there is not a lack of auto part stores in the U.S.

between you and your competitors is, well into the double-digit thousands, you are opening another 150 this year, at point is the market just saturated with too many auto parts stores and you need to consider reducing, substantially reducing your throughput of growth? Thank you..

Yes, thank you for that. We’re opening new stores in markets that don’t have the same competitive landscape as some of our more core markets.

But if you look at many of the core markets, let’s take Atlanta for example, it seems that the big four, AutoZone, O’Reilly, Advance and NAPA, all have a tremendous amount of stores in that marketplace and we all seem to do just fine.

Though our return characteristics are we’re not going to open a store unless it does a 15% IRR or a 12% IRR in certain strategic markets and we continue to be able to find those stores, so that the cash flow characteristics of this business are tremendous and we’re still able to open stores that far exceed those hurdle rates.

Operator, we can take the next call please..

Thank you. Our next question is coming from Matthew Fassler of Goldman Sachs. Your like is open..

Thanks a lot, good morning guys, how are you?.

Good, you Matt?.

Good. My first question relates SG&A. So, you did have a bigger – a higher year-on-year growth rate than you’d have over the first nine months of the year by about 250 basis points. At the same time, your growth rate, your SG&A growth rate in the fourth quarter was relatively subdued, so on a two-year basis there wasn’t as much of a delta.

As we think about the rate of SG&A growth and I guess, within the two year stacks and the SG&A growth is quite modest, was quite modest in the first nine months of this year, the first two quarters of this year, is the dollar growth rate that we saw in Q4 look like it’s sufficient to do what you need to do for the business given that how low the SG&A growth was, particularly in the middle of the year when your shelves were quite soft?.

Yes, I would say that the Q4 is probably a reasonably good target number for us as you kind of think about it going forward.

And so just to jump to chase, occupancy was a little bit higher this quarter, some rent pressure is there on some of the new markets that we’ve gotten into and some of the investments that we’ve made in technology which typically have a shorter depreciation life have driven depreciation cost, but I think that the Q4 is probably a good metric to look out..

And then my second question Bill Giles, I assume mostly likely for you.

So, it looks like definitely you disclosed on the buyback what we saw on the share count there are two kinds running on, one is that you must have bought back most of your stock quite early in the quarter to get that $622 mark? And secondly, even though the buyback was a bit smaller than we had modeled, the share count was lower presumably despite some of the stock price wasn’t treasuring that, so can you just give us clarity on both of those items for the buyback?.

And one of the thing to think about too, by the relative to buyback overall for the year is that, man, I think we came in around $1.070 billion or so for total share repurchases this year, but keep in mind also we’re kind of measuring or we’re kind of metric-ing back to that 2.5 times credit metrics for EBITDAR and we wind up at 2.57 or so, so we’re a little bit ahead of what our typical target is, which is also to maintain investment grade rating which we believe is the right place for us to be, so there’s no change in the capital allocation strategy.

We may have bought back the stock a little bit earlier in the quarter overall, but more importantly from the capital allocation strategy, we’re maintaining that 2.5 times EBITDAR credit metric, maintaining investment grade rating and we’ll continue to deploy capital methods..

And did the treasury method kind of knock the share count down a little bit, in terms of options, valuations, and such? Was that part of the calculus for the share count being as subdued as it was?.

Yes, maybe just a little bit relative to the share – to the option accounting, this is – definitely has a little bit of an impact on that..

Understood. Thank you so much..

Thanks Matt..

Thank you. Our next question is coming from Alan Rifkin of BTIG. Your line is now open..

Thank you very much. First question is for Bill Rhodes.

Bill you spoke about the expense headwinds and in particular higher wages, do you think that that’s more just a 2017 phenomena or do you believe that that may continue going forward? And if so, would you contemplate maybe raising prices or is there inflation out there solely predicated on commodity prices and not other factors?.

Yes, it’s a great question, Alan. First of all, I think, there’s two different elements of it that have happened. First of all, there were a series of retailers that moved wages up in 2015 and 2016, and the effects of those wage increases by large retailers have had a trickle down effect to the rest of the market.

That you would think would presumably be getting over in the next year, 18 months, as the market adjust to those rates. The second element of it is the regulatory. And this is the smaller piece today, but it’s going to get bigger and bigger over the next three or four years.

There are municipalities like Los Angeles County that went to $12 minimum wage on July 1. The State of California is going to go to $12 minimum wage on January 1, and all these are going to be marching towards $15 an hour average wage, that will cause pressure on wages for an extended period of time.

Will that reflect an increased retail prices? Well, at the end of the day, inflation gets into businesses. And this industry has shown over time that as inflation comes in, we are able to pass along many of those costs, if not all of them to the consumer in increased prices. So that’s the way we’re thinking about it today.

But it really is unprecedented in my career to see the wages go up to the extent that they have this year. So my sense is, they will continue to be up for a year or so and then it will be muted from where it is today, but still at elevated levels..

Thank you. And then just a follow-up if I may. So, obviously, fiscal 2017 was a tough year.

If that persists longer than what you anticipate, would you contemplate even slowing down your investment profile, or do you think that it’s prudent in this environment to continue with building the mega hubs and the MSP program?.

Yes, I think unrelated to our performance, our investment profile will slow down just a little bit, because we opened a new distribution center in Mexico, a new one in Pasco, Washington and we’re in the process of building one in Ocala, Florida and expanding one in Danville, Illinois. That’s kind of one-time effort.

So that much of that CapEx is rolling in over a two to three-year fiscal cycle, and that will go back to normal. Based upon, I love the fact that, 2017 was a really tough year. We grew earnings per share by 6%. Now we would not change our investment profile based upon these kind of results.

We believe in the long-term of this business, as I try to articulate earlier, this is not an unusual cycle for our industry to go through. We saw it back in 2013. We saw it in 2004 and 2005. We saw it in 1998 and 1999. So these things happen. And over the long term, this business is really, really strong and we expect it to continue to be so..

Thank you, Bill..

Thank you, Alan. I appreciate it..

Thank you. Our next question is coming from Simeon Gutman of Morgan Stanley. Your line is still open..

Thanks. Good morning. My first question is clarification or a follow-up to some of the questions that have been asked.

Maybe for Bill Giles, if for 2018 the comps return back to, let’s say, 2.5% to 3%, just trying to ascertain the expense run rate and maybe margin for next year, will the EBIT growth look more normal on that basis, or there is still some elevated spending in the year? And as part of that question, if comps are 2.5% or so 3%, do – does that entice you to speed up some investments, such that you don’t see the full flow through anyway?.

I don’t know if it would speed up the investments. Obviously, we’re going to make the investments on the places for which we believe that we’re getting the adequate returns on.

And as Bill articulated earlier on MFD as an example, we haven’t seen the full results of that, so we pulled back on that a little bit and you saw that show up on some of the margin.

So I think that, if same-store sales were to get to 2.5% or 3%, that obviously would improve our EBIT performance, there’s no question about that and we’ll manage expenses accordingly.

And we’ll make sure that we continue to provide great customer service along the way and we’ll make the investments where we believe that we’re getting good adequate returns on them and make adjustments along the way.

If we find opportunities where we’re getting real benefits and it makes economic sense for us to accelerate investments, we’ll do that. At the same time, we’ve demonstrated that where it doesn’t make sense, we’ll pull back on those investments.

So if we’re getting hypothetical about the next year, but with the model still intact and it remains a relatively healthy industry and we feel good about our position out in 2018..

Okay. And then my follow-up for Bill Rhodes guarding the industry’s top line, I don’t know if what is sort of normal for this industry, whether it’s two to three or three to four.

So – but I’m curious if the way you look at the last year is, if we’re sort of on a glide path down to some new normal that maybe less than that three to four, or if the slowdown is cyclical and we should get back to the old normal run rate?.

Yes, I mentioned in our prepared remarks that our last five-year average same-store sales have been 1.9%. So, from – and obviously, same-store sales is different than industry growth rates, because you’ve got new stores that are driving the industry growth rates. That seems to be what we’ve experienced as normal over the last five years.

But with – in that number, we also had accelerated growth from commercial. We were growing during that period of time commercial in the low teens. We don’t believe we’re going to be running the low teens in the foreseeable future. And so, I think, we’ll be challenged even to get back to that 1.9%, but I think, we’ll get close to it..

Okay. Thank you..

Thank you. Our next question is coming from Bret Jordan of Jefferies. Your line is now open..

Good morning, guys..

Good morning..

Good morning..

A question on the quarter, I mean, I obviously heard a lot of negative feedback in the channel about temperature-related product sales in our air conditioning.

Could you give us some color as to maybe what that AC and recharge product line would mean in your fourth quarter, and maybe how negative that category comp was year-over-year?.

I don’t want to get into that specific numbers, but that if you put all the AC-related, so radiators, the whole cooling system combined with the air conditioning system, combined of AC, chemicals, it’s a pretty significant part of our business, particularly in the summertime.

In the – it’s in the double digits for sure, and it had a very tough period during this summer. We believe that – those things happen over time. We had a cooler summer, particularly June was really cool and that will normalize over time and it will come back. But we’ve dealt with more weather impacts really this year and I hate to talk about them.

But we can see them categorically in our business so easily. We’ve seen the lack of winter weather coming through the maintenance cycle on brakes and chassis and the like, and then this summer with the cooler winter we saw it in those three businesses..

Okay, thanks. And then on the online question, you were talking about sequential improvement in the online traffic, at least, with it driving a fair amount of pickup in store volume.

Could you give us a feeling for how much pickup in store volume you’re actually seeing there, because obviously you’re not getting booked into the other category? And then within AutoAnything, is that performance improving as well, or is it lagging AutoZone.com?.

Yes, I would say, it’s on the pickup in store business. That that remains – it’s a very small portion of our overall business, as you would imagine. But it is by far the fastest growing channel of distribution that we have and it has accelerated. And so we think we’re doing a great job on that side of it.

On the AutoAnything, it’s had a little bit more of a challenging year. We’ve made some management changes there and we are seeing trends improve there. So we see business getting a little bit better at AutoAnything..

Okay.

And you’re not discounting the online transaction with the pickup in store, right, that’s happening at the store price not the ship-to-home discount?.

That is correct..

Okay, thank you..

Thank you. All right. Before we conclude the call, I’d like to take a moment to reiterate that our business model continues to be solid. We’re excited about our growth prospects for the year. We will not take anything for granted as we understand our customers have alternatives.

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 that concludes today’s conference. Thank you for your participation. You may now disconnect..