The operator welcomes participants to AutoZone's earnings release conference call and announces that the following statements contain forward-looking information. These statements use certain words and are based on management's assumptions and assessments.

The paragraph discusses the potential risks and uncertainties that could impact the company's future performance, including factors such as product demand, competition, economic conditions, and potential business interruptions. These risks are further detailed in the company's annual report and could have a significant impact on the company's operations.

The CEO of AutoZone, Bill Rhodes, thanks the company's employees for their contributions to the solid performance in the first quarter of 2024. He also notes that the company's sales and profits have continued to grow at impressive rates, with a 50% increase in sales over the past four years. Rhodes emphasizes the company's focus on customer satisfaction and mentions that the press release and earnings conference call slides are available on the company's website.

AutoZone had a successful first quarter with 3.4% same-store sales growth and 10.9% growth in international sales. They plan to continue expanding internationally with at least 200 new stores by 2028. Domestic same-store sales were up 1.2%, with DIY sales being slightly lower in the middle four weeks. Commercial sales grew 5.7% and new initiatives are in place to further accelerate growth.

The company analyzed their DIY and DIFM results and found that their retail business was impacted by a sales slowdown in the Northeast and Midwest due to lack of winter weather. However, they are encouraged by dollar and unit share gains in their domestic retail and commercial businesses and improvements in productivity and technology. Phil Daniele will provide more details on the quarter's performance.

The speaker reiterates that the organization has made many changes, including improving processes and hiring the right employees. They are pleased with the growth of their domestic commercial business and have set a record for sales. This growth is attributed to various initiatives, such as improving inventory availability and adding new hubs. The company is also operating more efficiently and has opened 121 new commercial programs in the first quarter. The speaker also mentions that they now have commercial programs in 92% of their domestic stores, a significant improvement from the past.

The company expects its commercial business to improve as the year progresses due to easier comps and improved execution. In the domestic DIY sector, they had flat comps, but continue to gain market share. The mild weather affected sales in weather-sensitive categories, particularly in the Midwest and Northeast. Retail comps were flat for the quarter, with improved performance in the last four weeks. Ticket growth is expected to return to more normalized levels. In the commercial sector, traffic growth is higher than ticket growth. There were some regional differences in performance, with the Northeast and Midwest underperforming compared to the rest of the country.

The company experienced lower sales in weather-sensitive hard parts in the Northeast and Midwest due to a mild winter, but expects a more normal weather pattern in the second quarter. Sales floor categories underperformed hard parts due to consumer discretionary pullback. Inflation and pricing have remained relatively stable, with a low-single-digit increase in ticket prices. The company expects DIY sales to remain difficult but commercial sales to improve in the second quarter. The company will continue to be transparent about market trends and will focus on key business priorities in the new fiscal year.

The company is focused on improving availability through expanded hub and mega hub rollouts and transforming their distribution network. They also plan to continue growing internationally, with impressive performance in Mexico and Brazil. In the first quarter, total sales increased by 5.1%, with domestic DIFM sales up 5.7% and representing 26% of total company sales. The company's efforts have led to solid results and earnings growth.

The company's average weekly sales per program decreased due to the opening of new, immature programs. However, they are confident in the growth potential of these programs and have intentionally opened more stores with commercial programs. They have a commercial program in 92% of their domestic stores and are focused on winning new business and increasing their share of wallet with existing customers. The company has 100 mega hub locations, which have higher sales and contribute significantly to their overall commercial business. The expansion of coverage and parts availability has also led to an increase in sales for both their commercial and DIY business.

AutoZone's assets are performing well and the opening of mega hubs is giving customers access to more parts. The company plans to open over 200 mega hubs in the future. The domestic retail business had flat sales, with declining transaction counts but offset by ticket growth. The company expects the DIY business to remain resilient due to a growing and aging car market. The international business saw strong growth and the company plans to continue expanding internationally.

The company's gross margin for the quarter increased significantly due to a noncash LIFO credit and a strong improvement in gross margin. They expect to continue experiencing LIFO credits and will eventually rebuild an unrecorded LIFO reserve. Operating expenses were up, but the company is committed to managing them in line with sales growth. EBIT and interest expense also increased due to positive same-store sales growth and increased debt. The company projects higher interest expense for the next quarter.

In the first quarter, the company saw an increase in debt levels and borrowing rates, resulting in a higher tax rate of 21.6%. Net income was $593 million, up 10% from last year, and earnings per share were $32.55, up 18.6%. The company generated $600 million in free cash flow and plans to continue returning cash to shareholders. The liquidity position and leverage ratio remain strong, and inventory and accounts payable have increased due to new store growth. The company also repurchased $1.5 billion of stock and has $300 million remaining under their share buyback authorization.

The company has had a successful year with strong earnings and a powerful balance sheet, allowing them to buy back shares and invest in their assets. They are committed to a disciplined approach to capital allocation and aim to drive long-term shareholder value. The company's national sales meeting in September launched their operating theme for the new fiscal year, "Live the Pledge," which emphasizes their commitment to their culture of helping customers and optimizing vehicle performance. The energy at the event was high and the company's culture is a key differentiator.

The company's success is based on a team-based approach, exceptional performance, and caring for customers and employees. Their focus for the next year is on enhancing execution and growing their domestic commercial business. The company is also investing in new distribution centers and international store growth. The current CEO will become Executive Chair and the President will become the new CEO next month.

The speaker is optimistic about the future of the company and thanks the previous leaders for their contributions. They also discuss the potential for growth in international markets and the progress being made in improving margins.

In Mexico, the company has been successful in improving their merchandising and cost structure, resulting in a strong gross margin. They anticipate similar advantages in Brazil as the business matures. However, they are currently in an investment phase in Brazil and are experiencing operating losses due to the high number of new stores in new markets. In the U.S., the company has seen good performance from both national account and independent channels in their Do-It-For-Me business.

The national accounts, specifically in the tire industry, have been a challenge for the company due to slower tire removal rates. This may be due to weather conditions affecting the condition of the tires. During a recent earnings call, the company expressed slight disappointment with their commercial growth but still believes that double-digit growth is achievable in the long term, especially with low market share in the commercial sector. They also expect to see continued growth in the DIFM space as newer stores mature and execution improves. The company is currently benefiting from lower costs and stable retail prices, but it is uncertain how long this will last.

Jamere Jackson, the Chief Financial Officer of AutoZone, discusses the company's progress in gross margins and the factors contributing to it. He mentions the impact of cost and pricing opportunities, as well as improvements in the supply chain. He also addresses the possibility of making pricing investments in the future and the company's current competitive position in the market. A question is then asked about the level of competition from other retailers, specifically in comparison to the past few quarters and pre-pandemic.

Phil Daniele discusses the stability of the DIY competition and the lack of changes in strategies among close-in competitors. He also mentions that WD struggled with in-stock levels during the pandemic but has since improved. The average delivery times for the megas can vary greatly depending on proximity, but the overall average is around 30 minutes.

The speaker discusses the importance of improving delivery times for customer service and addresses a question about the current state of the consumer market. They mention that the company has historically performed well during tough economic times and there may be evidence of consumers trading down to lower-priced products in both the retail and commercial sectors.

The speaker encourages focusing on weather patterns in the second quarter rather than minor fluctuations in consumer sentiment. They explain that weather, particularly in the Rust Belt, can greatly impact business performance. Last year, there was a record warm winter, making for a weaker start and stronger finish to the second quarter. The speaker acknowledges that predicting weather is difficult, but they are focused on the long-term success of the business.

The speaker discusses the recent acceleration of new programs in the commercial sector and explains that the decision was driven by improved per store productivity and the opening of previously non-commercial stores. This trend has been ongoing for 5-7 years and the company believes they have opened the majority of these stores.

The speaker believes that there will be some previously opened stores that did not have commercial programs, but they will eventually become as productive as the stores that have been open for a long time. They are investing in SG&A, particularly in store payroll and IT, to drive growth in their commercial program. These investments will improve delivery times and customer service.

The speaker, Phil Daniele, discusses the company's pricing strategy and states that they are satisfied with it. He also mentions that they will continue to monitor pricing but do not anticipate any major changes. The next speaker, Zach Fadem, asks about the company's performance in both the commercial and DIY sectors. The company's CEO, Bill Rhodes, responds by saying that they are pleased with their retail business, but not with their commercial business. He explains that their retail volumes have remained strong, but their commercial business is not meeting their goals. However, he notes that the current quarter's comp of 5.7% is against a 15% comp from last year, so they are not disappointed or discouraged.

The company expects the second quarter to have similar performance as the first quarter, with a 1-2% increase. They plan to focus on improving the commercial side of the business in the second half of the year. The gross margin increased by 280 basis points, with 208 basis points attributed to LIFO. The company expects LIFO to have a 5-10 basis points impact in the future. The company typically sees a 30-35 basis points improvement in gross margin from merchandising, and plans to continue this trend.

The speaker discusses the company's progress in improving their supply chain, which has been under pressure for the past couple of years. They do not expect the improvement to be as significant every quarter, but steady progress is being made. In regards to gross margin, the speaker mentions that the current input cost environment is unique and could potentially benefit the company's gross margin. However, they do not plan to reinvest in pricing, as the industry has been behaving rationally. If necessary, they will invest in gross margin to drive demand and market share growth.

The speaker discusses the current rational business environment and the opportunity for gross margin improvements. They also mention the possibility of a slower progress in the commercial business due to DIY softness, but note that they have a good understanding of the retail business. The expected maturity curve for a new commercial program is discussed, with no significant difference between new stores and those that have been open for some time.

The maturity curves of new stores ramp up quickly in the first few years and then continue to grow consistently as the company improves execution and gains market share. The company also benefits from servicing customers from other stores in close proximity. The private label brand, Duralast, has seen increased penetration due to investments in parts quality and the current trend towards price sensitivity.

The speaker discusses the company's investment in product quality and brand perception, which has been ongoing for decades. They prioritize coverage over choice in their family of brands, with a few exceptions in key categories. They expect the DIY business to remain resilient and potentially improve, despite a slight decline in transactions and low- to mid-single-digit ticket growth. This is due to advancements in technology in vehicle components, leading to less frequent failures.

The speaker discusses the impact of inflation on transactions and ticket prices in the DIY business during the pandemic. They mention efforts to improve the DIY business and predict that it will continue to grow at a rate of 3-4%, while the commercial business will grow slightly faster. The speaker also notes that the last question was likely directed to Bill Rhodes.

The speaker concludes the call by expressing confidence in the industry and their business model. They acknowledge the competition and emphasize the importance of long-term success. They also thank participants and wish them a happy holiday season before ending the call.

This summary was generated with AI and may contain some inaccuracies.