The operator welcomes participants to AutoZone's 2024 Q2 Earnings Release Conference Call and announces that the call is being recorded. A representative from the company reminds listeners of forward-looking statements and references important risks and uncertainties. The call will also include certain non-GAAP measures. Phil Daniele, the President and CEO of AutoZone, introduces the other speakers and encourages listeners to read the press release and view the accompanying slides on the company's website. He also expresses his honor to speak on behalf of the company's employees.

AutoZone's top priority is providing exceptional customer service, which has resulted in a 4.6% increase in total sales and a 1.5% increase in same-store sales on a constant currency basis. The company's operating profit and earnings per share also saw double-digit growth. The second quarter is typically difficult to predict due to winter weather, and this year was no exception. However, extreme weather conditions can also drive sales in the DIY sector. International sales have become a significant part of the company's growth, with a 10.6% increase in same-store sales on a constant currency basis. AutoZone plans to continue expanding internationally in the coming years.

The domestic same-store sales for the company were up 0.3% this quarter, but this was lower than the previous quarter and the same quarter last year. The sales were impacted by the holiday shift and weather volatility, with a negative 1.8% comp in the first eight weeks and a positive 4.4% comp in the last four weeks. The commercial business grew 2.7% but was below expectations due to winter storms. However, the company finished the quarter stronger and credits this to key initiatives such as improved inventory availability and customer service. They also opened 20 new commercial programs and now have programs in 92% of their domestic stores.

In the second quarter, domestic commercial sales accounted for 30% of the company's auto part sales. The company expects commercial sales to continue to improve in the second half of the year. DIY sales were down 0.3% compared to the same quarter last year, but showed improvement in the last four weeks due to winter weather. The Northeast and Midwest regions underperformed in the middle four-week segment but saw a significant swing in the last four weeks. The West performed least favorably for the quarter. The company expects a more normal weather pattern in the third quarter and a similar tax refund season as last year. Sales in discretionary categories were lower compared to hard parts.

In this paragraph, the speaker discusses the recent performance of the company's DIY traffic and ticket growth. They note a decrease in DIY traffic and an increase in ticket average, but expect ticket growth to return to normal levels. The company attributes their share gains to improvements in customer service and availability of products. The speaker also mentions the impressive performance of the company's international business and their focus on growing their domestic commercial business and improving their supply chain. They highlight two initiatives, the expansion of hub and mega hub stores and the transformation of their distribution network, and mention the construction of new distribution centers.

In the second quarter, the company saw solid growth in sales and earnings, with double-digit EPS growth for the fifth consecutive quarter. They are focusing on leveraging their network to improve inventory, speed, and efficiency. The domestic DIFM sales increased 2.7% and represented 25% of total company sales. The average weekly sales per program were impacted by the addition of immature programs and the year-over-year comparisons are expected to be easier in the second half of the fiscal year.

AutoZone's commercial program is now in 92% of their domestic stores and they have opened 20 new programs this quarter. They are focused on growing their share in the commercial market and have 101 Mega Hub locations to support this growth. These Mega Hubs have higher sales and serve as an expanded fulfillment source for other stores. The company plans to aggressively open more Mega Hubs and expects to have over 200 in the future. On the retail side, their comp was negative 0.3% due to a decline in traffic, but they expect to see ticket growth in the low to mid-single digits in line with historical trends.

In the second quarter, the company saw a decline in DIY discretionary purchases, but remains optimistic about the future due to a growing and aging car park, a challenging new and used car sales market, and a consumer focus on investing in existing vehicles. The international business also showed strong growth, with same-store sales increasing by 23.9%. Gross margins also saw a significant improvement, driven by a strong performance in the core business and a non-cash LIFO credit. The company expects this trend to continue in the third quarter, with a projected $15 million LIFO credit.

In the second quarter, the company saw a 6.1% increase in operating expenses and a 10.9% increase in EBIT, driven by positive same-store sales and gross margin improvements. Interest expense also increased due to higher debt levels and borrowing rates. The tax rate was lower compared to the previous year, resulting in a net income of $515 million and earnings per share of $28.89. The company plans to manage expenses in line with sales growth and expects a tax rate of 23.4% for the third quarter. The diluted share count was lower than the previous year, leading to an increase in earnings per share. The company also saw positive free cash flow in the second quarter.

In the second quarter, the company generated $179 million in free cash flow, with higher CapEx spending and expectations to spend $1.1 billion for the fiscal year. The company's liquidity position and leverage ratio remain strong, with inventory and accounts payable figures in line with expectations. The company also continues to prioritize returning cash to shareholders through share repurchases, while maintaining a disciplined approach to capital allocation. Overall, the company remains committed to driving long-term shareholder value through growth initiatives, earnings, and cash flow.

The company is focused on growing its market share, improving margins, and strengthening its competitive position. They are confident in their strategy and have a strong team in place. The CEO is proud to lead the company and they have many initiatives in progress, including expanding their store base and investing in technology. Their international business is performing well and they are also focused on enhancing execution and completing strategic projects.

AutoZone's biggest opportunity for growth in FY 2024 is in their domestic commercial business. While Q2 results were below expectations, the company has a solid plan in place for growth for the rest of the year. The focus on parts availability and customer service will lead to additional sales growth. The company is confident in their ability to deliver results and is open to questions from investors. The market for national accounts is growing, but the under car segment has been more challenged. This includes categories like brakes and suspension. Despite these challenges, there are still growth opportunities in the commercial business.

The speaker discusses the company's low market share and the potential for growth in both existing and new customers. They also mention challenges in the national accounts and Buy here, Pay here segments. They expect tax refunds to be normal this year, with a slight delay in the start of the quarter, but overall similar to last year.

The speaker is discussing the competitive landscape of WDs (wholesale distributors) and how they have improved since the pandemic. They mention that the supply chain constraints have mostly resolved and stocks are not yet back to pre-pandemic levels. They also mention that some WDs have acquired other companies and that there are Carquest assets for sale. Overall, they believe that the WDs are stable and not expected to significantly improve in the near future.

The speaker is asked if they believe they can return the commercial business to a double-digit growth rate. They respond by saying that they have low market share and expect to improve, but cannot give a specific timeline for when they will reach double-digit growth. They have initiatives in place to accelerate sales growth and believe it will continue in the back half of the year, but there are many variables that make it difficult to predict when they will reach double-digit growth.

AutoZone expects to see consistent growth in the commercial market due to their expansion of hubs and improvement of assortments. The company has been disciplined in their approach to gross margins and does not believe they are over-earning. As they negotiate deflation with their supply base and see improvement in their supply chain, they expect to see natural evolution of gross margins. The industry as a whole has been disciplined for decades and will continue to be so.

The speaker believes that the company has been successful in expanding their gross margin and growing market share in a disciplined manner. They also mention negotiating deflation in order to drive down procurement costs while maintaining retail prices. The industry has historically raised prices during periods of high inflation but does not typically lower them when costs decrease. The company has been able to maintain their margins even during the pandemic when logistics costs were high, and they do not anticipate having to lower prices in the future.

The company expects their gross margin to stay consistent unless there is a significant increase in logistics or freight costs. They anticipate their commercial business to grow faster, which may put some pressure on the gross margin percentage, but they are willing to make that trade-off for more gross margin dollars. The company has been implementing various strategies to stabilize their business, such as improving in-stocks, expanding hubs and Mega Hubs, and making hard-to-find parts more accessible to customers. They still have a long way to go in achieving their ultimate goals.

AutoZone is working on improving their delivery times by investing in technology and leveraging it. It will take time for this to roll out and for their employees to adjust to the changes. The new CEO, Phil Daniele, is focused on growing EBIT dollars and is open to investing in SG&A to drive sales. However, they will try to keep SG&A growth at a lower rate over time.

The speaker discusses the company's investments in improving operational efficiencies and reducing turnover, which they believe will bring down SG&A and increase margins. They are willing to sacrifice margin rates for higher gross profit dollars and are confident in their strategy of expanding their hub and mega hub presence, which they believe is still in the early stages.

The company has seen higher growth in stores with certain strategies, and they plan to continue modifying and enhancing their assortment strategies to get relevant inventory closer to customers. The addition of new programs has caused some drag, but they have retrofitted stores and now have over 92% with commercial programs. These programs are still ramping up and will provide a tailwind to the business in the future. The company expects their commercial business to improve from both better execution and the maturing programs.

The company's commercial business is currently underpenetrated in a $100 billion market, but they have implemented successful initiatives that have boosted growth. The company's top priority is to continue expanding their mega hub footprints and adding more commercial programs. The comps for the back half of the year are easier, giving the company confidence in their execution. The company has also focused on driving per store productivity, which has significantly increased and new programs are maturing at a faster rate.

The company's plan to open more Mega Hubs will likely slow down in the next few years, but they are pleased with the growth and ROI of these stores compared to their satellite stores. They have tested the concept in major metro markets and have found that they can operate even more Mega Hubs without cannibalization. Their initial target of 100 Mega Hubs has increased to over 200.

The speaker is discussing the positive sales and earnings performance of Mega Hubs, which also serve as important fulfillment sources for surrounding stores. They plan to continue accelerating growth and investing in SG&A to drive growth initiatives. However, as they ramp up store growth, there may be some drag on SG&A, but they believe they can manage it within their current framework.

The speaker congratulates the company on a good quarter and asks about inflation. The speaker confirms that ticket growth and same SKU inflation were both in the low single-digits. They also mention that inflation was driven by freight costs, which have since come down. The company remains disciplined in pricing and will take advantage of opportunities for both retail and cost deflation. They expect ticket growth to normalize in the low to mid-single-digit range. The acceleration in ticket growth is likely due to mix and items in the basket, rather than inflation. The company will continue to closely monitor the dynamic inflation environment and manage their business accordingly.

Phil Daniele discusses the long-term trends in the automotive industry, which have seen a decline in transactions and units, but an increase in ticket average and average unit retails due to changes in technology. He notes that this decline is predictable and has good line of sight. Greg Melich asks about SG&A and wage inflation, and Jamere Jackson responds that average wages are now in the two handle range, and they are making investments in technology to support growth initiatives.

AutoZone has been making changes in technology to support their growth initiatives on both the commercial and retail sides of their business. They have been efficient in deploying their physical and human assets, but are now looking to improve delivery through data analysis and technology enhancements. This is still in the early stages, but they are seeing positive results and plan to roll it out further in the coming quarters.

The company is going through some changes in technology and operations, but they are happy with the progress so far. Staff retention rates are improving but still not back to pre-pandemic levels. The company has opened 600 new stores in the past two years, which has affected retention rates and relationships with customers. The company is working towards improving these areas.

The speaker responds to a question about the company's success in the commercial sector, stating that they are not falling down the list of preferred mechanics but there is always room for improvement. They believe they have under 5% share and as they open new stores and improve parts availability, they will continue to move up the call list and gain a larger share of the market. However, it is rare for a customer to use only one supplier for all their parts needs due to the large number of SKUs.

The speaker, Phil Daniele, believes that their company has improved and has a long road ahead to gain more customers and market share. He also discusses the impact of weather on their sales and expresses a desire for more extreme winter weather in certain areas. However, he believes that their business model is strong and they will continue to grow regardless of weather conditions.

The speaker is optimistic about the company's growth for the year, but acknowledges the competition and emphasizes the importance of long-term success. They express confidence in the company's plans and thank participants for joining the conference call. The operator then ends the call.

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