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AutoZone (AZO)

Q2 2012 Earnings Call

February 28, 2012 10:00 am ET


Brian Campbell -

William C. Rhodes - Chairman of the Board, Chief Executive Officer and President

William T. Giles - Chief Financial Officer, Executive Vice President of Information Technology, Finance & Store Development and Treasurer


Alisa Guyer Galperin - Nomura Securities Co. Ltd., Research Division

Kate McShane - Citigroup Inc, Research Division

Michael Lasser - UBS Investment Bank, Research Division

Helen Pan - Barclays Capital, Research Division

Gregory S. Melich - ISI Group Inc., Research Division

David Gober - Morgan Stanley, Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Michael Baker - Deutsche Bank AG, Research Division

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Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

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Good morning, and welcome to the AutoZone conference call. [Operator Instructions] Please be advised that today's call is being recorded. If you have any objections, please disconnect at this time. This conference call will discuss AutoZone's second quarter financial results. Bill Rhodes, the company's Chairman, President, and CEO, will be making a short presentation on the highlights of the quarter. This conference call will end promptly at 10 a.m. Central Time, 11 a.m. Eastern Time. Before Mr. Rhodes begins, the company has requested that you listen to the following statements regarding forward-looking statements.

Brian Campbell

Certain statements contained in this press release 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 27, 2011, and these risk factors should be read carefully.


Mr. Rhodes, you may begin.

William C. Rhodes

Good morning, and thank you for joining us today for AutoZone's Fiscal 2012 Second Quarter Conference Call. With me today are Bill Giles, Executive Vice President, Chief Financial Officer, Store Development and IT; and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax.

Regarding the second quarter, I hope you 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, Please click on Quarterly Earnings Conference Calls to see them.

We are pleased to announce another quarter of strong financial and operational performance. For the second fiscal quarter, our earnings per share increased 24.4%, and our domestic same-store sales increased 5.9%. This marks the 13th consecutive quarter of EPS growth in excess of 20% and the 22nd consecutive quarter of double-digit EPS growth. Our sales and operating profit growth rates were in line with the last couple of quarters, driven by our continued growth in the retail sales category, strong performance in our Commercial business and impressive growth in our Mexico ALLDATA and E-Commerce businesses.

Over the course of the last few years, we've grown total sales in the auto parts segment in the high single-digit range while growing our other businesses in the low double-digit range. The credit for our stability and performance belongs to all AutoZoners across the organization. Their focus on improving customer service is what differentiates us in the eyes of our customers, which ultimately leads to our strong financial performance.

Our strategies have remained very consistent for many years. While relatively simple and straightforward, they are focused on the areas that are very important to our customers. The foundation for these strategies is consistently delivering trustworthy advice, an intense focus on consistent execution and ongoing refinements to our processes and product offerings. We remain committed to this approach and believe our AutoZoners' execution of this well-defined, well-communicated plan has been a critical element in our success.

With our second quarter sales up 8.6% over last year's quarter, customers continued to shop with us to find good values in order to effectively maintain, repair and enhance their vehicles. Our retail business performed well again this quarter despite strong same-store sales growth last year. Our domestic Commercial sales growth exceeded 20% for the seventh straight quarter, and we grew our other business made up of ALLDATA and E-Commerce by 11.3%.

In an effort to address questions that maybe on some listeners' minds this morning, I thought I'd spend a moment discussing trend changes we have seen and their potential impact on current or future sales. First, as I'm sure you all are aware, weather patterns during the second quarter, which as a reminder for us was from November 20 to February 11, were quite unusual, with lower levels of frozen precipitation and generally milder temperatures. As we mentioned on our last earnings call, we are always very cautious about the second quarter when it comes to sales and profitability. It is the seasonally lowest point for average weekly sales, which magnifies the profitability impact to sales changes, and our sales performance can be quite volatile due to weather patterns, holiday calendar shifts and pressures on consumer spending. The calendar shift for Christmas and New Year's were on Saturday last year and Sunday this year, were a small benefit to our performance.

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