Good morning, and welcome to the AutoZone Conference Call. The 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 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. The 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 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, position, strategy and similar expressions. These are based on assumption 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 level; 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 31, 2013, 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 2014 second 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 second 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, are 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 very good quarter. This morning we reported our 30th consecutive quarter of double-digit earnings per share growth. That accomplishment is testament to our organization's focus and discipline around delivering consistent well customer service. We’ll spend sometime this morning discussing our sales results and provide you some details on regional and product sales trends. We will also provide some detail on the cadence of sales throughout the 12-week quarter. Next, we will update you on our digital integration initiatives and our international store performance. Finally, we will highlight what we've been doing to improve our business model for today and beyond. We are very excited about the initiatives we're working on and believe our recent learning's will help to shape our company's future for years to come. For the quarter, we reported total sales increase of 7.3%, while same-store sales were up 4.3%. This overall sales performance showed noticeable improvement from our Q1 results. I do want to point out that part of the increase in DIY was due to the calendar shift resulting from our 53rd week in fiscal 2013. Our DIY same-store sales would have been approximately 1% lower if we were comparing to the same weeks last year. Commercial continue to outpace the growth of our retail business. This quarter retails showed marked acceleration from recent trends, but colder weather across much of the U.S. drove robust traffic on batteries and increase in wiper blades. However, our West Coast stores experienced less favorable weather for parts failures. Abnormally dry conditions led to fewer for example, wiper blade scales in our stores on the West Coast. We also experienced growth in both traffic and ticket across both our retail and commercial customer segments. Our failure related hard part categories experienced the highest growth in both retail and commercial. Clearly, the weather was a significant factor, but we also believe that work that we have been doing to improve inventory availability had us very well positioned to capitalize on the increased demand. We feel, as we continue to improve our hard parts product availability, this has led to increasing traffic and ticket, especially in commercial where the vast majority of the business is in hard parts. In regard to the cadence of sales trends for the quarter, November, December, and through mid-January our sales ran quite strong above 5% in same-store sales. However, for the last month of our quarter our same-store sales slowed. During those weeks, our results dropped into the low-single-digit range. We experienced a slowdown across both our retail and commercial businesses. The culprit strange as it is for me to say was the weather. It seems I've spent a career talking about how weather; in particular extreme weather drives positive results for us. But by late January, by the time several of the U.S. regions were experiencing their third or fourth heavy cold snap, the parts that were close to failing appear to have already failed earlier in the season. Additionally, the later storms, particularly across the southeast calls us and our commercial customers to close due to the severity of the storms and the poor driving conditions. As we look at the balance of the year, we believe there will be a lingering positive effect on our industry. Two years ago the weather looked quite mild and we highlighted that as a headwind for our business for months. Conversely, after the extensive winter we have had this year we anticipate that demand will remain strong as we head into the spring and summer seasons. While certain failure related categories were particularly strong during the second quarter, other categories specifically maintenance categories that can be deferred or challenged. We expect these deferred projects to be completed in the balance of the year. Regarding the consumer, we continue to believe our consumer remains under pressure. However we feel 2014 has several positive items going forward. One large headwind has now been anniversaried, the payroll tax reinstatement last year. Another is gas prices have begun to abate and we believe this can have a positive effect on our customer's ability to spend on routine maintenance. With approximately 10 billion of gasoline consumed monthly in the U.S., any sizeable move in price could have a material stimulus on the economy. Currently gasoline prices are approximately $3.35 a gallon, about $0.25 a gallon below this time last year. As we are heading into what is forecasted to be a more normal spring and summer weather pattern, we are optimistic on the sales front. We continue to assume the most pronounced effects would be felt in the Midwest and northeast markets, as these have been the most challenging for a couple of years. Regarding market share, the data we have available to us is showing we're gaining share on both the retail and commercial fronts. We are especially focused on improving our chance in the application parts area where our efforts to improve our assortments would have the most impact, and so far we're encouraged. We feel the initiatives we're working on are making a difference. For example we have enhanced our electronic catalogue to better serve our customers by further highlighting related items necessary to do the complete job. We believe these enhancements will improve the customer experience and will compliment the knowledge of our AutoZoners. While we are early in our efforts, the feedback we're receiving from AutoZoners and customers is encouraging. Regarding DIY ticket and traffic trends both increased for the quarter. As I previously mentioned the traffic count was much stronger earlier in the quarter versus the last few weeks. While we experienced traffic growth in commercial for several years, it was exciting to see growth in the retail channel. On the average ticket front, retail continues to be up but at a lower rate than our historical experience. One driver of the lower retail ticket has been the lack of commodity-based inflation. Currently we don't see any indications of that trend changing materially in the short to midterm. Well that is good news for our customers; it has certainly challenged our results. On the commercial front we were pleased to see a higher average ticket to another earlier more of hard part sales. Overall we don't have control over the macro factors that impact our business and that is why we had intensified our efforts on enhancing our offerings. Our effects on the initiatives we have underway or intent should lead to ongoing sales growth. We are pleased with the progress we are making on commercial business. Our sales increased 12.2% from last year's second quarter and we opened 49 new programs to finish with 74% of our domestic stores having a commercial sales program. This brings our year-to-date openings to 174. We expect to open a similar number of programs this year as we did last year. Our all other businesses increased approximately 31% over last year. Starting this quarter we began anniversary acquisition of AutoAnything. The all other segment of our business includes AutoAnything, autozone.com and ALLDATA. Regarding all these businesses, we've introduced the idea of being more digitally integrated. Therefore we've made this one of our four strategic growth priorities, along with Retail, Commercial, and International. While in an early stage we believe this can be an important and significant opportunity for us to deepen customer relationships and ultimately grow sales. At this point the evolution of our online offering we're focusing more on data compilation and building a knowledge portal than on current sales. Today, shoppers used our websites for educating themselves what they need for their vehicles and they continue to buy the vast majority of what they need from our stores, which to us makes perfect sense and is in line with our operating plans. Our objective is to satisfy our customer's needs regardless of how they want to interact with us. Now, I'd like to update you on our initiatives. Last quarter we discussed that we were testing a handful of initiatives that focused on increasing our ability to say yes to our customers parts needs, in both retail and commercial. We establish tests last summer, focused on increasing the depth of coverage available at the store, hub stores and at our distribution centers. Product initiative at the hub stores and distribution centers also included tests around frequency of delivery to the stores that they service. Over the last several months, we have significantly increased the pace of strategic assessments and challenged ourselves to review our tests results very carefully. The amount of time and effort going into this effort has been nothing short of extraordinary. Our entire organization owes the subset of individuals who are leading in this effort tremendous gratitude. On last quarter's call, we highlighted that one of our test initiatives was complete and in the process of being implemented. This initiative was the enhanced modeling for stores SKU placements, where we would significantly add incremental inventory while simultaneously removing unproductive inventory. At the end of the quarter, we were complete with about 75% of this initiative. But it is important to note that much of this additional inventory again arriving at our stores very late in the quarter and some is still in the distribution centers. This has been a massive undertaking and this can cause considerable work at the stores and in the distribution centers, as you can see our per store inventories increased significantly as a result of this initiative. We have a high degree of confidence that these new assortments will drive meaningful profitable sales increases as we tested this new methodology several times before implementation. To-date the sales are generally in line with our expectations. But again, much of the inventory hasn't been positioned for sale or was positioned very late in the quarter. We've also been testing additional inventory in our hub stores. We continue to earn opportunities to add productive inventory to all of our hubs and we expect this to continue, especially if we further penetrate to highly fragmented commercial market. Additionally, we are testing a much deeper product offering in a select few hub stores and these locations are leveraging net inventory across a wide network of additional hubs and satellites. This allows us to significantly broaden the depth of the product offering closer to the customer with many stores having same day access to the broad assortment. In addition, to testing broader SKU assortments in our hubs and our distribution centers, we are also testing more frequent deliveries to both select hub and satellite stores. All of these efforts are deigned to assess the most effective way to service our customers needs and to reduce the amount of unproductive activity we have transferring products from store-to-store. It is still very early, but what we have learned as we expected that more inventory closer to the customer increase the sales. At this stage, we have not determined the optimal solution and we expect to continue to run these tests for an extended period of time. We continue to execute on our strategies to improve the customer shopping experience. We expanded five net additional hub locations during the quarter to take our total remodeled hubs to 115 locations. These remodels entail expanding the size and capacity of these locations ensuring they are in the right physical location and adding additional inventory into the market that benefits both retail and commercial. We also opened three new hub stores finishing with 160. Over time, we do expect to open more hub locations, but we believe our strategy on inventory deployment at the store level allows us to keep the number of openings at a moderate level. Last quarter, I also mentioned the new version of Z-net that was being deployed. Over the last couple of years, we have reset our expectations in regard to technology investments in an effort to leverage technology to enhance the customer experience and leverage operating efficiencies. The enhanced Z-net is the first of those efforts to be implemented. Finally, I mentioned our goal is and remains to be growing market share in 2014, while continuing to deliver solid earnings. We were successful with this objective in the last calendar quarter of 2013, according to the data available to us. However, we compete against great companies in our industry and they too are aggressively modifying their business. While we are improving, we clearly see where we can improve our selling proposition and we are focused on those areas. Our organization understands the importance of balancing investments and returns and we have to invest our time and capital accordingly. With the continued aging of the car population, we are optimistic regarding trends for our industry in both DIY and DIFM. While new car sales have been very strong these past two years, we have seen those traded-in vehicles be resold to new owners, who are repairing and enhancing their "new vehicle". With gas prices declining a bit here recently on a year-over-year basis, we believe miles driven can increase in 2014. Historically, lower gas prices and an improving economic outlook have led to more miles being driven. We expect that trend to remerge. We remain bullish on our industry sales growth opportunities on both retail and commercial front over the long-term, as the vehicle population remains at an all time high and consumers continue to look for good values while maintaining their vehicles, we see AutoZone's opportunity to sell to these customers only growing. Now, let me review our operating theme priorities for 2014. Our overall operating theme this year is Creating Customers for Life and the key priorities 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 finally, improving inventory availability. On the retail front this past quarter, under the Great People Providing Great Service! theme, we continue with our intense focus on improving execution. Along with the completion of the rollout of our new Z-net software, we spent a great deal of time training AutoZoners on the system enhancements. We've tried to make the system as intuitive as possible, but along with change, we have to spend time teaching and discussing those changes. We also learned from our store AutoZoners how to improve the way the information is presented on the screen. This mutual respect for operations and technology will lead, in our belief, to a superior selling tool in our stores. We also invested more payroll in our stores this past quarter. Last year we managed expenses tightly as our sales results were below our expectations. This year, as we expected sales to improve with all of our initiatives we wanted to make sure we represented our brand well, so we added additional payroll. We should highlight another strong performance in return on invested capital as we finish Q2 at 32.3%. While slightly below last year's Q2 ROIC, excluding the acquisition of AutoAnything, we would have been slightly higher than last year. We are very pleased with this metric as it is one of the best, if not the best, in all of hard lines retailing. 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 of capital. It is important to reinforce we will always maintain our diligence regarding capital stewardship as the capital we invest is our investor's capital. Now let me turn the call over to Bill Giles. Bill?

Thanks, Bill. 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 part sales, which included our domestic Retail and Commercial businesses, our Mexico stores and our four stores in Brazil, increased 6.5% over the 12 weeks. Regarding macro trends, during the quarter, nationally, unleaded gas prices started out at $3.29 a gallon and finished the quarter at $3.38 a gallon. Last year gas prices increased $0.18 per gallon during the quarter, starting at $3.43 and ending at $3.61 a gallon. We continue to believe gas prices have a real impact on our customers' abilities to maintain their vehicles and we continue to monitor prices closely in the future. We also recognized that the impact of miles driven on cars over 10-years-old, the current average is much different than our newer cars in terms of wear and tear. Miles driven data, reported by the Department of Transportation are available only through December. While October was up 2.3%, while November was down 0.2%, December was up 1.1%. The other statistic we highlight is the number of 7-year-old and older vehicles on the road which continues to trend in our industry's favor. Another key macro headwind last year was the favorable tax reinstitution, while we do not expect to benefit this year, we simply are anniversarying a negative event from last year, it is hard to gauge what the benefit this will have on our traffic but it won't be an additional pressure point like it was last year. For the trailing four quarters, total sales per auto part store was $1,754,000. This statistic continues to set the pace for the rest of the industry. For the quarter, total Commercial sales increased 12.2%. Commercial represented 16.3% of our total company sales and grew $35 million over the last year's second quarter. Last year's commercial sales mix percent was 15.6%. We believe there are ample opportunities for us to continue to improve many facets of our operations and offerings and therefore we are optimistic about the future of this business. Year-to-date we opened 174 new programs versus 93 programs up in last fiscal year. We now have our commercial program in 3,595 stores supported by 160 hub stores. Approximately, 1,080 of our programs are 3-years-old or younger. With only 74% of our domestic stores having the commercial program, and our average revenue per program below several of our competitors, we believe there is further opportunity for additional program growth, in addition to improved productivity opportunities in current programs. The tests on inventory that we've conducted provide us with one of the pieces of information on how to close the gap of competitors that are more productive and commercial than us today on a per outlet basis. We understand where share opportunities exist and we remain focused on closing that gap. We believe we're on the right track when it comes to our ability to climb the call list to becoming our customers' first call. In summary, we remain committed to our long-term growth strategy. We have accelerated the growth of our commercial programs having opened over a thousand programs in the past 36 months. 30% of the programs are 3-years-old or younger. And we believe we are well positioned to grow this business and capture market share. Our Mexico stores continued to perform well. We opened four new stores during the second quarter. We currently have 367 stores in Mexico. Our returns and profit growth continue to be in line with our expectations. Regarding Brazil we opened no new stores in the quarter and have four stores open as of the end of the quarter. Our plans remain to open in total about 10 stores, then pause our development as we refine our offerings and prove that our concept works for our customers and it's financially viable. At that point we will talk more on our long-term growth plans. Recapping this past quarter's performance for the company, in total our sales were $1,099,000,000, an increase of 7.3% from last year's second quarter. Domestic same-stores sales were sales for stores opened more than one year were up 4.3% for the quarter. As Bill has mentioned earlier, our last four week sales results were below the run rate of the first eight weeks. We attribute much of this decline to even harsher than expected winter weather in certain parts of the country keeping customers at home, indoors along with an excessive amount of precipitation challenging customers to complete vehicle projects outdoors. Additionally we believe many of the failure parts that were subject to failure during extreme temperatures had already failed earlier in the season. Moving onto gross profit, the gross margin for the quarter was 52.1% of sales, up 25 basis points versus last year's second quarter. The improvement in gross margin was attributable to higher merchandise margins, lower shrink expense, offset primarily by the inclusion of the recent acquisition of AutoAnything. In regards to inflation, we continue to see modest decreases in costs year-over-year. This was different than in past years. At this point our assumption is we'll experience subdued producer pricing for the foreseeable future and therefore we feel costs will be predictable and manageable. We will remain cognizant in the future developments regarding inflation and we'll make the appropriate adjustments should they arise. Looking forward, we continue to believe there remains opportunity for gross margin expansion within both the retail and commercial businesses. However, we do not manage to a target gross margin percentage, as the growth of our commercial business has been steady headwind on our overall gross margin rate for a few years we have not bothered to call out the headwind quarterly as an integrated part of our business model. Additionally, AutoAnything has been a slight drag on our gross margins as this business model operates at a lower gross margin rate. As we anniversaried our acquisition of AutoAnything during Q2, our margin comparisons will be comparable going forward. Our primary focus remains growing absolute gross profit dollars. SG&A for the quarter was 35.2% of sale, higher by 42 basis points from last year's second quarter. The increase in operating expenses as a percentage of sales was primarily due to the timing of advertising expenditures in Q2 from Q1. As I had mentioned a few moments ago, our investments were favorable, did leverage our domestic -- did deleverage our domestic store operating expenses as a percentage of sales. Advertising, however, was the larger single component to the increase. While expenses are higher than last year, they were budgeted and were in-line with our expectation. We continue to believe we are well-positioned to manage our cost structure and response to our sales environment. EBIT for the quarter was $337 million, up 6.2% over the last year's second quarter. Our EBIT margin was 16.9%. This represented a decrease of 17 basis points versus the previous year's second quarter. Interest expense for the quarter was $39.5 million, compared with $41.3 million in Q2 a year ago. Debt outstanding at the end of the quarter was $4.311 billion approximately $310 million more than last year's Q2 balance of $3.998 billion. Our adjusted debt level metric finished the quarter at 2.5x EBITDAR. While in any given quarter we may increase or decrease our leverage metric based on management's opinion regarding debt and equity market condition, we remain committed to both our investment grade rating and our capital allocation strategy. Our share repurchases are an important element of that strategy. For the quarter, our tax rate was approximately 35.3%, lower than the last year's second quarter of 36.2%. This quarter benefited from certain discrete tax items. Net income for the quarter was $193 million, was up 9.4% versus the prior year's second quarter. Our diluted share count of $34.3 million was down 7.2% from last year's second quarter. The combination of these factors grows earnings per share for the quarter to $5.63 million, up 17.8% over the prior year's second quarter. Related to the cash flow statement, for the second fiscal quarter, we generated $151 million of operating cash flow. Net fixed assets were up 6.5% versus last year. Capital expenditures for the quarter totaled $77 million and reflected the additional expenditures required both from 32 new stores this quarter, capital expenditures on existing stores, hub store remodel; work on development of new stores for upcoming quarters and information technology investment. Additionally, we purchase the rights to certain customer relationships in connection with our ALLDATA business. These investments were approximately $11 million this year with an additional $20 million to be paid over the next two years. For all of fiscal 2013, our CapEx was approximately $415 million. With the new stores open, we finished this quarter with 4,871 stores in 49 states, the District to Columbia and Puerto Rico, 367 stores in Mexico and 4 in Brazil for a total store count of 5,242. Depreciation totaled $58.4 million for the quarter versus last year's second quarter expense of $52.3 million. With our excess cash flow we repurchased $200 million of AutoZone stock in the second quarter. At quarter end, we had $727 million remaining under our share buyback authorization. Our leverage metric was 2.5x this past quarter. Again, I want to stress, we managed the appropriate credit ratings and not any one metric. The metric we report is meant as a guide only as each trading firm has its own criteria. We continue to view our share repurchase program with an attractive capital deployment strategy. Accounts payable as a percent of gross inventory finished the quarter at 113%. Next, I'd like to update you on our inventory level one a per store basis. We reported an inventory balance of $3.1 billion, up 12% versus the Q2 ending balance last year. Increased inventory reflects new store growth along with additional investments in coverage for select categories. Inventory per store was up 8.3% at $589,000 per store, reflecting our continued investment in hard parts coverage. Finally, as Bill previously mentioned, our continued disciplined capital management approach resulted in return on invested capital for the trailing four quarters of 32.3%. We have and will continue to make investments that we believe will generate returns but significantly exceed our cost of capital. Now, I'll turn it back to Bill Rhodes.

Thanks, Bill. We are pleased to report our 30th consecutive quarter of double-digit earnings per share growth. Our company continues to be successful due to our long term focus. That focus on exceptional customer service is part of the AutoZone DNA. We focus on executing at a very high level consistently, which we believe can be a competitive advantage. To execute at a high level, we have to consistently adhere to living the pledge. We cannot and will not take our eye off of the execution. Success will be achieved with a strong attention to detail. But we also have to evolve and change to adapt to our ever evolving industry. The initiatives we are working around inventory assortment, hub stores, commercial growth, Mexico, ALLDATA, e-commerce and Brazil are all very exciting to us. We feel these efforts will lead to increasing sales for 2014 and beyond. Our industry sales, according to the NPD data made available to us, accelerated this past quarter. We continued to experience share gains on both the retail and commercial fronts. While, this is exciting we cannot be complacent. We are just starting to implement our major initiatives and the best we believe is ahead of us. Our long-term models to go new source new store square footage and a low-single-digit growth rate and we expect to continue growing our commercial business at an accelerated rate. As we continue to execute on our financial model, we look to routinely grow EBIT dollars in the mid single digit range or better in times of strength, and we leverage our very strong and predictable cash flow to repurchase shares enhancing our earnings per share within to double digits. We build the track we are on will allow us to continue winning from a long run. We believe our study consistent strategy is right. It is the attention to details and consistent executions that will matter over time. Our belief that solid consistent strategy combined with superior execution is a formula for success. We are investing in the key additions that we will drive our long term performance. In the end, delivering strong EPS growth and ROIC each and every quarter is how we measure our sales. We remain committed to deliberate on our strategic and financial objectives. Now I would like to open up the call for questions.

Thank you. (Operator Instructions) Our first question today is from Alan Rifkin with Barclays.

Couple of questions, if I may, first one to Bill Rhodes. Bill, you spoke about the lingering positive effect from weather on hard parts. And while it's easy to probably determine what the immediate effect is on battery, you may be provide a little bit more color on how you think that lingering effort is going to be and what proportion of the hard parts are typically accepted longer term from adverse weather?

Yes, Alan, and I think the best proxy that we have in recent history was two years ago when we had a very mild winter of 2011-2012. If you recall in April and really on through October of that year, we continue to call the lingering impact in our business and it was really in the maintenance category places like brakes and chassis that didn't get replaced at the same rates that they had in previous years. Now we attribute a lot of that to the lack of snow and ice, lack of snow piles, lack of potholes in the roads. And clearly from an out of the winter that we just had our expectation is that those categories should be robust. Also, those categories specifically that I talked about brakes and chassis and the line, they were challenged Q2. We had great performance in batteries and wipers and antifreeze, but a lot of categories where the customer could defer them they did the defer them, and we expect those deferrals to come back.

So Bill, what you say is the positive effect this year from the poor weather equal to the core effect we had on revenues a couple of years ago from the unseasonably warm weather that we had?

I see your guess is as good as mine on that one, Alan. I'm just -- I'm bullish about it, but we're going to see how it plays out.

Thank you second question may be for Bill Giles. Hey, Bill, with less than 30% of the hub stores under three years old, what is the ramp on the revenue growth that newly opened hub stores look like? Was most under maturity captured post three years? You can maybe provide a little bit more color on that, I'd appreciate it.

Yes, actually unlike a traditional retail new store a lot of it is captured really in the first two to three years. So there is a continued ramp in the maturating post that, but there is a much more accelerated ramp in the first frankly a couple of years and sometimes even shorter than that depending on the market that we get into. And then the other thing with an addition to having a increasingly maturation process of the new commercial programs that's just all the initiatives what we are doing. So we are trying to make every program better every single day and a lot of things that Bill talked about on the inventory availability, we think it will help in that process.

One last question if I may to Bill Rhodes. Obviously, with one of your major competitors completing the acquisition at Carquest recently, there were certainly -- it was well documented at Carquest that was on the auction block for quite some time. Are you at liberty to maybe elaborate on what it was about the Carquest that did not interest you in moving forward more aggressively?

That's a tough question, Alan. I think I'd rather keep our deliberations to ourselves. I think those could have competitive implications over the long-term and one other industry consolidation.

All right. So you never try that.

I appreciate the question. I understand it. I just don't think it will be appropriate for us to comment on it.

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

Bill Rhodes, a question on the inventories entering the next quarter 8% higher than a year ago. Is this all additional SKUs or were you finding you didn't have enough depth in the existing SKUs to fulfill commercial ordering? So for example may be your systems shows your X stock was two pieces of a certain SKU, but I've got a commercial customer asking for four pieces and therefore you were having to say no.

Yes. What you've seen to-date is the vast majority of it has been incremental coverage, not incremental quantities. We are, as I mentioned we are testing a lot of different things and then in some respects some of those tests are increasing or decreasing the quantities of the parts that we have based upon the delivery frequency of that store. But what you've seen to-date, the vast majority of it has been incremental coverage. I did want to reiterate it that a lot of it came in right at the end of the quarter.

You talked about that your management is doing a lot of analytical work on the payback on the inventory investment. Could you help us understand the implications for our GM ROI? I'm assuming it's probably dilutive but if you could tell us what you are seeing in your tests?

Yes, certainly as we go farther down the curve -- farther down the bell curve, it is clearly GM ROI dilutive to where we are today. Let's remember we're 32.3% ROIC. But a lot of decisions, opening a new store a lot of times is dilutive to ROIC. We're very comfortable that it's going to provide us with reasonable returns well in ahead of our cost of capital.

And then just the last question and I know we have talked about this in the past but when you look at your tests improving your delivery capabilities in commercial, what do you think are the advantages and what are the disadvantages relative to competitors to build large distribution centers and then could achieve a lot of the same benefits?

Well obviously the disadvantages of significantly changed or significantly with broader distribution network are so costly, it's quite costly. And so we're looking at several different things and we've made no decisions at this point in time on the other initiatives. We've rolled out our improved algorithms for store replacement. But we've not made any decisions about distribution centers, hub stores or the like. We're in the midst of testing all those things. But we're encouraged -- we're encouraged by all the different things we're testing. But what we now have to move is to figure out is which one is the optimal approach. Which one provides the best return at the lowest cost? And I think that's going to take us a couple, two or three more quarters to figure that out.

Thank you. The next question is from Michael Baker with Deutsche Bank.

Thanks. So a couple of questions on the commercial. I just wanted to go back. You said, Bill Giles, that stores that are two or three years old in the commercial business ramp up quite well in terms of the sales and in fact even faster than the retail business. So I guess I don't fully understand why you wouldn't be seeing greater sales on the commercial business if you have so many immature store, so many stores in that 1% to 2% to 3% of three-year-old cohorts and those would be driving higher sales growth?

They do and then but at the same time, we still have, keep in mind 30% of the commercial programs that we have opened today are all less than three-years-old. So they're continuing to ramp and that's driving down a little bit of our productivity when you look at it on an average basis. And the other thing is obviously we're at 74% penetration. And as we continue to ratchet that up, will be some level of cannibalization not significant, but it will be a little bit until we just continue to penetrate the market overall.

So I guess that explains why the sales per store would be lower. But still I would think the growth rate would be higher and so perhaps and here's my second question, is it a function of increased competition in the commercial business on the West Coast O'Reilly is maturing more and more every year with their CSK stores and then in the Northeast, you did the VIP acquisition? So is it possible that you're just seeing more competition in the commercial business?

I wouldn't say more because obviously those are replacements of existing competition.

Better perhaps.

Yes, I would say they're slightly better capitalized. But what we've got a 3% market share or less. We continue to believe there is a lot of Greenfield opportunities and we got to continue to drive our productivity. Also I think the inventory availability and not to hang our hats just on that, we've got a lot of initiatives going on. But I think more inventory in the market place is going to be beneficial for the Commercial programs, both DIY and Commercial, but specifically Commercial as well.

Thank you. (Operator Instructions) The next question is from Greg Melich with ISI Group.

My question is really about the inventory addition and its impact on ticket and what it does to the AP ratio going forward. Specifically did you -- is it too early or did the increased SKUs help ticket in either do it for me or DIY in the quarter?

That's a great question. I think it's a little too early for us to see whether or not both that inventory and as Bill said, still -- some of it's still on the pipeline has an impact on ticket. We would expect it to drive it a little bit overall as we continue to be able to say yes to more profits, more demand but in the future. So might the inventory ratio perspective I think over time that that will likely to put a little bit of pressure on AP to inventory. But I suspect that will be over a couple of year kind of a timeframe, I don't see that in the immediate future necessarily. But it also points to the fact that we've got opportunities and try to reduce some of the unproductive inventory that we have in the chain as we continue to replace this with other additional SKUs and that we're grow inventory grow SKUs and will put a little bit of pressure on inventory churn and put a little bit of pressure on AP to inventory ratio and I suspect that that will be over a couple of years and not something in the immediate future.

And you mentioned 75% of the initiative is done in terms of the enhanced SKU placements. If you look at all the other things that you listed that are still on test, could you help us understand the magnitude if you decide to go through with those, would it be a lift of inventory similar to what we have seen so far per store?

Yes, Greg this is Bill Rhodes. Number one, one of the initiatives that we're working on or competing against each other where you have a delivery methodology frequency change out of the distribution centers but at the same time we also have a mega hub notion that's doing the same kind of work. So we don't really -- it's hard to say what's going to happen. When I look at it I don't think there would be nearly significant increase in inventory as a result of these initiatives because you would be talking about deploying inventory in fewer number locations either hubs or distribution centers. This is not talking additional inventories in the stores and if you increase the frequency of delivery you're also going to bring the quantities of inventory in the stores down. That could actually be a benefit to inventory but it would require capital and operating expenses to get that benefit.

Thank you. The next question is from John Lawrence with Stephens &Company.

Bill would you comment a little bit the follow-up on Alan's question a little bit about the frequency change as far as the deliveries. I mean I know some of those hub stores have gone may be once or twice or maybe even three times a day to some of these stores. Could you talk a little bit more about that and how does this, the bay or the garage know that you have this additional inventory.

That's a great question on how the garage knows that, the way that they know is our incredibly talented sales force is out anytime you give a sales person or an operator additional inventory they are going to tell everybody and so that's a big part of our sales message right now. As far as the frequency of deliveries in the standard hub stores, we really haven't changed those in the last two or three years. We did increase them pretty significantly in '09, '10 timeframe but now we are testing something and this is again just in test and that's kind of a mega hub notion, where it's a hub serving additional hubs, so I think that one hub that might be servicing six or seven other hubs. And if they are in the same major metropolitan areas it might be serving that additional hub multiple times a day and then for the long faraway hubs it's only servicing them once a day.

And just to follow that in periods when these bays and garages are very busy. Does that give the opportunity to that third and fourth player in the market to really move up on that call list because of the increased demand?

I think increased demand but more importantly increased availability. When the shop finds, you have something that somebody else doesn't that gives you real opportunity and move up that list. Particularly you are doing a great job of service.

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

One question and a follow-up. The first one is about volatility. Some of the metrics that we see are kind of steady as ever, EPS growth being in the 15% to 17% range, cash flow you mentioned very predictable and steady. SG&A a little bit more volatile and sales, little bit more than historical, but can you talk to us about the underlying patterns of customer behavior that you're seeing inter-quarter, inter-week, to understand kind of what it is that the customer is kind of preferring and just wondering if you can give us a historical perspective on volatility?

The second quarter for us is always an incredibly volatile of time, it's the most volatile period of time that we have. Number one, you have the holidays in there. Number two, weather patterns can be extremely different one week to the next. Last weekend it was 70 degrees here in Memphis, today the kids, Shelby County's schools are out, because it's ice and snow. So those kind of changes will really change the volatility -- the customer traffic patterns. The other thing that's been different for us, and we talked about is our average ticket, our average ticket for about the last nine months has been, it's still growing, but it's been more muted growth and the big part of that is due to the lack of commodity-based inflation, we had significant commodity-based inflation for a couple of years and that slowed down a little bit. We think that will continue for a reasonable period going forward, we don't see a change.

Just a follow-up. On your comment earlier, Bill Rhodes, about inventory and kind of willing to put inventory in so long it's kind of in excess of your cost of capital. How do you philosophically think about inventory when your cost of capital is effectively zero and what are guard rails telling us when it's going to hit that diminishing return?

We know everything to a 15% after tax IRR. So regardless of what happens to our cost of capital, we're going to hold every investment through a 15% IRR with the exception of a few real estate decisions that we make in strategic markets where we have to hold them, because we hold them to at least 12%.

How does payables factor into that, because that effectively makes the cost of adding inventory free in that regard?

Yes, we charge the initiative with payable, with the inventory and don't give it the payables benefit although we let some of the inventory come back at the end of the IRR calculation period.

That's real helpful. Thanks.

The burden of those costs are real and just because we're able to get the AP coverage on doesn't mean that we don't need to look at that very closely and make sure we are making wise business decisions.

Thank you. The next question is from Bret Jordan with BB&T Capital Markets.

A couple of questions, another question around the inventory. I guess if you look at sort of the puts and takes, the scale of purchasing the incremental inventory versus the possibly lower margin of growing the Commercial business. In the gross margin improvement year-over-year, could you sort of give us the impact of both sides of that?

I would say that the increase in the inventory during the quarter had some additional supply chain cost et cetera, but there wasn't a benefit per se from the additional purchasing of the inventory that would necessarily bolster gross margin, at least at this stage, it wouldn't happen till the inventory is sold necessarily. So that answers it, Bret.

And then I guess as you talked about market share, could you give us any color regionally were there markets that you gained relatively more share in?

Yes. The information that we get today about market share is not at the same level of granularity on a regional basis, we only get regional information on non-application products. So I don't really think it's wise for us to get into those discussions.

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

Now that you've had time to see the results of both the inventory and the labor investments, do you think these initiatives will give to you -- will allow you to fully close the commercial productivity gap with your peers? And is that the goal here? Or do you think that if you do close the productivity gap, it will be return dilutive, you don't necessarily want to get there?

Number one, we want to focus on us, not our competition. We believe we have tremendous opportunities for increased business in the Commercial business over time. We don't think it's going to come one week or one quarter or one year, it's going to take us improving our model, continuing to work with our sales force, continuing to deepen our relationship with our customers. I believe that the initiatives that we're working on particularly the inventory availability initiatives will have a big benefit to us going forward. But it's not going to be measured in quarters it's going to be measured in years. As for the inventory that we added, again, I will reiterate that we added right at the end of the quarter, so we didn’t see much of it. As far as the payroll addition and I appreciate you calling that out. We really -- last year the second quarter was really tight and our sales trends weren't very exciting. And so we very aggressively managed our payroll, and in hindsight we felt like we too aggressively managed it. So we didn't -- we weren't that aggressive this time. Now that was a one quarter event. That was not something that we did in Q3 and Q4. It was really a Q2 event that we've now annualized.

Then as my follow-up question, I think some of your comments around the cadence of the comp during the quarter have raised some questions about sustainability of the recent industry performance. Could you parse may be on a regional perspective, did you see the same type of slowdown on the West or the less weather affected areas? And have you seen that continue into the current quarter or maybe there's been less adverse weather?

Yes. We kind of have a standing practice not to talk about the current quarter, but I appreciate you bringing that up. So let me add a little bit more specifics to it. In the last month that we talked about, there were three weeks. The first three weeks of that month where it was snow and ice across much of the Eastern United States including the South. Those three weeks, we had significant pressure on our sales. The final week of the quarter, we had much improved weather and our business was materially better. That also coincided with when the tax refunds started flowing in the marketplace. We had the combinations of improved weather and tax refunds and we saw a material improvement in our business.

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

I think you just helped us understand the calendar shift a bit with that last week being so strong.

Right.

But going forward, should we expect any changes with calendar shifts in the balance of the year?

We all wait, it cost us 70 bps in the first quarter, it cost us about 1% here. I think it should be -- it's certainly going to be neutral for the balance of the year. There is going to be a slight shift between Q3 and Q4? It's going to depend, just like you picked up on, it wasn't going to be a big event until we had a really strong last week and that infotainment event. I know what the first week of this quarter is going to be, but I don't know what the last week is going to be. So, I think it's anybody's guess.

And just picking apart the SG&A deleverage in the quarter a bit, can you give us the puts and takes year-over-year as it relates to some of the line items around payroll and advertising, et cetera, and were there any incremental investments for your initiatives?

I would say that there wasn't a lot of incremental investments on the initiatives. There were some additional costs. I think payroll deleveraged probably less than 10 basis points or so, but to Bill's point earlier, that was really a function of us kind of keeping more consistent with our payroll model where last year we probably got off of that a little bit and we really made some cuts that in retrospect we didn't want to repeat as we went through Q2. In Q1, we mentioned that there was going to be some timing related to advertising where we pushed some advertising from Q2, or Q1 into Q2, and that was worth probably a little over 20 basis points. So that's kind of the majority of that 42 basis points.

Thank you. The next question is from Brian Nagel with Oppenheimer.

I actually have just a couple really quick questions. One, we've already discussed weather a lot, but is there a way to specifically look -- you take the comp you hedge in the fiscal second quarter, how much of that was directly attributable to the weather? Then the second question, I think to some extent you discussed it in your prepared comments, but the buyback, looking at my model here, you obviously continue to buy back stock, but it would seem like a slightly or a modestly slower pace than it had been in prior quarters. Any reasons we should be thinking something into that? Thanks.

All right. I'll take the first and I'll give Bill Giles the second one. It's really difficult to quantify the impact of the weather. And again, it has puts and calls, so we can see that our batteries and starters and alternators businesses are up pretty significantly. Conversely brakes and chassis and the like are down. I think it did have a benefit; I would characterize it in the 1% to 2% range. But I also think that we've got this pent-up demand which should help us going forward. We love the extremes. But if you don’t get the extreme weather and those batteries don't fail than it's going to be the next extreme when they do fail. So we got that business and now hopefully we'll get the deferral of the maintenance business as we look forward.

I would just say. I have nothing to really read on the stock repurchases. We'll try to be relatively consistent year-over-year, quarter-over-quarter so I wouldn't read too much into that.

Thank you. The next question is from Scot Ciccarelli with RBC Capital Markets.

You mentioned the tight payroll couple of times. You were talking about the year-over-year SG&A I'm curious did that lead to changes in employee turnover at all and in addition to that with some of the industry consolidation we've seen is employee turnover a greater concern may be than what's been in the past?

No. We haven't seen any material change in employee turnover. We did see a material reduction when the onset of the recession and we've seen it kick up 1% or 2% over certain quarters, but it has nothing material. As far as the industry dynamics, I think number one it's far too early to see what any ramifications of those changes are. But we are always looking for great people that love the AutoZone culture and if they want to come join a great team we'd love to have them.

And when do you think that might play out, you said it's still too early. Just given your experience in the industry, and obviously with acquisitions themselves like when would we start to see when people are kind of placing their longer-term debt is it after three months, is it six months is it a year, just kind of given your experience wondering what your thought process is.

It all depends on what the strategy is and what the level of execution on that strategy is. It can happen very quickly. If there is a massive determination, on what the integration plans are or it can take a year. It's all going to depend on the implementation pace.

Thank you. This concludes the question-and-answer session. I'd like to turn the call back over the speakers for any closing comments.

Before we conclude the call, I'd just like to take a moment to reiterate what separates us from the other players in our industry; our culture is very unique. Being part of the AutoZone family and striving to improve its very unique across the entire retail landscape, it's the passion to continue to build our culture that will carry us to new heights. We are currently working on the variety of exciting new initiatives and tests that we believe will enhance our performance over time. Ultimately, our AutoZoners have delivered, year in and year out, and I'm highly confident that with them leading the charge, our future is incredibly bright. Thank you for participating in today's call.

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