Good morning and welcome to the AutoZone conference call. (Operator Instructions) This conference call will discuss AutoZone’s second quarter financial results. Mr. 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 10:00 am Central time, 11:00 am 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," "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: competition; product demand; the economy; credit markets; 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. Forward-looking statements are not guarantees of future performance and actual results; developments and business decisions may differ from those contemplated by such forward-looking statements, and such events could materially and adversely affect our business. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results may materially differ from anticipated results. Please refer to the Risk Factors section of AutoZone's Form 10-K for the fiscal year ended August 25, 2007, for more information related to those risks. In addition to the financial statements in according with Generally Accepted Accounting Principles, AutoZone has provided metrics in this presentation that are not calculated in accordance with GAAP. For a reconciliation of these metrics, please see AutoZone’s press release in the Investor Relations section at www.autozoneinc.com.

Good morning and thank you for joining us today for AutoZone’s fiscal 2008 second quarter conference call. With me today are Bill Giles, Executive Vice President and Chief Financial Officer Store Development and IT 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 complimenting our comments today is available on our website, www.autozoneinc.com. Please click on Quarterly Earnings Conference Calls to see them. To begin I’d like to thank our entire organization for delivering another quarter of record sales and earnings. I’d also like to take a moment to recognize everyone at AutoZone for the wonderful accomplishment of opening our 4,000th in the United States this past quarter. Founded back on July 4th, 1979 in Forrest City, Arkansas, I don’t think any of the AutoZoners that helped open that first store could ever have imagined that we’d have that many stores today. Congratulations everyone and I am looking forward to celebrating many more milestones for years to come. Now to some details on the quarter, we began the second quarter focused on the same key initiatives we launched at the beginning of our fiscal year. We continue to reinforce to the organization the importance of putting our customers in everything we do. Our efforts include continuous training on product knowledge, leadership and most importantly our culture of customer satisfaction. We understand and consistently reinforce to our organization that customer satisfaction is driven by our customers’ experience with us in a variety of touch points. From their in store experience to our phone conversations with them or even through the usage of our internet site, we focus intensely on providing superior…

Thanks Bill. Gross margin for the quarter was 49.9% of sales up 71 basis points compared to last year’s second quarter. During the second quarter margins continued to benefit from our ongoing category management initiatives, supply chain efficiencies and our direct import efforts. Over the last several quarters, these efforts have been partially offset by an increase in product costs specifically related to oil based products and other commodities. We continue to focus on ensuring we offer the right products at the right prices to our customers. This includes the supply chain initiatives, tailoring merchandise mix and the continued optimization of our good, better, best product lines all allowing us to price our products appropriately while giving our customers great value. Our Duralast, Duralast Gold and Value Craft product lines continue to show sales increases for the second quarter. Our customers continue to recognize the value proposition these high quality brands offer. Going forward we believe there continues to be opportunity for gross margin expansion albeit at reduced rates. Our direct import initiative is in its early stages and reflects less than 5% of our annual cost of goods. But we are pleased with the progress our merchandising organization has made to improve margins while pressures on procurement costs continue to exist. SG&A for the quarter was 35.2% of sales, up 53 basis points from last year. Our deleverage primarily from continued higher occupancy costs and to a lesser extent, an increase in advertising. Specifically rent and depreciation were approximately 45 basis points higher than last year’s second quarter which reflected a higher percent of leased versus owned stores. As I have mentioned before the AutoZone culture of thrift and focus on cost management is an integral part of our ongoing business model. We believe our efforts on improving customer…

Thank you Bill. While we are certainly pleased to report record earnings and earnings per share for the quarter we also understand that we must stay focused on both growing both our retail and commercial sales. We clearly understand our success is driven by our customers’ daily experience with us and we must continue to enhance this experience. We continue to see our customers being more cautious with their buying habits. However we believe if we maintain our relentless focus on the basics of our business we will continue to be very successful. We remain confident in our ability to drive results in this business even with the macro challenges our customers are facing. Our story remains a consistent one; a focus on steady, profitable sales and earnings improvements, refining our inventory assortment, continual training of our AutoZoners, expanding our commercial business and prudent profitable growth in Mexico. While we are pleased with our execution in the quarter our sales results were below our expectations. However our survey results tell us the AutoZone shopping experience is better than it’s been since we began measuring it three years ago. While we do not provide financial guidance our team continues to be enthusiastic heading into the second half of 2008. We continue to feel confident in our long range plans. We believe we have opportunity for growth in all three key business priorities; US retail, commercial and Mexico. 2008 is about further refining our hard parts assortment to increase our ability to say “yes”. In fact we continue to have a tremendous opportunity to increase our yes percentage for both our retail and commercial customers. This year is also about testing enhancements to our hub store network to make more late model parts coverage accessible to our stores and customers. We believe this optimization can help us improve the productivity of our inventory while making more merchandise available where it counts; at the store. Lastly 2008 will be about growing our commercial business. Customer service will continue to be our key point of differentiation and AutoZoners across North America are committed to providing that while customer service, our patrons have grown to expect. We will focus on improving the trustworthy advice of our AutoZoners that they deliver through the enhanced training and providing them the tools they need to succeed. As we continue to demonstrate industry leading financial metrics we remain cognizant of our investors’ capital. We continue to remain focused on optimizing long term shareholder value. We will maintain our cost disciplines while investing incrementally in initiatives that exceed our stated 15% after tax IRR hurdle rate. I thank you today for letting us share with you our company’s results and touch on our ongoing initiatives. We look forward to keeping you abreast of our results well into the future. Now we’d like to open up the call for questions.

Your first question comes from Matthew Fassler - Goldman Sachs

Congratulations on a good quarter in a tough market. Just a couple of quick questions, first of all if you could just revisit your capital structure. You spoke about the 2.1x target leverage that you seek to maintain, would there be any other reason in terms of assessing the business environment of the strategic uses of cash that you would have held off on the buy backs during the second quarter?

Matt, the way I would look at it is on the year to date basis we repurchased $350 million worth of shares versus $220 million purchased last year. We accelerated some of our repurchases in the first quarter and we’re committed to get back to our 2.1x and maintaining our investment grade credit rating is important to us.

To the extent that you can progressively make your way back to 2.1x over the course of the next couple of quarters while still buying back stock, is that something that you would do. In other words do you feel the need to get back to 2.1 on the dot before you commence buy backs or can you move directionally toward that, obviously these are more lucrative quarters for us, the cash flow should pick up substantially?

Yes, I guess our general focus at the moment is that we’ll get back to a 2.1 by the end of the year. So I’d look at it that way.

That’s very helpful. Secondly on the commercial front, obviously there was a tad of deceleration there as there was in the broader business, is that something that you would view as a step back or just a focus or rather a function of the environment that we saw during the quarter across the board?

Yes Matt I certainly don’t think that it’s a step back by any stretch of the imagination. We didn’t get into the details but one of the things that happen during this period of time are you have the holidays. And this year Christmas and New Year’s hit on Monday and Tuesday and last year they hit on Sunday and Monday. We don’t have a very robust business in commercial on Sundays so there’s some shift in the number of days. We see nothing that changes our outlook for the commercial business and are very excited about what our team has been doing. And also about the response that we’re getting from our customers both in their purchasing habits but also in the dialogue that we have with them.

And then finally real briefly, on the weather, you’ve spoken about it from time to time when it impacts your mix in terms of sales of chemicals and other lower margin products. Was the weather a factor in driving mix and consequently margin in either direction this quarter?

I think one of the things that we’ve learned over time is a lot of this stuff evens out over a broader base period so as Bill had mentioned previously we’re going to get fluctuations on a weekly basis throughout a quarter but on a 12-week basis things seem to even out a little bit. I think actually our gross margin improvements; I think our merchandise organization has done a very good job between just optimizing our merchandise assortment. Some of the category line reviews that we’ve done, we’ve certainly added hard parts coverage, we’re able to say yes more frequently so I think we’re delivering a better shopping experience to our customer today certainly than we were a year ago.

Thanks so much.

Your next question comes from John Lawrence - Morgan, Keegan John Lawrence – Morgan, Keegan: Bill just a follow on Matt’s question just for a second on the commercial; the first two priorities you pointed to were identifying the customer and then the categories themselves. Can you talk a little bit about those categories, as the process has evolved have you brought those down to just sort of a standard deviation of a certain group or a percentage of the inventory or is it just better overall experience?

I think what we’ve done over the last year and a half John was we focused really hard on making sure that we got the foundational elements of our business in good shape and that includes parts coverage that includes high levels of service. We did some things like bringing our credit processing back in house and so we got those foundational elements in place and then we began building some really strong sales culture. We started it with making some powerful sales marketing collateral that our AutoZoners have that explain the high quality of products that we have. Showed the depth and breadth of our offering and then we’re also building a sales culture and so it’s kind of across the board. John Lawrence – Morgan, Keegan: And all of those things together allow someone to listen and to knock down some barriers that you didn’t have, that weren’t able to be done say a year or two ago?

I think that’s exactly right and the sales collateral that we provide gives our AutoZoners another reason to go talk to our existing customers and the customers that we’re targeting. John Lawrence – Morgan, Keegan: Great thanks and Bill on the cost of goods side, can you give us a little feel for that inflation in some of those oil based products, where is that as far as sequentially or you seeing more pressure, less as a percentage as we go forward?

Probably a little bit less but I would say that we continue to see pressure and I don’t know what the future holds for us, our expectation will continue to see some pressure on commodity based products. John Lawrence – Morgan, Keegan: Great, congratulations, thanks guys.

Your next question comes from Tony Cristello - BB&T Capital Markets Tony Cristello - BB&T Capital Markets: Bill gross margin does continue to show very nice year over year improvement and category management has been a primary driver, can you perhaps give a bit more detail on some of the successes you’re having now versus maybe last year and what are some of the other areas that may provide some opportunity going forward?

I would say that there’s a lot of different things and certainly I think from a merchandise assortment standpoint that we’re stronger today than certainly we were last year relative to some of the inventory that we’ve added. Clearly we talk about the import program, the direct import program albeit that it’s only 5% of our overall cost of goods sold. Again that’s another important element of our ability to continue to lower product acquisition costs and our ability to respond to increasing prices, particularly commodity based prices and the timeliness of that has been important as well for our ability to continue to make improvements on our gross margin. So there’s a lot of moving parts overall on gross margin and we’re pleased certainly with the gross margin rate that we’ve experienced up to this point and we anticipate that we may have future improvements in gross margin albeit reduced rates versus what you’ve seen up to this point. Tony Cristello - BB&T Capital Markets: And when you look at parts assortment and maybe this is a two part question with respect to commercial but has that been driven by adding more parts under the Duralast brand or has that been other branded products that you’ve added to compliment what you’ve already been doing there?

Tony, I think it’s been a combination of both. We have Duralast and Duralast Gold and Value Craft in certain hard part categories and in other categories we don’t. We haven’t restricted the increases to the places where we have our brands. We’ve gone across the board from ignition to brake pads and basically every category in between. Tony Cristello - BB&T Capital Markets: Okay and is it a situation where when you look over these 900 stores that are in the sort of test program have they, I mean these have been better performing stores in general and can you comment on from a where they stand on the call list with respect to installers, were they already on a higher level or did this parts assortment cause that to move up and thus the flow through on revenue?

I think there’s a little bit of a misnomer that somebody is first call and somebody is second call. In a lot of cases that happens on the individual category lines. So you may be first call on brakes and second call on engine management. Obviously we’re moving up the call list. We don’t have great detail to tell us exactly where we are on each individual customer but we’re very pleased with the progress we’re making. We think the parts assortment has made a material difference with our customers’ response to us. Tony Cristello - BB&T Capital Markets: And is it the parts assortment or the customer service, the combination of all and how easy is it to then transition what you’ve learned here, what you’re applying to a much broader base of stores with respect to commercial?

We’ve mentioned a little bit on the last call, part of our hesitancy in rolling this aggressively forward is it has additional cost components to it and it’s easier to leverage that additional cost over the higher sales productivity stores, you know programs. And so we continue to roll it out methodically and the more we refine it the more stores that we can afford to add those additional resources to. So I would look for us to continue to roll it but also continue to be very prudent with that roll. Tony Cristello - BB&T Capital Markets: Okay great, thank you.

Your next question comes from Michael Baker - Deutsche Bank North America

Two questions, first it sounds like you did some more marketing, didn’t really pay off so I’m wondering what your plan is on your marketing ahead and then secondly if you have any comment on potential consolidation in the space, how that might impact you guys or what your view is there?

On the marketing piece, I don’t want to oversell that discussion. Around Christmas time we went out and did four very hot promotions and we did it to try to see what we could do with increasing customer traffic. And we also supported that with some incremental radio. We found that number one, it’s just very hard to break through during the holiday shopping experience; a tremendous amount of people out there. And we also found that because we can sell some promotional items at very aggressive prices that does not translate into being able to drive profitable sales across the balance of our stores. It goes back to that age old discussion that if customers aren’t willing to buy an alternator if you put it 50% off price, they aren’t going to buy it unless they have a need to buy it. On the consolidation front, the way we look at it, we have tremendous competitors across the entire country. A lot of times people want to talk about Advance and O’Reilly’s and CSK and obviously those are very strong competitors. We have a lot of other very strong competitors too like NAPA and Car Quest, not to mention the [WDs and Mass] and lots of other folks. So any change in the competitive landscape we’ll certainly monitor it and we’ll react to it but we believe our success is determined by what we do and how we interact on a daily basis with our customers and our AutoZoners.

Okay so it sounds like you’re more in the as you said, monitor and react stage rather than something more proactive, is that fair to say?

You know I’m not going to get into any of those kinds of discussions.

Fair enough, thought I’d ask.

I don’t blame you.

I don’t blame you.

Your next question comes from Cid Wilson - Kevin Dann and Partners

Congratulations on a good quarter. Question, touching back about what you had mentioned regarding the strength in hard parts, can you give us some guidance in terms of on a comparable basis how hard parts have did versus accessories and chemicals?

No traditionally we don’t break out that level of information between hard parts and chemicals and so on. The only thing I will tell you is that I think we’ve done a better job relative to increasing the amount of coverage that we have in the hard parts business that we think is actually helping both the commercial side of the business for our ability to say yes particularly in later model coverage and also helps a little bit on the DIY side overall. So I certainly think that some of the inventory initiatives that we have undertaken over the last year, we’re starting to see some benefits from.

Okay and is there any change in terms of the percentage of your total inventory that is private label?

Cid, it’s not materially changed. We continue to look for ways to enhance our Duralast and Duralast Gold offerings and in some cases they get a little bit more focus because they’re in some of our core categories but I wouldn’t say there’s anything material there.

Okay and then my last question is that any color on you’re utilization of your DCs and where they are and what your outlook is in terms of your DCs?

No, you know what we’ve always said is that at the point in time that we make changes to our distribution strategy we’ll communicate them. At this point in time we have seven distribution centers in the continental United States and they’re capable of servicing all of our stores. We also have a DC in Mexico that services our Mexico stores.

Okay, thank you very much.

Your next question comes from Richard Weinhart - BMO Capital Markets – US Richard Weinhart - BMO Capital Markets – US: Two questions, first on the rent expense, you mentioned additional stores being leased versus owned but even backing out the store openings the last year, it seems like your rent expense is up pretty sharply over last year and I’m wondering if there’s anything in there either one time in nature or what factors might have been attributed to that?

I think it’s really just a mix of the stores that we’re opening. I think that we’re seeing some higher rentals [inaudible] for the places that we’re going to geographically so we obviously we’d prefer to own more than we would lease but you know certainly for some of the locations that we’ve been opening over the last year or so, we wound up leasing more than we’ve owned and so that’s really what’s impacting the mix overall. But I don’t think that we’ve seen a material change in our rent on a market by market basis per se. Richard Weinhart - BMO Capital Markets – US: Okay and my second question was on the inventory impact with the way you’ve been accounting for LIFO over the years, I believe last quarter according to your Qs, you had the first quarter I think in many years where your LIFO cushion against inflation came down. I’m assuming that with inflation the way it is that perhaps that continued. What kind of impact, can you give us any clarity on what kind of impact that has on your gross margins; will we see that come down?

I think overall some relatively flat line, you may have had it come down a little bit but I wouldn’t look at that as an impact on gross margin. Our gross margin is really a reflection of our activity from a merchandising standpoint. Richard Weinhart - BMO Capital Markets – US: Okay, thanks very much.

Your next question comes from David Cumberland - Robert W. Baird

For the commercial business have you been able to maintain margins in the first half of the year while you’ve been investing in the business?

As far as gross margins have been, we haven’t seen any or had any significant shift one way or the other in our overall gross margins. As we make investments particularly in some specific areas we can see some minor contraction in the operating margin but nothing material.

Thanks and then on Z-net, can you elaborate on how much the system would need to develop or change from here and also are all AutoZoners fully trained at this point?

Oh yes certainly, they’re fully trained. You know it’s interesting, we began rolling out the Z-net in December of 2006 and within a quarter we had it in every store across the chain and had turned off the old system. The beauty of Z-net is that it’s intuitive and if you work on the internet today it’s basically the same philosophies on Z-net so everybody can jump to it pretty quickly. It doesn’t require hardly any training at all; in fact it’s easier than our old system from a training perspective. As to what’s the future of Z-net, we have a terrific platform that we’ve put in place with Z-net and we’re continuing to refine it every day. We’re continuing to add pictures for more parts categories; we’re continuing to add vehicle-specific repair information on more and more vehicles on a continuous basis. And it also gives us the opportunity to do some things with our AutoZoners to make them more knowledgeable and also give them an additional selling aid from adding banners on there that explain the differentiation between our good, better and best products and I think we have two or three further iterations of enhancements for Z-net in the pipeline and we’re continuing to roll through those methodically.

Sounds good, thanks.

Your next question comes from Danielle Fox - Merrill Lynch

I just wanted to follow-up on the issue of pricing. We do our own survey which showed that industry pricing was down for the first time in years and Advance Auto Parts actually mentioned on its recent call that it was trying to be more competitive on hard parts to attract commercial business. You’ve addressed this issue somewhat but I’m just wondering are there differences between the retail and commercial competitive dynamics that might be affecting say your ability to move up prices on things like consumables and maintenance items versus hard parts? So is there a material difference in the pricing environment between retail and commercial?

Danielle I’ll start with yes, there are certainly differences in the competitive dynamics. One is a delivery business so a lot of people look at the profitability in that business based upon a delivery where the other one is an in store customer experience. So they do have different pricing structures in place and we have different pricing structures in place. They are not drastically different but they do have some differences. As far as is there more challenge in one side versus the other in making sure that, or being able to move our prices up, we want to make sure and we are going to ensure that we are competitive to all of our competitors in every market whether its on the retail side or on the commercial side from a comparative offering. That is if we have a better set of brakes we’re going to make sure that our better set of brakes are priced competitively with our competition regardless of which business it’s in.

Okay that’s helpful, thank you.

Your next question comes from Unidentified Analyst

Regarding your commercial business I estimate that in stores that have commercial departments that they represent approximately 22% of that store’s sales. Is that approximately correct?

That’s directionally correct, it may be just a slight bit less than that but that’s in the ballpark.

Okay well as you know in the case of CSK and Advance Auto that ratio is over 30% and I was wondering if that differential is partially explainable in terms of distribution capabilities between the companies in terms of what the amount that they want to invest in DCs and hub stores and so forth and the amount that you want to invest because the more you invest in that area the lower the ROI.

I don’t think it’s a function of what are we willing to invest in that business or in those distribution assets. Our perspective on it is if we can get the products to them in a timely manner and we have daily delivery to almost every store in our chain, certainly over 80 some odd percent of our stores get a daily delivery from a hub store, so we’re able to provide that level of service. As I mentioned in our prepared remarks that we are looking at some incremental tests in our hub stores and we’re excited about what we’re doing there but we want to as always prove that it worked before we roll it out further.

But as I said before there’s significant difference between say 22% over 30% for CSK and Advance Auto, how would you explain that difference?

I think there’s a variety of reasons why that may exist. I’m not really focused on what they’re doing. I’m focused on what we are doing and how do we do it and do it profitably over the long term.

Okay thank you.

Okay before we conclude the call I’d like to take a moment to reiterate that we are excited about our growth prospects for the remainder of our fiscal year. We understand the challenges our customers face every day. We also understand that when times are challenging we can offer a value proposition that really matters for our customers. Remember, many of our customers shop with us out of economic necessity. We believe we have that value proposition and we won’t stop working to refine our offerings. We have a solid game plan but I want to stress that this is a marathon and not a sprint. Our focus is on our critical success factors. As we continue to focus on the basics and never take our eye off of optimizing long term shareholder value, we are confident we will continue to be incredibly successful. Thank you very much for participating in today’s call.