AutoZone, Inc. (AZO) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the AutoZone conference call. [Operator Instructions] 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 fourth 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 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 now begin.

Good morning, and thank you for joining us today for AutoZone's Fiscal 2012 Fourth Quarter Conference Call. With me today are Bill Giles, Executive Vice President and Chief Financial Officer of Store Development and IT; and Brian Campbell, Vice President and [ph] Treasurer, Investor Relations and Tax. Regarding the fourth 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, is 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 solid quarter and strong fiscal year. This is the first time in our history that we've had AutoZoners living outside of North America. We now have AutoZoners working on 2 new continents: South America, with our upcoming first store opening in Brazil; and in Germany, with our recent launch of ALLDATA Europe. We welcome these new AutoZoners to this great team, and we look forward to working closely with them to capitalize on the tremendous opportunities in these new geographies. This quarter marked our 24th consecutive quarter of double-digit earnings per share growth. We're very pleased with our ability to consistently deliver strong EPS growth through our financial model of steady mid-single-digit growth in EBIT dollars or better, along with high single-digit reductions in our diluted share count. Our goal quarter-over-quarter continues to be to provide consistency to our shareholders, our AutoZoners and our customers. We feel this targeted consistency in both financial performance as well as execution of our key initiatives results in stability and confidence for our stockholders and our AutoZoners. Two weeks from today, we'll be hosting our National Sales Meeting here in Memphis, where we'll celebrate our best-performing AutoZoners and celebrate our successes. As usual, the new objectives for 2013 will be introduced during this session. We have some very exciting growth opportunities ahead in the new year, and we're all very excited about the opportunity to discuss them with our field organization. Next, I'd like to highlight our sales results for this past quarter. Our sales were up 4.6%, and our same-store sales were up 2.1%. This quarter's same-store sales results compared to last year's fourth quarter comp result of 4.5%. While same-store sales results are a combination of both our Retail and Commercial businesses, I should point out our total Commercial sales were up 16% over last year's fourth quarter, driven by a combination of existing programs and the addition of 394 programs over the last fiscal year. Our sales performance for the quarter was a little softer than we were expecting when we began the quarter. Our results were generally consistent from one month to the next. However, the sequential results were not what defined this quarter's sales results. There were substantial differences in sales by regions. This regional discrepancy led to the difference in same-store sales results in this year's Q4 from last. This year, the stores in the areas we'll define as the Northeast, Great Lakes and Plains underperformed materially compared to the rest of our store base. While representing about 1/3 of our total store base, their results affected our overall story in both Retail and Commercial. To put some context on the separation of results, while our comp -- our overall comp was 2.1% for the quarter compared with 4.5% last year, stores for all other regions exceeded their equivalent same-store sales results from last year. As we analyze our results regionally, we believe that our initiatives are having a positive impact. The challenges we have experienced in the Northeast, Plains and Great Lakes appear more macro in nature and less about specific actions we or any of our competitors have taken. This part of the country's sales results are behaving in a different manner. Additionally, based on industry sales data that's available, results show we continue to outpace our total competitive base in both DIY and Commercial businesses. Speaking in regard to our DIY business. As we've discussed in the past, we break product categories into failure, maintenance and discretionary purchases. As we've also said previously, maintenance products have not had the sales growth the other sectors have had this year. Maintenance routinely represents about 40% of any quarter sales, and this category for us has been growing over the last year in the low single-digit range versus the failure and discretionary categories growing in the mid-single-digit range. The products we sell categorized as maintenance are typically those an owner's manual says should be changed out at some select mileage interval. As we reviewed at a more detailed level, we noticed this maintenance category weakness was pronounced in the 3 areas of the country previously mentioned, and that was the primary contributor to our overall same-store sales weakness for those regions and the country. This past quarter, the 3 regions we've mentioned had much weaker-than-expected sales, specifically in this category. And even more specifically, just a handful of merchandise lines made up the primary reason for these challenging same-store sales results, not just the negative maintenance results but the overall negative results for these regions. Excluding these categories, our results in these areas and in total would have been consistent with other regions. Now in saying this, I should point out there are always better and worse-performing regions across the country. And not so coincidentally, we usually don't discuss those items with you. But because the results this quarter were so distinctive on a geographic basis, we decided to call this out. These categories, to probably no one's surprise, are weather-sensitive categories. It would be easy for us to say a mild winter and lack of wear would cause these parts to not be replaced during the summer. But it might not be the entire answer. We don't exactly know the answer, and we believe the only way we'll know for sure is time, time to compare these regions' results against the upcoming winter and spring. At this point, we don't believe any sales correlations to miles driven, new car sales or gas prices in these parts of the country exist to explain the sales fall-off. This morning, we do want to call out some great milestones achieved this past quarter. We opened our 5,000th store in Alaska this quarter, entering our 49th state. We also opened our 3,000th domestic Commercial program as we now have Commercial programs in approximately 65% of our domestic stores. We also completed 18 additional hub projects, taking our hub resets for the year to 40. Including last year's, 60 hub projects have been completed. We continue to be quite pleased with the sales benefits from the reset hubs as we have increased the size and/or improved the location, allowing us to expand the number of SKUs offered on a same-day basis in the market. These SKUs have benefited both Retail and Commercial customers. Regarding Mexico, we opened our 300th store this quarter and finished with 321 stores. Sales in our other businesses achieved very solid sales results. Our ALLDATA and E-Commerce businesses continued to perform well, increasing 6.3% over last year. There are great opportunities for E-Commerce sales growth on both a business-to-business basis and to an individual customer or B2C. We continue to remain bullish on our industry sales growth opportunities on both Retail and Commercial over the long term. As the vehicle population continues to age 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 highlights regarding execution on our operating theme for 2012, 1TEAM Driving our Future. The key priorities for the year were Great People Providing Great Service!, profitably growing our Commercial business, leveraging the Internet and hub store improvements. On the Retail front this past quarter, under the Great People Providing Great Service! theme, we continued with our intense focus on improving execution. We continued to invest in training our store AutoZoners. We continued to enhance and update our Z-net software, and we began to roll out our new labor management system that will replace our legacy system. In regards to Commercial, we opened 107 programs during the quarter and ended the year with an additional 394 programs. This easily exceeds last year's 235 openings. We continue to see Commercial as a material sales growth driver for us for many years to come. Our results continue to provide us confidence to be aggressive in adding additional resources and new programs to this important growth initiative. Finally, in regard to initiatives, I'd like to highlight the progress that we've made on our hub stores this quarter. This past quarter, we expanded or relocated 18 hubs, allowing us to expand our assortment in these markets and continue to increase our yes percentage for both Retail and Commercial. As part proliferation continues to expand and vehicle technology advances continue to occur, in many cases it results in more inventory dollars and lower turns. We continue to see the hub store as our central strategy in expanding our distribution abilities going forward. We believe our hub strategy allows us to have very strong local market coverage available for the same-day delivery, and we believe our distribution strategy is highly efficient. We have been and will continue to add incremental inventory to our local market hub stores to meet this demand. The constant SKU proliferation in our industry has driven the remodels of existing hubs we've been talking about this year. I'll take a moment now to talk more specifically about our fourth quarter performance in more detail. Our domestic same-store sales grew 2.1% for the quarter. Our fourth quarter, which ended August 25, did experience some variability in month-to-month sales results. But the differences were not the story for our results this quarter, though regional inconsistencies were much more the story. This separation in results began in April for us and continued through the end of the quarter. As we've said previously, the category of sales we define as maintenance had the most challenging comparison on the quarter. With approximately 40% of our sales in this classification, sales of this category were soft, particularly in a subset of geographic regions. Although it's not possible to know with certainty the cause, the simplest explanation we have to these results is it appears mostly weather driven. As we said previously, weather always evens out over the long term, so we never get too excited on the upside or downside. We do not believe that the softness was due to any actions we or our competitors took. This regional difference in results carried through to our Commercial business as well. The magnitude of the slowdown was similar across both businesses on this regional basis. However, we continue to be very excited about our growth opportunities in the Commercial business. We continue to open Commercial programs very aggressively across the country. Our small market share and current growth trajectory from our newer programs gives us confidence in our future to build out potential. We will continue to invest to grow our Commercial business and penetrate a larger percentage of our existing store base. I'd like to also mentioned the other businesses. ALLDATA and E-Commerce had another fine quarter, up 6.3% in sales from this time last year. This portion of our business, while small as a percentage of our overall sales mix, continues to experience faster sales growth than the auto parts stores. Over the last year, we have been very focused on leveraging the Internet across our businesses. We've been expanding our product offerings and aggressively building our capabilities to serve our business-to-business customers more effectively. An example of this is our launch of the ALLDATA product in Europe. While there are many stories on the economic challenges facing Europe, we remain very upbeat on the sales potential in this area of the world. There are competitors to ALLDATA there today, but we feel there's a real point of differentiation with our product. While in the very early innings of tapping into these growing customer segments that utilize the Internet for researching or ordering their parts and products, we continue to have a healthy runway for growth by leveraging the Internet across the enterprise. We should also highlight another strong performance in return on invested capital as we were able to finish 2012 at 33%. This statistic has improved each quarter this past year, reflecting our efforts to efficiently use the capital we deploy. It is important to reinforce that we will always maintain our diligence regarding capital stewardship as the capital is our investor's capital. Before I pass the discussion over to Bill Giles to talk about our financial results, I'd like to state how excited we are to start our new fiscal year. We felt 2012 was a very good year, marking our third consecutive year of comparable 20%-plus EPS growth. As our business model allows us superb sightlines into cash generating capabilities, we feel we can have a very solid new year. We remain deliberate in our expense and capital management in order to deliver consistent financial performance while positioning the business to succeed for years to come. Now I'll turn it over to Bill.

Thanks, Bill, and good morning, everyone. To start this morning, let me take a few moments to talk more specifically about our Retail, Commercial and Mexico results for the quarter. For the quarter, total auto parts sales increased 4.6% on top of last year's fourth quarter's growth of 8%. This segmentation includes our domestic Retail and Commercial businesses and our Mexico stores. During the fourth quarter, nationally, unleaded gas prices started out at $3.79 a gallon and ended the quarter at $3.78 a gallon. Last year, gas prices decreased $0.34 per gallon during the fourth quarter, starting at $3.97 and ending at $3.63 a gallon. We continue to believe gas prices have a real impact on our customers' abilities to maintain their vehicles, and the more recent higher prices are unfortunate. During the quarter, prices had dipped at the end of June to the $3.40 a gallon range nationally but increased sequentially starting in July. Gas seems to be comfortably locked in this mid to high $3 a gallon range for unleaded. At the same time, with gas prices remaining at these overall higher levels, we continue to communicate through our marketing messages to our customers the steps they can take to improve their gas mileage. Miles driven were down 0.4% in April, up 2.3% in May and then up 0.4% in June. Year to date through June, miles driven were 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. We also recognize that the impact of miles driven on cars over 10 years old, the current average, is much different than on newer cars in terms of wear and tear. For the trailing 4 quarters, total auto parts sales per average square foot were $263. This statistic continues to set the pace for the rest of the industry, and this metric is up 2.1% over last year's fourth quarter. This impressive improvement is a key contributor to our record EBIT margin percent and our record return on invested capital. For the quarter, total Commercial sales increased 15.9%, and for the quarter, Commercial represented 15.6% of our total sales and grew $59 million over last year's fourth quarter. Last year's Commercial sales mix percent was 14.1%. As we have said previously, overall, we've been very pleased with the progress we are making in our Commercial business both operationally and financially, and we remain on track with our plans. There remains 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. We believe we can grow revenues in existing stores, and we will continue to open additional Commercial programs. This past quarter, we opened 107 new programs versus 104 in our fiscal fourth quarter of last year. We expanded the number of stores with the Commercial program by 3.6% during this quarter and 14.8% over last year's fourth quarter ended. We now have our Commercial program in 3,053 stores supported by 149 hub stores. Approximately 33% of our programs are 3 years old or younger. With only 65% of our domestic stores having a Commercial program and our average revenue per program materially below several of our competitors, we believe there is ample opportunity for additional program growth aside from improved productivity opportunities in current programs. In regard to the current quarter, this was the first in 9 quarters we fell below a 20% growth rate. The effect of the 3 regions Bill mentioned earlier in the call had an impact on our Commercial results as well, in fact, more so than on the DIY business. These markets were a full 15% lower in growth rate than last year in Q4. Our other regions were in line with last year's results. Again, a similar subset of merchandise drove this material decline. And we feel like weather probably had some impact on these results, certainly not all, but we believe if we experienced a more normal winter from a weather perspective coming up, sales will improve in these markets. In regard to our future, we're focused on building upon the Commercial initiatives that have been in place for the last few years. We continue to watch our sales force mature. We're also enhancing training and introducing additional technology to optimize productivity of our sales force. We've increased our efforts around analyzing customer purchasing trends and in-stock trends. We feel our product distribution model is scalable going forward, and we are continuing to attach [ph] additional enhancements to our offerings. In addition to our focus on further developing and expanding our sales force, we expect to continue adding additional late-model import and domestic coverage both in satellite and hub stores. In what remains a validation of our ongoing strategy, our Duralast brand continues to gain traction with our Commercial customers. In summary, we remain committed to our long-term growth strategy. We have accelerated the growth of our Commercial programs, having opened over 750 programs over the past 36 months, a 33% increase. We believe we are well positioned to grow this business and capture market share. Our performance and current model demonstrate an ability to scale this business in a profitable manner. We continue to be excited about our opportunities in this business. Our Mexico stores continue to perform well. We opened 24 new stores during the fourth quarter and finished the year with 42 new stores. We currently have 321 stores in Mexico. We remain resolute on our strategy to open stores at a steady pace while managing our Mexico business for the long run. We have operated stores in Mexico now for over 13 years, and we continue to see great opportunity for growth going forward. Our returns and profit growth have been in line with our expectations. Our efforts to open new stores in Brazil are progressing, and we expect to open our first store during first quarter of 2013. We've also expanded ALLDATA to Europe. Both of these initiatives remain in the early stages and will be implemented in a measured fashion. Neither should have a significant impact on our financial results over the midterm planning horizon. Recapping our fourth quarter performance for the company in total, our sales for the quarter were $2,764,000,000, an increase of 4.6% from last year's fourth quarter. Domestic same-store sales or sales for stores opened more than 1 year were up 2.1% for the quarter. Gross margin for the quarter was 51.8% of sales, up 64 basis points compared to last year's fourth quarter. The improvement in gross margin was attributable to higher margins on merchandise growth. The increased merchandise margins were primarily due to lower acquisition costs. In regards to inflation, we've seen rising costs in commodity-related products throughout the year, although at lower levels than last year. However, we have generally been able to pass along this cost inflation. At this point, we expect subdued producer pricing heading into the new year, and therefore, we feel costs will be predictable and manageable. We will remain cognizant of future developments regarding inflation, and we will 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 profit margin percentage. As the growth of Commercial business has been a steady headwind on our overall gross margin rate for a few years, we have to continuously work strategies to offset this. Our primary focus remains growing absolute gross profit dollars, and gross profit dollars in our total auto parts segment were up 5.9% for the quarter. SG&A for the quarter was 31.6% of sales, higher by 20 basis points from last year's fourth quarter. The primary driver on the quarter's operating expenses as a percentage of sales were 45 basis points of deleverage in store payroll and 39 basis points of deleverage from higher self-insurance costs, partially offset by lower incentive compensation. This year, self-insurance was a material headwind for us. The exposure we're seeing in this area, made up of medical, workers' compensation, auto and general liabilities, remains a concern for us. We believe what we've seen in these areas is extreme for us relative to past years, and we continue to work to better manage these costs going into 2013. While we've experienced higher operating expense percentage growth this past couple of years, higher than our historic growth rates, we've been deliberate with our expenditures. We have purposely invested dollars in our strategic Retail and Commercial business initiatives to position the company for future sales and profit growth. This organization takes great pride in the disciplined approach to managing our cost structure and leveraging our culture of thrift, and we remain committed to appropriately managing expenses in line with our overall performance. Our current expenditures have been made to better position our company for future growth, a good example being the acceleration in opening Commercial programs. We continue to believe we are well positioned to manage our cost structure for the foreseeable future. Earnings before interest and taxes, or EBIT, for the quarter was $560 million, up 6.9% over last year's fourth quarter. Our EBIT margin improved to 20.3% or 44 basis points versus the previous year's fourth quarter. Interest expense for the quarter was $58.1 million compared with $53.8 million in Q4 a year ago. Debt outstanding at the end of the quarter was $3,768,000,000 or approximately $417 million more than last year's fourth quarter balance of $3,352,000,000. Our adjusted debt level metric finished the quarter at 2.5x EBITDAR. While in any given quarter we may increase or decrease debt levels based on management's opinion regarding debt and equity market conditions, we remain committed to both our investment-grade rating and our capital allocation strategy. And share repurchases are an important element of that strategy. For the quarter, our tax rate was approximately 35.5%, below last year's fourth quarter of 35.9%. While the company's tax rate has benefited us the last few years, finishing at approximately 36% on a full year basis, we would like to let you know we expect our full year rate to be approximately 36.8% this upcoming year and most likely 37% in the first quarter. These higher rates are due to the expiration of employee tax credits which have not yet been extended by Congress. And we just want you to plan accordingly for a slightly higher rate in Q1. Net income for the quarter of $324 million was up 7.4% versus the prior year's fourth quarter. Our diluted share count of 38.3 million was down 8.9% from last year's fourth quarter. The combination of these factors drove earnings per share for the quarter to $8.46, up 17.8% over the prior year's fourth quarter. Relating to the cash flow statement for the fourth fiscal quarter of 2012, we generated $420 million of operating cash flow. On a full year basis, we generated $1,220,000,000 in operating cash flow. Net fixed assets were up 7% versus last year, and capital expenditures for the quarter totaled $150 million and reflected the additional expenditures required to open 96 new stores and relocate 2 stores this quarter, also capital expenditures on existing stores, out store remodel efforts and work on development of new stores for upcoming quarters. For all of fiscal 2012, our CapEx was $378 million. With the new stores opened, we finished this past quarter with 4,685 stores in 49 states, the District of Columbia and Puerto Rico, and 321 stores in Mexico for a total store count of 5,006. Depreciation totaled $66.7 million for the quarter versus last year's fourth quarter expense of $62.9 million. With our excess cash flow, we purchased -- we repurchased $480 million of AutoZone stock in the fourth quarter. For the full year, we purchased $1,363,000,000 of AutoZone stock. We've now bought over $1 billion in stock in each of the last 4 years, totaling approximately $5.3 billion in those 4 years. At the end of the quarter, we had $356 million remaining under our share buyback authorization. We continue to view our share repurchase program as an attractive capital deployment strategy. Accounts payable as a percent of gross inventory finished the quarter at 111%, basically flat with last year's fourth quarter. While we expect we have some room to increase this ratio going forward, we expect the rate to increase at a modest rate. Next, I'd like to update you on our inventory levels in total and on a per-store basis. We reported an inventory balance of $2.6 billion, up 6.6% versus the Q4 ending balance last year. Increased inventory reflects new store growth along with additional investment and coverage for select categories. Inventory per store was up 2.5%, basically in line with our 2.1% domestic same-store sales growth. Finally, as Bill previously mentioned, our continued disciplined capital management approach resulted in return on invested capital for the trailing 4 quarters of 33%. We have and will continue to make investments that we believe will generate returns that significantly exceed our cost of capital. As the last point, I'd like to point out that fiscal year 2013 has some extra week or a 53rd week in it. More specifically, the extra week will fall during the fourth quarter. Already our longest quarter in number of weeks, this upcoming year's fourth quarter will have an extra week taking us to 17 total weeks in Q4. As a result, our year will end next year on August 31. Last time we had an extra week in our financials was fiscal 2008. We would encourage each of you to review the impact this extra week had on our performance in Q4 2008 to understand the order of magnitude this extra week will have on our fourth quarter and fiscal 2013 results. Now I'll turn it back to Bill Rhodes.

Thank you, Bill. Our company has been extremely successful over the long run. That success can be attributed to our approach of leveraging our unique and powerful culture and focusing intensely on meeting and exceeding the wants, needs and desires of our customers. Our approach is one of consistency, where flawless execution is a key competitive advantage. To have that high level of execution, it is critical to have consistent strategies, consistent communications and to consistently live up to our pledge and values. This organization has and will continue to do just that. I'm very proud of this organization, and more importantly, our incredible AutoZoners, now across the globe, who work tirelessly to continue to deliver great service and great results. Before we conclude the call, I wanted to take this opportunity to reflect on fiscal 2012. Our organization continues to build on the successes of the last several years, and we were able to deliver great results for the year, highlighted by our third consecutive year of 20%-plus earnings per share growth. We're very pleased with our accomplishments, and I'd like to review a few of those in recognition of the dedication, passion and commitment of our AutoZoners. We grew both our Retail and Commercial businesses this past year, all while continuing to gain share. We opened our 5,000th store last month, entering our 49th state. The store is located in Alaska, and we couldn't be more excited about being there. I met some outstanding AutoZoners, and I know our culture of WOW! Customer Service is being fully embraced in Alaska. We opened our 300th store in Mexico this year, really an amazing success story. We've done it all organically. From our first store 13 years ago to today, our product offering is outstanding across the country, and I couldn't be prouder of our past accomplishments or more excited about our future potential for growth. We opened our 3,000th U.S. Commercial program this past quarter. This was a program that experienced slow growth for many years here at AutoZone. Not today. We grew our program count by 394 this year alone. And with such a small share of the industry's business, we remain very excited about our opportunities heading into 2013. I also want to congratulate our ALLDATA and E-Commerce teams. The strides we've been making with these businesses have been material to our overall operating model. And now with the launch of ALLDATA Europe, we have the opportunity to service an entirely new set of customers. And as evidenced by the upcoming opening of our first store in Brazil, AutoZone continues to break new ground and find new opportunities to leverage our terrific business model and our culture in new geographies. In regard to the numbers, we grew EBIT 9% on top of last year's 13%, and we achieved another record return on invested capital of 33%. Congratulations, AutoZoners. Your efforts drove these successes. As we said earlier on this call, our results this past quarter were solid but not as good as we would have liked. We experienced some unique regional performance differences that had a material impact on our results this past quarter. Clearly, our businesses experienced a slowdown over the last several months, and we believe a significant amount of that slowdown is likely due to the mild winter we experienced last year. But that may not be the entire story. The bottom line is we can't control the weather and market conditions will fluctuate from time to time. Our charge is to optimize our performance regardless of market conditions and continue to ensure we are investing in the key initiatives that will drive our long-term performance. In the end, delivering 2.1% same-store sales, earnings per share growth of 17.8% and record return on invested capital of 33% for the quarter are great results. As we look to the future, the recent slowdown in industry sales is not lost on us. We believe some portion of it is due to last winter's mild weather, but that likely isn't the entire story. Today, we are uncertain if the slowdown we have experienced is temporary or an indication that the industry is slowing somewhat. We won't know until we annualize last winter. What we do know is we have very effectively managed this business through good times and bad, as evidenced by our 24 consecutive quarters of double-digit earnings-per-share growth. As we think about our model, we grow new store square footage at an annual rate of approximately 4%, and we are growing our Commercial business at an accelerated rate. Therefore, we look to routinely grow EBIT dollars in the mid-single-digit range or better in times of strength. And we leverage our very predictable and strong cash flow to repurchase shares, enhancing our earnings per share comfortably into double digits. This model has been quite successful for an extended period of time. Finally this morning, I'd like to announce our theme for 2013 and discuss our key priorities for the new year. The new theme will be 1TEAM Delivering Wow. You will notice our theme and our key priorities haven't changed much, and that is intentional. We continue to be committed to a consistent approach that leads to flawless execution. Our key priorities for 2013 are Great People Providing Great Service!, profitably grow our Commercial business, leverage the Internet, hub strategy with relocations and expansions and leverage information technology to improve the customer experience and optimize efficiency. Let me conclude by saying our financial and operational performance is strong in 2012. I want to again thank and congratulate our entire organization for their dedication to our customers, fellow AutoZoners, stockholders and communities. Our approach remains consistent. We are focused on succeeding in 2013, and we are optimistic and excited about the new year. Thank you for your time. Now we'd like to open up the call for questions.

[Operator Instructions] Our first question today is from Gary Balter with Credit Suisse. Gary Balter - Crédit Suisse AG, Research Division: Just one question and a follow-up. Without spending too much time on the weather, the impact, it was very helpful to hear your discussion of the 3 regions versus the other 7. Given it sounds like most of this is weather, would you expect, if we have a normal winter that business will actually slow before it gets better because of the comparison against the easier winter last year. Is that complicated?

Gary, I don't know that we're focused that intensely on what's going to happen over the immediate short term. What we're more worried -- more focused on is what do we think the long-term trajectory of this business is. And as we highlighted in our prepared remarks, we clearly believe that there is some portion of our softness is due to the weather, the lack of winter that we had in Great Lakes and Northeast last year. We would anticipate annualizing that late winter, early spring. As far as whether or not it gets more challenging between now and then, we didn't do a great job of forecasting how our business was going to trend during the summer. We have not been through this before. We had such a mild winter. And frankly, we performed a little worse than we anticipated in the fourth quarter. So I have a hard time projecting what's going to happen in the first quarter. What I do know is we need to stick to our game plan. We need to obviously manage our expenses and capital very closely, but this is a time where we just need to stick to our plan and be consistent. Gary Balter - Crédit Suisse AG, Research Division: But it sounds like putting aside the weather side of it, you are sticking to it and the business was pretty solid or...

That's correct, yes, yes. Again, 2.1% comps with 17.8% earnings per share growth, that's a pretty great result. Gary Balter - Crédit Suisse AG, Research Division: And then just your gross margin has been a standout each -- like all year and was particularly strong this quarter. And you talked about product acquisition costs. Is there also a mix issue? And as we look at product acquisition cost, is that something that we carry into 2013? Like what are you thinking about gross margin going forward?

Yes, we were actually very pleased with gross margin. I think the merchandising organization did a very good job of managing and improving our gross margin rates overall. And it was highlighted by lower acquisition cost. So as we kind of look through -- forward to 2013, we remain relatively optimistic that we can continue to improve gross margin, as we said, in both sides of the business overall.

Our next question is from Michael Lasser with UBS.

So it sounds like sales fell short of your expectations. Does that mean you're managing the operating expenses side of the business to around a 3% comp? And if that's the case, would you recalibrate that? If you don't see sales accelerate once the colder weather kicks in?

Yes, I wouldn't say we're managing necessarily to a 3% comp. I think some of the things that we tried to articulate throughout the call is that we're very focused on some of the key initiatives that we have in place. And so the hub stores, the expansion of the Commercial programs, we believe those are all very important and create a very strong foundation for the organization going forward. So we're not managing it to 3%. Now having said that, we think we have historically been very good about managing our expenses in response to our overall sales trends. But we're going to continue to focus on our initiatives, particularly since we don't really see a fundamental change in the business today. We think that there's really nothing that's changed with our consumers significantly other than some of the things that Bill talked about relative to the regional disparities that we've had across the country.

Okay, that's helpful. And as a follow-up, we're seeing one of your competitors move their distribution systems to look more like the other competitor, so having a deeper availability of parts within a quicker delivery time. Do you think if the industry moves in that direction, that you could be at a disadvantage over the long term if you only have a hub model for your distribution infrastructure?

Yes, I mean, the way we look at it is that, and Bill talked about it on his prepared remarks earlier, the hub model allows us to have same-day delivery. We're trying to get inventory forward deployed into the marketplace on a more efficient basis and leveraging those 149 hubs in order for us to have inventory that we can say yes to the customer at that day. We also have, through our vendor direct program, overnight possibilities through our vendors being -- supporting us by delivering product on an overnight basis. So we think that we've got a model that is most effective and efficient both as we go forward. You've seen us continue to invest in the hub stores.

Okay. And just last quick one. In the 7 markets that outperformed this quarter, were those -- was the comp trend in those markets pretty consistent throughout the quarter? Or was there some months that were better than others?

I think overall, our performance both in those markets and overall, it fluctuated some. But it wasn't a material story one way or the other.

Our next question is from Alan Rifkin with Barclays.

But just one follow-up, if I may. You spoke about the difficulties in the maintenance category, particularly in the 3 regions. Would you be able to give us some color on how both the failure and discretionary parts of the business performed?

Yes. I think the failure continued to perform generally consistent with how it was [ph]. Actually, discretionary has been a little bit positive -- more positive in the last quarter or 2. And I think that's because our team in the discretionary parts of the business have really done some great work and are improving our businesses in those areas. But the big story, obviously, was the maintenance items.

Okay. And Bill, collectively for the stores that are supported by the 3,000-plus desks or the 149 hubs, is the performance of those stores across all of the regions materially better than the stores that are not yet supported by one or both of those programs?

Well, the stores that aren't in the 3,000, they don't have the Commercial programs. So they might do just a little snippet of business but nothing of any significance. As part of the stores that are supported by the hub stores, one of the things we've done is we've significantly expanded the number of stores that are serviced by the hub store. Some of them are serviced on a same-day basis, the vast majority of them, and some of them are serviced on an overnight basis when they're in very remote areas. We're continuing to work to try to reduce the number of stores that are on an overnight basis. And when we take them from an overnight basis to a same-day basis, we see a material change in the amount of products that they're able to sell.

Okay. And then just one point of clarification, if I may. With respect to inflation, you said that you're still seeing inflationary benefits albeit they're not as great as what you saw before, right? You're not seeing deflation across the board, are you?

I would overall, no. But on a category-by-category basis, I'm sure there's some categories that have experienced some deflation.

I think the big story on inflation is last year in the fourth quarter, we had some very significant inflation due to the run-up in commodities. And now as we've lapped that, we don't have the same trajectory, and it has impacted us on our average ticket growth. One thing we didn't really hit on is our customer count trends have generally been fairly consistent with the last 6 quarters or so. The real negative benefit [ph] has been in average ticket, and a lot of that was not changes that happened this year but the lack of the significant inflation that we had last year once we annualized it.

Our next question is from Chris Horvers with JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: So I just want to clarify a couple of facts that you said. You said that the better areas of the country, the other 7 markets comped above the 4.5 you did last year in 4Q and that the underperforming markets were 15 points lower than those markets?

Yes. Just to clarify, I would say that on the DIY side, that the markets were consistent with the prior year. And their performance was consistent. You indicated they were higher than, I think, the 4.5 or whatever. They were consistent with how they performed last year. And so we're not breaking out exactly what each region did from a comp store sales performance. And then on the Commercial side, 15% below, not 15 -- yes, 15% below. Christopher Horvers - JP Morgan Chase & Co, Research Division: So Advance had talked about some of the same regions comping 600 to 900-basis-point deceleration, is it fair to say overall that maybe the better markets were high single digit better from a comp perspective?

I guess the way I would look at it is that those 3 regions performed differently than the rest of the country and materially performed lower than they did in the previous year. The other regions performed consistent with the way they performed the previous year. Christopher Horvers - JP Morgan Chase & Co, Research Division: Perfect. And then in terms of the maintenance product categories, and you mentioned that whatever in the owner's manual requires regular replacement. So presumably that things like batteries, wipers and exhaust, is there anything that we'd be missing there? And curious what you have seen in those underperforming markets in categories like oil change and break replacement. Presumably, these aren't necessarily weather-affected products and maybe there's some clues there in terms of what's going on in the market.

Yes. I think first of all, the brake business has been a challenging business for us, and we do attribute some of it to the weather. You think about what happens in the winter when you have snow and ice, there's worsening of -- they have to remove the snow and ice. There's corrosion that occurs that impacts the brake pads and the rotors specifically, and then there's also bad road conditions, which will impact things like our chassis business. So I think there's a lot of areas where the weather does impact it. Clearly, oil changes aren't a significant one, and our oil change business is not -- it's done fine, but it's not one of the standout categories where we're challenged. Christopher Horvers - JP Morgan Chase & Co, Research Division: Fair enough. And then one final one, just to play devil's advocate on the hub versus DC supply chain. Do you think that some of what you're seeing in terms of not having a challenge using the hub network is a result of just having the lowest -- lower Commercial sales per store in that as you build that up, that potentially you would have to invest in more DC assets?

Yes, the challenge that I have with that basic premise is it's not about overnight delivery. It's about same-day delivery. And so our focus is about getting same-day delivery on a multiple time per day basis. So we can get products in there overnight. We just don't have to run a distribution truck to the market. We do it via FedEx. So we'll see as we progress. Yes, we are smaller than everybody else. I think we're also growing much more rapidly than everybody else. I think we are very pleased with the trajectory that we have in that business and our strategy. And I'm sure we'll learn things as we go forward. But our expectation is that our distribution strategy will remain the same. The hubs have been an integral part of our -- in the build on our hub to our overall distribution strategy. And then the way we do it today is very, very cost efficient, and we also think being cost efficient is always incredibly important.

Our next question is from Matthew Fassler with Goldman Sachs.

So you alluded to the notion that what you're seeing might not be all about weather. And to the extent that it's not, I'd like to delve just a bit deeper into conditions in the 3 regions that are a little bit softer and ask you whether, based on what you see, there've been many macro factors such as car age in those regions, car sales in those regions potentially being stronger. I'm just looking for something other than the weather that might be different in those parts of the country that would help explain what's going on.

Yes, Matt. And we've been looking at this very hard. And admittedly, as we've said in our prepared remarks, we don't have all the answers. But we've looked at it very closely and very close in those regions based upon category performance. And every time we look at categories that are impacted by winter weather, those are the categories that are seeing the degradation. The other categories continue to perform fine. So that indicates to me that it's not being driven by age of vehicle. One of the challenges that we clearly do have is our consumer continues to be pressured. It's been a long economic cycle, and particularly the low end consumer is continuing to have very difficult challenges. Could they be deferring some of those maintenance items longer? Yes, but I don't know that they're necessarily that much more impacted in the Midwest and the Northeast than they are in the Southeast, for instance.

Bill, second question. As you look at the ticket pressure, I guess to clarify, is that happening across the country? Or is the ticket pressure more focused in those regions? And if you could disaggregate the ticket pressure, if not quantitatively then at least directionally into deflationary or disinflation, and then maybe any kind of mix shift from best to good and better?

Sure. The average ticket deterioration, it's still very positive, but it's not as positive as it's been in the past. And the pressure on that is really not what's happened this year. It was much more what happened last year where we had some significant inflation in commodity prices. And then there are a few places where there was a drastic change. For instance, our 134 refrigerant had a massive price reduction in the marketplace this year, and that rolled through, particularly on the Commercial side of the business, and pressured us. You had a second part that I forgot.

Is there anything on mix, for example? I know you have good, better, best across the board. Are you seeing customers move down market across assortments?

Yes. We are not seeing that at all. I think our mix continues to be very similar to the way that it's been over time. We introduce certain mix category, in certain categories. And we'll see a change when that happens. But when we see the mix offering being consistent, then our sales continue to be very similar.

And then finally for Mr. Giles, just a very quick clarification. So the 7 markets that did well, you said did better than they did in the fourth quarter last year. How did those markets do relative to the May quarter, please?

The May quarter? They were up a little bit. Flattish, I guess, is what I would say. It's probably the easiest way to say it, they were flat.

Got it. So they didn't deteriorate the way the other 3 did?

Yes. That's the point of the question, right. They didn't deteriorate like the other 3 did as much.

Our next question is from Kate McShane with Citi.

Going back to one of the previous questions with regard to discretionary versus maintenance, I know you highlighted that discretionary was doing a little bit more in the 3 challenged regions because of what your team has been doing. So is there an opportunity to employ maybe some of the same strategies that's been working in discretionary onto the maintenance category?

Yes, let me make sure and clarify. I didn't say that the discretionary were doing in those 3 regions. They're doing better overall. But the things that we've done in the discretionary business -- number one, our discretionary business was very challenged in 2008 to 2011. So our team is working very hard to come up with new ideas, new products, new presentation techniques. And most of the tactics that they're deploying are very different tactics than you would deploy on trying to sell maintenance items. Number one, there's no presentation of them. They're all behind the counter. And the product extensions aren't as innovative, if you -- I would say.

Okay, great. And then if I could just ask one question on your Commercial program acceleration. I know that's been a big strategic focus for the company. But I wondered if competitively if you can highlight anything that's changed that maybe has made it a little bit easier or anything that's changed in the environment to help you accelerate some of these -- the expansion of the Commercial programs.

I don't think so. I think what's helped us to be able to accelerate the Commercial program are the investments that we've made in our overall infrastructure. I mean, we've got territory sales managers out there that continue to mature in their positions. We've added technology to help improve their productivity. We've added more inventory into the marketplace. The hub stores are a key part of that. So we're certainly far more competitive today than we were 3 years ago, and you can see by the number of programs that we opened this past year that we have a lot more confidence in our overall model and our ability to capture market share going forward.

Our next question is from John Lawrence with Stephens.

Just quickly, Bill, on the expense line going forward. You talked about the tax rate. Some of the headwinds that you've seen last several quarters on the insurance line, et cetera, how should we think about that going forward, especially in light of the comps that could be a little softer?

That's a good question, John. I think on the insurance one, certainly that was a headwind for the last 4, 5 quarters. We continue to work that one and hope to make some improvements on that. When you think about expenses overall, we expect to continue to be prudent relative to how we're going to manage our expenses. And so where we have opportunities to reduce expenses, we're going to do that. And at the same time, we're going to continue to manage payroll appropriately as well. And so as we have some softness in sales this quarter, obviously, we deleveraged payroll little bit. And so we'll continue to manage that. The most important thing, and obviously, everybody always says this, is that we want to make sure that we continue to provide the best customer service we can, and customer-facing expenses are the last thing to cut. But in the meantime, there are always opportunities within our organization, and our organization is very focused on that right now and making sure that we manage our expenses appropriately.

And last question. As far as ALLDATA's entry overseas, what could we read into that longer term, Bill, as far as understanding that marketplace?

Well, I think number one, ALLDATA and the team in ALLDATA has really done great job since we've owned them since 1996. They've got a great differentiated product in the North American market, and now we're going to take it to Europe. As far as whether or not ALLDATA gives us insights into Western Europe in particular for new store growth or expansion on an international basis, I wouldn't really say that is driving it at all. We are just now planting a flag in Brazil, and that will be our first time to have stores outside of North America. We're very focused on how do we go down there with a small test and ensure that this model can expand even further. So that's our thinking at this point in time. But I was very -- I was over there last week at Automechanika for the launch of ALLDATA Europe. Number one, we've got a great team over there, both the team that's over there selling the product and the team that developed the product in the United States. But most importantly, the customer reactions to the live product at Automechanika were very exciting. And it's a very differentiated product over there, so we're bullish on how it will do. It's not going to be a material contributor to our financial results in the short term, but it can be a very nice business over the long term.

Our next question is from Mike Baker with Deutsche Bank.

So you talked about some things going on perhaps above and beyond weather. One thing I wanted to ask about is your thoughts on the aging of the vehicles, and I realized that the growth -- you're seeing growth in 7-year-old cars or older. My question is this: are you seeing that growth slow down at all? And then looking at even older cars, 10, 11 years old, are you seeing growth there? But is that growth slowing? The point of the question is where do you see the sweet spot in terms of aging? And what are the trends in growth in that sweet spot?

Yes, I mean, it's hard to say where we see the sweet spot necessarily. I mean, we've had a real advantage, as you've seen. And I'd look at it over just the last year. But if you look at it over the last, maybe, 4 years, say, we've seen a pretty good change in the age of vehicles overall. That may moderate a little bit, but it continues to be a benefit. And so we always used to say that vehicles 7 years old or older are our kind of vehicles. And now with an average age of well over 10 years, that's a significant population of cars that are in our sweet spot.

But I guess at some point, do you see behavior where the car gets beyond that 7 years, a consumer might opt to trade in for a new car or a used car that's not as damaged and then scrap that car. What age does that typically happen?

Well, obviously, that age has moved out over time. And so I think that, that is as much of an economic issue as it is anything else. And so I think that's availability, credit, economic turnaround, et cetera, relative to new car sales. But either way, it's been a slow movement to get to where we are, and I don't expect to see any abrupt changes in the future.

Okay, that makes sense. So then just to finish, to close the loop, is that one of the factors that you think about when you guys talk about maybe something outside of weather?

Not on the age of vehicles. Probably not the age of vehicles, Michael. When we talk about outside of weather, I mean, just to be clear, those 3 regions behave differently. At the same time, we don't want to sit here and just peg the quarter on weather. And so clearly, we can draw a lot of analogies to how those 3 regions performed overall, and we struggle to find any other macro corollaries to the performance of those regions. Having said that, we're always going to be conscious of the fact that maybe it isn't totally weather, and we're going to continue to take actions and strategies within our organization to be able to respond to any conditions that we have.

I would now like to turn the call back over to Mr. Rhodes for closing comments.

Before we conclude the call, I'd just like to take a moment to reiterate that our business model continues to be solid. We're excited about our growth prospects for the new year. We cannot take anything for granted as we understand our customers have alternatives. Our culture remains our key point of differentiation from our competition, and we must not lose sight of the importance of basic store execution in order to remain very successful. We have a solid plan for 2013, and our team is positioned to succeed. But I want to stress that this is a marathon and not a sprint. As we will continue to focus on the basics and continue to focus on optimizing long-term shareholder value. We are confident AutoZone will continue to be incredibly successful. Thank you very much for participating in today's call. Have a great day.

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