Good morning. And welcome to the AutoZone Conference Call. Your line has 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 fourth quarter earnings release. 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 properly 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 constitute forward-looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, position, strategy, seek, may, could 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, product demand, energy prices, weather, competition, credit market conditions, cash flows, access to available and feasible financing, future stock repurchases, the impact of recessionary conditions, consumer debt levels, changes in laws or regulations, war and the prospect of war, including terrorist activity, inflation, the ability to hire, train and retain qualified employees, construction delays, the compromising of confidentiality, availability or integrity of information, including cyberattacks, historic rate sustainability, downgrade of our credit ratings, damages to our reputation, challenges in international markets, failure, interruption of our information technology systems, origin and raw material cost of suppliers, disruption in our supply chain due to public health epidemics or otherwise, impact of tariffs, anticipated impact of new accounting standards and business interruptions. Certain of these risks and uncertainties are discussed in more detail in the Risk Factors section contained in Item 1A under Part 1 of the annual report on Form 10-K for the year ended August 31, 2019, and these risk factors should be read carefully. 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 events described above and in the risk factors could materially 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.

And now I’d like to turn the call over to Mr. Bill Rhodes.

Good morning. And thank you for joining us today for AutoZone’s 2020 Fourth Quarter Conference Call. With me today are Bill Giles, Executive Vice President and Chief Financial Officer; Brian Campbell, Vice President, Treasurer, Investor Relations and Tax; and Jamere Jackson, our Executive Vice President and Chief Financial Officer-Elect. Jamere who joined us just last week will be observing only today, but we are so glad to have him here and part of our great team. Regarding the fourth quarter, I hope you have had an opportunity to read our press release and learn about the quarter’s results. If not, the press release, along with our slides complementing our comments today, are available on our website, www.autozone.com, under the Investor Relations link, please click on Quarterly Earnings Conference Calls to see them. Since our last earnings release in late May, much of the world’s attention has been on COVID-19, its current and short-term implications and trying to evaluate the long-term ramifications of this pandemic. During Q3’s conference call, we shared the incredible volatility we experienced during the third quarter, with three very distinct performance periods. Pre-COVID, where our same-store sales were up about 6% or so, and then the midst of the stay-at-home orders where our comps were down over 20% and then the last four weeks where our performance was in the low-teens following the stimulus checks and at the beginning of the enhanced unemployment benefits. We shared last quarter that our retail sales increased an incredible 50% one week from a Monday to a Wednesday. This quarter’s sales story was very different. It was quite consistent and consistently, very, very strong. While last quarter was the most remarkable quarter I have ever experienced, this quarter marked another milestone. AutoZone enjoyed its largest quarterly same-store sales performance since going…

Thanks, Bill, and good morning, everyone. To start this morning let me take a few moments to talk more specifically about both our domestic and international results. For the quarter, total auto parts sales, which includes our domestic, Mexico and Brazil stores increased 14.2%. For the trailing 4 quarters ended, total sales for AutoZone store were $1.914 million. This compares to an average of $1.847 million at Q4 ending last year. Total DIFM sales increased on a 16-week basis 16.8% to $976 million, an amazing number this quarter reached several records for us. In the quarter sales through our DIFM customers represented 21.5% of our total sales, an increase approximately $89 million from last year’s Q4. Last year did have the extra week and excluding that week, our sales were up $140.4 million, our weekly sales program were $12,250 and they were up 14.2% on a per program basis versus $10,700 per week last year. As we open fewer program this year at 114 finishing with 5007 total programs, our sales efficacy per store has never been higher. Not only was $12,250 a week record for us, but we were able to average $60 million in total weekly commercial sales, an amazing accomplishment. While we know many of the industry participants remain comfortably ahead of us currently, we know we are on the right path. This past year, we again believe our sales increases were materially better than the overall industry and will remain focused on repeating this in FY’21. I should take a moment to discuss four major things that are making a real difference for us when it comes to commercial. First, we continue to expand our inventory availability initiative. One major example of this is adding to the number of mega hub locations. These stores have been…

Thank you, Bill. These continue to be unique and unprecedented times and they have required us to look at many things differently to manage our business day-to-day. I am extraordinarily proud of our team across the Board for their commitment to servicing our customers, the motoring public, but doing so in a very safe manner. While we are learning how to operate effectively in these times, we remain wary of the volatility that can exist, volatility in both the U.S. and our international markets. We don’t know what lies ahead of us for this new fiscal year, but we feel we are much more prepared today for uncertainty than we were at the start of this pandemic. We will be ready for a wide variety of economic environments and we have extraordinary people who are committed to servicing our customers and helping them get to work, go see their families, drive to a close vacation spot or get back into the school year. I wish we could provide you with more clarity on our expectations on business trends for our upcoming first quarter and the new fiscal year. But as I stated before, that isn’t practical for us with all the unknowns. But I want to be crystal clear. We plan conservatively in order to manage our cost structure appropriately. Our domestic retail business was a tremendous surprise for us this past quarter. We understand trends will ultimately slow. While we appreciate these things, we feel we are well-positioned for continued future share gain opportunities in both the domestic, retail and commercial segments. We had an outstanding quarter, but we have work to do as we start a new fiscal year. Frankly, our focus isn’t on what happens this new quarter. Its, are we keeping our AutoZoners and customer safe…

[Operator Instructions] First question in the queue is from Michael Lasser with UBS. Your line is now open.

Good morning. Thanks a lot for taking my questions and congratulations to everyone on their new roles and [Bill Giles] [ph] good luck on your retirement. Bill Rhodes…

Thank you, Michael.

Thank you. Bill Rhodes, recognizing that you want to -- you don’t necessarily want to opine on how to think about AutoZone’s sales trends moving forward, but as you think about the period of extraordinary growth that the industry is experiencing right now from those what you categorized as project related items. As that [indiscernible], are you operating under the assumptions that the industry’s sales can return to pre-COVID levels even if vehicle miles driven are structurally lower moving forward?

Yeah. I think that is one of those other questions that are really hard to say right now, Michael. And I will go back to, on our last call, if you would have told me that our sales would continue for four months -- additional four months at those elevated levels, I wouldn’t have thought that to be true, but they did. And the biggest news to me was the fact that August still had 16.5% same-store sales growth post-economic stimulus and enhanced unemployment benefits. What happens with miles driven will be an element of it. But a lot of the miles that are being driven, they are not all the same. Our customer -- our core customer, their habits haven’t changed. They are still going to work every day. When you think about the miles driven it’s -- that have declined, it’s generally higher socioeconomic groups that are working from home. Our core customers, they haven’t worked at home, just like our store AutoZoners and D.C. AutoZoners. They haven’t worked at home a day. So I don’t think all miles driven are the same. What happens in the next 12 months? Frankly, it’s very, very difficult for us to predict. The piece that I hang on to and we hang on to is, generally when economic times are tough people prioritize their vehicle at a different level because they are not going to get a new vehicle in any short-term period, and therefore, they change their maintenance and upgrade their vehicles. So, as I said earlier, the last -- over the last three decades, the best periods of performance for us have all been coming out of recessionary environments. Will this recessionary environment be the same as those other periods? I don’t know. But that’s the best analogy that we have at this point.

That’s helpful. And my follow-up question is on your gross margin. How much did lowering prices on commodity items impact the gross margin in the quarter? Did that have any effect on your ability to gain share seemingly within the commercial side of the business and do you expect to push this strategy further over the next couple of quarters that it will continue to have a lingering impact on the gross margin?

Yeah. It’s a good question, Michael. I would start by first saying, most of the gross margin impact was product mix shift. So we had some categories like lighting and brakes that typically have higher margins than our average and those underperformed the quarter. Batteries as an example, outperformed during the quarter and they typically have slightly lower margins than the average. So that’s what drove it a little bit. But, yes, we did provide -- we did find opportunities for us to lower select categories like commodities, where we are really not adding a lot of service and it’s an opportunity for us to be more competitive. And we did gain market share in many of those categories during the quarter. So we think it was the right decision and long-term it will help drive sales and ultimately help drive gross profit. But to dimensionalize it was probably a single-digit basis point impact.

That’s helpful and best of luck. Thank you.

Thank you.

Next question is from Simeon Gutman with Morgan Stanley. Your line is now open.

Thanks. Good morning, everyone. I have a question on sales and then a question on margin. My first question on sales, Bill Rhodes, you mentioned, the 16.5% through August a couple times and I think towards the end of your prepared remarks, you said, sales will ultimately revert back. Is there anything more you can talk about on September, sorry, to be so short-term and if we get CARES 2…

Yeah.

…do you think we will see a bigger impact in DIY or commercial?

Okay. So you know this, our long history is, we report earnings so quickly after the end of our quarter. Usually three quarters of the year within two and a half weeks at the end of the year because of year [and] [ph] we go three and a half weeks. I just don’t want to talk about trends in September, because I just don’t want people focusing that much attention on such a short period of time. That’s why we were so crystal clear about what happened in August, that we did see a 16.5% comp in August. So I want to leave it at that, Simeon. I understand your desire to hear more but I don’t want us extrapolating two weeks or three weeks.

Fair enough. And then, I guess, I will throw the follow-up and then I don’t know if you have a thought on the -- if CARES 2 will help commercial or DIY more, but the follow-up is also on gross margin. And in the past, I don’t know if you have provided a rule of thumb or the market has that gross margin for AutoZone could be up on average from 10-ish basis points or so a year. Is that still a fair framework, the idea maybe or is there a lower threshold given your reserve the right to invest back in price and then, if it was down a little in 2020 does that mean it could be up a little bit more than sort of typical algorithm in 2021?

Okay. Let me answer your first follow-up question on the CARES Act and then, Bill, will take the gross margin one. As far as the CARES Act, if there was a CARES, I think, it’s now 4 and we provided additional enhanced unemployment benefits. I think you see more of the benefit on the DIY side of the business, because that’s where the most financially fragile customers are. If you look back to what happens every year when tax refunds come out and it’s the DIY business, they both pick up, but the DIY business picks up even more. So I think it would be beneficial on both sides, more beneficial on the DIY side. Bill?

On the growth side, I would just say that, look we grew gross profit dollars by 20%. Our focus is again on driving gross profit dollars. And so where we can find opportunities to invest back in the business, we are going to do that, and over time, retail and commercial prices will go up and down based on market conditions. So, again, our standpoint is, look, our margin is in a really healthy place right now and we have got great opportunities for us to lower cost through lower acquisition opportunities and so we have -- on a category-by-category basis, we feel really good about where our margin is. There’s always going to be some shift in product sales mix that’s going to impact the margin.

Got it. Okay. Thanks Bill and congratulations.

Thank you, Simeon.

Thanks, Simeon.

Next question is from Seth Sigman with Credit Suisse. Your line is now open.

Great. Hey, guys, good morning. Congrats on the quarter, and Bill Giles, congrats on your announced retirement as well. I wanted to focus a little bit more on that 16.5% exit rate, obviously, a very strong trend. Can you just discuss the DIY and commercial trends that you saw as you moved through the quarter? And then the second part of it is, if you can talk about the types of projects that you see getting done and whether you have any concerns that sales are being pulled forward or do you believe that what you have seen is largely projects that had been delayed from earlier in the year? How are you are you thinking about that?

Yeah. Some terrific questions in there. As far as the last question of, did we pull projects forward? I think the project work is kind of, I call it, the never doing now category. These are projects that people thought that they would do some time, but they never had the time to do them, and therefore, when they had the time and they had some incremental disposable income they tackled those jumps. I do -- our battery business, as Bill said, has been very, very strong. A lot of the reasons we believe it’s been strong is because a lot of people park their vehicle for some extended period of time. Once they restarted it the battery had been discharged some. So are those some failures that might have happened this coming winter when it got cold? That’s the only piece that I wonder if that might have a bit of a pull-forward. But we will see when we get into next year. What was the first part of your question?

Just the DIY versus commercial trends as you move through the quarter?

Yeah. DIY started, I mentioned it, went up 50% in two days back in April and so it ramped really quickly. The commercial business lagged it, but it continued to build very methodically over the course of the quarter. As we got into August, both businesses took a little bit of a step down when that enhanced unemployment benefit went away.

Okay. That makes sense. And then just a follow-up on commercial, I do think the most important trend in the quarter was the strength you saw in commercial, obviously, reflects a lot of the things that you have been doing over the last couple of years. Can you just update us on the hub strategy, frame for us how markets perform when you add a hub to the network? And then how are you thinking about growth of hub locations at this point, particularly given all the disruption in retail and the real estate opportunities that may come up? Thanks.

Great question, Seth. Yeah. We think that there’s continued opportunity. As we mentioned before, we are going to continue to expand our mega hubs. As we said, we have 44 open today. We have targeted 75-plus mega hubs in the future. We are well on our way to accomplishing that over the next couple of years. We have got about 200 hubs today. We think on a longer term basis we could almost double that number. So, we are excited about it. The markets do perform well when we introduce those hubs into the marketplace and so we are certainly getting an adequate return and excited about the sales volume is generated from that. And you are right that there are more and more boxes that are available in the marketplace. They just have to be in the right place and that hopefully will be an opportunity for us, as we move forward.

Next question is from Christopher Horvers with JPMorgan. Your line is now open.

Thanks. Good morning, guys. So a couple of follow-ups. On the hurricane in August, did hurricane, how much -- to what degree that impacted the 16.5%, and perhaps, as you peel that hurricane back, did -- do it for me actually moderate post-stimulus?

Okay. So the hurricane, this was not a massive hurricane except for the people that were directly impacted. So it was a pretty small area that was hit. Our sales were softer in that last week, not disproportionately softer but they were softer. We did lose a store in Lake Charles, Louisiana. Fortunately, we know no AutoZoners that were significantly impacted, as a result of that hurricane or the one that happen week and a half ago. As far as commercial moderating, they both moderated in the August period of time. That’s what we saw. They just stepped down a little bit. But we were, frankly, tickled to death with 16.5% comps in August.

Yeah. Really strong. And then, from a regionality perspective, as you saw some of the flare ups of COVID over the summer, did you see any change in your business, any deceleration or acceleration? And as you think about some of the harder hit areas around COVID earlier, the spring, for example, the Northeast, how do that -- those areas perform over the quarter?

Back in the spring, there was a clear delineation between the hardest hit areas and the rest of the country. This summer there was very little differentiation, and certainly, little differentiation that you could attribute to COVID. You would see some weather patterns as we always do. But I would say, that the COVID impact in the summertime was unremarkable.

And then on the Northeast?

I am sorry?

Northeast.

The Northeast, did that as miles driven hasn’t gotten less worse there, has that part of the country seeing a more marked improvement?

It has rebounded back to being more normal with the rest of the markets.

Understood. Thanks very much and congratulations to all.

Thank you.

Thank you, Chris.

Appreciate it, Chris.

Next question is from Zach Fadem with Wells Fargo. Your line is now open.

Hi. This is David Lance on for Zack. Thanks for taking my questions. So as you continue to take share on the commercial side, I was just curious if you could comment on how this business has changed as a result of the pandemic and whether you would view the double-digit growth is sustainable going forward?

Well, I think, one of the things that happened in the pandemic is everybody that run -- was operating a business, started running down case scenarios, us included, I talked about it on the last call that we were asking ourselves questions that I never thought we would ask ourselves, questions like liquidity. But in the midst of the depths of the pandemic, we did two things, one, we invested in our AutoZoners. Other people were saying, how do I cut my costs like crazy. We said, how do we stand in the gap for the most important thing we have, which is our AutoZoners. We have provided them with that emergency time off benefit. The other thing that we did was we didn’t lay-off or furlough one single person, not one, as a result of the pandemic and we kept our operations as normal as possible. Yes, we cut back our store hours of operation. But that was about it. Other people, particularly the less sophisticated, less well-capitalized people, many of which were on the commercial side of the business, they reacted very swiftly and very strongly and they let people go, they cut back their service level. And so it provided us an opportunity to over serve our customers during that period of time, certainly from a competitive point of view. I think that, that has a longstanding impact, whether or not we can grow commercial 10% into the foreseeable future, that’s anybody’s guess. What I know is we are winning in the marketplace. If you look at our growth over -- most of the periods over the last 10 years, our growth versus the competitive landscape has been significantly better, 2 times or 3 times, many times what the industry growth rate is and we feel really good about where we are.

Great. And then just one more from us, how do you think miles driven plays out when you think through the moving parts around extended work-from-home, but also the higher demand from used cars in a population shift to the suburbs?

It feels as though the miles driven is getting better each month, I mean, obviously, it was down maybe close to 10% back in July. But if you look at the current fuel sales, it would imply that miles driven is down in the mid- to low-single digits at this point. So our expectation is that that’s a number that’s going to continue to improve. And back to Bill’s point earlier, that relative to our customer, it’s very likely that their miles driven is not necessarily negative. They are more likely than not essential workers needing to be able to get to work and able to operate their cars. So our expectation is it will continue to get better and that it is, probably, already a little bit better for our customer.

Can I jump in on that as well, and I just want to remind everybody to go back to the ‘08, ‘09 period of time and when miles driven dipped during that period of time, the correlation between miles driven and our sales performance was -- and the industry sales performance was broken. And we attribute that to the fact that there were a lot of people -- our trends were more aligned with what was going on with employment. And so in these tough economic times, I think, the correlation between miles driven breaks. It comes back together in more normal times. But it definitely is not a good contributor in short-term recessionary environments.

Great. Thanks so much.

Next question is from Michael Baker with D.A. Davidson. Your line is now open.

Hi. Thanks. I wanted to ask a question on SG&A, it was up, we think about 6% per foot when you adjust for the extra week. What I am trying to understand is, so sales are probably going to slow, which means that maybe the SG&A growth would slow, but then again that SG&A growth maybe was understated because you didn’t have the labor you needed earlier in the quarter. So how do we think about that going forward, for instance, if you continue to comp in the low- to mid-teen level, does that SG&A per foot go up in the next quarter?

Yeah. It’s a good question, Michael. And as you know, our game plan is, is that we are going to play in the environment that we are in. So if sales are continued to be strong, we are going to continue to invest back into that. As Bill mentioned before, we probably ended the quarter in reasonably good shape from the standpoint of labor and service, but certainly, at the beginning of the quarter, we were trying to catch up a little bit. So, on an overall basis I would expect us to continue to invest in labor as our sales continue to be strong and we are going to find other opportunities for us to be able to make investments when our business is really strong. Because, again, it’s all about the future and it’s all about our long-term growth and ensuring that we are creating a great service environment for our customers both on the retail side and the commercial side.

Okay. So that makes sense. So just to follow-up on that, presumably if we were to be able to look at it on a month-by-month basis or something along those lines, the SG&A per foot in August towards the end of the quarter was up more than 6% and that’s maybe the trajectory we should think about going forward as long as we assume that sales are going to remain pretty strong. Is that fair?

I would just say on a relative basis, it would have increased as the quarter progressed, yes.

Okay. Understood. Thanks. Appreciate that.

Thank you, Michael.

Next question is from Daniel Imbro with Stephens, Inc. Your line is now open.

Yeah. Thanks for taking my questions. Good morning guys. I add my congrats to Bill Giles and Jamere welcome to the team.

Thank you.

Thank you.

Starting on gross margins, Bill, I think, something you guys have talked about in the last 12 months has been a focus on direct sourcing and kind of growing that initiative. Can you update us on where that stands? And then your recent hire of Seong Ohm, obviously, experienced in the global sourcing department, can you talk about how she adds to that capability going forward?

Yeah. Great question. In fact, we spent a lot of time in energy building, our foreign sourcing office -- buying office over in China and so we continue to find opportunities in a lot of different categories for us to be able to find areas where we can reduce our acquisition costs. One of the other things that pandemic taught us was that, we also want to ensure that we are not too dependent on any particular geographic area of the world and so the team is going to be continuing to find other opportunities throughout the world in order for us to be able to source product. So that will actually, I think, reduce our risk on a long-term basis and should also find other opportunities for us to lower our acquisition cost. Seong will come to us with a significant amount of experience in this area and we are excited about her joining the organization and helping the great team that we have already built overseas buying product every day, but Seong will be able to add a lot of value in that area as well.

That’s great. Thanks for the color. And then Bill Rhodes, a follow-up on maybe a higher level industry question. I mean you just discussed some of the differences why you are gaining so much share, and obviously, it sounds like it’s coming from the independent operators. As we think through the long-term impacts of that, how long can the independents keep losing share before we start to see maybe a more rapid pace of independent store closures or how do you think that longer term, what are the impacts of that as you keep gaining the share from that base? Thanks.

Well, that’s a terrific question. I have been in this industry for over 25 years and I have seen the consolidation happen and AutoZone was a significant participant of it in the late ‘90s all the way through 2008 or so. On the commercial side, this consolidation is much more challenging. On the retail side of the business, everybody was looking for geographic expansion and we could all take reasonably the same size boxes and over time turn them into our standard prototypes. On the wholesale side, it’s not as easy. We don’t need the wholesaler’s inventory. We don’t need their distribution. We don’t need their locations. We need their customers and is there more efficient ways for us to get their customers by winning in the marketplace is what we have learned over time. We did great team step our toe into the water with our acquisition of IMC and that didn’t work out very well for us. We believe our strategy and approach to -- approach in the market will win over time. If you look at what we have done in some of our close-in competitors, we have all substantially changed our inventory assortments over the last five years to 10 years. We have all built really strong sales forces and we are continuing to chip away at some of the competitive differentiation that was in the marketplace. I think that that’s what’s happening with share over time. These companies, many of the independents, they are not working for a return on the capital though. They are working for their salaries and so what happens them over time, I think, they have longer staying power than other enterprises would. So I think it will take time but I do think that there’s a lot of pressure on independent operators in this commercial side of the business today and that’s not going to let up.

Great. Thanks so much for the color and best of luck.

You bet. Thank you.

I would now like to turn the call back over to Mr. Bill Rhodes.

Okay. Before we conclude the call, I want to take a moment to reiterate that we believe our industry is very strong and our business model is solid. We will take nothing for granted as we understand our customers have alternatives to shopping with us. We will continue to focus on the basics as we strive to optimize shareholder value in FY 2021. Thank you for your time and thank you for your interest in our great company. Stay safe and be well.

This concludes today’s call. Thank you for your participation. You may disconnect at this time.