Good morning. My name is Unicky and I will be your conference operator today. At this time, I would like to welcome everyone to O'Reilly Auto Parts 2007 second quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operators Instructions]. I will now turns the call over to Tom McFall, CFO. Please go ahead sir.

Thanks you Unicky. Good morning everyone and welcome to our conference call. Before I introduce Greg Henslee, our CEO, I would like to read a brief statement. The company claims the protection of the Safe Harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by forward-looking words such as expect, believe, anticipate, should, plan, intend, estimate, project, will, or similar words. In addition, statements contained within this press release that are not historical facts are forward-looking statements such as statements discussing, among other things, expected growth, store development and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions that are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including but not limited to competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental approvals, our ability to hire and retain qualified employees, risk associated with the integration of acquired businesses, weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the risk factors section of the company's Form 10-K for the year ended December 31, 2006 for more details. At this time, I would like to introduce Greg Henslee.

Thanks Tom. Good morning everyone welcome to our second quarter 2007 conference call. Participating on the call with me this morning is Ted Wise, our Chief Operating Officer, and of course, Tom McFall, our Chief Financial Officer. David O'Reilly, our Executive Chairman, is also present, but he won't be participating in the prepared comments. I would like to start off by thanking Team O'Reilly for the great effort in the second quarter. Our team continues to offer the highest levels of customer service in our business, and while none of us were satisfied with our comparable store sales for the second quarter, we feel confident that our stores are providing the best combination of service, value, and availability in our business. Second quarter was a very challenging quarter. In late April, on our first quarter conference call, we discussed how winter whether had returned in our markets at the beginning of April. And that business had slowed considerably from the pace we were on in March. With the exceptions of a few strong weeks during the quarter, that slower pace continued and we ended the quarter with 2% comparable store sales growth and 4.3% through the first 6 months of the year. There are a couple of primary factors that we feel presented challenges in growing comparable store sales in the second quarter. I hate to talk about how unfavorable weather affects our business, but it can have a significant effect on sales in the short time. At the end of the day, weather conditions are what they are and over time periodic favorable or unfavorable weather conditions make little difference to our long-term business results. But when looking at a short period of time, they can have meaningful effect. This past quarter, after winter returned to many of our…

Thanks Greg. Good morning everyone. In the area of store expansion, as Greg mentioned, we installed 44 news stores this past quarter, giving us a total of 1731 stores. That brings us to 91 new stores year-to-date, which is slightly short of our goal of being at 95, which is half way to our expansion goal of the 190 to 195 stores for the year. This was due to the excessive rains across many of our markets and construction schedules having to be shuffled around. So, we will open a few more stores in the second half of the year than in the first. Also, to a lesser degree, we are experiencing and adapting to longer permitting times in some of the new markets, especially in the Northern and Eastern market. So while we would have like to be starting the first... the last half of the year with more than 90 or about 95 new stores, we will have to balance the stores in the development process and with more normal weather conditions see no issue with finishing the year on schedule. We have expanded our footprints to 26 states with the addition to three new stores in Ohio last quarter. Texas topped the list with 13 new stores and the balance of the new stores were spread out evenly in 15 other states. Our experience is that balancing our growth throughout our markets is more manageable now that we are growing out 14 different distribution centers. The recent relocation of the Minneapolis/St. Paul DC to a state-of-the-art 328,000 square foot facility is now complete. After the purchase of Midwest, most of our real estate work has been focused on relocations and upgrades to the original Midwest stores. We now have the majority of this work behind us and…

Thanks Ted. On to the numbers. Sales were up 8.8% to $643 million for the quarter with comparable store sales of 2% for stores open greater than 12 months versus 3.5% for the second quarter of 2006. Year-to-date, sales increased 11.4% to $1.26 billion on comparable store sales of 4.3% versus 3.6% in the prior year. Sales to independent jobbers for the second quarter of $12.6 million decreased 6.3% from the prior year. Gross profit was 44.7% of sales for the quarter versus 44.1% in the prior year. Year-to-date gross profit was 44.3 % of sales versus 43.8% in the prior year. The improvement was primarily due to improved product mix and distribution efficiencies. SG&A for the quarter was 32.0% of sales versus 30.9% in the prior year. The deleverage was the result of low comp sales levels during the quarter. For the year, SG&A was 31.7% of sales versus 31.1% in the prior year. The increases as a percent of sales was primarily attributable to the higher advertising costs and increased stock option expenses. Operating income for the quarter was 12.7% of sales versus 13.2% in the prior year. Year-to-date, operating income was 12.6 % of sales versus 12.7% in the prior year. The tax provision for the quarter was 37.0% of pre-tax income and the year-to-date tax rate of 37.1% of pre-tax income is flat with last year. Net income for the quarter was $51.9 million, 8.1% of sales, versus $49.3 million, 8.3% of sales in the prior year. Year-to-date net income was $100.3 million versus $89.9 million in the prior year. Year-to-date net income in both years was 8.0% of sales. Diluted earning per share for the quarter was $0.45 versus $0.43 in the prior year on 116.1 million shares, which is a 5% increase. Year-to-date EPS…

[Operators Instructions]. Your first question comes from Bill Sims with Citigroup

Thank you and good morning

Good morning

Can you compare the number of new stores that will be opened in new markets this year versus last year and then comment on the maturity curve of the stores, especially on the commercial side of the business in new markets such as Ohio compared to your existing markets? Thank you.

Bill, you are saying... okay. If I follow your question right there, we will definitely have more new stores out of new markets this year because of... really Indy is just really in its first full year of expansion. So we are just going into Ohio and more upper Midwest markets. So I would say it would be somewhat more, although the year before was Atlanta. So, it's probably not much difference actually when you stop and think about it.

How should we think about new store productivity? Is there any... is there a significant difference in how a new store ramps in a new market versus existing market or is it similar?

It depends on the market, Bill. There has been some markets in Texas where we've decided to do some back-fill where we simply had really too much business coming to one store and we were leaving business on the table by not having another store in a strategic location, and in those cases those stores will come on quicker than a new store in a new market. But in many of the what we'd consider back-fill stores, that's not the case, and they wouldn't necessarily come up quicker. So, it's pretty market unique and it just depends on the market. You mentioned Ohio specifically and the stores we have opened up in Ohio so far we have been happy with and they have been on track with what we have done in the past as far as some of our all of our new stores performance. So we don't see much difference with those stores in being a new market as compared to what our historical performance has been.

Bill, really the retail is pretty consistent between new markets to new markets. It's the wholesale business, it comes on sometimes quick, sometimes a little slower because you are competing against a local competitor that has the market share and so it gets back to staffing the store with the right installers, service specialist.

I understand, I appreciate it. Thank you, good luck.

Thanks.

Your next question comes from Armando Lopez with Morgan Stanley.

Hi, good morning everyone.

Good morning.

Just a couple of quick questions. I guess, first on the CapEx, I think you said it was $240 million to $250 million, which is up a little bit from the old guidance. Could you may be just talk a little bit about that?

Thanks for your question Armando. This is Tom. Through the year, we have looked at it and we always look at what the payback on our investments are. Our distribution centers have shown a great ability to use automation to become much more efficient. And when we build the new distribution centers we look and say, we try new things and the things that work and have a good return on investment will roll back to older DC. So that's the portion of it. The other portion we talked a little bit about it in the last conference call was we decided to make a major investment in the store computing power and are replacing all the AS400s in all the stores. So that's a big investment for us. As we continue to add more tools into the store that are computer-based such as the scheduling system, we have the requirement for some more horsepower there.

Okay, thanks. And then can you just... you commented on the comp sales ex-Texas and Oklahoma, I think. Could you talk a little bit about maybe the trend during the quarter?

The trend was coming out of March, April with winter coming back, it slowed down immediately and we had... April was pretty slow. It kind of that leveled out in the middle of the quarter and then stayed consistent towards the end of the quarter. Around the end of June, first of July, we've had some pick-up.

Okay, thanks. And then just one last one, how are you thinking about capital allocation now in terms of buybacks and dividends?

Our plan right now is to continue using our free cash to grow the company. At some point we may change our mind on that, but today we would like to have some dry powder in and we are looking to our future growth and the possibility of more consolidation in the industry. So, for the time being, we are going to continue to use our capital to grow, but we don't rule out the possibility of buying back stocks at some point in the future, possibly paying a dividend, more unlikely on the dividend probably.

Okay, thanks a lot guys.

Thanks.

Your next question comes from Scot Ciccarelli with RBC Capital Markets.

Hi guys, how are you?

Good. How are you doing Scot?

Good. Just wanted to verify something. I guess it's Tom's comments. Basically you guys are talking about slightly lower comps, down a point on each side of the range, but basically the same earnings as what you had suggested in your previous commentary given I guess that this quarter was a little bit lower than what people were expecting. Is that the right way to view it?

Well, I think our full year guidance is a penny lower on the high side than the low side than our original guidance going into the year.

Okay, that was number one. And then you did provide us some detail in terms of Oklahoma and Texas, what the comps were doing without those as well as the decline that we had seen in air conditioning products. Can you help quantify those numbers, what percentage of sales is Texas and Oklahoma and what percentage of sales is AC during these months?

Probably we don't have those numbers here with us. We just yesterday afternoon decided to cap our comps in different ways considering these rainy markets, and we really didn't quantify that. If you want to call back, we can give you more information about the regions in Texas and Oklahoma. We typically don't like to talk about by market volumes just because it is a little bit of a competitive situation and in my product line I don't have the percentage that air conditioning represents of our business this time of the year.

Okay. It sounds like it's fair to say that weather had a pretty extreme impact on this particular quarter.

No question about it, especially in Texas and Oklahoma, which are big regions for us, and those are big areas of our market area, and they... when we talk about rain, I may have even said it lightly, they had flooding condition. A lot of markets simply had downpours that flooded various areas and simply shut down business for some period of time. And we didn't talk about Kansas just very much. I mentioned the refineries were shut down, but those markets out there were also very impacted by flooding conditions. But we chose to take Oklahoma and Texas out simply because those were what we felt to be the most impacted by the heavy rains.

Got it. Thanks a lot guys.

Thanks

Your next question comes from Mike Baker from Deutsche Bank.

Hi, thanks. So just on that sort of flooding question. Historically when the weather gets drier, do you see any kind of pickup in demand? In other words, does flooding and the rain, we know that people don't work in their cars when it rains and that's what has hurt your business, but is there any kind of damage that has s sustained to automobiles and then does that help to drive comps in the subsequent quarters?

Yeah, really there's a couple of factors. One, like you said, people typically don't work on their cars, especially ones that have to work on them outside. So, there's some deferred maintenance, just people that maybe weren't in flooding conditions, but because of an extended period of rain when they were off work didn't work on their cars. So there's a little bit of pent-up demand created just from that alone, and we saw that in weekends where we had heavy rainfall in Texas that really slowed the DIY business down. And then from a demand standpoint created by flood damage, yes, if cars are in flooded areas, there are several things that happen; one, the bearings that can be under water, the wheel bearings and front axle bearings, those of course can sustain damage over time. If the water gets high enough, of course, it gets in to the transmission and differentials and transaxles depending on the type of vehicle we're talking about, and those fluids have to be changed and those filters have to be changed and things like that. And there can be starter motor damage, various things. And we experienced a flood down in Houston back, I think it was in 2000, maybe 2001, heavy flood and we saw a lot of demand in things like transmission filter kits and transmission fluids where the fluid had to be completely changed. We simply couldn't keep up with the demand. As a matter of fact, all the part stores down there were running out of transmission fluid. We're heavy in Houston and AutoZone is heavy in Houston and both of us were running all those kinds of products

So what kind of lag do you typically see before you start to see that kind of demand? If the same thing plays out as happened in Houston in the past, would that be a third quarter benefit or fourth quarter benefit?

Well, Houston was extreme. I use that as an example just to define what can happen in a flood. The effect or the positive effect happens pretty much directly following the clearing of the rain because the cars in many cases will be inoperable. So the effect is positive right away for the fluids and so forth. Now axle bearing damage and stuff like that can be some time down the road. Bearing gets wet, there is rain and water and the bearings are sealed to some degree, so they are made to withstand some exposure to moisture. But over time the bearing gets damaged. So there is some sustained benefit over time because of the bearings being damaged. But you may not see that... it depends on how far the car, how long the car is driven and the extent of the damage, but it could be several months or a year

Okay. That's very helpful. One more, if I could. Just in the third quarter guidance and then the full year guidance, what is assumed in terms of leveraging comps? If you have a 3% to 5% comp called for at the mid-point, do you expect to leverage your SG&A? You didn't in the first quarter on a 7% comp, but I imagine you can pull back some expenses?

Yes, we feel like 3%, 3.5% in the third quarter we will leverage our SG&A percentage.

Great, thank you very much, very helpful.

Thanks

Your next question comes from Tony Cristello with BB&T Capital Markets. Anthony Cristello - BB&T Capital Markets: Hi, thanks. Good morning gentlemen.

Good morning Tony. Anthony Cristello - BB&T Capital Markets: Greg, if look over the last 12 to 15 and business has clearly been difficult and you think about the mindset of the consumer as one of deferral, as vehicles age and the replacement of critical parts increases and basically fewer dollars then are spent on more normalized maintenance, if that deferral purchase more permanent on the part of the consumer, how do you then drive average ticket up and how do you upsell when all consumers thinking about saving money with respect to automotive repair?

Well, first, it depends on the kind of items that we're talking about. The air conditioning, for instance, yes, a car that may be is worth, I don't know, say, $10,000, it's a used car that's 5, 6 years old and it sold new for $20,000 and it's now worth $10,000, the AC doesn't work. The consumer decides to drive the car without AC and just roll the windows down. At the point they decide to trade cars, they really almost have to have the air conditioner fixed or take one huge hit on the trade-in value. Cars just don't worth much without the air conditioning working because the AC repairs can be so expensive. So, it depends on the type of repair. Over time, cars have to be maintained correctly. If a car isn't maintained correctly, it becomes unsafe. For instance, brake pads. If the brake pads are worn to the point that it damages the rotor, yes, you can put brake pads back on a rotor that doesn't have a clean surface or the correct kind of surface, but it is going to wear pads up quicker and so it's going to be brake pads in 15,000 or 20,000 miles as opposed to maybe 30,000 or 40,000 miles. And at some point, the consumer is going to decide, listen, it's ridiculous from me not to replace the rotors and pick this thing right, but I'll do it more in better economic times when I have more cash in my pocket. So that's basically my feeling, Tony. Anthony Cristello - BB&T Capital Markets: And just a follow-up, are you seeing on the part of professional installer base, are they commenting on the lifecycle of parts, are they lasting a little bit longer and is that enabling the consumer to push out repairs as well?

Well, some parts are. If you look at, say, starters and alternators, for instance, a lot of the cars these days are made with better starters and alternators than they used to have. But at the same time, back when the starters and alternators failed on the cars a lot, the cars didn't have all these sensors that they have on them now that fail. So there is a lot of offset to the various components that now last longer than what they did at one point because the individual components are better, and then offset is that the cars have mush more technology on them today and that technology is driven through a series of sensor that feeds the computer data and those sensors fail. And all of us that are in this business, us and all of our competitors are very much in this sensor and computer system business because they are primary parts of car today. So, to me there is at least a full offset if not a positive offset to the some of the components that are lasting longer. Anthony Cristello - BB&T Capital Markets: Okay, thanks. And Tom, can I just get a point of clarification on the core write down, was that a function of you had core values there that you just weren't collecting the cores for or were they core values that were overstated and you need to bring back to sort of a price that is more reflective of today's prices?

More similar to your second comment. This particular line has become a line that has been heavily imported from China. The Chinese product is not re-manufacturable, but it's comparably priced. So from a demand standpoint and an uncertainty of origin standpoint, the value of the cores to rebuild for a new replacement or a new remanufactured units has gone down, thus reducing the value of those. Anthony Cristello - BB&T Capital Markets: Is this axles?

We don't want to comment on any particular venue line. Anthony Cristello - BB&T Capital Markets: Okay.

Thanks though, Tony. Anthony Cristello - BB&T Capital Markets: Okay, thanks guys.

Thanks

Your next question comes from Dan Wewer with Raymond James.

Thanks. Greg, for what it's worth, I was in two of your stores in Dallas last Sunday afternoon and they were packed.

Great. We are glad to hear it.

Two questions, first, in using the publicly available data to measure new store productivity, that measure has weakened for the last four or five quarters and obviously a lot of variables can influence that measure, but can you just walk us through the first year sales volume of a new store and then how that grows in the following year or two?

I will go ahead and answer that question. Over the last three or four quarters, the business hasn't been what we would like to be in the total. So the new stores are going to perform a little less, but we continue to be in a historically... our historic band of what new performance should be. First year should be around $900,000. Second, when I say year I mean first 12 months should be around $900,000; second 12 months $1.1 million, third $1.2 million to $1.3 million, four $1.3 million to $1.4 million and then we hit maturity.

And you're thinking the last three or fourth quarters the annual run rate has been somewhat below that $900,000?

We look at them at store class and there's a number of different variables, some of the stores have been a little above that and some have been below but pretty cost to that average.

And then my follow-up. The inventory per square foot appears to be down about 4% year-over-year which is remarkable given sales came in below plan. Can you just remind us as to how you tweak that inventory level down and if there is any risk that your purchase discounts for the year could be in jeopardy given the volume of inventory you are buying is probably less than what you had originally projected?

Well we recalculate the value of those potential rebates every quarter, so they are trued up quarterly and we keep those in check. So part of the impact on the quarter for inventory of course was the deflation of the core value to some degree. And then also just our... we have a lot of confidence as I said in my prepared comments that our inventory systems are improving everyday. We put a lot of effort in technology into making sure that we make wise decisions with inventory investments and that we put the right inventory in each store. And I talked about this before in the past when we originally implemented it. But we do things like make available to our distribution centers for replenishment, inventory in the stores that is not selling or is on the tail end of the demand curve, things start tailing, if it's something you had in a lot of stores rather than buying more from the vendor because the distribution center has run out, we create in our computer system basically a virtual distribution center from which our distribution centers buy from our stores. They ship it, we run trucks five times a week, they don't come back full from the stores, so we ship merchandize from our stores back to our DCs to replenish our distribution centers as inventory starts coming down. That's just one of several things that we do to help streamline inventory mixture that we minimize the investment, yet maximize the potential for sale. So I give a lot of credit to the guys here in the company, they developed this and continue to enhance it ongoing as it relies on data relative to the vehicles that exist in the market, demand and similar vehicle demographic areas in the country in which we do business for new stores and I think it has a very positive effect on our ability to keep our inventory investment down-handed and to grow sales. And I don't think that there is any risk of us having rebate issues at the year of the year because of the process that we go through and finance to true-up our rebate expectation based on the most recent quarter result.

Right. Thanks and good luck.

Thanks.

Your next question comes from Scott Stember with Sidoti & Company. Scott Stember - Sidoti & Company: Good Morning.

Good morning.

Good morning. Scott Stember - Sidoti & Company: Could you maybe talk about the specific areas within Texas that were impacted for instance for your Southern Texas stores impacted by the flooding in the rains or was this more of a Dallas and up in lower Oklahoma deal?

It was Houston also. I think DFW was impacted a little more than Houston or at least for a longer term than what Houston was. I think Houston had some really bad weather also from a rain perspective. But I think it was extended from a time perspective more in Dallas Fort Worth and Southern Oklahoma moreso than it was in Southern Texas. The actual flooding was fairly isolated, it just a continuous downpour of rain after rains after rains and a very cool temperatures too. I mean probably more so than the rain, the fact that it's being like... the humidity has been great in Texas, people down there think that they are in Southern California this year compared to previous years and there is just been no heat, and heat's what tears up starters and alternators and hoses and batteries, everything. So, hopefully its going to warm out now. Scott Stember - Sidoti & Company: Okay. As far as the timing goes, it sounds like most of it was towards the end of June because of the bad weather, it sounds like business has down-stacked a little bit, can you quantify that a little bit? Which place may be?

Yes, the issues we talked about were more... they started out with the winter weather in April, but the rain and so forth were more May and June. They were kind of periodic throughout the quarter. Then what was your next question... what was the other question? Scott Stember - Sidoti & Company: Yes, the question was that you indicated that it sounds like business bounced back a little bit --

Yes. Scott Stember - Sidoti & Company: Before it reached the quarter [ph]?

And they had. July has been a little stronger and again I don't want to give you exactly where we are at, comp store-wise for the quarter at this point because we compare periods a little unevenly with regard to weekends because of our three months equals a quarter and I think and then weekends have such an impact on our business. But if you just compare the individual weeks and we got three weeks passed in the quarter, if you compare the individual weeks with the three weeks we've had in the quarter, we've had two weeks of strong business on... at the very upper end of our guidance range and then one week is a little weaker than that. Scott Stember - Sidoti & Company: And lastly, can you just talk about any competitive price issues going on particularly in the DIY segment?

Well... I mean it's always competitive and there is no question that both Advance and Auto Zone are strong competitors of ours from a DIY standpoint. There's been no maker changes in the competitive position that we have seen and we shop a number of items every week to see if it's been a move across categories and probably the one that we have seen the most moves in over the past three or four years has been motor oils and various kinds of petroleum fluids, but there has been no major change in strategy that we've noticed during the past quarter. Scott Stember - Sidoti & Company: That's all I have, thank you.

Thanks.

Your next question comes from David Cumberland with Robert Baird.

Good morning. On the LIFO reserve reduction, the 2.5 million part of that; what was the reason for that, and do you expect additional reductions in the second half?

Actually most of that relates to the capitalized portion of wages that are in our inventory and as we hit the summer months we become more efficient which creates a LIFO adjustment in the first and fourth quarter where business is slower, we are not quite as efficient as distribution centers; we see that reversed. But we would expect that our LIFO would be close to zero for the remainder of the year.

Thank you, that's it.

Thanks.

Your next question comes from Matthew Fassler with Goldman Sachs.

Thanks a lot and good morning to you.

Good morning Matt.

I would like to focus on gross margins primarily if I look at your guidance 44.0 to 44.4, it would imply that high end margins that are up only marginally for the second half of the year much less than you've seen year-to-date and at the low end it would factor in some declines. So I am trying to get a sense of whether there's some core drivers to that view or whether it's general conservatism and is part of that whether that relates to the different tactics you said you pursue this year in terms of thinking about the timing of under-review recognition?

Well, there's a couple of things: one, our previous guidance prior to just announcing that our guidance was 44 to 44.4 was 43.8 to 44.2. So we increased it by 20 basis points and part of that is due to... we feel like our margin is expanding a little bit due to product mix like we said and part of that comes from private label alliance where we feel like consumers are opting to buy more private label lines to save some money as opposed to branded products. Private labels typically have a little better gross margin. And thinking that that trend may change we constantly try to sell up to the branded products based on the size of the ticket and so forth and as that changes that would have some impact on gross margin. We raised our guidance 20 basis points because of our feelings that we can't sustain much or all of the benefits that we gained in distribution and they will continue to benefit from the investments that we've made in distribution and that's the reason for the change. So you can say it's a little bit maybe conservatism but really we feel like it's pretty realistic and that we are comfortable 44 to 44.4 for our gross margin guidance.

Is it your sense that the marginal business that you think you'll recapture as the trends return to normal would be a lower margin business; I don't know if it's actually sensitive business?

Yes, just slightly. Sometimes like the brake pad -- a brake pad through $9.99 or you can buy break pad for the same car for $36.99. Well $9.99 brake pad has a real healthy margin but it's not a very big ticket. The $36.99 brake pad maybe doesn't have quite as much margin but it's a lot more gross profit dollars and a bigger sale. And we sell up to that higher ticket and I think as the consumers get more adapt to the higher fuel prices and those prices get build into the event... to the budget, many will make the decision to go ahead and buy the better value product which in many cases is the more expensive product but that product caries a slighter less gross margin.

Got you. And then just one quick follow-up. Gas prices have been an issue for some time on a year-to-year basis. They finally flattened out I guess in the past week or two, I am not sure if consumers think about sequential trends year-to-year, if they think about $3 sticker shock situation. But as you've watched fuel prices and I imagine you are watching them more closely than in years past. Are you seeing much correlation as those fluctuate or is that too precise of an analysis to look at?

Yes, it's a little too precise analysis to look at. In all markets especially where we've had kind of regional swings. Around Memorial Day there was a lot of volatility because of the supply and some markets just got a little higher or faster than other markets then this deal out in Kansas happened where these refineries flooded and it basically shutdown the supply line to several markets and gas for no reason. As a matter of fact it got higher in some market supplied out there than it was in many places in the country which gas would typically be a lot higher and that of course had an impact. So we really don't see an immediate co-relation. My thought is that consumers are getting used to the fact that gas prices are higher. There's not so sticker shock. Yet the effect that higher gas prices has had on their overall financial condition has been tough and it's going to take a little while for most consumers to recover from that.

Great, thank you guys.

Thanks.

Your next question comes from Jeff Sonnek with FBR. Jeff Sonnek - Friedman, Billings, Ramsey & Co.: Thank you. Can you just characterize a little bit for us just traffic versus ticket, any directional trends you want to comment on there?

Well, obviously traffic wasn't as good as we would like. Traffic is not as much of a contributor as we would have liked it to have been. Our ticket average continues to incrementally increase, but again not as much we would like it to. It's really kind of a hit. We've been kind of increasing it pretty well for the last year or two or three years and it's hit a little bit of a flatter spot and that tickets are... tickets were lower that we would have liked also. Jeff Sonnek - Friedman, Billings, Ramsey & Co.: And now I mean I know weather was the big kind of negative during the quarter but you also made some commentary in your prepared remarks about the air conditioning business, etc. Number one, can you kind of help us think about what influence that had in the second quarter and then secondly describe as the kind of air-conditioning comparison in the third quarter.

Well I mentioned earlier that I don't have the numbers on or I can't really quantify the air-conditioning impact on our overall financials. I can't tell you that that typically would be a product category that would grow in line with our overall growth. And this year not on a comp store basis but on a total sales basis, it's down a little bit over 10% and that it's a discretionary product and down... I can't quantify that any further because I don't have the byline numbers with me in order to quantify that. But it has some... it has a meaningful impact on our comparable store sales for a couple of reasons: one, we missed the air-conditioning sale but typically with an air-conditioning sale there's some other things that go along with it. There's maybe bells, could be cooling system issues with hoses and thinks like that. So the air-conditioning repairs are good sales and big tickets and this time of the year when you are comparing to periods when air-conditioning business was normal, you take a little bit of a hit by not doing as much as what you have done previous periods which is the case right now. Jeff Sonnek - Friedman, Billings, Ramsey & Co.: And then just finally, can you just make same comments, just get us up-to-date on where we are at with all these new kind of distribution center processes, voice-activated pick, slotting, etc.

Yes, well its all going real well. We continue to roll out voice-activated pick and we have it in about half our distribution centers which all of our distribution centers don't have the base operating system that would allow them to have voice activated pick. And we still have some distribution centers that operate on a base... on a paper base system and those attribution centers don't have voice activated technique alone until we make a decision to switch them over to the other system. So we continue to see good results of that and we are very happy that this past quarter even with diesel prices being as high as they were and energy prices for utilities being... continue to be high that we had a decrease in our distribution expense which was a contributor to a portion of our gross margin gain. On the slotting, we continue to use that and that's another one that continues to generate benefits along with the computer systems that we put on the trucks that allow us to kind of monitor the behavior of the drivers and the idle times, the ship patterns and all the things that allows us to incentivize our drivers to be more conservative with fuel and that's generated positive return. So we continue to look for things in distribution. As a matter of fact that distribution center we just relocated in St. Paul. We put some technology in there that we've used in one or two other DCs that it wouldn't be common. New things like carousels where the pick is brought to the picker as apposed to the picker going to the part just as the machine rotates and brings parts to people which creates a lot of efficiency, we use a lot of carton flow in our newer distribution centers. So we continue to look for ways to leverage technology to improve productivity and today we are very happy with all the investments that we have made and are looking for new investments to make in the future. Jeff Sonnek - Friedman, Billings, Ramsey & Co.: Great, best of luck.

Thanks.

Your next question comes from Sharon Zackfia with William Blair.

Hi, good morning.

Good morning Sharon.

I was hoping to get some more detail on the results so far from the new labor scheduling system that you implemented around I think the end of last year, what have you been seeing there, and what impact if any are you seeing at the top line in customer service?

Well Sharon, the time of the year it's kind of difficult to measure the result, summer and of course the little bit flatter sales than what we would have liked to have had. And you don't start pulling back labor when anytime things can change plus you are in the middle of vacation time and so we are using it very conservatively right now; again more of an offence of looking for opportunities to improve our customer service level and definitely you know where we have stores there on the higher side of what payroll they should have, we're moving payroll around. Managers are becoming much more comfortable using it and believing in it, that's just totally new to them and so we hope this fall as we start changing our scheduling models to prepare for winter business, it will really come into play, and they will be much more at ease using it.

And when you talk about that in the fall, do you think about that more as an opportunity to offer better customer service and get incremental sales or to right-size labor to the sales trend?

Definitely store by store, it depends on where that individual store is in their sales maturity and what their current payroll is and what we think it should be. When you put new stores in, we definitely let them have plenty of payroll to get to that second, third, forth year sales volume maturity. So it will depend on the store and the market and how the sales are growing.

Well, thanks. I hope it gets hot in Texas.

Thanks. Hope it does [ph].

Your next question comes from Gary Balter with Credit Suisse.

Hi, good morning. It's actually Seth Basham for Gary. Few quick questions for you as most of ours have been answered. First just to clarify, for the three weeks of this quarter the markets of Texas and Oklahoma, are they running higher than the company average in terms of comps.

I didn't bring that.

We didn't bring that information with us. One of the weeks I know for sure that they had but I didn't bring the spread sheet with me that shows all of the consolidated.

Okay, fair enough. And then finally I think, Ted and Greg, you guys have talked about it in the past, when times get tough in this industry it leads to potential shakeout. More competitors might go out of business and lead to potential for more consolidation, is that your... still your frame of mind and do you see more acquisitions [ph] potentially on the horizon?

Yes. We feel like that overtime some of the companies that are still out there... most of our good companies... there are companies that have even weathered a lot of consolidation and a lot of competition and... but our feeling is that long-term some of those companies will be consolidated into other companies and, yes, we would... part of our growth strategy is to periodically try to digest a sizeable acquisition and with Mid-West now digested we would... we ran across one that was a good opportunity for us, we would certainly be interested in taking a look at it.

Yes, you are right. There seems to be quite a few more independent stores closing down this year. We got a chance and we've looked at a lot of them and we are more opportunistic and if the store is ready to close down, that's probably not a very good acquisition. So we have been real selective on a lot of these singles this year and for that reason we really haven't done a lot of acquisitions on just a store-by-store basis.

Great. Thank you gentlemen and good luck.

Thanks

Thanks Seth.

Ladies and gentlemen, we have reached the end of the allotted time for question and answers. Are their any closing remarks?

Thanks everyone for your attention on the call and like I said earlier we are hoping for a hot remainder of the summer and we will talk to you at the end of the third quarter.

This concludes today's O'Reilly Auto Parts 2007 second quarter earnings release conference call. You may now disconnect.