AutoZone Earnings Call Insights: New Programs and Gross Margin Outlook
AutoZone Inc (NYSE:AZO) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Dan Wewer – Raymond James: Bill, looks like your commercial sales per program adjusting for the extra week declined slightly in the year just ended. In the past you’ve noted that AutoZone maybe suffering from some diminishing returns in the new programs. It sounds now there was an epiphany that perhaps the problem was more inventory coverage. Do you think the issue is that hubs are not as competitive as full-line distribution centers operated by your competitors or are you indicating the problem is just the breadth of assortment in the hubs, is the challenge?
William C. Rhodes, III – Chairman, President and CEO: Let me just start by taking a little bit of that, Dan. I would say that we’re happy with the productivity of the commercial programs particularly the new programs. I think also keep in mind that as we mentioned we’ve got probably – almost 30% of our programs were three years old or less and we’ve opened close to 800 programs in just the last two years. So, just given an overall maturation curve, you’re going see a little bit of depression on the productivity of the commercial programs taken as a whole. So, I would say that we continue to be pretty pleased with the progress of the commercial programs overall. I think from the hub perspective, we view that more as an evolution. When we added more inventory into those hubs, we recognized that was an opportunity, and so, this continues to evolve. We think real opportunity is to add more inventory into the marketplace, continue to expand our coverage as we’ve talked about in the past. We learned that as we added inventory for – to help support the commercial business by adding later model coverage, we found that actually help the DIY business as well. So we think there’s better and more opportunity for us to leverage the existing infrastructure that we have out there at a higher rate than we have up to this point.
Dan Wewer – Raymond James: You noted that the inventory per store is up a little more than 4% year-over-year, but that’s about the same rate of growth in the prior quarter. Once you lay in these new inventory initiatives, how do you see that inventory per store rate increasing and does that come at the expense of the amount of the share buyback as you invest that cash in inventory instead of buybacks?