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. The 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 the company’s management in light of experience or perception of historical trends, current conditions, expected future developments, and other factors that the company believes 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, risk associated with self-insurance, war and the prospect of war including terrorist activity, the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus COVID-19, inflation, the ability to hire, train and retain qualified employees, construction delays that compromise confidentiality, availability or integrity of information, including cyber-attacks, historic growth rate, sustainability, downgrade of the company’s credit ratings, damage to the company’s reputation, challenges in international markets, failure or interruption of the company’s information technology systems, origin and raw material cost of suppliers, disruption in the company’s supply chain due to public health epidemics or otherwise, the 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 I of the company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2020, 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 and adversely affect the company’s business. However, it should be understood that it is not possible to identify or predict. Also, its risk and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made, except as required by applicable law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Greetings, and welcome to AutoZone’s 2021 Third Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Bill Rhodes, Chief Executive Officer. Thank you. You may begin.

Good morning, and thank you for joining us today for AutoZone’s 2021 third quarter conference call. With me today are Jamere Jackson, Executive Vice President, Chief Financial Officer; and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax. Regarding the third 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, are available on our website, www.autozone.com under the Investor Relations link. Please click on quarterly earnings conference calls to see them. I am excited and honored to share with you the exceptionally strong performance our team of 100,000 AutoZoners delivered this quarter. As I've said previously, throughout this pandemic, we could not deliver the kind of results we have without the continued exceptional performance of our entire team, especially our store and supply chain AutoZoners. As our sales volumes have remained at historic all-time highs, our AutoZoners have met this demand head-on with enthusiasm for going the extra mile for our customers. While we have asked a lot of our AutoZoners over the last year, they've taken on the challenge and continue to inspire and impress us all. I also want to reiterate, our top priority remains being committed to keeping all of our customers and AutoZoners safe. Thank you, AutoZoners, again. Now to our sales results. Our overall same-store sales were up 28.9% this quarter. Our growth rates for retail and commercial were both strong, with commercial growth north of 40%. This is almost double the comp growth rate of our DIY business, an incredible accomplishment for both businesses, but especially for commercial. We achieved our highest weekly commercial sales of all time. We averaged nearly $70 million a week in commercial sales. This is incredible, considering we averaged $48 million for Q3 of last year. For the trailing four quarters, we have sold domestically $3.1 billion to commercial customers. We are doing some really exciting things in commercial and we couldn't be more proud of our team's recent successes. Now let's focus on sales cadence. This quarter stretched from mid-February to the first week of May. In the first four weeks, our sales comp was approximately 11.6%. This was lower than the trend we were experiencing at the end of our second quarter. We believe the cause of our sales slowing was the winter storms experienced across the Central and Southeastern states. Sales picked up for the next four weeks from mid-March to mid-April, concurrent with the arrival of additional stimulus payments. The final four weeks happened to coincide perfectly with the stimulus payments from last year. It was over these four weeks last year when our sales ramped materially. This year, over those four weeks, we averaged a 14% comp, with the last two weeks coming down to the mid-single-digit range. We continue to maintain solid growth rates post-stimulus. For Q3, our two-year comp was 27.9%. On a two-year stack basis, the first four weeks were up 17.9%, the next four weeks were up an impressive 49.9%, and the last four weeks were still up 26.7%. It was encouraging for us to see sales inflect upward this quarter, with both traffic and ticket moving higher. Our traffic growth was roughly double the ticket growth rate, as the reintroduction of Federal Stimulus Payments and the execution of our growth initiatives drove a material increase in traffic. During the quarter, there were certainly some geographic regions that did better than others, as there always are. Across both our retail and commercial customer bases, we saw the majority of the country performed consistently well. Normally, we talk about the Midwest and Northeastern markets underperforming the others; not this quarter. These markets were in line with the rest of the country for both DIY and the DIFM. And we believe that winter weather we experienced in February bodes well for our future sales opportunities this summer and into the fall. And I could not be more proud to say that based on the retail sales data we have for our industry, we continue to enjoy share gains. The shared data we have available for the first eight weeks of this quarter shows we are growing at a roughly 10% higher rate than the remainder of the industry. While we are thrilled to have those share gains, our charge remains to maintain them heading into the summer and fall months. Our number one priority continues to be the health, safety, and well-being of our customers and AutoZoners. On last quarter’s call, we shared that we would provide every single AutoZoner with a $100 incentive once they completed their vaccination for COVID-19. That's every AutoZoner, including part-timers. This was the logical next step in our efforts to provide a safe working and shopping environment, as we have with our ongoing PPE efforts. We spent about $1 million during the quarter incentivizing our AutoZoners to get that vaccine. I continue to be inspired by our Board and management teams’ commitment to doing what is right, and that is putting safety first. Our culture and our values of taking care of one another have been in full force and effect over the last year during this pandemic. While we continue to be encouraged with the current sales environment, we are cautious about predicting future trends. The latest round of stimulus payments certainly accelerated our sales and sales remained at elevated levels through the end of the quarter. However, we can't fully predict what all the different pushes and pulls on macro trends mean for us. However, we remain bullish on the industry's ability to grow this year. And we believe we are well positioned to gain additional share beyond what we already have. I'm sure many of you would like to know how we're thinking about the sales for the fourth quarter of fiscal 2021. I'll remind you that typically in recessionary environments, our business is remarkably resilient. However, nothing about this global pandemic is typical. Beyond our primary objective to ensure the safety of our customers and AutoZoners, our focus is on providing our AutoZoners with the resources they need to provide our customers with an exceptional shopping experience. We are optimistic about the sales environment heading into the fourth fiscal quarter, but we will obviously have the most difficult comparison in our history. As last year's fourth quarter benefited from the April 2020 stimulus package and enhanced unemployment benefits through July, and we generated an astonishing 21.8% same-store sales growth last year in Q4. While we understand you would like more clarity on our expectations for this Q4, this remains a very challenging environment to predict, especially in DIY, as many evolving macro factors meaningfully impact our results. Now, let's move into more specifics on performance for the quarter. Our same-store sales were up 28.9% versus last year's third quarter, our net income was $596 million, and our EPS was $26.48 a share, 84% above last year's third quarter. Our same-store sales growth this quarter was a record for any quarter since we became a publicly traded company back in 1991. Both our retail and commercial businesses showed strength in the quarter with DIY same-store sales up approximately 25% and commercial total sales growth of approximately 44%. For commercial, we averaged $70 million in weekly sales, which was approximately $13,500 in sales per program per week. These commercial sales numbers easily set all-time records for us. The initiatives we have in place are helping drive our commercial sales. I'll remind you that this is a highly fragmented $75 billion market. And we believe our product and service offerings provide us a tremendous opportunity to significantly grow sales and market share over time. Next, I'll talk about trends across our merchandise categories, particularly in the retail business. Our sales floor categories continue to be strong with categories like tools, antifreeze, small repair, and floor mats showing strength. But our hard parts business definitely picked up. Our hard parts business comp was in line with our sales floor for the quarter. This now represents our second quarter in a row where we saw our hard parts business grow in line with sales floor items. We believe the strengthening of our hard parts business is due to the significant winter weather we experienced, additional stimulus, and the pickup in miles driven the nation is beginning to see as people return to a new normal. Business remained very strong in many merchandise categories, such as accessories and batteries, notably brakes and rotors. While still slightly below our average growth had a meaningful rebound this quarter due to the winter weather. As we expect, our sales growth from the pandemic-related surge will moderate over time. We believe the investments we have made in both our retail and commercial businesses positioned us to deliver outsized share gains relative to the overall industry. In addition, we continue to believe our products and services will be in high demand during more difficult economic times. This resiliency gives us significant confidence about our future prospects. Now, I will turn the call over to Jamere Jackson. Jamere?

Thanks, Bill. And good morning, everyone. As Bill mentioned, we had another outstanding quarter. Once again, our growth initiatives are delivering and the heroic efforts of our AutoZoners in our stores and distribution centers are driving extraordinary results. To start this morning, let me take a few minutes to elaborate on the specifics in our P&L for Q3. For the quarter, total auto parts sales, which includes our domestic Mexico and Brazil stores, were $3.6 billion, up 31.8%. For the trailing four quarters ended, total sales per AutoZone store were just over $2.1 million. This compares to just under $1.9 million in Q3 last year. Let me give a little more color on sales and our growth initiatives. Starting with our commercial business, for the third quarter, our domestic DIFM sales increased over 44% to $829 million. Sales to our DIFM customers represented 23% of our total sales. Our weekly sales per program were $13,500, up 39.2% as we averaged nearly $70 million in total weekly commercial sales. Our growth was broad-based, as national accounts and local and regional accounts both grew over 40% in the quarter. Our execution on our commercial acceleration initiatives is delivering exceptional results. As I've said previously, we're focused on building a faster growing business with disciplined investments in pricing service and assortment. We have a tremendous market opportunity, as we are significantly under-penetrated in this highly fragmented portion of the market. We now have our commercial program in over 85% of our domestic stores. We're focused on building our business with national, regional, and local accounts. This quarter, we opened 19 net new programs finishing with 5,107 total programs. We continue to leverage our DIY infrastructure and increase our share of wallet with existing customers. Our strategy is working as we continue to grow share this past quarter. We're confident that we can continue to gain share as we deliver improvements in the quality of our parts, particularly with our Duralast brand, make improvements in our assortment, maintain competitive pricing, and stay committed to providing exceptional service. These core focus areas have enabled us to drive double-digit sales growth for the past four quarters and position us well in the marketplace. As we move forward, we're focused on our core initiatives that we believe will accelerate our growth even further. First, our mega hub strategy is improving our parts availability and giving us tremendous momentum. We opened two more mega hubs this quarter, bringing our total to 50 locations. We expect to open between four and seven more mega hubs by the end of the fiscal year. As you might recall from last quarter's conference call, we raised our near-term target for the build-out of mega hubs from 75 to 90 to 100 to 110. Mega hubs help us expand coverage and say yes, we have it more frequently. Expanding our mega hub footprint delivers a meaningful sales lift to both our commercial and DIY business. Second, our technology investments are improving delivery times and service levels. We continue to make enhancements to our AutoZonePro system and mobile app to enable faster and more efficient parts ordering. We're leveraging technology to improve delivery times and making it simpler to do business with AutoZone. All of our efforts are driving efficiency for our sales professionals, drivers, and customers and will help build a meaningful competitive advantage. Third, we're committed to being price competitive and the strategy is working. We have a laser focus on the key categories, regions, and segments where investments in pricing are leading to accelerated sales growth and higher EBIT dollars. We're using data science and market intelligence to test our approach in different markets and different customer segments and delivering solid results. We will continue to lean into this strategy and live up to our plans to have the best merchandise at the right price. Our execution in the commercial business gives us tremendous confidence in our ability to create a faster growing business. On the retail side of our business, we're excited about the gains we're seeing in our DIY market share and our initiatives are driving solid share gains. Our growth in the quarter was broad-based across regions and categories. In the quarter, we delivered double-digit comps in eight of the 12 weeks. All 12 weeks had positive comps, despite some weeks having tough comparisons from a year ago. Our sales floor market share, as measured by NPD, grew nearly two points for the first eight weeks of the quarter. We saw double-digit growth across both failure and maintenance categories in the quarter. We also grew share in April, despite the tremendous growth last year signifying that those customers have likely changed their buying behavior. Our growth in retail is driven by our continued focus on a few key areas. First, the relentless focus on execution by our AutoZoners in our stores and distribution centers has been remarkable. Our supply chain AutoZoners have processed and handled record volumes. Our store AutoZoners have handled record store traffic and delighted our customers. To be clear, we are winning in the marketplace, and the execution of our AutoZoners, where we're taking care of our customers is a key competitive advantage. Second, the assortment work and mega hub strategy continue to improve our coverage and availability leading to a meaningful lift in sales. Third, we continue to focus on improving the customer shopping experience with our e-commerce efforts. Buy online, pick up in-store, next-day delivery, and ship-to-home, which were up significantly this quarter, have helped us meet customers when, where, and how they want to shop. We're particularly pleased with buy online pick up in-store, the fastest growing portion of our e-commerce offerings, which enables our customers to shop our broad array of products online and maintain the opportunity to get expert advice from our AutoZoners when they pick up in store. This is a significant competitive advantage versus our pure-play competitors. Fourth, and similar to our commercial approach, we're using discipline and sophisticated data analytics to ensure that we're competitively priced. This is a data-rich environment, and our data-driven approach tools and capabilities give us a meaningful competitive advantage. We've tested our approach in key categories and markets, and this effort is yielding increased top-line and gross profit dollar growth, albeit at slightly lower gross margins. The strategy is working. We're going to lean into this approach more as we live up to our pledge of having the best merchandise at the right price. DIY has been a strong contributor to the growth of our company. While comps get more difficult as we lap the accelerated sales growth that we've seen over the past four quarters, the fundamentals of our business have never been stronger. Our strategy and execution are delivering solid results. Now, let me spend just a few minutes on international. We continue to be pleased with the progress we're making in Mexico and Brazil. During the quarter, we opened seven new stores in Mexico to finish with 635 stores, and one new store in Brazil to finish with 47. On a constant currency basis, we continue to see solid sales growth. More importantly, as those economies stabilize, we remain committed to our store opening schedules in both markets, and expect both to be significant contributors to growth and earnings in the future. I am particularly excited about our prospects in Brazil, where based on all of the hard work by our Brazilian AutoZoners over the past several years, we're now poised to significantly accelerate our new store growth rate over the coming years. Now let me spend a few minutes on the P&L and gross margins. For the quarter, our gross margin was down 118 basis points driven primarily by the accelerated growth in our commercial business and our investment in our pricing initiatives. As I mentioned, our commercial business grew 44% this quarter. We're also making disciplined pricing investments to drive top line growth and gross profit dollars. The strategy is working. Our work is translating into higher sales and profits as evidenced by our sales and share growth that outpaces the remaining market this quarter. Our approach is disciplined and specific to certain categories where we have rigorously tested and determined which actions move the sales and gross profit dollar performance in the right direction. We're beginning to see some cost inflation in certain product categories, along with rising transportation costs. To be clear, overall, we have pricing power. The industry’s pricing remains rational, and we're pricing accordingly. All of the actions we're taking have resulted in us growing our DIY and DIFM businesses at roughly double the rate of the overall market or better. We're committed to capturing our fair share and improving our competitive positioning in a disciplined way. This is a good outcome for our business. As such, you should expect to see similar margin performance in the fourth quarter. We will continue to drive new customers and overtime grow absolute gross profit dollars at a faster and historic rate in our total auto parts operating segment. Moving to operating expenses. Our store operations and commercial teams continue to manage our expenses well in this environment. Our expenses were up 11.3% versus last year Q3, as SG&A as a percentage of sales shows leverage of 550 basis points. Included in this quarter’s expenses were over $1 million of COVID-related expenses, compared to last year’s third quarter COVID expenses that totaled $75 million, which included provisions for additional emergency time off. Excluding this comparison, SG&A levered 284 basis points, driven by our exceptionally strong sales growth. While our SG&A dollar growth rate has been higher than historical averages, we remain committed to managing SG&A in line with sales volumes over time. Moving to the rest of the P&L. EBIT for the quarter was $804 million or 63% versus the prior year quarter, our EBIT margin was 22%, up 432 basis points versus the prior year's quarter, driven by the strong top-line growth and operating expense leverage I spoke about earlier. Interest expense for the quarter was just over $45 million, down 5% from Q3 a year ago, as our debt outstanding at the end of the quarter was just under $5.3 billion versus just over $5.4 billion last year. We're planning interest in the $60 million to $61 million range for the fourth quarter of fiscal 2021 versus $65.6 million in last year's fourth quarter. Our adjusted debt level metric finished the quarter at two times EBITDAR. While in any given quarter, we may increase or decrease our leverage metric based on debt and equity market conditions, we remain committed to both our investment grade rating and our capital allocation strategy. Our share repurchases are an important element of that strategy. Moving to tax. For the quarter, our tax rate was 21.4% versus 22.8% in last year’s third quarter. This quarter’s rate benefited 211 basis points from stock options exercise, while last year had benefited 26 basis points. Stock option exercises are unpredictable, and as such, they will affect our tax rate and ultimately our net income and EPS. For the fourth quarter of fiscal 2021, we suggest investors model us at approximately 23.4% before any assumption on credits due to stock option exercises. Because we cannot effectively predict this activity, we remain committed to reporting the stock option impact on the tax rate. Moving to net income and EPS. Net income for the quarter was $596 million, up 73.9% versus last year third quarter. Our diluted share count of 22.5 million was lowered by 5.5% from last year's third quarter. The combination of strong earnings and lower share count drove earnings per share for the quarter to $26.48, up 84% over the prior year's third quarter. Now, let me talk about our cash flow. For the third quarter, we generated $1.2 billion of operating cash flow. This was up $539 million over last year's Q3. Our operating cash flow results benefited from the strong sales and earnings previously discussed. As we move forward and make the investments that we have discussed to drive growth, you can still expect us to be an incredibly strong cash flow generator that returns meaningful amounts of cash to our shareholders. Regarding our balance sheet, we now have $976 million in cash on the balance sheet, and our liquidity position remains strong. We're also managing our inventory well, as our inventory preferred growth was up 2.3% versus Q3 last year. Inventory per store was $701,000 versus $685,000 last year, and $715,000 last quarter. Total inventory increased 5.1% over the same period last year driven by new stores. Net inventory is defined as merchandise inventories less accounts payable on a per store basis and was a negative $167,000 versus negative $56,000 last year and negative $93,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 123.9% versus last year's Q3 of 108.2%. Lastly, I'll spend a moment on capital allocation in our share repurchase program. We repurchased $900 million of AutoZone stock in the quarter. As of the end of the fiscal quarter, we had approximately 21.6 million shares outstanding. At quarter-end, we had just over $1.3 billion remaining under our share buyback authorization. Year-to-date, we bought back $2.5 billion of stock or approximately 2 million shares. The powerful free cash flow we have generated this year combined with excess cash carry over from last year has enabled us to buy back over 8% of our shares over the first three quarters of the year. We remain confident in our near-term plans, and as such, expect to continue reducing the level of cash and cash equivalents on hand through the remainder of this fiscal year. Our business remains remarkably strong, and this will enable us to invest in our existing assets, grow our business, and as I emphasized earlier, return meaningful amounts of cash to shareholders as part of our disciplined capital allocation approach. So to wrap up, we had another very strong quarter highlighted by exceptionally strong comp sales, which drove a 74% increase in net income and an 84% increase in EPS. We're driving long-term shareholder value by investing in our growth initiatives, driving robust earnings and cash, and returning excess cash to our shareholders. Our strategy is working. I have tremendous confidence in our ability to drive significant and ongoing value for our shareholders. Now I'll turn it back to Bill.

Thank you, Jamere. These continue to be unique and extraordinary times. Our team has done a wonderful job of managing and leading throughout this timeframe. I am proud of our team across the board for their commitment to servicing our customers while doing so in a very safe manner. At the start of this pandemic last year, we could never have guessed the positive impact it would have on our sales. To be able to report our largest domestic comp sales number ever this quarter, 30 years after going public is just amazing. But with this fortuitous outcome, we knew we had to take advantage of this window of time and experiment. We've tested to understand the origins of our share gains and potential for retaining those gains as the world goes back to some sense of normalcy. We believe the environment continues to allow us this chance to learn, but we will be deliberate. We understand the value of the capital invested as our capital as our investors’ capital; we must have an appropriate return. We've worked exceptionally well to deliver on our commitments thus far. But we must keep focused and continue to deliver. There are no layups, and we must continue to innovate. While our domestic retail business continues to do tremendously well, we understand that trends will slow. We're going to work hard, really hard to gain as much share as possible now in order to limit our future headwinds. Our goal is to retain all of these new customers and new occasions where existing customers are choosing AutoZone. And as we've discussed, our domestic commercial business is still in the very early innings of the maturation process. It is an honor to have reported this morning that we are now doing materially over $3 billion in domestic commercial sales on a trailing four-quarter basis. But we hope, and we believe that the best is yet to come for our commercial business. As always, we have work to do as we head into our summer selling season. But we are excited to exploit the opportunities that are in front of us. First and foremost, our focus will be on keeping our AutoZoners and customers safe while providing our customers with their automotive needs. Secondly, we must continuously challenge ourselves during these extraordinary times to position our company for even greater future success. We know that investors will ultimately measure us by what our future cash flows look like in three to five years from now. Lastly, I continue to be bullish on our industry, and in particular, very bullish on our company. Now, we'd like to open up the call for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.

Hey, good morning, guys.

Good morning, Bret.

Good morning, Bret.

In your prepared remarks, you talked about the improvement in quality of the Duralast parts, obviously, started as a driver of the commercial traction. Could you talk about how maybe higher input costs, obviously, buying a higher value part is impacting margins versus the price investments?

Yeah, Jamere talked about the fact that we're beginning to see some pretty significant inflation on certain product categories. I don't think that that's been a big driver of our performance in Q3, but it is something that we are very mindful of as we move into Q4. And frankly, we have in the past, some of those costs along to our customers, just like we've done for the last 40 years.

Okay. And I guess on the price investment conversation, I guess, when you think about the DIY business versus the commercial, could you maybe just sort of bucket it for us? Do you see more aggressive price investment on one side versus the other? And then within commercial, are you seeing more competition in national accounts versus regional? I guess, where do you see that, I guess, the heat zones of price competition?

Yeah, what I'll say in general, is that we've been very disciplined about the investments that we've been making in pricing. As I mentioned, this is a very data-rich environment. We're using data-driven tools, we're using artificial intelligence and data science to help us figure out exactly where to price, which categories to price, which regions to price. So it's a very dynamic environment in that regard. We're fortunate that we don't have to peanut butter spread this across the chain, if you will. So what we're doing is very surgical and very strategic. What I'll say in terms of the competitive responses that the industry remains very rational. We're seeing rational pricing across the industry and the response. To that extent, it's been pretty muted. So our strategy is working. Our goal is to create a faster-growing business with higher-margin dollars. It's a much more sustainable way for us to grow cash and ultimately, shareholder value. And on the commercial side, what we're seeing is that all the initiatives that we put in place, which price is just one element of it. I would argue it's probably the smallest element of it. You mentioned the investments that we've made in our Duralast brand, including some of the offerings that we have in Duralast Gold, those things are very meaningful to our customers. The investments that we've made in technology that have helped us be easier to do business with, it's helping us lower our delivery times, is a significant impact on the business. The work that we're doing around mega hubs to increase our parts availability is huge for us and huge for our customers. So when you put all of those initiatives together, that's why we're so bullish on the commercial growth. And what I'll say is that even as we move through this environment, that commercial growth is sticky. Once we win those customers and continue to delight those customers and we're competitively priced, that gives us a lot of confidence about our future prospects in this area of the market.

Great. Thank you.

Thank you. Our next question is coming from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Hey, everyone, good morning. I'm going to stick on the pricing topic. My first question is, did you get more aggressive in this quarter? It looks like the margin compression got a little worse and there were some other factors. But – and if you did, why now? And just to be clear, are these price investments more on the DIY side or the DIFM?

Yes. Simeon, good morning, and thank you for the question. Clearly, they’re on both sides of the business. We've had a very targeted approach on the DIY side that has been focused more on two different spectrums of the business: one on commodity products that are highly available in lots of different environments, and then two on very slow moving hard to find powerful - maybe our value proposition isn't as different as it is, when you can walk in the store and get the immediate product availability. The DIY piece is smaller than the commercial piece today and we've done that work. And it's all in place. And on the commercial side, we did get more aggressive. We didn't get more aggressive because we took prices to a different level. We continue to roll out the pricing initiatives that we're working. We originally started with six regions, then we went to 14 regions. As of the beginning of this quarter, this has been rolled out. The pricing initiatives in our commercial business have been rolled out across the chain. So you'll see this mature over the next year or so. We don't plan on having a round two of these pricing initiatives. What we have seen is that these have worked. As you know, in the commercial business, pricing transparency isn't what it is in the retail business. But also, more importantly, the competitive set is vastly different. When you think about the large players, if you add all of us up in the commercial sector, we're around 20% of the market share. So these pricing initiatives are not designed versus our traditional in-channel competitors. They're more making sure that we have the right pricing and value proposition that gets other sectors of the industry.

Got it. Okay. It seems like you're finding success with this strategy, indicating some elasticity of demand. As we face inflation, you're already seeing its effects. In theory, the industry would attempt to pass on these costs. Is there a disconnect in this process? How should we consider the challenges in passing along pricing when customers are showing elasticity? Will you consider focusing more on pricing next year, given that you are experiencing inflation?

Yeah. I would say it's the elasticity of demand for us, but it's not driving elasticity of demand for the industry. I think in some respects, it's improved our competitive position, not against our in-channel competitors, but against other competitors, and that's proven to be successful. As we think about an inflationary environment, I know AutoZone will make sure that we pass those costs along to our consumers, just like we always have. I don't think that that'll be any different than normal.

Okay, thanks. Good luck.

All right. Thank you, Simeon.

Thank you. Our next question is coming from the line of Christopher Horvers with JPMorgan. Please proceed with your questions.

Thanks, and good morning. So I'll stick to the pricing side too for my first question. It seems like the transition here is the rollout of the commercial side. But you're also going to be, you're going to start lapping through the DIY price investment. So, as we think about 3Q and 4Q it would seem like the peak gross margin pressure is now. And then that starts to moderate as we lap through the DIY side of the business price investments. Is that fair?

Yeah, that's the right cadence to think about. One of the things that Bill mentioned is that, we don't have a round two plan here. So as we rolled the price investments through the entire chain, and all the categories that we're going to roll it through, you'll start to see us anniversary this in the back half of next year. And again, we're pleased with the execution of those initiatives. Again, it's one element of the strategy, if you will. It certainly gets a lot of attention. But we would not be in a position to even be talking about making pricing investments if we weren't executing so well, on all of the other elements of the strategy. And when I think about, again, the work that we've done on assortment, I think about the work that we're doing to lean into the technology. Those things have been the foundation or the enablers for us to then focus on this element of being competitively priced. And I said it a couple of times in my prepared comments about having the best merchandise at the right price. That combined with the other things that we're working on, gives us a meaningful competitive advantage. And it's why we're so bullish about being a faster-growing business in the future.

Yes. And that leads to my follow-up. If you look back versus two years ago to try to neutralize versus what happened last year, your gross margins down 120, your operating margin is up more than 200 basis points, given the sheer gains and the sales leverage that you're driving. So you'll have continued gross margin headwinds. But as you think about the operating margin line into next fiscal year, is it fair to think that the operating margin can at least be flat if not better as we look out, given the increased scale and share gains that you've driven?

Well, we've done a couple of things in this environment where we've had accelerated sales. Number one, we've had outstanding leverage on the SG&A line, which quite frankly served as a little bit of a bill payer for some of the investments that we're making in gross margin. And we do have the ability as we move forward to continue to price in a very disciplined way, when we're in an environment where there's inflation. Quite frankly, that gives us an opportunity to price. And we are seeing cost inflation in certain categories. But with a rational industry pricing environment, we're going to price to recover those inflationary impacts. So, going forward, as we think about managing the business, we're going to manage the business to maximize the cash that we generate inside the business, grow our EBIT dollars, that's going to give us tremendously powerful free cash flow. And you can tweak margins by a point or a point and a half; that doesn't change the underlying story here, which is this is a business that is generating a tremendous amount of cash. We're putting that to work by investing in our existing assets. We're investing in our growth initiatives, and we're returning meaningful amounts of cash to investors in a meaningful way. That portion of the AutoZone model does not change even with all the things that we've talked about this morning in terms of investments.

Understood, thanks very much.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your questions.

Good morning. Thank you for taking my question, how are you? I want to be consistent and ask about price investment. The bottom line is, is it worth it? To help frame this question, consider that a 1% investment in your price this past quarter translates to $35 million in sales that you're reinvesting to achieve greater returns. Historically, before the pandemic, AutoZone would typically experience about $70 million in year-over-year sales increases each quarter. Now, you're needing to invest nearly half that amount to gain market share. How do you determine the point at which this investment becomes valuable, especially since the longer you pursue this strategy, the more it will attract attention from competitors? One of the core reasons investors allocate capital in this area is due to margin stability, and this strategy could raise concerns regarding that stability.

I understand your point about the $35 million investment being spot on. We've struggled with this over time, particularly because there are sales challenges even before discussing the gross profit increases. However, we've extensively tested this approach for over a year. These are targeted pricing investments rather than blanket changes. Some of our closest competitors may follow our lead on certain aspects, while others may not, but our main focus has been ensuring we present the right value proposition. We're concentrating on maintaining competitive pricing with those outside our immediate competitors, and we are performing exceptionally well in that regard. I also want to reiterate what Jamere mentioned. This is not merely a pricing strategy. It has been in development for over three years and includes the largest technology investment in our company's history, incorporating handheld devices and website improvements to enhance the ease of business and significantly reduce delivery times. We've continued investing in the Duralast brand, one of the strongest in the automotive aftermarket, which is now seen as a valuable asset rather than a hindrance. We are also launching hubs and mega hubs to greatly improve the immediate availability of our parts and products. This strategy is comprehensive, with pricing as one component. I recognize that many have invested in this sector for years due to its margin characteristics—not only gross margins but overall operating margins. Michael, you may recall in 2005 when I first assumed this role and we made an SG&A investment, everyone predicted that this would mark a decline in operating margins from 17.5 to 12. Yet, over time, we managed to elevate our operating margins. While I can't guarantee that this will happen again, these incremental investments are vital for positioning us competitively across all channels.

Okay. I believe the market would feel more assured if you could clarify a timeline for the proposed changes. It seems you're indicating that this will continue for another four quarters and will be more intense in the near term, after which things should settle down. Is that accurate? Additionally, for Jamere, how will a greater current commercial mix in the business for fiscal '22 influence the gross margin, so we can better understand these aspects as we model the business going forward? Thank you.

Michael, before I turn that second part over to Jamere, I want to hit your earlier part. I was very clear, in my comment a few minutes ago, that as of now we have rolled out this commercial pricing initiative across the vast majority of the chain. As Jamere said, there is no Act 2 under development or under consideration. So as we annualize this time next year, we'll be annualizing those investments. Jamere?

Yeah. So in terms of our commercial mix, we're very bullish about our commercial business. And, as we talk pretty extensively about today and last quarter, we're investing in a disciplined way in our commercial business. This past quarter, our national accounts and our regional and local accounts both grew over 40%. We are pleased to see the national accounts actually snap back, car counts are up, staffing has improved, miles driven is improving. And we're under-penetrated. We think we're roughly a four to five share in a $75 billion category. So there's a tremendous opportunity to create a faster growing business here. And as we execute on this growth playbook and see significant share gains, we will likely be in a position where we see a little bit of a mixed drag from commercial on the overall margins. And that's going to be perfectly okay. This will be a faster-growing and still high-margin business as we move forward. And, as we see that growth materialize, we'll be very transparent about what our expectations are.

Okay, thank you very much, and good luck.

Thanks.

Thanks.

Thank you. Our next question is from the line of Scot Ciccarelli with RBC Capital Markets. Please proceed with your questions.

Good morning, guys. Love to ask a pricing investment question, but I just couldn't do that to you.

Thanks, Scot.

You're welcome. You talked about seeing product inflation starting to ramp. Can you talk about the potential impact on the cost side of the ledger, particularly on wages, given the current employment environment?

Yeah, so we're seeing cost inflation in certain categories. We're also seeing some higher transportation costs. But as I said before, the industry pricing is rational. And this has always been an industry that's priced to recover those inflationary impacts. And we're pricing accordingly in this environment as well. Transportation costs in particular, we've had some contracted rates that are below the spot market. So this has protected us to some extent. But we'll see more of those as we move forward. From a labor standpoint, it's a very tight labor market. And you have to look no further than what you're seeing amongst other retailers or even in your local neighborhoods with the pressure that local restaurants are seeing. We're certainly not immune to those dynamics. But the value proposition of having a career opportunity at AutoZone, we think gives us a little bit of a competitive advantage. Our store operations teams and our distribution center teams, and our supply chains are doing a fantastic job of recruiting talent. We're working really hard to retain talent in this environment. And as we also believe that from a macro standpoint, as some of the enhanced unemployment benefits start to ease and be retracted, we think that will sort of unstick the labor market to a certain extent. But all the efforts that we're doing inside of our company to attract talent are, quite frankly, one of the reasons that we've been able to put up the kind of numbers that we've put up in both our DIY and our commercial business.

And Jamere, just as a follow-up, is there any kind of estimate regarding what might happen to labor costs, if we actually did eventually get a federal mandated $15 an hour minimum?

Well, I think a couple of things will potentially happen there. One is that we'll see labor costs start to go up in different environments. We're already seeing some markets where labor costs have gone up in that zip code. And what you have to be able to do is, more importantly, you have to be able to price accordingly, so that you don't have the margin and profitability drags. And so when I think about the impacts of inflation, it isn't just what we're seeing in product costs, or transportation costs, but labor is a part of that equation. And we'll be disciplined enough to price accordingly, in that environment as well.

Let me jump in there. As you know, Scot, we've been dealing with accelerated labor inflation for some time for five years. We have many markets where we're already at $15 or above. I was recently in Seattle. Our minimum wage in Seattle is $16.70. And we are figuring out a way to make sure that we manage through that. And part of that is our pricing has to be different when we have that kind of change in our labor component of our cost structure.

Excellent. Thanks a lot, guys.

Thank you, Scot.

Thank you. Our next question comes from the line of Zach Fadem, Wells Fargo. Please proceed with your questions.

Hey, good morning, guys. As we look back over the past year, your business has accelerated to a double-digit growth rate despite a double-digit decline in miles driven. And now that miles driven starting to recover and return to growth. Do you expect this dynamic to be a tailwind for your business, despite the tougher compares? Or are there any other puts and takes that we should keep in mind?

We have consistently indicated that miles driven is a reliable indicator of our business performance over extended periods. However, we've also mentioned, as we did during the Great Recession, that there are times when it may not accurately predict our business outcomes. If you were to simply project miles driven, you wouldn't anticipate the performance we experienced last year. Miles driven decreased significantly, but we also had factor in the Federal Stimulus. Over the past four quarters, a family of four has received over $10,000 in Federal Stimulus alone, not including Enhanced Unemployment Benefits. This is a substantial amount for our customers, many of whom have turned to their cars for repairs. As miles driven increase, we may see some modest benefits. However, I doubt it will be sufficient to counteract the challenges we'll face as we move past the significant economic stimulus that was present in the environment.

Got it. And is it possible to break out the makeup of the commercial growth across new customers versus existing customers or nationals versus independents? And then, when you think about your average weekly commercial sales in that mid-$13,000 range, was that relatively stable through the quarter? And is it fair to call that a new run-rate for the business?

We're calling it that internally. We're putting the pressure on the team, we got to keep that. I think that there's some level of stimulus that's been in our commercial performance as well, but not nearly to the extent that it has helped accelerate the DIY business. So we have big expectations to continue to grow commercial at fairly robust rates going forward. Clearly, the DIY piece will be more challenged as we head into Q4, and really frankly the next 12 months. But commercial, we think, is a much stickier business. Yes, we picked up new customers. More importantly, we've penetrated our existing customers with new categories or deeper levels of their business. As Jamere said, as far as the trade-off between the up and down the street customer or the national account customer. Before this quarter, our up and down the street business was performing much better than our national account business. This quarter, the national account business was generally in line with our up and down the street business. And as we talked to those leaders, their businesses have improved along the same lines.

Got it. Appreciate the time today.

Thank you.

Thank you. Our next question is coming from the line of Michael Baker with D.A. Davidson. Please proceed with your questions.

Hi, everyone, this is Katy Hallberg on for Mike Baker. Just want to say great job on the quarter. And I know you guys touched on recently about how stimulus might have impacted the commercial sales versus DIY. But I was kind of curious about within that 44% growth in commercial, how much would you attribute to the mega hubs? So kind of tacking on the stimulus and the pricing initiative, curious about the mega hub impact?

Yeah, so parts availability is a big piece of the story that we have in the commercial market today. When we put a mega hub in a market, two things happen. Number one, we see a lift in sales in the four walls, if you will, of the mega hub. But it also gives us an opportunity as we're selling to commercial accounts. It gives us an opportunity to tell the commercial accounts in that area, if you will, that we have parts available, significantly more parts available than we would otherwise. And that gives us a meaningful lift and sale. So a big piece of that strategy that we've talked about is improving that assortment, putting mega hubs in the marketplace, signaling to the market, that we have more parts available in the marketplace. Taking advantage of that opportunity has been crucial. We've talked about lots of things that drive our commercial business. But, in the top one or two is parts availability. If we have the parts, if we can get them there in a reasonable amount of time, they're competitively priced, and we're easy to do business with that gives us a tremendous tailwind for this business. That's what we're excited about.

Okay, great. Thank you. And then just sort of a follow up. And this is a more broad question. Where are you guys seeing the most opportunity for your share gains? I mean, does it seem like the industry is sort of through the thick of store closures as we're kind of approaching? What could be the end of the pandemic? And just kind of curious about what you're seeing in the industry? Thank you.

I believe the share gains we experienced due to store closures peaked around May of last year. However, we have continued to see increases in market share as consumer behaviors have evolved. Consider whether stores are open or think about your own shopping habits. Are you visiting more convenient, smaller stores? We've observed this trend across various channels, including ours. Our goal is to ensure that as we attract new customers or generate more occasions with existing customers, we provide them with an exceptional shopping experience. We aim to permanently alter those shopping habits to sustain these occasions in the future. That's our primary focus.

One of the things we've been paying a lot of attention to internally is just the tremendous success that we're having in our loyalty program. Our loyalty member sales are up 32% versus last year. When I look at the stats around the number of members that are earning rewards, the number of members that are redeeming rewards, the spend for those loyalty customers relative to last year on a per transaction basis, and the retention rate, all of those numbers are up. So that gives us a lot of confidence that, the things that we've done in terms of our in-store execution are driving great results. As we think about share gains, there are lots of things that are part of that mix including some of the dynamics that you talked about on a macro basis. But our execution has just been fantastic in this environment. And the data around our loyalty programs certainly suggests that we're doing the right things. Those are the kinds of sales that are a lot stickier than non-member sales.

Thank you. Our next question is from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

Good morning. Great quarter.

Good morning. Thank you.

So the first question I want to ask, Bill, goes back to early in your prepared comments. You talked about the cadence of sales through the period. Where did you end? What was the exit rate as the quarter concluded? As a follow-up to those questions, looking at the business now, do you think stimulus is still driving it, or has that largely been utilized?

We wrapped up the quarter with some notable trends, although I don't have the exact figures handy at the moment. We had highlighted the four-week differences in our earlier notes. Prior to the stimulus, we were observing a slight slowdown in sales as we exited Q2. However, following the stimulus, we noted approximately a 50% increase, specifically around 49.9%. Looking at the two-year period, we were still up 26.7% in those final four weeks. As we closed out the quarter, our comparable sales for the last four weeks this year were at 14%, with the last two weeks dipping into the mid-single-digit range. The stimulus dollars that arrived in March proved to have a lasting effect, helping to bolster our business longer than anticipated. This mirrors what we experienced last summer, where our business significantly improved after the April stimulus. It's important to note that last year, enhanced unemployment benefits were at $600 a week compared to $300 a week this year, which presents a challenge as we approach Q4, though it's not an insurmountable one. Does that clarify things?

No, it's very helpful. I appreciate it. Then my second question would be more big picture. When you consider the commercial business, there are clearly many factors at play right now. However, the commercial segment has been a strong point for AutoZone for some time. It's changed a bit recently. As you look ahead, what is your perspective? Is there still some slack in your model? You're discussing the opening of mega hubs and new program launches. How should we view the main drivers moving forward, especially as we emerge from the COVID crisis?

Well, as Jamere mentioned, we have 50 mega hubs now. We're on a path to 100 to 110. So we will more than double the amount of mega hubs that we have today. And I will tell you, Jamere, who's in charge of store development, has a big bogey out there to make that happen very fast. You'll see a significant number of mega hubs come online this quarter, and over the next year. So I think that that will help us in a big way. As Jamere said, this business is about parts availability. It was that way when we started 42 years ago, it's still that way today. If you don't have it, you can't sell it. And we're getting parts closer and closer to our customers. I also talked about all this technology that we've rolled out. And we're still in the very early innings of that. We've seen reductions in our delivery times. But we are looking for significantly bigger, larger reductions in delivery times as this technology matures as our team understands how to utilize it and how to change. Getting parts and products frankly, out of the building is our biggest focus, not necessarily the drive time.

Appreciate it. Thank you.

All right. Thank you very much. Before we conclude the call, I want to take a moment to reiterate that we believe our industry is strong, and our business model is solid. We're excited about our future growth prospects. But we take nothing for granted as we understand our customers have alternatives. We have exciting plans that should help us succeed for the future. But I want to stress that this is a marathon and not a sprint. As we continue to focus on the basics and focus on optimizing long-term shareholder value, we are confident AutoZone will continue to be very successful. Lastly, as we celebrate Memorial Day next Monday, we should remember all of our country's heroes, both past and present. We owe these Americans a tremendous debt of gratitude. Thank you all for participating in today's call. Have a great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.