Good day, ladies and gentlemen, and welcome to AutoZone’s 2022 Second Quarter Earnings Release Conference Call. At this time, all participants have been placed on listen-only mode. And we will open the floor for your questions and comments after the presentation. Before we begin, the company would like to read some forward-looking statements.

Before we begin, please note that today’s call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance. Please refer to this morning’s press release and the company’s most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission for a discussion of important risks and uncertainties that could cause actual results to differ materially from expectations. Forward-looking statements speak only as of the date made, and the company undertakes no obligation to update such statements. Today’s call will also include certain non-GAAP measures. A reconciliation of non-GAAP to GAAP financial measures can be found in our press release.

Thank you. It is now my pleasure to turn the floor over to your host, Bill Rhodes, CEO of AutoZone. Sir, the floor is yours.

Thank you. Good morning, and thank you for joining us today for AutoZone's 2022 second quarter conference call. With me today are Jamere Jackson, Executive Vice President and Chief Financial Officer; and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax. Regarding the second 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. As we begin, we want to continue to stress that our highest priority remains the safety and well-being of our customers and AutoZoners. Everyone across the organization takes this responsibility very seriously, and I am extremely proud of how our team has continued to respond to COVID-19 and the recent Omicron variant. Since the start of the pandemic, we have consistently recognized our AutoZoners in our stores and distribution centers for giving exceptional service in the face of all the challenges COVID-19 has presented. This quarter, we will start the same way by saying thank you to our AutoZoners for their dedication to providing exceptional customer service and helping our customers with their automotive needs. This morning, we will review our overall same-store sales, DIY versus DIFM trends, our sales cadence over the 12 weeks of the quarter, merchandise categories that drove our performance and any regional discrepancies. We'll also share how inflation is affecting our costs and retail prices and how we think they will impact our business for the remainder of the fiscal year. Lastly, I'll touch on the subject of pricing in the industry. Our domestic same-store sales were an impressive 13.8% this quarter, on top of last year's very strong 15.2%. Our team has once again executed at an exceptionally high level and delivered amazing results despite the ongoing very challenging environment. In Q1 of this fiscal year, we reported 13.6% same-store sales on top of 2021's Q1 same-store sales of 12.3%. Impressively, our team delivered accelerating two-year comps in our second quarter. Our growth rates for retail and commercial were both strong with domestic commercial growth exceeding 32%. Commercial set a second quarter record with $844 million in sales, an incredible accomplishment. We generated $200 million more in sales this quarter than in Q2 last year. On a trailing four-quarter basis, we generated $3.8 billion in annualized commercial sales versus $2.9 billion just a year ago, up 30%. We also set a record in average weekly sales per store for any second quarter at $13,500 versus $10,500 last year. On a two-year basis, our sales accelerated from last quarter, exceeding 46% in commercial. Domestic represented 25% of our total company sales, another record for us compared to 21.9% last year. Our commercial sales growth continues to be driven by a host, and I want to emphasize, a host of key initiatives we've been working on for the last several years. We improved our satellite store inventory availability. We've had massive improvements in Hub and Mega-Hub coverage. We're leveraging the strength of the Duralast brand. We have better technology to make us easier to do business with. We have significantly improved our delivery times. We've enhanced our sales force's effectiveness and we're living consistent with our pledge by being 'priced right' for the value proposition that we deliver. We continue to execute very well in commercial, and we are extremely proud of our team and their performance. We're also very proud of our organization's performance in domestic DIY. We ran at 8.4% comp this quarter on top of last year's 15.7%. As our DIY two-year stacked comp accelerated from the first quarter, it's remarkable to reflect on four consecutive quarters of more than 20% two-year comps in this more mature portion of our business. From the data we have available to us, we continue to not only retain the enormous three full points of share gains we built during the initial stages of the pandemic, but modestly continued to build on those gains. Our performance, considering the amount of time since the last stimulus and the ending of the enhanced unemployment benefits, has substantially exceeded our expectations and gives us more conviction on the sustainability of these sales levels. Now, let's focus on sales cadence. Our same-store sales decreased sequentially from late November through January, then accelerated again in the few days of the quarter we had in February. The deceleration through January could be deceiving as last year's comp strengthened as the quarter progressed due to the federal stimulus distributed around the first of last calendar year. Given the dynamics in the past 20 months, we, like others who've benefited from the pandemic, believe it has been more instructive to look at two-year stacked comps. On this basis, the monthly results were almost identical and were very stable. For Q2, our two-year comp was 29.1%, and the four-week periods of the quarter increased 29.6%, 28.9%, and 29.1%, respectively. Regarding weather, until February, we experienced warmer than usual weather in the northeastern US, while the remainder of the country experienced normal winter trends. Overall, we feel weather did not play a material role in our sales performance. As we look forward to the spring months, we believe we will see normal weather trends, and therefore, weather is not planned to be a big story for this upcoming quarter or summer. As a reminder, historically extreme weather, either cold or hot, drives parts failures and accelerated maintenance. Regarding this quarter's traffic versus ticket growth, in retail, our traffic was up slightly while our ticket was up 7.8%. This slight transaction count growth continues to be a meaningful acceleration from pre-pandemic levels, although it decelerated versus last year, as expected, due to the elimination of stimulus and enhanced unemployment. In our commercial business, we saw most of the sales growth come from transaction growth from new and existing customers. It was encouraging for us to see sales trends remain strong, and we continue to be pleased with the momentum we are seeing in both domestic businesses heading into the spring months. During the quarter, there were some geographic regions that did better than others, as there always are. But this quarter, we saw a mere 15 basis points difference between the Northeast and Midwest compared to the balance of the country. As winter definitely came in late January in the Northeast and Midwest, we are expecting that gap will remain close. Also, the market share data suggests we continued to gain share in most of our markets. Now let's move into more specifics on performance for the quarter. Our same-store sales were up 13.8% versus last year's second quarter. Our net income was $472 million, and our EPS was $22.30 a share, increasing an impressive 49.4%. Regarding our merchandise categories in the retail business, our hard parts grew slightly faster than our sales floor categories, but not materially, say, maybe less than 1%. As Americans get back to driving more, we've seen maintenance and failure-related categories perform well. We've been especially pleased with our growth rates in select failure-related businesses like batteries that have successfully lapped very strong performance last year. We believe our hard parts business will continue to strengthen as our customers drive more. Let me also address inflation and pricing. This quarter, we saw our sales increase by over 5% from inflation. While our cost of goods was up over 4% on a like-for-like basis, we believe both numbers will be slightly higher in the third quarter as cost increases in many key merchandise categories continue to work their way through the system. As rising raw material pricing, labor, and transportation costs are all impacting us and our suppliers, inflation has been prevalent in the aftermarket space. We have no way to say how long this will last, but our industry has been disciplined about pricing for decades, and we expect that to continue. It is also notable that following periods of higher inflation, we typically do not see corresponding deflation. While we continue to be encouraged with the current sales environment, it remains difficult to forecast near to midterm sales. What I will say is that the past four-quarter sales have all been consistent on a two-year stacked comp basis and a three-year basis, and that goes for both our DIY and our commercial businesses. While it's difficult to predict absolute sales levels going forward, we are excited about our growth initiatives, our team's exceptional execution, and the tremendous share gains we have achieved in both sectors. Currently, the macro environment, while uncertain, remains very favorable for our industry. And even if these near-term trends fade, we believe that we are in an industry that is positioned for solid growth over the long term. For FY 2022, we expect our sales performance to be led by the strength in our commercial business as we continue executing on our differentiating initiatives. As we progress through the year, we will, as always, be transparent about what we are seeing and provide color on our markets and outlooks as trends emerge. Before handing the call over to Jamere, I'd like to address the subject of pricing, and if AutoZone's pricing disciplines or philosophies have changed from past practices. The short answer is a resounding no. While we initiated a retail pricing adjustment last year in Q1 and further adjusted some commercial pricing in quarters two through four, these moves were done to be price competitive with other channels, not with our direct competitors. Specifically, in the retail business, we reduced our premiums to mass, particularly on highly visible commodity products. Regarding the more significant change in commercial, our prices have always been meaningfully higher than our WD competitors as our service level is superior. Our pricing changes over the last year or so have been too narrow, I emphasize narrow, but not eliminated that gap. We must make sure we receive a premium for our service advantage, but we narrowed that premium by roughly half. While this has created some consternation in the investment community, we think our results have shown that this was a prudent and productive decision. We continue to see our industry as very rational when it comes to pricing strategies. And I want to be clear, crystal clear. I don't want anyone to conclude that our growth in commercial is solely due to pricing. We launched a comprehensive new strategy about three years ago, with improvements in assortments, local market availability with Hubs and Mega-Hubs and our delivery times are dropping as we leverage new technologies that have been deployed. Our team's execution is enhanced. We've made ourselves easier to do business with, and we've improved our pricing versus WDs. We stated last year we didn't envision any additional pricing reductions beyond those deployed at the beginning of last year's Q4, and that remains our stance. Now I'll turn the call over to Jamere Jackson. Jamere?

Thanks, Bill, and good morning, everyone. As Bill mentioned, we had a strong second quarter with double-digit comp growth, a 30% growth in EBIT, and a 49% growth in EPS. Our results for the first half of the fiscal year have been remarkably strong as our growth initiatives continue to deliver great results and the efforts of our AutoZoners in our stores and distribution centers have enabled us to take advantage of robust market conditions. To start this morning, let me take a few moments to elaborate on the specifics in our P&L for Q2. For the quarter, total auto parts sales, which includes our domestic, Mexico, and Brazil stores, were $3.3 billion, up 15.6%. Now let me give a little color on sales and our growth initiatives. Starting with our commercial business for the second quarter, our domestic DIFM sales increased 32.1% to $844 million and were up 46.8% on a two-year stacked basis. Sales to our DIFM customers represented 25% of our total company sales, and our weekly sales per program were $13,500, up 28.6% as we averaged just over $70 million in total weekly commercial sales. Once again, our growth was broad-based as national and local accounts both grew at approximately 32% for the quarter. While the second quarter is seasonally our lowest selling quarter, our results for the quarter are exceptional and represent the highest volume second quarter in the history of the chain. I want to continue to reiterate that our execution on our commercial acceleration initiatives is delivering better-than-expected results as we focus on building a faster-growing business. We are making tremendous progress in growing share in this highly fragmented portion of the market by winning new business and increasing our share of wallet with existing customers. We have our commercial program in approximately 86% of our domestic stores, which leverages our DIY infrastructure, and we're building our business with national, regional, and local accounts. This quarter, we opened 22 net new programs, finishing with 5,233 total programs. As I said at the outset of the year, commercial growth will lead the way in FY 2022, and our results in the second quarter and the first half of the year reflect this dynamic. We remain confident in our strategies and execution and believe we will continue gaining share, delivering quality parts, particularly with our Duralast brand, improved assortments, competitive pricing and providing exceptional service has enabled us to drive double-digit sales growth for the past seven quarters. Our core initiatives are accelerating our growth and position us well in the marketplace. And notably, our Mega-Hub strategy is driving strong performance and positioning us for an even brighter future in our commercial and retail businesses. Let me add a little more color on our progress. As I mentioned last quarter, our Mega-Hub strategy has given us tremendous momentum. We now have 64 Mega-Hub locations, and we expect to open approximately 14 more over the remainder of the fiscal year. While I mentioned a moment ago, the commercial weekly sales per program average was $13,500 per program, the 64 mega hubs averaged significantly higher sales and are growing much faster than the balance of the commercial footprint. As a result, our mega hubs typically carry roughly 100,000 SKUs and drive tremendous sales lift inside the store box as well as serve as an expanded assortment source for other stores. The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business, and we are testing greater density of mega hubs to drive even stronger sales results. What we are learning is that not only are these assets performing well individually, but the fulfillment capability for the surrounding AutoZone stores gives our customers access to thousands of additional parts and lifts the entire network. By leveraging sophisticated, predictive analytics and machine learning, we're expanding our market reach, driving closer proximity to our customers, and improving our product availability and delivery times. We're building a meaningful competitive advantage, and we continue to have confidence in our ability to create a faster-growing business. On the retail side of our business, same-store sales for our domestic retail business were up 8.4% and up 24.1% on a two-year stack. The business has been remarkably resilient as we have gained and maintained nearly three points of market share since the start of the pandemic. As Bill mentioned, we saw traffic up slightly to go along with 7.8% ticket growth as we continue to raise prices in an inflationary environment. Our growth initiatives are also leading to share gains as we improve the customer shopping experience, expand assortment, and leverage our Hub and Mega-Hub network. These dynamics, along with favorable macro trends in miles driven, a growing and aging car park, and a challenging new and used car sales market for our customers have continued to fuel sales momentum in DIY. Our in-stock positions, while still below where we were pre-pandemic, are continuing to improve as we have made great progress in a challenging supply chain environment. We've been able to navigate supply and logistics constraints and have product available to meet our customers' needs. Our AutoZoners, who are taking care of our customers, give us a key competitive advantage that enables us to thrive in this market environment. Now, there's no question that DIY comps get tougher in the back half of the year due to exceptionally strong back half performance in both FY 2020 and FY 2021. But we remain confident that the fundamentals of our business remain strong, macro conditions are favorable for us, and we have had great execution by our teams. Now, I'll say a few words regarding our international business. We continue to be pleased with the progress we're making in Mexico and Brazil. During the quarter, we opened three new stores in Mexico to finish with 669 stores and two new stores in Brazil to finish with 55. On a constant currency basis, we saw accelerated sales growth in both countries, in line with the growth rates we saw overall. We remain committed to our store opening schedules in both markets and expect both countries to be significant contributors to sales and earnings growth in the future. With only just over 10% of our total store base now outside the US and our commitment to continue expansion in a disciplined way, international growth will be an attractive and meaningful contributor to AutoZone's future growth. Now, let me spend a few minutes on the P&L and gross margins. For the quarter, our gross margin was down 59 basis points, driven primarily by the accelerated growth in our commercial business, where the shift in mix, coupled with the investments in our initiatives, drove margin pressure, but increased our total gross profit dollars by 14.5%. I mentioned on last quarter's call that we expected to have our gross margin down in a similar range this quarter as we saw in the first quarter where we were down 65 basis points versus the previous year. Our merchandising team has been focused on driving margin improvements, primarily through pricing actions that offset inflation, resulting in slightly better performance than our initial expectations. As Bill mentioned earlier in the call, we are continuing to see cost inflation in certain product categories, along with rising transportation and distribution center costs. We're continuing to take pricing actions to offset inflation and consistent with prior inflationary cycles, the industry's pricing remains rational. We would expect our margins in the third quarter to be down in the 50 bps range versus Q3 last year, driven primarily by mix headwinds from our fast-growing commercial business. Moving to operating expenses, our expenses were up 7.5% versus last year's Q2 as SG&A as a percent of sales leveraged 264 basis points. The leverage was driven primarily by our strong results and approximately $40 million or 137 basis points and prior year pandemic-related expenses. While our SG&A dollar growth rate has been higher than historical averages, we've been focused on maintaining high levels of customer service during a period of accelerated growth. We also continued to invest at an accelerated pace in IT to underpin our growth initiatives, and these investments will pay dividends in user experience, speed, and productivity. We will continue to be disciplined on SG&A growth as we move forward and manage expenses in line with sales growth over time. Moving to the rest of the P&L. EBIT for the quarter was $627 million, up 30.1% versus the prior year's quarter, driven by strong top line growth. Interest expense for the quarter was $42.5 million, down 7.7% from Q2 a year ago as our debt outstanding at the end of the quarter was $5.8 billion versus just over $5.5 billion at Q2 end last year. We are planning interest in the $45 million range for the third quarter of fiscal 2022, roughly flat with Q3 last year. For the quarter, our tax rate was 19.3% versus 20.6% in last year's second quarter. This quarter's rate benefited 401 basis points from stock options exercised last year, while last year, it benefited 265 basis points. For the third quarter of fiscal 2022, we suggest investors model us at approximately 23.6% before any assumption on credits due to stock option exercises. Moving to net income and EPS. Net income for the quarter was $472 million, up 36.4% versus last year's second quarter. Our diluted share count of 21.2 million was 9% lower than last year's second quarter. It's a combination of higher net income and lower share count that drove earnings per share for the quarter to $22.30, up 49.4% over the prior year's second quarter. Now let me talk about our free cash flow for Q2. For the second quarter, we generated $362 million of operating cash flow and spent $106 million in capital expenditures, allowing us to generate $270 million of free cash flow, up 3.1% versus the prior year. Year-to-date, we have generated $960 million in free cash, up 12.4% versus the prior year. You should expect us to continue being an incredibly strong cash flow generator going forward, and we remain committed to returning meaningful amounts of cash to our shareholders. Regarding our balance sheet, through our share repurchase program and the prepayment of a bond due in April, we have exhausted our excess cash balance on the balance sheet, but rest assured our liquidity position remains very strong and our leverage ratios remain below our historic norms. We're also managing our inventory well as our inventory per store was up 3.3% versus Q2 last year. Total inventory increased 6.2% over the same period last year, driven mainly by new stores and inflation. Net inventory, defined as merchandise inventories less accounts payable on a per store basis, was a negative $198,000 versus negative $93,000 last year and negative $207,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 126.8% versus last year's Q2 of 113%. Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased nearly $1.6 billion of AutoZone stock in the quarter. As of the end of the fiscal quarter, we dropped below 20 million shares outstanding. As a point of emphasis, when we started our share repurchase program in 1998, we had 154 million shares outstanding. Now we have less than 20 million. At quarter end, we had just under $958 million remaining under our share buyback authorization. The powerful free cash we generated this year has allowed us to buy back over 6% of the shares outstanding since the beginning of the fiscal year. We have bought back over 90% of the shares of our stock since our buyback inception in 1998, while investing in our existing assets and growing our business. We remain committed to this disciplined capital allocation approach where we expect to return to our long-term leverage target in the 2.5x area and generate powerful free cash flows that will enable us to invest in the business and return meaningful amounts of cash to shareholders. To wrap up, we had another very strong quarter, highlighted by strong comp sales, which drove a 36.4% increase in net income and a 49.4% increase in EPS. We are 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 continues to work. We are growing our DIY and DIFM businesses at a significantly faster rate than the overall market, and we are committed to capturing our fair share while improving our competitive positioning in a disciplined way. I continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders. And now I'll turn it back to Bill.

Thank you, Jamere. Fiscal 2022 is off to a very strong start, and we remain focused on superior customer service and flawless execution. Our culture is based on exceptional service, and that will continue to define our success. I want to step back for a minute and talk about the big picture. Throughout the pandemic, each of us has had a very difficult time forecasting the future in light of all the uncertainties: the disease, the variants, consumer and government responses, competitive dynamics, and so on. But we are now nearly two years into this pandemic. What has happened to our business over those two years due to the tremendous contributions of our AutoZoners is nothing short of phenomenal. On a trailing 12-month basis versus pre-pandemic, our sales volumes have increased by over a remarkable 30%, and our profitability expressed as EBIT has increased nearly 50%. Six to nine months ago, if you would have asked us, our expectation was that some of those incremental sales and profits would go back closer to historic norms. While it is still very difficult to predict the next six to 12 months, our perspective has morphed, as we are nearly a year past the last stimulus and nearly six months from the suspension of enhanced unemployment, we believe most, if not all, of this growth is sustainable. We believe our competitive positioning has improved, as indicated by our significant share gains in both retail and commercial. And consumer behaviors may have permanently changed. If this holds true, it will be the fourth time in the last 30 years that the economy and society have had significant shocks, leading to material acceleration in our growth in sales and profits without a corresponding decline back to pre-recessionary or pre-pandemic levels. Our industry is unique, but it has a very long track record of strong performance with high return and cash flow characteristics. As we begin to lap the second anniversary of the pandemic, some of the measurements we've all used recently to measure our performance will become skewed. Remember, at the beginning of the pandemic, our sales dropped radically. Our retail sales rebounded quickly with the April 2020 stimulus, but our commercial rebound lagged, and it took several months to recover. For Q3, the two-year stacked comp measurement holds reasonably well as we delivered basically flat overall comps in Q3 of 2020. However, that measure for our commercial business won't be as meaningful. And then in Q4, in light of the amazing performance in 2020, the two-year comparison for overall comps won't be comparable. We would encourage you to migrate to three-year comps. We continue to be bullish on our industry and, in particular, on our opportunities for 2022. We believe the macro backdrop is in our favor for the near and long term. Our customers across the Americas want to get out and drive, and we'll be there when they need helpful advice. Our team has worked diligently and collaboratively with our suppliers, and together, they have done a very good job dealing with the enormous supply chain challenges that exist for everyone. While our in-stock levels are improving, and we expect that to continue, we also believe we are better in stock than most retailers. And our results support that belief. For the remainder of fiscal 2022, we are launching some very exciting initiatives. We're focused on further growing share, but as always, doing so on a very profitable basis. In fiscal 2024, we plan to open a new distribution center in California to fuel continued growth of our domestic business. We just recently announced a new distribution center in Virginia. And we're now planning an additional distribution center in Mexico to allow us to service a growing store base in that country. This is a meaningful acceleration in our historic investments in distribution centers as during the pandemic, we have learned we need to have a bit more excess capacity in our supply chain. We're also targeting to open 14 more new domestic mega hubs in the US that will enhance our availability and support growth in our retail and commercial businesses. As we've mentioned many times before, our mega hub strategy is at the core of materially improving our inventory availability. This strategy is expected to help us drive both commercial and retail sales for many, many years to come. We also will be leveraging our hub and mega hub strategy further in Mexico. For the fiscal year, we expect to open more than 200 new stores throughout the Americas, with notable acceleration in Brazil. These capacity expansion investments reflect our bullishness on our industry and, in particular, our own growth prospects. We're being disciplined, yet we're being aggressive. I also want to reiterate how proud I am of our AutoZoners across the stores and distribution centers, in particular, for their commitment to servicing our customers and doing so in a very safe manner. 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 three to five years from now, and we very much, very much welcome that challenge. I continue to be bullish on our industry and, in particular, on AutoZone and AutoZoners. Now I'd like to open up the call for questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. We ask that all Q&A participants please limit themselves to two questions per person. Your first question comes from Bret Jordan from Jefferies. Your line is live.

Hey, good morning, guys.

Good morning, Bret.

Good morning, Bret.

Yes. On the Americas expansion, sort of thinking longer term, how do you see the potential size of Mexico and Brazil on a three to five or maybe even longer-term basis?

Sure. So we haven't given specific numbers, Bret, but what we have said repeatedly is, in both the United States and Mexico, we believe we can continue to grow at the current kinds of levels for the foreseeable future. So in the U.S., that's 150 to 170 stores, in Mexico, it's 40 to 50 stores. We believe we can do that for the foreseeable future, so it's going to be much, much larger than it is today. As far as Brazil is concerned, we're just getting started. You all know we've been down there for over nine years now, and we were very methodical and very thoughtful and careful about making sure that this model worked for us. Just about a year ago, we presented to our Board that we felt like Brazil was now at the stage where we're comfortable, the model works. We knew it worked for the customers. We are now comfortable it works for us financially, and we will be growing much faster in Brazil. I believe, over the long term, Brazil will end up being larger than Mexico for AutoZone. But with about 50 stores, it's a long way to go.

Okay, great. And then I guess, you called out share gains, obviously, and it's quantified your DIY at 3 points. Could you give us any more color on the commercial side of the business? And within the share gains, have you seen any significant contribution from national versus independent recently?

Yes, Bret, I wish I could provide more details. In the DIY business, we have specific data and POS data for front-of-store items, which is clear and we’re comfortable sharing. During the peak of the pandemic, we gained over 3% and achieved 10% growth in market share, which I have never seen before. We anticipated giving some of that back as the economy reopened, but we haven't. In fact, we've continued to see marginal growth in market share, which makes us very pleased. On the commercial side, we lack a tool for direct insight. However, given our growth rate of 46% over two years, we believe we are significantly increasing our share, much faster than the industry, although we can’t provide specifics on our performance in different sectors.

Do you have a feeling whether national accounts or up and down the street business are stronger than the other, or are they both sort of comparable growth rates?

They're very comparable growth rates right now. That changes over time during the depths of the pandemic. The nationals weren't growing as fast as the up and down the street. I think that's changed now. They're both growing at really high rates. I think Jamere even mentioned like 32% for both sectors during the quarter. So, we're really, really pleased. We've really developed some very nice relationships with our national account partners. And we have a specific program for our up and down the street that we call Pro Vantage, and both of those sectors are doing really, really well.

Okay, great. Thank you.

Yes, thank you, Bret. Have a good day.

Thank you. Your next question is coming from Zach Fadem from Wells Fargo. Your line is live.

Hey, good morning. So, for your Do-It-For-Me customers, can you talk a bit about your historical price gap versus your peers as well as WDs and how that's been trending over the last couple of years? And as you think about the drivers of sales for national, regional, and local accounts, where do you think the biggest drivers of share are today across price, availability, or simply the fact that you're now able to serve certain customers that you historically weren't able to serve?

Yes, I'll start. There's a common misconception that our pricing strategies are the main reason for our growth. While they play a role, they are not the sole factor. About four years ago, we initiated a new commercial strategy and examined all aspects of our offerings. We modified the product assortment in each store across the United States, tailoring them to emphasize our commercial business more than before. We also focused on significantly improving local market availability, which led to the creation of our Mega-Hub store concept. We currently have over 60 Mega-Hubs, and we anticipate reaching at least 110, possibly even closer to 200, as our tests have shown that these locations consistently surpass our expectations. We've also developed our sales team, which was relatively inexperienced a decade ago. As they gain experience and expertise, they've become more effective in their sales approaches. Furthermore, we've undertaken the largest technology investment in our company's history within the commercial sector, enhancing our digital interaction with customers. Each store and delivery driver now uses handheld devices to ensure the right products are picked and to monitor delivery times. So far, we've reduced our delivery times by about 15%, although we aim to improve further. Our Duralast brand continues to gain strength, which we are very pleased about. We have also narrowed our price gaps. Unlike retail, the commercial sector lacks the same level of transparency regarding pricing. Our pricing strategies vary for different national accounts and local customers. About a year ago, we discussed ensuring that our overall value proposition, including price, was competitive against warehouse distributors. After a year of testing, we successfully reduced our price gap by about half, moving from approximately 15% to around 8% or 8.5%. We are quite satisfied with the progress made in this area. Zach, did I address all your questions? You had several in your inquiry.

No, no. So that was great. I just wanted to follow up on just your expectations for industry growth as a whole in 2022. How are you thinking about DIY versus Do-It-For-Me in terms of volume versus price inflation? And I presume you still see room to build on the three points of market share that you've taken since the pandemic.

So I would say a few things. One, if you look at our results specifically, there are really four dynamics. The first is to a certain extent, inflation has been our friend. It's helped us drive higher pricing, and the volumes are actually holding. If you look at where we've seen pricing grow, I mean, we're up mid-single digits in retails for the first half. And quite frankly, if we see that same level of inflation in the back half, which is reasonable, then you could expect us to take pricing up in a similar dynamic. The share gains we've talked about are driving our business. We're up nearly three points versus the pre-pandemic. We’ve hung on to those share gains, and the growth initiatives that Bill talked about, both in DIY and commercial, are giving us a lot of confidence that we'll maintain those shares as we go forward. Lastly, there’s the macro strength that we’re seeing. You have an aging and growing car park. You have used car prices that are up 60% versus pre-pandemic. Many new cars are actually selling higher than the sticker prices. If you look at the used car price dynamic just in general, those higher residual values are actually encouraging our customers to invest in maintaining their vehicles because they're comfortable that the value is actually holding. So when you mix all of those things together, it suggests that the industry as a whole is not going back to pre-pandemic sale levels. While we won't be date certain about when you'll see comps move one direction or the other, we'll say that the fundamentals are strong. We don't expect to return to the levels that we saw prior to coming into the pandemic. So our growth dynamics and the industry backdrop give us a lot of confidence about the future.

Appreciate that. Thanks for the time.

Thank you.

Thank you. Your next question is coming from Brian Nagel from Oppenheimer. Your line is live.

Hi, good morning. Nice quarter. Congratulations.

Thank you.

Thanks, Brian.

I have two questions that I will combine. First, Bill, in your opening comments, you mentioned the strength in the business. As you assess the sales acceleration from fiscal Q1 to fiscal Q2, is there anything specific that stands out? Is inflation and your ability to pass on those inflationary prices a factor? My second question pertains to gas prices. I understand AutoZone does not provide guidance, but we've noticed that gas prices are rising again due to issues within the United States and, more importantly, geopolitical factors. Are these higher gas prices a concern for you regarding sales and consumer health?

Yeah. So two great points, Brian. First of all, what changed versus Q1 and Q2, there's a lot of different things that changed. I think we're going to hang our heads a lot on our execution and our team's execution. But clearly, this inflation has had a lagging effect, and we had more inflation in our sales growth in Q2 than we did in Q1, not material, but maybe a point or so. So that is an element of our acceleration, and we didn't accelerate that much. I think we accelerated two or three points on a two-year basis. Then as for gas prices, as you know, you've followed this industry for a long, long time. Gas prices fluctuate and they fluctuated very significantly during my tenure here. What we've said historically is that there's not a ton of correlation between gas prices and our business until it hits a magic point. Historically when it hit $4 a gallon, it seemed to impact miles driven. You could see a direct correlation once it hit that $4 a gallon mark in miles driven. We don't know if that will hold true if it gets to $4 a gallon again. But for us, it goes up and it goes down. There's nothing we change in our business as a result of gas prices. Sometimes we're going to have industry tailwinds like we've had, and sometimes we're going to have industry headwinds. We need to just manage this business through both environments and make sure that we optimize our performance based upon the macro environment.

That's very helpful. Congratulations again. Thanks.

Thank you.

Thank you. Your next question is coming from Christopher Horvers from JPMorgan. Your line is live.

Hi, good morning. It's Christian Carlino on for Chris. Could you just help us lay out some of the drivers of the inflation, whether that be product or supply chain costs and how you're thinking about that going ahead this year? I'm understanding you're not giving guidance. And do you expect it to be a potential lift to sales in the second half of calendar 2022?

Yes, as we mentioned earlier, we are experiencing cost inflation in certain areas, along with increased transportation and labor costs overall. The key point is that industry pricing has remained reasonable, and we are adjusting our prices similar to our competitors to manage the impacts of inflation, as we've successfully done before. Historically, this industry has effectively passed along inflation costs, and typically, demand remains stable due to the essential nature of the products we offer. We've increased retail prices in line with inflation, which has generally been in the mid-single digits. We anticipate that similar trends will continue in the latter half of the year, and we will be careful about raising prices accordingly. This inflation is widespread and not limited to our sector. In terms of transportation, labor, and wage rates, our customers, particularly those at the lower end, are benefiting from higher wages. This has created a bit of a safety net, likely more substantial than in the past. We are managing inflation within our own business. Wage inflation is increasing, maybe low single digits annually, but we're likely facing inflation rates that are twice that, as we aim to support our AutoZoners in this inflationary period, which our customers are also experiencing. These circumstances have made lower-income consumers somewhat more resilient than they might have been in previous inflationary periods. Currently, we're not observing any significant issues, but we are monitoring the situation closely.

Got it. That's really helpful. I appreciate that. It seems you are doing a lot to utilize technology to enhance fulfillment on the commercial side of the business. Could you discuss the potential for developing technology related to pricing? With your data, do you have better pricing visibility across the commercial market compared to some of your competitors? How should we consider that opportunity?

Yes. One of the things I'm really excited about is the investments that we're making in technology. Typically, you don't hear CFOs say that because they're only thinking about the cost side of that. But the investments that we're making in technology are really underpinning the growth strategy. The sophisticated nature with which we're able to figure out what we're doing on the store development side, how we're using AI and machine learning to help us think about pricing and get a lot more surgical from a pricing standpoint are all things that I'm really excited about to help us drive growth and improvements in our business. Indeed, we are using technology to do that. It's a little bit more difficult, sometimes on the commercial side of the business. But you combine that technology with the on-the-ground intelligence that we're receiving from our AutoZoners in the field, and I like our capabilities there. It's given us a competitive advantage as we think about what we're doing from a pricing standpoint.

Got it. Thanks. Thank you very much and congrats on a great quarter.

Thank you.

Thank you.

Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.

Hi. This is Jackie Sussman on for Chris. Congrats on a great quarter. My first question is just on product availability. Kind of how much of an advantage has been in stock over the last two years, has been kind of in-stock and does it narrow as supply chains come back? Kind of what is your outlook there? Thanks.

Yes. It's a fantastic question, Jackie. And frankly, we don't have really good data on how our in-stock position compares to our direct competitors or with retail in general, except for walk-in stores, and which we've done a lot of over time. I'm really, really proud of the way that our supply chain team, our merchandising team, and our suppliers, they've worked at unprecedented levels during this past couple of years. We've gotten very creative. Our logistics team has done an amazing job with all the challenges getting merchandise from the Far East to the United States into our distribution centers. Our belief is we've had an improved in-stock position versus others. However, our in-stock position, even today, is a couple of hundred basis points below where it is normally. It's been a little bit of a game of whack-a-mole. We solve it in this category, then it moves into that category, then it moves into another category. Overall, we're getting better and better on a weekly basis. But we still have a ways to go before we get back to that level. Trying to quantify how much of that has been embedded in our share gains and sales lift, it's just too much of an art for us to figure that out.

Got you. Understood. And you talked a bit about the Duralast brand. Have you disclosed kind of Duralast penetration by product category? Which products are kind of over-indexed and which are under?

Yes. We haven't done it by product category. We obviously said it's over half of our hard part sales and continues to grow. We continue to introduce it in different categories or line extensions. Not too long ago, we introduced the Duralast Elite brake pad program, which is doing really well. We've added Duralast Gold chassis, which has done extremely well. A couple of years ago, we added Duralast shocks and struts. It's interesting, we did some market research as part of our commercial strategy development about four years ago, and we went by in the commercial business and we said, what are the top three brands by product category? The Duralast brand was listed in two categories as the number two brand, and we had never sold one piece in that category. So it just shows you the overall power of the Duralast brand. And if you turn back the clock a decade, it was interesting. People would have said we couldn't have been successful in commercial because we had private label. We don't have private label. We've got the Duralast brand, and it's high-quality products that our customers continue to turn to and trust.

Great. Congrats on a great quarter.

Thank you.

Thank you. Your next question is coming from Scot Ciccarelli from Truist. Your line is live.

Hi. This is Joe on for Scot. I just had a quick question. Given the success you guys have shown in the Mega-Hub strategy, do you think we could see an acceleration of these rollouts next year and going forward? And what does that look like for margins?

Well, Jamere is in charge of store development so I'll answer it for him. The answer is yes. Jamere, you want to add some color?

You're writing my development plan for this year and next year. Thanks. The key for us is making sure that we leverage these assets. As Bill mentioned, every time we've doubled down on our Mega-Hub strategy, it's paid dividends for us and the Mega-Hubs are outperforming our expectations. The ability to put these assets into the market, provide a lift to the overall network, and benefit both our DIY and our DIFM business, there's a very strong business building proposition for us. And we're going to go further and faster. One of the things I mentioned we’re testing is higher density of Mega-Hubs in a marketplace. You typically worry about cannibalization if you get stores or assets too close from a proximity standpoint. But what we're finding is when we put more parts into those markets and we do that in a disciplined way based on the analysis that we're doing and the research that we've done and the actual results that we're seeing, it exceeded our expectations. Cannibalization is lower. It's a lift to the overall marketplace, and that's why we're so bullish, and that's why we're going to double down on it.

Appreciate it. Thanks.

Thank you, Joe. Before we conclude the call, I want to take a moment to reiterate. We believe our industry is in a strong position and our business model is solid. We are excited about our growth prospects for the year, and we will take nothing for granted as we understand our customers have alternatives to shopping with us as we continue to focus on the basics and strive to optimize shareholder value for the remainder of FY 2022. We are confident AutoZone can continue to be successful. Thank you very much for participating in today's call. Have a great day.