Welcome and thank you for standing by. This is the conference call to discuss AutoZone's third quarter financial results. Bill Rhodes, the company's President and CEO, will be making a short presentation on the highlights of the quarter. The conference call will end promptly at 10:00 a.m. Central time, 11:00 a.m. Eastern time. Before Mr. Rhodes begins, the company has requested that you listen to the following statement regarding forward-looking statements. Certain statements contained in this presentation are forward-looking statements. Forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, position, strategy and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation, competition, product demand, the economy, the ability to hire and retain qualified employees, consumer debt levels, inflation, weather, raw material costs of our suppliers, energy prices, war and the prospect of war including terrorist activity, availability of consumer transportation, construction delays, access to available and feasible financing, and changes in laws or regulations. 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 such events could materially inversely affect our business. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results may materially differ from anticipated results. Please refer to the risk factor section of AutoZone's Form 10-K for the fiscal year ended August 26, 2006 for more information related to those risks. In addition to the financial statements presented in accordance with Generally Accepted Accounting Principles, AutoZone has provided metrics in this presentation that are not calculated in accordance with GAAP. For a reconciliation of these metrics, please see AutoZone's press release in the investor relations section at www.autozoneinc.com. Now I'd like to turn the call over to Mr. Rhodes. Thank you, sir, you may begin. What you WON’T hear on the call!: In 1957, a young couple named Bill and Carol Angle invested half their life savings in Berkshire Hathaway. According to Forbes magazine, today it’s worth over $300 million. What if you could do even half or a third as well? One stock looks uncannily similar to an early investment in Berkshire Hathaway. Get its name now in a new FREE report from The Motley Fool.

Bill Rhodes: Thank you. Good morning, and thank you for joining us today for AutoZone 's fiscal 2007 third quarter conference call. With me today is Bill Giles, Executive Vice President and Chief Financial Officer, Store Development and IT; and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the third quarter, I hope you have had an opportunity to read our press release and learn about the quarter's results. If not, the press release, along with slides complementing our comments today is available on our website, www.autozoneinc.com. Please click on Quarterly Earnings Conference Calls to see them. To begin, I'd like to thank our entire organization for living the AutoZone pledge in 2007. We again set a record for sales, earnings and earnings per share on the quarter. While we always have opportunities for improvement, I am genuinely excited about what we are doing culturally. In our management team's opinion, we feel our efforts to improve our store standards and appearance have yielded a vastly improved presentation, and we are well on our way to ensuring every store looks great. Our AutoZoners tell us the same thing. In fact, our customers tell us this, as well. Our AutoZoners are performing well and we're providing them more tools than ever before to succeed in helping our customers solve their automotive needs. We are committed to our focus on improving our culture through continued focus on training, leveraging technology to improve our AutoZoners' knowledge and improve parts availability. While our sales results didn't meet our aspirations during the quarter, as we look deeper into those details we are encouraged. Over the last several weeks, many retailers have announced that their sales trends softened significantly during the first half of April, and we experienced the same softening. However, we continue to…

Thank you, Bill. Gross margin for the quarter was 49.9% of sales, up 23 basis points compared to last year's third quarter. In the third quarter, margins continued to benefit from our ongoing category management initiatives, import efforts, and a drive to leverage supply chain efficiencies. We continue to be challenged on the cost side of the business, specifically related to oil-based products, but have made strides to reduce expenses in other categories. We also continued to be successful in working with our vendors to offer the right products at the right prices to our customers. This includes supply chain initiatives, tailoring merchandise mix, and the continued implementation of our good/better/best product lines, all allowing us to price our products appropriately, while giving our customers great value. Going forward, we believe there continues to be opportunity for gross margin expansion, albeit at reduced rates. Our direct import initiative is in its early stages, but we will continue to discuss it in future quarters, and we are extremely proud of our merchandising organization for their abilities to improve margins while pressures on procurement costs continue to exist. SG&A for the quarter was 31.9% of sales, up 11 basis points from last year. The increase was primarily due to higher depreciation expense versus the previous year. Specifically, depreciation was 23 basis points higher than last year's third quarter, which was offset in part by lower costs related to continued cost management initiatives. Additionally, we continue to invest in additional marketing efforts and training programs for all our AutoZoners in order to improve customer service. As I have mentioned before, the AutoZone culture of thrift and focus on cost management is very impressive. During the third quarter, we implemented a new initiative that is in its very early stages, but provides us with…

(Operator Instructions) Your first question comes from Bill Sims - Citigroup. Bill Sims - Citigroup: The first question is on the elasticity of demand for petroleum-based products. You mentioned that petroleum-based products were a drag on gross margin. Was it that you were unable to pass along the higher raw material cost to your customers, or were you just slow to pass it along, and you think the problem will improve as you go forward in the next several quarters?

To some extent, Bill, it's more about being slow to pass it on. You always have fluctuations in the overall price and there's always a little bit of a time lag relative to our ability to pass that price along. So as you continue to have volatility, you continue to have a little bit of pressure on gross margin. Bill Sims - Citigroup: The second question is, as we try to figure out the impact of macro challenges on your business, can you give us any color on traffic versus ticket, and what you were seeing as the quarter progressed? Bill Rhodes: We've said for the last few quarters that we've been challenged on the traffic side, and that trend continued during this quarter. There weren't any significant changes in that trend. Bill Sims - Citigroup: But are you saying throughout the quarter, or are you saying as gas prices increased, have you seen any impact on traffic? Bill Rhodes: I don't want to get into specific intra-quarter discussions. This was really one of the first times that we've talked about anything on an intra-quarter basis, and that was the softness we experienced in early April. It was so significant we thought that it was important to highlight that. But I don't want to get into individual intra-quarter metrics. Bill Sims - Citigroup: Have comps recovered to pre-April levels, pre first half April levels? Bill Rhodes: Bill, the way I would answer that is we specifically called out early April performance as a drag on our performance, and left it at that.

Your next question comes from Seth Basham- Credit Suisse. Seth Basham - Credit Suisse: First, thinking about the improvements you made on the parts assortment, especially on the hard parts side, can you give us a way to benchmark your progress there? Sounds like you had made progress, but has the mix of hard parts changed significantly versus accessories? Bill Rhodes: It has not changed significantly versus accessories at this point in time, Seth. But remember, these products have been coming in throughout the course of the last two quarters. As we've implemented specific individual categories, we've been pleased with our progress, and we're going to continue to do this. This is not a one-time event. This is something we do every year, but this year it was significantly more focused on hard parts coverage. We've been pleased with those results. As far as giving you external indicators, the best indicator we can give you is what our comp store sales trends have been. Seth Basham - Credit Suisse: With that in mind, given a normalization of weather patterns, and the progress you've made on the assortment planning, would you expect a pickup in comps? Bill Rhodes: I'm sorry, Seth. I didn't follow your question. Seth Basham - Credit Suisse: Just thinking about the changes that you've made with the assortment planning, you said that you made progress. I'm just wondering whether or not that suggests that you should have a pickup in comps? Bill Rhodes: We don't give financial guidance, you know that. Looking forward, we continue to be optimistic about what we're doing. I'm very pleased with the progress we've made on our major initiatives, and we continue to be optimistic. I don't want to get into trying to forecast what's going to happen individually with comps because there's obviously lots of different factors that the go into that. Seth Basham - Credit Suisse: Fair enough. Secondly, looking at the commercial business, can you maybe quantify what kind of profit improvement you saw in that business? Bill Rhodes: Yes, we're not going to get into the specifics of the profit improvement, but it was a significant increase. We want to build a model that's replicable for the long term, but is also significantly profitable. We've continued to work on that over the last two years. Although we've been disappointed clearly with our sales performance, we have been very pleased with the model that we've built. Seth Basham - Credit Suisse: As you look at the outlook for the commercial business, what kind of headwind should we build in for the Midas lost sales?

I wouldn't quantify it just yet. All I think we're saying is there's a little bit of pressure on there but at the same time, we've got our resources focused on building that business. And we're excited about the initiatives, some of the new collateral that we have, et cetera. We're very positive about the prospects for the business, but clearly Midas will have a little bit of a short-term impact from a sales perspective. As Bill mentioned, we think the profitability of the model continues to remain strong and we're going to continue to build on that. Bill Rhodes: Seth, I also said in the comments that we've had a headwind in that business for the last couple years, which has been one of the reasons our business has been soft. The supply chain business has been soft for the last couple of years, so we've had some of that in there already. The other component of it is there's no reason that they need to buy those through a supply chain methodology versus a hot shot methodology. The trend in the overall industry that we see is more and more people every day going to the hot shot methodology. So we want to just earn that business on the hot shot side with the same Midas dealers.

Your next question comes from Matthew Fassler - Goldman Sachs. Matthew Fassler - Goldman Sachs: I'd like to start by talking a bit about commercial. Can you shed a little more light on some of the developments that you think are improving your positioning in that business? Also on some of the changes that have enhanced your profitability in that business, even though the top line has been still on the slow side? Bill Rhodes: As we've said before, we're very focused on making sure that we serve the customers that we can serve profitably. We're not out there chasing unprofitable sales. We're out there making sure that we're providing the delivery business. We want to make sure that we provide deliveries that are going to be profitable to us. So we want to stick to our range of customers within a reasonable range of the store. The thing that we continue to do is really work on the basics of that business. It's about making sure we've got the right parts coverage, making sure that we deliver when we say we're going to deliver. Make sure we have knowledgeable customer-focused people on the phones and in the trucks. And then the piece that we're talking about today that we're optimistic about for the future, is we've got to build a world-class sales organization. The retail sales approach is very different than going out and making sales calls. We need to create the processes, the training and then develop a world-class sales organization through the people. That's a component that quite frankly, we haven't done a great job of and we're in the very early stages of doing that. As we continue to build our model and see that we do provide a great offering to our customers, now we've…

Your next question comes from Danielle Fox - Merrill Lynch. Danielle Fox - Merrill Lynch: I was hoping you could return to some of the comments that you made early in your remarks about advertising. Could you just clarify, are you simply planning to change the message in your advertising? Or are you actually planning to spend more advertising dollars to get the word out on some of the changes that have taken place at the store?

A combination of both. I think really one of the things is that our message continues to be very much focused on trustworthy advice and also promoting the Duralast brand, which continues to be, we think one of the number one brands in the industry. At the same time as you know, we talked about ZNet, and we actually launched some national advertising on ZNet just over the last four or five weeks. So in addition to that, we've shifted a little bit of advertising dollars towards the fourth quarter. We think that we'll be well positioned for the busiest selling season of the year with very appropriate advertising , again promoting ZNet, focused on trustworthy advice, and we will have a little bit higher emphasis in the fourth quarter than we did last year. Danielle Fox - Merrill Lynch: In the past, I think you've had mixed results from incremental investments in advertising. Is the key difference here that you feel like you have something different going on in the store to highlight? What is the opportunity that you see with the higher advertising spend that's different than in the past? Bill Rhodes: Danielle, I'm not familiar with not being satisfied with our advertising spend in the past. But we have spent a lot of time over the last 12 months getting ready for this selling season. We put a lot of new products in place. We also added ZNet which is a major new customer enhancement. We also have two really strong marketing messages that we are very comfortable with, both ZNet, the introduction of that to our customers, as well as our Trustworthy Advice campaign that tells people come to us, we're going to help you do it right, and make sure that we help you manage your cost as well.

Your next question comes from Dan Wewer - Raymond James. Dan Wewer - Raymond James: Bill, now that you've completed the expanding the assortments of hard parts coverage, how would you compare your assortment to competitors that have a larger DIFM focus, such as CARQUEST, NAPA and O'Reilly? Where do you think maybe you are superior, and where do you think you could be at a disadvantage? Bill Rhodes: Dan, it's always challenging to have vehicle-specific application information from our competitors. But what we've seen in the marketplace is we're very well positioned, and quite comfortable that we've really made a shift towards later model coverage, and we'll continue to refine that as we go. The other piece that we have is our hub stores, where we are going deeper and deeper all the time to learn how early we need to be. So at this point in time, we are quite comfortable. Now, it's always evolving, as new vehicles come on roads, as failure rates change, it's a constant evolution. But we're quite pleased with where we are today. Dan Wewer - Raymond James: How have you communicated to your commercial customers that you now have an expanded assortment and that you deserve the first call? Bill Rhodes: You heard us talk on the last conference call about new marketing collateral, and we also mentioned it in today's call. We've put together category-related marketing collateral that talks about all the key elements of our program on a specific category. One that went out during the quarter was on the all-important brake category, where it talked about the quality of our parts in both the Duralast and Duralast Gold names. It had specific examples in there of where we substantially increased the coverage, and some of the applications where we actually have coverage in all of our commercial stores. It's been received quite well. Dan Wewer - Raymond James: Bill, the other question I had for you was on the electronic loyalty card. As I recall, that was implemented what, the end of calendar '06? Bill Rhodes: That's correct, Dan. Dan Wewer - Raymond James: Can you remind us how many active accounts are on the system, and what you're learning from that, and how maybe it's changing the way you either merchandise stores or price your product?

It's still fairly early in the process overall. We are building accounts, to your point, and so we continue to increase our overall penetration in accounts that we have. We're still at the very early stages. Obviously, we haven't even cycled a full year yet. But we are beginning to learn a little bit more about some of the spending habits of what we call our heavy DIYers. And so I think that we'll be able to utilize that information to support the organization on an ongoing basis. But I couldn't give you a lot of specifics today, or really wouldn't want to until we get probably a full year under our belt.

Your next question comes from Mike Baker - Deutsche Bank. Mike Baker - Deutsche Bank: The $1 million fee you talked about for Midas, that's a fee I imagine that you guys earned. So I'm wondering if that was in your SG&A, and is that unique this quarter, or is that something that you expect to be ongoing, et cetera? That sort of leads to a broader question, what do you see as your operating profit drivers ahead? I think you are up 12 basis points this quarter. You said that gross margin might not be as helpful, advertising costs are going up, you might not get this $1 million fee, I imagine. So just wondering if we should expect any kind of margin growth at a flat comp going forward, or at this point do you really need a positive comp? Thanks.

First of all, the quick answer to your question is yes, the $1 million was in SG&A. But on a broader basis, I think that we've articulated a lot of initiatives that we're working on today that we believe will enhance the customer shopping experience, and that we believe will continue to result in improved sales performance and increased market share. So when you talk about from an operating margin standpoint, we talked about gross margin, we believe that there's continued further opportunity, again, albeit at some reduced rates. So we continue to believe there's an opportunity there. We continue to be very aggressive about how we go about reducing SG&A costs. We talked about one of our initiatives being reverse auction. It's just one of many examples of things that we do to continue to reduce SG&A cost overall. But more importantly, I think we're making the appropriate investments in the business, both between inventory, as well as training our AutoZoners. ZNet Is another great example of an investment that we've made in order to improve the customer shopping experience. As Bill mentioned during the call, our customer satisfaction scores on a year-over-year basis have improved. So we believe that on a long-term basis these improvements will continue to lead to enhanced sales performance and that's really how we continue to move the operating margin. Mike Baker - Deutsche Bank: Duralast and imports, those I Imagine continue to increase as a percent of sales, also helping the margins?

Yes, absolutely. The imports again, we're at the early stages, but that's one of many opportunities, but that certainly is an opportunity for us. Duralast, which is a great brand name, continues to increase its penetration overall. Mike Baker - Deutsche Bank: So did you give numbers there on how much Duralast and imports are as a percent of sales?

We didn't necessarily. I would just tell you that the imports currently is a small percentage of sales, but it's an opportunity for us to grow.

Your next question comes from David Cumberland - Robert Baird. David Cumberland - Robert Baird: You mentioned higher profitability in commercial in Q3. For about how long have you achieved the trend of higher profitability in this business?

I would say that throughout the year, I think that our organization has done a good job at going through the commercial model and being able to identify opportunities to improve the profitability. As Bill mentioned before, it's not 100% about sales. We want to balance our ability to drive sales, as well as drive profitability, and we want to be able to create a model that can sustain that on a long-term basis. David Cumberland - Robert Baird: With Midas, what is the portion of your business with them that's already done on a hot shot basis? Bill Rhodes: About half of the business with them today is hot shot, and about the other half is supply chain. Those are pretty round numbers.

Your next question comes from Tony Cristello - BB&T. Tony Cristello - BB&T: When you look at your parts coverage and the hard parts assortment, when you go to the installer level now in terms of trying to displace an incumbent or move up that call list, loyalty, obviously, is something that's difficult to overcome. Do you feel like AutoZone has now established itself, not only on the inventory side, but on the customer service side and the parts and knowledge side to that commercial customer to be known as a destination spot for commercial product? Bill Rhodes: Tony, I think we've made great strides in the last 12 to 18 months. Are we completely finished with that? No. But obviously, the inventory additions have made a huge improvement. We've talked a lot about PDAs in the past, and the fact that they help us manage our customer service and also help us measure our customer service. So we've been pleased with that. The piece we want to focus on going forward, now that we're getting reasonably comfortable with our foundations, is we've got to go out and tell our AutoZone story. We've got to be in those shops and asking for the sales and talking to our customers if they have any objections on what they are and how to overcome those. Tony Cristello - BB&T: Can you just remind me, is that at the local level from a sales standpoint in terms of targeting that commercial or the professional installer? Or do you also have sort of a regional layer that sort of targets opportunities and then filters that down to the local level? Bill Rhodes: We do it both ways. Specifically, we have a national account sales force that focuses on the national players. We also have…

Your next question comes from John Lawrence - Morgan Keegan. John Lawrence - Morgan Keegan: Not to beat the Midas thing to death, but just quickly, as you transition out of that at the end of June, just from your resources I assume there's some distribution expense that goes away, and you can allocate that more toward a sales process. Is that the way to look at that? Bill Rhodes: Yes, the vast majority of the expenses related to supporting that supply chain business are all variable, John. John Lawrence - Morgan Keegan: Secondly, if you jump back to direct imports, I know you started the process and you're early in the game. Are we still in a methodical standpoint of trying to figure out suppliers, or how those shipments are arranged? Can you just talk about strategy versus execution at this point of getting that direct import program? Bill Rhodes: Yes, I wouldn't characterize it as cautious as that. I think we're more aggressive, but we are cautious on individual manufacturers as we get to know them. We have spent a considerable amount of time over there in the last two months. I can't tell you how many people from here have been over there looking for new opportunities and working with existing suppliers. We're pretty comfortable we've worked out the logistics on it, and so as we find new opportunities, we're going into them full steam ahead. Before we conclude the call, I'd like to take a moment to reiterate that we know we still have a tremendous amount of work ahead of us. While we have an incredible business model built on a strong foundation of disciplined processes, focused on delivering great customer service, we understand we cannot take anything for granted. As we continue to focus on the basics and never take our eye off of optimizing long-term shareholder value, we are confident we will continue to be incredibly successful. I thank you very much for participating in today's call. What you WON’T hear on the call!: In 1957, a young couple named Bill and Carol Angle invested half their life savings in Berkshire Hathaway. According to Forbes magazine, today it’s worth over $300 million. What if you could do even half or a third as well? One stock looks uncannily similar to an early investment in Berkshire Hathaway. Get its name now in a new FREE report from The Motley Fool.