Good morning, and welcome to the AutoZone conference call. [Operator Instructions] Please be advised that today's call is being recorded. If you have any objections, please disconnect at this time. This conference call will discuss AutoZone's second quarter financial results. Bill Rhodes, the company's Chairman, President and CEO, will be making a short presentation on the highlights of the quarter. This conference call will end promptly at 10 a.m. Central Time, 11 a.m. Eastern Time. Before Mr. Rhodes begins, the company has requested that you listen to the following statements regarding forward-looking statements.

Certain statements contained in this press release are forward-looking statements. Forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, positioned, 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: credit market conditions; the impact of recessionary conditions; competition; product demand; 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. Certain of these risks are discussed in more detail in the Risk Factors section contained in Item 1A under Part 1 of our annual report on Form 10-K for the year ended August 27, 2011, and these risk factors should be read carefully.

Mr. Rhodes, you may begin.

Good morning, and thank you for joining us today for AutoZone's Fiscal 2012 Second Quarter Conference Call. With me today are Bill Giles, Executive Vice President, Chief Financial Officer, Store Development and IT; and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the second quarter, I hope you 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. We are pleased to announce another quarter of strong financial and operational performance. For the second fiscal quarter, our earnings per share increased 24.4%, and our domestic same-store sales increased 5.9%. This marks the 13th consecutive quarter of EPS growth in excess of 20% and the 22nd consecutive quarter of double-digit EPS growth. Our sales and operating profit growth rates were in line with the last couple of quarters, driven by our continued growth in the retail sales category, strong performance in our Commercial business and impressive growth in our Mexico, ALLDATA and E-Commerce businesses. Over the course of the last few years, we've grown total sales in the auto parts segment in the high single-digit range while growing our other businesses in the low double-digit range. The credit for our stability and performance belongs to all AutoZoners across the organization. Their focus on improving customer service is what differentiates us in the eyes of our customers, which ultimately leads to our strong financial performance. Our strategies have remained very consistent for many years. While relatively simple and straightforward, they are focused on the areas that are very important to our customers. The foundation for these strategies is consistently delivering trustworthy advice, an intense focus on consistent execution…

Thanks, Bill. Good morning, everyone. To start this morning, let me take a few moments to talk more specifically about our retail, Commercial and Mexico results. For the quarter, total auto parts sales increased 8.6% on top of last year's second quarter's growth of 10.3%. This segmentation includes our domestic retail and Commercial businesses and our Mexico stores. Regarding macro trends during the second quarter, unleaded gas prices started out at $3.37 a gallon and inched up, finishing the quarter at $3.52 a gallon. Last year, gas prices increased $0.26 per gallon during the second quarter, starting at $2.88 and ending at $3.14 a gallon. We're always hoping for declining gas prices as the reduction in prices at the pump can materially help our customers' pocket books. At the same time, with gas prices remaining high, we continue to communicate through our marketing messages to our customers the steps they can take to improve their gas mileage. Miles driven remains a headwind to our sales potential for 2011 calendar year. Only the months of January, February and December showed upticks in driving. Previous to December, the last 9 months were negative versus the previous year's miles driven. For the calendar year 2011, miles driven were down 1.2%. That marked the first decline in years since 2008. The other statistic we highlight is the number of 7 year olds and older vehicles on the road, which continues to trend in our industry's favor. We also recognize that the impact of miles driven on cars over 10 years old, the current average, is much different than on newer cars in terms of wear and tear. For the trailing 4 quarters, total auto parts sales per square foot were $263. This statistic continues to set the pace for the rest of the industry,…

Thanks, Bill. Before we conclude the call, I want to reiterate our team's commitment to our culture and our customers. Although our industry's performance continues to be strong, we believe our efforts have contributed significantly to our success, as evidenced by our sales and market share growth in both retail and Commercial. We remain committed to continuing to improve our business model and our operations, continual steady refinement. We believe our business model is healthy, and we have material opportunities for further improvements from this point. For the remainder of fiscal 2012, we will continue to focus on our key priorities: one, Great People Providing Great Service!; two, profitably grow Commercial; three, leverage the Internet; four, our hub strategy. The financial results for the first half of fiscal 2012 have again been strong. On the first quarter earnings conference call, we cautioned listeners on the uncertainties of the second quarter, the winter weather and the effects the Christmas selling season would have on our customer's wallets. But with our AutoZoners' continued intense focus on providing great service and trustworthy advice, we were able to deliver these impressive results. I want to again thank and congratulate our entire organization for their dedication to our customers, fellow AutoZoners, stockholders and communities. Our approach remains consistent. We're focused on succeeding in the third quarter of 2012, and we are optimistic and excited about the remainder of the year. Before we move to the question-and-answer period, I'd like to take this opportunity to recognize and say goodbye to one of our great leaders. Next month, Tim Briggs, Senior Vice President of Human Resources, will be retiring after 10 great years of service to AutoZone. During his tenure, he has provided great stewardship over our human resources function and has been a key contributor to leading the overall organization. He will certainly be missed but he has built a strong team, and his team will continue to provide great service to our organization in his absence. We wish Tim and his family all the best in their future endeavors. Now we'd like to open up the call for questions.

[Operator Instructions] Our first question today is from Aram Rubinson with Nomura Securities.

It's actually Alisa Guyer on for Aram. Can you talk just a little bit about sort of the 1TEAM approach as Commercial gets bigger? Are there any limitations to that approach? Is it a reasonable expectation to run the store as a single operating entity even if that business gets bigger?

Yes. Certainly, there are times when -- as the Commercial business in a particular location gains scale, the integration of the 1TEAM approach is generally less important. It's typically when it's at lower volumes and you have fewer people, particularly on the Commercial business, you need to leverage the DIY staffing to help manage through spikes in the business. So over time, as the average per-store sales increase, it is less and less important. But remember, we have a wide variety of volumes on our Commercial business per store.

Can you give us any sense of that range? I mean, we can look at sort of the average per store. But my understanding is that there are very few Commercial programs that are actually doing the average.

Yes, I mean, it's a pretty wide range. And frankly, we haven't really gotten into that in the past. And I don't necessarily know that it's hurting it right now. What I can tell you is we have some stores that are doing really, really significant volume, and we have some stores that do very little volume. And we're working to move them all up the spectrum.

Our next question is from Kate McShane with Citi Investment Research.

You had mentioned in your prepared comments that the discretionary category was up this quarter. And I wondered if you could give us a little bit more detail on this. Is this the first quarter where you've seen the discretionary category inflect positively? And do you think it was all weather related?

Yes. I mean, we've had some challenges, frankly, for the last 2 or 3 years on our discretionary categories, and this is the first time we've really seen some accelerated lift as compared to the rest of our business. But really, the one that really jumped out was the maintenance category, and I think that, that was due to weather. I think the discretionary categories, in some respect, came along. That's not to deemphasize the great work that our team is doing in discretionary categories. But I think as we got more footsteps in the stores, some of the discretionary purchases came along with those maintenance purchases.

Okay, great. And then my second question is on the Commercial business. Have you talked about what your goal is for 2012 with regard to how many stores will have Commercial business versus the 62% you reported today? And with regards to the 92 new programs in Commercial, where did the majority of those accounts come from regionally?

I'll start with the first part of your question. We really don't get into where we want to be at the end of the year. I would tell you if we told you at the beginning of the year where we'd be at the halfway point, we are significantly ahead of that. We have a methodology here that's kind of termed 2 things. One is pay-as-you-go and another one is underpromise and overdeliver. So we set our sights low and as the business continues to perform, we try to accelerate it. So at this point in time, we're very pleased with the progress that we've made so far this year. Our performance continues to be good. So in the short term, we will continue to accelerate our openings. But where we're going to end at end of the year, I think, is somewhat better to know how the business performs. Secondly, your question was on regional variations of customers? Help me with that a little bit.

Sure. You had highlighted the 92 new programs in Commercial. I wondered if there was one region where you had more success in obtaining those new programs or if it was more evenly distributed across the U.S.

Yes, it's very evenly distributed. There are some areas, certain regions of the country where we aren't as penetrated as great, and they will get a little bit of an upside. But that's really just been our posture in those local markets on how aggressive we've been to open programs historically. As we continue to perform very well, everybody's getting a higher level of confidence in our ability, and so we're being more aggressive in some of the markets where we were pretty conservative before. But I think it's not based upon geography, I think it's mainly based upon our posture in that local area.

Our next question is from Michael Lasser with UBS.

Do you think there's any risk that the warm weather in the last few months has pulled forward demand and you may feel it in the upcoming quarter, especially at a time when oil prices and gas prices seem to be continually on the rise?

Yes. I think clearly that that's been one of our concerns. As the warm weather hit in December and we saw some of our maintenance-related categories performing very well, I will tell you we were quite concerned that it was a significant pull-forward. I will tell you that as we've gotten further into the season, where we typically see the reason -- the seasonal ramp-up, that has become less of a concern than it was several months ago. The second part of your question regarding gas prices, clearly we have mentioned it many times in the past as we see significant increases in gas prices, that creates a headwind for our business. So we're clearly mindful of where gas prices are and where they're headed, and we're managing and are projecting our business accordingly. But who knows where they're going to go? What I know is we will focus very much on how do we help our customers manage through a high gas price environment, how do we market to them, how do we help sell them the parts and products that will increase their fuel efficiency. And this isn't the first time we've been through it. We've managed it very well in the past, but it clearly would be a significant headwind.

And then my follow-up question is if you isolate the labor expense this quarter and then the trend over the last couple of quarters, how's the leverage flowing through on labor expense as a lot of the growth has come from Commercial?

It's a good question. We have been successful at leveraging labor. At the same time, for the new programs that we're opening in Commercial, obviously, there's an investment that takes place on that. And we certainly have opened more stores in the front half of this year than we have in the front half of last year. And we feel, as Bill mentioned, good about the progress that we're making in Commercial, so we expect to continue to make those investments. But on our baseline business, we continue to leverage from a labor perspective.

Okay. So the labor leverage hasn't really been there as you focused a lot of the investments on the Commercial side.

Some labor leverage on our core base business. And what I was mentioning was that on some of the newer programs, you'll see a little bit higher labor. And so as we continue to ramp those up, there will be a little bit of deleverage just on those programs.

Our next question is from Alan Rifkin with Barclays Capital.

This is actually Helen Pan filling in for Alan. We were wondering if you could sort of talk about how the comp progressed throughout the quarter. Was the quarter very back end-loaded in terms of performance?

Yes. I wouldn't say it was back end-loaded. Actually, if you look at the trajectory of the business during the quarter, the middle part was really where the strength of the quarter came. But if you take a step back and look at it more holistically, if you look at it on a 2-year basis, it was really very consistent. So I think it's more to do with year-over-year comparisons during the quarter than anything timing-wise otherwise.

Okay. And then I just had another question on the Commercial. You said that the range of performance was very wide. Have you seen that sort of narrow as existing companies with existing programs mature at all?

Well, it's just clearly as they mature, yes we see them narrow, and frankly, we see them increase. We've seen nice growth in our average weekly sales on the Commercial program, but we continue to open new programs. But those newer programs put pressure on the average weekly sales, albeit we're very pleased with their progress. They're coming out at higher levels than they used to and they're maturing faster, so we continue to be pleased with the progress. But with only 62% of our stores in the Commercial program, we'll continue to open programs for an extended period of time. That will pressure our average weekly sales and as Bill mentioned, it will also pressure our operating margins because as you open those stores, they're an EBIT drag for a period of time.

Our next question is from Greg Melich with ISI.

Just a follow-up on the SG&A question. The growing 9%, the dollars this quarter, would you say that's a good sort of normal run rate now, given what's you plan for Commercial in these activities in Brazil and the ALLDATA, building that business for Europe?

I think it's probably hopefully a little bit at the high end on that. So I mean, I think that we have opportunities for just to continue to manage it. The key for us is to be able to try to control the expenses that don't really do a lot from a customer service perspective. So things like risk management, et cetera, we've got to be able to do a better job of lowering those expenses. Conversely, we've done a great job from a shrink perspective in being able to add margin improvement on that. Further on to SG&A, as you mentioned, we continue to feel good about the Commercial programs. We've opened close to 200 of those programs in the first half of this year, that's on pace. We've opened just over 200 programs through the full year last year. So we'll continue to make investments in Commercial, particularly given the results that we have seen. And as you mentioned, to a very lesser extent, things like ALLDATA Europe, Brazil, et cetera, those are investments that, albeit that we will continue to be internally aggressive about, they will not be material to the financial statements overall. So our investments are mostly focused on hub stores and Commercial. Those are the places you'll see us.

And the labor scheduling, that new program that you said you're implementing, it was a 20-year-old system, I think I heard in the prepared comments. Can you describe a little bit on the timing of that and the costs and when we expect to see that?

We expect to have that probably rolled out to the chain by the end of our fiscal year. So hopefully at the beginning of our fiscal year '13, we will have that system in place. And really, it's an opportunity for us to get better visibility and better micromanaging, if you will, from a labor perspective. So as Bill mentioned, it is a 20-year-old system, and it's worked well up to this point. But we really have an opportunity to take it to the next generation and really manage it at a lower level than we have before. So we think we'll be able to improve some efficiencies along the way. Much of the investment has been made up to this point. And so we're in the final stages of the investment.

Great. And then just lastly on comp transactions. I think, Bill, you mentioned that DIY, you think it's sort of structural that you might get more AUR, but it's just hard to get more actual transactions. In this quarter, was it actually a negative still? Or did it actually get slightly positive?

Yes, it was a headwind this quarter. But Greg -- and I've tried to be very clear on this point. It's been that way as long as I've been in this business. We've seen significant or minor degradation in transaction counts year over year over year, except during recessionary cycles, as long as I've been in this business. But you also have to understand that that's structural in a lot of cases because new parts technology make parts and products perform better and last longer. But at the same time, all the technology that goes into make them perform better costs more. So there's a natural headwind on average ticket -- or excuse me, a natural benefit on average ticket and a natural headwind on same-store transaction count.

Our next question is from David Gober with Morgan Stanley.

Just wanted to dig into the Commercial margins a little bit more. And Bill, I think you mentioned that Commercial margins have been going up. And I wondered if that was simply related to the number of older programs continuing to grow and those programs maturing, or if there's actually been any sort of structural shift in the way that you're executing the Commercial business that's improved your ability to execute sooner.

I think I would look at it as the maturation of some of the older programs. And so -- and think about the fact that we've got a lot of programs that are still relatively immature. And so we've seen EBIT margin improvement in just our Commercial business alone as the investments that we have to open those programs begin to get leverage as those programs begin to gain maturity and gain sales volume. So really it's a leverageable model, and we believe there's opportunities to continue to improve our EBIT margin within our Commercial business. As we've stated before, Commercial operates at a lower margin than DIY. So as Commercial becomes a larger piece of the puzzle, it will put some pressure on operating margin percent, although obviously we're focused on operating margin dollars, which is a real driver for ROIC as well because the investments aren't that significant to get a Commercial program going. But overall, operating margin is going to continue to improve, we believe, on the Commercial programs as they continue to gain momentum and increase volume.

And Bill, I guess just as a follow-up on return on capital. This quarter, share buybacks were down a little bit versus last year and obviously, that's going to happen eventually. But I was just curious if there's any change in the thinking around longer-term capital allocation or if there's any incremental thought being given to dividends over buybacks or any change in the capital allocation philosophy.

No. We actually feel pretty good about the capital allocation philosophy. We believe that maintaining BBB stable, targeting a credit metric of 2.5, albeit that there will be some fluctuation on any given quarter, we think that that's the right capital deployment and served us very well. And we think it's showed up in our financial results.

Our next question is from Chris Horvers with JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: You mentioned even after the easy weather comparisons in January, you thought that the performance in the seasonal ramp has been encouraging even after that. As you look into that and the come-along on the discretionary side in 4Q, do you think this is a sign of consumer feeling a little bit better overall? We're hearing from a lot of retailers that they've been positively surprised by sales. So I was curious if that's something that you've looked at or perhaps discussed internally.

Yes, Chris, you've got to remember first that when things got really bad, our business did not get bad. So I don't think that we're a good barometer of how the consumer feels good or bad. I don't think we've seen anything material in our trends that would make us think that the consumers' mindset has changed one way or another. But it could be happening very much in other sectors of retail, and we're just somewhat immune to those. Christopher Horvers - JP Morgan Chase & Co, Research Division: Got you. And then as you've pushed out the Commercial program, has there been any competitive changes as you've ramped up the growth and entered new markets?

Yes, I would say we haven't seen any material competitive changes across all geographies. I mean in certain geographies, you'll see somebody do something different. But generally, it's been consistent. Unfortunately, we have a lot of great competitors out there, and they're tough every day out in the street. But our Commercial team has really continued to execute on -- at a very high level, and it's showing up in our growth in share and sales.

Our next question is from Michael Baker with Deutsche Bank.

Just one real quick Commercial-related question. Can you maybe articulate why you think your average Commercial sales volume versus others is so much lower? Is there anything structural there that the way you go about it with your sales force? So just trying to figure out what the potential opportunity would be there.

Yes, I think it's maturation of our Commercial business. We kind of changed our Commercial strategy about 4.5 years ago, and we've been very methodical with it. But we're a bit behind the development of other players in our sector, behind some of them by 50, 60, 70 years, but -- and others more on a comparable basis. But we don't see anything in the Commercial business that makes us think long-term that we should perform any worse than the rest of the marketplace.

Okay. And then I guess related to that, the outside sales force that you guys employ there, I have a number from about a year ago that it was about 250 outside salespeople. Can you update us on where you are in that process?

Yes. We continue -- we kind of quit giving the specific numbers for competitive reasons. But it continues to grow year-over-year, and it's grown quite substantially since then. We continue to be very pleased not only with the number of salespeople out there, but really the maturation of that sales force. We've done a lot of training for that sales force. We've provided them with some technology that makes them more effective. And frankly, over time, they continue to get more confidence in our program, and they've been a key contributor to our success.

So one last question. I'm just curious, how are you guys and those sales guys go -- how are they going in trying to win business from an existing player? Is it -- and the other guys have the SKU count that you guys have. So is it on price? Is it service? What -- how do you see you guys differentiating from the other guys to try to get to their volumes?

I think if you look at our history, the strength of AutoZone's business has been our culture, which folds into great customer service and also our ability to have the right parts and the right products. We've got good, strong brands. We leverage technology to make us a more efficient player. So I think those are the kinds of things, just same things that made us special in retail relate themselves very well to the Commercial business.

Our next question is from Colin McGranahan with Bernstein. Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division: Just a quick one on the self-insurance reserve. I think this was the second quarter in a row that you might have mentioned it. It looks like as the broader market trend is maybe for some of those medical cost pressures to actually have eased a bit, so wondering what specifically is driving that impact, relatively large impact, and how long you think that persists.

That's a good question. And in fairness, we didn't mention it last quarter as well as a bit of a headwind. And so for us, it is just claim-related, larger claim costs from a medical perspective. At the same time we also, with increased activity on the Commercial side of the business with significant more trucks, et cetera, we've had some higher experience there as well from auto liability and workers' comp. So it really is activity-based for us as well as some large claim experience, so we think we'll cycle through that and we've got some initiatives in place. And so as we look forward, we expect it to be less of a headwind. Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division: Okay, that's fair. And then I got on the call late, so I may have missed it. But did you detail what you thought the gross margin pressure was from Commercial mix?

We didn't necessarily other than the things we've said previously. But again, obviously, we've got some benefits from shrink. Commercial continues to be a bit of a headwind on, certainly, our gross margin rates. But obviously, we've overcome that with other things. So I would categorize it as overall, our gross margin rate remains relatively healthy. Certainly from a mix perspective, Commercial will wind up putting some pressure on gross margin. As Commercial matures over time, we believe that our EBIT margin will improve. But Commercial will operate at a lower margin than DIY.

Yes. I guess, the other thing on gross margin, we did have some fairly significant pressure in the quarter based upon the mix of products that we sold. And that was generally driven by the weather-related categories.

Our final question today is from Bret Jordan with Avondale Partners.

Just a quick follow-up and on the discretionary mix, trying to determine the weather impact versus the economic impact. Did you look at that improvement in markets that did not have abnormal weather patterns over the winter? Did discretionary remain more or less flat in some of your Southern or Western markets?

Frankly, we saw the weather pattern changes pretty significant across every part of the United States. I mean, the South had significantly warmer weather, the West was warmer. So no, we haven't tried to go tease it out of those individual markets, but we saw it pretty much across-the-board.

But it really feels like it's a weather impact versus an improvement in consumer confidence, buying categories they didn't buy 2 years ago?

Yes, I think that's our supposition at this point in time. We'll learn more as we go forward. But we saw a big change in the growth rates of maintenance-related products, which are really the kinds of things that our customers would do in more favorable weather patterns. So our supposition at this point in time was the discretionary kind of came along with that much more so than there's been a change in consumer mindset.

I would now like to turn the call back over to your speakers for any closing comments.

Before we conclude the call, I'd like to take a moment to reiterate that our business model remains very solid. We remain excited about our growth prospects for the year. We cannot take anything for granted as we understand our customers have alternatives. Our culture remains our key point of differentiation from our competition, and we must not lose sight of the importance of basic store execution in order to remain very successful. We have a solid plan for the remainder of 2012, and our team is positioned to succeed. But I want to stress that this is a marathon and not a sprint. As we will continue to focus on the basics and never take our eye off of optimizing long-term shareholder value, we are confident AutoZone will continue to be incredibly successful. We want to thank you for participating in today's call. Have a great day.

Thank you. This does conclude today's conference. Thank you for participating. You may disconnect at this time.