This summary is based on the first quarter fiscal 2008 earnings call conducted by AutoZone Inc. (AZO: chart) on December 4, 2007.

Chairman, President, Chief Executive Officer: William C. Rhodes, III
Chief Financial Officer, Executive Vice President – Finance, Information Technology, and Store Development: William T. Giles

Key Investors Issues

- The earnings per share rose to $2.02 versus $1.73 in last year.
- Quarterly revenue rose 5% over last year to $1.46 billion.
- During the quarter, the company repurchased $350 million of its stock.

First Quarter Fiscal 2008 Financial Highlights

Net income for the quarter increased 7% over the same period last year to $132.5 million.

The diluted earnings per share increased 17.4% to $2.02 per share from $1.73 per share in the year-ago quarter.

The company reported net sales of $1.5 billion for the quarter, which represents an increase of 4.5% from fiscal first quarter 2007.

Domestic same store sales, or sales for stores open at least one year, increased 1.3% for the quarter.

For the quarter, the retail sales increased 3.6%. The additional parts coverage added in 2007 was a key contributor to this increase. The firm continues to evaluate the decisions it made last year, its first year utilizing this new approach, and continues to refine its decision-making processes to improve the product assortment.

The commercial business continued to build on last quarter’s modest sales gain and the firm is encouraged by the 4.3% sales increase in this business during the first quarter. As the firm transitioned away from its supply chain relationship with Midas, which occurred at the end of June, it overcame that headwind and more than offset that loss of business. The firm’s commercial customers have responded positively to the many initiatives it implemented last year and specifically to the substantial improvement in its parts coverage. The firm believes that it can continue to gain sales traction in this business going forward.

In the past, the firm has seen a negative impact on its sales when there has been a significant increase in gas prices.

That impact has historically been reflected in a low-single-digit percentage impact on the same-store sales. Additionally, there are certain other macro-challenges facing the U.S. consumer today, but historically the firm has not been able to develop a statistical correlation between macro-challenges and sales performance. The two factors that it believes impacts its business over the long term the most are the number of vehicles on the road, more specifically the number of seven-year-old and older vehicles and miles driven. The management certainly remains mindful of other developments, but it believes that the most important determinant of the future success is its strategies and, more specifically, the execution of those strategies.

The gross margin for the quarter was 49.9% of sales, up 71 basis points compared to last year’s first quarter.

In the first quarter, margins continued to benefit from the ongoing category management initiatives, direct import efforts, and slight sales shift mix toward higher-margin application parts and away from cold weather-related sales of lower margin products. Over the last several quarters, these efforts have been partially offset by an increase in product costs, specifically related to oil-based products and other commodities. The firm continues to focus on ensuring that it offers the right products as the right prices to its customers. This includes supply chain initiatives, tailoring merchandise mix, and the continued optimization of good-better-best product lines – all allowing the firm to price its products appropriately while giving the customers great value. The Duralast and Duralast Gold product lines continue to show sales increases for the first quarter. The firm’s customers continue to recognize the benefits from buying better and best merchandise lines. Going forward, the firm believes that there continues to be opportunity for gross margin expansion, albeit at reduced rates. The firm’s direct import initiative is in its early stages, but the management is pleased with the progress its merchandising organization has made to improve margins while pressures on procurement costs continue to exist.

SG&A for the quarter was 33.6% of sales, up 41 basis points from last year.

The deleverage came primarily from continued higher occupancy costs. Specifically, rent and depreciation were approximately 30 basis points higher than last year’s first quarter. The firm also experienced slight deleverage due to continued investment in its existing store base and in improving its customer service offering. At the same time, the firm continues to invest in additional marketing efforts and training programs for all AutoZoners in order to improve customer service.

The AutoZone culture of thrift and focus on cost management is an integral part of our ongoing business model. The firm believes that its efforts on improving customer service implemented during the quarter will pay dividends into the future from a sales perspective. While the expenditures this past quarter were slightly higher than past quarters, the firm feels very comfortable those dollars were invested in order to harvest future sales growth. Over the long run, the company continues to believe that it can leverage operating expenses on a 1.5% to 2% same-store sales growth rate.

EBIDT for the quarter was $237 million, up 6.4% over last year.

- Interest expense for the quarter was $28.1 million compared with $27.1 million a year ago. Debt outstanding at the end of the quarter was $2.161 billion or approximately $300 million more than last year. The increase in interest expense reflects primarily the higher level of debt. The firm expects interest expense to remain higher than the previous year due to higher debt level. The adjusted debt level at 2.2 times were higher than the normal guidance of 2.1 times trailing 12-month EBIDTAR.