As the firm has significantly improved the basic elements of its offering, it has added focus on developing its sales force.

AutoZone’s heritage as a company has been as a retailer, where its marketing efforts have been primarily focused on media. However, the commercial business requires a different approach. The firm has to develop a direct sales approach and sales force. Over the last several months, the firm has worked diligently to develop and implement direct sales force training, materials, and processes. The company is pleased with the progress to date, but has significant additional progress left before it reaches its goal of developing a world-class commercial sales force.

The firm’s stores in Mexico continue to perform well.

AutoZone opened one new store during the first quarter. The firm currently has 124 stores in Mexico. The company’s ongoing commitment remains to prudently and profitably grow the Mexico business.

Key questions and answers from the first quarter fiscal 2008 earnings call conducted by AutoZone Inc. on December 4, 2007.

Dan Wewer (Raymond James): The growth in your commercial business does not appear to be impacting your gross margin rate. Could you remind us of the margin differential between do-it-yourself and do-it-for-me segments?

William C. Rhodes, III: What we have said over time is that there’s certainly margin, that that business operates at a lower operating margin than the retail business and it does have lower gross margins, but not that drastically lower.

Dan Wewer (Raymond James): You added about $70 million of inventory for the expanded coverage. Have you had a chance to look at the incremental turns and gross margin rate on that added inventory?

William T. Giles: We have. In fact, we feel good about the productivity of that $70 million worth of additions. We think that is contributing in part in addition to excellent customer service to the improvement in overall sales growth. We continue to monitor it and we have a very disciplined approach about how we’re going through our category line reviews. We’re going to continue that and we expect to continue to expand our parts coverage. At the same time, we’re going to continue to be very diligent about rationalizing out our unproductive inventory to keep our inventory overall in check. But so far, we’re pleased with the category line reviews that we’ve done, the additional inventory that we’ve added into the stores and into the chain. It’s improving both our commercial business and it’s also improving some of our DIY business, as well.

Dan Wewer (Raymond James): You highlighted the weather benefits to margin rate. As that begins to normalize what would be the impact on margin? Or how much would you guesstimate was the benefit in Q1?

William C. Rhodes, III: We quantify specifically other than to say that clearly we had some benefit in gross margin rates from having some of the colder weather lower product margins businesses pushed out a little bit. That’ll come back to us a little bit in the next quarter.

Gary Balter (Credit Suisse): Can you talk about regional differences because you’re obviously nationwide? How bad is California and Florida right now?

William C. Rhodes, III: We didn’t certainly see any difference – positive and negative – in regions. We believe that most of those are driven by what we do. Are there certain parts of the area that are more challenged? Yes, but we’ve never been able to develop a statistical correlation that says that macro-economic challenges impact our business.

Matthew Fassler (Goldman Sachs): On commercial test stores, could you comment on the differences between those stores and the rest of the commercial stores? What was the cost and time that it takes to roll out those initial measures?

William C. Rhodes, III: Those additional resources are not that costly if we roll them into our higher volume stores. The bigger concentration of stores that are on that program are the higher volume commercial stores that have significant growth prospects. As we go farther down into the penetration it’s more challenging than it was at the beginning of parts. That’s why we’re being methodical about it. But as we continue to roll it we continue to find more and more success factors. It includes elements like an outside sales force. It also includes some incentive compensation for the sales team that’s leading that effort and additional assets such as additional trucks and some inventory additions, albeit not terribly significant.

Matthew Fassler (Goldman Sachs): Is it fair to say that a lot of that pick up that you saw in commercial sales per store in the quarter related to those 900 units or was it evident more broadly across the company?

William C. Rhodes, III: We saw growth across the board. Those units are growing faster, but we’ve seen nice improvement across the board. A lot of the things that we’re working on are going to all the stores. Certainly all the parts coverage additions that we made through our new inventory assortment tool went to all those stores. The other stores are getting significant improvement as well, just not some of the things like an outside sales force.

Danielle Fox (Merrill Lynch): You mentioned that you now see the company achieving leverage on a 1.5% to 2% comp. What the previous hurdle was for achieving leverage?

William T. Giles: It was probably close to the same. We’re going to have variations by quarter, but on a long-term basis the 1.5% to 2% same store sales growth should generate leverage on an SG&A basis.

Danielle Fox (Merrill Lynch): You mentioned the occupancy costs. Is that something that you’ll anniversary after a year or does this represent a fundamental change in the business?

William T. Giles: What we’re finding is that we’re getting a higher percentage of lease versus owned stores as we continue to expand the store count overall. That’s what’s putting more pressure on SG&A. At the end of the day it continues to still be profitable, it’s just a question of whether it’s between SG&A or interest.