Performance Analysis of Segments

Do It Yourself (DIY)

Total domestic retail sales were up 3.6% for the quarter.

During the first quarter, the firm continued to focus on driving sales and profits for the long term. During the quarter, as is customary, the firm experienced regional discrepancies in its sales performance, both positive and negative. However, nothing was material enough to highlight.

The company continues to focus relentlessly on improving its parts assortment.

The firm is in the second year of using its new parts assortment tool. The firm has learned a great deal from last year’s implementation, both from successes and mistakes. During the first quarter, the firm implemented product assortment changes in 11 of its categories. The firm is encouraged by its results to date and excited by the differences its future enhancements can make. The firm remains committed to refreshing its product assortment on a routine basis, as this is critical to keeping the product assortment relevant to the ever-changing vehicle demographics in each store’s trade area.

Also during the quarter, the firm offered some compelling promotions that it believes contributed to its sales growth. The company will continue to focus its marketing efforts on communicating trustworthy advice, great value, and quality products to its customers.

During the quarter, AutoZone continued to improve the capabilities of its new parts catalogue, Z-Net, and continued to highlight this terrific customer service enhancement in its marketing campaign. The management believes that Z-net is gaining traction with its customers, as it is able to provide better, more comprehensive information to its customers and assist them with their needs more quickly.

For the first quarter, the firm experienced a subtle shift towards application or hard parts.

The firm believes weather was a major contributor to this shift. Specifically, certain product categories that respond to wetter or colder weather, like antifreeze and windshield wipers, were below prior year levels, while other hard part related categories benefitted from the drier weather. The firm expects these categories will revert to more normalized trends as the seasons change.

During the first quarter, gas prices started out high at $2.75 a gallon and went up from there, finishing the quarter at $3.11 a gallon.

Unfortunately, the firm cannot control the prices of gas at the pump. However, with more vehicles on the roads than ever before its ability to grow sales remain strong over the long run. The management believes that consumers will ultimately adjust their spending habits for the higher prices. The company will continue to develop marketing programs that support its customers’ needs during these high-priced times. For the quarter, gas prices had a modest negative impact on its sales performance.

The firm saw a slight increase in miles driven in July and August and then a decrease in September.

The two statistics that the firm has always felt have the closest correlation to its market growth are miles driven and the number of seven-year-old and older vehicles on the road. While miles driven have been challenged recently, there are more registered vehicles on the road today than in the country’s history.

For the quarter, the company estimates that weather had a modest positive impact on the sales.

However, as the footprint is national, any regional differences in weather patterns are muted and weather differences will certainly normalize over the mid to long term.

Commercial Segment

For the quarter, total commercial sales posted an increase of 4.3% versus last year’s quarter. The firm now has the commercial program in 2,188 stores supported by 133 hub stores. The company is encouraged by the progress it is making on its commercial initiatives and by the initial response that it is seeing from its customers’ purchasing habits. However, there is still much work to be done.

Over a year ago, the management had talked about its new test stores. Those stores have continued to experience stronger sales performance than the other commercial programs. The company has continued to implement these enhancements in more stores and today it has over 900 stores with additional tools at their disposal. However, the firm continues to be methodical in its approach, ensuring its activities are improving its customers’ experience and ultimately lead to sustained improvement in its business performance. What the firm has been doing with this business is relatively straightforward as it has taken time to both maintain and gain traction. It has been about focusing on profitable growth. To that point, the firm has focused on certain key drivers.
- The firm identified the customers that it could most effectively and profitably serve. It is those within a reasonable distance of its stores.
- The company focused its efforts on the categories that were most important to the customers and their business success, which is of course hard parts. This included the substantial addition that the firm made to improve its late model inventory coverage. The company is still in the early stages of this initiative, but it has clearly made a difference. To succeed in this business, the firm must leverage its strengths to deliver a proposition its customers’ value, and that will continue to be its focus.

- The company is committed to allocating resources to properly support this business. For example, the firm has provided compelling professional marketing materials to its sales force. Previously, its efforts on customer communication were primarily locally driven. There were minimal comprehensive, cohesive efforts to develop and deliver a compelling offering and related messaging to its customers. The firm began implementing this new approach about six months ago and it has received positive feedback from the customers and from AutoZoners. Additionally, the business has improved in the product categories that have received this additional focus.