AZO
#I think they are both very different businesses, by the way, and they have made some improvements since the previous quarter.
So I think they will continue to grow.
I think AutoAnything has had some challenges over the last six or so months, and there are some real opportunities for us to expand SKU assortments and also to increase our search engine optimization activities, et cetera, in order to drive traffic.
I think that we will continue to be competitive there.
And ALLDATA continues to be a very strong business and a very important business in the commercial segment as well.
So both businesses are flattish at the moment, down a little bit but they are making some improvements, and we expect to see them to continue to make improvements over the next few quarters.
I don't think there is any question that they are priced below us in many different cases, but I think their value proposition is extraordinarily different.
Number one, the convenience factor.
You can walk into our store and the sense of immediacy, particularly if you have a failure part is right at your hand so you can get back on the road immediately versus having to wait overnight or couple of days in most cases.
I don't think many consumers today are willing to wait when their car is down for that.
So that is one element.
There are many elements.
Another element is we have got tremendous trustworthy advice in our AutoZoners in store.
That comes with a cost, and therefore it is part of the value proposition, but for an AutoZoner to help a customer figure out what is going on with their vehicle and what the solution is, there is value to the customer in that.
We do core returns.
A significant amount of our sales come with a core return.
We are there to take that core back, and on and on and on.
I think we feel like there is a significant value proposition differential between us and any online competitor, and what happens with that over time, we will see.
We have dealt with price competition for years, and some of that price competition for instance is in mass merchandising and we have effectively managed through that over the years because there is a different value proposition.
We don't see it necessarily any different.
The core return is if you by an alternator from us, we will sell you the alternator for let's say $100 and it has a $25 core because the old alternator is a remanufactured alternator and the old alternator is the raw material to make the next one, so there is a deposit, if you will, is what a core charge is.
But the point is there is a tremendous reverse supply chain in this business that doesn't exist in many other businesses.
A lot of other businesses talk about returns but this one has a significant reverse supply chain.
On buy online and pick up in store, it is not a significant part of our business today, so I don't want to overstate that.
You asked how are we going to determine what this right price differential is over time.
I think we're going to do it just the same way we have done it the last 37 years.
It's trial and error.
We've had different competitive channels over the years, and we have very effectively been able to optimize our pricing in the light of the different competitive sets, and I think we will continue to do that.
I wouldn't overstate their role into south Florida.
We have different competitors that are going into different parts of the country all the time.
Clearly, Florida is a strong market for us, but we are not the most dominant player as far as store count in Florida.
There are others that have significantly more stores than us.
I don't think we're seeing anything different in Florida than we've seen as we've had competitive encroachments in other parts of the country.
I would start with first of all, we are very pleased with the performance of our Mexico business.
I think our team down there has done a superb job of managing in light of this significant devaluation of the peso.
Frankly, this all started a couple of years ago, and if you recall, we were talking last year that we thought it would be a one-time deal and then would have muted impact going forward; that clearly has not happened post the election.
The peso has significantly deteriorated yet again.
We can't manage the peso.
We can go off and hedge but we have elected not to do that.
We have elected to try to do most of our hedging by buying in local currency, and therefore we hedge the product cost versus hedging the profitability.
But at the end of the day, if there is a deterioration in the peso, it hurts our US dollar profits.
But at the end of the day, we would be doing the same thing in Mexico we've been doing all along.
It's been a good business for us and we anticipate it being a good business for a long time.
I think it is multifaceted.
Number one, yes, we are out communicating to our customers, Yes We've Got It, in a way we never have before.
We believe we can do that because we are in a better position than we ever have been before.
I would add a lot of the emphasis to just strictly the improvements we have in inventory availability.
And as we've talked over the last year, another big part of what we are trying to do is significantly increase the engagement of our store managers and our district managers in this business.
Many of us, myself included, grew up with the retail business and so for lack of a better term, it's kind of our comfort zone or our fastball.
We've got to force ourselves to get deeper and deeper into the commercial business and I think we are doing that over time, and I think that will pay long-term significant dividends.
I think on both sides that we've done, we are very pleased overall even with the recent performance in the quarter.
We had an acceleration in our commercial programs overall.
We are clearly gaining share, growing significantly faster than the industry.
The team has put in several new programs in order to help drive both existing store customers as well as prospecting and attaining new customers as well.
So that business does seem to be healthier, and it seems on a track to continue to grow.
So I think on both sides it's been healthy, but it's really more the existing customers that have been really strong, and that's the one area that we are really focused on.
It's very broad, and in fairness we have a low market share, so we believe that there is enormous greenfield opportunities for us across the country.
All the regions performed reasonably well.
Clearly, the weather affected regions in prior years have been more challenged but they weren't this year.
They continued to perform well.
So we see it pretty balanced across the country, so we feel pretty good about the commercial team as a whole and how they are performing.
Thank you.
Before we conclude the call, I would like to take a moment to reiterate that our business model continues to be very solid.
We're excited about our growth prospects for the balance of the year.
We'll not take anything for granted as we understand our customers have alternatives.
We have a solid plan to succeed this fiscal year but I want to stress that this is a marathon and not a sprint.
As we continue to focus on the basics and focus on optimizing long-term shareholder value, we are confident AutoZone will continue to be very successful.
Thank you all for participating in today's call.
Have a great day.
