Autozone Inc (AZO) Q3 2021 Earnings Call Transcript

Autozone Inc  (NYSE: AZO) Q3 2021 earnings call dated May. 25, 2021.

Corporate Participants:

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Analysts:

Bret Jordan — Jefferies LLC — Analyst

Simeon Gutman — Morgan Stanley — Analyst

Christopher Horvers — J.P. Morgan — Analyst

Michael Lasser — UBS — Analyst

Scot Ciccarelli — RBC Capital Markets — Analyst

Zachary Fadem — Wells Fargo — Analyst

Katy Hallberg — D.A. Davidson Companies — Analyst

Brian Nagel — Oppenheimer — Analyst

Presentation:

Unidentified Speaker

Certain statements contained in this presentation constitute forward-looking statements that are subject to the Safe Harbor provisions of the private securities litigation reform act of 1995. The forward-looking statements typically use words such as believe, anticipate, should, intend, plan, will, expect, estimate, project, position, strategy, seek, may, could, and similar expressions. These are based on assumptions and assessments made by the Company’s management in light of experience or perception of historical trends, current conditions, expected future developments and other factors that the Company believes to be appropriate.

These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, product demand; energy prices; weather; competition; credit market conditions; cash flows; access to available and feasible financing; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self insurance; war and the prospect of war, including terrorist activity; the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus, COVID-19; inflation; the ability to hire, train and retain qualified employees; construction delays; the compromising of confidentiality, availability or integrity of information, including cyber-attacks; historic growth rate sustainability; downgrade of the Company’s credit ratings; damages to the Company’s reputation; challenges in international markets; failure or interruption of Company’s information technology systems; origin and raw material costs of suppliers; disruption in the Company’s supply chain due to public health and pandemics, or otherwise; impact of tariffs; anticipated impact of new accounting standards; and business interruptions. Certain of these risks and uncertainties are described in more detail in the Risks Factors section contained in Item 1A under Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2020, and these risk factors should be read carefully.

Forward-looking statements are not guarantees of future performance and actual results, developments and businesses may differ from those contemplated by such forward-looking statements and events described above and in the risk factors could materially and adversely affect the Company’s business.

However, it should be understood that it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made. Except as required by applicable law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Operator

Greetings, and welcome to AutoZone’s 2021 Third Quarter Earnings Release Conference Call. [Operator Instructions]. A question-and-answer session will follow the formal presentation. [Operator Instructions]. It is now my pleasure to introduce Bill Rhodes, Chief Executive Officer. Thank you. You may begin.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Good morning, and thank you for joining us today for AutoZone’s 2021 third quarter conference call. With me today are Jamere Jackson, Executive Vice President, Chief Financial Officer; and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax.

Regarding the third 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 are available on our website www.autozone.com under the Investor Relations link. Please click on quarterly earnings conference calls to see them.

I am excited and honored to share with you the exceptionally strong performance our team of 100,000 AutoZoners delivered this quarter. As I’ve said previously, throughout this pandemic, we could not deliver the kind of results we have without the continued exceptional performance of our entire team, especially our store and supply chain AutoZoners. As our sales volumes have remained at historic all time highs, our AutoZoners have met this demand head on with enthusiasm for going the extra mile for our customers.

While we’ve had — have asked a lot of our AutoZoners over the last year, they have taken on the challenge and continue to inspire and impress us all. I also want to reiterate our top priority remains being committed to keeping all of our customers and AutoZoners safe. Thank you, AutoZoners again.

Now to our sales results. Our overall same-store sales were up 28.9% this quarter. Our growth rates for retail and commercial were both strong with commercials growth north of 40%. This is almost double the comp growth rate of our DIY business, an incredible accomplishment for both businesses, but especially for commercial. We achieved our highest weekly commercial sales of all time. We averaged nearly $70 million a week in commercial sales. This is incredible considering we averaged $48 million for Q3 of last year. For the trailing four quarters, we have sold domestically $3.1 billion to commercial customers. We are doing some really exciting things in commercial and we couldn’t be more proud of our team’s recent successes.

Now let’s focus on sales cadence. This quarter we — this quarter stretched from mid February to the first week of May. In the first four weeks, our sales comp was approximately 11.6%. This was lower than the trend we were experiencing at the end of our second quarter. We believe the cause of our sales slowing were the winter storms experienced across the Central and Southeastern states.

Sales picked up for the next four weeks from mid-March to mid-April, concurrent with the arrival of additional stimulus payments. The final four weeks happened to coincide perfectly with the stimulus payments from last year. It was over these four weeks last year when our sales ramped materially. This year, over those four weeks, we averaged a 14% comp with the last two weeks coming down to the mid-single digit range.

We continue to maintain solid growth rates post stimulus. For Q3, our two-year comp was 27.9%. On a two-year stack basis, the first four weeks, were up 17.9%, the next four weeks were up an impressive 49.9%, and the last four weeks were still up 26.7%. It was encouraging for us to see sales inflect upward this quarter with both traffic and ticket moving higher. Our traffic growth was roughly double the ticket growth rate as the reintroduction of federal stimulus payments and the execution of our growth initiatives drove a material increase in traffic.

During the quarter, there were certainly some geographic regions that did better than others as there always are. Across both our retail and commercial customer basis, we saw the majority of the country performed consistently well. Normally, we talk about the Midwest and Northeastern markets underperforming the others; no, not this quarter. These markets were in line with the rest of the country for both DIY and DIFM. And we believe the winter weather we experienced in February bodes well for our future sales opportunities this summer and into the fall.

And I could not be more proud to say that based on the retail sales data we have for our industry, we continue to enjoy share gains. The share data we have available for the first eight weeks of this quarter shows we are growing at a roughly 10% higher rate than the remainder of the industry. While we are thrilled to have those share gains, our charge remains to maintain them heading into the summer and fall months. Our number one priority continues to be the health, safety and well-being of our customers and AutoZoners.

On last quarter’s call, we shared that we would provide every single AutoZoner with a $100 incentive once they completed their vaccination for COVID-19. That’s every AutoZoner, including part timers. This was the logical next step in our efforts to provide a safe working and shopping environment as we have with our ongoing PPE efforts.

We spent about $1 million during the quarter incentivizing our AutoZoners to get that vaccine. I continue to be inspired by our Board and management team’s commitment to doing what is right and that is putting safety first. Our culture and our values of taking care of one another have been in full force and effect over the last year during this pandemic. While we continue to be encouraged with the current sales environment, we are cautious about predicting future trends. The latest round of stimulus payments certainly accelerated our sales and sales remained at elevated levels through the end of the quarter.

However, we can’t fully predict what all the different pushes and pulls on macro trends mean for us. However, we remain bullish on the industry’s ability to grow this year, and we believe we are well positioned to gain additional share beyond what we already have. I’m sure many of you would like to know how we are thinking about the sales for the fourth quarter of fiscal ’21. I’ll remind you that typically in recessionary environments, our business is remarkably resilient. However, nothing about this global pandemic is typical.

Beyond our primary objective to ensure the safety of our customers and AutoZoners, our focus is on providing our AutoZoners with the resources they need to provide our customers with an exceptional shopping experience. We are optimistic about the sales environment heading into the fourth fiscal quarter, but we will obviously have the most difficult comparison in our history, as last year’s fourth quarter benefited from the April 2020 stimulus package and enhanced unemployment benefits through July, and we generated an astonishing 21.8% same store sales growth last year in Q4.

While we understand you would like more clarity on our expectations for this Q4, this remains a very challenging environment to predict especially in DIY as many evolving macro factors meaningfully impact our results. Now let’s move into more specifics on performance for the quarter. Our same-store sales were up 28.9% versus last year’s third quarter, our net income was $596 million and our EPS was $26.48 a share, 84% above last year’s third quarter. Our same-store sales growth this quarter was a record for any quarter since we became a publicly traded Company back in 1991. Both our retail and commercial businesses showed strength in the quarter with DIY same-store sales up approximately 25%, and commercial total sales growth of approximately 44%. For commercial, we averaged $70 million in weekly sales, which was approximately $13,500 in sales per program per week. These commercial sales numbers easily set all-time records for us.

The initiatives we have in place are helping drive our commercial sales. I’ll remind you that this is a highly fragmented $75 billion market, and we believe our product and service offerings provide us a tremendous opportunity to significantly grow sales and market share over time.

Next, I’ll talk about trends across our merchandise categories, particularly in the retail business. Our sales floor categories continue to be strong with categories like tools, anti-freeze, small repair and floor mats showing strength. But our hard parts business definitely picked up and our hard parts business comped in line with our sales floor for the quarter. This now represents our second quarter in a row where we saw our hard parts business grow in line with sales floor items. We believe the strengthening of our hard parts business is due to the significant winter weather we experienced, additional stimulus, and the pickup in miles driven the nation is beginning to see as people return to a new normal.

Business remained very strong in many merchandise categories such as accessories and batteries, notably, brakes and rotors while still slightly below our average growth had a meaningful rebound this quarter due to the winter weather. As we expect, our sales growth from the pandemic related surge will moderate over time, we believe the investments we have made in both our retail and commercial businesses position us to deliver outsized share gains, relative to the overall industry.

In addition, we continue to believe our products and services will be in high demand during more difficult economic times and this resiliency gives us significant confidence about our future prospects.

Now, I will turn the call over to Jamere Jackson. Jamere?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Thanks, Bill and good morning everyone. As Bill mentioned, we had another outstanding quarter. Once again our growth initiatives are delivering and the heroic efforts of our AutoZoners in our stores and distribution centers are driving extraordinary results.

To start this morning, let me take a few minutes to elaborate on the specifics in our P&L for Q3. For the quarter, total auto parts sales, which includes our domestic Mexico and Brazil stores were $3.6 billion, up 31.8%. For the trailing four quarters ended, total sales per AutoZone store were just over $2.1 million. This compares to just under $1.9 million in Q3 last year.

Now let me give a little more color on sales and our growth initiatives. Starting with our commercial business, for the third quarter, our domestic DIFM sales increased over 44% to $829 million. Sales to our DIFM customers represented 23% of our total sales and our weekly sales per program were $13,500, up 39.2% as we averaged nearly $70 million in total weekly commercial sales.

Our growth was broad-based as national accounts and local and regional accounts both grew over 40% in the quarter. Our execution on our commercial acceleration initiatives is delivering exceptional results. As I’ve said previously, we’re focused on building a faster growing business with disciplined investments in pricing, service and assortment. We have a tremendous market opportunity as we are significantly under-penetrated in this highly fragmented portion of the market.

We now have our commercial program in over 85% of our domestic stores, and we’re focused on building our business with national, regional and local accounts. This quarter, we opened 19 net new programs, finishing with 5,107 total programs. We continue to leverage our DIY infrastructure and increased our share of wallet with existing customers.

Our strategy is working as we continue to grow share this past quarter. We are confident that we can continue to gain share as, we deliver improvements in the quality of our parts, particularly with our Duralast brand; make improvements in our assortment; maintain competitive pricing; and stay committed to providing exceptional service. These core focus areas have enabled us to drive double-digit sales growth for the past four quarters, and position us well in the marketplace.

As we move forward, we’re focused on our core initiatives that we believe will accelerate our growth even further. First, our mega hub strategy is improving our parts availability and giving us tremendous momentum. We opened two more mega hubs this quarter bringing our total to 50 locations and we expect to open between four and seven more mega hubs by the end of the fiscal year. As you might recall from last quarter’s conference call, we raised our near-term targeted build out of mega hubs from 75-90 to 100-110.

Mega hubs help us expand coverage and say, yes, we have it, more frequently. Expanding our mega hub footprint delivers a meaningful sales lift to both our commercial and DIY business. Second, our technology investments are improving delivery times and service levels. We continue to make enhancements to our AutoZone Pro system and mobile app to enable faster and more efficient parts ordering.

We’re leveraging technology to improve delivery times and making it simpler to do business with AutoZone. All of our efforts are driving efficiency for our sales professionals, drivers and customers and will help build a meaningful competitive advantage. Third, we’re committed to being price competitive and the strategy is working. We have a laser focus on the key categories, regions and segments where investments in pricing are leading to accelerated sales growth and higher EBIT dollars. We’re using data science and market intelligence to test our approach in different markets and different customer segments and delivering solid results.

We will continue to lean into this strategy and live up to our pledge to have the best merchandise at the right price. Our execution in the commercial business gives us tremendous confidence in our ability to create a faster growing business. On the retail side of our business, we’re excited about the gains we’re seeing in our DIY market share and our initiatives are driving solid share gains. Our growth in the quarter was broad based across regions and categories.

In the quarter, we delivered double-digit comps in eight of the 12 weeks and all 12 weeks had positive comps, despite some weeks having tough comparisons from a year ago. Our sales floor market share as measured by NPD grew nearly two points for the first eight weeks of the quarter and we saw double-digit growth across both failure and maintenance categories in the quarter.

We also grew share in April despite the tremendous growth last year signifying that those customers have likely changed their buying behavior. Our growth in retail is driven by our continued focus in a few key areas. First, the relentless focus on execution by our AutoZoners in our stores and distribution centers has been remarkable. Our supply chain AutoZoners have processed and handled record volumes and our store AutoZoners have handled record store traffic and delighted our customers. To be clear, we are winning in the marketplace and the execution of our AutoZoners who are taking care of our customers is a key competitive advantage.

Second, the assortment work in mega hub strategy continue to improve our coverage and availability, leading to a meaningful lift in sales. Third, we continue to focus on improving the customer shopping experience with our e-commerce efforts, buy online pickup in store, next day delivery and ship to home, which were up again significantly this quarter have helped us meet customers when, where and how they want to shop.

We’re particularly pleased with Buy Online Pickup in Store, the fastest growing portion of our e-commerce offerings, which enables our customer to shop our broad array of products online and maintain the opportunity to get expert advice from our AutoZoners when they pick up in store. This is a significant competitive advantage versus our pure-play competitors.

Fourth, and similar to our commercial approach, we’re using disciplined and sophisticated data analytics to ensure that we are competitively priced. This is a data rich environment and our data driven approach, tools and capabilities give us a meaningful competitive advantage. We have tested our approach in key categories and markets, and this effort is yielding increased top line and gross profit dollar growth, albeit at slightly lower gross margins.

The strategy is working and we’re going to lean into this approach more as we live up to our pledge of having the best merchandise at the right price. DIY has been a strong contributor to the growth of our Company. And while comps get more difficult as we lap the accelerated sales growth that we have seen over the past four quarters, the fundamentals of our business have never been stronger.

Our strategy and execution are delivering solid results. Now let me spend just a few minutes on international. We continue to be pleased with the progress we’re making in Mexico and Brazil. During the quarter, we opened seven new stores in Mexico to finish with 635 stores and one new store in Brazil to finish with 47. On a constant currency basis, we continue to see solid sales growth. More importantly, as those economies stabilize, we remain committed to our store opening schedules in both markets and expect both to be significant contributors to growth and earnings in the future. I am particularly excited about our prospects in Brazil where based on all of the hard work by our Brazilian AutoZoners over the past several years, we’re now poised to significantly accelerate our new store growth rate over the coming years.

Now let me spend a few minutes on the P&L and gross margins. For the quarter, our gross margin was down 118 basis points driven primarily by the accelerated growth in our commercial business and our investment in our pricing initiatives. As I mentioned, our commercial business grew 44% this quarter, and we’re also making disciplined pricing investments to drive top line growth and gross profit dollars. The strategy is working. Our work is translating into higher sales and profits as evidenced by our sales and share growth that outpaced the remaining market this quarter.

Our approach is disciplined and specific to certain categories where we have rigorously tested and determined which actions moved the sales and gross profit dollar performance in the right direction. We’re beginning to see some cost inflation in certain product categories along with rising transportation costs. To be clear, overall we have pricing power. The industry’s pricing remains rational and we’re pricing accordingly.

All of the actions we are taking have resulted in us growing our DIY and DIFM businesses at roughly double the rate of the overall market or better and we’re committed to capturing our fair share and improving our competitive positioning in a disciplined way. This is a good outcome for our business and as such, you should expect to see similar margin performance in the fourth quarter. We will continue to drive new customers and over time grow absolute gross profit dollars at a faster than historic rate in our total auto parts operating segment.

Moving to operating expenses, our store operations and commercial teams continue to manage our expenses well in this environment. Our expenses were up 11.3% versus last year Q3, as SG&A as a percentage of sales shows leverage of 550 basis points. Included in this quarter’s expenses were over $1 million of COVID related expenses compared to last year’s third quarter COVID expenses that totaled $75 million which included provisions for additional emergency time-off.

Excluding this comparison, SG&A levered 284 basis points, driven by our exceptionally strong sales growth. While our SG&A dollar growth rate has been higher than historical averages, we remain committed in managing SG&A in line with sales volumes over time. Moving to the rest of the P&L, EBIT for the quarter was $804 million, up 63% versus the prior year’s quarter. Our EBIT margin was 22% up 432 basis points versus the prior year’s quarter driven by the strong topline growth and operating expense leverage I spoke about earlier.

Interest expense for the quarter was just over $45 million, down 5% from Q3 a year ago as our debt outstanding at the end of the quarter was just under $5.3 billion versus just over $5.4 billion last year. We’re planning interest in the $60 million to $61 million range for the fourth quarter of fiscal 2021 versus $65.6 million in last year’s fourth quarter. Our adjusted debt level metric finished the quarter at two times EBITDAR. While in any given quarter we may increase or decrease our leverage metric based on debt and equity market conditions, we remain committed to both our investment grade rating and our capital allocation strategy, and our share repurchases are an important element of that strategy.

Moving to tax for the quarter, our tax rate was 21.4% versus 22.8% in last year’s third quarter. This quarter’s rate benefited 211 basis points from stock options exercised, while last year it benefited 26 basis points. Stock option exercises aren’t predictable and as such they will affect our tax rate, and ultimately our net income and EPS. For the fourth quarter of fiscal 2021, we suggest that investors model us at approximately 23.4% before any assumption on credits due to stock option exercises. Because we cannot effectively predict this activity, we remain committed to reporting the stock option impact on the tax rate.

Moving to net income and EPS, net income for the quarter was $596 million, up 73.9% versus last year’s third quarter. Our diluted share count of 22.5 million was lower by 5.5% from last year’s third quarter. The combination of strong earnings and lower share count drove earnings per share for the quarter to $26.48, up 84% over the prior year’s third quarter.

Now let me talk about our cash flow. For the third quarter, we generated $1.2 billion of operating cash flow. This was up $539 million over last year’s Q3. Our operating cash flow results benefited from the strong sales and earnings previously discussed. And as we move forward to make the investments that we have discussed to drive growth, you can still expect us to be an incredibly strong cash flow generator that returns meaningful amounts of cash to our shareholders.

Regarding our balance sheet, we now have $976 million in cash on the balance sheet and our liquidity position remains strong. We’re also managing our inventory well, as our inventory per store growth was up 2.3% versus Q3 last year. Inventory per store was $701,000 versus $685,000 last year and $715,000 last quarter. Total inventory increased 5.1% over the same period last year, driven by new stores. Net inventory defined as merchandise inventories less accounts payable on a per store basis was a negative $167,000 versus negative $56,000 last year and negative $93,000 last quarter.

As a result, accounts payable as a percent of gross inventory finished the quarter at 123.9% versus last year’s Q3 of 108.2%. Lastly, I’ll spend a moment on capital allocation, and our share repurchase program. We repurchased $900 million of AutoZone stock in the quarter. As of the end of the fiscal quarter, we had approximately 21.6 million shares outstanding.

At quarter end, we had just over $1.3 billion remaining under our share buyback authorization. Year to date, we bought back $2.5 billion of stock or approximately 2 million shares. The powerful free cash flow we have generated this year, combined with excess cash carry over from last year has enabled us to buy back over 8% of our shares over the first three quarters of the year.

We remain confident in our near-term plans and as such, expect to continue reducing the level of cash and cash equivalents on hand through the remainder of this fiscal year. Our business remains remarkably strong, and this will enable us to invest in our existing assets, grow our business and as I emphasized earlier, return meaningful amounts of cash to shareholders as part of our disciplined capital allocation approach.

So to wrap up, we had another very strong quarter, highlighted by exceptionally strong comp sales, which drove a 74% increase in net income and an 84% increase in EPS. We’re driving long-term shareholder value by investing in our growth initiatives, driving robust earnings in cash and returning excess cash to our shareholders. Our strategy is working, and I have tremendous confidence in our ability to drive significant and ongoing value for our shareholders.

Now, I’ll turn it back to Bill.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Thank you, Jamere. These continue to be unique and extraordinary times. Our team has done a wonderful job of managing and leading throughout this time frame. I am proud of our team, across the Board for their commitment to servicing our customers, but doing so in a very safe manner. At the start of this pandemic last year, we could never have guessed the positive impact it would have on our sales. To be able to report our largest domestic comp sales number ever this quarter, 30 years after going public is just amazing.

But with this fortuitous outcome, we knew we had to take advantage of this window of time and experiment. We’ve tested to understand the origins of our share gains and potential for retaining those gains as the world goes back to some sense of normalcy. We believe the environment continues to allow us this chance to learn. But we will be deliberate. We understand the value of the capital invested as our capital is our investors’ capital. We must have an appropriate return. We’ve worked exceptionally well to deliver on our commitments thus far. But we must keep focus and continue to deliver. There are no lay-ups we must continue to innovate.

While our domestic retail business continues to do tremendously well, we understand that trends will slow. But we’re going to work hard, real hard to gain as much share as possible now in order to limit our future headwinds. Our goal is to retain all of these new customers in new occasions where existing customers are choosing AutoZone.

And as we’ve discussed, our domestic commercial business is still in the very early innings of the maturation process. It is an honor to have reported this morning that we are now doing materially over $3 billion in domestic commercial sales on a trailing four-quarter basis. But, we hope and we believe the best is yet to come for our commercial business.

As always, we have work to do as we head into our summer selling season. But we are excited to exploit the opportunities that are in front of us. First and foremost, our focus will be on keeping our AutoZoners and customers safe, while providing our customers with their automotive needs. Secondly, we must continuously challenge ourselves during these extraordinary times to position our Company for even greater future success. We know that investors will ultimately measure us by what our future cash flows look like in three to five years from now.

Lastly, I continue to be bullish on our industry, and in particular, very bullish on our Company. Now, we’d like to open up the call for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.

Bret Jordan — Jefferies LLC — Analyst

Hey, good morning guys.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Good morning, Bret.

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Good morning, Bret.

Bret Jordan — Jefferies LLC — Analyst

In your prepared remarks you talked about the improvement in quality of the Duralast parts, obviously it started as a driver if [Indecipherable] commercial traction. Could you talk about how maybe higher input costs obviously buying a higher value part is impacting margins versus the price investments?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Yeah, Jamere talked about the fact that we’re beginning to see some pretty significant inflation on certain product categories. I don’t think that that’s been a big driver of our performance in Q3, but it is something that we are very mindful of as we move into Q4, and frankly we have in the past some of those cost along [Phonetic] to our customers just like we’ve done for the last 40 years.

Bret Jordan — Jefferies LLC — Analyst

Okay. And then I guess on the price investment conversation, I guess when you think about the DIY business versus the commercial, could you maybe just sort of bucket it for us? Do you see more aggressive price investment on one side versus the other? And then within commercial, are you seeing more competition in national accounts versus regional? I guess where do you see that, I guess the heat zones of price competition?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Yeah. What I will say in general is that we’ve been very disciplined about the investments that we’ve been making in pricing. As I mentioned, this is a very data rich environment. We’re using data driven tools, we’re using artificial intelligence and data science to help us figure out exactly where to price, which categories to price, which regions to price. So it’s a very dynamic environment in that regard. We’re fortunate that we don’t have to peanut butter spread this across the chain, if you will.

So what we’re doing is very surgical and very strategic. What I’ll say in terms of the competitive response is that the industry remains very rational. We’re seeing rational pricing across the industry and the response to that extent has been pretty muted. So our strategy is working. Our goal is to create a faster growing business with higher margin dollars. It’s a much more sustainable way for us to grow cash and ultimately shareholder value.

And on the commercial side, what we’re — what we’re seeing is that, all of the initiatives that we put in place, which price is just one element of it and I would argue it’s probably the smallest element of it. You mentioned the investments that we’re making in our Duralast brand, including some of the offerings that we have in Duralast Gold, those things are very meaningful to our customers. The investments that we’ve made in technology that have helped us be easier to do business with, it’s helping us lower our delivery times, is a significant impact on the business. The work that we’re doing around mega hubs to increase our parts availability is huge for us and huge for our customers.

So when you put all of those initiatives together, that’s why we’re so bullish on the commercial growth. And what I’ll say is that, even as we move through this environment, that commercial growth is sticky. Once we win those customers and continue to delight those customers, and we’re competitively priced, that gives us a lot of confidence about our future prospects in this area of the market.

Bret Jordan — Jefferies LLC — Analyst

Great. Thank you.

Operator

Thank you. Our next questions come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Simeon Gutman — Morgan Stanley — Analyst

Hey, everyone. Good morning. I’m going to stick on the pricing topic. My first question is, did you get more aggressive in this quarter? It looks like the margin compression got a little worse and there were some other factors. But — and if you did, why now? And just to be clear, are these price investments more on the DIY side or just the DIFM?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Yes. Simeon, good morning and thank you for the question. Clearly they’re on both sides of the business. We’ve had very targeted approach on the DIY side that has been focused more on two different spectrums of the business. One on commodity products that are highly available in lots of different environments, and then two on very slow moving, hard to find parts [Indecipherable] but maybe our value proposition isn’t as different as it is, when you can walk in the store and get the immediate product availability. The DIY piece is smaller than the commercial piece today and we’ve done that work and it’s all in place.

And on the commercial side, we did get more aggressive. We didn’t get more aggressive because we took prices to a different level, we continued to rollout the pricing initiatives that we’re working. We originally started with six regions, then we went to 14 regions. As of the beginning of this quarter, this has been rolled out. The pricing initiatives in our commercial business have been rolled out across the chain.

So you will see this mature over the next year or so. We don’t plan on having a round two of these pricing initiatives. What we have seen is these have worked as you know in the commercial business, pricing transparency isn’t what it is in the retail business. But also more importantly, the competitive set is vastly different. When you think about the large players, if you add all of us up in the commercial sector, we’re around 20% of the market share. So these pricing initiatives are not designed versus our traditional in channel competitors. They’re more making sure that we have the right pricing and value proposition that gets other sectors of the industry.

Simeon Gutman — Morgan Stanley — Analyst

Got it, okay. And I guess the follow-up is in the same, I guess the same vein. So it seems like you’re having success with this strategy which on the one hand is showing that there is some elasticity of demand. And now we’re going to be going through a bit — some inflation and you’re already starting to see it. And I would think in theory, the industry would try to pass that along. Is there any sort of disconnect or how should we think about an inability to pass along pricing, if — you know, if the customer is showing elasticity, if that makes any sense. And might you lean into pricing more next year, if this is working and you have inflation?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Yeah, I would say it’s elasticity of demand for us, but it’s not driving elasticity of demand for the industry. I think in some respect, it has improved our competitive position not against our in channel competitors, but against other competitors. And that’s proven to be successful. As we think about an inflationary environment, I know AutoZone will make sure that we pass those costs along to our consumers, just like we always have. And I don’t think that, that will be any different than normal.

Simeon Gutman — Morgan Stanley — Analyst

Okay, thanks. Good luck.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

All right. Thank you, Simeon.

Operator

Thank you. Our next questions comes from the line of Christopher Horvers with J.P. Morgan. Please proceed with your questions.

Christopher Horvers — J.P. Morgan — Analyst

Thanks and good morning. So I’ll stick to the pricing side too for my first question. The — it seems like the transition here is the rollout of the commercial side. But you’re also going to be — you’re going to start lapping through the DIY price investments. So, as we think about, — you know, 3Q and 4Q would seem like the peak gross margin pressure is now and then that starts to moderate as we lap through the DIY side of the business, price investments. Is that fair?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Yeah. That’s the right cadence to think about. One of the things that Bill mentioned is that we don’t have a round two planned here. So as we’ve rolled the price investments through the entire chain and all the categories that we’re going to roll it through, you’ll start to see us anniversary this in the back half of next year.

So, and again, we’re pleased with the execution of those initiatives, again it’s one element of the strategy, if you will. It certainly gets a lot of — a lot of attention, but we would not be in a position to even be talking about making pricing investments if we weren’t executing so well on all of the other elements of the strategy. And when I think about again the work that we’ve done on assortment, I think about the work that we’re doing to lean in the technology. Those things have been the foundation, and are being enablers for us to then focus on this element of being competitively priced.

And I said it a couple of times in my prepared comments about having the best merchandise at the right price. That, combined with the other things that we’re working on give us a meaningful competitive advantage, and it’s why we’re so bullish about being a faster growing business in the future.

Christopher Horvers — J.P. Morgan — Analyst

Yes. And that leads to my follow-up. If you look back versus two years ago to try to neutralize versus what happened last year, your gross margin is down 120 basis points, your operating margin is up more than 200 basis points given the share gains and the sales leverage that you’re driving. So you’ll have continued gross margin headwinds, but as you think of the operating margin line into next fiscal year, is it fair to think that the operating margin can at least be flat if not better as we look out, given the increased scale and share gains that you’ve driven?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Well, we’ve done a couple of things in this environment where we’ve had accelerated sales. Number one, we’ve had outstanding leverage on the SG&A line, which quite frankly has served as a little bit of a bill payer for some of the investments that we’re making in gross margin. And we do have the ability as we — as we move forward to continue to price and at very disciplined way. When we’re in an environment where there is inflation, quite frankly that gives us an opportunity to price and we are seeing cost inflation in certain categories.

But with a rational industry pricing environment, we’re going to price to recover those inflationary impact. So going forward, as we think about managing the business, we’re going to manage the business to maximize the cash that we generate inside the business, grow our EBIT dollars. That’s going to give us the tremendously powerful free cash flow. And you can tweak margins by 1 point or 1.5 point. It doesn’t change the underlying story here, which is this is a business that is generating a tremendous amount of cash, and we’re putting that to work by investing in our existing assets, we’re investing in our growth initiatives and we’re returning meaningful amounts of cash to investors in a meaningful way.

That portion of the AutoZone model does not change, even with all the things that we’ve talked about this morning in terms of investments.

Christopher Horvers — J.P. Morgan — Analyst

Understood. Thanks very much.

Operator

Thank you. Our next questions come from the line of Michael Lasser with UBS. Please proceed with your questions.

Michael Lasser — UBS — Analyst

Good morning. Thanks a lot for taking my question.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Good morning, Mike.

Michael Lasser — UBS — Analyst

How are you? I thought to be consistent and ask about price investments. The bottom line is Bill, is it worth [Phonetic] it? And help frame this question, if you just take a 1% investment in your price in this most recent quarter, what that means is it’s $35 million of sales that you’re investing back in the price to get something more than that. In any given quarter prior to the pandemic, AutoZone would regularly see in average of $70 million in year-over-year sales increases. So now you’re having to invest almost half that amount to drive these share gains. How did you find that point at which it really becomes worth it, especially as the longer that you do this, the more attention it’s going to attract from your competitors. And one of the fundamental underpinnings of why investors allocate capital to this space is because of the margin stability and this strategy could come into question that [Phonetic] margin stability.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

I understand your point. Your point about the $35 million investment is exactly right. And that’s one of the things that we wrestled with over time is — clearly there is a sales headwind before you even begin talking about picking up the gross profit dollars. But as I said earlier, Michael, we’ve tested this. We’ve tested it extensively for over a year. Again, these are very surgical pricing investments. They are not across the board. And yes, some of our commercial, our close in competitors may follow us, they may not on some of these things, but that’s really not where our focus has been on making sure that we have the right value proposition.

It’s been making sure that we’re priced right with other competitors that are outside of the close in competitors. We feel like we are doing exceptionally well with that, I think. Also I want to go back to what Jamere said. This strategy is not a pricing strategy. This strategy, which we have been working on for over three years now, it had the single largest technology investment in our Company’s history in it, where we rolled out handheld devices, where we improved our website, all making us much easier to do business with and substantially lowering our delivery times.

We continue to invest in the Duralast brand, which is one of the strongest brands in the automotive aftermarket, if not the strongest. People used to think that, that was a headwind, now people understand that it is a tremendous asset. We’ve continued to rollout hubs and mega hubs where we’ve substantially improving our immediate availability of parts and products.

So this is a holistic strategy of which pricing is an element of it. And I understand what you’re saying that a lot of people have invested in this sector for years because of the margin characteristics, not just gross margin characteristics, but the overall operating margin characteristics. And Michael, you’ve been around long enough to remember in 2005 when I came into this role and we made an SG&A investment everybody said, okay, this is the beginning of the SG&A — the beginning of the operating margins going from 17.5% down to 12%, well, what happened? Over time, we found a way to increase our operating margins. I’m not sure if that will happen from here, but these are very marginal investments to make sure that we are in the right competitive position against all channels.

Michael Lasser — UBS — Analyst

Okay. All right. I think the market will get a little bit more comfort if you did a fixed [Phonetic] or be very clear about a time frame associated with it. It seems like what you’re suggesting before [Phonetic] is, but we’re going to do this for another four quarters while it’s going to be a bit more intense over the next couple of two, it should start to abate after that. And so — is it fair? And then just a quick follow-up for Jamere, how will a higher commercial mix in the business in fiscal ’22 impact the gross margin, so we can frame out these two pieces as we try and model the business moving forward? Thank you.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Hey, Michael, before I turn that second part over to Jamere, I want to hit your earlier part, I was very clear in my comment a few minutes ago that as of now, we have rolled out this commercial pricing initiatives across the vast majority of the chain, and as Jamere said there is no act two under development or under consideration. So as we annualize this time next year, we’ll be annualizing those investments. Jamere?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Yeah. So, and in terms of our commercial mix, we’re very bullish about our commercial business. And as we talked pretty extensively about today and last quarter, we’re investing in a disciplined way in our commercial business. This past quarter, our national accounts and our regional and local accounts both grew over 40%. We are pleased to see the nationals actually snap back, car counts are up, staffing improved, miles driven is improving. And we’re under-penetrated. We think we’re roughly a four to five share in a $75 billion category. So there is a tremendous opportunity to create a faster growing business here.

And as we execute on this growth playbook and see significant share gains, we will likely be in a position where we see a little bit of a mixed drag from commercial, on the overall margins. And that’s going to be perfectly okay. This will be a faster growing and still high margin business, as we move forward. And as we see that growth materialize, we’ll be very transparent about what our expectations are.

Michael Lasser — UBS — Analyst

Okay. Thank you very much and good luck.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Thanks.

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Thanks.

Operator

Thank you. Our next question is coming from the line of Scot Ciccarelli with RBC Capital Markets. Please proceed with your questions.

Scot Ciccarelli — RBC Capital Markets — Analyst

Good morning, guys. Love to ask a pricing investment question, but I just couldn’t do that to you.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Thanks Scot.

Scot Ciccarelli — RBC Capital Markets — Analyst

So you guys talked — you’re welcome. You talked about seeing product inflation starting to ramp. Can you talk about the potential impact on the cost side of the ledger, particularly on wages, given the current employment environment?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Yeah. So we are seeing cost inflation in certain categories. We’re also seeing some higher transportation costs. But as I said before, the industry pricing is rational and this has always been an industry that’s priced to recover those inflationary impacts, and we’re pricing accordingly in this environment as well.

Our transportation costs, in particular, we’ve had some contracted rates that are below the spot market. So this has protected us to some extent, but we’ll see more of those as we move forward. From a labor standpoint, it’s a very tight labor market, and you have to look no further than what you’re seeing amongst other retailers or even in your local neighborhoods with the pressure that local restaurants are seeing.

We’re certainly not immune to those dynamics. But the value proposition of having a career opportunity at AutoZone, we think gives us a little bit of a competitive advantage. Our store operations teams and our distribution center teams and our supply chains are doing a fantastic job of recruiting talent. We’re working really hard to retain talent in this environment. And as — we also believe that from a macro standpoint, as some of the enhanced unemployment benefits start to ease, and be retracted, we think that will sort of un-stick the labor market to a certain extent. But all the efforts that we’re doing inside of our Company to attract talent is quite frankly one of the reasons that we’ve been able to put up the kind of numbers that we put up in both our DIY and our commercial business.

Scot Ciccarelli — RBC Capital Markets — Analyst

And Jamere, just as a follow-up, is there any kind of estimate regarding what might happen to labor costs if we actually did eventually get a federal mandated $15 an hour minimum?

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Well, I think a couple of things will potentially happen there. One is that, we’ll see labor costs start to go up in different environments. We’re already seeing some markets where labor costs have gone up in that zip code. And what you have to be able to do is, more importantly, you have to be able to price accordingly so that you don’t have the margin and profitability drags. And so, when I think about the impacts of inflation, it isn’t just what we’re seeing in product costs or transportation costs, but labor is a part of that equation and we’ll be disciplined enough to price accordingly in that environment as well.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Okay, let me jump in there. As you know, Scot, we’ve been dealing with accelerated labor inflation for some time, four, five years, and we have many markets where we’re already at $15 or above. I was recently in Seattle, our minimum wage in Seattle was $16.70, and we are figuring out a way to make sure that we manage through that and part of that is our pricing has to be different when we have that kind of change in our labor component of our cost structure.

Scot Ciccarelli — RBC Capital Markets — Analyst

Excellent. Thanks a lot guys.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Thank you, Scot.

Operator

Thank you. Our next questions come from the line of Zach Fadem, Wells Fargo. Please proceed with your questions.

Zachary Fadem — Wells Fargo — Analyst

Hey, good morning guys. As we look back over the past year, your business has accelerated to a double-digit growth rate despite a double-digit decline in miles driven. And now that miles driven starting to recover and returned to growth, do you expect this dynamic to be a tailwind for your business, despite the tougher compares? Or are there any other puts and takes that we should keep in mind?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Clearly, we’ve said over a long, long period of time that miles driven is a good indicator of what — of how our business is going to perform. However, we’ve also said and we said this back in the Great Recession that in certain times, it’s not a good predictor of what happens in our business.

Clearly, if you just straight line what happens to miles driven, you wouldn’t never forecast what happened to us over the last year, because miles driven were down significantly. But there was a new element called federal stimulus and we were talking this morning that, a family of four over the last four years — the last four quarters, has picked up over $10,000 in federal stimulus. That does not count unemployed, enhanced unemployment benefits. That is just the stimulus. For our customer, that’s a tremendous amount of money. And many of those customers turn to their automobiles and enhance them, repair them or whatever the case may be.

Clearly as miles driven return, there will be some small tailwind, but I don’t think that it will be nearly enough to offset the headwind that will come from us lapping those tremendous amounts of economic stimulus that were in the environment.

Zachary Fadem — Wells Fargo — Analyst

Got it. And is it possible to break out the makeup of the commercial growth across new customers versus existing customers or nationals versus independents? And then, when you think about your average weekly commercial sales in that mid-$13,000 range, was that relatively stable through the quarter and is it fair to call that a new run rate for the business?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Well, we’re calling it — that internally. We’re putting the pressure on the team. We got to keep that. You know, I think that there is some level of stimulus that’s been in our commercial performance as well. But not nearly to the extent that it has helped accelerate the DIY business. So we have big expectations to continue to grow commercial at fairly robust rates going forward.

Clearly, the DIY piece will be more challenged as we head into Q4 and really frankly the next 12 months. But commercial we think is a much stickier business. Yes, we picked up new customers, more importantly, we’ve penetrated our existing customers with new categories or deeper levels of their business. As Jamere said as far as the trade-off between the up and down the street customer or the national account customer, before this quarter, our up and down the street business was performing much better than our national account business.

This quarter the national account business was generally in line with our up and down the street business, and as we talk to those leaders, their businesses have improved along the same lines.

Zachary Fadem — Wells Fargo — Analyst

Got it. Appreciate the time today.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Yeah. Thank you.

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Thanks.

Operator

Thank you. Our next questions come from the line of Michael Baker with D.A. Davidson. Please proceed with your question.

Katy Hallberg — D.A. Davidson Companies — Analyst

Hi, everyone. This is Katy Hallberg on for Mike Baker. Just want to say, great job on the quarter. And I know you guys touched on recently about how stimulus might have impacted the commercial sales versus DIY. But I was kind of curious about within that 44% growth in commercial, how much would you attribute to the mega hubs? So kind of tracking on the stimulus and the pricing initiative, curious about the mega hub impacts.

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Yeah. So parts availability is a big piece of the story that we have in the commercial market today. When we put a mega hub in a market, two things happen. Number one, we see a lift in sales in the four walls, if you will, of the mega hub. But it also gives us an opportunity as we’re selling to commercial accounts, it gives us an opportunity to tell the commercial accounts in that area, if you will, that we have parts available, significantly more parts available than we would otherwise.

And that gives us a meaningful lift in sales. So a big piece of that strategy that we’ve talked about is improving that assortment, putting mega hubs in the marketplace, signaling to the market that we have more parts available in the marketplace, and then taking advantage of that opportunity. We’ve talked about lots of things that drive our commercial business. But in the top one or two is parts availability. If we have the parts, if we can get them there in a reasonable amount of time, they’re competitively priced, we’re easy to do business with, in fact gives us a tremendous tailwind for this business and that’s what we’re excited about.

Katy Hallberg — D.A. Davidson Companies — Analyst

Okay, great. Thank you. And then just sort of a follow-up. And this is a more broad question, where are you guys seeing the most opportunity for your share gains? I mean, does it seem like the industry is sort of through the thick of store closures as we’re kind of approaching, what could be the end of the pandemic? And just kind of curious about what you’re seeing in the industry. Thank you.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Yeah, I think the share gains that we got because of store closures were really over around May of last year. But we continue to grow share gains as consumer behaviors have changed. Just think about not — whether or not stores open, but think about your own personal shopping habits. Are you going in more convenient, smaller box stores, I think we’ve seen a lot of that across all kinds of channels, including ours, and part of our desire is how do we — now that we’re getting those new customers or frankly more so new occasions from existing customers, how do we make sure that we provide them a stellar shopping experience now and permanently change those shopping behavior. So we keep those occasions going forward, that’s what we’re really focused on.

Jamere Jackson — Chief Financial Officer and Executive Vice President – Finance and Store Development, Customer Satisfaction

Yeah, just to build on that. One of the things we’ve been paying a lot of attention to internally is just the tremendous success that we’re having in our loyalty program. Our loyalty member sales are up 32% versus last year. And when I look at the stats around the number of members that are earning rewards, the number of members that are redeeming rewards, the spend for those loyalty customers relative to last year on a per transaction basis and the retention rate, all of those numbers were up.

And so that gives us a lot of confidence that the things that we’ve done in terms of our in-store execution are driving great results. So as we think about share gains, lots of things that are part of that mix, including some of the dynamics that you talked about on a macro basis. But our execution has just been fantastic in this environment and the data around our loyalty programs certainly suggest that we’re doing the right things and those are the kinds of sales that are a lot stickier than when you have non-member sales.

Operator

Thank you. Our next questions come from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

Brian Nagel — Oppenheimer — Analyst

Hi, good morning. Great quarter.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Good morning. Thank you.

Brian Nagel — Oppenheimer — Analyst

So the first question I want to ask, Bill, this goes back to — early in your prepared comments, you talked about the cadence of sales through the period. So just — where did you end it? What was kind of the exit rate as the quarter concluded?

And I mean, I know this is a bit of a follow up to all the other questions, but if you look at the business now, do you think stimulus is still driving it now? Or was that largely been burned through?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Yeah, we exited — I don’t have the numbers right in front of me, because I went through — I quoted some of them in the script, and we were very intentional about that, to talk about those four week differences. So that you can see, as we were — before stimulus, we were seeing a slight deceleration of our sales coming out of Q2. Then when stimulus happened, I think we said we were up roughly 50%, I think it was 49.9%. And then we came out the other side, and on a two year basis, we were still up 26.7% [Phonetic] in those last four weeks.

Our comps, as we exited the quarter, the last four weeks this year, were 14% with the last two weeks coming down to the mid-single digit range. So what we have seen is that stimulus — those stimulus dollars that came in March, they stayed and had a lingering effect in helping drive our business longer than we would have expected.

Similar to what happened last summer, if you remember, our business was really, really strong post the April stimulus. Now last year, you had the enhanced unemployment benefits at $600 a week versus $300 a week this year. So clearly, that will be a headwind as we look in Q4, but not completely. Does that help?

Brian Nagel — Oppenheimer — Analyst

No, it’s very helpful. I appreciate it. Then my second — I guess my follow up question would be something maybe bigger picture. But if you look at the commercial business, and obviously a lot of cross currents at this point, but your commercial has been a bright spot for AutoZone for a while, it strengthened here lately. As you look out there, what do you view is still the slack within your model? And you’re talking about opening the new — the mega hubs and launching new programs, how should we think about the real drivers going forward as particularly as we pull out of this COVID crisis?

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

Well, as Jamere mentioned, we have 50 mega hubs now. We’re on a path to have a 100 to 110. So we will more than double the amount of mega hubs that we have today. And I will tell you, Jamere, who’s in charge of store development has a big bogey out there to make that happen very fast. And you’ll see a significant amount of mega hubs come online this quarter, and over the next year.

So I think that, that will help us in a big way. As Jamere said, this business is about parts availability. It was that way when we started 42 years ago, it’s still that way today. If you don’t have it, you can’t sell it. And we’re getting parts closer and closer and closer to our customers. I also talked about all this technology that we’ve rolled out. And we’re still in the very early innings of that.

We’ve seen reductions in our delivery times, but we are looking for significantly bigger, larger reductions in delivery times as this technology matures, as our team understands how to utilize it and how to change. Getting parts and products frankly, out of the building is our biggest focus, not necessarily the drive time.

Brian Nagel — Oppenheimer — Analyst

I appreciate. Thank you.

William C. Rhodes — Chairman, President and Chief Executive Officer, Customer Satisfaction

All right, thank you very much.

All right. Before we conclude the call, I want to take a moment to reiterate that we believe our industry is strong, and our business model is solid. We’re excited about our future growth prospects. But we take nothing for granted as we understand our customers have alternatives. We have exciting plans that should help us succeed for the future. 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.

Lastly, as we celebrate Memorial Day next Monday, we should remember all of our country’s heroes, both past and present. We owe these Americans a tremendous debt of gratitude. Thank you all for participating in today’s call. Have a great day.

Operator

[Operator Closing Remarks].