Good morning, everyone. My name is Michael Lasser. I'm the hardline retail analyst from UBS. Thank you very much for joining us today. We're very pleased to have AutoZone with us. With us from the company is Brian Campbell, who's the Vice President of Investor Relations, and Charlie Pleas, who's the Senior Vice President and the Controller. When I think of AutoZone, I think of consistency. The company follows a very disciplined and rigorous model of generating stable comp growth, modest unit expansion, and then typically buys back about 10% of its shares per year. This formula has been quite lucrative as it's been one of the best-performing retail stocks over the last decade, and I hope this morning we'll find out if that's going to continue to be the case.
With that, I'm going to give it over to Charlie, who's going to give a few opening remarks, and then we'll have a broader discussion.
Morning. Got a few slides that you should read very closely. Everybody done with that? Forward-looking statements. Pictures are very well placed on that. We're here to talk to you about AutoZone today and this is our pledge. AutoZone is always put the customers first, and that's certainly a part of all of the things our folks focus on every day. Whenever they're concerned or they don't know whether they're doing the right thing, they always can harken back to our pledge that putting customers first, the activity isn't involving the customer, then we should change that. We know our parts and products, our parts knowledge and the products that we sell is important to us, and we emphasize that with our salespeople on the floor and in the field.
Certainly, we always are focused on having our stores be presentable and look great, for our customers to have a great shopping experience. We've got the best merchandise at the right price, and we continue to, you can see, work with our vendors to ensure that we've got the product that our customers are seeking and certainly have that priced competitively. Company overview. Nation's leading distributor of automotive replacement parts and accessories. An extensive line of products for cars, sports utility vehicles, vans, and light trucks. Light trucks and certainly those utility vehicles are certain kind to us, and unkind to the roads, so that really tears a lot of parts up. We're focused on those vehicles in particular. Operate 4,700 stores or so in the 49 states, the District of Columbia, Puerto Rico. We've got 300 or so, 334 in Mexico and one store in Brazil.
Got the flags on it. Soon, hopefully, we'll have another soon. 3,146 commercial programs. It's certainly one of our legs for growth and things that we've been focused on, especially a lot of the work that we've been putting in our hubs. 10 new remodels this past quarter, 77 so far. Putting new merchandise in the market and expanding our lines to ensure that those stores are able to not only work for our retail customers but for our commercial customers. 2012 net sales of $8.6 billion, EBITDA of $1.8. You can see over the past 10, five years, we've had fairly steady mid-single-digit growth in our sales. That's kind of the real finance story of AutoZone. We can talk a little bit more about some of the things that we focus on.
Registered vehicles, car parc is certainly something we look to, as well as miles driven. As you can see, it has tailed off a little bit over the tail end of 2012. It's something that we're focused on. The average age of vehicles has extended, offsetting that somewhat, and those particular vehicles, cars, trucks, and all have grown over the past. That age, five to seven years is what we were focused on. That somewhat extended to 10 years, so favorable for our industry. Financial results. Record EPS growth. Michael spoke of that. We continue to see great performance over time. 2012 was not an exception for us. 10-year CAGR of 20%, five-year just over. Some of the financial results, EBIT, a fairly consistent growth over not only the past 10 but five years.
That's one of the things that we are most proud of, that we've been able to consistently grow our EBIT over time. Second quarter. Many of you, I'm sure, listened in or read our conference call script. Net sales growth 3%. Same-store sales down this past quarter. We talked about a fairly flat growth in sales over the balance of the quarter and the last two weeks. Really a significant drop-off, definitely impacted by us on the delay in taxes. Not something we've experienced before, but our retail customers and certainly our commercial customers are impacted by that delay. In our last two weeks, we're down 8%, which pulled our quarter down 1.8%.
We were able to get some good leverage on our gross margin, 51 basis points there, and manage our expenses well, only having six basis points of deleverage and growing our EPS again for the quarter at 15%. We'll take questions.
Just a logistical point before we kick it off. Russ is in the back with notecards and pens. If anyone has a question, you can write it down and then we'll work that into the conversation. I want to start out with an industry question. Between 2009, 2010, 2011, the industry saw great growth. It was well above the historic average. Last year, we definitely saw a deceleration across the sector. There's been a lot of debate about was it weather related, given the abnormally warm conditions from last winter? Was it some other factor? It also occurred at the same time that new car sales were rising. Could you provide a little perspective on your view of really what drove the industry-wide deceleration in the last few quarters?
Certainly, there was some regional concerns for us, we've got data that we're all, at least the major players, are involved in, and there was definitely an industry slowdown. A lot of the things that we saw, particularly in the Northeast region, in this area, Midwest Rust Belt, last year, winter was extremely mild. The result was, if you think in terms of what happened last year, at the same time, we were selling products that usually are spring related products, wash and wax. That was, we talked about at the time, a pull forward, which we had and are challenged with for Q2 and Q3, some pretty nice comps in early in Q3, tail end of Q2, that we are up against. I think the industry as a whole, particularly those of us who are in that Northeastern region, had that impact.
If you looked at the rest of the country, West to Southeast, not as bad. It certainly wasn't as bad of an impact or slowdown as we had in that Northeast region. There's a fairly large concentration of stores in that area. We think the customer was challenged, the consumer was challenged financially as well. That need for maintenance wasn't as strong. Failure was still there, but the maintenance side of the industry was not there.
If it really was weather and what I think the basic assumption is right now, given the geographic differences especially, how consistent those differences were across all the various participants in the industry. If it truly was weather, when do you expect to start to see a resumption of what are more normal trends within the industry? Maybe you don't at that time, what might be the explanation?
Right. We actually, at the beginning of Q2, and we talked about a little bit, we were seeing some improvement in those areas of the country that were challenged last year. Certainly, we've had a little bit better winter this year, more closer to normal.
Remember, you're in Boston. They've got a lot of snow.
Exactly.
Be sensitive to that.
Closer to normal. It came later in the season, but it was there. Certainly, we hope to see some benefit from that as we move through the spring season, and that's typically when it starts.
The other piece of it with new car sales rising, the vehicle population potentially changing, given the dip that we saw in 2007 and 2008 in the new car sales. As those mature into the quote unquote "sweet spot" of the industry, which historically has been considered seven to 10 years old, how do you think that plays out? Do you think that as those cohorts enter the vehicle population and there's actually a deceleration in the rate of growth of new cars entering your base, is that going to have an impact on the industry?
Well, to some degree, that's offset by the fact that you hadn't seen a significant change in your scrappage rates. When we look at those factors, we're looking to see how many cars are going out of population. As we've seen, the lives have extended. I think you'll get some offset to that decrease in new car sales by the fact that those others, the used cars, are staying out for so much longer, and they certainly are important to us and help our industry grow.
How does parts proliferation and really the sophistication of parts play into it, where as new cars are coming off the line, they're more expensive to put parts together. Even if there is a change in the vehicle population, could that have an offsetting impact of it as well?
It does, and certainly.
Maybe you can explain kind of the life cycle of parts and what you've seen in terms of inflation of parts over time.
Right. Over time, certainly, we've seen parts proliferation as industries always also talked about the slowdown in traffic over time, and that being offset by the improvement in ticket. Certainly, that's been driven by parts are more expensive. They may last longer, but when they break, they cost the consumer more. We talk about an example of just your regular coil. In early 1980s, late 1980s, all cars had one coil that had a plug wire go into your ignition, your firing system. Now, typically with cars, that was a $20 part. If you've got an eight-cylinder car, every cylinder has a coil. So where you were buying a $20 part, you've got now a six times or eight times $20 expense. It becomes exponential. That's the same way with most of the other parts that you run into with the car.
They've become more sophisticated, that part becomes more expensive, and that ticket is a bit of an offset to the slowdown in traffic.
That as there's been a deceleration in the last two quarters, you continue to see this dynamic where parts are more expensive, inflation's benefiting the core. What has it been, more specifically within the maintenance category, that's really gotten hit hard?
When we were looking at it last year, there was a lot of conversation around more than you realize, particularly in the Northeast, the snow and the salt that's associated with eliminating that and the brine that they put on the roadways, it deteriorates and accelerates the deterioration of those parts. When you think of undercar, a lot of people think that, "Well, that's not maintenance." Well, brake pads are certainly one thing that we can all agree on is more of a routine kind of maintenance job at 30,000 miles is what you would expect. When you get those outside elements impacting them, that deterioration gets accelerated, and you have to replace them more frequently.
The road conditions are also impacted negatively by those elements, which causes other car parts that don't fail as fast to have more routine maintenance to those. That did not happen, and to a great degree, we noticed those changes in trends in those particular areas. The expectation is that you would see more of that. That really, the conclusions were drawn truly based on that. There's no guarantee, there's certainly not that the consumer's going to react to that maintenance now and do it right away. It could still be extended. I heard this story a few days ago of the "check engine" light being on in a car, and they're using electric tape to cover it. You don't have to look at it.
Yeah.
It doesn't matter.
You should get that taken a look at. You would think he'd be one person that could actually get that fixed.
You would think he'd do it, he puts brake pads on backwards.
Right. Coming back to this idea that what you're suggesting is there's pent-up demand because eventually brake pads are going to be fixed and if there has been some softness in these regular replenishment categories, when do you typically see that? At what point is that relief? Is that a couple of quarters down the road? Is it more immediate as the weather sets in?
It really starts in the spring, you see it throughout spring and summer. As those urgencies become more and the sound is too loud to where the earphones don't drown it out anymore, you have to do something with it.
One question we got from the audience along these lines is, what percentage of your SKUs are tied to DIY oil changes?
DIY oil changes. Okay.
We wanted to get Brian to talk about oil changes.
Back to the electrical tape. Just a handful, maybe three or four SKUs in it. Oil and oil filters and maybe some other additional forgotten filters that we stock, not a big thing.
They turn pretty rapidly.
They do. Oil's one of the highest turning SKUs in our store, and it's what we promote, advertise, offer as special every month.
You tend to have a decent-sized basket with oil sales, because it brings opportunities for other additives in the mix of a sale. The oil certainly is, with all of us, is what gets our customers in the store. It's the most regular routine.
If we make the assumption that it wasn't weather, for whatever reason, it's new car sales coming, the vehicle population's changing. Last summer, there started to be some chatter that one of the players was promoting a little more aggressively and using oil as a vehicle to draw in traffic.
Do you expect that the industry could start to become more promotional as the pie is not growing as fast and perhaps everyone's fighting for a piece of it?
What we've experienced, certainly in the recent months and probably I'd say the past couple of years, is been a fairly rational approach to pricing in this space. In particular, with oil pricing, was one of the items that because it's a lead, we saw a lot of lower-end pricing there. Over the past year to 16 months, you've seen certainly fairly consistent behavior. Everybody's going to have a high-end deal and a low-end deal, and it just varies month to month as to what brand you're using. I would hope that it certainly would continue. I hadn't seen any indication that it won't.
Okay. Let's switch gears and talk a little bit about the commercial side of the business. You've, in the last few years, seen very good growth on the commercial side, in part by rolling out new programs at your store base. Can you give us an indication of how far you are along that penetration curve? Where you think you can ultimately go? There's been some recent debate on whether or not the incremental programs can be as productive as the existing programs.
Sure. We certainly, when you look at last year as compared to this year as to how many programs we opened, there was a definite deliberate effort to slow down the openings in Q2, that was mainly driven by the timing because last year we were really scheduled to open 300 programs. We opened 400, probably more of an opportunistic approach to it than not, the consistency is still going to be there this year. The intent is to open 300 programs as well, 100 so far and look to do the rest in the coming quarters. We don't think ultimately that there is any delta in the thinking of opening the most productive programs first versus not. It more often is these programs are opened across the country, it's a regional approach.
A regional manager may come with three programs this year versus someone on the other side of the country coming with three. They're doing it where they have the skill set. If I've got the talent in the field and those folks are ready to go, I've already deployed a salesman there. I'm going to add stores where I've got the sales force. We're doing that methodically across the country. We have a list ongoing of programs and where they're going to be across the country. As they come to the top of the list from the standpoint that we've got the resources there, the trucks have been deployed, the systems have been installed, they go. It's not a, "You're the better one, you go first." It's generally more making sure you're matching the resources with the effort. I think it's going to be ongoing.
It's certainly not through our chain. That's not to say that we're going to be 90+% but we're not at a position where we think we've opened all we can. In addition to that, probably more than we've ever in the past, we're opening stores with commercial already installed. That approach in conjunction with going back and hitting those stores that have been open for a while, we'll keep that going.
Do you think that, right now you're in the 60% range penetration.
Right.
You suggested that maybe 90% would be too high. Maybe not.
We don't know yet.
You don't know yet.
We don't know how high is high. Every store is being considered for it. What typically stops you is if you've got a program within five miles of another, that would be California as an example, where your stores are heavily clustered, you're going to have a less concentration of programs.
Okay. As you look at the map right now, do you have any big greenfield areas in the country that you're really under-penetrated relative to others within your commercial program base?
I think it's probably if you looked at it five, 10 years ago and saw where our store count was, where we had the greater opportunity with that, probably similar. Where we have greenfields for stores, that's probably where we are with commercial as well.
Okay. Do the recent programs, it sounds like from the last quarter call, have been a little bit softer than some of the legacy programs that you've rolled out? Do you have a hypothesis on what may have been causing that?
I think if you compared when you looked at similar stories for retail, you had a similar story for commercial. Those programs that were in those areas that weren't as challenged were performing just as well as they had been. We didn't see any slowdown there other than what we'd seen across the industry. There was some slowdown in commercial and retail for the industry over that month of January. I don't see anything that gives us structurally a different point of view about commercial. We think it's still our vehicle, one of our stronger vehicles for growth, and we're continuing to invest in it, and there's no change in those plans.
Yeah. As a tangent to the discussion of the commercial business, what's critical in this industry is being able to get the right part at the right place at the right time.
AutoZone follows a hub and spoke distribution model. Some of your competitors have distribution, larger, more densely populated distribution centers across the country. Can you talk about the pluses and minuses of each approach and why you think the hub and spoke model is the most effective avenue moving forward?
Well, when you think about hubs as a concept, I think AutoZone was the primary genesis of that, the hub being in market, closest to the stores, with a storefront. If you'll note, our competitors like that model. They have more hubs than we do.
Yeah. Imitation is the biggest form of flattery.
Exactly. I think when you're starting to say what's the pros and cons, our distribution centers, we try to centrally locate those and with the effort to making multiple deliveries to hubs on a weekly basis. We think and hadn't gone away from the concept that that's the right way of going about it. Now, we've, over the past couple of years, have made efforts to go back and look at all of our hubs wherever they are in the country and determine whether the size is appropriate. Because as I said, it is most important to have those parts in the market to where you can get them to those stores and to the customers when necessary.
I think if more than anything, we're looking at the width of the SKU count in those hubs, and the depth as well, to ensure that we can have local market parts to deliver to our satellite stores in a timely fashion. No traction from that. I think the majority of our investment going forward will be to continue to make sure that the locations are the right place and the size is there.
Can you give us some sense of the distribution of your sales by SKU on the DIY side versus the commercial side? Are 80% of your DIY sales coming from 20% of your SKUs, whereas on the commercial side, 70% are coming from 50%? It'll give us some order of magnitude to help size the supply chain relevance within each sector.
Yeah.
You don't have to give us an answer.
No, it's fine. What we're talking about is how do you get the SKU to the local level the fastest, and how do you offer this access? All the SKUs that have been added, I'd argue, across our industry, have been ever slower turning SKUs. The trade-off here is, hey, if I add these really slow turning items, I'll pick up a bigger basket over time. Other items will be added. What you see is these SKUs are actually slowing inventory turns of the overall chain down. We used to average about two turns a year, and now we're at 1.6 times a year. The formula, unfortunately, what turns the fastest, the As, the B movers, how we define it's the old 80/20 rule.
These top SKU buckets are what moves. Just because you have that, certain customers, they think they can't find the D, Zs, and EEs.
They don't want to call. In the past, the right model, the very clever, the cyber model would be go straight from the vendor, just-in-time inventory. Don't stock anything. That's not possible. The vendors can't get it there in five minutes. You stock at a warehouse and deliver overnight. That might not be fast enough. We've gone to the hub in the local market, so not every store has things. I think what we're talking about here is the industry with all these makes and models only can add SKU. I'd expect this will be a continuing discussion point and a question every year.
Okay.
How big can it get, and then how much you want to invest in it, and how efficient do you want to be with your capital?
I guess this is a natural time to lead into new channels of distribution, particularly the internet. Historically, the auto parts sector, given the SKU intensity, given the relationship between you and your customer, both on the DIY and the DIFM side, this is thought to be an industry that's more insulated than others from internet competition, and yet you went out and made a nice purchase of an online-only player. Can you talk about how the customer for AutoAnything compares to who you're serving through your store base, and how do you expect to see that evolve over time?
Brian's going to love this one.
I'm sure this is the first time you've heard it.
Yeah. The internet. Michael Lasser is right. The fact is, not a lot of products are sold today on the internet. We don't see it as being a large venue today for hard part purchasers or even much from an accessory standpoint. However, it is growing. The company that we purchased, AutoAnything, we believe industry leader on accessory sales on the internet. They're a California-based company. They've had a lot of impressive growth year after year. They're a profitable company. They sell a little bit higher ticket to a higher income consumer. We do share vendors, the category of products aren't stocked in our stores necessarily. The overlap is minor. We feel there's some negotiation opportunity with product costing, shipping costs, IT infrastructure, on both sides, autozone.com learning from AutoAnything and vice versa, a little bit different customer.
We're trying to figure out how does that fit with us. To your point, not a lot of hard parts right now being sold on the web, we want to get out in front of it in case it gets bigger. We want to be an industry leader in that space. Don't look for Duralast and the brand to be sold on AutoAnything's website. The integrity of the websites will remain consistent.
A couple of things that are important for AutoAnything. Their culture was really a lot like ours, they really align very well with us. They're really focused on the customer. They're focused on ensuring that they've got the right information. I think when you talk about what we find is most useful for our customers on the web, it's information. They're going there, whether it's pricing or just knowledge about how to do a job or watching YouTube videos that are pop-outs from our website. Information is what they're seeking.
From the response, it sounds like it's more discretionary products. It's more aficionados. It's more of a want-based purchase than a need-based purchase that you're more typically skewing towards in your store. Is that fair to say?
Performance, accessories.
Yeah. Okay.
Wait a couple of day kind of delivery.
Yeah.
Kind of thing.
Moving on to the financial piece, given we've got the brain trust here. You've gotten a lot of the audience.
Exactly. Thank you. Thank you very much.
We'll give them questions then.
You've gotten a lot of credit for your capital allocation strategy, which has been really prototypical within retail over the last few years. I think there's less awareness of how well you manage the expenses within the business, and that may become more obvious to the market as if the industry remains in a more slower growth phase for an extended period of time. How long can you maintain this operating margin expansion or operating margin growth in a flat type comp scenario for an extended period of time?
Well, look, there's always been and continues to be focus from our merchants on finding the best prices for product, and they continue to work with vendors to not only help them build stronger relationships, whether it's through import or through improvements in their factories. Just looking at things where it's how do we make our pick lines more efficient or how do we make product more presentable? All of those things are a part of the focus. We continue to expect improvements in gross margin, not dramatic changes, but enough to show that we're continuing to grow it there. Even when you think in terms of gross margin, I guess over the past year, you saw a lot of improvements in shrink.
That's just one of the ways that we've gone through to try and take cost out of the business. We'll continue to focus on those. As well as when you look at the expense lines, our field has done an outstanding job over the past quarter. We'll continue to make sure that we've got customer-facing labor there and then taking task out where necessary.
I'm going to push you a little harder because I think this is an important point. You've got another year left, another two years, another three years. Even if you comp in this flattish growth, your algorithm is to generate mid-teens type EPS growth. I think that's very alluring to shareholders.
potential shareholders. I think the fear is that the industries, if it wasn't weather, what's the risk-reward profile in that scenario? My sense is it's pretty good.
Yeah
for an extended period of time. Is that fair?
We've got a pretty good track record.
Yep
of being able to manage in good and bad times. Our management team hasn't changed a lot over the years. There's a reason why there's that consistency there in our performance.
Yep. On the gross margin side, have you tested elasticities within the sector? This comes back a little bit to the promotional aspect. With AutoZone having a 20% operating margin, it's really that incremental dollar of sales because $0.20 of it is going to fall to the bottom line. Perhaps you would be willing to sacrifice a penny of margin to be willing to drive that incremental dollar. I know that it's complicated by the fact that these are largely inelastic goods.
Is there some elasticity you can push on in order to drive the top line?
It's all Brian's fault.
It is? Yeah.
I don't think so.
Yeah.
I think that you can be sharp on your sort of chemicals and accessory offerings, window signage, near-term promotional items, stuff that's like motor oil. We talked about earlier as a question. It's hard. It's not an industry built on that. Half of our sales come from failure-related items. There are things on availability we can do. Back to that other discussion, I think that are important. There's so many cars in the population that are getting worked on all the time. Our opportunities still remain great. As much as I think, back to your point, we can operate in a low same store sales environment. Not only do we not want to be there, we don't expect to be there. We expect to be able to grow, we expect to be able to grow on the U.S. side as well as international.
Commercial continues to be a great opportunity for us. Hopefully with all these things, while we can operate conservatively, yes, we can and we have for I guess, for several years there in the early 2000s at a lower volume. Hopefully we're not having those discussions with you.
One really compelling aspect of the business, one of many compelling aspects of the business has been the vendor financing program. Where now your AP to inventory ratio stands well in excess of 100%, which is a remarkable feat. Where can it go? How are you going to manage that in the future as far as balancing the margin with the terms you're getting from vendors?
It's all part of the cost structure to a vendor. Every vendor has a balance sheet and income statement as well. They look at days extended versus initial cost of goods. Everything's a negotiation, a put and a take. When costs increase, it's passed through. Where can it go? We have indicated not a lot higher. We think we have some room with those things. What's benefited AutoZone is the ability to negotiate private label products, our brands. We've created this Duralast and Duralast Gold brand, as well as Valucraft at the opening price point that continues to help us going forward. I think that story remains a positive for us. That's a good thing.
Private label penetration, I think it's north of 50%. Is there still room on the horizon to push that further? What are big categories that have yet to be touched by private label? I think in the last few years it's been windshield wiper blades.
Yes.
Maybe you could identify a couple others that are potential candidates.
We've gone through a lot of the areas that we could. More often than not, if anything now it's looking at the mix of products within categories.
Whether it's your good, better, best tier. You may pick out, you've got a good and better, you may add a best tier. Wipers were a great example. That was something we didn't have a lot of penetration in, and then over the past several years, we've gotten there. We look at chemicals from time to time, our biggest focus is really making sure that whatever we do with Duralast brand, its quality associated with it. Nothing that we do deteriorates that brand because it's important to us.
Okay. My final question is on capital allocation. You, as I mentioned, prototyped the very effective strategy of buying back about 10% of your shares per year, maintaining a consistent leverage ratio, and my two questions along those lines are, A, have you thought about the potential for increasing your leverage ratio from time to time? If trends do slow and you see some strain on the P&L, how would that influence your perspective on raising the leverage ratio, at least temporarily, to maintaining your posture? What about a dividend?
These are all alternatives to the free cash. We're fortunate as a company to have a larger operating cash flow generation business than CapEx. I'll tell you, the ability to incrementally flex leverage is not something that's embraced by rating agencies, nor our fixed income investors, many of you are out in this room. Unfortunately, in answer to flexing, it's very hard. We state a targeted metric of remaining in this status of sort of BBB, Baa2 range. We want to remain there. Whatever leverage is carried has to answer within that guideline. I'm trying to remember, the last question was sort of if business gets weaker, for example, do you leverage up? That's actually counterintuitive at that point. You have to watch your money at that point because it works both ways, leverage and de-leverage. The last question that you asked was-
Dividend
The dividend math is just cash utilization. Do you apply the cash leaving on your balance sheet in a money market account or cash equivalent? Do you pay a dividend or do you buy back stock? It all has tax ramifications. Our opinion is from an accretion standpoint, the math that we've run for 15 years, our belief is that the accretion growth rate, the cumulative growth rate from buyback will be greater than simply dividend. That doesn't make all investors excited, we believe ultimately it will pay off to be more value add for investors than simply a dividend, especially as tax law changes have worked against more recently dividends. At this point, we're not embracing that.
Okay. The sound of the tone suggesting sticking with the strategy, it's working, go with it.
It is. One last thing is, if asked, is there a stock price where you would not buy your stock back? The answer would be yes, there is. We think about those things, and we would communicate that to investors and what would be the alternative if we weren't buying back stock, we would offer a dividend.
Maybe you could just give us the price right now.
It's not.
At this value.
How about that? It's not just that.
It's higher than it is right now.
There's great time and effort expense. We have lots of financial experts on our board of directors that keep us busy as well as our senior leadership, Charlie, that debate this issue about capital allocation and appropriate utilization of cash all the time. We manage the business hopefully very efficiently. That's our goal every day.
I think we have 2 minutes left. Along the capital allocations lines, we have seen some acquisition activity accelerate by some of your peers at the end of last year. It sounds like there's still more opportunity within the market. How do you see AutoZone participating or not participating in some of that consolidation activity?
We are always looking at it from a real estate perspective. We are looking for sites that meet our requirements from a visibility perspective. We're focused on it from a retail customer perspective, and that's a little bit different from some of our competitors. A lot of these sites are in light industrial areas, that's not gonna be attractive for our retail consumers. From a commercial perspective, as long as we are within that vicinity and we can get a car there in a timely fashion, that's fine. We opportunistically look at it from just the real estate. We're not really looking to acquire inventory or anything of that nature. It's more about where we want our locations to be.
You did mention that you put a foothold in Brazil. What do you see as the capital needs for furthering your expansion into Latin America, which does seem like a pretty attractive market for the future?
It is, very much. Brazil is small in nature, don't expect great growth from AutoZone as we're still learning. We're a greenfield operation there, it's not a big capital outlay. AutoZone is always very careful about currency valuation, devaluation, making sure that you pay as you go strategy. Look for Brazil to be steady growth, maybe a handful of stores this year to next kind of thing.
Okay. Thank you very much for joining us today.
Thank you.