AutoZone Q3 FY26 Earnings Call | $AZO | 🔴 WATCH LIVE

Added: 2026-05-28

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[00:03:57]Greetings. Welcome to the Autozone's 2026 Q3 earnings release conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. Management would like to read their forward-looking statement.

[00:04:27]Before we begin, please note that today's call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance. Please refer to this morning's press release in the company's most recent annual report on form 10K and other filings with the Securities and Exchange Commission for discussion of important risks and uncertainties that could cause actual results to defer materially from expectations. Forwardlifting statements speak only as the date made and the company undertakes no obligation to update such statements. Today's call will also include certain non-GAAP measures. A reconciliation of GAP to non-GAAP financial measures can be found in our press release.

[00:05:07]>> I would now like to turn the call over to your host, Phil Danielle, president and CEO of AutoZone. You may begin.

[00:05:15]>> Good morning and thank you for joining us today for AutoZone's 2026 thirdart quarter conference call. With me today are Jamir Jackson, 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 complenting our comments today are available on our website at www.autozone.com under the investor relations link.

[00:05:48]Please click on quarterly earnings conference calls to see them. To start out this morning, I want to thank our more than 130,000 incredible Autozoneers across the company for their commitment to delivering on the first line of our pledge, which is to always put customers first. Our results and performance begin with us asking, "What does the customer need and how can we exceed those needs and do it more efficiently?" And it is our AutoZone and our supply chain who deliver on this commitment every day. This past quarter, their efforts allowed us to deliver sales growth of plus 8.4%.

[00:06:27]The largest we've reported since Q2 of FY23.

[00:06:32]Simply put, we're growing. We're opening more stores than we have in many, many years. And we continue to gain market share. Congratulations, AutoZone. Let's keep delivering wow customer service. To start this morning, we will address our sales results and provide an update on our growth initiatives. We will also discuss our domestic and international results and break down our domestic sales results between traffic and ticket growth to address what inflation has meant to both our ticket and sales growth. We will also share regional performance and give an outlook on how we expect the last quarter of the year to play out as we enter our summer selling season. For the third quarter, our total sales grew plus 8.4%.

[00:07:19]Which is an acceleration from the first half of the year while earnings per share increased plus 7.7%.

[00:07:27]Similar to our experience in the first half of the year, our gross margin, operating profit, and EPS were negatively impacted by non-cash $20 million LIFO charge. As a reminder, during last year's Q3, we recognized a $16 million LIFO credit, which favorably impacted operating profit and EPS.

[00:07:49]Excluding the LIFO charge of 20 million this quarter and the $16 million credit last year, our EPS would have been up plus 12.5% versus last year's Q3.

[00:08:02]Now, let me share a few key highlights from the quarter. Total company same store sales grew plus 4.9 or I'm sorry, 3.9% on a constant currency basis with domestic same store sales growth of 4.1%. Our domestic DIY sales grew plus 2.2% while our domestic commercial sales grew plus 10.4% versus last year's Q3. We are pleased to report double-digit commercial sales growth and believe the strong performance will continue as we move forward even as we cycle tougher comparisons to Q4 of last year.

[00:08:41]International same store sales were up plus 1.6% 6% on a constant currency basis and our unadjusted international comp was plus 16.6%.

[00:08:51]As exchange rates positively impacted our comps by490 basis points.

[00:08:59]We opened 82 stores globally this past quarter to finish with 6,766 US stores, 933 Mexico stores, and 157 Brazil stores. We are on track to open approximately 365 stores for the full year versus the 305 stores we opened globally last year. We continue to be very pleased with our sales productivity we're generating out of our new stores and their sales results are exceeding our performant expectations.

[00:09:31]Next, let me address our sales results in a little more detail. Coming into the quarter, we were optimistic that our domestic store execution would drive sales growth for both retail and commercial. Regarding our plus 4.1% quarterly domestic same store sales, the cadence was plus 5% in our first four weeks, plus 4.5% in our second four weeks, and plus 2.9 over the last 4-week period of the quarter. Now, let me address the last two weeks a little more specifically. Those two weeks were softer than the rest of the quarter with comps of plus 1.3%.

[00:10:09]This slowdown in sales was caused by unseasonably cool weather impacting our heat related categories which normally begin to ramp this time of year as summer heat begins to take hold. This affected both DIY and commercial. Our domestic comp was solid, up plus 2.2% 2% versus last year and an acceleration versus the plus 1.5% in Q2 as we continue to gain market share. I'm very pleased with what we are seeing in terms of market share gains and we continue to execute well in this environment.

[00:10:43]Regarding our plus 2.2% DIY comp for the quarter, we experienced a positive 2.4% comp in the first four-week segment, a positive 3.4% 4% comp in the second segment and a plus.88% comp during the third segment. As noted, the last four-week segment was our weakest performing segment which was driven by the very mild weather in certain markets. Those markets have historically been warmer at this time of year and the cooler temperatures led to a lower key volumes in key categories like air conditioning, starting and charging. For the quarter, we felt we benefited marginally marginally from higher than usual income tax refund season along with share gains and solid execution.

[00:11:29]Regionally, our results were solid overall with the strongest results in the West, Midwest, and the Northeast. We expect to have solid DIY performance over the coming upcoming summer.

[00:11:43]With regards to inflation's impact on DIY sales, we saw like forlike same skew inflation just north of plus 7% for the quarter, which contributed to our DIY average ticket being up plus 5.6%.

[00:11:56]The difference between the like forlike inflation and ticket growth was attributable to product mix. We expect the average ticket for the fourth quarter to be in the mid 4% range as we begin to lap the inflation ramp from the beginning of fourth quarter of last year.

[00:12:13]For the last quarter, we also saw same store DIY traffic count negative 3.6%. A similar decline to our second quarter where we were down in the mid 3% range.

[00:12:24]Next, I will touch touch on our domestic commercial business. As I mentioned, our commercial sales were up plus 10.4% for the quarter. The first four-week segment grew at 12.7%. The second four-week segment was plus 9.1% and the third four-week segment grew at plus 9.6%.

[00:12:45]We feel very good about how we're performing as we head into Q4. Our commercial sales results continue to be driven by our improved satellite store inventory availability, significant improvements in hub and mega hub coverage, the continued strength of our Duralas brand, and execution on our initiatives to improve speed to customer and delivery services. These initiatives are delivering share gains and give us competence as we move into the summer months.

[00:13:14]Both the year-over-year inflation on a like- forlike same skew basis for our commercial business and our average ticket growth were similar to DIY north of 7% for skew inflation and 6% for ticket average. Our average transaction growth was 2% for the quarter and similar to last quarter. We believe that there are opportunities to grow market share and accelerate transaction growth with both smaller up and down the street customers and national accounts as we are significantly underpenetrated in commercial and we are gaining share.

[00:13:48]Adding a little more color both up and down the street customers and national accounts grew double digits. Now let me take a moment to discuss our international business. across Mexico and Brazil. We now have 1,090 international stores. As I mentioned, our same store sales growth grew plus 1.6 on a con constant currency basis driven by a continued soft macro environment. For Q4, we are expecting same store sales to be in a similar range as Q3. While these economies have slowed, we are continuing to grow share.

[00:14:27]When these economies approve, we expect our sales to reacelerate as we continue to invest in stores and distribution centers. Today, approximately 14% of our total store base is outside of the US, and we expect this number to grow as we continue our international store buildout. We have confidence in our international markets as their returns on capital even with slower sales growth are strong.

[00:14:52]In summary, we have continued to invest capital in driving traffic and sales growth. While there will always be tailwinds and headwinds in any quarter's results, what has been consistent is our focus on driving sustainable long-term results. We continue to focus on flawless execution, improving product assortments in stores and online, and driving efficiency in our supply chain.

[00:15:16]All of these efforts position us well for future growth. We are committed to investing both capex and operating expense to capitalize on these opportunities.

[00:15:26]This year we are investing nearly $1.6 billion in capex to drive our strategic growth priorities and we expect to invest a similar amount next year. The majority of our investments are in accelerated store growth, including hubs and mega hubs, which place more inventory closer to our customers, and are reducing time to serve for both DIY and commercial customers. The performance of our accelerated store investments are better than our original forecasts, which allow us to achieve our return goals sooner. We are laser focused on generating the returns you expect from AutoZone.

[00:16:03]Lastly, we will continue to invest in technology to improve our customer service model and our autozoner's ability to deliver on our promise of wow customer service. This is a great time to invest in our business as we believe industry demand will continue to be strong, but we will continue to manage our investments with an expectation to achieve strong returns on invested capital. Now, I will turn the call over to Jamir Jackson.

[00:16:30]>> Thanks, Phil. And good morning, everyone. Our operating results remained strong for the quarter and were highlighted by solid topline revenue.

[00:16:36]Total sales were $4.8 billion and were up 8.44% versus Q3 of last year. This is the largest increase we've had in over three years and reflects our focus on accelerating growth. Our domestic same store sales grew 4.1% and our international comp was up 1.6% on a constant currency basis. Total company EBIT was up 6.6% 6% and our EB was up our EPS was up 7.7%.

[00:17:03]Excluding our non-cash $20 million LIFO charge in this year's quarter and the $16 million LIFO credit in last year's quarter, EBIT would have grown 11% and our EPS would have grown 12.5%.

[00:17:15]Foreign exchange rates positively impacted our results for the quarter.

[00:17:18]For Mexico, the peso strengthened almost 13% against the US dollar versus last year's Q3, resulting in a $74 million tailwind of sales, a $20 million tailwind to EBIT, and an 83 cents a share benefit to EPS. We continue to be proud of our results as the efforts of the autozoners in our stores and distribution centers have enabled us to continue to grow our business. Let me take a few moments to elaborate on the specifics in our P&L for Q3. And first, I'll give a little more color on sales and our growth initiatives. Starting with our domestic commercial business for the quarter, our domestic DIFFM sales were $1.4 billion, up 10.4%.

[00:17:55]Our domestic commercial sales represented just under 34% of our domestic auto parts sales and 29% of our total company sales. Our average weekly sales per program were $18,500, up 4.5% versus last year. This quarter we opened 46 net new programs. We finished with 6356 total programs. And we have our commercial program in 94% of our domestic stores. Our commercial acceleration initiatives are continuing to deliver strong results as we grow share by winning new business and increasing our share of wallet with existing customers. Megaub stores remain a key component of our current and future commercial growth. We open 14 mega hubs in the quarter and we now have 156 megahub stores. We expect to open approximately 15 megahub locations in the fourth quarter, which will bring our FY totals FY26 totals to 38. As a reminder, our mega hubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the storebox, as well as serve as an expanded assortment source for other stores. The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business. As these larger stores give our customers access to thousands of additional parts across the market, while I mentioned a moment ago that our average commercial weekly sales for program grew four and a half percent, the 156 megahubs continue to drive growth at an even faster clip. We continue to target having approximately 300 mega hubs at full buildout and expect to open at least 40 in FY27. Our customers are excited by our commercial offering as we've deployed more parts in local markets closer to the customer while improving our service levels.

[00:19:38]On the domestic retail side of our business, our DIY comp was up 2.2% for the quarter. Our DIY share has remained strong behind our growth initiatives and we're well positioned for future growth.

[00:19:49]Importantly, the market is experiencing a growing and aging car park and a challenging new and used car sales market for our customers which continues to provide a tailwind for our business.

[00:19:58]These dynamics, ticket growth, growth initiatives, and macro car park tailwinds we believe will continue to drive a resilient DIY business environment for the remainder of FY26.

[00:20:09]Now, I'll say a few words regarding our international business. We continue to be pleased with the progress we're making in our international markets.

[00:20:16]During the quarter, we opened 20 new stores in Mexico to finish with 933 stores and five new stores in Brazil, ending with 157. Our same store sales grew 1.6% 6% on a constant currency basis and 16.6% on an unadjusted basis.

[00:20:31]While sales growth has slowed over the last few quarters in Mexico due to the slower economic growth in the country, we have continued to manage our P&L appropriately in this environment. We're also continuing to grow share and we're well positioned when the economy improves. We remain committed to investing in international expansion and as we accelerate the store opening pace, we're pleased with our results versus our forecast in these markets. As we look ahead, we're bullish on International being an attractive and meaningful contributor to AutoZone's future sales, operating profit, and return on invested capital. Now, let me spend a minute on the rest of the P&L and gross margins.

[00:21:09]For the quarter, our gross margin was 52.2% down 57 basis points versus last year. This quarter, we had a $20 million LIFO charge or a 77 basis point unfavorable LIFO comparison to last year. Excluding the LIFO comparison, gross margins were up 20 basis points versus last year as we offset a significant rate headwind from the mix shift to a faster growing commercial business. As I mentioned, we had a $20 million non-cash LIFO charge in Q3 and a year-to-ate total of $177 million. We're planning a LIFO charge of approximately $30 million for the fourth quarter as we're continuing to experience higher costs that impact our LIFO layers. the 270 mill the $27 million in LIFEL charges that we expect for fiscal 2026 compares to $64 million last year.

[00:21:59]Moving on to operating expenses, our expenses are up 7.6% versus Q3 last year as SGNA as a percentage of sales leveraged 25 basis points driven by strong topline sales growth and solid expense management. On a per store basis, our SGNA was up 3% compared to last quarter's 4% increase. We would expect the SGNA per store and total growth to be in a similar range in the fourth quarter. For Q4, we expect to open approximately 160 stores globally versus 141 last year. And for the full year, we expect to open approximately 365 stores versus 305 new stores open in FY25.

[00:22:38]We remain committed to being disciplined on SDNA growth and will manage expenses in line with sales growth over time.

[00:22:45]Moving to the rest of the P&L, EBIT for the quarter was $924 million, up 6.6% versus the prior year. As I previously mentioned, a non-cash LIFEL charge reduced our EBIT by $20 million.

[00:22:57]Adjusting for the unfavorable LIFO comparison, our EBIT would have been up 11% versus the prior year. Interest expense for the quarter was $110 million, flat with a year ago, as our debt outstanding at the end of the quarter was essentially flat versus a year ago. We're planning interest at $152 million for the fourth quarter of FY26 versus $148 million last year. For the quarter, our tax rate was 21.1% up from last year's third quarter of 19.4%.

[00:23:27]Excluding the benefit from stock option exercises, our tax rate for the quarter was 21.6% versus 22.4% last year. This quarter, the rate benefited approximately $4 million from stock options exercised versus a $23 million benefit last year.

[00:23:44]For Q4, we suggest investors model us at approximately 22% allin.

[00:23:50]Moving to net income in EPS, net income for the quarter was $641 million, up 5.4% versus last year. Our diluted share count of 16.9 million was 2.1% lower than last year's third quarter. The combination of higher net income and lower share count drove earnings per share for the quarter to $38.7 up 7.7% 7.7% versus last year. As a reminder, LIFEL drove our EPS down 91 cents a share. Now, let me spend a moment on our free cash flow. For the third quarter, we generated $455 million in free cash flow versus 423 million in Q3 last year.

[00:24:28]Year-to- date, we've generated $1.1 billion in free cash flow. Going forward, we expect to continue being in an incredibly strong cash flow generator, and we remain committed to returning meaningful amounts of cash to our shareholders. Regarding our balance sheet, our liquidity position remains very strong, and our leverage ratio finished at 2 and a half times EBIT DAR.

[00:24:48]Our inventory per store was up 6% versus Q3 last year, while total inventory increased 10.8% over the same period last year, driven by new stores.

[00:24:57]additional inventory investment to support our growth initiatives and inflation. Net inventory defined as merchandise inventory less accounts payable on a per store basis was a negative $107,000 versus a negative $142,000 last year and negative $105,000 last quarter. As a result, accounts payable as a percentage of inventory finished the quarter at 111.1% versus last year's Q3 of 115.6%.

[00:25:25]Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $586 million of AutoZone stock in the quarter. And at quarter end, we had $800 million remaining under our share buy share buyback authorization. Our ongoing strong earnings, balance sheet, and powerful free cash generation allow us to return a significant amount of cash to our shareholders through our buyback program. We've bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998 while investing in our existing assets and growing our business. We remain committed to this disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders. So to wrap up, we remain committed to 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 continues to work as we remain focused on gaining market share and improving our competitive positioning in a disciplined way. And as we look forward to the remainder of FY26, we're bullish on our growth pro prospects behind a domestic commercial business that is growing share in a meaningful way. We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders.

[00:26:40]Before handing the call back to Phil, I want to remind you that we report revenue comps on a constant currency basis to reflect our operating performance. We generally don't take on transactional risk, so our results primarily reflect the translation impact for reporting purposes.

[00:26:55]As mentioned earlier in the quarter, foreign currency resulted in a tailwind to revenue and EPS. If yesterday's spot rates held for Q4, then we expect an approximate $62 million benefit to revenue, a $19 million benefit to EBIT, and a 78 cents a share benefit to EPS.

[00:27:11]Lastly, in Q4, we expect LIFO to reduce EBIT by approximately $30 million, impact our gross margin rate negatively by 45 basis points, and our EPS by approximately $1.40 a share. And now I'll turn it back to Phil.

[00:27:25]>> Thank you, Jir. To wrap up this morning, I want to stress that we are on track for delivering our objectives for fiscal 2026.

[00:27:34]While we continue to invest in our business, we remain committed to flawless execution and appropriately spending our capital to drive growth and efficiency. We feel we are well positioned to grow both our domestic do-it-yourself SA business as well as our commercial sales. We also feel that our international same store sales on a constant currency basis will improve.

[00:27:56]But we remain cautious for this upcoming fourth quarter as the consumers and our international markets remain under pressure. We also expect to manage our gross margins effectively while growing our operating expenses in line with accelerated store opening assumptions.

[00:28:12]Finally, I want to reiterate that we are putting our capital to work where it will have the biggest impact on sales and profitability. our auto owners, our stores, our supply chain, and we are investing in technology to build a superior customer service experience. We will make sure that the capital we deploy produces strong returns. The stores we have opened over the last 5 years continue to exceed the planned sales and earnings we modeled when these stores were originally approved. The top focus for our fiscal 2026 remains growing share in our domestic commercial business. We do understand that we cannot take things for granted. We must remain laser focused on customer service, execution, and gaining share in every market in which we operate. We are excited about what we can accomplish for the last quarter of the fiscal year, and our AutoZone are committed to delivering on our goals. We believe Autozone's best days are ahead of us. Now, we would like to open the call for questions.

[00:29:10]Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

[00:29:26]We do ask to please limit yourself to two questions. If you have any additional questions, you may re-enter the queue by pressing star one. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

[00:29:53]Your first question for today is from Brett Jordan with Jeff.

[00:29:58]>> Hey, good morning guys.

[00:30:00]>> Morning Brett.

[00:30:00]>> Morning Brett. Could you refresh us on how you see same skew inflation in the second half of 26 and obviously some concerns around supply chain and lubricants? Um are there are there drivers that that might push it up more than expected?

[00:30:15]>> Yeah, it's a it's a great question. We you know, as we mentioned a minute ago, we think uh the inflation rates and ticket average rates will probably be a little more muted than they were in Q3 in that probably 4% range. Um, so we still think that inflation on a same skew basis will continue into Q4. Um, you know, the the issue around lubricants, I know there's a lot of noise out there. Um, you know, we're going to leave that up to the the oil specialists to to really say what that means. We think there's probably going to be some constraints. Um, but we we don't think that it's going to be, you know, that material.

[00:30:52]>> Okay. And then I guess one of your peers seems to be cutting back on national account business a little bit. Is that something that you're seeing, you know, a lot of incremental opportunity in? And could you remind us maybe sort of the profit spread between national accounts and up and down the street?

[00:31:06]>> Yeah, we I mean, we're undershared in commercial in total. That's both in national accounts, what we call up and down the street and many other segments that we uh compete in. The national account business is growing pretty strong for us, as well as the the, you know, up and down the street consumer.

[00:31:22]Um we we like both of those segments and we think we have opportunities to grow share in both of them. Um you know yeah there's a little bit of a spread between the two but both of those are great businesses and we think there's opportunity for us to gain share in both of them. Like I said both of them last quarter grew double digits.

[00:31:40]>> Great. Thank you.

[00:31:45]>> Your next question is from Stephen Zakone with city.

[00:31:51]Great. Good morning. Thanks very much for taking my question. Um, I wanted to drill down on your expectations for fourth quarter source sales. Obviously, there's some weather impact here at the end of the third quarter. So, just help us understand, you know, have you seen an improvement now as we've gotten later into May? And then, um, how do we think about your expectations for the fourth quarter there, specifically on the domestic side?

[00:32:15]>> Yeah, we I mean, there's not a whole lot of change from what we just talked about. We're we generally release our numbers. so soon as our quarter ended.

[00:32:23]Um, you know, I would say that May has been a little bit cooler, but I think we're expecting a normal, if not hotter than normal summer based on the prognostication of all the weather geniuses out there. I don't think that's what we are, but we're expecting a normal summer. And, you know, I'll go back to what we've talked about. We think our initiatives are strong and they're the right initiatives for us. We think our execution is great uh and improving day day in and day out. We opened up a lot of new stores and you know this past quarter we opened up 14 additional mega hubs which which helped us out significantly both on the commercial side and on the DIY side and we're going to open another you know 14 or so mega hubs this next quarter. So I think we're expecting to have a pretty normal um increase in our summer months to volume and that should bode well for us.

[00:33:12]>> Okay, thanks for that detail. The followup I had is just on the gross margin side. Obviously continue to be strong on the core gross margin line.

[00:33:20]How should we expect that to perform in the fourth quarter?

[00:33:24]>> Yeah, I mean you know we've continued to perform very well from a gross margin standpoint. Um you know in this quarter we had um probably 42 basis points of gross margin improvements that offset a commercial mix drag of about 22 basis points. uh and we saw positive, you know, merchandise margins. Uh our shrink's improving, our supply chain, uh productivity is improving. So, um you know, we're expecting to have a a pretty solid fourth quarter as well with similar uh kinds of dynamics. I will say that the growth rates that we're expecting from commercial um relative to DIY will put a little bit more of a mixed drag on. So, we're working very hard to offset as much of that as we can with other margin improvements.

[00:34:09]Okay, thanks for the detail. Hopefully the weather being right about summer.

[00:34:17]>> Your next question for today is from Christopher Horvers with JP Morgan.

[00:34:24]>> Thanks. Thanks. Good morning, guys. So, you know, as you as you as you step back, you had stimulus, you had what was one of the probably the the best winters since since 2014. Uh appreciative that and you had this big inflation numbers as is there anything that you look at underneath the covers to say like there's an impact from energy prices and that's being more of the issue than the near-term weather dynamics. And as you think about the back half of the calendar year, it looks like you're sitting at around a 4% leverage point, what can you do uh to control the expenses to the extent that there is something, you know, more weakness going on on DIY side of the business, especially as you lose those inflation tailwinds.

[00:35:17]>> Yeah, I would say I think you're right to call out that we had a a pretty normal or good winter. You know, as we mentioned, our our results across the company were stronger out west and in the Midwest and the Northeast, which that's kind of an indication, and we see it in the categories. That's an indication that we got the the winter that we would have liked and that has historically been good for us through the summer months in those categories, undercar categories, breaks, etc. Um, we're expecting a a normal, if not hotter than normal, summer. Um, and those all bode pretty well for us.

[00:35:48]Again, I'll go back to what we think we're doing, which is we're opening up really productive new stores, our our our stores that have been in place with the support of Mega Hubs and hubs and our improved performance across both DIY and commercial uh customer service are helping us across the board. We're gaining share on both sides of our business and uh we think that that's going to continue.

[00:36:12]>> Yeah. And I just say on the cost front, I mean, we're continuing to manage the business with uh discipline. So, in addition to growing um very strong on the top line, we're focused on expense management in the middle. Um we continue to invest in our new stores and maintaining high levels of customer service. Uh but we're also continuing to drive productivity initiatives inside the the company. Uh and we expect those dynamics to continue in the fourth quarter and in the back half. So, as the as the you know the comps um move associated with what we see in the market dynamics, we're anticipating that we'll manage our SDNA accordingly.

[00:36:49]>> And then jumping back to the inflation side, you do you do import more than some of your peers uh especially with the private label penetration that you have. Uh one of your peers talked about, you know, some of their vendors talking about increases related to energy prices and in resin. You also have the the steel tariffs. So, are you are you seeing those price pressures now? Why wouldn't the inflation outlook be better in the back half of the calendar year versus maybe what you thought 3 and 6 months ago?

[00:37:22]Yeah, I think the I mean there there could be additional uh costs that are can that are that are coming in on various fronts, but at the end of the day the those tariffs that are on steel and automotive parts have have been in place for quite some time. The inflation ramp that we saw uh started last year in what would be our Q4, which is the time frame that we're entering. So yes, I think some of the costs from tariffs, etc. are still coming in um as as we cycle through that inventory. So there will be some improve or increase in inflation, but it will be slightly muted because we're now lapping some of the higher inflation rates from last year.

[00:38:00]>> Yeah, I would I would characterize it as um you know, this is a pretty fluid situation as it relates to energy and oil uh in particular. It's going to impact suppliers and retailers differently. Um, what I'll say about us is that we're managing the situation with our suppliers and with our customers. And, you know, we expect the environment to continue to be inflationary, the extent to which we'll learn as we move forward. Um, and we'll manage the business accordingly in terms of what we do with pricing and we'll be very transparent about what we're seeing in our tickets.

[00:38:32]>> Understood. Have a great summer.

[00:38:34]>> Thank you.

[00:38:37]>> Your next question is from Brian Nagel with Oenheimimer.

[00:38:43]Hey guys, good morning.

[00:38:45]>> Morning Brian.

[00:38:46]>> So the first question I want to ask um you know as we look at the the ongoing uh the roll out of your your your mega hubs you know I guess so maybe a couple questions within this. I mean one you know we talk about you know the the the latest mega hubs you're opening kind you know the the the incremental performance of those I mean how how are those performing versus you know some of the maybe legacy mehubs and then you know you have other comp you have competitors out there now talking about a similar strategy you know they may even been using similar terms I guess I want to as you're as you're rolling out and you're continuing to expand your mega hub effort you are you seeing any type of competitive headwind there as others are some say emulating the strategy Yeah, I would say that um you know we've got a very uh robust p pipeline for mega hubs. I mean we have over a 100 megahubs currently in the pipeline today. Um we've talked openly about our plan to get to nearly 300 megahubs um near-term.

[00:39:44]Um and quite frankly as our commercial business continues to grow, you know, there's a a a very distinct possibility that we'd even exceed that number. um they're continuing to outperform our expectations. Um you know the combination of the demand for parts in the marketplace uh the customer's desire for us to have those uh parts closer to the customer so that we can provide a better service level uh is really what's fueling our strategy. So while um the competitive dynamics are such that others are are sort of mirroring that strategy um you know we think that uh our strategy is is is being executed appropriately um and it has not been muted or impacted at all by what others are doing in the marketplace.

[00:40:30]>> Frankly those those hub hubs and mega hubs continue to perform year-over-year.

[00:40:35]Um, we really like the productivity of the boat. Those boxes and that inventory and the assets we can put around there to help energize that inventory in those hubs and mega hubs continues to be more productive as we find more and innovative ways to get that product to the customer both DIY and commercial faster and faster.

[00:40:53]>> No, that's very helpful. I appreciate all the follow my follow-up question uh maybe not a totally fair one but you know just looking at the sales performance through the quarter you know in which you called out this you know the slower trend later in the fiscal quarter but it makes all the sense a lot of sense that the weather impacted that as you're looking at the data I mean what gives you confidence that it was indeed cooler weather versus some type of like tailing off if you will on the tax refund benefit >> yeah it's it's pretty clear when you look at the categories you can see it um We, you know, like I said, you know, air conditioning is a great example. It's just been cool in May, significantly cooler than last year, and it's been relatively wet. Um, that will change, and we will expect those categories to respond accordingly. So, if you look at where it where it's been cool and where it's been wet, you can direct you can see a direct correlation to the category comps year-over-year and the trend changes. And again, that we believe that is going to uh going to change pretty rapidly here as we move into the summer months. Um and you know, all all of everything that you look at from the weather prognosticators is going to say that this is going to be a pretty hot summer. Um and that should bode very well for us. And I'd say we're well prepared for it, too. We're in great shape.

[00:42:12]>> Much appreciated. Thank you.

[00:42:16]Your next question for today is from Seth Sigman with Barclays.

[00:42:22]>> Hey guys, good morning. Thanks for taking the question. Um, I wanted to ask about expenses which have come in a little bit lower over the last two quarters versus the elevated plan that you had laid out last I think it was Q4.

[00:42:34]So the question is are you investing at a slower pace or are there just more offsets than you anticipated? I'm just trying to think about whether SGNA will have to reacelerate at some point or we really pass the worst. Thank you.

[00:42:48]>> Yeah, we don't uh anticipate a reaceleration in SGNA. Again, the big driver in the early part of the year was uh lapping the uh loadin of new shores that we had in the back half of last year, which, you know, did put a couple points of pressure on our SGNA growth rates. as we move through the year, we've got a more normalized year-over-year comparison. And now you're seeing us, um, you know, have SGNA and SGNA per store in line with what we've done historically. Um, and the other dynamic I'll say is that, you know, we're continuing to work productivity very hard inside the company like we always have. It's a muscle that, you know, even as we've been growing our business, we've continued to focus on opportunities to drive productivity and efficiencies really across um, all of our functional areas. The teams are doing a really good job. We've got a pretty robust um playbook of of of costs and expense initiatives um and that's helping us manage SDNA um in a meaningful way and have good cost um management as we move forward.

[00:43:45]>> Okay, perfect. Thank you. And then my followup question is on inflation and the expectation that it will moderate in Q4 and into next year. I guess it was asked a couple different ways, but I'm just trying to think about some of the offsets, whether it's transactions or maybe mix accelerating. like how do you think about these drivers? You know, has mix been um a meaningful negative over the last 12 months? How do you see that improving maybe to help offset less inflation? Thank you.

[00:44:13]>> Yeah, we haven't seen I mean, our mix has been relatively stable. Um you know, we kind of look at our mix between what we call discretionary um maintenance and failure. And the maintenance and failure businesses over quite a while have been have been relatively stable as a percent of sales.

[00:44:30]They'll move around a little bit but relatively stable. It's kind of the beauty of this industry is it's pretty inelastic. Most of it's break fix and you've got maintenance that has to be done. Consumers can defer it for some period of time but if they do that then they have a larger failure uh which costs more money. So that that number's been those numbers have been pretty flat. um not a lot of shifts between them and uh we think that's probably going to continue.

[00:44:57]>> Okay, thanks guys.

[00:45:01]>> Your next question is from Michael Lasser with UBS.

[00:45:06]>> Good morning. Thank you so much for taking my question. Now, when we look at your Good morning, Phil. When we look at the performance of AutoZone versus some of the other competitors in the marketplace, we obviously need to take into account that the calendars line up differently, the mix of the businesses line up differently, but simply speaking, when we compare your performance versus some of the others, we had been accustomed to AutoZone significantly outperforming the others.

[00:45:37]and now that spread is a bit more narrow. Is that a signal that some of the lowhanging fruit or the bulk of some of the market share gains that had happened in the wake of expanding parts availability and service are now behind AutoZone or is there an opportunity to accelerate some of those share gains from here and what would drive an acceleration in the share gains?

[00:46:04]We I Great question, Michael. And I think the way we look at it is we have an opportunity to gain share both on the DIY side of our business and on the commercial side of the business. Um, our execution is improved. Our assortments are improving. Our, you know, we're we're literally, as Jir mentioned, we're only about halfway through our hub and mega hub expansion strategy. Um, and those will help us both on the DIY side of the business and the commercial side of the business. Um, and our execution continues to improve and we have strategies that will help our execution improve even more. Uh, we look at things, you know, on the from an execution perspective, our turnover in stores is back down to historic levels, historically low levels. Um, our supply chains are gaining efficiency. uh we're getting um better service service to our commercial customers out of our hubs and our mega hubs and our satellite stores.

[00:47:00]We continue to improve on our delivery times. All of those things point to better execution and we think the opportunity to gain share specifically on the commercial side where we're still, you know, roughly 5% of the market share opportunity that's out there. So, we think we have pretty good opportunities on both sides of the business.

[00:47:18]>> Yeah. I think the the thing that uh I'll really amplify from your comments, Michael, is the fact that, you know, if you look at a lot of our near-end um competitors have a much higher mix on the commercial side of the business. You know, right now our our domestic commercial business is about 34% of our mix. Um which is why we're so focused on growing the the commercial business. It is growing faster. Uh we've got a significant number of opportunities there. Um, and so we've continued to double down on hubs and mega hubs. We've doubled down on assortment. We've doubled down on, you know, on the quality of our Duralas brand, putting a professional sales force in the field.

[00:47:58]Um, it is why it is our our number one um growth priority. So, as you look at, you know, sort of that that performance that you're seeing um you know, amongst the competitive set, that difference in the mix is why we're so focused on what we're focused on from a from a commercial standpoint. And that strategy is working. I mean, Phil mentioned the fact that we're growing double digits with both national counts and up and down the street customers. That is uh meaningful progress for us moving forward and we're pretty excited about what it means for us as we move through the fourth quarter and next year.

[00:48:31]>> Understood. Thank you very much. My my my quick follow-up question is the message that you've been offering for some time now is you're deploying a lot of capital to make this a faster growing topline business which then in turn can drive uh equal to or better uh EPS growth over time. So in light of the last couple of quarters where there's been a weather disruption to the comp that's uh created a little bit of noise, are you still of the view that this can be a faster topline growth story over time? And if there is something that interrupts that, do you have the ability to flex your SGNA? I think there was a mention of that earlier in the conversation to uh cons to sustain the EPS growth under a variety of scenarios for your theme store sales growth. Thank you.

[00:49:26]>> Yeah, I think Michael to that to that point our our SGNA control has been a a strength of this company for a very long period of time. you know, obviously the the SGNA that goes along with a new store opening or something of that nature is is once you start the investment in the store, that's going to materialize, but we've always had the ability to manage our SGNA um you know, payroll expenses related to store to to sales growth and that sort of that sort of thing very very well for a long period of time. And you know, I think as we showed this past quarter, um we we continue to be able to do that. And as we look at, you know, these investments that we're making, as we said, uh in our prepared remarks, the performers that we placed on our stores when we originally approved them are fairly conservative and we're outperforming those performers. The stores are indexing higher than we initially said. Our commercial programs are continuing to perform slightly better than than we would have thought. And we think all of that will help us return or uh produce those returns uh at a faster rate.

[00:50:31]over time.

[00:50:32]>> Very helpful. Thank you so much and good luck.

[00:50:36]>> Thank you, Michael.

[00:50:38]>> Your next question for today is from Simeon Gutman with Morgan Stanley.

[00:50:44]>> Hi, good morning. This is Skyler Tennant on for Simeon Gutman. Thank you for taking our question. So, is it reasonable for us to assume that, you know, with new stores and the maturation curve, a sustainable level of comp growth would be around that 4% plus level into the future?

[00:51:01]Yeah, I think if you look at where we've been historically and you look at what um the new store um load in actually looks like, particularly as we get to 300 new stores domestically, you're going to get a much bigger uh comp waterfall from those new stores than we have historically. So, um you know, in that in that 4% zip code is um where we need to be um or better to uh drive the kind of returns on invested capital. And you know, one of the things that we've we've said and we've been very very clear on is that the combination of the new stores plus the accelerating um commercial business that we have is what has us uh bullish about a faster growing business in the future. And that faster growing business is obviously going to be a higher returning business as well for us.

[00:51:52]>> Great. Thank you. And then zooming in on fiscal year 27, given some of the inflationary trends and that that maturation curve, can we assume comps get to a level closer to 5% by then?

[00:52:04]Thank you.

[00:52:05]>> Obviously, we don't obviously we don't guide um in that in that manner, but um I think qualitative qualitatively what we'll say is that um you know, we're expecting continued progress um in terms of growing our our domestic commercial business. Uh we've got a very resilient DIY business. Uh and at some point we will have uh a snapback or a rebound of our international business. And you should see our business growing faster.

[00:52:32]And you combine that with as as you mentioned a little bit earlier, you combine that with, you know, the fact that we're continuing to to drive um new store growth that's above our historical average and the fact that they're performing better than they have historically. um you know that that that sets us up very nicely for a very strong FY27 and we'll talk a little bit more about that as we get to our fourth quarter call.

[00:52:56]>> Great. Thank you.

[00:53:00]>> Your next question is from Kate McShane with Goldman Sachs.

[00:53:06]>> Hi, good morning. Thanks for taking our questions. Um we wanted to ask about some of the dynamic between um the national account um and up and down the street. could you just remind us uh what the gross margin headwind there is um as you pursue um the national counts versus up and down the street and then second to that within SGNA can you talk about the SGNA investment needed to pursue national counts versus the up and down the street customers uh we just wondered how the return would compare >> so on the on the SGNA front I mean there's really no difference in terms of you know how we manage the SGNA for national accounts versus um up and down the street customers. Um you know we have a very efficient um sales force. We have a very efficient operations team that is you know sort of managing that business within the construct of where we are. So there's not a meaningful difference in terms of where we are on the SDNA front. And then you know from a gross margin standpoint you know what we've said is is that the national account business is always very very competitive. They're our most sophisticated uh customer set out there.

[00:54:15]They have scale that you would um you know expect them to, you know, want to negotiate things like pricing and service levels and we've done that. Uh and still been able to earn very good returns on that on that business. Um so we do like the national account business as Phil said. Uh we like the margin profile associated with a national account business. Um, and the most important point to all of that is that we're underpenetrated. We're underpenetrated with national accounts.

[00:54:44]We're underpenetrated with up and down the street customers. Uh, and this is an opportunity for us to grow our business in a meaningful way.

[00:54:53]>> Thank you.

[00:54:58]>> Your next question for today is from Scott Cherelli with Truist.

[00:55:03]>> Uh, good morning guys.

[00:55:05]I I guess the question is if same Good morning if same skew inflation steps down by call it 250 to 300 basis points um in your fiscal fourth quarter why wouldn't your domestic comp growth slow down by a similar amount like I know you're going to gain share over time but like at least in the near term is that the way people should be thinking about about from a modeling perspective >> I think you got a couple dynamics there we we're lapping the same skew inflation that was caused by tariffs in the fourth quarter of last year. So um but you've also had other inflationary impacts that have um impacted the business at the same time. So the the big reason for the step down isn't that you know there's something dramatically happening different in the market. It's just that you're lapping that that big uh step up that we had in the fourth quarter of last year. I think when we look at the business overall here are the things that we like. We like the fact that our commercial business is growing and it's going to grow not just from ticket, but it's going to grow from transactions.

[00:56:05]Um, we like the progress that we're making with our DIY shares. Um, we've also seen traffic um be down in the in the mid3s over the last couple of quarters or so. Um and it as we continue to gain share and as the the uncertainty associated with um the consumer in some instances um is impacted things like discretionary categories there's an opportunity to go transactions as well.

[00:56:29]So you know I wouldn't have a direct read through says that the lapping of the um of the inflation sort of creators comps there are lots of things that are driving um our comp expectations as we as we move forward. I agree with that and I think to that point I again we continue to gain share and we have really low share on the commercial side of the business and we think all that sets up well for us and we we're working very hard with our initiatives both on the DIY side and the commercial side of the business to continue to gain share um and we think we can overcome that.

[00:57:03]>> That's helpful. And then what what is the comp waterfall contribution today just so we can better understand how the the go forward uh contribution might be.

[00:57:12]Thanks.

[00:57:13]Yeah, I mean we haven't shared it specifically and obviously it it varies based on the mix of of of stores but I mean the very simply you know we get outsized comps um associated with the new stores and as we've accelerated those that new stores going from you for example in the in the domestic side of our business from 150 to 200 plus and you're getting more of a contribution from those those new stores than we have historically. So I think if as as we think about our business going forward, the combination of those new stores and what you naturally get in terms of comp acceleration and the fact that we're growing market share is, you know, what gives us the confidence around comp acceleration as we move forward. And and to be clear, this is, you know, this is the the the real reason for the strategy that we had associated with accelerating the new stores. We saw a share a market share opportunity. Uh we saw an improvement in the unit economics because our commercial business is growing. That's going to ultimately result in in you know um you know faster growing comps for us. We've got a lot of confidence in that strategy and we're executing on it and we're about halfway through to where we said we'd be in um FY28 and the performance has been um exceeding our expectations.

[00:58:33]>> Great. Thanks guys.

[00:58:35]>> Thank you.

[00:58:37]Your next question is from Michael Baker with DA Davidson.

[00:58:43]>> Okay. Thanks. Uh, a couple of follow-ups. Uh, I I guess uh the you said that the uh new store performance is better than expected and I think you said on the commercial side, but uh anything else driving that better um performance in in those stores? talk about please uh the DIY side and also expenses which I think as someone alluded to have been coming in better than expected.

[00:59:07]>> Yeah, I I would say that and I'll let Jir speak on on the new stores too, but u they're performing better on commercial and DIY. When we when we approve a store, we we kind of look at we we set up a performer. We look at both the DIY performance and the and what we expect the commercial performance and we index against both of those. And in total, these stores are performing better on both the DIY side and the commercial side than when those stores were originally approved. Um, and you know that that performant and index takes into account SGNA per store, etc. Uh, so we like the performance. We're pretty conservative in those approvals.

[00:59:44]Um but you know all the initiatives that we have in place around you know like Jir just mentioned a minute ago hub performance mega hub performance um intore productivity initiatives sales initiatives commercial initiatives all help per box performance and we like the initiatives that we have in place and we think they will continue to make us a stronger business in the future.

[01:00:07]>> Got it. Okay, makes sense. And then again, you know, just just to follow up again, it's been asked a couple times, but maybe I'll ask it another way. I think the easy uh, you know, perception here is that as you start to cycle the inflation from last year, comps will slow. But just to be sure, we have the right message. You don't necessarily think comps slow. This is domestic comps I'm talking about. You don't necessarily think domestic comps slow as you lap that inflation because of the comp waterfall and share gains. Uh, is that the right interpretation? Is that the right message? Thanks.

[01:00:40]>> Yes, I think that's right. Um, obviously the the inflation becomes a little more muted, but we think that the initiatives we have in place um will help us overcome a lot of that as we move forward. That's correct.

[01:00:54]>> Thank you for clarifying.

[01:00:56]>> Thank you. And I think we have time for just one more call.

[01:01:00]>> Your next question is from Zack Fedum with Wells Fargo.

[01:01:06]Hey, good morning and thanks for fitting me in. Um, so first, could you talk about the performance of the 3540 new mega hubs today and how this cohort of mega hubs compares to historical openings in terms of per store sales, returns, complift for for nearby stores, etc. >> Yeah, I think two things are driving uh that performance. The first thing that's driving that performance is again we've got uh a much stronger commercial business than we have had historically.

[01:01:37]And um you know as we put those mega hubs in the marketplace you know the the strength of our commercial business um allows those mega hubs to come out of the gate um much hotter than the ones that we put in historically. That's that's uh first and foremost. I think the second thing is how we utilize those mega hubs um where you know we're using those mega hubs to go more direct to our customers than we have in the past as opposed to um having them you know um you know be primarily focused on a fulfillment source for some of the other stores. So the utilization of the mega hubs and the fact that we've got a stronger commercial business are the are the key drivers there. And you know if you just look at the market dynamics that we see today, parts proliferation, aging vehicles, uh propensity for DIMM uh business, um you know, those are all um demand drivers if you will for um you know, adding more parts in the local market. And if we can do that, um with the right assortments and we can um you know, get the parts to the customer faster, then that's a winning formula for us. And you know, we've we've um refilled and rebuilt the pipeline. Um and we're pretty excited about what it means for us in the future.

[01:02:53]>> Yeah. The only thing I'd add to that is we keep we've had these hubs and mega hubs in in place for so long. We've had the ability to iterate on them several times and we keep finding, you know, the biggest asset in there is obviously the inventory and how do we get that inventory faster to a customer, shortening time to serve for both the DIY customer and the commercial customer and also, you know, online with things like next day delivery, etc. We continue to find ways to keep energizing that inventory. And uh we're we're not done with that process. We still think there's opportunities there.

[01:03:24]>> Got it. And then you mentioned share gains and comp waterfall as as future drivers. But if we take your DIY comp minus inflation, it looks like the volumes in that business started to decelerate as same skew inflation ramped up. So, a as you think about the current deferral cycle that we're in as a result of inflation, do do you think it's fair to assume that DIY volumes could improve simply because we're we're lapping that that initial deferral which would start I think in Q4.

[01:04:00]>> Yeah. I mean, that's certainly um a piece of it. I mean, and the way that we see it in in terms of the results is that the transaction counts um did come down um more than they have historically. I mean, we typically have seen sort of low singledigit uh declines in uh transaction counts. Um there's not been very many periods where we've seen those transaction account those transaction counts be down with a three handle um in multiple quarters. So, as we move forward, um there's an opportunity for us to see some improvement in in in transactions and traffic and that will certainly help us from a comp standpoint.

[01:04:39]>> Thanks for the time.

[01:04:44]We have reached the end of the question and answer session and I will now turn Nicole over to Phil Danielle for closing remarks.

[01:04:52]>> Thank you. Before we conclude the call, I want to take a moment to reiterate that we have a great business in a strong industry. We are excited about our growth prospects over the summer months of our fourth quarter, but we will take nothing for granted as we understand our customers have alternatives. We have exciting plans that will help us succeed in the future.

[01:05:11]But I want to stress that this is a marathon and not a sprint. As we remain focused on delivering flawless execution and striving to optimize shareholder value for the future, we are confident that AutoZone will be successful. Thank you for participating.

[01:05:25]>> This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

[01:05:34]>> Thank you.