Q3 2024 Autozone Inc Earnings Call
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Speaker Change: Greetings and welcome to the Alder zones, 2024, Q3 earnings release Conference call.
Operator: Greetings. Welcome to Autozone's 2024 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. The company would like to announce the following forward-looking statement.
At this time all participants are in a listen only mode.
Speaker Change: A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: Please note this conference is being recorded.
Speaker Change: The company would like to announce the following forward looking statement.
Speaker Change: 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 1095 forward looking statements are not guarantees of future performance. Please refer to this morning's press release and the company's most recent annual report on Form 10-K, and other filings with the Securities and Exchange Commission for a discussion of important.
Operator: 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 and the company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission for a discussion of important risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: Risks and uncertainties that could cause actual results to differ materially from expectations forward looking statements speak only as of that they've made and the company undertakes no obligation to update such statements. Today's call will also include certain non-GAAP measures a reconciliation of GAAP to non-GAAP financial measures can be found in our press release.
Operator: Forward-looking statements speak only as of the date made, and the company undertakes no obligation to update them. Today's call will also include certain non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our press release.
Speaker Change: It is now my pleasure to turn the floor over to Phil Danielle Chief Executive Officer with Autozone.
Philip B. Daniele: It is now my pleasure to turn the floor over to Phil Daniele, Chief Executive Officer of Autozone.
Phil Danielle: Good morning, and thank you for joining us today for Autozone 'twenty 'twenty four third quarter conference call with me today are Jim Meer, Jackson, Chief Financial Officer, and Brian Campbell, Vice President Treasurer, Investor Relations and tax rigor.
Philip B. Daniele: Good morning, and thank you for joining us today for AutoZone's 2024 third quarter conference call. With me today are Jamere Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax.
Philip B. Daniele: 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 the slides complementing our comments today, are available on our website, www.autozone.com, under the investor relations link. Please click on the quarterly earnings conference calls to see them.
Phil Danielle: 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 the slides complementing our comments today are available on our website www dot Autozone dot com under the Investor Relations link.
Phil Danielle: Please click on quarterly earnings conference calls to see them.
Philip B. Daniele: As we begin the call, I want to say thank you to our more than 120,000 autozoners across all of our businesses for delivering solid earnings results in the face of a difficult macro environment. With our continued focus on providing what we call wow customer service, our autozoners delivered our total sales increase of 3.5%, and total company same-store sales increased 1.9%. And on a constant currency basis, total company same store sales increased by 0.9%. Also, our operating profit grew 4.9%, while our earnings per share grew 7.5%.
As we begin the call I wanted to say, thank you to our more than 120000 autozone or is across all of our businesses are delivering solid earnings results in the face of a difficult macro environment.
Phil Danielle: With our continued focus on providing what we call Wow customer service, our autozone hers delivered our total sales increase of three 5% total company same store sales up one 9% and on a constant currency basis total company same store sales of 0.9%.
Phil Danielle: Also our operating profit grew four 9%, while our earnings per share grew seven 5%.
Phil Danielle: In spite of our lower than planned sales, we managed our business well and we were able to deliver bottom line results that continue to build on the phenomenal results. We've had over the last several years.
Philip B. Daniele: In spite of our lower-than-planned sales, we managed our business well, and we were able to deliver bottom-line results that continue to build on the phenomenal results we've had over the last several years. Congratulations to our AutoZoners everywhere who helped us achieve this quarter's growth. Your dedication to delivering on our commitment of WOW customer service is always inspiring.
Phil Danielle: Congratulations to our autozone or is everywhere, who helped us achieve this quarters growth.
Phil Danielle: Our dedication to delivering on our commitment of Wow customer service is always inspiring.
Phil Danielle: Before I begin my comments on our third quarter sales as a reminder, the backdrop to this quarter and every third quarter of our fiscal year includes tax refund season.
Philip B. Daniele: Before I begin my comments on our third-quarter sales, as a reminder, the backdrop for this quarter and every third quarter of our fiscal year includes tax refund season, which is roughly a $300 billion influx of cash into our customers. It begins around Valentine's Day and generally lasts four to six weeks.
Phil Danielle: It is roughly a $300 billion influx of cash to our customers it.
Phil Danielle: It begins around Valentine's day, and generated last four to six weeks. These.
Philip B. Daniele: These dollars matter to our customers and meaningfully impact their shopping patterns in our stores. This year, refund dollars ended up slightly higher versus the previous year. However, February refund flows were lower than expected and negatively impacted the first three weeks of the quarter's Domestic Same Store Sales. While the refund flows did catch up later in the later weeks, we felt the delayed refunds were a drag on our sales results through February and early March, similar to what you may have heard from other retailers. Secondly, the weather was unfortunately cooler and wetter than we had expected and planned, especially in the Northeast and Midwest markets.
Phil Danielle: These dollars matter to our customers and meaningfully impacts their shopping patterns and our stores.
Phil Danielle: This year refund dollars ended up slightly versus the previous year. However, fat February refund flows were lower than expected and negatively impacted the first three weeks.
Phil Danielle: Of the quarter's domestic same store sales, while the refund flows did catch up later in the later weeks, we felt the delayed refunds were a drag on our sales results through February and early March similar to what you may have heard from other retailers.
Phil Danielle: Secondly, the weather was unfortunately cooler and wetter than we had expected and planned, especially in the northeast and the Midwest markets as.
Philip B. Daniele: As a result, sales in these markets were noticeably below the remaining markets, with this pattern more pronounced over the last eight weeks of our 12-week quarter. Again, extreme weather, either hot or cold, drives hard part failures and accelerates maintenance over time, thereby driving higher sales. So on balance, we believe this quarter's sales were impacted negatively by the late start to the tax refund season, while the last eight weeks were impacted by cooler weather than we had planned. However, despite these headwinds, we also had many successes.
Phil Danielle: As a result sales in these markets were noticeably below the remaining markets with this pattern more pronounced over the last eight weeks of our 12 week quarter.
Phil Danielle: Again extreme weather, either hot or cold drives hard part failures and accelerates maintenance over time, therefore, thereby driving higher sales.
Phil Danielle: So on balance we believe this quarters sales were impacted negatively by the late start of the tax refund season, while the last eight weeks were impacted by cooler than weather that we had than we had planned.
Phil Danielle: Despite these headwinds we also had many successes.
Philip B. Daniele: We gained share in our retail business, and we believe we will continue to gain share in commercial. We continue to be encouraged by our supply chain initiative. The construction of our two new domestic DCs is on track for Q2 FY25 opening as well as our continued forward deployment of inventory across both our hubs and our mega hubs. We continue to see progress on our initiatives within our domestic commercial business that gives us confidence about accelerated growth.
Phil Danielle: We gained share in our retail business and we believe we continue to gain share in commercial we continue to be encouraged by our supply chain initiatives. The construction of our two new domestic Dcs are on track for Q2, FY 'twenty five opening as well as our continued forward deployment of inventory across both our hubs and our mega hubs.
Phil Danielle: <unk>.
We continue to see progress on our initiatives within our domestic commercial business that give us confidence about accelerating growth.
Philip B. Daniele: While it is prudent for us to remain cautious on our outlook for the remainder of the year, we believe sales will accelerate over time. We are excited about our commercial initiatives that are providing deeper parts coverage, closer to the customer with faster delivery times, improving customer service, and thereby driving sales. For the third quarter, our total company same-store sales were 0.9% on a constant currency basis.
Phil Danielle: Well it is prudent for us to remain cautious on our outlook for the remainder of the year. We believe we believe sales will accelerate over time.
Phil Danielle: We are excited about our commercial initiatives that are providing deeper parts coverage closer to the customer with faster delivery times, improving customer service and thereby driving sales.
Phil Danielle: For the third quarter, our total company same store sales were 0.9% on a constant currency basis.
Philip B. Daniele: As we have mentioned, international has become a more important part of our growth story in this quarter. We delivered another strong quarter, up over 9.3% on a constant currency basis. We continue to be very encouraged with both our short-term and long-term growth prospects internationally.
Phil Danielle: As we have mentioned international has become a more important part of our growth story and this quarter, we delivered another strong quarter up over nine 3% on a constant currency basis.
Phil Danielle: We continue to be very encouraged with both our short term and long term growth prospects, we have internationally and we plan to accelerate new store openings and drive operational improvements in these markets over the next several years.
Philip B. Daniele: And we plan to accelerate new store openings and drive operational improvements in these markets over the next several years. Our domestic same store sales were flat this quarter compared to up 0.3% last quarter and up 1.9% in Q3 of last year. As I mentioned previously, we believe our sales were impacted in the first four weeks of the quarter by the delayed tax refund season and in the last eight weeks by the mild wet weather pattern across much of the US. Domestically, we ran a negative 0.7 comp across the first four weeks, and collectively across the last eight weeks, plus 0.3% COPS.
Phil Danielle: Our domestic same store sales were flat this quarter compared to up <unk>, 3% last quarter.
Phil Danielle: And up one 9% in Q3 of last year as I mentioned previously we believe our sales were impacted in the first four weeks of the quarter by the delayed tax refund season in the last eight weeks by the mild wet weather pattern across much of the U S. Domestically, we ran a negative 0.7 comp across the first four weeks.
Phil Danielle: And collectively across the last eight weeks.
Phil Danielle: Plus 0.3% comp.
Phil Danielle: Our commercial business grew three 3% against last year's Q3 growth of six 3%. Our commercial results were higher in the first eight weeks and relatively consistent to slightly lower the last four weeks.
Philip B. Daniele: Our commercial business grew 3.3% against last year's Q3 growth of 6.3%. Our commercial results were higher in the first eight weeks and relatively consistent, but slightly lower in the last four weeks. The last four weeks' comparison was the most difficult of the quarter.
Phil Danielle: Last four weeks comparison were the most difficult of the quarter.
Philip B. Daniele: The weather impact was more pronounced in the last eight weeks of the quarter, and it was during this time that the regional performance disparities became more apparent. The Northeast and the Midwest underperformed the remainder of the country by close to 200 basis points over the last eight weeks of the quarter. Commercial transaction counts were up and were partially offset by slightly negative ticket growth, which was attributable to similarly negative inflation on a same skew basis. We opened 20 net new commercial programs and now have commercial in 92% of our domestic stores. Domestic commercial sales represented 31% of our domestic auto parts sales for Q3.
Phil Danielle: Weather impact was more pronounced in the last eight weeks of the quarter and it was during this time that the regional performance disparities became more apparent the northeast and the Midwest underperformed the remainder of the country by close to 200 basis points over the last eight weeks of the quarter.
Phil Danielle: Commercial transaction counts were up and were partially offset by slightly negative ticket growth, which was attributable to.
Phil Danielle: Two similarly negative inflation on a same SKU basis.
Phil Danielle: We opened 20 net new commercial programs and now have commercial and 92% of our domestic stores domestic commercial sales represented 31% of our domestic auto part sales for Q3.
Phil Danielle: Despite the choppiness in our commercial sales results. This quarter, we are planning for a stronger growth rate in Q4 behind continued execution of our gross and net growth initiatives.
Philip B. Daniele: Despite the choppiness in our commercial sales results this quarter, we are planning for a stronger growth rate in Q4 behind continued execution of our growth and net growth initiatives, and somewhat easier comparisons. Commercial sales growth continues to be driven by the key initiatives we've been working on over time. Improved satellite store inventory availability, material improvements in hub and mega-hub coverage, the strength of the Duralast brand with an intense focus on high-quality parts and products, and technology enhancements that make us easier to do business with.
Phil Danielle: And somewhat easier comparisons.
Phil Danielle: Commercial sales growth continues to be driven by the key initiatives. We've been working on over time improve satellite store inventory availability material improvements in hub and Mega hub coverage.
Phil Danielle: The strength of the <unk> brand with an intense focus on high quality parts and products and technology enhancements that make us easier to do business with we are encouraged by our recently launched initiatives focused on improving customer service with faster delivery times as we roll these initiatives to the majority of the chain, we are anticipating faster growth.
Philip B. Daniele: We are encouraged by our recently launched initiatives focused on improving customer service with faster delivery times. As we roll these initiatives out to the majority of the chain, we are anticipating faster growth and accelerated share gains. Regarding domestic DIY, we had a negative 1% comp this quarter versus last year's comp of 0.6%. DIY ran negative 2% across the first four weeks of the quarter. Negative 0.1% for the second four-week segment and negative 0.1% comp over the last four weeks. Regionally, the Northeast and the Midwestern markets underperformed the remainder of the country by approximately 100 basis points over the last eight weeks of the quarter, similar to our commercial. Heading into the fourth quarter, we feel weather should be less volatile, and we are planning accordingly.
Phil Danielle: And accelerated share gains.
Phil Danielle: Regarding domestic DIY, we had a negative 1% comp this quarter versus last year's comp of.
Phil Danielle: 0.6%.
Phil Danielle: D I Y ran negative 2% across the first four weeks of the quarter.
Phil Danielle: Positive, 0.1% the second four weeks segment.
And negative 0.1% comp over the last four weeks.
Phil Danielle: Regionally the northeast in the Midwestern markets underperformed the remainder of the country by approximately 100 basis points over the last eight weeks of the quarter similar to our commercial business heading into the fourth quarter, we feel whether it should be less volatile and we are planning accordingly.
Regarding our merchandize categories in the DIY business, our sales floor categories, and particularly discretionary categories underperformed hard parts.
Philip B. Daniele: Regarding our merchandise categories in the DIY business, our sales floor categories, and particularly discretionary categories, underperformed hard parts. We also saw several seasonal merchandise categories and weather-sensitive hard part categories being off our planned results due to the cooler than expected weather. Regarding this quarter's traffic versus ticket growth, our DIY traffic was down approximately 2%, while our ticket average was up only 1%.
Phil Danielle: We also saw several seasonal merchandize categories and weather sensitive hard part categories being off our planned results due to the cooler than expected weather.
Phil Danielle: Regarding this quarter's traffic versus ticket growth, our DIY traffic was down approximately 2%, while our ticket average was up only 1%.
Philip B. Daniele: We expect average ticket growth to return to more normal levels in the 2-4% range as we get further removed from the higher inflation from the last couple of years. We attribute our previously mentioned DIY share gains to improve customer service levels in our stores and are in stock nearing pre-pandemic levels, driven by most of our vendor partners returning to more normalized operations, meaning recovering from the pandemic sales surge and supply chain disruption.
Phil Danielle: We expect our average ticket growth will return to more normalized levels in the 2% to 4% range as we get further removed from the higher inflation from the last couple of years we.
Phil Danielle: We attribute we attribute our previously mentioned DIY share gains to improve customer service levels in our stores.
And our in stock nearing pre pandemic levels, driven by most of our vendor partners returning to more normalized operations, meaning recovering from the pandemic sales surge and supply chain disruptions.
Philip B. Daniele: As we look forward, we are continuing to focus on flawless execution and delivering wow customer service will drive our accelerated sales growth in our domestic business. Before handing the call to Jamere, I'd like to highlight and give some color on our international business. At 872 stores open internationally, or 12% of our store base, this business had another impressive performance last quarter and should continue to grow at a robust pace for the remainder of fiscal year 2024 and beyond.
Phil Danielle: As we look forward, we are continuing to focus on flawless execution and delivering while customer service will drive our accelerated sales growth in our domestic business.
Before handing the call to Jim Meer, I'd like to highlight and give some color on our international business at.
Unknown Attendee: At 872 stores opened internationally or 12% of our store base.
Unknown Attendee: This business had yet again impressive performance last quarter and should continue to grow.
Unknown Attendee: At a robust pace for the remainder of fiscal year 2024, and beyond we are leveraging many of the learnings we have in the U S to refine our offerings and our international markets.
Philip B. Daniele: We are leveraging many of the learnings we have in the U.S. to refine our offerings in our international market, and before Jamere discusses our financial results, I'd like to remind you of our key objectives for fiscal year 2024.
Unknown Attendee: And before too.
Speaker Change: Sameer discusses our financial results I'd like to remind you of our key objectives for fiscal year 2024.
Philip B. Daniele: We are focused on growing our domestic commercial business, and we believe our improved customer service levels will lead to continued sales growth. We are also focused on our supply chain with two initiatives that are in flight to drive improved availability. First, is our expanded hub and mega-hub rollouts. And secondly, we are making good progress on adding capacity to our distribution network. We have two distribution centers that are nearing completion in the U.S. One in Chowchilla, California, and the other in New Kent, Virginia.
Speaker Change: We are focused on growing our domestic commercial business and we believe our improved customer service levels will lead to continued sales growth.
Speaker Change: We are also focused on our supply chain with two initiatives that are in flight to drive improved availability versus our expanded hub and Mega hub Rollouts and secondly, we are making good progress on adding capacity to our distribution network.
Speaker Change: We had two distribution centers that are nearing completion in the U S. One in Chowchilla, California, and the other in New Kent, Virginia.
Philip B. Daniele: We are also very close to completing the expansion of our Tepehe, Mexico, D.C. facility. And last quarter, we broke ground on a larger facility that will house our relocated Monterey, Mexico, D.C. facility. Our strategy is focused on leveraging the entire network to carry more inventory closer to the customer, driving sales growth with improved speed, expanded parts availability, and improved efficiency. These capacity expansions will underpin our future growth. Now, I'd like to turn the call over to Jamere Jackson.
Speaker Change: We are also very close to completing the expansion of our to pay a Mexico D C and last quarter, we broke ground on a larger facility that will house, our relocated Monterey Mexico D C.
Speaker Change: Our strategy is focused on leveraging the entire network to carry more inventory closer to the customer driving sales growth with improved speed expanded parts availability and improved efficiencies.
Speaker Change: These capacity expansions expansions will underpin our future growth.
Speaker Change: Now I'd like to turn the call over to Jim Meer Jackson.
Jamere Jackson: Thanks Phil, and good morning everyone. As Phil has previously discussed, we had a solid third quarter with 3.5% total company sales growth, flat domestic comp growth, a 9.3% international comp on a constant currency basis, a 4.9% increase in EBIT, and a 7.5% increase in EPS. We continue to deliver solid results, and the efforts of our Autozoners in our stores and distribution centers continue to enable us to drive earnings growth in a meaningful way. To start this morning, let me take a few moments to elaborate on the specifics in our P&L for Q3. For the quarter, total sales were $4.2 billion, up 3.5%.
Speaker Change: Thanks, Phil and good morning, everyone as Phil as previously discussed we had a solid third quarter with three 5% total company sales growth flat domestic comp growth of nine 3% international comp on a constant currency basis, a four 9% increase in EBIT and a seven 5% increase in EPS, we continue to deliver.
Speaker Change: Solid results and the efforts of our autozone or in our stores and distribution centers continue to enable us to drive earnings growth in a meaningful way.
Jamere Jackson: And let me give a little more color on sales and our growth in this. Starting with our domestic commercial business, our domestic DIFM sales increased 3.3% to just under $1.2 billion, and we're up 9.6% on a two-year stack base. Sales to our domestic DIFM customers represented 31% of our domestic auto parts sales. Our average weekly sales per program were $16,400, down 2.4% versus last year's $16,800.
Speaker Change: Start this morning, let me take a few moments to elaborate on the specifics in our P&L for Q3.
Speaker Change: For the quarter total sales were $4 2 billion up three 5% and let me give a little more color on sales and our growth initiatives, starting with our domestic commercial business. Our domestic <unk> sales increased three 3% to just under $1 2 billion.
Speaker Change: And we're up nine 6% on a two year stack basis sales to our domestic difm's customers represented 31% of our domestic auto part sales are.
Speaker Change: Our average weekly sales per program were $16400 down to 4% versus last year's $16800.
Jamere Jackson: Now, as a reminder, we have added over 300 new programs over the last 12 months, and these new programs are diluting the overall sales per program. We are, however, extremely pleased that these programs are maturing significantly faster than our historical performance and position us well for the future. We now have our commercial program in approximately 92 percent of our domestic stores, which leverages our DIY infrastructure, and we're building our business with national, regional, and local accounts. This quarter, we opened 20 net new programs, finishing with 5,843 total programs.
Speaker Change: As a reminder, we have added over 300, new programs over the last 12 months in these new programs are diluting. The overall sales per program. We are however, extremely pleased that these programs are maturing significantly faster than our historical performance and position us well for the future. We now have our commercial program in approximately 92.
Speaker Change: Percent of our domestic stores, which deleverages, our DIY infrastructure and we're building our business with national regional and local accounts. This quarter. We opened 20 net new programs, finishing with 5843 total programs our commercial acceleration initiatives continue to make progress as we grow share by winning new business.
Jamere Jackson: Our commercial acceleration initiatives continue to make progress as we grow share by winning new business and look to gain share of wallet with existing customers. Importantly, we have a lot of opportunity in front of us, and we will continue to aggressively pursue growth in the highly fragmented commercial market, which we believe is our single largest growth opportunity. To support our commercial growth, we now have 103 mega-hub locations, with two net new mega-hubs opening in Q3.
Speaker Change: And look to gain share of wallet with existing customers and importantly, we have a lot of opportunity in front of us and we will continue to aggressively pursue growth in the highly fragmented commercial market, which we believe is our single largest growth opportunity.
Speaker Change: To support our commercial growth, we now have 103 Mega hub locations with two net new Mega hubs opened in Q3.
Jamere Jackson: Our mega-hubs continue to average significantly higher sales than the balance of the commercial program and grew more than three times the rate of our overall commercial business in Q3. Our mega hubs typically carry roughly 100,000 SKUs, drive tremendous sales lift inside the store box, and serve as an expanded fulfillment source for other stores. These assets are performing well individually, and the fulfillment capability for the surrounding Autozone stores is giving our customers access to tens of thousands of additional parts and lifting the entire network. We will continue to aggressively open mega hubs for the foreseeable future, and we expect to open well north of 200 mega hubs at full build out.
Speaker Change: Our Mega hubs continue to average significantly higher sales in the balance of the commercial programs and grew more than three times the rate of our overall commercial business in Q3.
Speaker Change: Our mega hubs typically carry roughly 100000 Skus drive tremendous sales lift inside the store box and serve as an expanded fulfillment source for other stores.
Speaker Change: These assets are performing well individually and the fulfillment capability for the surrounding Autozone stores is giving our customers access to tens of thousands of additional parts and lifting the entire network.
Speaker Change: We will continue to aggressively open mega hubs for the foreseeable future, we expect to open well north of 200 Mega hubs at full build out.
Jamere Jackson: These assets are key to our growth plan. On the domestic retail side of our business, our comp was down 1% for the quarter. As Phil mentioned, we saw traffic down approximately 2%, offset by approximately 1% ticket growth.
Speaker Change: These assets are key to our growth plans.
Speaker Change: On the domestic retail side of our business our comp was down 1% for the quarter as Phil mentioned, we saw traffic down approximately 2% offset by approximately 1% ticket growth.
Jamere Jackson: Over time, we would expect to see slightly declining transaction counts, offset by low to mid single-digit ticket growth, in line with the long-term historical trends for the business driven by changes in technology and the durability of new parts. While DIY discretionary purchases were challenging in Q3, we continue to see a growing and aging car park, miles driven back to pre-pandemic levels, a challenging new and used car sales market, and a consumer that is likely to continue to invest in their existing vehicles. As such, we believe our DIY business will remain strong.
Speaker Change: Over time, we would expect to see slightly declining transaction counts offset by low to mid single digit ticket growth in line with our long term historical trends for the business driven by changes in technology and the durability of new parts.
Speaker Change: While DIY discretionary purchases were challenged in Q3, we continue to see a growing and aging car park miles driven back to pre pandemic levels, a challenging new and used car sales market and a consumer that is likely to continue to invest in their existing vehicles as such we believe our DIY business will remain resilient.
Speaker Change: Now I'll say, a few words regarding our international business. We continue to be pleased with the progress. We're making internationally are same store sales grew an impressive 18, 1% on an actual basis and nine 3% on a constant currency basis.
Jamere Jackson: Now I'll say a few words regarding our international business. We continue to be pleased with the progress we're making internationally. Our same store sales grew an impressive 18.1% on an actual basis and 9.3% on a constant currency basis. During the quarter, we opened 12 stores in Mexico to finish with 763 stores, and one store in Brazil to finish with 109.
Speaker Change: During the quarter, we opened 12 stores in Mexico to finished with 763 stores and one store in Brazil, ending with 109, we remain committed to international and given our success, we're bullish on international being an attractive and meaningful contributor to autozone future growth.
Jamere Jackson: We remain committed to international, and given our success, we're bullish on international being an attractive and meaningful contributor to Autozone's future growth. Now, let me spend a few moments on the rest of the P&L and gross margins. For the quarter, our gross margin was 53.5%, up 102 basis points, driven by a significant improvement in our core business gross margins and 15 basis points from a non-cash $24 million LIFO credit in this quarter versus a $17 million LIFO credit in Q3 of last year.
Speaker Change: Now, let me spend a few moments on the rest of the P&L and gross margins for the quarter. Our gross margin was 53, 5% up 102 basis points driven by a significant improvement in our core business gross margins of 15 basis points from a noncash $24 million LIFO credit in this quarter versus a $17 million LIFO.
Jamere Jackson: Excluding LIFO from both years, we had a very strong 87 basis point improvement in gross margin. Our merchandising and supply chain teams have done an exceptional job of driving gross margin improvement this year. I will point out that we now have 19 million in cumulative LIFO charges yet to be reversed through our P&L, and we expect this credit balance to reverse over the next couple of quarters. We're currently modeling approximately $10 million in LIFO credits for Q4 based on the deflation experience this past year.
Speaker Change: Credit in Q3 of last year, excluding LIFO from both years, we had a very strong 87 basis point improvement in gross margin, our merchandising and supply chain teams have done an exceptional job of driving gross margin improvement this year.
Speaker Change: I will point out that we now have $19 million in cumulative LIFO charges, yet to be reversed through our P&L and we expect this credit balance to reverse over the next couple of quarters.
Speaker Change: We're currently modeling approximately $10 million and LIFO credits for Q4 based on the deflation experience this past year.
Jamere Jackson: Now this compares to the $30 million LIFO credit we had in Q4 last year, which means we would have a $20 million net headwind from LIFO and gross profit. As I've said previously, once we recover the $19 million through the P&L, we will not take any more credits, and we will begin to rebuild an unrecorded life or reserve.
Speaker Change: This compares to $30 million LIFO credit we had in Q4 last year, which means we would have a $20 million net headwind from LIFO and gross profit.
Speaker Change: As I've said previously once we credit back the $19 million through the P&L, we will not take any more credits and we will begin to rebuild a non recorded LIFO reserve.
Jamere Jackson: Moving to operating expenses, our expenses were up 6% versus last year's Q3 as SG&A as a percentage of sales deleveraged 76 cents. On the same store basis, SG&A grew 3.3% as we continue to invest in initiatives that drive speed, productivity, and improve customer service. We're committed to being disciplined on SG&A growth as we move forward, and we will manage expenses in line with sales growth over time. Moving to the rest of the P&L, EBIT for the quarter was $900 million, up 4.9% versus the prior year, driven by our positive same store sales growth and gross margin improvement.
Speaker Change: Moving to operating expenses, our expenses were up 6% versus last year's Q3 as SG&A as a percentage of sales de leveraged 76 basis points on a same store basis SG&A grew three 3% as we continue to invest in initiatives to drive speed productivity and improve customer service. We are committed to being disciplined on SG&A growth is.
Speaker Change: We move forward and we will manage expenses in line with sales growth over time.
Speaker Change: Moving to the rest of the P&L EBIT for the quarter was $900 million up four 9% versus the prior year driven by our positive same store sales growth and gross margin improvements.
Jamere Jackson: Interest expense for the quarter was $104 million, up 41% from Q3 a year ago, as our debt outstanding at the end of the quarter was $9 billion versus $7.3 billion in Q3 last year. We're planning interest in the $148 million range for the fourth quarter versus $109 million last year. Higher debt levels and borrowing rates across the curve are driving this increase, along with the extra week that we will have in this year's fourth quarter. For the quarter, our tax rate was 18.1%, up from last year's third quarter of 17.4%. This quarter's rate benefited 479 basis points from stock options exercises, while last year it benefited 595 basis points.
Speaker Change: Interest expense for the quarter was $104 million up 41% from Q3, a year ago as our debt outstanding at the end of the quarter was $9 billion versus $7 $3 billion in Q3 last year.
Speaker Change: We are planning interest in the $148 million range for the fourth quarter versus $109 million last year.
Speaker Change: Higher debt levels and borrowing rates across the curve are driving this increase along with the extra week that we will have in this year's fourth quarter.
Speaker Change: For the quarter, our tax rate was 18, 1% and up from last year's third quarter of 17, 4%. This quarter's rate benefited 479 basis points from stock options exercised while last year had benefited 595 basis points.
Jamere Jackson: For the fourth quarter, we suggest investors model us at approximately 23.2% before any assumptions on credits due to stock option exercise. Moving in net income and EPS, net income for the quarter was $652 million, 0.6% versus last year. Our diluted share count of 17.8 million was 6.4% lower than last year's third quarter. The combination of slightly higher net income and lower share count drove earnings per share for the quarter to $36.69, up 7.5% for the quarter. Now, let me talk about our free cash flow. For the third quarter, we generated $434 million in free cash flow.
Speaker Change: For the fourth quarter, we suggest investors model us at approximately 23, 2% before any assumptions on credits due to stock option exercises.
Speaker Change: Moving to net income and EPS net income for the quarter was $652 million of 0.6% versus last year, our diluted share count of $17 8 million was six 4% lower than last year's third quarter. The combination of slightly higher net income and lower share count drove earnings per share for the quarter to $36 69.
Speaker Change: <unk> up seven.
Speaker Change: Seven 5% for the quarter.
Speaker Change: Now, let me talk about our free cash flow for the third quarter, we generated $434 million in free cash flow we.
Jamere Jackson: We had higher CapEx spending this quarter versus a year ago, and we expect to spend close to $1.1 billion in CapEx this fiscal year as we complete the addition of our distribution center capacity expansion ahead of schedule. I will also remind you that we generate a majority of our free cash flow in the back half of each of our fiscal years. We expect to continue being an incredibly strong cash flow generator going forward, and we remain committed to returning meaningful amounts of cash to our shareholders.
Speaker Change: We had higher capex spending this quarter versus a year ago, and we expect to spend close to $1 1 billion and Capex. This fiscal year as we complete. The addition of our distribution center capacity expansion ahead of schedule.
Speaker Change: Also remind you that we generate a majority of our free cash flow in the back half of each of our fiscal years, we expect to continue being an incredibly strong cash flow generator going forward and we remain committed to returning meaningful amounts of cash to our shareholders.
Jamere Jackson: Regarding our balance sheet, our liquidity position remains very strong, and our leverage ratio finished Q3 at 2.5 times EBITDAR. Our inventory was up 7.9%, driven by a combination of inventory for store growth to support our growth initiatives, improvements in in-stock levels, along with new store growth. Net inventory, defined as merchandise inventories less accounts payable on a per store basis, was $168,000 negative versus $215,000 negative last year and $164,000 negative last quarter. As a result, accounts payable as a percent of inventory finished the quarter at 119.7% versus last year's 126.5%.
Speaker Change: Regarding our balance sheet, our liquidity position remains very strong and our leverage ratio finished Q3 at two five times EBITDAR.
Speaker Change: Our inventory was up seven 9% driven by a combination of inventory per store growth to support our growth initiatives improvements in in stock levels, along with new store growth net inventory defined as merchandise inventories less accounts payable on a per store basis was $168000 negative versus 201.
Speaker Change: <unk> thousand dollars negative last year and negative $164000 negative last quarter.
Speaker Change: As a result accounts payable as a percent of inventory finished the quarter at 119, 7% versus last year's 126, 5%.
Speaker Change: Lastly, I'll spend a moment on capital allocation and our share repurchase program, we repurchased $735 million of Autozone stock in the quarter and at quarter end, we had $1 $4 billion remaining under our share buyback authorization, we have bought back over 100% of the outstanding shares of stock since our buyback conception to 1990.
Jamere Jackson: Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $735 million of Autozone stock in the quarter, and at quarter end, we had $1.4 billion remaining under our share buyback authorization. We have bought back over 100% of the then outstanding shares of stock since our buyback conception in 1998 while investing in our existing assets and growing our business. We remain committed to a leverage target of two-and-a-half times and a disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders.
Speaker Change: Eight while investing in our existing assets and growing our business.
Speaker Change: We remain committed to our leverage target of two five times and a disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders.
Jamere Jackson: So to wrap up, we remain committed to driving long-term shareholder value by investing in our growth initiatives, driving robust earnings and free cash flow, and returning excess cash to our shareholders. We're growing our market share, expanding our margins, and improving our competitive positioning in a disciplined way. As we look forward to Q4, we remain bullish on our initiatives to grow sales behind a steady DIY business, a fast-growing international business, and a domestic commercial business that remains underpenetrated. I continue to have tremendous confidence in our strategy and our ability to drive significant and ongoing value for our shareholders. With that, I'll turn it back to Philip.
Speaker Change: To wrap up we remain committed to driving long term shareholder value by investing in our growth initiatives driving robust earnings and free cash flow and returning excess cash to our shareholders. We're growing our market share expanding our margins and improving our competitive positioning in a disciplined way.
Speaker Change: And as we look forward to Q4, we remain bullish on our initiatives to grow sales behind our steady DIY business, a fast growing international business and the domestic commercial business that remains underpenetrated I continue to have tremendous confidence in our strategy and our ability to drive significant and ongoing value for our shareholders and with that I'll turn it back to Phil.
Unknown Attendee: Thank you Jim here, we are proud of the results. Our team delivered this last quarter, we remain on track to deliver a solid 2024, but we must continue to focus on superior customer service and flawless execution.
Philip B. Daniele: We are proud of the results our team delivered this last quarter. We remain on track to deliver a solid 2024, but we must continue to focus on superior customer service and flawless execution. Execution, and our culture of always putting the customer first, define us. We are well positioned to grow sales across our domestic and international store bases with both our retail and commercial customers. Our gross margins are solid, and our operating expense structure is appropriate for future growth.
Philip B. Daniele: Execution, and our culture of always putting customer first are what defines us.
Philip B. Daniele: We are well positioned to grow sales across our domestic and international store basis with both our retail and commercial customers. Our gross margins are solid and our operating expense structure is appropriate for future growth, we are putting our capital investments where they matter most our stores distribution centers and <unk>.
Philip B. Daniele: We are putting our capital investments where they matter most, our stores and distribution centers, and leveraging technology to build a superior customer service experience where we are able to say yes to our customers' needs. Fiscal 2024's top priority has been enhanced execution.
Philip B. Daniele: Emerging technology to build a superior customer service experience, where we were able to say, yes to our customers' needs.
Philip B. Daniele: Fiscal 2020 for his top priority has been enhanced execution, we are making good progress. Additionally, we have many strategic projects in various stages of completion.
Philip B. Daniele: We are making good progress. Additionally, we have many strategic projects in varying stages of completion. We will continue opening new mega hubs and hubs, completing construction on our new distribution centers and optimizing our new direct import facility. We are also in the early stages of ramping up our domestic and international store growth. As discussed, our international teams posted same store sales comps on a constant currency basis of plus 9.3%, continuing several years of strong growth.
Philip B. Daniele: We will continue opening new mega hubs and hubs.
Philip B. Daniele: Completing construction on our new distribution centers and optimizing optimizing our new direct import facility.
Philip B. Daniele: We are also in the early stages of ramping up our domestic and international store growth as discussed our international teams posted same store sales comps on a constant currency basis of plus nine 3% continuing several years of strong growth.
Philip B. Daniele: While I mention all these investments in FY24, Autozone's biggest opportunity remains growing its share in our domestic commercial business. We continue to believe we have a solid plan in place for growth for the foreseeable future. We know our focus on parts availability and wow customer service will lead to additional sales growth. We are excited about what we can accomplish, and our Autozoners are committed to delivering the results. Now I'd like to open up the call for questions.
Philip B. Daniele: While I mentioned all of these investments in FY 'twenty for Autozone is biggest opportunity remains growing share and our domestic commercial business. We continue to believe we have a solid plan in place for growth for the foreseeable future.
Philip B. Daniele: We know our focus on parts availability and Wow customer service will lead to additional sales growth. We are excited about what we can accomplish in our auto centers are committed to delivering the results.
Speaker Change: Now I'd like to open up the call for questions.
Speaker Change: 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.
Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: 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.
Operator: We do ask that you limit yourself to two questions. If you have any additional questions, you may re-enter the queue by pressing star one. One moment, please, while we poll for questions. Your first question for today is from Bret Jordan with Jeffreys. Hey, good morning, guys. Morning Bret. Morning Bret. Could you talk a little bit about
Speaker Change: We do ask to please limit yourselves to two questions. If you have any additional questions. You may re enter the queue by pressing star one.
One moment, please while we poll for questions.
Speaker Change: Your first question for today is from Bret Jordan with Jefferies.
Speaker Change: Hey, good morning, guys. Good morning, Brian morning, Bret.
Bret David Jordan: Could you talk a little bit about the cadence.
Speaker Change: Commented at the end of the quarter in the commercial business ended a bit soft there and obviously very early in Q4, but could you give us any color sort of has we've trended sequentially into the fourth.
Speaker Change: Yes the.
Philip B. Daniele: Yeah, the commercial business, like we said, has been choppy. You know, the last four weeks were the more difficult compares for the quarter. And, you know, as we said several times, I hate being the weatherman, but this particular spring has been challenging for us from a, you know, a wet and cooler season. And, you know, typically, in the latter half of the quarter, we start seeing some improved performance around, you know, the hot weather categories like AC chemicals and AC hard parts and battery sales, etc. And we just didn't manage that through the last several weeks of the quarter.
Speaker Change: The commercial business like we said it's been choppy.
Speaker Change: Last four weeks, where the more difficult compares for the quarter and.
Speaker Change: As we've said several times I hate being the weather man, but this this particular spring has been challenging for us from a.
Speaker Change: A wet and cooler season, and typically in the latter half of the quarter. We start seeing some improved performance around the hot weather categories like AC chemicals in AC hard parts and.
Speaker Change: Battery sales et cetera, and we just didn't get that through the last several weeks of the quarter.
Speaker Change: Okay, and then I guess on a calendar year basis could you maybe give us some color where you're seeing inflation.
Philip B. Daniele: Okay, and then I guess on a calendar year basis, could you maybe give us some color where you see inflation, you know, in pricing for your mix? is the compares idea, Yeah. Yeah. On the on the inflation front, you know, that that has definitely been challenging as we've come off several years of, you know, hyper inflation, if you will, at our average unit retail on both the DIY side and the commercial side, frankly, I suspect, you know, the average unit retail, same skew inflation would get back to more normal growth levels, as we move further and further away from the the inflation that we had over the previous years, those inflation numbers start to come back, you know, as we get in the later quarters of the calendar year, and I suspect they'll return to more normalized levels over time.
Speaker Change: In pricing for your mix.
Speaker Change: That compares I guess.
Yeah.
Speaker Change: On the on the inflation front.
Speaker Change: That has definitely been challenging as we've come off several years of.
Speaker Change: Hyperinflation, if you will.
Speaker Change: At our average unit retail on both the DIY side and the commercial side frankly.
Speaker Change: I suspect that the average unit retail same SKU inflation would get back to more normal growth levels as we move further and further away from the inflation that we had over the previous years those inflation number start to come back.
Speaker Change: We get in the later quarters of the calendar year and I suspect they will return to more normalized levels over time.
Speaker Change: Great. Thank you.
Brett: Thank you Brett.
Speaker Change: Your next question is from Chris <unk> with J P. Morgan.
Operator: Your next question is from Chris Horvers with J.P. Morgan.
Speaker Change: Hi, Good morning, It's Christian Carlino on for Chris first question on gross margin.
Operator: Hi, good morning. It's Christian Carlino on for Chris.
Jamere Jackson: First question on gross margin, you know, supply chain crisis aside, you've grown the commercial business pretty considerably over the past couple of years. So could you speak to, I guess, the degree of vendor rebates you've yet to receive and how long you should benefit from this catch-up period for all the growth that you've had since prior to the pandemic?
Speaker Change: <unk> crisis, aside you've grown the commercial business pretty considerably over the past couple of years. So could you just speak to I guess the degree of vendor rebates you have yet to receive them and how long you you should benefit from this catch up period for all of the growth that you've had some private spending.
Speaker Change: Well certainly our gross margins as it relates to our relationship with vendors has an opportunity to improve as Phil mentioned previously we are coming off a period of significant hyperinflation, particularly in areas like flights freight.
Jamere Jackson: Well, certainly, our gross margins as it relates to our relationship with vendors have an opportunity to improve. As Phil mentioned previously, we are coming off a period of significant hyperinflation, particularly in areas like freight. You know, quite frankly, we saw snarls across the majority of the supply chain. It impacted them from the standpoint of having higher labor costs and higher input costs in total. So we're starting to see that abate, and that's given us an opportunity to go and negotiate for some deflation as we move forward. But we're still in the early innings there. And I wouldn't say that all of the inflationary pressures have abated, but we're certainly in a much better position today than we were a year ago.
Quite frankly, we saw snarls across the majority of the supply chain and an impact of them from the from the standpoint of having higher labor costs are higher input costs in total so we're starting to see that abate and that's given us an opportunity to.
Speaker Change: Go and negotiate for some deflation as we move forward, we're still in early innings, there and.
And I wouldn't say that all of the inflationary pressures have abated, but we're certainly in a much better position today than we were a year ago.
Speaker Change: Got it that's helpful. And then now that you're starting to lap some of the earlier signs of maintenance deferral. It at some of the tire centers and are you starting to see trends improve with that cohort of customers and just broadly can you speak to the performance at like the national accounts entire centers. The buy here pay your dealers and then the up and down the Street mechanics.
Philip B. Daniele: Got it. That's helpful. And now that you're starting to see some of the earlier signs of maintenance deferral at some of the tire centers, are you starting to see trends improve with that cohort of customers? And just broadly, can you speak to the performance of like the national accounts, the tire centers, the buy here, pay here dealers, and then the up and down the street mechanics?
Philip B. Daniele: I would say if you kind of broke apart those segments that you just talked about, probably the most challenged group of customers are customers that are, you know, driving their repair revenue from tires. Tires have definitely been a pressure point. I think that the downward trend on tires is probably flattened out a little bit. But I still think that the tire segment, in particular, is under some pressure and has been for quite a while.
Speaker Change: I would say if you kind of broke apart those segments that you just talked about probably the most challenged group of customers or customers that are.
Speaker Change: Drive there.
Speaker Change: Repair revenue from tires tires have definitely been a price pressure point.
Speaker Change: I think that that downward trend on tires is probably flattened out a little bit.
Speaker Change: But I still think the <unk>.
Higher segment in particular is under some pressure and has been for quite a while.
Speaker Change: On your other segment of customers that buy here pay here laden used car centers.
Philip B. Daniele: I you know, on your other segment of customers that buy here pay here a lot and use car centers, those have been more challenged as well. You think about it, there were tons of used cars that were sold over the last two years or so. And I think that's just been slower. Also, as you know, consumers are under a little bit more economic pressure due to inflation, not just in our category but across all of retail and across life at the moment. I think there's more pressure on some of those bigger ticket items like tires. Tires are a pretty big purchase for a customer.
Speaker Change: Those have been more challenged as well.
Speaker Change: You have to think about.
Speaker Change: There is tons of used cars that were sold over the last two years or so and I think thats just been slower.
Speaker Change: Also as the consumers under a little bit more economic pressure due to inflation not just in our category, but across all of all of retail and across life at the moment.
Speaker Change: I think there's more pressure on some of those bigger ticket items like tires tires is a pretty big purchase for a customer.
Speaker Change: Got it Thats really helpful Best of luck.
Operator: Got it. That's really helpful.
Speaker Change: Thank you.
Speaker Change: Your next question for today is from Simeon Gutman with Morgan Stanley.
Operator: Your next question for today is from Simeon Gutman with Morgan Stanley.
Simeon Ari Gutman: Good morning, everyone.
Operator: Good morning, everyone. My first question. Good morning.
Simeon Ari Gutman: My first question.
Simeon Ari Gutman: My first question is on Mega hubs can you share some math on them.
Operator: My first question is on mega hubs. Can you share some math on them? What you mentioned 200 over time, can you tell us year over year? How many should we see per year? And then can you frame the one-year lift from them, please?
Speaker Change: But you mentioned 200 over time can you can you tell us year over year, how many should we see per year, and then and can you frame.
Speaker Change: The one year lift from them. Please.
Speaker Change: Yes, so certainly from a mega hub standpoint.
Jamere Jackson: Yeah, so certainly from a mega hub standpoint, we're pretty excited about our future there. As we've announced, we'll likely have over 200 mega hubs at full build out. Last year, we opened 20, and we're likely going to open less than that this year.
Speaker Change: Pretty excited about our future there as we've announced.
Speaker Change: We'll likely have over 200 mega hubs at full build out.
Speaker Change: Last year, we opened 20, we're likely going to open less than that this year.
Speaker Change: And we've got work to do but our pipeline is very strong and our pipeline is robust as we look into FY 'twenty five so we're going to go as fast as we possibly can these are big baskas big boxes and difficult to find places.
Jamere Jackson: And, you know, we've got work to do, but our pipeline is very strong, and our pipeline is robust as we look into FY 25. So we're going to go as fast as we possibly can. These are big boxes, big boxes, and, you know, difficult to find places. But we've done a really good job and worked really hard to fill up that pipeline, and you'll start to see that accelerate as we move into FY 25 and beyond.
But we've done a really good job and work really hard to fill up that pipeline and then you'll start to see that accelerate as we move into FY 'twenty five and beyond.
Philip B. Daniele: Hubs are up, just to add on. Hubs are, these have been great stores for us. I think, you know, looking back on history, we thought we'd have 30 to 40 of these things in various markets, and, you know, now we see line of sight to, like Jamere said, well north of 200 mega hubs, and the hubs are still an important part of our strategy as well, which have slightly less skews than a mega hub, but both of those store bases are great for us. They help significantly on the commercial side of the business, and they boost the DIY market as well, so they're great assets for us and perform better than our normal stores.
Speaker Change: The hubs are up just add on hubs or these have been great stores for us I think looking over history. We thought we'd have 30 to 40 of these things.
Jamil: In various markets and now we see line of sight to like Jamil, <unk> well north of 200.
Jamil: Mega hubs and hubs are still an important part of our strategy as well, which have slightly less SKU count well.
Jamil: 30 to 40000, less skus than our Mega hub, but both of those store bases are great for us to help significantly on the commercial side of the business and they lift the DIY market as well so they're great assets for us and performed better than our than our normal stores.
Speaker Change: And then can I ask I know you don't give forward guidance and thinking about fiscal 'twenty five the <unk>.
Philip B. Daniele: And then can I ask you don't give forward guidance in thinking about fiscal 25. The first half and the second half. Unknown Speaker Is it fair to think that there's not a hockey stick, but it will be weighted in the second half?
Speaker Change: First half in the second half.
Speaker Change: Are you is it is it fair to think that there's not a hockey stick, but it will be second half weighted in other words, the topline backdrop improves mildly hopefully from weather, but you are going to lap some big gross margin gains core non LIFO.
Philip B. Daniele: In other words, the top line backdrop, you know, improves mildly, hopefully from weather, but you are going to lap some big gross margin gains core non LIFO while you'll need the top line to lever the expenses. So it looks like you could see some, you know, second half waiting, and next year curious if that's, you know, some thoughts on sequencing for next year.
Speaker Change: While you'll need the topline to lever the expenses. So it looks like you could see some second half weighting in next year curious if that's you know some some thoughts on sequencing for next year.
Speaker Change: Yes, like you said, we don't give guidance, but here are some things that I'll tell you that that I'm excited about one is.
Philip B. Daniele: Yeah, like you said, we don't, we don't give guidance. But here's some things that I'll tell you that I'm excited about. One is, you know, weather has been challenging. And I think, you know, over summer, summer is going to heat up. You know, we should get some merchandise categories and mix and things of that nature will help our sales as we move a little bit forward.
Speaker Change: Weather has been challenging and we I think over summer summer is going to heat up.
Speaker Change: We should get some merchandize categories and mix and things of that nature will help our sales as we move a little bit forward and although slower than wed like our commercial initiatives are working and we think those will continue to mature over time and in a <unk>.
Philip B. Daniele: Although slower than we'd like, our commercial initiatives are working, and we think those will continue to mature over time. And, you know, in a segment where we're under penetrated in share below 5% share on the commercial business, we think we have ample opportunity to continue to grow over time with improved service, improved hard parts, and expanded part availability, and better service and delivery based on the things we talked about parts investments, mega hub investments, and technology investments that will grow our sales. But it won't be, it's not going to be a hockey stick that Okay.
Speaker Change: Segment, where we're underpenetrated in share below 5% share on the commercial business. We think we have ample opportunity to continue to grow over time with improved service improved hard part and expanded part availability and better service and delivery.
Speaker Change: Based on the things, we talked about parts investments Mega hub investments and technology investments that will grow our sales.
Speaker Change: But it wont be its not going to be a hockey stick that turns around in six weeks or something it's going to take time.
Operator: Okay, thanks. Good luck in the fourth quarter. Thanks, Simeon.
Speaker Change: Okay. Thanks, and good luck in the fourth quarter. Thanks.
Tim: Thanks, Tim.
Speaker Change: Your next question is from Greg Melick with Evercore ISI.
Operator: Your next question is from Greg Melich with Evercore ISI.
Speaker Change: Hi, Thanks, guys.
Operator: Hi, thanks, guys. I wanted to follow up on inflation because it sounds like it was still slightly positive across the box slightly positive in the quarter, but I think I heard in the commercial that it was same skew slightly negative, so could you just give us a little more detail on that?
Gregory Scott Melich: I wanted to follow up on inflation, because it sounds like it was still across the box slightly positive in the quarter and but I think I heard in commercial than it was same skew slightly negative so could you just.
Speaker Change: Give us a little more of the detail on that.
Speaker Change: Yes, I think two things from a from an inflation standpoint number one.
Jamere Jackson: from an inflation standpoint. Number one, the backdrop is we're coming off a period of, you know, significantly higher inflation last year. So as we look at this year and look at that impact on our ticket growth, our ticket growth is lower than it's been historically.
Speaker Change: The backdrop is we're coming off a period of Av.
Speaker Change: Significantly more inflation last year so.
Speaker Change: So as we look at this year and look at that impact on our ticket growth our ticket growth is lower than it's been historically and quite frankly, that's had an impact on the top line growth you've heard me say a number of times.
Jamere Jackson: And quite frankly, that's had an impact on top line growth. You've heard me say a number of times that while hyperinflation is difficult from a cost standpoint, from a top line standpoint, inflation has been our friend. And we just don't have that tailwind, you know, right now.
Speaker Change: While hyperinflation is difficult from a cost standpoint from a topline standpoint inflation has been our friend and we just don't have that tailwind you know right.
Speaker Change: Right now we do expect.
Jamere Jackson: We do expect inflation to normalize over time, but the high freight costs that we had and the significant inflation that we had in the industry are just not there right now. And this industry has been very disciplined about passing that inflation through, but also in times when inflation is not there. We've also been disciplined about the pace with which, you know, retail prices are raised. So we feel pretty good with where we are. In total, we think inflation is going to return. But right now, it's running significantly lower than it was a year ago and lower than what we've seen historically.
Inflation to normalize overtime, but the higher freight costs that we have and the significant inflation that we had.
Speaker Change: And the industry is just not there right now in this industry has been very disciplined about pass on that inflation through but also in times, where the inflation is not there. We've also been disciplined about the pace with which.
Speaker Change: Retails are array. So we feel pretty good with where we are in total we think inflation is going to return, but right now it's.
Speaker Change: It's running.
Speaker Change: Significantly lower than then it was a year ago and lower than what we've seen historically.
Jamere Jackson: And just to be clear, in the quarter, it was zero.
Speaker Change: And just to be clear in the quarter It was zero.
Speaker Change: Yes, we saw.
Jamere Jackson: Yeah, we saw, you know, ticket growth, you know, across the business be very muted in the quarter. And, you know, we're seeing, you know, some inflation in certain categories, and other categories, you're seeing hardly any inflation. As we manage our way through that, we just got to make sure that we're pricing dynamically the price for inflation where we see it, and in places where you don't see it, obviously, we're being disciplined like this industry has been for real.
Speaker Change: Ticket ticket growth.
Speaker Change: Across the business be very muted.
Speaker Change: In the quarter.
Speaker Change: We are seeing.
Speaker Change: Some inflation in certain categories and other categories you are seeing.
Speaker Change: Hardly any inflation and as we manage our way through that we just got to make sure that we're pricing dynamically.
Speaker Change: Price for inflation, where we see it and in places where you don't see that obviously, we're being disciplined like this industry has been for a really long time.
Philip B. Daniele: Unknown Attendee, Michael Lasser, Maksim Rakhlenko, Daniel Imbro, Brian Nagel, Steven Forbes, Seth Sigman, David Bellinger, Jamere Jackson, Scott Ciccarelli, Daniel Imbro, Brian Nagel, Yep, fair enough. And then my follow-up was just to understand a little bit more about the consumer trends. I know you've talked in the past that we really haven't seen trade down on the DIY side at all. I'm just curious if that started to show up in the way I think you mentioned, maybe fewer items in the basket could just double click on that a little bit.
Speaker Change: Got it so still discipline and you expect it to normalize, but but right now that's not [laughter].
Speaker Change: The couch pretty Moody's is pretty muted right now.
Speaker Change: Fair enough and then my follow up was just to understand a little bit more about the consumer trends I know.
Speaker Change: You've talked in the past that we really haven't seen trade down on the DIY side at all I'm. Just curious if that started to show up as a way I think you mentioned, maybe fewer items in the basket.
Speaker Change: Double click on that a little bit.
Philip B. Daniele: Yeah, it's a great question. I think there's a couple of things going on with, you know, if you kind of think about average ticket. Some of it, frankly, is a mix of categories. And I'll talk about it in a couple of different ways.
Speaker Change: Yes.
Speaker Change: That's a great question I think there's a couple of things going on with if you kind of think about average ticket.
Speaker Change: Some of it frankly is been mix of category.
Speaker Change: And I'll talk about it in a couple of different ways one is.
Speaker Change: Highly discretionary items.
Speaker Change: Our have been challenged for a while some of those have a great ticket.
Philip B. Daniele: One is, you know, highly discretionary items have been challenged for a while. Some of those have a great ticket. You know, there's probably slightly fewer pieces in the basket, but I think some of that has been driven by the environment and the weather. Big jobs like air conditioning, if you will, those have definitely been muted in the springtime. Those are big jobs that have big tickets and multiple parts in them. You know, when it rains, you're probably going to sell two wiper blades.
Speaker Change:
Speaker Change: Probably slightly fewer pieces in the basket, but I think some of that has been driven by the the environment and the weather.
Philip B. Daniele: And when it's nice, people decide to do a tune up; you may have, you know, all kinds of filters that have significantly more parts, transactions, and pieces per transaction in them. So I think the ticket average will improve. It's not going to be improved based on, you know, hyper inflation like we've had over the last couple years. But I do believe it will improve as we move through the summertime and get a better mix of product as we move to some of these more challenging weather scenarios. Got it. That's super helpful. Good luck, guys. And thank God we didn't.
Speaker Change: Big jobs like Air conditioning, if you will those have been definitely muted in the springtime.
Speaker Change: Those are big jobs that have big ticket multiple parts in them.
Speaker Change: When it rains you probably going to sell two wiper blades and when it's nice people decided to do a tune up you may have all kinds of filters that have significantly more parts transactions pieces per transaction in them.
Speaker Change: So I think ticket average will improve its not going to be improved based on <unk>.
Speaker Change: Hyperinflation like we've had over the last couple of years, but I do believe it will improve as we move through the summertime and get a better mix of product as we move out of some of this more challenging weather scenario.
Speaker Change: Got it that's super helpful. Good luck, guys and thank God, we Didnt talk about five year comps.
Operator: Got it. That's super helpful. Good luck, guys. And thank God we didn't talk about five-year contracts.
Gregory Scott Melich: Thanks, Greg Thank you for that.
Your next.
Operator: Your next question for today is from Scot Ciccarelli with Truist.
Speaker Change: Question for today is from Scot Ciccarelli with Troy list.
Operator: Good morning, guys. Thanks for the time.
Speaker Change: Good morning, guys. Thanks for the time.
Philip B. Daniele: Given the slowdown in sales that we're obviously talking about, is there anything else you guys think you can do to accelerate the sales trends, or is it just a matter of executing the way you can, and you need the broader environment to improve? And then kind of part two of this is, is there a point at some stage where if sales stay sluggish, does it potentially tempt you to go through another round of price investments? I know that wasn't the original intent, but a long period of sluggish sales could potentially raise that temptation, I would think.
Scot Ciccarelli: Given the slowdown in sales that obviously, we're talking about is there anything else you guys think you can do to accelerate the sales trends or is it just a matter of executing the way you can and you need the broader environment to improve.
Scot Ciccarelli: Then kind of part two of this is it.
Speaker Change: Is there a point at some at some stage where its sales stayed sluggish does it potentially tempt you to go through another round of price investments I know that wasn't the original intent but.
Speaker Change: A long period of sluggish sales could potentially raise that temptation I would think.
Speaker Change: Yeah, Let me, let me start with kind of your first the first part of your question are there things that we can do to improve the answer is yes.
Philip B. Daniele: Yeah, let me start with kind of the first part of your question. Are there things that we can do to improve? The answer is yes.
Philip B. Daniele: We're in the process now of doubling down on customer service and execution. And, you know, on the commercial side, we're continuing to invest in both sides of the business. We're continuing to invest in hard parts coverage and hubs and mega hubs, those drive sales. On the commercial side, we continue to invest in ways to service the customer better and faster. And we like those initiatives that we have.
Speaker Change: We are in the process now of doubling down on customer service and execution.
Speaker Change: And on the commercial side.
Okay.
Speaker Change: On both sides, we're continuing to invest in hard parts coverage and hubs and Mega hubs those drive sales.
Speaker Change: On the commercial side, we continue to invest in ways to service the customer better and faster and we like those initiatives that we have so I think those helped to improve.
Speaker Change: Our sales execution, if you will.
Philip B. Daniele: So I think those help to improve, you know, our sales execution, if you will. The second part of the question, the second part is pricing. You know, from a pricing standpoint, as I mentioned before, we've been very disciplined on pricing. And, you know, we executed on the pricing initiatives for a couple of years. It helped us grow our shares and improve our units. We like where we're priced today, and we don't see the need to move the needle on pricing as a way to accelerate sales growth.
Speaker Change: And the second part of the question. The second part is on pricing from a pricing standpoint, as I mentioned before we've been very disciplined on pricing and we executed around the pricing initiatives a couple of years.
Speaker Change: It helped us grow our shares and improve our units.
Speaker Change: We like where we're priced today and we don't see the need to go.
Speaker Change: Move the needle on pricing as a way to go accelerating sales growth I'll, just remind you that you know the lion's share of the demand in this business is relatively in elastic.
Philip B. Daniele: I'll just remind you that, you know, the lion's share of the demand in this business is relatively inelastic. So this industry has been disciplined about pricing for decades, and, you know, we continue to see that being the case. To Phil's point, I mean, we're committed to and doubling down on our growth initiatives. It's improving the quality of our parts. It's expanding the assortments with mega hubs
Speaker Change: This industry has been disciplined about pricing for decades.
Philip B. Daniele: And we continue to see that being the case and to Phil's point, I mean, we're committed and doubling down on our growth initiatives.
Philip B. Daniele: Improving the quality of our parts has expanded the assortments with Mega hubs, it's improving delivery times leveraging technologies being competitive on pricing all of those are the kinds of things that.
Jamere Jackson: It's improving delivery times, leveraging technologies, being competitive on pricing. All of those are the kinds of things that are driving our business as we move forward, and we're pretty excited about that.
Philip B. Daniele: And are driving our business as we move forward and we're pretty excited about the future.
Speaker Change: I agree it's trying to clarify.
Philip B. Daniele: All right. Yeah, our pricing strategies on both DIY, we like where we are. And, you know, we believe we have the right strategies on both sides of the business. We made those investments several years ago to right-size those strategies. The industry has been very disciplined on pricing over a long period of time. And we don't see that. Okay. Thanks a lot.
Speaker Change: Yeah, our pricing strategies on both DIY, we like where we are.
Speaker Change: And we believe we have the right strategies on both sides of the business. We made those investments several years ago to rightsize those strategies.
Speaker Change: The industry has been very.
Speaker Change: Very disciplined on pricing over a long period of time.
Speaker Change: And we don't see that changing.
Operator: Understood. Thanks a lot, guys. Thank you. Your next question is from Kate McShane with Goldman Sachs. Good morning, thanks for taking our question. I just wanted to clarify that you mentioned in the prepared comments about mental health.
Speaker Change: Understood. Thanks, a lot guys.
Speaker Change: Thank you.
Speaker Change: Your next question is from Kate Mcshane with Goldman Sachs.
Operator: Your next question is from Kate McShane with Goldman Sachs.
Kate Mcshane: Good morning, Thanks for taking my question.
Kate Mcshane: I just wanted to clarify I think you mentioned in the prepared comments.
Kate Mcshane: You mentioned of historic wireless and I wondered if that.
Kate Mcshane: With more of a domestic comment versus international comment should we see an acceleration of the store openings here and we wondered if just with.
Kate Mcshane: The sheer amount of growth you've seen over the last few years do you think some of that.
Kate Mcshane: Demand weakness that Youre seeing is just due to the sheer volume of like your current store basis handling.
Speaker Change: Yes, we've talked.
Philip B. Daniele: Yeah, we talked several quarters ago about our aspirations to expand and accelerate our store growth in the back half of the decade. We, we historically have, you know, built about 150 stores, give or take a few domestically. And we think that we can significantly expand that number as we move forward. The drivers there obviously are the growth opportunities that we see in DIY but also, you know, a significant growth opportunity in commercial.
Speaker Change: Several quarters ago about.
Speaker Change: Our aspiration that expand.
Speaker Change: And accelerate our store growth in the back half of the decade.
Speaker Change: We historically have.
Speaker Change: Built about 150 stores give or take a few and domestically.
Speaker Change: And we think that we can significantly expand that number as we move forward. The drivers. There obviously are the growth opportunities that we see in DIY, but also.
Philip B. Daniele: And as we look at that, along with the expanded trade areas in the US, there's an opportunity for us to expand our business directly domestically. And we're going to do that by accelerating our store growth as we move through the balance of the decade. And then, internationally, we've been extremely pleased with what we've seen in Mexico.
Speaker Change: A significant growth opportunity in commercial and as we look at that along with the expanded trade areas and in the U S. There's an opportunity for us to expand our business domestically.
Speaker Change: Domestically and we're going to do that by accelerating our store growth as we move through the balance of the decade, and then internationally. We've been extremely pleased with what we've seen in Mexico and.
Speaker Change: And we like the growth prospects that we've seen in Brazil.
Speaker Change: And you've seen what we've posted in terms of same store sales comp growth now for several quarters.
Philip B. Daniele: And we like the growth prospects that we've seen in Brazil. And you've seen what we posted in terms of same store sales comp growth for several quarters now. And there's an opportunity for us to go faster there as well. So that accelerated store growth is certainly a part of our future growth strategy. And it'll help us, you know, become a faster growing business as we move forward. And then your comment about the capacity of our stores.
Speaker Change: And there's a there's an opportunity for us.
Speaker Change: Go faster there as well so that accelerated store growth is certainly a part of our future growth strategy.
Speaker Change: And then it'll help us.
Speaker Change: From a faster growing business as we move forward and then your comment about the capacity of our of our stores I mean, one of the things that we've done over time is we've continued to optimize the.
Philip B. Daniele: I mean, one of the things that we've done over time is we've continued to optimize the footprint of our satellite stores and then augment that with what we've done with hubs and mega hubs to place more parts in a local market closer to customers. It's an important part of the growth strategy, both on the DIY and the commercial side of the business, and we'll continue to do that as we move forward, which is one of the reasons why we talked about expanding the number of mega hubs that we have. And our mega hub count will be north of 200 at full build out. We just wish they'd come faster.
Speaker Change: The footprint of our satellite stores, and then augment that with what we've done with hubs and Mega hubs to jam more parks in a local market close to closer to customers. It's an important part of the growth strategy. Both on the DIY and the commercial side of the business and we will continue to do that as we move forward, which is one of the reasons why we talked about.
Speaker Change: Spanning the number of Mega hubs.
Speaker Change: That we have in our Mega hub count will be north of 200 at full build out.
Speaker Change: We just wish they'd come faster than building new stores takes it's a long it's a long tail from the time you sign a contract at the time, we actually open the doors and start selling parts out of them just takes it takes longer than we'd like.
Philip B. Daniele: We just wish they'd come faster. Building new stores takes, you know, it's a long, long tail from the time you sign a contract to the time we actually open the doors and start selling parts out of them. It takes longer than we'd like.
Speaker Change: Thank you.
Speaker Change: Your next question is from Seth Sigman with Barclays.
Operator: Your next question is from Seth Sigman with Barclays.
Seth Ian Sigman: Hey, good morning, everyone. A couple of follow ups from my side.
Operator: Hey, good morning, everyone; a couple of follow-ups from my side. So when I look at the gap between your DIY business and the commercial business, it just seems narrower than it's been in the past, certainly pre-pandemic. And that's been happening in the last couple of quarters. And, you know, when you look at DIY down 1%, it's actually not that different from the range we've seen in the past. So it's really commercial at this lower run rate, and I know there are a lot of moving pieces here. But it's more of a macro question, right?
Seth Ian Sigman: So when I look at the gap between your DIY business and the commercial business. It just seems narrower than it's been in the past certainly pre pandemic.
Speaker Change: That's been happening the last couple of quarters and you look at DIY down, 1%, it's actually not that different than the range. We've seen in the past. So it's really commercial at this lower run rate.
Speaker Change: And I know, there's a lot of moving pieces here, but it's more of a macro question right do you think that the commercial end customer is just slowing more and maybe that's deferral, maybe that's trading down I'm not sure, but I guess, that's really what we're trying to figure out is that is that commercial and customer that may be more middle income consumer trading down a little bit more.
Philip B. Daniele: Do you think that the commercial and customer is just slowing more? And maybe that's deferral? Maybe that's trading down? I'm not sure. But I guess that's really what we're trying to figure out is that, is that commercial and customer that may be more of a middle-income consumer trading down a little bit more?
Speaker Change: Yes.
Philip B. Daniele: Unknown Speaker Yeah, that's, you know, tough to figure out exactly what's going on in commercial when you start talking about how is a customer migrating up or down the Cost curve, if you will. You don't we don't get near the segmentation on the commercial side that we do on the DIY side and the retail side of the business. But you know, is the customer trading down? I think if you look at some of the segments that we have that are more challenged, thinking tires, right, a tire purchase could be well, well north of $1,000. For a customer, those that segment has been challenged. For sure.
Speaker Change: Yes, that's it.
Speaker Change: Tough to figure out exactly what's going on in commercial.
Speaker Change: When you start.
Speaker Change: You start talking about.
Speaker Change: How is a customer migrating up or down.
Cost curve, if you will.
Speaker Change: You don't we don't get near the segmentation on the commercial side that we do on the DIY side and the retail side of the business.
Speaker Change: But is the customer trading down I think if you look at some of the segments that we have that are more challenged thinking tires.
Speaker Change: Purchase could be well well north of a $1000 for our customer those that segment has been challenged.
Speaker Change: For sure some of the new car and used car dealer.
Philip B. Daniele: You know, some of the new car and used car dealer segments have been a little more challenged, partly because I think they're not selling as many units. So those two segments have been challenged. So if you think our customers are migrating down because of bigger jobs or down the good, better, best column, I think that's probably true. That a customer may, you know, if they may have normally taken a car to an OE dealer, do they then migrate to a, you know, a Firestone or something of that nature? And do they migrate to the UDS customer do the job themselves? I think you can see that, but it's very hard to understand how customers move on the commercial side of the business.
Speaker Change: Segments have been a little more challenged partly because I think they're not selling as many units.
Speaker Change: So those two segments have been challenge. So if you think our customers migrating down because of bigger jobs or.
Speaker Change: Down the good better best column, I think that's probably true.
Speaker Change: A customer may they may have normally taken a carb to OE dealer do they then migrate to firestone or something of that nature and do they migrate to the uds customer do the job themselves I think you could see that but it's very hard to understand how customers move on the commercial side of the business and I think part of that.
Philip B. Daniele: And I think, you know, part of that, you know, as we think of the commercial market in general, it's why we've been focused on this notion that, you know, we're roughly a five percent share in what's approaching a $100 billion market, despite the fact that, you know, big ticket is pressured across really all of retail and certainly, you know, a big ticket purchase in auto parts is not immune to those dynamics And so all the things that Phil talked about, you know, in terms of our initiatives, are the things that we're focused on. And if we do those things and execute on them, that gives us an opportunity to really accelerate our commercial growth as we move forward.
Speaker Change: Think of the commercial market in general that's why we've been focused on this notion that.
We're roughly a five share and what's approaching $100 billion market.
Speaker Change: Despite the fact that.
Big ticket is pressured across really all of retail and certainly.
A big ticket purchase and auto parts is not immune to those dynamics and we still have an opportunity to grow significantly and commercial and an opportunity to grow significantly faster and so all the things that Phil talked about you know in terms of our initiatives are the things that we're that we're focused on and if we do those things and execute on them.
Speaker Change: And that gives us an opportunity to.
Speaker Change: Really accelerate our commercial growth as we move forward.
Philip B. Daniele: And just on that last point around accelerating business, you mentioned a number of initiatives around service and delivery. Can you just help us better understand operationally what is actually changing? Are we adding people? Are we adding routes? And just how to think about that.
Speaker Change: And just on that last point around accelerating commercial you mentioned a number of initiatives around service and delivery can you just help us better understand operationally what is actually changing we adding people we are adding routes and just how to think about that and it sounds like you've had some success early on and some of the markets where you have deployed some of these.
Philip B. Daniele: And it sounds like you've had some success early on in some of the markets where you have deployed some of these changes. Any sense of the lift that you're seeing there that gives you that confidence? Thanks.
Speaker Change: Changes any sense on the lift that you're seeing there that gives you that confidence.
Speaker Change: Yes, I think we are seeing success again still relatively small in our rollout and and that rollout is not very mature at the moment, but we're leveraging some technology.
Philip B. Daniele: Yeah, I think we are seeing success, again, still relatively small in our rollout. And that rollout is not very mature at the moment.
Philip B. Daniele: But we're leveraging some technology, you know, leveraging the technology, the handhelds, and other technology in our stores to be smarter about how we deliver and where we deliver. And we're ultimately able to get the part to the shop faster than we were previously. And we're leveraging all the assets that we have in the local market to get those parts to a customer faster, and we like the results that we're seeing. We believe that, as we roll these out, our sales will improve in those markets, and ultimately, we'll provide better customer service and gain new customers as well as share a wallet with existing customers.
Speaker Change: Leveraging the technology of the handhelds and other technology in our stores to be smarter about how we deliver and where we deliver apart from.
Speaker Change: Ultimately able to get the part to the shop faster than we were previously.
Speaker Change: And we're leveraging all of the assets, we have in our local market to get those parts to the customer faster and we like the results that we're seeing.
Speaker Change: And we believe that as we roll. These out are our sales will improve in those markets.
Speaker Change: And ultimately, we'll provide better customer service and gain new customers as well as share of wallet with existing customers.
Speaker Change: Okay. Thanks, guys. Thank.
Speaker Change: Thank you.
Speaker Change: Your next question for today is from Brian Nagel with Oppenheimer.
Operator: Your next question for today is from Brian Nagel with Oppenheimer.
Brian William Nagel: Hi, good morning, Thanks for taking my questions.
Operator: Hi, good morning. Thanks for taking my question. Good afternoon.
Operator: So the first question I have, I know we've already had a number of questions on commercial, but I apologize for also asking about commercial. But this is in the near term, you know, if I heard the prepared comments correctly, it sounds like you expected a bit of a bit of a strength here, you know, into the end of fiscal 24, the fourth period. So I, the question I have is, you know, what is your look at the business? I think comparisons do get easier. But are there specific, so to say, building blocks which could help to strengthen the business here in the very near term?
Good morning.
Brian William Nagel: The first question I have I know that we've already had a number of questions on commercial but so I apologize. It's also asking about commercial but I guess in the near term.
Speaker Change: If I heard the prepared comments correctly, you know it sounded like you expected a bit of a a bit of a strengthened here.
Speaker Change: Into the end of fiscal <unk>.
Speaker Change: <unk> 20 for the fourth period, so and of course I have is you know what as you look at the business I think comparisons do get easier, but are there other specific building blocks, which could help to strengthen the business here in the very near term.
Speaker Change: I think you've got two dynamics. One is you've mentioned before is that the comparisons do get a little bit easier in the fourth quarter. If you look at our grow over numbers, but the second one is just the initiatives that Phil talked about I mean, where.
Jamere Jackson: I think you have two dynamics. One, as you mentioned before, is that the comparisons do get a little bit easier in the fourth quarter if you look at, you know, our growth over numbers. But the second one is just initiatives that Phil talked about.
Jamere Jackson: I mean, we've been really focused on jamming more parts in the local markets, and we've done a great job of doing that, and that's paying dividends for us. And then we've been focused on service and delivery speeds. And if we can win the game in terms of parts availability by jamming those parts in the local market, and we can get them to the customer faster, those are things that are going to drive our business as we move forward.
Speaker Change: We've been really focused on Jamie more parts in the local markets and we've done a great job of doing that and that's paying dividends for US and then we've been spoke focused on service and delivery speeds.
Speaker Change: If you know if we can win the game in terms of parts availability with jam in those parts of the local market and we can get them to the customer faster.
Speaker Change: Those are things that are going to drive our business as we move forward. So again.
Jamere Jackson: Again, we're excited about where we are and excited about the opportunity to accelerate our growth as we move forward. There are always macro challenges that you have to fight your way through, and a big ticket is pressure, but you combine the fact that we're underpenetrated and we've got a full slate of growth initiatives in place, those are the things that get us excited about the future.
Speaker Change: We're excited about.
Speaker Change: Where we are and excited about the opportunity to.
Speaker Change: You know accelerate our growth as we as we move forward. There are always you know macro challenges that you have to.
Speaker Change: By your way through and Big ticket is pressured but.
Speaker Change: You combine the fact that we're underpenetrated, we've got a full slate of growth initiatives in place those are the things that get us excited about the future.
Speaker Change: Well. Thank you Barry that my follow up is also a follow up but.
Jamere Jackson: Thanks, Jamere. My follow up, again, it's also a follow up, but You know, just with respect to the consumer, I mean, you operate in a unique part of retail, you know, a lot of your spend that happens in your stores is not necessarily discretionary, but there's a lot of chatter out there right now across consumers about maybe some incremental pressures on the lower income consumer. So the question is, are you seeing that when you look at your business and the data is available to you? Are you seeing, you know, clearly or somewhat clearly signs of incremental pressure on this core consumer that's affecting their shopping patterns? Yeah, I think so.
Speaker Change: Just with respect to consider Bobby you look you operated a unique quarter of retail what are you allowed to spend that happens your stores is not necessarily discretionary, but theres a lot of chatter out there right now across consumer about maybe some incremental pressures on the lower income consumers like the question. I have is are you seeing that as you look at your business and the data that's available to you or are you seeing.
Speaker Change: Clearly are somewhat clearly signs of incremental pressure on this core consumer that's affected their shopping patterns.
Philip B. Daniele: Yeah, I think you know. Big ticket, I think, has been a challenge for the consumer in all of retail, not just us. Like you said, the big pieces of our business are brake repair, starter, alternator, battery. Your car's down; you've got to fix it. And those tickets, while they're large, they're not, you know, it's not thousands of dollars; the starter and alternator could be a couple hundred bucks. That certainly puts pressure on the low-end consumer to, you know, have to have that money come out of pocket.
Speaker Change: Yes, I think.
Speaker Change: Big ticket I think has been a challenge for for the consumer in all of retail not just us.
Speaker Change: Like you said.
Speaker Change: Big pieces of our business are bright.
Philip B. Daniele: And they're under pressure. But discretionary categories have been under pressure for, frankly, quite some time; they all exploded during the pandemic when there was a lot of money in the consumer's pocket. And they've certainly been more challenged over the last, you know, 18 to 24 months.
Break fix starter alternator battery cars down you've got to fix it.
Speaker Change: And those tickets, while they're large they're not it's not thousands of dollars.
Speaker Change: <unk> could be a couple of hundred Bucks.
Speaker Change: Certainly puts pressure on the low end consumer to.
Speaker Change: Have that money come out of pocket.
Speaker Change: And they are under pressure, but discretionary categories have been under pressure for frankly quite some time they they all exploded during the pandemic. When there was a lot of money in the consumer's pocket.
Philip B. Daniele: And that continues. But maintenance items, you know, I think as customers get more cash strapped, they look at if I take care of my car, I know that it will perform better and save me money in the long run. So maintenance items have a tendency to start to trickle up over time. And then the failure items, if you're going to get the car back on the road, you've got to purchase them.
Speaker Change: And they've certainly been more challenged over the last 18 to 24 months and that continues but maintenance items I think as customers get more cash strapped. They look at if I take care of my car I know that it will perform better and save me money in the long run so maintenance items have a tendency to start to.
Speaker Change: Trickle up over time, and then the failure items, if youre going to get the car back on the road you've got to purchase it.
Philip B. Daniele: You know, we don't have a lot of good, better, best categories; we have some in brakes and a couple other categories, but that's not a big piece of our business. The vast majority of our sales are on application parts that have you get just one choice. And the customer buys that part to get their car back on the road. And we think that'll continue.
Speaker Change: We don't have a lot of good better best categories. We have some breaks in a couple of other categories, but that's not a big piece of our business. The vast majority of our sales are on application parts that have you you have one choice and.
Speaker Change: The customer buys that part to get their car back on the road and we think that'll continue.
Speaker Change: Well, thanks, guys I appreciate all the color.
Operator: Well, thanks, guys. I appreciate it.
Speaker Change: Thank you.
Speaker Change: Your next question for today is from Michael Lasser with UBS.
Michael Lasser: Good morning, Good morning, Thanks, Hey, Phil. Thank you so much for taking my question, Phil How would you compare and contrast, this year for the aftermarket 2017, which was the last year of challenge trends within the industry and in your mind is it really just a function of of <unk>.
Operator: Phil, thank you so much for taking my question. Phil, how would you compare and contrast this year for the aftermarket to 2017, which was the last year of challenging trends within the industry? And in your mind, is it really just a function of more cooperative weather that will drive an acceleration for the industry from here, or do you think something else needs to happen in order for the backdrop to be more favorable?
Michael Lasser: More cooperative weather that will drive an acceleration for the industry from here or do you think something else needs to happen.
Michael Lasser: Order for the backup to be more favorable.
Philip B. Daniele: It's a great question and I was wondering when the when the tough weather questions from a winter perspective would come up and that was kind of that 16 to 17 range Youre talking about.
Philip B. Daniele: It's a great question. I was wondering when the tough weather questions from a winter perspective would come up, and that was kind of that 1617 range you're talking about.
Philip B. Daniele: It's a great question is frankly, when we talk about internally all the time we've had.
Philip B. Daniele: It's frankly, when we talk about internally all the time, you know, we've had a pretty soft winter weather pattern for the last two years. But when I kind of look across the country, this winter pattern, we got some pretty good weather, you know, from precipitation, snow, and temperatures in the Midwest. We got very soft weather patterns relative to driving, you know, brake fix, and parking failures on the eastern seaboard. There wasn't a lot of snow in, you know, New York, Boston, Philadelphia, you know, D.C., and we didn't have a whole lot of cold temperatures in those markets.
Philip B. Daniele: A pretty soft winter weather pattern for the last two years.
Philip B. Daniele: And when I kind of look across the country. This winter pattern, we got some pretty good weather.
Precipitation snow and temperatures in the Midwest.
Philip B. Daniele: We got very soft weather patterns relative to driving.
Philip B. Daniele: Break fixed part failures on the eastern Seaboard wasn't a lot of snow in New York Boston Philadelphia.
Philip B. Daniele: D C and we didn't have a lot of cold temperatures in those markets and those typically have meant under car and brake categories performed very well when you have those types of seasonal patterns, we didn't get that this year and frankly didnt get it last year.
Philip B. Daniele: And that typically means, you know, undercar and brake categories perform very well when you have those types of seasonal patterns. We didn't get that this year, and we frankly didn't get it last year.
Philip B. Daniele: So it's a little undetermined what happens in a long period of time, where you haven't had those weather patterns with categories and that half of the country.
Philip B. Daniele: So it's a little undetermined what happens in a long period of time where you haven't had those weather patterns with categories in that half of the country. So I think that is yet to be seen. We don't have the inflation that we had probably back in 17, 18, and, frankly, over the last two years to be a benefit. But I do think we'll get a better mix of categories going into the summer selling season than we did in Q3. So I don't know if I'm really answering your question. I think that's yet to be seen. And I think it'll prove itself over the next four months or so.
Philip B. Daniele: So I think that is yet to be seen we don't have the inflation that we had probably back in 17, 18, and frankly over the last two years to be a benefit.
Philip B. Daniele: But I do think we'll get a better mix of categories going into the summer selling season.
Philip B. Daniele: Than we've had in Q3, so I don't know if im really answering your question I think thats yet to be seen.
Philip B. Daniele: And I think it will prove out over the next four months or so.
Jamere Jackson: Okay. My follow-up question is on the underlying gross margin trend outside of the LIFO benefit. It sounds like the LIFO could be about a $20 million drag in 4Q. How much more room do you have to improve the underlying gross margin to offset that type of headwind that you're going to experience, especially as you move into next year, where comps could remain uncertain and the market was still expecting double-digit EPS growth?
Okay.
Follow up question is on the underlying gross margin trend outside of the LIFO benefit it sounds like the LIFO could be about a 20 million dollar drag in <unk>, how much more room do you have to improve the underlying gross margin to offset.
Speaker Change #101: That type of headwind that you're going to experience, especially.
Speaker Change #101: Especially as you move into next year weird comps could remain uncertain and the market was still expecting double digit EPS growth.
Speaker Change #102: Yeah. So what I'll say is we've run the gross margin play with intensity and our merchandising teams and our supply chain teams have done a fantastic job you saw last quarter, we had.
Jamere Jackson: So, what I'll say is, you know, we've run the gross margin play with intensity, and our merchandising teams and our supply chain teams have done a fantastic job. You know, last quarter we had, this past quarter, we had almost 90 basis points of margin improvement, strictly from what we're doing on the merchandising side and what we're doing with the supply chain. I wouldn't suggest that those numbers are going to be as high as we move forward.
Speaker Change #102: This past quarter, we had almost 90 basis points of margin improvement.
Speaker Change #102: Strictly from what we're doing on the merchandising side and what we're doing with supply chain.
Speaker Change #102: Wouldn't suggest that those numbers are going to be as high as we move forward. We are you know.
Jamere Jackson: We are, you know, coming out of a period where we had some pretty significant inflation and we got some deflation. And as we mentioned a little bit earlier, we're not getting the ticket necessarily to help us from a gross margin standpoint. So that will be muted some. But, you know, we believe that we'll have the potential to offset most, if not all, of the pressure that you see from a life standpoint. Thank you.
Speaker Change #102: Coming out of a period, where we had.
Speaker Change #102: Some pretty significant inflation that we that we got some deflation.
Speaker Change #102: And as we mentioned a little bit earlier, we're not getting the ticket necessarily to help us from a from a gross margin standpoint, so that will be muted some.
Speaker Change #102: But.
We believe that we will have the potential to offset most if not all of the pressure that you see from a LIFO standpoint.
Speaker Change #103: Thank you very much and good luck.
Operator: Thank you very much and good luck.
Speaker Change #102: Yes.
Speaker Change #104: Your final question for today is from Max <unk> with TD Cowen.
Operator: Your final question for today is from Maks Rakhlenko with TD Cowan.
Speaker Change #105: Okay, great. Thanks, a lot guys good morning.
Philip B. Daniele: Great. Thanks a lot, guys. Good morning. So, first, on the speed initiative, can you discuss the pace of the rollout and when we think and when we should think that it'll be in the majority or all of the markets that you have mega hubs in?
Speaker Change #106: Good morning, So first on the speed initiative can you discuss the pace of the rollout and when we think and when we should think that it'll be in majority or all of the markets that you have mega hubs.
Speaker Change #106: Yeah.
Philip B. Daniele: We've been working on this for, you know, probably a year and a half, and we started seeing results that we really liked earlier this year and started ramping it up. We're probably in the middle innings, if you will, of rolling that out to our stores. We have them in our networks, we've got some more to go, and we'll continue to add incremental stores as we move through the process, but I would say we're in the middle innings.
We've been working on this for.
Speaker Change #107: Probably a year year and a half and we started seeing the results that we really liked earlier this year and started ramping it up.
Speaker Change #107: We're probably in the middle innings, if you will.
Speaker Change #107: <unk> of rolling that out to our stores, we've got in our <unk>.
Speaker Change #107: Networks.
Speaker Change #107: We've got some more to go and we will continue to add incremental stores as we move through the process, but I will say we are in middle earning earnings.
Philip B. Daniele: We do believe that as we roll this out again, we'll get better customer service, faster times to shop, and we believe with that better customer service, we'll gain new customers and grow share of wallet. It won't be an immediate snap, but we like the efforts and the growth that we're seeing in those markets.
Speaker Change #107: We do believe that as we roll. This out again, we believe we get better customer service faster time to shop.
And we believe will would that better customer service will gain new customers and grow share of wallet. It.
Speaker Change #107: It won't be an immediate snap, but we like the efforts.
And the growth that we're seeing in those markets.
Philip B. Daniele: That's great. And then just as a follow-up on the slower mega hub openings, is that more structural? Is it tougher to find boxes in the right areas? Or is it about execution opportunities on your end? And then it does sound like the opening should start to accelerate in the next few quarters. Is that right?
Speaker Change #108: That's great and then just as a follow up on the slower Mega hub openings is that more structural as its tougher to find boxes in the right areas or is it about execution opportunities on your end and then it does sound like the opening should start to accelerate in the next few quarters is that right.
Jamere Jackson: The openings will definitely accelerate, and Phil's sort of smiling at me because I own store development as part of my finance responsibilities, and so this is one of my primary objectives for this year. They are big boxes in hard to find locations.
Speaker Change #109: The openings will definitely accelerate in fills sort of smiled at me because I own store development as part of my financial responsibilities and so this is one of my primary objectives for this year, they are big boxes and hard to find locations.
Speaker Change #109: We've been working through what we need to do from an execution standpoint, I will say it's.
Jamere Jackson: We've been working through what we need to do from an execution standpoint. I will say it's, you know, anybody that's doing new store construction across the business knows how challenging the market has been over the last couple of years or so, but we've worked our way through a lot of those challenges this fiscal year. We like the pipeline that we've built, and we expect to see that accelerate as we move into FY25.
Speaker Change #109: Anybody that's doing new store construction across the business know how challenging the market has been over the last couple of years or so, but we've worked our way through a lot of those challenges. This fiscal year, we like the pipeline that we've that we built and.
Speaker Change #109: And we expect to see that accelerate as we move into FY 'twenty five.
Philip B. Daniele: I think the good thing is we know exactly where we want these stores, you know, in every metro market or, you know, adding multiples to a given city or an individual market that may have, you know, a smaller number of stores. We know where we want to be.
Speaker Change #109: The good thing is we know exactly where we want these stores.
Speaker Change #109: And every in every metro market or adding multiples to a given city or an individual market that may have a smaller number of stores, we know where we want to be we want to make sure we get them at the right distance from our current locations and they've got a good route so theyre easily accessible to the other markets and then you got to buy in the spot.
Philip B. Daniele: We want to make sure we get them at the right distance from our current locations. And you know, they've got to have good roads so they're easily accessible to other markets. And then you've got to find the spot that is a great retail location and a great place to do, you know, fulfill and get these expanded parts to our shops and our stores fast. And it's just, it takes time. We'd love to go faster because they're great boxes for us and I know that they help us on both the outlying commercials.
Speaker Change #109: That is a great retail location and a great place to do it.
Speaker Change #109: To fill fulfill and get these expanded parts to our shops in our stores fast and it just it takes time, we'd love to go faster because they are great boxes for us and I know that they help us on both DIY and commercial.
Speaker Change #111: That's great appreciate all the color and best regards.
Philip B. Daniele: That's great. I appreciate all the callers and give best regards.
Speaker Change #110: Great. Thank you.
Speaker Change #112: Okay. So before we conclude the call I'd like to take a moment to reiterate that we believe our industry is in a strong position and our business model is solid we're excited about our growth prospects for the remainder of the year, but we'll take nothing for granted as we understand our customers have alternatives to shopping with US we are exciting.
Philip B. Daniele: Okay, so before we conclude the call, I'd like to take a moment to reiterate that we believe our industry is in a strong position and our business model is solid. We are excited about our growth prospects for the remainder of the year, but we'll take nothing for granted as we understand our customers have alternatives to shopping with us. We have exciting plans that should help us succeed in the future, but I want to stress that this is a marathon and not a sprint. As we continue to focus on the basics and strive to optimize shareholder value for the future, we are confident that Autozone will be successful.
autozone: That should help us succeed for the future, but I want to stress that this is a marathon and not a sprint as we continue to focus on the basics and strive to optimize shareholder value for the future. We are confident autozone will be successful.
Philip B. Daniele: Lastly, as we celebrate Memorial Day next Monday, I ask that we all remember our country's heroes, both past and present. We owe these great Americans a tremendous debt of gratitude. Thank you again for participating in today's call.
Speaker Change #112: Lastly.
Speaker Change #112: As we celebrate Memorial day next Monday, I ask that we all remember our country's heroes, both past and present, we own. These great Americans are tremendous debt of gratitude.
Speaker Change #112: Thank you again for participating in today's call.
Speaker Change #114: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.