Q3 2025 Autozone Inc Earnings Call

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Greetings.

Operator: Welcome to Autozone's 2025 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.

Speaker Change: Greetings welcome to autos owns 2025 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.

Before we begin the client would like to read the forward looking statement. Please go ahead.

Unknown Executive: Before we begin, the client would like to read their forward-looking statement. Please go ahead. 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 discussion of important risks and uncertainties that could cause actual results to differ materially from expectations. Forward-looking statements speak only as of the date made and the company undertakes no obligation to update such statements.

Before we begin please note that today's call includes forward looking statements 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 risks.

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.

Unknown Executive: Today's call also includes certain non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our press release.

Speaker Change: Okay.

Hey, good morning.

Speaker Change: I will now turn the conference over to your host Phil Danielle CEO at Autozone, you may begin.

Phil Daniele: I will now turn the conference over to your host, Phil Daniele, CEO at Autozone. You may begin. Good morning and thank you for joining us today for AutoZone's 2025 third quarter conference call. With me today are Jamere Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax. Regarding the third quarter, I hope you had an opportunity to read our press release and learn about the quarter's results. If not, the press release, along with slides complementing our comments today, are available on our website, www.autozone.com, under the Investor Relations link. Please click on the quarterly earnings conference call to see them.

Speaker Change: Good morning, and thank you for joining us today for Autozone 2025 third quarter conference call.

Speaker Change: With me today are Jim Meer, Jackson, Chief Financial Officer, and Brian Campbell, Vice President Treasurer, Investor Relations and tax regarding the third quarter I Hope you've had an opportunity to read our press release and learn about the quarter's results if not the press release, along with slides complementing our comments today are available on our <unk>.

Speaker Change: Website, www dot Autozone dot com under the Investor Relations link please click on quarterly earnings conference call to see them.

Speaker Change: I want to thank our more than 125000 autozone or across the entire company for their commitment to delivering on our pledge to always put customers first.

Phil Daniele: I want to thank our more than 125,000 Autozoners across the entire company for their commitment to delivering on our pledge to always put customers first. Their contributions allow us to deliver the consistent performance we have been able to enjoy. We can only succeed if we are all working towards the common goal of outstanding customer service.

Speaker Change: Their contributions allow us to deliver the consistent performance, we have been able to enjoy.

Speaker Change: We can only succeed if we are all working towards the common goal of outstanding customer service.

Phil Daniele: To get started this morning, let me address our sales results. Coming into the quarter, we were optimistic that our improved execution would drive sales growth for both retail and commercial. More specifically, we felt the momentum we gained last quarter with our domestic commercial sales would continue this quarter. We are very pleased that our domestic commercial sales grew 10.7% for the quarter, marking our first double digit quarter for commercial growth since the second quarter of FY 23. We also cleared another milestone. For the first time on a rolling four quarter basis, we eclipsed the $5 billion sales mark on commercial Our domestic retail comp was just north of 3%, which is the best retail growth we have reported since the second quarter of FY22.

Speaker Change: To get started this morning, let me address our sales results.

Speaker Change: Coming into the quarter, we were optimistic that our improved execution will drive sales growth for both retail and commercial.

Speaker Change: More specifically, we felt the momentum we gained last quarter with our domestic commercial sales would continue this quarter. We are very pleased that our domestic commercial sales grew 10, 7% for the quarter, marking our first double digit quarter for commercial growth since the second quarter of FY2023.

Speaker Change: We also cleared another milestone for the first time on a rolling four quarter basis, we eclipsed the $5 billion sales mark on commercial.

Speaker Change: Our domestic retail comp was just north of 3%, which is the best retail growth. We have reported since the second quarter of FY 'twenty two.

Phil Daniele: Finally, our international constant currency comp remained solid up 8.1% for the quarter. We are encouraged by our sales results and our momentum as we start our fourth quarter.

Speaker Change: Finally, our international constant currency comp remains solid up eight 1% for the quarter. We are encouraged by our sales results and our momentum as we start our fourth quarter.

Phil Daniele: Now let me touch on a few highlights from the quarter and then I will give you more color on our execution, the current environment, and our outlook. For the quarter, with our continued focus on what we call Wow customer service, our total sales grew 5.4%, while earnings per share decreased 3.6%. We delivered a positive 5.4% total company same store sales on a constant currency basis, with domestic same store sales growth of 5%, our domestic DIY same store sales growth of 3%, while our domestic commercial sales grew 10.7%. Our international same store sales were 8.1% on a constant currency basis.

Speaker Change: Now let me touch on a few highlights from the quarter and then I will give you more color on our execution the current environment and our outlook.

Speaker Change: For the quarter with our continued focus on what we call Wow customer service. Our total sales grew five 4% while earnings per share decreased three 6%.

Speaker Change: We delivered a positive five 4% total company same store sales on a constant currency basis with domestic same store sales growth of 5% our domestic DIY same store sales growth of 3%, while our domestic commercial sales grew 10, 7%.

Speaker Change: Our international same store sales were eight 1% on a constant currency basis.

Phil Daniele: While our international business continued to comp impressively, we faced over 17 points of currency headwind, which resulted in an unadjusted negative 9.2% international comp. As you know, the stronger U.S. dollar has continued to have negative impact on our reported sales, operating profit, and EPS. We expect this trend to continue this quarter.

Speaker Change: While our international business continued to comp impressively, we faced over 17 points of currency headwind, which resulted in an unadjusted negative nine 2% international comp.

Speaker Change: As you know the stronger U S. Dollar has continued to have negative impact on our reported sales operating profit and EPS. We expect this trend to continue this quarter to mirror will provide more color on our foreign currency impact on our financial results for both this past quarter and.

Phil Daniele: Jamere will provide more color on our foreign currency impact on our financial results for both this past quarter and the fourth quarter. Specifically, related to our domestic commercial business, our focus is on improving execution, expanding parts availability, and improved speed of delivery. These initiatives helped us significantly improve our year-over-year sales growth. Commercial sales were 10.7% year-over-year versus up 7.3 in the second quarter and up 3.2% in the first quarter. We believe the initiatives we have in place have a long runway and will drive strong results in future quarters. We are pleased with our efforts and our execution thus far.

Speaker Change: The fourth quarter.

Speaker Change: Specifically related to our domestic commercial business, our focus is on improving execution expanding parts availability and improved speed of delivery. These initiatives initiatives helped us significantly improve our year over year sales growth commercial sales were 10, 7% year over year versus up seven.

Speaker Change: Three in the second quarter and up three 2% in the first quarter. We believe the initiatives. We have in place have a long runway and we will draw we will drive strong results in future quarters. We are pleased with our experts and our execution thus far.

Speaker Change: Next we found the quarter's cadence to be somewhat predictable with the tax refund season normal impact on sales our domestic same store sales cadence was six 7% and our first four weeks of the quarter five one in our second and $3 one over the last four weeks.

Phil Daniele: Next, we found the quarter's cadence to be somewhat predictable with the tax refund season's normal impact on sales. Our domestic same store sales cadence was 6.7% in our first four weeks of the quarter, 5.1% in our second, and 3.1% over the last four weeks. The variation being driven by our domestic DIY business with cooler Wetter weather and the Easter holiday shifting into our last four weeks versus last year falling in the middle four-week sector. Our commercial comp, on the other hand, was more consistent over the 12 weeks of the quarter. This consistency was very encouraging as we build towards future commercial sales growth.

Speaker Change: The variation being driven by our domestic DIY business with cooler.

Speaker Change: Wetter weather and the Easter holiday shifting into our last four weeks versus last year falling in the middle four week segment our.

Speaker Change: Our commercial comp on the other hand was more consistent over the 12 weeks of the quarter.

Speaker Change: This consistency was very encouraging as we build towards future commercial commercial sales growth.

Phil Daniele: Overall, we are encouraged to see the sales acceleration from this past quarter.

Speaker Change: Overall, we are encouraged to see the sales acceleration from this past quarter.

Speaker Change: Now, let me make a few comments on our U S DIY business.

Phil Daniele: Now, let me make a few comments on our U.S. DIY business. While the macro environment and the uncertainty around tariffs have forced customers to be cautious with their spending, the consistency of our failure and maintenance businesses continued this past quarter. We saw an improving trend in our maintenance and failure categories on a year-over-year basis. Discretionary categories, the smallest part of our business, have been under pressure for several quarters now. Historically, when our consumer is under pressure, our maintenance and failure categories begin to outperform discretionary categories. Our DIY comp was up 6.2% in the first four-week segment, 2% in the second, and up 1% during the last segment.

Speaker Change: The macro environment and the uncertainty around tariffs have forced customers to be cautious with their spending the consistency of our failure and maintenance businesses continued this past quarter we.

Speaker Change: We saw an improving trend in our maintenance and failure categories on a year over year basis.

Speaker Change: Discretionary categories. The smallest part of our business has been under pressure for several quarters now historically, when our consumer is under pressure or maintenance and failure categories begin to outperform discretionary categories.

Speaker Change: Our DIY comp was up six 2% in the first four week segment, 2% in the second and up 1% during the last segment.

Phil Daniele: This compares last year's Q3 DIY comps of negative 2.2 in the first four-week segment, positive 0.1 in the second, and negative 0.7% in the last segment. With regard to inflation's impact on DIY sales, we saw both DIY average ticket and average like for like skew inflation up approximately 1% for the quarter. We continue to expect inflation in our ticket to be up approximately 3% over time. and we anticipate average ticket growth will return to historical industry growth rates as we move farther away from the hyperinflation of the last couple of years. We also saw DIY traffic up approximately 1.4%, which significantly improved versus the down 1% we experienced in our traffic trend last quarter.

Speaker Change: This compares last year's Q3, DIY comps of negative $2 two in the first four week segment positive 0.1 in the second and negative 0.7% in the last segment.

Speaker Change: With regard to inflation impact on DIY sales, we saw both DIY average ticket and average like for like SKU inflation up approximately 1% for the quarter.

Speaker Change: We continue to expect inflation in our ticket to be up approximately 3% over time.

Speaker Change: And we anticipate average ticket growth will return to historical industry growth rates as we move farther away from the hyperinflation over the last couple of years.

Speaker Change: We also saw DIY traffic up approximately one 4%, which significantly improved versus the down 1%, we experienced in our traffic trend last quarter.

Phil Daniele: We continue to see data that confirms we are gaining share, and we are encouraged by our most recent trends. We believe we have a best in class product and service offering and this gives us confidence we will continue to win in the marketplace.

Speaker Change: We continue to see data that confirms we are gaining share and we are encouraged by our most recent trends. We believe we have a best in class product and service offering and this gives us confidence we will continue to win in the marketplace.

Speaker Change: Next I will speak to our regional DIY performance, we saw weaker performance in the south central and Western United States, while still showing positive trends. These markets were not quite as strong as the other markets. It.

Phil Daniele: Next, I will speak to our regional DIY performance. We saw weaker performance in the South Central and Western United States. While still showing positive trends, these markets were not quite as strong as the other markets.

Phil Daniele: It was a nice sign for us to see the Northeast and the Rust Belt outperforming for the first time in a while. In fact, outperforming by 250 basis points from the rest of the country. We believe this is a sign of the colder winter and favorable spring weather benefiting us. pent up demand now leading to better sales for the spring and the summer.

Speaker Change: It was a nice time for us to see the northeast in the rust belt outperforming for the first time in a while in fact outperforming by 250 basis points from the rest of the country.

Speaker Change: We believe this is a sign of the colder winter and favorable spring weather benefiting us with pent up demand now leading to better sales for the spring and the summer.

Speaker Change: Next I will touch on our U S commercial business, our commercial sales were up 10, seven for the quarter and this compares to Q2s, plus seven 3% total commercial growth in Q1, three 2% growth.

Phil Daniele: Next, I will touch on our US commercial business. Our commercial sales were up 10.7 for the quarter. And this compares to Q2's plus 7.3% total commercial growth and Q1's 3.2% growth. For commercial, the first four weeks of our 12 week quarter grew 9.3%. The second four week segment grew 13.6%. And the last segment grew 9.3%. Again, the Easter shift allowed us to outperform in the middle of the quarter. More broadly, across the US, our commercial business grew at a slower pace in the Northeast and the Rust Belt markets versus the rest of the country. The spread was over 200 basis points between the Northeast and the Rust Belt versus the rest of the country.

Speaker Change: For commercial the first four weeks of our 12 week quarter grew nine 3%. The second four week segment grew 13, six and the last segment grew nine three again, the Easter shift allowed us to outperform in the middle of the quarter.

Speaker Change: More broadly across the U S are commenced commercial business grew at a slower pace in the northeast in the rust belt market versus the rest of the country.

Speaker Change: The spread was over 200 basis points between the northeast and the rest bolt rust belt versus the rest of the country. This underperformance in those regions doesn't surprise us as the colder winter weather doesn't show up with jobs to be done at the commercial accounts until later in the summer there is normally a lag with commercial sales versus what we see in our DIY.

Phil Daniele: This underperformance in those regions doesn't surprise us as the colder winter weather doesn't show up with jobs to be done at the commercial accounts until later in the summer. There is normally a lag with commercial sales versus what we see in our DIY business. We continue to expect performance in the Northeast and the Rust Belt markets to improve over the remainder of the year as the colder winter weather has historically led to parts failures as the summer goes along. While we have continued to see variation in performance across these more weather-sensitive markets, we remain competent in our initiatives.

Speaker Change: Business, we continue to expect performance in the northeast and the rust belt markets to improve over the remainder of the year as the colder winter weather has historically led to parts failures as the summer goes along.

Speaker Change: While we have continued to see variation in performance across these more weather sensitive markets. We remain confident in our initiatives. We are very encouraged with our improved satellite store inventory availability significant improvement in hub and Mega hub store coverage. The continued strength of our <unk> brand and improved execution.

Phil Daniele: We are very encouraged with our improved satellite store inventory availability, significant improvement in hub and mega-hub store coverage, the continued strength of our DuraLast brand, and improved execution on our initiatives to improve speed of delivery and customer service. All of these initiatives give us competence as we move through the year. year-over-year inflation on a life-for-life skew basis for a commercial business was basically flat and did not contribute significantly to our average ticket growth of approximately 1%. Lastly, we are very pleased with our growth in the commercial transactions year over year with traffic up almost 9.8% on a same store basis.

Speaker Change: On our initiatives to improve speed of delivery and customer service.

Speaker Change: All of these initiatives give us gives give us confidence as we move through the year.

Speaker Change: Year over year inflation on a like for like SKU blade basis for commercial business was basically flat and did not contribute significantly to our average ticket growth of approximately 1%.

Speaker Change: Lastly, we are very pleased with our growth in the commercial transactions year over year with traffic up almost nine 8% on a same store basis, our sales growth will be driven by our continued ability to gain market share and an expectation that like for like retail SKU inflation will accelerate as we move forward.

Phil Daniele: Our sales growth will be driven by our continued ability to gain market share and an expectation that like for like retail SKU inflation will accelerate as we move forward. For the quarter, we opened a total of 54 net domestic stores, we remain committed to more aggressively opening satellite stores, hub stores and mega hubs, hubs and mega hubs, comp results continue to grow faster than the balance of the rest of the chain. And we are going to continue to aggressively deploy these assets. For the remainder of the year, we expect our store openings to continue to ramp.

Speaker Change: For the quarter, we opened a total of 54 net domestic stores, we remain committed to more aggressively opening satellite stores hub stores and mega hubs hubs and Mega hubs comp results continue to grow faster than the balance of the rest of the chain and we are going to continue to aggressively deploy these assets.

Speaker Change: For the remainder of the year, we expect our store openings to continue to ramp.

Speaker Change: For our fourth quarter, we expect both DIY and commercial trends to remain solid as our comparisons become slightly easier and we gained momentum from our growth initiatives, we will as always be transparent about what we're seeing and provide color on our markets and outlook as we see trends emerge.

Phil Daniele: For our fourth quarter, we expect both DIY and commercial trends to remain solid as our comparisons become slightly easier, and we gain momentum from our growth initiatives. We will, as always, be transparent about what we are seeing and provide color on our markets and outlook as we see trends emerge.

Phil Daniele: Now, let me take a moment to discuss our international business. In Mexico and Brazil, we opened a total of 30 new stores in the quarter and now have 979 international stores. As you can see from our press release, our same stores grew at 8.1% on a constant currency basis. We remain competent in our growth opportunities in this market, these markets. Today, we have 13% of our total store base outside of the US and expect this number to grow as we accelerate our international store opening. With 58 international stores open year to date, we continue to expect to open around 100 international stores this fiscal year.

Speaker Change: Now, let me take a moment to discuss our international business in Mexico, and Brazil, We opened a total of 30 new stores in the quarter and now have 979 international stores.

Speaker Change: As you can see from our press release, our same stores grew at eight 1% on a constant currency basis, we remain confident in our growth opportunities in this market. These markets today, we have 13% of our total store base outside of the U S and expect this number to grow as we accelerate our international store openings.

Speaker Change: With 58 International stores opened year to date, we continue to expect to open around 100 international stores this fiscal year.

Speaker Change: In summary, we have continued to invest to drive traffic and sales growth, while there will always be tailwind and headwinds in any quarters results what has been consistent as our focus on driving sustainable long term results.

Phil Daniele: In summary, we have continued to invest to drive traffic and sales growth. While there will always be tailwinds and headwinds in any quarter's results, what has been consistent is our focus on driving sustainable long term results. We continue to invest in improving customer service, product assortment initiatives and our supply chain, which all position us well for future growth. We are investing both capex and operating expense to capitalize on these opportunities. This year, we expect to again invest approximately $1.3 billion in CapEx in order to drive our strategic growth priority. As a large part of our CapEx budget for this year, we are investing in accelerated store growth, specifically hubs and mega hubs, placing inventory closer to our customers.

Speaker Change: We continue to invest in improving customer service product assortment initiatives, and our supply chain, which all position us well for future growth. We are investing both capex and operating expense to capitalize on these opportunities.

Speaker Change: This year, we expect to again invest approximately $1 $3 billion in Capex in order to drive our strategic growth priorities.

Speaker Change: Because a large part of our Capex budget for this year, we are investing in accelerated store growth, specifically hubs and mega hubs, placing inventory closer to our customers.

Phil Daniele: We have also opened two new distribution centers this year while utilizing our existing distribution centers to drive efficiency and reduce supply chain costs. And we are investing heavily in technology to improve customer service and our AutoZoner's ability to deliver on our promise of wow customer service. This is the right time to invest in these initiatives as we believe industry demand will continue to ramp.

Speaker Change: We have also opened two new distribution centers this year, while utilizing our existing distribution centers to drive efficiency and reduce supply chain costs and we are investing heavily in technology to improve customer service and our <unk> ability to deliver on our promise of Wow customer service.

Speaker Change: This is the right time to invest in these initiatives as we believe industry demand will continue to ramp.

Jamere Jackson: Now I will turn the call over to Jamere Jackson. Thanks, Phil. Good morning, everyone. Let me start by saying we had a strong sales quarter. Total sales were $4.5 billion and we're up 5.4%. Our domestic same store sales grew 5% and our international comp was up 8.1% on a constant currency basis. Total EBIT was down 3.8% and our EPS was down 3.6%. As Phil discussed earlier, we had a headwind from foreign exchange rates this quarter for Mexico, FX rates weakened nearly 20% versus the US dollar for the quarter, resulting in an $89 million headwind to sales, a $27 million headwind to EBIT, and a dollar and 10 cents a share drag on EPS versus the prior year.

Speaker Change: Now I will turn the call over to Jim Meer Jackson.

Speaker Change: Thanks, Phil and good morning, everyone. Let me start by saying we had a strong sales quarter total sales were $4 $5 billion were up five 4%. Our domestic same store sales grew 5% and our international comp was up eight 1% on a constant currency basis.

Speaker Change: Total EBIT was down three 8% and our EPS was down three 6%.

Speaker Change: As Phil discussed earlier, we had a headwind from foreign exchange rates this quarter for Mexico, FX rates weakened nearly 20% versus the U S. Dollar for the quarter, resulting in an $89 million headwind to sales of $27 million headwind to EBIT and a $1.10 a share drag on EPS versus the prior year, excluding the FX headwind.

Jamere Jackson: Excluding the FX headwind, we would have reported an EPS decrease of 0.6% for the quarter.

Speaker Change: Would've reported and an EPS decrease of <unk>, 6% for the quarter we.

Jamere Jackson: We continue to be proud of our results as the efforts of our autozoners and our stores and distribution centers have enabled us to continue to grow our business. Let me take a few moments to elaborate on the specifics in our P&L for Q3. And first, I'll start with a little more color on our sales and growth initiatives. Starting with our domestic commercial business, our domestic DIFM sales increased 10.7% to $1.3 billion. For the quarter, our domestic commercial sales represented 32% of our domestic auto parts sales and 28% of our total company sales. Our average weekly sales per program were $17,700, up 8% versus last year.

Speaker Change: We continue to be proud of our results as the efforts of our Autozone is in our stores and distribution centers have enabled us to continue to grow our business. Let me take a few moments to elaborate on the specifics in our P&L for Q3.

Speaker Change: First I'll start with a little more color on our sales and growth initiatives, starting with our domestic commercial business. Our domestic <unk> sales increased 10, 7% to $1 3 billion.

Speaker Change: For the quarter, our domestic commercial sales represented 32% of our domestic auto part sales and 28% of our total company sales. Our average weekly sales per program were $17700 up 8% versus last year.

Jamere Jackson: Our commercial acceleration initiatives are continuing to deliver good results as we grow share by winning new business and increasing our share of wallet with existing customers. We continue to have our commercial program in 92% 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 49 net new programs finishing with 6011 total programs. Importantly, we continue to have a tremendous opportunity to both expand sales per program and open new programs. We plan to aggressively pursue growing our share of wallet with existing customers and adding new customers.

Speaker Change: Our commercial acceleration initiatives are continuing to deliver good results as we grow share by winning new business and increasing our share of wallet with existing customers. We continue to have our commercial program in 92% 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 49.

Speaker Change: Net new programs, finishing with 6011 total programs importantly, we continue to have a tremendous opportunity to both expand sales per program and open new programs, we plan to aggressively pursue growing our share of wallet with existing customers and adding new customers.

Jamere Jackson: Megahub stores are a key component of our current and future commercial growth. We open eight megahubs and finish the third quarter with 119 megahub stores. We expect to open at least 10 more locations over the next quarter. As a reminder, our mega hubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the store box, as well as serve as an expanded assortment source for other stores. The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business. These assets are performing well individually, and the fulfillment capability for the surrounding Autozone stores is giving our customers access to thousands of additional parts and lifting the entire network.

Speaker Change: The hub stores are a key component of our current and future commercial growth. We opened eight mega hubs and finished the third quarter with 119 Mega hub stores.

Speaker Change: Expect to open at least 10 more locations over the next quarter.

Speaker Change: As a reminder, our mega hubs typically carry over 100000, Skus and drive a tremendous sales lift inside the store box as well as serve as an expanded assortment source for other stores the.

Speaker Change: The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business.

Speaker Change: These assets are performing well individually and the fulfillment capability for the surrounding autozone stores is giving our customers access to thousands of additional parts and lifting the entire network.

Jamere Jackson: While I mentioned a moment ago that our commercial weekly sales per program grew 8%, the 119 mega hubs are growing much faster than the balance of the commercial business in Q3. We continue to target having just under 300 mega hubs at full build out. Our customers are excited by our commercial offering as we deploy more parts in local markets, closer to the customer while improving our service level. On the domestic retail side of our business, our DIY comp was up 3% for the quarter. As Phil mentioned, we saw traffic up 1.4%, along with a positive 1.5% ticket growth.

Speaker Change: While I mentioned, a moment ago that our commercial weekly sales per program grew 8% to 119 Mega hubs are growing much faster than the balance of the commercial business in Q3.

Speaker Change: We continue to target, having just under 300 Mega hubs at full build out our customers are excited by our commercial offering as we deploy more parts in local markets closer to the customer while improving our service levels.

Speaker Change: On the domestic retail side of our business, our DIY comp was up 3% for the quarter as Phil mentioned, we saw traffic up one 4% along with a positive one 5% ticket growth over time, we expect to see slightly declining traffic counts offset by low to mid single digit ticket growth in line with our long term historical trends for the business.

Jamere Jackson: Over time, we expect to see slightly declining traffic 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. Our DIY share has remained strong behind our growth initiatives, and we're well-positioned for future growth. Importantly, the market is experiencing a growing and aging car park, and a challenging new and used car sales market for our customers, which continues to provide a tailwind for our business. These dynamics, ticket growth, growth initiatives, and macro car park tailwinds, we believe, will continue to drive a resilient DIY business environment for the balance of 2025.

Speaker Change: Driven by changes in technology, and the durability of new parts are DIY shares remain strong behind our growth initiatives and we're well positioned for future growth importantly, the market is experiencing a growing and aging car park and a challenging new and used car sales market for our customers, which continues to provide a tailwind for our business. These days.

Speaker Change: <unk> ticket growth growth initiatives and macro Carpark tailwind. We believe we will continue to drive a resilient DIY business environment for the balance of 2025 now.

Jamere Jackson: Now I'll say a few words regarding our international business. We continue to be pleased with the progress we're making in our international markets. During the quarter, we opened 25 new stores in Mexico to finish with 838 stores and five new stores in Brazil, ending with 141. Our same store sales grew 8.1% on a constant currency basis and negative 9.2% on an unadjusted We remain committed to international and we're pleased with our results in these markets.

Speaker Change: Now I'll say, a few words regarding our international business. We continue to be pleased with the progress we're making in our international markets. During the quarter. We opened 25, new stores in Mexico to finished with 838 stores and five new stores in Brazil, ending with 141.

Speaker Change: Same store sales grew eight 1% on a constant currency basis and negative nine 2% on an unadjusted basis.

Speaker Change: We remain committed to international and were pleased with our results in these markets.

Speaker Change: We will accelerate the store opening pace going forward as we're bullish on international being in an attractive and meaningful contributor to autozone future sales and operating profit growth.

Jamere Jackson: We will accelerate the store opening pace going forward as we're bullish on International being an attractive and meaningful contributor to Autozone's future sales and operating profit growth.

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 52, 7% down 77 basis points versus last year. This.

Jamere Jackson: Now let me spend a few moments on the rest of the P&L and gross margins. For the quarter, our gross margin was 52.7%, down 77 basis points versus last year. This quarter, we had an $8 million net or 21 basis point unfavorable LIFO comparison of last year. Excluding the LIFO comparison, we had a 56 basis point headwind in the gross margin. The results were impacted by similar basis point headwinds from higher commercial mix both domestically and internationally, domestic shrink, and new U.S. distribution center ramp up costs, which more than offset solid merchandise margin improvement. We anticipate that the headwinds from strength in the U.S.

Speaker Change: This quarter, we had an $8 million net or 21 basis point unfavorable LIFO comparison of last year.

Speaker Change: Excluding the LIFO comparison, we had a 56 basis point headwind to gross margins. The results were impacted by similar basis point headwinds from higher commercial mix, both domestically and internationally domestic shrink and new U S distribution center ramp up costs, which more than offset solid merchandise margin improvement.

Speaker Change: We anticipate that the headwinds from shrink in the U S distribution centers will largely abate in Q4, and merchandize margin improvement will mute the commercial mix drag.

Jamere Jackson: distribution centers will largely abate in Q4, and merchandise margin improvement will mute the commercial mixed drag. This quarter, we took a $16 million LIFO credit to the P&L as freight costs have continued to trend lower from their peak. At Q3 quarter end, we still had $3 million in cumulative LIFO charges yet to be reversed through our P&L. And as I've said previously, once we credit back $3 million through the P&L, we will not take any more credits as we will begin to rebuild an unrecorded LIFO reserve.

Speaker Change: This quarter, we took a $16 million LIFO credit to the P&L as freight costs have continued to trend lower from their peak.

Speaker Change: Our Q3 quarter end, we still had $3 million in cumulative LIFO charges, yet to be reversed through our P&L and as I said previously once we credit back $3 million through the P&L, we will not take any more credits as we will begin to rebuild and unrecorded LIFO reserve.

Jamere Jackson: As a reminder, for Q4 last year, we had no LIFO credits and we expect no credits in Q4 of this year.

Speaker Change: As a reminder for Q4 last year, we had no LIFO credits and we expect no credits in Q4 of this year.

Jamere Jackson: I would like to take a moment and discuss the impact of tariffs on our results. For this past quarter, we saw minimal impact from the implementation of tariffs. Going forward, there are several outcomes that may impact our results from tariffs, including vendor absorption, diversifying sourcing, taking pricing actions, or some combination of the three. Currently, we expect these actions to offset any Q4 tariff costs and not have a material impact on our gross margins. To be clear, we intend to main our margin profile post-tariffs, and we expect the entire industry will behave in a rational way as our historical experience has shown.

Speaker Change: I would like to take a moment and discuss the impact of tariffs on our results for this past quarter, we saw minimal impact from the implementation of tariffs going forward. There are several outcomes that may impact our results from tariffs, including vendor absorption diversifying sourcing taking pricing actions or some combination of the three currently we expect these actions to offset it.

Speaker Change: Q4 tariff costs and not have a material impact on our gross margins to be clear, we intend to main our margin profile post tariffs and we expect the entire industry will behave in a rational way as our historical experience has shown.

Speaker Change: Moving on to operating expenses, our expenses were up eight 9% versus last year as SG&A as a percentage of sales deleveraged 108 basis points driven by investments to support our growth initiatives and an increase in our self insurance expense on a per store basis. Our SG&A was up five 1% versus last year's Q3, we have been.

Jamere Jackson: Moving on to operating expenses, our expenses were up 8.9% versus last year as SG&A as a percentage of sales deleverage 108 basis points, driven by investments to support our growth initiatives, and an increase in our self insurance expense. On a per store basis, our SG&A was up 5.1% versus last year's Q3. We have been investing in SG&A in order to capitalize on opportunities to grow our business now and in the future. We will continue to invest at an accelerated pace in initiatives that we believe will help us continue to gain share. These investments will pay dividends in customer experience, speed of delivery and productivity.

Speaker Change: Investing in SG&A in order to capitalize on opportunities to grow our business now and in the future.

Speaker Change: We'll continue to invest at an accelerated pace and initiatives that we believe will help us continue to gain share. These investments will pay dividends in customer experience speed of delivery and productivity. We will remain committed to being disciplined on SG&A growth and we'll manage expenses in line with sales growth over time.

Jamere Jackson: We will remain committed to being disciplined on SDNA growth, and we'll manage expenses in line with sales growth over time.

Speaker Change: Moving to the rest of the P&L EBIT for the quarter was $866 million down three 8% versus the prior year.

Jamere Jackson: Moving to the rest of the P&L, EBIT for the quarter was $866 million, down 3.8% versus the prior year. As I previously mentioned, FX rates reduced our EBIT by $27 million, while unfavorable LIFO comparisons reduced EBIT growth by another $8 million. Adjusting for the unfavorable LIFO comparison and reporting on a constant currency basis, our EBIT would have been up a tenth of a percent versus the prior year, which is below our normal performance driven by the gross margin and SG&A drivers I mentioned earlier. Interest expense for the quarter was $111 million up 6.6% from a year ago, as our debt outstanding at the end of the quarter was $8.9 billion versus $9 billion a year ago.

Speaker Change: As I previously mentioned FX rates reduced our EBIT by $27 million, while unfavorable LIFO comparisons reduce EBIT growth by another $8 million adjusting for the unfavorable LIFO comparison and reporting on a constant currency basis, our EBIT would have been up a 10th of a cent versus the prior year, which is below our normal performance driven by the <unk>.

Speaker Change: Gross margin and SG&A drivers I mentioned earlier.

Speaker Change: Interest expense for the quarter was $111 million up six 6% from a year ago as our debt outstanding at the end of the quarter was $8 9 billion versus 9 billion a year ago.

Speaker Change: We are planning interest in the $146 million to $149 million range for the fourth quarter of that.

Jamere Jackson: We are planning interest in the $146 to $149 million range for the fourth quarter of FY 25 versus $144 million last year on a 16-week basis. Higher borrowing rates are continuing to drive interest expense increases.

Speaker Change: 425 versus $144 million last year on a 16 week basis higher borrowing rates are continuing to drive interest expense increases.

Jamere Jackson: For the quarter, our tax rate was 19.4% and up from last year's third quarter of 18.1%, driven primarily by higher stock option expense benefit last year. This quarter's tax rate benefited 301 basis points from stock options exercise, while last year it benefited 479 basis points. For the fourth quarter of FY25, we suggest investors model us at approximately 23.2% before any assumption on credits due to stock option exercise.

Speaker Change: For the quarter, our tax rate was 19, 4% and up from last year's third quarter of 18, 1% driven primarily by higher stock option expense benefit last year. This quarter's tax rate benefited 301 basis points from stock options exercised while last year had benefited 479 basis points.

Speaker Change: For the fourth quarter of FY 'twenty five we suggest investors model us at approximately 23, 2% before any assumption on credits due to stock option exercises.

Speaker Change: Moving to net income and EPS net income for the quarter was $608 million down six 6% versus last year, our diluted share count of $17 2 million was three 1% lower than last year's third quarter. The combination of lower net income and lower share count drove earnings per share for the quarter to $35 36 months down three.

Jamere Jackson: Moving to net income and EPS net income for the quarter was $608 million down 6.6% versus last year, our diluted share count of 17.2 million was 3.1% lower than last year's third quarter. The combination of lower net income and lower share count drove earnings per share for the quarter to $35.36 down 3.6% for the quarter. As a reminder, the unfavorable FX comparison drove our EPS down $1.10 a share.

Speaker Change: <unk>, 6% for the quarter as a reminder, the unfavorable FX comparison drove our EPS down a $1.10 a share.

Jamere Jackson: Now let me talk about our free cash flow. For the third quarter, we generated $423 million in free cash flow versus $434 million last year in Q3. 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. Regarding our balance sheet, our liquidity position remains very strong. And our leverage ratio finished at two and a half times EBITDA. Our inventory per store was up 6.7% versus Q3 last year while total inventory increased 10.8% over the same period last year, driven by new stores and additional inventory investment to support our growth in this Net inventory, defined as merchandise inventories less accounts payable on a per store basis, was a negative $142,000 versus negative $168,000 last year and negative $161,000 last quarter.

Speaker Change: Now, let me talk about our free cash flow for the third quarter, we generated $423 million in free cash flow versus $434 million last year in Q3.

Speaker Change: We expect to continue being in an incredibly strong cash flow generator going forward, we remain committed to returning meaningful amounts of cash to our shareholders.

Speaker Change: Regarding our balance sheet, our liquidity position remains very strong and our leverage ratio finished at two five times EBITDAR.

Speaker Change: Our inventory per store was up six 7% versus Q3 last year, while total inventory increased 10, 8% over the same period last year, driven by new stores and additional inventory investment to support our growth initiatives.

Speaker Change: Net inventory defined as merchandise inventories less accounts payable on a per store basis was a negative $142000 versus negative $168000 last year and negative $161000 last quarter.

Jamere Jackson: As a result, accounts payable as a percent of gross inventory finished a quarter at 115.6% versus last year's Q3 of 119.7%.

Speaker Change: As a result accounts payable as a percent of gross inventory finished the quarter at 115, 6% versus last year's Q3 of 119, 7%.

Jamere Jackson: Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $250 million of Autozone stock in the quarter. And at quarter end, we have $1.1 billion remaining under our share buyback authorization. Our ongoing strong earnings, balance sheet, and powerful free cash continues to allow us to deliver a significant amount of cash to our shareholders through our buyback program. We have bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998, while investing in our existing assets and growing our business.

Speaker Change: Lastly, I'll spend a moment on capital allocation and our share repurchase program, we repurchased $250 million of Autozone stock in the quarter and at quarter end, we had $1 $1 billion remaining under our share buyback authorization are ongoing strong earnings balance sheet and powerful free cash continues to allow us to deliver a significant amount of cash to.

Speaker Change: Our shareholders through our buyback program.

Speaker Change: We have bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998, while investing in our existing assets and growing our business. We remain committed to this disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders.

Jamere Jackson: We remain committed to this disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders.

Phil Daniele: So to wrap up, we remain committed to driving long-term shareholder value by investing in our growth initiatives, driving robust earnings in cash and returning excess cash to our shareholders. Our strategy continues to work as we remain focused on gaining market share and improving our competitive positioning in a disciplined way. As we look forward to the remainder of FY25, we're bullish on our growth prospects behind a resilient DIY business, a fast-growing international business, and a domestic commercial business that is gaining momentum and growing share. We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders behind a strong industry, a winning strategy, and an exceptional team of Autozone.

Speaker Change: So to wrap up we remain committed to driving long term shareholder value by investing in our growth initiatives driving robust earnings and cash and returning excess cash to our shareholders. Our strategy continues to work as we remain focused on gaining market share and improving our competitive positioning in a disciplined way as.

Speaker Change: As we look forward to the remainder of FY 'twenty five we're bullish on our growth prospects behind our resilient DIY business, a fast growing international business and a domestic commercial business that is gaining momentum and growing share.

Speaker Change: We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders behind a strong industry, a winning strategy and an exceptional team of autozone.

Jamere Jackson: Before handling the callback to fill, I want to remind you that we report revenue comps on a constant currency basis to reflect our operating performance. We generally don't take on transactional risks, so our results primarily reflect the translation impact for reporting purposes. As mentioned earlier in the quarter, foreign currency resulted in a headwind on revenue and EPS.

Speaker Change: Before handling the call back to Phil I want to remind you that we report revenue comps on a constant currency basis to reflect our operating performance. We generally don't take on transactional risk. So our results primarily reflect the translation impact for reporting purposes as.

Speaker Change: As mentioned earlier in the quarter foreign currency resulted in a headwind on revenue and EPS.

Jamere Jackson: If yesterday's spot rates held for Q4, then we expect an approximate $50 million drag on revenue, a $20 million drag on EBIT, and an approximate $0.80 a share drag on EPS.

Speaker Change: If yesterday's spot rates held for Q4, and we expect an approximate $50 million drag on revenue of $20 million drag on EBITDA on EBIT.

Speaker Change: And an approximate 80 cents a share drag on EPS and now I will turn the call back to Phil. Thank you Jim here.

Phil Daniele: And now I'll turn the callback to Phil. Thank you, Jamere. We are on track for the remainder of FY25 to accomplish our goals. We are committed to continually focus on improving our execution and driving wow customer service. We feel we are well positioned to grow sales across our domestic and our international store bases with both our retail and our commercial customers. We expect to manage our gross margins effectively, and our operating expense is appropriate for future growth. We continue to put our capital to work where it will have the biggest impact on our sales, our stores, specifically our hubs and mega hubs, our distribution centers, and investing in technology to build a superior customer experience where we are able to say yes to our customers' needs.

Speaker Change: We are on track for the remainder of FY 'twenty five to accomplish our goals. We are committed to continually focus on improving our execution and driving Wow customer service. We feel we are well positioned to grow sales across our domestic and our international store basis with both our retail and our commercial customers, we expect to manage our.

Speaker Change: Gross margins effectively and our operating expense is appropriate for future growth. We continue to put our capital to work where it will have the biggest impact on our sales our stores, specifically, our hubs and mega hubs or distribution centers and investing in technology to build a superior customer experience, where we are able to say yes.

Speaker Change: Yes to our customers' needs.

Phil Daniele: The top focus areas for this last quarter of Fiscal 25 remain growing share in our domestic commercial business and continuing our momentum in our international markets. We are excited to get started on our fourth quarter. We understand we cannot take things for granted. We must remain laser focused on customer service, execution, and gaining share in every market in which we operate. Fiscal 2025's top operating priorities are based on improving execution and wow customer service.

Speaker Change: The top focus areas for this last quarter of fiscal 'twenty five remain growing share in our domestic commercial business and continuing our momentum in our international markets. We are excited to get started on our fourth quarter. We understand we cannot take things for granted we must remain laser focused on customer service execution.

Speaker Change: Houston and gaining share in every market in which we operate.

Speaker Change: Fiscal 2025 top operating priorities are based on improving execution and wild customer service, we will continue to invest in the following strategic projects accelerating our domestic and our international store growth.

Phil Daniele: We will continue to invest in the following strategic projects. Accelerating our domestic and our international store growth, reaccelerating our new hub and mega hub openings. These stores do take time, but we are incredibly excited about their continued performance. And most importantly, remain diligent driving our domestic commercial sales growth, which we are doing in a meaningful way. We are excited about what we can accomplish and our AutoZoners are committed to delivering on our commitments for FY25. We believe AutoZone's best days are ahead of us.

Speaker Change: Re accelerating our new hub and Mega hub openings. These stores do take time, but we are incredibly excited about their continued performance and most importantly remain diligent driving our domestic commercial sales growth, which we are doing in a meaningful way.

Speaker Change: We are excited about what we can accomplish in our auto centers are committed to delivering on our commitments for FY 'twenty five we believe auto zones best days are ahead of us now.

Operator: Now we would like to open up the call for questions. Certainly. At this time, we will be conducting a question and answer session.

Speaker Change: Now we would like to open up the call for questions.

Speaker Change: Sure.

Speaker Change: 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: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: Confirmation tone will indicate your line is in the question queue.

Operator: You may press star two if you would like to remove your question from the For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for questions.

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, one moment, please while we poll for questions.

Bret Jordan: Your first question for today is from Bret Jordan with Jefferies.

Bret Jordan: Your first question for today is from Bret Jordan with Jeff. Hey, good morning, guys. Morning, Bret.

Bret Jordan: Hey, good morning, guys.

Speaker Change: Morning, Brian and breadth.

Phil Daniele: Could you just give us a quick refresher as it relates to the tariffs, you know, source of origin for your, your primary import countries and how much is direct import versus, you know, via a third party supplier? and then a quick follow up. Yeah, sure. I mean, the biggest net importer where most of our product comes from is China. I will say that we've taken that number down pretty significantly over the last couple of years, specifically since the first round of tariffs back in 2016. But we get product out of many Far East countries, we get a little bit of product out of Europe, mostly Eastern Europe, and then we get some out of Mexico, that would be where the vast majority of those come from.

Speaker Change: Can you just give us a quick refresher as it relates to the tariffs.

Speaker Change: The source of origin for your primary import countries and how much is direct import versus.

Speaker Change: Via a third party supplier.

Speaker Change: And then a quick follow up to that.

Speaker Change: Yeah sure I mean, the biggest net importer or where most of our product comes from is China I will say that we've taken that number down pretty significantly over the last couple of years, specifically since the first round of tariffs back in 2016, but we get product out of many far east countries.

Speaker Change: Get a little bit of product out of Europe, mostly eastern Europe, and then we get some out of Mexico that would be where the vast majority of those come from.

Speaker Change: Okay, and I guess as far as direct import versus buying from a dormant or somebody who might be making the initial Chinese imports.

Phil Daniele: Okay, and I guess as far as direct import versus buying from a doorman or somebody who might be making the initial Chinese Yeah, I mean, we obviously have, we do a lot of that from we take product from domestic suppliers, both FOB, or direct import, and we buy domestically. Never really said exactly what our mix is. But, you know, the question, I think your real question is, how do we think we're going to manage tariffs, and we feel like we have our arms around it, even though it's changing every day. It's not nearly as impactful as it appeared it was going to be several months ago.

Speaker Change: Yes, I mean, we obviously have we do a lot of that from we take product from domestic suppliers both.

Speaker Change: Bob or direct import and we buy domestically.

Speaker Change: We've never really said exactly what our mix is but.

Speaker Change: The question I think the real question is how do we think we're going to manage tariffs and we feel like we have our arms around it even though it's changing every day, it's not nearly as impactful as it appeared it was going to be several months ago, and as Humira mentioned a minute ago.

Phil Daniele: And, you know, as Jamere mentioned a minute ago, there's lots of strategies to try to mitigate the cost of tariffs through vendor negotiations, diversification of country of origin, diversification of suppliers, pricing actions, and a combination of all of those.

Speaker Change: There is lots of strategies to try to mitigate.

Speaker Change: The cost of tariffs through vendor negotiations diversification of country of origin diversification of suppliers pricing actions and a combination of all of those.

Speaker Change: And I guess follow up I mean, you talked about the 1% inflation sort of trending towards a three is that three assuming pricing pass through or is are is to win tariff be incremental to that expectation of a.

Phil Daniele: I guess follow up, I mean, you talked about the 1% inflation sort of trending towards a three, is that three assuming pricing pass through or is it would tariff be incremental to that expectation of a higher low single digit inflation rate? Yeah, I think if you think about what's happened with our average ticket over the last, you know, 12 to 18 months, it's been relatively flat coming off of several years of what I would consider hyperinflation. You know, if tariff costs ultimately do materialize, I would think we would probably get back closer to that 3% average ticket growth.

Speaker Change: Higher low single digit inflation rate.

Speaker Change: I think if you think about what's happened with our average ticket over the last 12 to 18 months, it's been relatively flat coming off of several years of what I would consider hyperinflation.

Speaker Change: If tariff cost ultimately do materialize I would think we would probably get back closer to that 3% average ticket growth.

Bret Jordan: And that would be more of a long term average ticket growth based on technology enhancements and frankly, quality of park. Great. Thank you. Appreciate it.

Speaker Change: And that would be more of a long term.

Speaker Change: Average ticket growth based on technology enhancements and frankly quality of parts.

Speaker Change: Great. Thank you appreciate it.

Speaker Change: Okay.

Speaker Change: Your next question is from Christopher <unk> with Jpmorgan.

Christopher Horvers: Your next question is from Christopher Horvers with JPMorgan. Thanks, guys. Good morning.

Speaker Change: Thanks, guys. Good morning, instead of a follow up there first and then tariffs.

Christopher Horvers: Sort of a follow up there first on the tariff. Is it that the inflation is not here yet because people pause shipments coming out of China and it's just a slow inventory turn business? Or is there, you know, more of an effort here to perhaps have the cost be absorbed into the supply chain? and maintain our margin structure over time.

Speaker Change: Is is it that the inflation is not here, yet because people pause shipments coming out of China, and it's just a slow inventory turn business or is there more of an effort here to perhaps have the cost to be absorbed into the supply chain.

Speaker Change: Yes, I think one of the reasons that you havent seen a lot of the tariff cost and our side of the business. As you mentioned most of our inventory turns relatively slow compared to many other industries hard parts in particular and that product just hasnt shown up here in the country and as you know this stuff has changed pretty significantly over the last.

Speaker Change: 90 days or 120 days I mean, there will be an impact of tariffs on the cost of goods.

Speaker Change: But again as we've mentioned, we think there's lots of ways to mitigate that cost and.

Speaker Change: And maintain our margin and margin structure overtime.

Speaker Change: Understood and then.

Speaker Change: On the margin front Humira can you talk about the persistence of some of these costs like the shrink.

Speaker Change: And the self insurance costs like how do you think about what gross margins look like as we move forward and then similarly on the on the SG&A per store side and sorry, I had one additional one which is can you can you break out the month lease extra Easter shift and adjust for that with a clearer view of the cadence over the quarter.

Speaker Change: Yes, so just on the gross margin as we said it was driven by Frank.

Jamere Jackson: Yeah, so just on the gross margin, as we said, it was driven by Frank. D.C.'s are ramping up and we obviously have higher costs as those D.C.'s ramp up and we get to our going productivity rates. And then the positive there, although it's a negative from a mix standpoint, is that our global commercial mix is growing and that's driven by the work that we're doing to grow our commercial mix. What I'll say is that the DC ramp-up and the shrink pressure will abate, and merge margins should largely offset our commercial mixed pressure.

Speaker Change: Our Dcs are ramping up and we obviously have higher costs as those dcs ramp up when we get to the ongoing productivity rates.

Speaker Change: And then the positive there, although it's a negative from a mix standpoint has done a global commercial mix is growing and that's driven by the work that we're doing to grow our commercial business. What I'll say is that the DC ramp up in the shrink pressure will abate.

Speaker Change: And merch margin should largely offset our commercial mixed pressure.

Jamere Jackson: So, you know, from a from a gross margin standpoint, we would expect those gross margins to be, you know, down slightly in Q4, given all of those dynamics, as opposed to being down 56 basis points x LIFO, as we saw this On the SG&A front, you know, I just want to reiterate that, you know, we're growing SG&A in a disciplined way to create a faster growing business. You know, we deleveraged this past quarter, about half of that deleverage was driven by self insurance. As you know, our commercial commercial business grows, we put more delivery vehicles on the road to support that commercial growth, obviously, you're going to have more And then we also settled some outstanding claims that were longer in nature, where we saw a spike in incidence and severity, primarily in the 21 to 22 kind of timeframe.

Speaker Change: So you know from a from a gross margin standpoint, we would expect those gross margins to be down slightly in Q4, given all of those dynamics as opposed to being down 56 basis points ex LIFO as we saw this quarter on the SG&A front, you know I just want to reiterate that we are growing SG&A on a discipline.

Speaker Change: Way to create a faster growing business.

Speaker Change: We deleveraged this past quarter about half of that deleverage was driven by self insurance.

Speaker Change: As you know our commercial commercial business grows we put more delivery vehicles on the road to support support that commercial growth, obviously youre going to have more incidents.

Speaker Change: And then we also settled some outstanding claims.

Speaker Change: That were longer in nature, where we saw a spike in incidents and severity primarily in the 'twenty one to 'twenty two kind of timeframe.

Jamere Jackson: But what I'll say about SG&A is that, you know, we're continuing to invest in a disciplined way on all the things that are going to drive growth for us. And those things are paying off in a higher top line. And as you've seen our business in the past, you know, to the extent that the top line doesn't show up, we obviously know how to go to the middle of the P&L to drive the margins that we need to make sure that we're driving the earnings that we have. So I feel good about where we are.

Speaker Change: But what I'll say about SG&A is that we'll continue to invest in a disciplined way on all the things that are going to drive growth for us.

Speaker Change: And those things are paying off in a higher top line and as you've seen our business in the past.

Speaker Change: To the extent that the top line doesn't show up we obviously know how to go to the middle of the P&L.

Speaker Change: To drive the margins that we need to make sure that we're driving the earnings that we have so I feel good about where we are I think the execution is great were being intentional about the investments that we're making and I feel great about the growth prospects that we see in the future behind all of those investments that we've made thus far.

Jamere Jackson: I think, you know, the execution is great. We're being intentional about the investments that we're making.

Jamere Jackson: And I feel great about the growth prospects that we see in the future behind all of those investments that we've made this far. Great.

Speaker Change: Yes.

Jamere Jackson: And then the, um, can you give us the four week cadence, ex Easter shift, so we can understand that better? Yeah, we typically don't break that out. What I'll say to you is, is that, you know, if we think about our business and total it, you know, from a commercial standpoint, you heard Phil kind of walk through the quarter, you know, commercial was pretty steady growth across each of the four week segments with a little bit of a pop in the middle because of the Easter shift.

Speaker Change: Great and then can you give us the four week cadence ex Easter shift so you can understand that better.

Speaker Change: Yeah, we typically don't break that out what I'll say to you is is that you know if we think about our business in total.

Speaker Change: From a commercial standpoint, you heard Joe kind of walk through the quarter commercial was pretty steady growth across each of the four week segments with a little bit of a pop in the middle because of the Easter shift and then on the DIY side of the business more so than the Easter shift. The story really is about the share that we're regaining their and you know while we did see a little.

Jamere Jackson: And then on the DIY side of the business, more so than the Easter shift, the story really is about the share that we're regaining there. And, you know, while we did see a little bit of an Easter shift in the middle of the quarter, what we're encouraged by is the opportunity to win share and the execution that we're seeing by our folks in the store.

Speaker Change: Have an Easter shift in the middle of the quarter, our what we're encouraged by is the.

Speaker Change: The opportunity to win share and the execution that we're seeing by our folks in the stores.

Speaker Change: Great. Thanks, so much.

Jamere Jackson: Great, thanks so much.

Simeon Gutman: Your next question is from Simeon Gutman with Morgan Stanley.

Simeon Gutman: Your next question is from Simeon Gutman with Morgan.

Simeon Gutman: Hi, This is Lauren on for Simeon Thanks for taking our question. Our first one is on the 5% domestic comp which is the strongest we've seen over the past two years, so well done on that could you just comment on what kind of comp lift you're seeing from maybe your own initiatives and market share gains versus the underlying market demand.

Lauren Ing: Hi, this is Lauren Ing on for Simeon. Thanks for taking our question. Our first one is on the 5% domestic comp, you know, which is the strongest we've seen over the past two years. So well done on that. Could you just comment on what kind of conflict you're seeing from maybe your own initiatives and market share gains versus the underlying market demand? Yeah, thank you for the question. I think, you know, we're, we're seeing share gains, you know, across the board all across the country, in both DIY and commercial. And I would say, yeah, there's, there's obviously some macro that's going on.

Simeon Gutman: Yes. Thank you for the question I.

Speaker Change: I think we're seeing share gains across the board all across the country in both DIY and commercial and I would say yeah. There's obviously some macro that's going on but we feel like the vast majority of our growth is coming from the initiatives we have in place improved execution.

Phil Daniele: But we feel like the vast majority of our growth is coming from the initiatives we have in place, improved execution, driving hub and mega hubs into our markets, continually improving our assortments, both in the US and in our international markets.

Speaker Change: Driving hub and Mega hubs into our markets continually improving our assortments both in the U S and in our international markets and we think those are helping us improve on all elements of our operations and causing us to gain share both on the DIY side and faster share on the commercial side.

Phil Daniele: And we think those are helping us improve on all elements of our operations, and causing us to gain share both on the DIY side, and faster share on the commercial side. Great.

Speaker Change: Great and then I just follow up is on the improvement in the commercial comps. It seems like you guys are continuing to take market share nicely. There could you comment maybe what you want to continue focusing on in the upcoming quarters.

Phil Daniele: And then our just follow up is on the improvement in the commercial comps. It seems like you guys are continuing to take market share nicely there. Could you comment maybe what you want to continue focusing on the upcoming quarters? Yeah, thank you. Okay, you know, as we've said, the strategy is is not a whole lot different than we've talked about over the last couple of quarters. We we continue to improve our assortments at our local store. We continue to deploy our hubs and mega hubs, and refining those assortments, both for DIY customers and the commercial customers.

Speaker Change: Yeah. Thank you.

Speaker Change: Okay.

Speaker Change: We've said that the strategy is not a whole lot different than we've talked about over the last couple of quarters.

Speaker Change: We continue to improve our assortments at our local store, we continue to deploy our hubs and mega hubs and refining those assortments, both for DIY customers and the commercial customers and we've also been working on some strategies to improve delivery time and speed of delivery, what we call time to shop.

Phil Daniele: And we've also been working on some strategies to improve delivery time and speed of delivery, what we call time to shop for our commercial deliveries, changing some of our fulfillment methodologies from our hubs and mega hubs to get to the customer faster. We think all of those are creating a better customer experience, and causing us to grow both new customers and share a wallet with those commercial Great, thank you.

Speaker Change: For our commercial deliveries changing some of our fulfillment methodologies from our hubs and mega hubs to get to the customer faster. We think all of those are creating a better customer experience and causing us to go both new customers and share of wallet with those commercial customers.

Speaker Change: Great. Thank you.

Speaker Change: Your next question is from Michael Lasser with UBS.

Michael Lasser: Your next question is from Michael Lasser with UBS. Good morning, thank you so much for taking my question. So do you think the cost of doing business within the aftermarket has gone up such that in the past Autozone might have been able to grow its overall top line in a single digit and leverage that to double digit EPS? I broke up just a tad. Good morning, by the way. Yeah, I think there has been some core inflation in our, in our, you know, payroll, both in the supply chain and in the stores. So yeah, there's probably a little bit more of an inflationary environment.

Michael Lasser: Good morning. Thank you so much for taking my question. So do you think the cost of doing business within the aftermarket has gone up such that in the past, though it is known might've been able to grow it.

Speaker Change: Overall the top line.

Speaker Change: Leverage that double digit EPS growth.

Speaker Change: And now there is more.

Speaker Change: Okay.

Speaker Change: Can be calibrated.

Speaker Change: Around them.

Michael Lasser: Yeah, Michael broke up just a tad good morning by the way.

Speaker Change: Yes, I think there has been some core inflation in our in our.

Speaker Change: Payroll both in the supply chain and in the stores. So yeah, there's probably a little bit more of an inflationary environment.

Phil Daniele: You know, since the pandemic, I think they're moderating somewhat. But I think at the end of the day, we've proven that we've been able to maintain our sales and our SG&A in line with, you know, investing in our growth initiatives that we think will help us gain market share. You know, as Jamere said, we've been pretty good at this over time and managing our expenses in line with our top line growth. I will say at the moment, though, we have quite a few initiatives that are all in place, both from, you know, improved execution in our on our stores, growing our commercial business faster by using some new initiatives that are still in the early innings, as well as ramping up to new distribution centers.

Speaker Change: Since the pandemic I think they are moderating somewhat.

Speaker Change: But I think at the end of the day, we've proven that we've been able to maintain our sales and our SG&A in line with it.

Speaker Change: Investing in our growth initiatives that we think will help us gain market share as Jim Meer said.

Speaker Change: We've been pretty good at this over time and managing our expenses in line with our topline growth I will say at the moment, though we have quite a few initiatives that are all in place both from improved execution.

Speaker Change: <unk> in our on our stores growing our commercial business faster by using some new initiatives that are still in the early innings as well as ramping up two new distribution centers. So we do we are running through an investment period that we think we believe will ultimately help us have a faster growing business.

Phil Daniele: So we do we are running through an investment period that we think we believe will ultimately help us have a faster growing business and can allow us to continue to gain share at a faster clip.

Speaker Change: And can allow us to continue to gain share at a faster clip.

Phil Daniele: And Phil, what is that? What is the arc of that investment cycle look like? Can you help frame the market's expectations on how long this is going to weigh on the profitability of Autozone such that eventually it can get back to the double digit ETS growth that it's historically been able to achieve? Thank you. Right, great question. I think we're we're kind of in the we're in the midst of, you know, early innings of most of these initiatives. You know, some of them like our like our commercial delivery strategies, that's all been executed today, it's, it's more about continuing to refine the execution and get better at it with business practices.

Speaker Change: And Bill what is that what is the arc of that investment cycle look like can you help frame the market's expectations on how long this.

Speaker Change: He's going to weigh on our profitability of Autozone, such that eventually you can get back in the double digit EPS growth that it's historically been able to achieve thank you.

Speaker Change: Alright, Great question I think we're kind of in the we're in the midst of early innings of most of these initiatives you know some of them like our like our commercial delivery strategies. That's all been executed today, it's more about continuing to refine the execution and get better at it with business practices.

Jamere Jackson: And so I'd say we're kind of all these things are in flight, and in launch phase. At the moment, we're more about trying to optimize these and get better at them, as we're in the early phases of these, what we believe have long lifecycle and benefit, but most of them are in flight and on track at the moment. Yeah, I think the one thing I'll add is that, you know, we've talked about this notion of managing our expenses in line with sales growth. And, you know, to be clear, our disciplines around, you know, investment, you know, will all have a payback associated with them.

Speaker Change: And so I'd say, we're kind of all these things are in flight and in launch phase.

Speaker Change: At the moment, we're more about trying to optimize these and get better Adam as we're in the early phases of these what we believe have long lifecycle and benefit but most of them are in flight and on track at the moment, Yes, I think the one thing I'll add is that.

Speaker Change: We've talked about this notion of managing our expenses in line with sales growth and to be clear our disciplines around.

Speaker Change: Investment will all have a payback associated with them and most notably you'll see it in the top line and new you'll eventually see it in the bottom line I think the thing that gives us a lot of confidence and is really encouraging is the things that we've been investing on for the last several quarters are now starting to show some growth huge I mean, you see that in the commercial number.

Jamere Jackson: And most notably, you'll see it in the top line, and you'll eventually see it in the bottom line. I think the thing that gives us a lot of confidence and is really encouraging is the things that we've been investing on for the last several quarters, are now starting to show some growth shoots. I mean, you see that in the commercial numbers, you know, the last couple of quarters, our outlook, as we look at the fourth quarter, and in the next year, remains very positive. We've got a lot of good momentum there. And we're also seeing it on the international side as well.

Speaker Change: You know in the last couple of quarters, our outlook as we look at the fourth quarter and into next year remains very positive. We've got a lot of good momentum there and we're also seeing it on the international side as well so as we.

Jamere Jackson: So as we, you know, accelerate the number of stores that we put in place, we accelerate, you know, the initiatives that we have in place to grow our commercial business. We're very excited about creating a faster-growing business, and ultimately that's going to result in more earnings growth for the company.

Speaker Change: Accelerate the number of stores that we put in place we accelerate.

Speaker Change: Michigan is that we have in place to grow our commercial business.

Speaker Change: Very excited about creating a faster growing business and ultimately that's going to result in more earnings growth for the company.

Speaker Change: Understood. Thank you very much and good luck.

Michael Lasser: Understood. Thank you very much and good luck. Thanks.

Speaker Change: Thanks, Thank you.

Michael Lasser: Thank you.

Brian Nagel: Your next question is from Brian Nagel with Oppenheimer.

Brian Nagel: Your next question is from Brian Nagel with Oppenheimer. Hi, good morning. Next quarter. So the question I have, and I guess it's a bit repetitive, but you know, clearly, you know, if we look at the results of hearing your commentary, the sales, the sales growth improved meaningfully here in the quarter. you talk about the initiatives, but your initiatives have been in place for a while, sir. Is there anything that really shifted here in the fiscal third quarter, you know, from the prior quarters to sort of say underpin this, this better sales growth? Yeah, you're right.

Brian Nagel: Hi, good morning, nice quarter warrants.

Speaker Change: Question I Havent had the I guess, it's a bit repetitive, but clearly.

Speaker Change: And we'd be looking at the results here in your commentary the sales the sales building.

Speaker Change: Proof of meaningful here in the quarter.

Speaker Change: You talked about the initiatives some of your initiatives have been in place for a wowser is there anything there.

Speaker Change: Really shifted here in the fiscal third quarter from the prior quarter start so to say underpinning this better sales growth.

Brian Nagel: Yeah Youre right. Some of these initiatives have been in place keep in mind, although we've been talking about them for approximately a year. They do take time to roll out and we're continuing to we've got if you think about commercial delivery initiatives things of that nature of those are now essentially rolled out.

Phil Daniele: Some of these initiatives have been in place. Keep in mind, although we've been talking about them for approximately a year, they do take time to roll out. And we're continuing to you know, we've got, you know, if you think about commercial delivery initiatives, things of that nature, those are now essentially rolled out. And We will only be added as we add hubs and mega hubs and get those stores open. You know, also in the quarter, we also accelerated quite a few store growth opportunities, and those also have expenses associated with them. As as we get those stores opened up, that that part of the initiative is going to continue as we ultimately ramp up to, you know, roughly 300 stores domestically and 500 stores internationally.

Brian Nagel: And.

Brian Nagel: We will only be added as we add hubs and mega hubs and get those stores open you also in the quarter. We also accelerated quite a few store growth opportunities and those also have expenses associated with them as we get those stores opened up that that part of the initiative is going to continue as we ultimately ramp up to roughly 300 stores.

Brian Nagel: Domestically and 500 stores internationally.

Phil Daniele: It'll still take us a couple of years to get to those. Growth numbers, but those do have expenses on the front end, but the rest of the service initiatives that are already in place are essentially out, and it's more about optimizing them and continuing to get better execution at the store level. So it's fair to say that here in the third quarter, we did see somewhat of a culmination of these initiatives that helped to drive the better sales and also what may be an improving sector backdrop. Yeah, I think that's correct. I think that's well said.

Brian Nagel: It'll take us a couple of years to get to those.

Brian Nagel: Growth numbers, but those do have expenses on the front end, but the rest of the service initiatives that are already in place are essentially out.

Brian Nagel: And it's more about optimizing them and continuing to get better execution at the store level.

Brian Nagel: So is it fair to say then that here in the third quarter, we did see somewhat of a culmination of these initiatives that helped to drive a better sales and also what may be an improving sector backdrop.

Brian Nagel: Yes, I think Thats correct, I think that's well said.

Speaker Change: And then the follow up question I Havent you may just answered this but you know as youre looking at some sales tracking better you know getting back to what I would consider a normalized <unk> normalized algo for for Autozone was there then the conscious decision to sort of say invest some of that sales upsides. Each other areas of the P&L I'm asking why do we didn't see the flow through.

Phil Daniele: And the follow up question I have, and you may have just answered this, but you know, as you're looking at this, so sales tracking better, you know, getting back to what I what I would consider a normalized or normalized algo for, for Autozone, was there been a conscious decision to sort of say, invest some of that sales upside into other areas of the P&L? And that's maybe why we didn't see the flow through? Yeah, I think we've been intentional about that. And we've, we've been very clear about the notion that, you know, we see an opportunity today, and some of it is a unique opportunity to invest into the growth opportunities that we're seeing.

Brian Nagel: Yes, I think we've been intentional about that and we've been very clear about the notion that we see and opportunity today and some of it is a unique opportunity to.

Brian Nagel: To invest in and the growth opportunities that we're seeing so we're intentional, particularly in SG&A about making sure that we have the assets in place the infrastructure in place.

Phil Daniele: So we're, we're intentional, particularly in the SG&A, about making sure that we have the assets in place, the infrastructure in place, to be able to go after that opportunity. So we've been very purposeful and very intentional about investing into that. But to be very, very clear, I mean, our disciplines are around, you know, managing the P&L to ultimately drive earnings growth and cash inside the company are still in place. But this is a unique opportunity for us to go invest in a disciplined way to drive the kind of growth that we're seeing. And again, you know, we saw some growth shoots on the top line here that we're very encouraged about, and that momentum is going to continue.

Brian Nagel: To be able to go after that opportunity. So we've been very purposeful and very intentional about investing into that but to be very very clear I mean, our disciplines around.

Brian Nagel: Managing the P&L to ultimately drive our earnings growth and cash.

Brian Nagel: Inside of the company are still in place, but this is a unique opportunity for us to go invest in a disciplined way to drive the kind of growth that we're seeing and again, we saw some growth shoots hum on the top line here that we're very encouraged about and that momentum is going to continue so that strategy is working for us.

Phil Daniele: So that strategy is working for us. All right, guys. I appreciate it. Thanks.

Brian Nagel: Alright, guys I appreciate it thanks.

Phil Daniele: Thank you.

Brian Nagel: You.

Scott Ciccarelli: Your next question for today is from Scott Ciccarelli with Truett. Good morning, guys. So you guys talked about, hi, you talked about the hubs and mega hubs continue to grow much faster than the rest of the commercial base. Can you quantify for us that the comp contribution from those stores, like, is it something that's big enough that we can see it from the outside? And then secondly, were there any outsize impacts on the commercial segment from new national account wins this quarter? Because I understand there's been some relationship changes out on the national account side.

Speaker Change: Your next question for today is from Scot Ciccarelli with truly.

Scot Ciccarelli: Good morning, guys.

Scot Ciccarelli: So good morning, guys talked about high are you talking about the hubs and Mega hubs continue to grow much faster than the rest of the commercial base can you quantify for us the comp contribution from those stores like is it something that that's big enough that we can see it from the outside and then secondly were there any outsized impact on the commercial.

Scot Ciccarelli: <unk> segment from a new national account wins this quarter that I understand there's been some relationship changes on the national account side. Thanks.

Phil Daniele: Thanks.

Phil Daniele: Yeah, we've we've never quantified how much comp difference there is between our hubs and a mega hub and versus the satellite stores, but we'll say that they're pretty robust. To your second question on the national account side, I would say we believe we're growing share on the national account side with regional accounts and with the up and down the street customers or the local shops as we call it. We're very happy about the sales growth we're getting across all of the ways that we segment our business on the commercial side. And again, we believe most of that growth is frankly because of the initiatives that we have in place, improving assortment, the strength of our Duralast brand, service metrics around speed of delivery to the shop, and ultimately a sales force that continues to So Philip, it wasn't cited as a factor, but was there any merchandise margin impact from some of the new account wins?

Scot Ciccarelli: Yes, we do.

Scot Ciccarelli: <unk> never quantified how much comp difference there is between our hubs and our Mega hub.

Scot Ciccarelli: And versus the satellite stores, but we will say that they are pretty robust.

Scot Ciccarelli: To your second question on the on the National account side I would say, we believe we're growing share on the national account side with regional accounts and with the up and down the street customers or the local shops as we call. It we're very happy about the sales growth, we're getting across all of the ways that we segment our business.

Scot Ciccarelli: On the commercial side and again, we believe most of that growth is frankly because of the initiatives that we have in place improving assortment.

Scot Ciccarelli: The strength of our <unk> brand.

Scot Ciccarelli: Service metrics around speed of delivery to the shop.

Scot Ciccarelli: Ultimately a sales force that continues to mature.

Scot Ciccarelli: But it wasn't cited as a factor but was there any.

Scot Ciccarelli: Merchandize margin impact from some of the new account wins.

Scot Ciccarelli: They all have all of those customer segments have slightly different margin rates, but at the end of the day that was not a material impact on our commercial business.

Phil Daniele: that all of all of those customer segments have slightly different margin rates. But at the end of the day, that was not a material impact on our commercial Got it. Thanks, guys.

Scot Ciccarelli: Got it thanks guys.

Robby: Your next question is from Robby <unk> with Bank of America.

Victoria Ong: Your next question is from Robbie Ohms with Bank of America. Good morning, this is Victoria Ong for Robbie Ong. Thank you for taking our questions.

Speaker Change: Good morning. This is figuring along sorry, Robbie thank you for taking our questions.

Phil Daniele: My first question is, now that you have your California and Virginia D.C.s up and running for your past quarter, can you comment on what kind of sales that you've seen in these regions and any competitive response you've seen? Yeah, the DCs have just opened up and we're still in the process of rolling stores off of some of the other DCs to these distribution centers where the stores are ultimately closer. I, you know, I wouldn't suspect that a competitor is going to change their distribution strategy based on us opening stores, so I don't think that'll be a material change.

Speaker Change: My first question is now that you have year, California, and Virginia D. C is up and running for the past quarter can you comment on what kind of sales that you've seen in these regions and any competitive response you've seen.

Robby: Yeah.

Robby: The Dcs are just opened up and we're still in the process of rolling stores off of some of the other Dcs to these distribution centers, where the stores are ultimately closer.

Robby:

Robby: Wouldn't suspect that a competitor is going to change their distribution strategy based on us opening stores. So I don't think that'll be a material change what we have seen is as we've opened up these new distribution centers. There is some costs on getting startup.

Phil Daniele: What we have seen is as we've opened up these new distribution centers, there are some costs on getting startup and that those incremental costs will abate over time as we get all of our distribution of stores to the appropriate DCs where ultimately that reduces supply chain costs over our entire network.

Robby: And that those incremental costs will abate over time as we get all of our distribution of stores to the appropriate Dcs, where ultimately that reduces supply chain cost over our entire network.

Speaker Change: Okay. That's helpful and for my follow up it looks like your inventory per store and in stock levels are pretty high do you plan to keep investing in your assortment improving assortments or do you think this is a comfortable level to be at going forward.

Phil Daniele: That's helpful. For my follow up, it looks like your inventory per store and in stock levels are pretty high. Do you plan to keep investing in your assortments, improving assortments? Or do you think this is a comfortable level to be at going forward? Yeah, so there's, we did, we did grow inventory, you know, 10% in total, and a little less than 7% on a on a same store basis, if you will, per store. Those investments have been where we believe we have had opportunities to continue to refine our assortment on the commercial side for the commercial side of the business.

Speaker Change: Yes. So there is we did we did grow inventory, 10% in total and a little less than 7% on a same store basis, if you will per store.

Speaker Change: Those investments have been where we believe we have had opportunities to continue to refine our assortment on the commercial side for the commercial side of the business, obviously hubs mega hubs have a bigger assortment.

Phil Daniele: Obviously hubs, mega hubs have a bigger assortment that gets deployed in a market which helps lift the entire market. And we've also seen opportunities in our international markets to go after commercial business and improve those assortments to to go attack the opportunities we have with commercial customers in those international markets. A similar strategy do we have in the US, those hubs and mega hubs are very important to us and continually improving our assortment to satisfy the commercial customers is a high priority for us.

Speaker Change: Gets deployed in a market, which helps lift the entire market and we've also seen opportunities in our international markets to go after our commercial business and improve those assortments to.

Robby: To go attack the opportunities we have.

Robby: With commercial customers in those international markets.

Robby: Similar strategy do we have in the U S with hubs and Mega hubs are very important to us and continually improving our assortment.

Robby: To satisfy the commercial customers is a high priority for us.

Robby: Yeah.

Victoria Ong: Thank you.

Robby: Thank you.

Speaker Change: Your next question is from Zack <unk> with Wells Fargo.

Zach Fadem: Your next question is from Zach Fadem with Good morning.

Speaker Change: Hey, good morning could you remind us what a typical ramp up beds for our Mega hub and the number of satellite stores that Mega hub tends to service and with the eight new Mega hubs in the quarter or another 10 in Q4 is there any regional color or thoughts on magnitude or density that youre, adding there.

Phil Daniele: Could you remind us what a typical ramp up is for a mega hub and the number of satellite stores a mega hub tends to service? And with the eight new mega hubs in the quarter, another 10 in Q4, is there any regional color or thoughts on magnitude or density that you're adding there? Yeah, so, you know, typically, we'll see satellite stores get to maturity, roughly in the, you know, sort of year five timeframe, what we've been seeing with mega hubs, and why we're so excited about deploying those assets is that those mega hubs are ramping faster, you know, to the extent that we can put 100,000 SKUs in a big box format in a local market, jamming more parts closer to the customer, those boxes become magnets for traffic.

Robby: Yes, so typically we will see satellite stores get to maturity roughly in the.

Robby: Short of your five timeframe, what we've been seeing with Mega hubs and why we're so excited about deploying those assets is that those mega hubs are ramping faster to the extent that we can put 100000 skus in a big box format in a local market Jamie more parts closer to the customer those boxes become magnets.

Robby: For traffic.

Phil Daniele: And we're doing well inside the four walls. The additional impact is the fact that we use those mega hubs, as you know, to support the entire network. And so it varies in terms of the number of satellite stores that a mega hub will support. But having that additional inventory is a lift for the entire market.

Robby: And we're doing well inside the four walls.

Robby: The additional impact is the fact that we use those mega hubs as you know to support the entire network and so it varies in terms of the number of satellite stores that have done a mega hub will support but having that additional inventory is a lift for them for the entire market.

Jamere Jackson: Got it.

Speaker Change: Got it and Jim here, you mentioned about 1% same SKU inflation right now, but expectations for acceleration any thoughts on on Q4 same SKU inflation and.

Jamere Jackson: And Jamere, you mentioned about 1% same skew inflation right now, but expectations for acceleration. Any thoughts on Q4 same skew inflation? And, you know, as you do start to see that ramp up, could you walk us through the mechanics of LIFO and any P&L implications we should keep in mind? Yeah, I mean, excluding tariffs, we would expect the same skew inflation to be in the same zip code. You know, there has not been a lot of costs that have come into the market, primarily because, you know, one of the big drivers for the cost increases was freight.

Speaker Change: As you do start to see that ramp up could you walk us through the mechanics of of LIFO in any P&L Olympic implications, we should keep in mind.

Speaker Change: Yeah, I mean, excluding tariffs we would expect the same SKU inflation to be in the same Zip code.

Speaker Change: There has not been a lot of costs that are coming into the market, primarily because one of the big drivers for the cost increases was freight and we've seen freight come down off its peak, which is driven.

Jamere Jackson: And we've seen freight come down off its peak, which is driven, you know, sort of lower same skew inflation, but also has been a positive to the LIFO balance. What I'll say about LIFO for the fourth quarter is, you know, our base assumption is that you know, we wouldn't see any impact. However, if we do see significant tariffs, that will indeed have an inflationary impact. And you could see us book some LIFO expense in the fourth quarter. Again, there are lots of variables associated with that, as we talked about a little bit earlier, we'll be transparent about what we see in the fourth quarter.

Speaker Change: Sort of lower same SKU inflation, but also has been a positive to the LIFO balance what I'll say about LIFO for the fourth quarter as our base assumption is that we wouldn't see any impact. However, if we do see.

Speaker Change: Significant tariffs that will indeed have in an inflationary impact and you could see you spoke some LIFO expense in the fourth quarter again, there are lots of variables associated with that as we talked about a little bit earlier, we'll be transparent about what we see in the fourth quarter, but.

Jamere Jackson: But, you know, to the extent that tariffs are inflationary, that could have, you know, an expense impact from a LIFO standpoint.

Speaker Change: To the extent that tariffs are inflationary that could have.

Speaker Change: And expense impact from a LIFO standpoint in the fourth quarter.

Speaker Change: Gotcha, Thanks for the time.

Jamere Jackson: Gotcha.

Zach Fadem: Thanks for the time.

Steven Zaccone: Thank you.

Speaker Change: Thank you.

Speaker Change: Your next question for today is from Stephens Nik Cohn with Citi.

Phil Daniele: Your next question for today is from Steven Zaccone with Citi. Yeah, what I'll say is that, you know, our outlook for the fourth quarter, particularly from a top line standpoint, is that we'll have, you know, similar kind of momentum that we had in the in the in the third quarter, I think the initiatives that Phil talked about, are working for us. And you've seen a sequentially improved in commercial, and we're carrying that, that momentum into the fourth quarter. So we feel pretty good about it from a from a top line standpoint.

Nik Cohn: Great. Good morning, Thanks, very much for taking my question.

Nik Cohn: I was hoping you could talk a little bit more about your outlook for the fourth quarter.

Nik Cohn: You cited the expectations for solid trends against easier compares on both D. I S. DIY on the <unk> side, it's been awhile since we talked about growing double digits on a comp basis could we get back to that double digit growth rate as initiatives gained more traction that you see some higher same SKU inflation.

Nik Cohn: Yeah, what I'll say is that our.

Nik Cohn: Our outlook for the fourth quarter, particularly from a top line.

Nik Cohn: Standpoint is that we'll have similar kind of momentum that we had in the third.

Speaker Change: Third quarter I think the initiatives that Phil talked about are working for us and <unk> seen a sequentially improve in commercial and we're carrying.

Speaker Change: That momentum into the fourth quarter. So we feel pretty good about it from a from a top line standpoint, I think the second piece of that is that we're going to continue to invest in a disciplined way for what we see as a near term opportunity and also a long term opportunity and then from a margin standpoint as.

Jamere Jackson: I think the second piece of that is that we're going to continue to invest in a disciplined way for what we see as a near-term opportunity and also a long-term opportunity. And then, you know, from a margin standpoint, as I mentioned on gross margins, you know, we expect the gross margins to be down slightly, certainly not to the same order of magnitude that we saw in the third quarter because some of those pressures that we saw in the third quarter will obviously abate. So overall, I think the outlook is was pretty positive for us, and we feel good about the momentum, particularly on the top line that we have going into the fall.

Nik Cohn: As I mentioned on gross margins.

Nik Cohn: We expect the gross margins to be.

Nik Cohn: Down slightly certainly not to the same order of magnitude that we saw in the third quarter because some of those pressures that we saw in the third quarter, we'll obviously abate so.

Nik Cohn: Overall, I think the outlook is pretty positive for us and we feel good about the momentum, particularly on the top line that we have going on in the fourth quarter.

Phil Daniele: You know, maybe I said a little bit, a little bit of comments on that on the commercial growth. Keep in mind, as we've said many times, you know, we still are roughly a 5% share in the commercial arena. There's lots of opportunities for us to continue to grow share, both in terms of adding new customers, and growing share of wallet with each of those customers. And as we focus on our initiatives, which are assortment improvements in satellite stores, hubs, mega hubs, improving service, and improving speed of delivery to those customers.

Speaker Change: I have said a little bit of a little bit of comment on the on the commercial growth keep in mind as we've said many times, we still are roughly a 5% share in the commercial arena, there's lots of opportunities for us to continue to grow share both in terms of adding new customers and growing share of wallet with each of those customers.

Speaker Change: And as we focus on our initiatives, which are assortment improvements and satellite stores hubs Mega hubs improving service and.

Speaker Change: Improving speed of delivery to those customers with that enhanced assortment. We believe we have a lot of opportunity to continue to grow share for.

Phil Daniele: With that enhanced assortment, we believe we have a lot of opportunity to continue to grow share for Unknown Speaker long term in the Okay, I understand.

Speaker Change: Long term in the future.

Speaker Change: Okay I understand the follow up I have is on on merchandise margin. There's been focus here in the near term, but if you think on a multiyear basis do you still see opportunity for merchandise margin improvement I guess, specifically as you try to grow the commercial side of the business.

Phil Daniele: The thought I have is on on merchandise margin, you know, there's been focus here in the near term. But if you think on a multi year basis, do you still see opportunity for merchandise margin improvement, I guess, specifically as you try to grow the commercial side of the business? Yeah, yeah, I think we do. I think the way we think about it is, I think we would ultimately be able to grow share on DI or grow margin on the DIY side, and margin on the commercial side, both of them independently. What will happen is, as we continue to grow share, and our comps on the commercial side of the business, it will put pressure on our overall margin rate.

Speaker Change: Yes, Yes, I think we do I think the way we think about it is I think we would ultimately be able to grow share on D. I R growth margin on the DIY side and margin on the commercial side both of them independently.

Speaker Change: It will happen is as we continue to grow share in our comps on the commercial side of the business. It will put pressure on our overall margin rate.

Jamere Jackson: But we, as we've said plenty of times, we'd like to take that opportunity to have that pressure on our margin rate, because we're growing the commercial business faster, because that creates more EBIT for us. We like that math problem.

Speaker Change: But we as we've said plenty of times, we'd like to take that opportunity to have that pressure on our margin rate because we're growing the commercial business faster because that creates more EBIT for us.

Speaker Change: We liked that math wrong.

Seth Sigmund: Thanks for the detail, best of luck.

Speaker Change: Thanks for the detail best of luck.

Phil Daniele: Your next question is from Seth Sigmund with Barkley. Great. Good morning, everyone. Thanks for taking the question. So two quick follow ups. One is market share. You talked about the momentum being broad based. You did have a competitor close a large number of stores over the last six months. I'm curious whether that had any impact on the quarter. It was interesting that the West Coast did not necessarily outperform. So I don't know if that implies more upside ahead. Curious how you guys think about that. And then I have a follow up. Thanks.

Speaker Change: Your next question is from Seth Sigman with Barclays.

Seth Sigman: Great. Good morning, everyone. Thanks for taking the question. So two quick follow ups. One is market share you talked about the momentum being broad based you did have a competitor close a large number of stores over the last six months I'm curious whether that had any impact on the quarter and it was interesting that the west coast did not necessarily outperform so I do.

Speaker Change: So if that implies more upside ahead curious how you guys think about that and then I have a follow up thanks.

Speaker Change: Yeah, Great question I think what we've seen is specifically on the DIY side, where we have more empirical data on share.

Phil Daniele: Great question. I think what we've seen is specifically on the DIY side, where we have more empirical data on share, because we've grown, we've grown share in all of the markets, where those competitive closures happen, and frankly, where they did not happen. So we feel really good about our share growth. Again, we think the vast majority of our share growth is coming from what we're doing, as opposed to some of the external factors. Obviously, closing down stores helps. But so it's pretty broad-based share. And as, again, you mentioned, and we mentioned, that those West Coast markets on the commercial side weren't necessarily the strongest growing.

Speaker Change: As we've grown we've grown share in all of the markets.

Speaker Change: Were those competitive closures happened and frankly, where they did not happen.

Speaker Change: So we feel really good about our share growth again, we think the vast majority of our share growth is coming from what we're doing as opposed to some of the external factors, obviously closing down stores helps.

Speaker Change:

Speaker Change: So it's pretty broad based share and.

Speaker Change: As you again, you mentioned are and we mentioned that those west coast markets on the commercial side werent necessarily the strongest growing.

Phil Daniele: We think weather was impactful. And again, we think our initiatives are what's driving our success. Great.

Speaker Change: We think weather was impactful.

Speaker Change: Again, we think our initiatives are what's driving our success.

Speaker Change: Okay, Great and then just a follow up on the gross margin. It sounds like you have decent visibility into the fourth quarter for shrink specifically I'm just curious any more perspective on what happened in the period. How you address that why this is not going to be an ongoing issue. Thank you.

Jamere Jackson: And then just to follow up on the gross margin, it sounds like you have decent visibility into the fourth quarter. For shrink specifically, I'm just curious, any more perspective on what happened in the period, how you address that, why this is not going to be an ongoing issue? Thank Yeah, I think, you know, a couple things stand out to us. One is that, you know, we're, we're growing our business, we have a lot of activity that is happening, we've got two new distribution centers that are fired up here. So, you know, the causes for Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: Yeah, I think a couple of things stand out to US one is that we're growing our business we have a lot of activity.

Speaker Change: Is happening we've got two new distribution centers.

Speaker Change: That are fired up here. So you know the causes for shrink we've got our arms around and this is not something that we anticipate talking about in the in the fourth quarter, particularly as we move forward with all the things that we're working on from an execution standpoint. So.

Jamere Jackson: Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: This is this is a dynamic that we've been working our way through over the last several quarters.

Speaker Change: And you know we had a pretty tough comparison in Q3 Q4.

Speaker Change: Those those pressures should largely abate.

Speaker Change: Okay, great. Thank you both.

Phil Daniele: Great, thank you both.

Speaker Change: Your final question for today is from Greg Melick with Evercore ISI.

Phil Daniele: Final question for today is from Greg Melich with Evercore ISD. Hi, thanks. Um, my question is really on trade down and discretionary. I think you mentioned the consumer making some choices, spending on failure and maintenance, wondering if they're taking those discretionary items out of the basket, or what sort of behavior you're seeing on on trade down or trade out there. Yeah, we haven't seen necessarily a lot of trade down. Partly because, you know, in most categories, we don't have a lot of choice. We do in some categories like batteries and brakes and things of that nature.

Speaker Change: Hi, Thanks.

Speaker Change: My question is.

Speaker Change: Early on trade down on discretionary I think you mentioned in the other consumer making some choices spending on failure and maintenance wondering if they're taking those discretionary items out of the basket or what sort of behavior, you're seeing an on trade down or trade out there.

Speaker Change: Yeah, we haven't seen necessarily a lot of trade down.

Speaker Change: Partly because we.

Speaker Change: Most categories, we don't have a lot of choice, we do in some categories like batteries and brakes and things of that nature, and we haven't seen necessarily a big move down out of premium good better best product.

Phil Daniele: And we haven't seen necessarily a big move down out of, you know, premium, good, better or best product. What we have seen is the discretionary businesses, they've been under pressure for quite some time now. The big negative comps we were seeing coming out of the pandemic have kind of largely slowed. So they're more constant in its volume. But it is, you know, it's the smallest piece of our business, it's roughly 16% of our total volume on the DIY side. And it's remained relatively at that point.

Speaker Change: What we have seen is the discretionary businesses they've been under pressure for quite some time now the big negative comps, we were seeing coming out of the back into the pandemic.

Speaker Change: Have have kind of largely slowed so there are more constant and it's is volume, but it is it's a smallest piece of our business is roughly 16% of our total volume on the DIY side and has remained relatively at that at that point I don't believe those discretionary categories will meaningfully improve until our.

Phil Daniele: I don't believe those discretionary categories will meaningfully improve until our consumer has more cash in their pocket. Got it.

Speaker Change: Consumer has more cash in their pocket.

Speaker Change: Got it and then my follow up was on margin just to understand how.

Jamere Jackson: And then my follow up was on margin just to understand how the international EBIT hit from FX. Jamere, presumably, does that show up more in SG&A than gross margin if we think about where it's allocated? Yeah, if you think about it shows up in the top line. And then you'll see that top line flow through the gross margin. And then it's actually a little bit of a good guy on the SG and net net negative. So if we're thinking about de-leverage. that would that would look worse because of the P&L internationally or No, it's actually a little good guy.

Speaker Change: How the international EBIT hit from FX.

Speaker Change: Jim you're presumably does that show up more in SG&A than gross margin, if we think about where it's allocated.

Speaker Change: Yes, I mean, if you think about it shows up in the top line.

Speaker Change: And then you'll see that top line flow through to the gross margin.

Speaker Change: It's actually a little bit of a good guy on the SG&A line and net net negative for EBIT.

Speaker Change: So if we're thinking about deleverage.

Speaker Change: Is that would that would look worse because of the P&L internationally or.

Speaker Change: No it's actually a little good guy.

Jamere Jackson: It will be, overall, it will be a bad guy. a bad guy. Right, right. Got it. Thank you and good luck.

Speaker Change: It will be overall, it will be a bad guy.

Speaker Change: Right right got it thank you and good luck alright.

Phil Daniele: All right. Thank you.

Speaker Change: Alright.

Speaker Change: Thank you.

Phil Daniele: Before we conclude the call, I'd like to take a moment to reiterate that we believe our industry reigns in a strong position and our business model is solid. We are excited about our growth prospects for the quarter, but we will take nothing for granted as we understand that our customers have alternatives. We have exciting plans that will help us succeed in the future.

Speaker Change: Before we conclude the call I'd like to take a moment to reiterate that we believe our industry remains in a strong position and our business model is solid.

Speaker Change: We are excited about our growth prospects for the quarter, but we will take nothing for granted as we understand that our customers have alternatives. We have exciting plans that will 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 flawless execution and strive to optimize shareholder value for the future we are.

Phil Daniele: But I want to stress that this is a marathon and not a sprint. As we continue to focus on flawless execution and strive to optimize shareholder value for the future, we are confident that Autozone will be successful.

Speaker Change: Competent that autozone will be successful.

Phil Daniele: Thank you for participating in today's call. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you for participating in today's call.

Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.