And welcome to AutoZone's second quarter 2026 earnings release conference call. At this time, all participants are on a listen-only mode, and 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. And please note, this conference is being recorded. At this time, we would like to play the company's Safe Harbor Statement.

Before we begin, please note that today's call includes forward-looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance. Please refer to this morning's press release in the company's most recent annual report on Form 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. Four listing statements speak only as the date made, and the company only takes 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.

Thank you. With that, I would like to turn the conference over to your host, Mr. Phil Daniel. Sir, the floor is yours.

Thank you. Good morning, and thank you for joining us today for AutoZone's 2026 second quarter conference call. With me today are Jameer Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the second quarter, I hope you had an opportunity to read our press release and learn about the quarter's results. If not, the press release, along with slides complementing our comments today, are available on our website, www.autozone.com, under the Investor Relations link. Please click on quarterly earnings conference calls to see them. To start out this morning, I want to thank every AutoZoneer across the company for their commitment to delivering on the first line of our pledge. AutoZoneers always put customers first. Our results would not be possible without us always asking what the customer needs and how we can meet those needs more efficiently day in and day out. It is our auto-zoners across the stores, supply chain, and our store support centers who deliver on this commitment every day. Their efforts allowed us to deliver sales growth of plus 8.1% this past quarter. To start this morning, we will address both our sales results and provide an update on our growth initiatives. We will also discuss our domestic and international results and break our sales results down between traffic and ticket growth to address what inflation has meant to both our ticket growth and our sales growth. We will also share regional disparities where they exist, and finally, our outlook and how we expect the year to unfold as we enter our spring and summer selling season. For the second quarter, our total sales grew plus 8.1%, and similar to the first quarter's sales growth, while earnings per share decreased 2.3%. Similarly to our experience in the first quarter, our gross margin, operating profit, and EPS were negatively impacted by a non-cash $59 million LIFO charge, which had a material impact on our margins and EPS. Excluding this LIFO charge, our EPS would have been up 7.1% versus last year's Q2. We also delivered a positive 3.3 total same-store sales on a constant currency basis, with domestic same-store sales growth of up 3.4%. Our domestic DIY same-store sales grew plus 1.5%, while our domestic commercial sales grew plus 9.8% versus last year's Q2. I'll pause here to reiterate what we said during our last conference call. Q2 is always our most difficult to forecast due to the less predictable winter weather patterns, and this quarter was no exception. While our commercial sales increase was below our expectations, our results were negatively impacted due to the winter storms across much of the country during the last four weeks segment of the quarter. To add a little more color around the impact the storms had on our domestic commercial sales, the two weeks the storms really impacted us, weeks 10 and 11, our commercial sales were up just over 1%, while the other 10 weeks of the quarter, our commercial sales were up over 12%. International same-store sales were up 2.5% on a constant currency basis, and our unadjusted international comp was 17.1% as exchange rates positively impacted our comps by nearly 15 points. Jameer will provide more color for you on our foreign currency impact on our financial results for both this quarter and the upcoming third quarter later on this call. We opened 64 stores globally this past quarter versus 45 in last year's second quarter to finish with 6,709 U.S. stores, 913 Mexico stores, and 152 Brazil stores. We've now opened 342 new stores on a trailing four-quarter basis versus 241 new stores on a trailing four-quarter basis at the end of Q2 last fiscal year. We're now on track to open approximately 350 to 360 stores for the full year versus the 304 stores we opened globally last fiscal year. We continue to be very pleased with the sales productivity we're generating out of our new stores as their sales results are exceeding our models. Next, let me address our sales results in a little more detail. Coming into the quarter, we are optimistic that our domestic store execution would drive sales growth for both retail and commercial. More specifically, we felt we had the momentum we have gained over the last several quarters with our domestic commercial sales would continue throughout the quarter. However, the severe weather experienced across the country significantly impacted our commercial customers, many of whom closed their businesses for several days. Despite this, on a two-year basis, our growth is right in line with last quarter's two-year growth rate. While the winter weather was a short-term drag on sales, I want to stress that we are very excited about our growth initiatives, and they are delivering as we would expect. Historically, these types of winter weather patterns have had a positive impact on our summer selling season. As a reminder, extreme weather events drive failure and maintenance events for our customers. Additionally, our domestic retail comp was solid at plus 1.5%. in line with last quarter's 1.5%. Again, the second quarter is always the most volatile quarter as the impacts of weather and the timing of tax refunds can have an impact on our short-term results. With that said, we are executing as well as we have in many years. I'm very excited with what we are seeing in terms of market share gains, and we expect to continue to gain share for the remainder of our fiscal year 2026. Next, I'll discuss the quarter's sales cadence. Regarding the plus 3.4% domestic same-store sales, the cadence was plus 4.1% in our first four weeks, plus 2.7% in the second four weeks, and plus 3.5% over the last four-week period in the quarter. Last year, we experienced much colder weather in the middle four-week segment of the quarter, while this year, the cold weather came in the last four weeks. As a result, the DIY comparisons were tougher in the middle four-week segment. Regarding our plus 1.5% DIY comp for the quarter, we experienced a positive 2.3% in the first four-week segment, a negative 0.5% DIY comp in the second segment, and a plus 2.8% comp during the third segment. Our merchandise categories performed as we would have expected, but the precipitation, especially the ice, that large parts of the country experienced in late January and into early February slowed our business trends. As a reminder, cold weather with ice and snow lead to higher failure rates that stretch into the summer months. Regionally, we underperformed the company's overall DIY comp in the mid-Atlantic and the South Atlantic areas. Also, the West Coast was a little weaker than we would have expected due to milder, wetter, but much less snow than the year before. With regard to inflation's impact on DIY sales, we saw like-for-like, same-skew inflation up north of 6% for the quarter, which contributed to our DIY average ticket being up 5.2%. The difference between the like-for-like inflation and ticket growth is attributable to category mix. Based on our inflation expectations, we continue to expect our average ticket to grow sequentially through the third fiscal quarter. which ends in May, and then peak during the fourth quarter, where we will begin to lap the increases in inflation we saw in this past year's fourth quarter. I'll remind you that we price our goods against our weighted average cost, and we continue to expect those weighted average costs to grow due to the impact from tariffs. We also saw DIY traffic count down 3.6, as traffic in the middle four-week segment was down more than the other eight weeks. As a reminder, our traffic decline was similar in the last quarter's decline. Again, this quarter's difficulty in the middle four-week segment was due to the difficult comparisons with cold weather we experienced last year. I do want to stress here that we expect traffic to improve as ticket growth begins to slow by late summer. We also feel the cold winter and potentially the size of the tax refund season could create upside for us with traffic over the remainder of the fiscal year. Now I will touch on our domestic commercial business. As I mentioned, our commercial sales were up 9.8% for the quarter. The first four weeks grew plus 10.1%. The second four-week segment grew plus 12.5%, and the third four-week segment grew 7.3%. As with DIY, our commercial sales were impacted somewhat during the middle four-week segment due to the weather comparisons we had last year, but we clearly underperformed our expectations the last four weeks of the quarter as the impact from ice and snow accumulation negatively impacted our commercial customers at the end of the quarter as we have already discussed. It was just more pronounced on the commercial side of the business. Our commercial sales results continue to be driven by our improved satellite store inventory availability, significant improvements in hub and mega hub coverage, the continued strength of our Duralast brand, and high levels of execution on our initiatives to improve speed of delivery and customer service. We continue to see improvements in delivery times. These initiatives are delivering share gains and give us confidence as we move further into FY26. Both the year-over-year inflation on a like-for-like same-skew basis for the commercial business and our average commercial ticket growth were similar to DIY, north of 5% for same-skew inflation and north of 5% for ticket. The weather in the last four weeks of the quarter slowed transaction trends to a slight negative growth over those last four weeks, and that is understandable to us. We continue to be optimistic about reaccelerating transaction growth over the back half of our fiscal year as we remain focused on both growing our customer base and growing share of wallet and sales per customer. Our future sales growth will be driven by share gains and an expectation that like-for-like retail skew inflation will remain in the mid-single-digit range as we move forward. now let me take a moment to discuss our international business across Mexico and Brazil we now have 1065 international stores as I mentioned our same store sales grew plus 2.5 percent on a constant currency basis behind a continued soft macro environment in Mexico while we are continuing to gain market share the economy continues to experience slower economic growth as Mexico's economy improves we expect our sales to reaccelerate as we continue to invest in stores and distribution centers today we have almost 14% of our total store base outside of the US and we expect this number to grow as we continue our international store build out in summary we have continued to invest capital in driving traffic and sales growth while there will always be tailwinds and headwinds in any quarter's results. What has been consistent is our focus on driving sustainable, long-term results. We continue to invest in improving product assortments in our stores and improving efficiency in our supply chain, which positions us well for the future. We are investing both CapEx and operating expense to capitalize on these opportunities. This year, we are investing nearly $1.6 billion in CapEx to drive our strategic growth priorities, and we expect to invest a similar amount next year. The majority of these investments will be in accelerated store growth, including hubs and mega hubs, placing more inventory closer to our customers. We will continue to invest in our supply chain. Our new Brazil distribution center opened and began servicing stores in Mexico. I'm sorry, in December. Our new and much larger D.C. in Monterey, Mexico will be fully operational soon. We will also focus on optimizing our new distribution centers in the U.S. We are in the final stages of our Supply Chain 2030 project, which began in 2019, all while continuing to invest in technology to improve customer service and our auto's owner's ability to deliver on our promise of wow customer service. This is the right time to invest in our business, and we believe industry demand will continue to be strong, and we continue to manage our investments with an expectation to achieve strong returns on invested capital. And we will monitor returns carefully to make sure that we are achieving on or exceeding our expectations. Now we'll turn the call over to Jameer Jackson.

Thanks, Phil. Good morning, everyone. Our operating results remain strong for the quarter and were highlighted by solid top-line revenues. Total sales were $4.3 billion and were up 8.1% versus Q2 of last year. Our domestic same-store sales grew 3.4%, and our international comp was up 2.5% on a constant currency basis. Total company EBIT was down 1.2%, and our EPS was down 2.3%. As Phil stated earlier, excluding our non-cash $59 million LIFO charge, EBIT would have grown 7.2%, and EPS would have been up 7.1%. Foreign exchange rates positively impacted our results for the quarter. For Mexico, the peso strengthened versus last year's Q2, just over 12% versus the U.S. dollar, resulting in a $74 million tailwind to sales, a $23 million tailwind to EBIT, and a $0.95 a share benefit to EPS versus the prior year. We continue to be proud of our results as the efforts of our auto zoners and our storage 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 Q2. First, I'll start with a little more color on sales and our growth initiatives. Starting with our domestic commercial business for the quarter, our domestic DIFM sales were $1.2 billion, up 9.8%. Our domestic commercial sales represented just over 32% of our domestic auto parts sales and 27% of our total company sales. Our average weekly sales per program were $15,400, up 4.8% versus last year. This quarter, we opened 128 net new programs, including nearly 80 programs in existing stores, which dampened our sales per program growth, but will accelerate our total growth moving forward. We finished with 6,310 total programs, and we now have our commercial program in 94% of our domestic stores. Our commercial acceleration initiatives continue to deliver strong results as we grow share by winning new business and increasing our share of wallet with existing customers. We're building our business with national, regional, and local accounts, and we plan to aggressively pursue growing our share of wallet with existing customers while also adding new customers. Megahub stores remain a key component of our current and future commercial growth. We opened five Megahubs and finished a quarter with 142 Megahub stores. We continue to expect to open approximately 30 Megahub locations over the fiscal year, as our pipeline is exceptionally strong. 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 larger stores give our customers access to thousands of additional parts across the market. While I mentioned a moment ago that our average commercial weekly sales per program grew 4.8%, the 142 megahubs continue to drive growth at an even faster clip. We continue to target having approximately 300 megahubs 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. On the domestic retail side of our business, our DIY comp was up 1.5% for the quarter. 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 remainder of FY26. 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 18 new stores in Mexico to finish with 913 stores and three new stores in Brazil, ending with 152. Our same-store sales grew 2.5% on a constant currency basis and 17.1% on an unadjusted basis. While sales growth has slowed over the last few quarters in Mexico due to slower economic growth in the country, we have continued to grow share and we're well-positioned when the economy improves. We remain committed to investing in international expansion and we're pleased with our results in these markets as we accelerate the store opening pace. As we look ahead, we're bullish on International being an attractive and meaningful contributor to AutoZone's future sales and operating profit growth. Now let me spend a few minutes on the rest of the P&L and gross margins. For the quarter, our gross margin was 52.5%, down 137 basis points versus last year. This quarter, we had a $59 million LIFO charge, or a 138 basis points unfavorable LIFO comparison of last year. Excluding the LIFO comparison, we were slightly positive year over year on a gross margin basis, which met our expectations as we offset a significant rate headwind from the mix shift to a faster-growing commercial business. We continue to anticipate benefits from merchandise margins next quarter as well that should help offset the rate headwind from accelerated commercial growth. As I mentioned, we had a $59 million non-cash LIFO charge in Q2 and a year-to-date total of $157 million. We're planning a LIFO charge of approximately $60 million for each of the remaining two quarters of fiscal 2026, as we're continuing to experience higher costs due to tariffs that are impacting our LIFO layers. The $277 million in LIFO charges that we expect this year compared to $64 million last year. Moving on to operating expenses, our expenses were up 8.7% versus Q2 last year as SG&A as a percentage of sales deleveraged 18 basis points, driven by investments to support our growth initiatives. On a per-store basis, our SG&A was up 3.9% compared to last quarter's 5.8% increase as we managed our SG&A per-store lower as sales softened in the middle of the quarter. We expect to continue to increase our new store opening pace through the end of fiscal 2028 when we reach a total of 500 stores open annually. For Q3, we expect to open 90 to 95 stores globally versus 84 last year. And for the full year, we expect to open 350 to 360 stores versus 304 net new stores open in FY25. We've been purposefully investing in SG&A in order to capitalize on opportunities to grow our business now and in the near future. These investments will also pay dividends in customer experience, speed of delivery, and productivity, all of which will help us grow market share. We remain committed to being disciplined with our SG&A growth, and as the accelerated new stores mature, we will manage expenses in line with sales growth over time. Moving to the rest of the P&L, EBIT for the quarter was $698 million, down 1.2% versus the prior year. As I previously mentioned, a non-cash LIFO charge reduced our EBIT by $59 million. Adjusting for the unfavorable LIFO comparison, our EBIT would have been up 7.2% versus the prior year. Interest expense for the quarter was $107 million, down 1.5% from a year ago, as our debt outstanding at the end of the quarter was approximately $8.9 billion versus $9.1 billion a year ago. We're planning interest in the $112 million range for the third quarter of FY26 versus $111 million last year. For the quarter, our tax rate was 20.7%, up from last year's second quarter of 18.4%. This quarter's tax rate benefited 213 basis points from stock options exercise, while last year it benefited 239 basis points. For the third quarter of FY26, we suggest investors model us at approximately 22.9%. Moving to net income and EPS, net income for the quarter was $469 million, down 3.9% versus last year. Our diluted share count of $17 million was 1.6% lower than last year's second quarter. The combination of lower net income and lower share count drove earnings per share for the quarter to $27.63, down 2.3% versus last year's Q2. As a reminder, LIFO drove our EPS down $2.66 a share. Let me talk about our free cash flow. For the second quarter, we generated $15 million in free cash flow versus $291 million in Q2 last year. Year to date, we generated $645 million in free cash flow versus $856 million last year. The lower free cash generated is due to CapEx and payables timing. Going forward, we expect to continue being an incredibly strong cash flow generator, and we remain committed to returning meaningful amounts of cash to our shareholders. Regarding our balance sheet, our liquidity position remains very strong, and our leverage ratio finished at just over two and a half times EBITDA. Our inventory per store was up 8.1% versus Q2 last year, while total inventory increased 13.1% over the same period last year, driven by new stores, additional inventory investment to support our growth initiatives, and inflation. Net inventory, defined as merchandise inventories less accounts payable on a per-store basis, was a negative $105,000 versus a negative $161,000 last year and negative $145,000 last quarter. As a result, accounts payable as a percent of inventory finished the quarter at 110.9% versus last year's Q2 of 118.2%. Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $311 million of AutoZone stock in the quarter, and at quarter in, we had $1.4 billion remaining under our share buyback authorization. Our ongoing strong earnings, balance sheet, and powerful free cash generation allows us to return a significant amount of cash to our shareholders through our buyback program. We've bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998 while investing in our existing assets and growing our business. We remain committed to this disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders. So to wrap up, we remain committed to driving long-term shareholder value by investing in our growth initiatives, driving robust earnings in cash, and returning excess cash to our shareholders. Our strategy continues to work as we remain focused on gaining market share and improving our competitive positioning in a disciplined way. As we look forward to the back half of our FY26, We're bullish on our growth prospects behind a resilient DIY business, a solid international business, and a domestic commercial business that is growing share in a meaningful way. We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders. Before handing the call back to Phil, I want to remind you that we report revenue comps on a constant currency basis to reflect our operating performance. We generally don't take on transactional risks, so our results primarily reflect the translation impact for reporting purposes. As mentioned earlier in the quarter, foreign currency resulted in a tailwind to revenue in EPS. If current spot rates held for Q3, then we expect an approximate $75 million benefit to revenue, a $20 million benefit to EBIT, and an $0.85 a share benefit to EPS. Lastly, in Q3, we expect LIFO to reduce EBIT by approximately $60 million, impact our gross margin rate by approximately 125 basis points, and our EPS by approximately $2.75 a share. And now I'll turn it back to Phil.

Thank you, Jameer. To wrap up this morning, I want to stress that we are on track for delivering on our objectives for the remainder of fiscal 2026. While we have much more to accomplish this fiscal year, we remain committed to flawless execution and appropriately spending our capital to drive growth and efficiency. We feel we are well positioned to grow both our domestic DIY sales and domestic commercial sales. We also feel that our international same-store sales on a constant currency basis will improve, but we remain cautious as the Mexico consumer remains under pressure. We also expect to manage our gross margin effectively while growing our operating expenses in line with our accelerated store opening assumptions. Finally, I want to reiterate that we are putting our capital to work where it will have the biggest impact on sales, our stores, our distribution centers, and investing in technology to build a differentiated and superior customer experience. We will make sure that the capital we deploy produces strong returns. The stores we have opened over the last five years have exceeded the planned sales and earnings we modeled when these sites were approved. The focus areas for FY26 will remain growing share in our domestic DIY and commercial business and accelerating international top-line growth. We do understand that we cannot take things for granted. We must remain laser-focused on customer service, execution, and gaining share in every market in which we operate. We are excited about what we can accomplish over the remainder of the year, and our AutoZone-ers are motivated to deliver on those commitments. We believe AutoZone's best days are ahead of us. Now we would like to open the call for questions.

Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star 2 if you would like to remove your question. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the staircase. And we do ask that you try to limit your questions to two in interest of time. One moment, please. Well, thank you. Our first question today is coming from Brett Jordan with Jefferies. Your line is live.

Hey, good morning, guys.

Good morning.

Could you talk a bit more about your same-skew inflation expectation? I think you said it would be with you in single digits going forward, so maybe the rest of the fiscal year. But when you think about the second half of the calendar year, do you anticipate continued same-skew price benefit?

Yeah, we believe that it will continue to increase over the third quarter and through most of the fourth quarter. And then the fourth quarter is when we will start annualizing those higher rates from last year. But we still see same-skew inflation, you know, kind of similar through third and maybe slightly tailing off through, you know, the back half of what you said calendar year, which would be most of our fiscal year, which ends in, you know, late August, as you know.

Yeah, I think a couple drivers here, Brett, is, you know, There's lots of discussion about what's going to happen with tariffs, and obviously the IEPA tariffs have been stayed at this point. That was a relatively small proportion of our tariff bill, if you will. Most of our tariffs are the 232 tariffs. So we're still expecting to see tariff impact as we move through the back half of the year. I think the other dynamic is that we've talked about this notion of having a multi-pronged strategy here where we would continue to negotiate with our vendors, we diversify our sources, and then in some cases we'll raise our retails. All of the costs that we've seen so far from tariffs have not made its way through the system, which is why, as Phil mentioned, we're expecting tickets to continue to be elevated through the third and the fourth quarters. I just wanted to give a little bit of color on why that expectation is where it is.

Okay, great. And I guess early days here, but a lot of talk about expectations around tax refunds this year, seeing any signs of incremental traction, and I guess sort of a similar theme, the weather that we've seen here in the last six or eight weeks, you know, I guess what's your near-term outlook on demand creation from that would sort of seem like under car, some of the seasonal categories might see some benefit?

Yeah, I think if you kind of look across the Midwest, you know, the Mid-Atlantic and the Northeast, what we kind of affectionately call the rust belt markets for us, this type of weather that we've had in those markets for winter have always indicated a pretty strong category performance on those markets as you move through summer, you know, spring and summer selling season. So exactly those categories you talk about, undercar will probably have some improved sales in those markets, chassis, steering, suspension, anything that is open to the bottom of the car to get rust and salt on it. Those are going to drive maintenance and failure events over the summertime. So we're pretty encouraged by that. Tax refunds, I mean, it is, as you said, early on. That tax season is just now beginning. And, you know, as has been stated in the news, we expect those to be slightly bigger based on no tax on tips and all that sort of stuff that's been talked about pretty widely in the news. So we think that also bodes pretty well for us through the early part of spring and into early summer.

Great. Thank you very much.

Thank you.

Thank you. Our next question is coming from Chris Hovers with J.P. Morgan. Your line is live.

Good morning, guys. So I wanted to follow up a bit on Brett's question. So first, distilling through all the noise of the puts and takes of weather, both good and bad, including that widespread hit in late January and early February, What do you think the right underlying run rate of your domestic business is? And can you also talk about that on the commercial side? I think people are pretty attuned to the deceleration below 10% on a total DIFM basis.

Yeah, and as I talked about in our prepared remarks, we were kind of running on the previous 10 weeks or so in the quarter. we were up in that 12% range, and then those last two weeks of the quarter were pretty substantially lower at a 1% comp. So, you know, the quarter was kind of running along at that better-than-double-digit number, and then the last two weeks were pretty significantly impacted. And, again, it was a pretty wide area that stores got impacted going all the way from Dallas, you know, Little Rock, Oklahoma City, all the way across here in Memphis, Nashville, Louisville, all the way to D.C. had a pretty big impact initially during that time frame. And as you went a little further south, you ended up with pretty significant ice. I'll give you an anecdotal example. Most of the schools in Tennessee and Arkansas were shut down for two weeks. I mean, people were pretty much locked in their house for a time frame. So that was a temporary impact. It was late in the quarter to recover it, but, you know, we see nothing that indicates that we're not going to have pretty strong sales growth on the commercial side of the business, you know, going forward.

Yeah, I mean, if you think about it, Brad, I mean, you know, or think about it, you know, the first quarter results, we expected our second quarter to perform pretty similarly, and excluding sort of the severe weather and the prolonged impacts on both our DIY and commercial business, we would have, you know, printed a number in the second quarter very similar to that. I think what's important to us is that our DIY business continues to remain resilient and our commercial business has sort of snapped back. So the results that we saw in the first quarter, you know, we see us performing somewhere in that zip code as we move forward.

And then, Phil, to your previous comments about typical lag of a benefit to the business off a cold and snowy winter, as you think about that benefit, historically, does the business accelerate from that recent trend because of that? And as you think about sequential growth of inflation into the third quarter here, what would hold back the business from not accelerating from what sounds like something in the 4% baseline? Thank you.

Yeah, again, I think the tailwinds that you get from the tougher winter weather and those markets that are impacted, we believe those would be a net positive in the go forward. Now, as we move through summer, there's, you know, the other side of the weather equation that we've got to have is a normal to hot summer, which we're expecting to have at least a normal summer at this point. So I think all of those are our benefits. And, you know, as we said, we expect a slightly larger tax refund season. We'll have to wait and see how that ultimately pans out, but I think those are positive trends for us as we move forward.

Thanks so much. Have a great spring.

Thank you.

This is coming from Stephen Zaccone with Citi.

Your line is live. Great. Good morning. Thanks very much for taking my question. I wanted to ask the question on pricing on a different way. When we get to peak pricing, how do you think about elasticity of transactions on the other side? You know, the industry doesn't typically see deflation, but just help us understand your expectations for elasticity of transactions once pricing growth starts to moderate.

Yeah, I think we think about the business in kind of three different discrete buckets of types of product. You've got discretionary product. That business has been pretty tough, although it's slightly better than it's been since the pandemic, frankly. Slightly better. But those are probably the more elastic or inelastic categories. Maintenance has a tendency to sometimes be in a higher elevated average ticket growth. You will get some delayed maintenance, but typically the customer understands that if I delay maintenance, I end up with a failure going forward. And then if the part is a failure mode, ultimately you have to replace it, so there's not a whole lot of – it's break-fix, and that hasn't really changed over a very, very long period of time. So discretionary gets impacted the most. We would expect, you know, as you get further out from inflationary items in the average ticket, that business probably recovers a little bit. But it's a relatively small percentage of our total overall volume. Most of our business is break, fix, failure, and maintenance business. And those will continue to be pretty strong for us, we believe.

Okay, thanks for that. My follow-up question on the topic of investments in general, You've been on this journey to increase your hub count, grow SG&A spending. How would you assess where we are in the investment cycle? What inning are we in, and how do we think about the pace of some of these investments as we go through the next couple of quarters?

I would say we're in the middle innings. One of the things we highlighted was that we expect to, by FY28, to grow our domestic store count by 300 stores a year. continue to ramp there. That means an incremental 40 to 50 stores next year and then the following fiscal year. So we're kind of in the middle innings of that ramp. What I'll say is that our pipeline is very strong and the stores are ahead of our pro forma in terms of our performance. So we like the progress that we've made. We like the sales growth that we're seeing. We like the market share gains that we're getting from that. It has put some pressure on our SG&A, as we've been very transparent about, probably to the tune of one and a half to two points. But, you know, we're managing the rest of the SG&A in a very disciplined way. So, you know, as we move through, you know, I expect this to result in a, you know, a faster-growing top-line business and a faster-growing EBIT business as a result of it.

Understood.

Thanks for the detail. thank you thank you our next question is coming from zach fadham with wells fargo your line is live hey good morning um first to clarify it sounds like weather was about a one to one and a half point hit to comp in q2 just want to make sure that's right and then second when you look at diy traffic or volumes down about three and a half percent similar in q1 and q2 how much of this would you categorize as deferred maintenance? And how should we think about the path and timeframe towards getting those volumes back?

Yeah, great. So I think your estimation on what the impact was is kind of right on target of how it impacted the very end of our Q2. As far as, you know, deferred maintenance and that sort of thing, it's always a little bit hard to tell, but we feel like those will accelerate coming into the second half of our year. On the backs of, like we've already said, some of this tax time should, generally speaking, when you get more tax money or money in the marketplace, the customer will reinvest in the car and they'll tackle some of those bigger failure projects. And we believe that that's going to continue into the second half.

And then, Jameer, it sounds like the SG&A spend is peaking to some extent and should moderate a touch from here. And I think we do, at this point, all have a good sense of what that level of spend will be, both in terms of investing in SG&A in new stores. But perhaps you could spend some time talking about the size of the prize in terms of expected returns and payback on these investments? And is it fair to say we would see outsized top line and EBIT growth as soon as 27?

Yeah, that's certainly our expectation, that you'll start to see these stores mature and that you'll see our top line growth, you know, accelerate in FY27 and FY28. In terms of size of the price, in addition to seeing a faster-growing business, you're also going to see a business that has very healthy returns on invested capital. We model these stores in a very disciplined way, even though we're very conservative. They get to sort of the targeted returns on invested capital in a very short period of time. I mean, most of these stores will mature in the four- to five-year kind of time frame. What I'll suggest is that mega hubs have been, you know, improving their performance over time and are actually doing better, significantly better than what we have modeled. So we feel pretty good about it. And, again, we're very disciplined on making sure that we're driving the returns on invested capital associated with this strategy. And so you'll have a faster-growing business that has faster-growing EBIT growth as a result of that with very good returns on invested capital.

Thanks for the time.

Thank you. Our next question is coming from Simeon Gutman with Morgan Stanley. Your line is live.

Good morning, everyone. My question is morning. There was a comment made in the prepared remarks, growing market share in a disciplined manner. there's been talk about growing EBIT faster. Can you phrase it in terms of margins? Can the margins of the business re-expand, or should we think about it in terms of EBIT dollar growth?

Yeah, good question. I'll say, you know, we kind of think about how we manage margin rate on the two sides of the business. What I would say is I think we can incrementally grow both of them. You know, if you start at the highest level of margin, gross margin rate, both on DIY. We have slight margin improvement, and we think we can improve gross margin in the commercial side of the business over time as well. Now, we still believe that we're going to grow commercial faster than DIY, so you'll end up with some margin mix pressure, but we're okay with that because at the end of the day, that commercial business throws off a pretty good amount of operating profit and EBIT. So there'll be a little bit of top-line margin pressure because of mix, but overall, to Jameer's point, we'll have a faster-growing EBIT business as these stores mature and as we move forward. We believe we're growing share on both DIY, commercial, and in our international market. So all of those are, we believe, very, very healthy for us.

Yeah, I mean, if you think about, you know, the way that we've sort of managed the business historically, I mean, in that 18% to 19% sort of operating margin range, we will operate the business in that zip code as we move forward. Again, nothing's changed about the way that we think about the operating margin profile of the business. We will have the mix pressure, but one of the things that we've done pretty consistently, and you've seen it the last couple of quarters, is we continue to manage gross margins with intensity. For example, this past quarter, we had about 27 basis points of rate pressure purely from our commercial mix. And our merchants and our supply chain has done a really good job of sort of offsetting that and keeping gross margins flat year over year. So that's the kind of operating discipline we have in the company. And as you think about the business in the future, it's similar operating margin rates, faster top-line growth.

And I guess to zoom in on the mechanics of that, I realize you don't give a lot of guidance points, but the comp rate of this business that was prevailing that you should grow faster from, is it fair that three to four is the baseline that you're hoping to grow faster than? I know you haven't endorsed a specific number. I don't know if that's a fair baseline to think you're going to grow faster. And then it does sound like it's the SG&A tapering that will enable EBIT to grow faster, given what Phil said around the margin pressure of mix coming from commercial.

Well, I think you've got two dynamics, Simeon. One is, you know, we're clearly adding as those stores mature, you're going to see that, you know, have some lift to the comp rate overall. So, you know, as part of the calculus there. And then from an SG&A standpoint, I mean, we'll be back to, you know, managing SG&A where we have historically. So, you know, that's what gives us the confidence that, you know, even with a faster-growing commercial business, which is, you know, part of that equation for a faster comp rate, you know, we can keep the operating margins, you know, close to where they've been historically.

Thanks very much.

Thank you. Our next question is coming from Michael Lasser with UBS. Your line is live.

Good morning. Thank you so much for taking my question. Given the slowdown in the commercial business attributed to the weather, don't these jobs still get done? And wouldn't that imply the commercial business should have accelerated as neatly as the weather improved? And if not, does that suggest anything about where AutoZone sits on the call list? Meaning in these times where volumes are more constrained, these commercial customers focus their supplier relationships on the top call, and that can contribute to outsized volatility in the commercial business for AutoZone?

No, Michael, I don't think so. I think the impact of the slowing at the end of our quarter was just literally that at the very end of our quarter. Those shops were closed for the most part and didn't open. And it was, again, right at the very end of the quarter. We've seen a pretty nice snapback. We're very early in our quarter of Q3. But I think what's been true over time is we continue to gain share on the commercial side of the business on the backs of our strategies, putting more assortment closer to the customer through mega hubs and hubs, continually improving our satellite store assortments and working on strategies that make us easier to do business with and getting those hard-to-find parts faster to those customer shops. And we think we're executing very well at that. And we think we have a strategy that will continue to only get better, which is as we drop these hubs and mega hubs, we continue to gain market share, and they also help the satellite stores perform better on commercial. Oh, by the way, we don't talk much about it, but those same mega hubs and hubs put that same product closer to the DIY customer as well. So we think we gain over that. Again, I think the impact in the last four weeks was just that, and you'll see that we've seen that business recover already as those shops opened up. We think over time we continue to move up the call list. Again, we're gaining with both new customers and share of wallet in what we call up and down the streets and in traditionals and national accounts. So we're gaining in all of those segments, and we like how healthy that commercial business is.

Thank you for that. My follow-up question is, was there anything unique about the operating expense performance in the second quarter, meaning maybe you anticipated this slowdown in sales so you pulled back on some operating expenses such that it's going to significantly accelerate from here. And as part of that, if you do see this potential improvement in comps over the next couple of quarters, given all the factors that have been discussed today, would you lean in and accelerate some of your investments such that operating expense growth will revert back to this high double-digit rate that was experienced last quarter? Thank you so much.

Yeah, we don't expect to go back to the double-digit rates over the back half of a year. Again, the big driver there is we're starting to annualize the accelerated store growth that we had in the back half of last year. So we naturally would have expected the year-over-year growth from an SG&A standpoint to moderate some in the back half. And in terms of the past quarter, there was nothing that we did that was different from the way that we've always operated the business. We've always sort of, you know, monitored, you know, the way that we manage our payroll with, you know, what we see in terms of transactions. And obviously with the severe weather, we had some store closures for, you know, several days, and we had, you know, reduced hours in some instances and fewer transactions. So we just managed the payroll with discipline, but we didn't do anything that was outside of the way that we normally operate the business. And then as our comps continue to accelerate, we make sure that we've got the right level of payroll in and we continue to manage the business so that we're providing wild customer service. So we didn't toggle anything in terms of investments, and we're not going to toggle any of the investment cadence in the back half of the year.

Most of these investments that we're talking about, particularly store growth and DCs, and I would say for most of the distribution and supply chain investments, We're over the majority of those, you know, the D.C. openings and that sort of stuff. But the stores, it's hard to accelerate a store. They're going to open when they're going to open. We, you know, we put the staffs in, get those folks trained before those stores opening. It's hard to move them forward by, you know, 60 days or 90 days just because of the construction schedule. So we'll continue to monitor that. But I think what was notable about Q2 is as we had some changes in our, you know, individual week-on-week comps, Our operators are really good at being able to manage that business based on the flow of customers. That discipline, we are very good at it. We've been good at it for a long time, and we continue to be good at it. We don't expect that to change.

Thank you. Thank you.

Thank you. Our next question is coming from Scott Ciccarelli with Truist. Your line is live.

Good morning, guys. Two questions. First, I'm still a little bit confused on the cadence differences between DIY and commercial. Why was DIY's low point the middle four weeks, if I write that down right, and commercial's low point was the last four weeks? And then secondly, as you guys continue to expand your mega hub strategy and get more experience there, can you help quantify the sales lift you're seeing in stores in a market where you open a mega hub?

Yeah, sure. We'll talk a little bit about – let me answer the first question on the cadence of DIY versus commercial. The middle part of the middle segment of Q2, last year you had a pretty significant cold weather event in that middle segment. So it created a tougher comp for those four weeks. Last year you had some pretty extreme cold, which drove a lot of battery sales and cold weather product last year. So that created a bit of a comp differential this year. That cold weather didn't happen in the middle four-week segment. It happened in the last four-week segment. Now, the mix of those two, so even though the commercial business was a little bit stronger in that second four-week segment, and we capitalized on that, DIY was soft, commercial was better. um the last four week segment um we got the cold weather event which helped diy but it hurt the commercial business because we had shops that were closed for so long um so i would say we we performed kind of as you would expect from a two-year comp basis um but that specific cold weather comp in the midwest and the northeast last year created a comp challenge for us which was slightly negative on DIY.

Got it. And then the question on the mega hub, just kind of what kind of halo effect are you guys seeing when you guys open a mega hub? And has that changed as you guys continue to expand that strategy? Thank you.

Well, yeah, we've never really quantified how much we think those things lift in total. Well, I'll tell you this, we've been opening and working on our strategies for hubs and mega hubs for quite some time now. And, you know, going back several of years, I could go back and tell you, we thought we knew how high was high back 8 to 10 years ago with our strategies. We continue to perform different strategies and execution of tactics around how we deploy inventory to those stores, how we energize the inventory in a given market. You've heard us talk about doing density tests with more mega hubs in metro areas. And we continue to optimize and figure out more ways to make those stores more productive for us, specifically for commercial but also on DIY. And we have yet to say we've reached peak performance in our hubs and mega hubs. So we like how they perform. They help us, again, on the commercial side with those hard-to-find parts. They help us our per-store four-wall performance, which is how we look at those hubs and mega-hubs, continues to improve, and they continue to give a halo for the entire satellite network around them that they service. So we like the mega-hubs and the hubs, which is why you hear us keep taking those numbers up. You know, from several years ago from 40 to 100 stores to 150 to 200, and now we believe we'll have more than 300 at full build-out. Got it.

Thanks, guys.

Those are great performing assets for us. Thank you for the question.

Thank you. Our next question is coming from Steve Forbes with Guggenheim. Your line is live. Good morning, Phil Jameer.

Maybe just a follow-up question on the domestic comp average ticket trends, or I guess same skew, inflation trends versus the DIY. What explains the difference in the quarter with DIY being six and DIFM being sub-five? I guess specifically just trying to figure out if there's any pockets of competitive pricing pressure or if it's sort of mix-oriented as it pertains to national versus up-and-down-the-street business.

Yeah, it's almost all category mix. You know, in the winter events and things of that nature, it drives battery sales, starters, alternators, et cetera. it's it's the difference in category mix between the two channels and even the category mix that you get in terms of timing of year if that makes sense so that's really what drives that that's good to hear and then and then just a follow-up on DIFM comp transactions I don't know if you can specifically state what it was during the second quarter it looks around to maybe slightly over 2%.

And more specifically, what was the difference between the first eight weeks from a DIFM comp transaction base versus those last four weeks?

Yeah, the last four weeks, and it was literally the last two weeks that drove the vast majority of the change, was the closings of stores and closing of commercial accounts. Many of them were closed for more than two weeks. And, you know, we kind of had a rolling 400 stores, if you will, from starting in kind of west as that storm moved across from Texas all the way to D.C. It was kind of a rolling 200 to 400 stores, depending on the day, that were closed. And then those commercial accounts stayed closed much longer than that. So that was really what drove that change. Again, 10 weeks of the quarter and commercial were, you know, plus 12 or better. Those last two weeks were a one. And I would tell you that, you know, later in that even the last couple of days that started to recover in the quarter and it's been back to normal as we would have expected in the very early goings of what is our Q3.

So I guess just to clarify that, if we look at the last sort of the last 12 months before this quarter, domestic traffic comps were sort of 6% or so, 6-7%. That's the right way to think about the business on a go-forward basis. There's nothing that sort of changes the view on the building blocks on comp to get to that sort of 4-plus percent domestic comp profile.

Yeah, I think you're thinking about that right. Yes. thank you thank you okay before we conclude the call I want to take a moment to reiterate that we believe that our industry remains strong and our strategies for growth are working we are excited about our growth prospects for the back half of the year 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 We remain focused on delivering flawless execution and striving to optimize shareholder value for the future. We are confident AutoZone will be successful. Thank you for participating in today's call.

Thank you. Ladies and gentlemen, this does conclude today's call. May I disconnect your lines at this time? And we thank you for your participation.