With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

America's Most Innovative Companies

Industries included in the sector are automotive retail, general merchandisers, internet retail, and specialty retail.

Fortune Sector Leaders: Retailing

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The 200 companies on this list are transforming industries from the inside out.

The 26th edition of the list shows how much esteem Big Tech giants command among other business leaders.

World's Most Admired Companies

The 25th Fortune World’s Most Admired Companies list suggests that tech giants’ peers respect them as much as ever.

The 300 companies on this list are transforming industries from the inside out.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-238-Autozone

Founded in 1979, the retailer of aftermarket automotive parts and accessories operates more than 6,400 stores across the U.S., Mexico, and Brazil.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-268-AutoZone

AutoZone is an automotive parts retailer with thousands of stores in the U.S, Mexico, and Brazil.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

Business insiders have spoken: Asked which companies they most admire, more than 4,100 executives, directors, and analysts chose these top 50 All-Stars.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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AutoZone, founded in 1979, is a leading retailer and distributor of automotive replacement parts, accessories, and maintenance items in the U.S., Mexico, and Brazil. With thousands of locations nationwide, AutoZone serves both do-it-yourself customers and professional mechanics. The company’s other offerings include battery-testing services, loaner tools, and check-engine-light diagnostics.

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Q1 2025

AutoZone (AZO): Company Profile, Stock Price, News, Rankings

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AutoZone

autozone

Good day, everyone. Welcome to AutoZone's 2025 Q1's Earnings Release Conference Call. At this time, all participants are on a listen only mode. After management's prepared remarks, there will be a question and answer session. Before we begin, the client would like to read their forward looking 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 and the company's most recent annual report on Form 10 ks and other filings with the Securities and Exchange Commission for a discussion of important risks and uncertainties that could cause actual results to differ materially from expectations. Forward looking statements speak only as of the date made and the company undertakes no obligation to update such statements. Today's call will also include certain non GAAP measures.

A reconciliation of GAAP to non GAAP financial measures can be found in our press release.

I would now like to turn the floor over to Phil Daniel. The floor is yours.

Thank you. Good morning and thank you for joining us today for AutoZone's 2025 Q1 conference call. With me today are Jamere Jackson, Chief Financial Officer and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the Q1, I hope you had the opportunity to read our press release and learn about our 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. As we begin, I want to thank our more than 125,000 AutoZoners across the globe for their commitment to the first line of our pledge, which states AutoZoners always put customers first. Their contributions continue to drive our performance. We knew this Q1 would be similar to last quarter as our expectations for domestic same store sales were muted and our international sales would be up against a difficult FX rate comparison. As we mentioned on our previous conference call, we did not expect the macro environment to positively impact our results.

We are, however, optimistic that our improved execution and customer service initiatives are on track. The environment will improve as we experience winter weather and the uncertainty of the election are now behind us. While the macro environment has led customers to be cautious with their spending, we remain confident that we will continue to gain share over time in both domestic DIY and commercial. For the quarter, with our continued focus on what we call Wow! Customer service, our total sales grew 2.1%, while earnings per share decreased 0.1%.

We delivered positive 1.8% total company same store sales with domestic same store sales growth of 0.3 percent and our domestic commercial sales grew 3.2% and up 9% on a 2 year stack basis. International same store sales, up 13.7% on a constant currency basis. While our international business continued to comp impressively, up almost 14% in local currencies, we faced approximately 1300 basis points of currency headwind, which resulted in an unadjusted 1% international comp. The stronger U. S.

Dollar had a negative impact on our reported sales, operating profit and EPS. Jamere will provide more color concerning the foreign currency impact on our business and what we are thinking regarding the impact on our financial results for Q2 and the remainder of the year. 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 improved customer service, product assortment initiatives, our supply chain and believe we are well positioned for future upswings in consumer demand. Now let me dive into our sales results.

First off, our domestic DIY results showed a slightly improved and slight improvement to last quarter as Q1's DIY comp sales were down 0.4%. Our discretionary merchandise categories continue to be a drag on our domestic DIY sales similar to the last several quarters. For our Q1, discretionary category sales were approximately 17% of our mix and these categories continue to underperform our expectations. While better on a percentage basis than last quarter's results, we are now comping against last year's mid single digit declines in the discretionary categories. Our belief is that sales will continue to be pressured until the customer gets some economic relief and consumer confidence improves.

With regard to inflation's impact on DIY sales, we saw the average like for like SKU inflation up approximately 1.6% for the quarter, while the average DIY ticket was up 1.3%. The difference between inflation and ticket growth was driven by the mix of goods sold. We were encouraged with the uptick in our average ticket and expect that trend to continue into Q2. We continue to expect inflation in our ticket to be approximately 3% over time and we anticipate average ticket growth will remain will return to historic industry growth rates as we move further away from the hyperinflation of the last couple of years. We also saw DIY transaction count down 1.8%.

This too was better than the down 2% we experienced last quarter. While we do not have final share data for the last segment of the quarter, we were encouraged by the recent favorable trends. We believe we have a best in class product and service offering and this gives us confidence that when customers return to their historic shopping habits, we will be beneficiaries. Secondly, I'll speak to our regional DIY performance. We saw a noticeable underperformance in the Northeast, Mid Atlantic and the rest of what we call the Rust Belt.

These markets were down negative 1.8% versus negative 0.1% in the rest of the domestic markets. This doesn't surprise us as these markets have underperformed due to the milder than normal temperatures and lower than usual precipitation levels the last couple of years. 3rd, I will address weather and what we believe the impact was on our DIY business. This quarter was impacted by several markets having hurricanes. Although these storms are difficult for our customers and our AutoZoners, they did not have a meaningful impact on our DIY business.

Also across much of the country, the weather pattern was similar to the previous year. We do not believe weather played a meaningful role on our DIY performance in Q1. Next, I will touch on our U. S. Commercial business.

Our commercial sales were up 3.2% for the quarter compared to last quarter's 4.5% total commercial growth. The 1st 4 weeks were the weakest as sales grew only 1.8% primarily because of the hurricanes. More broadly across the U. S. And similar to what we saw with our DIY customers, we noticed underperformance in the Northeast, Mid Atlantic and Rust Belt markets.

The spread between these markets and the rest of the country was approximately 400 basis points. We exited the quarter with stronger sales and believe we are continuing to gain share. While we have continued to see wide variations of performance across these more sensitive weather markets, we remain steadfast with our initiatives. We are encouraged with our improved satellite store inventory availability, significant improvements in hub and mega hub coverage, the continued strength of our Duralast brand and good execution on our initiatives to improve speed of delivery and improved customer service, which gives us confidence as we move through the year. This quarter on like for like SKU basis, our commercial business was down, which contributed a negative 0.7% to average ticket.

The lack of inflation continued to pressure sales. 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 by the end of FY 2025. For the quarter, we opened a total of 23 net domestic stores. We remain committed to more aggressively opening regular stores, hubs and mega hub stores and for the remainder of FY 2025, our openings will be continued to be skewed towards the back half of the year. Hubs and mega hubs lead to better comp results that are growing faster than the balance of the chain and we are going to continually aggressively deploy these important assets.

For the Q2, we expect both DIY and commercial sales trends to modestly improve as our comparisons become slightly easier and we gain momentum from our sales growth initiatives. We will, as always, be transparent about what we are seeing and provide color on our markets and outlook as trends emerge. Before turning the call to Jamere, I'd like to take a moment and discuss our international business. In Mexico and Brazil, we opened a total of 11 stores in the quarter and now have 932 total international stores. As you can see from the press release, our same stores were just under 14% on a constant currency basis and accelerated from last quarter's 10%.

Today, we have just under 13% of our total store base outside of the U. S. And expect this number to grow materially as we accelerate our international store openings. For the fiscal year, we expect to open around 100 international stores. As you'd expect, we continue to take our U.

S. Store learnings and introduce them into our international operations. We are very excited about the future in international stores. In summary, we have continued to invest in driving traffic and sales growth. This year, we expect to again invest more than $1,000,000,000 in CapEx in order to drive our strategic growth priorities.

We are investing in accelerated store growth, specifically hubs and mega hubs, placing inventory closer to our customers distribution centers that drive efficiency and reduce supply chain costs and leveraging technology and our IT systems that improve our AutoZoners' ability to serve our customers. We believe that this is exactly the right time to invest in these initiatives in order to be ready when industry demand ramps up. Now I will turn the call over to Jamere Jackson.

Thanks, Phil. Good morning, everyone. For the quarter, total sales were $4,300,000,000 up 2.1%. Our domestic same store sales grew 0.3 percent and our international comp was up 13.7 percent on a constant currency basis. Total company EBIT was down 0.9 percent and our EPS was down 0.1%.

As Phil discussed earlier, we had a headwind from foreign exchange rates this quarter. For Mexico, FX rates weakened 13% versus the U. S. Dollar for the quarter, resulting in a $58,000,000 headwind to sales, a $17,000,000 headwind to EBIT and a $0.68 a share drag on EPS versus the prior year. We continue to deliver solid results despite the challenging economic backdrop that Phil discussed earlier as the efforts of our AutoZoners in our stores and distribution centers have enabled us to continue to grow our business.

Me take a few moments to elaborate on the specifics in our P and L for Q1. I'll start with giving a little more color on sales and our growth initiatives, starting with our domestic commercial business. For the Q1, our domestic DIFM sales increased 3.2% to $1,100,000,000 For the quarter, our domestic commercial sales represented 30% of our domestic auto parts sales and 26% of our total company sales. Our average weekly sales per program were $15,900 flat to last year as we lap several new programs that we opened that are not at maturity. 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 approximately 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 37 net new programs, finishing with 5,935 total programs. Importantly, we continue to have lots of opportunities to expand sales per program and open new ones. We plan to aggressively pursue growth across our domestic commercial customers, which represents a tremendous sales opportunity for our company. To support our commercial growth, we now have 111 mega hub locations.

While I mentioned a moment ago that our commercial weekly sales per program average was $15,900 per program, the 111 mega hubs averaged significantly higher sales and are growing much faster than the balance of the commercial business in Q1. As a reminder, our mega hubs typically carry over 100,000 SKUs and drive 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. We have now set a new objective to have 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. On the domestic retail side of our business, our DIY comp was down 0.4% for the quarter. Importantly, we maintain share in DIY and we're well positioned when the industry reaccelerates. As Phil mentioned, we saw traffic down 1.8% along with a positive 1.3% ticket growth. As we move forward, we would expect to see slightly declining transaction counts offset by low to mid single digit ticket growth, in line with the long term historical trends for the business, driven by changes in technology and the durability of new parts.

Our DIY share has remained strong behind our growth initiatives. 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 FY 2025. 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 6 new stores in Mexico to finish with 800 stores and 5 new stores in Brazil, ending with 132. Our same store sales grew 13.7% on a constant currency basis and 1% on a reported basis. We remain committed to international and given our success in these markets, we will accelerate the store opening pace going forward. We are 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 and L and gross margins.

For the quarter, our gross margin was 53%, up 16 basis points. This quarter, while we did not book any LIFO adjustments, we did have a $2,000,000 unfavorable LIFO comparison to last year. Excluding LIFO from both years, we had a 21 basis point improvement in gross margin driven by continued improvement in merchandising margins. As a reminder, for Q2 last year, we had a $14,000,000 credit and we do not expect to have any credits this Q2 as freight cost increases are offsetting deflation in the remainder of our cost of goods. At quarter end, we still have $19,000,000 in cumulative LIFO charges yet to be reversed through our P and L.

And as I've said previously, once we credit back the $19,000,000 through the P and L, we will not take any more credits and we will begin to rebuild an unrecorded LIFO reserve. Moving to operating expenses. Our expenses were up 4.5% versus last year as SG and A as a percentage of sales deleveraged 75 basis points. While we are managing our SG and A spend in a slower growth environment in a disciplined way, we will continue to invest at an accelerated pace in IT and CapEx to underpin our growth initiatives. We believe these investments will pay dividends in customer experience, speed and productivity and are important enablers for us to gain future market share.

We will remain committed to being disciplined on SG and A growth as we move forward and we will manage SG and A expenses in line with sales growth over time. Moving to the rest of the P and L. EBIT for the quarter was $841,000,000 down 0.9 percent versus the prior year. As I previously said, FX rates reduced our EBIT by approximately $17,000,000 On a constant currency basis, our EBIT would have been up approximately 1%. Interest expense for the quarter was $107,600,000 up 18% from Q1 a year ago as our debt outstanding at the end of the quarter was $9,000,000,000 versus $8,600,000,000 a year ago.

We're planning interest in the $108,000,000 range for the Q2 of FY 2025 versus $102,600,000 last year. Higher debt levels and borrowing rates across the curve are continuing to drive interest expense increases. For the quarter, our tax rate was 23% and up from last year's Q1 of 21.6%. This quarter's rate benefited 72 basis points from stock options exercised, while last year it benefited 147 basis points. For the Q2 of FY 2025, we suggest investors model us at approximately 23.4% before any assumption on credits due to stock option exercises.

We are assuming Q2 option exercises are less than Q2 last year, which had $23,000,000 of credits. Moving to net income and EPS. Net income for the quarter was $565,000,000 down 4.8% versus last year. Our diluted share count of 17,400,000 was 4.7% lower than last year's Q1. The combination of lower net income and lower share count drove earnings per share for the quarter to $32.52 down 0.10 percent for the quarter.

As a reminder, the unfavorable FX comparison drove our EPS down approximately $0.68 a share. Now let me talk about our free cash flow. For the Q1, we generated $565,000,000 in free cash flow versus $595,000,000 last year in Q1, driven by lower net income and higher CapEx. 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 2.5 times EBITDAR.

Our inventory per store was up 5.4% versus Q1 last year, while total inventory increased 8.7% over the same period last year, driven by new store growth and inventory placement to support new growth opportunities. Net inventory defined as merchandise inventories less accounts payable on a per store basis was negative $166,000 versus a negative $197,000 last year and negative $163,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 119.5% versus last year's Q1 of 124.4%. Lastly, estimate a moment on capital allocation and our share repurchase program. We repurchased $505,000,000 of AutoZone stock in the quarter and at quarter end we had $1,700,000,000 remaining under our share buyback authorization.

Our ongoing strong earnings balance sheet and powerful free cash continues to allow us to return 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. 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. 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.

We're growing our market share and improving our competitive positioning in a disciplined way. As we look forward to the balance of our fiscal year, we're bullish on our growth prospects behind a resilient DIY business, a fast growing international business and a domestic commercial business that is continuing to grow share. I 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 AutoZoners. 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 I mentioned earlier, in the quarter, foreign currency resulted in a headwind on revenue and EPS. If yesterday's spot rates held for Q2, then we expect approximately a $95,000,000 drag on revenue, a $30,000,000 drag on EBIT and $1.30 a share drag on EPS. And if rates remained at the current spot rates for the full fiscal year of 2025, we would expect approximately a $355,000,000 impact to revenues, a $120,000,000 impact to EBIT and a $4.90 a share impact to full year EPS. And now I'll turn it back to Phil.

Thank you, Jamere. We are proud of our AutoZoners across the globe and the results our team delivered this past quarter. We promise to continue to focus on improving our execution and driving Wow! Customer service. While our sales increases don't reflect it quite yet, we believe we've made meaningful progress on our initiatives and are well positioned to grow sales across our domestic and international store bases with both our retail and our commercial customers.

Our gross margins are solid and our operating expense is appropriate for future growth. We continue to put our capital at work where it will have the biggest impact on sales. Our stores, distribution centers and leveraging technology to build a superior customer experience where we are able to say yes to our customers' needs. The top focus areas for fiscal 2025 will remain growing share in our domestic commercial business and continuing our momentum in international. We believe we have a solid plan in place for the balance of the fiscal year.

We know our focus on parts availability and our Wow! Customer service culture will lead to sales growth and gains in market share. We are excited to start calendar 2025. In September, we hosted our field leadership teams here in Memphis for AutoZone's 2025 National Sales Meeting. The energy and excitement about our plans and what we can accomplish was fantastic.

Our operating theme for this New Year, great people, great service, was on full display over those 4 days. I could not be more proud of the effort being exhibited across our organization. This year, we will focus on our AutoZoners like never before. We are determined to improve upon an already outstanding culture of customer service. In this difficult macro environment, we cannot rest on our laurels.

We have to make sure every store is staffed right every hour of the day. Our processes need to function correctly always. We must meet our store opening goals and timelines. Simply put, we have to remain the execution machine that we have always been. Fiscal 2025 top priorities are based on improving execution and Wow!

Customer service. We will continue to invest in the following strategic projects: reaccelerating our new hub and mega hub openings. As we said recently, we now plan to have more than 285 domestic hubs or mega hubs. These stores do take time, but we are incredibly excited about their continued performance. Effectively and efficiently opening our new distribution centers and optimizing our direct import facility.

Ramping up our domestic and international store growth. As discussed, our international teams posted same store sales comps on a constant currency base of nearly 13.14%, continuing several years of strong growth and most importantly, reaccelerate our domestic commercial sales growth. As the macro environment has remained challenging, AutoZoners have been focused on improving execution and leveraging our culture of outstanding customer service. The automotive aftermarket is always going to go through change and we look to take advantage of that change and focus on gaining additional market share. We are excited about what we can accomplish and our AutoZoners are committed to delivering better results in 2025.

We believe AutoZone's best days are ahead of us. Now we'd like to open up the call for questions.

Certainly. At this time, we will be conducting the question and answer session. Your first question is coming from Bret Jordan with Jefferies. Please proceed with your question. Your line is live.

bit about what you're seeing on the West Coast as one of your peers is shutting stores and exiting that region? I guess in the short term, how you see inventory liquidation and maybe any price disruption? I think in the longer term, how you see that market share filtering out? Obviously, there will be some share gain potential.

Yes, I'd say, this is early innings in what they're doing. Obviously, they're closing their stores, they've ramped up their discounting and things of that nature. It's very early as you could imagine, and it's hard to tell what that looks like. Over time, I think that will be a benefit for us out there as we'll see share gains as they exit those markets. They are discounting that could potentially be a slight headwind in the short term as there's discounted prices in what's a pretty inelastic business.

And it's kind of wait and see at this point, but long term, I think those will be great opportunities for us to gain some market share out there.

Okay. And then could you talk about the cadence of the Q1, I guess, into the Q2? I think you called out that the 1st 4 weeks were the weakest in commercial. But could you talk about what we've seen as winter has begun to show up?

Yes, that's correct. The first, if you think about the DIY business, we've talked a lot about the underperformance in kind of those Rust Belt markets. That's kind of continued, but pretty consistent. And there wasn't a whole lot of weather impact in the quarter on the DIY side of the business. The commercial business, those 1st 4 weeks is where those hurricanes came across a lot of the Southeast markets.

And it has a more material impact initially on the commercial side of the business as those shops get disrupted. And that's what we saw in the 1st 4 weeks of the quarter. And then it kind of returned to more normal volumes in the back half of the quarter on the commercial side of the business.

Okay. Have you seen the later part of the quarter and the beginning of the second quarter improve with cold weather or is it really not meaningful enough yet?

Yes. Again, our quarter just ended. We're it's so early in the quarter. We like the initial part of the winter, but we've got a long way to go in winter to see that materialize. And again, I think what matters the most over time is does the those Rust Belt markets and the cold and snow markets, do they get precipitation and cold weather throughout the winter, which really hasn't happened over the last couple of years.

Your next question is coming from Simeon Gutman with Morgan Stanley. Please proceed with your question. Your line is live.

Good morning, everyone. My question, it's on operating income growth. And you mentioned ex the FX, it would have been up slightly. My question is, if this backdrop of sluggish macro doesn't change and comps more or less stay in this area. Is that a good way to think about EBIT?

I know you don't guide, but my the question is, can you strengthen comps with keeping EBIT in this slightly up range? Or are you debating to invest more for some period of time and take it a little bit lower?

Yes. I think a couple of dynamics stand out to us. One is we do expect the comps to improve as we move through the year. And we're positioning ourselves both in terms of inventory and infrastructure to take advantage of some of those opportunities. I think the second dynamic is that we expect gross margins to remain strong as we move through.

We're taking good actions on the merchandising margin side of the business and the teams are doing a fantastic job of executing there. And then the third is, we're able to manage our SG and A in a very disciplined way. Now we are going to invest in infrastructure and opportunities to take advantage of sort of the competitive environment and the opportunities for us to grow share, But we believe that we can do that without it having a negative impact on operating income. So in a lower comp environment, you would expect us to be disciplined in the middle of the P and L, but we are going to invest a disciplined way to take advantage of those growth opportunities.

Okay, that's helpful, Jamere. My second question, the follow-up, it's on like pricing and CPI and then tariffs. So the CPI is picking up, curious if there's any bearing to the real world with it, they're getting into 3% to 4% range year over year. And then when Biden put back the Section 301 tariffs earlier in the year, some prices went up. But just curious how that example could play into potential future tariffs, meaning did the suppliers take them?

Did they take price? Are you taking price? Like how is that working?

Yes. Tariffs are an interesting question. I'll start off by saying at this point, we really don't know what's going to happen. Our merchant teams have been dealing with tariffs now for the better part of a decade. And I think if you go back historically and look early on when those tariffs happen, the vast majority of our supply chain was pretty dedicated to certain countries of origin.

Since that timeframe, we've done a lot of work to make sure that our country of origins have been diversified. We have more than one category in the vast majority more than one provider in the category than we had back then and we become pretty nimble in our supply chain. So, we'll continue to exercise against that playbook And long term, I think this industry has been very disciplined in the pricing strategies and I suspect that that will continue. But it's very early in this cycle to see what ultimately is going to happen with tariffs.

I think on the inflation front, while we are starting to see some movement in CPI, I mean, a little bit closer to home, we've seen freight start to spike up. We expect that to make its way into cost of goods and ultimately in the pricing and tickets over time. And I think the labor markets have thawed a little bit, so we're not seeing what we saw when we saw hyperinflation there. But to the extent that there is some inflation, as Phil mentioned in his prepared comments, we expect the normal inflation that we see inside the industry to return, and that should have a positive impact on what we see in like for like inflation on an SKU basis. And as you know, this industry has been very disciplined about taking pricing when we see that kind of inflation.

So I think net net, it will potentially be a tailwind, but it's going to work its way through over a relatively slow period of time, we believe.

Your next question is coming from Kate McShane with Goldman Sachs. Please post your question. Your line is live.

Good morning. This is Mark Jordan on for Kate McShane. Just thinking about share repurchases, it came in a little bit lower than we're expecting for the quarter. How should we think about capital allocation going forward here? How do you feel about current debt levels?

And are you planning on still rolling over the notes that are coming due in April this year?

Yes. So, no change in our capital allocation policy. As I mentioned, we're going to be a significant free cash flow generator. We're going to hold our leverage target in the 2.5 times area. That gives us a tremendous amount of financial firepower to invest in our existing assets, to grow our business and to give a significant amount of cash back to shareholders.

And we're going to continue to run that play over time. And you can expect us as it relates to our debt stack to continue to manage to a 2.5 times leverage target and that will impact what we do on any debt that's due.

Okay, perfect. And just as a follow-up, kind of piggybacking on the tariff comments that were made earlier, Do you have the option, and do you plan on maybe accelerating some purchases ahead of any tariffs that might come across?

Yes. I mean, our merchants are looking at that today. Keep in mind, the vast majority of the categories that we operate in are pretty low turning. So we'll take opportunities where that makes sense to do that. And the merchants are pretty studious and adept in this type of environment and we'll act accordingly what's in the best thoughts for us and obviously for our customer.

Your next question is coming from Michael Lasser with UBS. Please proceed with your question. Your line is live.

Good morning. Thank you so much for taking my question. Given the extra week you had last year in your calendar, how did the shift in how you measure your same store sales impact your comp this quarter? And how would you expect that to play out over the next few quarters?

That's a good question, Michael. We didn't talk about it specifically, but it did impact our comps about 1 point in the quarter, negatively impacted our comps about a point in the quarter. And we would expect just given the shifts in the calendar, that we potentially pick up an extra bump later in the spring that could impact our comps. But it was worth about a point and it will play out over the next couple of quarters or so, particularly as we

So Jamere, it will be continue to be a drag in the next quarter and then it will reverse in the 3rd Q4 of the year, is that right?

Okay. And my follow-up question is, if you look at the stores that are being serviced by the hubs, what is the average commercial sales per week in those locations versus stores that are not currently being serviced by a hub? And is it a good rule of thumb for us to think about that the less productive commercial programs could reach the more productive commercial programs as you accelerate the rollout of these hubs over the next several quarters, especially given the consolidation that's happening in the market with all these store closures? Thank you.

Yes. Michael, great question. And we're not we don't break out all those numbers and share them publicly. But you can suffice it to say that when a hub or a mega hub gets put into a market, those stores over perform a satellite store as you would probably imagine, they have deeper inventory and they also lift the market, frankly on both sides on DIY and the commercial side of the business. But delineating those is in many cases, hubs may have been serviced stores may have been serviced by a mega hub that was say 100 or 200 miles away.

As you can imagine, if you put closer inventory closer to the customer, it lifts all of those boats in that market, if you will. So it's better for us. Again, today, we have if you think about our store placement that where we have these deeper inventories in both hubs and mega hubs, we're just under 7% of our stores having these deeper assortments closer to them. Over time, we'll take up those mega hubs pretty significantly and that will lift both DIY and commercial sales in those markets. The closer you get the inventory to the customer, the bigger advantage you have.

Your next question is coming from Christopher Horvers with JPMorgan. Please post your question. Your line is live.

Thanks. Good morning, guys. So my first question is on the gross margin. You talked about the LIFO headwind. Presumably, there was some DIY mix headwind.

If you backed that out, it looks like you're generating 40 basis points of expansion from lower product costs. So can you talk about what's going on there? That seems that level seems pretty consistent with where you've been in the past couple of quarters. So how far are you into that initiative? And

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