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.

Q4 2026

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Q1 2025

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

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AutoZone

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Good day, everyone, and welcome to AutoZone's 2026 Q1 Earnings Release Conference Call. At this time, all participants are placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. At this time, the company would like to provide its 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-K and other filings with the Securities and Exchange Commission for discussion of important risks and uncertainties that could cause actual results to differ materially from expectations. Forward-looking statements speak only as 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.

Good morning, and thank you for joining us today for AutoZone's 2026 First Quarter Conference Call. With me today are Jamere Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax. Regarding the first 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 at 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 our more than 130,000 AutoZoners across the company for their commitment to delivering on our pledge to always put customers first.

Our decision-making process starts with asking the question, "What is right for the customer?" We strive to deliver on our commitment of providing wow customer service, and it's our AutoZoners across our stores and supply chain who deliver on this commitment every day, driving our results and our continued success. To start this morning, I'll address our sales results and talk about our new store openings for the quarter. I'll discuss both domestic and international results and break our sales results down between traffic and ticket growth comparisons to address what inflation has meant to both our ticket growth and our sales growth. I'll also address regional disparities where they exist, and finally, I'll address our outlook and how we expect the year to unfold. For the quarter, our total sales grew 8.2%, while earnings per share decreased 4.6%.

Additionally, I want to point out that this year's gross margin, operating profit, and earnings per share were negatively impacted by a non-cash $98 million LIFO charge, which had a material impact on our margins and EPS. Excluding this LIFO charge, our EPS would have been up 8.9% versus last year's Q1. We also delivered a positive 4.7% total same-store sales on a constant currency basis, with domestic same-store growth, same-store sales growth of 4.8%. Our domestic DIY same-store sales growth grew 1.5%, while our domestic commercial sales grew up 14.5% versus last year's Q1 and up sequentially from 12.5% on a 16-week basis in the fourth quarter of last year. Our focus is on improving execution, expanding parts availability, and improving the speed of delivery. We are pleased with our results thus far. International same-store sales were up 3.7% on a constant currency basis.

Our unadjusted international comp was up 11.2%. This was the first quarter since Q3 2024 where FX rates were favorable to our operating profit and EPS. Jamere will provide more color for you on our foreign currency impact on our financial results for both this past quarter and the upcoming second quarter later on this call. With over 7,700 stores across three countries, our business is getting more global each day. We finished the quarter with 6,666 U.S. stores, 895 Mexico stores, and 147 Brazil stores. We opened 53 stores globally this past quarter versus 34 in last year's first quarter. This kind of first quarter growth is at near record for any first quarter store openings in our history and indicative of our commitment to accelerate our store growth.

We are very excited about the pace of these openings, and we know that this pace will drive future earnings growth globally. Next, let me address our sales results in a little more detail. Coming into the quarter, we were optimistic that our improved execution would drive sales growth for both retail and commercial. More specifically, we felt the momentum we gained over the last three quarters with our domestic commercial sales would continue this quarter. We are very pleased that our domestic commercial sales accelerated again this quarter to 14.5%. This marked an acceleration from our commercial sales growth on a two-year and a three-year basis. Additionally, the domestic retail comp performed well, up 1.5%, but slowed slightly from last quarter's 2.2%. Finally, our international constant currency comp was up 3.7% for the quarter and performed slightly better on a two-year basis than last quarter's result.

We are encouraged by our continued improved sales results, and the way we finished the quarter gives us confidence in our sales outlook for the remainder of our fiscal year 2026. Next, I'll discuss the quarter's sales cadence. Regarding our 4.8% quarterly domestic same-store sales, the cadence was 5.5% in our first four weeks, positive 3.5% in our second four weeks, and positive 5.5% over the last four-week period in the quarter. We attribute the weakness in the middle four-week segment to weather in the month of October that was not as favorable as last year in a select group of markets. Last year, we experienced much colder weather in a subset of markets, and this year that did not repeat, which resulted in fewer winter-related parts sales than normal.

While it got colder in the last four-week segment, it was not until November when we began to get the usual cold winter weather. Also, in a subset of markets in the southeast where hurricanes occurred last year, our sales were weaker than last year. Hurricanes drive sales after the storms and during the cleanup period, and without those storms this year, our sales in some markets were lower. Let me make a few comments on our domestic DIY business. Regarding our plus 1.5% DIY comp for the quarter, we experienced a positive 2.1% in the first four-week segment, a flat DIY comp in the second segment, and a plus 2.3% comp during the third segment. Our merchandise categories performed as we would have expected, but less favorable weather comparisons in certain regions definitely impacted our results.

More specifically, sales in the northern half of the country outperformed our markets in the southern half of the United States. With regard to inflation's impact on DIY sales, we saw like-for-like same-SKU inflation up approximately 4.8% for the quarter, the same with our DIY average ticket that was up 4.8%. Based on our inflation expectations, we continue to expect our average ticket to grow sequentially through the third fiscal quarter, which ends in May. During the fourth quarter, we'll begin to lap the increases in inflation we saw in this past year's fourth quarter. We also saw DIY traffic down 3.4% as traffic was roughly 2X down roughly 2X in the middle four-week segment versus the first four weeks and the last four weeks due to the weather comparisons and positive impacts from hurricanes in those same markets.

We are encouraged by our most recent trends, and we expect our DIY business to remain resilient in this environment. Next, I will touch on our domestic commercial business. As I mentioned, our commercial sales were up 14.5% for the quarter. The first four weeks grew 15.2%. The second four-week segment grew 13.8%, and the third four-week segment grew 14.6%. As with DIY, our commercial sales were impacted during the middle four-week segment due to the weather comparisons to last year. Our commercial results have been boosted by our improved inventory, satellite store investments, and availability, significant improvements in our hub and mega hub coverage, and continued strength of our Duralast brand and execution on our initiatives to improve speed of delivery and customer service. These initiatives are delivering share gains and give us confidence as we move further into FY26.

Year-over-year inflation on a like-for-like same-SKU basis for commercial business was up 6% and grew similarly to our average ticket growth of 6.1%. Lastly, we are very pleased with the growth in our commercial transactions, with traffic up 5.9% on a same-store basis as we continue to grow market share. Our future sales growth will be driven by share gains and an expectation that like-for-like retail SKU inflation will continue as we move forward. As I said earlier, we opened a total of 39 net domestic stores and 14 stores in our international markets, and we remain committed to more aggressively opening satellite stores, hub, and mega hub stores. Hubs and mega hubs comps results continue to grow faster than the balance of the chain, and we are going to continue to aggressively deploy these assets.

For FY26, we expect to continue to open stores at an accelerated pace, and Jamere will share more on our new store development progress in a moment. Overall, we are encouraged with our sales performance this quarter. We believe we are positioned well for growth in FY26, and we expect both DIY and commercial sales trends to remain solid. We will, as always, be transparent about what we are seeing and provide color on our markets and outlook as trends emerge. Now, let me take a moment to discuss our international business. Across Mexico and Brazil, we now have 1,044 international stores. As I mentioned, our same-store sales grew 3.7% on a constant currency basis behind a softer macro environment in Mexico. While we are continuing to gain market share, the economy is experiencing slower growth.

As the economy improves, we expect our sales to re-accelerate as we continue to invest in our new 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 accelerate our international store openings. In summary, we have continued to invest capital in opening new stores, 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 delivering sustainable long-term results. We continue to invest in improving product assortments in stores and online and improving efficiency in our supply chain, which positions us well for future growth. 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 our investments will be in accelerated store growth, including hubs and mega hubs that place more inventory closer to our customers. We are also investing in two new distribution centers, one in Mexico and one in Brazil, all while continuing to invest in technology to improve customer service and our AutoZone's ability to execute on our promise of wow customer service and delivering trustworthy advice. This is the right time to invest in our business as we believe industry demand will continue to remain strong, and we have the ability to grow market share. Now, I'll turn the call over to Jamere Jackson.

Thanks, Phil. And good morning, everyone. Our operating results remained strong for the quarter, and were highlighted by solid top-line revenue. Total sales were $4.6 billion and up 8.2% versus Q1 of last year. Our domestic same-store sales grew 4.8%, and our international comp was up 3.7% on a constant currency basis. Total company EBIT was down 6.8%, and our EPS was down 4.6%. As Phil stated earlier, excluding our non-cash $98 million LIFO charge, EBIT would have grown 4.9%, and EPS would have been up 8.9%. Foreign exchange rates positively impacted our results for the quarter. From Mexico, the peso strengthened just over 6% versus the U.S. dollar for the quarter, resulting in a $37 million tailwind to sales, an $11 million tailwind to EBIT, and a $0.44 per share benefit to EPS versus the prior year.

We continue to be proud of our results as the efforts of our AutoZones and our stores and distribution centers have enabled us to continue to grow our business. Let me take a few moments to elaborate on the specifics in our P&L for Q1. First, I'll provide a little more color on sales and our growth initiatives, starting with our domestic commercial business for the quarter. Our domestic DIFM sales were $1.3 billion, up 14.5%. For the quarter, our domestic commercial sales represented 32% of our domestic auto parts sales and 28% of our total company sales. Our average weekly sales per program were $17,500, up 10% versus last year. Our commercial acceleration initiatives are continuing to deliver strong results as we grow share by winning new business and increasing our share of wallet with existing customers.

We have a commercial program in approximately 93% 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 84 net new programs, finishing with 6,182 total programs. We plan to aggressively pursue growing our share of wallet with existing customers and adding new customers. Mega hub stores remain a key component of our current and future commercial growth. We opened four mega hubs and finished the quarter with 137 mega hub stores. We expect to open at least 30 mega hub locations over the fiscal year, and 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 10%, the 137 mega hubs continue to drive growth at an even faster clip. We continue to target having approximately 300 mega hubs at full build-out. Our customers are excited by our commercial offering as we deploy more parts and local markets closer to the customers 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 12 new stores in Mexico to finish with 895 stores and two new stores in Brazil, ending with 149 stores. Our same-store sales grew 3.7% on a constant currency basis and a positive 11.2% 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've continued to grow our 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 moments on the rest of the P&L and gross margins. For the quarter, our gross margin was 51%, down 203 basis points versus last year. This quarter, we had a $98 million LIFO charge, or 212 basis points unfavorable LIFO comparison to last year.

Excluding the LIFO comparison, we had a 9 basis points improvement to gross margin driven by margin actions, which offset a significant rate headwind from the shift to a faster-growing commercial business. We anticipate continued benefits from merchandise margins next quarter that should help offset the rate headwind from accelerated commercial growth. As I mentioned, we had a $98 million LIFO charge in Q1. We're planning a LIFO charge of approximately $60 million for each of the next three quarters as we're continuing to experience higher costs due to tariffs that impact our LIFO layers. Moving on to operating expenses, our expenses were up 10.4% versus Q1 last year as SG&A as a percentage of sales deleveraged 69 basis points driven by investments to support our growth initiatives. On a per-store basis, our SG&A was up 5.8% compared to last quarter's 4.4% increase.

The difference between per-store growth and total SG&A growth is the accelerated new store count that we have driven over the last 12 months. 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. In the spirit of transparency and to give investors the opportunity to adjust expectations as we grow store count faster than we have in recent history, we will give more color on SG&A growth and store counts. For Q2, we're assuming 65 to 70 store openings globally versus 45 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. For Q2, we expect SG&A to grow similar to the first quarter as the impact of new stores disproportionately impacts payroll, depreciation, and occupancy costs. 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 $784 million, down 6.8% versus the prior year. As I previously mentioned, a non-cash LIFO charge reduced our EBIT by $98 million. Adjusting for the unfavorable LIFO comparison, our EBIT would have been up 4.9% versus the prior year.

Interest expense for the quarter was $106 million, down 1.3% from a year ago, as our debt outstanding at the end of the quarter was $8.6 billion versus $9 billion a year ago. We're planning interest in the $114 million range for the second quarter of FY26 versus $109 million last year. For the quarter, our tax rate was 21.7%, down from last year's first quarter of 23%, driven primarily by higher stock option expense benefit. This quarter's tax rate benefited 186 basis points from stock options exercised, while last year it benefited 72 basis points. For the second quarter of FY25, we suggest investors model us at approximately 22.5%. Moving to net income and EPS, net income for the quarter was $531 million, down 6% versus last year. Our diluted share count of 17.1 million was 1.5% lower than last year's first quarter.

The combination of lower net income and lower share count drove earnings per share for the quarter to $31.04, down 4.6% versus last year's Q1. As a reminder, LIFO drove our EPS down $4.39 a share. Now, let me talk about our free cash flow. For the quarter, we generated $630 million in free cash flow versus $565 million in Q1 last year. 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 EBITDA. Our inventory per store was up 9.1% versus Q1 last year, while total inventory increased 13.9% 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 $145,000 versus negative $166,000 last year and negative $131,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 115.6% versus last year's Q1 of 119.5%. Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $431 million of AutoZone stock in the quarter, and at quarter end, we had $1.7 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 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 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 rest of FY26, we're bullish on our growth prospects behind a resilient domestic DIY business, a faster-growing domestic commercial business, and an international business that is continuing to grow 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 and EPS. If yesterday's spot rates held for Q2, then we expect an approximate $57 million benefit to revenue, an $18 million benefit to EBIT, and a $0.77 a share benefit to EPS. Lastly, in Q2, we expect LIFO to reduce EBIT by approximately $60 million, impact our gross margin rate by approximately 140 basis points, and our EPS by approximately $2.70 a share. Now I'll turn it back to Phil.

Thank you, Jamere. We are excited to start the calendar of 2026.

We have a lot to accomplish this fiscal year. We are committed to flawless execution and wisely spending our capital to drive growth and efficiency. We feel we are well positioned to grow sales across our domestic and our international store base with both our retail and our DIY customers. We expect to manage our gross margins effectively and grow our operating expense in line with an accelerated store opening assumption. We continue to put our capital to work where it will have the biggest impact on our sales and long-term profitability. That's our stores, our distribution centers, and investing in technology to build a superior customer experience. The top focus areas for 2026 will be growing share in our domestic commercial business and continuing our momentum in international. We are excited about what we can accomplish in this second quarter.

But we understand that we cannot take things for granted. We must remain laser-focused on customer service, flawless execution, and gaining share in every market in which we operate. Fiscal 2026 top operating priorities will continue to be based on improving execution and delivering wow customer service. We will continue to invest in the following strategic projects, remaining focused on driving DIY or do-it-yourself and commercial sales growth, which we are doing in a meaningful way, ramping up our domestic and international store growth, driving our new and mega hub openings, and focusing on optimizing our new distribution centers and our supply chain capabilities. We are excited about what we can accomplish in this new year, and our AutoZoners are well prepared to deliver on our commitments. We believe AutoZone's best days are ahead of us. Now we'd like to open up the call for questions.

Certainly. Everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press Star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then re-enter the queue. Once again, if you have any questions or comments, please press Star one on your phone. Your first question is coming from Bret Jordan from Jefferies. Your line is live.

Hey, good morning, guys. Good morning. Could you talk about the maturation schedule of the new stores now that it's become a very, I guess, a more significant item as far as the ramp and then incremental investment that's required?

I think you're talking about a couple of DCs internationally, but as far as domestic store growth, are there more DCs or accelerated hub expansion as you build this new store base? I mean, you're sort of trying to think about it as an SG&A expense at the front, but when do we start getting the return?

Yeah, thanks for your question, Bret. So typically, our new stores mature on about a four to five-year timeframe, if you will. And we've seen this historically over time, and it's fairly predictable. Our teams do a great job of getting those assets into the market and then building our business around them. Regarding SG&A, we had about two points of the growth in our SG&A that was related to new stores and the acceleration of our commercial programs.

You'll see this ramp continue as we peak at the 500 stores globally that we're expecting in FY28. What has us excited is, in addition to the new satellite stores that we're building, we're also building out our mega hub footprint, which, as we mentioned, is going to grow to 300 mega hubs. We've got about 100 of those in the pipeline today, and we feel very good about our execution there. As we look at the way our operating margins will progress between now and then, you'll see this roughly two points of incremental SG&A associated with this ramp, if you will. Then you'll see that sort of lop off, and we'll return to the kind of operating margins that we have in the past. As it relates to investments, obviously, we've been investing in distribution centers.

We had a couple of new distribution centers that we put in over the last couple of years or so. Those have come online, and we're getting the productivity out of them. We're also investing in distribution centers in Mexico and Brazil, and all of this will underpin the growth. So that two points of SG&A that I talked about includes all the investments that we need to make across the business.

Maybe I'll add on a little bit to that. We've talked a lot about this project we've had in place for several years now, which is Supply Chain 2030, which is really looking at what did our supply chain need to look like to get us to these faster-growing store numbers. Most of those investments in the U.S. have already been in place and stood up. Those two new DCs we opened up last year.

There's also some new efficiency strategies built in those distribution centers, as well as some direct import facilities. In Mexico, as we've talked about, we opened up a new DC and expanded one, and we're in the process of expanding our Monterrey distribution center to almost double the size. And that'll be open fully operational probably in March. And then we're bringing our distribution from third party to our own supply chain down in Brazil, which should help us for quite some time. So most of the U.S. expansion is done. It'll be about improving efficiencies. Mexico will be done effectively in March or April. And that'll take us for quite some time for the next couple of years from the supply chain perspective.

Okay, great. Thank you. Quick question on the commercial growth on a two- to three-year basis. Could you sort of parse out what might be national account versus domestic? I mean, obviously, not a lot of new national accounts entering the market. Is this skewed more to up and down the street business?

Yeah, we're growing on the commercial side of the business in all of the different segments that we break out. Obviously, to your point, there's not a lot of new national accounts that you would consider branded national accounts, but we're growing share of wallet in all of those segments: national accounts, what we call up and down the street customers, which are generally the local mom-and-pop shop, as well as what we call verticals and associations. We're growing across all of the four segments.pretty healthily.

Thank you. Your next question is coming from Chris Horvers from JPMorgan. Your line is live.

Hi guys, it's Beatriz Rowan for Chris. Thanks for taking the question. So on DIY, given the sequential slowdown, I know you said weather was a headwind in the middle four weeks, but can you help us parse out how much of that was additionally attributable to any government shutdown noise or any sort of observable deterioration in the underlying trend or demand?

Yeah, I wouldn't say that the demand has necessarily deteriorated. As we mentioned, kind of that weather segment in the middle of the—we broke the quarter down into the 12-week quarter down into 4-week segments. The middle section of that segment, year over year, you had some changes in weather in more of the northern markets, and you had the impact from the hurricane that benefited us last year that did not reoccur this year.

It was really a wobble in the middle four-week segments, not related to the customer per se, more related to the impacts from last year, both a positive weather event due to hurricanes and a cold snap that happened last year as opposed to something that really deteriorated in this year. And that middle four-week segment, as we mentioned, was down significantly compared to the first four-week segment and the third four-week segment. Hope that's a little clearer.

Got it. That's helpful. Yep. And then a quick one on SG&A. So previously, we talked about mid-single-digit SG&A store growth for the year and came in at the higher end in 1Q despite softer sales.

So now that you're accelerating store growth and you said 2Q, SG&A will be similarly up to 1Q, can you help us understand how does the curve of that SG&A per store growth look throughout the year? And is that pretty much moderate into next year? Thank you.

Yeah, as I mentioned, we had about two points of growth that was related to new stores and really the opening of new programs in our commercial area of the business domestically. And we expect that to continue. And then if you look at our store opening ramp, we're going to continue to open new stores. It's going to be back half-weighted. As I mentioned, we'll open 350 to 360 stores globally in total, and a good chunk of that will be weighted in the back half. So you'll see some acceleration as we move through.

And again, this is all predicated on the growth that we're seeing. We're continuing to invest in a disciplined way in those growth initiatives. And quite frankly, we like the earnings and the cash story that this is going to generate for us as we come out of this.

Thank you. Your next question is coming from Simeon Gutmann from Morgan Stanley. Your line is live.

Hi, this is Skylar Tennant on behalf of Simeon. Thank you for taking our question. On our first question, we wanted to ask whether the consumer is showing any signs of elasticity to higher prices or whether you're seeing any signs of trade down.

Yeah, we kind of figured this question was probably coming.

At the end of the day, I would kind of characterize it as the lower-end consumer has been under pressure for, frankly, quite some time. I'd say more than two years. And what I would say is they've been relatively stable. So there hasn't been a significant wobble in that lower-end consumer. The higher-end consumer, we think, is still doing okay. And we think that's been relatively stable over the last couple of quarters. We don't have a lot of categories where you would see trade down. We have some good, better, best opportunities in batteries and brakes and wiper blades, things of that nature. But the vast majority of our inventory is generally one part that fits a particular vehicle, and there's not a whole lot of upsell opportunities based on good, better, best opportunities. So we don't see a lot of trade down.

There's a little bit, but it's really not been that meaningful.

Okay. Thank you. And as a follow-up, how are you thinking about inflation? Has it impacted the entire product catalog? And for items not impacted, are you seeing any signs of demand elasticity there?

Yeah, the inflation, we think the inflation is going to continue to increase through what would be our third quarter on a year-over-year basis. And then some of the impacts from tariff and cost increases started in Q4 of last year. So we'll start to lap some of that. I suspect that there'll still be some increases, but they'll probably be a little bit less muted in the latter part of what would be our Q4, more like the summertime.

But as far as separating out what has tariff impact and not had tariff impact, most of the product that we sell is essentially break fix or it's required maintenance. And there hasn't been a lot of volatility in those product categories. In purely discretionary categories, which is a relatively small part of our business, more like 16% to 17% of our total market, those categories were impacted over the last two years and had some pretty significant downfalls. But over the last year or so, they've actually been relatively stable and seen some minor improvement in sales over the last year.

Great. Thank you. Good luck and happy holidays.

Thank you. Happy holidays to you too. Thank you.

Your next question is coming from Michael Laster from UBS. Your line is live.

Hi, this is Zane Brock from Michael Laster. Thank you very much for taking our question.

The first question is on the comps. We're wondering how likely is it that the same source sales momentum would be sustainable domestically as comparisons become more challenging in the third quarter as well as fourth quarter and you lap a greater inflation number in fourth Q?

Yeah, I would characterize that we think those numbers are going to be relatively stable. Again, our comp in the latter part of Q3 and Q4, there was an increase from, if you think about a two-year stack, and it might moderate a little bit. But we're confident behind our initiatives that we have in place that we will continue to grow market share on both the DIY and the commercial business.

So they may flatten out a little bit, but at the end of the day, I think we're going to continue on this growth trajectory for both DIY and on the commercial side of the business.

Gotcha. That's helpful. And as far as my second question goes, I'm going to try to approach the SG&A topic a little differently. Since the beginning of fiscal year 2024, SG&A growth has outpaced sales growth in each quarter and by about two to three percentage points on average. So how should we expect that gap between sales and SG&A growth to unfold going forward, especially as you accelerate unit growth? And as part of that, would it be fair to think the model is more reliant on recouping some of the gross margin headwinds you faced in the past couple of years to return to operating margins of 19% plus?

Yeah. So the first thing that I'll say, and we've reiterated this point, is that we're growing SG&A in a disciplined way as we create a faster-growing business. And so what you've seen is that the investments in SG&A have been purposeful. We've had accelerated growth in SG&A related to new stores and acceleration of our commercial business. And two things. Number one, you're starting to see the green shoots associated with that. And we like the earnings profile of the new stores, first of all, as they're coming out of the chute, but more importantly, when those stores mature in the next four to five years. What I'll say about the gap between sales growth and SG&A growth over time is that SG&A will slightly outpace the sales growth as we move through.

But as we get to the point where these stores mature, then we'll manage SG&A growth in line with sales. But I think the key takeaway is that it's been purposeful, and this is underpinning the growth that we've talked about. And we like the earnings and cash profile on the backside of this. Gotcha. Thank you very much. And the model's reliance on gross margin to get back to 19% margin profile? Well, I think the reality is if you look at the model today and you're talking about operating profits, if you will, you got two points associated with this accelerated growth that we're talking about. You got about 140 basis points associated with LIFO.

Between those two, you add back, call it three and a half points to a business that's going to do 17 and some change on a GAAP basis, and you're back at your 20% operating model. And if you do that on top of a much larger store base, again, that's what has us excited about the model as we move forward.

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

Hi there. This is Sherman on for Scott. Thanks for taking my question. LIFO charges were less than expected this quarter, and now you've lowered your expectation of the headwind for the next three quarters by around 25%. Just want to know if this is from just greater tariff reductions or maybe more focused mitigation efforts.

And then could that taper the upper end of your same SKU expectations for inflation throughout the year? Thanks.

Yeah. So two things on LIFO. Number one, we have not seen as much cost impact as we had originally anticipated. I think we've talked very openly about the fact that we're running a tried-and-true playbook. One is to the extent that there's an opportunity to negotiate lower costs with vendors and protect the customer. We've been doing that. If there's an opportunity for us to diversify sources and maintain the sales, we're doing that. And then the third leg of the stool, obviously, has been to raise retails. So in running that playbook, we haven't seen as much inflation as we would have anticipated. I think the second dynamic is you saw the announcements where the EPA tariffs on China moved from 20% down to 10%.

So that does lower our expectation going forward. What we're seeing, and you heard Phil talk about this a little bit earlier, is we're still expecting to see higher costs associated with tariffs as we move through. That is going to have some impact on ticket average and have some impact on comps going forward. It's just that what we had anticipated originally, we're seeing better performance from a cost standpoint and lower IEPA tariffs from the rollback that was announced in November.

Yeah, I would continue to add that our merchants have been working with this tariff mitigation, country of origin, diversification, and multiple supplier diversification, frankly, since the original tariffs went in back in 2016 and 2017. They've become pretty good at it.

Having multiple sources for country of origin as well as multiple suppliers to supply a particular category has been a strategy we've had for quite some time. We've had a strategy for diversifying our sourcing out of China into other countries for years, and they've become very adept at it. To Jamere's point, we're running that same playbook, and our folks have gotten pretty good at doing that as well as continuing to improve our supply chain efficiencies, which are helping our gross margins, but they've just done an exceptional job, which you saw in our gross margin, overcoming the vast majority of the mix shift to a lower margin business that grew faster on the commercial side of the business. So we think that's a really good story for us.

That was really helpful. Thanks so much, guys.

Your next question is coming from Steven Zaccone from City. Your line is live.

Hi, this is Ariana on for Steve. Thank you for taking our questions. My first question is, can you give any color on the merch margin performance in the quarter and any color on the outlook for this fiscal year?

Yeah. We had a very strong quarter from a merch margin standpoint, and what you see in our underlying gross margins is we were up nine basis points excluding LIFO. We had about a 34 basis points drag just from the mix shift associated with a faster-growing commercial business. So all of the merchant actions that were taken inside the company are working really hard to offset that drag from the drag that's associated with the commercial rate.

And that's a playbook that we're continuing to run with intensity, and the teams are doing a pretty good job there.

Thank you. And then my follow-up kind of piggybacks off of previous questions. So where do you kind of expect SKU to peak in 3Q as it accelerates sequentially?

Yeah. I mean, I won't be date certain about when it will peak, but what we can tell you is that we're going to continue to see inflation coming through our cost of goods sold. We're seeing it both in terms of what we're seeing from vendors, but also from tariffs. And as that rolls through, it is potential to see another point or two over the next couple of quarters impacted on same SKU and resulting in higher average tickets.

Got it. Thank you so much. And happy holidays.

Your next question is coming from Kate McShane from Goldman Sachs. Your line is live.

Hey, good morning. This is Mark Carden for Kate McShane. My first question, I think, might be a quick one, but it's just what drove the difference between same SKU inflation in the retail business and the commercial business? Is that just the mix of the parts that are being sold?

Yes. It's a mix and combination of products and parts that get sold between the two. The commercial side, generally, you have a higher hard part mix, and you have generally newer, less, well, let me say this the right way, newer SKUs in their life cycle, which generally are a little more expensive because they have more technology associated with them, essentially.

And then, in terms of product categories, just wondering if there's anything to read through there in terms of the healthier core customer. Which categories were stronger and which were weaker during the quarter? And are you still seeing improvement on the discretionary side?

Yeah. I would say, I mean, our failure categories and our maintenance categories continue to be the best performers, which I think is indicative of the health of the automotive industry in total. Our weaker performers have been, over the last couple of years, frankly, the more purely discretionary items. Over the last year or so, those items have kind of flattened out from a negative comp perspective and started to slightly grow year over year, which we think is a pretty good sign that that segment of product has kind of bottomed out and will probably continue to grow from this point forward.

And just thinking about the comp there, is that mostly being same SKU inflation driven on that side, or is units up as well?

On the purely discretionary product, it's a little bit of both.

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AutoZone (AZO) Q1 2026 Earnings Call Transcript

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