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.

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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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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 twenty twenty five Second Quarter Earnings Release Conference Call. At this time, all participants have been placed

It is now my pleasure to turn the floor over to your host, Brian Campbell. Sir, the floor is yours.

Before we begin, please note that today's call includes forward looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements are not guarantees of future performance. Please refer to this morning's press release and the company's most recent annual report on Form 10 K and other filings with the Securities and Exchange Commission for a discussion of important risks and uncertainties that could cause actual results to differ materially from expectations. 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.

Good morning, and thank you for joining us today for AutoZone's twenty twenty five 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 a chance to read our press release and learn about this 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 calls to see them.

As we begin today, we want to thank our more than 125,000 AutoZoners across the globe for their commitment to delivering on our pledge to always put customers first. Their contributions allow us to deliver the consistent performance we have enjoyed over many years. We can only succeed if we all work together to deliver our goals. First off this morning, I'll say the quarter played out the way we thought it might. We felt optimistic that our execution could drive sales increases.

And we also believed we would experience winter weather earlier in the quarter than we did last year during our second quarter. Now let me highlight a few highlights from this quarter and give a little more color on our execution, the current environment and our outlook. For the quarter, with our continued focus on what we call Wow customer service, our total sales grew 2.4%, while earnings per share decreased 2.1%. We delivered positive 2.9% total company same store sales with domestic same store sales growth of 1.9% and our domestic commercial sales grew 7.3% and were up 10% on a two year stack basis. International same store sales increased 9.5% on a constant currency basis.

While our international business continued to comp impressively, we faced an approximate 1,900 basis points of currency headwind, which resulted in an unadjusted negative 8.2% international comp. As you know, the U. S. Dollar has continued to have a negative impact on our reported sales, operating profit and EPS. We expect this trend to continue for the remaining two quarters of this fiscal year.

Jameer will provide more color on our foreign currency impact for the third and fourth quarters as well as the full fiscal year. In terms of execution, specifically related to our domestic commercial business, our focus on improving both availability and speed of delivery helped us significantly improve our year over year sales growth. We drove commercial sales up 7.3% versus up 3.2% in the first quarter. We believe the initiatives we have in place have a long runway and will drive further improvement. We are pleased with our efforts and execution thus far.

Secondly, the environment did improve as we experienced winter weather earlier than we had the last couple of years. Due to a colder November and early December, our sales noticeably increased. Our domestic same store sales cadence was 4.3% in the first four weeks, plus 2.8% in our second four weeks and a negative 1.2% over our last four weeks. This compares to the previous year's second quarter where domestic sales were a positive 1.4% in the first four weeks, a negative 4.9% in the second four weeks and a positive 4.4% in the last four weeks. On a two year basis, DAP comps were a positive 5.7 in the first four weeks, a negative 2.1 in the second four weeks and a positive 3.2 in the last four week segment.

is important to point out that the Arctic cold that came early this year came later in the last four week segment last year. That is why the last four week segment was such a difficult comparison for us. Thirdly, the domestic comp variation over the four weeks segment was driven by volatility in our retail business. In fact, for our domestic retail business, the last week of the quarter was by far the worst week with our DIY comp being down almost 7%, but it was understandable. That week for much of the country was very cold weather along with heavy snowfall and it hurt our customer traffic.

That is what happens during the winter quarter, which is always the most volatile. During the weeks where weather is extreme, our traffic softens significantly, but returns once people are able to get back out to shop. We seem to capitalize on the pent up demand. Our commercial comp on the other hand was much more consistent over the twelve weeks of the quarter. This consistency was very encouraging to us and informs us that we are on the right track to continued future commercial sales growth.

While the macro environment has continued to force customers to be cautious with their spending, the consistency of our failure in maintenance business continued this past quarter. Weather in Q2 always had such a big impact on our results. With a winter that started earlier, we benefited this year from more failure related parts sales. Winter also causes discretionary categories to be a lower percentage of our sales mix. Now let me make a few comments on our DIY business.

Our domestic DIY results showed an improvement to last quarter as Q2's DIY comps were plus 0.1%. Our discretionary merchandise category continued to be the lowest performer across domestic DIY sales. For our second quarter, discretionary category sales were approximately 16% of our mix and they were down on a same store sales basis. Our belief is the discretionary sales will continue to be pressured until the customer gets some economic relief and consumer confidence improves. Our DIY comp was up 2.9% in the first four weeks segment, plus 2% in the second four weeks segment and down 4.3% during the third fourth week segment.

That compares to last year's Q2 DIY comps of 0.7% in the first four weeks, negative 6.2% in the second four weeks and a positive 4.8% in the third, fourth week segment. With regards to inflation's impact on DIY sales, we saw both DIY average ticket and average like for like same SKU inflation up slightly for the quarter. We continue to expect that inflation in our ticket will be up approximately 3% over time and we anticipate average ticket growth will return to historical industry growth rates as we move farther away from the hyperinflation of the last couple of years. We also saw DIY transaction count down approximately 1%. This too was better than the down 1.8% we experienced in our traffic trend for last quarter.

While we do not have final share data for the last segment of the quarter, we were encouraged by the recent favorable share trends. We believe we have a best in class product offering and service offering, and this gives us confidence that when customers return to their historical shopping habits, we will be the beneficiaries. Next, I'll speak to our regional DIY performance. We saw slightly weaker performance in the Northeast, Midwest or Mid Atlantic, sorry, and Rust Belt versus the rest of the country. These markets were up 0.5% versus 1.1% across the rest of the domestic markets as sales are heavily dependent on winter weather.

Winter weather benefited these Northeastern And Rust Belt markets earlier in the quarter and our sales increased nicely during those times versus Q2 last year. However, the last week of the quarter was much weaker in the Northeastern And Rust Belt markets as they were down 10% versus the rest of the country being down roughly one. Again, weather created a lot of volatility during the second quarter of our fiscal year. We would expect our performance to improve as our customers are now able to get back out and shop. Next, I will touch on U.

S. Commercial business. Our commercial sales were up 7.3% for the quarter versus last year and this compares to 3.2% total commercial growth in Q1. For commercial, the first four weeks of our twelve week quarter grew 8.8% due to the impact from winter weather previously discussed. The second four week period grew 5.9% and the last four week period grew 7.1%.

Commercial was also impacted by the last week of the quarter due to the severe winter storm. More broadly, across The U. S, our commercial business grew at a slower pace in the Northeast and the Rust Belt versus the rest of the country. The spread was pronounced 600 basis points between the Northeast and Rust Belt versus the rest of the country as many of our customers close their businesses while these storms roll through these markets. We expect performance in the Northeast and the Rust Belt markets to improve over the remainder of the year as the colder winter weather has historically led to parts failures and increased maintenance as the summer goes along.

While we have continued to see wide variations in performance across the more weather sensitive markets, we remain confident in our initiatives. We are very encouraged with our improved satellite store inventory availability, significant improvements in hub and mega hub stores coverages, the strength of our Duralast brand and good execution on our initiatives to improve speed of delivery and improve customer service, which gives us confidence as we move throughout the year. This quarter, year over year inflation on a like for like same SKU basis in our commercial business increased versus Q1, contributing to our average ticket growth of 0.5%. Lastly, while ticket growth was slightly positive, we were very pleased with the growth in our commercial transactions year over year. Our sales growth will be driven by our continued ability to gain market share and an expectation that like for like same SKU inflation will accelerate as the year moves along.

For the quarter, we opened a total of 28 net domestic stores. We remain committed to more aggressively opening regular stores, hubs and mega hub stores. Hubs and mega hubs comps continue to grow faster than the balance of the chain and we are going to continually aggressively deploy these assets. In FY 2025, our openings will continue to be skewed to the back half of the fiscal year. For the third quarter, we expect both our DIY and commercial sales trends to improve as our comparisons become slightly easier and we gain momentum from our growth initiatives.

We will, as always, be transparent about what we are seeing and provide color on our markets and outlook as trends emerge. Now let me take a moment and discuss our international business. In Mexico and Brazil, we opened a total of 17 new stores in the quarter and now have nine forty nine total international stores. As you can see from our press release, our same store sales were up 9.5% on a constant currency basis. While slightly below double digit growth, we remain very positive on our growth opportunities in this market.

Today, we have just under 13% of our total store base outside of The U. S. And we expect this number to grow as we accelerate our international store openings. For the fiscal year, we expect to open around 100 international stores and we will accelerate our openings over the remaining two quarters of the fiscal 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 improving customer service, product assortment initiatives and our supply chain. We believe we are well positioned for future upswings in consumer demand. We are investing in both CapEx and operating expense at the right time for market share growth. I'd like to recognize all AutoZoners who helped to get our two new domestic distribution centers open this quarter. Both our California and Virginia DC will help us tremendously with the future parts needs of our customers.

The Virginia distribution center will be AutoZone's largest DC and both DCs will deploy new technology and automation. We are very excited by the supply chain efficiencies these facilities will provide us. In summary, we have continued to invest in driving traffic and sales growth. This year, we expect again to 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 customer service and our AutoZoners' ability to deliver on our promise of wow customer service.

We believe this is exactly the right time to invest in these initiatives in order to grow market share now and be ready when industry demand ramps up. Now, I will turn the call over to Jameer Jackson.

Thanks, Phil, and good morning, everyone. For the quarter, total sales were $4,000,000,000 and were up 2.4. Our domestic same store sales grew 1.9% and our international comp was up 9.5% on a constant currency basis. Total company EBIT was down 4.9% and our EPS was down 2.1%. As Phil discussed earlier, we had a headwind from foreign exchange rates this quarter.

From Mexico, FX rates weakened 19% versus the U. S. Dollar for the quarter, resulting in a $91,000,000 headwind to sales, a $30,000,000 headwind to EBIT and $1.22 a share drag on EPS versus the prior year. Excluding the FX headwind, we would have reported an EPS increase of 2.1% for the quarter. We continue to deliver solid results as the efforts of our AutoZoners and our stores and distribution centers have enabled us to continue to grow our business.

Let me take a few moments to elaborate on the specifics in our P and L for Q2 and first off give a little more color on sales and our growth initiatives. Starting with our domestic commercial business for the first quarter, our domestic DIFM sales increased 7.3% to $1,100,000,000 For the quarter, our domestic commercial sales represented 31% of our domestic auto parts sales and 27% of our total company sales. Our average weekly sales per program were $14,700 up 4.3 versus last year's second quarter. 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 27 net new programs finishing with 5,962 total programs. Importantly, we continue to have a tremendous opportunity to expand sales per program and open new programs. We plan to aggressively grow our share of wallet with existing customers and add new customers. Mega hub stores are a key component of our current and future commercial growth. We finished the second quarter with 111 mega hub stores and we expect to open at least 19 more locations over the next two quarters.

As a reminder, our mega hubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the store box as well as serve as an expanded assortment source for other stores. The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business. These assets are performing well individually and the fulfillment capability for the surrounding AutoZone stores is giving our customers access to thousands of additional parts and lifting the entire network. While I mentioned a moment ago, our commercial weekly sales per program average was $14,700 per program, the 111 mega hubs averaged significantly higher sales and are growing much faster than the balance of the commercial business in Q2. We continue to target having just under 300 mega hubs at full build out.

Our customers are excited by our commercial offering as we deploy more parts in local markets closer to the customer while improving our service levels. On the domestic retail side of our business, our DIY comp was up 0.1 for the quarter. As Phil mentioned, we saw traffic down approximately 1% along with a positive 1% ticket growth. Our DIY comps were up 2% each of the first two periods and down 4.3% over the last four weeks as we were up against a difficult comparison from an extremely cold period a year ago along with very difficult DIY same store sales the last week of the quarter. As we move forward, we would expect to see slightly declining transaction counts offset by low single digit ticket growth, in line with the long term historical trends for the business driven by changes in technology and the durability of new parts.

Our DIY share has remained strong behind our growth initiatives and we are well positioned when the industry reaccelerates its growth. Importantly, the market is experiencing a growing and aging car park and a challenging new and used car sales market for our customers, which continues to provide a tailwind for our business. These dynamics, ticket growth, growth initiatives and macro car park tailwinds, we believe will continue to drive a resilient DIY business environment for the balance of 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 13 new stores in Mexico to finish with eight thirteen stores, four new stores in Brazil, ending with 136. Our same store sales grew 9.5% on a constant currency basis and negative 8.2% on an unadjusted basis. We remain committed to international and we're pleased with our results in these markets. We will accelerate the store opening pace going forward as we're bullish on international being an attractive and meaningful contributor to AutoZone's future sales and operating profit growth. 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 53.9% flat to last year. This quarter, we had a $14,000,000 or 36 basis points unfavorable LIFO comparison to last year. Excluding LIFO from last year's results, we had a 36 basis point improvement in gross margin driven by continued improvement in merchandising margins. As a result for Q3 last year, we had a $24,000,000 credit. And while this Q3, we're not expecting to record any LIFO impacts.

So in Q2 quarter end, we still had $19,000,000 in cumulative LIFO charges yet to be reversed through our P and L. And as I previously said, once we credit back the $19,000,000 through the P and L, we will not take any more credits as we will begin to rebuild a non recorded LIFO result. So just a reminder, for Q3 last year, we had a $24,000,000 credit and Q3 this year, we're not expecting to record any LIFO impacts. Now let me take a moment and discuss the impact tariffs could have on our results. Recently, 20% tariffs were instituted on all SKUs purchased from China.

Now there are several outcomes that may impact our go forward results including vendor absorption, diversifying sourcing, taking pricing actions or some combination of the three. To be clear, we intend to maintain our margin profile post tariffs and we expect the entire industry will behave in a rational way as our historical experience has shown. Moving on to operating expenses, our expenses were up 6.4% versus last year as SG and A as a percentage of sales deleveraged 134 basis points. On a per store basis, our SG and A was up 2.9% versus last year's Q2. While we're 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 initiatives that we believe will help us continue to gain share.

These investments will pay dividends in customer experience, speed of delivery and productivity. From our past experiences, we believe investing now at a reasonable pace is key 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 expenses in line with sales growth over time. Moving to the rest of the P and L, EBIT for the quarter was $7.00 $7,000,000 down 4.9% versus the prior year. As I previously mentioned, FX rates reduced our EBIT by $30,000,000 On a constant currency basis, our EBIT would have been down 0.9.

Interest expense for the quarter was $108,800,000 up 6% from Q2 a year ago as our debt outstanding at the end of the quarter was $9,100,000,000 versus $8,600,000,000 a year ago. We're planning interest in the $110,000,000 range for the third quarter of FY twenty twenty five versus $104,000,000 last year. Higher debt levels and borrowing rates are continuing to drive interest expense increases. For the quarter, our tax rate was 18.4% and down from last year's second quarter of 19.6% driven by one time discrete items. This quarter's rate also benefited two thirty nine basis points from stock options exercised, while last year it benefited three sixty basis points.

For the third quarter of FY twenty twenty five, we suggest investors model us at approximately 23.2% before any assumption on credits due to stock option exercises. And once again, we suggest investors model Q3 option exercises to be significantly less than Q3 last year, which had four seventy nine basis points of benefit. Moving to net income and EPS. Net income for the quarter was $488,000,000 down 5.3% versus last year. Our diluted share count of $17,200,000 was 3.3% 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 $28.29 down 2.1% for the quarter. As a reminder, the unfavorable FX comparison drove our EPS down $1.22 a share. Now let me talk about our free cash flow. For the second quarter, we generated $291,000,000 in free cash flow versus $179,000,000 last year in Q2. 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 for store was up 6.8% versus Q2 last year, while total inventory increased 10.4% over the same period last year, driven by additional inventory investment to support our growth initiatives. Net inventory defined as merchandise inventories less accounts payable on a per store basis was a negative $161,000 versus negative $164,000 last year and negative $166,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 118.2% versus last year's Q2 of 119.8%. Lastly, I'll spend a moment on capital allocation and our share repurchase program.

We repurchased $330,000,000 of AutoZone stock in the quarter and at quarter end we had $1,300,000,000 remaining under our share buy buy 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 bought back over 100% of the then outstanding shares of our stock since our buyback conception 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 and cash and returning excess cash to our shareholders.

Our strategy continues to work as we remain focused on gaining market share and improving our competitive positioning in a disciplined way. As we look forward to the remainder of FY 2025, we're bullish on our growth prospects behind a resilient DIY business, a fast growing international business and a domestic commercial business that is gaining momentum and growing share. We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders behind a strong industry, a winning strategy and an exceptional team of AutoZearners. 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 headwind on revenue and EPS. If yesterday's spot rates held for Q3, then we expect a approximately $106,000,000 drag on revenue, a $34,000,000 drag on EBIT and $1.41 a share drag on EPS. And for our fourth quarter of FY twenty twenty five, we would expect $101,000,000 drag on revenue, a $37,000,000 drag on EBIT and $1.53 a share drag on EPS. And finally, if rates remain at the current spot rates for the balance of the fiscal year of 2025, we would now expect a $356,000,000 impact to revenues, $118,000,000 impact to EBIT and a $4.82 a share impact to full year EPS. And now I'll turn it back to Phil.

Thank you, Jameer. We are excited about what we are striving to accomplish for the remainder of FY 2025. We promise to continue to focus on improving our execution and delivering Wow! Customer service. We are pleased with the progress we have made on our initiatives and feel our investments to grow sales are on track for the back half of the year.

We are well positioned to grow sales across our domestic and our international store bases with both our retail and our commercial customers. Our gross margins remain solid and our operating expense is appropriately scaled for future growth. We continue to put our capital to work where we'll have the biggest impact on sales and profits, and that is 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 twenty twenty five will remain growing share in our domestic commercial business and continuing our momentum in our international markets. We believe we have a solid plan in place for the remainder of the fiscal year.

We know our focus on parts availability and what we call Wow customer service will lead to sales growth and gains in market share. We are excited to ramp up our efforts in calendar 2025. We are going to have a very busy remainder of our fiscal year and we have to remain the execution machine we have always been. Fiscal twenty twenty five's top priorities are based on improving execution and Wow customer service. We will continue to invest in the following strategic projects: ramp up our domestic and international store growth.

As discussed, our international teams posted same store sales comps on a constant currency basis of just under 10%, continuing several years of strong growth. Reaccelerate our new hub and mega hub openings as we are planning 19 more mega hubs to open in the back half of the fiscal year. These stores do take time, but we are incredibly excited about their continued performance. And most importantly, reaccelerate our domestic commercial sales growth, which we are doing in a meaningful way. We are excited about what we can accomplish and our AutoZoners are committed to delivering on our commitments in 2025.

We believe AutoZone's best days are ahead of us. Now we would like to open 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 Your first question is coming from Brett Jordan from Jefferies. Your line is live.

In the press release, you talked about operating expense deleverage with investment support growth. Was there anything beyond the accelerating store growth or hub openings that was investing? Is it technology or could you talk about sort of the SG and A spend in the quarter?

Yes. I mean, we've talked pretty extensively about investing in a disciplined way in IT, which quite frankly is enabling growth in both DIY and commercial. Nearly every one of our growth initiatives is underpinned by some investments that we're making in technology. And that is a dynamic that's happened for the last few years or so. And we're pretty excited about that.

It's helping us with speed. It's helping us with productivity. It's helping us with the customer experience. So the combination of investments that we're making in our commercial business to accelerate sales growth and all the things that we're investing in from an IT standpoint are the things that we think will give us a competitive advantage and enable us to grow sales in the future.

Okay. And then a question on Mexico, I mean, obviously, buried under the FX. But as you build the store base down there is sort of a tipping point where you start getting better leverage off the distribution expense and the investment being in the market where profitability accelerates. Is there sort of a number that you get to where you get an incremental benefit?

Yes. I think there are a couple of things about our investments in Mexico. One is, we're very pleased with the growth that we're seeing both in terms of new store growth, but also with the same store sales that we're seeing from our existing stores. And so we're also investing there in a very disciplined way, not just in what we're seeing from an SG and A standpoint, but as we've talked about on previous calls, we're investing in distribution center capability that's going to help us in the future, One, get parts to the market faster and support the growing store base that we have there. So we're pleased with the profitability there.

We're pleased with the growth prospects there. And the team there is executing in an exceptional way.

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

Hi, this is Lauren on for Simeon. Thanks for taking our question. Our first one is, we wanted to touch on the 1.9 domestic comp on a constant currency basis. This is the strongest comp that the business has seen over the past several quarters. We were wondering if do you think this is driven more so by strategic initiatives within DIY and commercial weather or are we seeing signs of improvement within the industry?

Just how should we think about the 1.9 in context for the rest of the year? Thank you.

I think it's a little bit of all of the above. The weather was clearly a better year than we have had historically over the last two or three years. But I also we've spent quite a bit of effort over the last year really improving our execution at the store level, both on DIY and the commercial business. We've been investing in growth opportunities around hubs, mega hubs and assortment and we also have some pretty significant fulfillment strategies specifically on the commercial side of the business that we're seeing nice progress on and we think we have continued momentum for the long haul with some of those strategies being executed more frequently and expanding those opportunities. So it's showing up across both businesses.

And we frankly feel like we have pretty good momentum going into the second half of the year.

Great. Thank you. And our follow-up is just on gross margins. Freight costs are picking up and there's some inflation concerns. I I guess how can we expect this to impact gross margins in 2025?

Could this be offset by strength in March margins? Just any color on the cadence of gross margins for 2025 would be helpful. Thank you.

No, from a gross margin standpoint, a couple of dynamics are happening. One is, we're going to see some gross margin drag just because our commercial business is accelerating. And we like the fact that we're investing in commercial and we like the fact that we're accelerating that growth. So there's going to be a little bit of drag there from a gross margin standpoint. But one of the things that we've been really pleased with is that the actions that our merchants are taking to drive merch margin improvement is more than offset that commercial mix drag, if you will.

So you'll have those dynamics happening. And then the only other comment that I'll make is I'll just to remind you again that we had $24,000,000 of benefit booked in the third quarter for LIFO, which we're not expecting a repeat. So that will be a drag. But overall, the underlying gross margins are healthy. The teams are doing a great job.

I think there is some potential for inflation to come back into the marketplace. And if that does happen, we'll respond accordingly.

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

Hi, good morning. It's Christian Carley in at one for Chris. How should we think about the potential impact of tariffs this time given the China tariffs had a long list of exclusions last time? And as well, how should we think about your Mexico sourcing exposure? And any comments on whether the suppliers with facilities in the free trade zones be how will they be impacted by tariffs that start today if at all?

Yes, it's a great question and to be quite frank, I think some of this is still an unknown, specifically when it comes to your topic around exclusions. You're right, in 2016 and 2017, there were several exclusions based on the categories, part types, depending on what the product was coming out of China. We have worked diligently since those original rounds of tariffs to do all of the activities you would expect us to do, try to multi source by category in multiple countries, moving vendors have done a lot of work to move manufacturing to various places that could still be lower cost. And we've negotiated with vendors to understand exactly what the free trade zone impacts would be. That's really challenging for us to understand, but we will and continue to negotiate with vendors to try to improve our cost of acquisition of parts.

And those conversations will continue. It's very fast moving as you know and to try to stay on top of it is difficult, but our merchants are doing a great job. I want to mention, Jameer mentioned it just a second ago, our merch team, if you take out the LIFO impact, did a pretty nice job of growing gross margin last quarter. We

have a bit of a headwind from a compare against last year's LIFO impact, but our merchant teams are doing a great job of working with the vendors to try to make sure that we keep our margin structure intact. And we believe we'll be able to do that because the industry has been rational with pricing for a very long period of time.

Got it. That's really helpful. And to follow-up on the operating expenses, could you talk about to what degree is this just wrapping up the DIFM reacceleration initiatives versus leaning into share, adding drivers and trucks given one of your competitors closing stores? And just how should we think about this going forward? Like is the step up structural or do you expect to lap these investments at some point?

Well, the step up is clearly intentional. We see opportunities to grow market share both in DIY and commercial and we're investing in a disciplined way to be able to take advantage of that. And so that's meant making sure that we have assets and infrastructure in the market to take advantage of market opportunities as they present themselves. And then as I mentioned before, on an ongoing basis, we have several growth initiatives that we've been working on and focusing on for several years. And quite frankly, a lot of that investments is in our IT organization, and it's paying dividends for us in terms of speed and productivity and better customer experience.

And so we're going to do that in a disciplined way and lean into the opportunities that are in the marketplace.

Got it. Thank you very much. Best of luck.

Thank you. Your next question is coming from Zack Fadem from Wells Fargo. Your line is live.

Hey, good morning. As you look back over the past year, it flattish to negative DIY performance, curious to what extent you'd call out weakness at the lower income consumer as a driver? And as you look out over the next couple of quarters, is there any reason to believe that the lower income consumer could improve maybe gas prices, tax refunds? Or conversely, do you think headwinds from policy, immigration, etcetera could drive more uncertainty there?

Yes. I think that lowering consumer has been pressured for quite some time. The massive inflation that we had over the last several years impacts that consumer the most. I also think they still have some inflation pressure coming at them. I mean, you've probably we've all read the news and car inflation is still up significantly higher.

So I think that the lower end consumer is under pressure and will continue to be under pressure. The one thing that I do think is positive is we believe that because of our improved execution, our assortment improvements, our mega hub deployment, all of those things we've been working on over the last couple of years, we believe we will still gain share in this tougher market with consumer confidence. But eventually that will turn and we think we are well positioned to capitalize on it in the current market and as consumer confidence improves.

Got it. And then on the commercial business acceleration, could you talk through the performance of your national accounts versus independents? And any differences in the relative performance there or maybe new business adds? And then, Jamere, in light of the progress, is it fair to call this high single digit growth level the right run rate for the business today?

Yes, I'll talk specifically about our kind of our segmentation of commercial business. I'd say largely we're growing both in the what we call the up and down the street customer. That's not the national accounts. And all the branded national accounts, all of those businesses are very good. The one business that we've talked about over the last couple of quarters that has been tougher for us would be the segment of segmentation of customers that are associated with new and used cars.

That business is still pretty tough, but I think it makes sense. Interest rates are high. The consumer that bought a used car during the height of the pandemic when used car prices had accelerated so much, they're probably still underwater. And if you're going to go out and get a new loan today, your loan value is probably higher today than it would have been back then. So those segments are pretty tough.

But again, we feel really good about the standard shop, new car or I'm sorry, national account, up and down the streets, regional customers, those types of businesses are growing nicely for us.

Yes. And what I'll say is that to Phil's point, our growth was broad based across our business in total. And it was pretty broad based across categories. So real underlying strength there in commercial. We've talked historically on the second part of your question on where our growth rate will be for commercial.

And what I'll say is that, we've been investing in a very disciplined way to grow our share. And while our growth rates tapered off somewhat over the last several quarters or so, we still believe we've been growing share in that environment. I'll just remind you that we're roughly a five share in what's approaching $110,000,000,000 to $115,000,000,000 market and all the investments that we've made that Phil talked about, the quality of our parts, the expanded assortments with our mega hubs, improving delivery times, leveraging technology, the things that we've done for pricing, all of those things give us a tremendous amount of confidence about our business moving forward. We have good momentum coming out of the second quarter. We're expecting a very strong second half of the year.

Thank you. Your next question is coming from Seth Basham from Wedbush. Your line is live.

Thanks a lot and good morning. Just want to follow-up on the tariffs question. Jameer, I think you made a comment that you expect to maintain gross margin rate even with tariffs. What's the break point? In other words, if we do see 20% tariffs incrementally on Chinese sourced goods and 25% on Mexican sourced goods, do you still think you can maintain margin rate and what incremental on top of that would be the breakpoint where you couldn't?

AutoZone Q2 2025 Earnings Call Transcript | Fortune

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