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

autozone

Greetings. Welcome to AutoZone's twenty twenty five Q3 Earnings Release Conference Call. Please note this conference is being recorded. Before we begin, the client would like to read their forward looking statement. Please go ahead.

Before we begin, please note that today's call includes forward looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements are not guarantees of future performance. Please refer to this morning's press release and the company's most recent annual report on Form 10 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, 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 will now turn the conference over to your host, Phil Danielle, CEO at AutoZone. You may begin.

Good morning, and thank you for joining us today for AutoZone's twenty twenty five third quarter conference call. With me today are Jamere Jackson, Chief Financial Officer and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the third quarter, I hope you had an opportunity to read our press release and learn about the quarter's results. If not, the press release along with slides complementing our comments today are available on our website, www.autozone.com under the Investor Relations link. Please click on the quarterly earnings conference call to see them.

I want to thank our more than 125,000 AutoZoners across the entire company for their commitment to delivering on our pledge to always put customers first. Their contributions allow us to deliver the consistent performance we have been able to enjoy. We can only succeed if we are all working towards the common goal of outstanding customer service. To get started this morning, let me address our sales results. Coming into the quarter, we were optimistic that our improved execution would drive sales growth for both retail and commercial.

More specifically, we felt the momentum we gained last quarter with our domestic commercial sales would continue this quarter. We are very pleased that our domestic commercial sales grew 10.7% for the quarter, marking our first double digit quarter for commercial growth since the second quarter of FY twenty twenty three. We also cleared another milestone. For the first time on a rolling four quarter basis, we eclipsed the $5,000,000,000 sales mark on commercial. Our domestic retail comp was just north of 3%, which is the best retail growth we have reported since the second quarter of FY twenty twenty two.

Finally, our international constant currency comp remained solid, up 8.1% for the quarter. We are encouraged by our sales results and our momentum as we start our fourth quarter. Now let me touch on a few highlights from the quarter and then I will give you more color on our execution, the current environment and our outlook. For the quarter, with our continued focus on what we call Wow! Customer service, our total sales grew 5.4%, while earnings per share decreased 3.6%.

We delivered a positive 5.4% total company same store sales on a constant currency basis with domestic same store sales growth of 5%, our domestic DIY same store sales growth of 3%, while our domestic commercial sales grew 10.7%. Our international same store sales were 8.1% on a constant currency basis. While our international business continued to comp impressively, we faced over 17 points of currency headwind, which resulted in an unadjusted negative 9.2% international comp. As you know, the stronger U. S.

Dollar has continued to have negative impact on our reported sales, operating profit and EPS. We expect this trend to continue this quarter. Jamere will provide more color on our foreign currency impact on our financial results for both this past quarter and the fourth quarter. Specifically related to our domestic commercial business, our focus is on improving execution, expanding parts availability and improved speed of delivery. These initiatives helped us significantly improve our year over year sales growth.

Commercial sales were 10.7% year over year versus up 7.3% in the second quarter and up 3.2% in the first quarter. We believe the initiatives we have in place have a long runway and will drive strong results in future quarters. We are pleased with our experts and our execution thus far. Next, we found the quarter's cadence to be somewhat predictable with the tax refund season's normal impact on sales. Our domestic same store sales cadence was 6.7% in our first four weeks of the quarter, 5.1% in our second and 3.1% over the last four weeks.

The variation being driven by our domestic DIY business with cooler, wetter weather and the Easter holiday shifting into our last four weeks versus last year falling in the middle four week segment. Our commercial comp on the other hand was more consistent over the twelve weeks of the quarter. This consistency was very encouraging as we build towards future commercial sales growth. Overall, we are encouraged to see the sales acceleration from this past quarter. Now let me make a few comments on our U.

S. DIY business. While the macro environment and the uncertainty around tariffs have forced customers to be cautious with their spending, the consistency of our failure and maintenance businesses continued this past quarter. We saw an improving trend in our maintenance and failure categories on a

basis. Discretionary categories, the smallest part of our business, have been under pressure for several quarters now. Historically, when our consumer is under pressure, our maintenance and failure categories begin to outperform discretionary categories. Our DIY comp was up 6.2% in the first four week segment, 2% in the second and up 1% during the last segment. This compares last year's Q3 DIY comps of negative 2.2 in the first four week segment, positive 0.1 in the second and negative 0.7% in the last segment.

With regard to inflation's impact on DIY sales, we saw both DIY average ticket and average like for like SKU inflation up approximately 1% for the quarter. We continue to expect inflation in our ticket to be up approximately 3% over time. And we anticipate average ticket growth will return to historical industry growth rates as we move farther away from the hyperinflation over the last couple of years. We also saw DIY traffic up approximately 1.4%, which significantly improved versus the down 1% we experienced in our traffic trend last quarter. We continue to see data that confirms we are gaining share and we are encouraged by our most recent trends.

We believe we have a best in class product and service offering and this gives us confidence we will continue to win in the marketplace. Next, I will speak to our regional DIY performance. We saw weaker performance in the South Central And Western United States. While still showing positive trends, these markets were not quite as strong as the other markets. It was a nice sign for us to see the Northeast and the Rust Belt outperforming for the first time in a while.

In fact, outperforming by two fifty basis points from the rest of the country. We believe this is a sign of the colder winter and favorable spring weather benefiting us with pent up demand now leading to better sales for the spring and the summer. Next, I will touch on our U. S. Commercial business.

Our commercial sales were up 10.7% for the quarter and this compares to Q2's plus 7.3% total commercial growth and Q1's '3 point '2 percent growth. For commercial, the first four weeks of our twelve week quarter grew 9.3%. The second four week segment grew 13.6% and the last segment grew 9.3%. Again, the Easter shift allowed us to outperform in the middle of the quarter. More broadly across The U.

S, our commercial business grew at a slower pace in the Northeast and the Rust Belt markets versus the rest of the country. The spread was over 200 basis points between the Northeast and the Rust Belt versus the rest of the country. This underperformance in those regions doesn't surprise us as the colder winter weather doesn't show up with jobs to be done at the commercial accounts until later in the summer. There is normally a lag with commercial sales versus what we see in our DIY business. We continue to expect performance in the Northeast and the Rust Belt markets to improve over the remainder of the year as the colder winter weather has historically led to parts failures as the summer goes along.

While we have continued to see variation in performance across these more weather sensitive markets, we remain confident in our initiatives. We are very encouraged with our improved satellite store inventory availability, significant improvement in hub and mega hub store coverage, the continued strength of our Duralast brand and improved execution on our initiatives to improve speed of delivery and customer service. All of these initiatives give us confidence as we move through the year. Year over year inflation on a like for like SKU basis for commercial business was basically flat and did not contribute significantly to our average ticket growth of approximately 1%. Lastly, we are very pleased with our growth in the commercial transactions year over year, with traffic up almost 9.8% on a same store basis.

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

we expect both DIY and commercial trends to remain solid as our comparisons become slightly easier and we gain momentum from our growth initiatives. We will, as always, be transparent about what we are seeing and provide color on our markets and outlook as we see trends emerge. Now let me take a moment to discuss our international business. In Mexico and Brazil, we opened a total of 30 new stores in the quarter and now have nine seventy nine international stores. As you can see from our press release, our same stores grew at 8.1% on a constant currency basis.

We remain confident in our growth opportunities in these markets. Today, have 13% of our total store base outside of The U. S. And expect this number to grow as we accelerate our international store openings. With 58 international stores opened year to date, we continue to expect to open around 100 international stores this fiscal year.

In summary, we have continued to invest to drive traffic and sales growth. While there will always be tailwinds and headwinds in any quarter's results, what has been consistent is our focus on driving sustainable long term results. We continue to invest in improving customer service, product assortment initiatives and our supply chain, which all position us well for future growth. We are investing both CapEx and operating expense to capitalize on these opportunities. This year, we expect to again invest approximately $1,300,000,000 in CapEx in order to drive our strategic growth priorities.

As a large part of our CapEx budget for this year, we are investing in accelerated store growth, specifically hubs and mega hubs, placing inventory closer to our customers. We have also opened two new distribution centers this year, while utilizing our existing distribution centers to drive efficiency and reduce supply chain costs. And we are investing heavily in technology to improve customer service and our AutoZoners' ability to deliver on our promise of Wow! Customer service. This is the right time to invest in these initiatives as we believe industry demand will continue to ramp.

Now I will turn the call over to Jamere Jackson. Thanks,

Phil. Good morning, everyone. Let me start by saying we had a strong sales quarter. Total sales were 4,500,000,000 and were up 5.4%. Our domestic same store sales grew 5%, and our international comp was up 8.1% on a constant currency basis.

Total EBIT was down 3.8%, and our EPS was down 3.6%. As Phil discussed earlier, we had a headwind from foreign exchange rates this quarter. For Mexico, FX rates weakened nearly 20% versus the U. S. Dollar for the quarter, resulting in an $89,000,000 headwind to sales, a $27,000,000 headwind to EBIT, and 1.1 a share drag on EPS versus the prior year.

Excluding the FX headwind, we would have reported an EPS decrease of 0.6% for the quarter. We continue to be proud of our results as the efforts of our AutoZoners in our stores and distribution centers have enabled us to continue to grow our business. Let me take a few moments to elaborate on the specifics in our P and L for Q3. And first, I'll start with a little more color on our sales and growth initiatives. Starting with our domestic commercial business.

Our domestic DIFM sales increased 10.7% to $1,300,000,000 For the quarter, our domestic commercial sales represented 32% of our domestic auto parts sales and 28% of our total company sales. Our average weekly sales per program were $17,700 up 8% versus last year. Our commercial acceleration initiatives are continuing to deliver good results as we grow share by winning new business and increasing our share of wallet with existing customers. We continue to have our commercial program in 92% of our domestic stores, which leverages our DIY infrastructure, and we're building our business with national, regional and local accounts. This quarter, we opened 49 net new programs, finishing with 6,011 total programs.

Importantly, we continue to have a tremendous opportunity to both expand sales per program and open new programs. We plan to aggressively pursue growing our share of wallet with existing customers and adding new customers. Mega Hub stores are a key component of our current and future commercial growth. We opened eight Mega Hubs and finished the third quarter with 119 Mega Hub stores. We expect to open at least 10 more locations over the next quarter.

As a reminder, our mega hubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the store box, as well as serve as an expanded assortment source for other stores. The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business. These assets are performing well individually, and the fulfillment capability for the surrounding AutoZone stores is giving our customers access to thousands of additional parts and lifting the entire network. While I mentioned a moment ago that our commercial weekly sales per program grew 8%, the 119 mega hubs are growing much faster than the balance of the commercial business in Q3. We continue to target having just under 300 mega hubs at full build out.

Our customers are excited by our commercial offering as we deploy more parts in local markets closer to the customer while improving our service levels. On the domestic retail side of our business, our DIY comp was up 3% for the quarter. As Phil mentioned, we saw traffic up 1.4%, along with a positive 1.5% ticket growth. Over time, we expect to see slightly declining traffic counts, offset by low to mid single digit ticket growth, in line with the long term historical trends for the business, driven by changes in technology and the durability of new parts. Our DIY share has remained strong behind our growth initiatives, and we're well positioned for future growth.

Importantly, the market is experiencing a growing and aging car park and a challenging new and used car sales market for our customers, which continues to provide a tailwind for our business. These dynamics, ticket growth, growth initiatives and macro car park tailwinds, we believe, will continue to drive a resilient DIY business environment for the balance of 2025. Now I'll say a few words regarding our international business. We continue to be pleased with the progress we're making in our international markets. During the quarter, we opened 25 new stores in Mexico to finish with eight thirty eight stores and five new stores in Brazil, ending with 141.

Our same store sales grew 8.1% on a constant currency basis and negative 9.2% on an unadjusted 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 moments on the rest of the P and L and gross margins. For the quarter, our gross margin was 52.7%, down 77 basis points versus last year.

This quarter, we had an $8,000,000 net or 21 basis point unfavorable LIFO comparison to last year. Excluding the LIFO comparison, we had a 56 basis point headwind to gross margins. The results were impacted by similar basis point headwinds from higher commercial mix, both domestically and internationally, domestic shrink, and new U. S. Distribution center ramp up costs, which more than offset solid merchandise margin improvement.

We anticipate that the headwinds from shrink in The U. S. Distribution centers will largely abate in Q4, and merchandise margin improvement will mute the commercial mix drag. This quarter, we took a $16,000,000 LIFO credit to the P and L as freight costs have continued to trend lower from their peak. At Q3 quarter end, we still had $3,000,000 in cumulative LIFO charges yet to be reversed through our P and L.

And as I've said previously, once we credit back 3,000,000 through the P and L, we will not take any more credits as we will begin to rebuild an unrecorded LIFO reserve. As a reminder, for Q4 last year, we had no LIFO credits, and we expect no credits in Q4 of this year. I would like to take a moment and discuss the impact of tariffs on our results. For this past quarter, we saw minimal impact from implementation of tariffs. Going forward, there are several outcomes that may impact our results from tariffs, including vendor absorption, diversifying sourcing, taking pricing actions, or some combination of the three.

Currently, we expect these actions to offset any Q4 tariff costs and not have a material impact on our gross margins. To be clear, we intend to 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 8.9% versus last year as SG and A as a a percentage of sales deleveraged 108 basis points, driven by investments to support our growth initiatives and an increase in our self insurance expense. On a per store basis, our SG and A was up 5.1% versus last year's Q3.

We have been investing in SG and A in order to capitalize on opportunities to grow our business now and in the future. We will continue to invest at an accelerated pace in initiatives that we believe will help us continue to gain share. These investments will pay dividends in customer experience, speed of delivery and productivity. We will remain committed to being disciplined on SG and A growth, and we'll manage expenses in line with sales growth over time. Moving to the rest of the P and L.

EBIT for the quarter was $866,000,000 down 3.8% versus the prior year. As I previously mentioned, FX rates reduced our EBIT by $27,000,000 while unfavorable LIFO comparisons reduced EBIT growth by another $8,000,000 Adjusting for the unfavorable LIFO comparison and reporting on a constant currency basis, our EBIT would have been up a 10% the prior year, which is below our normal performance driven by the gross margin and SG and A drivers I mentioned earlier. Interest expense for the quarter was $111,000,000 up 6.6% from a year ago, as our debt outstanding at the end of the quarter was $8,900,000,000 versus $9,000,000,000 a year ago. We are planning interest in the 146,000,000 to $149,000,000 range for the fourth quarter of FY twenty five versus $144,000,000 last year on a sixteen week basis. Higher borrowing rates are continuing to drive interest expense increases.

For the quarter, our tax rate was 19.4% and up from last year's third quarter of 18.1%, driven primarily by higher stock option expense benefit last year. This quarter's tax rate benefited three zero one basis points from stock options exercised, while last year it benefited four seventy nine basis points. For the fourth quarter of FY twenty five, we suggest investors model us at approximately 23.2% before any assumption on credits due to stock option exercises. Moving to net income and EPS. Net income for the quarter was $6.00 $8,000,000 down 6.6% versus last year.

Our diluted share count of 17,200,000.0 was 3.1% lower than last year's third quarter. The combination of lower net income and lower share count drove earnings per share for the quarter to $35.36 down 3.6% for the quarter. As a reminder, the unfavorable FX comparison drove our EPS down $1.1 a share. Now let me talk about our free cash flow. For the third quarter, we generated $423,000,000 in free cash flow versus $434,000,000 last year in Q3.

We expect to continue being an incredibly strong cash flow generator going forward, and we remain committed to returning meaningful amounts of cash to our shareholders. Regarding our balance sheet, our liquidity position remains very strong, and our leverage ratio finished at 2.5 times EBITDAR. Our inventory per store was up 6.7% versus Q3 last year, while total inventory increased 10.8% over the same period last year, driven by new stores and additional inventory investment to support our growth initiatives. Net inventory, defined as merchandise inventories less accounts payable on a per store basis, was a negative $142,000 versus negative $168,000 last year and negative $161,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 115.6% versus last year's Q3 of 119.7%.

Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $250,000,000 of AutoZone stock in the quarter, and at quarter end, we have $1,100,000,000 remaining under our share buyback authorization. Our ongoing strong earnings, balance sheet and powerful free cash continues to allow us to deliver a significant amount of cash to our shareholders through our buyback program. We have bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998, while investing in our existing assets and growing our business. 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 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 mentioned earlier in the quarter, foreign currency resulted in a headwind on revenue and EPS. If yesterday's spot rates held for Q4, then we expect an approximate $50,000,000 drag on revenue, a $20,000,000 drag on EBIT and an approximate $0.80 a share drag on EPS. And now I'll turn the call back to Phil.

Thank you, Jamere. We are on track for the remainder of FY 2025 to accomplish our goals. We are committed to continually focus on improving our execution and driving Wow! Customer service. We feel we are well positioned to grow sales across our domestic and our international store bases with both our retail and our commercial customers.

We expect to manage our gross margins effectively and our operating expense is appropriate for future growth. We continue to put our capital to work where it will have the biggest impact on our sales, our stores, specifically our hubs and mega hubs, our distribution centers and investing in technology to build a superior customer experience where we are able to say yes to our customers' needs. The top focus areas for this last quarter of fiscal twenty twenty five remain growing share in our domestic commercial business and continuing our momentum in our international markets. We are excited to get started on our fourth quarter. We understand we cannot take things for granted.

We must remain laser focused on customer service, execution and gaining share in every market in which we operate. Fiscal twenty twenty five's top operating priorities are based on improving execution and Wow! Customer service. We will continue to invest in the following strategic projects: accelerating our domestic and our international store growth reaccelerating our new hub and mega hub openings. These stores do take time, but we are incredibly excited about their continued performance And most importantly, remain diligent driving our domestic commercial sales growth, which we are doing in a meaningful way.

We are excited about what we can accomplish and our AutoZoners are committed to delivering on our commitments for FY 2025. We believe AutoZone's best days are ahead of us. Now we would like to open up the call for questions.

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue.

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

a quick refresher as it relates to the tariffs, source of origin for your primary import countries and how much is direct import versus, via a third party supplier? And then a quick follow-up to Sure.

The biggest net importer where most of our product comes from is China. I will say that we've taken that number down pretty significantly over the last couple of years, specifically since the first round of tariffs back in 2016. But we get product out of many Far East countries. We get a little bit of product out of Europe, mostly Eastern Europe, and then we get some out of Mexico. That would be where the vast majority of those come from.

Okay. And I guess as far as direct import versus buying from a doorman or somebody who might be making the initial Chinese import?

Yeah. We obviously do a lot of that from we take product from domestic suppliers, both FOB or direct import and we buy domestically. Never really said exactly what our mix is, but, the question, I think your real question is how would we think we're going to manage tariffs? And feel like we have our arms around it. Even though it's changing every day, it's not nearly as impactful as it appeared it was going to be several months ago.

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

And I guess follow-up, I mean, you talked about the 1% inflation sort of trending towards a three. Is that three assuming pricing pass through or is would tariff be incremental to that expectation of a higher low single digit inflation rate?

Yes. Think if you think about what's happened with our average ticket over the last twelve to eighteen months, it's been relatively flat coming off of several years of what I would consider hyperinflation. If tariff costs ultimately do materialize, I would think we would probably get back closer to that three percent, average ticket growth. And that would be more of a long term average ticket growth based on technology enhancements and frankly, quality of parts.

Your next question is from Christopher Horvers with JPMorgan.

Thanks, guys. Good morning. Sort of a follow-up there, first on the tariff. Is it that the inflation is not here yet because people pause shipments coming out of China and it's just a slow inventory turn business? Or is there more of an effort here to perhaps have the cost be absorbed into the supply chain?

Yes. Think one of the reasons that you haven't seen a lot of the tariff cost in our side of the business is, as you mentioned, most of our inventory turns relatively slow compared to many other industries, hard parts in particular. And that product just hasn't shown up here in the country. And as you know, this stuff has changed pretty significantly over the last ninety days or one hundred and twenty days. I mean, will be an impact to tariffs on the cost of goods.

But again, as we've mentioned, we think there's lots of ways to mitigate that cost and maintain our margin structure over time.

Understood. And on the margin front, Jamere, can you talk about the persistence of some of these costs like the shrink and the self insurance costs? Like how do you think about what gross margins look like as we move forward? And then similarly on SG and A per store side and sorry, one additional one, which is can you break out the monthlies ex the Easter shift and adjust for that so we have a clearer view of the cadence over the quarter?

Yeah, so just on the gross margin, as we said, it was driven by Frank. Our DCs are ramping up and we obviously have higher costs as those DCs ramp up and we get to our going productivity rates. And then the positive there, although it's a negative from a mix standpoint, is that our global commercial mix is growing, and that's driven by the work that we're doing to grow our commercial business. What I'll say is that the DC ramp up and the shrink pressure will abate, and merch margin should largely offset our commercial mix pressure. So from gross margin standpoint, we would expect those gross margins to be down slightly in Q4 given all of those dynamics as opposed to being down 56 basis points ex LIFO as we saw this quarter.

On the SG and A front, I just want to reiterate that we're growing SG and A in a disciplined way to create a faster growing business. We deleveraged this past quarter, about half of that deleverage was driven by self insurance. As our commercial business grows, we put more delivery vehicles on the road to support that commercial growth. Obviously, you're going to have more incidents. And then we also settled some outstanding claims, that were, longer in nature, where we saw a spike in incidents and severity, primarily in the 'twenty one to 'twenty two kind of timeframe.

But what I'll say about SG and A is that we're continuing to invest in a disciplined way on all the things that are going to drive growth for us, and those things are paying off in a higher top line. And as you've seen our business in the past, to the extent that the top line doesn't show up, we obviously know how to go to the middle of the P and L, to drive the margins that we need to make sure that we're driving the earnings that we have. So I feel good about where we are. I think the execution's great. We're being intentional about the investments that we're making, and, I feel great about the growth prospects that we see in the future behind all of those investments that we've made thus far.

Great. And then can you give us the four week cadence ex the Easter shift so can understand that better?

Yeah, we typically don't, break that out. What I'll say to you is that if we think about our business in total, from a commercial standpoint, you heard Phil kind of walk through the quarter, commercial was pretty steady growth across each of the four week segments with a little bit of a pop in the middle because of the Easter shift. And then on the DIY side of the business, more so than the Easter shift, the story really is about the share that we're regaining there. While we did see a little bit of an Easter shift in the middle of the quarter, what we're encouraged by is the opportunity to win share and the execution that we're seeing by our folks in the stores.

Your next question is from Simeon Gutman with Morgan Stanley.

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

Yeah, thank you for the question. I think we're seeing share gains across the board, all across the country in both DIY and commercial. And I would say, yes, there's obviously some macro that's going on, but we feel like the vast majority of our growth is coming from the initiatives we have in place, improved execution, driving hub and mega hubs into our markets, continually improving our assortments both in The U. S. And in our international markets.

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

Great. And then our just follow-up is on the improvement in the commercial comps. It seems like you guys are continuing to take market share nicely there. Could you comment maybe what you want to continue focusing on in the upcoming quarters? Yes.

Okay. As we've said, the strategy not a whole lot different than we've talked about over the last couple of quarters. We continue to improve our assortments at our local store. We continue to deploy our hubs and mega hubs and refining those assortments both for DIY customers and the commercial customers. And we've also been working on some strategies to improve delivery time and speed of delivery, what we call time to shop for our commercial deliveries, changing some of our fulfillment methodologies from our hubs and mega hubs to get to the customer faster.

We think all of those are creating a better customer experience and causing us to grow both new customers and share of wallet with those commercial customers.

Your next question is from Michael Lasser with UBS.

Good morning. Thank you so much for taking my question. Phil, do you think the cost of doing business within the aftermarket has gone up such that in the past, AutoZone might have been able to grow its overall top line mid single digit and leverage back to double digit EPS growth, and now that it's just more difficult to do such that the market can recalibrate its expectations around earnings growth?

Michael broke up just a tad. Good morning, by the way. Yes, think there has been some core inflation in our payroll, both in the supply chain and in the stores. So yeah, there's probably a little bit more of an inflationary environment, since the pandemic. I think they're moderating somewhat, But I think at the end of the day, we've proven that we've been able to maintain our sales and our SG and A in line with investing in our growth initiatives that we think will help us gain market share.

As Jamere said, we've been pretty good at this over time in managing our expenses in line with our top line growth. I will say at the moment though, we have quite a few initiatives that are all in place, both from improved execution on our stores, growing our commercial business faster by using some new initiatives that are still in the early innings, as well as ramping up two new distribution centers. So we are running through an investment period that we think, we believe will ultimately help us have a faster growing business and can allow us to continue to gain share at a faster clip.

And so what is the arc of that investment cycle look like? Can you help frame the market's expectations on how long this is gonna weigh on the profitability of AutoZone such that eventually, it can get back to the double digit EPS growth that it's historically been able to achieve? Thank you.

Right. Great question. I think we're kind of in the midst of early innings of most of these initiatives. Some of them like our commercial delivery strategies, that's all been executed. Today, it's more about continuing to refine the execution and get better at it with business practices.

So I'd say we're kind of all these things are in flight and in launch phase. At the moment, we're more about trying to optimize these and get better at them as we're in the early phases of these, what we believe have long life cycle and benefit, but most of them are in flight and on track at the moment.

Yeah, I think the one thing I'll add is that, we've talked about this notion of managing our expenses in line with sales growth. To be clear, our disciplines around investment will all have a payback associated with them. And most notably, you'll see it in the top line and you'll eventually see it in the bottom line. I think the thing that gives us a lot of confidence and is really encouraging is the things that we've been investing on for the last several quarters are now starting to show some growth shoots. I mean, you see that in the commercial numbers in the last couple of quarters.

Our outlook as we look at the fourth quarter and in the next year remains very positive. We've got a lot of good momentum there. And we're also seeing it on the international side as well. So as we accelerate the number of stores that we put in place, we accelerate the initiatives that we have in place to grow our commercial business, we're very excited about creating a faster growing business. And ultimately, that's going to result in more earnings growth for the company.

Understood. Thank you very much and good luck.

Your next question is from Brian Nagel with Oppenheimer.

AutoZone Q3 2025 Earnings Call Transcript | Fortune

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AutoZone (AZO) Q3 2025 Earnings Call Transcript

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