Autozone Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Bret Jordan - Jefferies - Analyst : Hey. Good morning, guys. Could you talk a little bit about what you're seeing on the West Coast as one of your peers is shutting stores and exiting that region? I guess in the short term, how you see inventory liquidation and maybe any price disruption, I think, in the longer term, how you see that market share filtering out? Obviously, there will be some shared gain potential.

Question: Bret Jordan - Jefferies - Analyst : Okay. And then could you talk about the cadence of the first quarter, I guess, into the second quarter? I think you called out that the first four weeks were the weakest in commercial, but could you talk about what we've seen as winter has begun to show up?

Question: Bret Jordan - Jefferies - Analyst : Okay. Have you seen the later part of the quarter and the beginning of the second quarter improve with cold weather? Or is it really not meaningful enough yet?

Question: Bret Jordan - Jefferies - Analyst : Great. Thank you.

Question: Simeon Gutman - Morgan Stanley - Analyst : Good morning, everyone. My question, it's on operating income growth. And you mentioned, ex the FX, it would have been up slightly. My question is, if this backdrop of sluggish macro doesn't change and comps more or less stay in this area, is that a good way to think about EBIT? I know you don't guide, but the question is, can you strengthen comps with keeping EBIT in this slightly up range? Or are you debating to invest more for some period of time and take it a little bit lower?

Question: Simeon Gutman - Morgan Stanley - Analyst : Okay. That's helpful, Jamere. My second question, the follow-up, it's on pricing and CPI and then tariffs. The CPI is picking up. Curious if there's any bearing to the real world with it. They're getting into 3% to 4% range year over year. And then when Biden put back the Section 301 tariffs earlier in the year, some prices went up. I'm just curious how that example could play into potential future tariffs, meaning, did the suppliers take them? Did they take price? Are you taking price? How is that working? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 3:00PM, AZO.N - Q1 2025 Autozone Inc Earnings Call

Question: Simeon Gutman - Morgan Stanley - Analyst : Okay, thanks.

Question: Mark Jordan - Goldman Sachs - Analyst : Good morning. This is Mark Jordan on for Kate McShane. Just thinking about share repurchases, it came in a little bit lower than we're expecting for the quarter. How should we think about capital allocation going forward here? How do you feel about current debt levels? And are you planning on still rolling over the notes that are coming due in April this year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 3:00PM, AZO.N - Q1 2025 Autozone Inc Earnings Call

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

Question: Mark Jordan - Goldman Sachs - Analyst : Thank you.

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

Question: Michael Lasser - UBS - Analyst : So Jamere, it'll continue to be a drag in the next quarter, and then it'll reverse in the third and fourth quarter of the year. Is that right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 3:00PM, AZO.N - Q1 2025 Autozone Inc Earnings Call

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

Question: Christopher Horvers - JPMorgan - Analyst : Thanks. Good morning, guys. So my first question is on the gross margin. You talked about the LIFO headwind. Presumably there was some DIY mix headwind. If you backed that out, it looks like you're generating 40 basis points of expansion from lower product costs. So can you talk about what's going on there? That level seems pretty consistent with where you've been the past couple quarters. So how far are you into that initiative? And how much longer do you think we can continue to benefit that level of improvement?

Question: Christopher Horvers - JPMorgan - Analyst : Got it. And then as it relates to the balance sheet, I know in a previous question you talk about staying around 2.5 times based on -- I know you don't guide, but based on maintaining the current level of debt, assuming more of a gradual improvement in comps over the balance of the year, it would seem like it could really draw down on the amount of share repurchases you could make. In the past, we've seen you move up a little bit higher than 2.5, maybe into the 2.6, 2.8 range. To what extent do you see flexibility in your ability to just take it up and keep that investment grade rating?

Question: Christopher Horvers - JPMorgan - Analyst : Great. Thanks very much.

Question: Steven Forbes - Guggenheim Securities, LLC - Analyst : Good morning. Phil, maybe just a follow-up on the mega hubs and hub strategy. I believe you raised the target for the end state to 300 from maybe 200 plus. So curious what drove that? So maybe learnings that are driving that decision, and if there's been any change in the planned cadence of openings over the next years to come? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 3:00PM, AZO.N - Q1 2025 Autozone Inc Earnings Call

Question: Steven Forbes - Guggenheim Securities, LLC - Analyst : And then maybe as a follow up, sticking with real estate, top focus area, ramping up store growth, you gave a target in the past for sort of outyear domestic and international stores per year. Any updates on how we should be reframing or rethinking the curve or the slope of new store openings?

Question: Steven Forbes - Guggenheim Securities, LLC - Analyst : Thank you.

Question: Steven Zaconne - Citigroup Global Markets Inc. - Analyst : Great. Good morning. Thanks very much for taking my question. I wanted to focus on the DIFM business. Sequentially, it looks like the comps got a little bit weaker. Now, you called out some weakness in those first four weeks. But could you just talk through how transactions performed? Do you attribute the sequential step down large of those first four weeks? Is there anything you've seen in the industry that would suggest the overall industry backdrop for DIFM has gotten a little bit weaker?

Question: Steven Zaconne - Citigroup Global Markets Inc. - Analyst : Okay, that's helpful. And then just to shift, SG&A, the dollar growth rate was one of the lowest in quite some time. Is there anything to call out there in terms of some of the fixed cost pressure in the business, maybe wage inflation? Is that moderating? And how do you think about that SG&A growth rate over the balance of the year?

Question: Steven Zaconne - Citigroup Global Markets Inc. - Analyst : Okay. Thanks for the detail.

Question: Scot Ciccarelli - Truist Securities - Analyst : Good morning, guys. So looking for a clarification or comments about expecting better DIY and commercial performance. Based on where we are with the macro, are you also expecting improvement in domestic stacked comp trends? Or is the improvement you referenced just fully due to easier comparisons?

Question: Scot Ciccarelli - Truist Securities - Analyst : I appreciate that. Just a quick follow-up, if I can. There is a very large retailer out there that's become increasingly price competitive across a lot of product categories, including auto parts, I think, especially with batteries. Have you seen any change in the competitive environment outside of your direct peers, which are typically very consistent in their pricing strategies?

Question: Scot Ciccarelli - Truist Securities - Analyst : Excellent. Thanks, guys.

Question: David Bellinger - Mizuho Securities USA - Analyst : Hey. Good morning. Thanks for the questions. Another one on the mega hub target moving up closer to 300. I believe you already have more than 90% of domestic stores with access to mega hub inventory. So are you getting to a point now where it's more normal to have multiple mega hubs that are servicing a store location, maybe two or three? And can you talk about the returns associated with that kind of strategy? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 3:00PM, AZO.N - Q1 2025 Autozone Inc Earnings Call

Question: David Bellinger - Mizuho Securities USA - Analyst : Got it. And then just one quick follow-up. I think before, you mentioned something like 7% of stores have a deeper assortment closer to them. Could you talk about what the makeup of that inventory is? Does that lean more to commercial? And just by having these mega hubs in the market, what do delivery times look like? Do those get sped up as well? Thank you.

Question: David Bellinger - Mizuho Securities USA - Analyst : Appreciate it. Thanks, Phil.

Question: Greg Melich - Evercore ISI - Analyst : Hi. Thanks, guys. Two questions. I just wanted to dig a little deeper on the inflation-deflation. I guess, on commercial, we have the

Question: Greg Melich - Evercore ISI - Analyst : Just to be clear, that Do-It-For-Me number, that was an average ticket number. So that's really mix that's driving that rather than same SKU deflation on commercial.

Question: Greg Melich - Evercore ISI - Analyst : Got it. So then on the -- my second question was, could you just level set us now on where your COGS come from? What percentage are imported, what come from China, what are indirect and indirect as we figure out how this plays out into next year?

Question: Greg Melich - Evercore ISI - Analyst : Great. Well, thanks and good luck, guys.

Question: Scott Stember - Roth MKM - Analyst : Great. And thanks for taking my question, guys. I want to dig into the international side of the equation. I know everybody's focusing on the domestic piece, but can you maybe break out the sales growth or the performance by region in Mexico versus Brazil? And Mexico in particular, maybe just talk about what's driving that apparent meteoric growth that you've seen there and how do you expect that to play out for the rest of the year?

Question: Scott Stember - Roth MKM - Analyst :

Question: Scott Stember - Roth MKM - Analyst : Okay. Got it. All right. That's all I have. Thank you.