Autozone Inc Q2 2025 Earnings Call Transcript

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

Question: Bret Jordan - Jefferies - Analyst : In the press release, you talked about operating expense deleverage with investment to support growth. Was there anything beyond the accelerating store growth or Hub openings that was investing? Is it technology? Or could you talk about the SG&A spend in the quarter?

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

Question: Christian Carlino - JPMorgan - Analyst : It's Christian Carlino on 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, how will they be impacted by if it start today, if at all?

Question: Christian Carlino - JPMorgan - Analyst : 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 or adding drivers and trucks given one of your competitor's closing stores? And just how should we think about this going forward? Like is the step-up true? Or do you expect to lap these investments at going?

Question: Zach Fadem - Wells Fargo Securities, LLC - Analyst : As you look back over the past year at flattish to 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 refund? Or conversely, do you think headwinds from policy, immigration, et cetera, could drive more uncertainty there?

Question: Zach Fadem - Wells Fargo Securities, LLC - Analyst : 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?

Question: Seth Basham - Wedbush Securities Inc. - Analyst : Just want to follow up on the tariff question. Jamere, I think you made a comment that you expect the maintain 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% of 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?

Question: Seth Basham - Wedbush Securities Inc. - Analyst : Got it. And then my follow-up question is on SG&A. As you accelerate the investments here, what's the time frame that will normalize to growing SG&A in line with sales?

Question: Mark Jordan - Goldman Sachs - Analyst : This is Mark Jordan on for Kate. Thinking about the Domestic DIFM side of the business, came in much stronger than expected for the quarter. Aside from weather, is there anything to call out from a regional standpoint? Maybe are you seeing any market share gains in any particular markets where competitors are closing stores? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, AZO.N - Q2 2025 Autozone Inc Earnings Call

Question: Mark Jordan - Goldman Sachs - Analyst : Okay. Perfect. And then just thinking about Mega-Hubs, 19 expected for the back half of the year. Can you talk about the time open location and how long it might take? And what we should think of as a good cadence for openings in the coming years?

Question: Steve Forbes - Guggenheim Securities LLC - Analyst : Maybe just a follow-up on the DIFM performance, and it might be a difficult question to answer. But it's really nice to see the growth with an average weekly sales per commercial program. And you guys sound really excited right about some of the initiatives, whether it be delivery time, deeper assortment, et cetera. So I don't know if you can maybe help us reframe like how we should be thinking about the evolution of that core KPI or metric on a go-forward basis. Maybe like what is the range, right, of -- between the lowest productive program versus the highest productive program? Or is there like a longer-term target to think about as we see those commercial programs maturing? Like what could help provide all of us with greater conviction around what that longer-term opportunity is as you see these investments maturing?

Question: Steve Forbes - Guggenheim Securities LLC - Analyst : And then maybe just a follow-up on that. As we think about delivery times, because I think you guys were leaning into some initiatives to improve delivery time specifically. Any way to help frame some learnings or success stories that you guys have seen? And is that a result of increasing number of delivery windows, right, at that level? Or where are we just in how the market response is to the improved delivery window promise that AutoZone is going to market with?

Question: David Bellinger - Mizuho Securities USA - Analyst : Maybe just a clarification on an earlier one. But are you seeing anything in terms of the immigration policy? Are there certain markets that have ticked down similar to what occurred back in mid-2017, is it getting worse in recent weeks? And anything you can share on quarter-to-date trends being impacted would be helpful?

Question: David Bellinger - Mizuho Securities USA - Analyst : Okay. I appreciate that. And then just switching topics on the new distribution centers, including some automation in those facilities. Can you help us with details on the benefits you expect to see? How should those layer in as volumes ramp up? And do you now have an opportunity to go back and retrofit some of the older buildings with automation?

Question: Josh Young - Truist Securities - Analyst : This is Josh Young on for Scott. So with the potential for new cars a lot higher given tariffs, how much of an impact do you guys think that could have on your business in calendar '25, as consumers potentially focus more on repairing their existing vehicle as opposed to buying something new?

Question: Brian Nagel - Nagel, Brian (Oppenheimer & Co., Inc. - Analyst : Nice quarter. Congratulations. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, AZO.N - Q2 2025 Autozone Inc Earnings Call

Question: Brian Nagel - Nagel, Brian (Oppenheimer & Co., Inc. - Analyst : So the first question I have, I want to bounce back to tariffs, I know it's been addressed a bit already. Look, as you mentioned, as we've seen, AutoZone in your sector have been very good over time of managing higher input costs. But the question I want to ask, just as we look at this late news, which could be substantial, is your say, testing as you're constantly evaluating our business, would -- has anything changed here from your standpoint to suggest maybe a different elasticity of demand, particularly with the consumer overall, by other indications, maybe more inflation wary than they have been in the past?

Question: Brian Nagel - Nagel, Brian (Oppenheimer & Co., Inc. - Analyst : That's helpful. Very helpful. The second question I have with respect to weather. So we had erratic weather. It seems as though looking at your results here that you capitalize on that, you benefited from that. But I guess the question I have is, what was the nature of that demand? Is it -- was it was weather-related demand here in the period incremental? Did it potentially come at the expense of sales in future periods? And then conversely, as we've seen in the past, when you have these harsh weather periods, it actually can lead to better sales down the road. So I guess maybe -- what I'm asking is you contextualize the weather dynamic here and how that's affected sales. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, AZO.N - Q2 2025 Autozone Inc Earnings Call