Autozone Inc Q4 2024 Earnings Call Transcript

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

Question: Simeon Gutman - Morgan Stanley - Analyst : Good morning. Hey, Phil, you mentioned accelerating commercial sales growth. You made a hire recently, and we talked about hubs on the call, and I think you're tweaking inventory. Can you talk about timing? What -- should investors expect? What you expect out of the organization when we could see commercial sales move to that next level?

Question: Simeon Gutman - Morgan Stanley - Analyst : And then, a quick follow-up on gross margin. What's left and how high it can go? Because I think discretionary being down would have hurt you, commercial being up would probably hurt you. So how do you -- I guess, where is the strength coming from? And how much can it continue?

Question: Simeon Gutman - Morgan Stanley - Analyst : Thank you. Good luck.

Question: Bret Jordan - Jefferies - Analyst : Hey, good morning, guys.

Question: Bret Jordan - Jefferies - Analyst : Could you talk about what, if any, are the hurdles to reaccelerating the hub growth now that the three major players are all using a hub strategy? Is it a real estate access issue? Or is it just sort of timing of your internal development team?

Question: Bret Jordan - Jefferies - Analyst : Okay. Then, a follow-up on the commercial business. I mean, can you talk about the cadence through the quarter and then any dispersion between national account business versus the up and down the street business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 24, 2024 / 2:00PM, AZO.N - Q4 2024 Autozone Inc Earnings Call

Question: Bret Jordan - Jefferies - Analyst : And I guess, national account versus the up-and-down industry business, are you seeing any change in the independent, the WD competitive landscape out there around the up and down the street?

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

Question: Chris Horvers - JPMorgan - Analyst : Thanks, and good morning. Can you talk about where you think the DIY -- domestic DIY and domestic commercial markets are growing. You mentioned share gains in DIY, but you comp down 1. So any thoughts on where you think those markets are -- grew during the quarter and how we think about the improvement in the backdrop over FY25? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 24, 2024 / 2:00PM, AZO.N - Q4 2024 Autozone Inc Earnings Call

Question: Chris Horvers - JPMorgan - Analyst : Got it. And then a couple of quick margin follow-ups. First on the gross margin, it looks like that 53rd week, the gross margin was maybe 80 basis points lower. So is there something to read into that? You talked about being positive on gross margin over the year, but some DC pressures. So was that just accounting nuance or something that we should think about in terms of cadence? And then secondly, on the potential FX headwind. The international implied operating margin for the year is materially higher than the quarter, so what you experienced in the fourth quarter. So is that the 53rd week impact? Or is there something going on there?

Question: Chris Horvers - JPMorgan - Analyst : Got it. Thank you.

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : Good morning, Bill, Jamere. Just a follow-up to start on the commercial business. Maybe if we just focus on sort of weekly sales per commercial program, if we adjust for the extra week contribution, it looks like sales were sort of down mid-single digits year-over-year. Any way to help contextualize sort of what's driving that? And/or right, any sort of additional thoughts on how your initiatives on the speed of delivery, right, customer service you may help inflect that, right, as we look out over the coming quarters here and potentially get it back to growing.

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : I appreciate the color. And then, just a quick follow-up for Jamere, right? Appreciate the quantification of FX, assuming all things constant, the release obviously quantified the EBIT contribution of the extra week. You also called that LIFO. Yes. If we add these up, right, we have sort of a mid-single-digit headwind to EBIT growth next year. Is that the right way to frame up sort of noncontrollable headwinds to EBIT growth or anything else you want to add as we think about sort of cleansing the models here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 24, 2024 / 2:00PM, AZO.N - Q4 2024 Autozone Inc Earnings Call

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

Question: Robbie Ohmes - BofA Global Research - Analyst : Hey. Good morning. Thanks for taking my question. I was hoping could you guys talk a little bit more about seeing inflation return and what the drivers to that normally are or what they could be? And maybe as part of that, remind us how historically tariffs in port strikes and things like that impact inflation for you guys?

Question: Robbie Ohmes - BofA Global Research - Analyst : Thanks. And just a quick follow-up since you brought up the last 20 to 30 years. When over the last 20 to 30 years, has the consumer been like this? You guys are talking about on the DIY side, a challenged consumer what happened last time the consumer was like this?

Question: Robbie Ohmes - BofA Global Research - Analyst : Really helpful. Thank you.

Question: Michael Lasser - UBS Equities - Analyst : Good morning. Thank you so much for taking my question. So the market grown accustomed to AutoZone growing its earnings by a double-digit clip with mid-single-digit operating income growth and the rest coming from share repurchases. It seems like your message today is that algorithm might prove elusive for the next few quarters as the headwind to our international business comes into play from FX and some of the other unique factors like LIFO. So when is it realistic that AutoZone can get back to this double-digit EPS growth algorithm? And is it really incumbent on an acceleration in pricing that's going to both help the top line as well as the margins moving through 2025? Thank you.

Question: Michael Lasser - UBS Equities - Analyst : My follow-up question is the margin structure of AutoZone has evolved a bit over the years. It's now more incumbent upon the gross margin expansion to drive stable to flat overall operating margins and offset some growth in SG&A. So if AutoZone is running into obstacle to grow its gross margin, should the market expect that it can manage its SG&A to moderate that, keep its overall operating margin flattish moving forward?

Question: Michael Lasser - UBS Equities - Analyst : Thank you very much.

Question: Michael Baker - D.A. Davidson & Company - Analyst : Okay. Thanks, guys. Two quick ones. You've alluded a little bit to pricing, competitive pricing. Can you just tell us what we know one of your competitors has been investing in price. Is that impacting the average ticket at all?

Question: Michael Baker - D.A. Davidson & Company - Analyst : Yes. Okay. It's pretty clear. One follow-up, I guess, maybe in two quick parts. You said you expect first quarter comps to be, I think you said, improving. Why is that based on what you're seeing quarter to date? And then, you also said accelerating more store growth, can you quantify that? How many stores? You gave us a mega hub number for next year. How many total stores should we expect in 2025?

Question: Michael Baker - D.A. Davidson & Company - Analyst : I thought you said you expect first quarter to modestly improve. So --

Question: Michael Baker - D.A. Davidson & Company - Analyst : Yeah. Okay. Thank you.

Question: Zach Fadem - Wells Fargo Securities, LLC - Analyst : Hey. Good morning. And thanks for squeezing me in. So Jamere, you mentioned the car park as a tailwind. But since we're entering a period where new cars from 2018, 2019 are starting to come off warranty, and new car sales lagged during the pandemic. Just curious why you wouldn't view this as an air pocket or headwind for the industry. Any thoughts on why that wouldn't be the case?

Question: Zach Fadem - Wells Fargo Securities, LLC - Analyst : Got it. That makes sense. So maybe newer cars entering the addressable market, but also fewer scraps. So that makes sense. So just separately, when you look at your SG&A growth on a per store basis, it was about 1% normalized step down from about 3% in Q4. And when you think about managing your business for 2025. Could you talk about why this low single-digit range is the right level for you, particularly in light of the investments that you're making in commercial and also in light of some of the peers stepping up to mid-single digit to drive share gains.

Question: Zach Fadem - Wells Fargo Securities, LLC - Analyst : Appreciate the time.