AutoZone 2026 Q4 Earnings Call

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. Forward-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 2026 fourth quarter conference call. With me today are Jamere Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer, and Investor Relations. Regarding the fourth 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 at www.autozone.com under the investor relations link. Please click on the quarterly earnings conference call to see them. To start out this morning, I want to thank our more than 130,000 AutoZoners across the company for continuing their relentless commitment to delivering on our pledge to always put customers first.

The operating theme for FY 2026 was Driving the Future Together, and we delivered on that theme this year as we grew our total store count, opening the most stores ever in a single year, improved on our assortment and in-stock positions, and continued to invest in systems to deliver even better customer service. Our customer service levels and execution have improved this past year. This quarter, we continued to gain market share in a challenging macro environment. As an outline for this morning's call, first, we'll discuss our domestic DIY and commercial sales results and provide color on the cadence of our sales over the 16-week quarter, including traffic, ticket, and inflation trends. We will also provide an outlook and perspective on FY 2027 sales. Second, we will discuss our international sales results and the progress we are making on our new store build-out.

Third, we will talk about our store openings, both domestically and internationally, and provide perspective on store economics and the impact on return on invested capital over the next several years. Lastly, we will conclude with an additional commentary on how we see FY 2027 playing out. Let me start by unpacking our Q4 results. We delivered total sales growth of +5.6%. While we grew slower than Q3's rate, we felt we gained momentum as the quarter moved along, and we liked our sales growth potential heading into the new year. Our earnings per share increased 15.1%. Similar to prior quarters, our gross margin operating profit and EPS were negatively impacted by a non-cash LIFO charge of $15 million. As a reminder, during last year's Q4, we recognized an $80 million LIFO charge.

In addition, we saw a $96 million, or $4.43 share benefit from the refunds of IEEPA tariffs. Finally, we opened 175 new stores this quarter. For the year, we opened 374 new stores versus 304 stores last year. This year's total of 374 stores is the most ever in a fiscal year. We also hit some major milestones. We celebrated our 1,000th store in Mexico, and we opened our 8,000th store in August in our home state of Tennessee. We also held our grand opening for our relocated Monterrey, Mexico distribution center, which is almost 2 times the size of the previous distribution center, and we broke ground on our new León, Mexico DC, which will come online in late FY 2028 to support our international expansion. Let me touch on some same-store sales highlights for the quarter.

Total company same-store sales grew +1.5% on a constant currency basis, with domestic same-store sales growth of +1.6%. Our domestic DIY same-store sales declined 0.6%, while our domestic commercial sales grew +8.6% versus last year's Q4. We saw our sales bottom in June and then begin to improve as the quarter moved along. We exited the quarter with good momentum, and we are optimistic about our sales trajectory for the new fiscal year. International same-store sales were up 1.3% on a constant currency basis, and our unadjusted international comp was +10.7% as exchange rates positively impacted our comps by over 900 basis points. Next, let me address our total domestic same-store sales results in a little more detail. Domestic same-store sales averaged around +1.4% over the first three months and then accelerated in August to +2.1%.

Our domestic retail comps were -0.6% for the quarter and ran negative for the first three months before running essentially flat in August. We began the quarter with milder than usual temperatures across the Southeast and the South Central markets, along with lower foot traffic. The impact of higher inflation from higher oil and gas prices likely dampened our traffic and sales results for most of the quarter. At the tail end of the quarter, our results were buoyed by stronger results in our hot weather categories. We saw mid-single digit like-for-like same-SKU inflation for the quarter, which contributed to our DIY average ticket being up roughly 5%, which was offset by traffic declines. For the first quarter of FY 2027, we expect same-store sales to be relatively flat with average ticket to remain around +5% that we saw in Q4. Next, I will touch on our domestic commercial business.

As I mentioned, our commercial sales were up just under 9% for the quarter. The first three months of the quarter averaged just over 8%, while the last month was well over 9% growth. Commercial growth was impacted earlier in the quarter by below-expectations performance in our hot weather categories that rebounded in the last month of the quarter as we experienced hotter summer temperatures. Similar to DIY, we saw ticket average growth of around 5%. We would expect this trend to continue into Q1. Our commercial business had a solid year, finishing up nearly 11% versus FY 2025. In summary, our domestic business was below our expectations, driven largely by the underperformance in DIY for most of the quarter. Milder temperatures earlier in the quarter certainly had an impact, along with lower foot traffic.

We are encouraged by the performance late in the quarter and look to maintain momentum in Q1. Our commercial sales results continue to be driven by our improved satellite store inventory availability, significant improvements in hub and Mega Hub coverage, the continued strength of our Duralast brand, and execution on our initiatives to improve speed of delivery and customer service for the professional. Our sales initiatives are driving growth with the smaller UDS customers, where we have the majority of our sales, but also have a tremendous market share opportunity. We see our Mega Hub and inventory initiatives as ways to accelerate our growth with these under-penetrated UDS customers. Thus far, our initiatives are delivering market share gains and gives us confidence as we move into FY 2027. As a reminder, in FY 2026, we opened up 39 Mega Hubs and 11 net regular hubs.

Now let me take a moment to discuss our international business. This past quarter, we celebrated the opening of our 1,000th store in Mexico and finished the quarter with 1,001 locations. In Brazil, we now have 167 stores, bringing our total international store count to 1,168. Our international same-store sales grew +1.3% on a constant currency basis as we faced continued softness in the macro environment, specifically in Mexico. Importantly, we saw an uptick in sales in the last four weeks of the quarter, which gives us confidence that sales may inflect upward in Q1. We are expecting same-store sales to be slightly stronger on a constant currency basis as we expect to report low double-digit growth in Q1. As the economy is starting to improve, we expect our international sales to re-accelerate as we continue to invest in customer service, inventory, new stores, and our supply chain.

Today, approximately 15% of our total store base is outside of the U.S. We expect this number to grow as we continue our international store build-out. We have confidence in our international markets, and the returns on invested capital are strong. We have a relatively young store base that we expect to drive strong sales and EBIT results as they continue to mature. In summary, we have continued to invest capital in driving sales growth. We also continue to invest in refining product assortments in stores and driving efficiency in our supply chain, which we believe positions us well for future growth. We are committed to investing both CapEx and operating expense to capitalize on these opportunities. This year, we invested approximately $1.5 billion in CapEx to drive our strategic growth priorities and expect to invest a similar amount in FY 2027.

The majority of our investments are in accelerated store growth, including hubs and Mega Hubs. These investments place more inventory closer to our customers and will continue to reduce the time it takes us to serve both our DIY and professional customers. The early performance of our accelerated store investments are better than our original forecast, which will allow us to achieve our EBIT goals sooner. We are laser-focused on generating the returns that you expect from AutoZone. To give additional color on our new store performance, we assume that first-year sales for our average store format is roughly $1.7 million, that ramps to roughly $2.7 million by year six. Historically, on average, new store sales grow double digit in the second year and roughly 5% for each of the next four years.

With an average investment of around $2.9 million per store, we assume that return on invested capital is roughly zero in the first year. By the end of the fourth year, we expect to achieve approximately 15% ROIC. By the end of the sixth year, we expect ROIC of over 20%, which should continue to improve well after that. Importantly, the growth in store productivity is heavily skewed to commercial sales, which typically more than doubles over that six-year time horizon. The majority of this growth comes from UDS customers who demand availability and speedy delivery. While we plan to again invest around $1.65 billion in CapEx in FY 2027, we are committed to managing our investment to achieve strong results in invested capital over time. While in the near term, our returns on capital have been pressured as we have accelerated our store growth.