Certainly. Everyone at this time, we will be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then reenter the queue. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from Brett Jordan from Jefferies. Your line is live.

Hey, good morning, guys.

Good morning.

Good morning, Brett.

On the IEEPA contribution, is most of the refund in the fourth quarter? Obviously, your direct import refunds come to you, but do you have suppliers who are going to be trickling out rebates to you as we get into 2027?

Yeah. Most of that refund was in the fourth quarter. As we talked about, we had a little over $100 million that were in IEEPA tariffs. We got most of that in the fourth quarter, and that is basically on the inventory that we have sold. We expect the remainder of that to sort of trickle out over FY 2027.

Okay. Then question on same-SKU inflation. I think you called out 5% in Q1, but you called out a 4% ticket contribution for fiscal 2027. Could you sort of talk about how you see the cadence of same-SKU inflation as we sort of roll over that peak tariff impact in late calendar 2025?

Yeah. We think the first quarter will be in the similar zip code as the fourth quarter of this year, probably closer to 5%, and then we expect it to moderate over time, and we expect to average around 4%. What I will say is that it is a pretty volatile environment. In the near term, there is certainly pressure on categories like oil that are driving higher inflation. As we move through, we expect to see sort of more normalized inflation across the business. I think the most important point to that is that this industry is pretty disciplined and rational, and as we see the ticket inflation go up, we will raise retails accordingly.

Great. Appreciate it. Thank you.

Thanks, Brett.

Thank you. Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.

Hey, good morning, guys. So I guess, Phil, some of the math, or I think Jamere, when you gave the guidance on, I think it was Phil's guidance on retail and commercial. I guess if you just do the weighted sum products, you'd get somewhere between a 2% at the low end of comp guide to something like a 4% or a 5%, and I know you're not guiding, but you're giving us a framework. Is that fair? Then looking at your market share gains, are you satisfied with them? Like how do you look at them for your prior fiscal year? Thanks.

Yeah. So, you're in the right zip code on the comps when you sort of do the math on the sum of the parts, if you will. I think the important thing for us is we're calling what we see today based on that ticket inflation being elevated and some of the trends that we're seeing in our business. On the DIY side, clearly, the transactions have been a little bit softer, but as we roll over some of that elevated inflation, we would expect those transaction trends to improve a little bit. Then we've got a tremendous amount of momentum in commercial that we expect to continue as we move forward.

Yeah, I would kind of think about market share. You asked, are we satisfied? Well, the answer is no. We're never satisfied with market share growth. But we believe in this environment on both the DIY side, we are continuing to gain market share. That lower-end consumer is definitely pressured and probably will continue to be pressured for some time. On the commercial side, we've said for a while, we think we should be able to, it won't always be smooth, but grow essentially 2x the market's growth. And we think we're doing that. And we think that the things that we've spent time investing on and working on all give us the opportunity to continue to gain share in both DIY and commercial domestically and gain share in the international markets as well. So we feel good about our prospects of gaining share.

And quick follow-up is that we've had a couple of years of, I don't know if it's a noisy P&L, but some of the pieces were more volatile than what we're typically used to, and you've gone through an investment phase. And Phil, you went out of your way just now to talk about some pieces getting passed, whether it's supply chain investments, some technology investments. Does this fiscal year, are we settling into something more normal? And I'm not sure we'll ever be normal given the backdrop of fuel, et cetera, but does it feel like those investments fade and you can get back into some of the prior rhythm of comp growth, steady EBIT growth, and then steady EPS growth?

Yeah. I'll talk a little bit about some of the investments and initiatives. We said even this next year, our CapEx will be slightly higher than this year in FY 2026 versus FY 2027. But most of that will be driven by new stores. Some of the other investments that have elevated CapEx over the last couple of years, like I talked about with distribution centers in the U.S., Mexico, IT investments, a lot of those will begin to wane. As I said, most of them are well over halfway through those types of investments. Many of them are in the implementation and optimization stage. So those will start to moderate. We still will continue to open slightly more stores year-over-year, but again, we're in the latter innings of virtually all of those investments, if that makes sense. They won't be the continuing part of the investment. It will be more new store acceleration as we continue to get closer to that 430 per store globally.

Yeah, and I would just add from a P&L standpoint, it indeed has been a bit noisy when you think about the things that have impacted us. Tariffs were one, and then we had tariff refunds. We've had significant hyperinflation that drove LIFO. One of the things we wanted to do, and you heard Phil do it earlier and a little bit in some of my comments, is give a little bit of an outlook on what we see on kind of a normalized basis, so that you've got a base set of assumptions from which to model and plan the business. And we'll continue to operate the business with excellence as we move forward. And we expect this to be less noisy as we move forward.

Thanks, guys. Good luck.

Thank you.

Thank you. Your next question is coming from Christopher Horvers from JPMorgan. Your line is live.

Thanks and good morning. I just want to follow up on the first quarter guidance to make sure we get this right. So flat DIY, and it seems like you are implying a six-handle DIFM on a comp basis. I know you talked about this eight and change expected to continue, but that is a total gross number. So that puts to right around 2%, is that right? Then, I guess, how much conservativism are you baking in? Weather happens, weather was a headwind earlier, but it has helped in later in August and into September. So if you think about the past month, are you trending better than that? That 2% does not sort of bake in the continuance of weather benefits.

Yeah, I would say two things. One is what Phil laid out was sort of our guidance for the year and what our expectations are. I think the thing that we also talked about is sort of the way we exited the quarter, which was a rebound and a little bit of a snapback from where we started the quarter. So we like the momentum that we have going into the first quarter on DIY and certainly commercial exit and well north of 9% is something that we would expect to continue. We are executing very well in that regard. So those are kind of the two big pieces on the domestic comp side. Then I think on the international side, we did see some rebound in the back half of the quarter in Mexico. The team has continued to execute well through a very difficult macro environment, and we expect to start the climb out from the environment that we've seen over the last few years or so. Those are kind of the key elements of how we're thinking about the quarter. More importantly, what Phil talked about is as we look at the business and look at all the things that are happening, most of this is predicated on inflation. We feel pretty good about the ranges and the outlook that he gave.

Yeah, I would just add the weather in the latter part of the quarter certainly got to a more normal summer temperatures. It looks like we're going to have a normal, if not good winter. The extremes in weather drive our business. Both hot and cold are good for us. We can't predict that weather in the wintertime, but by all indications, it's going to be a normal to tougher winter, and we expect to be able to operate well in both of those environments.

Following up on the model. As you look out even beyond FY 2027, it's about 5.5% unit growth. As you think about the SG&A leverage point, is the model that you're building predicated on 4% comps to drive SG&A leverage, understanding that you have these upfront investments, supply chain and technology and people and process, but at the same time, you're going to have sort of these more immature stores that are burdened by labor and rent and so forth. Is the model being built as you look forward on a 4% leverage point on the domestic comp side?

Yeah, I wouldn't say that it's built on a 4% leverage point. Clearly, the way that we think about it is that we have the ability to grow SG&A in line with sales. In environments where those sales are a little bit lower, then we have the ability to go into the P&L and manage the SG&A downward. We've had that muscle, and we've done it over time. In years where the sales have been accelerated, we've seen pretty good leverage on the SG&A line. In some cases, it gave us the ability to go invest. So I think about it the same way that we have historically, which is we have the ability to grow SG&A in line with sales and manage the leverage and deleverage based on what we're seeing in the near term.

Understood. Thanks very much.

Thank you.

Thank you. Your next question is coming from Steven Zaccone from Citi. Your line is live.

Hey, good morning. Thanks very much for taking my question. I wanted to follow up on the DIY side. I was curious if you could just give a little bit more of an assessment of what you are seeing. You talked about softer transactions. I think there are so many moving pieces with the consumer at the moment. Have you seen some of that activity, whether it is trade down or deferral, get worse? How should we think about DIY from a quarterly cadence over the course of FY 2027? That would also be helpful.

Yeah. We tried to give as much color as we could around what we saw from a transactions and sales perspective over the four-month timeframe that comprises our fourth quarter. The beginning of the quarter was slower, particularly in the hotter weather categories, but the exit rate in the latter half of Q4, and particularly in August, got better. And we expect those trends to kind of continue. What we've historically seen over long periods of time is, after you have a spout of higher traffic declines, they rebound over time, which is what we believe we're seeing today. The 5% decline or north of that in transactions is not typical in this industry, and we would expect those to moderate back into a more normal traffic rate. So we saw that improving coming out of the quarter. We like the exit rate on DIY, and we think that momentum will kind of continue.

Yeah, the only thing I'll add is that the DIY customer certainly is facing some pretty significant inflation, particularly around fuel prices. And if you just look at our ticket over a two-year basis, it's up about 9%. So that consumer has felt a lot of inflation over the last two years. And we think the transaction environment, to Phil's point, will improve when this inflation moderates to something more normal and consumer sentiment gets better. The last thing that I'll say is that the tailwinds driving the industry are there. You've got higher rates, you've got more expensive, new and used vehicles that continue to drive the average age of vehicles higher. And that simply is going to mean that customers are going to keep their older cars longer, and the repair frequency will likely increase in 2027. And that's the basis for our outlook there.

The one last thing that I think is important for the tailwinds is, even though gas prices and oil prices have been higher, we haven't necessarily seen a tail off in the miles driven yet, which I think is ultimately an additional good tailwind for us in this space.

Okay. That is very helpful. Thanks. The follow-up I had is just understanding the impact of higher freight. Is this an expectation that same-store inflation just trends higher? I heard your commentary to a prior question. But is the view of higher freight rippling through the supply chain, this just gets passed on in terms of higher same-store inflation to the end customer?

Yeah. Obviously, higher gas prices are going to flow through freight and transportation logistics, both domestically and internationally. We expect that that will continue. I don't think it will be anywhere near like it was in the back half of the pandemic, where we had the supply chain crisis. I don't think it will be anywhere near that number. But our supply chain teams and our merchants do a great job of negotiating our transportation costs, and we expect to be able to manage that well. But there is no doubt that it will continue to be inflationary, not just in our space, but I think it will be inflationary everywhere.

Okay. Thanks for the detail. That is all.

Thanks.

Thank you. Your next question is coming from Michael Lasser from UBS. Your line is live.

Good morning. Thank you so much for taking my question. How would you quantify the return on the investments that you have seen over the last couple of years? Those have come in the form of accelerated CapEx, accelerated SG&A. As outsiders, what we see is the comps are moderating. You have a player in the industry that is driving same-store sales growth well ahead of AutoZone, so it is hard for us to dimension the return that you are generating on these investments that you have been making.

Yeah. Mike, thank you for the question. I appreciate that. Part of the reason I tried to give a little more commentary on the investments that we have made with supply chain, operations, new stores, et cetera, and we are happy with those investments. But I would agree with you that our comps have maybe not been as high as we would have liked. We do feel that we are operating as well as we have. We like the performance of our new stores. We ultimately had to do some work in our supply chain to make sure we were able to service our base stores that we had and do that well and efficiently. We needed to expand our supply chain to make sure that we could accommodate what we believe is the right strategy in new store growth. Again, that is why we tried to give you some metrics on how we see those new stores performing. It definitely puts some return on invested capital pressure on us in the short term as those stores begin to mature. But we like how they are maturing, and they are slightly ahead of the plan we originally forecasted. So we think all of that, over time, works into a better, faster growing business that is going to produce higher returns over the long term.

Understood. Thank you for that, Phil. My follow-up question is on the visibility that you have into your comps over the next few quarters. You are basically calling for an acceleration in your same-store sales growth as the year progresses. It sounds like there will be less like for like inflation that is going to moderate slightly. The heart of the assumption is that transactions improve from here. So A, is that right? And B, if your comps do not fall into, let us call it a 3%-4% range, is there enough flexibility for you to manage the P&L to still arrive at the earnings number that you are implicitly guiding for FY 2027? Thank you so much.

Yes, I think that's right, Michael. Like we said, we still believe we're going to see an accelerated inflation on same SKU inflation as well as ticket. What we believe is, the 5%+ decline in transactions, particularly on DIY, will kind of start to moderate back to a normal trend of, historically, over long periods of time, it's been down 1% or 1%-3% in transactions, and you've gotten average ticket growth that's been higher than that. We expect that to continue, and it's similar to what we saw in the latter half of Q4. And we think that inflation rate for the year is going to be roughly 4%, maybe slightly higher, on both DIY and commercial, which kind of gets you to those slightly improved comps from where we were in Q4.

Thank you very much, and good luck.

Thank you, Mike. Thanks, Michael.

Thank you. Our next question comes from Steven Forbes from Guggenheim. Your line is live.

Good morning, Phil, Jamere.

Morning.

I wanted to maybe dive into the ROIC profile that you spoke to in terms of the store maturation curve. Specifically, you mentioned commercial sales double over the six-year period. Curious how much variability there is in the commercial growth profile between the years, year two versus year six. Is there faster growth in the outer years? Can you speak to what the implicit growth rate is in the UDS part of the business versus the national account part of the business within that guide?

Yeah, so two pieces. One is, we do see our commercial growth having a big bump of acceleration in the first one to two years of the program, and that drives a lot of the returns on invested capital goodness that we see as we move through years two through six. The majority of that comes from the UDS customer. We continue to see fairly significant share gains in that portion of the business. I want to be clear, we like the UDS customer. We spend a lot of time growing that portion of the business, but we have share opportunities with both national accounts and UDS customers. The metric that I like to continue to trot out in front of folks is that we're a 5%-6% share in what's approaching a $100 billion business, if you will. So there are share opportunities for us in both segments of the business. We've clearly been driving our UDS business, but we think there's share opportunities for us to move up the call list and have a bigger play with both sets of customers. The other thing that I think helps with that, and we've talked about it. We've got 172 Mega Hubs and hundreds of hubs around the country. We continue to build that out. You asked about variability per store. When we drop a Mega Hub in a market that gets our proximity of those parts to a position where we can accelerate the speed of delivery to the shop or the DIY customer, that drives sales, like we talked about. Jamere gave some specifics of what it looks like when a store is in a delivery radius for a hub and/or a Mega Hub, and it does improve them. That's why we're so focused on driving the store counts in both those hubs and Mega Hub stores.

Thanks for that. Just a quick follow-up, just a confirmation here for the gross margin outlook for FY 2027. The 0 basis points-25 basis points of FIFO gross margin expansion, I guess that's inclusive of the baseline benefit that you've captured with tariff refunds, right? There's no expectation for a cycling to drag on the FIFO gross margin profile.

That's right. So what we gave you when we talked about gross margins is we gave you the LIFO assumptions for this year. We gave you the LIFO assumptions for last year. Obviously, we had $190+ million last year. We've got $85 million-$90 million this year. So if you just look at that on a GAAP basis, we should be flat to up 20. As it relates to tariffs specifically, while the tariff refunds may appear to be a windfall, the reality is that the refund environment was deflationary, and the industry likely would have raised prices faster if both retailers and suppliers hadn't received cost relief from those refunds. So, we're expecting to lap those tariff benefits and not have that be a call-out. Obviously, the way that they came in will make the margin profile a little lumpy, which is why we talked about where we are on an annualized basis. But we feel pretty good about all the work that we're doing, both in our supply chain and in our merchandising organization to drive gross margin improvement in total.

Thank you both.

Yep. Thank you.

Thank you. Our next question is coming from Seth Sigman from Barclays. Your line is live.

Hey, good morning, everyone. A couple of things I wanted to follow up there on. One is on the economics of the Mega Hubs. Sounds like programs using the hubs have sales 16% higher than the base business. How has that trended over time? And just given that you do have a lot of newer Mega Hubs because you have accelerated growth over the last year, is there reason to believe that the lift and the contribution that you are getting from these should actually accelerate in terms of the impact it could have on comps over the next 12-18 months?

It's been fairly consistent over time as we look at Mega Hubs, and one of the reasons that we moved our targets from 75 Mega Hubs-110 Mega Hubs and ultimately to 300 is that when we attach a Mega Hub to a satellite network, we see an acceleration, and it's a

It's a dynamic that we continue to see. When you jam more parts in the local market closer to the customer, then to Phil's point, it drives sales. As our commercial business continues to mature over time and we continue to grow our market share and grow our presence, as we expand that Mega Hub network and attach it to more stores, we expect that profile to be as good or better on a go-forward basis. That drives a lot of our confidence about our business as we move closer to the 300 Mega Hubs totals, and it also drives a lot of the confidence in our business to continue to grow market share, particularly in commercial.

We continue in those Hubs and Mega Hubs to figure out ways to get those parts faster to our customers and our stores by leveraging technology. We know where our drivers are, we know where the parts are. We know how to fastest get those parts to those customers in the shops that are waiting to turn their bay and ultimately help a DIY customer that may be broken down in our parking lot or broken down at their house. We'll continue to iterate on our operations and make better and smarter decisions on how we deploy this inventory and how quickly we can get it to our customers. We're working on that continuously, so I suspect that'll continue to improve.

Okay, great. My follow-up is around inflation and the elasticity that we're thinking about here. When you look at the incremental inflation, where it's coming from now and what you're thinking about for 2027, is there any reason to believe that the elasticity is going to be different, maybe more favorable than what you saw last year based on the categories that it's targeting?

Well, I think two things about inflation. One, we think it is going to be a little bit more favorable from an elasticity and transaction standpoint, just because if you think about what has happened is our consumers had to deal with tariffs on top of sort of a normalized inflation, if you will. We get to lap over that beginning in the fourth quarter of this year. As I mentioned a little bit earlier, if you just look at ticket averages for us, they are up 9% on a 2-year stack basis. We expect that to normalize as we move forward. Then I think very broadly speaking, as we think about inflation, again, I come back to this industry is very disciplined and very rational when it comes to dealing with inflation and how we price our products to our customers. We will continue to expect that going forward, and that will mean that our business will be in pretty good shape as we move forward.

Yeah, I think as you talk about elasticities too, large chunks of our business are really inelastic. It is failure related. If a starter goes out or your battery goes out, you do not have a whole lot of choice, but you have to replace it. Some elements of our business are more discretionary and have more elasticities, particularly in the categories like floor mats and seat covers. Those are not necessary to drive your car. Maintenance, people will tend to push them a little bit as they get under pressure from an inflationary perspective. But over time, you have to replace those parts. You cannot continue to defer the maintenance on the product, on the car. If you do, you end up with a failure. Tie rod end may be wobbly, but if it fails, now you have got to replace ball joints and other parts of the car, which are a much more expensive failure repair. So customers generally understand that over time, and you have got to go do the maintenance on a vehicle or you are going to have a bigger problem. So discretionary can be pushed, which we have seen. But the other categories historically have always rebounded and been positive for us in inflationary environments.

Okay. Thank you both.

Thank you. Your next question is coming from Scot Ciccarelli from Truist Securities. Your line is live.

Good morning, guys. Thanks for the time. How are you thinking about or modeling the higher comp contribution that you should get from the new store acceleration, which I guess started about a year ago? Can we assume you are building a growing lift as the year progresses, as more stores roll into the comp base?

Yeah. As you might expect, the newer stores have higher comps in the near terms. It does have some impact on our comps going forward. Remember that if you take domestically, for example, we added 236 stores on a base of 6,500 or 6,600 stores. While it does have some impact, it does not move the needle as much as you might think, which the underlying view then is that we expect our mature stores and our mature store profile to continue to make progress as well. While new stores are certainly a contributor here, we are expecting to make some progress across our entire business.

Got it. Understood. Just to clarify something you guys mentioned earlier, have you made any changes to your domestic store opening plans for 2028, or was the whole change on Brazil?

Yeah. We still think we'll get to roughly that 300 stores in the U.S. We'll be in that range of 120 or so in Mexico and roughly 20 or so in Brazil. We'll continue those to get to that roughly 430 net new stores on an annual basis. Again, like I said, we really think the opportunity is to continue to double down on our performance in Mexico and the U.S. We'll continue to work on Brazil. We like the market, but there's things that we need to go do down there. We think it's a great market for us, but we need to focus today on our domestic and Mexico business.

Got it. Thanks, guys.

Thanks.

Okay. Thank you for those questions. Before we conclude the call, I'd like to take a moment to reiterate that we have an incredible business in a strong and resilient industry. We are excited about our growth prospects for the new fiscal year, but we will take nothing for granted as we understand that our customers have alternatives. We have exciting plans that will help us succeed in the future, but I want to stress that this is a marathon and not a sprint. As we remain focused on delivering flawless execution and striving to optimize shareholder value for the future, we are confident that AutoZone will be successful. Thank you for participating in today's call.

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.