Brian Campbell begins by noting that the call will include forward-looking statements subject to the Private Securities Litigation Reform Act of 1995, which are not guarantees of future performance. He advises referring to the company's recent filings for risks and uncertainties. He also mentions the inclusion of non-GAAP measures and where to find reconciliations. The operator then introduces the AutoZone 2024 Fourth Quarter Earnings Release Conference Call and CEO Phil Daniele. Phil thanks the attendees and introduces the accompanying team members. He directs listeners to their website for additional materials and thanks the company's 120,000 employees for their contributions to the solid performance in fiscal 2024.

During the latest fiscal year, the company experienced significant sales and profit growth, with total sales increasing by 5.9% and earnings per share (EPS) rising 13%. Excluding an extra week, sales went up by 3.8% and EPS by 10.4%. In the fourth quarter, total sales grew by 9% and EPS by 11%, with same-store sales results showing mixed performance domestically and internationally. The domestic commercial sales improved, while the international business faced currency challenges, impacting reported growth. The weaker US dollar had previously been beneficial, but a stronger dollar negatively influenced financial figures this quarter. Despite these challenges, the company's success was attributed to the exceptional efforts of its team. Specifically, domestic DIY sales saw a slight decline of 1%, mainly due to discretionary merchandise categories.

In the fourth quarter, discretionary category sales constituted 18% of the mix and were down 5% year-over-year, consistent with earlier quarters. This trend is expected to continue until economic conditions improve. DIY average ticket and like-for-like SKU inflation rose by about 1%, which, while low historically, is a positive trend, with expectations to reach around 3% over time. DIY transaction counts decreased by 2%, but market share in DIY grew, indicating strong consumer offerings. Regionally, DIY performance was consistent with a 1% negative comp across all census regions. While hot weather increased sales in some areas, overall weather impacts were minimal. The discussion now turns to the U.S. commercial business.

The paragraph discusses the company's recent financial performance, highlighting a 10.9% increase in commercial sales for the quarter and a 4.5% increase on a 16-week comparable basis. It notes consistent growth across regions and underscores opportunities for further market share expansion through better inventory, enhanced hub and mega-hub coverage, and improved delivery and customer service. Inflation has stabilized, leading to flat pricing, with a slight increase in inflation expected next year. The company opened fewer hubs and mega-hubs this year but plans to resume aggressive expansion in FY '25. Improved sales trends are anticipated in the first quarter of FY '25, with accelerated performance expected in the subsequent quarters, and the company commits to transparency regarding market trends and outlook.

The paragraph outlines AutoZone's international business expansion efforts, particularly in Mexico and Brazil, where they opened 49 new stores this quarter, making a total of 921 international stores. The company aims to increase the percentage of international stores, currently at 13%, and plans to accelerate openings to around 200 per year by 2028. They are focused on improving inventory assortments, IT systems, and supply chain efficiencies to drive future growth. Additionally, significant investments have been made in capital expenditures, particularly in store growth, hubs, mega-hubs, distribution centers, and IT systems, to enhance customer service and operational efficiency. The company is confident about growing its market share domestically and internationally. The paragraph ends with the transition of the call to Jamere Jackson.

In the article, the author outlines the company's fiscal year outcomes, noting an extra week in the fiscal year that affects the reporting periods. They explain that same-store sales comparisons use a 16-week basis, while total sales, EBIT, and EPS are measured over 17 weeks. The company reported a 9% increase in total sales, with a 2.6% rise on a 16-week basis. Domestic same-store sales grew by 0.2%, and international comparable sales grew by 9.9% on a constant-currency basis. Total EBIT increased by 6.1% and EPS by 11%, despite a foreign exchange rate headwind that impacted international sales. Total quarterly sales were over $6.2 billion, up 9%, and yearly sales were $18.5 billion, up 5.9%. Domestic commercial (DIFM) sales grew 10.9% in Q4 and 4.5% on a 16-week basis, with FY '24 commercial sales reaching $4.9 billion, up 6.2%. Domestic DIFM sales accounted for 31% of domestic auto parts sales and 27% of total company sales.

The company reported stable average weekly sales per program at $16,700 despite new, immature programs. Their commercial initiatives are yielding good results with a significant presence in 92% of domestic stores, leading to new business and enhanced customer relationships. They launched 55 new programs this quarter, totaling 5,898 programs, and see significant growth potential in the commercial sector. To support this, they've established 109 mega-hub locations, which offer over 100,000 SKUs and boost both commercial and DIY sales. The company aims to expand to over 200 mega-hubs, enhancing parts availability and service levels. However, the DIY segment saw a slight decline in comps for the quarter and overall fiscal year.

Despite industry challenges, the company continues to gain market share in the DIY segment and expects resilience in this business due to factors like ticket growth and car park dynamics. They also report positive developments in the international markets with new store openings in Mexico and Brazil, strong same-store sales growth, and a commitment to accelerating expansion. Gross margins for the quarter saw a decline primarily due to unfavorable LIFO comparisons, although there was an underlying improvement in merchandising margins.

In Q4 last year, the company had a $30 million LIFO credit which it did not have this year. They initially expected about $10 million in LIFO credits, which would have increased gross margins by 16 basis points or $0.45 per share. By year-end, there were $19 million in cumulative LIFO charges to be reversed, with no LIFO impact expected in Q1 of FY '25 due to stable inflation. Last year's Q1 had a $2 million LIFO credit. Once the $19 million is credited, no further credits will be taken, and an unrecorded LIFO reserve will be rebuilt. Operating expenses increased by 10.4% in Q4, with SG&A up 37 basis points as a percentage of sales, primarily due to accelerated investment in IT and payroll for growth. EBIT rose by 6.1% in the quarter to $1.3 billion and by 9.1% for the year to just under $3.8 billion. Interest expense for Q4 was $153.2 million, up 41% from the previous year, with total debt at $9 billion compared to $7.7 billion last year. Interest for Q1 FY '25 is projected to be $108 million.

The company experienced an increase in higher debt levels and borrowing rates, contributing to a rise in their tax rate to 21.1% for the quarter, down from 22.4% last year, partly due to the benefits from stock options exercised. They recommend investors model a tax rate of approximately 23.4% for the first quarter of FY '25. Net income increased to $902 million, and a lower diluted share count of 17.5 million led to a rise in earnings per share to $51.58. For FY '24, net income was $2.7 billion with earnings per share at $149.55. The company generated $723 million in free cash flow for Q4 and $1.9 billion for the year, maintaining a strong liquidity position and finishing with a leverage ratio of 2.5 times EBITDAR. Inventory levels increased due to new store growth. Accounts payable as a percent of gross inventory was 119.5% this quarter. The company remains committed to strong capital allocation and a share repurchase program.

In the quarter, AutoZone repurchased $711 million worth of its stock and had nearly $2.2 billion left for future buybacks. The company has successfully repurchased over 100% of its shares since 1998 while continuing to invest in its business. AutoZone remains focused on a disciplined capital allocation strategy to enhance shareholder value through investments, robust earnings, and returning excess cash. The company is optimistic about its growth prospects for FY '25, driven by a resilient DIY segment, expanding international business, and a growing domestic commercial segment. Additionally, AutoZone notes that foreign currency fluctuations have had a negative impact on their financial results and could continue to affect revenue and earnings in the next fiscal quarter.

The paragraph highlights AutoZone's confidence in their performance and future growth plans. Phil Daniele expresses pride in the company's global team and the progress made in FY 2024, particularly in customer service and execution. The focus for fiscal 2025 includes growing the domestic commercial business, expanding international markets, and maintaining solid gross margins and appropriate operating expenses. Key strategies include enhancing parts availability, executing flawlessly, and delivering exceptional customer service. Overall, AutoZone is optimistic about achieving sales growth and market share gains in the coming year.

Over the past fiscal year, AutoZone achieved significant milestones, including $18.5 billion in sales, strong growth in commercial sales, and impressive averages in weekly domestic sales. The Mexico and ALLDATA teams broke multiple records, and Brazil expanded to over 100 stores. The company also repurchased $3.2 billion in stock. As the new fiscal year begins, AutoZone emphasizes its commitment to its employees and service culture with the operating theme "Great People, Great Service." The upcoming National Sales Meeting in Memphis will celebrate recent accomplishments and focus on training and recognition. Despite successes, the company acknowledges challenges such as staffing, process efficiency, and meeting store opening goals, emphasizing the need to maintain their high execution standards.

In fiscal 2025, AutoZone's priorities include improving execution and investing in strategic projects such as accelerating hub and mega-hub openings, optimizing new distribution centers, and increasing both domestic and international store growth. The company aims to boost domestic commercial sales and gain market share in the DIY segment. Additionally, Ken Jaycox has joined as Senior Vice President, Commercial, bringing extensive B2B experience from U.S. Steel. AutoZone remains optimistic about its growth potential and is committed to delivering better results. The paragraph concludes with the beginning of a Q&A session, where Simeon Gutman from Morgan Stanley inquires about the timing and expectations for accelerating commercial sales growth, addressed to Phil Daniele.

The speaker expresses confidence in a gradual improvement in their business, driven by strategies like enhancing store assortments, expanding hubs, and improving inventory access and customer service. Despite consumer pressure affecting both DIY and commercial segments, the strategy is expected to yield incremental gains. Simeon Gutman inquires about gross margin prospects, and Jamere Jackson highlights strong merchandising margin improvements due to effective supplier negotiations. Although there are short-term challenges like adding new distribution centers, the overall outlook remains positive. They are closely monitoring industry pricing and inflation impacts, which are currently suppressing average ticket growth.

The paragraph addresses the hurdles in accelerating the growth of hub stores. Jamere Jackson explains that the team has rebuilt its pipeline and capabilities after delays during the pandemic. They plan to open 200-plus mega-hubs, much higher than the initial estimate of 110, with 20-plus set for FY '25. Currently, around 70 mega-hubs are under construction. Despite challenges in finding suitable 30,000-square-foot locations, the team is reorganized and committed, reflecting optimism about the hubs' contribution to future growth.

In the article, Phil Daniele discusses the performance of the commercial business across the quarter, noting that it was consistent regionally with a lighter start but a strong June due to early hot weather. July and August were similar to last year from a weather perspective, leading to expected category growth in hot areas, resulting in a good summer overall. Regarding different customer segments, Daniele explains that the "up-and-down the street" customers have shown strong growth and resilience, while national accounts have improved quarter-over-quarter, partly due to better trends in the tire market.

In the paragraph, the speaker discusses the performance of various automotive-related segments. While tire replacements are on the rise, segments related to new and used cars are underperforming. They note that as the economy improves and more cars change hands, these segments may perform better. Bret Jordan and Operator mention the next question is from Chris Horvers of JPMorgan. Chris asks about the growth of the DIY and domestic commercial markets. Phil Daniele responds, highlighting that the DIY market has struggled mainly in discretionary categories like accessories and truck towing, which have been tough for at least a year despite some share gains.

The paragraph discusses the performance of a business in both its DIY and commercial segments. On the DIY side, maintenance and failure categories have been resilient, but discretionary categories face challenges due to economic pressures on consumers. The commercial segment is experiencing growth and gaining market share through strategic inventory deployment and improved customer service. Despite a downturn in the DIY market due to low retail inflation and consumer sentiment, the business remains optimistic about future growth by continuing to provide excellent service. The commercial market has seen flat to slightly declining growth, but recent acceleration in sales is promising.

The paragraph discusses financial performance, particularly focusing on the impact of the 53rd week on gross margins and international operating margins. Chris Horvers asks about these impacts, and Jamere Jackson explains that the 53rd week's allocations can be noisy and their results should not be over-interpreted. He mentions that their international business, especially in Mexico, is strong, but fluctuations in foreign exchange (FX) rates can affect margins. The company aims to be transparent about these impacts going forward.

In the paragraph, Steven Forbes from Guggenheim Securities asks Phil Daniele about the reasons behind the mid-single-digit decrease in weekly sales per commercial program year-over-year after adjusting for an extra week. Daniele responds by noting that when comparing 16-week periods, sales were up 4.5% compared to last year, marking three consecutive quarters of growth in commercial sales. He credits this growth to improved store-level assortments and the strategic use of hub and mega-hub inventory. Daniele highlights the company's focus on improving the speed of delivery to customers through better inventory deployment and the use of advanced technology.

The paragraph discusses the ongoing efforts to enhance customer service and inventory management for AutoZoners, focusing on the strategic deployment of hub and mega-hub locations to bring inventory closer to customers. The strategy involves expanding the number of these hubs, although the rollout has faced some delays. The goal is to accelerate the development of these hubs later in the year, with a long-term plan to establish over 200 mega-hubs. Steven Forbes then inquires about non-controllable headwinds to EBIT growth, and Jamere Jackson explains that LIFO credits and FX rates are significant factors, with around $40 million in LIFO credits this year creating a headwind next year, partly offset by remaining credits.

The paragraph discusses the impact of foreign exchange (FX) volatility on the company's profits and losses (P&L), emphasizing transparency about current spot rates and potential effects. The company will provide updates throughout the year due to significant recent FX fluctuations, which have impacted international profitability. Following this discussion, Steven Forbes and Robbie Ohmes from Bank of America address inflation concerns. Phil Daniele notes that recent ticket average inflation has been muted at around 1%, contrasting with historical growth rates, and also mentions the roles of tariffs and port strikes in affecting inflation.

Over the past 20 to 30 years, the industry has seen an average ticket inflation of 3% to 5% and a 1% to 3% decline in transactions, influenced by the rising cost and technological advancements in parts. The expectation is that the industry will eventually return to these historical growth rates. Inflation in average ticket prices is typically driven by a shift towards higher-tech, more expensive parts and the rising cost of products. Recent years have seen modest price increases due to past supply chain constraints and resultant hyperinflation, but this trend is slowing. Looking ahead, normal inflation rates are expected to resume by 2025. As for tariffs, the industry has a history of passing these costs to consumers by raising prices in anticipation of tariffs, which temporarily boosts gross margins. The industry's pricing strategies have been consistent and rational over time.

The paragraph discusses the current state of consumers, particularly on the DIY side, facing economic challenges unlike any seen in recent decades due to high inflation. Lower-end consumers have been under pressure for over 20 months, often deferring maintenance and discretionary spending during tough times but eventually investing in essential repairs to avoid major future costs. Despite the economic pressures, the business model is resilient due to its focus on inelastic, essential maintenance services. The middle- and upper-income consumers continue to spend normally, while lower-end consumers are tightening their budgets. Encouraging factors include low unemployment at 4.2% and wage growth at 4%, which is keeping pace with or outpacing inflation.

The paragraph discusses AutoZone's earnings growth and potential headwinds. AutoZone has historically achieved double-digit earnings per share (EPS) growth, combining mid-single-digit operating income growth and share repurchases. However, the company acknowledges that this growth might be challenging in the coming quarters due to factors like foreign exchange (FX) impacts and LIFO accounting. Despite these short-term challenges, AutoZone remains confident in its long-term growth strategy, emphasizing consistent growth, margin expansion, and shareholder-friendly actions.

The paragraph discusses the company's growth initiatives and their positive impact on future performance despite the current challenging macro environment. It highlights that while consumer pressure and DIY sector softness make quarterly growth difficult, the long-term outlook remains strong with solid business fundamentals. Phil Daniele emphasizes the strengths and growth potential of their Mexico and international businesses, despite FX pressures. In response to Michael Lasser's question, Jamere Jackson confirms the company's focus on expanding gross margins to offset SG&A growth and maintain stable operating margins.

The paragraph discusses the company's ability to maintain and even expand its margins despite not being able to increase retail prices rapidly. The speaker highlights that the company has invested strategically in areas like IT and payroll to support growth, ensuring these investments will bring future benefits. The company remains confident in protecting its operating margins and does not foresee a decline. During the Q&A, Michael Lasser thanks Phil Daniele, who then addresses a question from Michael Baker concerning competitive pricing strategies. Daniele acknowledges competitor pricing investments but notes that their monitoring indicates no significant impact on their average ticket prices.

In the paragraph, the speaker discusses the factors influencing ticket growth and retail inflation in the commercial side of their business. They explain that pricing strategies focus on wholesale distributors (WDs) and not on consumer pricing pressures. Instead, inflation is driven by rising costs, which are then passed on to consumers. This is a pattern that has been consistent, particularly since the supply chain disruptions brought on by the pandemic. Jamere Jackson and Phil Daniele highlight that the industry operates rationally regarding pricing, aiming for stability rather than stimulating demand through price changes. They also discuss expectations for improved first-quarter comparative sales and more store openings, including over 20 new mega-hubs in the next year.

The paragraph outlines the expectation that significant improvements will occur in the latter part of the year, particularly after Christmas. The first quarter is predicted to be similar to the last quarter, with consumer confidence remaining stable but under pressure. An improvement in growth and average ticket sales is anticipated later in the year, potentially around December after the election. Additionally, the car market is discussed, with Jamere Jackson noting that cars are lasting longer, which he believes will be a benefit rather than a disadvantage to the industry.

The paragraph discusses the current state and trends in the automotive market. Despite the Seasonally Adjusted Annual Rate (SAAR) of car sales declining, cars are not being scrapped at the same rate, leading to an older average age of vehicles on the road, now at 12.6 years and expected to increase. Cars are lasting longer due to technological advancements, resulting in households owning slightly more vehicles. Comparisons are made to the 2007-2009 financial crisis when new car sales plummeted, but current SAARs have not declined as significantly. The discussion then shifts to managing SG&A (Selling, General, and Administrative expenses), which grew by about 1% per store, a decrease from the previous 3% in Q4. The business plans to maintain low-single-digit SG&A growth to support its initiatives, despite peers increasing expenses to gain market share.

In the paragraph, Phil Daniele, CEO of AutoZone, emphasizes that the company remains committed to investing in growth initiatives, such as store payroll and IT improvements, to enhance customer and employee experiences. However, they are also careful to manage their selling, general, and administrative expenses efficiently, especially in a challenging sales environment. Daniele reassures stakeholders that AutoZone is in a strong industry position with a solid business model and has exciting growth plans. He stresses the importance of long-term execution and customer service in driving shareholder value and concludes by thanking participants in the Q&A session.

This summary was generated with AI and may contain some inaccuracies.