AZO - NYSE
AutoZone, Inc.
AZO·NYSE
$3.06K
+1.1%Consumer CyclicalSpecialty Retail
AutoZone, Inc. retails and distributes automotive replacement parts and accessories. The company offers various products for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products. Its products include A/C compressors, batteries and accessories, bearings, belts and hoses, calipers, chassis, clutches, CV axles, engines, fuel pumps, fuses, ignition and lighting products, mufflers, radiators, starters and alternators, thermostats, and water pumps, as well as tire repairs. In addition, the company offers maintenance products, such as antifreeze and windshield washer fluids; brake drums, rotors, shoes, and pads; brake and power steering fluids, and oil and fuel additives; oil and transmission fluids; oil, cabin, air, fuel, and transmission filters; oxygen sensors; paints and accessories; refrigerants and accessories; shock absorbers and struts; spark plugs and wires; and windshield wipers. Further, it provides air fresheners, cell phone accessories, drinks and snacks, floor mats and seat covers, interior and exterior accessories, mirrors, performance products, protectants and cleaners, sealants and adhesives, steering wheel covers, stereos and radios, tools, and wash and wax products, as well as towing services. Additionally, the company provides a sales program that offers commercial credit and delivery of parts and other products; sells automotive diagnostic and repair software under the ALLDATA brand through alldata.com and alldatadiy.com; and automotive hard parts, maintenance items, accessories, and non-automotive products through autozone.com. As of November 20, 2021, it operated 6,066 stores in the United States; 666 stores in Mexico; and 53 stores in Brazil. The company was founded in 1979 and is based in Memphis, Tennessee.
At a Glance
Live SnapshotMarket Cap$50.12B
EPS148.8000
P/E Ratio20.58
Earnings Date07/29/2026
Earnings Call Transcript
AZO • 2026 • Q3
Operator
Please note this conference is being recorded. Management would like to read their forward-looking statement.
Brian Campbell
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. The company undertakes no obligation to update such statements. Today's call also includes certain non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our press release.
Operator
I would now like to turn the call over to your host, Philip B. Daniele III, President and CEO of Auto
Phil Daniele
Good morning, and thank you for joining us today for Auto
Phil Daniele
Our results and performance begin with us asking, "What does the customer need, and how can we exceed those needs and do it more efficiently?" It is our Auto
Phil Daniele
We will also share regional performance and give an outlook on how we expect the last quarter of the year to play out as we enter our summer selling season. For the third quarter, our total sales grew +8.4%, which is an acceleration from the first half of the year, while earnings per share increased +7.7%. Similar to our experience in the first half of the year, our gross margin, operating profit, and EPS were negatively impacted by a non-cash $20 million LIFO charge. As a reminder, during last year's Q3, we recognized a $16 million LIFO credit, which favorably impacted operating profit and EPS. Excluding the LIFO charge of $20 million this quarter and the $16 million credit last year, our EPS would have been up +12.5% versus last year's Q3. Now let me share a few key highlights from the quarter.
Phil Daniele
Total company same-store sales grew +3.9% on a constant currency basis, with domestic same-store sales growth of 4.1%. Our domestic DIY sales grew +2.2%, while our domestic commercial sales grew +10.4% versus last year's Q3. We are pleased to report double-digit commercial sales growth and believe the strong performance will continue as we move forward, even as we cycle tougher comparisons to Q4 of last year. International same-store sales were up +1.6% on a constant currency basis, and our unadjusted international comp was +16.6%, as exchange rates positively impacted our comps by 1,490 basis points. We opened 82 stores globally this past quarter to finish with 6,766 U.S. stores, 933 Mexico stores, and 157 Brazil stores. We are on track to open approximately 365 stores for the full year versus the 305 stores we opened globally last year.
Phil Daniele
We continue to be very pleased with our sales productivity we're generating out of our new stores, and their sales results are exceeding our pro forma expectations. Let me address our sales results in a little more detail. Coming into the quarter, we were optimistic that our domestic store execution would drive sales growth for both retail and commercial. Regarding our +4.1% quarterly domestic same-store sales, the gains was +5% in our first four weeks, +4.5% in our second four weeks, and +2.9% over the last four-week period of the quarter. Let me address the last two weeks a little more specifically. Those two weeks were softer than the rest of the quarter with comps of +1.3%.
Phil Daniele
This slowdown in sales was caused by unseasonably cool weather impacting our heat-related categories, which normally begin to ramp this time of year as summer heat begins to take hold. This affected both DIY and commercial. Our domestic comp was solid, up +2.2% versus last year, and an acceleration versus the +1.5% in Q2 as we continue to gain market share. I'm very pleased with what we are seeing in terms of market share gains, and we continue to execute well in this environment.
Phil Daniele
Regarding our +2.2% DIY comp for the quarter, we experienced a +2.4% comp in the first four-week segment, a +3.4% comp in the second segment, and a +0.8% comp during the third segment. As noted, the last four-week segment was our weakest performing segment, which was driven by the very mild weather in certain markets. Those markets have historically been warmer at this time of year, and the cooler temperatures led to lower key volumes in key categories like air conditioning, starting, and charging.
Phil Daniele
For the quarter, we felt we benefited marginally from higher than usual income tax refund season, along with share gains and solid execution. Regionally, our results were solid overall, with the strongest results in the West, Midwest, and the Northeast. We expect to have solid DIY performance over the upcoming summer. With regards to inflation's impact on DIY sales, we saw like-for-like same-SKU inflation just north of +7% for the quarter, which contributed to our DIY average ticket being up +5.6%. The difference between the like-for-like inflation and ticket growth was attributable to product mix. We expect the average ticket for the fourth quarter to be in the mid-4% range as we begin to lap the inflation ramp from the beginning of the fourth quarter of last year.
Phil Daniele
For the last quarter, we also saw same-store DIY traffic count negative 3.6%, a similar decline to our second quarter, where we were down in the mid-3% range. I will touch on our domestic commercial business. As I mentioned, our commercial sales were up plus 10.4% for the quarter. The first four-week segment grew at 12.7%. The second four-week segment was plus 9.1%, and the third four-week segment grew at plus 9.6%. We feel very good about how we are performing as we head into Q4. 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 to customer and delivery services. These initiatives are delivering share gains and give us confidence as we move into the summer months.
Phil Daniele
Both the year-over-year inflation on a like-for-like same-sku basis for our commercial business and our average ticket growth were similar to DIY, north of 7% for sku inflation and 6% for ticket average. Our average transaction growth was 2% for the quarter and similar to last quarter. We believe that there are opportunities to grow market share and accelerate transaction growth with both smaller up-and-down the street customers and national accounts, as we are significantly under-penetrated in commercial and we are gaining share. Adding a little more color, both up-and-down the street customers and national accounts grew double digits. Let me take a moment to discuss our international business. Across Mexico and Brazil, we now have 1,090 international stores. As I mentioned, our same-store sales growth grew plus 1.6 on a constant currency basis, driven by a continued soft macro environment.
Phil Daniele
For Q4, we are expecting same-store sales to be in a similar range as Q3. While these economies have slowed, we are continuing to grow share. When these economies improve, we expect our sales to re-accelerate as we continue to invest in stores and distribution centers. Today, approximately 14% of our total store base is outside of the U.S., and we expect this number to grow as we continue our international store build-out. We have confidence in our international markets as their returns on capital, even with slower sales growth, are strong. In summary, we have continued to invest capital in driving traffic and sales growth. While there will always be tailwinds and headwinds in any quarter's results, what has been consistent is our focus on driving sustainable long-term results.
Phil Daniele
We continue to focus on flawless execution, improving product assortments in stores and online, and driving efficiency in our supply chain. All of these efforts position us well for future growth. We are committed to investing both CapEx and operating expense to capitalize on these opportunities. This year, we are investing nearly $1.6 billion in CapEx to drive our strategic growth priorities, and we expect to invest a similar amount next year. The majority of our investments are in accelerated store growth, including hubs and Mega Hubs, which place more inventory closer to our customers and are reducing time to serve for both DIY and commercial customers. The performance of our accelerated store investments are better than our original forecasts, which allow us to achieve our return goals sooner. We are laser-focused on generating the returns you expect from Auto
Phil Daniele
Lastly, we will continue to invest in technology to improve our customer service model and our Auto
Jamere Jackson
Thanks, Phil, and good morning, everyone. Our operating results remained strong for the quarter and were highlighted by solid top-line revenue. Total sales were $4.8 billion and were up 8.4% versus Q3 of last year. This is the largest increase we've had in over three years and reflects our focus on accelerating growth. Our domestic same-store sales grew 4.1%, and our international comp was up 1.6% on a constant currency basis. Total company EBIT was up 6.6%, and our EPS was up 7.7%. Excluding our non-cash $20 million LIFO charge in this year's quarter and the $16 million LIFO credit in last year's quarter, EBIT would have grown 11% and our EPS would have grown 12.5%. Foreign exchange rates positively impacted our results for the quarter.
Jamere Jackson
For Mexico, the peso strengthened almost 13% against the US dollar versus last year's Q3, resulting in a $74 million tailwind to sales, a $20 million tailwind to EBIT, and an $0.83 a share benefit to EPS. We continue to be proud of our results as the efforts of the Auto
Jamere Jackson
This quarter, we opened 46 net new programs. We finished with 6,356 total programs, and we have our commercial program in 94% of our domestic stores. Our commercial acceleration initiatives are continuing to deliver strong results as we grow share by winning new business and increasing our share of wallet with existing customers. Mega Hub stores remain a key component of our current and future commercial growth. We opened 14 Mega Hubs in the quarter, and we now have 156 Mega Hub stores. We expect to open approximately 15 Mega Hub locations in the fourth quarter, which will bring our FY 2026 totals to 38. As a reminder, our Mega Hubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the store box, as well as serve as an expanded assortment source for other stores.
Jamere Jackson
The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business as these larger stores give our customers access to thousands of additional parts across the market. While I mentioned a moment ago that our average commercial weekly sales per program grew 4.5%, the 156 Mega Hubs continue to drive growth at an even faster clip. We continue to target having approximately 300 Mega Hubs at full build-out and expect to open at least 40 in FY 2027. Our customers are excited by our commercial offering as we've deployed more parts in local markets closer to the customer while improving our service levels. On the domestic retail side of our business, our DIY comp was up 2.2% for the quarter. Our DIY share has remained strong behind our growth initiatives, and we're well-positioned for future growth.
Jamere Jackson
Importantly, the market is experiencing a growing and aging car park and a challenging new and used car sales market for our customers, which continues to provide a tailwind for our business. These dynamics, ticket growth initiatives, and macro car park tailwinds, we believe, will continue to drive a resilient DIY business environment for the remainder of FY 2026. Now, I'll say a few words regarding our international business. We continue to be pleased with the progress we're making in our international markets. During the quarter, we opened 20 new stores in Mexico to finish with 933 stores and five new stores in Brazil, ending with 157. Our same-store sales grew 1.6% on a constant currency basis and 16.6% on an unadjusted basis.
Jamere Jackson
While sales growth has slowed over the last few quarters in Mexico due to the slower economic growth in the country, we have continued to manage our P&L appropriately in this environment. We're also continuing to grow share, and we're well-positioned when the economy improves. We remain committed to investing in international expansion, and as we accelerate the store opening pace, we're pleased with our results versus our forecast in these markets. As we look ahead, we're bullish on international being an attractive and meaningful contributor to Auto
Jamere Jackson
Excluding the LIFO comparison, gross margins were up 20 basis points versus last year as we offset a significant rate headwind from the mix shift to a faster-growing commercial business. As I mentioned, we had a $20 million non-cash LIFO charge in Q3 and a year-to-date total of $177 million. We're planning a LIFO charge of approximately $30 million for the fourth quarter as we're continuing to experience higher costs that impact our LIFO layers. The $207 million in LIFO charges that we expect for FY 2026 compares to $64 million last year. Moving on to operating expenses. Our expenses are up 7.6% versus Q3 last year as SG&A as a percentage of sales leveraged 25 basis points, driven by strong top-line sales growth and solid expense management. On a per store basis, our SG&A was up 3% compared to last quarter's 4% increase.
Jamere Jackson
We would expect the SG&A per store and total growth to be in a similar range in the fourth quarter. For Q4, we expect to open approximately 160 stores globally versus 141 last year. For the full year, we expect to open approximately 365 stores versus 305 new stores opened in FY 2025. We remain committed to being disciplined on SG&A growth, we'll manage expenses in line with sales growth over time. Moving to the rest of the P&L, EBIT for the quarter was $924 million, up 6.6% versus the prior year. As I previously mentioned, the non-cash LIFO charge reduced our EBIT by $20 million. Adjusting for the unfavorable LIFO comparison, our EBIT would have been up 11% versus the prior year.
Jamere Jackson
Interest expense for the quarter was $110 million, flat with a year ago as our debt outstanding at the end of the quarter was essentially flat versus a year ago. We're planning interest at $152 million for the fourth quarter of FY 2026 versus $148 million last year. For the quarter, our tax rate was 21.1%, up from last year's third quarter of 19.4%. Excluding the benefit from stock option exercises, our tax rate for the quarter was 21.6% versus 22.4% last year. This quarter, the rate benefited approximately $4 million from stock options exercised versus a $23 million benefit last year. For Q4, we suggest investors model us at approximately 22% all in. Moving to net income and EPS, net income for the quarter was $641 million, up 5.4% versus last year. Our diluted share count of 16.9 million was 2.1% lower than last year's third quarter.
Jamere Jackson
The combination of higher net income and lower share count drove earnings per share for the quarter to $38.07, up 7.7% versus last year. As a reminder, LIFO drove our EPS down $0.91 a share. Let me spend a moment on our free cash flow. For the third quarter, we generated $455 million in free cash flow versus $423 million in Q3 last year. Year to date, we've generated $1.1 billion in free cash flow. Going forward, we expect to continue being an incredibly strong cash flow generator, and we remain committed to returning meaningful amounts of cash to our shareholders. Regarding our balance sheet, our liquidity position remains very strong, and our leverage ratio finished at 2.5 times EBITDA.
Jamere Jackson
Our inventory per store was up 6% versus Q3 last year, while total inventory increased 10.8% over the same period last year, driven by new stores, additional inventory investment to support our growth initiatives, and inflation. Net inventory, defined as merchandise inventory less accounts payable on a per store basis, was a -$107,000 versus a -$142,000 last year and -$105,000 last quarter. As a result, accounts payable as a percentage of inventory finished the quarter at 111.1% versus last year's Q3 of 115.6%. Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $586 million of Auto
Jamere Jackson
We've bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998 while investing in our existing assets and growing our business. We remain committed to this disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders. To wrap up, we remain committed to driving long-term shareholder value by investing in our growth initiatives, driving robust earnings and cash, and returning excess cash to our shareholders. Our strategy continues to work as we remain focused on gaining market share and improving our competitive positioning in a disciplined way. As we look forward to the remainder of FY 2026, we're bullish on our growth prospects behind a domestic commercial business that is growing share in a meaningful way.
Jamere Jackson
We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders. Before handing the call back to Phil, I want to remind you that we report revenue comps on a constant currency basis to reflect our operating performance. We generally don't take on transactional risk. Our results primarily reflect the translation impact for reporting purposes. As mentioned earlier in the quarter, foreign currency resulted in a tailwind to revenue and EPS. If yesterday's spot rates held for Q4, we expect an approximate $62 million benefit to revenue, a $19 million benefit to EBIT, and a $0.78 a share benefit to EPS. Lastly, in Q4, we expect LIFO to reduce EBIT by approximately $30 million, impact our gross margin rate negatively by 45 basis points, and our EPS by approximately $1.40 a share. Now I'll turn it back to Phil.
Phil Daniele
Thank you, Jamere. To wrap up this morning, I want to stress that we are on track for delivering our objectives for fiscal 2026. While we continue to invest in our business, we remain committed to flawless execution and appropriately spending our capital to drive growth and efficiency. We feel we are well positioned to grow both our domestic do-it-yourself business as well as our commercial sales. We also feel that our international same-store sales on a constant currency basis will improve, but we remain cautious for this upcoming fourth quarter as the consumers in our international markets remain under pressure. We also expect to manage our gross margins effectively while growing our operating expenses in line with accelerated store opening assumptions. Finally, I want to reiterate that we are putting our capital to work where it will have the biggest impact on sales and profitability.
Phil Daniele
Our Auto
Operator
Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. We do ask to please limit yourself to two questions. If you have any additional questions, you may reenter the queue by pressing star one. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question for today is from Bret Jordan with Jefferies.
Bret Jordan
Hey, good morning, guys.
Phil Daniele
Morning, Bret.
Jamere Jackson
Morning, Bret.
Bret Jordan
Could you refresh us on how you see same SKU inflation in the second half of 2026, and obviously some concerns around supply chain and lubricants? Are there drivers that might push it up more than expected?
Phil Daniele
Yeah. It's a great question. As we mentioned a minute ago, we think the inflation rates and ticket average rates will probably be a little more muted than they were in Q3, in that probably 4% range. We still think that inflation on a same SKU basis will continue into Q4. The issue around lubricants, I know there's a lot of noise out there. We're going to leave that up to the oil specialists to really say what that means. We think there's probably going to be some constraints, but we don't think that it's going to be that material.
Bret Jordan
Okay. I guess one of your peers seems to be cutting back on national account business a little bit. Is that something that you're seeing a lot of incremental opportunity in, and could you remind us maybe sort of the profit spread between national accounts and up and down the street?
Phil Daniele
Yeah. We're under-shared in commercial in total. That's both in national accounts, what we call up and down the street, and many other segments that we compete in. The national account business is growing pretty strong for us, as well as the up and down the street consumer. We like both of those segments, and we think we have opportunities to grow share in both of them. Yeah, there's a little bit of a spread between the two, but both of those are great businesses, and we think there's opportunity for us to gain share in both of them. Like I said, both of them last quarter grew double digits.
Bret Jordan
Great. Thank you.
Operator
Your next question is from Steven
Steven Zaccone
Great. Good morning. Thanks very much for taking my question. I wanted to drill down on your expectations for fourth quarter same store sales. Obviously, there was some weather impact here at the end of the third quarter. Just help us understand, have you seen an improvement now as we've gotten later into May? How do we think about your expectations for the fourth quarter there, specifically on the domestic side?
Phil Daniele
There's not a whole lot of change from what we just talked about. We generally release our numbers so soon as our quarter ended. I would say that May has been a little bit cooler, but I think we're expecting a normal, if not hotter than normal summer based on the prognostication of all the weather geniuses out there. I don't think that's what we are, but we're expecting a normal summer. I'll go back to what we've talked about. We think our initiatives are strong and they're the right initiatives for us. We think our execution is great and improving day in and day out.
Phil Daniele
We opened up a lot of new stores, and this past quarter, we opened up 14 additional Mega Hubs, which help us out significantly both on the commercial side and on the DIY side, and we're going to open another 14 or so Mega Hubs this next quarter. I think we're expecting to have a pretty normal increase in our summer months to volume, and that should bode well for us.
Steven Zaccone
Okay. Thanks for that detail. The follow up I had is just on the gross margin side. Obviously, continue to be strong on the core gross margin lines. How should we expect that to perform in the fourth quarter?
Jamere Jackson
Yeah. We've continued to perform very well from a gross margin standpoint. In this quarter, we had probably 42 basis points of gross margin improvements that offset a commercial mix drag of about 22 basis points. We saw positive merchandise margins, our shrink's improving, our supply chain productivity is improving. We're expecting to have a pretty solid fourth quarter as well with similar kinds of dynamics. I will say that the growth rates that we're expecting from commercial, relative to DIY, will put a little bit more of a mix drag on. We're working very hard to offset as much of that as we can with other margin improvements.
Steven Zaccone
Okay. Thanks for the detail. Hopefully the weather geniuses are right about summer.
Operator
Your next question for today is from Christopher Horvers with JPMorgan.
Christopher Horvers
Thanks. Good morning, guys.
Phil Daniele
Morning.
Christopher Horvers
As you step back, you had stimulus, you had what was one of probably the best winters since 2014, appreciative that, and you had these big inflation numbers. Is there anything that you look at underneath the covers to say there's an impact from energy prices and that's being more of the issue than the near term weather dynamics? As you think about the back half of the calendar year, it looks like you're sitting at around a 4% leverage point. What can you do to control the expenses to the extent that there is something, more weakness going on the DIY side of the business, especially as you lose those inflation tailwinds?
Phil Daniele
I would say, I think you're right to call out that we had a pretty normal or good winter. As we mentioned, our results across the company were stronger out West and in the Midwest and the Northeast, which that's kind of an indication. We see it in the categories. That's an indication that we got the winter that we would've liked, and that has historically been good for us through the summer months in those categories, undercar categories, brakes, et cetera. We're expecting a normal, if not hotter than normal summer. Those all bode pretty well for us. Again, I'll go back to what we think we're doing, which is we're opening up really productive new stores.
Phil Daniele
Our stores that have been in place with the support of Mega Hubs and Hubs and our improved performance across both DIY and commercial customer service are helping us across the board. We're gaining share on both sides of our business, and we think that that's going to continue.
Jamere Jackson
Yeah, I'd just say on the cost front, we're continuing to manage the business with discipline. In addition to growing very strong on the top line, we're focused on expense management in the middle. We continue to invest in our new stores and maintaining high levels of customer service. We're also continuing to drive productivity initiatives inside the company. We expect those dynamics to continue into the fourth quarter and into the back half. As the comps move associated with what we see in the market dynamics, we're anticipating that we'll manage our SG&A accordingly.
Christopher Horvers
Jumping back to the inflation side, you do import more than some of your peers, especially with the private label penetration that you have. One of your peers talked about some of their vendors talking about increases related to energy prices and resin. You also have the steel tariffs. Are you seeing those price pressures now? Why wouldn't the inflation outlook be better in the back half of the calendar year versus maybe what you thought three and six months ago?
Phil Daniele
Yeah, I think there could be additional costs that are coming in on various fronts. At the end of the day, those tariffs that are on steel and automotive parts have been in place for quite some time. The inflation ramp that we saw started last year in what would be our Q4, which is the timeframe that we're entering. Yes, I think some of the costs from tariffs, et cetera, are still coming in as we cycle through that inventory. There will be some increase in inflation, but it will be slightly muted because we're now lapping some of the higher inflation rates from last year.
Jamere Jackson
Yeah, I would characterize it as this is a pretty fluid situation as it relates to energy and oil in particular. It's going to impact suppliers and retailers differently. What I'll say about us is that we're managing the situation with our suppliers and with our customers, and we expect the environment to continue to be inflationary. The extent to which we'll learn as we move forward, and we'll manage the business accordingly in terms of what we do with pricing, and we'll be very transparent about what we're seeing in our tickets.
Christopher Horvers
Understood. Have a great summer.
Phil Daniele
Thank you.
Operator
Your next question is from Brian Nagel with Oppenheimer.
Brian Nagel
Hey, guys. Good morning.
Phil Daniele
Good morning, Brian.
Brian Nagel
The first question I want to ask, as we look at the ongoing rollout of your Mega Hubs, I guess. Maybe a couple questions within this. One, we talk about the latest Mega Hubs you're opening, the incremental performance of those. How are those performing versus some of the maybe latest in Mega Hubs? You have competitors out there now talking about a similar strategy. They may even be using similar terms. I guess as you're rolling out and continue to expand your Mega Hub effort, are you seeing any type of competitive headwind there as others, some say, emulate the strategy?
Jamere Jackson
Yeah, I would say that we've got a very robust pipeline for Mega Hubs. We have over 100 Mega Hubs currently in the pipeline today. We talked openly about our plan to get to nearly 300 Mega Hubs near term. Quite frankly, as our commercial business continues to grow, there's a very distinct possibility that we'd even exceed that number. They're continuing to outperform our expectations. The combination of the demand for parts in the marketplace, the customer's desire for us to have those parts closer to the customer so that we can provide a better service level is really what's fueling our strategy. While the competitive dynamics are such that others are sort of mirroring that strategy, we think that our strategy is being executed appropriately, and it has not been muted or impacted at all by what others are doing in the marketplace.
Phil Daniele
Frankly, those Hubs and Mega Hubs continue to perform year-over-year. We really like the productivity of those boxes, and that inventory and the assets we can put around there to help energize that inventory in those Hubs and Mega Hubs continues to be more productive as we find more and innovative ways to get that product to the customer, both DIY and commercial, faster and faster.
Brian Nagel
That's very helpful. I appreciate all the points there. My follow-up question, maybe not a totally fair one, just look at the sales performance through the quarter, in which you called out the slower trend later in the fiscal quarter. It makes a lot of sense that the weather impacted that. As you look at the data, what gives you confidence that it was indeed cooler weather versus some type of scaling off, if you will, on the tax refund benefit?
Phil Daniele
Yeah. It's pretty clear when you look at the categories, you can see it. Like I said, air conditioning is a great example. It's just been cool in May, significantly cooler than last year, and it's been relatively wet. That will change, and we will expect those categories to respond accordingly. If you look at where it's been cool and where it's been wet, you can see a direct correlation to the category comps year-over-year and the trend changes. Again, we believe that is going to change pretty rapidly here as we move into the summer months. Everything that you look at from the weather prognosticators is going to say that this is going to be a pretty hot summer, and that should bode very well for us. I'd say we're well prepared for it, too. We're in great shape.
Brian Nagel
Much appreciated. Thank you.
Operator
Your next question for today is from Seth Sigman with Barclays.
Seth Sigman
Hey, guys. Good morning. Thanks for taking the question. I wanted to ask about expenses, which have come in a little bit lower over the last two quarters versus the elevated plan that you had laid out last, I think it was Q4. The question is, are you investing at a slower pace, or are there just more offsets than you anticipated? I'm just trying to think about whether SG&A will have to re-accelerate at some point, or are we really past the worst? Thank you.
Jamere Jackson
Yeah, we don't anticipate a re-acceleration in SG&A. The big driver in the early part of the year was lapping the load in of new stores that we had in the back half of last year, which did put a couple points of pressure on our SG&A growth rates. As we move through the year, we've got a more normalized year-over-year comparison, now you're seeing us have SG&A and SG&A per store in line with what we've done historically. The other dynamic I'll say is that we're continuing to work productivity very hard inside the company like we always have. It's a muscle that, even as we've been growing our business, we've continued to focus on opportunities to drive productivity and efficiencies really across all of our functional areas. The teams are doing a really good job.
Jamere Jackson
We've got a pretty robust playbook of cost and expense initiatives, and that's helping us manage SG&A in a meaningful way and have good cost management as we move forward.
Seth Sigman
Okay, perfect. Thank you. My follow-up question is on inflation and the expectation that it will moderate in Q4 and into next year. I guess it was asked a couple different ways, but I'm just trying to think about some of the offsets, whether it's transactions or maybe mix accelerating. How do you think about these drivers? Has mix been a meaningful negative over the last 12 months? How do you see that improving maybe to help offset less inflation? Thank you.
Phil Daniele
Our mix has been relatively stable. We look at our mix between what we call discretionary, maintenance, and failure, and the maintenance and failure businesses over quite a while have been relatively stable as a % of sales. They'll move around a little bit, but relatively stable. It's kind of the beauty of this industry is it's pretty inelastic. Most of it's break, fix, and you've got maintenance that has to be done. Consumers can defer it for some period of time, but if they do that, then they have a larger failure, which costs more money. Those numbers have been pretty flat. Not a lot of shifts between them, and we think that's probably going to continue.
Seth Sigman
Okay. Thanks, guys.
Operator
Your next question is from Michael Lasser with UBS.
Michael Lasser
Good morning. Thank you so much for taking my question.
Phil Daniele
Good morning, Michael.
Michael Lasser
Good morning. When we look at the performance of Auto
Phil Daniele
Great question, Michael. I think the way we look at it is we have an opportunity to gain share both on the DIY side of our business and on the commercial side of the business. Our execution is improved. Our assortments are improving. As Jamere mentioned, we're only about halfway through our hub and Mega Hub expansion strategy. Those will help us both on the DIY side of the business and the commercial side of the business. Our execution continues to improve, and we have strategies that will help our execution improve even more. We look at things from an execution perspective, our turnover in stores is back down to historic levels, historically low levels. Our supply chains are gaining efficiency. We're getting better service to our commercial customers out of our hubs and our Mega Hubs and our satellite stores.
Phil Daniele
We continue to improve on our delivery times. All of those things point to better execution, and we think the opportunity to gain share, specifically on the commercial side, where we're still roughly 5% of the market share opportunity that's out there. We think we have pretty good opportunities on both sides of the business.
Jamere Jackson
I think the thing that I'll really amplify from your comments, Michael, is the fact that if you look at a lot of our near-end competitors have a much higher mix on the commercial side of the business. Right now, our domestic commercial business is about 34% of our mix, which is why we're so focused on growing the commercial business. It is growing faster. We've got a significant number of opportunities there. We've continued to double down on hubs and Mega Hubs. We've doubled down on assortment.
Jamere Jackson
We've doubled down on the quality of our Duralast brand, putting a professional sales force in the field. It is why it is our number 1 growth priority. As you look at that performance that you're seeing amongst the competitive set, that difference in the mix is why we're so focused on what we're focused on from a commercial standpoint. That strategy is working. Phil mentioned the fact that we're growing double digits with both national accounts and up and down the street customers. That is a meaningful progress for us moving forward, and we're pretty excited about what it means for us as we move through the fourth quarter and next year.
Michael Lasser
Understood. Thank you very much. My quick follow-up question is, the message that you've been offering for some time now is you're pulling a lot of capital to make this a faster-growing top-line business, which then in turn can drive equal to or better EPS growth over time. In light of the last couple of quarters where there's been a weather disruption to the comp that's created a little bit of noise, are you still of the view that this can be a faster top-line growth story over time? If there is something that interrupts that, do you have the ability to flex your SG&A, I think there was a mention of that earlier in the conversation, to sustain the EPS growth under a variety of scenarios for your same-store sales growth? Thank you.
Phil Daniele
I think, Michael, to that point, our SG&A control has been a strength of this company for a very long period of time. Obviously, the SG&A that goes along with a new store opening or something of that nature is once you start the investment in the store, that's going to materialize. We've always had the ability to manage our SG&A, payroll expenses related to sales growth and that sort of thing very well for a long period of time. I think as we showed this past quarter, we continue to be able to do that. As we look at these investments that we're making, as we said in our prepared remarks, the performance that we placed on our stores when we originally approved them are fairly conservative, and we're outperforming those performance. The stores are indexing higher than we initially said.
Phil Daniele
Our commercial programs are continuing to perform slightly better than we would have thought. We think all of that will help us produce those returns at a faster rate over time.
Michael Lasser
Very helpful. Thank you so much. Good luck.
Phil Daniele
Thank you, Michael.
Operator
Your next question for today is from Simeon Gutman with Morgan Stanley.
Sally Tennant
Hi, good morning. This is Sally Tennant on for Simeon Gutman. Thank you for taking our question. Is it reasonable for us to assume that with new stores and the maturation curve, a sustainable level of comp growth would be around that 4% plus level into the future?
Jamere Jackson
Yeah, I think if you look at where we've been historically and you look at what the new store load in actually looks like, particularly as we get to 300 new stores domestically, you're going to get a much bigger comp waterfall from those new stores than we have historically. In that 4%
Sally Tennant
Great. Thank you. Then zooming in on FY 2027, given some of the inflationary trends and that maturation curve, can we assume comps get to a level closer to 5% by then? Thank you.
Jamere Jackson
Obviously, we don't guide in that manner, but I think qualitatively what we'll say is that we're expecting continued progress in terms of growing our domestic commercial business. We've got a very resilient DIY business. At some point, we will have a snapback or a rebound of our international business. You should see our business growing faster. You combine that with, as you mentioned a little bit earlier, you combine that with the fact that we're continuing to drive new store growth that's above our historical average and the fact that they're performing better than they have historically. That sets us up very nicely for a very strong FY 2027. We'll talk a little bit more about that as we get to our fourth quarter call.
Sally Tennant
Great. Thank you and good luck.
Operator
Your next question is from Kate McShane with Goldman Sachs.
Kate McShane
Hi, good morning. Thanks for taking our questions. We wanted to ask about some of the dynamic between the national account and up and down the street. Could you just remind us what the growth margin headwind there is as you pursue the national accounts versus up and down the street? Then second to that, within SG&A, can you talk about the SG&A investment needed to pursue national accounts versus the up and down the street customers? We just wondered how the return would compare.
Jamere Jackson
On the SG&A front, there's really no difference in terms of how we manage the SG&A for national accounts versus up and down the street customers. We have a very efficient sales force. We have a very efficient operations team that is sort of managing that business within the construct of where we are. There's not a meaningful difference in terms of where we are on the SG&A front. From a gross margin standpoint, what we've said is that the national account business is always very competitive. They're our most sophisticated customer set out there. They have scale that you would expect them to want to negotiate things like pricing and service levels, and we've done that and still been able to earn very good returns on that business. We do like the national account business, as Phil said.
Jamere Jackson
We like the margin profile associated with the national account business. The most important point to all of that is that we're under-penetrated. We're under-penetrated with national accounts. We're under-penetrated with up and down the street customers. This is an opportunity for us to grow our business in a meaningful way.
Kate McShane
Thank you.
Operator
Your next question for today is from Scot Ciccarelli with Truist.
Scot Ciccarelli
Good morning, guys. I guess the question is,
Phil Daniele
Good morning.
Scot Ciccarelli
If same-store inflation steps down by, call it 250-300 basis points in your fiscal fourth quarter, why wouldn't your domestic comp growth slow down by a similar amount? I know you're going to gain share over time, but at least in the near term, is that the way people should be thinking about from a modeling perspective?
Jamere Jackson
I think you got a couple of dynamics there. We're lapping the same-store inflation that was caused by tariffs in the fourth quarter of last year. You've also had other inflationary impacts that have impacted the business at the same time. The big reason for the step down isn't that there's something dramatically happening different in the market. It's just that you're lapping that big step up that we had in the fourth quarter of last year. I think when we look at the business overall, here are the things that we like. We like the fact that our commercial business is growing, and it's going to grow not just from ticket, but it's going to grow from transactions. We like the progress that we're making with our DIY shares. We've also seen traffic be down in the mid threes over the last couple of quarters or so.
Jamere Jackson
As we continue to gain share and as the uncertainty associated with the consumer in some instances has impacted things like discretionary categories, there's an opportunity to grow transactions as well. I wouldn't have a direct read-through that says that the lapping of the inflation sort of craters comps. There are lots of things that are driving our comp expectations as we move forward.
Phil Daniele
I agree with that. I think to that point, again, we continue to gain share, and we have really low share on the commercial side of the business, and we think all that sets up well for us. We're working very hard with our initiatives, both on the DIY side and the commercial side of the business, to continue to gain share. We think we can overcome that.
Scot Ciccarelli
That's helpful. What is the comp waterfall contribution today, just so we can better understand how the go-forward contribution might be? Thanks.
Jamere Jackson
Yeah, we haven't shared it specifically, obviously, it varies based on the mix of stores. Very simply, we get outsized comps associated with the new stores. As we've accelerated that new stores going from, for example, in the domestic side of our business, from 150 to 200 plus, and you're getting more of a contribution from those new stores than we have historically. I think as we think about our business going forward, the combination of those new stores and what you naturally get in terms of comp acceleration and the fact that we're growing market share is what gives us the confidence around comp acceleration as we move forward. To be clear, this is the real reason for the strategy that we had associated with accelerating the new stores. We saw a market share opportunity.
Jamere Jackson
We saw an improvement in the unit economics because our commercial business is growing. That's going to ultimately result in faster-growing comps for us. We've got a lot of confidence in that strategy, and we're executing on it. We're about halfway through to where we said we'd be in FY 2028, and the performance has been exceeding our expectations.
Scot Ciccarelli
Great. Thanks, guys.
Phil Daniele
Thank you.
Operator
Your next question is from Michael Baker with D.A. Davidson.
Michael Baker
Okay, thanks. A couple of follow-ups. I guess, you said that the new store performance is better than expected, and I think you said on the commercial side, but anything else driving that better performance in those stores? Talk about please the DIY side and also expenses, which I think as some alluded to, have been coming in better than expected.
Phil Daniele
Yeah, I would say that, and I'll let Jamere speak on the new stores, too, but they're performing better on commercial and DIY. When we approve a store, we set up a pro forma. We look at both the DIY performance and what we expect the commercial performance, and we index against both of those. In total, these stores are performing better on both the DIY side and the commercial side than when those stores were originally approved. That pro forma and index takes into account SG&A per store, et cetera. We like the performance. We're pretty conservative in those approvals. All the initiatives that we have in place around
Phil Daniele
Like Jamere just mentioned a minute ago, hub performance, Mega Hub performance, in-store productivity initiatives, sales initiatives, commercial initiatives, all help per box performance. We like the initiatives that we have in place, and we think they will continue to make us a stronger business in the future.
Michael Baker
Got it. Okay, makes sense. Then again, just to follow up, again, it's been asked a couple of times, but maybe I'll ask it another way. I think the easy perception here is that as you start to cycle the inflation from last year, comps will slow. Just to be sure we have the right message, you don't necessarily think comps slow. This is domestic comps I'm talking about. You don't necessarily think domestic comps slow as you lap that inflation because of the comp waterfall and share gains. Is that the right interpretation? Is that the right message? Thanks.
Phil Daniele
Yes, I think that's right. Obviously, the inflation becomes a little more muted, but we think that the initiatives we have in place will help us overcome a lot of that as we move forward. That's correct.
Michael Baker
Thank you for clarifying.
Phil Daniele
Thank you. I think we have time for just one more call.
Operator
Your next question is from
Zach Fadem
Hey, good morning, and thanks for fitting me in. First, could you talk about the performance of the 35, 40 new Mega Hubs today and how this cohort of Mega Hubs compares to historical openings in terms of per store sales, returns, comp lift for nearby stores, et cetera?
Jamere Jackson
Yeah, I think two things are driving that performance. The first thing that's driving that performance is, again, we've got a much stronger commercial business than we have had historically. As we put those Mega Hubs in the marketplace, the strength of our commercial business allows those Mega Hubs to come out of the gate much hotter than the ones that we put in historically. That's first and foremost. I think the second thing is how we utilize those Mega Hubs, where we're using those Mega Hubs to go more direct to our customers than we have in the past, as opposed to having them be primarily focused on a fulfillment source for some of the other stores. The utilization of the Mega Hubs and the fact that we've got a stronger commercial business are the key drivers there.
Jamere Jackson
If you just look at the market dynamics that we see today, parts proliferation, aging vehicles, propensity for DIFM business, those are all demand drivers, if you will, for adding more parts in the local market. If we can do that with the right assortments and we can get the parts to the customer faster, then that's a winning formula for us, and we've refilled and rebuilt the pipeline, and we're pretty excited about what it means for us in the future.
Phil Daniele
Yeah. The only thing I'd add to that is we've had these hubs and Mega Hubs in place for so long, we've had the ability to iterate on them several times, and we keep finding the biggest asset in there is obviously the inventory and how we get that inventory faster to a customer, shortening time to serve for both the DIY customer and the commercial customer, and also online with things like next day delivery, et cetera. We continue to find ways to keep energizing that inventory, and we're not done with that process. We still think there's opportunities there.
Zach Fadem
Got it. Then you mentioned share gains and comp waterfall as future drivers. If we take your DIY comp minus inflation, it looks like the volumes in that business started to decelerate as same SKU inflation ramped up. As you think about the current deferral cycle that we're in as a result of inflation, do you think it's fair to assume that DIY volumes could improve simply because we're lapping that initial deferral, which would start, I think, in Q4?
Jamere Jackson
Yeah, that's certainly a piece of it. The way that we see it in terms of the results is that the transaction counts did come down more than they have historically. We typically have seen sort of low single-digit declines in transaction counts. There's not been very many periods where we've seen those transaction counts be down with a free handle in multiple quarters. As we move forward, there's an opportunity for us to see some improvement in transactions and traffic, and that will certainly help us from a comp standpoint.
Zach Fadem
Thanks for the time.
Operator
We have reached the end of the question and answer session, and I will now turn the call over to Phil Daniele for closing remarks.
Phil Daniele
Thank you. Before we conclude the call, I want to take a moment to reiterate that we have a great business and a strong industry. We are excited about our growth prospects over the summer months of our fourth quarter. We will take nothing for granted as we understand our customers have alternatives. We have exciting plans that will help us succeed in the future. 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 Auto
Operator
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Transcript from May 26, 2026
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