Greetings. Welcome to the AutoZone's 2024 Q2 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. Before we begin, the company would like to announce the following forward-looking statement. Before we begin, please note that today's call includes forward-looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance. Please refer to this morning's press release and the company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission for a discussion of important risks and uncertainties that could cause actual results to differ materially from expectations. Forward-looking statements speak only as of the date made, and the company undertakes no obligation to update such statements. Today's call will also include certain non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our press release. Good morning. It is. And thank you. Sorry for speaking over top of you, Holly. No worries. Good morning, and thank you for joining us today for AutoZone's 2024 Q2 conference call. With me today are Jamere Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer, Investor Relations, and Tax. Regarding the Q2, I hope you had an opportunity to read our press release and learn about the quarter's results. If not, the press release, along with the slides complementing our comments today, are available on our website at www.autozone.com under the Investor Relations link. Please click on the quarterly earnings conference call to see them. As we begin this morning, I'd like to say how honored I am to talk with you on behalf of our more than 120,000 AutoZoners. As today marks my first conference call as AutoZone's President and Chief Executive Officer. At AutoZone, our first priority is to provide what we call wow customer service. This quarter, the efforts of our AutoZoners increased our total sales by 4.6% and total company same-store sales by 1.5% on a constant currency basis. Both our operating profit and earnings per share grew by very impressive double-digit rates. We continue to build on the phenomenal performance we had over the last several years. Congratulations to our AutoZoners everywhere who helped us achieve this amazing growth. Before I begin my comments regarding our Q2 sales, as a reminder, this is always our most volatile quarter to predict as the timing and severity of winter weather is both meaningful and variable. It is also our lowest sales volume quarter. This year, the Christmas and New Year's Day holidays fell on a Monday compared to Sunday last year. For commercial sales, this really mattered. Sunday is a very low sales day while Monday is one of the best. While weather across the US was very mild for the first 8 weeks of the quarter, we experienced a Polar vortex and snow in the last 4 weeks. This extreme weather helped to propel us to stronger results in DIY but muted our sales in commercial as snow in much of the Eastern United States stayed on the ground for an extended period of time. Again, weather extremes, either hot or cold, drive hard part failures and accelerate maintenance over time. For the Q2, our total company same-store sales were 1.5% on a constant currency basis. As international has become a more important part of our growth story in an area where we are increasingly deploying capital, we will continue reporting on our international performance. We encourage you to focus on the same-store sales constant currency number where international, again, had a strong quarter up 10.6%. We are very excited about the short and long-term growth prospects internationally, and we plan to accelerate new store openings over the next several years. Our domestic same-store sales were up 0.3% this quarter compared to 1.2% last quarter and 5.3% in Q2 of last year. Breaking our 12 weeks of sales into the first 8 weeks and then the last 4 weeks, you can see the impact of the holiday shift and the weather volatility. Domestically, we ran a negative 1.8% comp across the first 8 weeks and a positive 4.4% comp in the last 4 weeks. This was even more pronounced when splitting these time frames up between commercial and DIY. Our commercial business grew 2.7% against very strong sales last year of 13.1%. Although our commercial business finished stronger than we started, our results were below our expectations. Across the 12-week quarter, we were up 4.1% for the first four weeks, then down 0.7% over the second four-week segment and up 4.4% over the last four weeks. Although better in the last four-week segment of the quarter, our sales were depressed due to the winter storm shutting down many commercial customers, particularly in the Mid-South. The holiday shift combined with weather negatively impacted our sales by roughly 2% for the quarter. Despite all this volatility in commercial sales, we are encouraged that we finished the quarter stronger. Commercial sales growth continues to be driven by the key initiatives we have been working on over time: improved satellite and store inventory availability, material improvements in hub and mega-hub coverage, the strength of the Duralast brand with an intense focus on high-quality products, and technology enhancements to make us easier to do business with. We recently launched initiatives focused on improving customer service with faster delivery times in commercial. While very early, we are encouraged by the initial results. In commercial, we continue to see higher growth rates for traffic relative to ticket. In Q2, we opened 20 net new commercial programs. We now have commercial programs in 92% of our domestic stores. Domestic commercial sales represented 30% of our domestic auto parts sales for Q2. We believe our commercial business will get stronger and growth rates will improve as we move through the year. Sales growth comparisons get easier in the back half of the year, and our execution, customer delivery times, in-stock levels, and parts availability continue to improve. Regarding domestic DIY, we had a negative 0.3% comp this quarter versus last year's comp of positive 2.7%. DIY ran 0.7% across the first four weeks of the quarter, -62% across the second four-week segment, and +48% comp over the last four weeks. The last four-week time segment was accelerated due to the winter weather. As a reminder, last year, a polar vortex hit in the second four-week segment. I'd like to add some color on our regional performance as well. The Northeast and the Midwest markets underperformed the remainder of the country by 500 basis points in the middle four-week segment, only to swing to +1,250 basis points overperformance for the last four-week segment. For the quarter, we saw a 270-basis-point favorable performance in the Northeast and the Midwest versus the remainder of the country. Although the Midwest had some extreme cold, we frankly would like to see more winter weather along the East Coast markets where the winter has been persistently mild for more than two years now. Overall, for the quarter, the West performed least favorably. Headed into the Q3, we are planning for a more normal weather pattern, meaning we feel weather will not play a big story one way or the other. Our Q3 performance is always contingent on a normalized tax refund season, and we expect this year to be similar to last year. Regarding our merchandise categories and DIY business, our sales floor categories underperformed hard parts as we saw more discretionary pullback, particularly from the low-end consumer. Regarding this quarter's traffic versus ticket growth, our DIY traffic was down 2.2% while our ticket average was up 1.7%. We expect our ticket growth will return to more normalized levels in the 2% to 4% range as we get further removed from higher inflation last year. We attribute our share gains to improved customer service levels in our store and our in-stock nearing pre-pandemic levels driven by improved productivity in our distribution centers. While we were up against exceptionally strong same-store sales from a year ago, particularly in commercial, we believe we are making progress. We've made many changes across the organization. From doubling down on many of our long-term execution processes, ensuring that we are hiring the best AutoZoners and reducing turnover, our execution is improving, and we're making steady progress. Before handing the call to Jamere, I'd like to highlight and give some color on our international business. At 859 stores opened internationally, or 12% of our total store base, the business had impressive performance last quarter and should continue to grow at a robust pace for the remainder of fiscal 2024. We are leveraging many of the learnings we have in the US to refine our offerings in our international markets. And finally, before Jamere discusses our financial results, I'd like to remind you of our overarching objectives for fiscal 2024. We are focused on growing our domestic commercial business and believe our improved service levels will lead to continued sales growth. We also continue to focus on our supply chain with two initiatives that are in flight and drive improved availability. First is our expanded hub and mega-hub rollouts. And secondly, we're making good progress on transforming our distribution network. We have two domestic distribution centers currently under construction in the US: Chowchilla, California, and New Kent, Virginia. We are also nearing the completion of our expanded Tepeji, Mexico, distribution center. Additionally, we have broken ground on a larger facility that will house our relocated Monterrey distribution center. Our strategy is focusing on leveraging the entire network to carry more inventory closer to the customer, driving sales growth with improved speed, expanded parts availability, and improved efficiency. Now I'd like to turn the call over to Jamere Jackson. Thanks, Phil, and good morning, everyone. As Phil has previously discussed, we had a solid Q2 marking our fifth sequential quarter of double-digit EPS growth. This quarter, we delivered 4.6% total company sales growth with a 0.3% domestic comp, a 10.6% international comp on a constant currency basis, a 10.9% increase in EBIT, and a 17.2% increase in EPS. We continue to deliver solid results, and the efforts of our AutoZoners in our stores and distribution centers continue to enable us to drive growth in a meaningful way. To start this morning, let me take a few moments to elaborate on the specifics in our P&L for Q2. For the quarter, total sales were $3.9 billion, up 4.6%. Let me give a little color on our sales and our growth initiatives. Starting with our domestic commercial business, our domestic DIFM sales increased 2.7% to $980 million, and we're up 15.8% on a two-year stack basis. Sales to our domestic DIFM customers represented 25% of our total company sales and 30% of our domestic auto parts sales. Our average weekly sales per program were $14,051, down 2.8% versus last year. Once again, the weekly sales averages were impacted by the addition of a significant number of immature programs over the last couple of quarters. I'll also remind you that Q1 and Q2 are our toughest comparisons this fiscal year, and we expect our year-over-year comparisons to be somewhat easier in the back half of our fiscal year. We now have our commercial program in approximately 92% of our domestic stores, which leverages our DIY infrastructure, and we're building our business with national, regional, and local accounts. This quarter, we opened 20 net new programs, finishing with 5,823 total programs. Our commercial acceleration initiatives continue to make progress as we seek to grow share by winning new business and increasing our share of wallet with existing customers. Importantly, we have a lot of runway in front of us, and we will continue to aggressively pursue growth opportunities in commercial, which we believe is our single largest growth opportunity. To support our commercial growth, we now have 101 mega-hub locations. Our Mega Hubs continue to average significantly higher sales than the balance of the commercial programs and grew more than three times the rate of our overall commercial business in Q2. Our Mega Hubs typically carry roughly 100,000 SKUs, drive tremendous sales lift inside the store box, and serve as an expanded fulfillment source for other stores. These assets are performing well individually, and the fulfillment capability for the surrounding AutoZone stores is giving our customers access to tens of thousands of additional parts and lifting the entire network. We will continue to aggressively open Mega Hubs for the foreseeable future, and we expect to have north of 200 Mega Hubs at full build-out. On the domestic retail side of our business, our comp was negative 0.3% for the quarter. As Phil mentioned, we saw traffic down 2.2%, offset by 1.7% ticket growth. As we move forward, we would expect to see slightly declining transaction counts offset by low to mid-single-digit ticket growth in line with a long-term historical trend for the business driven by changes in technology and the durability of new parts. While DIY discretionary purchases were challenging Q2, we continue to see a growing and aging car park, a challenging new and used car sales market, and a consumer that is likely to continue to invest in their existing vehicles. In addition, miles driven are back to pre-pandemic levels. As such, we believe our DIY business will remain resilient for the remainder of FY24. Now I'll say a few words regarding our international business. We continue to be pleased with the progress we're making internationally. Our same-store sales grew an impressive 23.9% on an actual basis and 10.6% on a constant currency basis. During the quarter, we opened six stores in Mexico to finish with 751 stores and four stores in Brazil, ending with 108. We remain committed to international, and given our success, we're bullish on international being an attractive and meaningful contributor to AutoZone's future growth. Now let me spend a few minutes on the rest of the P&L and gross margins. For the quarter, our gross margin was 53.9%, up 160 basis points, driven primarily by a significant improvement in our core business gross margins and 63 basis points from a non-cash $10 million LIFO charge in last year's quarter versus a $14 million LIFO credit this year. Excluding LIFO from both years, we had a very strong 97 basis points improvement in gross margin, which increased from last quarter's 70 basis point improvement. We've had exceptional gross margin improvement, and in fact, Q2's gross margin was at the highest gross margin rate we've had since Q2 of FY2021. I'll point out that we now have $43 million in cumulative LIFO charges yet to be reversed through our P&L, and we expect this credit balance to reverse over time. We're currently modeling $15 million in LIFO credits for Q3 based on the deflation experience in Q1 and Q2. This compares to the $17 million LIFO credit we had in Q3 last year, which means we'll have a $2 million net LIFO headwind in gross profit in Q3. As I've said previously, once we credit back the $43 million through the P&L, we will not take any more credits, and we will begin to rebuild an unrecorded LIFO reserve. Moving to operating expenses, our expenses were up 6.1% versus last year's Q2 as SG&A as a percentage of sales deleveraged 49 basis points. The accelerated growth in SG&A has been purposeful as we continue to invest in store payroll and IT to underpin our growth initiatives. These investments are paying dividends in customer experience, speed, and productivity. We're committed to being disciplined on SG&A growth as we move forward, and we will manage expenses in line with sales growth over time. Moving to the rest of the P&L, EBITDA for the quarter was $743 million, up 10.9% versus a prior year, driven by our positive same-store sales growth and gross margin improvements. Interest expense for the quarter was $102.6 million, up 56% from Q2 a year ago as our debt outstanding at the end of the quarter was $8.6 versus 7 billion at Q2 end last year. We're planning interest in the $105 million range for the Q3 of FY24 versus $74.3 million last year. Higher debt levels and borrowing rates across the curve are driving this increase. For the quarter, our tax rate was 19.6% and down from last year's Q2 of 21.2%. This quarter's rate benefited 360 basis points from stock options exercise, while last year had benefited 222 basis points. For the Q2 of FY24, we suggest investors model us at approximately 23.4% before any assumption on credits due to stock option exercises. Moving to net income and EPS, net income for the quarter was $515 million, up 8.1% versus last year. Our diluted share count of 17.8 million was 7.8% lower than last year's Q2. The combination of higher net income and lower share count drove earnings per share for the quarter to $28.89, up 17.2% for the quarter. Now let me talk about our free cash flow for Q2. For the Q2, we generated $179 million in free cash flow. We had higher CapEx spending this quarter versus a year ago, and we expect to spend close to $1.1 billion in CapEx this fiscal year as we complete the addition of our distribution center capacity expansion ahead of schedule. I'll also remind you that we generate a majority of our free cash flow in the back half of our fiscal year. We expect to continue to be an incredibly strong cash flow generator going forward, 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 Q2 at 2.4x EBITDA. Our inventory per store was up 1.6% versus last year, while total inventory increased 4.2% driven by new store growth. Net inventory, defined as merchandise inventories less accounts payable on a per-store basis, was a negative $164,000 versus - 227,000 last year and - 197,000 last quarter. As a result, accounts payable as a percentage of inventory finished a quarter at 119.8% versus last year's 127.7%. Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $224 million of AutoZone stock in the quarter, and at quarter end, we had just over $2.1 billion remaining under our share buyback authorization. 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 a leverage target in the 2.5x area and a disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders. So to wrap up, we remain committed to driving long-term shareholder value by investing in our growth initiatives, driving robust earnings in cash, and returning excess cash to our shareholders. We're growing our market share, expanding our margins, and improving our competitive positioning in a disciplined way. As we look forward to the remainder of FY24, we remain bullish on our initiatives to grow sales behind a resilient DIY business, a fast-growing international business, and a domestic commercial business that remains underpenetrated and should accelerate in the back half of the fiscal year. I continue to have tremendous confidence in our strategy and our ability to drive significant and ongoing value for our shareholders. Now I'll turn it back to Phil. Thank you, Jamere. I want to stress how proud I am to represent the company as only the fifth CEO over the almost 45 years we have been in business. As you've heard, we have a lot of initiatives in flight, and we have a great team of AutoZoners in place to take us to the next level. We truly believe we will continue to improve from here. We are well-positioned to grow sales across our domestic and international store bases with both our retail and commercial customers. Our gross margins are solid, and our operating expense structure is appropriate for future growth. We are putting our capital expenditures where it matters most: our stores, our distribution centers, and leveraging technology to build a superior customer experience where we are able to say yes to our customers' needs. Fiscal 2024's top priority is enhanced execution. Additionally, we have many strategic projects in various stages of completion. We will continue opening new Mega Hubs and Hubs, completing construction on the new Distribution Centers, and optimizing our new direct import facility. We are also in the early stages of ramping up our domestic and international store growth. As you noticed, our international teams posted same-store sales comps on a Constant Currency basis of 10.6%, much higher than our domestic comps. International has been strong for several years now. While I mention all these investments in FY2024, AutoZone's biggest opportunity remains growing share in our domestic commercial business. While Q2 was below our expectations, we believe we have a solid plan in place for growth over the remainder of the year. We know our focus on parts availability and wow customer service will lead to additional sales growth. We are excited about what we can accomplish, and our AutoZoners are committed to delivering results. Now I'd like to open up the call for questions. 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. You may press star two if you would like to remove your question from the queue. For participants using speak-through equipment, it may be necessary to pick up your handset before pressing the star keys. We do ask to please limit yourself to two questions. If you have any additional questions, you may re-enter the queue by pressing star one. One moment, please, while we pull for questions. Your first question for today is from Chris Horvers with JP Morgan. Good morning, Chris. Thanks. Good morning. Thanks for all the information. My first question for you is, on the domestic pro business, what's your sense of what the market's actually growing, especially in light of your mix? Obviously, your largest and most relevant competitor has a much smaller mix of national accounts, so I don't think that's obvious to us from the outside. So how are you seeing the performance of national accounts? Are you seeing that start to get better, or do we have to wait to lap that starting in June and July? And how do you think that you're growing relative to the market on the pro side? Yeah. So if you kind of segmented the business, I think an area of customer growth on the commercial side that's been more challenged has been the folks that are more focused on undercars. So think brakes, suspension, those types of areas related to the tire, one of the four corners of the car. Those have probably been the areas that have been more challenged. So for us, that's categories like brakes and suspension, which we've talked quite extensively about that over the last year. And that's probably been where we've been most challenged. But I'll go back to the growth opportunities we have in the commercial. At the end of the day, we still have pretty low share, and there's a big opportunity for us to continue to grow share in both terms of share of wallet for the customer as well as new customers. So, does that mean that—I mean, I guess if you were going to isolate more of the up-and-down-the-street account, are you seeing better relative performance? And I know you're a little reluctant to give too much detail in breaking out more detail, but any commentary on what the performance gap between a national account business versus an up-and-down-the-street account would be really helpful. Thank you. Yeah. I would say the national accounts, depending on who they are, they can be wildly positive or negative depending on if you pick up business or you mature business, etc. I probably should have mentioned another area that's been challenged for us really for the last 18 months has been the buy here, pay here segment and the used car segment. Those have been pretty challenged as well as they've struggled with inventory. They had incredible sales coming out of the pandemic, and that's probably been a pretty challenged segment as well. Got it. And then, on the you mentioned tax refunds expected to be normal this year. I mean, based on the data that we track, it does seem to be lagging year-over-year. So can you talk about what you mean in terms of the expectation on tax refunds? It would seem like it actually plays out a little more inverted where you get benefit later in this quarter versus some headwinds at the start of the quarter. Thank you. Yeah. We're effectively two weeks into our quarter, a couple of weeks into our quarter. The taxes may be pushed back a week or two, but I think over the 12-week quarter, we expect them to be pretty similar to last year, and the vast majority of the taxes should land well within our 12-week time frame. Maybe slightly moved back a little bit, but not meaningful to the quarter. We expect it to be normal. Got it. Thanks very much. Your next question is from Brett Jordan with Jefferies. Hey. Good morning, guys. Hey, Bret. Morning, Brett. I guess a question on the competitive landscape as it relates to WDs. They seem to get better after maybe 2022 into 2023. Could you talk about the up and down the street business? Is that a pretty stable competitive environment? Do they still improve, or are they sort of plateauing? Well, I'm sorry. Just to make sure I'm clear on your question. Your question's relative to the WDs or to the actual? Yeah. WD competitors. It seemed like they were raising their game for a bit after the pandemic and whether they're kind of stable where they are. Are they becoming more competitive still? Yeah. I think it's hard to tell exactly what's going on in their business, but from my sense and we see it in our business as well. The vast majority of the supply chain constraints that you had in the latter half of the pandemic have resolved themselves for the most part. We'll still continue to improve. In-stocks are not quite back to where they were previous to the pandemic. I suspect they will continue to improve slightly. And I would also think that the vast majority of the WDs that had the inventory issues in the latter half of the pandemic have probably recovered for the most part. So I think they're better, but I don't think they're going to have they're not going to materially get better over the next short period of time. I would say everybody's pretty much back to slightly lower than pre-pandemic levels. Right. And then I guess a question on international. O'Reilly's gone and acquired Vast, and it seems like there's some Carquest assets for sale up there. Is Canada a market that you'd think about or are really focused in Mexico and sort of secondarily Brazil? Yeah. I would say we have—I mean, we've got 2 markets that we're trying to expand in today, which are obviously Mexico and Brazil. And we like where we are in our international footprint. Canada's interesting. I would never say we would not look at Canada, but it does have a pretty solid competitive base up there. And we just think there's better opportunities for us at the moment in the current markets that we have. We've got plenty of expansion opportunities in both markets, and we like our performance internationally. Doesn't mean we'd never go to Canada, but it's not a focus for us at the moment. Not in 2024? No. We've got six months left in 2024. In our 2024 anyway. Thank you. Thanks, Brett. Thanks, Brett. Your next question for today is from Michael Lasser with UBS. Good morning. Thank you so much for taking my question. Do you still see an opportunity to return the commercial business back to a double-digit growth rate over time? Why or why not? Yeah, Michael, great question, and thanks for the question. At the end of the day, we have let me go back to our comment on share. We have very low share in this marketplace. I think we will improve from here. Can I tell you exactly when we're going to get back to double-digit growth? No. I would expect that we would grow faster. We have initiatives in place that we'll think we will accelerate our sales growth, particularly in the back half of this year, and it will continue. To nail a date when I think we get back to a positive double-digit number is frankly tough to do. There's a lot of variables in there. I think we'll see consistent share growth and consistent same-store sales and total growth in the commercial market for a long time to come, probably because we're better than we were as we continue to expand our hubs and Mega Hubs, improve our assortments, and take share. We see a long-term growth trajectory for the commercial side of the business. Got you. That's helpful, Phil. Thank you so much. My follow-up question is that AutoZone's gross margin has really been growing nicely for some time now, but at what point does the gross margin get too high such that it invites more competition within the sector, especially on the commercial side? Yeah. I don't think we're over-earning from a gross margin standpoint. We've been very disciplined about gross margin expansion. We've been very disciplined about pricing. And what we're actually seeing in our gross margins today is we come out of a period where we had very high freight costs. We had a supply base that was very challenged from a cost standpoint when you looked at what was happening with transportation costs, wages, and just overall inflation in general. As we've moved past those periods, it gives us an opportunity now to start to negotiate deflation with our supply base. And at the same time, as we took pricing during those higher inflationary periods, we're not giving back retails. So what you're actually seeing is sort of a natural evolution of gross margins, if you will. The other thing I'll remind you is that our supply chain was particularly challenged during this time frame. As our supply chain has improved its cost performance and its efficiencies, we're seeing some gross margin improvement from our supply chain. This industry has been very, very disciplined for decades. We'll continue to be disciplined for decades. We don't believe that we're over-earning, and it's been a very disciplined approach to gross margin expansion and growing market share over time. Thank you so much, Phil, Jamere, and Brian. Good luck. Thank you. Appreciate it. Your next question is from Scot Ciccarelli with Truist. Good morning, guys. Jamere, can I follow up on something you just said? So you're trying to negotiate deflation. So is the idea to drive down procurement costs but fully hold retails? Yeah. I mean, if you look at what's happened in this industry literally for decades, during periods where we have high inflation or even hyperinflation, we've raised retails to basically cover those additions and costs. And then as those cost pressures abate, this industry typically does not lower retails. So what you're seeing is sort of a natural progression that we've seen from a gross margin standpoint. As we're now in a period where things are becoming a little bit more deflationary, it gives us an opportunity to expand our margins, if you will. And we've been very disciplined about doing that, as has the entire industry this time period. Now, let me add another. So with. Can I add just another comment on that? I think if you go back and look at some of the gross margin pressures we had specifically in the latter half of the pandemic where the supply chain was most stressed, some of those costs that we had in logistics, either overseas or internal in the US, not all of those costs got pushed onto the consumer because we didn't want to kill unit demand. So we've hurdled some of that. To Jamere's point, we took those prices up, and as the underlying logistics cost basis comes down, that margin is what you're seeing today. We don't think we'll give the pricing back because this industry has been very price-rational over, to Jamere's point, decades. We just don't see that retail pricing having to come back down. So just to clarify, so unless we see a spike in logistics or freight costs, the assumption should be where your current run rate of gross margin is should be kind of the forward number we should be thinking of. Yeah. And the only thing that I would add to that is that we do expect our commercial business to grow faster as we move forward, and so that naturally will put some drag on the gross margin percentage, if you will. We'll take that trade-off because it'll give us an opportunity to have more gross margin dollars. So there'll likely be a mixed pressure as we move forward with a faster-growing commercial business, but the underlying fundamentals of what we're seeing in gross margin in terms of deflation, in terms of improving supply chain profile, is something that is sustainable as we move forward. Super helpful. Thanks, guys. Your next question is from Simeon Gutman with Morgan Stanley. Hey. Good morning, everyone. Hey, Phil, I know it's tricky to prescribe when the commercial comps get back to double digit. Can you give us a sense—I don't know if innings is the right way to think about it—where your efforts are in totality? You mentioned faster delivery times, labor normalizing. There's some supply chain investments. So the collective of those, where you are on that journey to where you want to get to? Yeah. Part of your question there is what are we doing that have helped stabilize our business and get it back on a more stable footing? Our in-stocks have come back very close to pre-pandemic levels. We've expanded our hubs and our Mega Hubs. We have a long way to go to get to our ultimate goals of north of 200 Mega Hubs and significantly more hubs as well. Those put hard-to-find parts in the market where we can get those parts to our commercial customers in particular faster. It also helps DIY. It'll take us quite a few innings, if you will, to get to more than 200 of those hubs. They just take longer to set up and get in place. But that is improving our efforts on delivery times. We've invested in technology. We've been talking about this for quite some time. We continue to leverage the technology we've put in the hands of our commercial AutoZoners. We've got some tests in place and some early innings where we're able to show better delivery times by enabling better technology and leveraging that technology. That will take time to roll out, and it will take time for our AutoZoners to digest the change management. In the quarter of it in the number of innings, if we're going to play baseball, which starts pretty soon this year, maybe we're in the third or the fourth inning, but hopefully, we'll have a rally in the ninth inning. Good. And I wanted to ask you I think we asked Jamere when he joined, but since you've taken over, I wanted to ask about the EBITDA growth question versus margin. And part of it is timely because one of your competitors has been leading into SG&A, and it seems to be working. And you're having a bifurcation in performance now in the sector. So your thought process on that balance and then leaning into SG&A over a longer period of time to take advantage of some displacement? Yeah. On the SG&A front, we have investments that are some in CapEx, some obviously in SG&A. To the degree we can invest and grow sales and EBITDA, we'll make those investments all day, every day. I think over time, you should see us get our EBIT, our SG&A growth should start to bend down slightly. I wouldn't expect a radical change, but we've had a lot of investments. As we continue to improve our operational efficiencies in our distribution centers, in our stores, as our AutoZoners get longer tenured and we hold on and reduce turnover, things of that nature, they will obviously start bringing down some of the SG&A on the margins. But we would invest in a kind of I think maybe part of your question is, would we take lower margin rates in commercial as a mix of sales, like Jamere mentioned, to get higher gross profit dollars? Absolutely. I think we can slightly expand our margins on both DIY and commercial over time. Yes. And in an effort to increase EBITDA, we'll do that all day long. Those are good exchanges for us. Thanks. Good luck. Thanks, Simeon. Your next question for today is from Seth Sigman with Barclays. Hey. Good morning, everyone. I wanted to follow up on a couple of those points around the commercial. A lot of noise this quarter. If you step back, there was a lot of momentum in this business pre-2020, and then you clearly outperformed very significantly for multiple years, right? And then the business has slowed, reverting back to maybe more like industry growth. I'm not sure. But I guess the real question is, what gives you confidence that this is the right go-forward strategy, particularly from a supply chain perspective as you think about the next leg of growth? Mega Hubs have been the central part of that strategy. Is that right? Are there other options that you've thought about? I'd love to get some perspective on that. Thank you. Yeah. We're extremely excited about both our hub and our mega-hub strategy. And I'll use the previous comments around innings. We think we'll have well north of 200 Mega Hubs and significantly larger growth of hubs. We're roughly in the third inning or so in hub growth, mega-hub growth, if you kind of said that. That strategy works for us. We see significantly higher growth in those stores, those types of stores, and they help feed harder-to-find inventory to what we call our satellite stores, the markets that are close to those hubs. So yes, we believe that is the right strategy. We will continue to modify and enhance our assortment strategies in both our satellite stores and our Mega Hubs and hubs to get more relevant inventory closer to the customer. The faster we can get those hard-to-find parts into the shop, the better we will grow market share. Oh, by the way, all of that inventory we add for the commercial customer also finds its way to sales on the DIY customer. Okay. Thank you for that. I guess just thinking about the programs that you've added over the last year or so, you've talked about the drag from some of these newer programs. Just any perspective on how the new programs are ramping and if that's any different than what you've seen in the past? Thanks. Yeah. I mean, the math on that is we've added, over the last couple of years or so, almost 600 new programs. So we went back and retrofitted several stores that didn't have commercial programs. If you remember historically, we ran sort of 80% to 85% of our stores had a commercial program. That number is now up over 92%. We really accelerated that over the last several quarters. So right now, we've got probably 300 to 400 immature commercial programs that are ramping up in terms of sales and efficiency and performance. And as those programs mature, it will certainly provide a tailwind to our business. So when Phil talks about this notion of our commercial business improving from an execution standpoint, we not only have that working in our favor, but we also have these maturing programs that have only been in operation for the last couple of quarters. And so if we think about the commercial business very broadly, I just keep grounding us back to this notion that we're under-penetrated. We have a 4 or 5-share in what's approaching a $100 billion market. We've put a number of things in place that are delivering and have delivered exceedingly well for us. And as we move forward, we like the competitive hand that we have with growing mega-hub footprints, with improving execution, with adding more commercial programs. It's our number one growth priority inside the company, and we're all hands on deck there. The last thing I'll just say is, as you think about commercial, is just if you think about the back half of this year, the front half of this year, we were up against a 15-comp and then a 13-comp. The back half of the year, the comps get a little bit easier. So the comments that we made earlier in our prepared comments are just along the notion that the comparisons get a little bit easier. And as we have all of these things from an initiative standpoint working in our favor, it gives us a lot of confidence about our back half execution. Let me add a little bit onto that too, specifically around new stores. I'll maybe take a little bit of a history lesson here. If you go back to FY 2017 or those types of years, our productivity per store we had been on a pretty heavy diet of opening up new programs. Then we decided, from a strategy perspective, we would slow down our new store openings for commercial and really start trying to drive per-store productivity. Back then, our per-store productivity was in the $7,000 to 8,000 range. Today, as Jamere quoted earlier in the prepared comments, we're significantly higher than that. The other thing that's happened is, as we open up new programs in today's environment versus years ago, they are maturing at a faster rate and get to a higher, more plateaued rate. So we like that math. We're probably not going to open up 600 stores in the next two years or so like we have over the recent history. That'll probably slow a little bit. But we like the way the new stores come out of the box and the maturity curves that we get versus, frankly, 2017 or 2018. Thank you both. Appreciate it. Thanks. The next question is from Steven Forbes with Guggenheim Securities. Good morning. Maybe just a follow-up on Seth's question and just a way to sort of maybe contextualize the mega-hub strategy for us. Is there any way to think through or maybe discuss the contribution to growth or how ROI is trending behind these investments versus what the potential should be as we look out sort of a couple few years? Any sort of numeric contextualization of where we are in the maturity curve of the initiatives? Yeah. I think a couple things stand out to us. The first is that the Mega Hubs are growing, from a commercial perspective and from an overall perspective, significantly faster than our satellite stores. And it's over 3x what we see on a total domestic business basis. So we've been very pleased with the tremendous sales lift that we're getting inside of the box, both on the DIY and the commercial side. I think the second thing that gives us a lot of confidence is we talked about this notion of testing multiple Mega Hubs in major metro markets, and we've done that over the last few years or so. And the idea there was to jam more Mega Hubs in a market and jam more parts closer to the customer to see really how high is high. What we experienced in that timeframe was the fact that we didn't see the kind of cannibalization that we would have anticipated, which suggested that the number of Mega Hubs that we could actually operate was significantly higher. If you'll recall, we had mega-hub targets that went from 100 north of 200 over a very short period of time. We like what we see from a sales standpoint. We like what we see from an earnings standpoint. It's not only what we're seeing inside the four walls, but it's also the fact that these Mega Hubs are an important fulfillment source for the surrounding satellite stores. When you put all that together in the mix, I mean, it's a pretty attractive story for us, both in terms of sales and earnings and return on investments. We're going to go as fast as we possibly can to accelerate. Thank you for that. And maybe just a quick follow-up on the outlook for expense growth. I think you mentioned how it should curve downward, but obviously, we also have this store growth acceleration plan looking out to 2026 and beyond. And so maybe just help provide additional clarity on why there's sort of no disconnect in maybe sort of leaning into the investment cycle ahead of a ramp in store growth. I mean, is there any risk that EBIT margin could or should take a step back as you sort of ramp the business for a more accelerated growth period? Yeah. I mean, we've invested in SG&A in a very disciplined fashion over the last several years or so. And what we've always said is that, over time, SG&A growth should be in line with what we see in terms of the top line. Now, in the near term, to your point, we've invested at an accelerated pace behind technology, behind store payroll, all of those things to drive near-term growth for us. And we won't hesitate to go do that. To the extent that there are opportunities for us to invest in SG&A to drive our growth initiatives, we will do that as we've done historically. As we move out and look to accelerate our store growth, there will be some drag on SG&A, but we should be able to manage that within that framework that I talked about. Thank you. Thank you. Your next question is from Greg Melich with Evercore ISI. Hi, thanks. That was a nice quarter. I'd like to follow up on inflation. So if ticket was up 1.7%, was it fair to say that same SKU inflation was sort of near that number and that how did items in basket mix, etc., out in the quarter? Yeah. So what we've seen on ticket growth was something in the low single digits right now, and we're seeing same SKU inflation somewhere in that same zip code, Greg. I think the important thing to recognize from an inflation standpoint is we came off a period of significantly higher inflation. That's tempered some. Most of that inflation was driven by freight. So as freight costs have come down, we've seen some of that inflation start to come down as well. And I think the overarching point is that we're continuing to be very disciplined about pricing. Where there are opportunities for us to take retails, we will do so. And where there's an opportunity for us to get deflation in our cost to drive gross margin, we'll do that as well. We're not expecting sort of the same levels of inflation to drive ticket growth that we have in the last year or so. And so you should expect ticket at some point to normalize back in that low- to mid-single-digit range to offset the decline that we naturally see on the DIY side from transactions. Got it. But presumably, that's a little bit of acceleration in ticket comes from mix and items in basket rather than inflation ticking up, same SKU. I think that's right. As we move forward, I mean, it's a pretty dynamic environment out there, even from an inflation standpoint. We'll stay very close to it and be disciplined about how we manage our business. B ut if I go back over long periods of time, decades. I mean, this industry has had a slight decline in transactions and units and an increase in ticket average, and average unit retail, in that somewhere between 2% to 4% range on average, predominantly because of changes in technology, better parts. And it's great to think about belts on a car. The average car used to have 4 belts on it. Today, they have one. And the belt used to be $4 or 5. Today, a belt may be $60 or 70. So that technology change is probably going to continue. And it's been a pretty understandable decline in units and a change in average unit retail. And we generally have pretty good line of sight to this because the product development takes years, and an item may stay in our stores for 20 years. It's the beauty of having, frankly, a low-turn business that's very predictable. I'd love to follow up on SG&A and investment there. Jamere, maybe could you level set us on just what wage inflation's running now and what you're looking at into the next few quarters? And if you think about these pilots that you're doing on the faster delivery, it sounds like it's a lot of tech investment, but are there delivery people as well? Just help us understand that a little bit more, the reacceleration of commercial there. Yeah. So from an average wage standpoint, we're thrilled that we're starting to see average wages now with a two-handle versus a three or four that we've seen over the last few years or so. So as things have cooled down, we've seen some of the hyperinflation go away in the labor markets. We're now back to more normalized sort of wage inflation, if you will. In terms of the investments that we're making, nearly every investment that we have from a growth initiative standpoint is underpinned by some changes in technology, whether that's on the commercial side with what we're looking to do with some of our commercial acceleration initiatives or on the retail side. Nearly all of those growth initiatives are underpinned by some changes that we're making in technology. Our technology teams have done a tremendous job doing that in a very cost-efficient way. As we move forward, we'll continue to invest in a very disciplined way as we move forward. In terms of the commercial business and how we improve delivery, I mean, we've been very efficient in terms of how we've deployed our physical assets in terms of vehicles and our people assets in terms of labor to manage that commercial business over time. There hasn't been a meaningful change in what we're doing there. Well, great. Thanks and good luck. Thank you. Your next question is from Max Rakhlenko with TD Cowen. Great. Thanks a lot, guys. So in the stores where you're piloting the initiatives to improve DIFM service and speed levels, just how is that going versus your own internal expectations? And then how are you thinking about scaling these initiatives over the coming quarters? Just curious how early those are and when you think that they could be ready to go wider. Yeah. Thank you for the question. It's early innings in that. We've been testing some stuff. How to use the data? We've had, if you think about, our handhelds and a lot of technology enhancements that we made over the last couple of years, and now we've got a pretty robust set of data where we can look and figure out what are the best and most efficient ways to use our assets, both human assets, our great AutoZoners, and our trucks and where the inventory is? How do we get the part to the customer the fastest to improve customer service? It is early innings, but we like what we see, and we're in the process of rolling that out. There's some change management that we have to work through. There's some changes in technology that our AutoZoners need to be comfortable with and some changes in operations in the stores. But we like what we see, and we've had some pauses and evaluate and then move a little further, pause and evaluate and move a little further. But we're happy with what we see, and we think it'll improve customer service to the shop. And we'll get the parts faster to the customer without having to drive the car any faster because we want to be safe. Got it. That's very helpful. And then can you just speak to your in-store staff retention rates? How are those trending? And if that's translating into improvements in pro satisfaction and then ultimately better demand trends in those stores? Yeah. I'll say two things have happened. One is, and we've mentioned it a couple of different times, if you think about staffing in whole, it's not back to pre-pandemic levels, but it's better than it was during the pandemic. We still have work to do to get retention and turnover back down to pre-pandemic levels, both in our stores and in our distribution centers, but improving. And we like the trends that we're seeing, although we'd love it to be faster. The other thing we did on commercial, and Jamere's mentioned it a couple of times, we've opened up roughly 600 stores in slightly over two years. As we did that, obviously, that takes the commercial specialists and the TSMs and things of that nature, those really high-caliber people that were concentrated in some stores, we expanded pretty quickly. You got new promotions, and people got to learn their job and learn those new shops and get really ingrained with those long-term relationships. That will continue to get better as we move forward. It's kind of two elements. Great. Thanks a lot. Best regards. Thanks. Thank you. Appreciate the question. Okay. I think we have time for one last call. The next question is from Brian Nagel with Oppenheimer. Hi. Good morning. Thanks for slipping me in. Morning, Brian. So with my first question, I know there's been a lot of questions on commercial, and we recognize this has been an ongoing conversation. There's a lot of moving parts here as we look at the kind of the near-term trends. But I guess not at the risk of being too simplistic, but I know we, for a long time, have talked about a key measure of success in commercial, so to say, climbing that list, in each individual store, climbing that list of your mechanic customers. So the question I have is, as you pull and talk to your stores, are you seeing any indications that you're falling further down those lists or maybe the climb up some of these lists has stalled? Yeah. I mean, to say we're falling down the list, I don't think that would be a good characterization. Is there always opportunities to improve? The answer is yes. Go back to our share comments that we've made several times. We still have under 5% share, we believe. And as we get better and mature in relationships, open up new stores, get better in new stores, and drive parts availability and what we call internally Time to Shop, the quicker we can get those parts to the shop, the better we'll be. And I think there's a bit of a misnomer that a customer has a first call. Nobody has every part that's needed in a particular shop. So a customer will have multiple people they call. We think we will continually move up the call list and gain a larger share of wallet for each customer. But to say that you're always first call with any particular customer, that's pretty rare for a customer to put all of their eggs in one basket because nobody's got all the parts. It's virtually impossible. There's too many SKUs. So I think we will continue to get better. I think we've gotten better from where we were, and we've got a long road in front of us to continue to take market share and gain new customers. That's very helpful. And then a quick follow-up just on weather. And in your prepared comments, you talked about there's some of the sales volatility we saw through the fiscal Q2, and obviously, weather was a key component of that. But I guess the question I have is, as you look at the weather maybe we're not even through winter yet, but as you look at the weather, has it been enough has there been enough winter weather, so to say, give you that normal driver of business as we head into the spring and even the summer? Yeah. Great question. Time will tell. You're not completely through winter weather, as you said. I think if I could lay out the weather calendar that I'd love to have, like I said, I would love to have more really cold winter in the big cities on the Eastern Seaboard. I mean, if you're in New York, you got a little bit of snow this year, and it was gone within 24 hours. It's a heck of a lot more than you got last year. But New York, Philadelphia, D.C., those areas really haven't had a lot of really extreme cold weather. The Midwest did. And the eastern half of the Northeast or the western half, I'm sorry, got some pretty cold weather. But the big metro cities along the East Coast just really haven't for more than two years now. I would love to have had more there, but that's something that we can't control. We're going to do our best to go grow market share in those areas of the country no matter what. Thanks for the follow-up question. All right, guys. Thank you. Thank you. All right. So before we conclude the call, I'd like to take a moment and reiterate we believe that our industry is in a strong position, and our business model is solid. We are excited about our growth prospects for the year, but we will take nothing for granted as we understand our customers do have alternatives. We have exciting plans that should help us succeed in the future. But I want to stress that this is a marathon and not a sprint. As we continue to focus on the basics and drive to optimize shareholder value for the future, we are confident AutoZone will be successful. Thank you for participating in today's call. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.