AutoZone (NYSE:AZO) held its fourth-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
AutoZone reported a 5.6% increase in total sales for Q4 2026, with earnings per share up 15.1% despite a $15 million LIFO charge and a $96 million benefit from tariff refunds.
The company achieved a milestone by opening 175 new stores in the quarter, totaling 374 for the year, the most in a single fiscal year, and celebrated its 1,000th store in Mexico.
Domestic same-store sales grew by 1.6%, while international same-store sales increased by 1.3% on a constant currency basis, with a significant boost from currency fluctuations.
AutoZone's domestic DIY sales declined slightly, but domestic commercial sales increased by 8.6%, driven by improved inventory availability and expansion of megahubs.
The company plans to continue investing in growth, with a $1.5 billion capex in FY27, focusing on new store openings, supply chain improvements, and technology enhancements.
AutoZone expects to open approximately 400 new stores in FY27 and projects domestic same-store sales to be flat to up low single digits, with international comps anticipated to improve.
Management expressed confidence in gaining market share and highlighted the strategic importance of megahubs, which boost sales by improving part availability and delivery speed.
Full Transcript
OPERATOR
Good day everyone and welcome to AutoZone's 2026 fourth quarter earnings release conference call. At this time, all participants are placed on a listen-only mode. At this time the Company would like to provide its forward-looking statement.
Brian Campbell, Vice President, Treasurer and Investor Relations
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.
Philip D., President and CEO
Good morning and thank you for joining us today for AutoZone's 2026 fourth quarter conference call. With me today are Jamir Jackson, Chief Financial Officer, and Brian Campbell, Vice President, Treasurer and Investor Relations. Regarding the fourth quarter, I hope you had an opportunity to read our press release and learn about the quarter's results. If not, the press release along with slides complementing our comments today are available on our website at www.autozone.com under the Investor Relations link.
Please click on the Quarterly Earnings Conference Call to see them. To start out this morning, I want to thank our more than 130,000 AutoZoners across the company for continuing their relentless commitment to delivering on our pledge to always put customers first. The operating theme for FY2026 was Driving the Future Together and we delivered on that theme this year as we grew our total store count, opening the most stores ever in a single year, improved on our assortment and in-stock positions, and continued to invest in systems to deliver even better customer service.
Our customer service levels and execution have improved this past year and this quarter. We continue to gain market share in a challenging macro environment. As an outline for this morning's call, first we'll discuss our domestic DIY and commercial sales results and provide color on the cadence of our sales over the 16-week quarter including traffic, ticket, and inflation trends. We will also provide an outlook and perspective on FY27 sales. Second, we will discuss our international sales results and the progress we are making on our new store buildout.
Third, we will talk about our store openings both domestically and internationally and provide perspective on store economics and the impact on return on invested capital over the next several years. Lastly, we'll conclude with an additional commentary on how we see FY27 playing out. So let me start by unpacking our Q4 results. We delivered total sales growth of 5.6%. While we grew slower than Q3's rate, we felt we gained momentum as the quarter moved along and we liked our sales growth potential heading into the new year.
Our earnings per share increased 15.1%. Similar to prior quarters, our gross margin, operating profit, and EPS were negatively impacted by a non-cash LIFO charge of $15 million. As a reminder, during last year's Q4 we recognized an $80 million LIFO charge. In addition, we saw a $96 million, or $4.43 per share, benefit from the refunds of IEEPA tariffs. Finally, we opened 175 new stores this quarter. For the year, we opened 374 new stores versus 304 stores last year.
This year's total of 374 stores is the most ever in a fiscal year. We also hit some major milestones. We celebrated our 1,000th store in Mexico and we opened our 8,000th store in August in our home state of Tennessee. We also held our grand opening for our relocated Monterrey, Mexico distribution center which is almost two times the size of the previous distribution center. And we broke ground on our new Leon, Mexico DC which will come online in late FY28 to support our international expansion.
Let me touch on some same store sales highlights for the quarter. Total company same store sales grew plus 1.5% on a constant currency basis with domestic same store sales growth of 1.6%. Our domestic DIY same store sales declined 0.6% while our domestic commercial sales grew 8.6% versus last year's Q4. We saw our sales bottom in June and then begin to improve as the quarter moved along. We exited the quarter with good momentum and we are optimistic about our sales trajectory for the new fiscal year.
International same store sales were up 1.3% on a constant currency basis and our unadjusted international comp was plus 10.7% as exchange rates positively impacted our comps by over 900 basis points. Next, let me address our total domestic same store sales results in a little more detail. Domestic same store sales averaged around plus 1.4% over the first three months and then accelerated in August to plus 2.1%. Our domestic retail comps were negative 0.6 for the quarter and ran negative for the first three months before running essentially flat in August.
We began the quarter with milder than usual temperatures across the Southeast and the South Central markets, along with lower foot traffic. The impact of higher inflation from higher oil and gas prices likely dampened our traffic and sales results for most of the quarter. At the tail end of the quarter, our results were buoyed by stronger results in our hot weather categories. We saw mid-single-digit like-for-like same SKU inflation for the quarter which contributed to our DIY average ticket being up roughly 5% which was offset by traffic declines.
For the first quarter of FY27, we expect same store sales to be relatively flat with average ticket to remain around plus 5% that we saw in Q4. Next I will touch on our domestic commercial business. As I mentioned, our commercial sales were up just under 9% for the quarter. The first three months of the quarter averaged just over 8% while the last month was well over 9% growth. Commercial growth was impacted earlier in the quarter by below-expectations performance in our hot weather categories that rebounded in the last month of the quarter as we experienced hotter summer temperatures.
Similar to DIY, we saw ticket average growth of around 5%. We would expect this trend to continue into Q1. Our commercial business had a solid year, finishing up nearly 11% versus FY25. So in summary, our domestic business was below our expectations driven largely by the underperformance in DIY for most of the quarter. Milder temperatures earlier in the quarter certainly had an impact along with lower foot traffic. We are encouraged by the performance late in the quarter and look to maintain momentum in Q1.
Our commercial sales results continue to be driven by our improved satellite store inventory availability, significant improvements in hub and megahub coverage, the continued strength of our Duralast brand, and execution on our initiatives to improve speed of delivery and customer service for the professional. Our sales initiatives are driving growth with the smaller up-and-down-the-street customers where we have the majority of our sales but also have a tremendous market share opportunity.
We see our megahub and inventory initiatives as ways to accelerate our growth with these underpenetrated up-and-down-the-street customers. Thus far, our initiatives are delivering market share gains and gives us confidence as we move into FY27. As a reminder, in FY26 we opened up 39 megahubs and 11 net regular hubs. Now let me take a moment to discuss our international business. This past quarter we celebrated the opening of our 1,000th store in Mexico and finished the quarter with 1,001.
In Brazil, we now have 167 stores, bringing our total international store count to 1,168. Our international same store sales grew plus 1.3% on a constant currency basis as we faced continued softness in the macro environment, specifically in Mexico. Importantly, we saw an uptick in sales in the last four weeks of the quarter which gives us confidence that sales may inflect upward in Q1. We are expecting same store sales to be slightly stronger on a constant currency basis as we expect to report low single-digit growth in Q1 as the economy is starting to improve.
We expect our international sales to reaccelerate as we continue to invest in customer service, inventory, new stores, and our supply chain. Today, approximately 15% of our total store base is outside of the U.S. We expect this number to grow as we continue our international store buildout. We have confidence in our international markets and the returns on invested capital are strong. We have a relatively young store base that we expect to drive strong sales and EBIT results as they continue to mature.
In summary, we have continued to invest capital in driving sales growth. We also continue to invest in refining product assortments in stores and driving efficiency in our supply chain which we believe positions us well for future growth. We are committed to investing both capex and operating expense to capitalize on these opportunities. This year we invested approximately $1.5 billion in capex to drive our strategic growth priorities and expect to invest a similar amount in FY27.
The majority of our investments are in accelerated store growth, including hubs and megahubs. These investments place more inventory closer to our customers and will continue to reduce the time it takes us to serve both our DIY and professional customers. The early performance of our accelerated store investments are better than our original forecast which will allow us to achieve our EBIT goals sooner. We are laser-focused on generating the returns that you expect from AutoZone.
To give additional color on our new store performance, we assume that first-year sales for our average store format is roughly $1.7 million. That ramps to roughly $2.7 million by year six. Historically, on average, new store sales grow double-digit in the second year and roughly 5% for each of the next four years. With an average investment of around $2.9 million per store, we assume that return on invested capital is roughly zero in the first year.
By the end of the fourth year we expect to achieve approximately 15% ROIC and by the end of the sixth year we expect ROIC of over 20% which should continue to improve well after that. Importantly, the growth in store productivity is heavily skewed to commercial sales which typically more than doubles over that six-year time horizon. The majority of this growth comes from up-and-down-the-street customers who demand availability and speedy delivery.
While we plan to again spend around $1.65 billion in capex in FY27, we are committed to managing our investment to achieve strong results in invested capital over time. While in the near term our returns on capital have been pressured as we have accelerated our store growth, we will hold our ROIC in the mid-30s area and remain committed to driving higher ROIC over time as new stores continue to mature. Now I will turn the call over to Jameer Jackson.
Jameer Jackson, Chief Financial Officer
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 $6.6 billion and up 5.6% versus Q4 of last year. Our domestic same store sales grew 1.6% and our international comp was up 1.3% on a constant currency basis. Total company EBIT was up 10.1% and our EPS was up 15.1%. Our results included a $96 million tariff refund and a $15 million LIFO charge this quarter.
Excluding the $15 million LIFO charge in this year's quarter and the $80 million LIFO charge in last year's quarter, EBIT grew 4.4% and our EPS grew 8.5%. Foreign exchange rates impacted our results for the quarter. From Mexico, the peso strengthened almost 9% versus the US dollar, resulting in a $70 million tailwind to sales, a $21 million tailwind to EBIT and an $0.87 a share benefit to EPS versus the prior year. For FY26, total sales were $20.3 billion, up 7.4% and EPS was $152.55, up 5.3%.
Next, let me take a few moments to elaborate on the specifics in our P&L for the quarter. First, I'll give a little more color on sales and our growth initiatives, starting with our domestic commercial business. For the quarter, our domestic DIFM sales were $1.9 billion, up just under 9% for the quarter. Our domestic commercial sales represented 34% of our domestic auto parts sales and 29% of our total company sales. Our average weekly sales per program were $18,700, up 2.7% versus last year.
This quarter we opened 87 net new programs. We finished with 6,443 total programs and we have our commercial program in 94% of our domestic stores. For the year we opened 345 domestic commercial programs. Megahub stores remain a key component of our current and future commercial growth. We opened 16 megahubs in the quarter, 39 for the year, and now have 172 megahub stores. We expect to open over 40 megahubs in FY27. As a reminder, our megahubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the store box and serve as an expanded assortment source for other stores.
The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business. 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 2.7%, the 172 megahubs continue to drive growth at an even faster clip. Let me provide one other piece of perspective on the importance of megahubs.
There are approximately 2,000 commercial programs that are linked to a megahub network. These programs sell 16% more annually than the balance of the commercial programs in the chain. Given these dynamics, we continue to target having approximately 300 megahubs over the next three years. Our customers are excited by our commercial offering as we deploy more stores in local markets closer to the customer while improving our service levels. On the domestic retail side of our business, our DIY comp was down 60 basis points for the quarter.
From the third-party data available to us, our DIY share has remained ahead of industry growth rates, which is indicative of the overall market softness. The DIY market is experiencing a growing and aging car park and a challenging new and used car sales market, which typically provides a tailwind for our business. However, transactions are soft as the customer experiences high inflation. In our industry and elsewhere, we see evidence of deferrals and trade down in DIY, particularly with the most financially challenged DIY customers.
This is not a new phenomenon for our industry and we expect it to recover over time. Now I'll say a few words regarding our international business. During the quarter we opened 68 new stores in Mexico to finish with 1,001 stores and 10 new stores in Brazil, ending with 167. Our same store sales grew 1.3% on a constant currency basis and 10.7% on an unadjusted basis. While sales growth has slowed over the last few quarters in Mexico due to 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 are 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 AutoZone's future sales, operating profit and our ROIC. Now let me spend a few minutes on the rest of the P&L and gross margins.
For the quarter our gross margin was 53.3%, up 182 basis points versus last year. This quarter we had a $15 million LIFO charge versus an $80 million LIFO charge for Q4 last year. Excluding the LIFO comparison, we were up 76 basis points versus last year as we benefited $96 million from tariff reimbursements we received this past quarter. Now, given the lumpiness of gross margins this year excluding LIFO, you should expect gross margins to be flat to up 25 basis points on a GAAP basis in FY27.
With respect to LIFO assumptions for Q1, we're anticipating a $40 million charge and expect approximately $15 million in charges for quarters 2, 3 and 4. In total, we're modeling $85 to $90 million in LIFO charges for FY27. As a reminder, we recognized $192 million in LIFO charges for all of fiscal 2026. Moving on to operating expenses, our expenses were up 8.9% versus Q4 last year. SG&A as a percentage of sales deleveraged 101 basis points. On a per store basis, our SG&A was up 4% compared to last quarter's 3% increase.
The deleverage was driven primarily by our growth initiatives. We expect SG&A per store and total growth to be in a similar range in the first quarter of FY27, which is up roughly 4% on a per store basis or 8.5% to 9% on a total growth basis. Similarly, we expect SG&A per store to grow roughly 3% for FY27, or approximately 8% on a total growth basis. For Q1 FY27, we expect to open approximately 65 stores globally versus 53 in Q1 last year. And for the full year we expect to open approximately 400 stores versus the 374 new stores opened in FY26.
Moving to the rest of the P&L, EBIT for the quarter was $1.3 billion, up 10.1% versus the prior year. Adjusting for LIFO charges in both years, our EBIT would have been up 4.4% versus the prior year. Interest expense for the quarter was $149 million, flat with a year ago, as our debt outstanding at the end of the quarter was up approximately $280 million. We're planning interest of $114 million for the first quarter of FY27 versus $106 million in Q1 last year.
For the quarter, our tax rate was 20.3%, roughly flat versus a year ago. Excluding the benefit from stock option exercises, our ETR for the quarter was 20.8% versus 21.7% last year. This quarter the rate benefited approximately $7 million from stock options exercises versus a $16 million benefit last year for Q4. For Q1, we suggest investors model us at approximately 22.7% all in. Now moving to net income and EPS. Net income for the quarter was $932 million, up 11.3% versus last year.
Our diluted share count of 16.6 million was 3.3% lower than last year's fourth quarter. The combination of higher net income and lower share count drove earnings per share for the quarter to $56.05, up 15.1% versus last year's Q4. As a reminder, LIFO drove our EPS down $0.69 a share and tariff refunds added $4.43 a share. Now let me talk about our free cash flow. For the fourth quarter we generated $684 million in free cash flow versus $511 million in Q4 last year.
For FY26, we generated approximately $1.8 billion in free cash, roughly flat versus a year ago despite a $169 million increase in CapEx. We expect to continue being an incredibly strong cash flow generator in fiscal 2027 and are planning higher free cash flow that will fund growth and robust returns to the shareholder in the form of share buybacks. Regarding our balance sheet, our liquidity position remains very strong and our leverage ratio finished at 2.5 times EBITDAR.
Our inventory per store was up 5% versus Q4 last year, while total inventory increased 10% 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 inventories less accounts payable, on a per store basis was negative $107,000 versus negative $131,000 last year and negative $107,000 last quarter. As a result, accounts payable as a percentage of inventory finished the quarter at 111.1% versus last year's Q4 of 114.2%.
Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $697 million of AutoZone stock in the quarter and $2 billion for the fiscal year, and at quarter end we had $1.6 billion remaining under our share buyback authorization. Our strong earnings, balance sheet and powerful free cash generation allow us to return a significant amount of cash to our shareholders through our buyback program. We have 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 our shareholders. So 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 strategies continue 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 beginning of our new fiscal year, we're bullish on our growth prospects behind a resilient DIY business, a solid international business and a domestic commercial business that is growing share in a meaningful way. We continue to have tremendous confidence in our ability to drive significant and ongoing value for our shareholders. Before turning 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 risks, so our results primarily reflect the translation impact for reporting purposes. As mentioned earlier, foreign currency resulted in a tailwind to revenue and EPS this quarter. If yesterday's spot rates held for Q1, then we expect an approximate $45 million benefit to revenue, a $14 million benefit to EBIT and a $0.60 a share benefit to EPS. And as a reminder, in Q1 we expect LIFO to reduce EBIT by approximately $40 million, impact our gross margin rate negatively by approximately 80 basis points, and our EPS by approximately $1.85 a share.
And now I'll turn it back to Phil.
Philip D., President and CEO
Thank you, Jameer. We are excited to start off FY27, and we have a lot to accomplish. We remain committed to outstanding customer service, flawless execution, and appropriately spending our capital to drive growth and efficiency. We believe we are well positioned to grow both our domestic DIY and commercial sales. We also expect our international same store sales on a constant currency basis will improve in fiscal year 2027. We believe our gross margins will be strong, and we expect our operating expense to grow in line with accelerated store opening assumptions this time of year.
We always enjoy reflecting on the past 12 months. Highlights: our teams achieved several milestones this past year. Our sales totaled $20.3 billion, an all-time high and the first time we have exceeded the $20 billion mark. Domestic commercial sales were just under $5.8 billion and grew just under 11% for the year. Average weekly sales domestically of $50,000, equating to $2.6 million per store annually. We opened an amazing 374 stores this past year, the most ever.
We have over 8,000 total stores and 1,000 stores in Mexico. Our operating cash flow was over $3.3 billion for the year, second only to FY27 at the height of the pandemic, and should increase again in FY27. We opened our new expanded Monterrey, Mexico distribution center and broke ground on another planned DC in Mexico. This expanded Mexico supply chain will allow us to serve our customers better, reduce supply chain cost, and better support our international store growth.
I would also like to update you on our longer-term strategic growth initiatives where we are investing both CAPEX and SG&A and expect to produce a faster growing and more profitable AutoZone over time. Specifically, our investments in our supply chain, accelerated new store openings, execution and improved customer service, and leveraging technology. Many of these initiatives are in various stages of maturity, but all of them are in the later stages of implementation, are on track or ahead of our plan.
Supply chain investments that started in earnest in 2020 are now in the final stages of completion. We have completed the vast majority of the technology upgrades needed to accommodate a much more dynamic and global supply chain. Our U.S. DC expansion is complete with two new U.S. distribution centers and two direct import facilities. Our new Brazil DC is complete and already reducing our supply chain costs in country. Our new Mexico DC in Monterrey is now more than two times the size and fully operational.
In August we broke ground on our third Mexico DC that will allow us to service our customers and stores more efficiently as we grow our store count in country. Let me talk about flawless execution and improved customer service investments that we've made over the last 18 months. We have been focused on our store-level execution, customer service, and reducing delivery times to our professional customers. While we will always invest in customer service and execution, these investments will moderate.
We are already beginning to see these investments pay off. Leveraging technology again, a longer-term initiative, but we are in the final stages of these investments. We have made investments in scalable, resilient platforms that are now predominantly cloud-based and ready to be leveraged to improve what we call WOW customer service, enable us to leverage new technologies, and improve efficiency. New store acceleration from roughly 200 stores annually to, this year, over 400—we are nearing the long-term goals, as stated earlier, of around 430 stores annually.
We are excited about the performance of our new stores. These stores are slightly ahead of our expected sales and EBIT performance. We are also more than halfway to our goal of around 300 megahubs and more hub locations. As mentioned earlier, these expanded assortments in these hubs are a key element needed to continue to accelerate growth and market share gains in both our DIY and more specifically with our professional customers. Although the growth in new stores will continue through FY28, the year-over-year ramp will moderate as we near our long-term goals.
As a reminder, our stores are our highest and best returning assets, and we are happy with these accelerated openings. Finally, I want to wrap up my comments by providing you with how we see sales playing out for FY27. We expect our domestic same store sales to be flat to up low single digits, driven by an expectation of approximately 4% ticket growth. We see our total domestic commercial sales growing high single to low double digits. As with retail, we expect ticket average to grow in the roughly 4% range, and we expect to continue to grow market share fueled by our growth initiatives.
In international, we expect low to mid single digit comps on a constant currency basis. We saw trends improving later in the latter half of Q4, and we expect continued improvement in FY27. And as we are planning to open approximately 400 new stores in FY27, we have decided to reduce the FY28 target from roughly 500 stores to 430, as we do not expect to open as many international stores. Specifically, we will slow the pace of our Brazil expansion to concentrate on the U.S. and Mexico. In the near term, the top focus for fiscal 2027 will remain growing market share in our domestic commercial business and reaccelerating our international growth. We have remained laser focused on customer service, flawless execution, and gaining market share in every market in which we operate. We believe we can continue to gain market share compared to the overall industry, and we are confident in our ability to achieve our goals. We have great leadership in place, and we feel we are executing at our highest level in many years.
We are excited about what we can accomplish for this year. AutoZoners everywhere are prepared to deliver on our commitments of growing together. We believe AutoZone's best days are ahead of us. Now we would like to open up the call for questions.
OPERATOR
Certainly, everyone, at this time we will be conducting a question-and-answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then re-enter the queue. And once again, if you have any questions or comments, please press star one on your phone.
Please hold while we poll for questions. Your first question is coming from Brett Jordan from Jefferies. Your line is live.
Brett Jordan, Analyst at Jefferies
Hey, good morning, guys.
Brian Campbell, Vice President, Treasurer and Investor Relations
Good morning. Morning, Brett.
Brett Jordan, Analyst at Jefferies
On the IPA contribution, is most of the refund in the fourth quarter? Obviously, your direct import refunds come to you, but do you have suppliers who are going to be trickling out rebates to you as we get into 27?
Jameer Jackson, Chief Financial Officer
Yeah, most of that refund was in the fourth quarter. As we talked about, we have a little over $100 million that were in IPA tariffs. We got most of that in the fourth quarter, and that is basically on the inventory that we have sold. We expect the remainder of that to sort of trickle out over FY27.
Brett Jordan, Analyst at Jefferies
Okay. And then question on same SKU inflation: I think you called out 5% in Q1, but you called out a 4% ticket contribution for fiscal 27. Could you sort of talk about how you see the cadence of same SKU inflation as we sort of roll over that peak tariff impact in late calendar 25?
Jameer Jackson, Chief Financial Officer
Yeah, we think the first quarter will be in the similar zip code as the fourth quarter of this year, probably closer to 5. And then we expect it to moderate over time, and we expect to average around 4%. What I will say is that it's a pretty volatile environment in the near term. There's certainly pressure on categories like oil that are driving higher inflation. And as we move through, we expect to see sort of more normalized inflation across the business.
And I think the most important point to that is that this industry is pretty disciplined and rational. And as we see the ticket inflation go up, we'll raise retails accordingly.
Brett Jordan, Analyst at Jefferies
Great. Appreciate it.
Brian Campbell, Vice President, Treasurer and Investor Relations
Thank you. Thanks, Brett.
OPERATOR
Thank you. Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.
Simeon Gutman, Analyst at Morgan Stanley
Hey, good morning, guys. So I guess, Phil, some of the math—or I think Jameer—when you gave the guidance on, I think it was Phil's guidance on retail and commercial. I guess if you just do the weighted sum products, you'd get somewhere between a 2 at the low end of comp guide to something like a 4 or 5. And I know you're not guiding, but you're giving us a framework. Is that fair? And then, looking at your market share gains, are you satisfied with them?
Like how do you look at them for your prior fiscal year? Thanks.
Jameer Jackson, Chief Financial Officer
Yeah, so you're in the right zip code on the comps when you sort of do the math on sum of the parts, if you will. I think the important thing for us is, you know, we're calling what we see today based on that ticket inflation being elevated and some of the trends that we're seeing in our business. On the DIY side, clearly the transactions have been a little bit softer, but as we roll over some of that elevated inflation, we would expect those transaction trends to improve a little bit.
And then we've got a tremendous amount of momentum in commercial that we expect to continue as we move forward.
Philip D., President and CEO
Yes, I would kind of think about market share—you asked, are we satisfied? Well, the answer is no. We're never satisfied with market share growth. But we do, we believe in this environment on both the DIY side, we are continuing to gain market share. You know, that lower-end consumer is definitely pressured and probably will continue to be pressured for some time. And on the commercial side, we've said for a while we think we should be able to—it won't always be smooth—but grow essentially two times the market growth.
And we think we're doing that. And we think that the things that we've spent time investing on and working on all give us the opportunity to continue to gain share in both DIY and commercial domestically, and gain share in the international markets as well. So we feel good about our prospects of gaining share.
Simeon Gutman, Analyst at Morgan Stanley
Quick follow-up is that we've had a couple of years of—I don't know if it's a noisy P&L, but some of the pieces were more volatile than what we're typically used to. And you've gone through an investment phase. And, Phil, you went out of your way just now to talk about some pieces getting past, whether it's supply chain investments, some technology investments. Does this year, does this fiscal year, are we settling into something more normal? And I'm not sure we'll ever be normal given the backdrop of fuel, et cetera.
But does it feel like those investments fade and you can get back into that some of the prior rhythm of comp growth, steady EBIT growth, and then steady EPS growth?
Philip D., President and CEO
Yeah, I'll talk a little bit about some of the investments and initiatives. We said even this next year our CAPEX will be slightly higher than this year in 26 versus 27, but most of that will be driven by new stores. Some of the other investments that have elevated CAPEX over the last couple of years, like I talked about with, you know, distribution centers in the U.S., Mexico, IT investments—a lot of those will begin to wane. As I said, most of them are well over halfway through those types of investments.
Many of them are in the implementation and optimization stage. So those will start to moderate. We still will continue to open slightly more stores year over year, but again, we're in the latter innings of virtually all of those investments, if that makes sense. They won't be the continuing part of the investment. It will be more new store acceleration as we continue to get closer to that 430 per store globally.
Jameer Jackson, Chief Financial Officer
Yeah, and I would just add from a P&L standpoint, it indeed has been a bit noisy. When you think about the things that have impacted us. Tariffs were one and then we had tariff refunds, we've had significant hyperinflation that drove LIFO. So one of the things we wanted to do, and you heard Phil do it earlier, and a little bit in some of my comments, is give a little bit of an outlook on what we see on kind of a normalized basis so that you've got a base set of assumptions from which to model and plan the business.
And we'll continue to operate the business with excellence as we move forward. And we expect this to be less noisy as we move forward. Thank you.
OPERATOR
Thank you. Your next question is coming from Christopher Horvers from J.P. Morgan. Your line is live.
Christopher Horvers, Analyst at J.P. Morgan
Thanks and good morning. So I just want to follow up on the first quarter guidance to make sure we get this right. So flat DIY and it seems like you're implying a six handle. Do it for me on a comp basis. I know you talked about this eight and change expected to continue, but that's a total growth number. So that puts to right around 2%. Is that right? And then I guess. How much conservatism are you baking in? Weather happens. Weather was a headwind earlier, but it's helped later in August and into September. So you know, are you trending like if you think about the past month, are you trending better than that? And that 2% doesn't sort of bake in the continuance of weather benefits?
Jameer Jackson, Chief Financial Officer
Yeah, I think two things. One is, you know what Phil laid out was sort of our guidance for the year and what our expectations are. I think the thing that we also talked about is sort of the way we exited the quarter, which was a rebound and a little bit of a snapback from where we started the quarter. So, you know, we like the momentum that we have going into the first quarter on DIY and certainly commercial exiting well north of 9% is something that we would expect to continue.
We're executing very, very well in that regard. So those are kind of the two big pieces on the domestic comp side and then I think on the international side, you know, we did see some rebound in the back half of the quarter in Mexico and the team has continued to execute well through a very difficult macro environment. And we expect to start the climb out from the environment that we've seen over the last few years or so. So those are kind of the key elements of how we're thinking about the quarter.
But more importantly, what Phil talked about is, you know, as we, as we look at the business and look at all the things that are happening, most of this is predicated on inflation. We feel pretty good about the ranges and the outlook that he gave. Yeah, I would just add the weather in the latter part of the quarter certainly got to a more normal summer temperatures and it looks like we're going to have a normal, if not good winter. And the extremes in weather drive our business.
Both hot and cold are good for us and we can't predict that weather in the wintertime. But by all indications it's going to be a normal to tougher winter and we expect to be able to operate well in both of those environments.
Christopher Horvers, Analyst at J.P. Morgan
And then following up on the model, as you look out even beyond 27, it's about 5.5% unit growth. As you think about the SG&A leverage point, is the model that you're building predicated on 4% comps to drive SG&A leverage? Understanding that you have these upfront investments, supply chain and technology and people in process, but at the same time you're going to have these more immature stores that are burdened by labor and rent and so forth. So is, is the model being built as you look forward on a 4% leverage point on the domestic comp side?
Jameer Jackson, Chief Financial Officer
Yeah, I wouldn't say that it's built on a 4% leverage point. I mean, clearly the way that we think about it is that we have the ability to grow SG&A in line with sales and in environments where those sales are a little bit lower. Then we have the ability to go into the P&L and manage the SG&A downward. And we had that muscle and we've done it over time in years where the sales have been accelerated. We've seen pretty good leverage on the SG&A line and in some cases it gave us the ability to go invest.
So I think about it the same way that we have historically, which is we have the ability to grow SG&A in line with sales and manage the leverage and deleverage based on what we're seeing in the near term.
Christopher Horvers, Analyst at J.P. Morgan
Understood. Thanks very much.
Jameer Jackson, Chief Financial Officer
Thank you.
OPERATOR
Thank you. Your next question is coming from Steven Zaccone from Citi. Your line is live.
Steven Zaccone, Analyst at Citi
Good morning. Thanks very much for taking my question. I wanted to follow up on the DIY side. I was curious if you could just give a little bit more of an assessment of what you're seeing. You talked about softer transactions. I think there's so many moving pieces of the consumer at the moment. Have you seen some of that activity, whether it's trade down or deferral, kind of get worse? How should we think about DIY from a quarterly cadence over the course of FY27?
That'd also be helpful.
Philip D., President and CEO
Yeah. We tried to give as much color as we could around what we saw from a transactions and sales perspective over the four month timeframe that comprises our fourth quarter. Again, the beginning of the quarter was slower, particularly in the hotter weather categories. But the exit rate in the latter half of Q4 and particularly in August got better. And we expect those trends to kind of continue. You know, what we've historically seen over long periods of time is after you have about higher traffic declines, they rebound over time, which is what we believe we're seeing today.
The 5% decline or north of that in transactions is not typical in this industry. And we would expect those to moderate back into a more normal traffic rate. So we saw that improving coming out of the quarter. We like the exit rate on DIY and we think that momentum will continue.
Jameer Jackson, Chief Financial Officer
The only thing I'll add is that, you know, the DIY customer certainly is facing some pretty significant inflation, particularly around fuel prices. And if you just look at our ticket, over a two year basis, it's up about 9%. So that consumer has felt a lot of inflation over the last two years. And you know, we think the transaction environment, to Phil's point, will improve when this inflation moderates to something more normal and consumer sentiment gets better.
Philip D., President and CEO
And the last thing that I'll say is that, you know, the tailwinds driving the industry are there. I mean, you know, you've got higher rates, you've got more expensive new and used vehicles that continue to drive the average age of vehicles higher. And that simply is going to mean that customers are going to keep their older cars longer and the repair frequency will likely increase in 2027 and, and that's the basis for our outlook there.
Jameer Jackson, Chief Financial Officer
The one last thing that I think is important for the tailwinds is even though gas prices and oil prices have been higher, we haven't necessarily seen a tail off in the miles driven yet, which I think is ultimately an additional good tailwind for us in this space.
Steven Zaccone, Analyst at Citi
Okay, that's very helpful, thanks. The follow up I had is just understanding the impact of higher freight. Right. Is this an expectation that same SKU inflation just trends higher? I heard your commentary to a prior question, but is the view of higher freight rippling through the supply chain? This just gets passed on in terms of higher same SKU inflation to the end customer.
Philip D., President and CEO
Obviously higher gas prices are going to flow through freight and transportation logistics both domestically and internationally. We expect that that will continue. You know, I don't think it'll be anywhere near like it was in the out in the back half of the pandemic where we had the supply chain crisis. I don't think it would be anywhere near that number. But our supply chain teams and our merchants do a great job of negotiating our transportation costs and we expect to be able to manage that well. But there's no doubt that it will continue to be inflationary. Not just in our space, but I think it'll be inflationary everywhere.
Steven Zaccone, Analyst at Citi
Okay, thanks for the detail. Best of all, thanks.
OPERATOR
Thank you. Your next question is coming from Michael Lasser from UBS. Your line is live.
Michael Lasser, Analyst at UBS
Good morning. Thank you so much for taking my question. How would you quantify the return on the investments that you have seen over the last couple of years? Those have come in the form of accelerated CAPEX, accelerated SG&A. As outsiders, what we see is the comps are moderating. You've got a player in the industry that driving same store sales growth well ahead of AutoZone. So it's hard for us to dimension the return that you're generating on these investments that you've been making.
Philip D., President and CEO
Thank you for the question, I appreciate that. Part of the reason I tried to give a little more comp commentary on kind of the investments that we have made with supply chain operations, new stores, etc. And we're happy with those investments. While I agree with you that our comps have maybe not been as high as we would have liked. We do feel that we're operating in as well as we have. We like the performance of our new stores. We ultimately had to do some work in our supply chain to make sure we were able to, you know, service our base stores that we had and do that well and efficiently.
And we needed to expand our supply chain to make sure that we could accommodate what we believe is the right strategy in new store growth. Again, that's why we tried to give you some metrics on how we see those new stores performing. It definitely puts some return on invested capital pressure on us in the short term as those stores begin to mature. But we like how they're maturing and they're slightly ahead of the plan we originally forecasted, which so we think all of that over time works into a better, faster growing business that's going to produce higher returns over the long term.
Michael Lasser, Analyst at UBS
Understood. Thank you for that, Phil. My follow up question is on the visibility that you have into your comps over the next few quarters. You're basically calling for an acceleration in your same store sales growth as the year progresses. It sounds like there'll be less like for like inflation that's going to moderate slightly. And the heart of the assumption is that transactions improve from here. So A, is that right? And B, if your comps do not fall into, let's call it a 3 to 4% range, is there enough flexibility for you to manage the P&L to still arrive at the earnings to number that you're implicitly guiding for for fiscal 27?
Thank you so much.
Jameer Jackson, Chief Financial Officer
Yes, I think that's right, Michael. Like we said, we still believe we're going to see an accelerated inflation on, you know, same SKU inflation as well as ticket. What we believe is, you know, the 5% decline in transactions, particularly on DIY will kind of start to moderate back to a normal trend of, you know, historically over long periods of time it's been down 1% or 1% to 3% in transactions and you've gotten, you know, average ticket growth that's been higher than that.
We expect that to continue and it's similar to what we saw in the latter half of Q4. And we think that inflation rate for the year is going to be roughly 4%, maybe slightly higher on both DIY and commercial, which kind of gets you to those slightly improved comps from where we were in Q4.
Michael Lasser, Analyst at UBS
Thank you very much and good luck.
Philip D., President and CEO
Thank you, Mike.
Jameer Jackson, Chief Financial Officer
Thanks, Michael.
OPERATOR
Thank you. Our next question comes from Steve Forbes from Guggenheim Your line is live.
Steve Forbes, Analyst at Guggenheim
Good morning, Phil. Jameer.
Philip D., President and CEO
Yeah. So two pieces. One is, you know, we do see our commercial growth having a big bump of acceleration in the first one to two years of the program. And that drives a lot of the returns on invested capital goodness that we see as we move through years two through six. The majority of that comes from the up-and-down-the-street customer. And you know, we continue to see fairly significant share gains in that portion of the business. I want to be clear, we like the up-and-down-the-street customer.
We spend a lot of time growing that portion of the business. But we have share opportunities with both national accounts and up-and-down-the-street customers. The metric that I like to continue to trot out in front of folks is that we're a 5 to 6 share in what's approaching a hundred billion dollar business, if you will. So there are share opportunities for us in both segments of the business and we've clearly been driving our UDS business. But we think there's share opportunities for us to move up the call list and have a bigger play with both sets of customers.
The other thing that I think helps with that, and we've talked about it, we've got 172 megahubs and hundreds of hubs around the country. We continue to build that out. And you asked about variability per store: when we drop a megahub in a market, that gets our proximity of those parts to a position where we can accelerate the speed of delivery to the shop or the DIY customer. That drives sales, like we talked about. Jameer gave some specifics of what it looks like when a store is in a delivery radius for a hub and a megahub.
And it does improve them. That's why we're so focused on driving the store counts in both those hubs and megahub stores.
Jameer Jackson, Chief Financial Officer
Right. There's no expectation for a cycling to drag on the FIFO gross margin profile. That's right. So what we gave you when we talked about gross margins is we gave you the LIFO assumptions for this year. We gave you the LIFO assumptions for last year. Obviously, we had 190 plus million last year. We've got 85 to 90 this year. So we're just looking at it on a GAAP basis. We should be flat to up 20. And then as it relates to tariffs specifically, while the tariff refunds, you know, may appear to be a windfall, the reality is that the refund environment was deflationary and the industry likely would have raised prices faster if both, you know, retailers and suppliers hadn't received cost relief from those refunds. So, you know, we're expecting to lap those tariff benefits and not have that be a call out. Obviously, the way that they came in will make the margin profile a little lumpy, which is why we talked about where we are on an annualized basis. But we feel pretty good about all the work that we're doing, both in our supply chain and in our merchandising organization, to drive gross margin improvement in total.
OPERATOR
Thank you. Our next question is coming from Seth Sigman from Barclays. Your line is live.
Seth Sigman, Analyst at Barclays
Hey, good morning, everyone. A couple of things I wanted to follow up there on. One is on the economics of the megahubs. So sounds like programs using the hubs have sales 16% higher than the base business. How has that trended over time? And just given that you do have a lot of newer megahubs because you've accelerated growth over the last year, is there reason to believe that the lift and the contribution that you're getting from these should actually accelerate in terms of the impact it could have on comps over the next 12 to 18 months?
Philip D., President and CEO
It's been fairly consistent over time as we look at megahubs and, you know, one of the reasons that we moved our targets from 75 to 110 and ultimately to 300 is that, you know, when we attach a megahub to a satellite network, we see an acceleration and it's a dynamic that we continue to see. When you jam more parts in the local market closer to the customer, then to Phil's point, it drives sales. As our commercial business continues to mature over time and we continue to grow our market share and grow our presence, as we expand that megahub network and attach it to more stores, we expect that profile to be as good or better on a go-forward basis.
So that drives a lot of our confidence about our business as we move closer to the 300 megahubs totals. And it also drives a lot of the confidence in our business to continue to grow market share, particularly we continue in those hubs and megahubs to figure out ways to get those parts faster to our customers and our stores by leveraging technology. I mean, we know where our drivers are, we know where the parts are, we know how to fastest get those parts to those customers in the shops that are waiting to turn their bay and ultimately help a DIY customer that may be broken down in our parking lot or broken down at their house.
So we'll continue to iterate on our operations and make better and smarter decisions on how we deploy this inventory and how quickly we can get it to our customers. We're working on that continuously. So I suspect that will continue to improve.
Seth Sigman, Analyst at Barclays
Okay, great. And then my follow-up is around inflation and the elasticity that we're thinking about here. You know, when you look at the incremental inflation, where it's coming from now and what you're thinking about for 2027, is there any reason to believe that the elasticity is going to be different, maybe more favorable than what you saw last year based on the categories that it's targeting?
Jameer Jackson, Chief Financial Officer
Well, I think two things about inflation. One, we think it's going to be a little bit more favorable from an elasticity and transaction standpoint. Just because if you think about what's happened is our consumers had to deal with tariffs on top of sort of a normalized inflation, if you will, we get to lap over that beginning in the fourth quarter of this year. So as I mentioned a little bit earlier, if you just look at ticket averages for us, they're up 9% on a two-year stack basis.
We expect that to normalize as we move forward. And then I think very broadly speaking, as we think about inflation, again, I come back to this industry is very disciplined and very rational when it comes to dealing with inflation and how we price our products to our customers. And we'll continue to expect that going forward. And that will mean that our business will be in pretty good shape as we move forward.
Philip D., President and CEO
I think as you talk about elasticities too, large chunks of our business are really inelastic. It's failure related. And if a starter goes out or your battery goes out, you don't have a whole lot of choice, but you have to replace it. You know, some elements of our business are more discretionary and have more elasticities, particularly in the, you know, the categories like floor mats and seat covers. Those are not necessary to drive your car. Maintenance people will tend to push them a little bit as they, you know, get under pressure from an inflationary perspective.
But over time, you have to replace those parts. You can't continue to defer the maintenance on the car. If you do, you end up with a failure. Tie rod end may be wobbly, but if it fails now, you've got to replace ball joints and other parts of the car, which are a much more expensive failure repair. So customers generally understand that over time and you've got to go do the maintenance on a vehicle or you're going to have a bigger problem. So discretionary can be pushed, which we've seen.
But the other categories over historically have always rebounded and been positive for us in inflationary environments.
Seth Sigman, Analyst at Barclays
Okay, thank you both.
OPERATOR
Thank you. Your next question is coming from Scott Ciccarelli from Truist. Your line is live.
Scott Ciccarelli, Analyst at Truist
Good morning, guys. Thanks for the time. How are you thinking about or modeling the higher comp contribution that you should get from the new store acceleration, which I guess started about a year ago? And are you building, can we assume you're building like a growing lift as the year progresses as more stores roll into the comp base?
Philip D., President and CEO
Yeah, I mean, as you might expect, the newer stores have higher comps in the near term. It does have some impact on our comps going forward. But also remember that if you take domestically, for example, we added 236 stores on a base of 6,500 or 6,600 stores. So while it does have some impact, it doesn't move the needle as much as you might think. Which the underlying view then is that we expect our mature stores and our mature store profile to continue to make progress as well. So while new stores are certainly a contributor here, we're expecting to make some progress across our entire business.
Scott Ciccarelli, Analyst at Truist
Business. Got it. Understood. And then just to clarify something you guys mentioned earlier, have you made any changes to your domestic store opening plans for 28 or was the whole change on Brazil?
Philip D., President and CEO
Yeah, we still think we'll get to roughly that 300 stores in the U.S. We'll be in that range of 120 or so in Mexico and roughly 20 or so in Brazil. We'll continue those to get to that, you know, roughly 430 net new stores on an annual basis. And again, like I said, we really think the opportunity is to continue to double down on our performance in Mexico and U.S. We'll continue to work on Brazil. We like the market, but there are things that we need to go do down there and we think it's a great market for us.
But we need to focus today on our domestic and Mexico business.
Scott Ciccarelli, Analyst at Truist
Got it. Thanks, guys.
Philip D., President and CEO
Okay, thank you for those questions. But before we conclude the call, I'd like to take a moment to reiterate that we have an incredible business in a strong and resilient industry. We are excited about our growth prospects for the new fiscal year, but we will take nothing for granted as we understand that our customers have alternatives. We have exciting plans that will help us succeed in the future. But I want to stress that this is a marathon and not a sprint as we remain focused on delivering flawless execution and striving to optimize shareholder value for the future.
We are confident that AutoZone will be successful. Thank you for participating in today's call.
OPERATOR
Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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