AutoZone(AZO) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Total sales growth for fiscal 2024 was 5.9%, with EPS increasing by 13%. Excluding the extra week, sales were up 3.8% and EPS was up 10.4% [7] - Q4 total sales increased by 9%, with EPS up 11%. On a 16-week basis, Q4 sales were up 2.6% and EPS was up 3.5% [8] - Domestic same-store sales grew 0.2%, while international same-store sales grew 9.9% [8] - Domestic commercial sales accelerated sequentially, finishing up 4.5% versus last year's Q4 of 3.9% [9] - International business faced a nearly 500 basis points currency headwind, resulting in reported growth of approximately 5% [9] - Q4 total sales were $6.2 billion, up 9% year-over-year. Full-year sales were$ 18.5 billion, up 5.9% [19] - Q4 EBIT grew 6.1%, and EPS grew 11%. Full-year EBIT was $3.8 billion, up 9.1%, and EPS was$ 149.55, up 13% [18][31] Business Line Performance - Domestic DIY comp sales were down 1% in Q4, with discretionary category sales down 5% year-over-year [10] - Domestic commercial sales increased 10.9% in Q4 to $1.7 billion, representing 31% of domestic auto parts sales and 27% of total company sales [20][21] - International same-store sales grew 9.9% on a constant-currency basis, with 49 new stores opened in Mexico and Brazil, bringing the total to 921 international stores [16][26] - Mega-hubs averaged significantly higher sales and grew faster than the balance of the commercial business, with 109 mega-hubs in operation [22][23] Market Performance - Domestic DIY comp sales were down 1.1% for the quarter, with traffic down 2% and ticket growth up 1% [24] - International same-store sales grew 9.9% on a constant-currency basis, but reported growth was 4.9% due to foreign exchange headwinds [26] - The company expects DIY and commercial sales trends to modestly improve in Q1 FY25, with better performance expected in Q2 and Q3 [15] Strategy and Industry Competition - The company plans to accelerate international store openings, targeting around 200 openings per year by 2028 [16] - Investments in hubs, mega-hubs, and distribution centers are expected to drive future growth and improve customer service [17] - The company is focused on improving execution, parts availability, and customer service to grow market share domestically and internationally [37][40] Management Commentary on Operating Environment and Future Outlook - Management expects consumer confidence to improve as economic conditions stabilize, which should benefit discretionary categories [10] - The company anticipates average ticket growth will return to historical industry growth rates as inflation normalizes [11] - Foreign currency headwinds are expected to impact FY25 results, with a potential$ 265 million drag on revenue and $3.64 per share impact on EPS [35] - The company remains committed to driving long-term shareholder value through growth initiatives, robust earnings, and returning excess cash to shareholders [34] Other Important Information - The company repurchased$ 711 million of stock in Q4 and has $2.2 billion remaining under its share buyback authorization [33] - Free cash flow for Q4 was$ 723 million, and full-year free cash flow was $1.9 billion [32] - The company expects to open 20+ mega-hubs in FY25, with most openings occurring in the second half of the year [51][98] Q&A Session Summary Question: Timing and expectations for commercial sales growth [43] - Management expects sequential improvement in commercial sales, driven by better store assortments, hub and mega-hub openings, and improved customer service [44] Question: Gross margin outlook and drivers [45] - Merchandising margin improvements and potential inflation in FY25 are expected to drive gross margin growth [46][47] Question: Hurdles to reaccelerating hub growth [49] - The company has rebuilt its pipeline and capabilities, with 70 mega-hubs under construction and plans to open 20+ in FY25 [51] Question: Cadence of commercial sales and national account performance [52] - Commercial sales were consistent across regions, with national accounts improving quarter-over-quarter, particularly in tire-related categories [55] Question: DIY and commercial market growth expectations [58] - DIY market growth has been low-single-digits due to consumer sentiment and lack of retail inflation, while commercial sales have been flat to slightly declining [61][62] Question: Gross margin impact from the 53rd week and FX headwinds [63] - The 53rd week had a noisy impact on margins, while FX headwinds are expected to continue impacting international margins [65] Question: Weekly sales per commercial program and initiatives to improve growth [67] - The company is focused on improving speed of delivery and customer service, leveraging technology and hub/mega-hub strategies [69][70] Question: Non-controllable headwinds to EBIT growth [71] - LIFO credits and FX headwinds are expected to impact EBIT growth in FY25, with$ 40 million of LIFO credits rolling through the P&L [72][73] Question: Inflation drivers and historical impacts [75] - Inflation is expected to return to historical levels in FY25, driven by product cost increases and technology advancements in parts [77][78] Question: Consumer behavior and historical comparisons [80] - The current consumer environment is unique, with lower-end consumers under pressure, but the company expects maintenance and repair spending to increase as economic conditions improve [81][82] Question: Double-digit EPS growth algorithm and margin structure [85] - The long-term algorithm remains unchanged, with near-term pressure from FX and LIFO headwinds. Gross margin expansion and disciplined SG&A management are key to maintaining operating margins [86][89][90] Question: Competitive pricing impact on average ticket [94] - Competitive pricing has not significantly impacted average ticket growth, which is primarily driven by cost inflation [95][96] Question: Q1 comp expectations and store growth plans [97] - Q1 comps are expected to modestly improve, with store growth plans including 20+ mega-hubs and accelerated international store openings [98][99] Question: Car park dynamics and SG&A growth [101] - The aging car park is a tailwind for the industry, with cars lasting longer and staying on the road. SG&A growth is managed to support growth initiatives while maintaining efficiency [102][106]