What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-03-20 compared with 2025-12-19 · 92 added, 60 removed, 173 unchanged (47% of the section changed)

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(“AutoZone” or the “Company”).

The following MD&A discussion should be read in conjunction with our Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and risk factors, that appear elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended August 30, 2025, and our other filings with the SEC.

Forward-Looking Statements

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We are a leading retailer and distributor of automotive replacement parts and accessories in the Americas.

We began operations in 1979, and at November 22, 2025, operated 6,666 stores in the U.S., 895 stores in Mexico and 149 stores in Brazil.

We began operations in 1979 and at February 14, 2026, operated 6,709 stores in the U.S., 913 stores in Mexico and 152 stores in Brazil.

Each store carries an extensive product line for cars, sport utility vehicles, vans and light duty trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products.

At November 22, 2025, in 6,182 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provides prompt delivery of parts and other products and commercial credit to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts.

At February 14, 2026, in 6,310 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provides prompt delivery of parts and other products and commercial credit to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts.

We also sell automotive hard parts, maintenance items, accessories and non-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com.

Additionally, we sell the ALLDATA brand of automotive diagnostic, repair, collision and shop management software through www.alldata.com.

Additionally, we sell the ALLDATA brand automotive diagnostic, repair, collision and shop management software through www.alldata.com.

We also provide product information on our Duralast branded products through www.duralastparts.com.

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Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.

Operating results for the twelve weeks ended November 22, 2025, are not necessarily indicative of the results that may be expected for the fiscal year ending August 29, 2026.

Operating results for the twelve and twenty-four weeks ended February 14, 2026, are not necessarily indicative of the results that may be expected for the fiscal year ending August 29, 2026.

Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks.

The fourth quarters of fiscal 2026 and 2025 each have 16 weeks.

Our business is somewhat seasonal in nature, with the highest sales generally occurring in the spring and summer months of February through September, and the lowest sales generally occurring in the months of December and January.

Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January.

Executive Summary

Net sales increased to $4.6 billion, an 8.2% increase over the prior year period.

Our retail and commercial sales in our domestic and international markets grew as we continue to make progress on our growth initiatives.

Net sales increased to $4.3 billion, an 8.1% increase over the comparable prior year period.

Operating profit decreased 1.2% to $698.5 million.

Operating profit comparisons were negatively impacted by an unfavorable non-cash LIFO impact of $98.0 million.

Net income decreased 6.0% to $530.8 million, and diluted earnings per share decreased 4.6% to $31.04.

During the first quarter of fiscal 2026, failure and maintenance related categories represented the largest portion of our sales mix at approximately 86% of total sales, which is consistent with the comparable prior year period.

The second quarter operating profit comparison was negatively impacted by $59.0 million due to an unfavorable non-cash LIFO charge in the current quarter.

Net income decreased 3.9% to $468.9 million and diluted earnings per share decreased 2.3% to $27.63 for the quarter.

During the second quarter of fiscal 2026, failure and maintenance related categories represented the largest portion of our sales mix at approximately 85% of total sales, whereas they represented approximately 86% of total sales in the comparable prior year period.

Failure related categories continue to be the largest portion of our sales mix.

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Over the long-term, we believe the impact of weather on our sales mix is not significant.

Our business is impacted by various factors within the economy that affect both our consumers and our industry, including but not limited to inflation, interest rates, levels of consumer debt, fuel and energy costs, prevailing wage rates, foreign exchange rate fluctuations, supply chain disruptions, tariffs, trade policies and other geopolitical factors, hiring and other economic conditions.

Our business is impacted by various factors within the economy that affect both our consumers and our industry, including but not limited to inflation, interest rates, levels of consumer debt, fuel and energy costs, prevailing wage rates, foreign currency exchange rate fluctuations, supply chain disruptions, tariffs, trade policies and other geopolitical factors, hiring and other economic conditions.

Given the nature of these macroeconomic factors, which are generally outside of our control, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

The two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road.

For the 12-month period ended in October 2025, miles driven in the U.S.

For the twelve-month period ended December 2025, miles driven in the U.S.

increased 0.9% compared to the same period in the prior year, based on the latest information available from the U.S.

Department of Transportation.

According to the latest data provided by S&P Global Mobility, the average age of light vehicles on the road was 12.8 years.

Twelve Weeks Ended November 22, 2025

Compared with Twelve Weeks Ended November 23, 2024

Net sales for the twelve weeks ended November 22, 2025, increased $349.0 million to $4.6 billion, or 8.2% over net sales for the comparable prior year period.

This growth was driven primarily by an increase in total company same store sales of 4.7% on a constant currency basis and net sales of $110.6 million from new domestic and international stores.

Domestic commercial sales increased $163.7 million to $1.3 billion, or 14.5% over the comparable prior year period.

According to the latest data provided by S&P Global Mobility, the average age of light vehicles on the road in the U.S.

was 12.8 years.

On February 20, 2026, the U.S.

Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act.

The President immediately introduced new tariffs under different statutory authority, though their scope and duration, and the likelihood and outcome of further legal challenges to these tariffs, remain uncertain.

Tariff policy continues to evolve, and we are monitoring potential impacts on our business and results of operations.

Twelve Weeks Ended February 14, 2026

Compared with Twelve Weeks Ended February 15, 2025

Net sales for the twelve weeks ended February 14, 2026, increased $322.1 million to $4.3 billion, or 8.1% over net sales of $4.0 billion for the comparable prior year period.

This growth was driven by an increase in total company same store sales of 3.3% on a constant currency basis and net sales of $114.4 million from new domestic and international stores.

Domestic commercial sales increased $103.0 million to $1.2 billion, or 9.8% over the comparable prior year.

Same store sales, or sales for our domestic and international stores open at least one year, are as follows:

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Constant Currency (1)

November 22, 2025

November 23, 2024

November 22, 2025

November 23, 2024

February 14, 2026

February 15, 2025

February 14, 2026

February 15, 2025

International

Total Company

(1) Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.

Gross profit for the twelve weeks ended November 22, 2025, was $2.4 billion, compared with $2.3 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 51.0% compared to 53.0% during the comparable prior year period.

The decrease in gross margin was driven primarily by a 212 basis point unfavorable non-cash LIFO impact, partially offset by other net margin improvements.

Operating, selling, general and administrative expenses for the twelve weeks ended November 22, 2025, and the comparable prior year period were $1.6 billion and $1.4 billion, respectively.

As a percentage of sales, expenses were 34.0% for the twelve weeks ended November 22, 2025, compared with 33.3% during the comparable prior year period.

(1) Constant currency same store sales exclude impacts from fluctuations of foreign currency exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.

Gross profit for the twelve weeks ended February 14, 2026, was $2.2 billion, compared with $2.1 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 52.5% for the twelve weeks ended February 14, 2026, compared to 53.9% for the comparable prior year period.

The decrease in gross margin was driven by a 138 basis point unfavorable non-cash LIFO charge.

Operating, selling, general and administrative expenses for the twelve weeks ended February 14, 2026, were $1.5 billion compared with $1.4 billion during the comparable prior year period.

As a percentage of sales, these expenses were 36.1% compared with 36.0% during the comparable prior year period.

The increase was primarily driven by investments to support our growth initiatives.

Net interest expense for the twelve weeks ended November 22, 2025, was $106.3 million compared to $107.6 million during the comparable prior year period.

Average borrowings were $8.7 billion and $8.9 billion, and weighted average borrowing rates were 4.5% and 4.4% for the twelve weeks ended November 22, 2025, and November 23, 2024, respectively.

Our effective income tax rate for the twelve weeks ended November 22, 2025, was 21.7% of pretax income compared to 23.0% for the comparable prior year period.

The benefit from stock options exercised for the twelve week period ended November 22, 2025, was $12.6 million compared to $5.3 million in the comparable prior year period.

Net income for the twelve weeks ended November 22, 2025, decreased by $34.1 million from the comparable prior year period to $530.8 million due to the factors set forth above, and diluted earnings per share decreased by 4.6% to $31.04 from $32.52.

Net interest expense was $107.2 million and $108.8 million for the twelve weeks ended February 14, 2026, and February 15, 2025, respectively.

Average borrowings were $8.8 billion and $9.1 billion, and weighted average borrowing rates were 4.49% and 4.43% for the twelve weeks ended February 14, 2026, and February 15, 2025, respectively.

Our effective income tax rate was 20.7% and 18.4% of pretax income for the twelve weeks ended February 14, 2026, and February 15, 2025, respectively.

The increase is primarily due to a reduced benefit from stock options exercised compared to the prior year, and last year benefiting from favorable discrete items related to our international business.

The benefit from stock options exercised was $7.3 million and $14.3 million for the twelve weeks ended February 14, 2026 and the comparable prior year period, respectively.

Net income for the twelve weeks ended February 14, 2026, decreased by $19.1 million from the comparable prior year period to $468.9 million due to the factors set forth above, and diluted earnings per share decreased by 2.3% to $27.63 from $28.29.

Twenty-four Weeks Ended February 14, 2026

Compared with Twenty-four Weeks Ended February 15, 2025

Net sales for the twenty-four weeks ended February 14, 2026, increased $671.1 million to $8.9 billion, or 8.2% over net sales of $8.2 billion for the comparable prior year period.

This growth was driven by an increase in total company same store sales of 4.0% on a constant currency basis and net sales of $225.0 million from new domestic and international stores.

Domestic commercial sales increased $266.7 million to $2.4 billion, or 12.2% over the comparable prior year period.

Same store sales, or sales for our domestic and international stores open at least one year, are as follows:

Twenty-Four Weeks Ended

Constant Currency (1)

February 14, 2026

February 15, 2025

February 14, 2026

February 15, 2025

International

Total Company

Gross profit for the twenty-four weeks ended February 14, 2026, was $4.6 billion, compared with $4.4 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 51.7% compared to 53.4% during the comparable prior year period.

The decrease in gross margin was driven by a 176 basis point unfavorable non-cash LIFO charge.

Operating, selling, general and administrative expenses for the twenty-four weeks ended February 14, 2026, were $3.1 billion compared with $2.8 billion during the comparable prior year period.

As a percentage of sales, these expenses were 35.0% compared with 34.6% during the comparable prior year period.

The increase was primarily driven by an increase in investments to support our growth initiatives.

Net interest expense was $213.5 million and $216.5 million for the twenty-four weeks ended February 14, 2026, and February 15, 2025, respectively.

Average borrowings were $8.8 billion and $9.0 billion, and weighted average borrowing rates were 4.51% and 4.43% for the twenty-four week periods ended February 14, 2026, and February 15, 2025, respectively.

Our effective income tax rate was 21.2% and 20.9% of pretax income for the twenty-four weeks ended February 14, 2026, and February 15, 2025, respectively.

The benefit from stock options exercised for the twenty-four week period ended February 14, 2026, was $19.9 million compared to $19.5 million in the comparable prior year period.

Net income for the twenty-four weeks ended February 14, 2026, decreased by $53.2 million from the comparable prior year period to $999.7 million due to the factors set forth above, and diluted earnings per share decreased by 3.5% to $58.68 from $60.83.

Liquidity and Capital Resources

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We believe that our cash generated from operating activities and available credit, supplemented with our long-term borrowings, will provide ample liquidity to fund our operations while allowing us to make strategic investments to support growth initiatives and return excess cash to shareholders in the form of share repurchases.

As of November 22, 2025, we held $287.6 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement.

As of February 14, 2026, we held $285.5 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement.

We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term.

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All of our material borrowing arrangements are described in greater detail in “Note I – Financing” in the Notes to Condensed Consolidated Financial Statements.

There were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 30, 2025.

For the twelve week periods ended November 22, 2025, and November 23, 2024, our net cash flows from operating activities provided $944.2 million and $811.8 million, respectively.

The increase for the twelve weeks ended November 22, 2025, compared with the prior year period, was primarily due to higher net earnings adjusted for non-cash charges.

Our net cash flows used in investing activities for the twelve weeks ended November 22, 2025, were $326.7 million as compared with $265.7 million in the comparable prior year period.

Capital expenditures for the twelve weeks ended November 22, 2025, were $314.2 million compared to $247.0 million in the comparable prior year period.

The increase in capital expenditures was primarily driven by our growth initiatives, including new stores, and hub and mega hub store expansion projects.

During the twelve weeks ended November 22, 2025, and November 23, 2024, we opened 53 and 34 net new stores, respectively.

Investing cash flows were impacted by our wholly owned captive, which purchased $12.6 million and $12.3 million, and sold $6.3 million and $12.6 million in marketable debt securities during the twelve weeks ended November 22, 2025 and the comparable prior year period, respectively.

Our investment in tax credit equity investments was $5.1 million during the twelve weeks ended November 22, 2025, compared to $31.0 million during the comparable prior year period.

Our net cash flows used in financing activities for the twelve weeks ended November 22, 2025, were $602.7 million compared to $538.1 million in the comparable prior year period.

Stock repurchases were $427.2 million in the current twelve week period as compared with $540.1 million in the comparable prior year period.

Except for the $102.4 million increase in commercial paper, there have been no material changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 30, 2025.

For the twenty-four week periods ended February 14, 2026, and February 15, 2025, our net cash flows from operating activities provided $1.3 billion and $1.4 billion, respectively.

Cash flows from operations decreased over last year primarily due to unfavorable changes in accounts payable and accrued expenses.

Our net cash flows used in investing activities for the twenty-four weeks ended February 14, 2026, were $667.5 million as compared to $563.4 million in the comparable prior year period.

Capital expenditures for the twenty-four weeks ended February 14, 2026, were $652.0 million compared to $539.7 million in the comparable prior year period.

The increase in capital expenditures was primarily driven by our growth initiatives, including new stores, hub and mega hub store expansion projects .

During the twenty-four week periods ended February 14, 2026, and February 15, 2025, we opened 117 and 79 net new stores, respectively.

Investing cash flows were impacted by our wholly-owned captive, which purchased $23.0 million and $31.3 million, and sold $8.8 million and $30.1 million in marketable debt securities during the twenty-four weeks ended February 14, 2026, and the comparable prior year period, respectively.

Our net investment in tax credit equity investments was $9.7 million and $37.4 million during the twenty-four weeks ended February 14, 2026, and the comparable prior year period, respectively.

Our net cash flows used in financing activities for the twenty-four weeks ended February 14, 2026, were $642.9 million compared to $826.4 million in the comparable prior year period.

Stock repurchases were $741.7 million in the current twenty-four week period versus $866.5 million in the comparable prior year period.

The treasury stock repurchases were primarily funded by cash flows from operations.

For the twelve week period ended November 22, 2025, and the comparable prior year period, we had $179.1 million and $15.0 million in net repayments of commercial paper, respectively.

Proceeds from the sale of common stock and exercises of stock options for the twelve weeks ended November 22, 2025, and November 23, 2024, provided $31.9 million and $36.0 million, respectively.

For the twenty-four week periods ended February 14, 2026, and February 15, 2025, we had $102.4 million and $22.0 million in net proceeds from commercial paper, respectively.

Proceeds from the issuance of common stock from exercises of stock options for the twenty-four weeks ended February 14, 2026, and February 15, 2025, provided $51.5 million and $64.3 million, respectively.

During fiscal 2026, we expect to increase the investment in our business as compared to fiscal 2025.

Our investments are expected to be directed primarily to our growth initiatives, which include new stores and hub and mega hub store expansion projects.

Our investments are expected to be directed primarily to our g rowth initiatives, which include new stores, hub and mega hub store expansion projects .

The amount of investments in our new stores is impacted by different factors, including whether the building and land are purchased (requiring higher investment) or leased (generally lower investment) and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.

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We plan to continue negotiating extended terms with our suppliers, benefitting our working capital and resulting in a high accounts payable to inventory ratio.

We had an accounts payable to inventory ratio of 115.6% at November 22, 2025, and 119.5% at November 23, 2024.

We had an accounts payable to inventory ratio of 110.9% at February 14, 2026, and 118.2% at February 15, 2025.

Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases.

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We anticipate that we will be able to obtain such financing based on our current credit ratings and favorable experiences in the debt markets in the past.

For the trailing four quarters ended November 22, 2025, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 39.6% as compared to 47.7% for the comparable prior year period.

Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases).

For the trailing four quarters ended February 14, 2026, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 37.6% as compared to 45.5% for the comparable prior year period.

Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to

capitalize operating leases).

We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance.

Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio as of November 22, 2025, and November 23, 2024, was 2.5:1.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio, which is a non-GAAP measure, was 2.5:1 as of February 14, 2026 and February 15, 2025.

We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six;

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Adjusted After-Tax ROIC

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended November 22, 2025, and November 23, 2024.

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 14, 2026, and February 15, 2025.

Trailing Four

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Adjusted Debt to EBITDAR

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended November 22, 2025, and November 23, 2024.

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended February 14, 2026, and February 15, 2025.

Trailing Four

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Adjusted debt to EBITDAR

(1) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the trailing four quarters ended November 22, 2025, and November 23, 2024 .

Trailing Four Quarters Ended

(in thousands)

November 22, 2025

November 23, 2024

February 14, 2026

February 15, 2025

Total lease cost, per ASC 842

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Variable operating lease components, related to insurance and common area maintenance

(2) Effective tax rate over trailing four quarters ended November 22, 2025, and November 23, 2024, was 20.0% and 20.5%, respectively.

(2) Effective tax rate over trailing four quarters ended February 14, 2026, and February 15, 2025, was 20.4% and 20.3%, respectively.

(3) All averages are computed based on trailing five quarter balances.

Recent Accounting Pronouncements

Refer to “Note A – General” in the Notes to Condensed Consolidated Financial Statements for the discussion of recent accounting pronouncements.

Refer to “Note A – General” in the Notes to Condensed Consolidated Financial Statements for the discussion of recently issued accounting pronouncements.

Critical Accounting Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis