What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-06-12 compared with 2026-03-20 · 65 added, 72 removed, 193 unchanged (42% of the section changed)

37 unchanged sentences

and other business interruptions.

These and other risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 30, 2025 .

These and other risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part I of our Annual Report on Form 10-K for the year ended August 30, 2025 .

Forward-looking statements are not guarantees of future performance and actual results may differ materially from those contemplated by such 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 February 14, 2026, operated 6,709 stores in the U.S., 913 stores in Mexico and 152 stores in Brazil.

We began operations in 1979 and at May 9, 2026, operated 6,766 stores in the U.S., 933 stores in Mexico and 157 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 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.

At May 9, 2026, in 6,356 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.

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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 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.

Operating results for the twelve and thirty-six weeks ended May 9, 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.

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Net sales increased to $4.8 billion, an 8.4% increase over the comparable prior year period.

Operating profit decreased 1.2% to $698.5 million.

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.

Operating profit increased 6.6% to $923.8 million.

The third quarter operating profit comparison was negatively impacted by a $36.0 million net unfavorable non-cash LIFO impact.

Net income increased 5.4% to $641.5 million and diluted earnings per share increased 7.7% to $38.07 for the quarter.

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

For the twelve-month period ended March 2026, miles driven in the U.S.

increased 1.1% compared to the same period in the prior year, based on the latest information available from the U.S.

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On February 20, 2026, the U.S.

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

Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”).

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.

On April 20, 2026, the Company filed for refunds of IEEPA tariffs paid directly by the Company via the U.S.

Customs and Border Protection’s consolidated administration and processing of entries tool in the automated commercial environment portal.

Due to the uncertainty around the timing and amount of refunds to be received, the Company has not recognized any potential IEEPA tariff refunds within its Condensed Consolidated Financial Statements as of May 9, 2026.

Tariff policy and legal challenges continue to evolve, and we will continue to monitor potential impacts on our business, financial condition and results of operations.

Twelve Weeks Ended May 9, 2026

Compared with Twelve Weeks Ended May 10, 2025

Net sales for the twelve weeks ended May 9, 2026, increased $376.6 million to $4.8 billion, or 8.4% over net sales of $4.5 billion for the comparable prior year period.

This growth was primarily driven by an increase in total company same store sales of 3.9% on a constant currency basis and net sales of $129.0 million from new domestic and international stores.

Domestic commercial sales increased $132.4 million to $1.4 billion, or 10.4% over the comparable prior year.

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Constant Currency (1)

February 14, 2026

February 15, 2025

February 14, 2026

February 15, 2025

International

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(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 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.

Gross profit for the twelve weeks ended May 9, 2026, was $2.5 billion, compared with $2.4 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 52.2% for the twelve weeks ended May 9, 2026, compared to 52.7% for the comparable prior year period.

The decrease in gross margin was driven by a 77 basis point unfavorable net non-cash LIFO impact, partially offset by other margin improvements.

Operating, selling, general and administrative expenses for the twelve weeks ended May 9, 2026, were $1.6 billion compared with $1.5 billion during the comparable prior year period.

As a percentage of sales, these expenses were 33.1% compared with 33.3% during the comparable prior year period, primarily driven by strong top line sales growth.

Net interest expense was $110.5 million and $111.3 million for the twelve weeks ended May 9, 2026, and May 10, 2025, respectively.

Average borrowings were $8.9 billion and $9.2 billion, and weighted average borrowing rates were 4.52% and 4.48% for the twelve weeks ended May 9, 2026, and May 10, 2025, respectively.

Our effective income tax rate was 21.1% and 19.4% of pretax income for the twelve weeks ended May 9, 2026, and May 10, 2025, respectively.

The increase is primarily due to a reduced benefit from stock options exercised compared to the prior year.

The benefit from stock options exercised was $4.0 million and $22.7 million for the twelve weeks ended May 9, 2026, and the comparable prior year period, respectively.

Net income for the twelve weeks ended May 9, 2026, increased by $33.1 million from the comparable prior year period to $641.5 million due to the factors set forth above, and diluted earnings per share increased by 7.7% to $38.07 from $35.36.

Thirty-six Weeks Ended May 9, 2026

Compared with Thirty-six Weeks Ended May 10, 2025

Net sales for the thirty-six weeks ended May 9, 2026, increased $1.0 billion to $13.7 billion, or 8.3% over net sales of $12.7 billion for the comparable prior year period.

This growth was primarily driven by an increase in total company same store sales of 4.0% on a constant currency basis and net sales of $354.0 million from new domestic and international stores.

Domestic commercial sales increased $399.1 million to $3.8 billion, or 11.6% 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

Thirty-Six Weeks Ended

Constant Currency (1)

February 14, 2026

February 15, 2025

February 14, 2026

February 15, 2025

International

1 unchanged sentence

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 for the thirty-six weeks ended May 9, 2026, was $7.1 billion, compared with $6.7 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 51.9% compared to 53.2% 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.

The decrease in gross margin was driven by a 142 basis point unfavorable net non-cash LIFO impact.

Operating, selling, general and administrative expenses for the thirty-six weeks ended May 9, 2026, were $4.7 billion compared with $4.3 billion during the comparable prior year period.

As a percentage of sales, these expenses were 34.3% compared with 34.2% 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.

Net interest expense was $323.9 million and $327.7 million for the thirty-six weeks ended May 9, 2026, and May 10, 2025, respectively.

Average borrowings were $8.8 billion and $9.1 billion, and weighted average borrowing rates were 4.51% and 4.45% for the thirty-six week periods ended May 9, 2026, and May 10, 2025, respectively.

Our effective income tax rate was 21.2% and 20.4% of pretax income for the thirty-six weeks ended May 9, 2026, and May 10, 2025, respectively.

The benefit from stock options exercised for the thirty-six week period ended May 9, 2026, was $23.8 million compared to $42.3 million in the comparable prior year period.

Net income for the thirty-six weeks ended May 9, 2026, decreased by $20.1 million from the comparable prior year period to $1.6 billion due to the factors set forth above, and diluted earnings per share increased by 0.5% to $96.69 from $96.17.

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 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.

As of May 9, 2026, we held $253.7 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.

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.

Except for the $609.4 million increase in commercial paper and repayment of our outstanding $400 million 3.125% Senior Notes due April 2026, 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 thirty-six week periods ended May 9, 2026, and May 10, 2025, our net cash flows from operating activities provided $2.1 billion and $2.2 billion, respectively.

Our net cash flows used in investing activities for the thirty-six weeks ended May 9, 2026, were $1.0 billion as compared to $917.3 million in the comparable prior year period.

Capital expenditures for the thirty-six weeks ended May 9, 2026, were $997.5 million compared to $885.6 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.

During the thirty-six week periods ended May 9, 2026, and May 10, 2025, we opened 199 and 163 net new stores, respectively.

Investing cash flows were impacted by our wholly-owned captive, which purchased $35.4 million and $54.3 million, and sold $17.7 million and $54.8 million in marketable debt securities during the thirty-six weeks ended May 9, 2026, and the comparable prior year period, respectively.

Our net investment in tax credit equity investments was $9.2 million and $50.4 million during the thirty-six weeks ended May 9, 2026, and the comparable prior year period, respectively.

Our net cash flows used in financing activities for the thirty-six weeks ended May 9, 2026, were $1.1 billion compared to $1.3 billion in the comparable prior year period.

During the thirty-six weeks ended May 9, 2026, we had no debt issuances, versus $500 million in debt issuances in the comparable prior year period.

During the thirty-six week periods ended May 9, 2026, and May 10, 2025, we had $400 million and $900 million in debt repayments, respectively.

Stock repurchases were $1.3 billion in the current thirty-six week period versus $1.1 billion in the comparable prior year period.

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

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.

For the thirty-six week periods ended May 9, 2026, and May 10, 2025, we had $609.4 million and $225.5 million in net proceeds from commercial paper, respectively.

Proceeds from the issuance of common stock from exercises of stock options for the thirty-six weeks ended May 9, 2026, and May 10, 2025, provided $67.7 million and $111.0 million, respectively.

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

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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 110.9% at February 14, 2026, and 118.2% at February 15, 2025.

We had an accounts payable to inventory ratio of 111.1% at May 9, 2026, and 115.6% at May 10, 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 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).

For the trailing four quarters ended May 9, 2026, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 36.3% as compared to 43.5% 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, 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 February 14, 2026, and February 15, 2025.

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended May 9, 2026, and May 10, 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 February 14, 2026, and February 15, 2025.

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended May 9, 2026, and May 10, 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 February 14, 2026, and February 15, 2025.

Trailing Four Quarters Ended

(in thousands)

February 14, 2026

February 15, 2025

Total lease cost, per ASC 842

1 unchanged sentence

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

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

(2) Effective tax rate over trailing four quarters ended May 9, 2026, and May 10, 2025, was 20.8% and 20.6%, respectively.

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

5 unchanged sentences

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