AutoZone Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
March 1, 2022

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to AutoZone's 2022 Second Quarter Earnings Release Conference Call. Before we begin, the company would like to read some forward looking statements.

Speaker 1

Before we begin, please note that today's call includes forward looking statements that are subject to the Safe Harbor provisions of the in 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 participants are on Form 10 ks 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 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.

Speaker 2

Ready to

Operator

begin. Thank you. It is now my pleasure to turn the floor over to your host, Bill Rhodes, CEO of AutoZone. Sir, the

Speaker 2

floor is yours. Thank you. Good morning, and thank

Speaker 3

you for joining us today for AutoZone's 2022 Second Quarter Conference Call. With me today are Jamere Jackson, Executive Vice President, Chief Financial Officer and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the Q2, I hope you've had an opportunity to read our press release and learn about the quarter's results. Under the Investor Relations link. Please click on quarterly earnings conference calls to see them.

Speaker 3

As we begin, We want to continue to stress that our highest priority remains the safety and well-being of our customers and AutoZoners. Everyone, participants are very pleased with the progress we made in the quarter. Everyone across the organization takes this responsibility very seriously, and I am extremely proud Since the start of the pandemic, we have consistently recognized our AutoZoners in our stores and distribution centers for giving exceptional service in the face of all the challenges COVID-nineteen has presented. This quarter, we will start the same way by saying thank you to our AutoZoners for their dedication to providing exceptional customer service and helping our customers with their automotive needs. This morning, we will review our overall same store sales, DIY versus DIFM trends, our sales cadence over the 12 weeks of the quarter, merchandise categories that drove our performance and any regional discrepancies.

Speaker 3

We'll also share how inflation is affecting our costs and retails and how we think they will impact our business for the remainder of the fiscal year. Lastly, I'll touch on the subject of pricing in the industry. Our Our team has once again executed an exceptionally high level and delivered amazing results participating in the ongoing very challenging environment. In Q1 of this fiscal year, we reported 13.6% same store sales on top of 20 21's Q1 same store sales of 12.3%, impressively, very impressively, Our growth rates for retail and commercial were both strong, with domestic commercial growth north of 32%. Commercial set a second quarter record with $844,000,000 in sales, an incredible accomplishment.

Speaker 3

We generated $200,000,000 more in sales this quarter than in Q2 last year. On a trailing 4 quarter basis, we generated $3,800,000,000 in annualized commercial sales versus at $2,900,000,000 just a year ago, up 30%. We also set a record in average weekly sales per store

Speaker 2

conducting a call for

Speaker 3

any second quarter at $13,500 versus $10,500 last year. On a 2 year basis, our sales accelerated from last quarter, exceeding 46% in commercial. Participants are in the

Speaker 2

range of $1,000,000,000. Domestic commercial

Speaker 3

sales represented 25% of our total company sales, another record for us compared to 21.9% last participants are in the range of $1,000,000,000. Our commercial sales growth continues to be driven by a host, and I will emphasize, a host of key initiatives we've been working on for the last several years. We improved our satellite store inventory availability. Have had massive improvements in hub and mega hub coverage. We're leveraging the strength of the Duralast brand.

Speaker 3

We have better technology to make us easier to do business with. We have significantly improved our delivery times. In the range of $1,000,000,000 We've enhanced our sales force's effectiveness, and we're living consistent with our pledge by being priced right participants are ready for the value proposition that we deliver. We continue to execute very well in commercial, and we are extremely proud of our team participants are very proud of our organization's performance in domestic DIY. As our DIY 2 year stack comp accelerated from the Q1, it's remarkable to reflect on in the range

Speaker 2

of 4 consecutive quarters

Speaker 3

of more than 20% 2 year comps in this more mature portion conducting a number of our business. From the data we have available to us, we continue to not only retain the enormous participants are in the range of 3 full points of share gains we built during the initial stages of the pandemic, but modestly continue to build on those gains. Our performance, considering the amount of time from the last stimulus and the ending of the enhanced unemployment benefits, have a very strong balance sheet. We have a strong balance sheet and we have a strong balance sheet. We have a strong balance sheet and we have a strong balance sheet on the sustainability of these sales levels.

Speaker 3

Now let's focus on sales cadence. Our same store sales decreased sequentially participating in the Q2, from late November through January and then accelerated again in the few days of the quarter we had in February. The deceleration through January could be deceiving as last year's comps strengthened As the quarter progressed as a result of the federal stimulus distributed around the 1st of last calendar year. Given the dynamics of the past 20 months, we like others who benefited from the pandemic believe it has been more instructive to look at 2 year stacked comps. On this basis, the monthly results were almost identical in line with our expectations and we are very stable.

Speaker 3

For Q2, our 2 year comp was 29.1% and the 4 week periods of the quarter increased 29.6%, 28.9% in the range of 20 9.1 percent respectively. Regarding weather, until February, we experienced Overall, we feel weather did not play a material role in our sales performance. As we look forward to the spring months, we believe we will As a reminder, historically, extreme weather, either cold or hot, drives parts failures and accelerated maintenance. Regarding this quarter's traffic versus ticket growth, in retail, our traffic was up slightly, while our ticket was up 7.8%. Participants are in the line with the line of sight.

Speaker 3

The slight transaction count growth continues to be a meaningful acceleration from pre pandemic levels, participating in the Q2, although it decelerated versus last year as expected due to the elimination of stimulus and enhanced unemployment. In our commercial business, we saw most of the sales growth come from transaction growth from new and existing customers. It was encouraging for us to see sales trends remain strong, and we continue to be pleased with the momentum we are seeing in both domestic businesses participants are in the

Speaker 2

range of $1,000,000,000 in the

Speaker 3

quarter. During the quarter, there were some geographic regions that did better than others, as there always are, But this quarter, we saw a mere 15 basis points difference between the Northeast and Midwest compared to the balance of the country. As winter definitely came in late January in the Northeast and Midwest, we are expecting that gap will remain close. Also, the market share data suggests we continue to gain share in most of our markets. Now, let's move into more specifics on performance for the quarter.

Speaker 3

Our same store sales were up 13.8% versus last year's Q2. Our net income was $472,000,000 and our EPS were $22.30 a share, increasing an impressive 49.4%. Regarding our merchandise categories in the retail business, our hard parts grew slightly faster than our sales floor categories, participants are in the range of $1,000,000 but not material, say, maybe less than 1%. As Americans get back to driving more, we've seen maintenance and failure related categories performed well. We've been especially pleased with our growth rates in select failure related businesses like batteries participants are participating in the process of driving more.

Speaker 3

Let me also address inflation and pricing. This quarter, we saw our sales increase by over 5% from inflation. While our cost of goods was up over 4% on a like for like basis, ready to take questions. We believe both numbers will be slightly higher in the 3rd quarter as cost increases in many key merchandise categories continue to work their way through the system. As rising raw material pricing, labor and transportation costs all impacting us and our suppliers, inflation has been prevalent in the aftermarket space.

Speaker 2

We have

Speaker 3

no way to say how long this will last, but our industry has been disciplined about pricing for decades, participating in the press release and we expect that to continue. It is also notable that following periods of higher inflation, We typically do not see corresponding deflation. While we continue to be encouraged with the current sales environment, It remains difficult to forecast near to mid term sales. What I will say is that the past 4 quarter sales While it's difficult to predict absolute sales levels going forward, we are excited about our growth initiatives, currently the macro environment, while uncertain, remains very favorable for our industry. And even if these near term trends fade,

Speaker 2

in a position to be in a

Speaker 3

position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be in a position to be led by the strength in our commercial business as we continue executing on our differentiating initiatives. As we progress through the year, we will, as always, be transparent about what we are seeing and provide color on our markets and outlooks as trends emerge. Participants. Before handing the call over to Jamere, I'd like to address the subject of pricing and if AutoZone's pricing disciplines While we initiated a retail pricing adjustment last year in Q1 and further adjusted some commercial pricing in quarters

Speaker 2

participants are in the range of 2 through

Speaker 3

4, these moves were done to be price competitive, but with other channels, not with our direct competitors. Participating in the retail business. We reduced our premiums to mass, particularly on highly visible commodity products. Regarding the more significant change in commercial, our prices have always, always been meaningfully higher than our WD competitors,

Speaker 2

participating in the process of executing

Speaker 3

on our service level is superior. Our pricing changes over the last year or so have been too narrow. In the range of $1,000,000,000 but we narrowed that premium by roughly half. While this has created some consternation in the investment community, we think our results have shown that this was a prudent and productive decision. We continue to see our industry is very rational when it comes to pricing strategies, And I want to be clear, crystal clear.

Speaker 3

I don't want anyone to conclude that our growth in commercial is solely due to pricing. We launched a comprehensive new strategy about 3 years ago with improvements in assortments, local market availability with hubs and mega hubs. Our delivery times are dropping as we leverage new technologies that have been deployed. Our team's execution is enhanced. We've made ourselves easier to do business with in the range of 2nd quarter earnings release conference call.

Speaker 3

At this time, all participants are in the range of 2nd quarter and we've improved our pricing versus WDs. We stated last year, we didn't envision any additional pricing reductions beyond those deployed at the beginning of last year's Q4 and that remains our stance. Conducting a call over to Jamere Jackson. Jamere?

Speaker 4

Thanks, Bill, and good morning, everyone. As Bill mentioned, We had a strong second quarter with double digit comp growth, a 30% growth in EBIT and a 49% growth in EPS. Our results for the first half of the fiscal year have been remarkably strong as our growth initiatives continue to deliver great results and the efforts of our AutoZoners in our stores and distribution centers have enabled us to take advantage of robust market conditions. To start this morning, let me take a few moments to elaborate on the specifics in our P and L for Q2. For the quarter, total auto parts sales, which includes our Starting with our commercial business for the Q2, our domestic DIFM sales increased 32.1 percent to $844,000,000 were up 46.8 percent on a 2 year stack basis.

Speaker 4

Sales to our DIFM customers represented 25% of our total company sales And our weekly sales per program were $13,500 up 28.6 percent as we averaged just over $70,000,000 in total weekly commercial sales. Once again, our growth was broad based as national and local accounts both grew at approximately 32% for the quarter. While the Q2 is seasonally our lowest selling quarter, our results for the quarter are exceptional and represent the highest volume second quarter in the history of the chain. I want to continue to reiterate that our execution on our commercial acceleration initiatives is delivering better than expected results call as we focus on building a faster growing business. We are making tremendous progress in growing share in this highly fragmented portion of the market participating in the process by winning new business and increasing our share of wallet with existing customers.

Speaker 4

We have our commercial program in approximately 86% of our domestic stores, finishing with 5,233 total programs.

Speaker 3

As I said at the outset of

Speaker 4

the year, commercial growth will lead the way in FY 'twenty two, in the Q2 and the first half of the year reflects this dynamic. We remain confident in our strategies and execution and believe we will continue gaining share, delivering quality parts, particularly with our Duralast brand, improved assortments, competitive pricing and providing exceptional service has enabled us to drive double digit sales growth for the past 7 quarters. Are positioning us for an even brighter future in our commercial and retail businesses. Let me add a little more color on our progress. As I mentioned last quarter, our mega hub strategy have given us tremendous momentum.

Speaker 4

We now have 64 MegaHub locations, and we expect to open approximately 14 more over the remainder of the fiscal year. While I mentioned a moment ago, the commercial weekly sales per program average was $13,500 per program, the 64 mega hubs averaged significantly higher sales and are growing much faster than the balance of the commercial footprint. As a result, our mega hubs typically carry roughly participants are in the range of 100,000 SKUs and drive tremendous sales lift inside the store box as well as 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, participants are in the range of 2nd quarter and we are testing greater density of mega hubs to drive even stronger sales results. What we are learning is that not only are these assets performing well individually, But the fulfillment capability for the surrounding AutoZone stores gives our customers access to thousands of additional parts and lifts the entire network.

Speaker 4

By leveraging sophisticated predictive analytics and machine learning, we're expanding our market reach, driving closer proximity to our customers in improving our product availability and delivery times. We're building a meaningful competitive advantage, and we continue to have confidence in our ability have created a faster growing business. On the retail side of our business, same store sales for our domestic retail business was up 8.4% are up 24.1 percent on a 2 year stack. The business has been remarkably resilient as we have gained and maintained nearly 3 points of market share since the start of the pandemic. As Bill mentioned, we saw traffic up slightly to go along with 7.8% ticket growth as we continue to raise prices in an inflationary environment.

Speaker 4

Our growth initiatives are also leading to share gains as we improve the customer shopping experience, expand assortment and leverage our hub and mega hub network. In line with the favorable macro trends in miles driven, a growing and aging car park and a challenged. The challenging new and used car sales market for our customers have continued to fuel sales momentum in DIY. Our in stock positions, while still below where we were pre pandemic, are continuing to improve as our supply chain and merchandising teams have made great progress in a challenging supply chain environment. We've been able to navigate supply and logistics constraints and have product available to meet our customers' needs.

Speaker 4

Our AutoZoners, who are taking care of our customers, give us a key competitive advantage that enables us to thrive in this market environment. Now, there's no question that DIY comps participants will get tougher in the back half of the year due to exceptionally strong back half performance in both FY 2020 and FY 2021, but we remain confident As the fundamentals of our business remain strong, macro conditions are favorable for us, and we have had great execution by our teams. Now I'll say a few words regarding our international business. We continue to be pleased with the progress we're making in Mexico and Brazil. In the quarter.

Speaker 4

During the quarter, we opened 3 new stores in Mexico to finish with 6 69 stores and 2 new stores in Brazil to finish with 55. And on a constant currency basis, we saw accelerated sales growth in both countries, in line with the growth rates we saw overall. We remain committed to our store opening schedules in both markets and expect both countries to be significant contributors to sales and earnings growth in the future. With only just over 10% of our total store base now outside the U. S.

Speaker 4

And our commitment to continue expansion in a disciplined way, International growth will be an attractive and meaningful contributor to AutoZone's future growth.

Speaker 2

Now let me spend

Speaker 4

a few minutes on the P and L and gross margins. For the quarter, our gross margin was down 59 basis points, driven primarily by the accelerated growth in our commercial business, where the shift in mix, coupled with the investments in our initiatives drove margin pressure, but increased our total gross profit dollars 14.5%. I mentioned on last quarter's call that we expected to have our gross margin down in a similar range this quarter as we saw in the Q1, where we were down 65 basis points versus the previous year. Participating in our merchandising team has been focused on driving margin improvements, primarily through pricing actions that offset inflation, resulting in slightly better performance than our initial expectations. As Bill mentioned earlier in the call, we are continuing to see cost inflation participants are in the range of $1,000,000 in the range of $1,000,000 in the range of $1,000,000 in the prior inflationary cycles, the industry's pricing remains rational.

Speaker 4

We would expect our margins in the Q3 to be down in the 50 bps range participating in the Q3 last year, driven primarily by mix headwinds from our fast growing commercial business. Moving to operating expenses. Are in the range of 2.5% versus last year's Q2 as SG and A as a percent of sales leveraged 2 64 basis points. Encouraged by the leverage was driven primarily by our strong results and approximately $40,000,000 or 137 basis points and prior year pandemic related expenses. Participating in the Q2.

Speaker 4

While our SG and A dollar growth rate has been higher than historical averages, we've been focused on maintaining high levels of customer service during a period of accelerated growth. We also continue to invest at an accelerated pace in IT to underpin our growth initiatives, and these investments will pay dividends in user experience, speed and productivity. We will continue to be disciplined on SG and A growth as we move forward and manage expenses in line with sales growth over time.

Speaker 3

Moving to the rest of

Speaker 4

the P and L. EBIT for the quarter was $627,000,000 up 30.1% versus the prior year's quarter, driven by strong top line growth. Participants are in the range of $42,500,000 down 7.7 percent from Q2 a year ago, as our debt outstanding at the end of the quarter was $5,800,000,000 versus just over $5,500,000,000 at Q2 end last year. We're planning interest in the $45,000,000 range in the Q3 of fiscal 2022, roughly flat with Q3 last year. For the quarter, our tax rate was 19.3% versus 20.6% in last year's Q2.

Speaker 4

This quarter's rate benefited 401 basis points from stock options exercised last year participants exercised while last year benefited 265 basis points. For the Q3 of fiscal 2022, we suggest investors model us at approximately 23.6% before any assumption on credits due to stock option exercises. Moving to net income and EPS. Net income for the quarter was $472,000,000 up 36.4% versus last year's 2nd quarter. In the range of $1,200,000 was 9% lower than last year's Q2.

Speaker 4

The combination of higher net income and lower share count drove earnings per share for the quarter to $22.30 up 49.4 percent over the prior year's 2nd quarter. Participating. Now let me talk about our free cash flow for Q2. For the Q2, we generated $362,000,000 of operating cash flow spend $106,000,000 in capital expenditures, allowing us to generate $270,000,000 in free cash flow, up 3.1% versus the prior year. In line with our expectations.

Speaker 4

Year to date, we have generated $960,000,000 in free cash, up 12.4% versus the prior year. Ready to take questions. You should expect us to continue being an incredibly strong cash flow generator going forward, and we remain committed to returning meaningful amounts of cash to our shareholders. Regarding our balance sheet, through our share repurchase program and the prepayment of a bond due in April, we have exhausted our excess cash balance on the balance sheet, but rest assured, in the range of $1,000,000 Our liquidity position remains very strong and our leverage ratios remain below our historic norms. We're also managing our inventory well in the range of $2,000,000,000 as our inventory per store was up 3.3% versus Q2 last year.

Speaker 4

Total inventory increased 6.2% over the same period last year, driven mainly by new stores and inflation. Net inventory, defined as merchandise inventories less accounts payable on a per store basis, was a negative $198,000 versus negative $93,000 last year and negative $207,000 last quarter. As a result, accounts payable as a percent of gross inventory finished the quarter at 126.8% versus last year's Q2 of 113%. Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased nearly 1.6 have a strong quarter of AutoZone's stock in the quarter.

Speaker 4

As of the end of the fiscal quarter, we dropped below 20,000,000 shares outstanding. Participating in the call. As a point of emphasis, when we started our share repurchase program in 1998, we had 154,000,000 shares outstanding.

Speaker 2

Participating in the Q2. Now we have less than

Speaker 4

$20,000,000 At quarter end, we had just under $958,000,000 remaining under our participants are in the range of $1,000,000,000 shares outstanding. The powerful free cash we generated this year has allowed us to buy back over 6% of the shares outstanding since the beginning of the fiscal year.

Speaker 2

In line with our expectations.

Speaker 4

We have bought back over 90% of the shares outstanding of our stock since our buyback conception in 1998, while investing in our existing assets participating in the business. We remain committed to this disciplined capital allocation approach, where we expect to return to our long term leverage target in the 2.5 times area ready to take questions. We had another very strong quarter, highlighted by strong comp sales, which drove a 36.4% increase in net income in a 49.4% increase in EPS. We are driving long term shareholder value by investing in our growth initiatives, participants are participating in the process of driving robust earnings and cash and returning excess cash to our shareholders. Our strategy continues to work.

Speaker 4

Are in our ability to drive significant and ongoing value for our shareholders. And now, I'll turn it back to Bill.

Speaker 3

Thank you, Jamere. Participants are in the range of $1,000,000,000. Fiscal 2022 is off to a very strong start, and we remain focused on superior customer service and I want to step back for a minute and talk about the big picture. Throughout the pandemic, each of us participants are in the range of the 2nd quarter and on and on, but we are now nearly 2 years into this pandemic. What has happened to our business over those in line with the expectations of our AutoZoners is nothing short of phenomenal.

Speaker 3

On a trailing 12 month basis versus pre pandemic. Our sales volumes have increased participating in the industry by over a remarkable 30%, and our profitability

Speaker 2

in the range of $1,000,000 to

Speaker 3

$1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000,000 to $1,000,000,000 to $1,000,000,000,000 to $1,000,000,000,000,000 participating in the Q2. Some of those incremental sales and profits would go back closer to historic norms. Participants are in the range of 2.5 months to 3 months. We are As we are nearly a year past the last stimulus and nearly 6 months from the suspension of enhanced unemployment, ready to begin. We believe our competitive positioning is improved as indicated by our significant share gains in both retail and commercial, and consumer behaviors may have permanently changed.

Speaker 3

If this holds true, it will be the 4th time in the last 30 years that the economy and society have had significant shocks, leading to material acceleration in our growth in sales and profits without a corresponding decline back to pre recessionary or pre pandemic levels. Our industry is unique, As we begin to lap the 2nd anniversary of the pandemic, some of the measurements we've all used recently to measure our performance participants will become skewed. Remember, at the beginning of the pandemic, our sales dropped radically. In line with our expectations. Our retail sales rebounded quickly with the April 2020 stimulus, but commercials rebound lagged participating in the process of executing on our strategy.

Speaker 3

For Q3, the 2 year stack comp measurement holds reasonably well participants are in the range of $1,000,000,000 as we delivered basically flat overall comps in Q3 of 2020. However, that measure for our commercial business participants won't be as meaningful. And then in Q4, in light of the amazing performance in 2020,

Speaker 2

participants are in the

Speaker 3

range of $1,000,000,000. The 2 year comparison for overall comps won't be comparable. We would encourage you will be able to migrate to 3 year comps. We continue to be bullish on our industry and in particular on our opportunities for 2022. We believe the macro backdrop is in our favor for the near and long term.

Speaker 3

Our customers across the Americas want to get out in the line of sight. We will be there when they need helpful advice. Our team has worked diligently and collaboratively with our suppliers and together they have done a very good job dealing with the enormous supply chain challenges that exist for everyone. Participating in our results, they support that belief. For the remainder of fiscal 2022, we are launching some very exciting initiatives.

Speaker 3

Were focused on further growing share, but as always, doing so on a very profitable basis. In fiscal 2024, we plan to open a new distribution center in California to fuel continued growth of our domestic business. We just recently announced a new distribution center in Virginia, and we're now planning an additional distribution center in Mexico participating in the industry to allow us to service a growing store base in that country. This is a meaningful acceleration in our participants are in the range of $1,000,000 as during the pandemic we have learned we need to have a bit participants are participating in our supply chain. We're also targeting to open 14 more new domestic mega hubs in the U.

Speaker 3

S. That will enhance our availability and support growth in our retail and commercial businesses. As we've mentioned many times before, expected to help us drive both commercial and retail sales for many, many years to come. We also will be leveraging our hub and mega hub strategy further in Mexico. For the fiscal year, we expect to open more than 200 new stores throughout the Americas participants are participating in the industry.

Speaker 3

These capacity expansion investments reflect our bullishness on our industry and in particular our own growth prospects. We're being disciplined, yet we're being aggressive. I also want to reiterate how proud I am of our AutoZoners across the stores and distribution centers, in particular, participants are safe while providing our customers with their automotive needs. And secondly, we must continuously challenge ourselves conducting a great day to day basis. We are very pleased to see our results in the quarter.

Speaker 3

In the range of $1,000,000,000 We know that investors will ultimately measure us by what our future cash flows look like 3 to 5 years from now, ready to take questions and answers. I continue to be bullish on our industry and in particular on AutoZone and AutoZoners. Now we'd like to open up the call for questions.

Operator

Take questions. Your first question is coming from Bret Jordan from Jefferies. Your line is live.

Speaker 5

Hey, good morning, guys.

Speaker 2

Participants Good morning, Brett.

Speaker 3

Good morning, Brett.

Speaker 5

On the Americas expansion, sort of thinking longer term, how do you see the potential size of Mexico and Brazil On a 3% to 5% or maybe even longer term basis?

Speaker 3

Sure. So we haven't given specific numbers, Brett, but what we have said participating is in both the United States and Mexico, we believe we can continue to grow at the current kinds of levels ready for the foreseeable future. So in the U. S, that's 150, 170 stores. Mexico, it's 40 to 50 stores.

Speaker 3

We believe we can do that for the foreseeable future. So it's going to be much, much larger than it is today. As far as Brazil is concerned, we're just getting started. You all know we've been down there for over 9 years now, and we were very methodical and very thoughtful and careful about making sure that this model worked for us. Just about a year ago, we presented to our Board that we felt like Brazil was now at the stage where we're comfortable the participants are in the same position.

Speaker 3

We are now comfortable it works for us financially and we will be standing out and growing much faster in Brazil. I believe over the long term, Brazil will end up being larger than Mexico for AutoZone. But with 50 some odd stores, it's a long way to go.

Speaker 5

Okay, great. And then I guess you called out share gains obviously and quantified your DIY at 3 points. Could you give us any more color on the commercial side of the business? And within the share gains, have you seen any either any Meaningful contribution, national versus independent recently?

Speaker 3

Yes, Brett, I wish I could. We just don't have In the DIY business, we have very specific data. We have POS data for all front of store items. So it's crystal clear and we are comfortable sharing that with you and that's where we said during the height of the pandemic, we gained over participants are in the range of 3%, which was 10% growth in share, never seen that before personally. And we suspect that we would give some of that back up as the economy reopened.

Speaker 3

We have not. In fact, we continued to grow marginal amounts of share on top of that, which we've been very, very pleased with. On the commercial side of the business, we don't have a tool that gives us the direct insights, But when we look at it at the rates that we're growing, I think 46% on a 2 year basis, we're quite comfortable that we're growing share experiencing a lot of the challenges that we have in place, but we don't have specifics. And so we can't tell you this is how we're doing against this sector or that sector.

Speaker 5

Do you have a feeling whether it's is National Account or Up and Down the Street business stronger than the other or they're both sort of comparable growth rates?

Speaker 3

Are very comparable growth rates right now. That changes over time during the depths of the pandemic. The nationals weren't growing as fast as the up and down the street. Participants I think that's changed now. They're both growing at really high rates.

Speaker 3

I think Jamere even mentioned like 32% participating in the Q1. So we're really, really pleased. We've really developed some very nice relationships with our national account partners and We have a specific program for our up and down the street that we call ProVantage, and both of those sectors are really, really doing well.

Speaker 5

Participants Okay, great. Thank you.

Speaker 3

Thank you, Brett.

Speaker 5

Have a good day. You too.

Operator

Thank you. Your next question is coming from Zach pass the call to Fadem from Wells Fargo. Your line is live.

Speaker 6

Hey, good morning. So for your do it for me customers, Can you talk a bit about your historical price gap versus your peers as well as WDs and how that's been trending over the last couple of years? And As you think about the drivers of sales for national, regional and local accounts, where do you think the biggest drivers of share is today across price available or simply the fact that you're now able to serve certain customers that you historically weren't able to serve?

Speaker 3

Yes, I'll start. I think that there's a misnumber by many that our pricing strategies are at the core of our growth. Participants are in the range of $1,000,000,000. They are an element, not the element of our growth. What we did about 4 years ago is we embarked on a new strategy in commercial, in the range of $1,000,000 and we looked at all elements of our offering.

Speaker 3

We changed the assortment methodology in every store in the United States. Every store has a different product assortment that leans further into the commercial business today than it did 4 years ago. We also said how are we going to get significant increase in local market availability, and we came up with this concept called a mega hub store. Have now had over 60 mega hubs. We've said publicly we're going to go to at least 110.

Speaker 3

I think Jamere and I both feel like it's going to be closer to 200 than it will be 100 And maybe even more than that as we're testing. One of the things about the mega hubs, every time we measure them, they do better than our projections, in the same period, every single time. So we've done these mega hub improvements. We've taking our sales force, which was relatively immature and frankly brand new a decade ago. And as they mature and develop tenure, they're getting more professional, better at doing their sales techniques.

Speaker 3

We've deployed the in the commercial business. In the range of 2nd quarter. We've enhanced how we interact with our customers digitally. We've also rolled out handheld devices ready to take questions. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Our next question comes from the line

Speaker 3

of Chris Rippon. Please go ahead. Thank you. Thank you. Thank you.

Speaker 3

Thank you. Our next question comes from the line of Chris Rippon. Please go ahead. Hi, good morning. We're driving our delivery times down about 15% so far, and that's nowhere near our goal.

Speaker 3

So we're improving our service on that front. Participants are in the line with Duralast brand continues to be become stronger and stronger across the board and really excited about that. And then we've lowered our price gaps. We didn't we don't have the same level of transparency in the commercial business that we have in transparency in the commercial business that we have in retail, everybody can see everybody's retail prices every day. In the commercial business, We're going to have different pricing philosophies with certain of our national account customers and then up and down the street customers that penetrate this category can be priced different from somebody else.

Speaker 3

So you don't have the level of transparency. We talked about it at length about a year ago

Speaker 2

participants are in the same

Speaker 3

store and we've always been premium priced to them because our service offering is premium priced. And we cut the gap after about a year of testing, So we knew it worked. We cut the gap by about a half. So call it 15% to 8 ish, 8.5 ish kind of percent. And we've been extraordinarily pleased with how that has worked over time.

Speaker 3

Zach, did I answer all your questions? You had a few of them embedded in there.

Speaker 6

So that was great. I just wanted to follow-up on just your expectations for industry growth as a whole in 2022. How Are you thinking about DIY versus do it for me in terms of volume versus price inflation? And I presume you still see room to build on the three points of market share that you've taken since the pandemic.

Speaker 4

Yes, I would say a few things. One, if you look at our results specifically, there are really 4 dynamics. The first is, To a certain extent, inflation has been our friend. It's helped us drive higher pricing and the volumes are actually holding. If you look at where we've seen pricing grow, I mean, we're up mid single digits in retails for the first half.

Speaker 4

And quite frankly, if we see that same level of inflation in the back half, which is reasonable, and you could expect us to take pricing up in a similar dynamic. Participants are in the range of $1,000,000,000. We're up nearly 3 points versus the pre pandemic. We've hung on to those share gains. The growth initiatives that Bill talked about both in DIY and commercial are giving us a lot of confidence that we'll maintain those shares as we go forward.

Speaker 4

Participants are in the line. And then last dynamic for us that we've talked at length about is this macro strength that we're seeing. It's you have an aging and growing car park, participants are in the range of $1,000,000,000. You have used car prices that are up 60% versus pre pandemic, and you're seeing many new cars that are actually selling higher than the sticker prices. And if you look at the used car price dynamic just in general, I mean, those higher residual values are actually encouraging our in the same store, and we're very pleased with the customers to invest in maintaining their vehicles because they're comfortable that the value is actually holding.

Speaker 4

Participants are in the range of $2,000,000,000. When you mix all of those things together, it suggests that the industry as a whole is not going back to pre pandemic sales levels. And while we won't be date certain about when you'll see comps move one direction or the other, what we'll say is that the fundamentals are strong. We don't expect to return to the levels that we saw prior to coming into the pandemic. So our growth dynamics in the industry backdrop gives us a lot of confidence about the future.

Operator

Thank you. Your next question is coming from Brian Nagel from Oppenheimer. Your line is live.

Speaker 7

Hi, good morning. Nice quarter. Good morning, Brian. Congratulations.

Speaker 3

Thank you.

Speaker 4

Thanks, Brian.

Speaker 7

Fred, I guess I have 2 questions about kind of merge them together. I mean, so first off, Bill, in your opening comments, you talked about just the strength in the business. Participants are in the line with the question and answer session. Is there anything specific to 0.2. I mean, is inflation your ability to pass along those inflationary pressures, so to say, a factor there?

Speaker 7

And then my second question is just on the gas price front. I mean, I know you're not AutoZoM does not provide guidance, but what we are seeing here is gas prices are again climbing assume you at all in terms of the sales and the kind of health of your consumer?

Speaker 3

Yes. So two great points, Brian. First of all, What changed versus Q1 and Q2? There's a lot of different things that changed. I think our we're going to hang our head a lot on our execution and our team's execution.

Speaker 3

Participants are in the range of $1,000,000,000. But clearly, this inflation has a lagging effect, and we had more inflation in our sales growth in Q2 than we did in Q1, participants are not material, but maybe a point or so. So that is an element of our acceleration and we didn't accelerate that much. I think we accelerated 2 or 3 points Q2. Then as far as gas prices, as you know, you've followed this industry for a long, long time.

Speaker 3

Gas prices fluctuate and they fluctuated very significantly during my tenure here. What we've said historically is that there's not a in a ton of correlation between gas prices and our business until it hits a magic point. And historically, I don't know what that magic participants are going to be now because it's been a long time since we hit it. But historically, when it hit $4 a gallon, it seemed to impact participants are in the range of miles driven. And you could almost see a direct correlation once it hit that $4 a gallon in miles driven.

Speaker 3

We don't know if that will hold true, if it gets to $4 a gallon again. But for us, it goes up and it goes down. There's nothing we change in our business participating in the process of gas prices. So sometimes we're going to have industry tailwinds like we've had, sometimes we're going to have industry headwinds.

Speaker 2

Participants are in the

Speaker 3

range of $1,000,000,000 in the range of $1,000,000,000 in the range of $1,000,000,000 in the range of $1,000,000,000 in the range of $1,000,000,000 in the range of $1,000,000,000 in the range

Speaker 2

of $1,000,000

Operator

Your next question is coming from Christopher Horvers from JPMorgan. Your line is live.

Speaker 6

Hi, good morning. It's Christian Carlino on for Chris. Can you just help us weigh out some of the drivers of inflation, whether that be product or supply chain costs, participants are interested in how you're thinking about that going ahead this year, understanding you're not giving guidance. And do you expect it to be a potential lift participants

Speaker 4

are seeing cost inflation in certain categories. We're also seeing higher transportation costs. We're seeing higher labor costs across the board. I think the important point is that the industry pricing participants remain rational, and we are pricing, like our competitors, to recover inflationary impacts, just as we've done in the past. And if you look at the history of this industry, It's been very disciplined about passing along inflation.

Speaker 4

And typically, what we see is that the demand doesn't fall off, just given the essential nature of the goods that we're providing. We've raised retail prices in line with inflation. As we mentioned, it's been mid single digits. We expect that you could see similar dynamics in the back half of the year, and we'll be disciplined participants will be able to raise prices accordingly. The other dynamics as it relates to this is that we're seeing broad based inflation.

Speaker 4

This isn't just in our industry, participating in the same period. But if you look at transportation, you look at labor, you look at wage rates, there's another side of the coin, which is benefiting from higher wage rates, and particularly that lower end customer is benefiting from higher wage rates. Are in the range of $1,000,000 and that quite frankly has provided a little bit of a safety net, probably more so than in the past. And we're feeling that inflation even in our own business. If I think about participants are in the range of wage inflation.

Speaker 4

It's probably on a percentage basis, it goes up maybe low single digits Every year, we're probably seeing inflation 2x that. As we look to take care of our AutoZoners in an inflationary environment, our customers are seeing that. So Those dynamics have made the lower end consumer a little bit more resilient than probably they would have been in the past in an inflationary environment. So We're not seeing any wobbles at this point, but it is something that we're keeping our eye on.

Speaker 6

Got it. That's really helpful color. Appreciate that. Participants could you speak to the opportunity to build out technology on the pricing front? Maybe through all data, are you able to Do you have better pricing visibility across the commercial market than, say, some of your peers?

Speaker 6

How should we think about that opportunity?

Speaker 4

Yes. One of the things I'm really excited about is the investments that we're making in technology, and you typically don't hear CFOs say that, because typically are only thinking about the cost side of that. But the investments that we're making in technology are really underpinning the growth strategy. And the sophisticated in nature with which we're able to figure out what we're doing on the store development side, how we're using AI and machine learning drive growth and improvements in our business. So indeed, we are using technology to do that.

Speaker 4

It's a little bit more difficult sometimes on the commercial side of the business, but you combine that technology with the on the ground intelligence that we received from our outage owners in the field. And I like our capabilities there, and it's given us a competitive advantage as we think about what we're doing from a pricing standpoint.

Speaker 2

Ready to take questions.

Speaker 6

Got it. Thank you very much and congrats on a great quarter.

Speaker 3

Thank you. Thank you.

Speaker 2

Are ready

Operator

to take questions. Your next question is coming from Simeon Gutman from Morgan Stanley. Your line is live.

Speaker 8

Hi. This is Jackie Sussman on My first question is just on product availability. Kind of how much of an advantage has been in the stock over the last 2 years has been kind of in stock and does it narrow as supply chains come back? Kind of what is your outlook there? Thanks.

Speaker 3

Yes, it's a fantastic question, Jackie. And frankly, we don't have really, really good data on how our and which we've done a lot of over time. I'm really, really proud of the way that our supply chain team, our merchandising team in our suppliers. They've worked at unprecedented levels during this past couple of years, and we've gotten very creative. Our logistics team has done an amazing job with all the challenges getting merchandise from the Far East to the United States into our distribution centers.

Speaker 3

Our belief is we've had an improved in stock position versus others, but our in stock position even today is a couple of 100 basis in the range of 2nd quarter earnings release conference call. At this time, all participants are in the range of 2nd quarter and it's been a little bit of a game of whack a mole. We solve it in this category, then it moves into that category, then it moves into another category. Overall, we're getting better and better and better on a weekly basis, just about, participants are in the line with us. But we still got a ways to go before we get back to that level.

Speaker 3

Trying to quantify how much of that has been embedded in our share gains and sales lift. It's just too much arc for us to figure that out.

Speaker 8

Got you. Understood. And you talked a bit about the Duralast brand. Have you disclosed kind of Duralast penetration by product category, which products are kind of over indexed and which are under?

Speaker 3

Yes, we haven't done it participating in the Q2 by product category. We obviously said it's over half of our hard part sales, and continues to grow. We continue to introduce it in different categories or line extensions. Not too long ago, we introduced the Duralast participating in the Elite brake pad program, which is doing really well. We've added Duralast Gold Chassis, which has done extremely well.

Speaker 3

A couple of years ago, we added interested in the success of the company. It's interesting we did some market research as part of our commercial strategy development about 4 years ago, and we went by in the commercial business and we said, what are the top 3 brands by product category?

Speaker 2

And the

Speaker 3

Duralast brand was listed in 2 categories as the number 2 brand and we had never sold 1 piece in that category. So it just shows you the overall power of the Duralast brand. If you turn back the clock a decade, it was interesting. People would have said we couldn't have been successful in commercial because we had private label. We don't have private label.

Speaker 3

We've got the Duralast brand participants continue to turn to and trust.

Speaker 8

Great. Congrats on a great quarter.

Speaker 5

Thank you, Jackie.

Operator

Thank you. Your next question is coming from Scot Ciccarelli from Truist. Your line is live.

Speaker 5

Hi. This is Joe Ciavelo on the line for Scott. I just had a quick question. Given the success you guys have shown in the mega hub strategy,

Speaker 2

do Do you think we

Speaker 5

could see an acceleration of these rollouts next year and going forward? And what does that look like for margins?

Speaker 3

Well, Jamere is in charge of are So I'll answer it for him. The answer is yes. Javier, you want to add some color?

Speaker 4

You're writing my development plan for this year and next year. Thanks. The key for us is making sure that we leverage these assets. As Bill mentioned, every time we've have doubled down on our mega hub strategy. It's paid dividends for us and the mega hubs are outperforming our expectations.

Speaker 4

The ability to put these assets in the market, provide a lift to the overall network, benefit both our DIY and our DIFM business participants are very strong business building proposition for us, and we're going to go further and faster. One of the things I mentioned we're testing is higher density of too close from a proximity standpoint. But what we're finding is when we put more parts into those markets and we do that in a disciplined way based on The analysis that we're doing and the research that we've done and the actual results that we're seeing, it's exceeded our expectation. Cannibalization is lower. In the range of $1,000,000,000 to $1,000,000,000 It's a lift to the overall marketplace, and that's why we're so bullish, and that's why we're going to double down on it.

Speaker 3

Appreciate it. Thanks. Thank you, Joe. Before we conclude the call, I want to take a moment to reiterate, we believe our industry is in a strong position and our business model is solid. We are excited about our growth prospects for the year and we will take nothing for granted as we understand our customers have alternatives ready to share their financial results.

Speaker 3

As we continue to focus on the basics and strive to optimize shareholder value for the remainder of FY 2022,

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