William C. Rhodes
Chairman, President and Chief Executive Officer, Customer Satisfaction at AutoZone
Thank you. Good morning, and thank you for joining us today for AutoZone's 2022 Second Quarter Conference Call. With me today are Jamere Jackson, Executive Vice President and Chief Financial Officer; and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the second quarter, I hope you've had an opportunity to read our press release and learn about the quarter's results. If not, the press release, along with slides complementing our comments today, are available on our website, www.autozone.com, under the Investor Relations link. Please click on Quarterly Earnings Conference Calls to see them. 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, everyone across the organization takes this responsibility very seriously, and I am extremely proud of how our team has continued to respond to COVID-19 and the recent Omicron variant. 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-19 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. 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 domestic same-store sales were an impressive 13.8% this quarter on top of last year's very strong 15.2%. Our team has once again executed an exceptionally high level and delivered amazing results despite the ongoing very challenging environment. In Q1 of this fiscal year, we reported 13.6% same-store sales on top of 2021's Q1 same-store sales of 12.3%. Impressively, very impressively, our team delivered accelerating two-year comps in our second quarter. 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 million in sales, an incredible accomplishment. We generated $200 million more in sales this quarter than in Q2 last year. On a trailing four-quarter basis, we generated $3.8 billion in annualized commercial sales versus $2.9 billion just a year ago, up 30%. We also set a record in average weekly sales per store for any second quarter at $13,500 versus $10,500 last year. On a two-year basis, our sales accelerated from last quarter, exceeding 46% in commercial. Domestic commercial sales represented 25% of our total company sales, another record for us, compared to 21.9% last year. Our commercial sales growth continues to be driven by a host, and I want to emphasize, a host of key initiatives we've been working on for the last several years. We improved our satellite store inventory availability. We've had massive improvements in Hub and Mega-Hub coverage. We're leveraging the strength of the Duralast brand. We have better technology to make us easier to do business with.
We have significantly improved our delivery times. We've enhanced our sales force's effectiveness, and we're living consistent with our pledge by being "priced right" for the value proposition that we deliver. We continue to execute very well in commercial, and we are extremely proud of our team and their performance. We're also very proud of our organization's performance in domestic DIY. We ran at 8.4% comp this quarter on top of last year's 15.7%. As our DIY two-year stacked comp accelerated from the first quarter, it's remarkable to reflect on four consecutive quarters of more than 20% two-year comps in this more mature portion of our business. From the data we have available to us, we continue to not only retain the enormous three full points of share gains we've built during the initial stages of the pandemic but modestly continued to build on those gains. Our performance, considering the amount of time from the last stimulus and the ending of the enhanced unemployment benefits, has substantially exceeded our expectations and gives us more conviction on the sustainability of these sales levels. Now let's focus on sales cadence. Our same-store sales decreased sequentially 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 comp strengthened as the quarter progressed as a result of the federal stimulus distributed around the first of last calendar year. Given the dynamics in the past 20 months, we, like others who've benefited from the pandemic, believe it has been more instructive to look at two-year stacked comps.
On this basis, the monthly results were almost identical and were very stable. For Q2, our two-year comp was 29.1%, and the four-week periods of the quarter increased 29.6%, 28.9% and 29.1%, respectively. Regarding weather, until February, we experienced warmer-than-usual weather in the Northeastern U.S., while the remainder of the country experienced pretty normal winter trends. 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 see normal weather trends, and therefore, weather is not planned to be a big story for this upcoming quarter or summer. 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%. This slight transaction count growth continues to be a meaningful acceleration from pre-pandemic levels, 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 heading into the spring months. 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 continued to gain share in most of our markets. Now let's move into more specifics on performance for the quarter. Our same-store sales were up 13.8% versus last year's second quarter. Our net income was $472 million, and our EPS was $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 for categories but not material, say, maybe less than 1%. As Americans get back to driving more, we've seen maintenance and failure-related categories perform well. We've been especially pleased with our growth rates in select failure-related businesses, like batteries, that have successfully lapped very strong performance last year. We believe our hard parts business will continue to strengthen as our customers drive more. 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, we believe both numbers will be slightly higher in the third quarter as cost increases and many key merchandise categories continue to work their way through the system. As rising raw material pricing, labor and transportation costs are all impacting us and our suppliers, inflation has been prevalent in the aftermarket space. We have no way to say how long this will last, but our industry has been disciplined about pricing for decades, 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 midterm sales.
What I will say is that the past four-quarter sales have all been consistent on a two-year stacked comp basis and a three-year basis, and that goes for both our DIY and our commercial businesses. While it's difficult to predict absolute sales levels going forward, we are excited about our growth initiatives, our team's exceptional execution and the tremendous share gains we have achieved in both sectors. Currently, the macro environment, while uncertain, remains very favorable for our industry. And even if these near-term trends fade, we believe that we are in an industry that is positioned for solid growth over the long term. For FY '22, we expect our sales performance 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. Before handing the call over to Jamere, I'd like to address the subject of pricing and if AutoZone's pricing disciplines or philosophies have changed from past practices. The short answer is a resounding no. While we initiated a retail pricing adjustment last year in Q1 and further adjusted some commercial pricing in quarters two through four, these moves were done to be price competitive, but with other channels, not with our direct competitors. Specifically, 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 as our service level is superior. Our pricing changes over the last year or so have been too narrow. I emphasize narrow but not eliminate that gap.
We must make sure we receive a premium for our service advantage, 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 as very rational when it comes to pricing strategies. And I want to be clear, crystal clear. I don't want anyone to conclude that our growth in commercial is solely due to pricing. We launched a comprehensive new strategy about three 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, 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.
Now I'll turn the call over to Jamere Jackson. Jamere?