AUTOZONE INC

Previous wording

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc. (“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.

Current wording

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc. (“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 other filings we make with the SEC.

Previous wording

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. 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. 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. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services. Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.

Current wording

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. 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. 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 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. We do not derive revenue from automotive repair or installation services. Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.

Previous wording

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. 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.

Current wording

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 during the months of February through September, and the lowest sales generally occurring in the months of December and January.

Previous wording

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. Failure related categories continue to be the largest portion of our sales mix. We did not experience any fundamental shifts in our category sales mix as compared to the previous year. Our sales mix can be impacted by weather over a short-term period. Over the long-term, we believe the impact of weather on our sales mix is not significant.

Current wording

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. We did not experience any fundamental shifts in our category sales mix as compared to the previous year. Our sales mix can be impacted by weather over a short-term period. Over the long-term, we believe the impact of weather on our sales mix is not significant.

Previous wording

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. 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.

Current wording

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.

Previous wording

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. increased 1.0% 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.

Current wording

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. 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 in the U.S. was 12.8 years.

Previous wording

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

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. 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. 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. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities. Decreased demand or changes in buying patterns could also impact our ability to meet the debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement. In the event our liquidity is insufficient, we may be required to limit our spending. 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.

Current wording

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. 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. 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. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities. Decreased demand or changes in buying patterns could also impact our ability to meet the debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement. In the event our liquidity is insufficient, we may be required to limit our spending. 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.

Previous wording

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.

Current wording

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, includingnew 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.

Previous wording

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. 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.

Current wording

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 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.

Previous wording

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. 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.

Current wording

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, 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.

Previous wording

In addition to the building and land costs, our new stores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our suppliers’ ability to factor their receivables from us. The Company has arrangements with third-party financial institutions to confirm invoice balances owed by the Company to certain suppliers and pay the financial institutions the confirmed amounts on the invoice due dates. These arrangements allow the Company’s inventory suppliers, at their sole discretion, to enter into agreements with these financial institutions to finance the Company’s obligations to the suppliers at terms negotiated between the suppliers and the financial institutions. Supplier participation is optional and our obligations to our suppliers, including the amount and dates due, are not impacted by our suppliers’ decision to enter into an agreement with a third-party financial institution. A downgrade in our credit or changes in the financial markets could limit the financial institutions’ and our suppliers’ willingness to participate in these arrangements; however, we do not believe such risk would have a material impact on our working capital or cash flows. 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.

Current wording

In addition to the building and land costs, our new stores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our suppliers’ ability to factor their receivables from us. The Company has arrangements with third-party financial institutions to confirm invoice balances owed by the Company to certain suppliers and pay the financial institutions the confirmed amounts on the invoice due dates. These arrangements allow the Company’s inventory suppliers, at their sole discretion, to enter into agreements with these financial institutions to finance the Company’s obligations to the suppliers at terms negotiated between the suppliers and the financial institutions. Supplier participation is optional and our obligations to our suppliers, including the amount and dates due, are not impacted by our suppliers’ decision to enter into an agreement with a third-party financial institution. A downgrade in our credit or changes in the financial markets could limit the financial institutions’ and our suppliers’ willingness to participate in these arrangements; however, we do not believe such risk would have a material impact on our working capital or cash flows. 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.

Previous wording

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). 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.

Current wording

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

Previous wording

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. We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six; and we calculate EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. To the extent EBITDAR increases, we expect our debt levels to increase; conversely, if EBITDAR decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.

Current wording

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; and we calculate EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. To the extent EBITDAR increases, we expect our debt levels to increase; conversely, if EBITDAR decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.

Previous wording

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

Current wording

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