Greetings. Welcome to AutoZone's 2025 Q3 Earnings Release Conference Call. Please note, this conference is being recorded. Before we begin, the client would like to read the forward-looking statement. Please go ahead.

Before we begin, please note that today's call includes forward-looking statements that are subject to the safe harbor provisions of 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 on Form 10-K 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 from expectations. 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. A reconciliation of GAAP to non-GAAP financial measures can be found in our press release.

I will now turn the conference over to your host, Phil Daniele, CEO at AutoZone. You may begin.

Good morning, and thank you for joining us today for AutoZone's 2025 Third Quarter Conference Call. With me today are Jamere Jackson, Chief Financial Officer; and Brian Campbell, Vice President, Treasurer, Investor Relations and Tax. Regarding the third quarter, I hope you 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 the quarterly earnings conference call to see them. I want to thank our more than 125,000 AutoZoners across the entire company for their commitment to delivering on our pledge to always put customers first. Their contributions allow us to deliver the consistent performance we have been able to enjoy. We can only succeed if we are all working towards the common goal of outstanding customer service. To get started this morning, let me address our sales results. Coming into the quarter, we were optimistic that our improved execution would drive sales growth for both retail and commercial. More specifically, we felt the momentum we gained last quarter with our domestic commercial sales would continue this quarter. We are very pleased that our domestic commercial sales grew 10.7% for the quarter, marking our first double-digit quarter for commercial growth since the second quarter of FY '23. We also cleared another milestone. For the first time on a rolling 4-quarter basis, we eclipsed the $5 billion sales mark on commercial. Our domestic retail comp was just north of 3%, which is the best retail growth we have reported since the second quarter of FY '22. Finally, our international constant currency comp remained solid, up 8.1% for the quarter. We are encouraged by our sales results and our momentum as we…

Thanks, Phil, and good morning, everyone. Let me start by saying we had a strong sales quarter. Total sales were $4.5 billion and were up 5.4%. Our domestic same-store sales grew 5%, and our international comp was up 8.1% on a constant currency basis. Total EBIT was down 3.8% and our EPS was down 3.6%. As Phil discussed earlier, we had a headwind from foreign exchange rates this quarter. For Mexico, FX rates weakened nearly 20% versus the U.S. dollar for the quarter, resulting in an $89 million headwind to sales, a $27 million headwind to EBIT and $1.10 a share drag on EPS versus the prior year. Excluding the FX headwind, we would have reported an EPS decrease of 0.6% for the quarter. We continue to be proud of our results as the efforts of our AutoZoners in our stores and distribution centers have enabled us to continue to grow our business. Let me take a few moments to elaborate on the specifics in our P&L for Q3. First, I'll start with a little more color on our sales and growth initiatives. Starting with our domestic commercial business, our domestic DIFM sales increased 10.7% to $1.3 billion. For the quarter, our domestic commercial sales represented 32% of our domestic auto part sales and 28% of our total company sales. Our average weekly sales per program were $17,700, up 8% versus last year. Our commercial acceleration initiatives are continuing to deliver good results as we grow share by winning new business and increasing our share of wallet with existing customers. We continue to have our commercial program in 92% of our domestic stores, which leverages our DIY infrastructure, and we're building our business with national, regional and local accounts. This quarter, we opened 49 net new programs finishing with 6,011…

Thank you, Jamere. We are on track for the remainder of FY '25 to accomplish our goals. We are committed to continually focus on improving our execution and driving WOW! Customer Service. We feel we are well positioned to grow sales across our domestic and our international store bases with both our retail and our commercial customers. We expect to manage our gross margins effectively, and our operating expense is appropriate for future growth. We continue to put our capital to work where we'll have the biggest impact on our sales, our stores, specifically our Hubs and MegaHubs, our distribution centers and investing in technology to build a superior customer experience where we are able to say yes to our customers' needs. The top focus areas for this last quarter of fiscal '25 remain growing share in our domestic commercial business and continuing our momentum in our international markets. We are excited to get started on our fourth quarter. We understand we cannot take things for granted. We must remain laser-focused on customer service, execution and gaining share in every market in which we operate. Fiscal 2025's top operating priorities are based on improving execution and WOW! Customer Service. We will continue to invest in the following strategic projects, accelerating our domestic and our international store growth, reaccelerating our new Hub and MegaHub openings. These stores do take time but we are incredibly excited about their continued performance and most importantly, remain diligent driving our domestic commercial sales growth, which we are doing in a meaningful way. We are excited about what we can accomplish and our AutoZoners are committed to delivering on our commitments for FY '25. We believe AutoZone's best days are ahead of us. Now we would like to open up the call for questions.

[Operator Instructions] Your first question for today is from Bret Jordan with Jefferies.

Could you just give us a quick refresher as it relates to the tariffs, source of origin for your primary import countries? And how much is direct import versus via a third-party supplier. And then a quick follow-up to this one.

Yes, sure. We -- I mean the biggest net importer where most of our product comes from is China. I will say that we've taken that number down pretty significantly over the last couple of years, specifically since the first round of tariffs back in 2016. But we get product out of many Far East countries. We get a little bit of product out of Europe, mostly Eastern Europe, and then we get some out of Mexico. That would be where the vast majority of those come from.

Okay. And I guess as far as direct import versus buying from a dormant or somebody who might be making the initial Chinese import.

Yes. I mean we obviously have -- we do a lot of that from -- we take product from domestic suppliers, both FOB or direct import and we buy domestically. We never really said exactly what our mix is but the question I think, your real question is how would we think we're going to manage tariffs. And we feel like we have our arms around it, even though it's changing every day. It's not nearly as impactful as it appeared it was going to be several months ago. And as Jamere mentioned a minute ago, there's lots of strategies to try to mitigate the cost of tariffs through vendor negotiations, diversification of country of origin, diversification of suppliers, pricing actions and a combination of all of those.

And I guess a follow-up. I mean you talked about the 1% inflation sort of trending towards the 3%. Is that 3% assuming pricing pass-through? Or would tariff be incremental to that expectation of a higher low single-digit inflation rate?

Yes. I think if you think about what's happened with our average ticket over the last 12 to 18 months, it's been relatively flat coming off of several years of what I would consider hyperinflation. If tariff costs ultimately do materialize, I would think we would probably get back closer to that 3% average ticket growth. And that would be more of a long-term average ticket growth based on technology enhancements and frankly, quality of parts.

Your next question is from Christopher Horvers with JPMorgan.

Sort of a follow-up there, first on the tariff. Is it that the inflation is not here yet because people pause shipments coming out of China, and it's just a slow inventory turn business? Or is there more of an effort here to perhaps have the cost be absorbed into the supply chain?

Yes, I think one of the reasons that you haven't seen a lot of the tariff cost in our side of the business is, as you mentioned, most of our inventory turns relatively slow compared to many other industries, hard parts in particular. And that product just hasn't shown up here in the country. And as you know, this stuff has changed pretty significantly over the last 90 days or 120 days. I mean there will be an impact to tariffs on the cost of goods. But again, as we've mentioned, we think there's lots of ways to mitigate that cost and maintain our margin structure over time.

Understood. And then on the margin front, Jamere, can you talk about the persistence of some of these costs like the shrink and the self-insurance costs? Like how do you think about what gross margins look like as we move forward? And then similarly on the SG&A per store side and sorry, one additional one, which is can you break out the monthly ex the Easter shift and adjust for that, so we have a clearer view of the cadence over the quarter?

Yes. So just on the gross margin, as we said, it was driven by shrink -- our DCs are ramping up, and we obviously have higher costs as those DCs ramp up and we get to the -- our going productivity rates. And then the positive there, although it's a negative from a mix standpoint is that our global commercial mix is growing and that's driven by the work that we're doing to grow our commercial business. What I'll say is that the DC ramp up and the shrink pressure will abate and March margin should largely offset our commercial mix pressure. So from a gross margin standpoint, we would expect those gross margins to be down slightly in Q4, given all of those dynamics as opposed to being down 56 basis points ex LIFO as we saw this quarter. On the SG&A front, I just want to reiterate that we're growing SG&A in a disciplined way to create a faster-growing business. We deleveraged this past quarter. About half of that deleverage was driven by self-insurance. As our commercial business grows, we put more delivery vehicles on the road to support that commercial growth. Obviously, you're going to have more incidents. And then we also settled some outstanding claims that were longer in nature where we saw a spike in incidents and severity primarily in the '21 to '22 kind of time frame. But what I'll say about SG&A is that we'll continue to invest in a disciplined way on all the things that are going to drive growth for us. And those things are paying off in a higher top line. And as you've seen our business in the past, to the extent that the top line doesn't show up, we obviously know how to go to the middle of the P&L to drive the margins that we need to make sure that we're driving the earnings that we have. So I feel good about where we are. I think the execution is great. We're being intentional about the investments that we're making, and I feel great about the growth prospects that we see in the future behind all of those investments that we've made thus far.

Great. And then the -- can you give us the 4-week cadence ex the Easter shift, so we can understand that better?

Yes. We typically don't break that out. What I'll say to you is that if we think about our business in total, from a commercial standpoint, you heard Phil kind of walk through the quarter. Commercial was pretty steady growth across each of the 4-week segments with a little bit of a pop in the middle because of the Easter shift. And then on the DIY side of the business, more so than the Easter shift, the story really is about the share that we're regaining there. And while we did see a little bit of an Easter shift in the middle of the quarter, what we're encouraged by is the opportunity to win share and the execution that we're seeing by our folks in the stores.

Your next question is from Simeon Gutman with Morgan Stanley.

This is Lauren Ng on for Simeon. Our first one is on the 5% domestic comp, which is the strongest we've seen over the past 2 years. So well done on that. Could you just comment on what kind of comp lift you're seeing from maybe your own initiatives and market share gains versus the underlying market demand?

Yes. Thank you for the question. I think we're seeing share gains across the board, all across the country in both DIY and commercial. And I would say, yes, there's obviously some macro that's going on, but we feel like the vast majority of our growth is coming from the initiatives we have in place. Improved execution, driving Hub and MegaHubs into our markets, continually improving our assortments both in the U.S. and in our international markets. And we think those are helping us improve on all elements of our operations and causing us to gain share, both on the DIY side and faster share on the commercial side.

Great. And then our next follow-up is on the improvement in the commercial comps. It seems like you guys are continuing to take market share nicely there. Could you comment maybe what you want to continue focusing on the upcoming quarters?

As we've said, the strategy is not a whole lot different than we've talked about over the last couple of quarters. We continue to improve our assortments at our local store. We continue to deploy our Hubs and MegaHubs and refining those assortments, both for DIY customers and the commercial customers. And we've also been working on some strategies to improve delivery time and speed of delivery, what we call time to shop for our commercial deliveries, changing some of our fulfillment methodologies from our Hubs and MegaHubs to get to the customer faster. We think all of those are creating a better customer experience and causing us to grow both new customers and share of wallet with those commercial customers.

Your next question is from Michael Lasser with UBS.

So do you think the cost of doing business within the aftermarket has gone up such that in the past, AutoZone might have been able to grow its overall top line mid-single-digit and leverage that to double-digit EPS growth. And now that is just more difficult to do such that the market can recalibrate its expectations around earnings growth?

Michael, you broke up just a tad. Yes, I think there has been some core inflation in our payroll, both in the supply chain and in the stores. So yes, there's probably a little bit more of an inflationary environment since the pandemic. I think they're moderating somewhat. But I think at the end of the day, we've proven that we've been able to maintain our sales and our SG&A in line with investing in our growth initiatives that we think will help us gain market share. As Jamere said we've been pretty good at this over time in managing our expenses in line with our top line growth. I will say at the moment, though we have quite a few initiatives that are all in place, both from improved execution on our stores, growing our commercial business faster by using some new initiatives that are still in the early innings as well as ramping up 2 new distribution centers. So we do -- we are running through an investment period that we think we believe will ultimately help us have a faster-growing business and can allow us to continue to gain share at a faster clip.

And so what does the arc of that investment cycle look like? Can you help frame the market's expectations on how long this is going to weigh on the profitability of AutoZone such that eventually you can get back to the double-digit EPS growth that its historically been able to achieve?

Right. Great question. I think we're kind of in the -- we're in the midst of early innings of most of these initiatives. Some of them like our commercial delivery strategies, that's all been executed. Today, it's more about continuing to refine the execution and get better at it with business practices. And so I'd say we're kind of -- all these things are in flight and in launch phase. At the moment, we're more about trying to optimize these and get better at them as we're in the early phases of these, what we believe have long life cycle and benefit, but most of them are in flight and on track at the moment.

Yes. And I think the one thing I'll add is that we've talked about this notion of managing our expenses in line with sales growth. And to be clear, our disciplines around investment we'll all have a payback associated with them. And most notably, you'll see it in the top line, and you'll eventually see it in the bottom line. I think the thing that gives us a lot of confidence is really encouraging is the things that we've been investing on for the last several quarters are now starting to show some growth shoots. I mean you see that in the commercial numbers in the last couple of quarters. Our outlook as we look at the fourth quarter and into next year remains very positive. We've got a lot of good momentum there. And we're also seeing it on the international side as well. So as we accelerate the number of stores that we put in place, we accelerate the initiatives that we have in place to grow our commercial business. We're very excited about creating a faster-growing business. And ultimately, that's going to result in more earnings growth for the company. .

Your next question is from Brian Nagel with Oppenheimer.

Nice quarter. So a question I have and I guess it's a bit repetitive, but clearly, we do look at the results and hear your commentary. The sales growth improved meaningfully here in the quarter. You talked about the initiatives, your initiatives have been in place for a while. So is there anything that really shifted here in the fiscal third quarter from the prior quarter, so to say, underpinning this better sales growth? .

Yes. You're right. Some of these initiatives have been in place. Keep in mind, although we've been talking about them for approximately a year, they do take time to roll out and we're continuing to -- we've got -- if you think about commercial delivery initiatives, things of that nature, those are now essentially rolled out. And it will only be added as we add Hubs and MegaHubs and get those stores open. Also in the quarter, we also accelerated quite a few store growth opportunities, and those also have expenses associated with them as we get those stores opened up. That part of the initiative is going to continue as we ultimately ramp up to roughly 300 stores domestically and 500 stores internationally, it will still take us a couple of years to get to those growth numbers, but those do have expenses on the front end. But the rest of the service initiatives that are already in place are essentially out, and it's more about optimizing them and continuing to get better execution at the store level.

So is it fair to say then here in the third quarter, we did see somewhat of a culmination of these initiatives that helped to drive better sales and also what may be an improving sector backdrop?

Yes, I think that's correct. I think that's well said.

Kind of the follow-up question I have, and you may just answered this, but as you're looking at, sort of sales tracking better, getting back to what I would consider a normalized or normalized algo for AutoZone. Was there been a conscious decision to, so to say, invest some of that sales upside into other areas of the P&L, and that's maybe why we didn't see the flow through?

Yes, I think we've been intentional about that. And we've been very clear about the notion that we see an opportunity today. And some of it is a unique opportunity to invest into the growth opportunities that we're seeing. So we're intentional, particularly in the SG&A about making sure that we have the assets in place, the infrastructure in place to be able to go after that opportunity. So we've been very purposeful and very intentional about investing into that. But to be very, very clear, I mean, our disciplines around managing the P&L to ultimately drive earnings growth and cash inside the company are still in place. But this is a unique opportunity for us to go invest in a disciplined way, to drive the kind of growth that we're seeing. And again, we saw some growth shoots on the top line here that we're very encouraged about and that momentum is going to continue. So that strategy is working for us.

Your next question for today is from Scot Ciccarelli with Truist.

You talked about Hubs and MegaHubs continuing to grow much faster than the rest of the commercial base. Can you quantify for us the comp contribution from those stores? Like is it something that's big enough that we could see it from the outside. And then secondly, were there any outsized impacts on the commercial segment from new national account wins this quarter? Because I understand there's been some relationship changes on the national account side.

We've never quantified how much comp difference there is between our Hubs and MegaHubs versus the satellite stores, but we'll say that they're pretty robust. To your second question, on the national account side, I would say we believe we're growing share on the national account side with regional accounts and with the up and down the street customers or the local shops as we call it. We're very happy about the sales growth we're getting across all of the ways that we segment our business on the commercial side. And again, we believe most of that growth is, frankly, because of the initiatives that we have in place, improving assortment, the strength of our Duralast brand, service metrics around speed of delivery to the shop and ultimately, a sales force that continues to mature.

It wasn't cited as a factor, but was there any merchandise margin impact from some of the new account wins?

All of those customer segments have slightly different margin rates. But at the end of the day, that was not a material impact on our commercial business.

Your next question is from Robbie Ohmes with Bank of America.

This is Vicky Liu on for Robbie Ohmes. My first question is now that you have your California and Virginia DCs up and running for past quarter, can you comment on what kind of sales lift you've seen in these regions? And any competitive response you've seen.

Yes. The DCs have just opened up, and we're still in the process of rolling stores off of some of the other DCs to these distribution centers where the stores are ultimately closer. I wouldn't suspect that a competitor is going to change their distribution strategy based on us opening stores. So I don't think that will be a material change. What we have seen is, as we've opened up these new distribution centers, there are some costs on getting start-up and that -- those incremental costs will abate over time as we get all of our distribution of stores to the appropriate DCs where ultimately that reduces supply chain cost over our entire network.

All right. That's helpful. For my follow-up, it looks like your inventory per store and in-stock levels are pretty high. Do you plan to keep investing in your assortments, improving assortments? Or do you think this is a comfortable level to be at going forward?

Yes. So there's -- we did grow inventory 10% in total and a little less than 7% on a same-store basis, if you will, per store. Those investments have been where we believe we have had opportunities to continue to refine our assortment on the commercial -- for the commercial side of the business. Obviously, Hubs, MegaHubs have a bigger assortment that gets deployed in a market which helps lift the entire market. And we've also seen opportunities in our international markets to go after commercial business and improve those assortments to go attack the opportunities we have with commercial customers in those international markets. A similar strategy do we have in the U.S., those Hubs and MegaHubs are very important to us and continually improving our assortment to satisfy the commercial customers is a high priority for us.

Your next question is from Zach Fadem with Wells Fargo.

Could you remind us what a typical ramp-up is for MegaHub and the number of satellite stores at MegaHub tends to service. And with the 8 new MegaHubs in the quarter, another 10 in Q4, is there any regional color or thoughts on magnitude or density that you're adding there?

Yes. So typically, we'll see satellite stores get to maturity roughly in the sort of year 5 time frame. What we've been seeing with MegaHubs and why we're so excited about deploying those assets is that those MegaHubs are ramping faster to the extent that we can put 100,000 SKUs in a big box format in a local market, jamming more parts closer to the customer. Those boxes become magnets for traffic, and we're doing well inside the 4 walls. The additional impact is the fact that we use those MegaHubs, as you know, to support the entire network. And so it varies in terms of the number of satellite stores that a MegaHub will support. But having that additional inventory is a lift for the entire market.

Got it. And Jamere, you mentioned about 1% same-SKU inflation right now, but expectations for acceleration. Any thoughts on Q4 same SKU inflation. And as you do start to see that ramp up, could you walk us through the mechanics of LIFO and any P&L implications we should keep in mind?

Yes. I mean excluding tariffs, we would expect the same SKU inflation to be in the same ZIP code. There has not been a lot of costs that have come into the market, primarily because one of the big drivers for the cost increases was freight. And we've seen freight come down off its peak, which has driven sort of lower same-SKU inflation but also has been a positive to the LIFO balance. What I'll say about LIFO for the fourth quarter is our base assumption is that we wouldn't see any impact. However, if we do see significant tariffs. That will indeed have an inflationary impact. And you could see us book some LIFO expense in the fourth quarter. Again, there are lots of variables associated with that as we talked about a little bit earlier. We'll be transparent about what we see in the fourth quarter. But to the extent that tariffs are inflationary, that could have an expense impact from a LIFO standpoint in the fourth quarter.

Your next question for today is from Steven Zaccone with Citi.

I was hoping you could talk a little bit more about your outlook for the fourth quarter. You cited the expectations for solid trends against easing comparison, both DIFM and DIY. On the DIFM side, it's been a while since we talked about growing double digits on a comp basis. Could we get back to that double-digit growth rate as initiatives gain more traction and you see some higher same-SKU inflation.

Yes. What I'll say is that our outlook for the fourth quarter, particularly from a top line standpoint is that we'll have similar kind of momentum that we had in the third quarter. I think the initiatives that Phil talked about are working for us. And you've seen us sequentially improve in commercial, and we're carrying that momentum into the fourth quarter, so we feel pretty good about it from a top line standpoint. . I think the second piece to that is that we're going to continue to invest in a disciplined way for what we see as a near-term opportunity and also a long-term opportunity. And then from a margin standpoint, as I mentioned on gross margins, we expect the gross margins to be down slightly, certainly not to the same order of magnitude that we saw in the third quarter because some of those pressures that we saw in the third quarter will obviously abate. So Overall, I think the outlook is pretty positive for us, and we feel good about the momentum, particularly on the top line that we have going into the fourth quarter.

I'll maybe add a little bit of comment on the commercial growth. Keep in mind, as we've said many times, we still are roughly a 5% share in the commercial arena. There's lots of opportunities for us to continue to grow share both in terms of adding new customers and growing share of wallet with each of those customers. And as we focus on our initiatives, which are assortment improvements in satellite stores, Hubs, MegaHubs, improving service and improving speed of delivery to those customers with that enhanced assortment, we believe we have a lot of opportunity to continue to grow share for long term in the future.

Okay. Understood. The follow-up I have is on merchandise margin. There's been focus here in the near term. But if you think on a multiyear basis, do you still see opportunity for merchandise margin improvement, I guess, specifically as you try to grow the commercial side of the business?

Yes. Yes, I think we do. I think the way we think about it is, I think we would ultimately be able to grow share on DI -- or grow margin on the DIY side and margin on the commercial side, both of them independently. What will happen is as we continue to grow share and our comps on the commercial side of the business, it will put pressure on our overall margin rate. But we -- as we've said plenty of times, we'd like to take that opportunity to have that pressure on our margin rate because we're growing the commercial business faster because that creates more EBIT for us. We like that math problem.

Your next question is from Seth Sigman with Barclays.

So 2 quick follow-ups. One is market share. You talked about the momentum being broad-based. You did have a competitor close a large number of stores over the last 6 months. I'm curious whether that had any impact on the quarter. It was interesting that the West Coast did not necessarily outperform. So I don't know if that implies more upside ahead. Curious how you guys think about that? And then I have a follow-up.

Yes. Great question. I think what we've seen is specifically on the DIY side, where we have more empirical data on share is we've grown share in all of the markets, where those competitive closures happen and, frankly, where they did not happen. So we feel really good about our share growth. Again, we think the vast majority of our share growth is coming from what we're doing as opposed to some of the external factors, obviously, closing down stores helps. But -- so it's pretty broad-based share. And again, you mentioned or we mentioned that those West Coast markets on the commercial side weren't necessarily the strongest growing, we think weather was impactful. And again, we think our initiatives are what's driving our success.

Okay. Great. And then just a follow-up on the gross margin. It sounds like you have decent visibility into the fourth quarter. For shrink specifically, I'm just curious, any more perspective on what happened in the period? How you address that, why this is not going to be an ongoing issue?

Yes. I think a couple of things stand out to us. One is that we're growing our business. We have a lot of activity that is happening. We've got 2 new distribution centers that are fired up here. So the causes for shrink, we've got our arms around. And this is not something that we anticipate talking about in the fourth quarter, particularly as we move forward with all the things that we're working on from an execution standpoint. So this is a dynamic that we've been working our way through over the last several quarters, and we had a pretty tough comparison in Q3, Q4, those pressures should largely abate.

Your final question for today is from Greg Melich with Evercore ISI.

My question is really on trade down and discretionary. I think you mentioned the consumer making some choices, spending on failure and maintenance. Wondering if they're taking those discretionary items out of the basket, or what sort of behavior you're seeing on trade down or trade out there?

Yes. We haven't seen necessarily a lot of trade down partly because we -- in most categories, we don't have a lot of choice. We do in some categories like batteries and brakes and things of that nature. And we haven't seen necessarily a big move down out of premium good, better or best product. What we have seen is the discretionary businesses, they've been under pressure for quite some time now. The big negative comps we were seeing coming out of the back end of the pandemic have kind of largely slowed. So they're more constant in its volume, but it's the smallest piece of our business. It's roughly 16% of our total volume on the DIY side, and it's remained relatively at that point. I don't believe those discretionary categories will meaningfully improve until our consumer has more cash in their pocket.

Got it. And then my follow-up was on margin, just to understand how the international EBITDA from FX, Jamere, presumably, does that show up more in SG&A than gross margin if we think about where it's allocated?

Yes. I mean if you think about -- it shows up in the top line and then you'll see that top line flow through the gross margin. And then it's actually a little bit of a good guy on the SG&A line and net-net negative for EBIT.

So if we're thinking about deleverage, that would look worse because of the P&L internationally or no, it's actually a little good guy.

It will be -- overall, it will be a bad guy.

A bad guy. Right, right. Got it.

Thank you. Before we conclude the call, I'd like to take a moment to reiterate that we believe our industry remains in a strong position and our business model is solid. We are excited about our growth prospects for the quarter, but we will take nothing for granted as we understand that our customers have alternatives. We have exciting plans that will help us succeed in the future, but I want to stress that this is a marathon and not a sprint. As we continue to focus on flawless execution and strive to optimize shareholder value for the future, we are confident that AutoZone will be successful. Thank you for participating in today's call.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.