And so if we think about the commercial business very broadly, I just keep grounding us back to this notion that we’re underpenetrated. We have a four or five share in what’s approaching a $100 billion market. We’ve put a number of things in place that are delivering and have delivered exceedingly well for us. And as we move forward, we like the competitive hand that we have with growing mega hub footprints, improving execution and adding more commercial programs it’s our number one growth priority inside the company and we’re all hands on deck there. And the last thing, I’ll just say is as you think about commercial as you think about the back half of this year, the front half of this year, we had – we’re up against 15 comp and then a 13 comp, the back half of the year, the comps get a little bit easier.
So the comments that we made earlier in our prepared comments are just along the notion that the comparisons get a little bit easier. And as we have all of these things from an initiative standpoint, working in our favor, it gives us a lot of confidence about our back half execution.
Phil Daniele: In fact, let me add a little bit on to that, too, specifically around new stores, and I’ll maybe take a little bit of a history lesson here. If you go back to FY 2017 or those types of number of years, our productivity per store, we have been on a pretty heavy diet of opening up new programs. And then we decided, from a strategy perspective, we would slow down our new store openings for commercial and really start trying to drive per store productivity. Back then, our per store productivity was in the $7,000 to $8,000 range. Today, as Jamere quoted earlier in the prepared comments, we’re significantly higher than that. The other thing that’s happened is as we open up new programs in today’s environment versus years ago, they are maturing at a faster rate and get to a higher, more plateaued rate.
So we like that math. We’re probably not going to open up 60 or 600 stores in the next two years or so like we have over the recent history. That will probably slow a little bit. But we like the way the new stores come out of the box and the maturity curves that we get versus, frankly, 2017 or 2018.
Seth Sigman: Thank you both. Appreciate it.
Phil Daniele: Thanks.
Operator: The next question is from Steven Forbes with Guggenheim Securities.
Steven Forbes: Good morning. Maybe just a follow-up on Seth’s question. And just a way to maybe contextualize the mega hub strategy for us. Is there any way to think through or maybe discuss the contribution to growth, or how ROI is trending behind these investments versus what the potential should be as we look out a couple of few years? Like any numeric contextualization of where we are in the maturity curve of the initiatives?
Jamere Jackson: Yeah. I think a couple of things stand out to us. The first is that the mega hubs are growing from a commercial perspective and from an overall perspective, significantly faster than our satellite stores. And it’s over 3x what we see on a total domestic business basis. So we’ve been very pleased with the tremendous sales lift that we’re getting inside of the box, both on the DIY and the commercial side. I think the second thing that gives us a lot of confidence is we talked about this notion of testing multiple mega hubs in major metro markets. And we’ve done that over the last few years or so. And the idea there was to jam more Mega Hubs in a market and jam more parts closer to the customer to see really how high is high.
And what we experienced in that time frame was the fact that we didn’t see the kind of cannibalization that we would have anticipated, which suggested that the number of Mega Hubs that we could actually operate was significantly higher. And if you’ll recall, we had Mega Hub targets that went from 100 to North of 200 over a very short period of time. So we like what we see from a sales standpoint. We like what we see from an earnings standpoint. And we — and it’s not only what we’re seeing inside the four walls, but it’s also the fact that these Mega Hubs are an important fulfillment source for the surrounding satellite stores. So when you put all that together in the mix, I mean, it’s a pretty attractive story for us both in terms of sales and earnings and return on investments.
And we’re going to go as fast as we possibly can to accelerate.
Steven Forbes: Thank you for that. Maybe just a quick follow-up on the outlook for expense growth. I think you mentioned how it should – should curve downward. But obviously, we also have the store growth acceleration plan, looking at the 2026 and beyond. And so maybe just help provide additional clarity on why there’s sort of no disconnect in maybe sort of leaning into the investment cycle ahead of a ramp in store growth? I mean is there any risk that EBIT margin could or should take a step back as you sort of ramp the business for a more accelerated growth period?
Jamere Jackson: Yes. I mean we’ve invested in SG&A in a very disciplined fashion over the last several years or so. And what we’ve always said is that over time, SG&A growth should be in line with what we see in terms of the top line. Now in the near-term, to your point, we’ve invested at an accelerated pace behind technology, behind store payroll, all of those things to drive near-term growth for us. And we won’t hesitate to go do that. To the extent that there are opportunities for us to invest in SG&A to drive our growth initiatives, we will do that as we’ve done historically. As we move out and look to accelerate our store growth, there will be some drag on SG&A, but we should be able to manage that within that framework that I talked about.
Steven Forbes: Thank you.
Phil Daniele: Thank you.
Operator: Your next question is from Greg Melich with Evercore ISI.
Greg Melich: Hi, Thanks. Congrats as a nice quarter. I would just like to follow-up on inflation. So if ticket was up 1.7%, is it fair to say that same SKU inflation was sort of near that number and that — how did items of basket and mix, et cetera, out in the quarter?
Jamere Jackson: Yes. So what we’ve seen on ticket growth was something in the low single-digits right now. And we’re seeing same SKU inflation somewhere in that same ZIP code, Greg. I think the important thing to recognize from an inflation standpoint is we came off a period of significantly higher inflation. That’s tempered some. Most of that inflation was driven by freight. So, as freight costs have come down, we’ve seen some of that inflation start to come down as well. And I think the overarching point is that we’re continuing to be very disciplined about pricing, where there are opportunity for us to take retail as we will do so and where there’s an opportunity for us to get deflation in our cost to drive gross margin, we’ll do that as well.
We’re not expecting sort of the same levels of inflation to drive ticket growth that we have in the last year or so. And so you should expect ticket at some point to normalize back in that low to mid-single-digit range to offset the decline that we naturally see on the DIY side from transactions.
Greg Melich: Got it. But presumably, that — a little bit of acceleration in ticket comes from mix and items of basket rather than inflation ticking up, same SKU?
Jamere Jackson: I think that’s right. And as we move forward, I mean, it’s a pretty dynamic environment out there even from an inflation standpoint. We’ll stay very close to and be disciplined about how we manage our business.
Phil Daniele: Go back over long periods of time, decades, I mean, this industry has had a slight decline in transactions and units and an increase in ticket average and average unit retails in that somewhere between 2% to 4% range on average, predominantly because of changes in technology, better parts, and some — it’s great to think about belts on a car. Used to — the average car used to have belts on it today, they have one. And the belt used to be $4 or $5 today about maybe $60 or $70. So that technology change is probably going to continue. And that’s been — it’s been a pretty understandable decline in units and a change in average unit retail and we generally have pretty good line of sight to this because the product development takes years and an item may stay in our stores for 20 years. It’s the beauty of having a — frankly, a lower term business that’s very predictable.
Greg Melich: I’d love to follow up on SG&A and investment there. Jamere, maybe could you level set us on just what wage inflation is running now and what you’re looking at for the next few quarters? And if you think about these pilots that you’re doing on the faster delivery, it sounds like it’s a lot of tech investment. But is there — are there delivery people as well? Just help us understand that a little bit more, the reacceleration of commercial there?
Jamere Jackson: Yes. So, from an average wage standpoint, we’re thrilled that we’re starting to see average wages now with a two handle versus a three or four that we’ve seen over the last few years or so. So, as things have cooled down, we’ve seen some of the hyperinflation go away in the labor markets. We’re now back to more normalized sort of wage inflation, if you will. Now, in terms of the investments that we’re making, nearly every investment that we have from a growth initiative standpoint is underpinned by some changes in technology. Whether that’s on the commercial side with what we’re looking to do with some of our commercial acceleration initiatives are on the retail side, nearly all of those growth initiatives are underpinned by some changes that we’re making in technology.
Our technology teams have done a tremendous job doing that in a very cost-efficient way. And we — and as we move forward, we’ll continue to invest in a very disciplined way as we move forward. In terms of the commercial business and how we improve delivery. I mean we’ve been very efficient in terms of how we’ve deployed our physical assets in terms of vehicles and our people assets in terms of labor to manage that commercial business over time, and there hasn’t been a meaningful change in what we’re doing there.
Greg Melich: Great. Thanks and good luck.
Phil Daniele: Thank you.
Operator: Your next question is from Max Rakhlenko with TD Cowen.
Max Rakhlenko: Great. Thanks a lot guys. So in the stores where you’re piloting the initiatives to improve DIFM services and speed levels, just how is that going versus your own internal expectations? And then how are you thinking about scaling these initiatives over the coming quarters? Just curious how early those are and when you think that they could be ready to go lighter?
Phil Daniele: Yeah. It’s — thank you for the question. And it’s early innings in that. We’ve been testing some stuff, how to use the data we’ve had our — if you think about our handhelds and a lot of technology enhancements that we made over the last couple of years, and now we’ve got a pretty robust set of data where we can look and figure out what are the best and most efficient ways to use our assets, both human assets, our great AutoZoners and our trucks and where the inventory is, how do we get the part to the customer the fastest to improve customer service? It is early innings, but we like what we see, and we’re in the process of rolling that out. There’s some change management that we have to work through. There’s some changes in technology that our AutoZoners need to be comfortable with and some changes in operations in the stores.
But we like what we see, and we’ve had some pauses and evaluate and then move a little further, pause and evaluate and move a little further, but we’re happy with what we see, and we think it will improve customer service to the shop, and we’ll get the parts faster to the customer without having to drive the car any faster because we want to be safe.
Max Rakhlenko: Got it. It’s very helpful. And then can you just speak to your in-store staff retention rates? How are those trending, and if that’s translating into improvements in pro satisfaction? And then ultimately, better demand trends in those stores.
Phil Daniele: I’ll say two things have happened. One is — and we’ve mentioned it a couple of different times. We’ve if you think about staffing in whole, it’s not back to pre-pandemic levels, but it’s better than it was during the pandemic. We still have work to do to get retention and turnover back down to pre-pandemic levels, both in our stores and in our distribution centers, but improving, and we like the trends that we’re seeing, although we’d love it to be faster. The other thing we did on commercial, and Jamere has mentioned it a couple of times, we’ve opened up roughly 600 stores in slightly over two years. As we did that, obviously, that takes your — the commercial specialists and the TSMs and things of that nature, those really high caliber of people that were concentrated in some stores, we expanded pretty quickly.
So you got new promotions and people got to learn their job and learn those new shops and get really ingrained with those long-term relationships, and that will continue to get better as we move forward. So it’s kind of two elements.
Max Rakhlenko: Great. Thanks. Best regards.
Jamere Jackson: Thanks.
Phil Daniele: Thank you. Appreciate the question. I think we have time for one last call.
Operator: The next question is from Brian Nagel with Oppenheimer.
Brian Nagel: Hi, good morning. Thanks for slipping me in.
Phil Daniele: Hi, Brian.
Brian Nagel: So with my first question, I know there’s been a lot of questions on commercial, and we recognize this has been an ongoing conversation. There’s a lot of moving parts here as we look at the kind of the near-term trends. But I guess not at the risk of being too simplistic. We for a long time have talked about a key measure of success in commercial, so to say, climbing that list. In each individual store climbing that list of the – your mechanic customer. So the question I have is, as you pull and talk to your stores, are you seeing any indications that you’re falling further down those lists or maybe the climb up some of these lists stalled?
Phil Daniele: Yes. I mean, to say we’re falling down the list. I don’t think that would be a good characterization. Is there always opportunities to improve? The answer is yes. Go back to our share comments that we’ve made several times we still have under 5% share, we believe. And as we get better and mature in relationships, open up new stores, get better in new stores and drive parts availability and what we call internally time to shop. The quicker we can get those parts to the shop, the better we’ll be. And this — I think there’s a bit of a misnomer that a customer has a first call. They all — nobody has every part that’s needed in a particular shop. So a customer will have multiple people they call. we think we will continually move up the call list and gain a larger share of wallet for each customer, but to say that you’re always first call with any particular customers, that’s pretty rare for a customer to put all of their eggs in one basket because nobody’s got all the parts.
It’s virtually impossible. There’s too many SKUs. So I think we will continue to get better. I think we’ve gotten better from where we were, and we’ve got a long road in front of us to continue to take market share and gain new customers.
Brian Nagel: That’s very helpful. And then a quick follow-up just on weather. And in your prepared comments, you talked about some of the sales volatility we saw through the fiscal Q2. and obviously, weather was a key component of that. But I guess the question I have is as you look at the weather, maybe we’re not even through winter yet, but as you look at the weather, has it been enough — has there been enough winter weather, so to say, give you that normal driver business as we head into spring and even in the summer?
Phil Daniele: Yes. Great question, and time will tell. We’re not completely through winter weather, as you said. I think if I could lay out the weather calendar that I’d love to have, like I said, I would love to have more really cold winter in the big cities on the eastern seaboard. I mean if you’re in New York, you’ve got a little bit of snow this year and it was gone within 24 hours. It’s a heck of a lot more than you got last year. But New York, Philadelphia, D.C., those areas really haven’t had a lot of really extreme cold weather. The Midwest did and the eastern half of the Northeast or the western half. I’m sorry, I got some pretty cold weather. But the big metro cities along the East Coast just really haven’t for more than two years now.
So I would love to have had more there, but that’s something that we can’t control. We’re going to do our best to go grow market share in those company — in those areas of the country, no matter what. So thanks for the follow-up question.
Brian Nagel: Thanks, guys. Thank you.
Phil Daniele: Thank you. All right. So before we conclude the call, I’d like to take a moment and reiterate we believe that our industry is in a strong position, and our business model is solid. We are excited about our growth prospects for the year, but we will take nothing for granted as we understand our customers do have alternatives. We have exciting plans that should 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 the basics and drive to optimize shareholder value for the future, we are confident, AutoZone will be successful. Thank you for participating in today’s call.
Operator: Thank you. This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.
