AutoZone, Inc.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

Forward-Looking Statements

Certain statements herein constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “seek,” “may,” “could” and similar expressions. These statements are based on assumptions and assessments made by our management in light of experience, historical trends, current conditions, expected future developments and other factors that we believe appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand, due to changes in fuel prices, miles driven or otherwise; energy prices; weather, including extreme temperatures and natural disasters; competition; credit market conditions; cash flows; access to financing on favorable terms; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self-insurance; war and the prospect of war, including terrorist activity; public health issues; inflation, including wage inflation; exchange rates; the ability to hire, train and retain qualified employees, including members of management; construction delays; failure or interruption of our information technology systems; issues relating to the confidentiality, integrity or availability of information, including due to cyber-attacks; historic sales and profit growth rate sustainability; downgrade of our credit ratings; damage to our reputation; challenges associated with doing business in and expanding into international markets; origin and raw material costs of suppliers; inventory availability; disruption in our supply chain; tariffs, trade policies and other geopolitical factors; new accounting standards; our ability to execute our growth initiatives; and other business interruptions. These and other risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part I of our Annual Report on Form 10-K for the year ended August 30, 2025. Forward-looking statements are not guarantees of future performance and actual results may differ materially from those contemplated by such forward-looking statements. Events described above and in the “Risk Factors” could materially and adversely affect our business. However, it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a leading retailer and distributor of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at May 9, 2026, operated 6,766 stores in the U.S., 933 stores in Mexico and 157 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 May 9, 2026, in 6,356 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.

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Operating results for the twelve and thirty-six weeks ended May 9, 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.

Executive Summary

Net sales increased to $4.8 billion, an 8.4% increase over the comparable prior year period. Operating profit increased 6.6% to $923.8 million. The third quarter operating profit comparison was negatively impacted by a $36.0 million net unfavorable non-cash LIFO impact. Net income increased 5.4% to $641.5 million and diluted earnings per share increased 7.7% to $38.07 for the quarter.

During the third 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.

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.

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 March 2026, miles driven in the U.S. increased 1.1% 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.

Tariffs

On February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). The President immediately introduced new tariffs under different statutory authority, though their scope and duration, and the likelihood and outcome of further legal challenges to these tariffs, remain uncertain. On April 20, 2026, the Company filed for refunds of IEEPA tariffs paid directly by the Company via the U.S. Customs and Border Protection’s consolidated administration and processing of entries tool in the automated commercial environment portal. Due to the uncertainty around the timing and amount of refunds to be received, the Company has not recognized any potential IEEPA tariff refunds within its Condensed Consolidated Financial Statements as of May 9, 2026. Tariff policy and legal challenges continue to evolve, and we will continue to monitor potential impacts on our business, financial condition and results of operations.

Twelve Weeks Ended May 9, 2026

Compared with Twelve Weeks Ended May 10, 2025

Net sales for the twelve weeks ended May 9, 2026, increased $376.6 million to $4.8 billion, or 8.4% over net sales of $4.5 billion for the comparable prior year period. This growth was primarily driven by an increase in total company same store sales of 3.9% on a constant currency basis and net sales of $129.0 million from new domestic and international stores. Domestic commercial sales increased $132.4 million to $1.4 billion, or 10.4% over the comparable prior year.

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Same store sales, or sales for our domestic and international stores open at least one year, are as follows:

Gross profit for the twelve weeks ended May 9, 2026, was $2.5 billion, compared with $2.4 billion during the comparable prior year period. Gross profit, as a percentage of sales, was 52.2% for the twelve weeks ended May 9, 2026, compared to 52.7% for the comparable prior year period. The decrease in gross margin was driven by a 77 basis point unfavorable net non-cash LIFO impact, partially offset by other margin improvements.

Operating, selling, general and administrative expenses for the twelve weeks ended May 9, 2026, were $1.6 billion compared with $1.5 billion during the comparable prior year period. As a percentage of sales, these expenses were 33.1% compared with 33.3% during the comparable prior year period, primarily driven by strong top line sales growth.

Net interest expense was $110.5 million and $111.3 million for the twelve weeks ended May 9, 2026, and May 10, 2025, respectively. Average borrowings were $8.9 billion and $9.2 billion, and weighted average borrowing rates were 4.52% and 4.48% for the twelve weeks ended May 9, 2026, and May 10, 2025, respectively.

Our effective income tax rate was 21.1% and 19.4% of pretax income for the twelve weeks ended May 9, 2026, and May 10, 2025, respectively. The increase is primarily due to a reduced benefit from stock options exercised compared to the prior year. The benefit from stock options exercised was $4.0 million and $22.7 million for the twelve weeks ended May 9, 2026, and the comparable prior year period, respectively.

Net income for the twelve weeks ended May 9, 2026, increased by $33.1 million from the comparable prior year period to $641.5 million due to the factors set forth above, and diluted earnings per share increased by 7.7% to $38.07 from $35.36.

Thirty-six Weeks Ended May 9, 2026

Compared with Thirty-six Weeks Ended May 10, 2025

Net sales for the thirty-six weeks ended May 9, 2026, increased $1.0 billion to $13.7 billion, or 8.3% over net sales of $12.7 billion for the comparable prior year period. This growth was primarily driven by an increase in total company same store sales of 4.0% on a constant currency basis and net sales of $354.0 million from new domestic and international stores. Domestic commercial sales increased $399.1 million to $3.8 billion, or 11.6% over the comparable prior year period.

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Same store sales, or sales for our domestic and international stores open at least one year, are as follows:

Gross profit for the thirty-six weeks ended May 9, 2026, was $7.1 billion, compared with $6.7 billion during the comparable prior year period. Gross profit, as a percentage of sales, was 51.9% compared to 53.2% during the comparable prior year period. The decrease in gross margin was driven by a 142 basis point unfavorable net non-cash LIFO impact.

Operating, selling, general and administrative expenses for the thirty-six weeks ended May 9, 2026, were $4.7 billion compared with $4.3 billion during the comparable prior year period. As a percentage of sales, these expenses were 34.3% compared with 34.2% during the comparable prior year period. The increase was primarily driven by an increase in investments to support our growth initiatives.

Net interest expense was $323.9 million and $327.7 million for the thirty-six weeks ended May 9, 2026, and May 10, 2025, respectively. Average borrowings were $8.8 billion and $9.1 billion, and weighted average borrowing rates were 4.51% and 4.45% for the thirty-six week periods ended May 9, 2026, and May 10, 2025, respectively.

Our effective income tax rate was 21.2% and 20.4% of pretax income for the thirty-six weeks ended May 9, 2026, and May 10, 2025, respectively. The benefit from stock options exercised for the thirty-six week period ended May 9, 2026, was $23.8 million compared to $42.3 million in the comparable prior year period.

Net income for the thirty-six weeks ended May 9, 2026, decreased by $20.1 million from the comparable prior year period to $1.6 billion due to the factors set forth above, and diluted earnings per share increased by 0.5% to $96.69 from $96.17.

Liquidity and Capital Resources

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 May 9, 2026, we held $253.7 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 $609.4 million increase in commercial paper and repayment of our outstanding $400 million 3.125% Senior Notes due April 2026, 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.

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For the thirty-six week periods ended May 9, 2026, and May 10, 2025, our net cash flows from operating activities provided $2.1 billion and $2.2 billion, respectively.

Our net cash flows used in investing activities for the thirty-six weeks ended May 9, 2026, were $1.0 billion as compared to $917.3 million in the comparable prior year period. Capital expenditures for the thirty-six weeks ended May 9, 2026, were $997.5 million compared to $885.6 million in the comparable prior year period. The increase in capital expenditures was primarily driven by our growth initiatives, including new stores, hub and mega hub store expansion projects. During the thirty-six week periods ended May 9, 2026, and May 10, 2025, we opened 199 and 163 net new stores, respectively. Investing cash flows were impacted by our wholly-owned captive, which purchased $35.4 million and $54.3 million, and sold $17.7 million and $54.8 million in marketable debt securities during the thirty-six weeks ended May 9, 2026, and the comparable prior year period, respectively. Our net investment in tax credit equity investments was $9.2 million and $50.4 million during the thirty-six weeks ended May 9, 2026, and the comparable prior year period, respectively.

Our net cash flows used in financing activities for the thirty-six weeks ended May 9, 2026, were $1.1 billion compared to $1.3 billion in the comparable prior year period. During the thirty-six weeks ended May 9, 2026, we had no debt issuances, versus $500 million in debt issuances in the comparable prior year period. During the thirty-six week periods ended May 9, 2026, and May 10, 2025, we had $400 million and $900 million in debt repayments, respectively. Stock repurchases were $1.3 billion in the current thirty-six week period versus $1.1 billion in the comparable prior year period. The treasury stock repurchases were primarily funded by cash flows from operations. For the thirty-six week periods ended May 9, 2026, and May 10, 2025, we had $609.4 million and $225.5 million in net proceeds from commercial paper, respectively. Proceeds from the issuance of common stock from exercises of stock options for the thirty-six weeks ended May 9, 2026, and May 10, 2025, provided $67.7 million and $111.0 million, respectively.

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.

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 111.1% at May 9, 2026, and 115.6% at May 10, 2025.

Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. We anticipate that we will be able to obtain such financing based on our current credit ratings and favorable experiences in the debt markets in the past.

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For the trailing four quarters ended May 9, 2026, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 36.3% as compared to 43.5% for the comparable prior year period. Adjusted ROIC is

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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.

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 May 9, 2026, and May 10, 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.

Debt Facilities

See “Note I – Financing” in the Notes to the Condensed Consolidated Financial Statements for information concerning our Senior Notes, Revolving Credit Agreement, commercial paper borrowings, outstanding letters of credit and surety bonds commitment.

Stock Repurchases

See “Note J – Stock Repurchase Program” in the Notes to the Condensed Consolidated Financial Statements for information on our share repurchases.

Reconciliation of Non-GAAP Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures not derived in accordance with GAAP, including Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR. Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented non-GAAP financial measures, as we believe they provide additional information that is useful to investors. Additionally, our management uses these non-GAAP financial measures to review and assess our underlying operating results and the Compensation Committee of the Board uses select measures to determine payments of performance-based compensation against pre-established targets.

Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR provide additional information for determining our optimal capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.

We have included reconciliations of this information to the most comparable GAAP measures in the following reconciliation tables.

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Reconciliation of Non-GAAP Financial Measure: Adjusted After-Tax ROIC

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended May 9, 2026, and May 10, 2025.

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