Jamere Jackson
Chief Financial Officer at AutoZone
Thanks, Phil, and good morning, everyone. As Phil has previously discussed, we had a solid second quarter, marking our fifth sequential quarter of double-digit EPS growth. This quarter, we delivered 4.6% total Company sales growth, with a 0.3% domestic comp, a 10.6% international comp on a constant currency basis, a 10.9% increase in EBIT, and a 17.2% increase in EPS. We continue to deliver solid results and the efforts of our AutoZoners in our stores and distribution centers continue to enable us to drive growth in a meaningful way.
To start this morning, let me take a few moments to elaborate on the specifics in our P&L for Q2. For the quarter, total sales were up -- were $3.9 billion, up 4.6%. Let me give a little color on our sales and our growth initiatives, starting with our domestic commercial business. Our domestic DIFM sales increased 2.7% to $980 million and were up 15.8% on a two-year stack basis. Sales to our domestic DIFM customers represented 25% of our total Company sales and 30% of our domestic auto part sales. Our average weekly sales per program were $14,051, down 2.8% versus last year.
Once again, the weekly sales averages were impacted by the addition of a significant number of immature programs over the last couple of quarters. I'll also remind you that Q1 and Q2 are our toughest comparisons this fiscal year and we expect our year-over-year comparisons to be somewhat easier in the back half of our fiscal year. We now have our commercial program in approximately 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 20 net new programs, finishing with 5,823 total programs.
Our commercial acceleration initiatives continue to make progress as we seek to grow share by winning new business and increasing our share of wallet with existing customers. Importantly, we have a lot of runway in front of us and we will continue to aggressively pursue growth opportunities in commercial, which we believe is our single largest growth opportunity. To support our commercial growth, we now have a 101 Mega-Hub locations. Our Mega-Hubs continued to average significantly higher sales than the balance of the commercial programs and grew more than three times the rate of our overall commercial business in Q2.
Our Mega-Hubs typically carry roughly 100,000 SKUs, drive tremendous sales lift inside the store box, and serve as an expanded fulfillment source for other stores. These assets are performing well individually and the fulfillment capability for the surrounding AutoZone stores is giving our customers access to tens of thousands of additional parts and lifting the entire network. We will continue to aggressively open Mega-Hubs for the foreseeable future and we expect to have north of 200 Mega-Hubs at full buildout.
On the domestic retail side of our business, our comp was negative 0.3% for the quarter. As Phil mentioned, we saw traffic down 2.2% offset by 1.7% ticket growth. As we move forward, we would expect to see slightly declining transaction counts, offset by low-to-mid single-digit ticket growth, in line with the long-term historical trends for the business, driven by changes in technology and the durability of new parts. While DIY discretionary purchases were challenged in Q2, we continue to see a growing and aging car park, a challenging new and used car sales market, and a consumer that is likely to continue to invest in their existing vehicles. In addition, miles driven are back to pre-pandemic levels. As such, we believe our DIY business will remain resilient for the remainder of FY '24.
And now, I'll say a few words regarding our international business. We continue to be pleased with the progress we're making internationally. Our same store sales grew an impressive 23.9% on an actual basis and 10.6% on a constant currency basis. During the quarter, we opened six stores in Mexico to finish with 751 stores, and four stores in Brazil, ending with 108. We remain committed to international, and given our success, we are bullish on international being an attractive and meaningful contributor to AutoZone's future growth.
Now, let me spend a few minutes on the rest of the P&L and gross margins. For the quarter, our gross margin was 53.9%, up 160 basis points, driven primarily by a significant improvement in our core business gross margins, and 63 basis points from a non-cash $10 million LIFO charge in last year's quarter versus a $14 million LIFO credit this year. Excluding LIFO from both years, we had a very strong 97 basis point improvement in gross margin, which increased from last quarter's 70 basis point improvement. We've had exceptional gross margin improvement and in fact, Q2's gross margin was at the highest gross margin rate we've had since Q2 of FY 2021.
I'll point out that we now have $43 million in cumulative LIFO charges yet to be reversed through our P&L, and we expect this credit balance to reverse over time. We're currently modeling $15 million in LIFO credits for Q3 based on the deflation experienced in Q1 and Q2. This compares to the $17 million LIFO credit we had in Q3 last year, which means we'll have a $2 million net LIFO headwind in gross profit in Q3. As I've said previously, once we credit back the $43 million through the P&L, we will not take any more credits and we will begin to rebuild an unrecorded LIFO reserve.
Moving to operating expenses, our expenses were up 6.1% versus last year's Q2 as SG&A as a percentage of sales deleveraged 49 basis points. The accelerated growth in SG&A has been purposeful as we continue to invest in store payroll and IT to underpin our growth initiatives. These investments are paying dividends in customer experience, speed, and productivity. We're committed to being disciplined on SG&A growth as we move forward, and we will manage expenses in line with sales growth over time.
Moving to the rest of the P&L, EBIT for the quarter was $743 million, up 10.9% versus the prior year, driven by our positive same store sales growth and gross margin improvements. Interest expense for the quarter was $102.6 million, up 56% from Q2 a year ago as our debt outstanding at the end of the quarter was $8.6 billion versus $7 billion at Q2 end last year. We're planning Interest in the $105 million range for the third quarter of FY '24 versus $74.3 million last year. Higher debt levels and borrowing rates across the curve are driving this increase.
For the quarter, our tax rate was 19.6%, and down from last year's second quarter of 21.2%. This quarter's rate benefited 360 basis points from stock options exercised, while last year it benefited 222 basis points. For the second quarter of FY '24, we suggest investors model us at approximately 23.4% before any assumption on credits due to stock option exercises.
Moving to net income and EPS. Net income for the quarter was $515 million, up 8.1% versus last year. Our diluted share count of 17.8 million was 7.8% lower than last year's second quarter. The combination of higher net income and lower share count drove earnings per share for the quarter to $28.89, up 17.2% for the quarter.
Now let me talk about our free cash flow for Q2. For the second quarter, we generated $179 million in free cash flow. We have higher CapEx spending this quarter versus a year ago and we expect to spend close to $1.1 billion in CapEx this fiscal year as we complete the addition of our Distribution Center capacity expansion ahead of schedule. I'll also remind you that we generate a majority of our free cash flow in the back half of our fiscal year. We expect to continue to be an incredibly strong cash flow generator going forward, and we remain committed to returning meaningful amounts of cash to our shareholders.
Regarding our balance sheet, our liquidity position remains very strong, and our leverage ratio finished Q2 at 2.4 times EBITDAR. Our inventory per store was up 1.6% versus last year, while total inventory increased 4.2%, driven by new store growth. Net inventory defined as merchandise inventories less accounts payable on a per store basis, was a negative $164,000 versus negative $227,000 last year and negative $197,000 last quarter. As a result, accounts payable as a percentage of inventory finished the quarter at 119.8% versus last year's 127.7%.
Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $224 million of AutoZone stock in the quarter and at quarter end, we had just over $2.1 billion remaining under our share buyback authorization. We bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998, while investing in our existing assets and growing our business. We remain committed to a leverage target in the 2.5 times area and a disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders.
So, to wrap up, we remain committed to driving long-term shareholder value by investing in our growth initiatives, driving robust earnings and cash, and returning excess cash to our shareholders. We're growing our market share, expanding our margins, and improving our competitive positioning in a disciplined way. And as we look forward to the remainder of FY '24, we remain bullish on our initiatives to grow sales behind a resilient DIY business, a fast-growing international business, and a domestic commercial business that remains under-penetrated and should accelerate in the back half of the fiscal year. I continue to have tremendous confidence in our strategy and our ability to drive significant and ongoing value for our shareholders.
And now, I'll turn it back to Phil.
