Jamere Jackson
Chief Financial Officer, Customer Satisfaction at AutoZone
Thanks, Phil. And good morning, everyone. As Phil has previously discussed, we had a solid third quarter with 3.5% total company sales growth, flat domestic comp growth, a 9.3% international comp on a constant currency basis, a 4.9% increase in EBIT and a 7.5% 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 earnings 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 Q3.
For the quarter, total sales were $4.2 billion, up 3.5% and let me give a little more color on sales and our growth initiatives. Starting with our domestic commercial business, our domestic DIFM sales increased 3.3% to just under $1.2 billion and were up 9.6% on a two-year stack basis. Sales to our domestic DIFM customers represented 31% of our domestic auto parts sales. Our average weekly sales per program were $16,400, down 2.4% versus last year's $16,800. Now, as a reminder, we have added over 300 new programs over the last 12 months and these new programs are diluting the overall sales per program. We are, however, extremely pleased that these programs are maturing significantly faster than our historical performance and position us well for the future.
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 5,843 total programs. Our commercial acceleration initiatives continue to make progress as we grow share by winning new business and look to gain share of wallet with existing customers. Importantly, we have a lot of opportunity in front of us and we will continue to aggressively pursue growth in the highly fragmented commercial market, which we believe is our single largest growth opportunity.
To support our commercial growth, we now have 103 mega hub locations with two net new mega hubs opened in Q3. Our mega hubs continue 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 Q3. 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 open well north of 200 mega hubs at full build-out. These assets are key to our growth plans.
On the domestic retail side of our business, our comp was down 1% for the quarter. As Phil mentioned, we saw traffic down approximately 2%, offset by approximately 1% ticket growth. Over time, we would expect to see slightly declining transaction count 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 Q3, we continue to see a growing and aging car park, miles driven back to pre-pandemic levels, a challenging new and used car sales market and a consumer that is likely to continue to invest in their existing vehicles. As such, we believe our DIY business will remain resilient.
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 18.1% on an actual basis and 9.3% on a constant currency basis. During the quarter, we opened 12 stores in Mexico to finish with 763 stores and one store in Brazil, ending with 109. We remain committed to international and given our success, we're bullish on international being an attractive and meaningful contributor to AutoZone's future growth.
Now, let me spend a few moments on the rest of the P&L and gross margins. For the quarter, our gross margin was 53.5%, up 102 basis points, driven by a significant improvement in our core business gross margins and 15 basis points from a non-cash $24 million LIFO credit in this quarter versus a $17 million LIFO credit in Q3 of last year. Excluding LIFO from both years, we had a very strong 87 basis point improvement in gross margin. Our merchandising and supply chain teams have done an exceptional job of driving gross margin improvement this year.
I will point out that we now have $19 million in cumulative LIFO charges yet to be reversed through our P&L and we expect this credit balance to reverse over the next couple of quarters. We're currently modeling approximately $10 million in LIFO credits for Q4, based on the deflation experienced this past year. This compares to $30 million LIFO credit we had in Q4 last year, which means we would have a $20 million net headwind from LIFO and gross profit. As I've said previously, once we credit back the $19 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 and expenses, our expenses were up 6% versus last year's Q3 as SG&A as a percentage of sales delevered 76 basis points. On a same-store basis, SG&A grew 3.3%, as we continue to invest in initiatives that drive speed, productivity and improve customer service. We are 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 $900 million, up 4.9% versus the prior year, driven by our positive same-store sales growth and gross margin improvements. Interest expense for the quarter was $104 million, up 41% from Q3 a year ago, as our debt outstanding at the end of the quarter was $9 billion versus $7.3 billion in Q3 last year. We are planning interest in the $148 million range for the fourth quarter versus $109 million last year. Higher debt levels and borrowing rates across the curve are driving this increase along with the extra week that we will have in this year's fourth quarter.
For the quarter, our tax rate was 18.1% and up from last year's third quarter of 17.4%. This quarter's rate benefited 479 basis points from stock options exercise, while last year had benefited 595 basis points. For the fourth quarter, we suggest investors model us at approximately 23.2% before any assumptions on credits due to stock option exercises. Moving to net income and EPS, net income for the quarter was $652 million, up 0.6% versus last year. Our diluted share count of 17.8 million was 6.4% lower than last year's third quarter. The combination of slightly higher net income and lower share count drove earnings per share for the quarter to $36.69, up 7.5% for the quarter.
Now, let me talk about our free cash flow. For the third quarter, we generated $434 million in free cash flow. We had 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 will also remind you that we generate a majority of our free cash flow in the back half of each of our fiscal years. We expect to continue being 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 Q3 at 2.5 times EBITDA. Our inventory was up 7.9%, driven by a combination of inventory per store growth to support our growth initiatives, improvements in in-stock levels along with new store growth. Net inventory, defined as merchandise inventories less accounts payable on a per store basis was $168,000 negative versus $215,000 negative last year and negative $164,000 negative last quarter. As a result, accounts payable as a percent of inventory finished the quarter at 119.7% versus last year's 126.5%.
Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $735 million of AutoZone stock in the quarter and at quarter end, we had $1.4 billion remaining under our share buyback authorization. We have bought back over 100% of the then outstanding shares of stock since our buyback conception in 1998, while investing in our existing assets and growing our business. We remain committed to a leveraged target of 2.5 times 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 free cash flow, 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. As we look forward to Q4, we remain bullish on our initiatives to grow sales behind a steady DIY business, a fast-growing international business and a domestic commercial business that remains underpenetrated. I continue to have tremendous confidence in our strategy and our ability to drive significant and ongoing value for our shareholders.
And with that, I'll turn it back to Phil.
