Jamere Jackson
Chief Financial Officer at AutoZone
Thanks, Phil and good morning, everyone. As both Bill and Phil have previously discussed, we had a solid first quarter stacked on top of an impressive first quarter last year with 5.1% total company sales growth, 1.2% domestic comp growth, 10.9% international comp on a constant currency basis, a 17.4% increase in EBIT and an 18.6% increase in EPS. We continue to deliver solid results and the efforts of our AutoZoners in our stores and distribution centers have continued 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 Q1. For the quarter, total sales were $4.2 billion, up 5.1% and let me give a little more color on sales in our growth initiatives. Starting with our domestic commercial business. Our domestic DIFM sales increased 5.7% to $1.1 billion and were up 20.6% on a two-year stack basis. Sales to our domestic DIFM customers represented 26% of our total company sales and 30% of our domestic auto part sales. Our average weekly sales per program were $15,900, down 0.6%.
It's important to point out that our sales per program productivity was again impacted by a large number of immature programs that have opened over the last five quarters. While these openings depressed the point in time productivity metric, we're encouraged by the growth prospects of these programs and their early contribution to our commercial business. We have intentionally open more stores with commercial programs in response to the tremendous opportunity we see to grow our market share. 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 121 net new programs finishing with 5,803 total programs. Our commercial acceleration initiatives continue to make progress as we grow share by winning new business and increasing our share of wallet with existing customers. Importantly, we continue to 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 100 mega hub locations with two new mega-hubs opened in Q1. The 100 mega hubs averaged significantly higher sales than the balance of the commercial programs and grew more than 2 times the rate of our overall commercial business in Q1.
As a reminder, our mega hubs typically carry roughly a 100,000 SKUs and drive tremendous sales lift inside the store box as well as serve as an expanded assortment source for other stores. The expansion of coverage and parts availability continues to deliver a meaningful sales lift to both our commercial and DIY business. These assets are performing well individually and the fulfillment capability for the surrounding AutoZone stores is giving our customers access to 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 and these are difficult to find boxes in the right locations, but we are keenly focused on rapid expansion and have 45 currently in the pipeline and growing.
On the domestic retail side of our business, our comp was essentially flat for the quarter. As mentioned, we saw traffic down 1.6%, offset by 1.5% 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 Q1, 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. As such, we believe our DIY business will remain resilient for the balance 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 25.1% on an actual basis and 10.9% on a constant currency basis. During the quarter, we opened five stores in Mexico to finish with 745 stores and four stores in Brazil ending with 104. 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 minutes on the rest of the P&L and gross margins. For the quarter, our gross margin was 52.8%, up 279 basis points, driven primarily by a noncash $81 million LIFO charge in last year's quarter versus a $2 million LIFO credit this year. Excluding LIFO from both years, we had a very strong 70 basis point improvement in gross margin, which increased from last quarter's 37 basis point improvement. We've had exceptional gross margin improvement and in fact, we're at the highest gross margin rate we've had since FY 2021. I will point out that we now have $57 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 $5 million in LIFO credits for Q2 based on the deflation experienced in Q1 and as I've said previously, once we credit back the $57 million through the P&L, we will not take any more credits and we will begin to rebuild our unrecorded LIFO reserve.
Moving to operating expenses. Our expenses were up 7.4% versus last year's Q1 as SG&A as a percentage of sales deleveraged 68 basis points. The increase 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 and 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 $849 million, up 17.4% versus the prior year, driven by our positive same-store sales growth and gross margin improvements, including the LIFO year-over-year favorable comparison. Interest expense for the quarter was $91.4 million, up 58% from Q1 a year ago as our debt outstanding at the end of the quarter was $8.6 billion versus $6.3 billion in Q1 last year. We're planning Interest expense in the $98 million range for the second quarter of FY '24 versus $65.6 million last year. Higher debt levels and borrowing rates across the curve are driving this increase.
For the quarter, our tax rate was 21.6% and up from last year's first quarter of 18.9%. This quarter's rate benefited 147 basis points from stock options exercised, while last year it benefited 446 basis points. For the second quarter of FY24, 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 $593 million, up 10% versus last year. Our diluted share count of 18.2 million was 7.2% lower than last year's first quarter. The combination of higher net income and lower share count drove earnings per share for the quarter to $32.55, up 18.6% for the quarter.
Now let me talk about our free cash flow for Q1. For the first quarter, we generated $600 million of free cash flow. 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 Q1 at 2.5 times EBITDAR returning to our long-term target. Our inventory per store was up 0.3% versus last year, while total inventory increased 3% driven by new store growth. Net inventory defined as merchandise inventories less accounts payable on a per store basis was a negative $197,000 versus negative $249,000 last year and negative $201,000 last quarter. As a result, accounts payable as a percent of inventory finished the quarter at 124.4% versus last year's 131%.
Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $1.5 billion of AutoZone stock in the quarter and at quarter-end, we had just over $300 million remaining under our share buyback authorization. The strong earnings, balance sheet and powerful free cash we generated this year has allowed us to buyback 3% of the shares outstanding in the quarter. We have 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 this disciplined capital allocation approach that will enable us to invest in the business and return meaningful amounts of cash to shareholders.
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're bullish on our growth prospects behind a resilient DIY business, a fast growing international business and a domestic commercial business that is re-accelerating. I continue to have tremendous confidence in our strategy and our ability to drive significant and ongoing value for our shareholders.
And now I will turn it back to Phil.
