I'm just going to introduce the next company. It doesn't need much of an introduction at all. Get in the zone. So next up, we have the largest aftermarket distributor, AutoZone. AutoZone has over 6,400 stores, with a large share of the do it yourself market, but a rapidly growing do it for me customer base as well.
25,000,000 shares at $11.20 for a market cap of $28,000,000,000 Speaking for AutoZone today is CFO, Bill Giles. Welcome, guys.
Apparently, I do need some introduction. So, okay, also joining me up here is Charlie Pleasure, our Senior Vice President of Finance and Brian Campbell, who's our well, everybody knows Brian, who doesn't know Brian, right? So, we're going to just take it through maybe 15, 20 minutes worth of prepared remarks and then we will open it up for questions. We'll talk a little bit about the overview of the company for those of you who are not familiar, although I suspect most are. And then we'll give you a little bit of an industry update, some of the growth initiatives that you've already heard about, and where we're headed.
I do want to spend a couple of seconds talking about the culture of the organization. I think for anybody who really knows this AutoZone or has been visited the stores and experienced the service levels. We have a really strong culture. And I know most companies probably say that and I'm sure it's true for them as well. But we really have a great culture within the organization and we're always putting customers first.
Many of you may know the pledge that we developed all the way back in 1986. And this is something I always like to spend a couple of minutes on investor presentations because we start almost every major meeting with this pledge and then we follow-up by an extra mile or story. But it's all about putting in customers first and we talked about that in the previous slide, knowing our parts and products. So that's all about training, ensuring that we've got the right content in our catalogs and online so that we have a lot of information. Our stores look great.
We're pretty disciplined about maintaining our stores on a cyclical basis so that we don't get too far behind the curve, as we've seen other retailers fall into that trap and we've got the best merchandise at the right price. So the Duralast brand, we'll talk about a little bit later, is certainly the most prominent brand in the automotive aftermarket, and it's got great quality and it's been very well accepted. And you can see that on the side with both Duralast, ValueCraft, Pro Elite and SureBuild, but the primary one is really the Duralast brand and I'm sure you've seen that advertised frequently. All data, we'll talk about that a little bit later, is a software company that we have out in Sacramento, California that does repair information for garages. It's a subscription based business.
So many of you already know, again, we've got 6,400 stores in total, 5,700 here in the United States. We've got over 600 stores in Mexico. We'll talk a little bit about Brazil. We've got about 35 stores there, but that's a relatively new market for us overall. I'd like to take a look at this just to step back for a second.
And so we may always have some volatility on a quarter to quarter basis, but it's always helpful to look back and look at kind of what our sales and our EBITDA growth rates have been over time. And obviously, we've had certainly different types of economic environments over that time period, but clearly between 3% 7% on a compound annual growth rate from a 3 to 10 year period when you look at the EBITDA sales. And our store performance, again, on a comp store sale basis, over the last 15 years, it's averaged out to around 2.2%. So it's a low steady comp store sale growth rate. We've had positive comp store sales in 14 of the last 15 years.
And so that also equates back to from an EPS perspective. And I think many of you know the story pretty well. And so we're trying to grow operating profit at a low single digit growth rate. And then we generate a fair amount of cash. And with that, we buy back our shares.
And so we may buy back 5% to 6% to as much as 7% of our outstanding stock. And that generates a compound annual growth rate from an EPS perspective of anywhere from 16% to 18%. So you can see the delta getting a little bit tighter. Remember we looked at that EBITDA number was between 4% 7%. But when you look at the EPS number, it's a much tighter delta, which speaks to the strength of the cash flow of the organization.
Our most recent quarter ended on eighttwenty four August 24, actually a week after, but this is on a 52 week basis. And you can see again relatively steady growth. I will point out on the operating profit that was relatively flat. We're just about to finish a year's of investments that we've made back into the business following the tax reform act generated about $200,000,000 worth of free cash flow for us. And we took about half of that $200,000,000 and reinvested it back in the business, primarily in payroll, where we adjusted salaries for our more tenured and experienced AutoZoners, particularly in markets for which we believe that we may have not kept pace with the market.
And then also in technology, we continue to invest pretty significantly in technology over time and expect that that will continue as we look forward. And the balance sheet continues to be in really good shape from our perspective. On inventory per store basis, we're up about 5.9%. Some of that is driven a little bit from the tariffs. But overall, everything is in reasonably good shape and debt is up about 4%.
We're a negative working capital organization. So our AP to inventory ratio runs at about 110% to 114%. And so we continue to leverage our balance sheet and be able to continue to generate strong cash flow. With that, I'm going to introduce and turn over to Charlie Ples, who's our Senior Vice President of Finance to take us through a little bit more on the industry.
Thank you, Bill. So Bill talked about a little bit about the do it yourself or our retail business and that business has continued to be solid for us. And as you can see, growing at 3.6% as far as the industry is concerned is $59,000,000 business. AutoZone is the number one player in that space. And these are some of the questions that we're generally asked.
And as you can see, this was quoted in our last annual report from 1991, went right by it. So it really is speaking to the health of retail. And our customers have continued to show us that they are ingenious and have a lot of industrious behaviors as it relates to their car as they can figure them out. And then HV in electric vehicles, we speak to those as well. Do it for me.
This is a big piece of what we've been seeing growth in over the past several quarters. And as you know that AutoZone has been performing very well in this piece of the business. And we can talk a little bit more about what's been driving it. It's not growing significantly faster than the DIY business at 3.7% versus DIY at 3.6%. But we continue to show growth in this over the past several quarters.
AZ's market share is 3%. So lots of opportunity for us to continue to grow in this space. Our growth priorities continue to be, 1st, retail, then DIFM and then finally, international as we continue to open stores in Mexico and in Brazil. So the U. S.
Business for retail, we've opened 150 stores. We did that over the past several years. We've talked about also the mega hub strategy, accelerating that. We're opening 70 to 90 mega hubs. We've seen great performance in providing continued availability to our customers both on retail and commercial side.
And with benefits, Bill spoke to the investments that we made not only on payroll, but technology from taxes, we continue to see improvement from those investments in our employees. DIFM. We've been growing 2 times what the market has been doing for us and that's been a great benefit to AutoZone. Part of what we've been seeing there is, as you know, 85% of our business is commercial. As far as our store base is concerned, we've got 85% coverage on our stores for commercial, 3% of the market still.
We continue to open programs. But the things we think that are really sticky for us in this space is we're enhancing our products and offerings through our mega hubs. We're spending quite a bit more time from a managerial perspective in the stores or operationally. Our DMs, our store managers are spending a lot more time in dealing with our customers listening to them. They're not going to be your greatest salespeople.
We've certainly got salespeople out there, but they're closest to the customer and they can work with the commercial specialists in the store to continue to understand what our customers' needs are. Focused on availability, as I said, through the Megas and catering to both small and national accounts. So we're not focused more on one than the other. We're growing in both areas. And we continue, as I said, enhancing our store managers' impact with that customer.
International footprint continues to grow, but when we talk international, we really are specifically talking about Mexico and Brazil. That's where we are focused now. Mexico, we've been well established there. Brazil continues to be an opportunity for us. We've talked about the fact that we've our model works and we've got to make the profitability work.
Digital space is another part of not only in the DIY space where we're really focused on trying to make sure that we are where our customers need us to be and we're meeting them there and continue to improve our mobile applications as well as providing access to parts on a next day basis. We see it as a great vehicle for our customers. While they don't we don't have a tremendous amount of our sales in this space, we see it as a great vehicle for our customers to do research and it's a key driver to traffic to our stores. AZ Pro, AutoZone Pro, that also is a huge part of what we've been investing in as we spoke with those investments that we made in 2019, continues to be a focus of ours. And for us, it's one of those things that we've got that's to come.
We've been really driving our commercial business really on with the great operational basis and with inventory availability. We see this as another leg of the stool and a way for our customers to continue to have ease of doing business with AutoZone. We've continued to roll out the changes to our technology and improvements and enhancements to AZ Pro. All data, Bill spoke to that earlier, 80,000 customers there. We see this as a great tool and vehicle.
When we're offering our toolbox to commercial customers, Many of them as you can see use this and it's a leading industry suite of products. In conclusion, this part of the conversation, strong financial disciplines for AutoZone, U. S. Retail, a lot of tenure in our business as far as our employees are concerned, keeping customers first, as Bill spoke, that's a strong part of our culture, for not only retail, but for commercial, continue to make investments in technology and the people for both sides of the business. And that's done through our strong leadership and culture.
Internationally, we're going to continue to invest in those two countries we spoke of. And then we've always had a relentless focus and we'll continue to have a relentless focus on expense control.
Great. Thank you. So I will start with some questions. Based on your presentation, I think one thing I want to touch on is, can you expand on what the needs of your customer base are, the do it yourself versus do it for me, how you fill those needs, but then also how you leverage your do it yourself business to drive that I think was 16% do it for me growth in fiscal year 2019?
Sure. A couple of things. So from a customer perspective, our DIY customer is, we have a lot of customers who are enthusiasts and hobbyists, but quite frankly, our DIY customer is repairing their car out of economic necessity. They can't really afford to take it to a garage in order to be able to have it repaired. So they rely on us for trustworthy advice when they come into AutoZone and helping them find the right product, maybe provide them with repair instructions if they need to.
We have a fixed finder program so that if your check engine light is on, we can do an OBD scan underneath the dashboard and be able to get enough information to help determine what the cause and effect is. On the commercial side of the business, the primary objectives from commercial customers is that we need to have the inventory available. We need to be able to deliver it quickly, maybe 30 minutes or less, and we need to be reasonably priced, typically in that order. So the way that we address both of those customers that we've done a lot of over the last several years is building up our inventory into the marketplace and getting inventory closer to the customer, both DIY and DIF from the commercial side of the business. So we've got our hubs expansion and then we have about approximately 35 mega hubs today.
We mentioned, I think a couple of calls ago that we expect that number to get to 70 to 90 mega hubs on a longer term basis. Mega hubs, just so that you know, have about 100,000 SKUs in them and a hub probably has close to 60,000 SKUs versus a traditional store with about 25,000 SKUs. And so that's really been a bit of a mantra because in this business inventory wins at the end of the day. And so you need to be able to have inventory closer to the marketplace and that's kind of how we're expanding out our hubs and our mega hubs.
Great. So two questions off of that. I'll just start with kind of the margin you're increasing inventory, you're investing in mega hubs, which have 100,000 SKUs. How do you look at the potential impact on margin there?
Yes. I would say that from an absolute margin perspective, we don't necessarily see a big impact on that from the standpoint that we're going to add more inventory, but we've been successful in working with our great vendor partners and being able to get our AP to inventory ratio with that 111% to 114% whatever the number is. So we don't see that as a significant investment overall. The investment will come in the brick and mortar aspect of building out the mega hubs and the hubs. But for the most part, those sales generated out of each of those individual boxes stand on their own and deliver an appropriate IRR or ROIC for us.
So we don't expect that necessarily to impact the margin specifically.
Perfect. And then the other thing you talked about was just the price sensitivity of the do it yourself customer in terms of tariffs. We've actually seen some inflation. I think that has been a tailwind for the company. But do you have any thoughts on how that might affect that most more price sensitive customers?
It's a great question by the way, because I think a lot of people have asked recently about clearly we're getting inflation in the business that we haven't seen in several years. Much of that's driven by the tariffs. And so and not to get you too far into the details, but also keep in mind that our inventory and in the industry turns relatively slowly. Our inventory turns at about a 1.3 times. So when the tariff costs come in, it'll take time for them to work its way through the weighted average cost of inventory.
So we're raising prices to kind of match that as it moves along. So that's created some inflation from a pricing perspective. The one number that we don't really have a good handle on is whether or not that inflation has actually impacted the demand. So although we may be able to articulate how much comp store sales have improved because of inflation, we don't really know the other piece of that, which is whether or not there's been a slowness in the demand. In the meantime, we've had reasonably good results.
Great. And I mean, you have seen, as I mentioned, the 16% growth in the do it for me business. I mean, that's exceptional. We'll start to lap some of that growth this upcoming year. What continues to be the opportunity as we go forward?
I think a lot
of the things that we have foundationally put in place in the business will continue to create momentum on both sides. But as you call out specifically on the commercial side or on the DIFM side, so getting more inventory closer, opening more mega hubs, We're certainly adding some technology in order to help improve and do be better at the way we do conduct business with our commercial customers, making it easier to do business with our commercial customers is going to be a continued one. I don't know if you guys want to add. Yes.
And I would add that one of the points that we were making earlier, really getting the field, the retail side of the business, the field engaged in that dealing with that customer has made a big impact. It's brought them closer to understanding that customer's needs and making sure that they're accommodating on that side for making sure we've got good coverage and that we're getting the product out to the customer as quickly as possible.
And over the last couple of years, you did talk about investment. You mentioned some wage pressure in your presentation, but you also talked about your e commerce exposure. Can you talk about that investment, what your plans are for going forward?
Yes. I think that the investment that we made last year on the payroll side of the business that actually started in the Q1 of fiscal 2019 was really designed to be able to address some markets for which we believe that we were out of sync and then also to ensure that we were increasing wages for our more tenured and experienced AutoZoners. So that was I don't want to say one time, but somewhat of a one time investment. I suspect that we'll continue to get a little bit of wage pressure from regulatory aspects as we move forward as many municipalities and states continue to drive up their average minimum wage. So there'll probably be a little bit of pressure on that.
And then technology, we made some investments last year and our expectation is from a technology which is a significantly smaller investment than the payroll will probably continue over the next few years as consumers continue to demand more technology in their shopping experience whether that be on the retail side or the commercial side.
Great. And in terms of kind of the omni channel presence, what should we expect there? And the Advanced Auto PartsWalmart partnership has come up, Have you seen any changes in the industry?
We haven't seen anything significantly come out of that partnership per se. We obviously see the activity that you see. We continue to we're going to continue to invest in our omnichannel experience in order to make sure that wherever the customer needs us to be, everybody says that. Quite frankly, we don't see a significant amount of volume being conducted on the web, certainly from our channel of distribution, ourselves and our competitors. We think we have a great offering online.
We have next day delivery that we delivered or that we introduced last year. So you can order a part as late as 10 o'clock at night and have it delivered the very next day. So we think we've got a great avenue to deliver product to our customer in a very convenient and economical way, yet it continues to be a very small percentage of our overall business. So, the experience that you get walking into a store, it's just not something that can be duplicated online, whether that be somebody installing wiper blades, putting a light bulb, you're putting a battery and checking your alternator, your starter. There's a whole host of things that take place inside of a store that is an experience that you can't duplicate online.
We're not immune to online pressures by any means, but we continue to believe that there's a lot of value proposition that takes place inside the box.
And the one thing I would add is we know our customers spend quite a bit of time online, shopping, researching our product and we want to make that a seamless activity for them, whether they're online, at their desktop, their mobile, in our store with their mobile device, we want to make it a seamless experience for them right through to the register.
And you did also talk about your accounts payable to inventory ratio above 110%. That's pretty significant in terms of the terms you're getting as interest rates rise. I mean, are you seeing any potential change to those terms?
Yes, we don't see any potential change to those terms. And we've said before that interest is a it's an input cost. So it's no different than any other commodity based cost that a manufacturer is going to wind up having to incur in order to manufacture the product.
Great. And then you have 6,400 stores, I think, in the U. S. You've expanded into Mexico, expanded into Brazil. You continue to repurchase shares for our shareholders.
So great investments all around. But can you talk about kind of your capital allocation priorities, especially as you continue to invest globally?
Yes. No, that's a good question. I think that just to always be clear about our capital allocation strategy, which is there's no change that the first dollar of free cash flow goes back the existing business in order to ensure that our stores look great, that we've got the right infrastructure in order to support our growth. The second set of capital goes to expanding the store base. We grow about 2.5% to 3% square footage growth rate on an annualized basis between the U.
S. And Mexico and now introducing Brazil. And then the third leg of that is that we then take the remaining cash and repurchase our shares. It just so happens that that number dwarfs the previous 2, which is why everybody always believes that the first thing we do is share repurchase. The first thing we're doing is investing back in the business.
And then with the remaining cash, then we go back and buy back shares. And that's been our mantra for years and will continue.
Great. And in terms of the value proposition, to the customer, We've been talking about today the right to repair telematics access to that data. Can you talk about how you compete against the dealer network for that parts and service work and that value proposition as well?
Yes.
Basically, the right to repair allows us and our industry access to the technology and information that's coming off new cars that are out on the road today. And so that's a very important issue for the industry. We talk about it every year. In fact, it was the keynote speech this morning at the trade show, again addressing it. What this allows our industry to do in aftermarket garages is to fix cars that are late model.
It's absolutely essential and that we're pushing a great deal on it. We have a CARE Association, which is a political action committee that supports this cause as well as our trade association. So it's a big deal for our industry. Every year, it's the number one theme we talk about out here in Las Vegas.
Great. And then we also we've been throughout this conference, we talked about the aftermarket tailwinds that are very positive. Clearly, AutoZone should benefit from all of those. You used to provide an earnings model for us. Can you just kind of give us an idea of what you're thinking as we go
forward? Well, I think there are a couple of things, one of which is that, I think we'll get past a little bit of our investment year this year and as we head into FY 2020, we continue to believe that the foundations that we've put in place for both commercial will continue to sustain growth. We're at 3% market share, as Charlie pointed out earlier, that we believe that we can continue to accelerate our market share. DIY continues to be a very steady growth business for it, albeit somewhat mature. We believe that we can continue to grow operating profit at a low single digit growth rate.
And then with share repurchases, believe that we can get to a high single digit, low double digit growth rate on EPS.
Perfect. And then lastly, since you talked about the competition, we have O'Reilly here today. We have Genuine Parts here today. You're often looked as the big fours often look as they own a large portion of the market. But once again, back to the Duke forming growth opportunity, can you expand on that?
Who owns the share? Where can you get the share? And what's the opportunity?
Yes. I mean, look, we go ahead, Phil. Yes.
I think those players that you mentioned, including ourselves, own very small percentage of that space, still very fragmented market. So it lends itself to quite a bit of opportunity for us.
Terrific. And O'Reilly entered into Mexico. We have seen acquisitions throughout the history of the aftermarket given that you're fragmented, would that ever be an option? Acquisitions. Acquisitions,
we've been very successful from an organic perspective. We would not necessarily turn away from an create shareholder value. But having said that, we don't see anything on the horizon.
Terrific. Well, the STACK has continued to do outstanding this year. As I mentioned in the presentation this morning, it's doubled since we were here last 2 years ago. So congratulations and thank you for being here.
Thank you for having us. We appreciate it. Thank you.