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Actual results may materially differ from anticipated results.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Good morning and thank you for joining us today for Autozone's 2018 First-Quarter Conference Call. With me today are Bill Giles, executive vice president, chief financial officer, and Brian Campbell, vice president, treasurer, Investor Relations and Tax. Regarding the first quarter, I hope you've had an opportunity to read our press release and learn about the quarter's results. If not, the press release along with slides complementing our comments today are available on our website www.AutozoneInc.com. Please click on Quarterly Earnings Conference Calls to see them.

To begin this morning, I want to thank all Autozoners across the company for their tremendous efforts this past quarter. The quarter started out with Hurricane Harvey and finished up with five more natural disasters across North America, causing our Autozoners and customers living in those regions tremendous disruptions in their lives. From hurricanes to earthquakes in Mexico to wildfires out west, we incurred cost and property damage in each one. While we were able to get back on our feet quickly with hurricanes Harvey and Irma incurring minimal damage to our stores, Hurricane Maria hit our stores and customers hard in Puerto Rico.

We have 43 stores in Puerto Rico and unfortunately, we still have several that are unable to open due to the damage incurred. Our thoughts and prayers continue to go out to all the folks on the island for the horrible effects the storm has had on their lives. Our Autozoners throughout the organization have responded incredibly well and swiftly so that we've been able to get the vast majority of our stores open very quickly following these disasters so our Autozoners could service our customers when they needed us most. Our support for our Autozoners and customers in Puerto Rico continues so we can aid them in their rebuilding efforts.

Now for the business results. Our business strengthened during the quarter with improved same-store sales results, including the acceleration in our domestic commercial sales. As mentioned in our press release, the natural disasters impacted both our sales and earnings for the quarter. Following the storms, our sales benefited by an estimated 50 to 60 basis points while we experienced costs and damages of $9 million resulting in a net negative estimated impact to EPS of $0.07.

We were encouraged that our sales gained momentum from Q4 excluding the estimated disaster benefit, and our sales strengthened in the later stages of the quarter. We continued executing our inventory-availability initiatives during the quarter, and we are pleased with our results, all with a focus on improving our ability to say yes to our customers' parts needs. We opened two additional megahubs and further refined and tested the delivery frequency to our stores to determine the optimal service levels. Our supply chain team implemented various tactics to optimize activity and reduce cost and were able to deliver leverage in our warehouse and delivery costs this past quarter.

This marks the first quarter in many where cost increases have abated, and we feel very good about the direction costs are headed over the remaining three quarters of Fiscal 2018 in our supply chain. And with our new Pasco, Washington D.C., open, combined with our new Ocala, Florida, DC and our expansion of our Danville, Illinois, DC coming online soon, we feel we're positioning our supply chain to improve efficiencies, enhance capacity, and improve service. We're on the right path and on our plan with these initiatives. Additionally, we saw a nice improvement in our commercial business's sales results in Q1.

Total commercial sales increased 6.7% compared to 5.9% in Q4 and 5.7% for all of last year. We continue to grow our business faster than the overall industry by executing on our game plan. We continue to focus on growing business with existing customers. With fewer year-over-year program openings, more of our sales growth is coming from existing customers or new customers in older programs.

We believe our inventory-availability work is vital to these efforts and is enhancing our position in commercial and we will continue to improve.

Before getting to more detail about the quarter, I want to share our perspective on the trajectory of our industry sales. In recent years, there have been macro headwinds, specifically two consecutive mild winters negatively impacting demand in the upper Midwest, Mid-Atlantic, and Northeastern markets, along with delayed tax refunds last year that did not translate to an increase in business during that time period in a manner that was similar to previous years. In addition, there's been a lot of discussions concerned about the effects of online sales negatively impacting the industry. While automotive parts and products have been sold online for more than a decade, we simply haven't seen any material shift in our business, past or present.

Weather effects will even out over time but remain negative as the effect of the mild winters have reduced demand for failure- and maintenance-related parts. This past quarter we continued to see the impact as the Midwestern, Mid-Atlantic, and Northeastern stores underperformed the remaining country by over 200 basis points in cost. Although these markets have underperformed for the last couple of years, we've begun to see improving trends in the Northeastern markets, which encourages us heading into the new calendar year. As history has shown, when extreme cold and significant snowfall returns, those markets traditionally have seen a significant resurgence in sales.

These markets are very good markets for us. They're just much more volatile. They underperform in mild weather years and excel in extreme weather years. If we experience more normal weather in these parts of the country in 2018, we would expect stronger sales performance.

Turning to our online efforts, we continue to invest in our strategy to enhance the customer shopping experience in an omnichannel world. We continue to see growth in our website traffic, particularly mobile, ship-to-home sales, and "buy online, pick up in store." The "buy online, pick up in store" is growing much, much faster than ship-to-home as our customers value the convenience of immediate availability and trustworthy advice our Autozoners provide them. This also further highlights the importance of inventory availability at the store level. We're also working to enhance our digital capabilities with our commercial customers, and they continue to increase their interactions with us over AutozonePro.com.

We will continue to invest in our omnichannel strategy to ensure we can interact with our customers in the manner that best fits their needs and desires. On the cost front, I've highlighted on the last two quarters' conference calls the impacts we're experiencing from accelerated pressure on wages. Those pressures continue to exist and are more than our historical norms. The regulatory changes are going to continue, as evidenced by the areas that have passed legislation to increase their wages substantially over the next few years.

We're constantly working diligently to find new innovations to better manage our cost structure, and those efforts will continue but we believe this particular area will have continued pressure in the current state regulatory and low unemployment environments. Our management team remains committed to managing this business for the long term to provide great service for our customers and great opportunities for our Autozoners, ultimately delivering strong shareholder value. We operate in an industry driven by inelastic demand. If the part breaks, our customers need to fix it to get to work and get on with their lives.

Because of this predictability based on miles driven and an aging car population, we remain committed to continually improving our ability to aid customers in saying yes to their needs.

Now let me provide more detail in the quarter. For the quarter, our sales increased 4.9% and our domestic same-store sales were up 2.3%. All three months of the quarter -- September, October, and November -- were positive, with November being stronger on both a one- and two-year stack basis. As I previously said, our Northeastern, Midwestern, and Mid-Atlantic markets representing roughly 25% of our state sales continue to underperform by approximately 200 basis points as a result of two consecutive mild winters.

During the quarter we opened 15 net new stores in the U.S. and our commercial business expanded by 6.7% while opening 30 programs. Our commercial growth accelerated from last quarter's 5.9% increase as we continued to execute our strategies to grow sales. We expect to open approximately 150 net new commercial programs this fiscal year.

Currently, 84% of our domestic stores have a commercial program. During the quarter we continued to expand in Mexico, opening five new stores, and we did not open any new stores in Brazil or additional IMC branches, consistent with our plans.

Now I'd like to provide an update on our learnings around our multiple frequency of delivery model. As a reminder, multiple frequencies of delivery is solely focused on improving the in-stock levels for SKUs that are stocked in those stores, while the megahubs are focused on adding additional coverage to the local markets, meaning adding SKUs that would not have been available locally in our network before. We made some fairly significant changes to the number of stores on our multiple frequency of delivery test. Changes to frequency from three times a week to two times a week in a small set of stores mainly improved our replenishment algorithms in Q4 of last year.

We've seen improved sales results in the three-time-per-week stores as a result of the replenishment changes that have encouraged us. While the two-time-per-week stores have underperformed, we're not yet prepared to conclude these tests and as we enter our most volatile selling season, Q2, it will likely be spring before we can make definitive conclusions. While we continue to learn from our frequency of delivery tests, we remain committed to the rollout of our megahubs strategy. As a reminder, these supersized Autozone stores carry 80,000 to 100,000 unique SKUs, approximately twice what a hub store carries today.

They provide coverage to both surrounding stores and other hub stores multiple times a day or on an overnight basis. Our sales results thus far in our open megahubs continue to exceed our expectations both for retail and commercial. Currently, we have over 4,000 stores with access to megahub inventory. A majority or about two-thirds of these 4,000 stores receive their service on an overnight basis today, but as we expand our megahubs, more of them will receive this service the same day and many will receive it multiple times per day.

We continue to expect to ultimately operate up to 40 megahubs. The constraint on the speed with which we can open these is availability and location of real estate. On average, an Autozone location is just under 7,000 square feet and a megahub is 30,000 square feet or more. Identifying and developing these locations in prime retail areas is challenging and it takes time.

While there is incremental cost of these rollouts, we continue to feel these investments will provide a better customer experience and increased market share. Along with improving our local parts availability and assortment, we continue to manage this organization to provide exceptional service for our customers, provide our Autozoners with a great place to work with opportunities for advancement, and ensure we do it on a long-term profitable basis to provide strong returns for our shareholders. We will continue to stress the importance of going the extra mile to fulfill our customers' needs regardless of how difficult the request. With our commitment to service intact, we continued to be share-gainers over the quarter for the data we have available to us and in fact, our share has continued to improve over the last several months.

Regarding Mexico, we opened five new stores this quarter and ended the quarter with 529 stores. Mexico now represents just under 9% of our store base. Sales in our other businesses for the quarter were up 0.9% over last year's first quarter, showing continued improvement each of the last five quarters. As a reminder, our all data and e-commerce businesses, which include Autozone.com and Autoanything, make up this segment of sales.

This compares [inaudible] down 0.8% last quarter and reflects stronger performance in Autoanything's business for Q1. Also, as I previously mentioned, we continued to see strong growth in our "buy online, pick up in store" sales. The strength in "pick up in store" encourages us to continue investing in our in-store experience. We recognize that the majority of our site traffic is providing information for our customers prior to purchase, and our e-commerce platform represents an important part of our omnichannel experience.

We see customers doing lots of research to learn about the product and how to do repairs. While these businesses are small for us, at less than 5% of our total sales, our omnichannel experience is very important for the customer experience and we will continue to invest in our e-commerce platform. With continued aging of the car population, we continue to be optimistic regarding trends for our industry in both DIY and DIFM. As new-vehicle sales are near all-time highs and gas prices on average are quite low, miles driven continue to increase.

The lower-end customer benefits the most from lower gas prices relative to income. This trend remains encouraging. Regarding our expectations for the winter of 2018, if we return to more normal weather patterns, we expect sales performance to improve as the year moves forward.

Now let me review our highlights regarding the execution of our ongoing operating theme from 2017 that we carried over into 2018, "Yes, we've got it." The key priorities for the year are great people providing great service, profitably growing our commercial business, leveraging the internet, "Yes, we've got it" and leveraging IT. On the retail front this past quarter under the "great people providing great service" theme, we're committed to supporting our store Autozoners, helping get both the stores themselves and their customers up and running post the disasters and this was no easy task. We're focused on enhanced training to store-level Autozoners and increasing the share of voice regarding availability with the "Yes, we've got it" theme. We hosted our national sales meeting at the end of September, and our communications were around training our Autozoners to enhance the customer experience.

We also remain aggressive with our technology investments and believe these investments will help differentiate us on a go-forward basis. We realize as customers have become much more tech and mobile savvy, we have to have a sales proposition that touches all the ways they desire to interact with us. Our future and current technology investments will lead to sales growth across all of our businesses. Regarding commercial, we opened 30 net new programs during the quarter.

Our expectation is we will continue to open new programs in the range of 150 in 2018. As we continue to improve our product assortments and availability and as we make other refinements to our commercial offerings, we expect the estimated sales potential to grow. We should also highlight another strong performance in return on invested capital as we were able to finish the quarter at 29.6%. We continue to be pleased with this metric, as it is one of the best in all of hard-line retailing.

However, our primary focus has been and continues to be that we ensure every incremental dollar of capital that we deploy in this business provides an acceptable return well in excess of our cost to capital. It is important to reinforce that we always maintain our diligence regarding capital stewardship, as the capital we invest is our investors' capital.

Before I pass the discussion over to Bill Giles to talk about our financial results, I'd like to thank and reinforce how appreciative we are of our entire team's efforts to continue to meet and exceed our customers' wants, needs, and desires. We are bullish on 2018 sales potential because we have a great business, operated by exceptional Autozoners.

Now, I'll turn the call over to Bill Giles. Bill.

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Thanks, Bill and good morning everyone. To start this morning, let me take a few moments to talk more specifically about our retail, commercial, and international results. For the quarter, total auto parts sales, which include our domestic retail and commercial businesses, our Mexico and Brazil stores, and our 26 IMC branches, increased 5%. For the trailing 52 weeks ended, total sales per domestic Autozone store were $1,770,000.

Total commercial sales increased 6.7% and the quarter commercial represented 19% of our total sales and grew $31 million over last year's Q1. We opened 30 net new programs versus 35 programs opened in our first quarter last year, and we now have our commercial program in 4,622 stores, or 84% of our domestic stores, supported by 188 hub stores. Over 700 of our programs are three years old or younger. In 2018 we expect to open approximately 150 new programs.

As Bill mentioned earlier, we remain focused on growing this business, as we see this business as our most significant growth opportunity and we are treating it accordingly. We're committed to having a great sales team supplemented with a stronger engagement of our store managers and district managers. We remain confident we will continue to gain market share with our commercial customers. We are encouraged by the initiatives we have in place and feel we can further grow sales and market share.

While we've completed the majority of our commercial project and we have some new thoughts and concepts, they're just that: ideas. We will now move to implement and test these on a small scale in order to refine and enhance them. For competitive reasons, we won't be sharing our detailed findings at this stage. Once we have proven concepts with concrete plans, we will share our plans but that will take some time.

While we are working on these new ideas, we are continuing with our existing strategies to grow commercial sales and profits. Our Mexico stores continue to perform well. We opened five new stores during the first quarter, ending the quarter with 529 stores. We expect to open approximately 40 new stores in Fiscal 2018.

Mexico's business was challenged throughout 2016 and 2017 by a weakening peso foreign exchange rate to the U.S. dollar. Our hope is 2018's exchange rate will settle down and will potentially be favorable. We've been quite pleased the way our Mexico leadership team has managed this business through all of this volatility.

Regarding Brazil, we continue to operate 14 stores. Our plans are to grow to approximately 25 total stores by the end of the fiscal year. Our performance continues to improve and gives us optimism about the long-term future of this market. If we can prove success, this market has the potential to be much larger than Mexico.

So, while challenging, the size of the prize is significant. Gross margin for the quarter was 52.8% of sales and was effectively flat for the quarter, with higher merchandise margins being offset by higher inventory shrink results. While our shrink expense is higher in support of inventory-availability initiatives, we were pleased with the supply chain's ability to leverage cost on a percent of sales basis. We believe initiatives we have in place to manage shrink can reduce the leverage over the remainder of the year.

Our primary focus remains growing absolute gross profit dollars in our total auto parts segment. SG&A for the quarter was 34.6% of sales, higher by 50 basis points from last year's first quarter. Operating expenses as a percentage of sales were higher than last year primarily due to storm-related expenses incurred during the quarter and de-leverage on occupancy cost. EBIT for the quarter was $469 million, up 2.1% over the last year's first quarter.

Our EBIT margin was 18.1%. Interest expense for the quarter was $39 million, compared with $33 million in Q1 a year ago. We're planning interest at $39.4 million in the second quarter Fiscal 2018 versus $34.2 million last year Q2. The higher expense is due to tenor and size of the bond completed this April of $600 million or 3.75% coupon.

Debt outstanding at the end of the quarter was $4.983 billion, or approximately $14 million below last year's balance of $4.997 billion. Our adjusted debt level metrics finished the quarter at 2.5 times EBITDA. While in any given quarter we may increase or decrease our leverage metrics based on management's opinion regarding debt and equity market conditions, we remain committed to both our invest-grade rating and our capital allocation strategy and share repurchases are an important element of that strategy. For the quarter our tax rate was 34.6%, down slightly from last year's Q1 of 34.7%.

I want to take a moment and remind listeners of our adoption of the new accounting standard. The new standard requires us to recognize the tax benefit received from the gains employees have on stock options as a credit to income tax expense on the P&L. This past quarter it lowered our tax rate 52 basis points. This compares to the benefit we had of 74 basis points to the tax rate in last year's Q1.

This accounting change also increases the diluted share count calculation. While the impact on this adoption was minimal to the tax rate at 52 basis points this quarter, it is worth highlighting that it had a 358-basis-point impact on our rate in Q2 of last year. Because it is impossible for us to predict when individuals will exercise options, we encourage folks to model us on a rate assuming no stock option impact, roughly 35.5%, and we will report both rates. Net income for the quarter was $281 million, up 1% over the last year.

Our diluted share count of 28.1 million was down 5.4% from last year's first quarter. The combination of these factors drove earnings per share for the quarter to $10, up 6.8% over the prior year's first quarter. Excluding the impact of the previously mentioned change and accounting for stock option exercises from both this year's Q1 and last year's Q1, our EPS would have increased at the same rate, 6.8% for the quarter. Related to the cash flow statement for the first quarter, we generated $565 million of operating cash flow.

Net fixed assets were up 8.2% versus last year. Capital expenditures for the quarter totaled $110 million and reflected the additional expenditures required to open 22 new locations this quarter, capital expenditures on existing stores, hub and megahub store remodels or openings, work on the development of new stores for upcoming quarter's investments, and our new domestic DCs and information technology investments. With the new stores opened, we finished this past quarter with 5,480 stores in 50 states, the District of Columbia, and Puerto Rico, 529 stores in Mexico, and 14 in Brazil, for a total Autozone store count of 6,023. We also had 26 IMC branches open at the end of Q1, taking our total locations to 6,049.

Depreciation totaled $78 million for the quarter versus last year's first-quarter expense of $71.8 million. This is generally in line with recent quarter growth rates. We repurchased $253 million of Autozone stock in the first quarter and at quarter-end we had $471 million remaining under our share-buyback authorization, and our leverage metric was 2.5 times at quarter-end. Again, I want to stress we managed to appropriate credit ratings and not any one metric.

The metric we report is meant as a guide only, as each rating firm has its own criteria. We continue to view our share-repurchase program as an attractive capital deployment strategy.

Next, I'd like to update you on our inventory levels in total and on a per-store basis. The company's inventory increased 6.3% over the same period last year. Inventory per location was $663,000 versus $647,000 last year and $644,000 last quarter. Net inventory defined as merchandise inventories less accounts payable on a per-location basis was a -$52,000 versus a -$67,000 last year and a -$48,000 last quarter.

As a result, accounts payable as a percent of gross inventory finished the quarter at a 107.8%. Finally, as Bill previously mentioned, our continued disciplined capital management approach resulted in a return on invested capital for the trailing four quarters of 29.6%. We have and we will continue to make investments that we believe will generate returns that significantly exceed our cost of capital.

Now, I'll turn it back to Bill Rhodes.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Thank you, Bill. While we're encouraged with the start of our fiscal year, we're careful to not overcommit to any outcomes when it comes to our second fiscal quarter. The second quarter has perpetually been our most volatile quarter due to weather patterns, holidays, and timing of tax refunds. Last year we were impacted negatively by the delay in income tax refunds and the impact of a second consecutive mild winter.

We did not foresee the impacts on sales these events would have on our business for the second and third quarters last year. While we are pleased with our progress and the acceleration in our business, we want to highlight some of the potential points of volatility, both positive and negative, in the upcoming quarters. One, if we experience a cold and high-precipitation winter, our sales should be strong later in the quarter and into the balance of the year. Two, tax refund timing should be the same as last year so it shouldn't have any bearing on our second-quarter results.

As for Q3, we don't know if those sales will return. Three, as the holidays shift, we will lose two selling days in our DIFM business, which will negatively impact our sales growth in DIFM. It's important to note this has an insignificant impact on our DIY business. Fourth, we encourage you to be mindful of the significant EPS benefit due to stock option exercises in the second quarter of last year and adjust for this non-operating unpredictable event.

We're excited about our balance model for growth around domestic retail, commercial, international online, and "pick up in store." We believe our hubs and megahubs, Mexico, all data e-commerce, our other businesses can all grow their top lines in 2018. To execute a high level, we have to consistently adhere to living the pledge. We cannot and we will not take our eye off of the execution. We must stay committed to executing day in and day out on our game plan.

Success will be achieved with an attention to detail and exceptional execution. Our customers have choices, and we must exceed their expectations in whatever way they choose to shop with us. We're fortunate to operate in one of the strongest retail segments and we continue to be excited about our industry's growth prospects for 2018 and beyond. As consumers continually look to save money while taking care of their vehicles, we're committed to providing the trustworthy advice they expect.

It truly is the value-add that differentiates us from other faceless transactions. Customers have come to expect that advice from us. It is with this focus we will implement more enhancements on both our DIY and commercial websites and in-store experience to provide even more knowledgeable service. We don't ever expect an online experience to replace the advice our customers want, but today's customers do expect more information on repairing their vehicles.

This aspect of service has been our most important cultural cornerstone and it will continue to be for a long time. Our charge remains to optimize our performance regardless of market conditions and continue to ensure we're investing in the key initiatives that will drive our long-term performance. In the end, delivering strong EPS growth and ROIC each and every quarter is how we measure ourselves. This formula has been extremely successful over the last 38 years and we continue to be excited about our future.

Now, I'd like to open up the call for questions.

Questions and Answers

Operator

Thank you. We will now begin the question-and-answer session of today's conference and to ask a question, press * followed by the No. 1 on your phone, un-mute your phone, and record your name when prompted. Your name will be required to deduce your question.

To cancel your question press * followed by the No. 2.

Our first question is coming from Alan Rifkin from BTIG. Your line is now open.

Alan Rifkin -- BTIG -- Analyst

Thank you. Congratulations on a nice quarter. Bill Rhodes, certainly you expressed your enthusiasm about the megahub strategy. What's the revenue lift to your store base once they move to being supported by a megahub? And then related to that, what is the average revenue per store in 40 stores versus stores that are still not supported by the megahubs? Thank you very much.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah, thank you for the comment, Alan. I would say the megahub service in and of itself can drive between 1% and 2% growth in the local store. As far as the volumes go, the volumes are all over the spectrum because anybody that's within a reasonable service area, we're providing service to them from megahubs. So, they may be on the low end of the scale or they may be on the high end of the scale but generally, they'll grow between 1% and 2%.

Some of the factors within that depends on whether or not they're serviced multiple times a day or once a day or serviced on an overnight basis. A big part of our strategy now, as we mentioned, is about 4,000 of our domestic stores already have megahub service, but many of those today are only getting it on an overnight basis. As we continue to expand our megahubs, which by the way we couldn't be more pleased with, as we continue to expand it, we will have more and more that will get same-day service versus overnight service and some of those will even get multiple times per day service from that megahub. So, it's all part of our objective to enhance the inventory availability across the local marketplace.

Alan Rifkin -- BTIG -- Analyst

OK, understood. And a follow-up, if I may, Bill. With respect to your vendor base, what if anything are you now seeing in terms of more vendors possibly taking Dorman's lead and implementing map pricing in terms of e-commerce and what has its effectiveness been thus far?

Bill Rhodes -- Chief Executive Officer, President and Chairman

I think, No. 1, we've had many vendors that have had map pricing or some form of map pricing for years if not decades. Dorman recently went, I believe, they went in October. So I think it's a little bit too early to tell what happens.

They're making those decisions on their own. We certainly support our vendors in a way of making sure that there's price transparency, and we're all providing great values to our customers over time but that's their decisions, not ours.

Alan Rifkin -- BTIG -- Analyst

Thank you. Best of luck for your happy holiday season.

Bill Rhodes -- Chief Executive Officer, President and Chairman

You too, Alan. Thank you.

Operator

Thank you and our next question is coming from Christopher Horvers of JP Morgan. Your line is now open.

Christopher Horvers -- JPMorgan Chase -- Analyst

Thanks. Good morning. Follow-up on the megahub commentary. What's the gating factors on servicing the store same day and multiple times per day? Is it cost, systems? Is that you just don't have the right facilities? Can you talk about that and maybe sort of quantify as you move from an overnight to same-day and multiple times per day? How does the business respond?

Bill Rhodes -- Chief Executive Officer, President and Chairman

Sure. Thanks for the opportunity to clarify that, Chris. It's an excellent point. So, one of our megahubs, for instance, is in Los Angeles.

Today, that store may be providing service to San Diego but it's doing it on an overnight basis. As we potentially build a megahub in a San Diego-type market, then all of a sudden those stores can move from overnight service to same-day service. It's simply the proximity of the store to the megahub. If they're within 100 miles, we might be able to service them three times a day.

If they're 200 miles, we might be able to get there one time a day. If they're 400 miles, we're going to get there overnight.

Christopher Horvers -- JPMorgan Chase -- Analyst

I understand. And so, I think long term you've talked about perhaps 40 to 50 megahubs. I think you're around 18 right now. So, how is that sort of one-third of the stores fulfilled in the same day, how does that progress over time and if you get to 45 to 50, what would the service look like to the stores on a same-day basis?

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah, we haven't laid it out because part of it is we're looking and learning about the economics of this as we go. As you mentioned, we have 18 today. We said in our prepared remarks we're going to 25 this year hopefully if we can get them all open. That's our plan.

When we originally rolled it out, we said 25 to 40 and we've made a small tweak in what we're saying. We don't talk about 25 anymore because we're going to be there by the end of the year, we say up to 40 and the more we learn about it, someday that number could go up as well. It's been one of those initiatives that continue to outperform our expectations, and as it outperforms our expectations, it allows us to expand it further. But I also think it's important to understand we're also not competing in a stagnant environment.

Our competitors are also, be them the public companies that you're accustomed to or the warehouse distributors, everybody's changing their operations and we're looking at ways to enhance our competitive position.

Christopher Horvers -- JPMorgan Chase -- Analyst

And then the last the last question I have is, as you look at the tax bills that are in front of the House and the Senate, is there anything in there that could be either positive for you -- understand the potential corporate tax benefit -- but is there anything in those bills that concerns you from a financial or business operation perspective? Thanks very much.

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Sure. Yeah, I don't think there's anything in the tax bills that we're aware of today that would concern us per se. Obviously, as you mentioned, the tax rates being lower on a corporate basis for most retailers will be very beneficial. And so, we expect it to be positive.

We'll wait and see what ultimately comes out of committee and what gets signed, including the timing of the implementation, and plan accordingly but certainly from a capital allocation strategy, we expect our strategy to continue to remain intact and feel really good about it.

Christopher Horvers -- JPMorgan Chase -- Analyst

Thank you. Have a great holiday.

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

You too.

Operator

Thank you. And our next question is coming from Matt Fassler of Goldman Sachs. Your line is now open.

Matt Fassler -- Goldman Sachs -- Analyst

Thanks so much and good morning. My first question relates to the sales outlook. I think on last quarter's call, you as a company offered a somewhat subdued perspective on the sales potential for the business. Understanding that you got a bit of a bump from the hurricane, the sales accelerated nicely.

They certainly exceeded Wall Street expectations and you're talking about the potential for the business to pick up. I'm not sure if it's off current levels or from prior assumptions if the weather turns seasonable in the calendar fourth quarter into winter. Anything changed in the backdrop or anywhere else to alter your prognosis of the forward year? Is it just that the business did pick up and showed its potential? Is there something else happening in the world that drove your incremental enthusiasm here?

Bill Rhodes -- Chief Executive Officer, President and Chairman

Thanks, Matt, for that question. I think it's a great question. If you'll recall, in the last quarter I talked about the fact that the perception of our industry's performance over the last two or three quarters was that we had reached a new all-time low in performance and I was very careful to talk about that that truly wasn't the case, but if you look at our industry's performance or Autozone's performance over a five- or 10-year period of time that our performance last year was operating within the normal bands of what we've experienced. They were toward the lower end but we weren't dealing with catastrophic performance.

I cautioned everybody because with that notion of "Oh things are so bad, then all of a sudden the pendulum's gonna swing and they're going to be fantastic," we went to say, "No, we believe that it will get better and operate this normal band." I think I've talked about we were like 140 basis points below our average for the last five years. And so, we were trying to say "Yeah, we think that they will improve, particularly when some of these factors, these macro factors that we can't do anything about, like two mild winters and delayed tax refunds." Once those normalized, we believed and continue to believe we would go back to that normal band. Now, in Q1 we outperformed our expectations, but part of that outperformance was the 50 or 60 basis points from the hurricane-impacted markets. But we're pleased with the performance that we've seen in our store sales, both on the retail end, particularly on the commercial side in Q1 but I was also very intentional about making comments about Q2 only because Q2 is incredibly volatile.

If the weather hits and hits at the right time, our sales could be really strong. If we have a third consecutive mild winter, it'll take some momentum out of it. We just have to be careful, and part of what I'm trying is let's understand that Q2 is a very low-volume quarter. We're closed a few days during the quarter.

It's our lowest-volume quarter of the year and I, for one, don't want to put too much focus on Q2. If we get a strong winter, we believe Q2 and the latter part of Q2 will be strong and more importantly, we believe the balance of the year will be more positive, but we also continue to believe we will operate in that normalized band that we've been in for five or ten years.

Matt Fassler -- Goldman Sachs -- Analyst

Bill, that's very helpful. A quick follow-up to that. On the storm sales, was that kind of a one-time pop or is there any spillover into subsequent quarters in your view?

Bill Rhodes -- Chief Executive Officer, President and Chairman

I think there will be a little bit of spillover into Q2 from it, Matt. What generally happens when the storm hits, we're closed for days. And so, we actually take a net negative for the first week or so and then as the markets begin to recover, we see increased economic activity and it lasts for three or four months, depends on the order of magnitude of the storm. But we would expect to see some benefits, probably not a benefit that we'd be calling out on the next quarter, but some benefit early in the second quarter.

Matt Fassler -- Goldman Sachs -- Analyst

Great. And then finally, while you're clearly testing and probing a lot with supply chain, absent from the dialogue this quarter was the impact to gross margin of excess supply chain cost. So, should we consider that chapter essentially closed and no longer look for much gross margin impact from that?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Yeah, I wouldn't categorize it as closed per se, Matt, but you're totally right. We've anniversaried a lot of the impact that we've had. And so, we expect it to be more normalized going forward and I think the supply chain team has done a terrific job of managing it in spite of opening two distribution centers over the last six months.

Matt Fassler -- Goldman Sachs -- Analyst

Thank you very much, guys.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Thank you.

Operator

Thank you. And our next question is coming from Simeon Gutman of Morgan Stanley. Your line is now open.

Joshua Siber -- Morgan Stanley -- Analyst

Good morning. It's Josh Siber on for Simeon. Can you talk about what's driving the commercial improvement, whether you can parse it out between industry growth versus internal drivers?

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah. I think I haven't seen enough and it's very hard to see the industry growth perspective on commercial on a short-term period. Over the long term, we believe we have a pretty good handle and it's growing 4.5%. In short term, it's hard to see that.

I think what is improving our performance is our team's core blocking and tackling is getting better. We've been talking a lot about getting the store managers and the district managers more engaged in the business, and I think that that's helping over time. Our sales teams continue to get better and better and inventory-availability [inaudible] biggest reason we are doing the megahubs and the MFD are to try to spur on commercial growth and I think those efforts are beginning to help us in the commercial. I think it's also important to highlight here we grew almost 7%.

So, we're close to 2X the growth of the market.

Joshua Siber -- Morgan Stanley -- Analyst

Okay. And my follow-up, you mentioned, if we return to more normal weather. So, I'm curious how you characterize the winter so far?

Bill Rhodes -- Chief Executive Officer, President and Chairman

I don't think you need to even try to characterize it. We're two and a half weeks into our quarter and who knows what's going to happen. I feel it starts getting cold this week. It's not about what happens between Thanksgiving and December 15.

It's really what happens from December 15 to February 10. That'll really be the deciding factor.

Joshua Siber -- Morgan Stanley -- Analyst

OK, thanks a lot.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah, thank you.

Operator

Thank you. Our next question is coming from Seth Sigman of Credit Suisse. Your line is now open.

Seth Sigman -- Credit Suisse -- Analyst

Thanks a lot and good morning. One question just on the cost side. So, your expenses grew roughly 5.5% excluding the hurricane. I know you talked about a number of future headwinds and you talked about that last quarter as well.

I'm just wondering if this is the run rate to think about? Does this 5.5% essentially capture those headwinds or is there reason to believe there will be a further step-up at some point?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

We think that that 5% range captures those headwinds and those headwinds are, as Bill talked about before, you've got a little bit of wage rate pressure that continues to exist, although the team's done a terrific job of managing their way through that, and we have a little bit of occupancy pressure as you're seeing that coming from megahubs and hubs, as well as we're seeing rising real estate tax cost across the country as well. So, those are some of the things that are a little bit of headwinds. We think we can manage our way through those but I think that's a pretty good run rate to look at.

Seth Sigman -- Credit Suisse -- Analyst

And do you start to lap some of that in the second half of this fiscal year? You did see a pickup in expenses late in the year last year.

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

I think late in the year we will start the laps [inaudible].

Seth Sigman -- Credit Suisse -- Analyst

OK, great. And then my follow-up is just around pricing. I'm wondering are you starting to see any signs of inflation? Did that impact the quarter at all? And just in general, a lot of talk about price transparency in the category and in retail in general. Do you feel like if you see inflation, you'll be able to push that through?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

We have, historically. I mean to answer the first part of the question, we haven't seen a significant amount of inflation and frankly, we haven't for probably a couple of years now. And so, historically, we've been able, as an industry, to push much of that costs along to the consumer. Today we don't see that changing necessarily but we'll have to wait and see when it comes.

Seth Sigman -- Credit Suisse -- Analyst

Thanks very much.

Operator

Thank you. Our next question is coming from Michael Lasser of UBS. Your line is now open.

Michael Lasser -- UBS -- Analyst

Good morning. Thanks a lot for taking my question. Bill Rhodes, you mentioned that Midwest and the Northeast continue to underperform, yet the business accelerated in large part because of the commercial program. Should we take that to mean that your commercial business within those underperforming regions also underperformed? And why would that be the case?

Bill Rhodes -- Chief Executive Officer, President and Chairman

I think, No. 1, both parts of our business saw acceleration during Q1. Commercial's a little bit more visible to you because we called it out specifically but both of them improved in Q1. As we look at what's going on with the industry, part of what's happened is, those mild winters have put less strain on the under-car components.

So, think about chassis, brake components, shocks, and struts. That didn't go away when the summer went. That lack of wear and tear has continued and those jobs are done by both DIYers and DIFMers. So, that's why it impacts both markets in a similar fashion.

Michael Lasser -- UBS -- Analyst

My follow-up question is on the potential for a sharp reduction in your tax rate. If that happened, how would you think about the prospect of returning the benefits back to shareholders versus redeploying the savings back into the business?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Yeah, I think that we kind of think about it as we feel good about our capital allocation strategy. That remains intact. It's served us well over time, we'll continue investing in those initiatives that we believe will result in adequate returns to the corporation overall. We'll continue to invest in our infrastructure and we'll continue to execute our capital allocation strategy.

Time will tell. I mean, the bill hasn't been signed yet. So, we'll have to wait and see what's in the final bill and the timing of it.

Michael Lasser -- UBS -- Analyst

I guess I was less-so referring to the capital allocation and more-so the margin structure of the business. If your earnings-growth is going to sharply accelerate, would you look to maybe slow down that earnings-growth acceleration?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

The earnings growth will be below EBIT. So, the question really is, you're asking what's going to happen below the EBIT line and I said that's going to increase. So, we don't see from a tax perspective something changing fundamental to the operating margin of the organization.

Michael Lasser -- UBS -- Analyst

OK, that's very helpful. Thank you very much.

Operator

Thank you. And our next question is coming from Matt McClintock of Barclays. Your line is now open.

Matt McClintock -- Barclays -- Analyst

Yes. Good morning, everyone. I'm just trying to conceptualize the volatility in the business due to weather. As we think about the potential for weather finally cooperate this quarter and maybe going forward, is that something that would potentially drive a closing of the 200-basis-point gap in those regions that you're experiencing this year? Is that something that could actually drive a closing of the multiple years of gap that you have in those regions un-relative to the company effort?

Bill Rhodes -- Chief Executive Officer, President and Chairman

I think there's no question about it. And as I mentioned, those are really good markets for us and historically really good markets but because the weather patterns can be so extremely different, they are more volatile. It's not as predictable as California, for instance, where the weather patterns are pretty predictable what you're going to get. You don't know what you're going to get in the upper Midwest.

Therefore, we just have to deal with it. There's nothing we can do to plan our business any differently or anything like that. We just have to kind of ride the storm, on both the good side and the bad side.

Matt McClintock -- Barclays -- Analyst

OK. And then I think you were pretty clear about online competition and nothing really to see there but could you maybe talk about nontraditional competition and brick-and-mortar channel, big-box competition or other non-specialty auto parts stores?

Bill Rhodes -- Chief Executive Officer, President and Chairman

I guess I would say it very similar to what we said about online. The mass merchants, they've been competing in our industry for longer than I've been here. So, I haven't seen any significant change I how they're going to market or impacting our business one way or the other.

Matt McClintock -- Barclays -- Analyst

Thank you very much for the color.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah, thank you.

Operator

Thank you. And our next question is coming from Dan Wewer of Raymond James. Your line is now open.

Dan Wewer -- Raymond James -- Analyst

Thanks. Bill, since 2009 Autozone's gross margin rate has increased about 260 basis points. Do you think there is a gross margin expansion basis going forward or do you think that current gross margin rates, maybe give or take 10 basis points, is what the next, say, three or four years would look like?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Yeah, I think as we think about it, Dan, we think of it more positively than that. And so, we continue to believe that there are opportunities for us to expand gross margin certainly as we continue to increase some of our direct import initiatives that will help reduce our acquisition cost. And so, we continue to believe that there are opportunities to lower acquisition cost. There will probably continue to be opportunities to optimize the expenses both in supply chain and in shrink but always continue to have some pressures from a competitive set and an industry set relative to promotions, etc.

So, I think overall we're somewhat bullish relative to gross margin going forward and if you look over time, you're right, we've done a terrific job in spite of a lot of things going on and continuing to increase our gross margin. So, it remains healthy and we feel pretty positive about it going forward.

Dan Wewer -- Raymond James -- Analyst

And then now a follow-up question on the sales benefits from the megahubs. I think in response to Alan's question, you talked about a 1- or 2-percentage-point benefit. Is there a difference if the store is getting same-day coverage from a megahub compared to the next-day example that you talked about with San Diego?

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah, there certainly is a difference, Dan. It's probably not as big as you would expect because you got to remember, these SKUs that we're talking about are really on the tails of a bell curve. And so, having them available even for next day, that they'll be there first thing in the morning, and when you talk about rural markets and those kinds of things, that's pretty amazing that we can get them there. So, there is a difference but it's not 50% or so.

Dan Wewer -- Raymond James -- Analyst

OK, thank you.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Yeah, thank you.

Operator

Thank you. And our last question is coming from Steve Forbes of Guggenheim. Your line is now open.

Steve Forbes, your line is now open.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Let's go ahead and take the next question.

Operator

Thank you. Our next question is coming from Mike Baker of Deutsche Bank.

Mike Baker -- Deutsche Bank -- Analyst

Worked out well for me. I want to talk about Mr. Wewer's question and, Bill Giles, your answer about gross margins continue to have some pressure from a competitive set and industry set relative to promotions. Is that changed at all with some online guys doing a little bit more in your business or is that sort of the outlook you've always had?

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

That's the outlook we've always had. I wouldn't say that we've seen any change necessarily from that perspective whatsoever. I was just trying to balance out positive aspects of gross margin offset by some of the pressures that you might always consider but overall, again, we continue to believe our margin remains healthy, and we've got a positive outlook.

Mike Baker -- Deutsche Bank -- Analyst

OK, thanks. That makes sense. Two more quick follow-ups, if I could. One, I think it was Bill Rhodes who said at one point that if the weather cooperated, you'd expect trends get better in the back half of the quarter.

Is that just simply a function of you just have much more difficult compares. As I recall, from last year early in the quarter and the compares get much easier in the second half or is there some other reason why weather would only impact the back half of the quarter?

Bill Rhodes -- Chief Executive Officer, President and Chairman

And I said the back half of the quarter and also the balance of the year. So, last year we did get a cold snap and it was kind of December 1 to Christmas. And so, we had some really strong sales during that period of time and then it got warm. So, if the weather hits, it's going to a little bit later than it did last year, then we should see this strengthen in the back half.

The other part of it is, it's kind of the tale of two stories on what happens with this extreme winter weather. One, is when it gets really cold really fast, we get an immediate bounce in our business like in batteries but what happens over time, the longer tail on the winter is when the road conditions get bad, we will get a longer tail on under-car parts – chassis, brakes, ride control, those kinds of things. Those are things that you wake up that day and your car can't get you to work. Those are things that put more stress on the components.

And so, the maintenance cycles accelerate. So, that will put a tail not only for the back half of Q2 but on into Q3 and some into Q4.

Mike Baker -- Deutsche Bank -- Analyst

OK, that makes sense. If I could ask one more quick one here and hopefully a quick answer. With some of the pluses and minuses on the gross margin that you described in wages and other costs higher, what kind of same-store sales number do you need to get back to a double-digit earnings growth and let's assume that tax rates stay similar to where it is now because obviously if it goes to 20%, you're going to grow your earnings 10% or higher but assume that doesn't happen.

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Yeah, we don't think about on a same-store sales basis like that, Mike, and everybody wants to be able to think through it that way. I think we're just thinking about there's opportunities for us to improve gross margin. We talked about the operating expense growth rates. And so, just those are the ways you should be thinking through your model overall but, I mean, we feel great about the health of the industry, we feel good about the momentum that we've got.

And so, we're encouraged by the business.

Mike Baker -- Deutsche Bank -- Analyst

OK, I really appreciate the time. Thanks, guys.

Bill Rhodes -- Chief Executive Officer, President and Chairman

Thank you, Mike.

Before we conclude the call, I'd like to take a moment to reiterate that our business model continues to be very solid. We're excited about our growth prospects for the year. We will not take anything for granted, as we understand our customers have alternatives. We have a solid plan to succeed this fiscal year but I want to stress that this is a marathon and not a sprint.

As we continue to focus on the basics and focus on optimizing long-term shareholder value, we are confident Autozone will continue to be very successful. We thank you for participating in today's call and we'd like to wish everyone a very happy and healthy holiday season and a prosperous New Year. Thank you for your time today.

Operator

And that concludes today's conference. Thank you for your participation. You may now disconnect.

Duration: 63 minutes

Call Participants:

Bill Rhodes -- Chief Executive Officer, President and Chairman

Bill Giles -- Chief Financial Officer and Executive Vice President, Finance and Information Technology

Alan Rifkin -- BTIG -- Analyst

Christopher Horvers -- JPMorgan Chase -- Analyst

Matt Fassler -- Goldman Sachs -- Analyst

Joshua Siber -- Morgan Stanley -- Analyst

Seth Sigman -- Credit Suisse -- Analyst

Michael Lasser -- UBS -- Analyst

Matt McClintock -- Barclays -- Analyst

Dan Wewer -- Raymond James -- Analyst

Mike Baker -- Deutsche Bank -- Analyst

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