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    AZO
    Earnings call· May 2025(Q3 FY25)

    AUTOZONE Q3 FY25 earnings call AZO

    May 27, 2025 Source

    Executive summary

    AutoZone Q3 FY25 — Strong Commercial and DIY Sales Growth

    AutoZone delivered strong Q3 FY25 sales growth across both domestic DIY and commercial segments, driven by strategic investments and improved execution. Despite significant foreign exchange headwinds and increased operating expenses from growth initiatives, the company remains confident in its ability to gain market share and drive long-term value. Management expects continued momentum into Q4 FY25.

    Highlights

    5

    • Domestic commercial sales grew 10.7% for the quarter, marking the first double-digit growth since Q2 FY23.

    • Domestic retail comp was up 3%, the best retail growth reported since Q2 FY22.

    • International constant currency comp remained solid, up 8.1%.

    • Total sales grew 5.4% to $4.5 billion.

    • Domestic same-store sales grew 5%.

    Concerns

    4

    • Foreign exchange rates weakened nearly 20% in Mexico, resulting in an $89 million headwind to sales, $27 million to EBIT, and $1.10 per share drag on EPS.

    • Gross margin was 52.7%, down 77 basis points YoY, impacted by unfavorable LIFO comparison (21 bps), higher commercial mix, domestic shrink, and new U.S. distribution center ramp-up costs.

    • SG&A as a percentage of sales deleveraged 108 basis points, driven by growth initiatives and an increase in self-insurance expense.

    • EBIT for the quarter was $866 million, down 3.8% YoY.

    Guidance & targets

    13
    CategoryTargetConfidence
    International store openings
    around 100 international stores
    medium materiality
    High
    Capital expenditure
    approximately $1.3 billion
    high materiality
    High
    Interest expense
    $146 million to $149 million
    medium materiality
    High
    Tax rate
    approximately 23.2%
    medium materiality
    High
    FX drag on revenue
    approximate $50 million drag
    high materiality
    High
    FX drag on EBIT
    approximate $20 million drag
    high materiality
    High
    FX drag on EPS
    approximate $0.80 a share drag
    high materiality
    High
    Gross margins
    down slightly
    high materiality
    High
    Tariff costs impact on gross margins
    not have a material impact
    medium materiality
    High
    DIY traffic counts (long-term)
    slightly declining
    low materiality
    High
    DIY ticket growth (long-term)
    low to mid-single-digit
    low materiality
    High
    Average ticket inflation (long-term)
    approximately 3%
    medium materiality
    High
    MegaHubs at full build-out
    just under 300
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Domestic Commercial
    Marking our first double-digit quarter for commercial growth since the second quarter of FY '23. For the first time on a rolling 4-quarter basis, we eclipsed the $5 billion sales mark on commercial.
    Represented 32% of domestic auto part sales28% of total company salesAverage weekly sales per program: $17,700, up 8% vs last year6,011 total programsMegaHubs growing much faster than balance of commercial business
    		$1.3 billion10.7%——
    Domestic Retail (DIY)
    Best retail growth we have reported since the second quarter of FY '22.
    Traffic up 1.4%Ticket growth 1.5%Average ticket and average like-for-like SKU inflation up approximately 1%
    		—3%——
    International
    We faced over 17 points of currency headwind, resulting in an unadjusted negative 9.2% international comp.
    979 international stores58 international stores opened year-to-date13% of total store base outside of the U.S.
    		—8.1% on a constant currency basis——
    Total Company
    Strong sales quarter despite foreign exchange headwinds.
    Total company same-store sales on a constant currency basis: 5.4%Domestic same-store sales growth: 5%
    		$4.5 billion5.4%——

    Operational metrics

    49
    Total sales
    $4.5 billionup 5.4%
    Q3 FY25
    Total company same-store sales
    5.4%
    Q3 FY25
    Domestic same-store sales
    5%
    Q3 FY25
    International same-store sales (constant currency)
    8.1%
    Q3 FY25
    International same-store sales (unadjusted)
    negative 9.2%
    Q3 FY25

    Impacted by foreign currency headwind.

    Mexico FX headwind (sales)
    $89 million
    Q3 FY25

    Resulting from nearly 20% weakening of FX rates versus the U.S. dollar.

    Mexico FX headwind (EBIT)
    $27 million
    Q3 FY25

    Resulting from nearly 20% weakening of FX rates versus the U.S. dollar.

    Mexico FX headwind (EPS)
    $1.10 a share
    Q3 FY25

    Resulting from nearly 20% weakening of FX rates versus the U.S. dollar.

    EBIT
    $866 milliondown 3.8%
    Q3 FY25
    EPS
    $35.36down 3.6%
    Q3 FY25
    EPS (excluding FX headwind)
    0.6%decrease
    Q3 FY25

    EPS decrease if foreign exchange headwind was excluded.

    Gross margin
    52.7%down 77 basis points
    Q3 FY25
    LIFO comparison (gross margin impact)
    21 basis pointunfavorable
    Q3 FY25

    Impact on gross margin versus last year.

    LIFO credit
    $16 million
    Q3 FY25

    Taken to the P&L as freight costs trended lower.

    Cumulative LIFO charges yet to be reversed
    $3 million
    Q3 FY25 end

    Remaining balance to be credited back through the P&L.

    SG&A growth
    8.9%up
    Q3 FY25
    SG&A per store growth
    5.1%up
    Q3 FY25
    Interest expense
    $111 millionup 6.6%
    Q3 FY25
    Debt outstanding
    $8.9 billionvs $9 billion a year ago
    Q3 FY25 end
    Tax rate
    19.4%up from 18.1% last year
    Q3 FY25
    Tax rate benefit from stock options
    301 basis pointsvs 479 bps last year
    Q3 FY25
    Net income
    $608 milliondown 6.6%
    Q3 FY25
    Diluted share count
    17.2 million3.1% lower
    Q3 FY25
    Inventory per store growth
    6.7%up YoY
    Q3 FY25
    Total inventory growth
    10.8%increased YoY
    Q3 FY25

    Driven by new stores and additional inventory investments.

    Net inventory per store
    negative $142,000vs negative $168,000 last year and negative $161,000 last quarter
    Q3 FY25 end

    Defined as merchandise inventories less accounts payable.

    Accounts payable as % of gross inventory
    115.6%vs 119.7% last year
    Q3 FY25 end
    Share repurchase
    $250 million
    Q3 FY25
    Remaining share buyback authorization
    $1.1 billion
    Q3 FY25 end
    MegaHubs opened
    8
    Q3 FY25
    Total MegaHub stores
    119
    Q3 FY25 end
    Domestic commercial sales as % of domestic auto part sales
    32%
    Q3 FY25
    Domestic commercial sales as % of total company sales
    28%
    Q3 FY25
    Commercial programs opened
    49 net new
    Q3 FY25
    Total commercial programs
    6,011
    Q3 FY25 end
    Commercial program penetration
    92%
    Q3 FY25
    DIY traffic growth
    1.4%up
    Q3 FY25

    Significantly improved versus down 1% last quarter.

    DIY ticket growth
    1.5%positive
    Q3 FY25
    Commercial traffic growth
    9.8%up
    Q3 FY25

    On a same-store basis.

    Commercial average ticket growth
    approximately 1%
    Q3 FY25
    Domestic stores opened
    54 net
    Q3 FY25
    Mexico stores opened
    25 new
    Q3 FY25
    Brazil stores opened
    5 new
    Q3 FY25
    Mexico stores total
    838
    Q3 FY25 end
    Brazil stores total
    141
    Q3 FY25 end
    International stores opened year-to-date
    58
    FY25 YTD
    International stores as % of total store base
    13%
    Q3 FY25 end
    CapEx investment
    $1.3 billion
    FY25

    Expected investment for the fiscal year.

    MegaHubs at full build-out target
    just under 300
    long-term

    Industry KPIs

    10
    MetricValueDetails
    Sg a OPEX ratio108 basis pointsbps
    Comparable sales5%%
    Store count growth54 netstores
    Gross margin drivers52.7%%
    Pro vs diy performancediscussed_not_quantified
    Net debt to adjusted EBITDA2.5xratio
    Share buyback capital return$250 millionUSD
    Inventory position markdown risk10.8%%
    Same sku like for like inflationapproximately 1%%
    Distribution supply chain cost economicsdiscussed_not_quantified

    Risks & headwinds

    5
    Foreign Exchange RatesQ3 FY25, Q4 FY25

    Mexico FX rates weakened nearly 20% versus the U.S. dollar, resulting in an $89 million headwind to sales, $27 million to EBIT, and $1.10 per share drag on EPS in Q3. Expected Q4 drag: $50 million on revenue, $20 million on EBIT, $0.80 per share on EPS.

    Mitigation: Company generally doesn't take on transactional risks; results primarily reflect translation impact for reporting purposes.

    Gross Margin PressuresQ3 FY25

    Gross margin was 52.7%, down 77 basis points YoY. Impacted by 21 bps unfavorable LIFO comparison, higher commercial mix, domestic shrink, and new U.S. distribution center ramp-up costs.

    Mitigation: Headwinds from DC ramp-up and shrink expected to largely abate in Q4; merchandise margin improvement will mute commercial mix drag, leading to gross margins being down slightly in Q4.

    SG&A DeleverageQ3 FY25

    SG&A as a percentage of sales deleveraged 108 basis points, driven by investments in growth initiatives and an increase in self-insurance expense (due to more delivery vehicles and higher incident severity in 2021-2022).

    Mitigation: Intentional, disciplined investment in growth initiatives with expected paybacks; commitment to managing expenses in line with sales growth over time.

    Tariff CostsQ4 FY25 and beyond

    Minimal impact from tariffs in Q3. Potential for future tariff costs.

    Mitigation: Expect actions (vendor absorption, diversifying sourcing, pricing actions) to offset any Q4 tariff costs and not have a material impact on gross margins. Intend to maintain margin profile post tariffs, expecting rational industry behavior.

    Consumer Spending CautionOngoing

    Discretionary categories (roughly 16% of DIY volume) have been under pressure for several quarters and will not meaningfully improve until consumers have more cash.

    Mitigation: Focus on resilient maintenance and failure categories, which outperform discretionary categories when consumers are under pressure.

    What to watch in Q4 FY25

    5

    Commercial Sales Growth Momentum

    Q4 FY25
    Current10.7% YoY growth in Q3
    TargetContinued strong growth, potentially double-digit

    Why it matters

    This is a key driver of overall sales growth and market share gains, indicating the success of strategic initiatives.

    For our fourth quarter, we expect both DIY and commercial trends to remain solid as our comparisons become slightly easier and we gained momentum from our growth initiatives.

    Q&A highlights

    5

    Can you provide details on the source of origin for your primary import countries and the mix of direct import versus third-party suppliers?

    Phil Daniele stated that China is the biggest net importer, but AutoZone has significantly reduced its reliance on China since 2016. Products also come from other Far East countries, Eastern Europe, and Mexico, with a mix of direct imports and purchases from domestic suppliers. He emphasized the company's strategies to mitigate tariff costs.

    “I mean the biggest net importer where most of our product comes from is China. I will say that we've taken that number down pretty significantly over the last couple of years, specifically since the first round of tariffs back in 2016.”

    asked by Bret Jordan · answered by Philip Daniele

    2 min read5 chapters

    Detailed Narrative

    01

    Commercial Business Acceleration

    Domestic commercial sales saw significant acceleration, growing 10.7% YoY, marking the first double-digit growth since Q2 FY23 and eclipsing $5 billion on a rolling 4-quarter basis. This improvement is attributed to enhanced execution, expanded parts availability, and improved speed of delivery. Management is confident in continued strong results, driven by initiatives like improved satellite store inventory and Hub/MegaHub coverage.

    02

    DIY Sales and Traffic Recovery

    Domestic DIY comparable sales increased 3%, representing the best retail growth since Q2 FY22, primarily driven by a 1.4% increase in traffic. While the macro environment and tariff uncertainty🌐 have made customers cautious, maintenance and failure categories continued to outperform discretionary ones. The company believes it is gaining market share and is well-positioned for future growth due to a growing and aging car park.

    03

    International Growth and FX Headwinds

    International constant currency comparable sales grew 8.1%, demonstrating strong underlying performance in Mexico and Brazil, where 30 new stores were opened. However, a nearly 20% weakening of the Mexican peso against the U.S. dollar resulted in significant FX headwinds🌐, causing a negative 9.2% unadjusted international comp and impacting reported sales, EBIT, and EPS.

    04

    Strategic Investments and Margin Pressures

    AutoZone is actively investing approximately $1.3 billion in CapEx for FY25, primarily in accelerating store growth (Hubs and MegaHubs), new distribution centers, and technology. These investments, along with higher commercial mix, domestic shrink, and increased self-insurance expense, contributed to a 77 basis point decline in gross margin and 108 basis points of SG&A deleverage. Management views these as intentional investments for future growth.

    05

    Tariff Impact and Mitigation Strategies

    The company experienced minimal tariff impact🌐 in Q3 but acknowledges potential future costs. Management expects to mitigate these through a combination of vendor negotiations, diversifying sourcing, and pricing actions, aiming to offset any Q4 tariff costs and maintain its margin profile. They anticipate the entire industry will behave rationally, as historical experience has shown.

    AI-generated summary of the company’s earnings call. Not investment advice.