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    AZO
    Earnings call· Nov 2025(Q1 FY26)

    AUTOZONE INC AZO

    Dec 9, 2025 Source

    Executive summary

    AutoZone Q1 FY26 — Strong Commercial Growth and Accelerated Store Openings

    AutoZone delivered solid Q1 FY26 results, driven by robust domestic commercial sales and an accelerated store opening pace, despite a significant non-cash LIFO charge impacting reported profitability. The company is strategically investing in new stores, Mega-Hubs, and supply chain infrastructure to capture market share and drive future growth, while managing SG&A in a disciplined manner. Management expects continued inflation and is bullish on growth prospects for the remainder of FY26.

    Highlights

    5

    • Total sales grew 8.2% in Q1 FY26.

    • Total same-store sales increased 4.7% on a constant currency basis.

    • Domestic commercial sales accelerated to 14.5% growth.

    • Earnings per share (EPS) would have been up 8.9% year-over-year, excluding a non-cash LIFO charge.

    • Generated $630 million in free cash flow, up from $565 million in Q1 FY25.

    Concerns

    5

    • Reported earnings per share (EPS) decreased 4.6% year-over-year.

    • Gross margin was down 203 basis points, primarily due to a $98 million non-cash LIFO charge.

    • SG&A as a percentage of sales delevered 69 basis points, driven by growth investments.

    • Domestic DIY traffic was down 3.4% in the quarter.

    • International sales growth was impacted by a softer macro environment in Mexico.

    Guidance & targets

    16
    CategoryTargetConfidence
    LIFO Charge
    Approximately $60 million
    high materiality
    High
    Q2 FY26 LIFO Impact on EBIT
    Approximately $60 million reduction
    high materiality
    High
    Q2 FY26 LIFO Impact on Gross Margin Rate
    Approximately 140 basis points impact
    high materiality
    High
    Q2 FY26 LIFO Impact on EPS
    Approximately $2.70 a share reduction
    high materiality
    High
    Q2 FY26 FX Benefit to Revenue
    Approximately $57 million
    medium materiality
    High
    Q2 FY26 FX Benefit to EBIT
    Approximately $18 million
    medium materiality
    High
    Q2 FY26 FX Benefit to EPS
    Approximately $0.77 a share
    medium materiality
    High
    Full-Year FY26 Store Openings
    350 to 360 stores
    high materiality
    High
    Q2 FY26 Store Openings
    65 to 70 stores globally
    medium materiality
    High
    Q2 FY26 SG&A Growth
    Similar to the first quarter
    medium materiality
    Medium
    SG&A Growth vs. Sales Growth
    Slightly outpace sales growth, then manage in line with sales
    medium materiality
    Medium
    Like-for-like Same SKU Inflation
    Grow sequentially
    high materiality
    High
    Mega-Hub Store Count
    Approximately 300
    medium materiality
    High
    Annual Store Openings Pace
    500 stores annually
    high materiality
    High
    Q2 FY26 Interest Expense
    $114 million range
    low materiality
    High
    Q2 FY26 Tax Rate
    Approximately 22.5%
    low materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Domestic DIY
    Experienced less favorable weather comparisons in certain regions, with northern markets outperforming southern markets. Like-for-like same SKU inflation was approximately 4.8%.
    4-week segment 1: +2.1%4-week segment 2: flat4-week segment 3: +2.3%
    		—1.5%——
    Domestic Commercial
    Boosted by improved inventory, satellite store investments, Hub and Mega-Hub coverage, and Duralast brand strength. Impacted by weather during middle 4-week segment. Like-for-like same SKU inflation was 6%.
    % of domestic auto parts sales: 32%% of total company sales: 28%Average weekly sales per program: $17,500 (up 10% YoY)4-week segment 1: +15.2%4-week segment 2: +13.8%4-week segment 3: +14.6%
    		$1.3B14.5%——
    International
    Softer macro environment in Mexico, but company continues to gain market share. Bullish on future contribution to sales and operating profit as economies improve.
    Mexico stores: 895Brazil stores: 149Total international stores: 1,044Unadjusted comp: +11.2%
    		—3.7% (constant currency)——

    Operational metrics

    24
    Total Sales Growth
    8.2%YoY
    Q1 FY26
    EBIT Growth (ex-LIFO)
    4.9%YoY
    Q1 FY26

    Excluding $98M non-cash LIFO charge

    EPS Growth (ex-LIFO)
    8.9%YoY
    Q1 FY26

    Excluding $98M non-cash LIFO charge

    LIFO Charge
    $98M
    Q1 FY26

    Non-cash charge

    Mexico Peso FX Tailwind
    $37M
    Q1 FY26

    Peso strengthened just over 6% versus the U.S. dollar

    Domestic Commercial Programs
    6,18284 net new programs
    Q1 FY26 end
    Mega-Hub Stores
    1374 opened this quarter
    Q1 FY26 end
    Gross Margin (ex-LIFO)
    9 bpsimprovement YoY
    Q1 FY26

    Driven by margin actions, offsetting mix shift to faster-growing commercial business (34 bps drag from mix shift)

    SG&A Growth
    10.4%YoY
    Q1 FY26

    Driven by investments to support growth initiatives

    SG&A as % of Sales Deleverage
    69 bps
    Q1 FY26
    EBIT
    $784Mdown 6.8% YoY
    Q1 FY26
    Interest Expense
    $106Mdown 1.3% YoY
    Q1 FY26
    Debt Outstanding
    $8.6Bvs $9B a year ago
    Q1 FY26 end
    Tax Rate
    21.7%down from 23% YoY
    Q1 FY26
    Net Income
    $531Mdown 6% YoY
    Q1 FY26
    Diluted Share Count
    17.1M1.5% lower YoY
    Q1 FY26
    EPS (LIFO impact)
    $4.39
    Q1 FY26

    LIFO charge reduced EPS by this amount

    Inventory per Store Growth
    9.1%YoY
    Q1 FY26

    Driven by new stores, additional inventory investment, and inflation

    Total Inventory Increase
    13.9%YoY
    Q1 FY26
    Net Inventory per Store
    negative $145,000vs negative $166,000 last year and negative $131,000 last quarter
    Q1 FY26 end

    Defined as merchandise inventories less accounts payable

    Accounts Payable as % of Gross Inventory
    115.6%vs 119.5% last year
    Q1 FY26 end
    CapEx
    $1.6B
    FY26

    Expected investment for strategic growth priorities, similar amount expected next year

    Monterrey DC Expansion
    almost double the size
    March

    Expected to be fully operational in March

    Brazil DC Transition
    —
    ongoing

    Bringing distribution from third party to own supply chain

    Industry KPIs

    10
    MetricValueDetails
    Sg a OPEX ratio69 bpsbps
    Comparable sales4.7%%
    Store count growth53stores
    Gross margin drivers51%%
    Pro vs diy performanceDomestic DIY comp up 1.5%%
    Net debt to adjusted EBITDA2.5xratio
    Share buyback capital return$431MUSD
    Inventory position markdown riskup 9.1%%
    Same sku like for like inflation4.8%%
    Distribution supply chain cost economicsinvestingN/A

    Risks & headwinds

    5
    Non-cash LIFO charge impact on profitabilityQ1 FY26 and Q2-Q4 FY26

    $98 million (Q1 FY26), $60 million (each of next 3 quarters)

    Mitigation: Cost negotiation with vendors, sourcing diversification, IEEPA tariff reduction

    SG&A deleverage due to growth investmentsQ1 FY26 and Q2 FY26 (expected)

    69 bps as % of sales (Q1 FY26), 5.8% per store growth (Q1 FY26)

    Mitigation: Disciplined investment, management in line with sales growth as stores mature

    Softer macro environment in Mexico impacting international salesQ1 FY26

    International same-store sales growth of 3.7% constant currency (Q1 FY26)

    Mitigation: Continued market share gains, investment in new stores and distribution centers, expectation of reacceleration as economy improves

    Weather volatility impacting sales cadenceQ1 FY26, Q2 FY26 (expected)

    Impacted DIY and commercial sales in middle 4-week segment of Q1 FY26

    Mitigation: Focus on execution, historical resilience of business model

    Lower-end consumer under pressureOngoing (2+ years)

    Discussed, not quantified

    Mitigation: No significant trade-down observed due to product nature (break-fix/required maintenance)

    What to watch in Q2 FY26

    5

    SG&A per store growth

    Q2 FY26
    Current5.8% (Q1 FY26)
    TargetSimilar to Q1 FY26 pace

    Why it matters

    Indicates the pace of investment and potential for operating leverage as new stores mature.

    Yes. I mean you're going to be somewhere in that same ZIP code on a per store basis. And the other point that I'll make is, remember, in the back half of the year, we're going to continue to accelerate the store growth. So if you're in that ZIP code, you're in the right area.

    Q&A highlights

    6

    What is the maturation schedule for new stores, and when can we expect a return on the incremental SG&A investment related to accelerated store growth and DC expansion?

    New stores typically mature in 4-5 years. The current SG&A growth includes about 2 points related to new stores and commercial programs, which will continue until the company reaches 500 annual store openings by FY28. Most U.S. DC investments are complete, with Mexico DC expansion finishing in March, underpinning this growth.

    “So typically, our new stores mature on about a 4- to 5-year time frame, if you will. And we've seen this historically over time, and it's fairly predictable.”

    asked by Bret Jordan · answered by Jamere Jackson

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Investments for Growth

    AutoZone is investing nearly $1.6 billion in CapEx this year, with a similar amount expected next year, primarily for accelerated store growth, including Hubs and Mega-Hubs, and two new distribution centers in Mexico and Brazil. These investments are aimed at improving product assortments, supply chain efficiency, and customer service to capitalize on strong industry demand and grow market share. The company expects to reach 500 annual store openings by the end of FY28, with new stores maturing over a 4-5 year timeframe.

    02

    LIFO Impact and Mitigation

    The quarter's gross margin, operating profit, and EPS were significantly impacted by a non-cash $98 million LIFO charge, which represented a 212 basis point unfavorable comparison. Management noted that this charge was lower than originally anticipated due to successful cost negotiation with vendors, diversification of sourcing, and the reduction of IEEPA tariffs on China from 20% to 10%. The company plans for approximately $60 million LIFO charges for each of the next three quarters.

    03

    Commercial Business Acceleration

    Domestic commercial sales accelerated to 14.5% growth, contributing 32% of domestic auto parts sales and 28% of total company sales. This growth is driven by improved inventory, satellite store investments, Hub and Mega-Hub coverage, and the strength of the Duralast brand. The company continues to gain market share by winning new business and increasing share of wallet with existing customers, with Mega-Hubs (currently 137, targeting 300) playing a key role in expanding assortment and service levels.

    04

    DIY Business Resilience

    Despite a slight slowdown in domestic DIY comp to 1.5%, the business is expected to remain resilient, supported by a growing and aging car park and challenging new/used car sales market. Weather comparisons, particularly in October, impacted the middle four-week segment of the quarter, causing a temporary dip in DIY traffic. Like-for-like same SKU inflation for DIY was 4.8%, contributing to average ticket growth.

    05

    International Expansion

    AutoZone continues to expand its international footprint, opening 14 stores in Mexico and Brazil this quarter, bringing the total to 1,044 international stores. While Mexico experienced slower economic growth, the company is gaining market share and expects reacceleration as economies improve. International markets are projected to be a meaningful contributor to future sales and operating profit growth, supported by investments in new distribution centers.

    06

    SG&A Management and Store Maturation

    SG&A growth outpaced sales by 69 basis points as a percentage of sales, driven by purposeful investments in new stores and commercial programs. Management expects new stores to mature over 4-5 years, and while SG&A will slightly outpace sales growth during the ramp-up phase, it will be managed in line with sales growth once the accelerated store base matures. The company aims to return to a 20% operating model by normalizing LIFO impacts and leveraging mature stores.

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