AutoZone (AZO) — Q4 FY2025 / FY25 Full-Year Earnings Recap

Results vs. Consensus

Q4 FY25 Scorecard (16-week basis)

FY25 Full-Year Summary

Quarter Cadence (Domestic SSS, by 4-week segment, 16-wk Q4)

Segment Performance

Domestic Auto Parts (Retail DIY + Commercial DIFM)

Q4 total domestic sales $5.6B (+6% on 16-week basis); commercial $1.8B (+12.5% on 16-week basis); commercial weekly sales per program $18,200 (+9% YoY); 87 net new commercial programs added in Q4, ending at 6,098 total programs. Commercial penetration of 92% of domestic stores remains the structural runway: every store without a commercial program is incremental TAM. Mega Hub count 133 (+14 in Q4); FY26 plan calls for 25-30 additional Mega Hubs.

FY25 commercial sales $5.24B (+12.4%), driven entirely by initiative execution: Hub/Mega Hub deployment, satellite store inventory deepening, Duralast brand penetration, speed-of-delivery improvements. Commercial mix as a share of total domestic auto parts sales rose to 33% in Q4 (from 30% prior year).

International (Mexico + Brazil)

International same-store sales +7.2% on constant-currency basis; reported +2.1% (peso 5% weaker, materially less drag than Q3's 20% peso weakening). Q4 international stores opened: 45 in Mexico (ending at 883), 6 in Brazil (ending at 147). FY25 international stores opened: 109 (record; vs prior FY of ~80). International store count now 1,030, representing 13% of total store base.

Store Network & Footprint Expansion

FY25 net new stores: 195 domestic (most since 2004), 109 international (record). 304 globally — most in a single year since 1996. FY26 plan: 325-350 stores in The Americas (130-160 international + 195-215 domestic). FY28 target: 500 stores annually globally (300 domestic + 200 international).

Key Topics & Management Commentary

1. Commercial Acceleration — Fourth Consecutive Quarter of Pickup

"Commercial sales were up 12.5% year over year on a 16-week basis versus a very strong 10.7% in the third quarter and 7.3% in the second quarter. We believe the initiatives we have in place have a long runway and will drive strong results into future quarters." — Philip Daniele, CEO

Four consecutive quarters of commercial acceleration: 3.2% (Q1) → 7.3% (Q2) → 10.7% (Q3) → 12.5% (Q4). The acceleration is initiative-driven and supported by underlying transactions growth (commercial transactions +6.2% same-store). Commercial weekly sales per program +9% YoY to $18,200. Daniele has consistently characterized the runway as "long" — we agree.

2. DIY: Discretionary Returns to Growth

"Our merchandise category segments, failure, maintenance, and discretionary, were all positive for the quarter. It is very encouraging for us to see the discretionary categories grow at a pace not seen since FY 2023." — Philip Daniele, CEO

Discretionary categories — the most consumer-sensitive part of the DIY mix and the smallest at ~16% of DIY volume — turned positive for the first time since FY23. This is the cleanest signal that the consumer-pressure trough has been reached and the deferral cycle may be reversing. DIY +2.2% across all four 4-week segments confirms broad-based recovery, not just easy comparisons.

3. Mega Hubs — 133 with Multi-Year Runway

"We opened 14 mega hubs and finished the fourth quarter with 133 mega hub stores. We expect to open 25 to 30 mega hub locations over the next fiscal year. As a reminder, our mega hubs typically carry over 100,000 SKUs and drive a tremendous sales lift inside the store box as well as serve as an expanded assortment source for other stores." — Jamere Jackson, CFO

Mega Hub count ended FY25 at 133 (vs 97 at FY24 close — +37% growth in the count); FY26 plan calls for 25-30 additional openings to reach ~158-163 by year end. Target remains "approximately 300" at full build-out. Mega Hub pipeline characterized as exceptionally strong.

4. LIFO Charge Cadence — The Mechanical FY26 EPS Headwind

"We're planning a LIFO charge of approximately $120 million for next quarter... [Lasser asks about the arc]... So, for the first quarter, we're expecting the number to be in the $120 million ZIP code, if you will. And we expect pressure, quite frankly, for the subsequent quarters, Q2, Q3, Q4. I would say over those three quarters, right now, our modeling is probably in the $80 to $85 million-ish a quarter range. It's a pretty dynamic environment, obviously, because it's associated with tariffs." — Jamere Jackson, CFO

Aggregate LIFO drag for FY26 modeled at ~$365M ($120M + 3 × $80-85M). This is the most visible mechanical EPS headwind for the year. Critically: LIFO is a non-cash accounting timing item; the same costs that drive the charge today become future LIFO credits as inventory turns and the cost base resets. Stearns explicitly noted that LIFO is a "bellwether" for forward inflation — the charge size reflects tariff-driven cost pressure flowing through the company's weighted-average cost approach.

5. Tariff Pass-Through and Industry Pricing Discipline

"As we move forward and we continue to see that, and to have probably fewer opportunities to mitigate that, you'll continue to see same SKU inflation tick up and likely see retails moving up accordingly. And, again, you know, back to the previous question on it, this is largely a break-fix business where, you know, the lion's share of our business is in failure and maintenance-related categories. So, you know, we believe that the industry will continue to be rational in terms of how we price, and we don't expect a notable drop-off in terms of units." — Jamere Jackson, CFO

Same-SKU inflation in Q4 was approximately 2.8% on DIY, 2.7% on commercial — accelerating from the ~1% rates in Q3. Tariff cost is now flowing through to retail. Management's playbook (vendor negotiation, sourcing diversification, pricing pass-through) is operating; the industry is behaving rationally. The break-fix nature of demand supports pass-through without meaningful unit elasticity.

6. FY26 Store Acceleration — 325-350 in the Americas

"Additionally, as you build your FY '26 models, note that we are aggressively building stores both domestically and in Mexico, and expect to build 325 to 350 stores in The Americas in FY '26. The build-out will be skewed to the back half of the year and will make up the majority of our planned CapEx of approximately $1.5 billion." — Jamere Jackson, CFO

325-350 new stores in FY26 — a 7-15% step-up from FY25's 304 pace. The opening cadence will be back-half-weighted. FY26 CapEx guided at ~$1.5B (versus FY25's $1.4B). The store-opening acceleration is the largest single forward growth driver embedded in the FY26 plan.

7. SG&A Investment Intensity Moderating

"Our expenses were up 8.7% versus last year on a 16-week basis. As SG&A as a percentage of sales deleveraged 53 basis points driven by investments to support our growth initiatives. On a per-store basis, our SG&A was up 4.4% on a 16-week basis compared to last quarter's 5.1% increase." — Jamere Jackson, CFO

SG&A deleveraged 53bp in Q4, a meaningful improvement from Q3's 108bp deleverage. Per-store SG&A growth at +4.4% (down from Q3's +5.1%) reflects underlying discipline within the growth-investment posture. The investment cycle is moderating in absolute intensity even as new-store growth ramps.

8. Mexico TAM Opportunity and Mega Hub Deployment

"I think we see some pretty long shoots for store growth and share growth in all of our international markets, and obviously, also in Mexico. I will say that the competitive set in Mexico is a lot different than it is in the US. Although, you know, there are some pretty good competitors down there that have higher store counts. But there's also a large part of the marketplace that is maybe category-specific... So we've got a pretty big store count advantage over the rest of the marketplace, but we still see lots of opportunities to continue to expand our store count footprint. Specifically in the southern half of the country and some of the more dense markets. Take Mexico City, for example. We just don't have a lot of stores there. And it's one of the biggest cities in the world." — Philip Daniele, CEO

"You've got a car park there that is older than the car park in the US by roughly three years or so. And you've got a number of outlets there that are very fragmented... if you look at the size of our chain today, we're probably larger than the next seven or eight chains combined. So our market share position there is very strong. And as Phil said, we've got a tremendous opportunity to go forward." — Jamere Jackson, CFO

The Mexico TAM is materially larger than AutoZone's current footprint. AutoZone is the largest chain in Mexico — bigger than the next 7-8 chains combined — but operates only ~883 stores against a car park older than the US by ~3 years. Multi-year doubling potential. Mega Hub strategy underdeployed in Mexico; will be a focus area as commercial economics there (Mexico has higher commercial mix than US: ~60% commercial / 40% DIY versus inverse in US) make Mega Hubs particularly economic.

9. Free Cash Flow and Capital Allocation Discipline

"Lastly, I'll spend a moment on capital allocation and our share repurchase program. We repurchased $447 million of AutoZone stock in the quarter, and at quarter-end, we had $632 million remaining under our share buyback authorization. Our ongoing strong earnings, balance sheet, and powerful free cash allow us to return a significant amount of cash to our shareholders through our buyback program. We have bought back over 100% of the net outstanding shares of stock since our buyback inception in 1998 while investing in our existing assets and growing our business." — Jamere Jackson, CFO

FY25 free cash flow $1.8B (down ~8% YoY on CapEx step-up and working capital absorption). $447M buyback in Q4 alone; $1.9B+ for FY25. The 25+ year buyback engine is undimmed by the investment cycle.

10. Inventory and Working Capital Position

"Our inventory per store was up 9.6% versus Q4 last year, while total inventory increased 14.1% over the same period last year, driven by new stores, additional inventory investment to support our growth initiatives, and inflation." — Jamere Jackson, CFO

Per-store inventory up 9.6%, total inventory up 14.1% — reflecting the new-store acceleration, Hub/Mega Hub assortment investments, and tariff-driven cost inflation. Net inventory per store negative $131K (vs negative $163K prior year) — meaning the AP-to-inventory ratio is structurally favorable and working capital remains well-managed. AP/inventory at 114.2% (vs prior year's 119.5%) — slight tightening but still meaningfully positive.

11. Operating Theme: "Driving the Future Together"

"This time of year, we also enjoy reflecting on the past twelve months' highlights. Our teams achieved several impressive milestones this past year. First, $18.9 billion in sales, and we hope to celebrate the $20 billion milestone soon. Domestic commercial sales at an amazing $5.2 billion. Average weekly sales domestically of just over $48,000 a store, equating to just over $2.5 million per store annually." — Philip Daniele, CEO

FY26 operating theme is "Driving the Future Together" — a collaboration-centric framing that emphasizes AutoZoners' product knowledge as the differentiator between AutoZone and online-only competitors. FY26 priorities: continued DIY and commercial sales growth, accelerated domestic and international store growth, Hub and Mega Hub deployment, new DC optimization, IT capability investments.

Analyst Q&A

Inflation Trajectory, Pricing Pass-Through, and Same-SKU Outlook

The opening question pressed on inflation trajectory and whether the indicated 3%+ rate is just tariff-driven or also share-gain-related. Management's response: same-SKU inflation will continue increasing through Q3 FY26 as tariff costs flow through; the industry will remain rational on pricing; pricing pass-through is a normal part of the long-term industry algo. Importantly, AutoZone's average ticket inflation is converging back toward the historical 3% range as the post-COVID hyperinflation works through the system:

Q: "You were calling out inflation, I think, at least 3% in the fiscal first quarter. It's sounding from some of the WDs like they're seeing a fair amount more price than that. Is that your supply chain allowing you to sort of get to market at a lower cost and use price as a share gain? Or are you really expecting more than three, you know, sort of tied to same SKU tariff tailwinds?" — Bret Jordan, Jefferies

A: "I think, Bret, we suspect it will probably, you know, we said kind of at least 3%, probably goes up from here. I mean, at the end of the day, you know, we've talked for years about this industry being pretty disciplined and rational in pricing. And, you know, we're going to use the pricing lever as we need to. To cover the cost of goods and make sure we stay competitive in the marketplace." — Philip Daniele, CEO

The LIFO Charge Arc and Margin Recovery Math

The most analytically important question of the call: how does the LIFO charge cadence play out over FY26 and beyond, and when do margins get the benefit on the back end? Management's response was unusually specific — $120M Q1, ~$80-85M each of Q2-Q4, aggregate ~$365M for FY26 versus $64M FY25. As costs anniversary and inventory turns, the charges become future credits; the timing is uncertain but the reversal is structural:

Q: "Can you provide a sense of how the arc of the LIFO charges will look from here? You indicated to expect $120 million in the first quarter. Is it reasonable for us to simply annualize that number, getting to around $520 million or so for the full year, or would you expect that to peak and then fade off? And how will your margins look as that cycle fades?" — Michael Lasser, UBS

A: "So, you know, for the first quarter, we're expecting the number to be in the $120 million ZIP code, if you will. And we expect pressure, quite frankly, for the subsequent quarters, Q2, Q3, Q4. I would say over those three quarters, right now, our modeling is probably in the $80 to $85 million-ish a quarter range. It's a pretty dynamic environment, obviously, because it's associated with tariffs. But based on the visibility that we see right now, it could be in the $80 to $85 a quarter going out Q2, Q3, and Q4... as we have booked these LIFO charges and as we sort of anniversary those, and, you know, they become part of the base as we see product cost deflation over time, which we have. Then we would expect to see these gains potentially rolling back through the P&L." — Jamere Jackson, CFO

SG&A Intensity and the New-Store Maturation Cycle

A multi-part question on whether the SG&A pressure represents an industry-wide arms race or company-specific growth investment. Management's response: clearly the latter — new-store growth is the dominant driver, and as new stores mature on the typical 4-5 year curve they go from SG&A drag to SG&A leverage. The investment cycle is intentional and the payback is well-modeled:

Q: "Your SG&A growth was elevated this quarter. It sounds like it might remain elevated for at least the near term. Others are having a similar dynamic. Is this a reflection of an arms race within the industry where there's just an opportunity to put more operating expense in the ground, and that will translate to better share, and eventually, that will subside, or is it just more expensive to run an auto parts business these days?" — Michael Lasser, UBS

A: "I wouldn't characterize it as an arms race. What I'll say very specifically is that we're investing heavily primarily in new stores this year. And that new store growth will be, as I mentioned, 325 to 350 stores in The Americas, which is going to, you know, include an acceleration for both the US and Mexico. And I'll remind you that, you know, new stores typically mature in four to five years, and so their SG&A drags, you know, as in the early years. And then as those stores mature, we actually start to leverage SG&A. What I'll say is that, you know, we expect this SG&A growth to be in the mid-single-digit ZIP code as we move forward and execute on this plan." — Jamere Jackson, CFO

Pricing Elasticity Across Cycles

A useful long-horizon question on pricing elasticity through the post-COVID inflation cycle. Management's view: minimal elasticity in the auto parts category because of the break-fix nature of demand and the relatively low absolute dollar values:

Q: "Got it. And I guess the fun part of the question is really on price elasticity. It seems like as the first wave of inflation has come through, I know there's usually some or maybe some items out of the basket, maybe a little bit of deferral, but it sounds like you guys have seen no price elasticity to unit demand as this is occurring?" — Greg Melich, Evercore ISI

A: "You know, we've talked about this for a long time. You know, if you think about the way we kind of characterize our big segments of categories, failure, maintenance, and discretionary, the first two, they're, you know, they're break-fix. Or, you know, customers learn over time that if I don't do the maintenance on the car, I ultimately end up with a bigger failure project that costs me a lot more money. So customers can defer that maintenance for some period of time, but ultimately, they realize that they've got to fix it or it creates more damage... The industry has been able to pass on these costs to the consumer. And we saw it in the pandemic. We've seen it over, you know, fifteen, twenty, thirty-year time horizons. It's all been pretty disciplined and rational." — Philip Daniele, CEO

Mexico TAM and the Long-Term International Growth Runway

A forward-looking question on whether AutoZone could double its Mexico store base, which prompted one of the most direct articulations of the Mexico opportunity we've heard from management. Daniele described the competitive landscape (AutoZone larger than next 7-8 chains combined), the underserved geographies (southern Mexico, dense urban markets like Mexico City), and the structurally favorable car park dynamics (older than US by ~3 years):

Q: "So I want to make a longer-term question here. Can you talk about the growth opportunity in Mexico, about 900-ish stores? How big is your market share? How big is the market?... do you think over time that you could perhaps double your store base from here?" — Christopher Horvers, JPMorgan

A: "I think we see some pretty long shoots for store growth and share growth in all of our international markets, and obviously, also in Mexico. I will say that the competitive set in Mexico is a lot different than it is in the US... There's also a large part of the marketplace that is maybe category-specific. You know, maybe they're focused specifically on undercar or starters and alternators or brakes or something of that nature. As opposed to somebody like us where we have kind of all categories and great service. So we've got a pretty big store count advantage over the rest of the marketplace, but we still see lots of opportunities to continue to expand our store count footprint. Specifically in the southern half of the country and some of the more dense markets. Take Mexico City, for example. We just don't have a lot of stores there. And it's one of the biggest cities in the world." — Philip Daniele, CEO / Jamere Jackson, CFO (combined)

FY26 Same-SKU Inflation Trajectory and LIFO Sensitivity

A follow-up question pressed on whether the LIFO charge guidance is predicated on the 3% inflation outlook. Management confirmed yes, and noted that the dynamic is "creeping up" with another couple of mid-single-digit increments possible as tariffs continue to flow through:

Q: "On LIFO, is the LIFO numbers that you put out, Jamere, predicated on that 3% inflation in the balance of the year?" — Christopher Horvers, JPMorgan

A: "We expect, you know, from an inflation standpoint, for that inflation number to continue to creep up as we talked about. And, you know, what we anticipate going forward is that, you know, you could see, you know, another couple of mid-single-digit increments of inflation as we work our way through tariffs and, you know, build our inventory accordingly. So with that, if that is the case, then you could see, you know, the LIFO in this ZIP code. Again, it's a pretty dynamic environment." — Jamere Jackson, CFO

Merchandise Margin Long-Term Trajectory

Question on whether merchandise margin can continue to expand through the commercial mix headwind. Management framed the answer in terms of "the math problem we like" — faster commercial growth at slightly lower margin generates more absolute EBIT than slower DIY growth at higher margin:

Q: "Merchandise margin has been strong the last couple of quarters. It looks like that's going to continue in the first quarter. Can you just elaborate a little bit more on what's driving that? And can it continue through the balance of fiscal 2026?" — Steven Zaccone, Citi

A: "Our teams in merchandising have done a fantastic job of finding opportunities for us to drive gross margin improvement. It's a playbook that we've run for a really long time. It's a combination of finding, you know, cost opportunities with our vendor community. It's innovation in those categories that enable us to go do that, and it's an opportunity for us to sweeten the mix a little bit. And we've sweetened that mix in some instances by moving more volume into, you know, our Duralast brand... Obviously, our commercial business is a little bit lower gross margin, although we like the operating margins associated with that. We think the work that we've done on the merchandising side, particularly with merch margins, has the ability to basically mute that pressure that we see on gross margins." — Jamere Jackson, CFO

Driving Sales Acceleration in Q4 — Drivers and Sustainability

A natural question on the sales acceleration in Q4 and what's driving the strengthening trend. Management cited three converging factors: improved weather (warmer mid-July onward), tariff-driven inflation flowing through to ticket, and underlying initiative execution. The accelerating trend in commercial and the discretionary positive print suggest the broader environment is also improving:

Q: "If you look at the cadence of sales through the fiscal fourth quarter, I mean, recognizing, as you pointed out, there's some noise with the timing of, I guess, the Fourth of July holiday. But the business in both your DIY and your commercial side, sales growth strengthened. So how much is there a way to think about how much of that is this when we're talking about your, you know, tariffs rolling through?" — Brian Nagel, Oppenheimer

A: "If you think year over year, the early part of summer was very, very wet and slightly mild relative to the previous year and relative to history. About mid-July, it started to crank up the heat, and you saw we saw the heat categories really take off in that time frame. And, you know, brakes, undercar, those sorts of categories have been really strong up in the Northeast and the Midwest on the back of some better winter and spring weather, which we thought was going to be an advantage for us. I would say all those things you mentioned are reasons that we're pretty optimistic. You know, the marketplace is still pretty good. The weather's been pretty good for us. Specifically in the back half of the year, we are getting some same SKU inflation. And I'll also say that I believe what we're doing, our initiatives are also paying out." — Philip Daniele, CEO

What They're NOT Saying

1. No formal FY26 EPS guidance. The implicit framework — $365M LIFO drag, mid-single-digit per-store SG&A growth, mid-single-digit revenue growth, modest gross margin headwind ex-LIFO — supports a model triangulation but management does not provide a formal EPS guide. Our base case: FY26 EPS in the $145-$155 range on reported basis, with adjusted ex-LIFO EPS in the $160-$170 range.

2. Limited disclosure on commercial-segment economics. While management has emphasized commercial as operating-margin accretive at consolidated level, the granular segment economics (commercial gross margin, segment operating margin, ROIC contribution) are not separately disclosed. As commercial scales toward 35%+ of total domestic sales, more granular disclosure would help externally validate the framework.

3. No competitive share-shift quantification. The "we're gaining share" commentary is qualitative; the magnitude of share gain versus AAP turnaround and ORLY's positioning is not quantified. The recent AAP store closures may have helped AutoZone in select markets, but management has not broken this out separately from initiative-driven growth.

4. No long-term operating margin commitment. Management explicitly stated 18-19% operating margin range as the structural target, but the path back from current ~16-17% reported operating margin (LIFO-distorted) to the 18-19% structural level is not explicitly mapped quarter by quarter. We model the recovery into FY27-28 as the investment cycle moderates.

Market Reaction

• Pre-print: AZO closed September 22, 2025 at approximately $3,720, having traded sideways since Q3 print as buy-side digested the investment-cycle pressure narrative.
• Day-of: Stock opened slightly down on the LIFO charge surprise and the FY26 LIFO cadence guide ($365M aggregate exceeded buyside modeling of ~$200-250M). Recovered partially through the day as the commercial acceleration commentary registered.
• Closing reaction: Stock closed September 23 down approximately 0.8% on roughly 1.2x average volume. The reaction was muted, suggesting buyside had largely priced in transitory headwinds and was looking through to FY26 acceleration.
• Peer reaction: ORLY traded slightly down in sympathy on the LIFO cadence commentary (read-through to its own inventory cost dynamics). AAP traded mostly flat.

The market reaction reflected sophisticated discounting of the optical EPS pressure: the long-only base understands the LIFO mechanical drag and looks through to the underlying earnings power. The commercial acceleration and Mega Hub commentary registered constructively but did not generate a new high. We view the post-print pricing as fairly reflecting the multi-year setup.

Street Perspective

Model Implications & Thesis Scorecard

Model updates off the print:

• FY26 revenue: Maintained at low-to-mid-single-digit growth (mid-single-digit ex-FX); $19.8-20.1B base case range.
• FY26 gross margin: Lowered by 100-150bp on the larger-than-expected LIFO cadence; ex-LIFO essentially flat-to-modestly-positive.
• FY26 EPS (reported): Modeled in the $145-$155 range, reflecting the $365M LIFO drag offset by buyback and commercial leverage.
• FY26 EPS (adjusted ex-LIFO): $160-$170 range; underlying earnings power intact.
• FY27 EPS (reported): $170-$185 base case as LIFO drag moderates and commercial maturation compounds.
• Fair value range: $3,800-$4,400 maintained (FY27 reported EPS × 22-24x; supports structural franchise quality).

Thesis Scorecard

Rating & Action

Maintaining Outperform. Fair value range $3,800-$4,400 unchanged. The FY25 close validates the thesis we initiated at the Q3 print: commercial acceleration is structural and compounding (+12.5% Q4 makes four consecutive quarters of acceleration), the Mega Hub flywheel continues with strong pipeline visibility, DIY franchise is healthy and discretionary recovery is underway, international expansion is on track, and the capital-return engine remains unimpaired by the investment cycle.

The FY26 setup includes a mechanical EPS headwind from the $365M aggregate LIFO charge — visible, well-flagged, and structurally reversible. Investors fixated on FY26 reported EPS will miss that the underlying earnings power continues to compound through the optical pressure. The 325-350 new-store pace and the 25-30 Mega Hub opening plan for FY26 set up the FY27-28 acceleration window.

We continue to view AZO as one of the cleanest large-cap retail compounders in our coverage universe and would be adding on weakness. Our $3,800-$4,400 fair value range reflects FY27 EPS in the $175-$190 range applied at 23-24x multiple — supported by the structural franchise quality and the multi-decade capital-return track record.