AutoZone’s (AZO) fiscal third-quarter earnings report revealed a familiar pattern: strong sales growth overshadowed by another earnings miss.
The Memphis-based auto parts giant posted revenue of $4.46 billion, beating Wall Street estimates of $4.4 billion. But adjusted earnings per share fell to $35.36, missing consensus expectations of $37.11—a shortfall marking the fourth consecutive quarterly miss on EPS.
The drag came largely from weaker margins and persistent foreign exchange headwinds. Same-store sales rose 3% overall, with domestic comps up a healthy 5%, driven by robust commercial sales growth of 7%. In constant currency, total comps climbed over 5%. However, international same-store sales dropped 9%, primarily due to currency depreciation in key markets like Mexico and Brazil, where constant currency growth remained a bright spot at 8%.
Margins Squeezed by Commercial Shift, Supply Chain Investment
Despite top line momentum, profitability deteriorated. Gross margins fell 77 basis points year-over-year to 52%. The decline was largely attributed to a shift toward lower-margin commercial sales, which outpaced higher-margin retail, as well as higher distribution costs tied to AutoZone’s ongoing investment in its mega-hub network.
Operating expenses also rose, reaching 33% of sales—up from 32% last year—driven by increased self-insurance claims and continued spending on technology and store expansion. This margin compression pushed operating profit down 3.7% to $866.2 million, despite a $91 million increase in gross profit.
“We believe we will drive improvement as our new distribution centers ramp up and we continue to drive higher merchandise margins,” said CEO Phil Daniele. Still, the long-term tradeoff between short-term profitability and long-term growth remains evident in the company’s strategy.
Aggressive Expansion Marks a Play for Global Market Share
AutoZone continues to invest aggressively in international growth. In Q3, the company opened 54 new stores in the U.S., 25 in Mexico, and five in Brazil, bringing its global footprint to 7,516 locations. The retailer plans to open 100 additional international stores this fiscal year, signaling confidence in underpenetrated markets where rising vehicle ownership and limited competition offer long-term potential.
Inventory growth of nearly 11% year-over-year reflects both this store expansion and higher same-store sales. AutoZone ended the quarter with $268.6 million in cash and $8.85 billion in total debt. It repurchased 70,000 shares for $250.3 million in Q3, and has $1.1 billion remaining under its current buyback authorization.
Competitive Landscape Tightens as Rivals Gain Ground
While AutoZone’s stock is up 20% year-to-date and 37% over the past 12 months, recent results have shown cracks in its dominance. Advance Auto Parts (AAP), long seen as a lagging competitor, delivered a surprise beat last week with better-than-expected revenue, earnings, and guidance. Meanwhile, O’Reilly Automotive (ORLY) also posted comp growth of 3.6% in Q1, even as its earnings narrowly missed expectations.
AutoZone’s consistent revenue growth and strong domestic commercial performance continue to support its long-term narrative. However, the mounting pressure on earnings, margin compression, and international currency volatility are concerns that could weigh on investor confidence—especially as competitors show signs of momentum.
Outlook
Despite the shortfall in earnings, AutoZone’s strategic focus remains intact: expanding in high-growth regions, reinforcing its commercial dominance, and modernizing its distribution network. But with EPS misses stacking up, the company may need to show improved margin control and consistent execution to reassure the market.
For now, the aftermarket auto parts sector appears to be shifting into a more competitive gear.
Considering a $1,000 investment in these companies?
Our team at Stock Investor carefully curated a list of top stocks with the potential for significant returns, suitable for beginners and seasoned investors alike who are eager to learn a trade and unearth the best stocks to buy. Though not featured in this article, these selected stocks could be game-changers in the future.For those seeking dynamic trading experiences, consider joining our Swing Trade Alerts, Option Income Alert, or our Trading Room. Take advantage of our special offer today, starting at just $1 in the first month.
Unlock the secrets of Smart Money
Explore how billionaires and institutions are influencing the market. Follow their every move with DarkOption Flow and stay updated on essential market insights. Begin your journey to informed investing today!
Education
And if you're a fan of Invest opedia, you'll appreciate what we offer at SharperTrades even more. Explore our comprehensive option trading course and technical trading course, where you can learn trading, analyze stocks, delve into chart patterns for stocks, and gain invaluable insights for making the best company investments.
Unlock Your Stock Market Edge with SharperTrades. Dive into powerful trading tools, learn a trade, and receive expert guidance. Stay up-to-date with regular market updates. Learn trading, basics of investing, and how to pick the best stocks to buy. Whether you're a beginner or seasoned investor and trader, we've got you covered. Get started for free, today!