Key points
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AutoZone posted strong sales growth in the third quarterwith total sales up 8.4% to $4.8 billion and same-store sales up 3.9% in constant currency. Growth was led by the commercial business, where national comparable commercial sales increased 10.4%.
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Margins and EPS pressured by LIFO charges. Gross margin fell to 52.2% and the company said a $20 million LIFO charge reduced quarterly earnings per share by $0.91; AutoZone also expects a LIFO charge of about $30 million in the fourth quarter.
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The direction is leaning towards business expansion and growth.opening 82 stores worldwide in the quarter and 14 Mega Hubs. AutoZone plans to continue investing in stores, centers, technology and buybacks as it aims for higher profits in fiscal 2026.
AutoZone (NYSE:AZO) reported stronger sales growth in the fiscal third quarter as management noted gains in its commercial business, new store openings and increased parts availability, while noting that mild weather late in the quarter affected demand in some seasonal categories.
Chairman and CEO Phil Daniele said total sales rose 8.4% in the quarter, the company’s largest reported increase since the second quarter of fiscal 2023. Earnings per share rose 7.7%, although both Daniele and Chief Financial Officer Jamere Jackson said results were pressured by a non-cash LIFO charge.
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“Simply put, we are growing,” Daniele said, citing store expansion and increased market share. He also thanked the company’s more than 130,000 employees, whom AutoZone refers to as AutoZoners, for their customer service efforts.
Sales growth led by commercial businesses
AutoZone reported total sales of $4.8 billion during the quarter, up 8.4% from the same period a year ago. The company’s total same-store sales increased 3.9% in constant currency. Domestic same-store sales increased 4.1%, domestic DIY sales increased 2.2%, and domestic commercial sales increased 10.4%.
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Daniele said the quarter started stronger than it ended. Domestic same-store sales increased 5% in the first four weeks, 4.5% in the second four-week period and 2.9% in the final four-week period. It said the last two weeks were softer, with a 1.3% increase in comps, due to unusually cold weather that affected heat-related categories such as air conditioning, starting and charging.
“This slowdown in sales was caused by unusually cold weather that impacted our heat-related categories, which typically start to take a hit this time of year as the summer heat begins to take hold,” Daniele said.
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On the DIY side, same-store sales rose 2.2%, improving on growth of 1.5% in the second quarter. Daniele said regional performance was strongest in the West, Midwest and Northeast, and said the company expects “strong DIY performance” during the summer sales season.
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Jackson said DIFM’s domestic sales, or do it for me, totaled $1.4 billion, a year-over-year increase of 10.4%. Domestic commercial sales represented just under 34% of domestic auto parts sales and 29% of the company’s total sales. Average weekly sales per commercial program were $18,500, up 4.5% from last year.
The company opened 46 net new commercial programs during the quarter and ended with 6,356 programs, covering 94% of domestic stores.
Management attributed the business growth to improved satellite store inventory availability, expanded hub and Mega Hub coverage, the Duralast brand and efforts to improve delivery speed and service. Daniele said that both national accounts and “up and down” clients grew at double-digit rates.
Mega Hubs remained a central part of the company’s business strategy. AutoZone opened 14 Mega Hubs during the quarter, bringing the total to 156. Jackson said the company expects to open about 15 additional Mega Hubs in the fourth quarter and reach 38 openings by fiscal 2026. He said AutoZone continues to target approximately 300 Mega Hubs under construction and expects to open at least 40 in fiscal 2027.
LIFO charges weigh on margins and profits
Gross margin was 52.2%, 57 basis points lower than last year. Jackson said the quarter included a LIFO charge of $20 million, compared to a LIFO credit of $16 million in the prior-year quarter, creating an unfavorable comparison.
Excluding the LIFO comparison, gross margin would have increased 20 basis points as merchandise margin, shrinkage and supply chain productivity helped offset pressure from the faster-growing commercial business mix.
Jackson said EBIT was $924 million, up 6.6% from the previous year. Excluding the unfavorable LIFO comparison, EBIT would have increased by 11%. Net income was $641 million, up 5.4%, while diluted earnings per share were $38.07, up 7.7%. Jackson said the LIFO charge reduced earnings per share by $0.91 in the quarter.
For the fourth quarter, Jackson said AutoZone expects a LIFO charge of about $30 million, which would reduce gross margin by about 45 basis points and EPS by about $1.40. For the full fiscal year, the company expects LIFO charges of approximately $207 million, compared to $64 million last year.
Inflation, traffic and international markets
Daniele said comparable inflation for the same SKU was just above 7% in DIY during the quarter, contributing to a 5.6% increase in the average DIY ticket. Same-store DIY traffic decreased 3.6%, similar to the previous quarter. Commercial same-SKU inflation and ticket growth were also similar to DIY, with SKU inflation over 7% and average ticket growth around 6%.
Management said inflation is expected to moderate in the fourth quarter as the company overcomes last year’s inflation disaster. Daniele said average ticket growth is expected to be in the mid-4% range.
International same-store sales increased 1.6% in constant currency, while unadjusted international comps increased 16.6% due to favorable exchange rates. Jackson said the Mexican peso strengthened almost 13% against the US dollar compared to the third quarter of last year, delivering a sales profit of $74 million, an EBIT profit of $20 million and an EPS profit of $0.83.
Daniele said Mexico and Brazil remain affected by a “continued weak macroeconomic environment,” and AutoZone expects fourth-quarter international same-store sales to be in a similar range to the third quarter. Even so, he stated that the company continues to gain share and remains committed to international expansion.
Store Growth, Capital Spending and Outlook
AutoZone opened 82 stores globally during the quarter and ended with 6,766 stores in the U.S., 933 stores in Mexico and 157 stores in Brazil. The company expects to open approximately 365 stores in fiscal 2026, compared to 305 global openings last year. Jackson said AutoZone expects about 160 store openings worldwide in the fourth quarter, compared with 141 in the prior-year period.
The company generated $455 million in free cash flow in the quarter, up from $423 million a year earlier and $1.1 billion so far this year. AutoZone repurchased $586 million in stock during the quarter and ended up with $800 million remaining under its repurchase authorization.
Daniele said AutoZone is investing nearly $1.6 billion in capital expenditures this year to support strategic growth priorities, including accelerated growth of stores, centers, mega centers and technology. He said the company expects a similar level of investment next year.
Looking ahead, management said it will remain focused on domestic business growth, store expansion and customer service execution. Daniele said the company expects a normal, if not hotter than normal, summer based on weather forecasts, which could support seasonal demand.
“We are on track to meet our fiscal year 2026 goals,” Daniele said. “We believe we are well positioned to grow both our domestic DIY business and our commercial sales.”
About AutoZone (NYSE:AZO)
AutoZone, Inc (NYSE: AZO) is a retailer and distributor of automotive parts and accessories. Headquartered in Memphis, Tennessee, the company supplies a wide range of aftermarket components, maintenance items and accessories for passenger cars, light trucks and commercial vehicles. Its product range includes engine parts, electrical components, batteries, brakes, filters, fluids and interior and exterior accessories, supported by inventory and logistics management systems to serve retail customers and professional service providers.
AutoZone serves both DIY consumers and commercial customers, such as independent repair shops and service centers.
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The article “Highlights from AutoZone’s Third Quarter Earnings Calls” was originally published by MarketBeat.
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