AZO Q3 Deep Dive: Store Expansion, Tariff Pressures, and Margin Outlook Shape Results

Auto parts and accessories retailer AutoZone (NYSE:AZO) met Wall Street’s revenue expectations in Q3 CY2025, but sales were flat year on year at $6.24 billion. Its non-GAAP profit of $48.71 per share was 4% below analysts’ consensus estimates.

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StockStory’s Take

AutoZone’s Q3 results reflected solid execution in both its retail and commercial channels, with management highlighting improved store execution, expanded parts availability, and strong growth in commercial sales. CEO Philip Daniele credited sales acceleration to market share gains and favorable weather in the latter half of the quarter, noting, “We are encouraged with our sales acceleration this quarter, and we are excited to start the new year.” Management acknowledged that margins were impacted by a non-cash LIFO charge and ongoing tariff-related cost increases, which weighed on profitability.

Looking forward, AutoZone’s leadership emphasized continued investment in new stores, inventory, and technology as central to driving future growth, especially in commercial and international markets. CFO Jamere Jackson indicated that higher store openings would temporarily increase expenses, but management expects these investments to position the company for faster sales growth. Daniele noted, “We are committed to improving our execution and driving Wow customer service,” while remaining watchful of inflation trends and pricing discipline amid ongoing tariff headwinds.

Key Insights from Management’s Remarks

Management attributed Q3 performance to commercial sales acceleration, ongoing store expansion, and disciplined pricing actions amid rising costs from tariffs and inflation.

• Commercial sales momentum: Commercial sales outpaced retail growth, with management pointing to improved inventory availability and faster delivery as key drivers. The company’s focus on expanding hub and mega hub stores allowed for greater parts assortment and service levels, fueling double-digit commercial same-store sales growth.
• Retail segment dynamics: The retail DIY segment saw transaction declines but benefited from higher average tickets and improved product mix. Warmer weather late in the quarter boosted discretionary categories, though management noted ongoing pressure on lower-end consumers.
• International expansion: AutoZone continued to accelerate store openings in Mexico and Brazil, with international same-store sales outpacing domestic growth on a constant currency basis. Management remains bullish on long-term international opportunities, highlighting fragmented markets and an aging car park as tailwinds.
• Tariff and inflation impacts: Tariffs contributed to higher product costs and ticket inflation, prompting the company to adjust prices while negotiating with vendors to offset some increases. Management expects these pressures to persist but believes the industry will maintain rational pricing.
• Margin pressures and cost discipline: Non-cash LIFO charges and foreign exchange headwinds reduced operating margins. Management reiterated its commitment to investing in growth initiatives while maintaining expense discipline, anticipating that new stores will mature and contribute positively to margins over time.

Drivers of Future Performance

Management expects near-term growth to be driven by ongoing store expansion, commercial channel investment, and disciplined navigation of tariff-driven cost pressures.

• Store growth acceleration: Plans to open 325 to 350 stores in The Americas next year, with a focus on hub and mega hub formats, are expected to drive market share gains. Management anticipates these new locations will take several years to mature but should ultimately support higher sales and profitability.
• Margin management amid tariffs: Tariff-related cost increases are likely to persist, with management forecasting continued LIFO charges and higher product costs. The company’s strategy involves passing on some costs to customers through disciplined pricing, while seeking efficiencies with vendors to mitigate impacts on gross margin.
• International and commercial focus: AutoZone aims to accelerate international expansion, particularly in Mexico, where the competitive environment is fragmented and the car park is older. Management also sees significant runway for commercial sales growth through improved product assortment and service, both domestically and abroad.

Catalysts in Upcoming Quarters

In coming quarters, our analyst team will be closely monitoring (1) the pace and profitability of new store openings, especially mega hub locations; (2) the company’s ability to manage tariff-related cost inflation and maintain gross margin discipline; and (3) sustained momentum in commercial and international sales channels. Execution on these fronts will be critical to validating management’s growth strategy.

AutoZone currently trades at $4,095, in line with $4,109 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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