AutoZone Stock in Focus: How Strong Is Its Setup Heading Into 2026?

AutoZone, Inc. AZO is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States. It is set to gain from strength in its DIY and commercial business as well as omnichannel efforts. However, rising capital requirements and LIFO accounting charges remain a concern

Let’s see why you should retain this Zacks Rank #3 (Hold) stock in your portfolio.

New Customer Wins & Expansion of Mega Hubs to Aid AZO

AutoZone has achieved record sales for 36 consecutive years. Its first quarter of fiscal 2026 revenues of $4.6 billion rose 8.2% year over year. The company expects continued growth in fiscal 2026, driven by strong DIY and commercial business performance with expanded coverage and improved parts availability. AutoZone continues to grow its market share through new customer wins and deeper engagement with existing clients.

Focus on increasing its market penetration via the expansion of mega hubs is set to boost long-term prospects. Expanded hub and mega-hub rollouts, along with the expansion of the distribution center footprint, bode well. With 137 mega hub locations at the end of the first quarter of fiscal 2026, AutoZone is halfway through its objective of establishing more than 200 mega hubs. It aims to open at least 30 more locations over the fiscal year. 

With continued dedication to Mexico and Brazil, AZO is set to ramp up store openings in these markets, aiming for as many as 500 annually by 2028, which is poised to boost AutoZone's growth significantly. For the second quarter of fiscal 2026, the company anticipates 65 to 70 store openings worldwide compared with 45 in the same period last year. In fiscal 2026, it expects to open about 350 to 360 stores versus 304 net new stores opened in fiscal 2025.

The company’s omnichannel efforts to improve customer shopping experience are reaping profits. The ramp-up of e-commerce efforts, including ship-to-home next day, buy online, pick-up in stores and commercial customer ordering, is driving traffic to the company’s online site, helping it deliver sizzling growth. AutoZone's distribution network transformation, highlighted by the strategy to bring inventory closer to customers, will enhance efficiency and drive growth with increased availability and speed.

The company’s robust buyback program also sparks confidence. In fiscal 2025, the firm repurchased shares worth $1.5 billion. In the first quarter of fiscal 2026, AZO repurchased shares worth $431.1 million. At the end of the first quarter of fiscal 2026, AZO had more than $1.7 billion remaining under its share repurchase authorization. Notably, it has bought back more than 100% of the then-outstanding shares since 1998. The company’s disciplined capital allocation approach to reinvest in the business and engage in meaningful investor-friendly moves is praiseworthy.

Rising Capex & High Debt Levels to Hurt AutoZone’s Growth

AutoZone’s technology investments to improve the electronic catalog might limit near-term cash inflows. In fiscal 2025, the company spent around $1.4 billion in capex and it expects to spend $1.6 billion in fiscal 2026. AZO also remains dedicated to investing in rapid store expansion, particularly in hubs and mega-hubs, bringing inventory closer to its customers.

The company is investing in SG&A to take advantage of growth opportunities in the near and medium term. Although these investments are expected to improve customer experience, delivery speed and productivity and market share, it is likely to hurt the company’s margin in the near term. In the second quarter, SG&A is expected to increase at a pace similar to the first quarter, as new store openings have an outsized impact on payroll, depreciation and occupancy costs.

AutoZone’s stretched balance sheet raises concerns. Its total debt-to-capital ratio stands at 1.63, which is significantly higher than the industry’s 0.90, indicating that the firm is highly leveraged.

In the first quarter of fiscal 2026, the company’s gross margin, operating profit and earnings per share took a hit because of a noncash $98 million LIFO accounting charge. Looking ahead, it expects another LIFO charge of about $60 million for each of the next three quarters due to higher tariff-related costs. Expected LIFO accounting charge is likely to hit AZO’s gross margin, operating profit and earnings per share in the upcoming quarters.

Stocks to Consider

Some better-ranked stocks in the auto space are General Motors Company GM, OPENLANE, Inc. OPLN and REV Group, Inc. REVG, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GM’s 2025 and 2026 EPS has improved 8 cents and 47 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for OPLN’s 2025 sales implies year-over-year growth of 9.4%. EPS estimates for 2025 have improved 9 cents in the past 60 days. EPS estimates for 2026 have improved 2 cents in the past 30 days.

The Zacks Consensus Estimate for REVG’s fiscal 2026 sales and earnings implies year-over-year growth of 8.1% and 37.8%, respectively. EPS estimates for fiscal 2026 and 2027 have improved 20 cents and 26 cents, respectively, in the past 30 days. 

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This article originally published on Zacks Investment Research (zacks.com).

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