AutoZone (NYSE:AZO) reported stronger fiscal third-quarter sales growth as management pointed to gains in its commercial business, new store openings and expanded parts availability, while noting that mild late-quarter weather weighed on demand in some seasonal categories.
President 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 increased 7.7%, though both Daniele and Chief Financial Officer Jamere Jackson said results were pressured by a non-cash LIFO charge.
“Simply put, we're growing,” Daniele said, citing store expansion and market share gains. He also thanked the company’s more than 130,000 employees, which AutoZone refers to as AutoZoners, for their customer service efforts.
Sales Growth Led by Commercial Business
AutoZone reported total sales of $4.8 billion for the quarter, up 8.4% from the same period a year earlier. Total company same-store sales increased 3.9% on a constant currency basis. Domestic same-store sales rose 4.1%, with domestic DIY sales up 2.2% and domestic commercial sales up 10.4%.
Daniele said the quarter began 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. He said the final two weeks were softer, with comps up 1.3%, due to unseasonably cool weather that affected heat-related categories such as air conditioning, starting and charging.
“This slowdown in sales was caused by unseasonably cool weather impacting our heat-related categories, which normally begin to ramp this time of year as summer heat begins to take hold,” Daniele said.
On the DIY side, same-store sales increased 2.2%, improving from 1.5% growth in the second quarter. Daniele said regional performance was strongest in the West, Midwest and Northeast, and said the company expects “solid DIY performance” during the summer selling season.
Commercial Initiatives Continue to Drive Share Gains
Jackson said domestic DIFM, or do-it-for-me, sales totaled $1.4 billion, up 10.4% year over year. Domestic commercial sales represented just under 34% of domestic auto parts sales and 29% of total company 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 commercial 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 both national accounts and “up-and-down the street” customers grew at double-digit rates.
Mega Hubs remained a central part of the company’s commercial 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 for fiscal 2026. He said AutoZone continues to target approximately 300 Mega Hubs at full build-out and expects to open at least 40 in fiscal 2027.
LIFO Charges Weigh on Margins and Earnings
Gross margin was 52.2%, down 57 basis points from last year. Jackson said the quarter included a $20 million LIFO charge, compared with a $16 million LIFO credit in the prior-year quarter, creating an unfavorable comparison.
Excluding the LIFO comparison, gross margin would have increased 20 basis points, as merchandise margin, shrink 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 prior year. Excluding the unfavorable LIFO comparison, EBIT would have increased 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 EPS by $0.91 in the quarter.
For the fourth quarter, Jackson said AutoZone expects an approximately $30 million LIFO charge, which would reduce gross margin by about 45 basis points and EPS by roughly $1.40. For the full fiscal year, the company expects LIFO charges of about $207 million, compared with $64 million last year.
Inflation, Traffic and International Markets
Daniele said like-for-like same-SKU inflation was just above 7% in DIY during the quarter, contributing to a 5.6% increase in the DIY average ticket. DIY same-store traffic declined 3.6%, similar to the prior quarter. Commercial same-SKU inflation and ticket growth were also similar to DIY, with SKU inflation north of 7% and average ticket growth of about 6%.
Management said inflation is expected to moderate in the fourth quarter as the company laps last year’s inflation ramp. Daniele said average ticket growth is expected to be in the mid-4% range.
International same-store sales increased 1.6% on a constant currency basis, while unadjusted international comps rose 16.6% due to favorable exchange rates. Jackson said the Mexican peso strengthened almost 13% against the U.S. dollar versus last year’s third quarter, providing a $74 million sales benefit, a $20 million EBIT benefit and an $0.83 EPS benefit.
Daniele said Mexico and Brazil remain affected by a “continued soft macro environment,” and AutoZone expects fourth-quarter international same-store sales to be in a similar range to the third quarter. Still, he said 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 U.S. stores, 933 stores in Mexico and 157 stores in Brazil. The company expects to open approximately 365 stores in fiscal 2026, compared with 305 global openings last year. Jackson said AutoZone expects about 160 global store openings 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 year to date. AutoZone repurchased $586 million of stock during the quarter and ended with $800 million remaining under its buyback authorization.
Daniele said AutoZone is investing nearly $1.6 billion in capital expenditures this year to support strategic growth priorities, including accelerated store growth, hubs, Mega Hubs and technology. He said the company expects a similar level of investment next year.
Looking ahead, management said it remains focused on domestic commercial 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 for delivering our objectives for fiscal 2026,” Daniele said. “We feel we are well positioned to grow both our domestic do-it-yourself business as well as our commercial sales.”
About AutoZone (NYSE:AZO)
AutoZone, Inc (NYSE: AZO) is a retailer and distributor of automotive replacement 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 assortment includes engine parts, electrical components, batteries, brakes, filters, fluids and interior and exterior accessories, supported by inventory management and logistics systems to serve retail customers and professional service providers.
AutoZone serves both do‑it‑yourself (DIY) consumers and commercial customers such as independent repair shops and service centers.
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