AZO β 2026-11-13 Analysis
π AutoZone (AZO) stock rallied 4.7% since September despite a deteriorating earnings outlook, with forward P/E at 16.93x compared to a 10.5x peer median.
π° The company reported FY2026 revenue of $20.34 billion, up 7.4%, driven by opening a record 374 new stores to surpass the 8,000-location milestone.
π Operating margins compressed to 18.31% in FY2026 from 20.49% in FY2024 due to store-opening costs and rising SG&A expenses.
π Free cash flow declined to $1.82 billion in FY2026 from $2.54 billion in FY2022 as capital expenditures rose to $1.43 billion.
π οΈ DIY traffic softened with same-store sales down 0.6% in Q4, though the average ticket price increased by roughly 5% due to inflation.
π’ Commercial business remains a strong growth driver, expanding 8.6% in Q4 and benefiting from Mega Hub-linked programs that sell 16% more annually.
π International expansion continues with 1,001 stores in Mexico and 167 in Brazil, though macroeconomic headwinds in Mexico have slowed recent sales growth.
π Analyst estimates for Q1 FY2027 were cut from $38.10 to $35.39 EPS as the sell side adjusted expectations to match management's flat same-store sales guidance.
π€ CFO Jamere Jackson is departing on November 25, 2026, to join FedEx, leaving the December 8 earnings call without his presence.
πΈ The company repurchased $2.01 billion of stock in FY2026, covering share-based compensation 14.72x and shrinking the share count by 2.95% year-over-year.
π LIFO charges are expected to decrease significantly in FY2027, dropping from $192 million in FY2026 to a modeled range of $85β$90 million.
β οΈ Net debt stands at $12.82 billion with a 3.0x EBITDA leverage ratio, and interest expenses are projected to rise as rates remain higher for longer.
π The stock trades above its 50-day moving average with an RSI of 58.99, indicating a break from the summer downtrend despite falling analyst estimates.
ποΈ Management plans to open approximately 400 new stores in FY2027 and is reducing the long-term annual store target from 500 to 430 to focus on profitability.
π Q1 FY2027 guidance anticipates relatively flat domestic same-store sales with an average ticket growth of roughly 5%, similar to Q4 performance.
π SG&A expenses are expected to grow by approximately 8% in FY2027, with management confident in their ability to manage costs in line with sales growth.
- AutoZone opened a record 374 stores in FY2026, surpassing its previous annual record of 304 stores and passing the milestone of 8,000 total locations.
- The company achieved an all-time high in sales of $20.3 billion for FY2026, exceeding the $20 billion mark for the first time.
- Domestic commercial sales grew nearly 11% for the year, finishing up significantly above the domestic DIY channel which declined slightly.
- International same-store sales grew 10.7% on an unadjusted basis, driven by a strong 9% foreign exchange tailwind from the Mexican peso strengthening against the US dollar.
- The company generated $684 million in free cash flow for Q4 FY2026, up from $511 million in the prior year quarter.
- AutoZone repurchased $2.01 billion of stock in FY2026, covering 14.72x its stock-based compensation and shrinking the share count by 2.95% TTM.
- The company received a $96 million tariff refund benefit in Q4, which added $4.43 per share to earnings.
- Mega Hub-linked commercial programs sell 16% more annually than the balance of commercial programs, driving accelerated growth in the professional channel.
- Management expects LIFO charges to roughly halve in FY2027, dropping from $192 million in FY2026 to an estimated $85 million to $90 million.
- The company completed its new Monterrey, Mexico distribution center, which is more than 2x the size of the previous facility and fully operational.
- AutoZone expects to open approximately 400 stores in FY2027, maintaining an aggressive store build-out pace despite slowing international expansion targets.
- The company exited Q4 FY2026 with good momentum, particularly in commercial sales which grew well north of 9% in the quarter.
- Operating margins contracted from 20.49% in FY2024 to 18.31% in FY2026 due to aggressive store expansion costs diluting operating leverage.
- Free cash flow declined to $1.82 billion in FY2026 from $2.54 billion in FY2022, reflecting increased capital expenditures of $1.43 billion required for rapid network expansion.
- Analyst estimates have been cut sharply with Q1 FY2027 consensus EPS dropping from $38.10 to $35.39 over sixty days as investors adjusted for management's guidance of flat same-store sales for DIY.
- The stock is trading at a forward multiple of 16.93x earnings, which is significantly higher than the auto parts peer median and implies 12.9% annual free cash flow growth from a business that has seen FCF stagnate or decline for four consecutive years.
- CFO Jamere Jackson is set to depart on November 25, 2026, adding uncertainty ahead of the December 8 earnings call where he will no longer be present to defend the cost plan.
- Net debt of $12.82 billion runs at 3.0x EBITDA, and rising interest costs with Q1 guided to $114 million from $106 million raise the cost of the buyback model in a higher-for-longer rate environment.
- The company has a poor earnings beat record with only 3 beats in 8 recorded quarters and a -2.1% average surprise, keeping earnings quality near the bottom despite recent price momentum.
- Management expects Q1 FY2027 same-store sales to be relatively flat for DIY and low single-digit growth for commercial segments, capping upside potential in the near term.