AutoZone, Inc. (NYSE: AZO) Q3 2025 Earnings Call | 05/27/2025

AutoZone's Q3 2025 Earnings Conference Call Summary

AutoZone's CEO, Phil Danielle, and CFO, Jameer Jackson, presented a strong third quarter for fiscal year 2025, highlighting significant sales growth across all segments despite foreign currency headwinds and strategic investments.

Financial and Sales Performance

Overall Growth:

• Total sales grew 5.4% to $4.5 billion.
• Total company same-store sales (constant currency) increased by 5.4%.
• Earnings per share (EPS) decreased 3.6% to $35.36, but excluding foreign currency impact, the decrease would have been 0.6%.
• EBIT was $866 million, down 3.8% year-over-year.

Domestic Performance:

• Commercial (DIFM) sales surged 10.7%, marking the first double-digit growth since Q2 FY23. This segment now accounts for 32% of domestic auto parts sales.
• Achieved $5 billion in commercial sales on a rolling four-quarter basis for the first time.
• DIY retail comp was up just over 3%, the best retail growth since Q2 FY22. Traffic was up approximately 1.4%, and average ticket and like-for-like SKU inflation were up about 1%.
• Weaker DIY performance was noted in the South Central and Western US, while the Northeast and Rust Belt outperformed due to colder winter weather.

International Performance:

• International constant currency comp remained strong, up 8.1%.
• However, a significant 17-point currency headwind resulted in a negative 9.2% unadjusted international comp.
• Opened 30 new international stores (25 in Mexico, 5 in Brazil), bringing the total to 979 international stores.

Strategic Initiatives & Investments

• Commercial Acceleration: Focus on improving execution, expanding parts availability (especially through Mega Hubs), and enhancing delivery speed drove substantial year-over-year sales growth. The company aims for nearly 300 Mega Hubs in total.
• Store Expansion: Opened 54 net new domestic stores and expects to open around 100 international stores this fiscal year. Hubs and Mega Hubs continue to outpace other stores in comp growth.
• Supply Chain: Opened two new distribution centers to improve efficiency and reduce costs, though ramp-up costs impacted gross margin in Q3.
• Technology Investment: Heavy investment in technology aims to improve customer service and AutoZoners' ability to deliver "WOW customer service."
• Capital Allocation: Repurchased $250 million of AutoZone stock, with $1.1 billion remaining under authorization. The company maintains a strong liquidity position and leverage ratio.

Gross Margin and Expenses

• Gross Margin: Was 52.7%, down 77 basis points year-over-year. This was primarily due to a higher commercial mix, domestic shrink, and new U.S. distribution center ramp-up costs, partially offset by merchandise margin improvement.
• LIFO Credit: A $16 million LIFO credit was taken due to lower freight costs. The company anticipates no further LIFO credits in Q4 as it rebuilds its unrecorded LIFO reserve.
• Tariffs: Had a minimal impact in Q3. The company expects to offset any future tariff costs through vendor absorption, diversifying sourcing, and pricing actions, aiming to maintain its margin profile.
• Operating Expenses (SG&A): Increased 8.9%, deleveraging 108 basis points. This was driven by investments in growth initiatives and increased self-insurance expenses (related to commercial delivery vehicles and claim settlements). The company expects SG&A growth to align with sales growth over time.