AutoZone (AZO)

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 GAAP profit of $48.71 per share was 3.9% below analysts’ consensus estimates.

Company Overview

Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE:AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.

Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.

Competitors offering auto parts and accessories include Advance Auto Parts (NYSE:AAP), O’Reilly Automotive (NASDAQ:ORLY), Genuine Parts (NYSE:GPC), and private company Pep Boys.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $18.94 billion in revenue over the past 12 months, AutoZone is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. To accelerate sales, AutoZone likely needs to optimize its pricing or lean into international expansion.

As you can see below, AutoZone grew its sales at a mediocre 8.1% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts), but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, AutoZone’s $6.24 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.7% over the next 12 months, similar to its six-year rate. We still think its growth trajectory is attractive given its scale and implies the market sees success for its products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

AutoZone sported 7,657 locations in the latest quarter. Over the last two years, it has opened new stores quickly, averaging 3.2% annual growth. This was faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

AutoZone’s demand rose over the last two years and slightly outpaced the industry. On average, the company’s same-store sales have grown by 2.3% per year. This performance suggests its rollout of new stores could be beneficial for shareholders. When a retailer has demand, more locations should help it reach more customers and boost revenue growth.

In the latest quarter, AutoZone’s same-store sales rose 5.1% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

AutoZone has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 52.9% gross margin over the last two years. That means AutoZone only paid its suppliers $47.14 for every $100 in revenue.

AutoZone’s gross profit margin came in at 51.5% this quarter, in line with the same quarter last year but missing analysts’ estimates by 1.5%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

AutoZone has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer retail business, boasting an average operating margin of 19.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, AutoZone’s operating margin decreased by 1.4 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, AutoZone generated an operating margin profit margin of 19.2%, down 1.7 percentage points year on year. Since AutoZone’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

AutoZone has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 9.9% over the last two years.

AutoZone’s free cash flow clocked in at $511.1 million in Q3, equivalent to a 8.2% margin. The company’s cash profitability regressed as it was 3.5 percentage points lower than in the same quarter last year, but we wouldn’t read too much into it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to quarter-to-quarter swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

AutoZone’s five-year average ROIC was 41.7%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

AutoZone reported $271.8 million of cash and $11.89 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.22 billion of EBITDA over the last 12 months, we view AutoZone’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $179.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its gross margin missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.4% to $3,970 immediately after reporting.

Updated: December 4, 2025 at 9:36 PM EST

Are you wondering whether to buy AutoZone or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

In our opinion, AutoZone is a solid company. Although its revenue growth was a little slower over the last three years, its growth over the next 12 months is expected to be higher. On top of that, AutoZone’s impressive operating margins show it has a highly efficient business model, and the company’s stellar ROIC suggests it has been a well-run company historically.

AutoZone’s P/E ratio based on the next 12 months is 25x. At this valuation, there’s a lot of good news priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $4,576 on the company (compared to the current share price of $3,840).