AutoZone Misses on Earnings but Drives Sales Beat with Strong U.S. Growth

AutoZone (NYSE: AZO) reported fiscal third-quarter 2025 results that delivered a mixed performance, with revenue surpassing expectations but earnings per share (EPS) falling short for the fourth consecutive quarter. The company cited ongoing gross margin pressure, foreign exchange headwinds, and rising operating expenses as contributors to the bottom-line miss. Still, strength in domestic commercial sales and international growth on a constant currency basis underscore resilience in underlying demand.

AutoZone reported Q3 revenue of $4.46 billion, up 5.4% year-over-year and above consensus estimates of $4.35 billion. EPS came in at $35.36, missing Wall Street’s target of $37.17 and down from $36.69 a year ago. Net income fell 6.6% to $608.4 million. Gross margins declined 77 basis points to 52.7%, driven by an unfavorable sales mix and higher supply chain costs. The quarter also saw a notable operating profit decrease of 3.8% to $866.2 million.

The top-line beat marked AutoZone's first revenue outperformance in over a year. Same-store sales rose 3.2% overall, in line with expectations. Domestic comps increased by a robust 5%, while international comps fell 9.2% due to currency headwinds. On a constant currency basis, however, international comps climbed 8.1%, suggesting that the company's expansion in Mexico and Brazil continues to gain traction despite macroeconomic volatility.

Gross margin pressure was a central theme of the quarter. Management attributed the decline to a shift in sales toward lower-margin commercial business, which grew 7.3% year-over-year, and higher distribution and freight expenses linked to the ongoing ramp-up of its mega-hub and distribution center network. Additionally, the company recorded a $8 million non-cash LIFO charge, which contributed to a 21-basis-point drag on margins. Operating expenses as a percentage of sales rose to 33.3%, up from 32.2% last year, reflecting deleverage from elevated insurance claims and continued investment in digital platforms and store infrastructure.

The competitive dynamics of the auto parts sector were also evident in the quarter. While Advance Auto Parts recently reported stronger-than-expected results, AutoZone continues to face margin compression and FX pressure, particularly across its international footprint. CEO Phil Daniele acknowledged the challenges from currency volatility but emphasized that the company remains confident in the long-term potential of its international operations.

In terms of store growth, AutoZone opened 84 new stores in Q3, including 54 in the U.S., 25 in Mexico, and five in Brazil. The total store count now stands at 7,516, with international locations accounting for nearly 13% of that base. The company reaffirmed its plan to open 100 international stores in fiscal 2025, leveraging favorable trends in vehicle ownership and aftermarket demand in Latin America.

On tariffs, management did not explicitly comment during the earnings release, but the impact of rising trade tensions and associated costs remains a concern for the broader retail supply chain. Given that many of AutoZone’s suppliers are exposed to regions affected by the Trump administration’s proposed tariffs on goods from China and Taiwan, continued cost inflation in imported parts could weigh on gross margins in future quarters, unless offset by pricing actions or sourcing adjustments.

Despite the EPS miss, AutoZone shares traded higher in early trading as investors appeared to focus on the sales beat and reaffirmation of long-term strategic initiatives. Year-to-date, the stock is up nearly 19%, outpacing the broader market and underscoring investor confidence in AutoZone’s positioning within a resilient sector.

In summary, AutoZone’s fiscal Q3 results reflect the dual narrative facing many retailers today: solid top-line execution and market share gains offset by margin headwinds and macro uncertainty. With strong domestic demand, strategic international expansion, and a focus on supply chain optimization, AutoZone remains well-positioned for long-term growth. However, the company must address persistent profitability challenges to sustain investor enthusiasm amid rising competitive pressure and geopolitical risk.