AutoZone Q4 2025 Earnings Call: Contradictions Emerge on Tariff Pricing, DIY/Commercial Sales, and SG&A Strategy

Date of Call: September 23, 2025

Financials Results

• Revenue: $6.2B for Q4, up 0.6% vs prior 17-week quarter (up 6.9% on a 16-week comparable basis); FY25 sales $18.9B, up 4.5% YOY (52-week basis).
• EPS: $48.71 per diluted share for Q4, up 1.3% on a 16-week basis (quarter EPS negatively impacted by LIFO/FX by $4.14); FY25 EPS $144.87, down 3.1% (LIFO/FX drag $6.42).
• Gross Margin: 51.5%, down 103 bps YOY on a 16-week basis; included an $80M LIFO charge (≈128 bps headwind); ex-LIFO and week-adjustment gross margin improved ~25 bps.
• Operating Margin: ≈19.4% (EBIT $1.2B on $6.2B sales), EBIT down 1.1% YOY on a 16-week basis; ex-LIFO & FX constant-currency EBIT would have been up ~6.6%.

Guidance:

• Q1 LIFO expected ≈ $120M; Q2–Q4 modeling ~ $80–$85M/quarter (dynamic).
• Expect at least ~3% SKU/ticket inflation and potential for it to rise as tariffs impact costs.
• FY26 Americas store openings targeted at 325–350 (skewed to back half); CapEx ≈ $1.5B.
• Plan to open 25–30 Mega-Hubs next fiscal year; target ~300 Mega-Hubs at full build-out.
• Q1 interest ≈ $112M; model Q1 tax rate ≈ 23.2% (pre stock-option credits).
• If recent FX spot rates hold for Q1: ≈ +$32M revenue, +$9M EBIT, +$0.38 EPS.

Business Commentary:

* Sales Growth and Market Share: - AutoZone's total sales grew 0.6% for the fourth quarter, while earnings per share decreased 5.6%. However, when adjusted for a 16-week basis, sales grew 6.9% and earnings per share increased 1.3%. - Growth was driven by improved domestic commercial same-store sales, which rose 12.5%, domestic DIY same-store sales up 2.2%, and international constant currency comp growth of 7.2%.

• Impact of Inflation and Pricing Strategy:
• Average DIY transaction ticket growth was 3.9%, outpacing same-SKU inflation of approximately 2.8%.
• The company anticipates at least 3% ticket inflation for the remainder of the calendar year. The pricing strategy aims to cover cost increases without destroying demand.

• International Business and Market Expansion:
• In Mexico and Brazil, AutoZone opened 51 new stores, bringing the international store count to 1,030.
• International same-store sales grew 7.2% on a constant currency basis, with a focus on accelerating store openings in these markets.

• Operational and Strategic Initiatives:
• The company plans to open 325 to 350 new stores in the Americas for FY '26, with an emphasis on Mega-Hub stores.
• These initiatives are aimed at improving inventory availability, strategic market share growth, and enhancing customer service for both DIY and commercial customers.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated optimism: commercial same-store sales accelerated to +12.5% and domestic comps were positive; statements include 'we are encouraged', 'we are excited about the outlook for the 2026 fiscal year', 'we're bullish on our growth prospects' and 'we believe AutoZone's best days are ahead of us.'

Q&A:

• Question from Bret Jordan (Jefferies LLC): You were calling out inflation, I think, at least 3% in the fiscal first quarter. It's sounding from some of the WDs like you're seeing a fair amount more price than that. Is that your supply chain allowing you to sort of get to market at a lower cost and use price as a share gain? Or are you really expecting more than 3 sort of tied to same SKU tariff tailwinds?
  Response: Management: At least 3% inflation is expected and it will probably increase from there; pricing will be used as needed to cover costs while remaining competitive.

• Question from Bret Jordan (Jefferies LLC): You commented the discretionary is up for the first time in a bit. Is there anything either internally that you're doing to drive that? Or are you seeing sort of green shoots as far as that consumer base?
  Response: Management: Discretionary appears to have bottomed and is beginning to recover, but it's early and lower‑end consumers remain pressured.

• Question from Michael Lasser (UBS Investment Bank): Can you provide a sense of how the arc of the LIFO charges will look from here, you indicated to expect $120 million in the first quarter, is it reasonable for us to simply annualize that number, getting to around $520 million or so for the full year? Or would you expect that to peak and then fade off? And how will your margins look as that cycle fades, meaning do you get all of the margin headwind back on the other side of this cycle?
  Response: Management: Expect Q1 ≈ $120M LIFO, then ~ $80–85M/quarter in Q2–Q4 (subject to tariffs); as costs deflate over time these effects can reverse and margins should recover, but timing is uncertain.

• Question from Michael Lasser (UBS Investment Bank): My follow-up question is on SG&A. Your SG&A growth was elevated this quarter. It sounds like it might remain elevated for at least in near term. Is this a reflection of an arms race within the industry... or is it just more expensive to run an auto parts business these days?
  Response: Management: Not an arms race—SG&A growth is intentional investment in new stores and growth initiatives; expect mid‑single‑digit SG&A growth and eventual leverage as stores mature.

• Question from Gregory Melich (Evercore ISI): On SG&A growth, what sort of comp now do you expect given the growth plans to be necessary to leverage SG&A if we think about the next couple of years?
  Response: Management: SG&A will be managed in line with sales growth; investors should expect faster comp growth to accompany the SG&A investments, though no specific comp rate was provided.

• Question from Gregory Melich (Evercore ISI): On price elasticity — have you seen elasticity to unit demand as prices move, or are customers absorbing price increases?
  Response: Management: Minimal elasticity in core failure/maintenance categories—industry has historically passed costs through without notable unit declines and they expect pricing discipline to continue.

• Question from Christopher Horvers (JPMorgan Chase & Co): Can you talk about the growth opportunity in Mexico (≈900 stores) — how big is your market share, how big is the market, and could you double your store base over time?
  Response: Management: Mexico is highly fragmented with an older car park and significant runway — AutoZone is larger than the next several competitors combined and sees substantial expansion opportunity, especially in dense areas like Mexico City.

• Question from Christopher Horvers (JPMorgan Chase & Co): Is the LIFO guidance predicated on assumed 3% inflation and do you expect SG&A per store growth to be weighted to the back half of the year?
  Response: Management: Inflation may creep above 3% as tariffs hit; LIFO exposure is tied to tariffs and mitigation efforts have limited some impact; SG&A per store expected mid‑single‑digit for FY with some acceleration in the back half due to store openings.

• Question from Steven Zaccone (Citigroup Inc.): With same‑SKU inflation stepping up, do you have concerns about price elasticity and how that factors into same‑store sales outlook?
  Response: Management: They expect more same‑SKU inflation but view most categories as necessities with small-ticket increases, so demand should hold while they monitor demand signals closely.

• Question from Christopher Horvers (JPMorgan Chase & Co): Merchandise margin has been strong; what's driving that and can it continue through fiscal '26?
  Response: Management: Merchandise margin gains come from vendor negotiations, category innovation, mix shift to Duralast and assortment improvements, and these actions can help mute commercial mix pressure going forward.

• Question from Brian Nagel (Oppenheimer & Co.): On tariffs and trade policy, how should we think about tariff impacts on Q4 results — were tariffs a driver of sales or margins?
  Response: Management: Tariffs contributed to same‑SKU inflation and ticket growth, pushing retail prices higher despite mitigation efforts, thus impacting sales and margins.

• Question from Brian Nagel (Oppenheimer & Co.): On the cadence of sales strengthening through the quarter, how much is driven by tariffs, weather, or better underlying demand?
  Response: Management: The Q4 acceleration reflected a mix of warmer weather, improved assortments and in‑stocks, hubs/Mega‑Hubs and execution improvements, plus some inflational ticket impact — all contributed to stronger trends.

• Question from David Bellinger (Mizuho Securities): With pricing on top of prior inflation, are you concerned about another deferral cycle in 2026 and will you be more mindful of price increases?
  Response: Management: They are monitoring demand closely but are not currently concerned about a major deferral cycle unless inflation spikes materially; core maintenance/failure purchases are less deferrable.

• Question from David Bellinger (Mizuho Securities): Should we expect the Mega‑Hub model to roll out to Mexico to replenish stores more frequently and better serve commercial customers?
  Response: Management: They plan to strengthen assortments in Mexico and see a need to deploy hubs/Mega‑Hubs there to better serve commercial customers as the market opportunity grows.

• Question from Steven Forbes (Guggenheim Securities): On the path to 500 stores by 2028, can you break down the ~200 international stores by country and how does year‑1 expense differ between U.S. and international stores?
  Response: Management: International additions will skew heavily to Mexico vs Brazil given scale and opportunity; relative cost profiles are similar to U.S. with stores taking ~4–5 years to mature and an early‑year SG&A drag.

• Question from Steven Forbes (Guggenheim Securities): On marrying expense growth to sales growth for 2026 given mid‑single‑digit SG&A per‑store growth, how should we think about the required sales performance?
  Response: Management: SG&A acceleration is driven by new stores and the company expects top‑line growth from those stores to justify the spend; if sales underperform, they will pull expenses to maintain profitability.

Contradiction Point 1

Tariff Impact and Pricing Strategy

It involves the company's approach to managing tariff costs and its impact on pricing strategy, which directly affects operating margins and competitive positioning.

Did noted inflation of at least 3% in Q1 reflect supply chain cost reductions enabling pricing strategies for market share gains, or are tariff benefits for the same SKUs driving expectations exceeding 3%? - Bret Jordan (Jefferies LLC)

2025Q4: I think, Bret, we suspect it will probably, we said kind of at least 3%, probably goes up from here. I mean at the end of the day, we've talked for years about this industry being pretty disciplined and rational in pricing. And we're going to use the pricing lever as we need to, to cover the cost of goods and make sure we stay competitive in the marketplace. - Philip Daniele(CEO)

Is inflation delayed due to paused Chinese shipments, or is the supply chain absorbing the cost? - Christopher Horvers (JPMorgan)

2025Q3: The reason we haven't seen a lot of tariff cost in our side of the business is because most of our inventory turns relatively slow. The product hasn't shown up here in the country, and the tariffs have changed significantly in the last 90 days. There will be an impact to tariffs on the cost of goods, but we think there are lots of ways to mitigate that cost and maintain our margin structure over time. - Jamere Jackson(CFO)

Contradiction Point 2

DIY and Commercial Sales Growth

It highlights the company's expectations for sales growth in the DIY and commercial segments, which are critical for overall revenue and market positioning.

How did sales progress during Q4, accounting for the July 4th holiday impact, and was the accelerated DIY and commercial sales growth due to tariffs? - Brian Nagel (Oppenheimer & Co. Inc.)

2025Q4: Great to see you brought up a couple of great points. One is, if you think year-over-year, whether the early part of summer was very, very wet and slightly mild relative to the previous year. - Philip Daniele(CEO)

What is the comp lift attributable to: initiatives, market share gains, or underlying market demand? - Simeon Gutman (Morgan Stanley)

2025Q3: We're seeing share gains across the board, all across the country in both DIY and commercial. The vast majority of our growth comes from our initiatives, improved execution, driving hubs and mega hubs, refining assortments, and gaining share in both DIY and commercial. - Phil Daniele(CEO)

Contradiction Point 3

Inflation and Pricing Strategy

It involves the company's stance on inflation and its pricing strategy, which directly affects the company's financial health and consumer behavior.

Are the 3% inflation costs in Q1 due to supply chain efficiencies reducing costs and pricing to gain market share, or do you expect growth above 3% from same-SKU tariff tailwinds? - Bret Jordan(Jefferies LLC)

2025Q4: I think, Bret, we suspect it will probably, we said kind of at least 3%, probably goes up from here. - Philip Daniele(CEO)

Can you update your operating margin guidance for Q2 and the full year? - Joe Altobelli(Morgan Stanley)

2025Q1: We expect to see some additional cost inflation as we move through the year with the full impact of tariffs. - Jamere Jackson(CFO)

Contradiction Point 4

SG&A Expense Growth

It concerns the company's strategy regarding SG&A expense growth, which impacts operational efficiency and profitability.

Will LIFO charges peak and decline after Q1's $120M? Should we annualize Q1's $120M to $520M for the full year? Will margins fully recover after the charges decline? - Michael Lasser(UBS Investment Bank)

2025Q4: I wouldn't characterize it as an arms race. What I'll say very specifically is that we're investing heavily, primarily in new stores this year. - Jamere Jackson(CFO)

Can you explain the impact of SG&A costs offsetting the operating leverage from a 200 basis point gross margin improvement on operating margins? - Ed Yruma(KeyBanc Capital Markets)

2025Q1: We should note that operating expenses are expected to be about $2 billion, and that's not really adjusted for any potential unnamed acquisition or anything like that. - Jamere Jackson(CFO)