AutoZone Shares Skid After Q1 Earnings Miss Estimates
The auto parts retailer's profits were squeezed by persistent cost pressures and tariffs, overshadowing solid same-store sales growth.
Shares of AutoZone (NYSE: AZO) fell more than 4% in Tuesday trading after the leading auto parts retailer reported first-quarter earnings that failed to meet Wall Street expectations. The company cited escalating costs, partly driven by tariffs, as a key factor that eroded profitability despite a rise in sales.
The Memphis-based retailer announced a net income of $584.6 million for the quarter ending in early December 2025, translating to a diluted earnings per share of $31.04. This figure fell short of the analyst consensus of approximately $32.20 per share. According to its official earnings release, quarterly net sales rose to $4.63 billion, a slight miss against forecasts of around $4.64 billion.
In morning trading, AutoZone's stock dropped by $155.29, or 4.12%, to $3,611.67. The negative investor reaction reflects concerns over the company's shrinking margins in an inflationary environment. The company's gross profit margin declined during the quarter, a metric closely watched by investors as a measure of profitability.
Despite the profit miss, AutoZone delivered robust top-line growth. Domestic same-store sales, a critical indicator of a retailer's health, increased by a healthy 4.8%. Total company same-store sales grew by 4.7%, suggesting sustained demand from both do-it-yourself (DIY) and commercial customers. Bill Rhodes, AutoZone's Chairman, President, and CEO, highlighted the company's strong performance in both its domestic and international businesses.
However, the solid sales performance was not enough to offset the impact of higher costs. The company has been navigating a challenging landscape marked by supply chain disruptions and broad inflationary pressures, which have increased the cost of goods. As reported by The Wall Street Journal, these headwinds have continued to weigh on the company's bottom line.
AutoZone's strategy has been focused on expansion to gain a larger foothold in the competitive auto parts market. The company continued to open new stores during the quarter, growing its total count as it pushes to serve a wider customer base. This expansion, while crucial for long-term growth, also contributes to higher operating expenses in the short term.
The automotive aftermarket sector has generally been resilient, benefiting from an aging vehicle fleet in the United States, which compels consumers to spend more on maintenance and repairs. However, retailers like AutoZone are not immune to macroeconomic pressures that can affect consumer spending and operational costs.
Looking ahead, investors will be closely watching whether AutoZone can implement pricing strategies or find operational efficiencies to mitigate the margin compression. The company did continue its share repurchase program, buying back $545 million of its common stock during the quarter, signaling management's confidence in its long-term value. AutoZone still has a significant amount remaining in its share repurchase authorization.
Despite the current headwinds, Wall Street analysts maintain a generally positive outlook on the stock, with a consensus 12-month price target of $4,575.83, suggesting potential upside from its current levels. However, the path to achieving that valuation will depend on the company's ability to navigate the persistent cost challenges that defined its first-quarter results.