AutoZone Shares Skid After Q1 Profit Misses Wall Street Targets
The auto parts retailer's operating profit fell nearly 7% as inventory accounting charges overshadowed solid sales growth, raising concerns about profitability.
AutoZone Inc. (NYSE: AZO) shares declined in Tuesday morning trading after the nation's largest auto parts retailer reported first-quarter earnings that fell short of Wall Street expectations, revealing a significant drop in profitability despite a rise in sales.
The Memphis-based company posted earnings of $31.04 per share on revenue of $4.63 billion for the quarter ending November 22, 2025. These figures missed analyst consensus estimates, which had pegged earnings closer to $32.40 per share on revenue of $4.64 billion. The stock fell more than 1.5% to $3,766 in early trading following the announcement.
The core of investor concern stemmed from the company's deteriorating margins. While AutoZone delivered a respectable 4.7% increase in domestic same-store sales, its operating profit fell 6.8% year-over-year to $784.2 million. Gross margin compressed significantly, falling by 203 basis points to 51.0%.
In its official earnings release, the company attributed the majority of the margin pressure to a 212 basis point non-cash LIFO (last-in, first-out) inventory accounting charge. This suggests that higher-cost recent inventory is being recognized, weighing on profitability even as customer demand remains robust.
The results highlight a growing tension for retailers navigating an inflationary environment. AutoZone's performance reflects a healthy consumer appetite for vehicle maintenance and repair, a trend supported by the increasing average age of cars on U.S. roads. However, the company's inability to translate that top-line growth into bottom-line profit spooked investors.
Phil Daniele, AutoZone's President and Chief Executive Officer, focused on the company's sales momentum and strategic expansion. "We were pleased to deliver another quarter of strong sales performance, on top of last year's solid growth," Daniele stated. He highlighted the company's progress on growth initiatives and its aggressive expansion, which included opening 53 net new stores globally during the quarter.
The auto parts sector has been a point of interest for investors, benefiting from a durable consumer need. The average age of light vehicles in the U.S. has climbed to over 12.5 years, creating a consistent tailwind for aftermarket parts suppliers. This backdrop makes AutoZone's profitability slip more pronounced, suggesting company-specific cost pressures are a significant factor.
During the quarter, AutoZone continued its capital return program, repurchasing 108,000 shares of its common stock for $431.1 million. The company's inventory levels increased by 13.9% over the same period last year, a move it attributed to its growth plans and the impact of product inflation.
As of Tuesday morning, AutoZone shares were trading well below their 52-week high of $4,388. Investors will be closely watching whether the company can better manage its operating expenses and mitigate margin pressures in the coming quarters, or if the trend of sales growth failing to drive profit becomes a persistent challenge.