AutoZone Shares Dip After Q1 Earnings Fall Short of Estimates
The auto parts retailer's profitability was impacted by inventory accounting charges, though solid sales growth in its commercial business offered a silver lining.
Shares of AutoZone Inc. (NYSE: AZO) declined Tuesday after the leading auto parts retailer reported first-quarter earnings and revenue that failed to meet Wall Street expectations, raising questions about margin pressures even as sales remain robust.
The stock fell approximately 1.5% to $3,766.96 in morning trading. The Memphis-based company posted diluted earnings per share of $31.04, missing the analyst consensus forecast of around $32.35. Quarterly revenue came in at $4.63 billion, a slight miss of the anticipated $4.64 billion but still representing an 8.2% increase from the same period last year.
Despite the headline miss, AutoZone delivered solid underlying growth in its core business. The company reported a domestic same-store sales increase of 4.8% for the quarter. This growth highlights resilient consumer demand for vehicle maintenance and repair parts, a sector supported by the increasing age of cars on U.S. roads.
A key factor pressuring profitability was a significant non-cash LIFO (Last-In, First-Out) accounting charge, which impacted the company's gross margin. According to its earnings report, AutoZone's gross margin fell by over 200 basis points, largely due to this charge. Operating profit for the quarter declined 6.8% to $784.2 million, reflecting these cost pressures.
The company's performance continues to be bolstered by its commercial segment, which serves professional repair shops and has been a primary driver of growth. While the do-it-yourself (DIY) business for home mechanics remains stable, the "do-it-for-me" (DIFM) market represents a significant area of focus and expansion for AutoZone and its competitors.
“The commercial side of the business has been the real growth story for AutoZone,” noted one pre-earnings analysis from Seeking Alpha, a sentiment that the quarter's results appear to validate.
Management signaled confidence in its long-term strategy through continued capital return to shareholders and store expansion. During the quarter, AutoZone repurchased 108,000 shares for $431.1 million. The company also expanded its footprint by opening 53 net new stores, bringing its total location count to 7,710.
The results land amid a favorable backdrop for the auto parts industry. The global market is projected to see sustained growth, driven by an aging vehicle fleet in the U.S. and other developed markets, which necessitates more frequent repairs and parts replacement. However, companies like AutoZone must navigate inventory costs and inflationary pressures that can squeeze margins.
Investors will be closely watching whether the margin headwinds are temporary or indicative of a more persistent challenge, weighing it against the company's consistent ability to grow sales and expand its market share in the professional automotive repair industry.