Autozone Inc (AZO)

AutoZone operates as a leading retailer and distributor of automotive replacement parts and accessories in the Americas, a market characterized as highly competitive and highly fragmented. The sale of automotive parts, accessories and maintenance items is highly competitive, with competition based on customer service including the knowledge and expertise of AutoZoners and the ability to provide prompt delivery to commercial customers, merchandise quality, selection and availability, product warranty, store layouts, location and convenience, price, and the strength of the AutoZone brand name and quality, trademarks and service marks. The two statistics management believes have the closest correlation to market growth over the long term are miles driven and the number of seven-year-old or older vehicles on the road. For the twelve-month period ended July 2026, miles driven in the U.S. increased 0.8% ¹ compared to the same period in the prior year based on the latest information available from the U.S. Department of Transportation. According to the latest data provided by S&P Global Mobility, the average age of light vehicles on the road increased slightly to 12.9 years ² and these vehicles account for approximately 44% ³ of U.S. vehicles. According to the U.S. Department of Transportation – Federal Highway Administration, vehicles are driven an average of approximately 10,800 miles ⁴ each year, which in seven years equates to approximately 75,500 miles ⁵, at which point most vehicles are not covered by warranties and increased maintenance and repairs are needed.

AutoZone competes against national, regional and local auto parts chains, independently owned parts stores, online automotive parts stores or marketplaces, wholesale distributors, jobbers, repair shops, car washes and auto dealers, in addition to discount and mass merchandise stores, hardware stores, supermarkets, drugstores, convenience stores, home stores and other retailers that sell aftermarket vehicle parts and supplies, chemicals, accessories and tools. In the commercial market, AutoZone is a leading distributor of automotive parts and other products to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts in the Americas, operating in a highly fragmented market. The company believes it competes effectively in the commercial market on the basis of customer service, merchandise quality, assortment and availability, price, delivery times, product warranty, distribution locations and the strength of its AutoZone brand, trademarks and service marks. A key differentiating component versus competitors is the exclusive line of in-house brands, which includes Duralast and the family of Duralast brands, Econocraft, ProElite, ShopPro, SureBilt, TotalPro, TruGrade and Valucraft. The company believes its overall value compares favorably to that of its competitors and that its cost structure is higher than some competitors because its business strategy is based on offering superior levels of customer service to complement the products offered, which puts pressure on margins.

AutoZone generates revenue through the retail sale of automotive replacement parts and accessories, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products, and does not derive revenue from automotive repair or installation services. At August 29, 2026, the company operated 6,863 stores in the United States, 1,001 stores in Mexico and 167 stores in Brazil, for a total of 8,031 stores ⁶. Each store carries an extensive product line for cars, sport utility vehicles, vans and light duty trucks. In 6,443 of the domestic stores ⁷ as well as the vast majority of stores in Mexico and Brazil, the company operates a commercial sales program that provides prompt delivery of parts and other products and commercial credit to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts. The company also sells through www.autozone.com, with commercial customers purchasing through www.autozonepro.com, and sells the ALLDATA brand of automotive diagnostic, repair, collision and shop management software through www.alldata.com. During fiscal 2026, failure and maintenance related categories represented the largest portion of the sales mix, at approximately 85% of total sales ⁸, and the company has not experienced any fundamental shifts in its category sales mix as compared to previous years. Domestic commercial sales increased 10.6% ⁹, representing 33.1% of total Domestic sales ¹⁰.

The product assortment spans three major categories. Failure items include A/C compressors, batteries and accessories, bearings, belts and hoses, calipers, chassis, clutches, CV axles, engines, fuel pumps, fuses, ignition, lighting, mufflers, radiators, starters and alternators, thermostats, tire repair and water pumps. Maintenance items include antifreeze and windshield washer fluid, brake drums, rotors, shoes and pads, chemicals including brake and power steering fluid, oil and fuel additives, oil and transmission fluid, oil, cabin, air, fuel and transmission filters, oxygen sensors, paint and accessories, refrigerant and accessories, shock absorbers and struts, spark plugs and wires, and windshield wipers. Accessories include air fresheners, cell phone accessories, drinks and snacks, floor mats and seat covers, interior and exterior accessories, mirrors, performance products, protectants and cleaners, sealants and adhesives, steering wheel covers, tools, towing, vehicle entertainment systems, and wash and wax. Most stores carry approximately 20,000 to 25,000 unique SKUs ¹¹ with 40% to 50% of the space dedicated to hard parts inventory ¹². Hub stores carry approximately 40,000 to 50,000 unique SKUs ¹³, and mega hub stores carry approximately 80,000 to 110,000 unique SKUs ¹⁴ with 70% to 85% of their space utilized for hard parts ¹⁵. Approximately 90% to 99% of each store's square footage is used as selling space ¹⁶.

During fiscal 2026, AutoZone opened 374 new stores ¹⁷, closed none, recorded 374 net new stores ¹⁸, and relocated 10 stores ¹⁹, ending the year with 8,031 stores ²⁰ compared to 7,657 at the beginning of the year ²¹. The company ended fiscal 2026 with 172 mega hub stores ²², an increase of 39 since the end of fiscal 2025 ²³, and has 11 mega hub stores in Mexico ²⁴. Stores are replenished primarily by the nearest distribution center but also typically have same-day access to one of 417 domestic ²⁵ and 74 international hub stores' ²⁶ expanded inventory assortment. The company operates 13 distribution centers located throughout the U.S., two in Mexico, and one in Brazil ²⁷, with approximately 9.2 million square feet in distribution centers servicing stores, of which approximately 1.6 million square feet is leased ²⁸. The company directly imported approximately 12% of its purchases in fiscal 2026 ²⁹. In fiscal 2026, one class of similar products accounted for approximately 14 percent of total revenues ³⁰, and one individual vendor provided 14 percent of total purchases ³¹. The company employed approximately 132,000 AutoZoners as of August 29, 2026 ³², approximately 60 percent of whom were employed full-time ³³ and the remaining 40 percent part-time ³⁴, with approximately 91 percent employed in stores or in direct field supervision ³⁵, approximately six percent in distribution centers ³⁶ and approximately three percent in store support and other functions ³⁷, including approximately 21,000 AutoZoners employed in international operations ³⁸.

For fiscal 2026, net sales increased to $20.3 billion ³⁹, a 7.4% increase ⁴⁰ over the prior year. Operating profit increased 3.1% to $3.7 billion ⁴¹, net income increased 3.0% to $2.6 billion ⁴² and diluted earnings per share increased 5.3% to $152.55 ⁴³ for the year. Fiscal 2026 comparisons were positively impacted by foreign currency exchange rates which had a favorable impact to net sales of $254.4 million ⁴⁴ and operating profit of $73.9 million ⁴⁵, and IEEPA tariff refunds which had a positive impact on operating profit of $96.0 million ⁴⁶. Operating profit comparison was also negatively impacted by an unfavorable net non-cash LIFO impact of $128.0 million ⁴⁷. During fiscal 2026, the company received $127.6 million in IEEPA refunds ⁴⁸ representing substantially all of the refunds filed, recorded upon receipt as a $96.0 million reduction to Cost of Sales ⁴⁹ for refunds related to products previously sold and a $31.6 million reduction to inventory ⁵⁰ for the portion related to unsold inventory. The company has increased annual revenues in the past five fiscal years from $14.6 billion in fiscal 2021 to $20.3 billion in fiscal 2026 ⁵¹, with a compounded annual growth rate of approximately seven percent ⁵², and has grown store count from 6,767 stores at August 28, 2021 to 8,031 stores at August 29, 2026 ⁵³, a compounded annual growth rate of approximately three percent ⁵⁴.

Management's growth strategy centers on store expansion, with the company believing expansion opportunities exist in markets it does not currently serve as well as in markets where it can achieve a larger presence. The most important criteria for opening a new store are the projected future profitability and the ability to achieve the required investment hurdle rate. Key factors in selecting new site and market locations include population, demographics, vehicle profile, customer buying trends, commercial businesses, number and strength of competitors' stores and the cost of real estate. In reviewing the vehicle profile, the company considers the number of vehicles that are seven years old and older, or 'our kind of vehicles,' which are generally no longer under the original manufacturers' warranties and require more maintenance and repair than newer vehicles. The company seeks to open new stores in high visibility sites in high traffic locations within or contiguous to existing market areas and attempts to cluster development in markets in a relatively short period of time, and in addition to continuing to lease or develop its own locations, evaluates and may make strategic acquisitions.

The commercial sales program represents a significant growth vector, operating in a highly fragmented market where the company is a leading distributor of automotive parts and other products to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts in the Americas. Through hub and mega hub stores, the company offers a larger assortment than satellite stores of parts and products desired by professional technicians, and it has dedicated sales teams focused on independent repair shops, national and regional accounts, fleet accounts and other commercial accounts. The company leverages a dedicated sales force and its ProVantage loyalty program to drive commercial sales. Domestic commercial sales increased 10.6% in fiscal 2026, representing 33.1% of total Domestic sales . The company must effectively compete against national, regional and local auto parts chains, independently owned parts stores, wholesalers, jobbers, repair shops, auto dealers, online retailers and others in order to increase commercial market share, and some automotive aftermarket participants have been in business for substantially longer periods of time and have developed long-term customer relationships, an experienced sales organization, considerable market presence and large available inventories.

International expansion represents another growth vector, with the company operating 1,001 stores in Mexico and 167 stores in Brazil at August 29, 2026 ⁵⁵. The company's success in international operations is dependent on its ability to manage the unique challenges presented by international markets, including adapting merchandising and marketing strategies to account for different vehicles in operation in local markets and different consumer behaviors with respect to aftermarket automotive repair. International comparable store net sales increased 13.5% ⁵⁶ in fiscal 2026, and increased 2.2% on a constant currency basis ⁵⁷. The company has 11 mega hub stores in Mexico and operates two distribution centers in Mexico and one in Brazil . Risks inherent in international operations include potential adverse tax consequences, changes to tariffs, trade policies and trade agreements, compliance with the Foreign Corrupt Practices Act and local anti-bribery and anti-corruption laws, greater difficulty in obtaining and enforcing intellectual property rights, challenges to identify and gain access to local suppliers, and possibly misjudging the response of consumers in foreign countries to product assortment and marketing strategy.

The company has made, and plans to continue to make, significant investments in its supply chain, such as the construction of multiple new distribution centers and the execution of various technology initiatives. These investments seek to improve product availability and assortment, fulfill evolving consumer product demands and keep up with long-term store expansion goals. The company's information technology systems, infrastructure and personnel require ongoing substantial investments, such as replacing existing systems, some of which are older, legacy systems that are less flexible and efficient, with successor systems; making changes to existing systems, including the migration of applications to the cloud; maintaining or enhancing legacy systems that are not currently being replaced; or designing or cost-effectively acquiring and implementing new systems with new functionality, including AI. If the company fails to effectively implement future investments, or if its investments in supply chain initiatives do not provide the anticipated benefits, it could experience sub-optimal inventory levels in stores or be required to make further investments, which could adversely affect sales volume and/or margins.

The company's capital allocation strategy includes significant share repurchases. During 1998, the company announced a program permitting it to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the Board of Directors. The Board voted to increase the repurchase authorization by $1.5 billion on June 16, 2026 ⁵⁸, bringing the total value of authorized share repurchases to $42.2 billion ⁵⁹. During the quarter ended August 29, 2026, the company repurchased 223,193 shares ⁶⁰ at an average price paid per share of $3,124.94 ⁶¹, leaving $1,606,697,599 ⁶² available under the plans or programs. The company currently does not pay a dividend on its common stock ⁶³, and any future payment of dividends would be dependent upon financial condition, capital requirements, earnings and cash flow.

Management has identified several headwinds and constraints. The current global economic and geopolitical landscape has increased uncertainty about key areas of doing business internationally. The U.S. has recently enacted and proposed to enact significant new tariffs, and in February 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act. In response, the U.S. President issued an executive order imposing tariffs pursuant to Section 122 of the Trade Act of 1974 for 150 days ⁶⁴, effective on February 24, 2026, and the outlook on further trade policy actions is unclear. The company directly or indirectly imports merchandise from various countries, and newly proposed tariffs and any additional tariffs on products sourced from these or other countries could materially increase costs. The company directly imported approximately 12% of its purchases in fiscal 2026 , but many domestic vendors directly import their products or components.

Demand for products may be affected by factors outside the company's control, including the number of older vehicles in service, the number of miles vehicles are driven, rising fuel and energy prices, the economy, weather, technological advances, prevalence of electric vehicles, the quality of vehicles manufactured by original vehicle manufacturers and the length of warranties or maintenance offered on new vehicles, and restrictions on access to telematics and diagnostic tools and repair information imposed by original vehicle manufacturers or by governmental regulation. In periods of declining economic conditions, including as a result of inflation, high levels of consumer debt, and/or high interest rates, consumers may reduce discretionary spending by deferring vehicle maintenance or repair. During periods of expansionary economic conditions, more DIY customers may pay others to repair and maintain their vehicles instead of working on their own vehicles, or they may purchase new vehicles.

The company faces execution risks in achieving its store development and expansion goals, domestically and in international markets, which will depend upon the ability to identify and obtain suitable sites for new and expanded stores in a timely manner and at acceptable costs, the hiring and training of qualified personnel, effective utilization of the supply chain and hub network, and the integration of new stores into existing operations, among other factors. The company opens new stores only after evaluating customer buying trends and market demand/needs, all of which could be adversely affected by persistent unemployment, wage cuts, small business failures and microeconomic conditions unique to the automotive industry. There can be no assurance the company will be able to achieve its store expansion goals, manage growth investments effectively, successfully integrate planned new stores into operations or operate new, remodeled and expanded stores profitably.

Management's message to shareholders emphasizes the company's position as a leading retailer and distributor of automotive replacement parts and accessories in the Americas, with fiscal 2026 net sales increasing to $20.3 billion , a 7.4% increase over the prior year, operating profit increasing 3.1% to $3.7 billion , net income increasing 3.0% to $2.6 billion and diluted earnings per share increasing 5.3% to $152.55 . Management highlights that fiscal 2026 comparisons were positively impacted by foreign currency exchange rates which had a favorable impact to net sales of $254.4 million and operating profit of $73.9 million , and IEEPA tariff refunds which had a positive impact on operating profit of $96.0 million , while operating profit comparison was negatively impacted by an unfavorable net non-cash LIFO impact of $128.0 million . The company's strategic priorities center on three pillars: first, growing the commercial sales business, which increased 10.6% and represents 33.1% of total Domestic sales ; second, expanding the store footprint, with 374 new stores opened in fiscal 2026 and 172 mega hub stores at year end, an increase of 39 since the end of fiscal 2025 ; and third, investing in supply chain and technology infrastructure to improve product availability and assortment, fulfill evolving consumer product demands and keep up with long-term store expansion goals. Management notes that during fiscal 2026, failure and maintenance related categories represented the largest portion of the sales mix, at approximately 85% of total sales , and that the company has not experienced any fundamental shifts in its category sales mix as compared to previous years. The company employed approximately 132,000 AutoZoners as of August 29, 2026 , and management emphasizes that the foundation of the company's success is its culture, deeply rooted in its Pledge and Values.

For fiscal 2026, net sales were $20,338,555 thousand ⁶⁵, compared to $18,938,717 thousand ⁶⁶ in fiscal 2025. Cost of sales, including warehouse and delivery expenses, was $9,693,581 thousand ⁶⁷, compared to $8,972,243 thousand ⁶⁸ in the prior year. Gross profit was $10,644,974 thousand ⁶⁹, compared to $9,966,474 thousand ⁷⁰. Operating, selling, general and administrative expenses were $6,921,660 thousand ⁷¹, compared to $6,356,318 thousand ⁷². Operating profit was $3,723,314 thousand ⁷³, compared to $3,610,156 thousand ⁷⁴. Interest expense, net was $472,614 thousand ⁷⁵, compared to $475,824 thousand ⁷⁶. Income before income taxes was $3,250,700 thousand ⁷⁷, compared to $3,134,332 thousand ⁷⁸. Income tax expense was $677,923 thousand ⁷⁹, compared to $636,085 thousand ⁸⁰. Net income was $2,572,777 thousand ⁸¹, compared to $2,498,247 thousand ⁸². Diluted earnings per share was $152.55 ⁸³, compared to $144.87 ⁸⁴. Weighted average shares for diluted earnings per share were 16,865 thousand ⁸⁵, compared to 17,245 thousand ⁸⁶. Domestic comparable store net sales increased 3.3% ⁸⁷, international comparable store net sales increased 13.5% , international comparable store net sales on a constant currency basis increased 2.2% , total company comparable store net sales increased 4.5% ⁸⁸, and total company comparable store net sales on a constant currency basis increased 3.2% ⁸⁹. Current assets were $9,106,134 thousand ⁹⁰, compared to $8,341,379 thousand ⁹¹. Operating lease right-of-use assets were $3,470,379 thousand ⁹², compared to $3,194,666 thousand ⁹³. Working capital deficit was $(1,000,396) thousand ⁹⁴, compared to $(1,178,018) thousand ⁹⁵. Total assets were $21,630,510 thousand ⁹⁶.

The most material risks to AutoZone's business center on demand sensitivity, competitive pressure, supply chain and tariff exposure, and labor costs. Demand for products may be affected by factors outside the company's control, including the number of older vehicles in service, miles driven, rising fuel and energy prices, the economy, weather, technological advances, prevalence of electric vehicles, and restrictions on access to telematics and diagnostic tools. In periods of declining economic conditions, including as a result of inflation, high levels of consumer debt, and/or high interest rates, consumers may reduce discretionary spending by deferring vehicle maintenance or repair. The sale of automotive parts, accessories and maintenance items is highly competitive, and because the company's business strategy is based on offering superior levels of customer service to complement the products offered, its cost structure is higher than some competitors, which puts pressure on margins. The company directly imported approximately 12% of its purchases in fiscal 2026 , but many domestic vendors directly import their products or components, and newly proposed tariffs and any additional tariffs on products sourced from these or other countries could materially increase costs. In February 2026, the U.S. Supreme Court invalidated tariffs imposed under IEEPA, and in response the U.S. President issued an executive order imposing tariffs pursuant to Section 122 of the Trade Act of 1974 for 150 days , effective on February 24, 2026, with the outlook on further trade policy actions unclear. The company's workforce costs represent its largest operating expense, and it competes with other retail businesses for many AutoZoners in hourly positions, which have historically had high turnover rates, leading to increased training and retention costs, particularly in a competitive labor market with significant inflationary and other pressures on wages. The company is self-insured up to certain limits for workers' compensation, employee group medical, general and product liability, property and vehicle claims, and material increases in the number of insurance claims, changes to healthcare costs, accident frequency and severity, legal expenses and other factors could result in an unfavorable difference between actual self-insurance costs and reserve estimates.