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For the first time in over five years, AutoZone (AZO) missed quarterly EPS expectations as the company's domestic DIY business continues to experience some weakness in the discretionary merchandise categories. The company's downside Q4 results, which also include a modest top-line miss, complete a set of recent disappointing earnings reports from the auto parts retailer space, further confirming that many consumers are only spending on the highest priority vehicle repair and maintenance jobs. Recall that on August 22, Advance Auto (AAP) missed Q2 EPS and revenue estimates, while also slashing its FY24 guidance, which was preceded by a Q2 top and bottom-line miss from O'Reilly Auto (ORLY) on July 24.

• Echoing a similar message as ORLY CEO Brad Beckham, who commented during the Q2 earnings call that the discretionary appearance and accessory categories were soft, AZO noted that its business continues to be impacted by weakness in discretionary merchandise and deferrals of non-critical repairs. This is reflected in AZO's total company same store sales sliding to growth of just +0.7%, down from last quarter's growth of +1.9%.
• Along with the declining comp growth, operating expenses as a percentage of sales ticked higher to 31.6% from 31.2%, primarily due to higher store payroll as a percentage of sales compared to a year ago, while gross margin dipped by 21 bps yr/yr to 52.5%. Taken together, these items caused AZO's long winning streak against analysts' EPS estimates to come to an end.
• While demand on the DIY side remains sluggish, the domestic commercial business stood out once again, posting strong comps of +10.9%. AZO's commercial initiatives, such as offering a wider assortment of parts and improving parts delivery times, are paying dividends. The company is also expanding its commercial program, which is now available in over 90% of its domestic stores.
• AZO's international business was another bright spot. Despite lapping a remarkable comp of +31.2% in the year-earlier period, international comps still came in at +4.9% in 4Q24. A key pillar of the company's growth strategy is to grow its footprint in Mexico and Brazil. During Q4, AZO opened 31 new stores in Mexico and 18 new stores in Brazil.

A bumpy earnings report was anticipated, as reflected by the stock's 4.5% drop since the end of August, so the downside results from AZO didn't come as a major surprise. The good news for AZO and its competitors is that this deferral headwind will eventually reverse course into a tailwind as consumers can no longer delay certain maintenance and repair jobs. From a company-specific standpoint, AZO also believes that it's gaining market share in both the retail and commercial businesses, which also bodes well for the company once spending trends improve.