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AutoZone (AZO) is heading lower after reporting its Q1 (Nov) results this morning. The company missed EPS expectations, which declined 4.6% to $31.04 and now marks six consecutive quarters of falling short of estimates. Revenue increased 8.2% yr/yr to $4.63 bln, which was just in line with expectations.

• The EPS miss was largely driven by another non-cash LIFO charge of $98 mln tied to higher costs and tariffs. This pressured gross margin, which declined 203 bps to 51%, of which 212 bps came from the LIFO charge, partially offset by underlying merchandise margin improvements.
• Company-wide comp sales increased +4.7% in CC (+5.1% in Q4), with domestic comps +4.8% (+4.8% in Q4) and international comps +3.7% in CC (+7.2% in Q4).
• In the U.S., commercial sales continue to accelerate, increasing 14.5% yr/yr and building on the momentum seen since Q2 FY25. Domestic DIY comps slowed to +1.5% from +2.2% in Q4, which management primarily attributed to less favorable weather.
• Internationally, while management noted it continues to gain share, the slowdown in comps was tied to softer economic growth, particularly in Mexico, though it remains committed to accelerating store openings and sees international as a meaningful long-term growth driver.
• Growth remains underpinned by an accelerated store opening pace and ongoing investments in hubs and mega hubs, which are growing faster than the balance of the chain and enhancing parts availability and delivery speed.
• Additionally, management still sees tailwinds for the remainder of FY26 from its growth initiatives and favorable macro car-park dynamics (an aging vehicle fleet and a tougher new/used car market).

Briefing.com Analyst Insight

AZO's Q1 tells a familiar two-sided story. It delivered solid top-line growth and healthy comps which, while a bit lower than last quarter, were still respectable. On the other side, another EPS miss, driven by a sizable $98 mln LIFO charge and higher growth-related expenses, extends a now-lengthy streak of falling short of estimates and keeps a cloud over margin visibility, even if LIFO remains more of an accounting and cost-timing headwind than a structural issue. At the same time, underlying trends are still encouraging, with accelerating commercial growth, positive DIY and international comps, and several tailwinds, including supportive car-park dynamics, new hubs and mega hubs, and international expansion, that could all serve as meaningful growth levers once LIFO pressures and elevated spending ease.