To The Moon

$AutoZone(AZO)$ $O'Reilly(ORLY)$ $Advance Auto Parts(AAP)$ 24Sep25 NZT 🇳🇿

I’m anchoring on two facts from Q4 FY25. Sales execution stayed solid with total constant currency SSS up 5.1% and domestic SSS up 4.8%. Profitability deteriorated after an unexpected $80M LIFO charge that cut gross margin by 98 bps and trimmed GAAP EPS by 5.6% to $48.71. On a like-for-like 16-week basis, net sales rose 6.9% while operating margin fell 150 bps. International comps grew 7.2% in constant currency, although reported growth was dragged by FX. The long game remains expansion; 304 net new stores in FY25, with management accelerating openings again in FY26.

📈 Quick Read on Q4 Momentum

Domestic Commercial accelerated to +12.5% comps on a 16-week basis. DIY grew +2.2%; ticket rose 3.9% and traffic slipped 1.9%. Sequential momentum improved in both DIY and Commercial. Inflation ran ~2.7–2.8% in Q4 comps, and management now expects at least 3% ticket inflation into year-end given tariffs.

💰 Profitability Lens

The $80M non-cash LIFO charge accounted for 128 bps of the gross margin decline. Ex-LIFO, adjusted merchandise margin improved and adjusted EPS would have grown +8.7%. Inventory rose 14.1% YoY, well above sales growth. SG&A deleveraged 80 bps as the company invests in Hubs, Mega-Hubs, distribution, and international scale.

📉 Capital Allocation & Buybacks

One of AutoZone’s defining strengths remains its disciplined capital allocation. Over the past two decades, the company has reduced its diluted weighted average shares outstanding by an extraordinary 78%. This long-term buyback program has amplified EPS growth and shareholder returns, even during periods when margins came under pressure.

The bar chart below highlights the structural decline in shares outstanding, while the second chart underscores how this shrinking share base has coincided with sustained price appreciation. Together, they reinforce the company’s shareholder-first strategy and help explain why AZO’s stock performance has significantly outpaced fundamentals at times.

📰 Market Snapshot

AutoZone’s Q4 earnings drew immediate market reaction. Same-store sales rose 4.5% to beat consensus, while EPS of $48.71 missed the $50.72 estimate. Gross margin fell 98 bps due largely to an $80M LIFO charge, and inventory increased 14.1% year over year. The company opened 141 net new stores in Q4 and 304 for the year, with management reiterating plans to “aggressively” expand its footprint. Shares fell 3.2% in early trade following the release.

🔮 Forward Guideposts for FY26

• Q1 FY26: LIFO ~$120M, Q2–Q4 FY26: ~$80M–$85M per quarter

• CapEx: ~$1.5B tilted to Hubs and Mega-Hubs

• New stores: 325–350 in FY26, on track for ~500 per year by 2028

• FX: Reverses to a tailwind, +$32M revenue, +$0.38 EPS benefit in Q1

• Interest Expense: ~$112M in Q1, Tax Rate: ~23.2% (before stock option benefits)

🟢 Structural Positives the Market Still Respects

• A two-decade compounding buyback reduced diluted shares outstanding by 78% since 2005

• Mexico & Brazil expansion: older car parks, fragmented markets, long runway

• Tariffs: higher auto part prices still passable to customers due to necessity of repairs

As CEO Phil Daniele noted: “If a starter breaks, your car is not going to start and you have to ultimately do one of two things, either bum a ride or get your car fixed.” WSJ reinforced that most repairs are critical, meaning demand remains resilient even as tariffs push prices higher.

🔴 Why Bears Have Traction

• Five straight EPS misses keep burden of proof high

• Surprise LIFO charge undermines management’s margin visibility credibility

• Operating deleverage two quarters in a row

• Inventory growth outpacing sales ties up cash and risks obsolescence

📊 Actionable Roadmap from the Charts

🔵 Support: $3,980–$4,020 zone, deeper $3,820 rising channel support

🔴 Resistance: $4,160–$4,230 supply band near EMA cluster; next $4,320

🟠 Breakout trigger: Reclaim & hold $4,230 with 4H RSI + Keltner confirmation

🟢 Upside targets: $4,320 → $4,515 (mean analyst PT) → stretch $4,650 if EPS revisions stabilize

👥 Peers for Read-Through

O’Reilly Automotive ($ORLY), Advance Auto Parts ($AAP), Genuine Parts Company ($GPC). Watching comps, shrink, tariff pass-through, and LIFO commentary for divergence signals.

💡 My Take

AutoZone is still a quality compounder in an oligopolistic category. I’ll trade the range with a bias to add near $3,980–$4,020 if breadth and RSI confirm. I’ll fade pops into $4,230–$4,320 if LIFO and SG&A do not improve. Until LIFO math is clearer and operating leverage reappears, position sizing remains tactical rather than aggressive. Analysts polled by FactSet maintain an overweight rating with a mean price target of $4,515.90, reinforcing that despite near-term margin volatility, the long-term model still commands institutional conviction.

👉❓If tariffs keep LIFO elevated through FY26, which lever is most credible for restoring operating leverage first: merchandise margin mix, shrink normalization, or SG&A control as Mega-Hubs mature?

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Trade like a boss! Happy trading ahead, Cheers, BC 📈🚀🍀🍀🍀

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