Financial Trends -- 6.5/10
AZO is in an intentional investment cycle that is temporarily depressing reported earnings, margins,
and buybacks. Revenue growth decelerated from +11% (FY2022) to +2.4% (FY2025) as pandemic tailwinds
faded, but quarterly trends show reacceleration to +8% YoY. Reported EPS has declined for 4+
consecutive quarters due to massive LIFO charges ($277M expected FY2026 vs $64M FY2024), though
ex-LIFO EPS is growing 7-9%. Operating margins compressed ~400bps from peak as accelerated store
openings add ~2pts of SG&A. FCF is declining as CapEx nearly doubled. The underlying business is
healthy -- SSS reaccelerating, commercial gaining share, new stores exceeding plans -- but the
financial profile shows real deterioration that weighs on the score.
Weight: 25%
FY2025 Revenue
$18,939M
+2.4% YoY | Q run-rate reaccelerating to +8%
FY2025 Diluted EPS
$144.87
-3.1% YoY | LIFO charges distorting
FY2025 Operating Margin
19.1%
-143bps YoY | LIFO + SG&A deleverage
FY2025 FCF
$1,828M
-5.3% YoY | CapEx +24% to $1.33B
Revenue Trajectory (Annual, USD M)
Multi-year revenue deceleration, but quarterly reacceleration emerging.
Annual revenue growth slowed from +11.1% (FY2022) to +7.4% to +5.9% to +2.4% (FY2025) as
pandemic-era tailwinds faded. However, the quarterly trajectory tells a different story: YoY growth
reaccelerated from +0.6% in CQ3 2025 to +8.2% and +8.1% in the most recent two quarters, driven
by accelerated store openings (342 trailing 4Q vs 241 a year ago) and same-SKU inflation of 5-6%.
Consensus expects FY2026E revenue of ~$20.1B (+6%) and FY2027E of ~$21.3B (+6%).
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $14,630M | $16,252M | $17,457M | $18,490M | $18,939M |
| YoY Growth | — | 11.1% | 7.4% | 5.9% | 2.4% |
FY2026E ~$20.1B, FY2027E ~$21.3B consensus. Data sourced from Daloopa and AZO earnings transcripts.
Quarterly Revenue Trajectory (USD M)
Quarterly revenue reaccelerating sharply from +0.6% trough to +8%.
Note the pronounced seasonality: CQ3 (FQ4, summer selling season) is by far the largest quarter
at ~$6.2B, while CQ1 (FQ2, winter) is the smallest at ~$3.9-4.3B. The key signal is that every
comparable quarter is growing faster than a year ago. Domestic SSS reaccelerated from 0.0% to
+3.4-5.0% over the last four quarters, and commercial sales are up +9.8-14.5% YoY. Store openings
are adding ~4% incremental revenue on top of comp growth.
AZO fiscal year ends late August. CQ = calendar quarter, FQ = fiscal quarter. Data sourced from Daloopa.
Margin Trends (Quarterly)
Operating margins compressing ~400bps from peak, driven by LIFO and SG&A.
Gross margin has been relatively stable in the 51-54% range, with recent quarters dipping to 51-52%
due to massive LIFO charges ($277M expected FY2026 vs $64M FY2024) from tariff-driven cost inflation.
Ex-LIFO, merchandise margins are actually improving. Operating margin has declined more sharply --
from 20.5% (FY2024) to 16.3% in CQ1 2026 -- as accelerated store openings add ~2pts of incremental
SG&A per management. This is an intentional investment cycle; management expects margins to recover
as LIFO charges anniversary and new stores mature (4-5 year cycle).
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Gross Margin | 52.8% | 52.1% | 52.0% | 53.1% | 52.6% |
| Operating Margin | 20.1% | 20.1% | 19.9% | 20.5% | 19.1% |
FY2026 H1 op margins: 16.9% (FQ1), 16.3% (FQ2). LIFO charges ~$277M expected FY2026. Data sourced from Daloopa.
Diluted EPS Trajectory (Quarterly)
Reported EPS declining for 6 consecutive quarters on a YoY basis.
Diluted EPS has fallen YoY every quarter since CQ4 2024: -0.1%, -2.1%, -3.6%, -5.6%, -4.6%, -2.3%.
The decline is driven by: (1) massive LIFO charges from tariff-driven cost inflation; (2) elevated
SG&A from accelerated store openings; (3) higher D&A from CapEx ramp. Critically, excluding LIFO,
EPS growth would have been +8.9% in FQ1 and +7.1% in FQ2 -- underlying earnings power is growing.
The YoY decline is narrowing (-2.3% most recently vs -5.6% two quarters ago), suggesting the
worst may be passing. FY2025 annual EPS was $144.87 vs $149.55 prior year (-3.1%).
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Diluted EPS | $95.2 | $117.2 | $132.4 | $149.6 | $144.9 |
| YoY Growth | — | 23.1% | 12.9% | 13.0% | -3.1% |
Ex-LIFO EPS growth: +8.9% (FQ1 FY2026), +7.1% (FQ2 FY2026). FY2026E consensus ~$155, FY2027E ~$175. Data sourced from Daloopa.
Free Cash Flow (Annual, USD M)
FCF declining 3 years running as CapEx nearly doubles.
Free cash flow has fallen from $2,539M (FY2022) to $1,828M (FY2025), a -28% cumulative decline.
The driver is CapEx, which nearly doubled from $672M to $1,327M as AutoZone invests in new stores,
distribution centers, and supply chain. CFO has been relatively stable at $3.0-3.2B. CapEx is
guided at ~$1.6B for FY2026, implying further pressure on FCF. FY2026 YTD FCF is running further
below prior year ($645M vs $856M through FQ2). The capital allocation shift from buybacks to
growth CapEx is the most significant change in the AZO investment thesis.
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| CFO ($M) | $3,211M | $2,941M | $3,004M | $3,155M |
| CapEx ($M) | $672M | $797M | $1,073M | $1,327M |
| FCF ($M) | $2,539M | $2,144M | $1,931M | $1,828M |
| FCF YoY Growth | — | -15.6% | -9.9% | -5.3% |
FY2026 CapEx guided ~$1.6B. FY2026 YTD FCF: $645M vs $856M prior year. Data sourced from Daloopa.
Share Buybacks and Diluted Share Count
Buyback machine dramatically slowed -- the key thesis risk.
Share repurchases fell from $4,360M (FY2022) to $1,578M (FY2025), a -64% decline. Annual share
count reduction slowed from -9.0% (FY2022) to -3.1% (FY2025). The most recent quarter shows only
-2.4% annual share reduction, well below the historical 5-7% pace. The capital is being redirected
to growth CapEx (store openings ramping to 500/year by FY2028). This matters because buybacks have
been the primary driver of EPS growth and total return for AZO shareholders. Management frames this
as a temporary investment cycle, but the reduced buyback pace is a real headwind for the stock.
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Buybacks ($M) | $3,378M | $4,360M | $3,700M | $3,141M | $1,578M |
| Diluted Shares (K) | 22,799 | 20,733 | 19,103 | 17,803 | 17,245 |
Most recent diluted shares: 16,519K (CQ1 2026). Shares out EoP: 16,665K (FY2025). Data sourced from Daloopa.
Acceleration / Deceleration Analysis
| Signal | Detail | Direction |
|---|---|---|
| Revenue Growth | Annual deceleration FY22-FY25 (+11% to +2.4%), but quarterly reacceleration to +8% YoY | Reaccelerating |
| Domestic SSS | Troughed at 0.0% in CQ2 2024, reaccelerated to +3.4-5.0% over last 4 quarters | Reaccelerating |
| Commercial Sales | Accelerated from +3.2% to +14.5% YoY, pulled back to +9.8% on winter storms; underlying ~+12% | Accelerating |
| Reported EPS | Declining 6 consecutive quarters YoY (-0.1% to -5.6%, now -2.3%); LIFO-driven | Declining (narrowing) |
| Operating Margin | Compressed from 20.5% (FY2024) to 16.3% (most recent); LIFO + SG&A from store investment | Compressing |
| Free Cash Flow | $2,539M to $1,828M over 3 years; CapEx nearly doubled; CFO flat | Declining |
| Buyback Pace | $4,360M to $1,578M (-64%); share count reduction slowed from ~7% to ~2.4% annual | Decelerating |
| Store Growth | 304 stores (FY2025) vs 213 prior; targeting 350-360 (FY2026), 500/yr by FY2028 | Accelerating |
Score Derivation
| Factor | Assessment | Impact |
|---|---|---|
| Base Score | Revenue growing, SSS reaccelerating, commercial momentum strong, store growth accelerating, underlying EPS (ex-LIFO) growing mid-to-high single digits | 7.0 |
| EPS declining 4+ quarters | Reported EPS down every quarter since CQ3 2024; real headwind for sentiment | -1.0 |
| LIFO distortion (non-cash) | Ex-LIFO EPS growing 7-9%; accounting noise not operational deterioration | +0.5 |
| SSS Reacceleration | Domestic SSS from 0% to 3-5%; commercial from +3% to +10-14% | +0.5 |
| Margin Compression | Op margin down 300-400bps from peak; multi-year drag from investment cycle | -0.5 |
| FCF / Buyback Slowdown | Capital redeployed to growth; FCF declining 3 years; buybacks -64% from peak | -0.5 |
| Store Growth Acceleration | 304 to 350-360 to 500/yr; new stores exceeding planned models | +0.5 |
| Tariff Headwind | $277M LIFO FY2026; uncertain tariff trajectory; same-SKU inflation 5-6% | -0.5 |
| Net Adjustment | -1.0 + 0.5 + 0.5 - 0.5 - 0.5 + 0.5 - 0.5 = -0.5 | -0.5 |
| Final Score | Base 7.0 minus 0.5 net adjustment | 6.5/10 |
Data sourced from Daloopa (company_id: 285) and AutoZone earnings transcripts (FQ4 2025, FQ1 2026, FQ2 2026).