AutoZone (AZO) Q4 2026 earnings review
One-offs pad the margin as commercial and same-store sales slow
AutoZone reported Q4 revenue of $6.59 billion, up 5.6% year-over-year, and EPS of $56.05. Gross margin expanded 182 basis points to 53.3%. Total same-store sales grew 2.7%, while domestic commercial sales grew 8.6%. The company opened 175 new stores and repurchased $697.5 million in stock.
⚖️ Verdict: 🔴 Bearish
The case is worse — a bearish verdict — because the headline margin expansion obscures core pressure and the primary growth engine decelerated. The gross margin increase was entirely driven by a 145-basis-point tariff refund and a 105-basis-point LIFO benefit; without them, clean gross margin fell 68 basis points. This confirms the persistent mix drag from commercial sales, even as that segment slowed to single-digit growth for the first time this year.
What the print did not settle is whether the deceleration is a seasonal trough or a durable slowdown. Management’s expectation for sales to accelerate in FY27 gives the forward reading; next quarter's domestic same-store sales and commercial growth will settle it.
🐂 Bull Case
Record Store Execution and Buybacks Underpin EPS
AutoZone continues to use aggressive footprint expansion and capital returns to manufacture double-digit earnings growth out of single-digit revenue growth. The company opened 175 stores in Q4—beating the 160 guided last quarter—bringing the full-year total to 374, well above the 304 opened last year. At the same time, it repurchased nearly $700 million in stock, up from $586 million in Q3, reducing the diluted share count by 3.3% year-over-year.
The combination of the store rollout and a lower share count successfully turned 5.6% total revenue growth into 15.1% EPS growth. The number to watch is the capital spending run-rate; Capex ran at 7.6% of revenue this quarter, underscoring that the aggressive Mega Hub and store investment cycle is fully funded by operating cash flow.
🐻 Bear Case
One-Offs Mask Core Gross Margin Pressure
Management's release cites a 182-basis-point expansion in gross margin to 53.3%, but the quality of that beat is poor. The entire expansion was driven by two non-operating tailwinds: a 145-basis-point benefit from tariff refunds and a 105-basis-point non-cash LIFO benefit—the latter representing a complete reversal from the 45-basis-point headwind management guided for on the Q3 call.
Strip those two one-time items out, and clean gross margin actually fell 68 basis points year-over-year (derived). That decline confirms a persistent standing concern: the company's mix shift toward the faster-growing but lower-margin commercial business continues to drag down structural profitability. Without accounting benefits to hide it, the core margin is deteriorating.
The Core Commercial Engine Decelerates
For the last year, management's primary narrative has been that aggressive investments in Mega Hubs and inventory availability were unlocking massive market share gains in the commercial segment, offsetting a sluggish DIY consumer. This quarter, that engine slowed.
Domestic commercial sales grew 8.6% year-over-year, dropping out of double digits for the first time this fiscal year and decelerating notably from the 10.4% and 14.5% clips posted in Q3 and Q1. While 8.6% still comfortably outpaces the domestic retail business, the narrowing gap means the commercial business is doing less of the heavy lifting for the consolidated top line just as the company laps the peak of its inflationary ticket tailwinds.
Domestic Same-Store Sales Stagnate
Total domestic same-store sales printed at 1.6% for the quarter, a sharp step down from the 4.1% delivered in Q3 and tying Q2's severe-weather-impacted print for the weakest reading of the year. The weakness was global: international constant-currency same-store sales grew just 1.3%, extending the softness previously flagged in Mexico and Brazil.
With commercial sales decelerating, the domestic same-store result implies that the core DIY consumer remains heavily pressured. Management noted that sales strengthened in the final eight weeks of the 16-week quarter, but the overall quarterly print provides little evidence that the long-awaited rebound in transaction volume has materialized.
Standing risks the print did not read on
Two persistent concerns regarding the underlying health of the consumer did not receive a direct reading in the earnings release; each has a disclosure that would move it.
- DIY traffic vs ticket: The company did not split out transaction counts versus average ticket growth in the release; the upcoming call commentary on whether traffic remains negative will give the reading.
- Weather impacts: The release did not quantify how much of the quarter's early softness was attributable to weather versus macro pressure.
👓 Other Themes
Management Signals Forward Acceleration
Despite the visible deceleration across all major sales metrics in Q4, CEO Phil Daniele stated the company is "well positioned for sales growth in fiscal 2027" and expects sales in the U.S., Mexico, and Brazil to accelerate in the new year. The conviction relies on market share gains from the expanded store base and a reported strengthening of sales in the last eight weeks of the quarter.
💲 Other KPIs
Net inventory—merchandise inventories less accounts payable—remained stable sequentially at negative $107,000, continuing to demonstrate the company's ability to fund its inventory expansion through vendor financing.
Grew 33.9% year-over-year to a 10.4% margin, easily absorbing the $498.8 million in capital spending required for the quarter's 175 new store openings.
Expanded 81 basis points year-over-year. The margin absorbed a 100-basis-point deleverage in SG&A (33.4% vs 32.4%) entirely due to the tariff and LIFO benefits hitting the gross margin line.
🔮 Guidance
Management provided qualitative guidance expecting sales across all three operating countries to accelerate in the new fiscal year, citing market share gains and momentum in the back half of Q4. No numerical range was provided.
❓ Key Questions
Core margin baseline
With the 145-basis-point tariff refund and 105-basis-point LIFO benefit artificially boosting Q4 gross margin, what is the baseline gross margin expectation for Q1 FY27 when those one-offs lap out?
Commercial deceleration
Domestic commercial growth slowed to 8.6% this quarter. Given the tough comparisons ahead, what specific drivers give you confidence this segment can reaccelerate, or is high-single-digits the new run rate?
SG&A leverage timing
Operating expenses deleveraged by a full percentage point this quarter as the store rollout peaked. When do you expect these new units to mature enough to provide operating leverage again?