AutoZone (AZO -3%) narrowly beat Q3 earnings estimates but fell short on revenue growth, causing a dip in share prices.
- AZO has consistently exceeded bottom-line estimates for over five years, but its Q3 beat was the smallest since the pandemic. Revenue growth of 3.6% year-over-year to $4.24 billion missed expectations, a rare occurrence for the company.
- Domestic same-store sales growth decelerated from +0.3% in Q2 to flat in Q3, contrasting with the +4.4% comp in the last four weeks of Q2.
- Tax refund delays and cooler weather contributed to the weaker domestic performance. Rival O'Reilly Automotive (ORLY, Financial) also cited similar issues impacting their results.
- ORLY's warnings about tax refund delays and unseasonably cool weather likely led the market to expect similar challenges for AZO, particularly affecting DIY customers.
- On a positive note, AZO's international business saw +18.1% comp growth in Q3, boosting total company comps to +1.9%, up from +1.5% last quarter. The company continues to expand in Mexico and Brazil, adding 13 new stores in Q3.
- ORLY is also expanding in Mexico with around 60 stores, but AZO's larger presence gives it a stronger position to capitalize on opportunities in the region.
- AZO does not provide formal guidance but expressed optimism about the summer selling season and healthy inventory levels.
Despite facing similar headwinds as ORLY, AZO's Q3 results were lackluster, resulting in modest selling pressure. However, the challenges were largely due to temporary factors like tax refunds and weather, rather than a decline in structural demand, suggesting AZO could rebound.
