AutoZone Inc

AutoZone is currently undergoing a large-scale investment project that has inhibited near-term earnings growth. However, the company is investing in its distribution capabilities, particularly through the development of 'Mega Hubs' that enhance delivery efficiency. This strategic investment is expected to improve store economics and competitiveness in commercial programs as the buildout reaches its peak intensity in the coming year. The manager believes that the current lack of immediate earnings growth is uninspiring for impatient investors, but this will reverse as the infrastructure is completed.

AutoZone is currently undergoing a large-scale investment project that has inhibited near-term earnings growth. However, the company is building out a network of 'Mega Hubs' to enhance its distribution capabilities, which will significantly improve delivery times for commercial customers. This investment in distribution makes sense from a business perspective, and while it may not yield immediate earnings growth, the manager believes that this will reverse as the buildout reaches its peak intensity in the coming year, making AutoZone more competitive in its commercial programs.

AutoZone has been a long-term holding in most Tweedy client portfolios. Over the last 28-year period (1997 to 2025), AutoZone has increased Total Net Income by a compounded annual growth rate (CAGR) of +9.5%. By reducing the number of shares outstanding by 89% over the years, its Earnings Per Share for shareholders has increased 18.5% annually. The compound total return on AutoZone’s stock was +18.5% annualized, producing a cumulative return to shareholders of 11,595%. Assuming a $10,000 investment in AutoZone at the start of 1998, it would be worth $1,169,483 at year-end 2025, a true 100 bagger.

AutoZone has generated approximately 15% EPS growth over the past ten years and operates in a highly fragmented marketplace, selling auto parts to individuals and garages in the US and Latin America. The company benefits from an integrated wholesale distribution model, which provides a competitive advantage over smaller competitors. Unlike Costco, AutoZone trades at a more reasonable multiple of profit at 24x PE compared to Costco's 46x. The stock has returned 34% this year, and recent earnings weakness is attributed to an inventory accounting rule that depresses current EPS.

AutoZone continued to perform well as a defensive, countercyclical business. The auto parts retailer benefited as inflation pushed the cost of new vehicles higher and tariff uncertainty caused worries about impending price increases for parts. This positioning allows AutoZone to maintain strong performance even in challenging economic conditions, making it a valuable holding in our portfolio.

AutoZone Inc. added 1.0% to the fund on strong retail results. The company has demonstrated resilience and growth potential, contributing positively to our portfolio. We believe that AutoZone's performance reflects its strong market position and ability to capitalize on retail trends, making it a valuable holding as we continue to see growth in this sector.

We own shares in AutoZone, a car parts retailer that imports a lot from Mexico and China, which raises concerns about tariffs. However, 90 percent of its revenue comes from customers needing parts for maintenance or repair, which cannot be postponed. This gives AutoZone significant pricing power, allowing it to pass through tariffs and gain market share. Despite negative headlines, we believe there is still an attractive long-term growth opportunity, making us happy holders of those shares.

AutoZone (AZO) is positioned to benefit from the current economic environment where auto tariffs are likely to reduce demand for new cars, leading consumers to hold onto their existing vehicles longer. This trend is expected to increase the demand for repair and maintenance services, which is favorable for AutoZone. The stock's performance reflects this positive outlook, as AZO shares rose 19% this quarter, making it one of the top contributors to the portfolio's performance.

AutoZone’s stock reflected the sentiment that even in a challenging economy, consumers still need to replace car parts when they fail. This resilience in demand contributes positively to the fund's performance, as evidenced by its 1.1% contribution to the fund this quarter. The company is well-positioned to maintain profitability and growth, making it a valuable holding in our portfolio.

AutoZone benefits from a lengthened replacement cycle and higher ASPs on aftermarket parts. AutoZone’s pricing power and the non-discretionary nature of its business combine to make it highly resilient in various environments.