The latest earnings report from AZO revealed a slight miss on analyst expectations, with earnings per share coming in at $35.36 against estimates of $37.11 for the third quarter of fiscal 2025. This marginal deviation from projections arrived despite the company posting solid sales figures, underscoring the market's elevated expectations for the automotive parts retailer in the current economic climate.
While the headline EPS figure was slightly softer than anticipated by the analyst community, the underlying performance metrics presented a more robust picture. Net sales for the quarter reached $4.5 billion, representing a notable +5.4% increase compared to the same period in the prior year. Domestically, the company continued to see healthy demand, with same-store sales growing by a respectable +5.0%. These figures suggest that while profitability faced minor pressures in the quarter relative to forecasts, the core business continues to expand and capture market share, navigating macroeconomic factors with resilience.
Recent Financial Performance and Underlying Trends#
Examining AZO's financial trajectory over the past few fiscal years reveals a consistent pattern of top-line expansion and solid profitability, even amidst fluctuating economic conditions. From fiscal year 2021 through fiscal year 2024, revenue climbed steadily from $14.63 billion to $18.49 billion. This represents a compound annual growth rate (CAGR) of approximately +8.12% over the three-year period ending in FY 2024, as reported by Monexa AI data. The most recent fiscal year, 2024, saw revenue increase by +5.92% year-over-year from $17.46 billion in 2023, demonstrating continued momentum.
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Profitability has largely kept pace with revenue growth. Net income grew from $2.17 billion in FY 2021 to $2.66 billion in FY 2024, achieving a three-year CAGR of +7.05%. The year-over-year net income growth from FY 2023 to FY 2024 was +5.3%. Margins have remained remarkably stable, a testament to the company's operational efficiency. Gross margins have consistently hovered around 52-53%, operating margins near 20%, and net margins typically between 14% and 15% over the past four fiscal years. The stability of these margins is particularly noteworthy in a retail environment often sensitive to cost pressures.
Earnings per share (EPS) growth has been even more pronounced than net income growth, primarily driven by aggressive share repurchases. Diluted EPS grew by +12.99% year-over-year in FY 2024, significantly outpacing the +5.3% net income growth. This highlights the impact of AZO's capital allocation strategy on per-share metrics. The trailing twelve months (TTM) EPS stands at $153.08, according to Monexa AI data.
| Metric | FY 2021 | FY 2022 | FY 2023 | FY 2024 |
|---|---|---|---|---|
| Revenue | $14.63B | $16.25B | $17.46B | $18.49B |
| Gross Profit | $7.72B | $8.47B | $9.07B | $9.82B |
| Operating Income | $2.94B | $3.27B | $3.47B | $3.79B |
| Net Income | $2.17B | $2.43B | $2.53B | $2.66B |
| Gross Margin | 52.75% | 52.13% | 51.96% | 53.09% |
| Operating Margin | 20.13% | 20.12% | 19.90% | 20.49% |
| Net Margin | 14.84% | 14.95% | 14.48% | 14.40% |
(Source: Monexa AI based on company filings)
Capital Allocation and Financial Structure#
AZO's balance sheet presents a unique structure characterized by significant debt and negative stockholders' equity. As of FY 2024, the company reported total liabilities of $21.93 billion against total assets of $17.18 billion, resulting in total stockholders' equity of -$4.75 billion. This negative equity position is not uncommon for companies that aggressively repurchase shares, particularly when funding those buybacks with debt, to the point where the cumulative cost of buybacks exceeds retained earnings.
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The company's total debt stood at $12.37 billion in FY 2024, with long-term debt accounting for the majority at $11.98 billion. While the trailing twelve months Debt-to-Equity ratio is reported as 0%, this metric can be misleading when equity is negative. A more informative leverage metric is Total Debt to EBITDA, which stood at $2.33x on a TTM basis. This indicates that the company's debt is approximately 2.33 times its annual earnings before interest, taxes, depreciation, and amortization, a level that warrants careful monitoring but is not necessarily alarming depending on the company's cash flow generation and interest coverage.
Cash flow generation remains a key strength for AZO. Net cash provided by operating activities was $3.00 billion in FY 2024, following $2.94 billion in FY 2023 and $3.21 billion in FY 2022. However, free cash flow (FCF), defined as operating cash flow minus capital expenditures, saw a decline of -9.92% from $2.14 billion in FY 2023 to $1.93 billion in FY 2024. This was largely due to a significant increase in capital expenditures, which rose from $796.66 million in FY 2023 to $1.07 billion in FY 2024. The three-year CAGR for FCF ending in FY 2024 was -12.64%, indicating a downward trend in recent years, which is an area investors should scrutinize.
Unlike many mature retailers, AZO does not pay a dividend. Instead, its primary method of returning capital to shareholders is through share repurchases. The company repurchased $3.14 billion of common stock in FY 2024, following $3.70 billion in FY 2023 and $4.36 billion in FY 2022. This aggressive buyback strategy has significantly reduced the outstanding share count over time, contributing substantially to the robust EPS growth seen even when net income growth is more modest. The sustainability of this buyback pace is tied directly to the company's ability to generate sufficient free cash flow and manage its debt levels.
| Balance Sheet Item (FY) | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|
| Total Assets | $14.52B | $15.28B | $15.99B | $17.18B |
| Total Liabilities | $16.31B | $18.81B | $20.34B | $21.93B |
| Total Stockholders Equity | -$1.80B | -$3.54B | -$4.35B | -$4.75B |
| Total Debt | $8.23B | $9.30B | $10.93B | $12.37B |
| Net Debt | $7.06B | $9.03B | $10.65B | $12.07B |
(Source: Monexa AI based on company filings)
Strategic Initiatives and Leadership#
AZO's strategic direction appears focused on leveraging its strong brand and store network while expanding into growth areas. Key initiatives include enhancing its omnichannel capabilities to serve both DIY (Do It Yourself) and DIFM (Do It For Me - professional garages) customers, expanding its commercial business, and pursuing international growth. The recent appointment of Constantino Spas Montesinos to the board of directors on May 28, 2025, is a notable development in this context. His background, particularly his extensive experience in international markets and corporate governance, is expected to provide valuable guidance as AZO continues to push into new geographies and refine its operational structure globally. This move signals a commitment at the highest level to supporting the company's international expansion efforts and strengthening governance.
The automotive retail sector is currently undergoing shifts, with increased demand for maintenance and repair services, partly driven by an aging vehicle fleet. Concurrently, the rise of e-commerce is reshaping how consumers purchase auto parts. AZO's investment in its omnichannel strategy, which integrates its physical stores with online platforms, is a direct response to this trend, aiming to provide convenience for both online shoppers and professional mechanics who rely on quick access to parts.
Growth in the commercial segment, which serves professional repair shops, has been a significant focus and driver of recent performance. This segment typically offers higher ticket sales and builds stronger relationships with repeat business customers. Continued investment in infrastructure and inventory to support the needs of commercial customers is critical for sustaining momentum.
Competitive Landscape and Market Position#
AZO operates within a competitive landscape dominated by major players like Advance Auto Parts (AAP and O'Reilly Automotive (ORLY. While specific comparative data wasn't provided, AZO has historically maintained a leading position in the U.S. market, distinguished by its strong brand recognition, extensive store footprint, and supply chain efficiency. The company's ability to consistently deliver positive same-store sales growth, as seen in the recent +5.0% domestic increase, suggests it is effectively competing for market share and retaining customer loyalty.
The sector's resilience, often cited as being less susceptible to economic downturns than other retail segments because vehicle maintenance is often a necessity, positions AZO favorably. Reports from outlets like Fool.com have highlighted AZO's characteristics as a potentially