Q3 2025 - AutoZone - Full Analysis
Highest comp since Q2 FY2023 despite muted same-SKU inflation (<1%)
Today, before the bell, AutoZone AZO 0.00%↑ reported its Q3 2025 results, showing a meaningful acceleration in same-store sales growth on both sides of the business (Commercial/DIFM and DIY). Meanwhile, the impact of discretionary SG&A spend, the ramp-up in CAPEX, and FX headwinds pulled reported EBIT and EPS down. Shares are down 4.5%, but up 14% year-to-date (in line with its main peer, O’Reilly ORLY 0.00%↑).
Interestingly, this time last year, O’Reilly and AutoZone shares were flirting with bear market territory. Being contrarian when their valuations look attractive, plus knowing buybacks are being ramped up, we added fairly aggressively to our positions. Since then, shares have rallied 34% to 41%.
Late January of this year, we started trimming O’Reilly as investors had grown overly upbeat on the outlook for reaccelerating same-store sales and margin expansion. We didn’t expect to be able to trim at close to 30x FY24 NOPAT, a valuation multiple we deemed fairly generous.
O’Reilly’s Q1 results revealed that the growth expenses could weigh on the near- to mid-term outlook of returning to double-digit growth NOPAT per share.
Last March, we stated:
Right now, AutoZone shares are trading at 18.7x FY25 NOPAT versus O’Reilly’s 27.0x, and we believe the valuation gap has gotten too wide, even though AZO is over-indexed to DIY (relative to ORLY) which is likely to be a meaningful headwind to sales growth for the foreseeable future. Still, the CAGR gap has widened to roughly 70 bps, while the bar is set lower for AZO to accelerate its same-store sales growth. With the prospect of 19 new mega hubs to be opened soon, these assets should support comparable sales growth beyond FY26. As such, we believe AZO is the best play in the automotive aftermarket now.
Since then, O’Reilly stock has returned 0% versus +5% for AutoZone. This relative outperformance appears to have more legs, as AutoZone’s same-store sales momentum has substantially narrowed O’Reilly’s lead. Additionally, it should eventually cycle through the drag of significant FX headwinds seen in Q4 2024 and Q1 2025.
Anyway, let’s move on with the discussion on AutoZone’s Q3 fiscal 2025 results.