How Margin Squeeze From Rising Costs And LIFO Charges At AutoZone (AZO) Has Changed Its Investment Story

• AutoZone, Inc. reported past first-quarter 2025 results with sales rising to US$4,628.63 million from US$4,279.64 million a year earlier, while net income fell to US$530.82 million and diluted EPS slipped to US$31.04 as margin pressures weighed on profitability.
• Management pointed to sizeable non-cash LIFO charges, higher store and supply-chain spending, and weather-related disruptions as key reasons why profit growth lagged solid top-line momentum.
• Next, we’ll examine how this margin compression, driven by higher costs and non-cash charges, may reshape AutoZone’s existing investment narrative.

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AutoZone Investment Narrative Recap

To own AutoZone, you need to believe that its scale, distribution network and repair focused customer base can support resilient sales even when margins get squeezed. The latest quarter fits that pattern, with solid revenue growth but softer earnings as LIFO charges and higher operating costs weighed on profitability. For now, this appears to affect the main short term concern around margin pressure more than the key near term catalyst, which is continued growth in Domestic Commercial and mega hub driven sales.

Against that backdrop, AutoZone’s decision in October 2025 to lift its share repurchase authorization by another US$1,500 million stands out. A long running buyback program can amplify earnings per share over time, which becomes more relevant when reported earnings face temporary headwinds from non cash charges and higher SG&A tied to store and supply chain investment.

Yet, despite healthy sales growth, investors should be aware of how sustained cost inflation and expansion driven SG&A could...

Read the full narrative on AutoZone (it's free!)

AutoZone’s narrative projects $22.5 billion revenue and $3.1 billion earnings by 2028. This requires 6.0% yearly revenue growth and about a $0.5 billion earnings increase from $2.6 billion today.

Uncover how AutoZone's forecasts yield a $4369 fair value, a 29% upside to its current price.

Exploring Other Perspectives

Two fair value estimates from the Simply Wall St Community span roughly US$3,252 to US$4,369 per share, showing how far opinions can diverge. Set that against recent margin compression from higher operating expenses and consider what it might mean for AutoZone’s future profit profile.

Explore 2 other fair value estimates on AutoZone - why the stock might be worth as much as 29% more than the current price!

Build Your Own AutoZone Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your AutoZone research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.
• Our free AutoZone research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate AutoZone's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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