AutoZone, Inc. (NYSE:AZO) stock has struggled the last 6 months during a consolidation phase. However AZO stock is still one of our top long-term holdings. When we say long-term, we really mean it. Not 2-3 years long-term, decades long is the plan. While business ebbs and flows, challenges like competition, tariffs, economic downswings and more can hit in the near-term, one thing is certain. And that is that AutoZone is building shareholder value over the long term. At BAD BEAT Investing, this is a name we have been invested in since about $600. This is one of well over 100 stocks we now own at our investing service’s “house position portfolio.” That is to say that we have built a portfolio of life time investments via house positions that stem from successful trades of 20%+. We leave profit to run, and move to the next conviction trade. We believe $5,000 is within the cards long-term, though the end of this year is likely too much of a stretch, but it will come. AutoZone reinvests cash back into the business, helping it grow and the massive share buyback program in place will help increase earnings per share long-term. The company just put out its fiscal Q2 earnings. Let us discuss.
AutoZone fiscal Q2 sales
In its fiscal Q2, AutoZone set another Q2 record with sales of $4.27 billion, and this was a strong 8.1% increase year-over-year and it was in line with consensus analyst estimates. This was about in line with our expectations for $4.30 billion in sales as well. However, there are metrics of interest that we think you need to examine for any retailer.
AutoZone fiscal Q2 comparable sales
So, one such key metric we like to focus on is comparable sales. They are critical. AutoZone is indeed retailer, even though it has services and specializes in auto parts for repair and maintenance. It has both consumer and commercial sales too. And with growing international sales, constant currency is the way to present sales as the moves in the dollar and other currencies can impact the sales figure. Cars are being driven longer, given the high interest rates and sheer cost of new vehicles. This helps AutoZone and other competitors, as there is higher demand for replacement parts with cars being driven longer.
Comps were strong. Comparable sales overall were were up 5.2%, but in constant currency were up 3.3% (still strong). Domestic comps were up 3.4% in the quarter compared to a year ago, while international comps jumped 2.5% in constant currency (but up a strong 17.1% unadjusted). How about margins which are also key?
AutoZone fiscal Q2 margins and profit power
So comps were positive, and this helped push the top line higher by 8.1% from last year. We know that the company also has pricing power to help margins. Sales are up and expenses have historically been pretty well-controlled. However, in the present quarter we saw gross margins actually decline. This is a negative and a reason shares have struggled the last 2 quarters. The Street does not like gross margin contraction at all. Overall gross profit as a percentage of sales, was 52.5%, down 137 basis points from last year. However this was entirely due to a LIFO charge of 138 basis points, so, backing those out we saw a single basis point increase. Flat if we account for it effectively. We all know that costs continue to rise for labor, and the company is making more investments for growth which led to higher operating expenses. Operating expenses, as a percentage of sales, were up 10 basis points to 36.1% versus last year’s 36.0%. Still, not a terrible result overall.
So we had comps up, we had a sales figure up high single-digits, but a modest move in gross margin and a tick up in operating expenses/ This led to operating profit slipping 1.2% to $698.5 million. Net income of $468.9 million was down compared to $487.9 million in the prior year, while EPS decreased $27.63. That was better than our expectations of $27.50 and a $0.34 beat versus consensus. Look, even with repurchases EPS declining can keep shares stuck. But long-term, EPS is going to move higher on the repurchases and with expansion of stores and sales. Give it time. Own it for the long term.
AutoZone fiscal Q2 repurchases
This quarter, under its share repurchase program, AutoZone repurchased 85,000 shares at an average price per share of $3,666, totaling $310million. We are up over 6 fold since we bought this, so long-term the plan is working. Yes it has been a tough few quarters for shares trading in a range. That is ok, if you are thinking long-term, you take advantage of the sales. A lot of the float has been retired. And there remains $1.4 billion in the repurchase authorization. Stay the course.
Looking for AutoZone
As we look ahead, comparable sales are nicely positive, and total sales are growing. The long-term compounding power is in the constant buybacks. As we look ahead to the second half of fiscal 2026, we are looking for 6-7% overall sales growth to $20.0-$20.3 billion. With repurchases and gross profit margins of around 52% for the year anticipated, and assuming operating expense and operating margin hangs around historical norms, we see EPS of $150, which would be close to 3% growth. That is a bit lower than we would have expected if you asked us 6 months ago, so it is a slow year for growth, following a slow fiscal 2025. But we know that more stores are being opened in new areas internationally. The buybacks are strong. Consider scooping shares on weakness, for very long-term investment.