AutoZone, Inc. (AZO) — Form 10-Q for the Fiscal Quarter Ended May 9, 2026

AutoZone, Inc., the leading retailer and distributor of automotive replacement parts and accessories in the Americas, reported strong financial results for its third quarter of fiscal 2026, with total net sales rising 8.4% to $4.8 billion and diluted earnings per share increasing 7.7% to $38.07. The Company's Form 10-Q filing for the period ended May 9, 2026, reveals a business that continues to execute effectively across its commercial and DIY segments, driven by robust same store sales growth, aggressive store expansion, and disciplined capital allocation, all while navigating a complex macroeconomic and tariff environment. This assembled description synthesizes the key themes from the filing, including AutoZone's financial performance, balance sheet strength, liquidity and capital allocation strategy, segment dynamics, risk factors, and forward-looking outlook.

I. Revenue and Financial Performance

AutoZone delivered strong top-line and bottom-line results for both the third quarter and the thirty-six-week year-to-date period ended May 9, 2026. For the third fiscal quarter (the twelve weeks ended May 9, 2026), total net sales reached $4.8 billion, an increase of $376.6 million, or 8.4%, compared to $4.5 billion in the same period last year. This growth was driven by a 3.9% increase in total company same store sales on a constant currency basis, along with $129.0 million in net sales from new domestic and international stores. On a year-to-date basis for the thirty-six weeks ended May 9, 2026, net sales reached $13.7 billion, up 8.3% from $12.7 billion in the comparable prior year period, supported by a 4.0% constant currency same store sales increase and $354.0 million from new stores [Item 2 - MD&A, ¶9][Item 2 - MD&A, ¶12].

Breaking down comparable store sales further, domestic same store sales grew 4.1% in the third quarter, while international same store sales increased 16.6% (or 1.6% on a constant currency basis), resulting in total company same store sales of 5.5% (3.9% on a constant currency basis). For the thirty-six-week period, domestic same store sales rose 4.2%, international same store sales increased 15.0% (2.6% constant currency), and total company same store sales were 5.4% (4.0% constant currency). Domestic commercial sales, a key growth driver, increased 10.4% to $1.4 billion in the quarter and 11.6% to $3.8 billion year-to-date [Item 2 - MD&A, Table 21][Item 2 - MD&A, Table 22].

On the profitability front, gross profit for the third quarter was $2.5 billion, compared to $2.4 billion in the prior year period. Gross margin declined to 52.2% from 52.7%, driven primarily by a 77 basis point unfavorable net non-cash LIFO impact, partially offset by other margin improvements. Operating, selling, general and administrative (SG&A) expenses totaled $1.6 billion, representing 33.1% of sales, an improvement from 33.3% in the prior year period, driven by strong top-line sales growth. For the thirty-six-week period, gross profit was $7.1 billion versus $6.7 billion, with gross margin decreasing to 51.9% from 53.2%, reflecting a larger 142 basis point unfavorable net non-cash LIFO impact. SG&A expenses were $4.7 billion, or 34.3% of sales, compared to 34.2% in the prior year, with the slight increase attributable to higher investments supporting growth initiatives [Item 2 - MD&A, ¶11][Item 2 - MD&A, ¶13].

Net income for the third quarter increased 5.4% to $641.5 million, and diluted earnings per share (EPS) rose 7.7% to $38.07, up from $35.36 in the prior year period. The effective income tax rate was 21.1%, compared to 19.4% in the prior year, primarily due to a reduced benefit from stock option exercises. For the thirty-six-week period, net income was $1.6 billion, and diluted EPS increased 0.5% to $96.69 from $96.17 [Item 2 - MD&A, ¶6].

II. Segment Performance and Strategic Initiatives

AutoZone operates as a single reportable segment, with the Chief Executive Officer evaluating performance based on consolidated net income and significant segment expenses [Item 1 - Financial Statements, ¶25-26]. As of May 9, 2026, the Company operated 7,856 stores across the Americas, comprising 6,766 stores in the United States, 933 stores in Mexico, and 157 stores in Brazil [Item 2 - MD&A, ¶5].

The commercial sales program continues to be a significant growth engine for the Company. Domestic commercial sales increased 10.4% in the third quarter to $1.4 billion and rose 11.6% year-to-date to $3.8 billion. The Company's commercial program is available in 6,356 domestic stores and the vast majority of stores in Mexico and Brazil, serving local and national repair garages, dealers, and fleet owners. Failure and maintenance-related categories represented approximately 85% of total sales mix in the quarter, underscoring the essential nature of AutoZone's product offerings and the resilience of its business model even in uncertain economic conditions [Item 2 - MD&A, ¶5, ¶7].

AutoZone continues to invest aggressively in its store network. During the thirty-six weeks ended May 9, 2026, the Company opened 199 net new stores, up from 163 in the comparable prior year period. Capital expenditures increased to $997.5 million from $885.6 million, driven primarily by growth initiatives including new store openings and hub and mega hub store expansion projects. Management expects to further increase investment in fiscal 2026 compared to fiscal 2025, with capital directed toward these same growth priorities [Item 2 - MD&A, ¶16, ¶18]. The international operations, particularly in Mexico and Brazil, represent a meaningful growth vector, with international same store sales growing 16.6% as reported in the quarter, though currency fluctuations tempered constant currency growth to 1.6%.

III. Balance Sheet and Financial Position

AutoZone maintains a distinctive balance sheet profile characterized by negative stockholders' equity, substantial debt leverage, and an exceptionally efficient working capital model. As of May 9, 2026, the Company held $253.7 million in cash and cash equivalents, with $2.2 billion in undrawn capacity on its Revolving Credit Agreement, providing substantial liquidity to support operations and growth initiatives. The Company's average borrowings during the thirty-six weeks ended May 9, 2026, stood at $8.8 billion, with a weighted average borrowing rate of 4.51%, reflecting a slight decrease in average debt levels compared to $9.1 billion in the prior-year period. Net interest expense for the thirty-six-week period was $323.9 million, down modestly from $327.7 million in the comparable prior-year period, driven by lower average borrowings [Item 2 - MD&A, ¶13].

AutoZone maintains a highly efficient working capital model, characterized by an exceptionally high accounts payable to inventory ratio. As of May 9, 2026, this ratio stood at 111.1%, compared to 115.6% at May 10, 2025, meaning the Company's accounts payable exceed its inventory balance. The Company achieves this by negotiating extended payment terms with suppliers, effectively using supplier financing to reduce working capital requirements. Additionally, AutoZone has arrangements with third-party financial institutions that allow suppliers, at their discretion, to finance the Company's obligations, though supplier participation is optional and does not impact the Company's payment obligations [Item 2 - MD&A, ¶18-20].

During the thirty-six weeks ended May 9, 2026, AutoZone had no new debt issuances, compared to $500 million in issuances in the prior-year period, while debt repayments totaled $400 million. A significant development was the $609.4 million increase in commercial paper borrowings, which was used in part to repay the Company's outstanding $400 million 3.125% Senior Notes due April 2026 [Item 2 - MD&A, ¶15]. The Company maintains a disciplined approach to leverage, targeting an adjusted debt to EBITDAR ratio to preserve its investment-grade credit ratings, and this ratio remained unchanged at 2.5:1 as of May 9, 2026, compared to the prior year [Item 2 - MD&A, ¶21]. Adjusted after-tax return on invested capital (ROIC) was 36.3% for the trailing four quarters, down from 43.5% in the prior-year period, reflecting increased capital investment in growth initiatives such as new stores, hubs, and mega hubs [Item 2 - MD&A, ¶20].

The Company's aggressive share repurchase program continues to drive its negative stockholders' equity position, with average stockholders' deficit of approximately $3.3 billion as of May 9, 2026 [Item 2 - MD&A, ¶17-18] [Item 2 - MD&A, Table 23].

IV. Liquidity, Cash Flow, and Capital Allocation

AutoZone's primary source of liquidity is cash generated from its core business of selling automotive parts and accessories. For the thirty-six weeks ended May 9, 2026, the Company generated $2.1 billion in net cash from operating activities, compared to $2.2 billion in the prior-year period. Capital expenditures totaled $997.5 million during the period, up from $885.6 million in the prior year, driven by investments in growth initiatives including new stores, hub, and mega hub expansion projects [Item 2 - MD&A, ¶16]. This yields approximate free cash flow (operating cash flow less capex) of roughly $1.1 billion for the thirty-six-week period.

AutoZone maintains a disciplined approach to capital allocation, with a strong emphasis on returning excess cash to shareholders through share repurchases. During the thirty-six weeks ended May 9, 2026, the Company repurchased $1.3 billion of its common stock, funded primarily by cash flows from operations, compared to $1.1 billion in the prior-year period [Item 2 - MD&A, ¶17]. In the third fiscal quarter alone (February 15 to May 9, 2026), AutoZone repurchased 163,694 shares at an average price of $3,581.72 per share. As of May 9, 2026, the Company had $804.2 million remaining under its share repurchase authorization [Item 2 - Equity Sales, Table 28]. AutoZone does not pay a cash dividend, instead prioritizing share buybacks as its primary method of returning capital to shareholders.

On the debt and financing side, AutoZone reported average borrowings of $8.8 billion for the thirty-six-week period with a weighted average borrowing rate of 4.51% and net interest expense of $323.9 million [Item 2 - MD&A, ¶13]. The Company's adjusted debt to EBITDAR ratio stood at 2.5:1 as of May 9, 2026, consistent with the prior year, a level management targets to maintain its investment grade credit ratings [Item 2 - MD&A, ¶21]. During the period, the Company repaid $400 million in 3.125% Senior Notes due April 2026 and increased commercial paper borrowings by $609.4 million [Item 2 - MD&A, ¶15].

AutoZone's liquidity position remains robust. As of May 9, 2026, the Company held $253.7 million in cash and cash equivalents and had $2.2 billion in undrawn capacity on its Revolving Credit Agreement. Management believes these sources of liquidity, supplemented by internally generated funds and long-term borrowings, are adequate to fund operations, strategic growth investments, debt repayments, and share repurchases over both the short and long term [Item 2 - MD&A, ¶14].

V. Risk Factors and Legal Matters

AutoZone's quarterly report on Form 10-Q for the fiscal quarter ended May 9, 2026, confirms that there have been no material changes to the Company's risk factors from those disclosed in its Annual Report on Form 10-K for fiscal 2025, and no additional material legal proceedings or material developments in previously disclosed proceedings have arisen since that annual report [Item 1A - Risk Factors, ¶1] [Item 1 - Financial Statements, ¶1].

A significant development during the quarter involves U.S. tariff policy. On February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The President immediately introduced new tariffs under different statutory authority, though their scope, duration, and the likelihood of further legal challenges remain uncertain. On April 20, 2026, AutoZone filed for refunds of IEEPA tariffs it had directly paid, but due to uncertainty around the timing and amount of any refunds, the Company has not recognized any potential IEEPA tariff refunds in its financial statements as of May 9, 2026 [Item 2 - MD&A, ¶8-9]. This tariff uncertainty represents a notable overhang for the Company, which sources a meaningful portion of its merchandise from global supply chains.

AutoZone's business is affected by a broad range of macroeconomic factors including inflation, interest rates, consumer debt levels, fuel and energy costs, wage rates, foreign currency fluctuations, supply chain disruptions, and hiring conditions — all of which are generally outside the Company's control. The Company's forward-looking statements also caution about risks related to product demand due to changes in fuel prices and miles driven, competition, credit market conditions, recessionary impacts, origin and raw material costs of suppliers, inventory availability, and tariffs and trade policies [Item 2 - MD&A, ¶3, ¶7].

The Company's market risk disclosures reveal a notable increase in variable rate debt exposure. As of May 9, 2026, AutoZone had $1.4 billion of variable rate debt outstanding, up from $748.6 million at August 30, 2025. At these borrowing levels, a one percentage point increase in interest rates would have an unfavorable annual impact on pre-tax earnings and cash flows of $13.6 million. The Company also had $7.7 billion in fixed rate debt, and a one percentage point increase in rates would reduce the fair value of that fixed rate debt by $284.0 million. Material changes in debt instruments included a $609.4 million increase in commercial paper and the repayment of $400 million in 3.125% Senior Notes due April 2026 [Item 1 - Legal, ¶1] [Item 2 - MD&A, ¶15].

Overall, AutoZone's risk profile remains consistent with prior periods, with no new risk factors identified. The key areas of focus continue to be tariff and trade policy uncertainty, interest rate exposure from increased variable rate borrowing, and the broad set of macroeconomic pressures affecting the automotive aftermarket industry. The Company maintains $2.2 billion in undrawn capacity on its Revolving Credit Agreement and $253.7 million in cash, providing liquidity buffers against these risks [Item 2 - MD&A, ¶14].

VI. Outlook, Guidance, and Forward-Looking Statements

AutoZone's 10-Q filing for the period ended May 9, 2026, includes a dedicated Forward-Looking Statements section within Management's Discussion and Analysis that provides important context for understanding management's expectations and the uncertainties surrounding future performance. These forward-looking statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and use words such as "believe," "anticipate," "expect," "estimate," "project," and "intend." Management cautions that these statements are based on assumptions and assessments informed by experience, historical trends, current conditions, and expected future developments, but they are not guarantees of future performance [Item 2 - MD&A, ¶2].

The filing identifies a broad range of risks and uncertainties that could cause actual results to differ materially from forward-looking statements. These include product demand sensitivity to fuel prices and miles driven, weather events, competition, credit market conditions, recessionary impacts, consumer debt levels, inflation (including wage inflation), supply chain disruptions, tariffs and trade policies, and the ability to execute growth initiatives [Item 2 - MD&A, ¶3]. Importantly, the Company notes that as of the date of this filing, there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for fiscal 2025 [Item 1A - Risk Factors, ¶1].

Regarding seasonality and near-term outlook, AutoZone states that operating results for the twelve and thirty-six weeks ended May 9, 2026, are not necessarily indicative of results expected for the full fiscal year ending August 29, 2026. The business is somewhat seasonal, with highest sales generally occurring from February through September and lowest sales in December and January. During the third quarter, failure and maintenance categories represented approximately 85% of total sales, consistent with the prior year, and management noted no fundamental shifts in category sales mix. However, the Company acknowledges that its business is impacted by macroeconomic factors including inflation, interest rates, consumer debt levels, fuel costs, and foreign currency fluctuations, all of which are outside its control [Item 2 - MD&A, ¶6-7].

Management highlights that the two statistics most closely correlated to long-term market growth are miles driven and the number of vehicles aged seven years or older. For the twelve months ended March 2026, U.S. miles driven increased 1.1%, and the average age of light vehicles on the road reached 12.8 years — a tailwind for the automotive aftermarket industry as older vehicles require more maintenance and repairs. On tariffs, the Company notes significant uncertainty following the U.S. Supreme Court's February 2026 invalidation of IEEPA tariffs and the subsequent introduction of new tariffs under different statutory authority. AutoZone filed for refunds of IEEPA tariffs in April 2026 but has not recognized any potential refunds in its financial statements due to uncertainty around timing and amounts. Tariff policy and legal challenges continue to evolve, and the Company will continue to monitor potential impacts on its business [Item 2 - MD&A, ¶8-9].

Looking ahead to capital allocation and growth investments, AutoZone expects to increase investment in its business during fiscal 2026 compared to fiscal 2025, directed primarily toward growth initiatives including new stores, hub and mega hub store expansion projects. The Company opened 199 net new stores during the thirty-six-week period and expects to fund capital expenditures, working capital requirements, and stock repurchases primarily through internally generated funds and available borrowing capacity [Item 2 - MD&A, ¶18].

Conclusion

AutoZone, Inc. enters the final stretch of fiscal 2026 with strong momentum, having delivered 8.4% revenue growth in the third quarter and double-digit growth in its critical commercial sales channel. The Company's disciplined capital allocation strategy, featuring aggressive share repurchases and targeted investments in store expansion and hub infrastructure, continues to drive shareholder value, as reflected in the 7.7% increase in diluted EPS despite a higher tax rate and LIFO headwinds. However, investors should remain attentive to the evolving tariff landscape following the Supreme Court's invalidation of IEEPA tariffs and the introduction of new trade measures, as well as the Company's increased variable rate debt exposure. With the average age of vehicles on U.S. roads at a record 12.8 years and miles driven continuing to rise, the fundamental demand drivers for AutoZone's business remain firmly in place, positioning the Company to navigate near-term uncertainties while investing for long-term growth across the Americas.