AutoZone 2025 10-K Analysis: Commercial Sales Drive Growth Amid Profit Squeeze

AutoZone recently filed its annual 10-K report, giving us a detailed look under the hood of its financial performance for fiscal year 2025. As a leading retailer and distributor of automotive replacement parts and accessories, AutoZone's health is a key indicator of trends in the Do-It-Yourself (DIY) and commercial auto repair markets. Let's dive into the numbers from the latest filing to see what's driving the business.

Steady Sales Growth with a Commercial Boost

For the fiscal year ending August 30, 2025, AutoZone reported net sales of $18.9 billion, a modest 2.4% increase from the prior year's $18.5 billion. While this growth is steady, it represents a slowdown from the more robust expansion seen in previous years.

The key driver behind this growth was the company's domestic commercial sales program, which targets professional repair shops. This segment saw a strong 6.7% increase, adding nearly $330 million in sales. This highlights AutoZone's successful strategic push to capture more of the professional market, a critical and lucrative customer base.

Overall same-store sales, which measure performance at stores open for at least one year, were up 2.4%. A closer look reveals:

• Domestic same-store sales: Increased by a healthy 3.2%.
• International same-store sales: Decreased by 3.2%, but this figure was heavily impacted by foreign currency fluctuations. On a constant currency basis, international sales actually grew by an impressive 9.3%.

To visualize how the company's revenue translates into profit, the following flow diagram breaks down the key components of the 2025 income statement.

Profitability Faces Headwinds

While sales climbed, profitability took a slight hit. Net income for fiscal 2025 fell by 6.2% to $2.5 billion, and diluted earnings per share (EPS) decreased by 3.1% to $144.87.

Two main factors contributed to this pressure:

1. Gross Margin Compression: Gross profit margin slipped to 52.6% from 53.1% in the prior year. The company cited a significant impact from LIFO (Last-In, First-Out) inventory accounting—a non-cash charge of $64 million this year compared to a $40 million benefit last year. In an inflationary environment, LIFO can lead to higher reported cost of goods sold, thus squeezing margins.
2. Increased Operating Expenses: Operating, selling, general, and administrative (SG&A) expenses rose to 33.6% of sales, up from 32.6% in 2024. AutoZone attributes this to "investments to support our growth initiatives," indicating a conscious decision to spend more on things like technology, supply chain, and store operations to fuel future expansion.

Expansion and Shareholder Returns Remain Priorities

AutoZone is not tapping the brakes on expansion. The company added a net 304 new stores during the year, bringing its total count to 7,657 across the U.S., Mexico, and Brazil. This continued investment in its physical footprint demonstrates a strong belief in its "destination store" model.

Shareholder returns also remain a central part of the company's financial strategy. In fiscal 2025, AutoZone repurchased $1.5 billion of its own stock. The Board of Directors has been consistently authorizing more buybacks, with the total program now reaching $40.7 billion since its inception. These repurchases help boost EPS by reducing the number of shares outstanding.

Looking ahead, AutoZone notes several factors that could impact demand, including the increasing prevalence of electric vehicles (which require fewer traditional replacement parts), advances in vehicle technology, and economic conditions that affect consumer spending. The company's ability to navigate these shifts, particularly by growing its commercial business and adapting its product mix, will be crucial for its continued success.