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AutoZone Fourth-Quarter Comps May Miss Street Views Amid Soft Aftermarket Demand, UBS Says

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AutoZone Fourth-Quarter Comps May Miss Street Views Amid Soft Aftermarket Demand, UBS Says

AutoZone's (AZO) fiscal fourth-quarter comparable sales are likely to miss Wall Street's projections amid soft aftermarket demand, though the print is expected to offer "line of sight" to earnings growth in 2027, UBS Securities said Tuesday.

The brokerage expects the auto parts retailer to post fourth-quarter domestic comparable sales growth of 2.5% when it reports results Sept. 22. The Street is looking for an increase of 3.6%, UBS said in a note to clients.

"At this point, we think it is well understood by the market that the aftermarket (industry) experienced softer demand during the period corresponding to (AutoZone's fourth quarter)," UBS analysts Michael Lasser and Mark Carden wrote. "Most likely, the company's sales growth bottomed in June and experienced a modest acceleration in July and August."

AutoZone's hub and megahub expansion are a key driver of market share gains, while store openings are set to provide a further boost to annual comp, according to the note. "Having 100 to 150 additional locations that are in the early stages of their life cycle could add 20 (basis points) or so to the company's annual comp," Lasser and Carden said.

The upcoming results are likely to mark a point at which the market will be able to have" line of sight" to bottom-line growth next year, according to UBS. "In fact, we think (AutoZone) can see mid-teens EPS growth in fiscal 2027 as the pieces of its model come together."

The company could present a case that it can generate "stable" comparable sales in the coming quarters, according to the analysts. "Together, these dynamics will help to calibrate models to expectations that are realistic."

Aftermarket industry conditions have remained generally durable, but trends decelerated across major peers over recent months due to factors such as pressure on core do-it-yourself, or DIY, consumers from higher gasoline prices, the brokerage said.

Last month, auto parts retailer Advance Auto Parts (AAP) lifted its full year-year earnings outlook even after its fiscal second-quarter comparable sales unexpectedly declined amid weakness in the DIY channel. Earlier in the year, O'Reilly Automotive (ORLY) lifted its full-year outlook as it reported better-than-expected second-quarter comparable store sales growth.

Price: $2887.17, Change: $-78.36, Percent Change: -2.64%

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