AutoZone(US:AZO) Goldman Sachs·2025-05-28 04:55Investment Rating - The report assigns a Neutral rating to AutoZone Inc. (AZO) with a 12-month price target of $3,811, indicating a downside potential of 0.4% from the current price of $3,826.46 [9][11]. Core Insights - AutoZone reported a 3Q25 EPS of $35.36, which was below the Goldman Sachs estimate of $35.91 and consensus of $37.11. The total company same-store sales increased by 5.4%, exceeding the GS/consensus estimates of 3.1%/3.2% [1][8]. - Domestic same-store sales rose by 5.0% year-over-year, while international same-store sales (excluding foreign exchange) increased by 8.1%. The report estimates that DIFM same-store sales grew by 9.8% year-over-year, while DIY sales increased by 3.0% [1][4]. - The EBIT margin decreased by 185 basis points year-over-year to 19.4%, which was below the GS estimate of 20.8% and consensus of 20.5%. This decline was attributed to a gross margin decrease of 77 basis points to 52.7% and an increase in SG&A as a percentage of sales to 33.3% [1][4][8]. Summary by Relevant Sections Financial Performance - AutoZone's total sales for 3Q25 were reported at $4,464 million, reflecting a sales growth of 5.4% compared to the previous year. The gross profit was $2,354 million, with a gross margin of 52.7%, which was below expectations [8]. - SG&A expenses increased by 8.9% year-over-year to $1,487 million, with the SG&A ratio at 33.3%, slightly above the GS estimate of 32.4% [4][8]. Inventory and Debt - The company ended the quarter with $6,823 million in inventory, representing a 10.8% year-over-year increase. The accounts payable to inventory ratio was 115.6%, down from 119.7% in the prior year [4][7]. - AutoZone's adjusted debt to EBITDAR ratio remained stable at 2.5x, consistent with the previous year and quarter [7]. Market Expectations - The report anticipates a negative market reaction to the earnings miss, particularly due to the lower-than-expected gross margin. Key areas of focus for future commentary include gross margin expectations for 4Q, inventory availability, and the health of the DIY consumer [6].