01—Abstract
Summary
Summary of the 8-K filed March 3, 2026. Cited figures are marked; the original filing is the authoritative source.
AutoZone reported fiscal Q2 2026 (12 weeks ended February 14, 2026) with net sales of $4.27 billiona, up 8.1% year over year.
Total company same-store sales rose 5.2% as reported and 3.3% in constant currency, with domestic same-store sales up 3.4%. Growth was solid at the top line, but profitability declined. Diluted EPS fell 2.3% to $27.63b from $28.29, and operating profit dipped 1.2% to $698.5 million.
The main driver was a 138 basis point non-cash LIFO charge that compressed gross margin to 52.5%c. Excluding that charge, gross margin was roughly flat, and operating expense deleverage (36.1% of sales versus 36.0%) reflected investment in growth initiatives. Cash generation and balance sheet items warrant attention.
Operating cash flow fell sharply to $342 milliond from $584 million in the prior-year quarter, and year-to-date operating cash flow declined to $1.29 billion from $1.40 billion. Capital spending rose to $328 million in the quarter. Merchandise inventory grew 13.1% year over year, driven by growth initiatives and inflation, and net inventory per store was negative $105 thousand.
Total debt was $8.9 billion, adjusted debt to EBITDAR was steady at 2.5x, and the company continued repurchasing stock, buying back $311 million in the quarter with $1.4 billion remaining under authorization. Management said international sales were slightly below expectations in constant currency, while the company opened 64 net new stores globally and reaffirmed its plan for 350 to 360 openings for the full fiscal year.
02—Key points
Key Highlights
- Net sales rose 8.1% to $4.27 billion; total company same-store sales grew 5.2% reported (3.3% constant currency) and domestic same-store sales grew 3.4%.
- Diluted EPS declined 2.3% to $27.63 from $28.29, and net income fell 3.9% to $468.9 million, pressured by margin compression rather than sales weakness.
- Gross margin fell 137 basis points to 52.5%, mostly due to a 138 basis point non-cash LIFO charge; operating expenses rose to 36.1% of sales from 36.0%.
- Operating cash flow dropped 41% to $342 million in the quarter, while capital spending increased to $328 million, a notable cash-flow headwind.
- Merchandise inventory rose 13.1% year over year, and the company bought back $310.8 million of stock at an average price of about $3,666, leaving $1.4 billion of authorization.
- Domestic commercial sales grew 9.8% to $1.15 billion, and the company opened 64 net new stores (43 U.S., 18 Mexico, 3 Brazil), ending with 7,774 stores.
- Adjusted debt to EBITDAR was stable at 2.5x and adjusted after-tax ROIC was 37.6%, versus 45.5% a year earlier, reflecting higher invested capital.
03—Questions
Frequently Asked Questions
Why did EPS decline even though sales grew 8.1%?
The decline was mainly margin-driven. Gross margin fell 137 basis points to 52.5%, largely due to a 138 basis point non-cash LIFO charge tied to inflation in inventory costs. Operating expenses also rose as a share of sales to 36.1% from 36.0%, reflecting investments in growth initiatives. Operating profit fell 1.2% and diluted EPS fell 2.3%, which was partly offset by a lower diluted share count (16.97 million versus 17.25 million).
Is the LIFO charge a sign of underlying margin weakness?
Not necessarily. LIFO is a non-cash accounting adjustment that reflects rising replacement costs of inventory. Excluding the 138 basis point charge, gross margin was roughly flat year over year (about 53.9% versus 53.9%), which suggests underlying merchandise margins held steady. Investors should still watch whether inflation persists, since it can keep pressuring reported margins.
Why did operating cash flow fall so sharply?
Operating cash flow was $342 million in the quarter versus $584 million a year earlier, and $1.29 billion year to date versus $1.40 billion. The filing does not explicitly attribute the decline, but the 13.1% increase in inventory and higher capital spending ($328 million versus $293 million in the quarter) are the most visible factors. Management's cash flow discipline and inventory trends will be key to watch in future quarters.
How is the international business performing, and what is the store growth outlook?
International reported same-store sales rose 17.1%, but constant-currency growth was only 2.5%, below management's expectations. Management said it believes market share is growing in Mexico and Brazil. The company opened 64 net new stores in the quarter, and it continues to expect roughly 350 to 360 openings for the full fiscal year, bringing the total store count to 7,774 at quarter end.
How is AutoZone balancing buybacks with its debt and balance sheet?
AutoZone repurchased $310.8 million of stock in the quarter and still has $1.4 billion of authorization remaining. Total debt was $8.9 billion, and adjusted debt to EBITDAR held at 2.5x, consistent with management's goal of maintaining investment-grade credit ratings. The company continues to operate with a stockholders' deficit of about $2.9 billion, a structural feature of its aggressive capital return history.
04—Continue