AutoZone’s fiscal fourth quarter gave investors two stories at once. The headline numbers were strong: net sales rose 5.6% to $6.59 billion, operating profit increased 10.1% to $1.3 billion, and diluted earnings per share climbed 15.1% to $56.05. The shares rose 3.3% on Tuesday after profit exceeded Wall Street expectations, even though revenue fell short. Beneath that relief rally, however, the quarter showed why the auto-parts retailer’s accelerating expansion will be judged on sales productivity, not simply store count.
Comparable sales across the company increased 1.5% in constant currency, while domestic same-store sales rose 1.6%. The split inside the U.S. business was more revealing. Do-it-yourself comparable sales declined 0.6%, as an approximately 5% increase in average ticket was offset by lower traffic. Management cited mild early-summer weather and pressure from higher oil and gasoline prices, while also noting signs that financially stretched customers were deferring purchases or trading down. Commercial sales, by contrast, grew 8.6% to $1.9 billion in the quarter.
That divergence supports AutoZone’s effort to put more inventory closer to professional repair shops. The company opened 39 Mega Hubs during the fiscal year, taking the total to 172. These larger locations stock more than 100,000 items and serve surrounding stores as expanded distribution points. Management said roughly 2,000 commercial programs connected to a Mega Hub network generate 16% more annual sales than programs outside that network. AutoZone is targeting about 300 Mega Hubs within three years.
The strategy is capital intensive. AutoZone opened a record 374 stores during fiscal 2026, including 175 in the fourth quarter, ending the year with 8,031 locations across the United States, Mexico and Brazil. Capital spending was about $1.5 billion, and management expects roughly $1.65 billion in fiscal 2027 as it opens approximately 400 more stores. Inventory rose 10.1% from a year earlier, driven primarily by growth initiatives.
Those investments are arriving while some of the quarter’s profit lift was temporary or accounting-related. Gross margin expanded 182 basis points to 53.3%, but tariff refunds contributed 145 basis points. AutoZone said the refunds benefited quarterly results by $96 million and added $4.43 to earnings per share. The company also recorded a $15 million charge under last-in, first-out inventory accounting, far below the $80 million charge a year earlier. Excluding the LIFO charges in both periods, operating profit grew 4.4%, substantially less than the reported 10.1%.
The earnings-per-share increase also benefited from a smaller share count. AutoZone spent $697.5 million repurchasing stock in the quarter and $2.0 billion over the full year. Diluted weighted-average shares fell 3.3% from a year earlier. That approach remains supported by cash generation: free cash flow was about $1.8 billion for the year, roughly flat despite a $169 million increase in capital expenditure. Still, buybacks exceeded annual free cash flow, while debt outstanding at quarter-end was about $280 million higher than a year earlier.
International growth adds another complication. Reported international same-store sales jumped 10.7%, but the increase was only 1.3% in constant currency, as a stronger Mexican peso lifted reported results. AutoZone nevertheless opened 118 stores in Mexico and 20 in Brazil during the year. The expansion gives the company a larger future earnings base, but it also makes currency movements and the maturation of young stores more important to reported performance.
For investors, fiscal 2027 is therefore less about whether AutoZone can keep building and more about whether its new footprint can deepen commercial market share without allowing costs to outrun underlying demand. The fourth quarter demonstrated that the network strategy is producing commercial growth, but it also showed weak DIY traffic and a reported margin gain flattered by refunds and an easier LIFO comparison. The next test is whether store productivity and cash flow strengthen as that temporary help fades.