Despite a somewhat slow start to the year, we continue to expect 5% top-line growth and a 21% operating margin on average through fiscal 2026.
We do not plan to make a large change to our $800 fair value estimate for narrow-moat AutoZone
after the company posted first-quarter results. The effects of a mild winter almost one year ago continue to weigh slightly on top-line performance, with 3.4% sales growth behind our 5% full-year expectation. We anticipate the onset of colder weather will push revenue growth back toward our target over the remainder of the year, leading to cost leverage that should leave AutoZone near our 19.8% full-year operating margin estimate (versus 18.6% in the first quarter). Despite a somewhat slow start to the year, we continue to expect 5% top-line growth and a 21% operating margin on average through fiscal 2026. We believe the shares are fairly valued, reflecting the firm’s strong management team and durable industry tailwinds that should benefit national parts retailers.
Zain Akbari, CFA, is an equity analyst for Morningstar.
While AutoZone cited disappointing ship-to-home e-commerce results, we were encouraged that the larger pickup-in-store business performed well. This conforms to our contention that the industry is somewhat insulated from digital-only entrants. We anticipate customers will continue to prefer shopping in store to benefit from the services that AutoZone and its peers provide, including a trained salesforce that can ensure the shopper buys the right part and knows how to perform an often unfamiliar installation. Consequently, for do-it-yourself clients who do buy online, we anticipate pickup in store will remain the preferred method, as it allows the buyer to verify the part purchased is correct, obtain advice, and receive a component that is often needed to restore the vehicle to working order immediately. This favors large chains with dense store networks that can combine a robust digital effort with the valued in-store experience. As professional repair shops order digitally direct from retailers already, we expect AutoZone to perform well despite digital disruption elsewhere in retail.
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