AutoZone (NYSE:AZO) expects continued growth from an aging vehicle fleet, expanding commercial sales and investments in local parts availability, CFO Jamere Jackson said during a company presentation.
Jackson said the automotive aftermarket remains resilient across economic cycles, supported by a growing and aging “car parc,” or population of vehicles on the road. The average age of vehicles is approaching 13 years and could move toward 14 years over the next several years, he said. More technologically complex vehicles are also staying on the road longer, providing what Jackson described as long-term tailwinds for the company and the industry.
AutoZone has more than 8,000 stores globally, including about 6,900 in the U.S. and roughly 1,000 in Mexico, Jackson said. The company is continuing to add stores as it pursues growth in both its do-it-yourself and commercial businesses.
Consumer pressures centered on discretionary spending
Jackson said AutoZone has seen relatively little change in the health of its consumer base. Lower-income consumers have faced pressure since pandemic-era stimulus funds were depleted, but he said their financial position has not materially worsened recently.
Consumer sentiment can affect the company’s discretionary categories, which account for roughly 16% to 18% of sales, Jackson said. However, more than 80% of the business is tied to maintenance and failure-related purchases. Consumers may reduce spending in other categories in order to keep their vehicles operating, he said, because transportation remains essential.
“This business is relatively inelastic,” Jackson said, citing the importance of mobility and the mix of maintenance and repair products. He said the industry’s DIY segment is expected to grow at a low-single-digit rate, while domestic commercial aftermarket sales are expected to grow at a mid-single-digit rate.
Higher gasoline prices and other inflationary pressures can cause customers to consolidate trips or defer some repairs, according to Jackson. But he said delayed maintenance or unresolved vehicle failures can lead to larger repair needs later, allowing demand to return over time. He also noted that high new- and used-vehicle costs, along with elevated interest rates, can encourage consumers to retain and maintain older vehicles.
Commercial business supports faster store growth
Jackson said AutoZone does not expect a major increase in the industry’s total number of outlets, though smaller independents and weaker operators have continued to consolidate on the margins. Companies with stronger balance sheets and the capacity to stock more parts locally are positioned to benefit, he said.
The company’s decision to accelerate store openings was driven primarily by the growth of its commercial business rather than expectations for a faster industry consolidation cycle. AutoZone’s commercial sales historically represented about 20% to 25% of its business, Jackson said, and the company still has approximately a 5% share of a commercial market approaching $100 billion.
AutoZone has invested in supply-chain capabilities, direct import facilities, its Duralast brand, pricing and a professional sales force to support commercial share gains. Jackson said the company added distribution centers on the East and West coasts during the pandemic and continues to put inventory closer to customers.
The company is also expanding its network of mega hubs, larger locations that stock about 100,000 SKUs. Jackson said AutoZone has approximately 170 mega hubs and is targeting roughly 300 in the near term, though he said the eventual number could exceed that target.
- Parts availability is the primary performance metric for commercial customers, Jackson said.
- Delivery speed is the second key consideration.
- AutoZone increasingly uses mega hubs to deliver directly to customers, rather than solely replenishing satellite stores.
Connecting satellite stores to mega hubs has produced a meaningful sales lift, Jackson said, as the additional inventory improves the company’s ability to fulfill orders.
Technology and pricing remain strategic priorities
Jackson said technology investments underpin nearly all of AutoZone’s growth objectives. The company is using technology and artificial intelligence applications to improve inventory placement across satellite stores, hubs, mega hubs, distribution centers and vendors.
AutoZone also sees an opportunity to use technology to provide more reliable in-store repair guidance. Jackson pointed to ALLDATA, a business within AutoZone that has repair data covering roughly 95% of vehicles in operation. Those data sets could help customers identify needed repairs and the appropriate parts, he said.
On costs, Jackson said the company and the industry have gained a clearer understanding of the tariff environment after a period of frequent changes. AutoZone received direct tariff refunds in its fourth quarter after certain IEEPA tariffs were rolled back, he said. The company also expects opportunities to recover costs from domestic suppliers that received tariff refunds.
Meanwhile, commodity costs, particularly oil, have contributed to continued inflation in the industry. Jackson said AutoZone generally has the pricing power to pass higher product costs through to customers while maintaining margin rates, although it seeks to manage price increases responsibly and works with suppliers on the timing and extent of cost changes.
Jackson, who was introduced as the incoming CFO of FedEx, said he is more optimistic about AutoZone’s outlook than he was several years ago because of the investments already made in supply chain, inventory, sales capabilities and technology.
About AutoZone (NYSE:AZO)
AutoZone, Inc is a specialty retailer and distributor of automotive replacement parts, equipment and accessories. The company serves do-it-yourself customers, professional automotive technicians and commercial repair businesses through its retail stores, distribution network and digital platforms.
Its merchandise includes replacement batteries, brakes, filters, belts, hoses, ignition components, tools, fluids, lighting products and other maintenance items. AutoZone also offers private-label products under brands such as Duralast, as well as vehicle diagnostic services and parts delivery for commercial customers.
Founded in 1979 as Auto Shack by Pitt Hyde, the company adopted the AutoZone name in 1987.
