AutoZone stock falls as Goldman Sachs maintains Neutral rating

AutoZone (AZO) reported mixed Q4 2025 results, with EPS of $48.71 missing both consensus and Goldman Sachs estimates, and EBIT margin declining 156 basis points year-over-year to 19.2% due to gross margin compression and increased SG&A. Conversely, the company exceeded same-store sales growth expectations, achieving 5.1% ex-FX, and met revenue forecasts of $6.24 billion. Goldman Sachs reiterated its Neutral rating and $3,894 price target, noting the stock's premium valuation at a 27.5x P/E ratio despite the earnings shortfall and margin pressures.

Analysis

AutoZone (AZO) presented a mixed financial picture in its fourth-quarter 2025 results, characterized by strong top-line performance overshadowed by significant profitability pressures. The company surpassed sales expectations, delivering total company same-store sales growth of 5.1% ex-FX, which was ahead of both Goldman Sachs' 4.5% and the consensus 5.0% estimates. This growth was driven by a 4.8% increase in domestic same-store sales and a robust 7.2% in international sales ex-FX, culminating in revenue of $6.24 billion that met market forecasts. Despite this sales momentum, profitability metrics deteriorated, with the EBIT margin contracting by 156 basis points year-over-year to 19.2%, falling short of consensus (20.1%). This margin erosion was a result of both a 103 basis point drop in gross margin to 51.5% and a 53 basis point rise in SG&A as a percentage of sales. Consequently, earnings per share of $48.71 missed both consensus ($50.80) and Goldman Sachs ($50.97) estimates, creating a negative surprise for investors. The combination of an earnings miss and margin compression is particularly notable given the stock's premium valuation, reflected in a P/E ratio of 27.5x, leading Goldman Sachs to reiterate its Neutral rating.

Key Decisions for Investors

• Investors should closely monitor AutoZone's gross margin and SG&A expense trends, as the 156 basis point year-over-year contraction in EBIT margin is a primary concern that challenges the stock's premium 27.5x P/E valuation.
• While the 5.1% same-store sales growth is a positive signal of demand, the inability to translate this top-line strength into earnings growth warrants caution, suggesting investors should weigh strong consumer demand against underlying profitability challenges.
• Given the conflicting signals of a sales beat against an earnings miss and the reiterated 'Neutral' rating from Goldman Sachs, it may be prudent for investors to await further clarity on margin stabilization before increasing or initiating new long positions.