AutoZone, Inc. (NYSE:AZO) reported fourth-quarter net sales of $6.6 billion, a 5.6% increase year-over-year, yet the stock closed 3.26% higher on September 22 while still trading nearly 30% below its level from a year earlier. The company's earnings beat Wall Street expectations, raising questions about whether the recent decline leaves the stock undervalued or if structural headwinds persist.
For the 16-week period ending August 29, 2026, AutoZone generated operating profit of $1.3 billion, up 10.1% from the prior year. Net income climbed to $931.6 million from $837 million in the same period last year. Diluted earnings per share rose to $56.05 from $48.71, exceeding analyst forecasts.
Margin expansion played a key role in the quarter's results. Gross profit as a percentage of sales reached 53.3%, an improvement of 182 basis points. AutoZone attributed this increase to a 145-basis-point benefit from tariff refunds and a 105-basis-point net non-cash LIFO benefit, which partially offset a higher commercial mix.
The company continued to grow its physical footprint during the quarter, opening 175 new locations including 16 new Mega Hub stores in the United States. For the full fiscal year, AutoZone opened 374 new stores. As of August 29, the total store count stood at 8,031, comprising 6,863 locations in the US, 1,001 in Mexico, and 167 in Brazil.
Management indicated that sales momentum strengthened during the final eight weeks of the quarter despite higher gas prices and a challenging economic environment. Leadership stated the company is well positioned for sales growth in fiscal 2027.
Investor sentiment remains mixed despite the strong quarterly performance. According to Insider Monkey data, hedge fund interest slightly declined in the second quarter, with 62 funds holding the stock at the end of that period compared to 63 in the first quarter. Short interest was relatively limited at 2.99% of the float as of August 31.
Analyst sentiment leans positive, with 84% of the 31 analysts covering AutoZone rating the stock a Buy. The median 12-month price target stands at $3,914.50, implying more than 35% upside from the stock's September 22 closing price.
While earnings growth and improved margins support a bullish case, the significant year-to-date decline and specific margin benefits from tariff refunds and LIFO adjustments complicate the valuation picture. The stock's performance over the past 12 months remains a point of concern for investors weighing recent results against longer-term trends.