AutoZone's fiscal third quarter printed a familiar split. Same-store sales grew 3.9% on a constant-currency basis, operating margin held above 19% (19.1% versus 19.4%), and diluted earnings per share of $38.07 beat last year's $35.36 by 7.7% - the third consecutive quarter of mid-single-digit EPS growth even as gross margin took a 77 basis point hit from a non-cash LIFO charge. The domestic business carried the result: domestic commercial sales rose 10.4% to $1.4 billion, and constant-currency domestic same-store-sales of 4.1% outpaced the 1.6% international constant-currency figure by more than two-to-one. The other side of the same story is that reported international same-store-sales of 16.6% was a Mexican-peso translation artifact, not real demand. Outside the U.S. - in Mexico and Brazil - both markets "performed similarly to last quarter," in CEO Phil Daniele's own words, and below plan.
The forward question the quarter answers is whether the fiscal-fourth-quarter reset (a 16-week Q4 versus the 12-week Q3 just reported) can absorb the gross-margin pressure from LIFO, lift the international business back to constant-currency growth, and clear the $0.8 billion remaining under the buyback authorization before the June-authorized $1.5 billion top-up gets spent. The company has already added $850 million of 4.95% senior notes due 2031, taken out in mid-July to extend maturities and to confirm what is plainly visible in the cash flow: this quarter alone, AutoZone spent $586.3 million repurchasing its own stock at an average price of $3,582 a share, against $2,119.6 million of operating cash flow for the year to date. The capital-allocation machine is running. The question is what the domestic comp looks like with the international half on a peso-strengthened base still struggling.