Editorials

AutoZone's 10-K for the fiscal year ended August 29, 2026 is dated October 26, 2026. Its headline full-year figures are gross profit of $10.64 billion, pre-tax income of $3.25 billion, income tax of $677.9 million, and diluted EPS of $152.55. This piece looks at how the fourth quarter shaped the year, and at what the cash and margin picture looks like. All figures below are in US$ millions unless noted, taken from the company's reported line items.

The fourth quarter is the story of the year. Gross profit of $3.52 billion was about $1.0 billion above the third quarter's $2.52 billion, and pre-tax income of $1.17 billion was about $355 million above the third quarter's $813 million. Operating income rose from $924 million to $1.32 billion over the same step.

Two cautions apply before reading too much into the jump. First, the reported quarterly data does not carry period length. AutoZone's fourth quarter has historically covered 16 weeks rather than the 12 weeks of the other quarters, and the reported step-up in revenue and SG&A is consistent with that. The 10-K should be checked for the exact week count before any quarter-over-quarter comparison is treated as like-for-like. Second, the fourth quarter's pre-tax income of $1.17 billion is smaller than the first two quarters combined ($1.27 billion). The year was not made by one quarter alone; it was built across the calendar, with the long fourth quarter adding the largest single block.

Operating costs moved with the quarter. SG&A was $2.20 billion in the fourth quarter against $1.60 billion in the third and $1.58 billion in the first. Full-year SG&A came to $6.92 billion against gross profit of $10.64 billion, which leaves operating income of $3.72 billion. Revenue for the year was $20.34 billion, up 7.4% year over year on the computed key-metric basis, and three-year revenue CAGR was 5.2%.

Diluted EPS ran $31.04 in the first quarter, $27.63 in the second, and $38.07 in the third. The reported diluted share count fell from 17.10 million in Q1 to 16.85 million in Q3, so part of the per-share progression reflects the buyback rather than only earnings. The quarterly data does not include a reported fourth-quarter diluted EPS, and the Q4 weighted-share line carries a negative value that is clearly a data artifact, so the Q4 per-share figure should be taken from the filing itself. Full-year diluted EPS was $152.55 and basic EPS $156.11. Net income of $2.57 billion for the year is up 3.0% year over year on the computed metric, while EPS growth was 5.3%, consistent with a lower share count.

Income tax for the full year was $677.9 million on pre-tax income of $3.25 billion, a rate of roughly 21%. Quarterly tax moved with pre-tax income: $147.1 million in Q1, $122.4 million in Q2, $171.8 million in Q3, and $236.6 million in Q4. Net income therefore tracks pre-tax income closely, and the tax line does not explain the fourth-quarter step-up. A reader who wants to test the year's earnings power should look at pre-tax operating economics, not at a tax change.

Operating cash flow was $3.25 billion for the year, with $1.13 billion of that in the fourth quarter. Quarterly operating cash flow was $944 million in Q1, $373 million in Q2, and $802 million in Q3, so cash generation was uneven within the year. Capital expenditure was $1.43 billion for the year, including $436 million in Q4. Subtracting capex from operating cash flow leaves roughly $1.8 billion of free cash flow on a simple basis; the computed key-metric set shows free-cash-flow growth of 142% year over year and a free-cash-flow yield of 3.5%, though the prior-year base behind that growth figure should be checked before it is relied on.

The capital-return picture is the main point for a value reader. Share repurchases of $2.01 billion plus capex of $1.43 billion totaled about $3.45 billion, against operating cash flow of $3.25 billion. The gap was covered within the year's financing and balance-sheet activity; the company did not build cash, which rose only $54 million. Whether that pattern is sustainable depends on how much of the operating cash flow is needed for the capex program and whether the buyback pace is set against operating cash flow or against the balance sheet.

Gross profit of $10.64 billion on revenue of $20.34 billion, and operating income of $3.72 billion, describe a business whose profit is driven by gross profit dollars and by controlled SG&A growth. The fourth quarter's SG&A rise was roughly in line with its longer length and with the higher revenue base, so the reader should look at full-year SG&A relative to gross profit rather than at a single quarter.

The balance sheet is levered and carries negative book equity. Stockholders' equity was negative $2.50 billion at year end, long-term debt was $9.08 billion, cash was $326 million, and noncurrent operating lease liabilities were $3.37 billion. Interest expense was $490 million for the year, against $13 million of interest income. Negative equity is the accumulated result of years of repurchases exceeding retained earnings; it is not in itself evidence of distress, but it means book-value measures are not useful here, and the key metrics for book value per share and P/B are not meaningful.

The computed key metrics put AutoZone at a P/E of about 20.9, EV/EBIT of about 16.1, EV/EBITDA of about 13.6, a free-cash-flow yield of about 3.5%, an earnings yield of about 4.8%, and a market capitalization of about $51.3 billion. These are descriptive. Whether they are attractive depends on what a reader assumes about the durability of the fourth-quarter step-up, the 16-week effect, the pace of buybacks against negative equity, and the capex needed to sustain store growth. This article does not draw a conclusion on that.

• How much of the fourth quarter's gross profit and pre-tax step-up is calendar length, and how much is underlying demand? The 10-K's week count and any commentary on comparable-store trends answer that.
• Does operating cash flow of $3.25 billion cover capex and buybacks over a full cycle, or does the company depend on debt capacity to keep the buyback pace?
• Is the negative equity a stable feature of a business that returns surplus cash, or does it constrain flexibility in a downturn?
• What is the fourth-quarter diluted EPS as reported in the 10-K, and how does it reconcile with the nine-month sum of $96.74?