Morgan Stanley analyst Simeon Gutman reiterated an Overweight rating on the shares of AutoZone Inc AZO and lowered the price target from $2,835 to $2,750.
The analyst said Q4 FY23 represented AutoZone's lowest comparable sales of the post-COVID era.
The analyst added that the ~1.7% domestic comp (a miss versus the street at ~2.3%) should improve going forward, driven by both easy compares and DIFM initiatives.
The cadence of the Q4 comp (flattish in the first half and 3.4% in the last eight weeks of the quarter) should translate to a solid bounce-back in Q1 FY24, in the analyst's view.
The analyst estimates that DIFM comps should climb at least into the mid- to high-single-digit range by mid-F24, possibly even reaching the low double-digits by year-end.
The analyst said that DIFM weakness throughout F23 largely resulted from trade down/lower car counts, ticket disinflation and unfavorable weather.
However, the last four weeks of the quarter meaningfully improved, driven by better weather, and the analyst thinks this re-acceleration should continue in F24 as a result of AZO's initiatives.
The analyst models ~175/~20 basis points of gross margin expansion in Q1/Q2 FY24 compared to ~245/~70 basis points of contraction in Q1/Q2 FY23.
In addition to a faster growth algorithm, AZO's accelerated store opening cadence should result in substantial share gains, both domestically and internationally, opined the analyst.
In FY24, the analyst forecasts +3.1% comps, ~30 basis points of gross margin expansion and ~$145.50 in EPS.
In FY25, the analyst models a ~3% comp, ~10 basis points of gross margin contraction and ~$160.60 in EPS.
Price Action: AZO shares are trading higher by 4.20% at $2,579 on the last check Wednesday.
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