AutoZone Q1 FY26 Earnings Preview – Rich Implied Move, Muted History

1. Market & Expectations

AutoZone reports Q1 FY26 before the open on Tuesday, December 9, 2025. The stock is trading around $3,823, roughly 13% below its $4,388 52-week high and about 21% above its 52-week low near $3,162. That leaves AZO in the middle of its one-year range after a strong multi-year run. Recent realized volatility is modest: 30-day annualized vol sits in the low-20s, and the tape over the past few months has been choppy but not explosive.

On valuation, AZO changes hands at about 25–26x trailing EPS and roughly 3.7x sales, a premium multiple for a mature specialty retailer but broadly in line with where the market has been willing to pay for AutoZone’s high margins, negative reported equity (from buybacks), and durable mid-single-digit top-line growth. Margins remain robust, with gross margin above 50% and net margin in the low-teens, supported by scale in procurement, private-label mix, and a focus on higher-margin commercial business.

Street consensus for Q1 FY26 is clustered around:

EPS: ~$32.2–32.4 (roughly flat to slightly down vs. $32.5 a year ago).
Revenue: ~$4.64B, implying roughly high-single-digit growth year on year.

EPS estimates have drifted slightly higher over the last month, but revisions have been small. That suggests expectations are constructive but not euphoric.

The recent earnings reaction history is quite muted. Over the last four quarters, the day-after moves have been on the order of:

Q4 FY25: essentially flat (around 0%).
Q3 FY25: down ~3–3.5%.
Q2 FY25: roughly flat.
Q1 FY25: up <1%.

Averaging those, you get an absolute one-day move of roughly ~1–2% despite multiple EPS misses. The story has been “fundamentally solid, expectations a bit high,” with the stock leaking lower rather than exploding in either direction.

Against that, the options market is currently pricing a very different story: using the 14-day December 19 expiry as the post-earnings event line, the near-money 3,700 and 4,000 straddles trade around $233 and $249 respectively, implying an average package cost near $241. On a ~$3,823 underlying, that’s an implied absolute move of about 6.3%. That’s roughly 3–5x the average realized post-earnings move over the last year, and meaningfully above the backdrop of low-20s realized vol.

So, heading into this print, we have:

Valuation: full but not bubble-ish.
Fundamentals: mid-single-digit growth with high margins.
Consensus: modestly positive revisions, expectations of solid comps.
History: multi-quarter pattern of small negative/flat reactions even when results are okay.
Options: implying a “mini-event” sized ~6% move that is far larger than recent reality.

That combination leans toward a rich implied move with a fair but not low bar.

2. Business & Balance Sheet

AutoZone is a scale leader in U.S. auto parts retail, with growing international exposure in Mexico and Brazil and a steadily expanding commercial (DIFM) business. Structurally, the story is still attractive: an aging vehicle fleet, constrained new-car affordability, and customers trading toward repair over replacement all support steady demand for parts and service.

Key fundamentals:

TTM EPS in the mid-$140s per share.
Net margin in the low-teens, with gross margin over 50%.
Revenue growth running a touch above 2% on a trailing-twelve-month basis, with Street looking for a step-up to high-single-digit growth this quarter as commercial and international continue to scale.
Negative book equity and a high (negative) debt-to-equity ratio driven by aggressive buybacks; liquidity ratios (current <1x, quick far below 1x) are lean but consistent with the asset-light, high-turnover model.

Recent commentary from the company and analysts emphasizes:

Commercial growth as the primary structural driver.
Strong, if uneven, DIY demand as inflation and higher rates keep consumers in older cars.
Ongoing store expansion and international growth as long-term levers.

The main fundamental risks around this quarter are:

Another EPS miss after a string of disappointing prints (the last several quarters have come in below consensus even as sales grow), which would reinforce the view that the bar remains a bit too high.
Any signs of slowing comps in DIY or commercial as competition intensifies or the consumer softens.

On the other hand, there is upside risk if:

Same-store sales growth comes in stronger than expected (particularly in commercial).
Gross margin benefits from mix and supply chain efficiencies, helping EPS re-establish a consistent “beat” pattern.

Overall, the business and balance sheet support the long-term bull case, but they do not scream “inflection quarter.” The setup feels more like a “prove it” print in a structurally good story than a binary turning point.

3. Options & Sentiment

The options chain is the heart of this setup.

Using the December 19 monthly expiry (14 days out, capturing the December 9 report plus a few trading days), we can approximate the event-week straddle as follows:

3,700 call mid ~178.
3,700 put mid ~54.
4,000 call mid ~36.
4,000 put mid ~214.

Averaging those two near-money strikes gives a notional straddle cost of roughly $241 on a $3,823 stock – an implied ±6.3% move.

At-the-money implied vol for those strikes sits around the mid-30s in percentage terms, versus realized 30-day and 90-day annualized vol in the low-20s. So the event premium is material.

Skew and positioning:

Near-money put open interest is consistently larger than call OI (e.g., at 3,500 and 3,700, put OI runs ~2–5x the calls).
Short-dated volume ahead of the print has also leaned slightly to puts near the money, while deep ITM calls have chunky open interest that looks more like structural stock replacement than earnings speculation.
Skew is modestly put-rich: downside insurance near the money is being paid up for, but it’s not an extreme crash-bid setup.

This looks more like:

A rich implied move vs. realized history.
Modest downside hedging/positioning via puts.
No sign of call-chasing or upside speculation dominating.

Street sentiment:

Analysts broadly remain constructive: multiple Overweight/Buy ratings and price targets clustered in the mid-$4,000s, with at least one high-profile target around $4,800.
Preview notes emphasize continued comp growth, a healthy commercial pipeline, and AutoZone’s ability to compound EPS via buybacks.
However, coverage also highlights the recent pattern of EPS misses and modestly negative reactions, framing this as a “show me” quarter.

Put together, the sentiment/positioning picture looks like:

Long-term bullish crowd.
Short-term cautious tape with hedges in place.
Options market demanding a big premium for what has recently been small realized moves.

That asymmetry – expensive implied move, put-tilted skew, and a “prove it” narrative – argues for a base case of downside or flat price action with realized vol underperforming the straddle.

4. Guidance, Direction & Confidence

Plausible paths

Upside / Relief scenario (less likely):
AutoZone prints a clean beat on EPS and revenue, comps surprise to the upside in both DIY and commercial, and management’s tone on full-year trends is upbeat with no new cost or margin worries. Guidance and commentary reset the narrative from “serial small misses” to “back to dependable beats.” The stock could gap higher and challenge the low-$4,000s, with a 6–8% move not out of the question.
Inline / “good but priced” scenario (base case):
Results land roughly in line with consensus on EPS and revenue, with comps decent but not spectacular. Guidance is steady, with management reiterating the existing long-term growth algorithm rather than raising the bar. Given the rich implied move and prior run, the stock gaps down modestly as event premium comes out of the options, with traders fading a “no fireworks” print.
Downside / miss scenario (tail but real):
Another EPS miss, softer comps in DIY or commercial, or cautious commentary on the consumer or margins could trigger a more decisive down move, particularly with put hedges already on. In that case, a 7–10% drawdown is plausible as longs reset expectations and vol shorts get squeezed.

Base case call

Earnings vs. consensus: We lean to an “inline” outcome – a small beat or miss is possible, but we do not see a strong edge toward a decisive beat given the recent miss streak and modestly positive but not aggressive revisions.
Gap direction: Our base case is a modest downside gap.
Expected gap magnitude: We expect an absolute move of roughly 3–4%, materially smaller than the ~6% implied by the 14-day straddle. That translates to an opening print in the high-$3,600s to low-$3,700s if the stock closes near current levels.
Guidance tone: We expect “inline” guidance – management reaffirms the current trajectory, emphasizes store growth and commercial strength, but avoids a big raise that would reset expectations higher.

Confidence framing

We set:

Direction: Down.
Magnitude: ~3.5% absolute move.
Direction confidence: 0.58 (58% probability the gap is down vs. up/flat).

Rationale:

Rich implied move vs. history strongly supports an under-realization view; that’s high-conviction.
Direction is less certain: put skew and recent post-miss drifts lower lean bearish, while constructive fundamentals and positive long-term sentiment keep upside risk live.
We think the distribution is skewed toward “small down” outcomes, but not enough to justify a 70%+ confidence reading.

5. Trade Framework (Not Investment Advice)

These are illustrative, risk-defined structures that match the view of modest downside and over-priced implied move, using the December 19 expiry as the main event line. Actual strikes and pricing will differ; these are conceptual examples, not recommendations.

5.1 Directional: Short-dated Bear Put Spread

Structure: Buy a slightly OTM put, sell a further OTM put (e.g., buy 3,800 put, sell 3,600 put, Dec 19 expiry).
Thesis: Profit if AZO gaps lower into the high-$3,600s/low-$3,700s and doesn’t violently rebound. A 3–5% down move post-print should push the spread toward at least half-value, with full value realized on a deeper drawdown.
Why it fits:
- Aligns with the base-case modest downside.
- Limits risk to the net debit.
- Uses rich implied vol to keep the width-to-cost ratio attractive.

Key risks: A flat or up move will decay the spread quickly; a big upside surprise can take the spread to zero. A sharp intraday reversal from a down gap (gap down, close flat/up) can also hurt if fills are late.

5.2 Vol-Short / Range-Bound: Iron Condor Around the Implied Move

Structure (example):
- Sell OTM put spread below the expected downside (e.g., short 3,500 / long 3,300 puts).
- Sell OTM call spread above resistance (e.g., short 4,100 / long 4,300 calls).
- Same Dec 19 expiry.
Thesis: The implied ±6% move looks rich vs. recent ±1–3% realized earnings moves. An iron condor collects premium from both sides while capping tail risk with the long wings.
Why it fits:
- Profits if AZO stays roughly within ±6% from the reference price through expiration.
- Uses skew: put spreads likely pay slightly more premium than call spreads, reflecting downside hedging demand.
- Matches our view that realized vol will underperform implied.

Key risks: A large surprise in either direction (e.g., double-digit move) can push one side of the condor toward max loss. Vol can stay sticky after the print if the narrative becomes more uncertain, slowing the decay of premium.

5.3 Slight Bear / Hedge for Long Stock: Short Call Spread

Structure: For traders already long shares, sell a near-money call and buy a further OTM call (e.g., short 4,000 / long 4,200 calls, Dec 19 expiry).
Thesis: Use elevated call premium to partially hedge downside and monetize the view that AZO will not break out sharply above prior highs on this print.
Why it fits:
- Generates income against a long stock position if the stock stays flat or drifts lower.
- Caps upside but still allows meaningful participation up to the short strike.

Key risks: A big upside surprise can push AZO through the short strike, capping gains on the underlying and creating mark-to-market pain on the spread until the long wing kicks in.

6. TL;DR

AutoZone goes into its December 9 Q1 FY26 print with a strong long-term story, solid comps expectations, and a supportive analyst base, but the options market is pricing a roughly 6% move after a year of mostly 1–3% post-earnings reactions. We think the bar is fair but not low, with recent EPS miss history and modest put-tilted positioning arguing for a small downside reaction rather than a breakout. Our base case is an inline quarter with steady guidance, a ~3.5% downside gap, and realized volatility that underperforms the rich 14-day straddle.

Earnings Prediction