Why AutoZone Stock Sank 21% In May

Shares of AutoZone (NYSE: AZO) sank 21% in May, according to data from S&P Global Market Intelligence. Despite the broader market soaring, retailers such as AutoZone have struggled in recent quarters due to rising inflationary costs and unimpressive growth. AutoZone once again disappointed investors when releasing quarterly earnings in May, sending the stock lower.

Here's why AutoZone stock tumbled last month, and whether now is a good time for investors to buy the dip.

Slowing growth and international trouble

AutoZone released its earnings for the quarter ending May 9th in late May. Revenue grew 8.4% year over year to $4.84 billion, slightly missing Wall Street expectations.

More importantly, AutoZone's same-store sales growth slowed down in the quarter, at 4.1% domestically and 1.6% internationally in constant currency. Same-store sales are an important metric for a retailer, as it measures revenue growth from existing units. If same-store sales growth comes in below inflationary inputs, that can put pressure on profit margins.

AutoZone is generating solid same-store sales growth domestically, but it is internationally where investors are likely pessimistic. The company is embarking on a large expansion across Mexico and Brazil, risking its brand in new countries. It has 157 stores in Brazil and 933 stores in Mexico. If same-store sales growth continues to lag in these markets, it may signal that the AutoZone brand is not performing as well as it does in the United States.

Image source: Getty Images.

An earnings multiple comes back down to earth

From a profit standpoint, AutoZone delivered steady growth yet again. Net income was $641 million, up 5.4% from a year prior, but growing more slowly than revenue. Management continues to utilize its share repurchase program, spending $586 million on buybacks last quarter alone. Shares outstanding are now down around 90% from their peak at the turn of the century.

With the stock falling, these share repurchases will be much more impactful on reducing the share count. Right now, AutoZone trades at a price-to-earnings ratio (P/E) of 21, down from a peak of 30 in 2025. This is a much more palatable P/E ratio for a slow-growth business like AutoZone, especially given its stock repurchase program.

For those who believe in AutoZone's steady expansion in the United States and Latin America, the stock could be much more attractive to buy after its May decline.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.