AutoZone Blamed the Weather. The Weather Isn’t Done With Them.
The Q3 miss was a weather story. Q4 will be too.
“This slowdown in sales was caused by unseasonably cool weather impacting our heat-related categories, which normally begin to ramp this time of year as summer heat begins to take hold” —AutoZone CEO Philip Daniele
I don’t normally publish two days in a row. But AutoZone’s earnings miss landed squarely in my wheelhouse, my latest podcast dropped today with eerily good timing, and it’s raining again — so my plan to mow the front yard and back forty will have to wait.
AutoZone beat Wall Street’s earnings estimate by nearly two dollars a share on Tuesday. The stock fell 9% anyway — its worst single day in four years.
The explanation was the weather.
CEO Philip Daniele was direct on the call: “This slowdown in sales was caused by unseasonably cool weather impacting our heat-related categories, which normally begin to ramp this time of year as summer heat begins to take hold.”
He named the categories — air conditioning, starting, and charging. He said the correlation between cool, wet markets and comp deceleration was visible in the data. This was not a hedge. It was the explanation.
Here is the weather data supporting his explanation,
Ten consecutive weeks of above-normal temperatures. Two weeks of below-normal temperatures—the heat categories never got the signal they needed to ramp.
Daniele confirmed it precisely. The weather data and the comp data tell the same story.
Regarding our plus 4.1%, quarterly domestic same store sales, the cadence was 5% in our first 4 weeks, 4.5% in our second 4 weeks and 2.9% over the last 4-week period of the quarter.
Now, let me address the last 2 weeks a little more specifically.
Those 2 weeks were softer than the rest of the quarter with comps of 1.3%. This slow down in sales was caused by unseasonably cool weather impacting our heat related categories which normally begin to ramp this time of year as summer heat begins to take hold. This affected both DIY and commercial.
The Summer Setup for AutoZone
Daniele told analysts he expects “a normal, if not hotter than normal, summer based on the prognostication of all the weather geniuses out there.”
I’ll leave the genius designation to others.
But I’m a firm believer in the rhythm method of meteorology (aka mean reversion) — record warm summers are almost always followed by cooler ones. Last summer ranked 120th warmest out of 131 years nationally. The Northeast hit 119th.
Normal after a near-record summer is not a neutral outcome for heat-related categories. It’s a headwind.
There’s a second risk worth watching later in the summer.
A strengthening (Super?) El Niño signal in the Pacific — still weak at this point but trending — historically produces a wetter-than-normal pattern across the Northeast and mid-Atlantic in July and August.
Warm and wet does not sell air conditioners, batteries, and cooling parts the way warm and dry does. If the El Niño signal strengthens through summer as some models suggest, AutoZone’s heat category recovery in the back half of Q4 faces an additional headwind beyond the comparison alone.
And then there's gas price inflation, consumer uncertainty, etc., etc. Based on yesterday's stock performance, maybe the 'market geniuses' know something management doesn't.
Podcasting!
One more thing before I go.
Before AutoZone reported yesterday, before the stock dropped 9%, before Daniele blamed the weather on a national earnings call, I recorded a podcast on exactly this topic. The timing is accidental. The thesis isn’t.
Content Kingdom is hosted by David G. Ewing, a weekly podcast that brings together CMOs, tech innovators, and creative leaders shaping the future of brand and content. David wanted to talk about how the weather controls buying decisions. Given what happened yesterday on the AutoZone earnings call, the conversation aged well.
Come for the weather talk, stay for the war stories …
Here’s a sneak preview. More on this later.
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