AutoZone’s customer and shareholder obsession made it a Wall Street darling—and thousands of its employees millionaires. But can one of the top stocks of the last three decades keep it up in the face of new rivals and fewer tinkerers?
Phil Daniele was working for a competing auto-parts chain when AutoZone entered the Jacksonville, Florida, market in 1986. Daniele had worked in car stores since high school, paying his way through college by stocking shelves. He joined AutoZone in 1993 as a store manager in training before being given his own store after a few months, the first of ten titles in three decades. “I’m not a phenomenon. If you look at our leadership team, many of our VPs started out in an hourly role at a store,” says Daniele, 56, who is now CEO of AutoZone.
Today, AutoZone—known for its universal get in the zone, AutoZone radio jingle—employs 126,000 people, with over 6,500 stores in the U.S. and another 1,000 in Mexico and Brazil. The retailer sells everything from motor oil and upholstery cleaner to specialized car parts for nearly every make and model. With $18.5 billion in sales last year, it is worth about $70 billion. In the last 20 years, its shares have returned an average of 21% annually, trouncing the S&P 500’s 11% average return (including dividends reinvested) over the same period. AutoZone has generated nine figure–plus windfalls for its original private equity sponsor KKR, hedge fund billionaire Eddie Lampert and its founder, Pitt Hyde, who stepped down as CEO in 1996.
“I wish I had never diversified—that was a huge mistake,” jokes Hyde, 82, who is worth around $2 billion today. He sold most of his AutoZone stock back in the 1990s. Had he kept it, he’d be worth over $10 billion.
But it’s not just AutoZone’s investors and top brass who have gotten rich, and that is the company’s real secret sauce. With a compensation system built around stock options, the retailer has made many of its rank-and-file wealthy beyond their wildest dreams. More than 4,000 AutoZone employees—including many like Daniele who began as hourly employees or store managers in the 1980s and ’90s—have become millionaires from their AutoZone stock, Hyde says.
“Our compensation structure is one of the key elements of our success,” says Bill Rhodes, chair of the board since 2007 and AutoZone’s CEO and president from 2005 to 2023. “There are very, very few companies that are still 100% stock options in their long-term incentives. That’s what we are with our senior leadership team.”
Following a 2006 accounting rule change requiring companies to record options as expenses on their income statement, many S&P 500 companies have favored compensation packages with restricted and performance-based stock units (grants of stock with no exercise price) over stock options (the right to buy a stock at the price on the date it was awarded). But AutoZone stayed the course and has granted options awards to eligible employees every year for the past 25 years equal to 0.9% of its total shares outstanding.
Executives can also elect to take 25% of their annual compensation in AutoZone stock. “Our people want the risk. They want the leverage that comes with stock options,” says Rhodes, who has netted over a half-billion dollars exercising options and selling the stock (before taxes).
As it’s grown, AutoZone has restricted eligibility of stock options awards to about 400 higher-level employees, down from over 38,000 in the late ’90s. Today, store managers who drive AutoZone’s retail sales are incentivized with cash bonuses based on sales quotas. Store hands are supposed to ask people if they need help within 30 seconds of a customer walking into the store. They perform routine maintenance, like changing batteries or installing wipers, at no cost and on site. Hit your targets and drive sales and you’ll be compensated for it. Or better yet, one day you may end up in corporate—which means stock options whose value only seems to go up. Employees can also buy up to $15,000 in AutoZone stock annually at a 15% discount to market price, through an employee stock purchase plan. The idea is to keep the sales force aligned, invested in AutoZone’s future and motivated to sell, sell, sell.
View It Yourself
DIYers might still grab supplies from the local Home Depot or AutoZone, but the how-to guide went online long ago. Here is a handful of hands-on influencers with seven-figure followings on YouTube.
ChrisFix • Followers: 10.8 million
Advice on how to do a brake job, replace a transmission or restore your car’s headlights using toothpaste.
Karina Garcia • 9 million
The Gen Z–popular “queen of slime” has recipes for making ultra-clear slime, thick and glossy slime, even slime in bulk.
Dad, How Do I? • 5.3 million
Rob Kenney’s father abandoned him at age 14. Now he posts tutorials on topics like how to tie a tie, shave or start a campfire.
Home RenoVision DIY • 3.8 million
Contractor Jeff Thorman explains how to do everything from painting a wall to finishing an entire basement.
Kipkay • 2.5 million
An early YouTuber (he joined before Google bought the site in 2006) with gadget hacks such as how to charge your phone with a flashlight or make a Wi-Fi signal booster with a beer can.
At corporate, the mantra has been buy, buy, buy back its own stock. AutoZone has purchased $38 billion of its shares since 1998 through May 2025, reducing its outstanding share count by over 90% from 152 million to 16.7 million as of June. (Nineteen ninety-eight is also when it started limiting stock options.) The company has bought back more shares over time (155.5 million) than it originally had outstanding (152 million). How is that mathematically possible? It’s because of the dilution from all those stock options the company awards.
The model has proven durable, thanks to AutoZone’s earnings moving in only one direction. Since 1987, revenue has increased every year (growing 11.5% annually), while operating income ($3.3 billion last year) and net income ($2.6 billion last year) have increased in all but three years. The company has been disciplined in its capital expenditure, opting for slow and steady earnings growth over breakneck expansion. It helps that the auto-parts industry cruises through recessions, as cash-strapped drivers opt to fix rather than replace their cars. “If you put financial engineering on top of a bad business you’re just going to go out of business faster,” Rhodes says. “If you have a really good business, putting financial engineering on top of that can optimize performance, or as I sometimes like to say, put it on steroids.”
But to keep its well-oiled machine chugging, AutoZone needs to keep growing. It holds $9 billion in long-term debt on which it must pay interest ($450 million last year), and it has accelerated share repurchases, averaging $3.6 billion in annual share buybacks from 2021 through ’24, compared to an average of $1.2 billion the previous decade.
Its biggest headaches are macro headwinds. For one, its beloved DIY customer—the fix-’er-up guy who comes into the local AutoZone store to be charmed by a motivated salesman—is “a bit of a dying breed,” says Phillip Blee, a consumer equity analyst at William Blair. In 1990, over half of Americans identified as car DIYers, but today, DIYers account for only a fifth of the total $400 billion automotive aftermarket. Not only have parts have gotten more expensive, cutting into the value proposition, but cars have become harder to repair as they have become more complex and computerized. AutoZone also faces growing competition for the diehard DIYers from the likes of Walmart, Costco and Amazon. “The big box retailers are some of the more near-term threats,” Blee says.
AutoZone increasingly sells directly to repair shops, both independents and national chains, a market that now accounts for an estimated 75% of the entire industry and 90% of its growth, according to William Blair. In this space, where customer service is less about face-to-face salesmanship and more about delivering parts faster than anyone else, its biggest rival, O’Reilly Auto Parts, has raced ahead, generating $7.8 billion last year from commercial sales, compared to AutoZone’s $5.9 billion.
Daniele sees that not as a failure but an opportunity. He says AutoZone is beefing up its distribution network with new megahubs that hold over 100,000 unique car parts for nearly any vehicle, from your sister’s new Toyota Camry to your neighbor’s beat-up Chevy Corvette. “We’ve worked on our strategy of expanding our supply chain. We’ve run it too tight before,” says the CEO, who ran the commercial business from 2015 to 2021. And AutoZone isn’t loosening its grip on DIYers; it’s just looking for them in different places. The chain plans to open 500 new stores in 2028, up from the 190 it has averaged the last five years, 200 of them in Mexico and Brazil.
AutoZone is nothing if not adaptable. Joseph “Pitt” Hyde III founded the company, then called Auto Shack, in 1979 after seeing the writing on the wall for his family business, Memphis, Tennessee–based Malone & Hyde, which sold groceries to independent mom-and-pop grocery stores and small chains in the South. He watched as Walmart—on whose board he sat from 1978 to 1983—gobbled up his market share. His idea was to take Walmart’s retailer-distributor model, combine it with a shiny supermarket aesthetic and bring it to a smaller industry with fatter margins. Auto parts, which combined fixed prices, inelastic demand and no clear national brand, struck him as a clear winner. He researched the industry for a year before opening his first store in Forrest City, Arkansas. Within five years he had 170 stores.
How To Play It
By John Buckingham
While riches have amassed for auto parts sellers like AutoZone and electric-vehicle king Tesla has found investor fancy as a technology play, the traditional carmakers themselves offer tremendous total return potential in a stock market trading at all-time highs. After all, General Motors, Honda Motor and Volkswagen have ridden a decent sales environment to solid profits in recent years, fueling significant investment in electric vehicles to go along with healthy internal combustion engine businesses. While I’m not looking for massive increases in their bottom lines, I think consistently robust net income should be rewarded with higher forward price-to-earnings ratios than the current single-digit levels, especially as GM has also been buying back a truckload of stock, Honda has a lucrative motorcycle business and Volkswagen holds a sizable ownership stake in Porsche. All three also reward shareholders with dividend payouts.
John Buckingham is editor of The Prudent Speculator.
“I learned so much from Sam [Walton] about his whole productivity cycle,” Hyde recalls. “He was growing rapidly, and as he leveraged his central overhead he gained buying power. Rather than putting it on the bottom line, he reflected it in lower prices. And that’s what we instituted at AutoZone.”
Clear-eyed about the trajectory of his two businesses’ futures, Hyde took Malone & Hyde private with KKR in 1984 and spun out AutoZone (renamed after a lawsuit by RadioShack) two years later. “It was really modeled after Walmart: low prices, great customer service . . . a good old-fashioned way of doing things,” says George Roberts, KKR’s billionaire cofounder, which made $2.3 billion on its AutoZone stake. Hyde stepped down as CEO and board chair in 1996 after being diagnosed with prostate cancer.
Hedge fund billionaire Eddie Lampert, best known for merging Sears with Kmart, built a 30% stake in AutoZone between 1998 and 2001 and came to its board with ideas, including the share buyback program. “He pitched for us to change our capital allocation,” recalls Rhodes, who was then SVP of finance. “We’ve continued to use that over the years and it’s gotten bigger and bigger.”
AutoZone’s smartest bet was its $57 million ($118 million in today’s dollars) acquisition in 1996 of vehicle diagnostics database Alldata, which employees use constantly to identify the exact car part any given customer needs (and how much it will cost).
As AutoZone enters its next chapter, Daniele is determined to uphold what made it so successful and so rewarding. “Our culture has modified and morphed a little bit, but the primary tenets are the same,” he says. “If you’re committed to the industry and committed to the culture, you can do anything at this company.” If AutoZone can keep its stock market magic alive and its flock faithful, he just might be right.
More from Forbes