Activist hedge funds have racked up big gains by pushing companies to borrow money and buy back stock. But a recent setback at Ed Lampert's AutoZone ( AZO) shows that even leverage may have its limits. The auto parts retailer got stuck in reverse late last month after its CFO split, just a week after the company reported a weak quarter. Michael Archbold departed to take over as head of finances at Saks ( SKS) shortly after AutoZone posted a steep fourth-quarter earnings shortfall. Lampert, the hedge fund guru who made headlines by orchestrating the merger of Sears and Kmart into Sears Holdings ( SHLD), owns some 35% of AutoZone through his ESL Investments. The latest same-store sales drop came as no surprise, since AutoZone has failed to deliver an increase in sales at stores open at least a year for four straight quarters. But what distressed some on Wall Street was that AutoZone missed earnings estimates in large part because the company chose to boost spending on its stores -- at the expense of keeping up the pace of its buybacks. Gimme Credit analyst Carol Levenson says AutoZone could have avoided some of the pain. "Had the company bought back more stock than it did by increasing its debt load, it could have met consensus estimates," Levenson said. In the past, AutoZone hasn't shied away from using debt to repurchase shares: Its debt load has surged some 58% to $1.9 billion since Lampert took an interest in the company seven years ago, while its share count has dropped by more than half. Investors have reaped the rewards: AutoZone stock has more than tripled since the start of 1998 to a recent $83. But the recent shortfall suggested to some observers that AutoZone has been underinvesting in its stores. Now, facing a tepid retail environment, the company faces the prospect that increased capital spending could put a lid on stock-bolstering buybacks. AutoZone dropped 5% the day of the report and has continued to fall since.