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AutoZone (AZO) Poised for an Earnings Beat in Q1: Here's Why

Zacks Equity Research

AutoZone, Inc. AZO is slated to release first-quarter fiscal 2020 results on Dec 10, before the opening bell.

The leading provider of automotive replacement parts posted better-than-expected results in the last reported quarter on increased domestic same-store sales.

AutoZone surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 8.74%. This is depicted in the graph below:

AutoZone, Inc. Price, Consensus and EPS Surprise

AutoZone, Inc. Price, Consensus and EPS Surprise

AutoZone, Inc. price-consensus-eps-surprise-chart | AutoZone, Inc. Quote

Which Way are Top- and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for fiscal first-quarter earnings per share decreased in the last 30 days to $13.69. However, this suggests a 1.63% improvement over the year-ago quarter’s earnings. The Zacks Consensus Estimate for revenues is pegged at $2.76 billion, suggesting a 4.62% rise from the prior-year reported figure.

What the Zacks Model Says

Our proven model predicts an earnings beat for AutoZone this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: AutoZone has an Earnings ESP of +0.80%. This is because the Most Accurate Estimate is $13.80 and the Zacks Consensus Estimate is pegged at $13.69.

Zacks Rank: AutoZone currently has a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Setting the Tone

AutoZone’s net sales are anticipated to have been positively impacted by the growing market of DIY retail and commercial businesses in first-quarter fiscal 2020. Store expansion initiatives, fast delivery and high-quality products may have improved the company’s market share as well as top line.

AutoZone continued to focus on expanding and developing its supply-chain network to offer products at the local level, wherein customer demand is immediate. This, along with inventory-assortment improvements, technological advancements, strong reputation of the Duralast brand and greater engagement from store-operating teams is likely to have aided the company in the quarter.

Omnichannel efforts to improve customers’ shopping experience are anticipated to have fetched impressive sales in first-quarter fiscal 2020. AutoZone’s initiatives may have enhanced in-store systems and website traffic which bode well for sales growth. Ship-to-home next day, buy online, pickup in store and commercial customer ordering are expected to have picked pace in the quarter, increasing traffic to the company’s online site.

However, high capital and operating expenses are expected to have been concerns for the company in first-quarter fiscal 2020, due to the opening of distribution centers, mega hubs and stores; technology investments; and accelerated wage pressure.

AutoZone has increased the frequency of deliveries to its stores to three or five times a week from once. This may have impacted the gross margin with around 15-20 basis points due to higher supply chain costs in the to-be reported quarter.

Further, U.S.-Sino trade tensions are likely to have negatively impacted the company’s performance in the quarter. Tariff impact on auto parts from the U.S.-China trade war, and looming trade conflicts with Japan and the European Union may have affected profits.

Other Stocks to Consider

AutoZone is not the only firm looking up this earnings season. Here are some other companies, which according to our model have the right combination of elements to post an earnings beat this season.

Costco Wholesale Corporation COST has an Earnings ESP of +1.01% and is a Zacks #2 Ranked player. The company is expected to release fiscal first-quarter 2020 results on Dec 12.

CarMax, Inc. KMX is scheduled to report third-quarter fiscal 2020 results on Dec 20. The stock has an Earnings ESP of +0.50% and a Zacks Rank #2.

Designer Brands Inc. DBI is set to release third-quarter 2019 earnings on Dec 10. The company has an Earnings ESP of +1.81% and a Zacks Rank of 3.

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