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AutoZone (AZO) Q3 Earnings Miss, Same-Store Sales Down Y/Y

AutoZone, Inc. AZO reported 6.2% year-over-year growth in earnings per share to $11.44 for the third quarter of fiscal 2017 (ended May 6, 2017) from $10.77 recorded in the year-ago quarter. However, earnings missed the Zacks Consensus Estimate of $12.00. Net income climbed 1.3% to $331.7 million from $327.5 million a year ago. 

Quarterly revenues improved 1.2% year over year to $2.62 billion in the reported quarter. However, the figure missed the Zacks Consensus Estimate of $2.70 billion. Domestic same-store sales (sales for stores open at least for one year) were down 8.2% year over year in the quarter.

Gross profit rose to $1.38 billion (or 52.6% of sales) from $1.37 billion (52.9%) in the prior-year quarter. The decrease in gross margin was due to higher supply chain costs associated with current year inventory initiatives and higher inventory shrink results, partly offset by lower acquisition costs.

Operating profit declined to $529.6 million from $536.4 million recorded in the third quarter of fiscal 2016. Operating expenses, as a percentage of sales, rose to 32.4% from 32.2% a year ago. Operating expenses margin rose due to fixed cost deleverage, higher self-insurance cost and increasing wage pressures, partly offset by last year’s discrete legal charge and lower incentive compensation.

Store Opening & Inventory

AutoZone opened 35 stores in the U.S. and eight stores in Mexico. As of May 6, the company had 5,381 stores across 50 states, the District of Columbia and Puerto Rico in the U.S., 499 stores in Mexico, nine stores in Brazil and 26 Interamerican Motor Corp. (IMC) branches. The total store count was 5,889 as of that date.

AutoZone’s inventory grew 7.3% year over year in the quarter, driven by store openings and increased product placement. Inventory per store increased to $653,000 from the year-ago level of $629,000.

Share Repurchases

In the third quarter of fiscal 2017, AutoZone repurchased 396,000 shares for $284 million, reflecting an average price of $716 per share. The company had shares worth $1.051 billion remaining for repurchase at the end of the quarter.

Financial Details

AutoZone had cash and cash equivalents of $227.1 million as of May 6, 2017, up from $213.4 million as of May 7, 2016. Total debt amounted to $5.15 billion as of May 6, 2017 compared with $5 billion as of May 7, 2016. The company had a stockholders’ deficit of $1.71 billion as of May 6, 2017, down from $1.86 billion as of May 7, 2016.

During the first nine months of fiscal 2017, AutoZone generated net cash flow of $650.9 million before share repurchases and changes in debt compared with $789.9 billion in the first nine months of fiscal 2016. Capital spending increased to $357.9 million from $299.9 million a year ago.

Price Performance

Autozone underperformed the Zacks-categorized Retail/Wholesale-Auto Parts industry in the last three months. The share price of AutoZone decreased 10.1%, while the industry saw a 6% decline.

Zacks Rank & Key Picks

Currently, AutoZone carries a Zacks Rank #3 (Hold).

Better-ranked companies in the auto space include Fiat Chrysler Automobiles N.V. FCAU, Fox Factory Holding Corp FOXF and Lear Corporation LEA. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fiat has an expected long-term growth rate of 22.4%.

Fox Factory has an expected long-term growth rate of around 16.5%.

The expected long-term growth rate for Lear is pegged at 7.1%.

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Click for Free Fox Factory Holding Corp. (FOXF) Stock Analysis Report >>
 
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