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Why Is AutoZone (AZO) Up 10% Since Last Earnings Report?

Zacks Equity Research
Home Depot (HD) closed the most recent trading day at $215.61, moving -0.76% from the previous trading session.

A month has gone by since the last earnings report for AutoZone (AZO). Shares have added about 10% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is AutoZone due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AutoZone Q2 Earnings Top Estimates, Revenues in Line

AutoZone reported earnings of $11.49 per share in the second quarter of fiscal 2019 (ended Feb 9, 2019), which surpassed the Zacks Consensus Estimate of $9.97. In the year-ago quarter, the figure was $10.38. Net income rose 1.8% year over year to $294.6 million.

Net sales improved 1.6% year over year to $2.45 billion in the reported quarter. The figure was in line with the Zacks Consensus Estimate. Domestic same-store sales (sales of stores open at least for a year) rose 2.6% year over year. This rise in revenues was due to the company’s improved performances of DIY and commercial businesses, which increased for the fourth consecutive quarter.

Gross profit increased to $1.33 billion from $1.28 billion in the prior-year quarter. Operating profit (EBIT) rose to $400 million from $205.1 million registered in the second quarter of fiscal 2018.

Store Opening & Inventory

During the quarter ended on Feb 9, 2019, AutoZone opened 20 stores in the United States, one in Mexico and two in Brazil. As of Feb 9, it had 5,651 stores across 50 states in the United States, the District of Columbia and Puerto Rico; 568 in Mexico; and 22 in Brazil. The total store count was 6,241 as of that date.

AutoZone’s inventory improved 5.4% year over year in the quarter under review, driven by store openings and increased product placement, partially offset by the sale of two business units in the prior year. At the end of the second quarter of fiscal 2019, inventory per location increased to $690,000 from the year-ago figure of $671,000.

Share Repurchases

In the second quarter of fiscal 2019, AutoZone repurchased 422,000 shares for $350 million, reflecting average price of $830 per share. The company had shares worth $635 million remaining for repurchase in its current repurchase authorization.

Financial Details

AutoZone had cash and cash equivalents of $195.7 million as of Feb 9, 2019, down from $288.5 million as of Feb 10, 2018. Total debt amounted to $5.1 billion as of Feb 9, 2019, marking a slight increase from $5 billion recorded on Feb 10, 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, AutoZone has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise AutoZone has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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