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Why Is AutoZone (AZO) Up 7.5% Since Last Earnings Report?

Zacks Equity Research
Xilinx (XLNX) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for AutoZone (AZO). Shares have added about 7.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

AutoZone Earnings Surpass Estimates in Q3, Up Y/Y

AutoZone reported earnings of $15.99 per share in the third quarter of fiscal 2019 (ended May 4, 2019), up from $13.42 in the prior-year quarter. Further, the figure surpassed the Zacks Consensus Estimate of $15.23. Net income rose 10.7% year over year to $405.9 million, which benefitted from lower effective income tax rate.

In the reported quarter, net sales improved 4.6% year over year to $2.78 billion. Domestic same-store sales (sales for stores open at least for a year) rose 3.9% year over year, driven by the AutoZone’s improved performances of DIY and commercial businesses.

Gross profit increased to $1.49 billion from $1.42 billion in the prior-year quarter. Operating profit (EBIT) rose to $547.5 million from $545.8 million registered in the third quarter of fiscal 2018.

Store Opening & Inventory

During the quarter ended on May 4, 2019, AutoZone opened 35 stores in the United States, eight in Mexico and three in Brazil. As of the date, it had 5,686 stores across 50 states in the United States, the District of Columbia and Puerto Rico; 576 in Mexico; and 25 in Brazil. The total store count was 6,287 as of May 4.

AutoZone’s inventory improved 8% year over year in the quarter under review, driven by store openings and increased product placement. At the end of the quarter, inventory per location increased to $688,000 from the year-ago figure of $658,000.

Financial Details

AutoZone had cash and cash equivalents of $174 million as of May 4, 2019, down from $218 million as of May 5, 2018. Total debt amounted to $5.2 billion as of May 4, 2019, marking a slight increase from $5 billion recorded on May 5, 2018.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, AutoZone has a strong Growth Score of A, a grade with the same score on the momentum front. 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, AutoZone has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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