AutoZone: In-Line Q3 Earnings, Up Y/Y - Analyst Blog

AutoZone Inc. AZO reported a 16.4% rise in earnings per share to $8.46 for the third quarter of fiscal 2014 (ended May 10, 2014) from $7.27 in the year-ago quarter. Earnings were in line with the Zacks Consensus Estimate of $8.46. Net income went up 7.4% to $285.2 million from $265.6 million in the year-ago quarter.

Quarterly revenues increased 6.2% year over year to $2.34 billion, marginally surpassing the Zacks Consensus Estimate of $2.33 billion. Domestic same-store sales (sales for stores open at least for one year) increased 4% in the quarter.

Gross profit increased 6.5% to $1.2 billion (or 52% of sales) from $1.1 billion (or 51.8% of sales) in the year-ago quarter. The year-over-year growth in margins was due to increased merchandise margins and reduced shrink expense, partially offset by higher supply chain costs inventory initiatives undertaken this year.

Operating profit climbed 5% to $478.9 million from $456 million in the third quarter of fiscal 2013. Operating expenses increased to $738 million (or 31.5% of sales) versus $686.7 million (or 31.1% of sales) a year ago. The increase in operating expenses, as a percentage of sales, was due to an increased store payroll.

Store Opening and Inventory

AutoZone opened 30 stores in the U.S. and 7 stores in Mexico during the quarter. As of May 10, 2014, the company had 4,901 stores in 49 states in the U.S., the District of Columbia and Puerto Rico, 374 stores in Mexico and 4 stores in Brazil.

AutoZone's inventory grew 12% in the quarter, driven by new store openings and higher product placement. Inventory per store increased to $594,000 from $547,000 in the corresponding quarter last year.

Share Repurchase

During the quarter, AutoZone repurchased 795 thousand shares for $420 million, reflecting an average price of $529 per share. Year to date, the company has repurchased 1.877 million shares for $912 million, at an average price of $486 per share. The company had shares worth $307 million remaining for repurchase at the end of the second quarter.

Financial Details

AutoZone had cash and cash equivalents of $145.3 million as of May 10, 2014, up from $133.7 million as of May 4, 2013. Total debt amounted to $4.4 billion as of May 10, 2014, compared with $4 billion as of May 4, 2013. The company had a stockholder deficit of $1.8 billion as of May 10, 2014, up from $1.5 billion as of May 4, 2013.

During the first 9 months of fiscal 2014, AutoZone generated net cash flow of $723.3 million before share repurchases and changes in debt compared with $625.2 million in the comparable period of fiscal 2013. Capital spending increased to $261.7 million from $258.9 million in the first 9 months of fiscal 2013.

AutoZone holds a Zacks Rank #2 (Buy). The company is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. AAP, O'Reilly Automotive Inc. ORLY and CarMax Inc. KMX.