AutoZone Tops Expectations But Continues To Struggle On The Home Front

On Tuesday, AutoZone, Inc. AZO shares initially rose slightly after the auto parts retailer posted fiscal fourth quarter earnings and sales that topped expectations as international demand soared and margins improved.However, shares went down as domestic commercial growth was lower than expected as the company competes with Advance Auto Parts Inc AAP and O'Reilly Automotive Inc ORLY. 

Fiscal Fourth Quarter Figures

For the quarter ended on August 26th, AutoZone posted revenue of $5.69 billion, which translates to a 6.4% YoY rise, topping Street expectations of $5.61 billion. On the other hand, total domestic sales came short of expectations as they increased 3.9% to $1.49 billion, below the $1.55 billion that Street expected. Same-store sales rose 1.7% domestically while rising more than a third on the international front, with same-store sales in Mexico and Brazil rising4.5% YoY. Inventory rose 2.2% YoY due to new store openings.

Operating profit rose 10.8% to $1.2 billion. AutoZone made a net income of $864.8 million or $46.46 per share, marking a rise of 6.8%,  topping projections of $45.12 and rising from $40.51 per share it made during last year’s comparable quarter.  

Fiscal Year 2023

Fiscal 2023 sales rose 7.6% while gross margin amounted to 52%. Along with 5.6% same-store sales growth, full-year operating margin improved 21.5% which is an improvement of 90 basis points.

Commercial sales grew about 9% which is a sharp decline from fiscal 2022’s 27% owed to both external factors, such as the lack of winter, but also lack of internal execution that management owed up to. However, continued opening of hubs should support AutoZone’s return to growth, along with technological improvements. 

Outlook

Considering that the commercial segment makes about a third of domestic sales, AutoZone has plenty of room for growth but it needs to show the superiority of its offerings relative to its rivals that are now taking the majority of the commercial market pie. The new CEO, Bill Hackney, a 38-year-old Auto Zoner, is expected to fix disappointing U.S. growth and expand the commercial business in a challenging climate shaped by unprecedented UAW strikes and rising gas prices that tend to have ripple effects even on auto suppliers simply because they result in less driving and therefore, extend the time before auto parts replacements need to be made. Also, its long-term prospects remain uncertain as the entire automotive industry undergoes its electric transformation. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.