AutoZone Profits Up 14%

AutoZone Inc. (AZO) has posted a 14% increase in profit to $268.9 million or $5.66 per share in the fourth quarter of its fiscal 2010 ended August 28, 2010 from $236.1 million or $4.43 per share in the year-ago quarter. With this, the automotive retailer has exceeded the Zacks Consensus Estimate of $5.44 per share during the quarter.

Net sales increased 9.5% to $2.4 billion, meeting the Zacks Consensus Estimate during the quarter. Domestic same store sales (open at least one year) rose 6.7%. The improvement in results can be attributed to the company’s aggressive store expansion strategy and a recovery in the U.S. automotive industry.

Gross margin was 50.5% compared to 50.3% in the fourth quarter last year. The increase in gross margin was attributable to leveraging distribution costs on the back of higher sales and operating efficiencies.

Operating profit rose 13% to $472.7 million from $417.6 million in the prior year. This has translated into an operating margin of 19.3% versus 18.7% last year.

Annual Results

In the fiscal year ended August 28, 2010, AutoZone’s profit rose 12.4% to $738.3 million or $14.97 per share, from $657 million or $11.73 per share in the previous fiscal year. The profit was higher than the Zacks Consensus Estimate by 21 cents per share.

Net sales escalated 8% to $7.4 billion, up from the Zacks Consensus Estimate of $7.3 billion. Domestic same store sales went up 5.4% during the fiscal year. Operating profit increased 12.2% to $1.3 billion from $1.2 billion a year ago. Consequently, operating margin was 17.9% versus 17.3% last year.

Store Openings and Inventory

During the quarter, AutoZone opened 80 stores and replaced one store in the U.S., and opened 26 stores in Mexico. For fiscal 2010, the company has opened 163 stores, replaced 3 stores, and closed 3 stores in the U.S. as well as opened 50 stores in Mexico.

As of August 28, 2010, the company had 4,389 stores in 48 states, the District of Columbia and Puerto Rico in the U.S. and 238 stores in Mexico.

The company’s inventory inched up 4.4%, driven by new store openings. Inventory per store was $498,000 versus $500,000 a year ago. Net inventory (merchandise inventories less accounts payable) improved on a per-store basis to minus $28,000 from plus $20,000 last year.

Share Repurchase

Under the current share repurchase program, AutoZone repurchased 2.8 million shares of its common stock for $565 million during the quarter, at an average price of $199 per share. For the full fiscal year, the company repurchased 6.4 million shares of its common stock for $1.1 billion, at an average price of $176 per share. At the end of the fiscal year, the company had $185 million remaining under its share repurchase authorization.

Financial Position

AutoZone had cash and cash equivalents of $98.3 million as of August 28, 2010, up from $92.7 million as of August 29, 2009. Total debt amounted to $2.9 billion as of August 28, 2010 compared to $2.7 billion as of August 29, 2009. The company had a stockholder deficit of $738.8 million as of August 28, 2010, up significantly from the year-ago level of $433.1 million.

In fiscal 2010, AutoZone had a net cash flow of $947.6 million before share repurchases and changes in debt. This was an improvement from the year-ago level of $673.3 million.

Our Take

AutoZone is focused on aggressive expansion of its Hub store, acceleration of store maintenance and expansion in the size of its commercial sales force. However, the retailer relies heavily on its private label brands, which could hinder its business should they falter. Therefore, the company retains its Zacks #3 Rank, which translates to a short-term (1–3 months) recommendation of Hold.

AUTOZONE INC (AZO): Free Stock Analysis Report

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