AutoZone, Inc. (AZO) posted a 9.1% rise in profit for the first quarter of its fiscal 2010 ended Nov. 21, 2009, driven by expanded parts coverage as well as an improved commercial sales force and hub operating model. The Memphis, Tennessee-based specialty retailer and distributor of automotive replacement parts and accessories showed an earnings per share (EPS) of $2.82, beating the Zacks Consensus Estimate of $2.66. The EPS also improved from the year-ago level of $2.23.
Net sales increased 7.5% to $1.6 billion, while domestic same-store sales (sales for stores open for at least one year) rose 5.6% during the quarter. Gross profit as a percentage of sales went up to 50.3% from 50.1% in the year ago quarter. Gross margin increased by 20 basis points due to the leverage of distribution costs from lower fuel charges as well as improved efficiencies.
AutoZone’s inventory advanced 3.5% due to new store openings. However, inventory per store declined to $508,000 from $512,000 last year. Net inventory — merchandise inventories less accounts payable — decreased on a per-store basis to $17,000 from $43,000 in the previous year.
Share Repurchase Program
Under its existing share repurchase program, AutoZone repurchased 1.4 million shares of its common stock for $204 million, at an average price of $144 per share. This has led to $105 million worth of shares remaining under its current repurchase authorization.
Store Openings
During the quarter, AutoZone opened 38 new stores, closed two stores, and relocated one store in the U.S. and opened five stores in Mexico. As of Nov. 21, 2009, the company had 4,265 stores in 48 states, the District of Columbia and Puerto Rico in the U.S. and 193 stores in Mexico.
As part of AutoZone’s enhanced hub concept, a total of 11 hub stores have been converted to the new model during the quarter, by increasing the delivery frequency to the satellite stores and by refining the hard parts assortment. To date, the retailer has converted 71 of its 143 hubs to the new operating model.
Financial Position
AutoZone had cash and cash equivalents of $80 million as of Nov. 21, 2009, a decrease from $86 million in the same period a year ago. Total debt amounted to $2.74 billion as of that date. The company had a stockholder deficit of $484 million as of the same period. In the first quarter, the company had a net cash flow of $179 million before share repurchases and changes in debt.
Despite the improvement in earnings, AutoZone’s heavy reliance on its private label brands as well as threats from vendor consolidation and appreciation are likely to mar the company’s results. Thus, we continue to recommend the shares of the company as Neutral.
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