Autozone Q3 Profit Increases On Higher margins, 3% sales growth; EPS tops Consensus - Update

(RTTNews) - Automotive parts retailer AutoZone Inc. (AZO | news | PowerRating | PR Charts ) on Tuesday morning said its third quarter net income grew 4.6% aided by a 3.0% growth in net sales and improvement in gross margin. The company, however, noted that higher operating expenses, a 0.3% decline in domestic same store sales as well as challenging macro economic environment characterized by record high gas prices, negatively impacted its results for the quarter. On a per share basis, earnings for the quarter climbed 14.7% on lower number of weighted average shares outstanding in the quarter. The company's earnings per share for the quarter topped consensus by six cents, while quarterly revenues came in line with analysts' estimate.

Third Quarter Results

The Memphis, Tennessee-based specialty retailer and distributor of automotive replacement parts said net income for the third quarter increased 4.6% to $158.6 million from $151.6 million in the prior-year quarter, while earnings per share rose 14.7% to $2.49 per share from $2.17 per share in the year-ago quarter.

On average, seventeen analysts polled by First Call/Thomson Financial expected the company to earn $2.43 per share for the quarter.

Net sales for the quarter improved 3% to $1.52 billion from $1.47 billion in the same quarter last year. Domestic same store sales, or sales from stores open at least one year, decreased 0.3% for the quarter. Eleven Wall Street analysts had a consensus revenue estimate of $1.52 billion for the quarter.

Gross margin for the quarter advanced 30 basis points to 50.2% from last year due to ongoing category management efforts as well as supply chain management efficiencies. The increase was partially offset by higher inventory losses.

As a percentage of sales, operating expenses also increased 30 basis points to 32.2% or $488.97 million from the year-ago quarter, reflecting higher occupancy costs. Operating profit for the third quarter improved to $273.03 million from $264.98 million in the prior-year quarter.

Sales per average store for the quarter was $357 thousand, down from $363 thousand in the same quarter a year ago, while sales per average square foot edged down by thousand dollars to $56 thousand.

Adjusted inventory per store, which includes supplier owned pay-on-scan inventory, at the end of the third quarter stood at $508 thousand, up from $504 thousand a year ago, while net inventory, defined as merchandise inventories less accounts payable, decreased on a per store level to $56 thousand from $73 thousand last year.

Capital spending for the third totaled $58.38, up from $55.50 million in the comparable quarter last year.

During the third quarter, AutoZone opened 32 new stores, replaced three stores in the U.S. and opened two stores in Mexico. As of May 3, 2008, the Company had 4,032 stores in 48 states plus the District of Columbia and Puerto Rico in the U.S. and 130 stores in Mexico.

Commenting on the results, chairman, president and chief executive officer of AutoZone, Bill Rhodes said, "I would like to thank all our AutoZoners across North America for their ongoing commitment to delivering exceptional customer service. Through their efforts, we were able to deliver our seventh consecutive quarter of double digit earnings per share growth, despite a challenging macro environment that included record high gas prices."

Year-To-Date Highlights

For the first nine-month period, AutoZone's net income increased to $397.86 million from $378.50 million in the prior-year period, while earnings per share climbed to $6.19 from $5.33 in the year-ago period.

Net sales for the three quarters totaled $4.31 billion, up from $4.17 billion in the same period last year. Domestic store sales declined 0.2%.

Other Developments

In April, billionaire investor and chairman of Sears Holdings Corp. (SHLD | news | PowerRating | PR Charts ) Edward Lampert raised his stake in AutoZone Inc. to 36.2% or 22.9 million shares from 31%, vide a share purchase through his hedge fund ESL Investments Inc. Lampert also holds 37.2% stake in AutoNation Inc. (AN | news | PowerRating | PR Charts ).

Stock Quote

In Tuesday's regular trading session, AZO is trading at $127.35, down $0.45 or 0.35% on a volume of 0.12 million shares. In the past 52-week period, the company's stock has been trading in a range of $103.07 to $140.29.

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