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AutoZone 4Q18 results: A rebound in the pace of sales growth

Automotive replacement parts and accessories retailer, AutoZone reported 4Q18 results on Tuesday (18 September), which showed faster sales and improved profitability although the Group’s market share remained flat. Revenue rose 1.4% YoY to $3.56bn vs $3.51bn recorded in 4Q17, while diluted earnings per share (EPS) stood at $18.54 (+21.4% YoY) vs $15.27 posted in 4Q17. The results exceeded Thomson Reuters consensus expectations which had forecast revenue of $3.59bn and EPS of $17.88. Domestic same store sales, or sales for stores open at least one year, also increased 2.2% for the quarter vs 3Q18’s 0.6% uptick. For the quarter, total auto parts sales, which include the firm’s domestic retail and commercial business and its Mexico and Brazil stores, increased 3% YoY. While management listed several challenges that negatively impacted these results (including inventory issues tied to vendor transitions, mismatched pricing in the online sales channel, and stumbles around the major changes being made to the supply chain), they noted that they have a firm grasp on these problems and so there shouldn’t be significant headwinds heading into FY19.

For 4Q18, gross profit, as a percentage of sales, stood at 53.6% (vs 52.8% in 4Q17). The increase in gross margin was attributable to the impact of the sale of two business units completed during the year (+72 bps) and higher merchandise margins, which were partially offset by higher supply chain costs. Operating expenses, as a percentage of sales, were 37.0% (vs 32.6% in 4Q17), with the increase primarily due to charges related to the termination of the pension plans of $130.3mn and domestic store payroll.

The firm said that sales picked up during the summer months as the warmer weather lifted demand for car maintenance. AutoZone also managed healthy profitability despite rising costs. Its rebound was slightly less robust than what its peers have seen lately, though.

Management spent $665mn buying back its shares. Inventory grew at a slightly faster pace than revenue, rising 1.6%.

During the period under review, AutoZone added 78 stores to push its global base past 6,200 locations.

For FY18, the firm reported a profit of $1.34bn, or $48.77/share, while revenue was reported as $11.22bn.

Looking ahead, AutoZone management indicated that they’re aiming for a second straight year of accelerating sales growth in FY19, with long-term plans involving laying the groundwork for more robust volume on the digital side of the business, which currently only represents a small fraction of its overall revenue.

AutoZone shares have risen 8.6% YTD and the share closed Tuesday (25 September) at $772.80.



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