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AutoZone Inc. (AZO - Analyst Report) reported a 15.8% rise in earnings per share to $7.27 for the third quarter of fiscal 2013 (ended May 4, 2013) from $6.28 in the year-ago quarter. Earnings surpassed the Zacks Consensus Estimate by 6 cents. Net income went up 6.8% to $265.6 million from $248.6 million in the year-ago quarter.

Quarterly revenues increased 4.4% to $2.2 billion. Domestic same-store sales (sales for stores open at least one year) decreased 0.1% in the quarter.

Gross profit increased 4.9% to $1.14 billion, or 51.8% of sales, from $1.09 billion, or 51.6% of sales, in the year-ago quarter. The year-over-year growth in margins was attributable to reduction in acquisition costs, partially offset by the inclusion of AutoAnything.

Operating income climbed 6.7% to $456.0 million from $427.3 million in the third quarter of fiscal 2012. Operating expenses increased 3.6% to $686.7 million, or 31.1% of sales, versus $662.5 million, or 31.4% of sales, a year ago. The marginal decline in operating expenses as a percentage of sales was due to lower incentive compensation.

Store Opening and Inventory

AutoZone opened 33 new stores, relocated 3 stores, and closed 1 store in the U.S. It also opened 7 new stores in Mexico. As of May 4, 2013, the company had 4,767 stores in 49 states, the District of Columbia and Puerto Rico in the U.S., 341 stores in Mexico and one store in Brazil.

The company’s inventory grew 6.3% in the quarter, driven by an improvement in store count and continued strategic investments in hard parts assortment. Inventory per store increased a mere 2.1% to $547,000 from $536,000 in the corresponding quarter of last year.

Share Repurchase

During the quarter, AutoZone repurchased 833,000 shares for $325.0 million, reflecting an average price of $390.0 per share. The company had $278 million worth of shares remaining for repurchase at the end of the third quarter.

Financial Details

AutoZone had cash and cash equivalents of $133.7 million as of May 4, 2013, up from $103.1 million as of May 5, 2012. Total debt amounted to $4.0 billion as of May 4, 2013, compared with $3.6 billion as of May 5, 2012. The company had a stockholder deficit of $1.5 billion as of May 4, 2013, up from $1.4 billion as of May 5, 2012.

During the first nine months of fiscal 2013, the company generated net cash flow of $625.2 million before share repurchases and changes in debt compared with $631.6 million in the same period a year ago. Capital spending increased to $258.9 million from $228.3 million in the first nine months of fiscal 2012.

Our Take

AutoZone is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. (AAP - Analyst Report), O’Reilly Automotive Inc. (ORLY - Analyst Report) and CarMax Inc. (KMX - Analyst Report). Currently, shares of the company retain a Zacks Rank #3 (Hold).

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