AutoZone Meets Zacks Estimate

AutoZone (AZO - Analyst Report) reported a 3.1% year-over-year fall in its profit to $236.1 million or $4.43 per share for the fourth quarter of its fiscal year ended August 29, 2009. However, excluding the additional week in last year's fourth quarter results, the profit increased from $227.9 million, or $3.63 per share. The company has also managed to come close to the Zacks Consensus Estimate profit of $4.45 per share.

Gross profit as a percentage of sales remained 50.3%, the same as the year-ago level. While gross margin was positively impacted through continued leverage of distribution costs due to improved efficiencies and lower fuel costs, it was offset by a shift in merchandise sales mix to lower margin products. Operating expenses as a percentage of sales increased to 31.6% from 31.4% last year.

However, excluding the impact from last year's additional week, operating expenses as a percentage of sales were flat compared to last year. Leverage from increased sales was largely offset by continued investments in the enhanced hub stores and an acceleration of its store maintenance program.

Sales for the quarter increased 4.5% to $6.8 billion, while domestic same-store sales were up 4.4%. Operating profit increased 4.6% on an operating margin of 17.3%.

For fiscal 2009, net income increased 2.4% to $657 million, while earnings per share increased 16.8% to $11.73 from $10.04. Excluding last year's extra week, net income increased 5% from $625.8 million and earnings per share increased 19.7% from $9.80. Excluding results from last year's additional week, sales increased 6.6% to $6.82 billion from the prior year and operating profit increased 7.2% to $1.18 billion.

AutoZone's inventory rose 2.7% from the comparable period of last year. However, inventory per store declined 1.4% to $500,000 from $507,000 last year. Net inventory -- merchandise inventories less accounts payable -- decreased on a per-store basis to $20,000 from $25,000 last year. The company believes the continued refinement of its hub and satellite store network heading into the new fiscal year will continue to help mitigate inventory growth while accelerating late model parts coverage.

Share Repurchase Program

AutoZone repurchased 3.8 million shares of its common stock for $587 million during the fourth quarter at an average price of $154 per share. For the fiscal year, the company repurchased 9.3 million shares of its common stock for $1.3 billion at an average price of $140 per share.

Store Openings

During the fourth quarter, AutoZone opened 58 new stores, closed one store, and replaced three stores in the U.S. and opened 20 stores in Mexico. As of August 29, 2009, the company had 4,229 stores in 48 states, the District of Columbia and Puerto Rico in the U.S. and 188 stores in Mexico.

Financial Position

AutoZone had cash and cash equivalents of $92.7 million as on August 29, 2009. Total debt amounted to $2.73 billion as on that date. The company had a stockholder deficit of $433 million as on the above period. In fiscal 2009, AutoZone had a net cash flow of $673 million before share repurchases and changes in debt.

We continue to recommend the shares of AutoZone as Outperform.