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AutoZone Inc. (AZO - Analyst Report) witnessed a 17.8% rise in earnings to $8.46 per share in the fiscal fourth quarter ended August 25, 2012 from $7.18 per share in the corresponding quarter last year. The company’s earnings surpassed the Zacks Consensus Estimate of $8.39 per share.

In absolute terms, profits escalated 7.4% to $323.7 million from $301.5 million in the year-ago quarter.

The company’s revenues for the quarter went up 4.6% to $2.76 billion, marginally down from the Zacks Consensus Estimate of $2.79 billion. Domestic same-store sales (sales for stores open at least one year) increased 2.1% during the quarter.

Gross profit increased 6% to $1.43 billion or 51.8% of sales from $1.35 billion or 51.2% in the year-ago quarter. The year-over-year growth in margins was attributable to higher merchandise margins (55 basis points) due to reduction in acquisition costs.

Operating income swelled 7% to $560.1 million from $524.0 million recorded in the fourth quarter of fiscal 2011. Operating expenses were $872.3 million or 31.6% of sales versus $828.6 million a year ago.

The higher operating expenses was attributable to lower incentive compensation, which was partially offset by higher store payroll (45 basis points) and higher self-insurance costs (39 basis points).

Fiscal 2012 Performance

AutoZone posted a 20.6% rise in earnings to $23.48 per share in the fiscal year ended August 25, 2012 compared with $19.47 per share in fiscal 2011. Profits went up 9.6% to $930.4 million from $849.0 million in the year-ago period.

Revenues improved 6.6% to $8.6 billion and domestic same-store sales swelled 3.9% during the year. Operating income augmented 9% to $1.6 billion or 18.9% of sales from $1.5 billion or 18.5% in the fiscal 2011.

Store Opening and Inventory

AutoZone opened 72 new stores in the U.S and 24 new stores in Mexico and relocated 2 stores in the U.S. As of August 25, 2012, the company had 4,685 stores in 49 states, the District of Columbia and Puerto Rico in the U.S. and 321 stores in Mexico.

The company’s inventory grew 6.6% in the quarter, driven by new store openings. Inventory per store increased marginally by 2.5% to $525 thousand from $512 thousand in the corresponding quarter of last year; however it declined from $536 thousand in the third quarter of fiscal 2012.

Share Repurchase

During the quarter, AutoZone repurchased 1.3 million shares for $480 million, with an average price of $374. During fiscal 2012, the company has repurchased 3.8 million shares for $1.4 billion, at an average price of $359. The company has $356 million worth of shares remaining for repurchase at the end of the fiscal year ended on August 25, 2012.

Financial Details

The company had cash and cash equivalents of $103.1 million as of August 25, 2012, up from $97.6 million as of August 27, 2011. Total debt amounted to $3.8 billion as of August 25, 2012 compared with $3.4 billion as of August 27, 2011. The company had a stockholder deficit of $1.5 billion as of August 25, 2012, up from $1.3 billion as of August 27, 2011.

During fiscal 2012, the company generated net cash flow of $949.6 million before share repurchases and changes in debt compared with $1.0 billion in fiscal 2011. Capital spending increased to $378.1 million from $321.6 million in fiscal 2011.

Our Take

AutoZone is a leading retailer and distributor of automotive replacement parts & accessories with stores located in the U.S. and Mexico. The company is focused on aggressive share repurchase program along with expansion of hub stores. However, rising gas prices poses a threat to the company.

AutoZone, which competes with O’Reilly Automotive Inc. (ORLY - Analyst Report) and Advance Auto Parts Inc. (AAP - Analyst Report), maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. Currently, we have a long-term Neutral recommendation on its shares.

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