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AutoZone Inc. (AZO - Analyst Report) reported a 15.6% rise in earnings per share to $5.41 in the fiscal first quarter ended November 17, 2012 from $4.68 in the year-ago quarter. Net income went up 6.4% to $203.5 million from $191.1 million in the year-ago quarter. With this, profits in the quarter surpassed the Zacks Consensus Estimate by a penny.

The company’s revenues for the quarter increased 3.5% to $1.99 billion, marginally missing the Zacks Consensus Estimate of $2.03 billion. Domestic same-store sales (sales for stores open at least one year) increased 0.2% during the quarter compared with 4.6% a year ago.

Gross profit increased 4.9% to $1.03 billion or 51.8% of sales from $983.6 million or 51.1% in the year-ago quarter. The year-over-year growth in margins was attributable to higher merchandise margins (53 basis points) due to reduction in acquisition costs and shrink expense.

Operating income climbed 6.6% to $363.3 million from $340.9 million recorded in the first quarter of fiscal 2012. Operating expenses increased 4% to $668.6 million or 33.6% of sales versus $642.7 million or 33.4% a year ago. The higher operating expenses were attributable to higher store payroll, partially offset by lower advertising expenses.

Store Opening and Inventory

AutoZone opened 19 new stores in the U.S, 4 new stores in Mexico and expanded its footprint in Brazil with its first store. The company also closed one of the stores in the U.S. As of November 17, 2012, the company had 4,703 stores in 49 states, the District of Columbia and Puerto Rico in the U.S., 325 stores in Mexico and one store in Brazil.

The company’s inventory grew 6.8% in the quarter, driven by new store openings. Inventory per store increased marginally by 2.5% to $537.0 thousand from $524.0 thousand in the corresponding quarter of last year.

Share Repurchase

During the quarter, AutoZone repurchased 855 thousand shares for $317.0 million, reflecting an average price of $371.0. The company had $788.0 million worth of shares remaining for repurchase at the end of the first quarter of fiscal year 2013.

Financial Details

AutoZone had cash and cash equivalents of $99.9 million as of November 17, 2012, up from $96.7 million as of November 19, 2011. Total debt amounted to $3.8 billion as of November 17, 2012 compared with $3.4 billion as of November 19, 2011. The company had a stockholder deficit of $1.6 billion as of November 17, 2012, up from $1.3 billion as of November 19, 2011.

During first quarter of fiscal year 2013, the company generated net cash flow of $279.7 million before share repurchases and changes in debt compared with $303.0 million in the first quarter of fiscal 2012. Capital spending increased to $80.4 million from $61.9 million in the first quarter of fiscal 2012.

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 (more than 6 months) Neutral recommendation on its shares.

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