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AutoZone Beats on Q2 Earnings

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AutoZone Inc. (AZO - Free Report) reported a 17.8% rise in earnings per share to $5.63 for the second quarter of fiscal 2014 (ended Feb 15, 2014) from $4.78 in the year-ago quarter. Earnings surpassed the Zacks Consensus Estimate of $5.56. Net income went up 9.4% to $192.8 million from $176.2 million in the year-ago quarter.

Quarterly revenues increased 7.3% year over year to $2 billion, surpassing the Zacks Consensus Estimate of $1.97 billion. Domestic same-store sales (sales for stores open at least one year) increased 4.3% in the quarter.

Gross profit increased 7.8% to $1.04 billion, or 52.1% of sales, from $962 million, or 51.9% of sales, in the year-ago quarter. The year-over-year growth in margins was due to increased merchandise margins and reduced shrink expense, partially offset by the impact of the AutoAnything acquisition.

Operating profit climbed 6.2% to $337.3 million from $317.6 million in the second quarter of fiscal 2013. Operating expenses increased 11% to $699.7 million, or 35.2% of sales, versus $644.4 million, or 34.7% of sales, a year ago. The increase in operating expenses, as a percentage of sales, was due to the timing of advertising costs.

Store Opening and Inventory

AutoZone opened 28 stores in the U.S. during the quarter. It also opened 4 stores in Mexico. As of Feb 15, 2014, the company had 4,871 stores in 49 states in the U.S., the District of Columbia and Puerto Rico, 367 stores in Mexico and 4 stores in Brazil.

AutoZone’s inventory grew 12% in the quarter, driven by higher store count and product placement. Inventory per store increased 8.3% to $589,000 from $544,000 in the corresponding quarter last year.

Share Repurchase

During the quarter, AutoZone repurchased 0.4 million shares for $200 million, reflecting an average price of $495 per share. The company had $727 million worth of shares remaining for repurchase at the end of the second quarter.

Financial Details

AutoZone had cash and cash equivalents of $128.8 million as of Feb 15, 2014, up from $115.5 million as of Feb 9, 2013. Total debt amounted to $4.31 billion as of Feb 15, 2014, compared with $4 billion as of Feb 9, 2013. The company had a stockholder deficit of $1.71 billion as of Feb 15, 2014, up from $1.55 billion as of Feb 9, 2013.

During the first half of fiscal 2014, AutoZone generated net cash flow of $354.4 million before share repurchases and changes in debt compared with $285.3 million in the comparable period of fiscal 2013. Capital spending decreased to $160 million from $169.6 million in the first half of fiscal 2013.

AutoZone holds a Zacks Rank #2 (Buy). The company is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. (AAP - Free Report) , O’Reilly Automotive Inc. (ORLY - Free Report) and CarMax Inc. (KMX - Free Report) . While Advance Auto Parts holds a Zacks Rank #1 (Strong Buy), O’Reilly Automotive and CarMax carry a Zacks Rank #2.

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