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AutoZone Gains From DIY & Commercial Units Despite High Costs

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On Dec 6, we issued an updated research report on AutoZone, Inc. (AZO - Free Report) .

This specialty retailer of automotive replacement parts and accessories reported first-quarter fiscal 2019 earnings at the beginning of this week. The company’s adjusted earnings for the quarter were $13.47 per share, beating the Zacks Consensus Estimate of $12.21. Revenues were $2.6 billion, almost in line with its respective Zacks Consensus Estimate. Improved market presence of both DIY retail and Commercial businesses aided AutoZone’s results during the reported quarter.

During the quarter under review, the company’s commercial business sales grew 11.3%, driven by new strategies, which also comprised of opening 25 net new programs. For fiscal 2019, the company has set a target to introduce 150 net new commercial programs compared with 149 added in fiscal 2018.

AutoZone, Inc. Price and Consensus

 

Further, AutoZone is continuing with its effort to expand hub store network. It opened two additional mega hubs, 13 stores in the United States and three in Mexico during the reported quarter. Addition of stores and hubs increases coverage in the local markets, which increases the company’s footprint, thus, driving sales.

The company has also been investing in its digital platform to enhance customer experience. Improved omni-channel presence helps customers on doing a primary research on the products before buying the required one from stores. Further, online purchase is growing at an accelerating pace and keeping the platform updated is likely to help AutoZone.

Of late, earnings estimates for AutoZone’s fiscal end have been going up. Over the past seven days, estimates for fiscal 2019 have moved up 1.1% to $58.58.

However, the increase in expenses to open stores and maintain the existing ones beside investing in information technology developments are hampering AutoZone’s profit margin. Although beneficial for the long term, the company’s strategy to keep adding distribution centers and invest in technologies will lead to higher costs in the near term.

Price Performance

Over the past three months, AutoZone’s stock has gained 13.6%, outperforming 0.7% increase recorded by the industry it belongs to.

 



Zacks Rank & Key Picks

AutoZone currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are CarGurus, Inc. (CARG - Free Report) , Cooper Tire & Rubber Company (CTB - Free Report) , and General Motors Company (GM - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CarGurus has an expected long-term growth rate of 5%. Shares of the company have increased 7% over the past six months.

Cooper Tire has an expected long-term growth rate of 4%. Shares of the company have rallied 5.8% over the past three months.

General Motors has an expected long-term growth rate of 8.5%. Over the past three months, shares of the company have gained 5.3%.

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