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Why Is AutoZone (AZO) Down 4.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for AutoZone (AZO - Free Report) . Shares have lost about 4.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AutoZone due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AutoZone Q1 Earnings & Revenues Top Estimates, Up Y/Y

AutoZonereported adjusted earnings of $13.47 per share in the first quarter of fiscal 2019 (ended Nov 17, 2018), beating the Zacks Consensus Estimate of $12.21. In the prior-year quarter, the figure was $10. The rise in earnings was primarily due to the tax reform, which lowered the effective income tax rate.

Revenues improved 2% year over year to $2.6 billion in the reported quarter and it was almost in line with the Zacks Consensus Estimate. Domestic same-store sales (sales of stores open at least for a year) rose 2.7% year over year. The rise in revenues was owing to improved performance in DIY and the company’s commercial growth, which recorded the highest increase since 2015.

Gross profit increased to $1.42 billion from $1.37 billion in the prior-year quarter. Operating profit (EBIT) rose to $487.8 million from $468.8 million registered in the first quarter of fiscal 2018.

Operating expenses, as a percentage of sales, increased to 35.2% from 34.6% a year ago.

Store Opening & Inventory

During the quarter ended on Nov 17, AutoZone opened 13 stores, and relocated one in the United States and three in Mexico. As of Nov 17, it had 5,631 stores across 50 states in the United States, the District of Columbia and Puerto Rico; 567 in Mexico; and 20 in Brazil. The total store count was 6,218 as of that date.

AutoZone’s inventory improved 2% year over year in the quarter under review, driven by store openings and increased product placement, partially offset by the sale of two business units in fiscal 2018. At the end of the first quarter of fiscal 2019, inventory per location increased to $658,000 from the year-ago figure of $663,000.

Share Repurchases

In the first quarter of fiscal 2019, AutoZone repurchased 654,000 shares for $497 million, reflecting an average price of $760 per share. The company had shares worth $985 million remaining for repurchase in its current repurchase authorization.

Financial Details

AutoZone had cash and cash equivalents of $252.1 million as of Nov 17, 2018, down from $257.7 million as of Nov 18, 2017. Total debt amounted to $5.2 billion as of Nov 17, 2018, marking a slight increase from $5 billion recorded on Nov 18, 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, AutoZone has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise AutoZone has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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