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VOL. 131 | NO. 104 | Wednesday, May 25, 2016

AutoZone Third-Quarter Results Miss Expectations

By Andy Meek

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Memphis-based auto parts retailer AutoZone Inc. knows how to grow its net sales, manage its balance sheet, handle shareholder capital and do a host of other things that have helped it generate an unbroken string of double-digit earnings per share growth the past 39 quarters.

AutoZone turned in its 39th straight quarter of double-digit earnings-per-share growth in its fiscal third quarter. The company also said weather in some regions of the country had a negative impact on sales.

(Daily News File/Brandon Dill)

One thing it can’t control is the weather, which the company as part of its fiscal third quarter earnings release, said had a negative impact on the quarter’s sales performance.

The company posted a rare miss on earnings and revenue Tuesday, May 24. It reported earnings of $10.77 a share, compared to analysts’ expectations of $10.92. On revenue, the consensus expectation was for $2.65 billion, a little above the $2.6 billion AutoZone reported.

Raymond James analyst Dan Wewer said in a commentary sent to clients after AutoZone reported that the company delivered “below-plan comp sales and (earnings per share) growth during the quarter.” He added that AutoZone is attributing the sales shortfall to unfavorable weather in the Northeast and Midwest, which is in line with comments from some of its competitors.

Even so, investors still pushed the stock a little higher immediately following an earnings call Tuesday between analysts and AutoZone executives, during which company chairman, president and CEO Bill Rhodes continued to paint a picture – as he’s done on calls past – of a company planning for long-term growth.

CNBC personality Jim Cramer made a reference to AutoZone’s aggressive share buyback program in defending the company on his channel’s “Squawk on the Street” show Tuesday.

“I’m not giving up,” he said in the wake of the third-quarter results, saying investors who sell off today because of the quarter’s results “are going to regret” it when the company announces a fresh wave of share buybacks.

Net sales were up 4 percent in the third quarter compared to the year-ago period, to $2.6 billion. The company also saw earnings per share grow 12.6 percent to $10.77 from $9.57 in the year-ago period.

The company’s domestic same store sales, or sales for stores open at least one year, were up 2 percent during the quarter. And net income grew 6 percent, to $327.5 million.

“As we continue to strategically invest in our business in order to support our long-term growth, remaining committed to our disciplined approach to growing operating earnings and utilizing our capital effectively, we are excited by our opportunities this summer,” Rhodes said.

He added that, among other plans, the company expects to open four new so-called “mega hubs” by the end of the company’s fiscal year. Such locations provide deliveries to surrounding stores and to other hub stores multiple times a day or on an overnight basis.

Among the quarter’s other highlights:

During the quarter ended May 7, AutoZone opened 33 new stores in the U.S. That contributed to a total count of 5,717.

AutoZone also bought back 687,000 shares of its common stock for $533 million during the quarter. At the end of the quarter, the company had $765 million remaining under its current share repurchase authorization.

A UBS analyst covering AutoZone recently said the company consistently produces healthy returns on invested capital and double-digit earnings per share growth.

“It has been able to achieve this by providing top-notch service on the retail side while building out its presence in the more rapidly growing commercial business at a measured pace.”

PROPERTY SALES 101 603 9,602
MORTGAGES 92 538 10,616
BUILDING PERMITS 215 1,282 20,958
BANKRUPTCIES 51 408 6,108