An increase in consumer spending in the U.S. and a decline in gas prices have left consumers with more money. Some of this extra money is being spent on getting their cars repaired. Thus, auto parts retailers are witnessing higher sales and most of them have reported an attractive fourth quarter.Ă‚
AutoZone (AZO, Financial), a specialty retailer of automotive replacement parts and accessories, registered a blockbuster quarter very recently. The numbers were ahead of the Street’s estimates, sending its share prices higher.Â
Analyzing the quarter
Driven by higher demand for repairs and maintenance of cars, revenue for the quarter surged 7.7% to $2.14 billion, over last year. Thus, the top line was higher than the analysts’ estimate of $2.12 billion. A colder weather during the holiday season forced customers to get their vehicles repaired since it led to higher wear and tear of vehicles. This resulted in higher sales, resulting in a same store sales growth of 3.6%.
Further, the company opened 37 new stores in the U.S. and 5 in Mexico, which added to the top line. Also, it closed 1 store and relocated 1 in the U.S. Thus, these expansionary measures are something to look forward to.
Moreover, the auto parts sales jumped 8% to $2.06 billion, over last year. The domestic commercial sales were 13% higher, clocking in at $372 million.
Delving deeper
The gross margin of the company expanded to 52.2% from 52.1% in the previous year. This improvement was helped by an increase in the merchandise margins, partially offset by the acquisition of Interamerican Motor Corp.
The bottom line of the company was also ahead of the estimates. The earnings jumped to $6.51 per share from $5.63 per share in the previous year, an increase of 15.6%. Analysts were expecting the bottom line to be at $6.37 per share.
Inventory grew 11.9% during the quarter and stood at $631,000 per store. It was driven by new store openings, higher product placement and the acquisition of Interamerican Motor Corp.
Some hurdles
Some of the reasons which the auto parts retailer should take care of are the falling cash balance, consolidation among vendors and its dependence on private label brands. Higher sales of private label products have reduced margins for the company.
Moreover, higher incentive compensation and the acquisition of IMC have resulted in higher operating costs. Nonetheless, the company has taken measures to boost its revenue and the earnings.
It plans to boost its earnings through a share repurchase program, according to which it repurchased 43,000 shares for $26 million for a price of $606 per share in the fourth quarter.
Furthermore, it has been making efforts to expand its online business, which sells directly to the customers. In fact, it bought AutoAnything some time back, in order to expand its e-commerce business.
Winding it up
With a share price appreciation of 29.2%, in the last one year, AutoZone has proved to be rewarding for its investors. Its efforts to increase its bottom line and grow its business should bear fruit in the future. Moreover, the spring season is the time when most of the people get their cars repaired. Thus, this auto parts retailer should have a bright future.
