AutoZone Inc. (AZO, Financial) recently revealed its third quarter results for fiscal 2015. The company reported earnings of $9.57 a share for Q3 2015, up 13.1% compared to $8.46 a share in last year's quarter and beating the consensus estimate of $9.50 a share. Concurrently, the company’s net income for the quarter came in at $309.1 million, up 8.4% compared to $285.2 million in Q3 2014. Following the results, the company's shares climbed to an intraday high of $693.99 and continued showing an upwards trend in after-hours trading.
Massive Margin Growth Boosts Earnings
AutoZone posted 6.5% year-over-year growth in revenues to $2.49 billion, although the figure fell shy of the consensus estimate of $2.50 billion. The company also reported 2.3% growth in same-store sales for stores open for a minimum of one year. Gross profit grew from $1.22 billion during Q3 2014 to $1.30 billion, or 52.3% of net revenue, with margins improving on the back of higher merchandise margins. At the same time, operating profit also improved from $479 million in the year-ago quarter to $513.9 million. Operating expenses went up slightly from 31.5% of net sales in the third quarter of fiscal 2014 to 31.6% f net sales owing to the impact of the acquisition of Interamerican Motor Corporation during the quarter.
In the third quarter, AutoZone launched 27 new stores across the US, 2 new stores in Brazil and 7 outlets in Mexico. The company ended the quarter with a total of 5,512 stores, including 7 stores in Brazil, 418 outlets in Mexico, 5,069 stores in the US, Puerto Rico and the District of Columbia combined and 18 stores belonging to the Interamerican Motor Corporation brand.
The automotive supply company, which competes with Advance Auto Parts Inc. (AAP, Financial), O’Reilly Automotive Inc. (ORLY, Financial) and other such businesses in the auto parts retail segment, repurchased shares worth $515 million during the third quarter, with an average share price of $675 a share. This leaves another $778 million worth of shares with the company for future buybacks.
Final Thoughts
The company saw significant growth in net income and hence earnings during the third quarter of fiscal 2015 on the back of growth in gross margins which now stand at a massive 52.3% of sales. Although revenues fell slightly short of the consensus estimate, the figure represents a healthy year-over-year growth that investors will find reassuring. At the same time, AutoZone has bought back shares worth almost $2 billion since FY 2013 and the company’s strategy to slash expenses and repurchase stock, has given it the flexibility to outpace its success of both Q1 and Q2 of fiscal 2015. Consensus estimates peg the company’s Q4 earnings at $12.65 a share while for the full fiscal 2015; EPS is expected to come in at $40.15 a share. Further experts are looking at an average annual earnings growth rate of over 13% for AutoZone over the next five years. Consequently, the AutoZone stock currently carries a ‘buy’ guidance.
