Auto parts retail giant AutoZone (AZO 0.80%) released its fiscal year 2024 third-quarter results on Tuesday, May 21, that showed strong bottom-line performance that easily topped analyst estimates. Net sales for the quarter (which ended May 4) reached $4.2 billion, a 3.5% year-over-year increase, and exceeded the expected $3.86 billion estimate from FactSet.
Despite challenges in some domestic segments, the quarter overall demonstrated solid financial performance, bolstered by international market growth and improved gross profit margins.
| Metric | Q3 FY 2024 | Analysts Estimate | Q3 FY 2023 | Change (YOY) |
|---|---|---|---|---|
| EPS (diluted) | $36.69 | $28.89 | $34.12 | 7.5% |
| Net sales | $4.2 billion | $3.86 billion | $4.1 billion | 3.5% |
| Gross profit margin | 53.5% | N/A | 52.5% | 102 bps |
| Operating expenses as % of sales | 32.2% | N/A | 31.5% | 70 bps |
Data sources: Company results from AutoZone. Analyst estimates from FactSet. YOY = Year over year. EPS = earnings per share.
Company overview
AutoZone operates as a retailer and distributor of automotive replacement parts and accessories in the United States, Mexico, and Brazil. It offers new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products. AutoZone serves both DIY (Do-It-Yourself) customers and commercial clients (Do-It-For-Me).
In recent quarters, the company has focused on expanding its store network and enhancing its digital and omnichannel strategy to cater to an increasingly online shopping consumer base. Key success factors include store network expansion, commercial sales programs, supply chain efficiency, product and service differentiation, and an enhanced digital strategy.
Quarterly financial and operational highlights
AutoZone opened 32 new stores in the U.S., 12 in Mexico, and one in Brazil during the quarter, bringing the total store count to 7,236. However, domestic same-store sales were flat, indicating potential market saturation. Internationally, the company saw robust growth with international same-store sales up 18.1%, driven by continued store expansions and effective market penetration strategies in Mexico and Brazil.
The Domestic Commercial sales program saw revenue rise 3.3% year over year to $1.15 billion, but average sales per program per week slightly declined to $16,400, down 2.4% from the prior year. This suggests competitive pressures in this segment.
Gross profit margin improved by 102 basis points to 53.5%, attributed to higher merchandise margins and favorable LIFO (Last-In-First-Out) adjustments. At the same time, operating expenses increased from 31.5% to 32.2% of sales, mainly due to higher store payroll costs. Its inventory increased 8% year over year. At quarter-end, the inventory per store was $851,000 compared with $810,000 a year ago.
In Q3, AutoZone repurchased 242,000 shares worth $734.7 million. At the end of the quarter, the company had $1.4 billion remaining under its current stock buyback program. The buyback effort was a significant increase from buyback efforts in fiscal year 2024's Q2 ($223.8 million in buybacks).
Looking ahead
Management provided a positive outlook for the upcoming quarters, emphasizing international market strength and strategic initiatives. Challenges such as domestic market conditions and increased operating expenses were acknowledged. The company aims to further enhance inventory availability, accelerate its domestic commercial business, and improve customer service during the key summer selling season.
Investors should keep an eye on AutoZone's continued store network expansion and the execution of its digital strategy. Additionally, any updates or progress in the company's commercial sales initiatives and the impact of operational costs will be crucial for future assessments.
