Investors in car stocks often pore over the quarterly results of auto parts companies to get a read on the overall industry -- and to glean potential investment ideas. AutoZone (NYSE:AZO) is a perennial bellwether for industry health, and it's also been a pretty decent investment of late, as its stock has leaped 41% higher over the last 12 months. The auto parts retailer released fiscal fourth-quarter earnings on Sept. 24, revealing moderate comparable sales growth and continuity in a positive overall revenue trend. Below, as we walk through important details from the quarter, note that all comparative numbers refer to those of the prior-year quarter.

AutoZone results: The raw numbers

Metric Q4 2019 Q4 2018 Change
Revenue $3.99 billion $3.56 billion 12.1%
Net income $565.2 million $400.3 million 41.2%
Diluted earnings per share $22.59 $15.02 50.4%

Data source: AutoZone.

What happened with AutoZone this quarter?

3D-rendered illustration of engine pistons.

Image source: Getty Images.

  • The fiscal fourth quarter contained one extra week versus the prior-year quarter; adjusting for the extra week, sales rose by 5.4%.
  • Domestic same-store sales improved by 3%.
  • The company's total revenue advance was paced by growth in domestic commercial sales, which increased by 21.2% on a reported basis to $886.5 million, or 14.1% after adjustment for the quarter's extra week. Coupled with new store openings, commercial sales to garages, dealers, and auto repair shops have proved a primary growth driver over the last several quarters, as the company's retail business, while still expanding, is more mature by comparison.
  • AutoZone opened 86 new stores in the U.S., 10 locations in Brazil, and 20 in Mexico. The company ended the period with 5,772 U.S. stores, 35 stores in Brazil, and 604 stores in Mexico, for a total global count of 6,411.
  • The company added 62 new commercial programs in domestic stores; according to management, 85% of domestic stores now offer sales to commercial customers.
  • Gross margin slipped by 20 basis points to 53.4% due to a shift in product mix that resulted in lower merchandise margins.
  • Operating income jumped by roughly $190 million to $780.8 million. After adjustment for the additional week and a prior-year pension plan termination charge of $130.3 million, adjusted operating income rose 0.6% to $725 million. 
  • The company continued its massive share buyback program, repurchasing $692 million worth of its shares during the quarter. AutoZone repurchased a cool $2 billion of its common stock during fiscal 2019.

What management had to say

During AutoZone's earnings conference call, CEO Bill Rhodes discussed several factors behind the company's recent revenue expansion -- AutoZone's year-over-year net sales increased by 6% in 2019, to nearly $12 billion:

While we remain smaller than many of our peers in absolute sales volume, our growth rate has been very robust, growing more than three times the industry growth rate. This growth has come from a combination of many initiatives that have been in development for years, including inventory assortment improvements, hub and megahub expansions, the ever-strengthening reputation of the Duralast [private-label battery brand] across our professional customer base, technology enhancements, increased engagement of our very strong store operating teams, and tremendous efforts on the part of our entire selling organization to artfully and effectively convey our value proposition.

Looking forward

While AutoZone handed in relatively strong results this quarter, investors remain wary of the potential for import tariffs to eat into company profits. As I've recently discussed, management's strategy for absorbing the effect of duties on imported products involves passing on the differential to customers on a SKU-to-SKU (stock-keeping unit) basis.

During the earnings call, CEO Rhodes relayed that the retailer was beginning to see product cost inflation on its purchased inventory. Rhodes characterized the increases as manageable, and noted that AutoZone hasn't yet seen a material impact on its gross margin. Nonetheless, Rhodes reaffirmed the company's intention to protect its bottom line, stating that vis-a-vis tariff pressures, "our prices to our customers have and will continue to increase."