The biggest U.S. auto-parts retailer, AutoZone (NYSE: AZO), reported strong third-quarter earnings this week, with a 12% year-over-year rise in profits that trampled Wall Street's estimates. Shares jumped to a 52-week high on the news. Can we expect more good news to come?
A look at the numbers
Revenues in the quarter rose to $1.98 billion, up 8.6% from year-ago period, driven by an increase in U.S. same-store sales, which increased by 5.3%, and new store additions. The Memphis-based company opened nearly 43 stores this quarter in the United States and 12 in Mexico.
The company sees an opportunity for further growth in Mexico, after having enjoyed considerable success there. It is also considering an expansion into the rapidly emerging Brazilian market.
The outlook
Net income rose by 12%, to $227.4 million. Earnings per share climbed by greater than 20% for a 10th consecutive quarter, helped largely by the repurchase of 1.3 million shares.
Operating expenses went up by 9% from a year ago, as AutoZone increased spending on its hub-store program. Although the expansion of the program is pushing up costs in the short term, these outlays should ease up as the year progresses.
Car sales in the United States are likely to hit 13.2 million this year and to go up to almost 16 million by 2013, according to a recent A.T. Kearney report, and it's reasonable to expect that this increase will trickle down to companies such as AutoZone. For competitors such as O'Reilly Automotive (Nasdaq: ORLY) and Advance Auto (NYSE: AAP), it's good news, too.
The Foolish bottom line
As the industry grows, AutoZone is likely to carry forward its strong quarterly performances. Its expansion plans and strategies enable it to take advantage of the predicted boom in the industry and add more to both its top and bottom lines.
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