This summary is based on the fourth quarter fiscal 2007 earnings call conducted by AutoZone Inc. (AZO: chart) on September 18, 2007.
President & CEO: Bill Rhodes
Chief Financial Officer: Bill Giles
Key Investors Issues
- The earnings per share increased to $3.23 from $2.92 in the prior year.
- Quarterly revenue rose 3.3% over the previous year to $2 billion.
- The firm opened 53 new stores in the quarter, bringing the total store count to 3,933.
Fourth Quarter Fiscal 2007 Financial Highlights
For the quarter, the company reported net sales of $2 billion, an increase of 3.3% from fiscal fourth quarter 2006.
Domestic same store sales decreased 0.2% for the quarter. While the firm was not immune to regional and macro challenges, it was pleased with several of its underlying metrics that showed customers recognized what it is doing inside its stores to improve the shopping experience, and their inclination to shop with AutoZone in the future continued to increase.
The fourth quarter began back on May 6th, and the average price of gasoline nationally was $3.10. By the end of the quarter, the price had settled back to $2.75. The firm has now become used to these gyrations in pricing and believes that its customers are getting used to the fluctuations as well. The current prices at the pump are slightly ahead of last year''s prices at this time. Historically, unleaded gasoline pricing softens heading into the winter months, as miles driven declines.
- Total domestic retail sales were up 2.7% for the quarter.
- Total commercial sales posted an increase of 0.5% from last year''s quarter. The firm now has the commercial program in 2,182 stores supported by 133 hub stores.
Net income for the quarter increased 1.7% over the same period last year to $217.2 million.
The diluted earnings per share increased 10.6% to $3.23 per share from $2.92 per share in the year-ago quarter.
For the quarter, gross profit, as a percentage of sales, was 50.1% versus 49.7% last year.
The improvement in gross margin was due to ongoing category management efforts as well as supply chain efficiencies. This resulted in an operating margin of 18.9%, down 35 basis points from last year''s quarter. Operating profit increased 1.4% versus the prior year.
In the fourth quarter, margins continued to benefit from the ongoing category management initiatives, import efforts, and leveraging supply chain efficiencies. Over the last several quarters, these efforts have been partially offset by an increase in product costs, specifically related to oil-based products. The firm continues to be successful in working to offer the right products at the right prices to its customers. This includes supply chain initiatives, tailoring merchandise mix, and the continued optimization of the firm’s product lines, all allowing to price the products appropriately while giving its customers great value.
The firm continues to see positive consumer response to the Duralast and Duralast Gold product lines. The customers, both retail and commercial, continue to recognize the benefits from buying the firm’s better and best merchandise lines. Going forward, the management believes that there continues to be opportunity for gross margin expansion, albeit at reduced rates. The direct import initiative is in its early stages, but the firm is pleased with the progress its merchandising organization has made with their abilities to improve margins while pressures procurement costs continue to exist.
The operating expenses, as a percentage of sales, were 31.3% versus 30.4% last year.
The increase in operating expenses, as a percentage of sales, primarily reflected higher occupancy costs versus last year.
SG&A for the quarter was 31.3% of sales, up 85 basis points from last year.
The deleverage came primarily from the firm’s inability this past quarter to leverage its fixed costs based on slightly negative same store sales performance. Specifically, rents and depreciation were 56 basis points higher than last year''s fourth quarter.
At the same time, the firm continues to invest in additional marketing efforts and training programs for all AutoZoners in order to improve customer service. The AutoZone culture of thrift and focus on cost management is essential to the company’s ongoing business model. In fact, the SG&A per store, excluding occupancy, was lower than last year at this time. The management believes that its efforts on improving customer service implemented during the quarter will pay dividends into the future from a sales perspective. Over the long run, the firm continues to believe that it can leverage operating expenses on a 1.5% to 2% same-store sales increase.
