This summary is based on the third quarter fiscal 2007 earnings call conducted by AutoZone Inc. (AZO: chart) on May 22, 2007.
President, Chief Executive Officer and Director: William Rhodes
Chief Financial Officer, Executive Vice President and Treasurer: William Giles
Vice President, Treasurer, Investor Relations and Tax: Brian Campbell
Key Investors Issues
- Earnings per share increased to $2.17 compared to $1.89 in the prior year.
- Quarterly revenue grew to $1.474 billion, up 4% from last year.
- The gross profit as a percentage of sales was 49%, up 23 basis points versus last year.
Third Quarter Fiscal 2007 Financial Highlights
Net income for the quarter increased 5% over the same period last year to $151.6 million.
The diluted earnings per share increased 15% to $2.17 per share from $1.89 per share reported in the year-ago quarter.
The company reported net sales of $1.474 billion for its third quarter, an increase of 4% from fiscal third quarter 2006.
Domestic same store sales increased 0.4% for the quarter. Overall, the quarter started out stronger but early April was a disappointment. At the start of the quarter, the price of gallon of gas was $2.30 but finished at $3.05 a gallon. Last year, the third quarter began with price of gallon of unleaded gas of $2.24 and finished at $2.91. The firm believes that its customers were certainly impacted due to customed price increases. The firm believes that it can continue to do things with both its merchandise and marketing efforts to provide value for customers during terms of hot gas prices.
- Total domestic retail sales were up 3.8% for the quarter. During the third quarter, the firm continues to focus on in sales and the profits for the long-term.
In the third quarter, gross profit as a percentage of sales was 49%, up 23 basis points versus last year’s quarter while operating results as a percentage of sales increased by 11 basis-points.
This resulted in an operating margin of 18%, up 12 basis points from last year’s quarter. Operating profit increased 4.7% versus the prior year.
In the third quarter, margins continue to benefit from the firm’s ongoing category management initiatives, import offers, and drive to leverage supply chain efficiencies. The firm continues to challenge on the cost side of the business specifically related to oil-based products, could have strides to reduce expenses in other categories.
The firm also continues to be successful in working with its vendors to offer the right products at the right prices to its customers. This includes supply chain initiatives, retailer in merchandise mix, and the continued implementation of good, better, best product lines, all allowing it to price of products appropriately, while giving the customers great value.
Going forward, the management believes that there continues to be opportunity for gross margin expansion albeit at reduced rates. The firm’s direct import initiatives is in its early stages and the management is extremely proud of its merchandising organization for their abilities to improve margins, while pressures on procurement cost continue to exist.
SG&A for the quarter was 31.9% of sales, up 11 basis from last year.
The increase was primarily due to higher depreciation expense versus the previous year. Specifically, depreciation was 23 basis points higher than last years third quarter, which was offset as far as by lower cost related to continued cost management initiatives. Additionally, the firm continues to invest an additional marketing efforts and training programs for all its AutoZoners in order to improve customer service.
During the third quarter, AutoZone implemented a new initiative that is in its very early stages that provides the firm with another opportunity to improve its cost management. The firm began hosting reverse selections on some of its non-product purchases, and it has been very pleased with its initial results and it will continue to look for ways to take cost out of this business while improving customer service.
