AutoZone (NYSE:AZO) Reports Sales Below Analyst Estimates In Q1 Earnings

Max Juang /
2023/12/05 7:06 am EST

Auto parts and accessories retailer AutoZone (NYSE:AZO) reported results in line with analysts' expectations in Q1 FY2024, with revenue up 5.1% year on year to $4.19 billion. It made a GAAP profit of $32.55 per share, improving from its profit of $27.45 per share in the same quarter last year.

Is now the time to buy AutoZone? Find out by accessing our full research report, it's free.

AutoZone (AZO) Q1 FY2024 Highlights:

  • Revenue: $4.19 billion vs analyst estimates of $4.19 billion (small miss)
  • EPS: $32.55 vs analyst estimates of $31.61 (3% beat)
  • Free Cash Flow of $594.8 million, down 12.4% from the same quarter last year
  • Gross Margin (GAAP): 52.8%, up from 50.1% in the same quarter last year (beat)
  • Same-Store Sales were up 3.4% year on year (Domestic same-store sales of 1.2% year on year missed)
  • Store Locations: 7,165 at quarter end, increasing by 187 over the last 12 months

Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE:AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.

Auto Parts Retailer

Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.

Sales Growth

AutoZone is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.

As you can see below, the company's annualized revenue growth rate of 10.1% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new stores and grew sales at existing, established stores.

AutoZone Total Revenue

This quarter, AutoZone grew its revenue by 5.1% year on year, missing Wall Street's expectations. Looking ahead, analysts expect sales to grow 7.4% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Number of Stores

When a retailer like AutoZone is opening new stores, it usually means it's investing for growth because demand is greater than supply. Since last year, AutoZone's store count increased by 187 locations, or 2.7%, to 7,165 total retail locations in the most recently reported quarter.

AutoZone Operating Retail Locations

Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 2.8% annual growth in its physical footprint. This is decent store growth and in line with other retailers. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.

AutoZone's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 5.4% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, AutoZone is reaching more customers and growing sales.

AutoZone Year On Year Same Store Sales Growth

In the latest quarter, AutoZone's same-store sales rose 3.4% year on year. This growth was a deceleration from the 5.6% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.

Key Takeaways from AutoZone's Q1 Results

Sporting a market capitalization of $46.98 billion, more than $283 million in cash on hand, and positive free cash flow over the last 12 months, we believe that AutoZone is attractively positioned to invest in growth.

It was good to see AutoZone beat analysts' gross margin and operating profit expectations this quarter despite a small revenue miss. Zooming out, we think this was a mixed quarter. The stock is down 1.3% after reporting, trading at $2,625 per share.

So should you invest in AutoZone right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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