AutoZone Inc. has reported net sales of $2.3 billion for its second quarter (12 weeks) ended Feb. 11, an increase of 1.4 percent from the second quarter of fiscal 2016 (12 weeks). Domestic same store sales, or sales for stores open at least one year, were flat for the quarter.
Net income for the quarter increased 3.7 percent over the same period last year to $237.1 million, while diluted earnings per share increased 8.8 percent to $8.08 per share from $7.43 per share in the year-ago quarter. As previously reported, the company adopted a new accounting standard on Aug. 28, 2016, related to stock option exercises. For the quarter, the adoption of the new standard increased EPS by 37 cents. Excluding this adjustment, EPS would have increased by 3.8 percent.
For the quarter, gross profit, as a percentage of sales, was 52.7 percent (-9 bps versus the same period last year). The decrease in gross margin was attributable to higher shrink expense (-34 bps) and higher supply chain costs associated with current year inventory initiatives (-29 bps), partially offset by lower acquisition costs. Operating expenses, as a percentage of sales, were 35.9 percent (versus 35.8 percent the same period last year). Operating expenses, as a percentage of sales, were higher than last year, due to higher domestic store payroll, offset in part by lower incentive compensation.
Under its share repurchase program, AutoZone repurchased 256 thousand shares of its common stock for $198 million during the second quarter, at an average price of $773 per share. At the end of the second quarter, the company had $585 million remaining under its current share repurchase authorization.
The company’s inventory increased 8.7 percent over the same period last year, driven by new stores and increased product placement. Inventory per location was $665 thousand versus $633 thousand last year and $647 thousand last quarter. Net inventory, defined as merchandise inventories less accounts payable, on a per location basis, was a negative $36 thousand versus negative $57 thousand last year and negative $67 thousand last quarter.
“I would like to thank all AutoZoners across the organization for their tremendous efforts during what ultimately turned out to be a challenging quarter. Our sales performance in the last three weeks of our quarter was significantly challenged by well-publicized timing delays in IRS tax refunds, which negatively impacted our profitability for the quarter. While this quarter’s results were below our expectations, our AutoZoners’ ongoing commitment to providing customers with Trustworthy Advice will allow us to continue to succeed for years to come. Our objective remains to continue to provide great service to our customers and deliver strong, consistent performance for our shareholders as we remain committed to our approach of increasing operating earnings and utilizing our capital effectively,” said Bill Rhodes, chairman, president and CEO.
During the quarter ended Feb. 11, AutoZone opened 33 new stores in the U.S., three new stores in Mexico and one new store in Brazil. As of Feb. 11, the company had 5,346 stores in 50 states in the U.S., the District of Columbia and Puerto Rico, 491 stores in Mexico, 26 IMC branches and nine stores in Brazil for a total count of 5,872.
