ORLY O Reilly Automotive Inc

AutoZone Inc. (AZO) expects to release its first quarter 2012, ended November 19, 2011, on December 06, 2011 before the opening bell. Memphis, Tennessee-based AutoZone earned a profit of $7.18 in the fourth quarter of fiscal 2011, beating the Zacks Consensus Estimates of $6.98 per share.

For the upcoming quarter, the Zacks Consensus Estimate for AutoZone is pegged at $4.45 per share, reflecting an annualized growth of 18%. There is no upside potential for the estimate.   

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 6.39%, implying that the company has outperformed the Zacks Consensus Estimate in all the four quarters.

Fourth Quarter Recap

Net sales grew 8.1% to $2.64 billion, exceeding the Zacks Consensus Estimate of $2.61 billion. Domestic same-store sales (sales for stores open at least one year) rose 4.5% during the quarter.

Gross margin was 51.2% compared with 50.5% in the year-ago quarter. The increase in gross margin was attributable to lower shrink expense and higher merchandise margins. The increase in merchandise margins was driven by retail price increases on commodity-based products, which were partially offset by higher commercial sales.

Operating profit rose 11% to $524.0 million from $472.7 million in the prior year. This translated into an operating margin of 19.8% versus 19.3% in the fourth quarter of fiscal 2010.

Operating expenses, as a percentage of sales, increased to 31.4% from 31.2% last year due to higher self-insurance costs and higher fuel costs, partially offset by leverage due to higher sales volumes.

During the quarter, AutoZone opened 68 new stores, replaced five stores, and closed one store in the U.S. and opened 18 new stores in Mexico. As of August 27, 2011, the company had 4,534 stores in 48 states, as well as in the District of Columbia and Puerto Rico in the U.S. and 279 stores in Mexico.

Estimate Revisions Trend

Earnings estimate for the first quarter of fiscal 2011 is currently pegged at a profit of $4.45 per share. The improving auto industry and the strong performance of the company in the last reported quarter have made the analysts optimistic about its future financial results.

Agreement of Estimate Revisions

Out of the 18 analysts covering the stock for the first quarter of fiscal 2011, none revised the estimates in the past 30 days.

Magnitude of Estimate Revisions

Following the fourth quarter earnings release in September, first quarter 2012 profit per share was projected at $4.35. However, over the last 60 days, the profit estimate increased to $4.44 cents per share. Later, the estimate went up to $4.45 per share in the last 30 days and remained the same since then.

Our Take

AutoZone is focused on expansion of its Hub store, acceleration of store maintenance and strengthening of its commercial sales force. Besides, its aggressive share repurchase policy supported by a strong cash flow is also mention worthy.

However, AutoZone relies heavily on its private label brands, which could hinder its business should they falter. Vendor consolidation and appreciation in gas prices coupled with fierce competition from O’Reilly Automotive Inc. (ORLY) and Advance Auto Parts Inc. (AAP), both of which have delivered impressive results during their last reported quarters, are primary headwinds for the company.

Hence, we have reiterated our long-term Neutral recommendation on the shares of the company.

 
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