AutoZone (AZO) is firing on all cylinders. It beat earnings forecasts. Its same-store sales were strong. Its gross margins improved. And AutoZone’s stock has dropped nearly 2% today as growing inventories raised concerns among investors.
Bloomberg AutoZone reported a profit of $8.46 a share, beating forecasts for $8.44 a share, on sales of $2.34 billion, in line with the Street consensus. Same-store sales, meanwhile, rose 4%, while inventory rose 12%.
Raymond James analysts Dan Wewer and Aziz Pirbhoy believe that AutoZone’s “bullish theme remains intact” but worry about the payoff from increasing inventory:
While AutoZone's F3Q14 results were of mixed quality, the long-term investment themes underlying our Strong Buy rating remain intact, including a continued gross margin expansion cycle and a shareholder friendly capital allocation policy. AutoZone has now achieved 10%+ EPS growth for a 31st consecutive quarter – a further testament to our bullish long-term view…
AutoZone's gross inventory investment increased 12.0% in F3Q14 (or 8.2% per foot) – the fourth straight quarter of an 8%+ increase. Unfortunately, inventory yield (amount of gross profit generated from $1 of inventory) declined 1.4% y/y. This could raise concerns of diminishing returns from AutoZone's latest parts availability initiatives.
Shares of AutoZone have fallen 1.7% to $531.87 at 11:52 a.m., while Advance Auto Part (AAP) has dropped 1.6% to $121.27 and O’Reilly Automotive (ORLY) has declined 0.9% to $147.25. Pep Boys (PBY), however, has bucked the selling–its shares have gained 1.9% to $10.57.
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