AutoZone Profit Rises as Margins Improve

AutoZone, the largest U.S. auto parts retail chain, posted better-than-expected quarterly earnings on Tuesday, helped by improved profit margins and sales to the commercial sector.

AutoZone, which does not release formal earnings forecasts, said it remains optimistic in its outlook despite a deceleration in sales from the prior quarter.

"We view this (earnings-per-share) beat as distinctive in a retail tape characterized by earnings shortfalls," Goldman Sachs analysts Matthew Fassler said in a note to clients.

Net income rose to $106.7 million, or $1.67 per share, in the fiscal second quarter ended Feb. 9, from $103 million, or $1.45 per share, a year earlier.

Revenue rose 3 percent to $1.34 billion.

Analysts on average expected Memphis, Tennessee-based AutoZone to report earnings of $1.62 per share and revenue of $1.35 billion, according to Reuters Estimates.

Shares rose 2.7 percent to $120.50 in thin premarket trading.

U.S. sales to retail customers rose 1.9 percent to $1.1 billion, while U.S. commercial sales to repair shops rose 3.4 percent to $156.1 million.

Credit Suisse analyst Gary Balter said AutoZone reported a good quarter in a tough environment.

"While we would expect gross margin improvement to moderate going forward against tougher comparisons, the second consecutive quarter of stronger commercial sales points to continued traction in the arena, an important driver for the company and the stock," Balter said in a note to clients.

Sales at AutoZone's U.S. stores open at least a year, a key retail measure known as same-store sales, declined 0.3 percent in the quarter.

U.S. auto parts retailers have faced tough conditions in recent quarters, with high gasoline prices and a slowing economy forcing some of their customers to choose between performing minor car maintenance and buying food and fuel.

Earlier this month, Advance Auto Parts, the No. 2 chain behind AutoZone, posted lower quarterly earnings due to higher interest costs and slower sales to customers who do their own car repairs.

O'Reilly Automotive , which is in talks to acquire rival CSK Auto Corp , said last week that a slower U.S. economy would weigh on sales this year, and it gave what it called a conservative forecast for same-store sales.

Cid Wilson, director of research at research firm Kevin Dann & Partners LLC, said in a note that AutoZone's results indicate the company "may be doing a better job of weathering the economic storm than its competitors,"

AutoZone's gross profit as a percentage of sales rose to 49.9 percent in the quarter from 49.2 percent a year earlier due to cost cutting.

AutoZone opened 28 stores and replaced two during the quarter. It had 4,000 stores in the United States and 128 in Mexico at the end of the quarter.

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