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Spiking AutoZone shares roll completely over and tank on cost concerns raised on earnings call

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Key Points
  • During the call, CEO William Rhodes said he expects selling, general and administrative expenses to rise between 6.5 and 7.5 percent for fiscal year 2019 as the company raises wages.
  • Those comments "would seem to be concerns about labor inflation and possible peak margin," says Jefferies analyst Bret Jordan.
  • Before the call, AutoZone's stock popped as much as 6.8 percent on the back of stronger-than-expected earnings.
A man walks outside an AutoZone store in Albuquerque, New Mexico.
Sergio Flores | Bloomberg | Getty Images

AutoZone shares dropped 9.5 percent on Tuesday, erasing a sharp gain from earlier in the day, after worries of rising costs for the company were raised during its quarterly earnings call.

During the call, CEO William Rhodes said he expects selling, general and administrative expenses to rise between 6.5 and 7.5 percent for fiscal year 2019 as the company raises wages.

Those comments "would seem to [indicate] concerns about labor inflation and possible peak margin," Jefferies analyst Bret Jordan told CNBC in an email.

William Rhodes III, chief executive officer of AutoZone Inc., waits to begin a listening session with U.S. President Donald Trump, not pictured, Retail Industry Leaders Association, and member company chief executive officers in the Roosevelt Room of the White House in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images

AutoZone's Rhodes noted the changes to the company's wages were designed to "attract and retain terrific knowledgeable AutoZoners and to make sure our wages are competitive."

Before the call, AutoZone's stock popped as much as 6.8 percent on the back of stronger-than-expected earnings. The company's profit for fiscal third quarter totaled $13.42 per share, well above a Reuters forecast of $12.94.

But the stock post its biggest one-day fall since Feb. 27, when it dropped more than 11 percent.