AutoZone Earnings Puzzle Investors as Shares Rise, Fall

AutoZone’s (AZO) earnings have investors puzzled as to whether they should buy or sell.

Reuters 

The Wall Street Journal has the goods on AutoZone’s report:

For the quarter ended Aug. 31, AutoZone reported a profit of $371.2 million, or $10.42 a share, up from $323.7 million, or $8.46 a share, a year earlier. Excluding an additional week of sales in the latest period, earnings were $9.76 a share.

Net sales improved 12% to $3.1 billion. Sales at stores open at least one year rose 1%.

Analysts polled by Thomson Reuters had most recently forecast per-share earnings of $10.34 on revenue of $3.09 billion.

Gross margin stayed at 51.8%.

The first reaction: Sell. In pre-open trading this morning, shares of Autozone had dropped 0.6% by 8:30 a.m. But they the stock soon rallied back into positive territory and was trading higher by 0.3% at 9:15. At the open, shares traded up as much as 1%, before falling into the red. Citigroup’s Kate McShane digs into the results, which were decidedly mixed:

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…the beat was driven by revenue growth of +12.0% y/y (vs. our +7.1%) and lower tax rate of 35.5% (vs. our 36.8%), partially offset by flat y/y gross margins (vs. our +117bps) and operating margin expansion of +29bps y/y (vs. our +143bps). Excluding the 17th week, sales would have been +5.6% y/y and EPS of $9.76.

Autozone also said its same-store sales rose just 1%, lower than McShanes estimate of a 3% increase and the analyst consensus of 2.5%.

Autozone has gained 17% this year, but is off by 1.9% during the past month, both of which have lagged the S&P 500. Perhaps that explains the muted reaction to the report. With investors not expecting much, a mixed report is just–a mixed report.

Autozone has dropped 0.3% to $413.22  , while Pep Boys (PBY) has gained 0.2% to $12.19 , Advanced Auto Parts (AAP) has risen 0.3% to $80.35, and O’Reilly Automotive (ORLY) has advanced 0.3% to $124.42 .