AutoZone Inc. reported net sales of $2.6 billion for its third quarter (12 weeks) ended May 7, 2016, an increase of 4.0% from the third quarter of fiscal 2015 (12 weeks). Domestic same store sales, or sales for stores open at least one year, increased 2.0% for the quarter.
Net income for the quarter increased 6.0% over the same period last year to $327.5 million, while diluted earnings per share increased 12.6% to $10.77 per share from $9.57 per share in the year-ago quarter.
For the quarter, gross profit, as a percentage of sales, was 52.8% (versus 52.3% for last year’s quarter). The improvement in gross margin was attributable to higher merchandise margins, partially offset by higher supply chain costs associated with current year inventory initiatives (-19 bps). Operating expenses, as a percentage of sales, were 32.2% (versus 31.6% last year). The increase in operating expenses, as a percentage of sales, was due to higher legal expense (-34 bps) and store payroll. The legal expense was driven by a single, discrete item.
Under its share repurchase program, AutoZone repurchased 687,000 shares of its common stock for $533 million during the third quarter, at an average price of $775 per share. At the end of the third quarter, the Company had $765 million remaining under its current share repurchase authorization.
The Company’s inventory increased 3.7% over the same period last year, driven primarily by new store openings over the last twelve months. Inventory per location was $629,000, flat with last year, and $633,000 last quarter. Net inventory, defined as merchandise inventories less accounts payable, on a per location basis was a negative $69,000 versus negative $68,000 last year and negative $57 thousand last quarter.
“We would like to thank our entire organization for delivering another quarter of solid results: our thirty-ninth consecutive quarter of double digit earnings per share growth. AutoZoners across the company remain committed to providing superior service to our customers and that dedication has resulted in consistent, solid performance. During the quarter, we continued implementation of our inventory availability initiatives. At the end of the quarter, we have expanded our increased frequency of distribution center deliveries initiative to 1,600 domestic AutoZone stores and expect by the end of the fiscal year to be servicing approximately 2,000 of our over 5,000 domestic AutoZone stores. We also plan to open approximately four additional Mega Hubs by the end of the fiscal year to finish with a total of 11. The results of our initiatives continue to meet or exceed our expectations, further confirming our new inventory deployment strategy. Regarding the third quarter’s results, sales were below our expectations as weather negatively impacted sales primarily in Midwestern, Middle Atlantic, and Northeastern states. Additionally, the quarter was impacted by a legal charge along with a discrete tax benefit, which netted to a reduction to earnings per share of $0.11 per share. As we continue to strategically invest in our business in order to support our long term growth, remaining committed to our disciplined approach to growing operating earnings and utilizing our capital effectively, we are excited by our opportunities this summer,” said Bill Rhodes, Chairman, President and Chief Executive Officer.
During the quarter ended May 7, 2016, AutoZone opened 33 new stores in the U.S., opened seven new stores in Mexico, and opened one new IMC branch. As of May 7, 2016, the Company had 5,226 stores in 50 states in the U.S., the District of Columbia and Puerto Rico, 458 stores in Mexico, 25 IMC branches, and eight stores in Brazil for a total count of 5,717.
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