AutoZone reported net sales of $3.5 billion for its fourth quarter ended August 26, 2017, an increase of 3.3% from the fourth quarter of fiscal 2016. Domestic same store sales, or sales for stores open at least one year, increased 1% for the quarter.
Net income for the quarter increased 1.7% over the same period last year to $433.9 million, while diluted earnings per share increased 6.8% to $15.27 per share from $14.30 per share in the year-ago quarter. As previously reported, the company adopted a new accounting standard on August 28, 2016, related to stock option exercises. Excluding the $0.09 net benefit for the quarter from the adoption of this new standard, adjusted EPS increased by 6.1% to $15.18 per share.
For the quarter, gross profit, as a percentage of sales, was 52.8% (-2 bps versus the same period last year). The slight decline in gross margin was attributable to higher supply chain costs (-16 bps) associated with current year inventory initiatives, partially offset by higher merchandise margins. Operating expenses, as a percentage of sales, were 32.6% (versus 32.1% the same period last year). The increase in operating expenses, as a percentage of sales, was primarily due to deleverage on occupancy costs (-24 bps) and domestic store payroll driven by higher wage pressure.
For the fiscal year ended August 26, 2017, sales were $10.9 billion, an increase of 2.4% from the prior year, while domestic same store sales were up 0.5% for the year. Operating profit increased 1.0% on an operating margin of 19.1%. For fiscal 2017, net income increased 3.2% to $1.3 billion, while diluted earnings per share for the year increased 8.3% to $44.07 from $40.70. Excluding the $1.03 net benefit for the year from the adoption of this new standard, adjusted EPS increased by 5.7%. Return on invested capital finished the year at 29.9%, while full year cash flow before share repurchases and changes in debt was $1.018 billion.
Under its share repurchase program, AutoZone repurchased 366 thousand shares of its common stock for $227 million during the fourth quarter, at an average price of $622 per share. For the fiscal year, the company repurchased 1.5 million shares of its common stock for $1.07 billion, at an average price of $717 per share. At year end, the company had $824 million remaining under its current share repurchase authorization.
The company’s inventory increased 6.9% over the same period last year, driven by new stores and increased product placement. Inventory per location at the end of the year was $644 thousand versus $625 thousand last year and $653 thousand last quarter. Net inventory, defined as merchandise inventories less accounts payable, on a per location basis, was a negative $48 thousand at the end of the year versus negative $80 thousand last year and negative $47 thousand last quarter.
“I would like to thank our entire organization for their dedication and passion to provide our customers with the service and trustworthy advice they need to maintain and enhance their vehicles. For the fourth quarter, our same store sales rebounded modestly from the previous two quarters. Our 1.0% same store sales were still moderately below our recent historical experience and we attribute this shortfall primarily to the continuing headwinds resulting from two consecutive mild winters. We believe we are well positioned to grow sales further in 2018. For the year, we reached many milestones which included generating a record $10.9 billion in sales, opening 215 AutoZone stores across the Americas and opening two new distribution centers. Additionally, we continued to fine-tune our inventory availability initiatives, including our multi-deliveries per week to stores and we expanded the number of mega hub locations. We expect to continue with these initiatives in 2018 while opening the previously announced Florida distribution center by the middle of the fiscal year. In order to continue to meet our customers’ needs across all selling channels, we will continue to prudently invest capital in our product availability initiatives across our businesses. While investing to grow, we will remain committed to our disciplined approach to increasing operating earnings and utilizing our capital effectively,” said Bill Rhodes, Chairman, President and Chief Executive Officer.
During the quarter ended August 26, 2017, AutoZone opened 84 new stores and relocated one store in the U.S., opened 25 new stores in Mexico, and five in Brazil. As of August 26, 2017, the company had 5,465 stores in 50 states in the U.S., the District of Columbia and Puerto Rico, 524 stores in Mexico, 26 IMC branches, and 14 stores in Brazil for a total count of 6,029.
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