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AutoZone’s Fiscal 4Q17: Higher Sales and Mixed Margins

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Part 3
AutoZone’s Fiscal 4Q17: Higher Sales and Mixed Margins PART 3 OF 8

A Look at AutoZone’s Segment-Wise Performance in Fiscal 4Q17

AutoZone’s business segments

AutoZone (AZO) primarily divides its business segments into DIY (Do It Yourself) and Commercial, or DIFM (Do It for Me). The DIY segment is targeted to retail customers who yield higher margins for the company compared to DIFM. Let’s see how these business segments grew in fiscal 4Q17 and examine the other key growth priorities for AutoZone.

A Look at AutoZone’s Segment-Wise Performance in Fiscal 4Q17

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DIY segment in fiscal 4Q17

The DIY segment is a major segment of AZO’s business. This refers to selling auto parts to customers without providing a mechanic’s assistance to install or change those vehicle parts.

In fiscal 4Q17, AutoZone’s DIY traffic count grew positively on a YoY (year-over-year) basis. Similarly, AutoZone’s pickup-in-store sales grew at a fast pace during the quarter. To make customers’ pickup-in-store experiences better, the company plans to focus on providing better in-store customer service.

During the fourth quarter, AutoZone opened 84 new store locations in the US, and one store was relocated. This increased the company’s store count to 5,465 at the end of fiscal 4Q17 in its home market. Also, AutoZone opened 25 new retail stores in Mexico, resulting in 524 stores in the country.

Commercial segment’s performance

In fiscal 4Q17, AutoZone opened 99 new commercial programs, which was a decline from 116 new programs opened in fiscal 4Q16. AutoZone expects to open about 150 new programs in fiscal 2018.

Despite slower growth in new commercial programs, its Domestic Commercial segment’s sales grew ~5.9% YoY in fiscal 4Q17. However, this growth rate has declined dramatically in the last few quarters.

The growth of auto parts retailers like AZO, O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP) are linked to mainstream automakers’ (VCR) business prospects. Recent weakness in US auto sales affected the latest earnings of automakers like Ford (F) and General Motors (GM). This weakness in US auto sales could also hamper the growth of auto parts retailers.

In the next part, we’ll learn about AutoZone’s fiscal 4Q17 profit margins.

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