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AutoZone’s 1Q18 Results Didn't Boost Investors’ Confidence

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Part 4
AutoZone’s 1Q18 Results Didn't Boost Investors’ Confidence PART 4 OF 7

Analyzing AutoZone’s Profit Margins in Fiscal 1Q18

AutoZone’s 1Q18 report

Previously, we looked at how AutoZone’s (AZO) key business segments fared in 1Q18. The company’s continued focus on improving parts’ availability and the in-store experience helped drive positive growth. AutoZone’s retail business traffic count and commercial segment grew during the quarter. Now, let’s find out how these factors impacted AutoZone’s profitability in the first quarter.

Analyzing AutoZone&#8217;s Profit Margins in Fiscal 1Q18

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1Q18 profit margins

In 1Q18, AutoZone’s gross profit margin was at 52.8%—nearly flat compared to 52.7% a year ago. In the previous quarter, the company reported a gross profit margin of 52.8%.

AutoZone’s 1Q18 EBIT (earnings before interest and tax) stood at $469 million with an operating profit margin of 18.1% in 1Q18. It was lower than its operating profit margin of 18.6% in 1Q17.

Similarly, the company’s net profit margins fell to 10.9% in the last quarter—compared to 11.3% a year ago.

Higher inventory 

In the first quarter, AutoZone’s margins fell primarily due to the inventory shrinking and storm-related expenses.

In the last few years, AutoZone focused on increasing in-store auto parts inventories. While replenishment measures have improved the inventory that’s available at the stores, it also increased the costs related to the supply chain.

On the brighter side, higher merchandise margins continued to act as a tailwind for AutoZone’s profit margins in 1Q18.

Interestingly, auto part retailers’ gross profit margins are much higher than mainstream automakers (IYK) like General Motors (GM), Ford (F), and Fiat Chrysler (FCAU). The profit margins are higher due to significantly higher fixed and operational costs involved in the auto manufacturing business.

In the next part, we’ll discuss analysts’ expectations for AutoZone’s future earnings.

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