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Factors Affecting AutoZone’s Margins in Fiscal 4Q17

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AutoZone’s fiscal 4Q17 report

Previously in this series, we saw how AutoZone’s (AZO) key business segments fared in fiscal 4Q17. The company’s focus on improving its parts availability and in-store experience is expected to remain intact. 

AZO’s retail business traffic count rose during the quarter, but its Commercial segment’s growth rate has slowed significantly. Now, let’s find out how these factors impacted AutoZone’s profitability in fiscal 4Q17.

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AutoZone’s profit margins

In fiscal 4Q17, AutoZone’s gross margin remained flat YoY (year-over-year) at 52.8%. This reflected a minor fall of 2 basis points from its gross margins in fiscal 4Q16.

Likewise, the company’s EBIT (earnings before interest and tax) stood at $708 million with an EBIT margin of 20.1% in fiscal 4Q17. This EBIT margin was about 55 basis points lower than 20.7% in fiscal 4Q16.

Higher supply chain costs

In fiscal 4Q17, AutoZone’s margins fell primarily due to higher supply chain costs during the quarter. In the last couple of years, AZO has focused on higher inventories of auto parts at its stores. While these replenishment measures have improved the availability of inventory at the stores, it also increased its supply chain–related costs. These higher supply chain costs also affected AutoZone’s profitability in the previous quarter.

On the positive side, higher merchandise margins acted as a tailwind for AZO’s profit margins in fiscal 4Q17.

In general, gross margins of auto part retailers including AutoZone are much higher than mainstream automakers (IYK) such as General Motors (GM), Ford (F), and Fiat Chrysler (FCAU). This is primarily due to significantly higher fixed and operational costs involved in the auto manufacturing business.

Read on to the next part to learn about some other key highlights of AutoZone’s fiscal 4Q17 earnings event.

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