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What to Expect from AutoZone’s 4Q17 Profit Margins

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AutoZone’s gross profit margins

Previously, we looked at some key reasons why AutoZone’s (AZO) revenues could witness positive growth in 4Q17. However, analysts’ estimates suggest that the company’s fourth quarter margins could remain flat. According to these estimates, AutoZone’s fourth quarter gross profit margins will be at 52.8% without any change from its 4Q16 gross margin.

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Could net profit margins expand?

AZO’s 4Q17 EBITDA (earnings before interest, tax, depreciation, and amortization) margins are estimated to be at 23.8%, up by 30 basis points YoY (year-over-year). In contrast, the company’s 4Q17 net profit margins are likely to be weaker at 12.5% as compared to 12.6% in 4Q16.

As discussed in the previous part, recent softness in AZO’s home market DIY segment sales could keep its profit margins mixed in 4Q17.

Other key factors to watch

In the most recent reported quarter, AutoZone’s gross margins suffered from higher costs related to supply chain. These supply chain costs have risen gradually in the last few quarters due to new store openings and other recent company initiatives.

At the same time, AutoZone management’s clear focus on keeping acquisition costs low could continue to cushion the company’s profitability.

Gross margins of auto parts retail companies are typically much higher than auto manufacturers’ gross margins. Higher fixed costs in machinery and plant badly hurt auto manufacturers’ (IYK) profitability. Higher fixed costs are the key reason why AutoZone’s margins are much higher than auto companies including Ford (F), General Motors (GM), and Fiat Chrysler (FCAU).

In the next part, we’ll take a look at some of AutoZone’s key ratios ahead of its 4Q17 earnings report.

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