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Why Did AutoZone Stock Recover in 2H17?

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Jan. 11 2018, Updated 10:30 a.m. ET

AutoZone stock

AutoZone (AZO) stock ended 2017 in negative territory with a fall of 9.9%. While the company’s stock fell 27.8% in 1H17, it witnessed a sharp recovery of ~24.7% in 2H17. These gains were far better than those of other auto industry (IYK) players such as Advance Auto Parts (AAP), O’Reilly Auto Parts (ORLY), and General Motors (GM).

In 2H17, ORLY and GM rose 10.0% and 17.3%, respectively, while AAP fell 14.5%. Let’s take a look at some key factors that drove AutoZone stock in 2017.

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Recent earnings trend

In its fiscal 1Q18 ended November 18, 2017, AZO reported adjusted EPS (earnings per share) of $10.00, a rise of ~6.8% compared to its EPS of $9.36 in the corresponding quarter of the previous year. With this, the company also beat Wall Street analysts’ EPS estimates for the second consecutive quarter. In fiscal 4Q17, AutoZone’s adjusted EPS were $15.27, a rise of ~6.8% YoY (year-over-year).

Despite its higher-than-expected fiscal 4Q16 and 1Q18 results, the company’s weak operating margin and high dependence on weather patterns kept investors’ sentiments mixed.

Nevertheless, AZO’s fiscal 1Q18 revenue was $2.6 billion, ~4.9% higher than its revenue in the corresponding quarter of the previous fiscal year. During the quarter, the company’s domestic same-store sales continued to recover, rising 2.3% compared to the same-store sales growth of 1.0% it saw in fiscal 4Q17.

Key focus areas

During AutoZone’s fiscal 1Q18 earnings conference call, its management suggested that recent natural disasters in the United States had negatively affected its sales in its most recent quarter.

AZO opened two new Mega Hubs during fiscal 1Q18 as part of its plan to open about ten of said hubs in fiscal 2018. The company’s management also noted that sales at its existing Mega Hubs had exceeded expectations in the quarter. This success is probably why AutoZone is likely to continue to focus on its Mega Hub expansion strategy to revive its sales in fiscal 2018. Investors’ expectation of the company’s sales recovery in the coming quarters could be the primary reason for its stock’s recovery in fiscal 2H17.

In the next article, we’ll take a look at some recent highlights for O’Reilly Auto Parts.

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