AutoZone’s Key Ratios ahead of Its fiscal 2Q18 Earnings


Feb. 26 2018, Updated 10:32 a.m. ET

AutoZone’s 2Q18 results

So far in this series, we’ve covered analysts’ estimates for AutoZone’s second-quarter earnings, revenues, and profit margins. Analysts’ estimates suggest that AZO could report positive year-over-year growth in its 2Q18 earnings and revenues, but its profit margins might remain flat. Now, let’s move on by taking a look at the company’s key metrics and ratios before it reports its fiscal 2Q18 results, scheduled for February 27.

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Comparing net-debt-to-EBITDA

At the end of fiscal 1Q18, AutoZone’s net-debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio stood at 8.70x. This figure reflected a significant rise from 5.99x at the end of the previous quarter. These ratios were calculated based on AZO’s adjusted EBITDA for the last two quarters. At the end of 1Q18, the company’s total debt stood at $4.98 billion—lower than its $5.08 billion at the end of fiscal 4Q17.

AutoZone’s latest net-debt-to-EBITDA ratio was much higher than its direct peer,-Advanced Auto Parts’ (AAP), 4.10x and O’Reilly Auto Parts’ (ORLY) 6.26x. Note that high debt levels increase companies’ risk profile, as debt is a contractual obligation that the company has to fulfill irrespective of market conditions. This is why it’s important for investors to pay attention to an auto company’s leverage position.

Comparing the cash-cycle ratio

In terms of the cash-conversion-cycle ratio, AutoZone stands far ahead of its direct competitor, AAP. At the end of the most recently reported quarters, the cash-conversion-cycle ratios for AZO, AAP, and ORLY stood at -11.7, 119.3, and -3.0 days, respectively.

These figures imply that AutoZone receives cash in hand much earlier than it has to pay suppliers and other parties. The cash-conversion-cycle also highly depends on efficiently managing inventory levels.

In the auto industry, Ferrari (RACE) also maintains a negative cash-conversion-cycle. However, other legacy automakers (VCR) including Fiat Chrysler (FCAU), General Motors (GM), and Ford (F) have high cash cycle ratios.

In the next part of this series, we’ll find out what analysts are recommending for AutoZone’s stock ahead of its fiscal 2Q18 earnings.


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