How Does AZO’s Balance Sheet Look Moving into Fiscal 2019?


Sep. 24 2018, Updated 10:30 a.m. ET

AutoZone’s fiscal Q4 2018 earnings

In the previous part of this series, we looked at AutoZone’s (AZO) profitability and factors that drove it in its fiscal fourth quarter. AZO’s gross profit margin was better than auto parts retailers (FXD) Advance Auto Parts (AAP) and O’Reilly Automotive (ORLY) in their recently reported quarters.

However, AutoZone stock has underperformed its peers in 2018 so far. AZO has risen 6.0% YTD (year-to-date) while AAP and ORLY have seen 70.1% and 42.6% YTD gains, respectively. Meanwhile, Ford (F) and General Motors (GM) have lost 20.8% and 12.8% YTD, respectively. Now, let’s find out how AZO’s balance sheet looks as it enters fiscal 2019.

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Inventory changes

In the last three years, AutoZone has focused on increasing its in-store auto parts inventories. In the fiscal fourth quarter, the company’s total inventory increased by 1.6% YoY (year-over-year) to $3.94 billion. In contrast, its per-store location inventory fell by 1.2% YoY to $636,000 from $644,000 a year ago.

At the end of fiscal 2018, AutoZone’s inventory turnover ratio was 1.3x, slightly lower than 1.4x at the end of fiscal 2017. Investopedia notes that the inventory turnover ratio reflects “how well a company generates sales from its inventory.”

Debt reduced

During the last year, AutoZone reduced its total debt by 1.5%. At the end of fiscal 2018, its total debt was $5.01 billion, lower than $5.08 billion at the end of fiscal 2017. During the same timeframe, its net fixed assets rose by 4.6% YoY to $4.22 billion at the end of fiscal 2018.

Note that significantly high debt levels increase the risk profile of a company, as debt is a contractual obligation that the company must fulfill regardless of market conditions. As a result, it’s important for investors to pay attention to an auto company’s leverage position.

Next, we’ll find out what analysts expect from AutoZone in fiscal 2019.


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