AutoZone Inc (AZO) Q4 2024 Earnings Call Transcript Highlights: Strong Sales Growth and ...
Total Sales Growth: 5.9% for the fiscal year.
Earnings Per Share (EPS) Growth: 13% for the fiscal year.
Q4 Total Sales Growth: 9%.
Q4 EPS Growth: 11%.
Q4 Same-Store Sales Growth: 1.3% total company, 0.2% domestic, 9.9% international.
Domestic Commercial Sales Growth: 4.5% on a 16-week basis, 10.9% on a 17-week basis.
Q4 Domestic DIY Comp Sales: Down 1%.
Q4 Total Sales: Just over $6.2 billion.
FY24 Total Sales: $18.5 billion, up 5.9%.
FY24 Domestic DIFM Sales: $4.9 billion, up 6.2%.
Q4 Gross Margin: 52.5%, down 21 basis points.
Q4 Operating Expenses: Up 10.4%, SG&A deleveraged 37 basis points.
Q4 EBIT Growth: 6.1%.
FY24 EBIT Growth: 9.1%.
Q4 Net Income: $902 million, up 4.3%.
Q4 Diluted Share Count: 17.5 million, 6% lower than last year.
Q4 EPS: $51.5, up 11%.
FY24 Net Income: $2.7 billion, up 5.3%.
FY24 EPS: $149.55, up 13%.
Q4 Free Cash Flow: $723 million.
FY24 Free Cash Flow: $1.9 billion.
Q4 Inventory Per Store: Up 3.7%.
Q4 Total Inventory Increase: 6.8%.
Q4 Accounts Payable as Percent of Gross Inventory: 119.5%.
Q4 Share Repurchase: $711 million.
International Store Openings: 49 new stores, total 921 international stores.
FY24 Capital Expenditure: More than $1 billion.
Release Date: September 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
AutoZone Inc (NYSE:AZO) reported a total sales growth of 5.9% for the fiscal year, with earnings per share (EPS) increasing by 13%.
The company saw a 9% increase in total sales and an 11% increase in EPS for the fourth quarter.
International same-store sales were up 9.9%, indicating strong performance outside the U.S.
AutoZone Inc (NYSE:AZO) opened 49 new stores internationally, bringing the total to 921 international stores.
The company plans to accelerate international store openings, targeting around 200 new stores per year by 2028.
Negative Points
Domestic DIY comp sales were down about 1% for the fourth quarter, driven by a decline in discretionary merchandise categories.
The company faced a nearly 500 basis points currency headwind, impacting reported sales, operating profit, and EPS.
DIY transactions count was down 2%, indicating a decrease in customer traffic.
Inflation impact on DIY comp was low, with average ticket and SKU inflation up only 1% for the quarter.
The commercial business saw flat pricing and average ticket growth due to cooled inflation for goods in the industry.
Q & A Highlights
Q: Phil, you mentioned accelerating commercial sales growth. Can you talk about timing and what investors should expect? A: We expect sequential improvement. The consumer is still pressured, affecting both DIY and commercial sides. Our strategies include improving store assortments, opening hubs and mega hubs, and streamlining customer service to improve speed to customer on harder-to-find parts.
Q: What's left for gross margin improvement, and how high can it go? A: Our merchants are driving merchandising margin improvements. We expect continued margin improvements, though we have some drag from adding new distribution centers. We're also watching industry pricing closely and expect some inflation to return, which will help push retail prices higher.
Q: Are there hurdles to reaccelerating hub growth now that major players are using a hub strategy? A: We've rebuilt our pipeline and capabilities post-pandemic. We plan to open 20+ mega hubs in FY25, with about 70 mega hubs currently in the pipeline. These are large 30,000 square foot boxes, and finding locations can be challenging, but we've reorganized our team to expedite this process.
Q: Can you talk about the cadence of commercial sales through the quarter and any differences between national accounts and up-and-down-the-street business? A: The quarter was consistent regionally and in cadence. June was strong due to early hot weather, while July and August were similar to last year. Up-and-down-the-street customers have been resilient, while national accounts have improved due to better tire replacement trends. Segments related to new and used cars have underperformed.
Q: Where do you think the DIY and commercial markets are growing, and how do you see improvement over FY25? A: DIY has been pressured by discretionary categories, while maintenance and failure categories remain resilient. We believe the DIY market has been down low single digits. On the commercial side, we believe we're growing share and expect continued improvement with our inventory and customer service strategies.
Q: Can you explain the gross margin impact of the 53rd week and the potential FX headwind? A: The 53rd week can skew allocations, but overall, it added $365 million in sales and $87 million in EBIT. For FX, we expect a significant impact due to the size and profitability of our international business. We'll update as we move through the year.
Q: Can you discuss the weekly sales per commercial program and how your initiatives might help improve this? A: On a 16-week basis, commercial sales were up 4.5%. We're focused on improving assortments and speed to customer. Our strategy includes leveraging deployed inventory and technology to enhance customer service. More hubs and mega hubs will support this growth.
Q: How do you view the impact of inflation and tariffs on your business? A: Historically, the industry sees 3-5% inflation in average ticket and 1-3% decline in transactions. We expect inflation to return to normal levels in FY25. Tariffs are passed through to consumers, and the industry remains rational in pricing.
Q: When can AutoZone return to double-digit EPS growth, and is it dependent on pricing acceleration? A: The long-term algorithm remains unchanged. Near-term pressures like LIFO and FX may impact quarterly results, but we expect growth initiatives and macro improvements to drive top-line acceleration and margin expansion.
Q: Can AutoZone manage SG&A to maintain operating margins if gross margin growth is limited? A: We continue to invest in growth initiatives while managing SG&A efficiently. We have the flexibility to adjust SG&A in response to top-line performance, ensuring we protect operating margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.