AutoZone, Inc. (NYSE:AZO) today reported net sales of $1.300 billion for its second quarter (12 weeks) ended February 10, 2007, up 3.7% from fiscal second quarter 2006. Same store sales, or sales for stores open at least one year, were down 0.3% for the quarter.Net income for the quarter increased 6.2% over the same period last year to $103.0 million, while diluted earnings per share increased 15.5% to $1.45 per share from $1.25 per share reported in the year-ago quarter.
The revenue was a bit shy of consensus estimates of $1.31 billion, and EPS was right on target – which is generally interpreted as a miss (especially when the market is trading like it did today.) And management did little to assuage fears of a slowing economy, noting on the conference call that:
The in-store sales, or sales per-store open more than one year, were down 0.3% for the quarter. At the start of the quarter, we were cautiously optimistic regarding sales, the price went down in gas, and we were down to around $2.25 a gallon.
And we believed our customers began to feel less pressure on their pocketbooks, but a sales improvement never really materialized when there were similar patterns across all regions of the country…
The company is, however, hopeful regarding a new merchandise mix that is being rolled out:
A second major focus for this year will be product assortment, more specifically, refining our hard-parts assortment to be more responsive to our customer’s needs in both retail and commercial. We have completed our major liner views and are currently rolling these improved steps to our stores. The majority of these new assortments began arriving in our stores in the second quarter and will be substantially complete in the third quarter.
We are always extremely mindful of our working capital levels so we attempt to balance the additions to inventory reductions where appropriate. And we’re proud to report an inventory per store number this quarter under $500,000. This is down approximately $6,000 from last quarter and was achieved at the same time the additional products were being added.
Reducing total inventory while bringing in new products is a noteworthy accomplishment that can have a huge payoff if management is correct in its assessment that the new merchandise will sell better. More efficient inventory management would allow the company to leverage its fixed costs over a larger revenue number, with the potential for significant gross margin improvements. And of course, the reverse applies if managements assessment is incorrect.Like this article? Why not try out: