AutoZone reported net sales of $2.6 billion for its third quarter (12 weeks) ended May 6, 2017, an increase of 1.0% from the third quarter of fiscal 2016 (12 weeks). Domestic same store sales, or sales for stores open at least one year, declined 0.8% for the quarter.
Net income for the quarter increased 1.3% over the same period last year to $331.7 million, while diluted earnings per share increased 6.2% to $11.44 per share from $10.77 per share in the year-ago quarter. As previously reported, the company adopted a new accounting standard on August 28, 2016, related to stock option exercises. For the quarter, the adoption of the new standard increased EPS by $0.32. Excluding this adjustment, EPS would have increased by 3.2%.
For the quarter, gross profit, as a percentage of sales, was 52.6% (21 bps deleverage versus the same period last year). The decrease in gross margin was attributable to higher supply chain costs associated with current year inventory initiatives (-28 bps) and higher inventory shrink results (-20 bps), partially offset by lower acquisition costs. Operating expenses, as a percentage of sales, were 32.4% (25 bps deleverage versus the same period last year). Operating expenses, as a percentage of sales, were higher than last year primarily from fixed cost deleverage due to our comparable stores sales decline, higher self-insurance cost and increasing wage pressures, partially offset by favorability from last year’s discrete legal charge and lower incentive compensation.
Under its share repurchase program, AutoZone repurchased 396 thousand shares of its common stock for $284 million during the third quarter, at an average price of $716 per share. At the end of the third quarter, the Company had $1.051 billion remaining under its current share repurchase authorization.
The company’s inventory increased 7.3% over the same period last year, driven by new stores and increased product placement. Inventory per location was $653 thousand versus $629 thousand last year and $665 thousand last quarter. Net inventory, defined as merchandise inventories less accounts payable, on a per location basis, was a negative $47 thousand versus negative $69 thousand last year and negative $36 thousand last quarter.
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“I would like to thank all AutoZoners across the organization for their dedication to serving our customers throughout a very challenging spring sales season. Our sales performance for the first five weeks of our quarter was significantly below our expectations, challenged by the well-publicized timing delays in IRS tax refunds. The last seven weeks of sales demonstrated improvement, but not enough to make up for our soft start. While this quarter’s results were below our expectations, our AutoZoners’ ongoing commitment to providing customers with Trustworthy Advice has us well positioned for the summer ahead. Notwithstanding macro headwinds, including increasing wage pressures, we are confident in our long term positive fundamentals for sales growth, and we remain committed to driving shareholder value,” said Bill Rhodes, Chairman, President and Chief Executive Officer.
During the quarter ended May 6, 2017, AutoZone opened 35 new stores and relocated two stores in the U.S., opened eight new stores in Mexico, and none in Brazil. As of May 6, 2017, the company had 5,381 stores in 50 states in the U.S., the District of Columbia and Puerto Rico, 499 stores in Mexico, 26 IMC branches, and nine stores in Brazil for a total count of 5,915.
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