Earnings Preview: AutoZone poised to beat Q1 estimates, defying cost pressure

AutoZone Inc. (AZO) is expected to announce its first-quarter results on December 4 before the market opens. Analysts predict that the company will report earnings of $12.21 per share for the quarter, representing a 23% year-on-year increase. Revenues are expected to rise 2% to $2.63 billion.

Since the automotive parts retailer has a history of beating the street view, it is expected to maintain the trend this time too. The measures adopted by the management in recent months to enhance customer experience, and the ongoing investments in digital technology, will continue to drive growth.

The healthy cash flow allows the company to continue returning value to shareholders through its aggressive share buyback program, under which shares worth $1.6 billion were repurchased so far this year.

However, the bottom-line is likely to be impacted by the growing cost pressure, mainly those related to the development of the digital platform and expansion of the product delivery service. Experts believe the squeeze on margin will persist in the coming quarters.

Also see: AutoZone Q4 2018 Earnings Conference Call Transcript

For the fourth quarter of 2018, the Memphis, Tennessee-based company reported a 2.2% increase in domestic comparable store sales and a 1.3% rise in net sales to $3.56 billion. Benefitting from the downward revisions of income tax rates last year, adjusted earnings climbed 21% to $18.54 per share in the fourth quarter.

Among rivals, Advanced Auto Parts (AAP) reported its strongest comparable store sales in eight years, for the most recent quarter. There was a proportionate growth in net sales, which pushed up earnings by 20% to $1.56 per share.

AutoZone stock dives after sales miss estimates

Some of the leading brokerages have recommended buy rating on the AutoZone stock and also raised the price target. Others who follow the company are mostly recommending hold rating. Currently hovering near the $825-mark, AutoZone is one of the high-priced Wall Street stocks. The stable price, with relatively low volatility, makes it an ideal option for conservative investors.

The stock has outperformed the industry in the past three months and hit an all-time high earlier this month. After gaining 6.5% since the beginning of the year, the stock traded lower on Friday.

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