Earnings preview: AutoZone’s expansion initiatives to pay off in Q2

AutoZone, Inc. (AZO), which operates as a retailer of automotive replacement parts, is expected to report earnings of $9.97 per share when it unveils the second-quarter results on February 26 before the opening bell. While the estimate represents a year-on-year decline, revenues are seen rising to $2.45 billion.

It is widely expected that the results will exceed the forecasts, as they did in the trailing four quarters. For the first quarter, the Memphis, Tennessee-based company reported a 35% growth in earnings to $13.47 per share. Revenues moved up 2% to $2.6 billion amidst robust domestic same-store sales.

Initial estimates show that the ongoing initiatives to boost store traffic and ramp up the domestic supply chain network have started yielding the desired results. Results for the second quarter will also reflect the benefits of recent investments in retail platforms, with focus on creating an omnichannel for customers. While the initiatives might contribute to the top-line growth, the costs associated with the development of physical and digital infrastructure could squeeze margins.

Among others in the sector, Advance Auto Parts (AAP) reported a 52% growth in its fourth-quarter earnings to $1.17 per share, supported by a further strong increase in comparable sales.

Related: Advance Auto Parts Q4 sales rise 3%

The majority of the analysts have given AutoZone’s stock a strong buy rating – followed by hold – which promises handsome returns to shareholders both in the near future and longer term. The company will be hosting a post-earnings conference call on February 26, starting at 10 am, to discuss the second-quarter results.

AutoZone shares have been on a gaining streak since the beginning of the year and rose about 9% so far, outperforming both the sector and the broader market. The stock hit an all-time high last week and has stabilized at the peak since then.

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