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Will Autozone Manage to Again Outperform the Industry?

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Autozone Inc. (NYSE: AZO),  leading auto parts retailer and distributor, is set to release its third-quarter of the FY 2019 (ended May 4, 2019) results on May 21. In the past three months, AutoZone’s shares have outperformed the industry. The company’s shares gained 6.4% while the industry’s growth is far below at 0.9%.

Net sales were $2.5 billion for the previous, second quarter that ended on February 9, 2019, an increase of 1.6% from the same period of FY2018.  Domestic same store sales, or sales for stores open at least one year, increased 2.6% for the quarter.

Net income for the quarter increased 1.8% over the same period last year to reach $294.6 million, while diluted earnings per share increased 10.7% to $11.49 per share comparing to the same period last year.  Net income and diluted earnings per share have benefited from the U.S. Tax Reform resulting in a lower effective tax rate.

Operating expenses were 37.7% of sales, which is less than the same period last year when they made 44.4%. The Company’s inventory increased 5.4% over the same period last year due to its new stores and increased product placement, and this was partially offset by the sale of two businesses from the previous year.

During the previous quarter that ended February 9, 2019, AutoZone opened 20 new stores in the U.S., one store in Mexico and two stores in Brazil.  As of February 9, 2019, the Company has stores all over the U.S., the District of Columbia and Puerto Rico, Mexico and Brazil, making a total count of 6,241.

Autozone’s fast delivery of high-quality products is expected to drive third-quarter FY 2019 results. Its increased physical presence via store openings and emerging presence in its online platform is expected to further improve sales and market share for the soon-to-be-released quarter.

However, openings of new stores is bound to result in raised expenses and hurt the company’s bottom line. There are also new investments in technology and new store-related expenses such as payroll and employee contributions. The same goes for distribution centers and remodeling of old ones and this continuous rise in expenses is a possible concern.

Another concern is the always present dependence on seasonality and weather conditions for product sales positions. Unfavorable conditions have the power affect the company’s bottom line while a favorable one can drive the same. But its CEO finds that its second quarter is always the most challenging so the company has already crossed that bridge for this year.

AutoZone Inc, reported EPS for the same quarter last year was $13.42.

Over the last three years AutoZone, Inc. has grown its earnings per share (EPS) by an average of 11% per year. In the last year, its revenue went up 1.6%. which demonstrates that company is improving. It’s also good to see modest revenue growth which suggests that the underlying business is healthy as its market share has continued to grow and improved slightly.

With a total shareholder return of 32% over three years, AutoZone, Inc. shareholders would, in general, be reasonably content, but it seems that returns for investors over the last few years haven’t been top notch. Its current ratio is 0.94., so although it is close to being able to pay off its obligations, its ratio could be higher.

Last year, investors predicted that AutoZone would have good news to report as it kicked off its FY 2019, and in early December, the auto parts retailer successfully met those elevated expectations. The corresponding stock price jump made AutoZone one of the market’s best performers in the second half of 2018, a time when their peers incurred significant losses.

These trends all combine to make auto parts retailers, and AutoZone in particular, relatively immune to mild recessions as a  slowdown in the economy, should it happen, would similarly lift sales by causing a delay in new car purchases.  As a reminder, in December, do-it-yourself] market share gains were strong in the first half of last fiscal year, and that growth materially subsided in the second half.

Autozone did make a few big moves to fuel its online sales channel by cutting prices, adding thousands of products and offering enhanced delivery options. These initiatives helped drive higher traffic and order volumes. Most customers look for products online rather than heading to a store to pick it up by asking an employee for advice and although this tendency doesn’t necessarily protect AutoZone from the threat of Amazon (NASDAQ: AMZN), it does support management’s belief that their industry is a bit more protected from e-commerce intrusions due to its specialized nature in auto parts. Bill Rhodes, the CEO of AutoZone, Inc. for 14 years now, announced that at the end of 2018 that there are many fronts that the company will further expand on so it will surely address this concern.  As a reminder, over the last 2 years, Autozone managed to beat EPS estimates 63% of the time and revenue estimates 38% of the time so it seems that it knows how to handle its threats.

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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