Why Autozone Stock Slumped on Tuesday

The auto parts retailer turned in a ho-hum quarter.

Shares of auto parts retailer Autozone (AZO -1.48%) were trading 1.5% lower as of 12:40 p.m. ET Tuesday after reporting misses on both the top and bottom lines for its fiscal fourth quarter. Earlier in the session, the stock had been down by as much as 4.9%

Heading into its earnings report Tuesday morning, analysts had forecast Autozone would report a $53.53 per share profit on just over $6.2 billion in sales. Autozone came close to hitting the sales estimate, reporting $6.2 billion. Its earnings, however, came up short at $51.58 per share.

Autozone Q4 earnings

For the period, which ended Aug. 31, sales grew by 9%. However, this year’s Q4 was one week longer than last year’s Q4. Excluding the impact of the extra week, its revenues would only have been 2.6% higher.

Also helping the sales number were 68 new store openings in the U.S., plus 31 and 18 openings in Mexico and Brazil, respectively. Backing out these effects, the company’s same-store sales for the quarter grew only 0.7%, with most of the growth happening outside the U.S.

Gross profit margins slipped by 21 basis points while operating costs increased by 40 basis points. With the bottom line being squeezed from both ends, operating profits grew more slowly than sales, up only 6%.

On the plus side, Autozone bought back about $710 million worth of stock during Q4 at an average price of $2,915 per share. Not only did the company retire those shares at a nearly 5% discount to the stock’s current price, it also concentrated profits among fewer shares outstanding. That helped it boost its per-share profit by 11% year over year.

That was actually faster than sales growth.

Is Autozone stock a buy?

Autozone stock has been bouncing around Tuesday as investors try to come to a consensus on whether the Q4 results were good news. Here’s my read on the situation.

Autozone stock currently trades at 21 times earnings. The stock pays no dividend, management gave no clear guidance, and even read in the most charitable light, its earnings growth rate is only half of its P/E ratio — i.e., it has a price/earnings-to-growth (PEG) ratio of 2.0.

That’s too expensive. While Autozone remains a fine company that turned in a fine Q4 performance, Autozone stock is not yet a good bargain, and I see no compelling reason to buy it.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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