Why AutoZone Is Positioned for Further Gains
With a robust fiscal first-quarter 2020 report, auto parts leader AutoZone (NYSE: AZO) put to rest temporary uncertainty regarding its comparable sales and gross margin. The wholesale and retail parts supplier's earnings, released Dec. 10, revealed strong year-over-year sales growth of 5.7% and comps growth of nearly 3.5%. Gross margin held essentially flat against the prior-year period, at 53.7%, as the business withstood tariff-related impacts.
Investors have been worrying over AutoZone's gross margin over the last couple of quarters as management forecast tariff pressures and vowed to absorb higher costs via a program of selectively passing on price increases to customers on a targeted SKU-to-SKU (stock-keeping unit) basis. During the company's first-quarter earnings conference call, management noted that it's both negotiating with vendors and indeed passing on some of the inflation to customers as promised. CEO Bill Rhodes specified that AutoZone would keep its current strategy in place, while adding, "To date tariffs and their impact on our cost in retail has been manageable and not a significant driver of our business results one way or the other."
Investors are sticklers for gross margin growth, and while management teams also strive to lift margins, they are a bit more tuned in to the dollar amount of gross profit generated each quarter. In fact, given a choice, many if not most corporations prefer gross margin dollars to an improvement in gross margin rate.
Source Fool.com
