U.S. auto parts retailer AutoZone, Inc. reported net sales of $2.4 billion for its second quarter (12 weeks) ended February 10, 2018, an increase of 5.4% from the second quarter of fiscal 2017 (12 weeks). Domestic same store sales, or sales for stores open at least one year, increased 2.2% for the quarter.
All figures in USD.
The Tax Cuts and Jobs Act of 2017 (“Tax Reform”) increased net income by $171.4 million, consisting of benefits from both revaluation of net deferred taxes of $136.7 million and a lower corporate tax rate of $59.5 million, partially offset by $24.8 million of tax expense related to repatriation taxes for accumulated earnings of foreign subsidiaries. The company also recorded approximately $193.2 million in intangible and other assets impairment charges within operating expenses related to its IMC and AutoAnything businesses. Both of these businesses are being sold.
Net income for the quarter increased 22.1% over the same period last year to $289.5 million, while diluted earnings per share increased 28.5% to $10.38 per share from $8.08 per share in the year-ago quarter. Adjusted for impairment charges, Tax Reform, excess tax benefits from option exercises and operating results from IMC and AutoAnything, adjusted net income for the quarter increased 3.9% over the same period last year to $236.3 million, while adjusted diluted earnings per share increased 9.3% to $8.47 per share from $7.75 per share in the year-ago quarter. Adjusted operating profit, which excludes operating results from IMC and AutoAnything of ($5.2) million and the impairment charges, increased 3.8% to $403.5 million.
For the quarter, gross profit, as a percentage of sales, was 52.9% (versus 52.7% for the same period last year). The increase in gross margin was attributable to lower distribution costs (17 bps) and higher merchandise margins. Operating expenses, as a percentage of sales, were 44.4% (versus 35.9% the same period last year) and included impairment charges of approximately $193.2 million, or 8.0% of sales. Operating expenses before impairment charges, as a percentage of sales, were higher than last year primarily due to incentive compensation (16 bps), higher advertising (12 bps) and deleverage on occupancy costs (10 bps).
Under its share repurchase program, AutoZone repurchased 227 thousand shares of its common stock for $174.9 million during the second quarter, at an average price of $769 per share. At the end of the second quarter, the Company had $296 million remaining under its current share repurchase authorization.
The company’s inventory increased 4.7% over the same period last year, driven by new stores and increased product placement. Inventory per location was $671 thousand versus $665 thousand last year and $663 thousand last quarter. Net inventory, defined as merchandise inventories less accounts payable, on a per location basis, was a negative $46 thousand versus negative $36 thousand last year and negative $52 thousand last quarter.
“I would like to thank and congratulate our entire organization for delivering another solid quarter of sales and earnings results. Our ongoing initiatives, which include enhanced inventory availability, commercial acceleration and omni-channel, are gaining traction and, as expected, our business improved due to the more harsh winter conditions we experienced in late December and January. Based on the results of a strategic review of our business priorities, we have determined IMC and AutoAnything serve niche markets that are not core to our strategic priorities going forward and those two businesses are being sold. We thank all the employees of IMC and AutoAnything for their contributions to our success and wish them well in the future. Exiting these two businesses will allow us to intensify our focus on our core DIY and DIFM operations both domestically and internationally, which we continue to believe are very attractive markets. As we continue to invest capital in our business, we will remain committed to our disciplined approach of increasing operating earnings and utilizing our capital effectively,” said Bill Rhodes, chairman, president and chief executive officer.
During the quarter ended February 10, 2018, AutoZone opened 35 new stores and closed one store in the U.S., opened three new stores in Mexico and opened two new stores in Brazil. As ofFebruary 10, 2018, the company had 5,514 stores in 50 states in the U.S., the District of Columbia and Puerto Rico, 532 stores in Mexico, 26 IMC branches and 16 stores in Brazil for a total count of 6,088.