AZO AutoZone Inc

By Lisa Beilfuss 

AutoZone Inc. reported better-than-expected profit growth in its latest quarter, driven by higher sales that were bolstered by efforts to improve inventory and distribution.

For the Memphis, Tenn., replacement-part retailer, sales at domestic stores open at least a year rose 4.5%. Steadily lower gasoline prices as well as consistent weather across much of the country helped bolster sales, Chief Executive Bill Rhodes said on a call with analysts.

The company has worked on increasing its inventory levels and selection, and efforts have included the opening of mega hub locations and more frequent deliveries to stores. On Tuesday, Mr. Rhodes said the testing of several inventory initiatives has concluded and will result in the company's implementation of its new supply chain strategy over the next few years.

AutoZone expects that its initiatives will eventually result in a roughly $1,000 to $1,500 a week lift in weekly revenue per store. In the latest period, AutoZone opened 72 stores to bring its tally to 5,141.

Meanwhile, inventory per store increased 4.8% from a year earlier, while overall inventory jumped 9% because of increased product placement, new stores and last year's acquisition of import-parts distributor Interamerican Motor Corporation.

Despite higher costs stemming from infrastructure investments, AutoZone's gross margin edged up modestly to 52.5% from 52.3% a year earlier. Deutsche Bank analyst Mike Baker noted this week that the company's margins had been down in four of the last six quarters leading up to the most recent period, as the company has invested in needed infrastructure improvements around delivery frequency and parts coverage.

In all, the company reported a profit of $401.1 million, or $12.75 a share, up from $373.7 million, or $11.28 a share, a year earlier. Revenue grew 7.9% to $3.29 billion.

Analysts projected $12.69 in per-share profit of $3.25 billion in sales, according to Thomson Reuters.

Looking to 2016, Mr. Rhodes said the continued aging of the car population bodes well for the company's performance, though he cautioned that headwinds from infrastructure investments in addition to faster growth in its lower-margin commercial business would pressure gross margin.

Shares in the company, up about 19% this year, rose 1.9% to $742.32 in recent trading.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

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(END) Dow Jones Newswires

September 22, 2015 13:23 ET (17:23 GMT)

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