AutoZone reported net sales of $2.5 billion for its fiscal second quarter, a 2.6% year-over-year increase.
Domestic same-store sales for the quarter, which ended Feb. 15, were down 0.8%.
The story of the quarter was the mild winter weather, including the second-hottest December on record. Batteries, antifreeze and other seasonal products – typically high-demand items in winter – “were our worst-performing categories” in the retail and commercial segments, CEO Bill Rhodes noted during the company’s March 3 conference call.
The mild temperatures led to “particularly soft” sales in AutoZone’s Midwestern and Northeastern markets, according to Rhodes. The sales drop-off accelerated during the last two weeks of the quarter.
“Our sales fall-off was more pronounced for our DIY business than commercial, but we certainly saw the trajectory of our business slow during this timeframe for both businesses,” Rhodes added. “With over 25% of our sales coming from our Midwestern and Northeastern markets, we could not make up for the sales shortfall from these areas from sales in other markets.”
While Rhodes emphasized that AutoZone’s top-line results came in well-below the company’s expectations, he praised “all AutoZoners across the entire organization for their hard work and dedication to delivering great customer service in light of a challenging sales environment this past quarter.” He noted that the company was able to deliver a 2% increase in EBIT (earnings before interest and taxes) and a 7.8% increase in diluted earnings per share in the second quarter.
“Unfortunately, as we have stated many, many times, the timing of our second quarter can result in quite volatile sales performance, both good and bad,” Rhodes said. “And the timing this year couldn’t have been much worse. In the end, weather impacts normalize over time, and our focus is on our long-term performance.”
During the quarter, AutoZone made progress on a number of strategic initiatives that “we feel will benefit sales over time,” Rhodes noted. Among them, AutoZone opened two new megahub stores – bringing the companywide total to 36 – as part of the company’s push to improve its inventory assortments and grow its commercial business.
“Our megahubs provide very deep local-market coverage for hard-to-find parts,” Rhodes explained. “This is critical to both of our sectors, but particularly important to our commercial business.”
AutoZone’s commercial sales increased 8.2% year-over-year, and represented 23% of the company’s total sales, according to CFO Bill Giles. AutoZone has a commercial program in 4,942 – or 85% – of its U.S. stores, and in most of its international stores. Average weekly sales per commercial program were $9,400 in the second quarter, a 5% year-over-year increase.
“We have grown our sales with mature customers and mature programs at a substantially improved growth rate the last two years versus previous years, indicating that our offerings, products, coverage, customer service and ability to enhance the customers’ overall shopping experience are improved and have been recognized and rewarded by our customers,” Rhodes said.
Technology has been another key focus. The company has been upgrading its systems with the goals of making it easier for customers to do business with AutoZone “while simultaneously making it more efficient for our AutoZoners,” Rhodes noted. During the March 3 conference call, he highlighted the recent implementation of a new point-of-sale system in AutoZone stores.
“This new system leverages new architecture and technologies that will expedite retail sales transactions by making the workflow more succinct and logical with touch-screen capabilities and allowing us to make future changes much quicker as we replace some very old legacy codes,” Rhodes said.
AutoZone opened 25 new U.S. stores in the second quarter, and launched 25 net new commercial programs. The company opened two new stores in Brazil and one in Mexico. As of Feb. 15, AutoZone had 5,815 stores in the United States, 608 stores in Mexico and 38 stores in Brazil, for a total store count of 6,461.