AutoZone's fiscal second-quarter earnings have unexpectedly decreased, with revenue falling short of market expectations due to challenges posed by foreign exchange rates. The auto parts retailer reported a net income of $28.29 per share for the three months ending February 15, a slight dip from $28.89 from the previous year.
Analysts had anticipated earnings to rise to $29.29, as per the consensus on FactSet. Sales, however, did see an increase, climbing to $3.95 billion from $3.86 billion, yet missed Wall Street's projections of $3.98 billion. Chief Financial Officer Jamere Jackson disclosed during an earnings call that a significant headwind from foreign exchange rates in Mexico contributed to a 19% decline in its value versus the US dollar, resulting in a $91 million shortfall in sales.
He further projected that based on current exchange rates, foreign exchange is anticipated to dampen revenue by approximately $106 million in the current quarter and by around $101 million in the following quarter. The results highlighted some positive domestic trends, as same-store sales increased by 1.9% during the second quarter, up from a meager 0.3% increase in the prior-year period.
In contrast, international comparable sales dropped by 8.2%. Overall, same-store sales rose by 0.5%, falling behind the average analyst expectation of a 1.9% increase. CEO Phil Daniele commented on the ongoing trends, saying, "Domestically, both do-it-yourself and commercial segments continued to perform well, and sales saw acceleration from the previous quarter.
While the fluctuations in currency rates negatively impacted our reported sales and earnings, our international markets remain promising as we persist in our strategy to expand our store presence in these regions." Jackson expanded on the potential impact of tariffs on AutoZone's performance, noting various outcomes that could arise from them, such as vendor absorption, diversification, sourcing changes, price adjustments, or a combination of these strategies.
He emphasized the retailer's commitment to maintaining its margin profile in the face of tariffs, asserting that they expect the broader auto industry to respond in a measured manner. The recent announcement by President Donald Trump instituting a 25% tariff on imports from Canada and Mexico has officially taken effect, alongside a doubling of the levy on Chinese imports to 20%.
Both China and Canada have retaliated, with Beijing imposing a 15% tariff on specific US imports, such as chicken and wheat, along with a 10% tariff on other products. Canada is reportedly set to implement a 25% tariff on CA$30 billion ($20.65 billion) worth of US goods immediately, with an additional CA$125 billion in three weeks. Mexico's retaliatory response is expected to be revealed soon, with reports indicating a forthcoming announcement from President Claudia Sheinbaum. The potential rise in tariffs could serve as a significant leverage point for AutoZone’s sales growth, noted Truist Securities in a client note on Tuesday.
This could manifest as an increase in inflation for same-stock keeping units, as well as a potential shift in consumer behavior towards auto repair rather than purchasing new vehicles..