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AutoZone Skids as Same-Store Sales Stall

AutoZone (AZO) is running out of gas.

Unlike its competitors, which delivered turbo-charged results, AutoZone saw its business stall in the latest quarter. Same-store sales remained idle, and core retail sales actually slid into reverse. Total sales, fueled by 45 new stores, grew 3.4% to $1.16 billion, but still stopped short of the $1.2 billion Wall Street had expected.

Even earnings that zoomed past analyst estimates failed to keep the stock from crashing on news of the slowdown. Shares of AutoZone skidded 5.7% to $83.40 early Wednesday morning.

Analysts had warned the stock might tank if sales failed to accelerate.

"We believe all focus will be on the top line, most notably on the retail comp and the quality of any EPS upside," predicted Citigroup Smith Barney analyst Bill Sims, who has a hold rating on the stock. "We believe this is especially true based on the weaker-than-anticipated sales results that have been reported in each of the last several quarters at AutoZone."

Like most, Sims had expected the company's sales to rev up in the latest quarter. Instead, same-store sales remained flat against an easy comparison last year. Moreover, sales to the company's core retail market slid 1% instead of inching forward to meet modest growth expectations. Even the company's newer -- and lower-margin -- commercial business grew at about half the pace some analysts had projected.

AutoZone did manage to beat earnings estimates by growing overall margins and aggressively repurchasing its shares. The company delivered total profits of $91.7 million, or $1.04 a share, that topped the consensus estimate by 4 cents. But investors steered right past that 32% jump in EPS and, as expected, parked their attention on the company's top line instead.

"We think AutoZone is raising prices and cutting costs to protect earnings, which is hurting the top line," noted J.P. Morgan analyst Danielle Fox, who has an underweight rating on the stock. "Once again, sales trends decelerated on easing comparisons."

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