AutoZone (AZO) is expected to release its sales and earnings results for the fiscal first quarter before the opening bell on Dec 8. The Memphis, Tennessee-based retailer of automotive replacement parts reported a 3.1% year-over-year fall in its profit to $236.1 million or $4.43 per share for the fourth quarter of its fiscal 2009 ended Aug 29, 2009.

With this, AutoZone has managed to come close to the Zacks Consensus Estimate profit of $4.45 per share. For the first quarter, Zacks Consensus Estimate for the company is $2.68 per share, a decline of 40%, compared to the recorded earnings in the previous quarter.

AutoZone is one of the nation’s leading specialty retailers of automotive replacement parts and accessories, operating in the Do-It-Yourself (DIY) retail, Do-It-for-Me (DIFM) commercial and other customer markets. As of Aug 29, 2009, the retailer had 4,229 stores in 48 states, the District of Columbia and Puerto Rico in the U.S. and 188 stores in Mexico.

The company uses its significant cash flow to open new stores every year and maintain a mid-single-digit square footage growth rate. In fiscal 2009, the company opened 140 new stores in the U.S. and 40 in Mexico. AutoZone is also focused on growing same-store sales by expanding private label offerings, which now account for 25% of sales.

AutoZone is the leader in the DIY retail market in the U.S. with a 13% share. The average age of cars on the road is rising, which is raising the demand for auto parts necessitated by greater repair needs. In the DIFM commercial segment, the retailer has a meager 1.3% market share. However, management is of the belief that the company can increase its share in the segment by focusing on improving marketing initiatives to boost sales.

Nevertheless, AutoZone has a high degree of reliance on its private label brands, which could mar its performance in the commercial business. Consequently, the company could face increased costs on account of higher staffing levels at the stores on top of rising occupancy costs. Further, several of AutoZone’s vendors have merged in recent years. This could materially affect the prices at which the company purchases its products.

Thus, we maintain our Neutral recommendation on the stock.

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