AutoZone Inc. on Wednesday reported a 1 percent increase in fourth-quarter sales, but profit fell 3.1 percent.

For the year, AutoZone earned $657 million, or $11.73 per share, up from $641.6 million, or $10.04 per share, a year ago. Sales rose from $6.52 billion to $6.82 billion.

During the quarter ending Aug. 29, sales rose from $2.21 billion to $2.23 billion and matched analysts' estimates.

Earnings for the quarter were $236.1 million, or $4.43 per share, down from $243.7 million, or $3.88 per share, a year ago. The per- share figures rose because the company had fewer shares outstanding in the latest period.

Analysts polled by Thomson Reuters expected a profit of $4.45 per share for the quarter.

Company officials attributed the decline mostly to capital investments in new business programs.

AutoZone spent $10.5 million during the quarter to accelerate its hub store model conversion project, equip its commercial locations with more staff and new technology and open 20 stores in Mexico.

The company converted 15 stores to hub locations - stores that better control inventory with more frequent deliveries of requested parts to smaller stores.

So far, nearly half of AutoZone's 132 hub stores have been converted.

The company also hired more sales staff for locations that serve commercial customers. It also implemented new training programs for them and updated the stores' technology platform.

So far, the company has converted 27 stores to the new program.

"We purposefully decided to accelerate initiatives that we have been testing faster than we may have otherwise in an effort to capitalize on market conditions," AutoZone Chairman, President and CEO Bill Rhodes said in a conference call.

Rhodes said depressed real estate prices allowed the company to buy property rather than lease it. The strategy affected the bottom line, he said, but was the "right approach" and it "contributed to sales momentum."

The company opened 40 stores in Mexico in 2009 .

"But the story out of Mexico continues to be the weakening peso," Rhodes said.

The peso traded about 13-to-1 against the U.S. dollar in 2009, below the 11-to-1 ratio from 2008, he said.

Morgan Keegan & Co. Inc. analyst John R. Lawrence said the investments were the most compelling figures to come from the earnings report.

"It was a solid earnings report, especially considering that the company elected to make tremendous investments that will pay off in the longer term," Lawrence said. "Without those investments, the earnings number could have been a lot higher, but they were critical."

Operating expenses in the quarter also included a $3.6 million payment on a $300 million loan that comes due in December.

AutoZone shares fell $11.42, or 7.5 percent, to close Wednesday at $141.50.

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AutoZone Inc. fourth quarter

Earnings: Slipped 3.1% to $236.1 million

Factors: Slide was a result of about $10.5 million investment in new programs

Expansion: Opened 20 stores in Mexico last year

Web site:

"It was a solid earnings report, especially considering that the company elected to make tremendous investments that will pay off in the longer term."

John R. Lawrence

Morgan Keegan & Co. Inc. analyst

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Originally published by Toby Sells sells@commercialappeal.com .

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