Autozone and EPS

Autozone reported higher than expected quarterly EPS numbers today.

The Memphis, Tenn., aftermarket seller of automotive parts (AZO) posted earnings of $147.8 million, or $1.86 a share, for the quarter ended May 7, up from $143.4 million, or $1.68 a share, a year earlier.

Results for the year-ago quarter included a warranty-related gain of about seven cents a share.

Sales reached nearly $1.34 billion in the period, off 1.6% from the prior year's $1.36 billion, in what CEO Bill Rhodes called a "considerably weaker" performance.

The average estimate of analysts polled by Thomson First Call was for earnings of $1.80 a share on revenue of nearly $1.38 billion.

One item that is interesting is that the company repurchased 3.2 million shares during the quarter:
In addition, the company noted its repurchase of 3.2 million common shares at an average price of $87 during the latest quarter, amounting to $278.6 million.

So what was the effect of this treasury stock transaction on EPS? In the second quarter Autozone's weighted average shares outstanding were 80,860,000 in the current (third) quarter that total dropped to 79,494,000. By repurchasing 3.2 million shares during the period Autozone increased its quarterly EPS by $0.03 . Here is the calculation:

Third quarter net income = $147.8 M
Third quarter weighted average shares outstanding (diluted) = 79,494,000
Third quarter diluted EPS = $1.86

Now instead divide by 80,860,000 shares (the weighted average shares at the end of the second quarter) and you get $1.83.

Its important to understand the effect treasury stock repurchases have on EPS calcualtions. In fact if you compare this quarter's results to a year ago when Autozone had weighted average shares outstanding (diluted) of 85,202,000 the improvement does not look that great.