AutoZone, Inc. has reported that while fourth quarter sales were up 2.5%, margins and profits had decreased. AutoZone reported that sales of $1.882 billion for its fiscal fourth quarter (16 weeks) ended August 27, 2005, up 2.5% from fiscal fourth quarter 2004. All figures in U.S. dollars. Same store sales, or sales for domestic stores open at least one year, were down 1% for the quarter. Operating margin decreased 116 basis points from last year to 18.7%, while operating profit decreased 3.5% over the prior year. Net income for the quarter decreased 1.3% over the same period last year to $206.6 million, while diluted earnings per share, reflecting net income and the benefit of the Company’s share repurchase program, increased 5.4% to $2.66 per share from $2.53 per share reported in the year-ago quarter. For the quarter, gross profit, as a percentage of sales, was 48.7% (versus 49.2% last year). Last year’s gross margin reflected $15.5 million of pre-tax gain from warranty credits. On a comparable basis, gross profit, for the quarter, as a percentage of sales, was 48.7% versus 48.3% last year. The improvement in comparable gross margin was largely due to the company’s ongoing category management initiatives as well as reduced sales of non-core, lower-margin, merchandise. The company’s gross per store inventory level (the reported balance sheet inventory, which is total inventory less supplier owned pay-on-scan) as of August 27, 2005, was $453 thousand versus $448 thousand last year. This may reflect that the pay-on-scan initiative has largely stalled, though the company says that the increase in inventory costs is due to investing in more extensive inventories. This may be true, but is still reveals that they are paying for that inventory, as opposed to putting on the shelf at the suppliers expense. Net inventory, defined as gross inventory less accounts payable, decreased on a per store level to $34 thousand from $38 thousand last year reflecting an increase in accounts payable to 92.5% of inventory from 91.5% of inventory in the prior year. Operating expenses, as a percentage of sales, were 30.0% (versus 29.4% last year). The increase in operating expenses reflected efforts to improve the customer shopping experience, from expanding hours of operation to ensuring stores were properly merchandised and well presented. Excluding last year’s warranty credit, operating profit was up 0.8%. Additionally, for this year’s quarter there was a discrete income tax benefit of $6 million. Therefore, on a comparable basis, diluted earnings per share increased 7.3% to $2.59 versus the year-ago quarter of $2.41. Under its ongoing share repurchase program, AutoZone repurchased 1.3 million shares of its common stock for $118.3 million during the fourth quarter, at an average price of $93 per share. Since 1998 cumulative share repurchases have totaled $4.1 billion, or 87.0 million shares at an average price of $47 per share. “Our operating margin this quarter reflects actions we took to improve the in-store customer experience. We increased training, placed additional focus on improving the appearance of our stores, and we intensified efforts to drive our unique and powerful culture. We are encouraged by our customers’ and AutoZoners’ initial response to these new initiatives. We will maintain our disciplined approach to growing operating earnings and utilizing our capital effectively, while looking to leverage our industry-leading position,” said Bill Rhodes, President and Chief Executive Officer. During the quarter ended August 27, 2005, AutoZone opened 87 new stores and replaced 3 stores in the U.S. while additionally opening 8 new stores in Mexico. As of August 27, 2005, the Company had 3,592 domestic stores and 81 stores in Mexico.