AutoZone's Engine Stays In High Gear

1/2/2012


  Recent Price
$330
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
16
  Shares (millions)
41
  Long-Term Debts as % of Capital
168%
  52-Week Price Range
$343.90 - $246.26

Through downturns and upswings, AutoZone I has delivered higher revenue for more than 20 straight years. The auto-parts retailer kicked off fiscal 2012 ending August by reporting a 7% sales gain in the November quarter. U.S. same-store sales rose 4.6%, on top of 9.5% growth in the same quarter last year, and same-store sales have now climbed in 12 straight quarters.

The strong results come as AutoZone battles headwinds in the form of higher gasoline prices (up about 25% in the quarter) and fewer miles driven (down 1% in the U.S. over the first nine months of 2011). Both trends should translate into less demand for AutoZone's maintenance and failure products. But while management acknowledges its long-term results are linked to mileage, the company has seen minimal impact so far. In contrast, the number of cars over seven years old is on the rise, a positive driver for sales.

At 16 times trailing earnings, AutoZone trades at an 8% premium to its three-year average but roughly in line with the median automotive retailer. The growth outlook suggests AutoZone deserves a premium valuation. Wall Street expects per-share profits to rise 19% in fiscal 2012 ending August, 14% in fiscal 2013, and 15% annually over the next five years. AutoZone is a Buy and a Long-term Buy.

Business breakdown

AutoZone operates more than 4,550 stores in the U.S. and Puerto Rico, along with 281 locations in Mexico, where it has sold auto parts for more than 12 years. The store count has grown by an average of more than 4% a year over the past five years, and management plans to open its first Brazil store in late 2012.

Within its retail unit, AutoZone saw little change in shopping behavior through the middle of November: Customers continue to fix their cars rather than buy new ones, and budgets remain tight. AutoZone's most consistent merchandise category, failure-related products such as batteries, belts, and radiators, accounted for 45% of the product mix in the November quarter.

Maintenance products (40% of the mix), typically smaller-ticket items such as antifreeze and windshield wipers, experienced slower growth. Discretionary merchandise, such as mirrors and seat covers, account for the last 15% or so of AutoZone's products.

AutoZone continues to expand the commercial business, now in 60% of U.S. stores. Commercial sales jumped 23% in the September quarter, marking the sixth consecutive quarter of at least 20% growth. AutoZone's tiny market share of just below 2% suggests the commercial business has plenty of room for growth.

Conclusion

Since the beginning of 1998, AutoZone has spent $10.5 billion repurchasing more than 128 million shares. Those buybacks have shrunk the share count by more than 70%. As of the middle of November, nearly $660 million remained on AutoZone's share-repurchase program, enough to buy 5% of outstanding shares at current prices. An annual report for AutoZone Inc. is available at 123 S. Front St., Memphis, TN 38103; (901) 495-6500; www.autozone.com.

AUTOZONE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Nov '11
4.68
vs.
3.77
+ 7%
341.89
-
304.31
17 - 16
Aug '11
7.18
vs.
5.66
+ 8%
310.87
-
266.25
17 - 15
May '11
5.29
vs.
4.12
+ 9%
299.60
-
256.86
18 - 15
Feb '11
3.34
vs.
2.46
+ 10%
276.00
-
246.26
17 - 15
           
Year
(Aug.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
8.07
19.47
0.00
310.87
-
210.25
16 - 11
2010
7.36
14.97
0.00
215.21
-
135.13
14 - 9
2009
6.82
11.73
0.00
169.99
-
84.66
14 - 7
2008
6.52
10.04
0.00
142.49
-
103.07
14 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
80
48
94
72
98
71

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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