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VOL. 127 | NO. 237 | Wednesday, December 05, 2012

AutoZone Continues Earnings Streak

By Andy Meek

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AutoZone Inc. reported lower-than-expected sales during its fiscal first quarter ended Nov. 17, partly the result of a warmer-than-expected winter that resulted in less of a need to replace car components because of parts wearing out.

AutoZone Inc. reported lower-than-expected sales during its fiscal first quarter, but the company did see its 25th straight quarter of double-digit earnings-per-share growth.

(Daily News File Photo: Lance Murphey)

That also was the result during the prior reporting period, the company’s important fiscal fourth quarter – when the summer months tend to put more pressure on car components like electrical, coolant and other systems. Toward the end of the year, it’s also an easier overall time to work on a car.

Whether customers didn’t visit AutoZone – the country’s largest auto parts retailer – as much during the just-ended quarter because of the warmer winter, the company reported $1.9 billion of revenue during the quarter, while analysts were looking for revenue of $2.02 billion.

Morning trading of AutoZone shares was slightly down shortly after the company walked through the quarter for analysts Tuesday, Dec. 4.

Elsewhere, the company held true to its enviable status among publicly traded retail companies, racking up same-store sales and earnings per share growth regardless of the economy’s performance.

AutoZone’s quarterly profit grew $12.3 million to $203.5 million, a gain of 6.4 percent. The company also saw its 25th straight quarter of double-digit earnings per share growth, gaining 15.7 percent from $4.68 per share in the year-ago quarter to $5.41.

Domestic same-store sales – a metric that sets aside the impact of growth that comes from merely opening new stores – grew a slight 0.2 percent for the quarter.

Executives sounded their usual optimistic note about the company, which holds its annual meeting of stockholders this month in Memphis, during a conference call with analysts Tuesday. AutoZone chairman, president and CEO Bill Rhodes said the quarter didn’t deliver much in the way of a surprise, despite the lower than hoped-for sales results.

“Regional sales discrepancies continued to challenge our results,” Rhodes said. “However, we began to see improvements in our more challenged regions late in the quarter.”

Rhodes also welcomed AutoAnything employees into the AutoZone company tent, following AutoZone’s announcement Tuesday that it has entered into a definitive agreement to purchase the assets and select liabilities of AutoAnything, an online retailer of specialized automotive parts. Raymond James & Associates analyst Dan Wewer said in a note to clients that move should help AutoZone’s online strategy.

“(AutoAnything’s) culture and leadership is an outstanding fit with our company as we look forward to grow our e-commerce initiatives for many years to come,” Rhodes said.

Beyond that, Wewer said the quarter’s results bolster the fact that AutoZone still has plenty of room to grow in several areas. And for his investment clients he pointed specifically toward things like AutoZone’s commercial program.

Noted Wewer, commercial initiatives represent about 57 percent of the $100 billion addressable market but account for only 15 percent of AutoZone’s revenues.

“AutoZone’s 2 percent market share significantly lags the 4 percent to 5 percent market share position for Advance and O’Reilly and the 6 percent and 7 percent shares held by NAPA and Carquest,” Wewer said. “While some of our competitors shun AutoZone due to concerns there is limited headroom for the company to improve its industry-leading sales productivity and margin, it is our perspective that AutoZone possesses tremendous upside given its underperformance in the most important sector of the aftermarket channel.”

AutoZone, meanwhile, continued to open new stores during the quarter, as it has in recent past quarters, at a modest clip. New store openings totaled 19. One U.S. store was closed, four new stores were opened in Mexico, and the company opened its first store in Brazil. That brought AutoZone’s latest store total to 5,029. As of Nov. 17, there were 4,703 stores in 49 states, the District of Columbia and Puerto Rico, plus 325 stores in Mexico and one in Brazil.

Also during the quarter, AutoZone bought back 855,000 shares of common stock for $317 million. At the end of the first quarter, the company had $788 million left under its current share buyback program. Share buybacks are one way for a company to deploy capital and can boost earnings per share, because the earnings would be spread over a smaller base.

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