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VOL. 126 | NO. 42 | Wednesday, March 2, 2011

‘Clear Leader’

AutoZone sets industry tone with another scorching quarter

By Andy Meek

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AutoZone Inc. chairman and chief executive officer Bill Rhodes told analysts during a presentation of the company’s second quarter results Tuesday morning that the Memphis-based auto parts retailer had its best quarterly performance since the end of 2003 for the period ending Feb. 12.

AutoZone employee Timothy Spina helps a customer by phone inside the AutoZone retail store at 7699 W. Farmington Blvd. in Germantown.
(Photo: Lance Murphey)

AutoZone reported a 20 percent increase in net income for the quarter and a 35.8 percent increase in diluted earnings. Between Q2 2010 and Q2 2011, net income rose from $123.4 million to $148.1 million. And in that same period, diluted earnings per share rose from $2.46 to $3.34 for the company, which is the largest U.S. auto parts retail chain.

The Q2 2011 earnings per share beat the consensus earnings per share expectation from analysts of about $3.05.

The results mark the ninth consecutive quarter of more than 20 percent growth in per-share earnings for the company, as well as the 18th consecutive quarter for double-digit growth.

Rhodes began his presentation to analysts by thanking AutoZone employees who work across more than 4,400 North American stores.

“We have made consistent progress on each of our initiatives,” Rhodes said. “Year-in and year-out, we have intentionally not made dramatic changes to our long-term strategies.”

He added that’s kept the company in position to deliver solid customer service that competitors can’t match.

Same store sales, which exclude the effect of opening or closing stores, were up during the quarter for AutoZone despite the fact Q2 is traditionally its lowest-volume sales quarter. Domestically, AutoZone’s same store sales at stores open at least one year increased 7.1 percent in the quarter.

AutoZone repurchased 1.5 million shares of its common stock for $394 million during the second quarter, at an average price of $257 per share. At quarter’s end, the company had $491 million remaining under a share repurchase authorization.

During the quarter ended Feb. 12, AutoZone opened 21 new stores in the U.S. and 8 new stores in Mexico.

The company had 4,425 stores in 48 states, the District of Columbia and Puerto Rico, as well as 249 stores in Mexico, as of Feb. 12.

John Lawrence, senior specialty retail analyst with Morgan Keegan & Co. Inc., said the company’s strong results are far from being a one-quarter phenomenon.

“This is about management’s ability to position the company to take advantage of the tailwinds provided by the industry, with older cars on the road, and the ability to sell more parts to the service providers and the commercial accounts,” Lawrence said. “Strong sales generate substantial leverage for the business. This is a continuation of a strategy they’ve put in place.”

In a note published Tuesday, Morningstar analyst Zoe Tan said AutoZone is a “clear leader” in the auto parts business in terms of sales and profitability, with its recognizable brand, network of retail stores and power over suppliers.

Rhodes told shareholders in a letter regarding the company’s overall performance in 2010 that besides delivering strong sales and profitability performance, the company also set a new all-time high in return on invested capital, ending the year at 27.6 percent.

“Based on third-party statistics, we continued to gain market share across both our retail and commercial customer segments,” Rhodes wrote. “And, our customers were telling us their shopping experience continues to improve. As the country’s largest retailer of automotive aftermarket products, we look forward to the year ahead.”

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