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VOL. 127 | NO. 74 | Monday, April 16, 2012

The Fast Lane

AutoZone continues pushing pedal to the metal with record earnings

By Andy Meek

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Forbes magazine recently published an article ranking the best CEOs in the country over the past year. Bill Rhodes, CEO at AutoZone Inc. since 1995, was one of the men who made that list of “best bosses.”

Memphis-based AutoZone Inc.’s performance continues to soar. The company in February posted its 22nd straight quarter of double-digit growth.

(Daily News File Photo: Brandon Dill)

On the surface, at least, it’s easy to see why.

Underneath its shiny corporate hood, the engine has been purring like a kitten at the Memphis-based auto parts retailer, which at the end of February posted its 22nd straight quarter of double-digit growth.

That same quarter also marked AutoZone’s 13th-straight in which the company reported more than 20 percent growth in earnings per share.

These results have turned AutoZone into arguably Memphis’ best-performing public company.

“We take nothing for granted,” said Rhodes, AutoZone’s chairman, president and CEO, during the recent second quarter earnings presentation. “Customers continue to shop with us to find good value to effectively maintain, enhance and repair their vehicles.”

Those vehicles are getting older, which is good for AutoZone. According to financial news service Seeking Alpha, the average age of the approximately 240 million cars on U.S. roads was 10.8 years by the end of 2011 – the highest average on record. That’s part of the reason for AutoZone’s success.

But the economic slump provides a double whammy.

In ordinary times, the owner of a car that’s outlived its usefulness might want to trade it in for a newer model. Cash-strapped consumers, though, mean less-critical repairs are put off, and others get handled the do-it-yourself route with parts from a store like AutoZone.

As proof of how that reality is helping AutoZone’s bottom line, same-store sales growth – growth at stores open at least a year, which sets aside growth that comes from opening a new store – went from the basement level to around 5 percent virtually overnight, according to Seeking Alpha.

That trend held true during the just-ended quarter, when AutoZone’s domestic same-store sales grew 5.9 percent. The company also opened 29 new stores in the U.S. and six new stores in Mexico.

Within the past few days, Goldman Sachs upgraded AutoZone from “neutral” to “conviction buy” and raised the price target from $405 to $435.

At a close of $383.80 Thursday, April 5, AutoZone’s share price is up almost 40 percent in the past 12 months. To put it simply, the company’s performance over the past several years means Memphis has been home to one of the best-performing stocks in the market, according to Seeking Alpha.

For the Forbes list of “best bosses,” Rhodes was listed alongside the top execs of companies like Amazon and Chipotle Mexican Grill.

There are potential speed bumps AutoZone’s leadership will have to plan ahead to avoid, it should be noted:

If gas prices stay elevated or rise, that drives down miles driven on cars, which the company’s chief financial officer, Bill Giles, during the February presentation said “remains a headwind to our sales potential.”

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