AutoZone's Success, and Why It'll Happen Again

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The strain on consumers' pockets from the economic crisis has led would-be buyers to maintain their jalopies rather than buy new cars. And that works in favor of aftermarket and auto-parts retailers.

So perhaps it's no surprise that AutoZone (NYS: AZO) did it again. Its second-quarter profit rise of 12.7% marked the 13th straight quarter of 20%-plus earnings-per-share growth. Similarly, its double-digit EPS increase continued for the 22nd quarter in a row.

The quarter that was
Revenue for the Memphis-based retailer surged by 9% from the previous year, with same-store sales growing by 5.9%. Its commercial business saw sales rise more than 20% for the seventh straight quarter. Its other businesses, which include its diagnostic-software unit ALLDATA and its e-commerce business, rose by 11.3%.

The company has continually looked to grow its market presence to take advantage of the need for aftermarket retailers. It opened 29 stores in United States and six more in Mexico last quarter.

The company has also returned value to its shareholders. In the previous quarter, it bought back 501,000 shares for $173 million and it still has $486 million left under its current repurchase program.

The road ahead
AutoZone is motoring ahead in 2012 with the mantra "1 Team Driving Our Future" and these four component steps:  

  • "Great people providing great service" -- a theme that's simple to understand and shows AutoZone's dedication to its customers.
  • "Profitably growing our commercial business" -- along with the store openings, the company is hoping to enter the Brazilian market in the second half of this year.
  • It's also looking to leverage its Internet business. AutoZone will focus on offering customers information on its products and services, hoping to encourage them to make online purchases by increasing awareness of the company's online presence.   
  • Finally, it's aiming to improve its hub stores. AutoZone currently operates 146 hub stores, and it plans to modify or relocate up to 70 of its current stores over the next few years.

AutoZone's plans have put the company in a strong place this year and should allow it to continue to deliver great results.

The industry at large
AutoZone, however, isn't the only one reaping the benefits of current economic conditions. Just last week, Advance Auto Parts (NYS: AAP) saw its fourth-quarter profits jump by 38% while its EPS rose by double digits for the fourth straight year. Genuine Parts Company (NYS: GPC) also ended 2011 on a high note, with a record rise in sales as well as double-digit EPS growth for the second year in a row. Peer O'Reilly Automotive (NAS: ORLY) was in the same boat, with a 16% bottom-line leap on the back of higher sales.  

The industry is set to grow even further in 2012. Currently, there are more than 240 million cars on U.S. roads, with their average age being about 11 years old and two-thirds of them being more than seven years old. While a pop in new auto sales could tap the brakes on this industry, the good news is that over the long run, today's new cars are tomorrow's old cars. Coupled with the fact that people are hanging on to their cars longer, we could see a fundamental change in consumer buying habits that supports the long-term thesis for the aftermarket-parts industry.

I believe there's a plenty of scope for this industry, and we may continue to see positive results in the future. What say you, Fools? Do you agree with me? Leave your comments below and stay up to date on this retailer or any of the other ones mentioned here by simply adding the stocks to Your Watchlist. Try it out -- it's free! You can start today using the following links.

At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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