Auto parts retail giant AutoZone (NYSE: AZO) continued to put on display why it may be one of the few specialty retailers that will continue to prosper over the long run. For the fiscal first quarter, sales were up 7.5% while earnings per share increased a strong 26% to $2.82. In addition, domestic same-store sales were up a respectable 5.6 percent.

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Mr. Market Knows
AutoZone's appeal is no surprise to Mr. Market. What many may not know is that in 2008, when the S&P 500 index was down nearly 40%, shares in AutoZone appreciated by nearly 20% over the same time. Very few companies could make that claim in 2008. That success continues thus far in 2009. The recession meant fewer new car sales and people holding on to their older vehicles. More older vehicles means more potential customers for AutoZone. And as people strive to save money, more and more will choose to tend to their vehicle's basic needs. In addition, AutoZone serves local auto repair shops. In a way, the company is like a Home Depot (NYSE: HD) or Lowe's (NYSE: LOW) to the used car market.

Excellent Management
Net profit for the quarter increased 9%, but EPS was up over 26% as a result of share buybacks. Over the past year, diluted share count has declined by over 15 percent. Management continues to run the business brilliantly - return on invested capital was 25% versus 24% the prior year. AutoZone clearly illustrates the difference excellent management can make over the long-term performance of a company. The government's cash for clunkers program took many older vehicles off the market, which may have affected business for AutoZone, but management continues to stick to its knitting. Over time, more vehicles will age and represent more opportunity for AutoZone.

Despite this, shares only trade at 14 times earnings and 10.5 forward earnings. That compares with a 15 multiple for Advance Auto Parts (NYSE: AAP) and a P/E of 19 for O'Reilly Automotive (Nasdaq: ORLY). Over the long run, through a combination of good capital allocation and prudent share repurchases, AutoZone should continue to deliver. (For more, see A Breakdown Of Stock Buybacks.)

Bottom Line
AutoZone is a quality franchise business with strong brand value. If management continues to execute, then AutoZone is easily a quality growth company for many years to come. (For more, see Investing Basics: Flight To Quality.)

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Tickers in this Article: AZO, AAP, ORLY, LOW, HD

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