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AutoZone Not Sputtering
AutoZone (NYSE:AZO), the nation's largest auto parts retailer reported another impressive quarter this week. For the fiscal 2011 second quarter, AutoZone's net profit increased by 20% to $148 million from the year ago quarter. Net sales increased by 10.3% to $1.7 billion over the year ago quarter. Even more impressive, same store sales - sales for stores open at least a year - were up 7.1% in the quarter. These results appeared to come as as surprise to the market as shares in AutoZone jumped by 2% on the day of earnings new.
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Slowing Down or Not?
After an impressive multi-year rally, shares in auto parts retailers have underperformed the market in 2011. So far, the S&P 500 is up about 4% in 2011. AutoZone is down 3.3%, while O'Reilly Automotive (Nasdaq:ORLY) is down 8.7% so far this year. Despite the strong performance by AutoZone, the market is not buying into another growth year for the auto parts retailers.
One reason is that new car sales are growing again. While annual new vehicle sales are still far below the prerecession levels, they are climbing. Earlier this week, General Motors (NYSE:GM) and Toyota (NYSE:TM) both reported significant increases in new car sales in the United States. GM sold 207,028 vehicles in February, up 46% from a year earlier, while Toyota's sales climbed 42%, to 141,846 vehicles. Nissan said its sales rose 32% to 92,370 cars and trucks. Overall, auto makers sold 993,387 cars and trucks in February, a surprising 27% gain over a year ago.
With newer cars on the road, the demand for auto parts declines. The recent surge in the price of gasoline is also not helpful in the short run. Higher gas prices tend to reduce miles driven, which prolongs the need for replacement parts. (For more, see Analyzing Auto Stocks.)
Not So Fast
Despite the stronger new vehicle sales figures, the economy is still sluggish and unemployment remains high. For many people, a used vehicle is still an attractive choice. While used car sales may dip in 2011, auto parts retailers may still have some engine power.
Additionally, many of them are using their cash generation to buy back stock. EPS for AutoZone grew by 36% to $3.34 year over year as AutoZone continued to retire shares. Other auto parts retailers are continuing to do the same thing. Under its share repurchase program, 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. Since fiscal 1998, AutoZone has bought back nearly 125 million shares. Today the company has just under 43 million shares outstanding.
Value Creation
Through a combination of sales and profit growth along with share buybacks, AutoZone has propelled the value it has created for shareholders. So far in 2011, the company shows no signs of slowing down. (For more, see A Breakdown On Stock Buybacks.)
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IN PICTURES: 9 Simple Investing Ratios You Need To Know
Slowing Down or Not?
After an impressive multi-year rally, shares in auto parts retailers have underperformed the market in 2011. So far, the S&P 500 is up about 4% in 2011. AutoZone is down 3.3%, while O'Reilly Automotive (Nasdaq:ORLY) is down 8.7% so far this year. Despite the strong performance by AutoZone, the market is not buying into another growth year for the auto parts retailers.
One reason is that new car sales are growing again. While annual new vehicle sales are still far below the prerecession levels, they are climbing. Earlier this week, General Motors (NYSE:GM) and Toyota (NYSE:TM) both reported significant increases in new car sales in the United States. GM sold 207,028 vehicles in February, up 46% from a year earlier, while Toyota's sales climbed 42%, to 141,846 vehicles. Nissan said its sales rose 32% to 92,370 cars and trucks. Overall, auto makers sold 993,387 cars and trucks in February, a surprising 27% gain over a year ago.
Not So Fast
Despite the stronger new vehicle sales figures, the economy is still sluggish and unemployment remains high. For many people, a used vehicle is still an attractive choice. While used car sales may dip in 2011, auto parts retailers may still have some engine power.
Additionally, many of them are using their cash generation to buy back stock. EPS for AutoZone grew by 36% to $3.34 year over year as AutoZone continued to retire shares. Other auto parts retailers are continuing to do the same thing. Under its share repurchase program, 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. Since fiscal 1998, AutoZone has bought back nearly 125 million shares. Today the company has just under 43 million shares outstanding.
Value Creation
Through a combination of sales and profit growth along with share buybacks, AutoZone has propelled the value it has created for shareholders. So far in 2011, the company shows no signs of slowing down. (For more, see A Breakdown On Stock Buybacks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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