Auto aftermarkets supplier and retailer AutoZone (NYSE:AZO) reported another strong quarter of results. Its fiscal fourth quarter and fiscal year results for 2011 showed marked increases in sales, earnings and margins, as the company continues its record of strong growth. (For more on growth, check out Steady Growth Stocks Win The Race.)
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A Driven Performance
AutoZone's fourth quarter net income rose 12.1% over last year's same quarter to $301.5 million, or $7.18 per diluted share, compared to $268.9 million, or $5.66 per share, in the fourth quarter a year ago. Domestic same store sales grew 4.5%. Gross profit margin rose to 51.2% from 50.5% in Q4 2010. This was partly due to the effects of higher merchandise margins in retail products on those that were commodity based. Operating expenses were up slightly, in part due to increased gas prices for deliveries.
For the full year, the performance was similar. Net income increased to $849 million from $738 million in fiscal 2010. Diluted earnings per share grew to $19.47 from $14.97, while net sales crossed the $8 billion mark ($8.072 billion) up from $7.362 billion in the previous fiscal year. For the year, AutoZone's numbers tell a strong story: 30% earnings per share growth, 31.3% return on invested capital, fiscal year EBIT margin to 18.5%. Simply put, AutoZone continues to rack up impressive growth.
More Growth, Methodically
One area where the company pointed out significant growth is in its commercial market. For the first time in a fiscal year, AutoZone recorded commercial net sales of more than $1 billion. Its fourth quarter growth of 23.4% in commercial sales was its largest in recent history. The company admits to a small commercial market share despite this growth rate and, although it acknowledges the opportunity there, will continue to grow its commercial markets gradually. A theme reiterated by CEO Bill Rhodes is that the company sticks to a basic business model including the methodical application of growth strategies, and will continue to do so. This steady approach, unexciting as it may sound, has produced continued stunning growth for AutoZone. (To help you determine if this growth matches your portfolio objectives, read Great Company Or Growing Industry?)
Aftermarket Room to Grow?
There is still plenty of room for growth in the auto parts business, according to some of its participants. Second-largest company in the sector O'Reilly Automotive (Nasdaq:ORLY), with 4% of the $94 billion auto aftermarket business, is expanding and has its sights set on more. It had 3,657 stores as of June, 2011, and plans to add 170 this year. Most of O'Reilly's locations are in the Northwest and Southwest, so the company feels there is open territory to grow.
Advance Auto Parts (NYSE:AAP) is also expanding. It has 3,627 stores and added 130 in the last twelve months. Advance has traded recently at a lower P/E ratio compared to most of its competitors - just less than 14 for its trailing twelve months' earnings. Only Pep Boys - Manny, Moe & Jack (NYSE:PBY) have traded at nearly the same multiple, and its results haven't been nearly as good. Genuine Parts (NYSE:GPC), O'Reilly and AutoZone all trade higher, with respective multiples of 15.8, 22.1 and 18.3. Part of this is the simple factor that investors are going to be forced to pay up more and more in this sector, given the robust performance of several of these companies.
The Bottom Line
AutoZone is a terrific company in an industry that is one of the few reaping the benefits of the miserable economy of the last couple of years. With consumers holding onto their cars longer, the aftermarket parts business has been a healthy one. AutoZone and the others should continue to do fairly well even if and when the economy picks up, as there should always be a market for the parts suppliers and their services - it's just a question of how much.
Even if AutoZone's results were trimmed in a better economy, its business model is efficient and management is realistic enough to do well. For investors who like to buy low, it's too bad the market has recognized AutoZone's success so well by pushing its stock up to near its 52-week high. This would be a great stock to get on a price pullback. (For more on companies that have done well during tough times, check out 4 Characteristics Of Recession-Proof Companies.)
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