This Auto Retailer Continues to Shine

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Auto parts retailers are having a good time as people are struggling with the difficult times. In an effort to cut down their expenses, consumers are staying away from buying new cars and are instead spending to maintain their existing ones. Hence, increasing sales of auto replacement parts are filling retailers’ coffers, and AutoZone (NYSE: AZO) is no exception.

As mentioned previously, AutoZone has been performing really well over the last 5 years as customers are trying to maintain their old cars by replacing its parts in order to keep it in a running condition. This retailer did it again by posting a stellar first quarter that delighted investors.

Strategies Well Played…

Not just increased demand, but also other factors such as various promotional strategies, new store additions, and geographic expansion drove revenue north by 4% to $2 billion. Also, efficient cost control measures and higher merchandise margins helped earnings grow by 16% to $5.41 per share. Even share buybacks have played an important role.

Each segment has been performing well for AutoZone. For the retail segment, there had been a number of initiatives taken such as training the store staff well, increasing promotions and adopting a great theme to attract customers. The idea of “Great People Providing Great Service” created trust in customers’ minds which pulled them into the retailer’s store.

AutoZone did well even in the commercial segment, in spite of postponing some of its commercial programs to the spring season. It introduced as much as 37 new commercial programs, which should bear fruits in the months to come.

The online segment has been the most attractive one for the retailer and the company has been trying to make the most out of it. The segment grew more than 5% over last year and is expected to grow further in the future.

Compared to Peers…

On one hand AutoZone witnessed great demand and higher revenue, and on the other hand its peer, Pep Boys – Manny, Moe & Jack (NYSE: PBY), experienced lower demand and sales. Pep Boys' revenue in its recent third quarter plunged 2.4% to $509.6 million. Also, increasing costs affected the bottom line as well. The company, unlike AutoZone, could not manage its costs well, leading to a drop in earnings. However, it plans to fight the situation with better strategies in place.

Even Advance Auto Parts (NYSE: AAP) reported a lackluster quarter some time back. In spite of new store openings, both the top line and bottom line fell owing to falling demand for auto parts and accessories. In fact, Advance Auto Parts has reduced its outlook for the year even though its experienced lower costs during the period. Hence, AutoZone has outperformed most of its peers and is expected to do well mainly because of its fruitful efforts.

Points To Bet On…

AutoZone has some strong points that can make it worth investing in. It has recently announced its acquisition of AutoAnything, an online auto retailer. This buyout is made to strengthen its online operations further where it sees huge potential.

AutoZone is also eyeing geographical expansion. It opened its first store in Brazil and plans to expand it further in the months to come.

In fact, it has been on an expansion spree. It opened 19 new stores in the United States and 4 in Mexico, in an urge to meet the growing demand of customers. Hence, the company has great growth potential.

The Takeaway

With less international presence, AutoZone has huge growth potential. With international expansion on its cards and a growing retail and online segment, this retailer looks increasingly attractive. Moreover, it is well placed against its peers who are unable to match up to its performance. Share buybacks have also been an attractive point for investors. I think this company is worth a bet as it continues to be a good performer.

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