|Autozone’s Commercial Sales Have Grown 20-Plus Percent for Five Straight Quarters Automotive Week / The Greensheet|
Autozone’s Commercial Sales Have Grown 20-Plus Percent for Five Straight QuartersContinuity is one word to sum up AutoZone’s fiscal fourth quarter report. The Memphis-based retailer saw its net income rise 12.1 percent to $301.47 million, while diluted earnings per share climbed 26.9 percent to $7.18. This marked the 11th consecutive quarter of EPS growth in excess of 20 percent and the 20th consecutive quarter of double-digit EPS growth.
Net sales increased 8.1 percent to $2.64 billion, while domestic same-store sales (SSS) were up 4.5 percent for the three months ended Aug. 27, 2011. Total auto parts sales — made up of the domestic retail and commercial business and the company’s Mexican operations — increased 8 percent. Commercial sales were up 23.4 percent, which represents the largest rate of growth in recent history. It also marked the fifth straight quarter of 20-plus percent sales growth and the 11th straight quarter of accelerating sales growth for this sector.
It’s worth noting that, while AutoZone’s commercial sales came in at $880 million in fiscal 2010, the company finished fiscal 2011 with $1.08 billion in commercial sales. “Our entire organization is very proud of surpassing the $1-billion mark, a key objective for fiscal 2011, but we realize we have much work to do as our market share remains small,” said CFO Bill Giles on a Sept. 20 conference call. “We have been very pleased with the progress we’re making in this business, both operationally and financially. We believe there are ample opportunities for us to continue to improve many facets of our operations and offerings, and, therefore, we are quite optimistic about the future of this business. Our sales growth has come from both existing and new customers.”
Chairman, President and CEO Bill Rhodes told analysts on the call that’s a good indication that AutoZone’s commercial business is continuing to improve on all fronts. “When we look at our business — as far as new customers, further penetration of retained customers and, frankly, lost customers — we are seeing improvements in each of those metrics,” Rhodes explained. “And, we are seeing them quarter-over-quarter and year-over-year.”
Giles said management continues to believe AutoZone can grow revenue in existing stores and will continue to open additional commercial programs. “This past quarter, we opened 104 new programs. For the year, we opened 235 new programs — up from 121 programs during fiscal 2010. We now have our commercial program in 2,659 stores, supported by 144 hub stores,” Giles said. “With only 59 percent of our domestic stores having a commercial program and our average revenue per program materially below several of our competitors, we believe there is ample opportunity for additional program growth in addition to improved productivity opportunities from existing and current programs.”
During the three months ended August 27, 2011, AutoZone opened 68 new stores, replaced five, and closed one in the United States and opened 18 new stores in Mexico. That gave the company a total of 4,534 stores in 48 states, the District of Columbia and Puerto Rico, as well as 279 stores in Mexico.
So, what’s in store for AutoZone in fiscal 2012? Tony Cristello and Allen Hatzimanolis from BB&T Capital Markets offered a few ideas in their Sept. 21 report. “Moving forward, management remains committed to the same strategy that has underpinned the company’s success to date: making disciplined investments in its stores, systems, and distribution network; continuing its training of associates; and capitalizing on growth opportunities in the commercial business and via store expansion in Mexico,” the analysts wrote.
They added, later in their report: “[AutoZone] has positioned itself with a serious commitment to the commercial business, and, while only 14 percent of its current mix, we think the company’s ongoing initiatives (including refinement of its hub store network, improved parts availability, and further development of its commercial sales force) will result in sustainable, stronger SSS growth from this segment (possibly providing a 2 percent plus contribution to total comp). AutoZone faces its toughest year-over-year SSS comparison in its upcoming FQ1’12, although we would note that the majority of our plus 1.8 percent total SSS estimate is derived from SSS growth in its DIFM segment. It also would not surprise us to see this become a much more common facet of future comp growth.”
Rhodes, AutoZone’s chief executive, had a few thoughts, too. He said, on the aforementioned Sept. 20 call: “What many are wondering and attempting to financially model this morning is where does AutoZone and our industry go from here? I’m certainly not going to commit this morning to another year of sequential growth across the board. That’s a very tall order. But what I am willing to promise everyone is we’re steadfastly committed to the challenge of improvement. We remain optimistic with regard to our strategies, and we are confident in our ability to continue to execute at a high level. At the same time, we remain cautious as we currently face our most difficult quarterly same-store sales comparisons in a long time.”
|THE SUM OF THE PARTS Auto supply stock prices hit the gas as drivers turn to DIY repairs|
THE SUM OF THE PARTS
BY ANDY MEEK SUNDAY, SEPTEMBER 18, 2011
You don’t usually see many economists hanging out in AutoZone. They’re the kind of people who prefer forecasting on whiteboards to wandering the rows of shelves stocked with spark plugs and windshield wipers at aftermarket auto parts retailers.
But according to stats from investment firm Morgan Keegan & Co., there are about 240 million cars on the road right now, and the average age of those machines is pushing past the decade mark. Couple that with penny-pinching drivers more often delaying big repairs and taking on smaller ones themselves, and you’ve got a reason why a prognosticator puzzling over the U.S. economy might want to start getting some grease on his fingers.
Consider: If you’d bought a share of AutoZone on the day Lehman Brothers filed for bankruptcy — Sept. 15, 2008 — you’d have paid just under $136. Fast-forward two years, and AutoZone shares closed above $319 earlier this week.
AutoZone stock hit a 52-week high Tuesday in intraday trading, and the sound of the engine roaring under the company’s hood doesn’t appear to be dying down.
AutoZone reports fiscal fourth-quarter earnings on Tuesday, and the consensus estimate of 22 analysts covering the stock is for a profit of $6.97 per share, up from $5.66 per share in the year-ago period.
What auto parts retailers are doing is basically akin to selling water in the desert.
“I went to AutoZone in the past couple of weeks to replace a blinker bulb on my wife’s car,” said Lang Wiseman, a lawyer in AutoZone’s hometown of Memphis, Tenn. “We might normally just let the service department at a dealership handle it, but they charge a hundred bucks for merely glancing in your car’s direction.
“Things are tighter than normal right now, and the bulb only cost $3,” Wiseman said. “So it was a no-brainer, and I got to teach my son a little something about cars in the meantime.”
It’s generally understood that when the economy is tight and customers are strapped, companies like McDonald’s and Wal-Mart tend to do well as diners opt for fast food and shoppers flock to value.
A similar trend is at work in the car parts sector. DIY stores are positioned to take advantage of cost-conscious drivers looking to save on repairs, said Morgan Keegan specialty retail analyst John Lawrence.
And those stores are doing very well, which surely says something about the state of the economy and the recovery — or lack thereof.
In May, AutoZone — which operates more than 4,400 stores in the United States — notched its 19th straight quarter of double-digit profit growth.
Springfield, Mo.-based O’Reilly Auto Parts is on track to open 170 stores this year, adding to its footprint of nearly 3,500 stores. Second-quarter sales were $1.48 billion, 7 percent higher than the year-ago period.
Advance Auto Parts, in its most recent quarterly earnings announcement in August, reported a better-than-expected 12 percent profit growth.
Those are the kinds of stats that leave investors satisfied. The business model behind those stats, meanwhile, gives customers like Wiseman a different kind of satisfaction.
“These days, I sit at a desk all day at work,” Wiseman said. “So going to AutoZone for little car-related projects from time to time helps fulfill the inner handyman in me. There’s just something primitive and satisfying about getting your hands dirty and fixing your own stuff.”
|Americans Driving Less, Filling Up Gas Tanks Less|
Americans Driving Less, Filling Up Gas Tanks Less
WASHINGTON -- Americans continue to drive less in the face of high gas prices and a weak economy, as gasoline purchases fell 3.4 percent last week.
MasterCard SpendingPulse reported that Americans purchased 62.3 million barrels of gasoline in the week ending Sept. 9. Over the last month, the amount of gasoline purchased fell 2.7 percent.
The four-week average gasoline purchases have fallen for 25 straight weeks.
The average price of a gallon of unleaded gasoline in the United States is $3.66 -- down $0.01 over a week ago -- but up $0.94 over a year ago - or more than 35 percent.
Gas prices are highest on the West Coast, averaging $3.87 a gallon; in California, the average is $3.94 a gallon.
Last month, the U.S. Transportation Department said Americans drove 15.5 billion fewer miles in the first half of the year -- as roadway use fell to its lowest level since 2004.
The Federal Highway Administration said in a new report that U.S. drivers logged 1.453 trillion miles through June 30 -- down 1.1 percent over the first half of 2010.
The last time Americans drove less in the first half of the year was 2004, when they logged 1.451 trillion miles, the government said.
This year's six month tally is down 44 billion miles over the all-time high of 1.497 billion miles for first-half travel set in 2007.
In June, travel fell 1.4 percent to 259.1 billion miles -- down 3.8 billion miles. Travel fell most sharply in the South-Gulf region -- down 2 percent. June was the fourth straight month of declines in traffic.
In June, travel fell 1.7 percent on rural roads, compared with a 1 percent decline on urban roads.
As Americans drive less, they may be more likely to hold onto older vehicles.
Travel in Michigan is off above the national average.
In May, travel fell 2.2 percent in Michigan to 8.2 billion miles. Travel was down 1.6 percent in June to 8.6 billion miles, according to preliminary state figures.
Traffic on urban roads in Michigan fell just 0.4 percent in June, compared to a 5.0 percent drop in travel on rural roads.
Americans drove 3 trillion miles in 2010, up 0.6 percent -- or 1.4 billion miles more than 2009.
The federal report is based on continuous hourly traffic count data at 4,000 traffic counting locations nationwide.
|68% OF U.S. CONSUMERS PREFER DIFM TO DIY, ACCORDINg TO NPD|
68% OF U.S. CONSUMERS PREFER DIFM TO DIY, ACCORDING TO NPD
The majority of automobile owners are DIFM consumers when
it comes to auto service or repair, according to new research from
The NPD group of Houston. The market research firm’s study
found that the preference for DIFM auto services is largely
because of the need to maintain a car properly in order to keep it
longer, as well as a higher degree of trust in professional auto
services than DIY auto repair.
The NPD report, titled Consumers Shifting Gears to Do-It-For-
Me Outlets, found that 68 percent of today’s drivers say they will have all auto service and repair performed by a professional. Twenty-nine percent of consumers said
they will sometimes have professional auto service and some they will do themselves, while 8 percent said they rarely have their
auto repair or maintenance done by a professional.
Reliability is the operative word in the minds of consumers when selecting an auto repair professional. According to the NPD
report, which explores factors that drive consumers to switch between DIFM outlets, 88 percent of DIFM consumers said trust in
the work completed is a very important influence in selecting an auto repair outlet. Knowledgeable employees and the reputation of
the outlet or automotive professional also ranked high.
Although trust and reputation rank high in the selection process, value appears to be another key driver and the reason for an
increasing number of DIFM consumers using car dealerships and tire stores for their auto repair and maintenance needs. The report
states that consumers perceive these outlets as bringing more coupons and promotional offers to the table.
|Analysts Cut Auto Sales Predictions|
Vehicle sales may be holding steady this month, but the outlook beyond that is worsening rapidly.
Automakers, dealers and analysts are slashing forecasts for the year -- and even for 2012 and 2013. This month half a dozen analysts trimmed 2011 forecasts for light-vehicle sales by 200,000 units or more, to below 13 million.
Others have left forecasts unchanged at around 13 million or slightly more, but have begun using qualifying terms such as "downward bias" and "uncertainty."
The causes: The widely expected second-half bounce as quake-hit inventories recover isn't happening. And car shoppers are spooked by the August stock market drop and renewed talk of a recession.
"Fear increases faster than trust," said Adam Jonas, the top auto analyst at Morgan Stanley.
Earlier this month, General Motors CEO Dan Akerson stuck with a full-year forecast of 13 million, but cautioned: "There's a lot of turmoil in the business, and turmoil means uncertainty, so we're a little unsure of these numbers."
August sales certainly don't look bouncy. Most analysts expect the seasonally adjusted annual selling rate to be in the low 12-million range -- better than the May-to-June swoon but weaker than the first four months of the year, and close to July's 12.2 million.
Analysts see few signs that Toyota Motor Sales and American Honda dealers have enough stock yet to break their sales skid. They say full Honda and Toyota inventories are necessary for the industry to break out of a tight supply/low incentive sales loop. August per-vehicle incentives averaged $2,663, down 4 percent from a year ago, TrueCar.com Vice President Jesse Toprak said.
But uncertainty about the economy is driving expectations lower for 2012 and beyond.
Goldman Sachs cut its 2012 forecast to 13.5 million, down 1 million from its earlier outlook. IHS Automotive chopped its 2012 forecast by 1.2 million to 13.5 million, and took half a million units out of 2013, reducing it to 15.0 million. RBC Capital now sees next year at 13.3 million, down 700,000.
AutoNation CEO Mike Jackson recently told dealers that it's too early to say if 2012 sales will be lower than expected. "The last three months will be pivotal in deciding how things will go next year," he said.
In April, AutoNation was the first big retailer to cut its 2011 forecast: to 12.5 million, from 13 million.
This month J.D. Power's top auto forecaster, Jeff Schuster, cut his 2011 forecast by 300,000 units, to 12.6 million. His 2012 outlook fell to 14.1 million, from 14.7 million.
"We're going to grow out of this stall," he said, "although slower than we anticipated."
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