AutoZone (AZO) Shares Reverse Despite Strong Earnings And Comp Growth In AugQ
2:37 pm Monday, September 19th, 2022
AutoZone (AZO) shares reversed course in early action today despite continuing to kick things into higher gear, posting its 18th consecutive earnings beat in Q4 (Aug) on accelerating same-store sales growth. As the new and used retail auto market remains supply-constrained, costly, and less attractive to finance, auto parts retailers like AZO are capturing the tailwind these trends are producing as car owners drive their current vehicles for longer.
However, AZO has remained a step ahead of its competition, evidenced by its shares up around 5 pts on the year, while O’Reilly Automotive (ORLY) and Advance Auto Parts (AAP) trade either flat or in the red during the same period, as well as consistently more substantial quarterly results, furthered by multiple highlights from Q4.
AZO’s 13.4% jump in adjusted EPS yr/yr to $40.51 may have exceeded analyst estimates by less than in Q3 (May). Still, it represented a decent acceleration from the 11.5% yr/yr increase last quarter.
Still, a lift in AZO’s Commercial business may be coming at the expense of AAP, which expected sales softness in its Professional business in the back half of FY22 due to the elimination of unprofitable discounts. This bodes well for AZO over the long haul as it builds upon and enhances customer loyalty, even if it comes at a price of slightly lower margins in the short run.
Overall, AZO’s Q4 earnings report highlighted the continuation of advantageous trends such as a recovery in miles driven and heightened focus on DIY repairs, despite elevated fuel and auto parts inflation. It is worth repeating the comments from ORLY in Q2 that little of the demand in the automotive aftermarket is genuinely discretionary, with necessary repairs only being able to be deferred for so long. Even though the production of new autos and a cooling off of used auto prices may take some wind out of AZO’s sails, we think its long-term future remains bright. We also like that the company remains aggressive in its share buybacks, repurchasing $1.0 bln during Q4, bringing the total in FY22 to $4.4 bln, or around 9% of shares outstanding.
