The market for auto parts is on the rise, as people spend on maintaining their cars during the most important holiday season. Also, the cold weather results in more wear and tear of vehicle parts, resulting in higher servicing. This brings additional revenue to the auto parts retailers.
AutoZone (AZO, Financial) is one of the leading specialty retailers of automotive parts and accessories, which is doing extremely well. Its bottom line has risen by 24% in the last four quarters. In fact, the earnings of the company have been rising in the last eight quarters. The retailer once again reported a blockbuster quarter, wherein the numbers were ahead of the Street’s estimates. This made its share prices move north. Let’s take a look.
Spectacular results
The top line of the company surged 8% to $2.26 billion, as compared to the previous year. Revenue was higher than the analysts’ estimate of $2.21 billion. The retailer added 22 new stores in the U.S., during the quarter. Also, it opened four new stores in Mexico. However, it was not only the new stores that added to the top line. Sales at the existing stores also grew. The same store sales, one of the most important metric in the retail industry since it excludes the effect of new store openings and store closures, grew 4.5% during the quarter.
Factors such as favorable weather, lower gas prices and better inventory availability helped revenue grow. Inventory grew 11.3% during the quarter because of new stores as well as due to increased product placement. AutoZone expanded its assortment of products, which helped in boosting sales.
The gross margin of the company rose to 52.1% from 51.9% last year. All thanks to a decline in cost of sales and an increase in overall revenue of the company. The bottom line grew 16% to $7.27 per share over the prior year. The company beat the Street’s estimate by $0.11 per share.
Deeper insights
The commercial segment of the company needs to be focused on since this segment has been growing at a fast pace. Revenue from this segment surged 13% during the quarter as demand increased during the quarter. Strengthening and expansion of this category should be fruitful in the future.
The key factor for growth was winter related damage. Cold weather weakens car batteries and thickens oil, resulting in higher demand for such products. Also, tires and brakes tend to wear out more during the winter season. This is expected to continue in the upcoming months, when the weather is going to get worse.
The auto parts retailer also completed the acquisition of 17 branches of Interamerican Motor Corp, a replacement parts distributor. This will help in expanding its business further. Another important acquisition made by the retailer is that of AutoAnything, an online auto parts retailer. This was indeed a crucial buyout since online shopping has become very popular, especially in the U.S.
Key takeaway
AutoZone is an exemplary performer in its space, which is quite reflected in its share price appreciation of 29.4% in the last one year. Growth through the acquisition of other businesses should be beneficial in the future. Also, it made share repurchases, which made investors happy. Overall, this aftermarket retailer deserves a place in your portfolio.
