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Invest E Gator
Invest E Gator
Articles (11) 

I Sold Autozone - Here's Why

February 09, 2012 | About:

I am not sure that I need to give Autozone (NYSE:AZO) much of an introduction. They sell car parts, essentially. I decided to sell out my Autozone position, and this is why.

1. The business is focusing more and more on supplying car repairmen, not retailing directly to consumers. This is more difficult for me to assess for some reason. It's harder for me to tell why a car repairman would choose to get a part from Autozone as opposed to some other supplier.

2. They are everywhere, and so are their competitors, often right across the street from each other, and this expansion by all parties continues marching along. This was an annoying factor with this company before and I had decided to overlook it. But it continues to annoy me.

3. They have been expanding into Mexico for some time and made some mention in a quarterly conference about Brazil, but the data supplied on this expansion has not given me enough to give me an idea of how well things are going. It's probably better that they don't supply it anyway as their competitors would probably also love to take a peek.

4. O'Reilly's Auto Parts has been growing at a much faster pace and, between the two, it's difficult for me to ascertain which is the better business from the consumer's perspective. I have had people say that O'Reilly's has the better website. (Hey Autozone, are you guys paying attention to this point?)

5. Booming sales in new cars. When I bought Autozone at $300 per share, I was taking a bet that the historically high average car age would continue to go up, as I am generally pessimistic on our economy in the mid-term, but it is starting to look like my inclination on that may have been wrong as the data coming in from the National Automobile Dealer's Association (www.nada.org) is showing that America's car clunker bubble may be deflating.

Autozone has a magnificent corporate structure that certainly makes me willing to cozy up with them should conditions warrant. However, I am going to have to sit back on this and warm the benches for a while. We are looking at a situation here where the industry is expanding while the customer base is shrinking — that's worsening. Meanwhile, I bought them at $300 and the price has gone up to $350 — that's improving. I doubt that what is coming up over the horizon for them is going to be catastrophic, as these guys are awesome, but we may be ushering in a period of sub-par results. A 16% profit over a five or six-month period, 32% annualized. Sounds good to me; I'm going to take my money and run.

I will give them another look when my crystal ball says Americans are finished with their new-car shopping spree, and I hope to get better versed on the competitive landscape between them, O'Reilly Automotive, Advance Auto Parts, etc. (I should note that national retail chains like Walmart also sell a large and growing selection of car parts and accessories.) Sooner or later Americans are going to be done buying cars and these cars are going to start aging again. Maybe its sooner rather than later, I can't tell yet for sure, but the average car age is dropping. Lets see how that looks in the months ahead on their results and then rethink their economic viability.

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Invest E Gator
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