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Suravi Thacker
Suravi Thacker
Articles (157) 

This Is One of the Best After-Market Retailers to Invest In

July 08, 2014 | About:

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.

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 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 6.2% to $2.3 billion. Further, same store sales increased 4% during the quarter. Also, efficient cost control measures and higher merchandise margins helped earnings grow by 16.4% to $8.46 per share.

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 many 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 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 first quarter was almost flat at $538.8 million and same store sales declined 1.4%. 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.

However, Advance Auto Parts (NYSE:AAP) reported a great quarter some time back. Because of its latest acquisition of General Parts International, revenue jumped a whopping 47% to $2.97 billion, over last year. However, its same store sales grew 2.4%, lower than that of AutoZone. This is mainly because the growth of Advance Auto is mainly driven by the recent buyout. On the other hand, AutoZone has been growing sales through other strategic efforts.

Points To Bet On

AutoZone has some strong points that can make it worth investing in. It has recently acquired 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 30 new stores in the United States and 7 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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