AutoZone (AZO, Financial) is making significant progress on many fronts. It is expanding its presence globally and remains focused opening new stores. Also, it is expanding its online offerings. Moves such as these coupled with other initiatives such as growing its commercial and retail businesses should accelerate its top and bottom line performance going forward.
New stores to enhance its growth
AutoZone is aggressively expanding its retail business. It has opened 148 new stores in the United States this year. It has now 4,984 stores in the United States and Puerto Rico. Also, the company opened 40 new stores in Mexico, including 28 in most recent quarter. It has now total of 402 stores in Mexico. AutoZone has additionally opened one new store in Brazil that takes it total counts to five stores in the region. Its comp grew by 2.1% in the last reported fourth-quarter.
AutoZone is expected to open more new stores outside United States this fiscal year. It continues to observe substantial growth opportunity for new store growth and enhanced productivity in its existing stores. Also, the company expects its ‘Do-it-Yourself’ or DIT to contribute significantly to its results this fiscal year. DIT has largest share in its sales with great returns.
In addition, it sees plenty of growth opportunity attached with ALLDATA and e-commerce platform, including autozone.com and autozonepro.com website as well as AutoAnything. AutoZone remains on track to aggressively expand ALLDATA business in Europe. AutoZone sells auto diagnostic and repair software under ALLDATA. ALLDATA introduced several new products in the past twelve months. It has accelerated its online offerings on its autozone.com and autozonepro.com website. It expects these new products under ALLDATA and new online offerings to gain traction in the market this fiscal year.
Moreover, the company is executing various other smart moves in order to improve its inventory. It has implemented a new methodology, which will assist AutoZone to include additional products, while eliminating unproductive inventory at a healthy rate. This should in turn help the company to keep the right items in inventory and getting rid of those items that has less demand in the market. These strategic initiatives should certainly alleviate the store level inventory going forward.
IMC to boost its commercial business
AutoZone expects its pending acquisition of Interamerica Motor Corporation (IMC) to enhance its commercial business growth in the future. IMC is the second largest distributors of original equipment (OE) quality import replacement parts in the United States with exclusive coverage of European and Asian vehicles. At present IMC has 17 branches in the United States, and AutoZone plans to open up several more in the coming fiscal year. Further, AutoZone remains focused on integrating IMC business with its existing business model. It expects IMC to add importance to its commercial strategy.
Conclusion
AutoZone is growing at a healthy growth rate. It sales and earnings are growing consistently. In fact its earnings grew at a strong double digit figure for consecutive 32nd quarters in a row. The analyst expects its earnings to grow at compounding average growth rate of 13.20% for the next five years. Also, its short term returns are pretty attractive with CAGR of 12.00% this year and 12.80% for next year respectively.
The stock is currently trading at the trailing P/E of 18.02 and forward P/E of 14.27 that still shares cheap valuation for the stock that has a lot of growth potential in the future. Its profit and operating profit margins are 11.29% and 19.32% respectively for the trailing twelve months. Its balance sheet carries total cash of $134.88 million and has total debt of $4.38 billion. Also, its cash from operation stands at $1.34 billion with free cash flow of $927.62 million.
