Ahead of the Tape: AutoZone's Slump Won't Last -- WSJ
September 22 2016 - 3:02AM
Dow Jones News
By Steven Russolillo
AutoZone Inc. finds itself in an unusual position: the red
zone.
A summer slump pushed the car-parts retailer's stock into
negative territory for the year as recently as last week. That is
an anomaly: AutoZone shares haven't had a down year since 2002.
They have finished a year in the red only five times since going
public in 1991, surging some 70-fold over that span.
Amid a dearth of buying opportunities in recent years, one might
present itself now ahead of Thursday's fiscal fourth-quarter
results. AutoZone has an impeccable track record and a low bar to
clear. Analysts expect earnings of $14.25 per share for the period
ended in August, up 12% from a year earlier. This estimate was
$14.41 as recently as March. Revenue is expected to have increased
4% to $3.4 billion. And AutoZone has only missed analyst forecasts
once in the past five years, according to FactSet.
Part of the stock's 9% drop since late July appears
macro-driven. AutoZone gets the bulk of its sales from the
"do-it-yourself" market, including many lower-income consumers.
Weak results from the nation's two biggest dollar-store chains --
Dollar General Corp. and Dollar Tree Inc. -- stoked concerns about
spending pressures facing that demographic, which theoretically
would also hurt AutoZone. Increasing online competition and
unfavorable weather also weighed on the stock.
But AutoZone might be entering a cyclical sweet spot. U.S. auto
sales decelerated sharply last month. Auto-parts retailers tend to
benefit when people stop buying new cars and keep their existing
vehicles longer, requiring more repairs. That is particularly true
of lower-income consumers who have enjoyed a credit-driven buying
boom lately. Over the past decade, AutoZone's same-store sales had
its best years in 2009 through 2011, which occurred after new-car
sales slumped. It had flat years in 2007 and 2013 following robust
auto sales.
And considering Autozone's methodical buying of its own stock,
the selloff may be opportune. Since implementing its first
repurchase plan in 1998, AutoZone has bought about $15.3 billion
worth of its own stock, or about 1.4 times its net income over that
span, according to FactSet.
This stock should ultimately find its way back to cruise
control.
(END) Dow Jones Newswires
September 22, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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