Core Viewpoint - The Zacks Automotive - Retail and Wholesale - Parts industry faces significant challenges, particularly in the DIY segment, due to cautious consumer spending, while the demand for electric and autonomous vehicles offers growth opportunities, albeit with high capital expenditures impacting cash flows. The increasing average age of light vehicles is a strategic advantage for the industry, with O'Reilly Automotive, Inc. and AutoZone, Inc. positioned to benefit from these market dynamics [1]. Industry Overview - The Zacks Automotive – Retail and Wholesale – Parts industry involves retail, distribution, and installation of vehicle components, including various parts and accessories. Customers can choose between DIY repairs or professional services, with the industry experiencing competitive pressures and transformative shifts due to changing customer preferences and technological advancements [2]. Factors Influencing the Industry Outlook - The average age of vehicles in the U.S. has risen from 11.1 years to 12.6 years over the past decade, leading to increased demand for maintenance and parts replacements as older vehicles require more frequent servicing [3]. Weakness in DIY Segment - The DIY segment is facing challenges due to economic constraints leading to restrained consumer spending. Many customers are forced to undertake repairs out of necessity, which negatively impacts sales and gross margins. Limited recovery prospects in this segment are anticipated over the next 12 to 18 months [4]. High Capital Requirement - Auto part retailers are increasing investments in technology to enhance electronic catalog systems, which may constrain short-term cash flow. Additionally, resources are being allocated for rapid store expansions to bring inventory closer to customers [5]. Zacks Industry Rank - The Zacks Auto Retail & Wholesale Parts industry is ranked 157, placing it in the bottom 37% of approximately 250 Zacks industries, indicating tepid near-term prospects [6][7]. Earnings Outlook - The industry's positioning in the bottom 50% of Zacks-ranked industries is attributed to a negative earnings outlook, with aggregate earnings estimates for 2025 contracting by around 12.7% over the past year [8]. Industry Performance - The Zacks Auto Retail and Wholesale Parts industry has underperformed compared to the Auto, Tires and Truck sector and the Zacks S&P 500 composite, with a growth of 14.8% over the past year, while the sector and S&P 500 grew by 25.2% and 23%, respectively [10][11]. Current Valuation - The industry is currently trading at an EV/EBITDA ratio of 40.46X, significantly higher than the S&P 500's 18.20X and the sector's 21.26X. Over the past five years, the industry has traded between 14.13X and 42.61X, with a median of 28.99X [14][15]. Company Highlights - **O'Reilly Automotive, Inc.**: A leading specialty retailer of automotive aftermarket parts, O'Reilly has expanded into Mexico and Canada, operating 78 stores in Mexico and 26 in Canada. The company has generated record revenues for 31 consecutive years, with growth driven by vehicle longevity and store expansion. The Zacks Consensus Estimate for 2024 sales and EPS implies year-over-year growth of 5.24% and 6.19%, respectively [18][19]. - **AutoZone, Inc.**: A major retailer and distributor of automotive replacement parts, AutoZone is focusing on market penetration through mega hub expansions and plans to open up to 200 stores annually in Mexico and Brazil by 2028. The company's omni-channel efforts are enhancing customer experience and driving growth, with the Zacks Consensus Estimate for fiscal 2025 sales and EPS implying year-over-year growth of 1.63% and 4.76%, respectively [21][22][23].

Core Viewpoint - AutoZone's recent earnings report showed a mixed performance, with earnings per share missing expectations while revenues increased year-over-year. The company faces a downward trend in estimates, indicating potential challenges ahead [2][6][9]. Financial Performance - AutoZone reported earnings of $32.52 per share for Q1 of fiscal 2025, missing the Zacks Consensus Estimate of $33.54. This is a slight decrease from $32.55 per share in the same quarter of fiscal 2024 [2]. - Net sales grew 2.1% year-over-year to $4.28 billion, but also fell short of the Zacks Consensus Estimate of $4.29 billion [2]. - Domestic commercial sales reached $1.13 billion, up from $1.09 billion in the prior year, while domestic same-store sales increased by 0.3% [3]. - Gross profit rose to $2.27 billion from $2.21 billion in the previous year, but operating profit decreased by 0.8% year-over-year to $841 million [3]. Store Expansion and Inventory - During the quarter, AutoZone opened 23 new stores in the U.S., six in Mexico, and five in Brazil, bringing the total store count to 7,387 [4]. - Inventory increased by 8.7% year-over-year, with inventory per store rising to $849,000 from $806,000 a year ago [4]. Financial Position and Share Repurchases - As of November 23, 2024, AutoZone had cash and cash equivalents of $304 million, up from $298.2 million at the end of August 2024. Total debt was $9.01 billion, slightly down from $9.02 billion [5]. - The company repurchased 160,000 shares for $505.2 million at an average price of $3,156 per share, with $1.7 billion remaining under its current share repurchase authorization [5]. Market Sentiment and Outlook - There has been a downward trend in estimates for AutoZone, with a Zacks Rank of 3 (Hold), suggesting an expectation of in-line returns in the coming months [6][9]. - AutoZone has a strong Growth Score of A but lags in Momentum Score with an F, resulting in an aggregate VGM Score of C [7].

Core Viewpoint - AutoZone, Inc. anticipates solid growth in fiscal 2025 driven by strong performance in DIY and commercial businesses, despite high investments in electronic catalog improvements potentially limiting near-term cash inflows [1][7]. Group 1: Financial Performance - AutoZone achieved record sales for 35 consecutive years, with fiscal 2024 revenues of $18.5 billion, reflecting a 5.7% year-over-year increase [2]. - The company expects continued growth in fiscal 2025, supported by strong DIY and commercial business performance, enhanced inventory, and improved customer service [2][5]. Group 2: Expansion Strategies - The expansion of mega hubs and distribution centers is set to enhance market penetration and long-term growth prospects, with 111 mega hub locations established by the end of the first quarter of fiscal 2025 [3]. - AutoZone is focusing on international growth, particularly in Mexico and Brazil, aiming for up to 200 new store openings annually by 2028 [4]. Group 3: E-commerce and Customer Experience - The company's omni-channel efforts, including next-day shipping and in-store pickups, are driving online traffic and enhancing customer experience [5]. - The transformation of the distribution network aims to bring inventory closer to customers, improving efficiency and growth potential [5]. Group 4: Capital Allocation and Share Buybacks - AutoZone's robust share repurchase program saw $505 million in shares repurchased in the first quarter of fiscal 2025, with over $1.7 billion remaining under authorization [6]. - The company has consistently engaged in disciplined capital allocation, having repurchased more than 100% of outstanding shares since 1998 [6]. Group 5: Challenges and Risks - High capital expenditures exceeding $1 billion in fiscal 2024 and expected to remain the same in fiscal 2025 may limit near-term cash inflows [7]. - Foreign currency fluctuations, particularly a 13% decline in the Mexican peso against the U.S. dollar, resulted in significant reductions in sales and earnings in the fiscal first quarter [7].

Financial Performance - Net sales for the twelve weeks ended November 23, 2024, increased by $89.4 million to $4.3 billion, representing a 2.1% growth compared to the prior year period[43] - Domestic commercial sales rose by $35.3 million to $1.1 billion, or 3.2% over the comparable prior year period[43] - Gross profit for the twelve weeks ended November 23, 2024, was $2.3 billion, with a gross margin of 53.0%, up from 52.8% in the prior year[44] - Operating profit decreased by 0.9% to $841.1 million, negatively impacted by $17.0 million due to unfavorable exchange rates[46] - Net income decreased by 4.8% to $564.9 million, with diluted earnings per share slightly down by 0.1% to $32.52[46] Capital Expenditures and Store Openings - Capital expenditures for the twelve weeks ended November 23, 2024, were $247.0 million, driven by growth initiatives including new stores[56] - The company opened 34 net new stores during the twelve weeks ended November 23, 2024, compared to 25 in the prior year[56] Tax and Interest Rates - The effective income tax rate for the twelve weeks ended November 23, 2024, was 23.0% of pretax income, up from 21.6% in the prior year[45] - Net interest expense increased to $107.6 million, with average borrowings at $8.9 billion and a weighted average borrowing rate of 4.43%[51] Debt Management - The adjusted debt to EBITDAR ratio as of November 23, 2024, was 2.5:1, indicating a stable debt management strategy[63] - The company expects to maintain its investment grade credit ratings by targeting a ratio of adjusted debt to EBITDAR[63] - Adjusted debt as of November 23, 2024, was $12,126,520, with an adjusted debt to EBITDAR ratio of 2.5[76] - The company had outstanding fixed rate debt of $8.4 billion as of November 23, 2024, with a potential reduction in fair value of $344.5 million from a one percentage point increase in interest rates[88] Compliance and Financial Measures - As of November 23, 2024, the company was in compliance with all covenants under its borrowing arrangements[65] - The company uses non-GAAP financial measures to evaluate performance and make business decisions[68] Investment and Returns - Adjusted after-tax return on invested capital (ROIC) for the trailing four quarters ended November 23, 2024, was 47.7%, down from 55.0% for the comparable prior year period[62] - The average invested capital for the trailing four quarters ended November 23, 2024, was $7,061,709 thousand[73] Lease and Rent Expenses - Total lease cost per ASC 842 for the trailing four quarters ended November 23, 2024, was $602,034, up from $536,217 for the previous year[79] - Rent expense for the trailing four quarters ended November 23, 2024, was $454,189, compared to $412,210 for the previous year[79] Other Financial Information - The accounts payable to inventory ratio was 119.5% at November 23, 2024, down from 124.4% at November 18, 2023[59] - The company reported a net decrease of $15.0 million in commercial paper since the last report[83] - The fair value of the company's debt was estimated at $8.9 billion as of November 23, 2024, reflecting a decrease of $120.8 million from its carrying value[88] - The company had $565.0 million of variable rate debt outstanding as of November 23, 2024, with a potential annual impact of $5.7 million on pre-tax earnings from a one percentage point increase in interest rates[88] - The average debt for the trailing four quarters ended November 23, 2024, was $8,849,457 thousand[73] - The company amended its Revolving Credit Agreement on November 15, 2024, extending the termination date to November 15, 2028[64]

Company Promotions - AutoZone has announced the promotions of Bailey Childress to Senior Vice President, Omnichannel and Merchandising Support, and Luke Rauch to Senior Vice President, Merchandising and Global Sourcing [1][2][3] - Both promotions are aimed at enhancing AutoZone's leadership team and are expected to contribute to the company's growth and customer service [3] Company Overview - As of November 23, 2024, AutoZone operates a total of 7,387 stores, with 6,455 in the U.S., 800 in Mexico, and 132 in Brazil [4] - AutoZone is recognized as the leading retailer and distributor of automotive replacement parts and accessories in the Americas, offering a wide range of products for various vehicle types [5] - The company provides commercial sales programs and online purchasing options for both retail and commercial customers, without deriving revenue from automotive repair or installation services [5]

Group 1 - AutoZone, Inc. (NYSE: AZO) has experienced a breakout to new price highs following its earnings report, indicating a bullish sentiment in the market [1] - The analysis emphasizes the importance of technical analysis methodology, focusing on price action, momentum, and volume to support the bullish thesis [1] - The article reflects the perspective of an individual investor nearing retirement, aiming to build financial assets through both long and short trading strategies, including the use of inverse ETFs [1] Group 2 - The author has a beneficial long position in AutoZone shares, indicating a personal investment interest in the stock [2] - The article is presented as an expression of personal opinion without any compensation from the company mentioned, ensuring an independent viewpoint [2]

Financial Performance - AutoZone Inc. reported earnings of $32.52 per share for Q1 fiscal 2025, missing the Zacks Consensus Estimate of $33.54 and slightly down from $32.55 per share in the same quarter of fiscal 2024 [1] - Net sales increased by 2.1% year over year to $4.28 billion, but also fell short of the Zacks Consensus Estimate of $4.29 billion [1] - Domestic commercial sales reached $1.13 billion, up from $1.09 billion in the prior year, while domestic same-store sales grew by 0.3% [2] - Gross profit rose to $2.27 billion from $2.21 billion in the previous year, but operating profit decreased by 0.8% year over year to $841 million [2] Store Operations - During the quarter, AutoZone opened 23 new stores in the U.S., six in Mexico, and five in Brazil, bringing the total store count to 7,387 as of Nov. 23, 2024 [3] - The inventory increased by 8.7% year over year, with inventory per store at $849,000 compared to $806,000 a year ago [3] Financial Position and Share Repurchases - As of Nov. 23, 2024, AutoZone had cash and cash equivalents of $304 million, up from $298.2 million as of Aug. 31, 2024, while total debt slightly decreased to $9.01 billion [4] - The company repurchased 160,000 shares for $505.2 million at an average price of $3,156 per share, with $1.7 billion remaining under its current share repurchase authorization [4] Market Position - AutoZone currently holds a Zacks Rank of 4 (Sell), while competitors like Dorman Products, Tesla, and Blue Bird Corporation have a Zacks Rank of 1 (Strong Buy) [5]

Core Viewpoint - AutoZone is positioned as a high-caliber buy-and-hold stock despite facing headwinds in 2024, with strong growth, margin maintenance, robust cash flow, and a history of increasing stock value [1] Financial Performance - AutoZone reported FQ1 net sales of $4.28 billion, reflecting a 2.1% increase year-over-year, although it missed consensus estimates by 70 basis points [4] - The company executed share repurchases amounting to $505 million in FQ1, reducing the total share count by 4.7% year-over-year, with an additional $1.7 billion available for buybacks [2][3] - The domestic commercial business showed strength, while the DIY auto-repair market is showing signs of improvement, with international sales growing by 13.7% on an FX-neutral basis [6] Margin and Cash Flow - Operating profit saw a minimal decline of 0.9% due to increased expenses, but cash flow remains sufficient to support the balance sheet and capital return outlook [7] - The balance sheet shows increased cash, inventory, and total assets, although there is a shareholder deficit that is being offset by share repurchases [3] Market Sentiment and Analyst Ratings - The stock is currently rated as a "Moderate Buy" with a price target of $3,339.25, reflecting a slight downside of 0.2% [5] - Analysts from Evercore ISI have raised their price target to $3,400, indicating confidence in the stock's valuation and potential for further price increases [9] Stock Price Action - AutoZone's stock price is in a bullish trend, with recent price action suggesting a continuation of this upward trajectory, potentially gaining another $2,450 [11]

I have covered AutoZone, Inc. (NYSE: AZO ) three times in the past, and in the picture above, you can see that my initial buy recommendation a year ago has slightly underperformed the market. The argumentMy primary area of concentration will be on identifying companies of exceptional caliber, with a proven ability to reinvest capital for impressive returns. Targeting those with a market capitalization of less than $10 billion, affords ample opportunities for growth. The ideal scenario is for these companies ...

Financial Data and Key Metrics - Total sales grew by 2.1% to $4.3 billion, while earnings per share (EPS) decreased by 0.1% [10][29] - Domestic same-store sales grew by 0.3%, and international same-store sales grew by 13.7% on a constant currency basis [11][29] - EBIT was down by 0.9%, and EPS was down by 0.1% [29] - Foreign exchange rates weakened by 13% in Mexico, resulting in a $58 million headwind to sales, a $17 million headwind to EBIT, and a $0.68 per share drag on EPS [30] Business Line Performance - Domestic DIY comp sales were down 0.4%, with discretionary merchandise categories underperforming, representing 17% of the mix [13] - Domestic commercial sales grew by 3.2%, with a 9% increase on a two-year stack basis [11] - International same-store sales grew by 13.7% on a constant currency basis, but faced a 1,300 basis points currency headwind, resulting in a 1% unadjusted comp [11] Market Performance - Northeast, Mid-Atlantic, and Rust Belt markets underperformed, with a 1.8% decline compared to a 0.1% decline in other domestic markets [17] - International markets, particularly Mexico and Brazil, showed strong growth, with 11 new stores opened in the quarter, bringing the total to 932 international stores [24] Company Strategy and Industry Competition - The company is investing over $1 billion in CapEx to drive strategic growth priorities, including accelerated store growth, inventory placement, and distribution center efficiency [26] - The company plans to open around 100 international stores in FY 2025 and aims to have 300 mega-hubs at full buildout [25][37] - The company is focused on improving customer service, product assortment, and supply chain efficiency to position itself for future upswings in consumer demand [12] Management Commentary on Operating Environment and Future Outlook - Management remains optimistic about improved execution and customer service initiatives, expecting the environment to improve with winter weather and the election uncertainty behind [9] - The company expects DIY and commercial sales trends to modestly improve in Q2, with easier comparisons and momentum from sales growth initiatives [23] - Management is bullish on international growth, expecting it to be a meaningful contributor to future sales and operating profit growth [42] Other Important Information - The company repurchased $505 million of stock in the quarter and has $1.7 billion remaining under its share buyback authorization [55] - Free cash flow for the quarter was $565 million, down from $595 million in the previous year, driven by lower net income and higher CapEx [52] - The company's leverage ratio finished at 2.5 times EBITDAR, with inventory per store up 5.4% compared to the previous year [53] Q&A Session Summary Question: Impact of a competitor exiting the West Coast market - The company expects short-term headwinds from discounted prices but sees long-term opportunities for market share gains [76][77] Question: Cadence of Q1 and Q2 performance - The first four weeks of Q1 were the weakest for commercial sales due to hurricanes, but performance improved in the latter part of the quarter [79][80] Question: Operating income growth in a sluggish macro environment - The company expects comps to improve and gross margins to remain strong, with disciplined SG&A management [85][86] Question: Pricing and CPI impact - The company expects normal inflation to return, which should positively impact like-for-like SKU inflation [93] Question: Share repurchases and capital allocation - The company plans to maintain a leverage target of 2.5 times EBITDAR and continue returning cash to shareholders through buybacks [96][97] Question: Impact of calendar shifts on same-store sales - The extra week in the previous year negatively impacted comps by about 1 point in Q1, with a potential positive impact expected in later quarters [102][103] Question: Commercial sales performance in stores serviced by hubs - Hubs and mega-hubs significantly outperform satellite stores, lifting both DIY and commercial sales in their markets [105][106] Question: Gross margin dynamics - Gross margin improved by 21 basis points ex-LIFO, driven by merchandising margin improvements, with potential headwinds from new DCs coming online [110][113] Question: Mega-hub strategy and store growth targets - The company has increased its mega-hub target to 300, driven by strong performance and minimal cannibalization in dense markets [119][123] - The company is on track to open 300 domestic and 200 international stores by the end of the decade [125][127] Question: DIFM business performance - Commercial sales decelerated slightly in Q1, with weaker performance in new and used car-related segments, but improvement in other areas [132][135] Question: SG&A growth and wage inflation - SG&A growth has moderated, with wage inflation cooling, allowing the company to invest in growth initiatives while managing expenses [137][138] Question: DIY and commercial performance expectations - The company expects improvement in DIY and commercial performance due to easier comps, growth initiatives, and potential share gains [143][145] Question: Competitive environment and pricing strategies - The company remains confident in its pricing strategies, despite increased competition from mass retailers in certain categories [149][150] Question: Mega-hub density and returns - The company has found that multiple mega-hubs in large metro markets can coexist without significant cannibalization, driving better performance [154][155] Question: International market performance - International markets, particularly Mexico, are driving strong growth, with the company exporting domestic strategies to these regions [180][181] Question: Inflation and deflation trends - The company has seen slight deflation in the commercial business, driven by mix, but expects a return to more normal historical trends over time [164][165] Question: COGS and sourcing strategy - The company sources products globally, with a diversified supply chain to mitigate risks from inflation and tariffs [170][171]