AutoZone’s business segments
AutoZone (AZO) primarily divides its business into two segments: DIY (do it yourself) and commercial or DIFM (do it for me). The DIY segment targets retail customers, which yields higher margins for the company than DIFM.
Let’s see how these business segments grew in 1Q17 and what the key growth priorities are for AutoZone.
Growing DIY segment
The DIY segment is a major part of AutoZone’s business. The segment sells auto parts to customers without providing a mechanic’s assistance to fit or change those vehicle parts.
For 1Q17, AutoZone’s DIY traffic count remained slightly negative, which was similar to the previous quarter with disappointing “ship-to-home” sales. At the same time, AutoZone’s “pickup-in-store” sales grew positively during the quarter. So the company wants to continue focusing on providing a better customer experience in its stores.
In the United States, AutoZone added 16 new stores to its network of 5,297 locations in 1Q17. Two stores were relocated in 1Q17. The company also opened five new retail stores in Mexico.
Weaker commercial segment?
In 1Q17, AutoZone opened 35 new commercial programs. In 1Q16, it opened 55 new programs. The company expects to open nearly 200 new programs in 2017.
Future growth prospects for auto parts retailers such as AutoZone, O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP) are linked to mainstream automakers’ (VCR) businesses. If an auto sales slowdown affects automakers such as Ford (F) and General Motors (GM), then growth for auto parts retailers is also likely to slow down in the future.
AutoZone has been witnessing more growth in its commercial segment than its DIY segment for the last few quarters. Management attributes this slower growth to an industrywide slowdown. When the commercial segment yields lower profitability for the company, it takes a toll on its margins. We’ll look more at AutoZone’s margins in the next part.