AutoZone’s business segments
AutoZone (AZO) divides its business into two primary segments: DIY (Do-It-Yourself) and Commercial or DIFM (Do-It-For-Me). The DIY segment targets retail customers, which yield higher margins for the company than the DIFM segment yields. For this reason, the company places a higher priority on the growth of its DIY segment.
DIY segment’s 3Q17 performance
The DIY segment is a major part of AZO’s business and deals with selling auto parts to customers without providing mechanic assistance. In fiscal 3Q17, AutoZone’s DIY traffic count fell on a YoY (year-over-year) basis. But its Pickup-in-Store sales continued to grow at a fast pace. To make this experience better, the company plans to continue focusing on providing better in-store customer services.
During fiscal 3Q17, AutoZone opened 35 new stores locations in the US, and two stores were relocated. This increased the company’s store count to 5,381 at the end of fiscal 3Q17 in its home market. AutoZone also opened eight new retail stores in Mexico, where it now has 499 stores.
Commercial segment performance
In fiscal 3Q17, AutoZone opened 56 new commercial programs, which is more than the 46 new programs it opened in fiscal 3Q16. The company’s Commercial business segment thus grew positively by about 40% YoY basis for the quarter.
Still, this growth rate has declined significantly over the past few quarters. AutoZone plans to open about 200 new programs in calendar 2017.
We should note here that the growth prospects of auto parts retailers such as AZO, O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP) are linked to mainstream automakers’ (VCR) business. Recent weakness in US auto sales affected the latest earnings of automakers like Ford Motor (F) and General Motors (GM), and this weakness in US auto sales will also likely hamper the growth potentials of auto part retailers’ businesses.
In the next part, we’ll look at AutoZone’s 3Q17 margins.