AutoZone’s business segments
AutoZone’s (AZO) sales can be divided primarily into two business segments—DIY (do it yourself) and commercial or DIFM (do it for me). The DIY segment is targeted to retail customers that yield higher margins for the company compared to DIFM. Let’s take a look how these business segments grew in 1Q18. We’ll also look at AutoZone’s other key growth priorities.
DIY segment in 1Q18
For AutoZone, DIY is a major business segment. It refers to selling auto parts to customers without providing mechanics’ assistance to fit or change the vehicle parts.
In 1Q18, AutoZone’s DIY traffic count grew positively on a YoY (year-over-year) basis. During the quarter, the company’s “buy online pickup-in-store” sales performed better than its “ship-to home” sales. To make customers’ “pickup-in-store” experience better, the company continues to focus on providing better in-store customer services.
During the first quarter, AutoZone opened 16 new stores in the US. One store relocated and one old store closed. AutoZone’s store count increased to 5,480 at the end of 1Q18 in its home market. AutoZone opened five new retail stores in Mexico. Now, the company has 529 stores in Mexico.
Commercial segment’s performance
In 1Q18, AutoZone opened 30 new commercial programs—much lower than 99 new programs opened in the previous quarter. Despite slower growth in new commercial programs, the company’s domestic commercial segment’s sales grew ~6.7% YoY in the first quarter.
During the 1Q18 earnings conference call, AutoZone’s management reiterated its plans to open ~150 new programs in fiscal 2018.
Note that auto parts sellers’ (XLY) future growth prospects, like AutoZone, O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP), are linked to the average age of on-road vehicles in the US. In 2016, the average age of on-road vehicles rose to a record 11.6 years, which could be seen as a good sign for auto parts retailers’ business. It isn’t a good sign for automakers like General Motors (GM) and Ford (F).
Next, we’ll discuss AutoZone’s 1Q18 profit margins.