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Analyzing AutoZone’s Commercial Segment

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May. 28 2018, Updated 7:33 a.m. ET

AutoZone’s fiscal Q3 earnings

Previously, we looked at how AutoZone’s (AZO) discontinuation of promotional online ship-to-home discounts affected its retail business in the third fiscal quarter. In this part, we’ll look at its commercial, or DIFM (do-it-for-me) segment.

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Commercial segment updates

In the third fiscal quarter, AutoZone opened 38 new commercial programs, much more than the 30 and 23 opened in the first and second fiscal quarters, respectively. As noted in the previous part, the company has 5,540 US stores. After opening 38 new programs, AZO now has commercial programs in 4,683 home-market stores, or ~85% of its total stores. The company continues to focus on improving customers’ online and in-store experience and inventory availability.

Positive commercial sales growth

In the third fiscal quarter, AutoZone’s domestic commercial segment sales grew ~7.3% YoY (year-over-year) to $535 million, better than the 6.7% and 5.7% YoY growth reported in the first and second fiscal quarters, respectively. In the last four quarters, the company’s US commercial sales have risen 6.4% YoY to $2.2 billion.

Growth prospects of auto parts sellers (XLY) such as AZO, O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP) are linked to the average age of vehicles on US roads. In 2017, the average age rose to more than 11.6 years, a good sign for auto part retailers, though not for auto manufacturers such as Ford (F) and General Motors (GM). Continue to the next part, where we’ll learn about AutoZone’s fiscal third-quarter profit margins.

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