Why AutoZone’s CEO Is Positive on the Auto Parts Industry Outlook



AutoZone’s fiscal 2019 first-quarter earnings

In the previous article, we looked at how AutoZone (AZO) launched next-day delivery in 80 markets in the United States. Its discontinuation of promotional discounts had affected its retail business in the fourth quarter of fiscal 2018.

Let’s move on by analyzing the performance of the company’s DIFM (do it for me) segment in the first quarter of fiscal 2019.

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Commercial segment update

In the first quarter of fiscal 2019, AutoZone had commercial programs in 4,766 stores in its home market, reflecting a 3.1% rise from 4,622 in the first quarter of fiscal 2018.

The company continues to focus on improving the customer experience on its commercial online platform and improving the in-store experience via enhanced inventory availability.

The company opened 149 new commercial programs in fiscal 2018, slightly lower than AutoZone’s original plan to open ~150 new programs.

Positive commercial sales growth

In the first quarter, AutoZone’s domestic commercial sales increased ~11.3% YoY (year-over-year) to $547 million. This commercial sales growth rate was better than the 8.8% it reported in the fourth quarter of fiscal 2018. In the last four quarters combined, the company’s total US commercial sales have risen 8.4% YoY to $2.27 billion.

On AutoZone’s first-quarter earnings call, CEO Bill Rhodes said, “With the aging of the car population and recently lower gas prices at the pump, these are contributing to our optimism regarding 2019 for both DIY and commercial,” boosting investors’ confidence.

The future 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 of on-road vehicles rose to more than 11.6 years—a good sign for auto parts retailers’ business but a bad one for auto manufacturers such as General Motors (GM) and Ford Motor Company (F).

Continue to the next article to learn about AutoZone’s fiscal 2019 first-quarter profit margins.


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