The economy is in shambles, but AutoZone (NYSE: AZO ) has a silly grin on its face. Nothing brings out the shade-tree mechanics like a big recession, and friends, this one's a doozy.
The company has had impressive same-store sales growth throughout 2009, and the latest quarter was no exception. In its fiscal fourth-quarter results, AutoZone marked its 12th consecutive quarter of double-digit EPS growth. Shareholders and analysts were apparently disappointed by numbers that didn't compare favorably to last year's results, but part of the reason is that last year's quarter had an extra week in it.
After adjusting 2008's fourth-quarter results accordingly, revenues came in 7.1% higher at $2.3 billion, with comps up 5.4%. Net income improved 3.6% to $236 million, but combined with the company's aggressive stock repurchase program, earnings per share rose 14.2% to $4.43.
Oh, sweet nothin'
As far as long-term stock returns are concerned, the current recession has been worse than the Great Depression, yet AutoZone has reaped the benefits. Rather than going out and buying replacement vehicles when their old cars need repairs, people are actually trying to fix and maintain their old cars themselves. It's a novel idea, and it partly explains how the misfortunes of car makers like Ford (NYSE: F ) can be a parts retailer's windfall.
It's common sense: People have less, so they're spending less. And as it generally costs more to buy a new car than to keep an old one running, motorists will gravitate toward doing the latter during difficult economic times. Both Toyota (NYSE: TM ) and Honda (NYSE: HMC ) finished out their 2009 fiscal years with huge top-line erosion and dramatically lower operating income.
What's under the hood?
Looking at both AutoZone and its peers over the same period, you can see that the manufacturers' wake has been the parts retailers' party. Yet AutoZone stands out among its competition. Compared with competitors Advance Auto Parts (NYSE: AAP ) , O'Reilly Automotive (Nasdaq: ORLY ) , and Pep Boys (NYSE: PBY ) , AutoZone has the lowest earnings multiple, yet its earnings are expected to grow at a double-digit pace over the next five years.
Still, there's good reason for the market to apply a discount to AutoZone shares. With less than $93 million in cash and more than $2.7 billion in debt, long-term financial stability is an issue. After its recent quarter, the company has negative book value and negative working capital, which means that despite its attractive income statement, AutoZone doesn't have the healthiest balance sheet.
Of course, that situation could improve. Unless people have very bad memories, they'll probably want to continue reaping the cost savings of do-it-yourself maintenance for a long time.
If this downturn ends up being a double-dip recession, it could mean big money for companies like AutoZone. Do you see that as a likely scenario? Please share your thoughts in the comments section below.
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