Is AutoZone Still the Auto Parts King?

The nation's biggest auto parts retailer, AutoZone (NYSE: AZO  ) , continues to post strong results in what is a very conducive automotive environment. As the average vehicle age in the United States remains near its all-time high, do-it-yourself repair and car accessories are in great demand. Expanding its store count in the U.S. and Mexico, AutoZone is set to continue benefiting from industry tailwinds. In its recent earnings report, AutoZone posted all-around strong figures, but also a sizable increase in expenses -- prompting a minor market sell-off. The short-term moves and trends of the stock are largely irrelevant, and investors should remain focused on the long-term stability of this auto replacement parts giant.

Speeding ahead
Sales grew 7.3% for AutoZone's fiscal second quarter, led by a domestic same-store sales increase of 4.3% and new store openings in the United States and Mexico. While the company's operating profit grew roughly in line with sales -- up 6.2% -- that gain was mitigated by an 11% rise in operating expenses.

Management attributed the spike in expenses mainly to a timing shift in advertising spending.

The extreme winter weather on the U.S. East Coast (crippling to many businesses) proved a great boost for AutoZone's business. Even with the rocketing expenses, adjusted net income climbed an impressive 17.8% to $5.63 per share, which was $0.09 ahead of analyst estimates. This marks the 30th consecutive quarter in which AutoZone has grown earnings in the double digits.

Competition
Looking ahead, there is little doubt that business will continue to go well for AutoZone considering the industry tailwinds and company-specific advantages. Still, investors should note that No. 2 player Advance Auto Parts (NYSE: AAP  ) is on its rival's heels.

After completing a major, $2 billion acquisition of General Parts in late 2013, Advance Auto Parts has positioned itself well for a relatively recent but crucial trend in the industry -- mechanic-based auto repair. It's certainly not a new concept, but as today's vehicles get more and more advanced, requiring technical know-how, the ability for the average Joe to do a self-fix suffers.

AutoZone isn't in the repair business itself, but it is increasingly focusing on commercial sales channels for selling parts to garages and similar car repair businesses.

A buy today?
The company's domestic business is mature and faces a strengthened competitive landscape, with Advance Auto Parts equaling its store count and just behind AutoZone's sales figures. The Mexico business leaves plenty of room for expansion, in addition to the handful of stores that AutoZone has in Brazil -- a successful experiment thus far.

 At 15.12 times expected forward earnings, the company seems reasonably priced compared to Advance Auto Parts (15.25 times). On an EV/EBITDA basis, AutoZone is marginally richer at 10.9 times. All in all, the market appears to value equally the respective growth trajectories. Does AutoZone present a better opportunity than Advance Auto? It's tough to say. The latter's focus on mechanic repairs is a compelling strategy, though AutoZone's tactic of remaining a parts supplier resonates well, too.

Both companies are strong candidates for investors seeking fairly priced growth in the coming years.

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