3 Retailers Returning Billions to Shareholders

AutoZone, Bed Bath & Beyond, and Kroger have spent billions over the past few years to enrich shareholders, creating plenty of reason to own these companies.

Mar 26, 2014 at 6:34PM

Investors love to see the companies we own giving billions of dollars a year back to shareholders. Three retailers that have each given back more than $1 billion to shareholders in the past year are AutoZone (NYSE:AZO), Bed Bath & Beyond (NASDAQ:BBBY), and Kroger (NYSE:KR). All three of these companies also prefer to give back to shareholders by repurchasing shares, helping us grow our ownership stake without incurring the taxation that comes with dividends.

Get in the zone
AutoZone has rewarded investors by repurchasing more than $1 billion worth of shares in each of the last five years. The automotive parts retailer has already purchased nearly $300 million in the first quarter of this year as well .

AutoZone has taken advantage of cheap financing over the last few years and built out a debt ladder enabling it to purchase shares in excess of earnings. At the end of fiscal 2013, AutoZone had long-term debt of slightly more than $4 billion, which has contributed to liabilities larger than its asset value, thus producing negative shareholders' equity. 

In most cases this would be a red flag, but AutoZone has used responsible leverage to give money to shareholders. The company has small portions of its debt due every year or two for the next decade. This debt is not worrisome because the company produced $1.4 billion in cash from operations in 2013, covering its interest expense of $185,000 by more than 7.5 times.

AutoZone has grown earnings and earnings per share by 6% and 15%, respectively, on average over the last 10 years. The EPS growth has been fueled by a lower number of shares outstanding due to buybacks. AutoZone also shows efficiency in operations with a net margin around 10%. The retailer has been helped by a growing average age of vehicles on the road, as Americans remain hesitant to buy big-ticket items such as new cars. There are always little things your car needs that will keep AutoZone a relevant business for many years to come. 

Comfort with Bed Bath & Beyond
Bed Bath & Beyond, retailer of nearly any household furnishing or product, bought back $1.2 billion worth of shares in 2011, $1 billion in 2012, and more than $750 million in the first three quarters of its fiscal 2013.

Unlike AutoZone, Bed Bath & Beyond has been able to fund the share repurchases and operations with internally generated cash. As of its most recent quarterly filing, Bed Bath & Beyond had no long-term debt outstanding .

Bed Bath & Beyond also has seen great growth, more than doubling revenue from 10 years ago, as well as growing earnings and EPS on average 10% and 13% per year, respectively. It operates efficiently, with a net margin around 10% and return on equity of more than 25% in the most recent year. This company sells products that are borderline discretionary for consumers, but sales did not slip during the recession, with revenue instead growing each year of the last decade. Like many other retailers, Bed Bath & Beyond should see continued growth as the economy continues to recover and consumers upgrade their household products.

Stock up with Kroger
Lastly, we have the nation's largest grocery chain, Kroger, which purchased $1.4 billion worth of shares in 2011, $1.2 billion in 2012, , and $400 million in the first three quarters of fiscal 2013.

Unlike AutoZone and Bed Bath & Beyond, Kroger also issues a dividend, paying out about $267 million to shareholders last year and $233 million in the first three quarters of fiscal 2013 .

Kroger is also growing at a strong pace for such a large company, almost doubling revenue from 10 years ago and selling nearly $100 billion in its last fiscal year. Earnings for this company have been more sporadic than the first two, and net profit margin is unimpressive due to high competition in the grocery business. However, last year the company did have a return on equity of more than 36%, after being in the low-to-mid 20% range the previous few years, which is still good. You may not see exceptional growth out of Kroger like you may for AutoZone and Bed Bath & Beyond, but the grocery business is nearly recession-proof because consumers always have to eat. Therefore, there is nothing wrong with owning this company as it continues to give cash back to shareholders.

A history and future of buybacks
These three retailers have proved to have management more than willing to give back to shareholders, with more to come. 

The landscape is set for continued growth in all three of these companies, which should ensure fatter wallets for anyone who owns pieces of them. Owning all three give you plenty of diversification across three vastly different industries.

Three more as a treat
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Jacob Meredith has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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