Lampert Taxis to Trouble

Numbers in the auto retailing industry are not pretty.

Analysts project only 3% growth in profit at Sonic Automotive (NYSE: SAH  ) later this month. Penske (NYSE: PAG  ) has been pegged for zero growth, and a decline in profits sent CarMax (NYSE: KMX  ) skidding back in December. So from that perspective, I guess you could say that AutoNation's (NYSE: AN  ) fiscal 2007 report, which came out yesterday, was decent in that earnings held steady versus fiscal 2006.

But I won't
Say the report was decent, that is. On the contrary, I'm not at all impressed with the fact that AutoNation managed to turn in a second straight year of $1.44-per-share profit, because the operative words in that statement are "per share." The fact is, when you look at net earnings, AutoNation's profit declined a good 12%.

The nation's No. 1 auto retailer achieved this feat by turning into the skid, spending trunkloads of cash buying back 13% of its own shares, in a frantic attempt to keep the share count falling in line with profits. It succeeded, but at what cost?

Sticker shock
The way I look at things, AutoNation paid full "ticker price" for flat performance last year. The company did not include a cash flow statement, or even a complete balance sheet, as part of yesterday's earnings release. It did reveal that over the course of the year, it spent $646 million to repurchase 33.2 million shares of its own common stock -- an average price of $19.45 per stub. This came on top of an even larger stock shopping spree in 2006, when management laid out $1.4 billion to repurchase 61.2 million shares (average price: $22.56).

As I look at the ticker price today, AutoNation stock can be had for a 22% discount to last year's buyback price. Will someone please explain to me how any of this fits in to AutoNation's self-proclaimed goal of "targeted return on incremental invested capital approximately 15% after-tax"?

Right about now, hedge-fund hero Eddie Lampert, who now owns nearly one-third of AutoNation's stock, should be a mite upset at how AutoNation is wasting his money. Then again, with his other large holdings -- Home Depot (NYSE: HD  ) , Sears Holdings (Nasdaq: SHLD  ) , and Citigroup (NYSE: C  ) -- down 31%, 43%, and 51% respectively over the past year, maybe he has bigger troubles to worry about.

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