In this segment of the MarketFoolery podcast, Chris Hill and Bill Barker of Motley Fool Funds talk about what specialty retailer Auto Zone (NYSE:AZO) is doing right, both in customer-facing business aspects, and its financials, with share buybacks and improving margins. They also talk about a retailer that, in terms of stock buybacks, is the anti-Auto Zone.  
 
A full transcript follows the video.

This podcast was recorded on Sept. 22, 2016.

Chris Hill:  Let's start with AutoZone. Their 4th quarter profit came in higher than expected and they are opening a bunch of new stores too. Not to sound like a broke- this is the good kind of broken record I think if you're an AutoZone shareholder. This is one of those retailers, one of those specialty retailers, that really just continues to get it done quarter after quarter.

Bill Barker: They really do. The stock isn't reacting much today because there wasn't anything too new or fascinating here. Comps were up 1 percent, I think total sales were up about 4 percent, profits were up about 6 percent. Then you get down to the very bottom and earnings per share were up 12 or 13 percent for the year.

Again, AutoZone delivers not only by improving margins and opening up a few new stores, getting more people in the store every quarter, but by buying back shares. They've really, really focused on that to the delight of their shareholders over the last 15 years.

Chris: We're not going to be talking about Bed Bath and Beyond today, we may touch on it on Motley Fool Money this weekend. I was watching CNBC this morning, they were talking about Bed Bath and Beyond, and in particular, it appears that in terms of buying back stock, they appear to be the anti-AutoZone, or at least recently. They're just one of those businesses that's buying back at the wrong time and doing a poor job of asset allocation in that regard.

I want to go back to the store openings for a second because for all that we talk about e-commerce and the importance of e-commerce, AutoZone opened up 71 new stores in this most recent quarter. That seems like a lot to me. Are they just one of those businesses that is really good in terms of sales per square foot? I'm not putting them in the same category as Apple or Tiffany, who I think are number one and number two in that particular metric. I don't know. The stock has performed so well for so long that I'm giving management the benefit of the doubt, and yet I have a little bit of doubt. That just seems like a pretty aggressive expansion over a three-month period.

Bill: OK. It sounds like that's almost a store a day, but they've already got 5,800 stores in the country, so this is a very small percentage growth story. 71 stores, a little bit more than 1 percent growth in terms of store count. One of the reasons to do that is it just helps to be in the convenient spot. They're often located right near the competition, Advance and O'Reilly, you'll see all three of those in a lot of main street, not quite main street but the major business thoroughfare parts of smaller towns and mid-sized towns. They need to be where people are driving in looking for that part and driving away. They got to have the parts on hand.

Part of the story is they're still improving their margins from an expansion of their inventory and some new distribution centers, that's giving them an opportunity to get more parts. They're delivering more parts on a daily basis to the stores rather than on a biweekly basis. It just helps to be in the convenient spots for this because whereas a lot of retail doesn't want to open more stores because Amazon is taking all the incremental growth, you're not getting your spark plug from Amazon, you need that right away.

Chris: Right. You just reminded me when you were talking about how they would locate near the competition. Down Duke Street from where our office is, where the Whole Foods is now, that used to be a small strip mall and there were, I believe, four or five places of business in this small strip mall. At one end was AutoZone, at the other end was an Advance Auto Parts. In between was a dry cleaner, an Italian deli, and I forget what the fifth one was. Yeah. ...

Bill: Yeah. They're very frequently right on top of each other it seems like.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Bill Barker owns shares of AAPL. Chris Hill owns shares of AMZN and WFM. The Motley Fool owns shares of and recommends AMZN, AAPL, and WFM. The Motley Fool owns shares of ORLY and has the following options: long January 2018 $90 calls on AAPL and short January 2018 $95 calls on AAPL. The Motley Fool recommends BBBY.

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