When was the last time you saw your neighbor tinkering under the hood of his or her car? Perhaps it's been a while, and that might become more of a problem for AutoZone (NYSE:AZO). While the company beat Wall Street's estimates on Tuesday, same-store retail sales sputtered.
AutoZone beat analysts' first-quarter earnings expectations by $0.07 a share. The good showing was fueled in part by stock buybacks and a cheaper pension plan for employees. This hasn't changed since September, when Jeff Hwang commented on AutoZone's adeptness at providing shareholder value.
Another thing that hasn't changed, unfortunately, is retail weakness, where its same-store sales increased a scant 1%, with commercial sales to repair shops and garages up 17%. The company's retail business targets "do-it-yourselfers" (the DIY market), those enterprising individuals who conduct driveway repairs.
Granted, AutoZone addresses a certain degree of seasonality in its 10-K, with strongest sales in June through August, when it's not unpleasant to don the old jeans and T-shirts and do some car repairs. Economic elements could be gathering strength, though. With consumers cash-poor over recent years, many may have put off repairs, though it's quite possible AutoZone benefited from those who did tackle some on their own.
Further, now that the economy's showing signs of heating up, there's a new issue: Consumers might replace their old clunkers altogether. Remember the economic expansion, when the roads were raging with brand-spankin'-new cars? The Wall Street Journal reported that North American car sales enjoyed a promising surge in November, pointing to renewed interest in new wheels.
This could spell bad news for AutoZone. Its 10-K describes "our kind of car" -- it's at least seven years old. This is when a car generally has an expired warranty and needs lots of repairs and parts replacements. Meanwhile, rival Pep Boys (NYSE:PBY) is working on a turnaround, and who else offers auto products to the DIY crowd? Your friendly neighborhood Wal-Mart (NYSE:WMT).
The road ahead may have some potholes if pent-up consumers buy their dream cars. AutoZone sees itself as the third-largest provider of parts and products to repair shops in the U.S. -- with commercial sales showing so much get-up-and-go (and the possibility that an improving economy could convince some do-it-yourselfers to join the "do-it-for-me" camp), it would be comforting if it could race its way to No. 1.
Alyce Lomax welcomes your feedback at [email protected].
