You always have to watch the quiet ones. As the market's roiling, and consumer spending seems ghostlike, car parts and accessories retailer AutoZone
Before thinking car parts are, like, so boring, consider this: AutoZone's stock is up about 60% over the last year and has nearly doubled twice in two years. Got your attention now?
The Memphis-based company reported strong fourth-quarter and fiscal year-end results this morning. Fourth-quarter sales grew 12% to $1.84 billion. Diluted quarterly earnings per share came in at $1.73, ahead of last year's $1.07, excluding a charge in that quarter.
For the year, AutoZone's sales improved 10.5% to $5.32 billion, with $4 per share in diluted earnings. Its same-store sales grew by 8.8%. An extra week in the fourth quarter helped results, as did the company's 6% reduction in diluted shares outstanding for the year -- not that it particularly needed assistance.
AutoZone generated $290 million in free cash flow in 2001, and through just the first nine months of 2002, it had already racked up $307 million. Capital expenditures for the year were about 30% below last year's, so it will certainly throw off more free cash for this year than last.
And what does it do with all that free cash? Luckily for shareholders, it makes very smart choices. Its capital management is a thing to behold. AutoZone demands a return on its invested capital of at least 15%. It achieved an amazing 19.8% this year, by continuing to buy back loads of shares, and by slowing its new store build-out.
Sales up, earnings up, expenses down, free cash flow up, debt down, margins up. It doesn't get much prettier than this. The only question, then, is whether AutoZone's shares will continue to reward investors after their skyrocketing rise over the last two years.
At current levels, the stock's priced for perfection, which is exactly what AutoZone's been delivering. It is a solid company, but with little room for error. Betting on how long the perfection will last is a bit too risky here, at least for our tastes.