Stock Story -
Auto parts and accessories retailer AutoZone (NYSE:AZO) missed Wall Street’s revenue expectations in Q4 CY2024 as sales rose 2.1% year on year to $4.28 billion. Its GAAP profit of $32.52 per share was 3.3% below analysts’ consensus estimates.
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AutoZone (AZO) Q4 CY2024 Highlights:
- Revenue: $4.28 billion vs analyst estimates of $4.31 billion (2.1% year-on-year growth, 0.6% miss)
- Adjusted EPS: $32.52 vs analyst expectations of $33.64 (3.3% miss)
- Adjusted EBITDA: $974.3 million vs analyst estimates of $975.7 million (22.8% margin, in line)
- Operating Margin: 19.7%, in line with the same quarter last year
- Free Cash Flow Margin: 13.2%, similar to the same quarter last year
- Locations: 7,387 at quarter end, up from 7,165 in the same quarter last year
- Same-Store Sales were flat year on year (3.4% in the same quarter last year)
- Market Capitalization: $56.19 billion
Company OverviewAiming to be a one-stop shop for the DIY customer, AutoZone (NYSE:AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.
Auto Parts Retailer
Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.AutoZone is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences consumer purchasing decisions. However, its scale is a double-edged sword because it's harder to find incremental growth when you've penetrated most of the market.
As you can see below, AutoZone’s 9.1% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre, but to its credit, it opened new stores and increased sales at existing, established locations.
This quarter, AutoZone’s revenue grew by 2.1% year on year to $4.28 billion, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and indicates its products will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Store Performance
Number of StoresThe number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.AutoZone operated 7,387 locations in the latest quarter. It has opened new stores quickly over the last two years by averaging 2.8% annual growth, faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store SalesThe change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).
AutoZone’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 3.2% per year. This performance suggests its rollout of new stores could be beneficial for shareholders. When a retailer has demand, more locations should help it reach more customers and boost revenue growth.
In the latest quarter, AutoZone’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if AutoZone can reaccelerate growth.