It’s Almost Time To Buy More Autozone (NYSE:AZO)

Autozone Is A Growing Value

Autozone (NYSE:AZO) has benefited from the pandemic in more ways than one. Not only did the pandemic spur consumer trends in regards to used cars but the stimulus also gave the consumers money to spend. Now, 9 months (can you believe that) into the crisis those trends appear to be sticky. Autozone reported its fiscal 1st/calendar 3rd quarter results and confirmed that consumers are still spending on their cars, and spending strongly.

Autozone Falls On Mixed Results

Autozone had a great quarter but the results are mixed in regards to the analyst’s expectations and that has shares moving lower. That said, the analyst’s consensus is 5.5% higher than it was a year ago and sharply higher from the low set over the summer. So, the $3.15 billion missed the consensus estimates by $0.10 billion or about 3.0% but grew 12.9% on a YOY basis. Sequentially, revenue is down sharply from the 1st quarter but that is seasonally expected. In terms of growth, revenue growth slowed slightly from the +13.98% posted in the fiscal 1st but not much.

Moving down, the company’s gross margins shrank a bit and stoke investor fears. The mitigating factor here is that a large portion of the 62 basis point decline can be attributed to one-time factors related to COVID and an increase in loyalty rewards shopping. The COVID-related factors are already in decline and the loyalty program is a sign that business is good and customers are coming back.

On an operating basis, the company’s margins came in better than expected. Operating margin fell on a YOY basis but only 220 basis points versus an expectation for a larger decline. On the bottom line, the GAAP earnings came in at $18.61 growing 30% on a YOY basis to top the consensus estimate by $0.91. There is no official guidance but the consensus estimates are projecting revenue and EPS growth over the next three to five years. More importantly, the consensus for both EPS and revenue has been rising for the next three years.

Autozone Buys Back Shares

Autozone doesn’t pay a dividend but it does buy back shares. The buyback was temporarily halted over the summer but came back in full swing during the past quarter. The company bought back 584,379 shares for an aggregate of $678.3 million. The company still has $117 million remaining under the current buyback plan and no reason to think a new one won’t be declared. Simply based on the Q1 results, the company is well-capitalized, has only a modest amount of debt, and ample and growing free-cash-flow.

Looking forward, the company is expected to put its capital to work for growth as well. The company is planning on opening new stores as well as investing in operations, efficiency, and technology.

“While our sales have certainly been aided by the COVID-19 pandemic related government stimulus and consumer behavior changes, we have continued to execute on our strategies to improve inventory availability including expanding our Hub and Mega-Hub networks. We are also leveraging technology to improve our service capabilities and efficiency and further penetrating the Commercial market,” said Bill Rhodes, Chairman, President, and Chief Executive Officer.

The Technical Outlook: Autozone Moves Lower While Outlook Moves Higher

Shares of Autozone shed more than 5.0% following the Q1 release and are fast approaching a key support level. The support level is near $107.50 and marks the lowest low since the rebound last summer. The move lower is more to do with the top-line miss than anything else, the market has gotten used to companies posting revenue that beats consensus by double-digits and that didn’t happen. Sadly, the revenue miss is overshadowing the double-digit topline growth but that is an opportunity to put new money to work. The $107.50 level should be the trigger. If prices can hold above that level the price action will likely resume its upward trend.