Tag: AutoZone

AutoZone (AZO) Faces Cybersecurity Breach: Is it Time to Sell?

Posted on by The INO.com Team

AutoZone, Inc. (AZO), a leading retailer and distributor of automotive replacement parts and accessories in the United States, announced that it was hacked by a ransomware gang in May this year. Bleeping Computer reported that AZO’s data stores were breached, with the personal information of approximately 185,000 customers leaked.

The Clop ransomware gang took responsibility for this cyberattack, with hackers uncovering susceptibilities in the file transfer application MOVEit.

Several other affected organizations include the Louisiana Department of Motor Vehicles, the State of Maine, British Airways, and the New York City public school system. As per the report, the total financial damage totaled around $12 billion, with estimates indicating that at least 62 million people were affected by this data leak.

The data leaked by cybercriminals is around 1.1GB in size, containing employee names, email addresses, tax information, parts supply details, payroll documents, Oracle database files, production and sales information, data about stores, and more. No customer data appears in the leaked files, Bleeping Computer noted.

AutoZone informed the U.S. authorities last week about this data breach. It took the auto company nearly three months to determine what data was stolen from its systems and who had been impacted and required to be notified.

“AutoZone became aware that an unauthorized third party exploited a vulnerability associated with MOVEit and exfiltrated certain data from an AutoZone system that supports the MOVEit application,” read the letter from AZO. The company further added that it is “not aware” of any instances where a customer's personal information was used to conduct fraud.

However, AutoZone will provide its affected clients with a year of free credit monitoring software. This will allow them to track potential fraud and suspicious activities related to their identity and credit.

Despite this news, AZO’s shares have gained more than 6% over the past month and nearly 5% over the past six months.

Now, let’s discuss several factors that could influence AZO’s performance in the near term:

Growing Need for Auto Parts

The global auto parts market is expected to reach $1.10 trillion by 2030, growing at a CAGR of 6.8%. One of the primary factors driving the auto parts market is the increasing demand for auto vehicles worldwide. Global motor vehicle production has been rising steadily, with around 85 million vehicles produced in 2022, up nearly 6% from 2021.

The demand for auto parts has increased in tandem with this production boom. Further, the growing shift toward electric and hybrid vehicles and the manufacturing of environmentally friendly vehicle parts because of an enhanced focus on sustainability and environmental issues are propelling the market’s expansion.

Additionally, the significant surge in e-commerce platforms has a major impact on auto parts distribution and sales, providing more access for customers. Also, the rising popularity of automotive customization and the introduction of advanced technologies, such as navigation systems, infotainment systems, and advanced driver assistance systems, will boost the market’s growth.

Therefore, the growing demand for auto parts and accessories is a primary tailwind for AZO stock.

Robust Financials

For the fourth quarter that ended August 26, 2023, AZO reported net sales of $5.69 billion, beating analysts’ estimate of $5.61 billion. This compared to net sales of $5.25 billion in the same quarter of 2022. Its gross profit grew 8.8% from the year-ago value to $3 billion.

The auto parts operating profit (EBIT) came in at $1.22 billion, an increase of 10.8% from the prior year’s quarter. Its net income rose 6.8% year-over-year to $864.84 million. The company posted net income per share of $46.46, compared to the consensus estimate of $45.23, and up 14.7% year-over-year.

For the fiscal year 2023, the company’s net sales increased 7.4% year-over-year to $17.46 billion, while its gross profit rose 7.1% from the previous year to $9.07 billion. Its operating profit grew 6.2% year-over-year to $3.47 billion. The company’s EBITDAR increased 7.6% from the prior year to $4.47 billion.

In addition, AZO’s net income rose 4.1% year-over-year to $2.53 billion, and its net income per share came in at $132.36, an increase of 12.9% year-over-year. Its adjusted after-tax ROIC was 55.4%, up from 52.9% a year ago. As of August 26, 2023, the company’s cash and cash equivalents were $277.05 million, compared to $264.38 million as of August 27, 2022.

Regarding its strong performance delivered in the fourth quarter and fiscal year 2023, AZO’s Chairman, President, and CEO, Bill Rhodes, commented, “Our customer service and trustworthy advice are what continue to differentiate us across the industry, and our AutoZoners’ commitment to delivering exceptional service has allowed us to continue to deliver strong financial results.” 

“While we turn our focus to performance in the new fiscal year, we will remain committed to prudently investing capital in our business, and we will be steadfast in our long-term, disciplined approach to increasing operating earnings and cash flows while utilizing our balance sheet effectively,” Rhodes added.

Share Repurchase

Under its share repurchase program, AZO repurchased 403 thousand shares of its common stock during the fourth quarter at an average price per share of $2.502, for a total investment of $1 billion. For the fiscal year 2023, the auto company repurchased 1.5 million shares of its common stock for a total investment of $3.7 billion.

Since the inception of this share repurchase program, the auto parts retailer has repurchased a total of about 154 million shares of its common stock at an average price of $219, for a total investment of $33.8 billion. At the year's end, the company had $1.8 billion remaining under its current share repurchase authorization.

Share buybacks might enable the company to generate additional shareholder value.

Expanding Store Footprint

During the quarter ended August 26, 2023, the auto parts giant opened 53 new stores in the U.S., 27 new stores in Mexico, and 17 in Brazil, for a total of 96 net new stores. For the year 2023, the company opened 197 net new stores. The company’s inventory also increased due to new store growth.

As of August 26, 2023, AutoZone had 6,300 stores in the U.S., 740 in Mexico, and 100 in Brazil, for a total of 7,140 stores.

Impressive Historical Growth

AZO’s revenue and EBITDA grew at respective CAGRs of 11.4% and 11.1% over the past three years. Its EBIT increased at a CAGR of 11.6% over the same period. Moreover, the company’s net income and EPS rose at CAGRs of 13.4% and 22.5% over the same timeframe, respectively.

In addition, the company’s total assets improved at a 3.5% CAGR over the same period.

Favorable Analyst Estimates

Street expects AutoZone’s revenue for the fiscal 2024 first quarter (ending November 2023) to increase 5.1% year-over-year to $4.19 billion. The consensus EPS estimate of $31.16 for the ongoing quarter reflects a 14.6% year-over-year rise. Moreover, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all four trailing quarters.

AZO’s revenue and EPS for the fiscal year (ending August 2024) are expected to grow 7.5% and 12.58% year-over-year to $18.76 billion and $149.01, respectively. For the next fiscal year, Street expects the company’s revenue and EPS to increase 3.7% and 9.3% from the previous year to $19.45 billion and $162.93, respectively.

Solid Profitability

AZO’s trailing-12-month gross profit margin of 51.96% is 46.5% higher than the 35.71% industry average. Likewise, the stock’s trailing-12-month EBITDA margin and net income margin of 22.75% and 14.48% are significantly higher than the industry averages of 11.04% and 4.44%, respectively.

Furthermore, the stock’s trailing-12-month ROTC and ROTA of 34.04% and 15.82% favorably compare to the respective industry averages of 6.01% and 3.97%. Also, its trailing-12-month levered FCF margin of 8.83% is 71.4% higher than the industry average of 5.15%.

Bottom Line

AutoZone reported positive earnings and revenue surprises for the last reported quarter. Further, the company’s prospects look highly promising, driven by a diversified product portfolio to meet robust demand for auto replacement parts and accessories.

The auto giant also continues to expand the physical footprint of its stores to serve its ever-growing customers worldwide.

Despite the news of its data stores getting breached in a cyberattack earlier this year, AZO could be an ideal investment now, given its robust financials, higher-than-industry profitability, and bright growth outlook.

Is Autozone (AZO) a Buy Before Earnings Report?

Posted on by The INO.com Team

Renowned premier retailer and distributor of automotive replacement parts and accessories, AutoZone, Inc. (AZO), will unveil its fourth-quarter results before the stock market opens on Tuesday, September 19, 2023.

Analysts expect the company’s EPS and revenue to grow 11.7% and 4.9% year-over-year to $45.23 and $5.61 billion, respectively.

AZO initially cemented its reputation as the inaugural retailer, providing an expansive inventory of automotive parts. Its sustained emphasis on exceptional customer service, convenient shopping experiences, and diverse product offerings underpins its position at the forefront of auto part retail.

The company harnesses its unique value proposition in the sector, combining remarkable customer service with complementary services and efficient supply chain management. This strategic approach fostered an enduring track record of substantial returns.

During the quarter ended May 6, 2023, AZO inaugurated 22 new stores in the U.S., along with six in Mexico and two in Brazil.

AZO’s Auto Parts Stores segment revenue, accounting for a striking 98.2% of overall revenue, experienced a 5.8% growth year-over-year, equating to $4.02 billion for the same quarter. This division comprises retail and distribution of automotive parts via physical stores operating across the U.S., Mexico, and Brazil.

Each outlet presents an extensive range of products for various vehicles, stretching from new to remanufactured hard parts to various maintenance items, accessories, and non-vehicle products.

AZO's capital allocation policy exalts high return rates from cash flow reinvestment, with the surplus channeled towards share repurchases. Over time, this approach resulted in a stark 80% share count decrease over the past years.

AZO's prodigious share buyback initiative has drawn significant attention since the beginning of the millennium. Following May 6, 2023, and through June 2, 2023, the company repurchased 86.7 thousand shares of its common stock at an aggregate cost of $219.9 million.

AZO's growth trajectory is marked by a dual-pronged strategy that encourages organic expansion of its store network while simultaneously facilitating growth through targeted acquisitions.

This industry giant further bolsters its portfolio by prioritizing commercial sales that include collaborations with professional clients such as auto repair shops and fleet operators. Demonstrating a judicious approach to market diversification, AZO stands resilient against localized economic fluctuations by cultivating a geographically diverse DIY and professional customer base.

Here’s what could influence AZO’s performance in the upcoming months:

Robust Financials

For the third quarter ended May 6, 2023, AZO’s net sales increased 5.8% year-over-year to $4.09 billion. Domestic same-store sales, or sales for stores open at least one year, increased 1.9% for the quarter. Its gross profit rose 7% from the year-ago quarter to $2.15 billion. The company’s operating profit grew 9.3% year-over-year to $858.48 million.

Its net income and net income per share grew 9.3% and 17.5% from the prior-year quarter to $647.72 million and $34.12, respectively. For the nine months that ended May 6, 2023, AZO’s cash and cash equivalents stood at $274.92 million, up 4.5% year-over-year.

Solid Historical Growth

AZO’s revenue grew at CAGRs of 12.3% and 8.9% over the past three and five years, respectively. Its EBITDA and EBIT grew at a CAGR of 13.3% and 14.3% over the past three years. Moreover, its levered free cash flow grew at 8.7% and 10.3% over the past three and five years, respectively.

High Profitability

AZO’s trailing-12-month cash from operations of $3.10 billion is significantly higher than the industry average of $223.80 million. Its trailing-12-month EBITDA margin of 22.41% is 105.1% higher than the industry average of 10.93%. Its trailing-12-month net income margin of 14.45% is 228.8% higher than the industry average of 4.40%.

Growing Interest

The stock has garnered significant institutional attention recently, evident from the changes made to the holdings of AZO stock by such investors. Institutions hold roughly 92.1% of AZO shares. Of the 1,134 institutional holders, 420 have increased their positions in the stock. Moreover, 88 institutions have taken new positions in the stock with 147,383 shares, reflecting signs of bullishness.

Price Performance

As a result of such increased attention, AZO’s shares have gained 16.8% over the past year to close the last trading session at $2529.68. Over the past six months, the stock gained 7%.

Moreover, AZO’s stock is trading above its 50-day and 200-day moving averages of $2,503.45 and $2,492.19, respectively, indicating an uptrend.

Wall Street analysts expect the stock to reach $2,860.17 in the next 12 months, indicating a potential upside of 13.1%. The price target ranges from a low of $2,670 to a high of $3,020.

Favorable Analyst Estimates

The consensus revenue and EPS estimates of $17.39 billion and $131.65 for the fiscal year 2023 (ended August 2023) represent 7% and 12.3% improvements year-over-year, respectively. Its revenue and EPS for fiscal 2024 are expected to increase 5.6% and 11.3% year-over-year to $18.36 billion and $146.58, respectively.

The company has an impressive earnings surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.

Bottom Line

According to Statista, the size of the U.S. automotive aftermarket is expected to increase to $400 billion by 2023. The continuous increase in the number of automobiles on the roadway, coupled with their higher average age, has cumulatively contributed to a consistent rise in the client base for AZO. This rise has facilitated the steady enhancement of the company's same-store sales by approximately 4% annually for over a decade.

AZO's scale also fortifies its competitive position, enabling it to obtain increasingly superior rates from suppliers. This advantage has subsequently widened its profit margins and enabled the company to increase its market share at the expense of its smaller rivals. These industry tailwinds and competitive strengths have propelled AZO’s net income.

Moreover, as of May 6, 2023, the company boasted a cumulative total of 7,044 stores dispersed across the U.S. (6,248), Mexico (713), and Brazil (83). Anticipations are high as the company continues to expand its retail presence, presumably leading to an escalation in sales figures.

Given AZO's robust financial health, favorable analyst estimates, impressive historical growth trajectory, and high profitability, it would be judicious to take a position in the stock now.