Story Stocks®
Updated: 19-Sep-23 12:16 ET
Autozone in need of some repair work today as slowing commercial growth weighs on shares (AZO)
Following a disappointing 3Q23 earnings report in which the company missed revenue and same store sales expectations, AutoZone (AZO) bounced back with a top and bottom-line beat in 4Q23 as business picked up in the back half of the quarter. In Q3, unfavorable weather, particularly in March, hindered sales and limited the positive impact that AZO typically receives from tax refund season. As the weather improved in Q4, so did AZO's sales with total company same store sales increasing by 4.5% compared to last quarter's more modest 1.9% growth.
The auto parts retailer is also making some major changes to its leadership structure. In a separate press release, AZO announced that Tom Newbern has been promoted to COO, while Jamere Jackson will permanently take on the CFO role. These appointments come on the heels of AZO announcing a CEO transition in June as Bill Rhodes will hand the reins over to current EVP of Merchandising, Marketing, and Supply Chain Philip Daniele this coming January. Since AZO is promoting within the company to form its new executive team, we don't anticipate that a significant change in its strategy is forthcoming.
A key component of that strategy is to expand its commercial, or its DIFM (do-it-for-me), business. In that regard, AZO's performance in Q4 is being viewed as a disappointment.
The auto parts retailer is also making some major changes to its leadership structure. In a separate press release, AZO announced that Tom Newbern has been promoted to COO, while Jamere Jackson will permanently take on the CFO role. These appointments come on the heels of AZO announcing a CEO transition in June as Bill Rhodes will hand the reins over to current EVP of Merchandising, Marketing, and Supply Chain Philip Daniele this coming January. Since AZO is promoting within the company to form its new executive team, we don't anticipate that a significant change in its strategy is forthcoming.
A key component of that strategy is to expand its commercial, or its DIFM (do-it-for-me), business. In that regard, AZO's performance in Q4 is being viewed as a disappointment.
- Domestic commercial sales for the quarter grew by just 3.9% to $1.499 bln, missing analysts' expectations and down from last quarter's 6.3% growth. AZO did lap very strong growth of 22% in the year-earlier quarter, but the company is clearly facing some headwinds in this business.
- Specifically, rising interest rates and high used car prices have hurt some areas of the DIFM business. It's also possible that some consumers are putting off non-critical repairs as they pull back on spending.
- However, AZO believes that it is still gaining market share and that the DIFM segment has plenty of runway for growth.
- On the positive side, International continues to standout with same store sales surging by over 34% in Q4. Currently, AZO has about 740 stores in Mexico and about 100 in Brazil, compared to more than 6,300 stores in the U.S.
- In Mexico, the company's ROIC is actually better than it is in the U.S. During last quarter's earnings call, AZO stated that it doesn't expect to slow down its expansion efforts in Mexico anytime soon.
- During Q4, AZO opened 27 new stores in Mexico and 17 new stores in Brazil.
With an assist from more favorable weather, AZO returned to form in Q4 and comfortably beat EPS and revenue estimates. The upside performance, though, is being overshadowed by slowing growth in AZO's domestic commercial business, which is a key component of its overall growth strategy.
