AutoZone Surprises with Business as Usual Quarter

While car sales have been decimated by the economic impact of Covid-19, auto parts sales are doing just fine.

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In its earnings release on Tuesday, parts retailer AutoZone (AZO) revealed that its third quarter net sales were $2.8 billion, a minuscule decrease of 0.1% from the third quarter of fiscal 2019 and higher than the consensus forecast of $2.72 billion. AutoZone earned $14.39 per share for the quarter, handily beating analyst expectations of $13.19 per share.

AutoZone explained in its earnings release that, while same-store sales dropped materially in the four weeks starting mid-March, much of that was offset by the jump in sales after stimulus checks arrived in April. Its DIY sales were higher than those for professional mechanics. However, Bill Rhodes, Chairman, President and CEO of Autozone, cautioned that the stimulus check boost likely would be short-lived and shouldn’t be used to extrapolate sales growth in coming months, likening it to the 3-week sales boost that is usually experienced during tax-refund season.

Nevertheless, an additional boost to driving, and by extension, the need for auto parts replacements, is lower gas prices. The average price per gallon stood at $1.96 per gallon on Tuesday.

During the quarter ended May 9, 2020, AutoZone opened 21 new stores in the U.S., two in Mexico and none in Brazil. As of May 9, 2020, the company had 5,836 stores in the U.S., 610 stores in Mexico and 38 stores in Brazil for a total store count of 6,484.

CFRA analyst Garrett Nelson recently rated AutoZone a Buy with a $1275 price target, noting that “the record-high U.S. vehicle age (11.8 years) [acts] as a powerful secular demand driver.” He also observed that AZO has a history of outperformance during recessions.

Overall, the Street has a Strong Buy consensus on AutoZone, and its $1250 price target for the stock leaves $7.35% upside over the next 12 months. AutoZone currently trades at $1164. (See AutoZone stock analysis on TipRanks.)