AZO AutoZone Inc

By Steven Russolillo 

AutoZone Inc. finds itself in an unusual position: the red zone.

A summer slump pushed the car-parts retailer's stock into negative territory for the year as recently as last week. That is an anomaly: AutoZone shares haven't had a down year since 2002. They have finished a year in the red only five times since going public in 1991, surging some 70-fold over that span.

Amid a dearth of buying opportunities in recent years, one might present itself now ahead of Thursday's fiscal fourth-quarter results. AutoZone has an impeccable track record and a low bar to clear. Analysts expect earnings of $14.25 per share for the period ended in August, up 12% from a year earlier. This estimate was $14.41 as recently as March. Revenue is expected to have increased 4% to $3.4 billion. And AutoZone has only missed analyst forecasts once in the past five years, according to FactSet.

Part of the stock's 9% drop since late July appears macro-driven. AutoZone gets the bulk of its sales from the "do-it-yourself" market, including many lower-income consumers. Weak results from the nation's two biggest dollar-store chains -- Dollar General Corp. and Dollar Tree Inc. -- stoked concerns about spending pressures facing that demographic, which theoretically would also hurt AutoZone. Increasing online competition and unfavorable weather also weighed on the stock.

But AutoZone might be entering a cyclical sweet spot. U.S. auto sales decelerated sharply last month. Auto-parts retailers tend to benefit when people stop buying new cars and keep their existing vehicles longer, requiring more repairs. That is particularly true of lower-income consumers who have enjoyed a credit-driven buying boom lately. Over the past decade, AutoZone's same-store sales had its best years in 2009 through 2011, which occurred after new-car sales slumped. It had flat years in 2007 and 2013 following robust auto sales.

And considering Autozone's methodical buying of its own stock, the selloff may be opportune. Since implementing its first repurchase plan in 1998, AutoZone has bought about $15.3 billion worth of its own stock, or about 1.4 times its net income over that span, according to FactSet.

This stock should ultimately find its way back to cruise control.

(END) Dow Jones Newswires

September 22, 2016 02:47 ET (06:47 GMT)

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