For some companies, a recession can mean opportunity. Companies that benefit from economic weakness, often referred to as countercyclicals, tend to thrive as others falter.
Case in point is AutoZone Inc. (AZO), a leading retailer and distributor of automotive replacement parts and accessories in the United States.
The economic downturn has been a boon to the company as sales and profits were helped by higher demand for replacement auto parts as new vehicle sales continue to wane.
On Tuesday, the company reported a better-than-expected 8.6 percent rise in net income for its second fiscal quarter ending February 14, 2009.
Blowout Numbers
For the quarter, AutoZone net income rose 8.6 percent from the same quarter a year ago to $115.9 million, while earnings per share increased 21.1 percent to $2.03 per share. Sales grew 8 percent to $1.45 billion while the all-important same-store sales figure rose 6 percent.
Analysts on average were expecting earnings of $1.85 per share on revenue of $1.38 billion, according to Reuters Estimates.
Shares surged to their all-time high of $157 in early trading before falling back to the $150 level mid day.
With new vehicle sales falling 18 percent to just 13.2 million units in 2008 and most automakers expecting further declines this year, those with 20/20 hindsight could’ve seen this coming a mile away.
Countercyclical Business
Consumers’ demand for replacement parts and other maintenance services is surging as car and truck owners choose the least expensive option of trying to extend the life of their existing vehicles in the face of tough economic circumstances.
Commenting on the quarter, President and CEO Bill Rhodes said that during these challenging times he believes the company’s service and merchandise offerings provide a compelling shopping experience for both do-it-yourself and professional customers.
He said he was please to report the tenth consecutive quarter of double-digit earnings per share growth and that the company is committed to growing its business through a focus on customer service, a continual refinement of the product offerings, and ongoing improvements to grow commercial sales.
Lastly, Mr. Rhodes said that at the end of the second quarter the company’s balance sheet was in excellent condition and the company remains committed to growing operating earnings while utilizing capital effectively.
Year-to-date, AutoZone has repurchased $647.2 million of its stock with $375 million of those purchases coming in the second quarter. The company does have $462 million remaining under its current share repurchase authorization.
AZO is one of the very few stories working in this ugly market.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
