The auto industry hit the brakes earlier this year when U.S. sales numbers released for the month of January showed a bit of a slow-down following a spectacular 2015, but any fears that the industry had lost its momentum were diminished when February’s sales numbers were released on March 1.
Automakers across the board posted huge sales gains. Ford Motor Company (F) saw sales increase 20% year over year. Honda Motor Co Ltd (ADR) (HMC) sales were up 13% and Fiat Chrysler Automobiles NV’s (FCAU) gained 12%.
On average, U.S. auto sales grew 6.9% compared to last year as consumers returned to the dealerships, spurred by Super Bowl ads — website visits per dealership were four times higher on Super Bowl Sunday than any Sunday in 2015 — and increased confidence thanks to low gas prices and interest rates along with improving job and income growth.
The strong February sales numbers are impressive, but we do have to look under the hood (pun intended) to see the quality of loans driving (pun not intended) the results.
Strong February Great for AZO Stock
The strong sales figures gave a much-needed boost to most auto stocks, but it wasn’t only the dealerships that reaped the rewards. Parts retailers also felt the strength, and there’s one in particular that I wanted to talk to you about today.
AutoZone, Inc. (AZO) is the nation’s leading retailer of and a leading distributor of auto replacement parts and accessories. It has 5,676 stores located in the United States, Mexico and Brazil, each carrying an extensive equipment line (including new and remanufactured parts, maintenance products and accessories) for cars, sport utility vehicles, vans and light trucks.
This stock has grown spectacularly over the last five years, from the high $200s at the end of 2010 to current prices above $770. But after a 180%+ climb, AZO took a breather at the beginning of February, falling from close to all-time highs to a near-term low of $681.01.
As I mentioned, the strong February auto sales numbers lifted most auto-related names, including AZO, but that wasn’t the only factor that contributed to the current 14% rebound.
First, AutoZone announced a five-year supplier agreement with J.D. Byrider, a leading used car and finance company, on Feb. 17. The agreement, built on a 15-year relationship between the companies, makes AZO the preferred parts vendor at J.D. Byrider’s 170 U.S. locations and demonstrates the company’s growing presence in the parts industry.
And second, AutoZone reported solid fiscal second-quarter results on March 1, with earnings of $7.43 a share increasing 14.2% year over year and coming in well ahead of expectations of just $7.28 a share. Sales also grew in the quarter, up 5% over last year and matching estimates at $2.26 billion. Same-store domestic sales increased 3.6% (following up on the 3.5% growth in the first quarter) and higher merchandise margins widened gross profit to 52.7% of sales.
In the end, I like what I’m seeing here and am especially pleased to see AZO climbing back toward record levels.
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