Remember last fall when AutoZone (AZO) fell under $100 a share and CNBC was claiming "Lampert has lost it"? What a difference a few months make...
AutoZone, Inc. (NYSE:AZO) yesterday reported net sales of $1.4 billion for its second quarter (12 weeks) ended February 14, 2009, an increase of 8.1% from fiscal second quarter 2008 (12 weeks). Domestic same store sales, or sales for stores open at least one year, increased 6.0% for the quarter (Call Transcript).
Net income for the quarter increased $9.2 million, or 8.6%, over the same period last year to $115.9 million, while diluted earnings per share increased 21.1% to $2.03 per share from $1.67 per share in the year-ago quarter.
For the quarter, gross profit, as a percentage of sales, was 49.7% (versus 49.9% last year). Gross margin was negatively impacted by higher than prior year shrink expense of approximately 30 basis points offset in part by lower distribution costs as a percentage of sales due to improved efficiencies and lower fuel costs.
Operating expenses, as a percentage of sales, were 34.9% (versus 35.2% last year). The lower operating expense ratio primarily reflected positive leverage of store operating expenses of approximately 80 basis points due to higher sales volumes and lower promotion costs, offset in part by higher investments in hub store enhancements of approximately 20 basis points, higher medical costs, and an increase in legal costs associated with estimates for minor settlements.
Under its share repurchase program, AutoZone repurchased 2.8 million shares of its common stock for $375 million during the second quarter, at an average price of $133 per share. Year-to-date the Company has purchased $647.2 million of stock, at an average price of $128 per share. The Company has $462 million remaining under its current share repurchase authorization.
Lampert first began buying AutoZone shares in 1998. Those shares are up over 345% despite two recessions, the tech bubble collapse and the current sell-off. In fact, in the last year, AZO is up 28% vs. a 47% decline in the S&P. By early 2000, Lampert owned 21 million shares of AutoZone. Why does that matter? Today he owns just over 23 million shares after recent purchases late 2008 and early this year. What is also of note is through share repurchases he spurred at AutoZone, his ownership share has gone from 16% in 2000 to near 50% today.
Does any of this sound familiar?
Much of the commentary on Sears (SHLD) focuses on recent share price losses. What is lost in the debate is that early shareholders with Lampert are still sitting on gains despite that fall. Meanwhile Lampert has steadily reduced the outstanding share count and increased ownership percentages for current shareholders. Let's also not forget that Sears has a balance sheet second only to Wal-Mart (WMT) and Target (TGT) in the retail space with $1.3 billion of cash on the books.
One also should credit Lampert for selling Sears' credit card division in 2007 (2006?) for top dollar at the time. Anyone who follows Target (TGT) knows that store credit cards are becoming a giant albatross hanging on the neck of retail earnings.
Yes he is under with Citi (C), Sallie Mae (SLM) and a few other small positions but when measuring Lampert and Buffett, we need to look back after years, not 6 months. When you have an $8 billion portfolio (not including cash, that is not disclosed), a $19 million Home Depot (HD) investment is less than 0.2% of assets (note: that is "point" 2% ... not 2%). For comparison's sake, Lampert has $2.3 billion in AutoZone stock, a $.80 cent rise in those shares cover the entire Home Depot investment.
Why the media disdain? One can only guess. My assumption would be that he has a loyal investor base and just does not talk to the media and that pisses them off. He also shuns communication with analysts. He essentially communicates once a year through his annual letter and the occasional letter in between. That is it and the media hates it. Just guessing but can't really come up with a better reason, if anyone has one, please comment below.
For example it is rare to hear a story about the dismal auto environment without hearing how Lampert's investment in AutoNation (AN) is "down 'x' from its highs". What is omitted is that AutoZone gains of $1.4 billion just since the $92 November 2008 low more than offset the approx. $700 million reduction in the value of AutoNation shares. Since the early 2008 high.
Note: a true "loss" number is hard to deduce because of heavy buying in 2008 of AN shares, lowering Lampert's costs basis. For instance Lampert picked up millions of shares last fall between $6 and $10 a share, those purchases are gains currently. This means the actual loss on AN shares is most likely less than I stated above but we will just go with the guess above.
As for the end game. Here are my thoughts on that. The point is not to get too caught up with a single tiny investment in a portfolio and really do not get too caught up in the MSM.
Much of the malignant chatter about Berkshire's (BRK.A) Warren Buffett's "equity put options" is baseless. Those who wonder out loud if it will destroy Berkshire only prove they know little to nothing about the transaction. For instance. Buffett got $4.7 billion in 15-20 yr. S&P index puts covering $37 billion. Warren is on the hook for the full amount if at the end of the option (15-20 years) the S&P stands at 0, no chance. If at the end it is down 25% from last year, he owes $9 billion. BUT, he only needs to grow the $4.7 billion just under 3% a year to cover it. In short, the option was basically a dirt free loan he can grow.
Anyone who says "Berkshire is on the hook for $37 billion" ought to be taken off your reading list....now.
Disclosure : Long AN, SHLD, WMT.