AutoZone, America's Car-Mart To Report This Week: Upside in Store?

AutoZone (AZO) will report earnings tomorrow, while America’s Car-Mart (CRMT) is set to release its quarterly results (that were already pre-announced) on Thursday. I have a lunch meeting tomorrow, so I likely won't have my thoughts about AZO's conference call (and anything else I come up with for tomorrow's piece) until later in the day tomorrow.

I found Friday’s rather sluggish November vehicle sales results, with the industry up 2.7% (in absolute unit volumes) rather benign, although inventories and even production do seem to be moving in the right direction (down). For example, Ford (F) got down to 631,000 units in inventory versus 753,000 a year ago. And production plans continue to suggest dealers are expecting sluggish sales, with Ford announcing it will produce 14% fewer vehicles in 1Q07 than it did in 1Q06. Investors may remember Ford’s CFO hinted the company’s first half 2007 production in North America might be down 8% to 12%, and so this is even more aggressive (at least in 1Q07) than that indication.

In total, based on the industry-wide sales figures, I estimate industry-wide dealer inventories were down 4% (year over year). This is a pretty big reversal from October, when inventories (year over year) were up ~1%, and September, when inventories (year over year) were up 6%. The bottom line is that the auto retailers, based on these early trends, may be setting themselves up for upside to their earnings expectations when they report 4Q06 results. Not that an ebb in a quarter really means anything about the long-term investment prospects, but it would be nice to finally see a bit of “good news.”