AutoZone: Sustainable Business Model?

If anything surprised me about AutoZone (AZO) yesterday, it's that its stock post-earnings wasn't up.

I mean, earnings per share beat estimates, yet again, thanks to buybacks. Who cares about sales missing estimates? Who cares about sales per square foot that are either down or flat year-over-year for 12 consecutive quarters? Or inventory turns at a multi-year lows? Or sliding sales per store? Or continued weak same-store sales?

All that matters, in a buyback story, is earnings per share. Or if you really want to stretch the story -- rising margins as the company continues to seek the right "mix" between cost-cutting, private label and other methods to squeeze more efficiencies out of each sale.

"The point," says one longtime skeptic, "is whether that's a sustainable business model. Anybody can do this for some finite period of time, but only the 'productivity loop' (as exemplified by Wal-Mart (WMT) in its heyday and others) has proved sustainable. That's what you pay a multiple for. It's not a question of absolutes; as companies mature, they should be balancing the to-line and market share growth with margin optimization and share repurchase, but AutoZone is so far out on the spectrum..."

Onward...

AZO 1-yr chart:

Comments

[scott146:]

This company sounds like a prime candidate for a legitimate leveraged buyout. Where are the private equity people on this company? Perhaps its too easy to just float debt and take payouts versus actually turning around a company. I personally switched to Checker Auto Parts some years ago, as I found their service and parts availability at my local store has been very good.

2007 May 23 05:53 PM