AutoZone Needs A Tune Up

Sep.20.12 | About: AutoZone, Inc (AZO)

By Ken Shreve

At one point, Autozone (NYSE:AZO) was widely regarded as the leader in the group, but that's not the case anymore. Earlier today, the company reported fiscal fourth-quarter profit of $8.46 a share, up 18 percent from a year ago. Sales rose 5 percent to $2.8 billion. The Thomson/Reuters estimate was for profit of $8.41 a share on sales of $2.8 billion.

Same-store sales in the quarter rose a disappointing 2.1 percent, down from 4.5 percent growth in the year-ago quarter. CEO Bill Rhodes said: "While our same-store sales performance was below our expectations for the quarter, we are confident we are well positioned to again deliver strong results for our new fiscal year."

The company opened 72 new stores in the quarter, including 24 stores in Mexico. As of August 25, the company had 4,685 stores in 49 states and 321 stores in Mexico.

From a technical perspective, Autozone's chart is an example of what slack buying demand looks like. There's been a lack of interest in this stock since it started to consolidate gains in early May. After a lengthy run that saw the stock gain 128 percent from March 2009 through 2011, it was definitely looking tired ahead of today's earnings report. It's made a series of lower highs and has repeatedly met with resistance (selling pressure) at its 10-week moving average. Recent price and volume trends say it's not likely Autozone will resume a leadership role anytime soon.

The bulls will argue that a lot of bad news has been priced in already and it's only a matter of time before names like Autozone, Advance Auto Parts (NYSE:AAP), O'Reilly Automotive (NASDAQ:ORLY) and Monroe Muffler Brake (NYSE:MRO) start to rally again. It's possible, but what's clear right now is that all four stocks have suffered much technical damage in recent months due to repeated bouts of institutional selling. Their charts will improve when institutional investors like mutual funds start buying again, but it's not clear it'll happen anytime soon. Technical damage like this usually takes a while to recover from.

Stock chart:

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.