AutoZone Expands in Canada

Zacks

ALLDATA LLC, an operating unit of AutoZone Inc. (NYSE:AZO - News), recently announced its plan to expand in Canada to provide quality services to its increasing customer base in the region and its nearby locations. The company will operate in Canada under the name ALLDATA Canada Services Ltd.

Previously, ALLDATA products were sold through a third party distributor in Canada. As a result, the company was unable to gauge the prevailing market scenario and failed to enhance its marketing efforts and tap potential customers. With the new subsidiary, the company seeks to capitalize on the growing opportunities and will likely have a huge scope of creating brand awareness across the country, thus driving profitability going forward.

AutoZone is one of the nation’s leading specialty retailers of automotive replacement parts and accessories, operating in the Do-It-Yourself (:DIY) retail, Do-It-for-Me (:DIFM) commercial and other customer markets. Sales in DIY retail represent about 85% of the company’s revenue, DIFM commercial sales accounts for 10% while the remaining 5% comes from other sales.

AutoZone sells the ALLDATA brand automotive diagnostic and repair software, online as well as on DVD, which offers comprehensive factory-correct repair information to DIY customers and offers ALLDATA repair subscription. The company also sells in-house brands of automotive batteries such as Duralast, Duralast Gold and Valuecraft, manufactured by the U.S. automotive parts producer Johnson Controls.

During the most recent quarter, AutoZone posted a profit of $7.18 per share versus $5.66 per share in the year-ago quarter. Net sales grew 8.1% to $2.64 billion and domestic same-store sales (sales for stores open at least one year) rose 4.5% during the quarter.

AutoZone currently focuses on expanding its Hub store, acceleration of store maintenance and strengthening of its commercial sales force. Its aggressive share repurchase policy, supported by a strong cash flow, is also note worthy.

However, AutoZone relies heavily on its private label brands, which could hinder its business should they falter. Vendor consolidation and appreciation in gas prices coupled with fierce competition from O’Reilly Automotive Inc. (NasdaqGS:ORLY - News) and Advance Auto Parts Inc. (NYSE:AAP - News) are primary headwinds for the company.

However, depending on the improving near-term outlook, the company retains a Zacks #2 Rank, which translates into a Buy rating over the short term (1 to 3 months).

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