Fitch Ratings Services has reaffirmed its long-term IDR, senior unsecured debt and bank credit facility ratings on AutoZone Inc. (AZO) at 'BBB'. The rating agency has also affirmed its short-term IDR and commercial paper rating at 'F2'. Moreover, Fitch has conferred a stable outlook on the company.
The reaffirmation of the ratings is based on the company’s leading position in the retail automotive replacement parts and accessories aftermarket, along with its improving operating performance and credit metrics. Fitch also considers the company’s aggressive share repurchase program.
AutoZone is one of the leading retailers and distributors with 4,613 stores in 48 states, the District of Columbia and Puerto Rico in the U.S. and 297 stores in Mexico, as of May 5, 2012. The stores cater primarily to the Do-It-Yourself (:DIY) consumer along with emphasis on commercial customer or Do It For Me (:DIFM).
AutoZone, in the third quarter of fiscal 2012 (ended May 5, 2012), registered an 18.7% increase in earnings per share to $6.28 from $5.29 in the corresponding quarter a year ago. The results exceeded the Zacks Consensus Estimate by a penny. Profit went up 9.3% to $248.6 million from $227.4 million in the year-ago quarter.
Total revenues rose 6.7% year over year to $2.1 billion in the quarter, owing to the strong performance in retail and commercial business along with a boost in Mexico’s ALLDATA and E-Commerce business. It was in line with the Zacks Consensus Estimate.
AutoZone repurchased 1.1 million shares of common stock under its existing share repurchase program. At the end of the third quarter, the company had $836 million remaining under the current share repurchase authorization. In addition, the company had $3.6 billion total debt outstanding as of May 5, 2012.
AutoZone seizes growth opportunities stemming from rising demand for auto parts, driven by increasing age of the used vehicles and consumers’ focus on maintenance and repair parts. However, stiff competition and hike in gas prices represent challenges for the company. As a result, it retains a Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock.
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