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AutoZone to focus on sales to repair chains as retail drags

A customer enters the AutoZone store in Westminster, Colorado March 3, 2009. REUTERS/Rick Wilking

By Sagarika Jaisinghani

(Reuters) - AutoZone Inc (AZO), the largest U.S. auto parts retailer, reported a better-than-expected quarterly profit as it focuses on its fast-growing business that sells to auto repair chains to offset weakness in its main do-it-yourself market.

Vehicle parts retailers have been increasing sales to garages, dealers and service stations as more Americans turn to them to repair their increasingly complex vehicles.

AutoZone's shares rose as much as 6 percent to a record high on Tuesday after the company reported a 7 percent jump in profit, helped by a cooler-than-usual autumn and storms that encouraged owners to service their vehicles ahead of winter.

The commercial repair business, or "do-it-for-me", is already a major driver for AutoZone rivals such as O'Reilly Automotive Inc (ORLY), which gets more than 40 percent of its revenue from auto service providers.

Memphis, Tennessee-based AutoZone is still playing catch up.

AutoZone's sales to commercial repair chains in the United States jumped 14 percent in the first quarter ended November 23, but accounted for only about 16 percent of revenue.

One of AutoZone's priorities in 2014 will be to profitably grow its commercial business, Chief Executive William Rhodes said on a post-earnings conference call.

Auto parts retailers are also growing their commercial businesses through acquisitions. Advance Auto Parts Inc (AAP) said in October it would buy General Parts International Inc to create the largest North American retailer of auto parts.

AutoZone will slip to the No.2 position once the deal is completed.


U.S. auto parts retailers are also benefiting as demand picks up after a warmer-than-usual winter reduced the need for routine maintenance in 2012.

Stifel, Nicolaus & Co analyst David Schick said recent cold weather across much of the country would likely result in higher demand for parts for the next six months.

Analysts have also said recent investments in inventory and store renovations should help AutoZone's sales.

The company said inventory increased 9.1 percent in the quarter, partly driven by store openings. AutoZone had more than 4,800 stores in the United States as of August 31.

The company's net income rose to $218.1 million, or $6.29 per share, in the first quarter from $203.5 million, or $5.41 per share, a year earlier. Revenue rose 5 percent to $2.09 billion.

Analysts on average had expected earnings of $6.28 per share on revenue of $2.10 billion, according to Thomson Reuters I/B/E/S.

AutoZone's shares were up 4 percent at $475.17 in afternoon trading on the New York Stock Exchange. They have risen almost a third in the past 12 months, outperforming the S&P 500 index (.SPX).

(Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)