Autozone Expected to Beat Earnings Amidst Challenging Market

The automotive parts retailer has consistently beat earnings, seemingly avoiding inflationary pressures and taking advantage of disruptions in the auto industry.

Turbulence is Autozone’s Advantage

Autozone could lean into its chief advantage: Weathering a difficult time for the economy. As Americans see their wallets squeezed by inflation, they are more likely to turn to repairing cars they already own than buying new ones. New cars in the US have reached record prices, on top of ever-increasing borrowing costs due to the Fed's rate hikes. Now that the UAW has started striking at the Big Three plants -the first time the union has gone against all three major US manufacturers- even those who can afford the higher prices and credit costs might have to turn to buying auto parts. The strikes are expected to affect productivity at major automakers, reduce inventory for dealers, and extend waiting times for the more popular models.

These factors could boost Autozone's fourth fiscal quarter is typically best, as the US' driving season ends and consumers look to fix up the wear and tear from journeys and get ready for colder weather. The company is forecast to see earnings jump to $45.10 per share, well above the $40.51 reported in the same quarter of last year. Revenue is expected to have a more modest expansion to $5.6B from $5.3B last year, as the company is seen being able to improve efficiency and margins.

There is Some Haze in the Outlook

A lot has changed since last quarter's report, which was upbeat despite missing analyst's projections on the top line. Weaker sales in March weighed down on growth, but in hindsight, Americans this year were slower to take to the roads. This weakness could be offset later in the year.

The CEO announced back in June he would retire at the start of next year, which has put some uncertainty in the outlook, considering a new boss could come in with a slight vision change. What is also interesting is that the company would buy back another $2.0B in shares, normally a good sign for a company. But this was followed a month later with a filing to sell an indeterminate additional debt in a relatively high interest rate environment. The company reported only $275M in cash on hand at the end of the quarter, with inventories growing to $5.7B. Analysts could take a second look at the company's financials if sales don't hold up as expected. The focus will likely be on margin and same-store sales growth for the last quarter.

The share price of Autozone has exhibited strength since the Covid crash. In 2023, prices have pretty much fluctuated but in a fashion that higher lows and lower highs resemble a triangle pattern. The formation appears to be at its second wave only, symmetrically consolidating for the foreseeable future until a breakout or a breakdown. If bulls can 2760 without further ado, a running triangle (starting earlier) might have already been completed at 2415. However, the pattern would be invalid if continued weakness sends prices under 2285.

Source: SpreadEx / Autozone Inc

Key Takeaways

Autozone has been outperforming expectations despite inflationary pressures and disruptions in the auto industry. As Americans face higher prices for new cars and borrowing costs, they are more inclined to repair their existing vehicles. The recent strikes by the UAW at major automakers may further drive demand for auto parts. Autozone is expected to see a jump in earnings per share and a modest increase in revenue thanks to improved efficiency and margins. However, uncertainties lie ahead with the CEO's retirement and financial concerns. Analysts will closely monitor margin and same-store sales growth in the last quarter.