![]() ![]() No matter the macro environment, investors should look for companies with executive compensation plans that directly align executives’ interests with shareholders’ interests. The firm’s $833 million in FCF in fiscal 2020 gives AutoZone a 2% FCF yield, which is significantly above the consumer cyclical sector average FCF yield of 0%.Įxecutive Interests Are Aligned With Shareholders’ĪutoZone keeps managers focused on creating value for shareholders by linking its executive compensation plan to return on investment (ROIC). ![]() ft Than O’Reilly & Advance Auto PartsĪutoZone has also generated $5.9 billion (22% of market cap) in free cash flow (FCF) over the past five years. Per Figure 6, AutoZone generates more revenue per square foot of store space than O’Reilly Automotive and Advance Auto Parts.įigure 6: AutoZone Generates More Revenue / Sq. In this case, smaller seems to be better. While AutoZone has the largest number of stores, its average store size is smaller than O’Reilly Automotive (ORLY) and Advance Auto Parts’ (AAP) stores. Today, AutoZone has more stores than any other auto parts retailer and has grown its total number of stores from 4,627 in fiscal 2010 to 6,549 in fiscal 2020, or 4% compounded annually. ![]() Even if the EV fleet is 56% of the global fleet in 2030, total maintenance spending still equals 2020’s level of $1.5 trillion. In other words, the number of new conventional vehicles on the road will increase nearly twice as much as the number of EVs.įigure 5 shows the forecasted growth of conventional vehicles and EVs from 2020 to 2030.įigure 5: EV’s Forecasted to Comprise Just 8% of Global Passenger Fleet by 2030Ĭonventional & EV Growth Forecasts New Constructs, LLCĪssuming EVs are 8% of the global fleet in 2030 (as forecast by BloombergNEF), total maintenance spending would grow by 1% compounded annually, as the increase in the number of conventional vehicles offsets the lower maintenance costs of EVs. BloombergNEF expects there will be 200 million more conventional vehicles on the road by 2030 while the number of EVs increases by only 108 million. Offsetting the lower maintenance costs from EVs is the fact that the global auto fleet will continue to largely consist of conventional vehicles for many years to come. While it is true that EVs have fewer parts and lower maintenance costs, their maintenance costs are only 26% lower than conventional vehicles.ĪutoZone already supplies several parts for Tesla’s such as struts, brake pads, rotors, windshield wipers, headlights, cabin air filters, and mirror replacement glass. Perhaps, the biggest concern bears have with auto parts retail growth is the growing adoption of electric vehicles (EV). If this short-term trend turns into a long-term shift in consumer behavior, the firm is positioned to continue to enjoy even more growth.Įlectric Vehicles Require Maintenance, Too COVID-19-related disruptions have given many customers more time for DIY projects, which drove higher revenue for AutoZone just as it has for Home Depot (HD) and other retailers that support DIY projects. Despite the decline in seasonally adjusted VMT, AutoZone’s sales in fiscal 2020 reached an all-time high. Most importantly, lower VMT has not translated to lower sales for AutoZone. Vehicle Miles Traveled New Constructs, LLC AutoZone calls vehicles seven years and older “our kind of vehicles” because these vehicles are typically out of warranty and require more maintenance and repair than newer ones.įigure 2: Average Age of U.S. has steadily climbed from 8.5 years in 1996 to 11.9 years in 2020. Per Figure 2, the average age of light vehicles on the road in the U.S. I think the rising age of cars provides long-term demand for auto parts that will drive long-term growth in profits for AutoZone. While the firm consistently outperforms the industry already, and its customer service creates a lasting competitive advantage, long-term demand for auto parts remains important to AutoZone’s future profit growth. The firm has two websites, one for retail and one for commercial customers, that offer in-store pickup or delivery, which is next-day for 80% of the U.S. Even though many customers prefer the convenience of walking out the door of a brick and mortar store without having to wait for an Amazon delivery, AutoZone has developed a competitive e-commerce platform for those who prefer to find their auto parts online. ![]()
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