AutoZone (AZO) is in the fast lane. The stock has done reasonably well this year, and the first-quarter report, released on Tuesday, shows that the company still knows how to drive earnings growth.
According to the company's earnings report, sales increased well over 7% and earnings per share expanded by better than 26%. Income was pegged at $2.82 per share. That was way above the call. Our earnings preview indicates an expectation of $2.66 per share. Clearly, management is doing something right.
I like it when same-store sales come in at a healthy clip. Domestic comps rose over 5%, approaching the total sales figure. Gross margin also saw an improvement.
It is apparent that there is some concern out there when it comes to the recent "Cash for Clunkers" initiative. Although the program is old news at this point, we have to remember the salient element of the AutoZone story: Owners keep their cars longer by spending time and money fixing them. Obviously, trading in the clunkers would bring a lot of new cars on the road, and thus, in theory at least, do a little damage to AutoZone's thesis.
Personally, I'm not so concerned about the clunker issue. You could make an argument on a technical level for concern, however. Shares of AutoZone rose on the earnings news, although not very robustly, going up only 2.3%. Volume was good, but not necessarily overly dramatic. And the stock hasn't fared too well on the six-month timeframe.
I'd employ a wait-and-see attitude with this stock. Keep it on a watch list, and observe the price action carefully. I believe in the company on a fundamental basis, but I'd like to witness the stock reach once again for the 52-week high.
Disclosure: I don't own any company mentioned; positions can change without notice.
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