( AutoZone NYSE:AZO) recently closed its fiscal 2019 in solid fashion. The auto parts retailer managed consistent sales growth and higher profits despite extra spending on improving the customer shopping experience. It was a period that included several “impressive accomplishments,” CEO Bill Rhodes said in a press release while noting AutoZone’s expanding store footprint and accelerated investments in its e-commerce initiatives.
In a conference call with Wall Street analysts, management went into detail about the biggest trends affecting the industry today, with an eye toward where returns might land over the coming 12 months.
Let’s look at a few highlights from that call.
The positive highlights
Overall, we were pleased with our performance in Q4. — Rhodes
Management said standout wins for the period included a booming commercial sale segment that saw revenue spike 14% and now accounts for just under one-quarter of overall sales. Continued market-thumping growth is expected, too, as AutoZone adds distribution hubs and initiates commercial sales across more of its base.
The company noted a slowdown in the bigger retailing business but called it a “steady revenue stream and substantial cash flow generator.” Comparable-store sales gains landed at 3%, or just below the prior quarter’s 3.9% boost.
We spent more on development in 2019 than ever before, by a wide margin, and we remain committed to improving the technology around helping customers in 2020. — Rhodes
There was no shortage of areas that received extra spending this year. The biggest included new delivery and distribution hubs, improvements to the e-commerce infrastructure, and rising wages. AutoZone also had to deal with significant tariff-related cost increases for many of its products, although executives said they had no problem passing those along to consumers.
Investors should expect the faster pace of spending to continue for the foreseeable future, though, since the shift to a multichannel retailing posture will require lots of new assets both online and attached to the physical supply chain. “Our business will experience ongoing acceleration in technology investments for the mid-to-long-term,” Rhodes explained.
We believe our industry’s fundamentals will remain strong as miles driven are expected to increase over the remainder of the year. And while there [have] been many forecasts otherwise, the vehicle part has continued to age and the internal combustion engine remains the dominant vehicle of choice. — Rhodes
AutoZone didn’t issue a specific outlook for fiscal 2020, but executives expresses optimism that growth will continue in both the commercial and retailing sides of the business. As for longer-term concerns about electric vehicles potentially pressuring the industry since they require fewer parts and servicing trips, management sees no sign of weakening demand.
For the next few quarters, the retailer is aiming for more growth ahead, whether or not a recession hits the U.S. This bright outlook is supported by their readings of the current demand environment, including the average age of vehicles and their projected miles driven. A positive outlook is also warranted thanks to the stepped-up investments they’ve been making over the last two years to improve on core retailing fundamentals like in-stock levels and delivery time, executives believe. “Our optimism comes from the inventory availability and staffing initiatives that we have in place,” heading into fiscal 2020, Rhodes said.