Why AutoZone Stock Soared 77% in 2021

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What happened

Shares of automotive aftermarket parts retailer AutoZone (NYSE:AZO) skyrocketed 77% in 2021, according to data provided by S&P Global Market IntelligenceThis crushed the broader S&P 500, which still gained a commendable 27% for the year. AutoZone benefited from strong industry momentum that carried over from calendar 2020. 

So what

Demonstrating its all-weather appeal, AutoZone had a remarkable year in fiscal 2021 (ended Aug. 28, 2021). Revenue and profit jumped 15.8% and 25.5%, respectively, year over year. And the operating margin exceeded 20% for the first time in at least 15 years. AutoZone continues to benefit from the strong economy, and in particular the high prices for both new and used vehicles. This trend encourages consumers to extend the life of their existing cars, driving demand for AutoZone’s products and services. 

Image source: Getty Images.

The business reported fiscal 2022 first-quarter financial results on Dec. 7, 2021, and the numbers were impressive. Same-store sales surged 13.6%, and this was after they increased 12.3% in the year-ago period. AutoZone now has a total of 6,785 stores, of which 6,066 are in the U.S., 666 are in Mexico, and 53 are in Brazil. 

AutoZone is a cash machine, which affords it the ability to return capital back to shareholders. Over the past four fiscal quarters, the company has repurchased an incredible $3.6 billion of stock.  

O’Reilly Automotive, AutoZone’s direct competitor, also had a fantastic year, as its stock rose 56% in 2021. Evidently, the automotive aftermarket parts industry is booming. 

Now what

Looking ahead, investors should keep an eye on some important industry metrics to gauge the ongoing success of AutoZone. These include the total miles driven in the U.S. and the average age of vehicles on the road.  

During the pandemic, miles driven started decreasing as people spent more time at home. However, this is no longer the case, so expect the figure to rise 1% to 2% annually in line with historical levels. Consumer mobility increases wear and tear on vehicles, something AutoZone benefits from. Additionally, the average age of cars on the road is 12.1 years, a number that has steadily risen over time. For a vehicle, this means more time outside of the manufacturer’s original warranty, the sweet spot for AutoZone’s customer base. 

Because the commercial market is much more fragmented than the do-it-yourself space, AutoZone has a real opportunity to grow its share of the industry. Commercial sales in Q1 2022 grew 29% year over year and now represent 25% of the overall business. Improving store inventory availability and better leveraging technology into the sales process will certainly boost the company’s standing with auto mechanics going forward, which can be a boon for store-level profitability. 

AutoZone is a boring business that continues performing extremely well with each passing quarter. I see no reason to expect anything different going forward. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.