Spotlight on AutoZone
AutoZone, Inc. (NYSE: AZO) is a Fortune 500 corporation based in Memphis, Tennessee which is engaged in the business of the retail sale of automotive parts and accessories. Founded in 1979, it was originally a division of a Memphis-based grocery chain and operated under the name Auto Shack. After the sale of the grocery operation in 1986 the name was changed to AutoZone. Today, AutoZone is the leading retailer and distributor of automotive replacement parts and accessories in the United States. It receives investment grade credit ratings of BBB (S&P) and Baa1 (Moody’s).
Each store carries an extensive product line including new and remanufactured automotive hard parts, maintenance items, and accessories. Many stores also have a commercial sales program that provides commercial credit and delivery of parts to local, regional and national repair garages, dealers, and service stations. AutoZone serves customers in 49 states, Mexico, and Puerto Rico and and has over 81,000 employees.. There are 5,141 stores in the United States of which 2,861 are leased. Its major competitors include Pep Boys, Advance Auto Parts, and O’Reilly Auto Parts.
AutoZone does not derive revenue from automotive repair or installation: rather it focuses on the DIY customer and derives 82% of its revenue from that market. The company reported sales of $10.2 billion for FY 2015, an increase of 7.5% from 2014.
Operations cash flows increased by 13.7% and operating profit increased 6.7% in 2015 as well. AutoZone’s 2016 corporate initiatives include continuing to grow new store square footage at an annual rate of 3% to 4%.
Store locations can be inline or free-standing but the company requires high-impact locations with excellent visibility and street access. Typical store sizes range from 6,500 to 8,000 square feet and for FY 2015, the company reported average store sales of over $1.76 million which equates to an average of $271 per square foot. New store lease terms for free-standing properties are generally double net leases for 15 or 20-year primary terms with rent increases in the option periods. Auto part store properties remain in high demand among net lease investors as there are limited investment grade options priced below $2 million outside of dollar stores. Additionally, investors seek to acquire auto parts stores for residual value as they are typically constructed as simple boxes and are therefore, easier to re-tenant in the event of a future vacancy.