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Founded in 1979, AutoZone (AZO) is one of the largest automotive replacement parts retailers, with over 7,000 stores in the United States, Mexico, and Brazil. The company specializes in providing new and remanufactured automotive hard parts, maintenance items, and accessories for cars, trucks, SUVs, and other vehicles. In the investing world though, AutoZone is most known for being what Monish Pabrai deemed an “uber cannibal” – a company that aggressively buys back its own stock.
In his Forbes article on the subject, AutoZone was the company that most frequently bought back its shares on the open market. While AutoZone, with its continuing series of buybacks, has not left the list of uber cannibals, it has found a home in another list instead, which we at InsideArbitrage call the Double Dipper. As mentioned in our Double Dipper screener, this list is a list of companies that are buying back their shares while their insiders are independently buying stock on the open market for their own portfolios.
The insider that was independently buying shares of AutoZone this week was Chief Information Officer Michelle Borninkhof, who joined the company in April 2021. Prior to joining AutoZone, Ms. Borninkhof was the Chief Information Officer at McDonald’s (MCD) since 2018 and also had spent 11 years at Walmart (WMT) in various leadership roles. In the last five years, insiders of AutoZone have had incredibly apt at timing their purchases, with a purchase made by Director Michael Calbert in March 2020 when AutoZone was trading at $886 a share – representing an increase of over 180%, given that a share of AutoZone now trades at $2,493.83. Ms. Borninkhof has also purchased AutoZone shares in the past, in March 2022, when AutoZone was trading at a price of $1,944.66.
AutoZone has done extremely well considering the difficult market conditions both recently and throughout 2022, with the stock rising by around 22% over the last year. Part of this is due to continued buybacks, and the Board of Directors just authorized another $2 billion to be added to the ongoing share repurchase program as of June 14th, 2023. But moreover the company is very well run, with gross profit margin of over 50% and a net income margin of over 14%. As for fiscal 2022 results (year ended on August 27, 2022), net sales increased by 11.1% YoY to $16.3 billion, and while operating expenses increased to $5.2 billion, they represented only 32% of net sales – compared to 32.6% of net sales for fiscal 2021.
In more recent results for Q3 2023 (ended on May 6, 2023), net sales for the quarter increased by 5.8% to $4.09 billion and net income increased by 9.3% to $648 million. During the quarter, the company repurchased $908 million worth of shares, and in total for the first three quarters in fiscal year 2023, AutoZone repurchased $2.7 billion worth of stock. 22 new domestic stores were opened and the total number of stores reached 7,044 in Q3 2023, when compared to 6,846 stores in Q3 2022.