AutoZone's Vast Scale and Product Availability Should Drive Continued Commercial Growth

Amid a highly fragmented aftermarket auto parts industry, wide-moat AutoZone differentiates its retail operations by offering robust customer service to its do-it-yourself (70% of U.S. sales) and commercial customers (30% of U.S. sales) while maintaining ample parts availability across a wide range of vehicle makes and models. Given about 85% of AutoZone’s sales are composed of failure and maintenance related products that tend to be time sensitive and vital to the functioning of a vehicle (such as alternators, batteries, and spark plugs), AutoZone’s customer base typically values service quality and convenience over a lower price. As such, the retailer’s staff often assists customers with the diagnosis of a vehicle, ordering the necessary part for a specific vehicle’s make and model, and in some instances, even replacing and testing the functionality of parts. While online channels (such as Amazon and Carparts.com) and diversified retailers (such as Walmart) may offer ostensibly lower prices, we think AutoZone’s consistent comparable store sales growth and healthy gross margins (north of 50%) suggests its focus on customer service and the convenience provided by its more than 6,300 domestic brick-and-mortar stores is a winning formula in the category.