Following two softer quarters, AutoZone's sales trajectory improved for its August-end quarter. Incoming CEO Philip Daniele stated, “Our execution improved materially over the quarter, and that execution, which is a hallmark of our success, will ultimately deliver better results as we move forward...We now have commercial in over 90% of our domestic stores. We continue to see tremendous opportunity for commercial sales growth in fiscal 2024 and beyond.” (Recall that both AutoZone and O'Reilly are taking meaningful share from regional players and Advance Auto Parts.)
Daniele continued, “In order to continue to grow our comparable-store sales in 2024, we will have to continue to increase share of wallet with our customers. The share data we see continues to encourage us that we are gaining share in the industry despite the macro trends, but recently, not in line with our aspirations, which we intend to change.” We suspect that “not in line with our aspirations” implies much stronger results for O’Reilly, which has been the case all year. AutoZone recently did a refresh of leadership to tone up on execution.
For Q1 2023, O'Reilly has meaningfully outpaced AutoZone in commercial all year, but that gap has narrowed (vis-a-vis traffic) over the past four weeks.
The comparable-store sales table shows the significant outperformance of O’Reilly versus AutoZone and Advance Auto Parts, both the overall comp (commercial and DIY) and commercial standalone. On an overall comparable-store basis, O’Reilly and AutoZone are +22% higher over the past three years, while Advance is flat. One of the reasons for O’Reilly’s faster commercial growth is expanding into new markets and taking market share from incumbents. O’Reilly expands by about 195 locations per year. AutoZone’s new store program has been less than that.
On its quarterly update, outgoing AutoZone CEO Bill Rhodes announced an acceleration in its store openings plan stating, “Over the last 5 years, we've averaged 140 domestic store openings and 50 international openings...We plan on accelerating this pace and aspire to open as many as 500 stores five years from now. By fiscal 2028, we are modeling 500 store openings with the split being 300 in the U.S., 200 internationally...You may be asking why this change of strategy and why now? The answer is our profitability per store is materially higher since the beginning of the pandemic. We continue to find new trade areas even in our more mature U.S. markets. Our growth in commercial has materially changed the economics on a per-store basis. We believe this is just the beginning on commercial and our ROIC, one of the most important metrics we track is over 50%.” (To our eyes, the acceleration also reflects a view that they expect Advance to retrench from trade areas.)
