AutoZone is the leading auto parts retailer in the U.S., mainly known for servicing the do-it-yourself (DIY) market. As of 2023, the company operated over 6.3k stores in the U.S., 740 stores in Mexico and 100 stores in Brazil. Almost half of AutoZone’s domestic stores are located in its top 10 states, which are Texas, California, Florida, Ohio, Illinois, North Carolina, Michigan, Pennsylvania, New York and Georgia. Compared to the other large auto parts retailers, AutoZone has more consistent coverage across regions, whereas O’Reilly Auto Parts (you can read our write-up from 2021 here) is better known in the Midwest/West and Advanced Auto Parts (AAP) is better known in the Northeast.
Magic happens when you combine a mid to high single digit top line grower with a capital allocation policy that returns 100% of free cash flow to shareholders via buybacks.
I wonder if you have a view about Advanced Auto Parts. AAP, AZO, and ORLY are all in the same business, but AAP is SUCH a dog and AZO and ORLY are such winners in the same market -- is there a reason behind that, and if so, what is it? or perhaps AAP at the current price might be an attractive investment?
Right. While I haven't done enough work on AAP to give you a definitive answer, but sometimes it comes down to execution and culture. There's a whole presentation from Starboard from 2015 making a case for AAP if they just get close to ORLY or AZO, but that hasn't panned out.
Good article!
Thanks Alessandro.
I wonder in a recession what can happen...
Auto parts retail has been counter-cyclical in the past... but who knows how the next one will play out.
Magic happens when you combine a mid to high single digit top line grower with a capital allocation policy that returns 100% of free cash flow to shareholders via buybacks.
Indeed. Amazing when all that works together.
I wonder if you have a view about Advanced Auto Parts. AAP, AZO, and ORLY are all in the same business, but AAP is SUCH a dog and AZO and ORLY are such winners in the same market -- is there a reason behind that, and if so, what is it? or perhaps AAP at the current price might be an attractive investment?
Right. While I haven't done enough work on AAP to give you a definitive answer, but sometimes it comes down to execution and culture. There's a whole presentation from Starboard from 2015 making a case for AAP if they just get close to ORLY or AZO, but that hasn't panned out.
Do you have a corresponding valuation too? AV EPV FV
Sorry, Adrian. I purposely don't do valuation work for this Substack.
Ok understood