Friday, August 16, 2013

The Secret To AutoZone's Success

In a recent study of analyst recommendations at the major brokerages, AutoZone, Inc. (NYSE: AZO) is shown to be ranked the #76 broker analyst pick among those stocks screened by The Online Investor for strong stock buyback activity. To make that list, a stock must have repurchased at least 5% of its outstanding shares over the trailing twelve month period. In forming the rank, the analyst opinions from the major brokerage houses were tallied, and averaged; then, the list of stocks with strong buyback activity was ranked according to those averages.

Thus, AutoZone, Inc. is a company with strong buyback activity that is also considered a compelling buy by analysts; a bullish investor could take this to mean that sharp analyst minds came to the same bullish conclusion as the company itself that the stock is a good value, and therefore the stock should do well in the future.

Through the story of Pitt Hyde himself, we can glean AutoZone's disciplined path to success. Pitt Hyde's grandfather started Malone & Hyde, a wholesale food distributor, in 1907. “He ran it, my father ran it, and I ran it.”

From the time Pitt Hyde was 4 or 5, “my grandfather would take me to visit the stores, and my father always discussed the big decisions being made with me.” It seemed that his future was cut out for him: “ I was always told that I had the opportunity to run Malone & Hyde, and the obligation to do it better than my grandfather and father did. I never knew I had a choice.”

His first job, “when I was 14 or 15 years old, was bagging groceries and carrying them out to cars at one of our stores. After I graduated from the University of North Carolina with an economics degree, my father grew ill. So in 1968, at 26, I had to take over. That year, we had $240 million in sales. Fortunately, I was able to continue to grow the company.”

Then in the mid-1970's, he looked for areas to diversify into. “We had a successful drug chain called Super D and felt comfortable with specialty retailing. So when this small company, Checker Auto Parts in Phoenix, came up for sale, I checked it out. I saw how it was growing with auto parts geared to the do-it-yourself market. We passed,” and another company bought it. Still, he continued to study the situation: “I could see the auto parts business was growing rapidly and wasn't as price-sensitive as food. I didn't see anyone doing a superior job of customer service, and most were not well kept, so we decided to start a company from scratch.”

They opened “our first store in Forrest City, Ark., on July 4, 1979, and called it Auto Shack” However, there was a complaint filed by Radio Shack for trademark infringement. In short, instead of fighting it, “we changed the name to AutoZone.”

Then in 1988, “we sold Malone & Hyde, which by then had $3.3 billion in sales. We had set up AutoZone in its own corporate structure, so when we sold the base business, I kept AutoZone.”

Pitt Hyde was not really into “do-it-yourself” and did not know about the auto parts business, “but I knew there was an opportunity. We worked on small margins and were very tight operators, so that discipline helped us through as we learned the business.”

Starting with four stores, and with an electronic catalogue to boot, AutoZone was well on its way to success as it worked within its objective of building “a culture around superior customer service, and to have everyday low prices in good-looking stores. In 1991 we went public, and the competition saw how well we were doing. They started copying our store layout and pricing. But none of them could copy our culture. Today we have 5,000 stores.”

According to the ETF Finder at ETF Channel, AZO makes up 2.76% of the Retail ETF (RTH) which is trading higher by about 0.4% on the day Friday.

Pitt Hyde's parting words sum it all: “Money is a small part of the equation for success. Sweat equity is what makes things work.”


1 comment:

Anonymous said...

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