Let’s face it: people need their cars, and cars don’t care if there’s a recession. Auto area (AZO 1.82%) sells auto parts to DIY customers and repair shops to quickly get cars back on the road in any economic climate.
Due to the recession-proof nature of the company, the stock has performed admirably in past recessions and the current bear market. Here’s why he might continue to outperform.
Sing in the rain
Record inflation and fears of a global economic slowdown gripped the stock market this year, but auto parts retailers like AutoZone have outperformed. Investors recognize AutoZone as a defensive company that can perform well in any economic environment. People need their car to get to work, school or to run errands, no matter the state of the economy. When your car breaks down, your life stops and you have to fix it as soon as possible.
Sure, some car owners will take their car to the repair shop, provided by AutoZone, but the company’s main focus is on DIYers. To attract these customers, AutoZone provides free services such as battery and light checks and system diagnostics. She also rents tools to do-it-yourselfers for unique projects. Many motorists joined the DIY ranks during COVID stay-at-home orders in 2020 and are expected to continue to visit AutoZone in a downturn.
It stands to reason that during recessionary times, customers are looking to save money, like forgoing a car repair bill and doing the repairs themselves. This is precisely what customers did during the Great Recession of 2008 and 2009. AutoZone recorded sales growth of 5.7% in its fiscal year ending August 30, 2008. During the year calendar year 2008, AutoZone’s inventory increased by 20%, while the S&P500 was down 34%.
AutoZone increased its store count by 4% in 2009 to 4,417. In its latest quarterly earnings report, the company announced that it opened 31 new stores, bringing its total store count to 6,846.
While many businesses are shrinking due to inflation and global economic difficulties, AutoZone is forging ahead. During a recent call with investors, CEO Bill Rhodes said the company plans to open 11 new fulfillment centers in the next quarter. The hubs will allow the company to execute on its plan to add more than 200 new stores in North America this fiscal year.
While the S&P 500 stock index had cratered 21% this year on fears of a global recession, AutoZone stock gained 6.3%. And although the United States has yet to be officially marked with the label of recession in 2022, AutoZone could continue to outperform the index if that happens.
In a vote of confidence in the company, AutoZone’s board authorized an additional $2 billion to its existing stock buyback plan. As inflation began to dominate the headlines, the company repurchased 449,000 shares during its fiscal third quarter ending May 7.
If the possibility of a recession has you freaking out a bit, AutoZone can be a great addition to your portfolio. And if no recession occurs, the business will likely continue to grow for the long term.
BJ Cook has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.