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AutozoneInc.copy.pptxAutozone Inc.
Done by:
Yusra Bashanfar
Halah Bahanshal
Hala Rajab
Yara El-Feki
Introduction
AutoZone first store opened in 1979 (Auto Shack in Forrest City, Arizona)
After four years steady growth, Autozone went public and listed in New York Stock Exchange in 1991.
By 2012, AutoZone is one of the biggest leading company in retailing and distributing automotive parts and accessories in the United States with more than 65,000 employees and 4,813 stores located in every state contiguous United States, Mexico, Puerto Rico.
In fact, AutoZone has performed well in terms of profitability and stock price appreciation over the previous 15 years.
Stock Price Performance
Autozone shareholders had enjoyed strong price appreciation since 1997, with an average annual return of 11.5%, where the stock price had dramatically increased in the previous five years reaching to $348.
Strong appreciation of stock price was a result of the U.S. economy recession in 2008
The company’s growth and stock price are directly related and connected to the economy and to the number of miles driven by a car.
To demonstrate, when the economy struggled, and unemployment was high, fewer new cars were purchased and older cars were kept on the road longer, requiring more frequent repairs.
Share repurchase.
| August 27, 2011 | August 28, 2010 | August 29, 2009 | August 30, 2008 | August 25, 2007 | |
| Net cash provided by operating activities | 1,291,538 | 1,196,252 | 923,808 | 921,100 | 845,194 |
| Net cash used in investing activities | (318,994) | (307,447) | (263,722) | (243,150) | (228,715) |
| Cash flows from financing activities: | |||||
| Proceeds from issuance of debt | 500,000 | - | 500,000 | 750,000 | - |
| Purchase of treasury stock | (1,466,802) | (1,123,655) | (1,300,002) | (849,196) | (761,887) |
Free Cash Flow
Distribute
Retain
Invest in new projects
Add to the cash reserves.
Share Repurchasing
Paying dividends
Share Repurchase
Share Repurchase
A share repurchase is “the transaction in which the stock issuer buys back its shares from investors”.
held in the corporate treasury and become treasury shares
Motives:
Management signaling that stock is undervalued.
Attaining an advantage of income tax
Offset share increases from executive stock options.
Maintain the optimal capital structure
Flexibility
How much of AutoZone’s stock price performance should we attribute to the share repurchase program?
The increase in the company’s stock price is directly associated the company repurchase programs. Due to the fact that a company’s repurchase program can result to the following:
An increase in the price of the stock.
Created a strong earning per share (EPS)
The reduction in the number of shares outstanding
How much of AutoZone’s stock price performance should we attribute to the share repurchase program?
The company’s earnings per share is absorbed by investors in order to measure the company’s performance.
The company has a total of 43,603 shares outstanding in 2011 compared to 69,844 shares outstanding in 2007 which shows a reduction in number of shares.
This reduction in shares outstanding resulted to an increase in diluted earnings per share by 128% through previous five years.
Increasing diluted earnings per share from an $8.53 per share in 2007 to $19.47 per share in 2011.
How much of AutoZone’s stock price performance should we attribute to the share repurchase program?
The AutoZone’s stock price has shown an increase in the same time period from $120 to $298.
The increase of shares outstanding will result to lower the price of the stocks on the other hand, the decrease of price of stocks will result to an increase in number of shares outstanding.
Alternative uses of AutoZone’s cash flows
Distributing their cash flows through dividends.
Increasing the number of stores.
Acquiring other auto-parts retail stores.
Retire some of the accumulated debt that the company has made over the years.
Best alternative
After carefully looking at the alternatives, expanding the business using the company’s operational cash flows would be considered their best alternative, which could be done in one of two ways; either by initiating new stores (both domestically and nationally) or by acquiring other existing auto-parts retail stores. This expansion or growth is essential for AutoZone in order to maintain the company’s position as the leading auto-parts retailer in the United States and bar its competitors from gaining a foothold in those new markets
Mark Johnson
Mark Johnson was concerned about the news that Lampert, Autozone’s main shareholder, was rapidly liquidating his stake in the company.
Mark Johnson has three option: sell, buy, or hold Autozone’s shares.
We recommend Johnson to hold the stake as Autozone had strong appreciation of its stock price.
Conclusion
Post analyzing all potential alternatives to managing their operational cash flows, we strongly believe that AutoZone should not consider stopping its share repurchasing program and continue with it. By implementing their share repurchase program/strategy, AutoZone was able to progressively improve the price of their shares (as the market views their share repurchases as indirect dividends). Any alteration away from the company’s repurchasing program could be considered a negative signal by the market, therefore, resulting in the investors’ loss of confidence in the company.
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