The earnings call notes was enlightening as to the quality of this business and management.
Notables:
* Four consecutive quarter of positive sales growth in commercial business and that growth is acceleration through the year.
* Operating margin of 18%, up approximately two basis points from last year’s quarter
* Return on invested capital for the trailing four quarters of 23.3%.
* Did not see a material shift in sales mix to lower priced point merchandise.
* Have not seen any material change in the competitive landscape.
CEO, Bill Rhodes
“Return on invested capital is a key measure of our success. We have and will continue to make investments that we believe will generate returns that significantly exceed our cost of capital. We will not deviate from our efforts to optimize shareholder value over the long-term. We continue to be physically prudent with our investments while optimizing our earnings per share.”
Regarding gas prices:
“Unfortunately we cannot control the prices of gas at the pump. However with more vehicles on the road than ever before, our ability to grow sales remains strong over the long-term and we believe consumers will ultimately adjust their spending habits to the higher prices. We will continue to develop marketing programs that support our customers’ needs during these high-price times.”
What drives the company’s business:
“Let me again reiterate the two statistics we’ve always felt had the closest correlation to our market growth; miles driven and the number of seven-year-old and older vehicles on the road. While miles driven had been challenged recently thereby causing a challenge to our overall business, there has been a positive impact from more registered vehicles seven years old and older on the road; quite frankly more than in our country’s history.”
The reason for Eddie Lampert’s investing in the company is becoming more clear every time I look at it.
Disclosure (“none” means no position):None
