AutoZone Inc. (NYSE:AZO) Ready to Waste Billions on Buy-Back

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By Thomas Copeland on October 29, 2014 Company

AutoZone, Inc. (NYSE:AZO) is all set to authorize another Buy-Back worth $869 million, in addition to the $1.3 billion Buy-Back it carried out in the last fiscal year that ended on August 30, 2014. It can prove to be a workable strategy. The current CFO Bill Giles has expressed the need to stay focused on Capital distribution method and offer of repurchases, during a recent conference call. He believes that it is an important component for venture evaluation rating, but AutoZone Inc. (NYSE:AZO) is taking more on, than it can possibly deal with.

AutoZone, Inc. (NYSE:AZO)’s most important issue at this moment of time is capital, that seems depleted at the moment. A large proportion of its short-term assets include stock. Although stock is something the organization needs in order to stay in business, it has to be sold as quickly as possible. This is due to a large amount of liquidity tied up with inventory; an item which cannot be used to pay bills. AutoZone, Inc. (NYSE:AZO), is then left with $400 million in other current resources. For example, $4.6 billion in short term liabilities and an alternate $4.5 billion in long haul liabilities is available. In short, the organization completely relies on its current revenue figures, however, there is not much capital saved up, incase company ends up in crisis.

The Board of Directors is making decisions without taking in account other significant variables. Despite AutoZone, Inc. (NYSE:AZO) having an interest that can be considered as minimal since it is quite low, AutoZone, Inc. (NYSE:AZO) is repurchasing shares of a falling stock while paying more than it could have in the event it held up. Being short on cash in hand and over-purchasing can have disastrous effects. Last quarter, for example, AutoZone, Inc. (NYSE:AZO) purchased around 356,000 shares for which it paid $528 for every share, or $188 million in total. This happened while its retail deals were softening because of the enhancing economy, dismissing shoppers from the ‘do-it-without anyone’s help’ repair market, and moving up to new autos instead. Despite the fact that same store deals were up, because of normal ticket while the more imperative traffic figure was negative. As opposed to propping up its profit by purchasing back shares at what may end up being high costs, AutoZone, Inc. (NYSE:AZO) may need to pay down some of its obligation and/or put away some money.

AutoZone, Inc. (NYSE:AZO) is taking into account absurd considerations, while making all of their strategic decisions regarding the future of the company. Buy-Backs do show confidence in the company, but for an already debt laden company, it is imperative that it carries out these actions without further going into debt. Otherwise it might only be refunding the share-holders. It is integral that AutoZone, Inc. (NYSE:AZO) does something innovative, since its development isn’t paying off and it is crushing every single dime that is being generated. Expansion of business ventures is important for success of a company, but it is essential to take measured decisions.