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The more than $20-billion AutoZone (AZO) is battling a degree of unrequired skepticism.

The auto parts retailer, which reported double-digit percentage earnings gains in every quarter over the last 10 years, showed 4% income growth and 9% earnings per share (EPS) growth in its latest second-quarter report.

However, sales growth came to a screeching halt and earnings were lower than expected.

Over the years, AutoZone has had to contend with stiff competition in the aftermarket auto parts industry, which includes both retail do-it-yourself and commercial do-it-for-me competitors.

Established players like O'Reilly Automotive (ORLY) and Advance Auto Parts (AAP) are always just around the corner, as is the looming threat from Amazon (AMZN) .

Despite the rumors we believe e-commerce has yet to have a significant impact on the auto parts industry. Amazon may have struck new contracts with auto parts makers like Robert Bosch, Federal-Mogul (FDML) and Dorman Products (DORM) , but an online shift is still a while away.

Customers still seem to prefer having their vehicle parts fixed on-the-go, without waiting for a delayed delivery model.

Despite stalling sales and earnings growth figures the company's gross profit margin, which held steady at about 53% of sales in the second quarter is still strong. Return on invested capital was decent as well at 31% of sales.

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The company has maintained its focus on improving the customer experience through its investments in training employees and renovating stores. Its commercial program is also widening in scope, with locations expanding to 4,400 from 4,200 a year ago.

Plus, international markets offer a solid growth opportunity.

Further, even driverless cars cannot replace the need for auto part replacements. AutoZone's in-house brands like Valucraft, AutoZone, SureBilt, ProElite, and Duralast give the company an edge over some of its rivals.

Analysts project AutoZone to report annual earnings growth of 12.90% over the next five years. That's a solid run-rate when compared to car-makers like Ford (F) and Toyota Motor (TM) over the same period.

With above industry average operating margins, net margins, return on assets and solid free cash flow, AutoZone is a dependable long-term bet for investors looking to profit from automobile spending.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.