Zone Offense

With a combination of cash incentives, stock options and aggressive financial engineering, AUTOZONE made a billionaire out of its founder-and millionaires of thousands of its employees. But can one of the top stocks of the last three decades keep it up in the face of new rivals and fewer gearheads?

- By John Hyatt

Rules of the Road

"I started with this philosophy: Everybody wants to be part of a winning team," says AutoZone founder Pitt Hyde (left). "And no matter what position they hold, they want to feel like they can make a difference." Store manager turned CEO Phil Daniele is trying to stay the course.

Phil Daniele was working for a competing auto-parts chain when AutoZone entered the Jacksonville, Florida, market in 1986. Daniele had worked in car stores since high school, paying his way through college by stocking shelves. He joined AutoZone in 1993 as a store manager in training before being given his own store after a few months, the first of ten titles in three decades. “I’m not a phenomenon. If you look at our leadership team, many of our VPs started out in an hourly role at a store,” says Daniele, 56, who is now CEO of AutoZone.

Today, AutoZone—known for its universal get in the zone, AutoZone radio jingle—employs 126,000 people, with over 6,500 stores in the U.S. and another 1,000 in Mexico and Brazil. The retailer sells everything from motor oil and upholstery cleaner to specialized car parts for nearly every make and model. With $18.5 billion in sales last year, it is worth about $70 billion. In the last 20 years, its shares have returned an average of 21% annually, trouncing the S&P 500’s 11% average return (including dividends reinvested) over the same period. AutoZone has generated nine figure-plus windfalls for its original private equity sponsor KKR, hedge fund billionaire Eddie Lampert and its founder, Pitt Hyde, who stepped down as CEO in 1996.

“I wish I had never diversified—that was a huge mistake,” jokes Hyde, 82, who is worth around $2 billion today. He sold most of his AutoZone stock back in the 1990s. Had he kept it, he’d be worth over $10 billion.