AutoZone, Inc. — Q1 Fiscal 2024 Form 10-Q
Reporting period: Twelve weeks ended November 18, 2023; comparative period ended November 19, 2022. AutoZone operates automotive parts stores across the U.S., Mexico and Brazil, as well as ALLDATA and e-commerce businesses. It reported 7,165 stores at quarter-end. Results for this 12-week quarter are not necessarily indicative of the full fiscal year.
Financial performance
| Metric | Q1 FY2024 | Prior year | Change |
|---|---|---|---|
| Net sales | $4.190 billion | $3.985 billion | +5.1% |
| Gross profit / margin | $2.214 billion / 52.8% | $1.995 billion / 50.1% | Margin +2.7 percentage points |
| Operating profit / margin | $848.6 million / 20.3% | $723.0 million / 18.1% | Profit +17.4% |
| Net income | $593.5 million | $539.3 million | +10.0% |
| Diluted EPS | $32.55 | $27.45 | +18.6% |
| Operating cash flow | $830.3 million | $793.6 million | +$36.7 million |
| Capital expenditures | $235.4 million | $114.4 million | More than doubled |
Gross margin improvement reflected $83.0 million of non-cash LIFO favorability (208 basis points), along with favorable supply-chain costs and higher merchandise margins. SG&A rose to $1.365 billion, or 32.6% of sales versus 31.9%, primarily due to domestic store payroll and technology investment. Net interest expense increased to $91.4 million from $57.7 million; the effective tax rate rose to 21.6% from 18.9%.
Sales, cash flow and capital
- Same-store sales increased 2.1% on a constant-currency basis; domestic same-store sales rose 1.2% and international sales rose 10.9% on that basis. New stores contributed $75.7 million in sales. Domestic commercial sales increased 5.7% to $1.1 billion.
- Investing cash outflow was $270.5 million, including higher capital spending for new stores, hub and mega-hub expansion, and distribution centers. The company opened 25 net new stores, compared with 35 in the prior-year quarter.
- Financing cash outflow was $552.2 million. The company issued $1.0 billion of senior notes, repurchased $1.5 billion of shares, and made $76.9 million of net commercial-paper repayments. Repurchases added an estimated $0.41 to current-quarter diluted EPS.
- Cash was $283.0 million at quarter-end. Long-term debt carrying value was $8.584 billion, up from $7.669 billion at fiscal year-end; total debt before discounts and issuance costs was $8.633 billion. The company had $2.2 billion of revolving-credit availability before giving effect to commercial-paper borrowings and no revolving borrowings outstanding.
- Supplier-confirmed obligations outstanding under supplier-financing arrangements were $4.8 billion in accounts payable and $209.6 million in other long-term liabilities. The accounts-payable-to-inventory ratio was 124.4%, compared with 131.0% a year earlier.
Material changes, outlook and risks
Management said fiscal 2024 investment is expected to exceed fiscal 2023, primarily for supply-chain initiatives, hub and mega-hub expansion, distribution centers and new stores. The filing provides no numerical earnings, sales or capital-spending guidance. Management said operating cash flow, available credit and long-term borrowings should support operations, investment, debt repayment and repurchases, but weaker demand or changed customer buying patterns could reduce cash generation and affect covenant capacity.
Debt increased alongside the October issuance of $500 million of 6.250% notes due 2028 and $500 million of 6.550% notes due 2033. Average borrowings and borrowing rates also increased year over year. Adjusted debt to EBITDAR, a non-GAAP measure, was 2.5x versus 2.2x; management reported covenant compliance and expected continued compliance. A 1 percentage-point rise in rates would have an estimated $11.3 million annual pretax impact on variable-rate debt.
Management identified risks including product demand, fuel prices and miles driven, inflation and wage costs, competition, supply-chain and inventory disruptions, hiring, cybersecurity and IT interruptions, credit-market conditions, international expansion and weather. It said there were no material changes to the risk factors disclosed in the latest Form 10-K. Various legal proceedings are ongoing; the company does not currently expect them, individually or collectively, to materially affect its financial condition, results or cash flows. The interim statements received an accountant’s review, not an audit opinion.
Important facts for investors to verify
- How much of the gross-margin and profit improvement is sustainable after the $83.0 million non-cash LIFO benefit?
- Whether higher capital spending and store/supply-chain expansion generate returns consistent with the reported 55.0% adjusted after-tax ROIC, a non-GAAP measure.
- Debt refinancing needs, interest-rate exposure and covenant headroom, including the company’s stated intent to refinance commercial paper and $300 million of notes due April 2024.
- Dependence on extended supplier payment terms and supplier-financing arrangements, including the $4.8 billion of confirmed accounts-payable obligations.
- Continued share repurchases and their effect on liquidity and per-share results; $333.1 million remained under authorization at quarter-end, and the company repurchased another $106.0 million through December 11, 2023.