AutoZone, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first 36 weeks of fiscal 2024, ended May 4, 2024. The quarter covered 12 weeks; the year-to-date period covered 36 weeks. The interim financial statements were reviewed, not audited.
Business context
AutoZone retails and distributes automotive replacement parts and accessories and operates 7,236 stores across the U.S., Mexico and Brazil. It also has commercial sales, e-commerce and ALLDATA software businesses; it does not provide vehicle repair or installation services.
Financial performance
| Metric | 12 weeks ended May 4, 2024 | Prior-year quarter | 36 weeks ended May 4, 2024 | Prior-year period |
|---|---|---|---|---|
| Net sales | $4.235B | $4.091B | $12.285B | $11.767B |
| Gross profit | $2.266B | $2.146B | $6.559B | $6.071B |
| Operating profit | $900.2M | $858.5M | $2.492B | $2.251B |
| Net income | $651.7M | $647.7M | $1.760B | $1.664B |
| Diluted EPS | $36.69 | $34.12 | $98.11 | $86.10 |
- Quarter sales rose 3.5%; total-company same-store sales increased 0.9% on a constant-currency basis. Domestic same-store sales were flat, while international same-store sales rose 9.3% on that basis. Domestic commercial sales increased 3.3%.
- Year-to-date sales grew 4.4%, with constant-currency same-store sales up 1.5%. Domestic commercial sales rose 3.9%.
- Gross margin was 53.5% in the quarter versus 52.5% a year earlier, and 53.4% year to date versus 51.6%. Operating expenses as a share of sales increased to 32.2% from 31.5% in the quarter and to 33.1% from 32.5% year to date.
- Net interest expense rose to $104.4M from $74.3M in the quarter and to $298.4M from $197.6M year to date. Management cited higher average borrowings and borrowing rates. The quarter effective tax rate was 18.1%, versus 17.4%; year to date it was 19.8%, versus 19.0%.
Cash flow, debt and liquidity
- Year-to-date operating cash flow was $1.934B, compared with $1.873B. Capital expenditures were $725.9M, up from $430.4M, primarily for stores and supply-chain growth initiatives, including distribution centers and hubs.
- Cash used in investing was $916.3M; cash used in financing was $1.019B. The company repurchased $2.437B of stock during the 36-week period. Cash at May 4 was $275.4M.
- Total debt before discounts and issuance costs was $9.041B, including $1.841B of commercial paper; $500M was classified as current debt. Long-term debt on the balance sheet was $8.496B. The company had $2.2B of revolving-credit availability, excluding commercial paper borrowings, and no revolver borrowings outstanding. Management reported covenant compliance.
- Supplier obligations confirmed under financing arrangements totaled $4.8B within accounts payable and $226.0M within other long-term liabilities. The arrangements do not change the amounts or due dates owed to suppliers, according to the filing.
- Adjusted debt to EBITDAR, a non-GAAP measure, was 2.5x, up from 2.3x a year earlier. Adjusted after-tax ROIC was 51.4%, down from 55.2%.
Changes, outlook and risks
- Quarter net income increased only 0.6% despite 3.5% sales growth, while diluted EPS rose 7.5%, helped in part by fewer weighted-average shares following repurchases. Management estimated repurchases added $0.55 to quarterly diluted EPS and $0.80 to year-to-date diluted EPS.
- Management attributed margin improvement to higher merchandise margins and noncash LIFO benefits. Year-to-date LIFO favorability was $114M net; quarterly favorability was $7M net. The LIFO credit reserve fell to $19M from $59M, primarily due to lower freight costs.
- No formal earnings or sales guidance was provided. Management said operating cash flow, available credit and long-term borrowings should be adequate to fund operations, investment, debt repayment and repurchases. Fiscal 2024 investment is expected to increase versus fiscal 2023; the fourth quarter has 17 weeks, and results to date are not necessarily indicative of the full year.
- Risks highlighted include demand and customer buying patterns, fuel costs, inflation and wage rates, competition, supply-chain disruption and inventory availability, staffing, credit-market access and ratings, cybersecurity and IT interruptions, weather, and international expansion. Management said there were no material changes to previously disclosed risk factors and did not expect existing legal matters to be material.
- Other notable items: the company invested $193.3M in tax-credit equity investments year to date, versus $50.7M; it had $110.9M of net investment in VIE tax-credit funds at quarter-end. The board authorization had $1.4B remaining for repurchases at May 4; the company bought a further $188.0M of stock through May 31.
Investor verification priorities
- Track same-store sales trends, especially the flat domestic quarterly result, and separate store growth and currency effects from underlying demand.
- Assess whether gross-margin gains, including the noncash LIFO benefit, are sustainable as the LIFO credit reserve declines; monitor expense growth, particularly store payroll.
- Monitor borrowing levels, interest expense, refinancing needs and revolving-credit availability, alongside the company’s debt ratios and covenant compliance.
- Review the cash demands of elevated capital spending, share repurchases and tax-credit investments, as well as the scale and continued terms of supplier-financing arrangements.
- Compare future results with management’s stated liquidity and investment plans; this filing provides no formal full-year earnings or sales guidance.