AutoZone, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended August 28, 2021 (52 weeks). This is an annual filing, not a standalone fourth-quarter report. AutoZone operates automotive parts retail and commercial distribution businesses, with 6,767 stores across the U.S., Mexico and Brazil; it also sells ALLDATA software and online products. The company does not provide vehicle repair or installation services.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $14.630 billion | $12.632 billion |
| Gross profit / gross margin | $7.718 billion / 52.8% | $6.771 billion / 53.6% |
| Operating profit | $2.945 billion | $2.418 billion |
| Net income | $2.170 billion | $1.733 billion |
| Diluted EPS | $95.19 | $71.93 |
| Cash from operating activities | $3.519 billion | $2.720 billion |
| Capital expenditures | $622 million | $458 million |
| Debt at fiscal year-end | $5.270 billion | $5.513 billion |
- Sales increased 15.8%; domestic comparable-store sales rose 13.6%. Domestic commercial sales grew 22.6%, representing approximately 23% of total sales.
- Net income increased 25.2% and diluted EPS increased 32.3%. Share repurchases increased EPS by $5.13, according to management.
- Gross margin fell 85 basis points, primarily due to initiatives to accelerate commercial-business growth. SG&A was 32.6% of sales versus 34.5%, benefiting from sales leverage and lower pandemic-related expenses.
- Operating cash flow rose to $3.519 billion, with management citing higher net income and favorable accounts-payable changes. Capital expenditures were $622 million; cash and cash equivalents ended at $1.171 billion, down from $1.751 billion.
- The company repurchased $3.378 billion of shares in FY2021 after temporarily suspending repurchases in FY2020. It paid no common-stock dividend. Stockholders’ deficit was $1.798 billion.
- Current liabilities exceeded current assets by $954 million. AutoZone reported $1.998 billion available on its $2.0 billion revolving credit facility, with no borrowings outstanding under it at year-end. Adjusted debt to EBITDAR, a non-GAAP measure, was 2.0x versus 2.4x.
- In addition to debt, year-end lease liabilities totaled $3.145 billion, including $2.869 billion operating and $276 million finance lease liabilities.
Material changes and management commentary
- Management described customer demand and sales as unprecedented and at record levels during the pandemic, with customers believed to have benefited from government stimulus and benefits. Pandemic-related expenses were approximately $43 million, compared with $83.9 million in FY2020.
- AutoZone added 218 net stores, ending the year with 6,767 locations. It had 58 domestic mega hubs, 14 more than the prior year, and stated that more than 5,900 domestic stores had access to mega-hub inventory.
- U.S. miles driven through July 2021 were down 5.2% versus the comparable prior-year period; management said the business impact was uncertain. The average age of light vehicles was reported at 12.1 years, which management sees as supportive of replacement-parts demand.
- Management attributed higher cash flow partly to accounts payable and sustained inventory purchases. The accounts-payable-to-inventory ratio rose to 129.6% from 115.3%, reflecting vendor terms and inventory turns.
Outlook, risks and contingencies
- No specific earnings, sales or margin guidance is provided. For FY2022, management expects increased investment in the business, particularly store expansion and supply-chain capacity, including new stores, mega hubs and distribution-center projects.
- Management cautioned that pandemic-driven demand may subside and that it may not be able to adjust expenses quickly if sales normalize. Other cited uncertainties include COVID-19 developments, supply-chain constraints and product availability, inflation, rising wages, hiring and retention, fuel prices, competition, weather, vehicle miles driven and changes in vehicle technology.
- Potential dependence on extended supplier payment terms is a working-capital risk: reduced terms could increase cash needs for inventory. The filing also identifies risks from cyber incidents, information-system interruptions, self-insurance claims, credit-rating downgrades, foreign currency and regulatory or environmental changes.
- Outstanding debt was $5.270 billion; $500 million of notes were due in April 2022 and classified as long-term based on the company’s ability and intent to refinance. The company said it was covenant-compliant and reported a 6.9:1 interest coverage ratio against a 2.5:1 minimum.
- Self-insurance reserves were $284 million; the auditor identified their valuation as a critical audit matter. The company reported employee wage-and-hour and termination lawsuits but did not expect them, individually or collectively, to result in material liabilities. Uncertain tax positions, including interest and penalties, totaled $31.8 million.
- After year-end, on October 5, 2021, the board authorized an additional $1.5 billion in repurchases; through October 18, the company had repurchased 220,022 shares for $362.8 million. It reported $1.555 billion remaining under authorization at that later date.
Important facts for investors to verify
- Whether sales and margins remain resilient if pandemic-era demand and stimulus-related effects fade, especially given the 85-basis-point gross-margin decline.
- Whether commercial-sales growth can continue profitably and how the related growth initiatives affect gross margin.
- Inventory availability, supply-chain costs, vendor payment terms and the sustainability of the high accounts-payable-to-inventory ratio.
- FY2022 capital-investment levels, store and mega-hub openings, and the associated cash requirements alongside substantial share repurchases.
- Debt refinancing and liquidity plans, including the April 2022 note maturity, revolving-credit agreement renewal, and lease obligations.
- Changes in wage costs, customer demand, miles driven and pandemic-related expenses; and developments in self-insurance estimates, tax positions and litigation.