AutoZone, Inc. — Form 10-Q Summary
Business and period: AutoZone operates automotive-parts retail and distribution businesses, including commercial sales, stores in the U.S. and Mexico, ALLDATA software, and e-commerce. It reported for the 12 weeks ended May 8, 2010 (fiscal Q3) and the 36 weeks ended that date; comparisons are to the corresponding 2009 periods. At quarter-end it operated 4,521 stores. Amounts below are in millions except per-share data and percentages.
Financial performance
| Metric | 12 weeks ended May 8, 2010 | 12 weeks ended May 9, 2009 | 36 weeks ended May 8, 2010 | 36 weeks ended May 9, 2009 |
|---|---|---|---|---|
| Net sales | $1,822.0 | $1,658.2 | $4,917.5 | $4,584.3 |
| Gross profit / margin | $923.1 / 50.7% | $832.9 / 50.2% | $2,476.8 / 50.4% | $2,293.4 / 50.0% |
| Operating profit | $355.9 | $305.2 | $846.7 | $758.5 |
| Net income | $202.7 | $173.7 | $469.4 | $420.9 |
| Diluted EPS | $4.12 | $3.13 | $9.37 | $7.36 |
- Quarterly sales increased 9.9%; domestic same-store sales grew 7.1%, supported by higher transaction value and transaction count, and new stores contributed $50.2 million in sales. Management reported growth in retail and commercial sales.
- Year-to-date sales increased 7.3%; domestic comparable-store sales rose 4.7%, with new stores contributing $130.4 million. Diluted EPS rose 31.5% for the quarter and 27.3% year to date. Repurchases since the comparable prior-year period added $0.48 and $0.90 to quarterly and year-to-date diluted EPS, respectively, according to management.
- Quarterly gross-margin improvement reflected higher merchandise margins and distribution-cost leverage. Year-to-date margin gains included distribution-cost leverage and a favorable shrink comparison. SG&A was 31.1% of sales for the quarter and 33.1% year to date, versus 31.8% and 33.5%; sales leverage was partly offset by hub-store investment and higher pension expense.
Cash flow, balance sheet and liquidity
- Year-to-date operating cash flow was $741.0 million, up from $535.0 million. Capital expenditures were $180.1 million versus $160.1 million; investing cash flow used $176.8 million. Financing cash flow used $561.5 million, including $558.3 million of treasury-stock purchases. Cash increased $3.1 million to $95.8 million.
- At May 8, 2010, total debt was $2,698.5 million, down from $2,726.9 million at August 29, 2009. This included $249.2 million of commercial paper and $199.3 million of 4.75% notes due November 2010. The company classified these near-term maturities as long-term, citing its ability and intent to refinance. Reported debt fair value was $2,946 million, $247.6 million above carrying value.
- The company had an $800 million revolving credit facility expiring in July 2012. MD&A reports $415.5 million of available capacity after commercial paper and certain letters of credit; the debt note separately reports $693 million availability before considering commercial paper borrowings. The filing says the company was compliant with debt covenants.
- Current assets were $2,578.9 million and current liabilities $2,872.1 million; stockholders’ deficit was $462.0 million. Accounts payable equaled approximately 98% of inventory, and management said vendor financing of inventory supports operating cash flow.
- Adjusted debt to EBITDAR was 2.4 times, versus 2.3 times a year earlier; trailing-four-quarter ROIC was 26.5%, versus 24.3%.
Outlook, risks and other notable items
- No specific sales or earnings guidance was provided. Management expected fiscal 2010 investment to remain consistent with historical rates, primarily for new stores and existing-store and infrastructure improvements. It anticipated continued movement toward ground leases and land purchases, which require more initial capital.
- Management said recession-related conditions, higher unemployment and an older vehicle fleet had supported sales, but it could not predict how long these trends would continue. Miles driven improved about 1.0% through March 2010, the latest publicly available data cited, and management expected the historical relationship between miles driven and industry sales growth to return as the economy recovered.
- Risks highlighted include credit-market access and ratings, recession and product demand, competition, labor, consumer debt, inflation, weather, supplier costs, energy prices, construction delays, and legal or regulatory changes. A one-percentage-point increase in rates was estimated to affect annual pretax earnings and cash flow by $2.5 million on variable-rate debt outstanding.
- The board increased the cumulative repurchase authorization to $8.9 billion on June 15, 2010, after quarter-end; $250.8 million remained under the prior authorization at May 8. Subsequent to quarter-end, the company repurchased 816,390 shares for $153.9 million. Year-to-date, 8.5 million previously repurchased treasury shares were retired, contributing to the reported stockholders’ deficit.
- Management did not expect the newly issued multiple-deliverable revenue standard to materially affect the financial statements. Adoption of the fair-value disclosure update had no material financial-statement effect. Management reported effective disclosure controls and no material change in internal control over financial reporting; the interim statements received an independent accountant’s review, not an audit.
- The filing reported no material changes to previously disclosed risk factors, legal proceedings, or contractual obligations. The business is seasonal, and the reported interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether strong same-store sales and margin gains persist if recession-related demand benefits fade or miles-driven trends change.
- How AutoZone will refinance the $199.3 million notes due in November 2010 and $249.2 million of commercial paper, and how much revolving capacity is actually available after all commitments.
- Whether continued share repurchases, store investment and vendor-supported inventory financing remain compatible with liquidity, debt targets and credit ratings.
- The effect of higher pension costs, hub-store investment, interest expense and supplier financing conditions on margins and cash flow.
- The filing contains different revolving-facility availability figures depending on whether commercial paper borrowings are included; confirm the applicable net availability.