AutoZone, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Twelve weeks ended May 8, 2021; year-to-date results cover 36 weeks. Comparative periods ended May 9, 2020. Unaudited interim statements received an independent accountant’s review, not an audit. AutoZone operates automotive-parts stores in the U.S., Mexico and Brazil, plus ALLDATA and e-commerce businesses.
Financial performance
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 FY2021 | Q3 FY2020 | 36 weeks FY2021 | 36 weeks FY2020 |
|---|---|---|---|---|
| Net sales | $3,651 | $2,779 | $9,716 | $8,086 |
| Gross profit | $1,915 | $1,491 | $5,150 | $4,358 |
| Gross margin | 52.4% | 53.6% | 53.0% | 53.9% |
| Operating profit | $804 | $492 | $1,900 | $1,400 |
| Net income | $596 | $343 | $1,385 | $993 |
| Diluted EPS | $26.48 | $14.39 | $59.80 | $41.08 |
| Operating cash flow | — | — | $2,230 | $1,303 |
| Capital expenditures | — | — | $376 | $274 |
Q3 sales rose 31.4%; domestic same-store sales rose 28.9%, and domestic commercial sales grew 44.4% to $829 million. Operating profit increased 63.4%, and net income increased 73.9%. SG&A was 30.4% of sales versus 35.9%; lower prior-year pandemic-related costs and strong sales leverage contributed to the comparison. Gross margin declined, principally due to faster commercial-business growth and pricing investments. Q3 net interest expense was $45 million, down from $47 million. The effective tax rate was 21.4% versus 22.8%.
For the 36-week period, sales increased 20.2%, operating profit increased about 35.8%, and net income increased about 39.5%. Gross margin declined 0.9 percentage points. SG&A fell to 33.4% of sales from 36.6%. Net interest expense was $137 million versus $136 million.
Balance sheet, liquidity and capital allocation
- At May 8, cash and equivalents were $976 million; merchandise inventory was $4,665 million. Current assets were $6,224 million and current liabilities $7,013 million.
- Long-term debt was $5,268 million, net of discounts and issuance costs. AutoZone repaid $250 million of notes in March. It had no revolver borrowings and $1,998 million available under its $2.0 billion revolving credit agreement. The $500 million of notes due in April 2022 was classified as long-term based on management’s ability and intent to refinance.
- Operating cash flow rose to $2,230 million, primarily reflecting higher net income and favorable changes in accounts payable. Investing cash outflow was $359 million; financing cash outflow was $2,651 million, including $2,478 million of share repurchases.
- The company repurchased 2.0 million shares for $2,478 million year to date. It had $1,318 million remaining under its authorization at May 8 and repurchased a further 119,391 shares for $174.8 million afterward. Treasury-stock accounting contributed to stockholders’ deficit of $1,763 million.
- Management-reported adjusted debt to EBITDAR was 2.0x versus 2.6x a year earlier; adjusted after-tax ROIC was 40.2% versus 34.0%. These are non-GAAP measures.
Outlook, commentary and risks
- No specific earnings or sales guidance is provided. Management said fiscal 2021 investment in the business was expected to increase versus fiscal 2020, mainly reflecting delayed prior-year spending; investments target stores, supply chain, technology and store improvements.
- Management said sales remained elevated versus pre-pandemic levels and believed government stimulus had benefited customers. It cautioned that COVID-19’s effects, demand, miles driven and broader economic trends were difficult to predict. U.S. miles driven were down 7.2% year to date through March versus the prior year, though March improved significantly.
- COVID-related expenses, including employee benefit enhancements, were approximately $46 million year to date versus $75 million in the comparable period. Failure and maintenance categories represented approximately 82% of Q3 sales.
- Management identified risks including inflation and supplier costs, supply-chain disruption, competition, fuel prices, weather, labor availability, cyber and IT risks, credit-market access, credit-rating changes, and the pandemic. Vendor financing and extended payment terms support working capital; reduced vendor terms could increase funding needs. Accounts payable were 123.9% of gross inventory, versus 108.2% a year earlier.
- The company reported compliance with debt covenants. It said pending employment-related lawsuits and other legal proceedings were not expected to result in material liabilities. No material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether unusually strong sales and same-store growth persist as pandemic effects and stimulus change.
- Whether commercial growth and pricing initiatives continue to pressure gross margin.
- How much operating cash flow reflects sustainable earnings versus accounts-payable timing and vendor terms.
- The sustainability of substantial share repurchases relative to debt, liquidity and planned capital investment.
- How COVID-19, inflation, supply constraints and miles driven affect demand, costs and future results.