AutoZone, Inc. — FY2013 Form 10-K Summary
Business context and reporting period. AutoZone is an automotive replacement-parts retailer and distributor, with retail, commercial and online operations and no repair or installation revenue. Fiscal 2013 ended August 31, 2013 and comprised 53 weeks, versus 52 weeks in fiscal 2012. The company operated 5,201 stores across the U.S. and Puerto Rico, Mexico and Brazil, including 3,421 U.S. stores with commercial programs.
Financial performance and condition
| Metric | FY2013 | FY2012 | Change or context |
|---|---|---|---|
| Net sales | $9.148 billion | $8.604 billion | Up 6.3%; included $177.7 million from the 53rd week and $222.3 million from new stores. |
| Domestic comparable-store sales | 0.0% | 3.9% | FY2013 measure includes AutoZone-branded website sales; historical periods were restated and website impact was not material. |
| Gross profit / gross margin | $4.741 billion / 51.8% | $4.432 billion / 51.5% | Margin rose 30 basis points, principally due to lower product acquisition costs. |
| Operating profit | $1.773 billion | $1.629 billion | Operating expenses were 32.4% of sales, down from 32.6%. |
| Net income | $1.016 billion | $930.4 million | Up 9.3%. |
| Diluted EPS | $27.79 | $23.48 | Up 18.3%; share repurchases added approximately $1.09 to FY2013 EPS. |
| Operating cash flow | $1.415 billion | $1.224 billion | Improved with higher net income and changes in inventory net of payables. |
| Capital expenditures | $414.5 million | $378.1 million | Investing cash outflow totaled $527.3 million, including $116.1 million for AutoAnything. |
| Debt / cash | $4.187 billion / $142.2 million | $3.768 billion / $103.1 million | Debt increased about $418.8 million; net interest expense was $185.4 million. |
Current assets were $3.278 billion and current liabilities $4.169 billion, producing a working-capital deficit of $891.1 million. Stockholders’ deficit was $1.687 billion. The company reported a 4.68:1 interest-coverage ratio against a 2.50:1 minimum covenant and $963.3 million of availability under its $1.0 billion revolving facility. Adjusted debt to EBITDAR was 2.5x, unchanged from FY2012.
Material changes and unusual items
- Store count rose by 195 net stores to 5,201; the commercial program expanded from 3,053 to 3,421 domestic stores.
- Reported sales growth benefited from an extra fiscal week, new stores and AutoAnything. Auto-parts sales increased 5.2%; failure and maintenance categories represented about 84% of sales.
- AutoZone acquired AutoAnything in December 2012 for up to $150 million. In the fourth quarter it recorded an $18.3 million goodwill impairment and a $4.1 million trade-name impairment, while reducing contingent consideration by $23.3 million. The net effect of these items was a $0.9 million gain.
- The company repurchased $1.387 billion of shares in FY2013, including 3.511 million shares; it paid no common-stock dividend. The board increased cumulative repurchase authorization to $13.40 billion, with $468.4 million remaining at year-end.
Outlook, commentary and risks
- Management expected FY2014 investment to increase from FY2013, primarily for new stores and improvements to existing stores and infrastructure. The filing provides no specific sales or EPS guidance.
- Management cited high gasoline prices, reduced consumer take-home pay after payroll taxes returned to historic levels, and slightly lower miles driven as pressures. It also noted an aging vehicle fleet as a potential demand support and reported that maintenance-category sales improved in FY2013’s final quarter.
- Management planned strategic tests involving additional hub inventory and greater store product availability. It said vendor financing capacity could constrain extended payment terms used to support inventory purchases.
- Key risks include economic and consumer-spending weakness, competition and pricing, slower same-store or commercial growth, product availability and safety, employee retention, execution of store expansion, supply-chain or systems disruptions, cyber and data-security incidents, weather, energy prices, and credit-market or rating changes.
- Debt ratings and access to borrowing are important to liquidity; downgrades could raise borrowing costs or restrict financing. The company reported compliance with debt covenants at year-end.
- Contingencies include New Jersey groundwater and potential off-site vapor remediation, which management did not expect to be material but whose additional cost was not yet ascertainable, and employment-related lawsuits that management did not expect to be material.
Most important facts for investors to verify
- How much underlying growth remains after adjusting for the 53rd week, new stores and AutoAnything, given flat reported comparable-store sales.
- Whether AutoAnything’s revised performance supports its remaining goodwill and intangible carrying values and any contingent-payment estimates.
- Whether operating cash flow can continue to fund elevated investment and substantial repurchases while debt and the working-capital deficit remain high.
- Progress on FY2014 store and infrastructure investment, commercial sales expansion, and inventory tests, including the effect on margins and cash conversion.
- Developments in consumer demand, fuel prices, miles driven, vehicle age, credit ratings and borrowing access, and the New Jersey remediation matter.