AutoZone, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended August 27, 2022 (52 weeks). Although the request identifies “2022 Q4,” this filing is an annual report; it states that the 16-week fourth quarter represented 32.9% of fiscal-year sales and 33.3% of net income, but the provided text does not give standalone Q4 financial results.
Business context
AutoZone is an automotive replacement-parts and accessories retailer and distributor, operating 6,943 stores in the U.S., Mexico and Brazil at year-end. It also sells through e-commerce and provides automotive diagnostic and repair software through ALLDATA. Domestic commercial programs operated in 5,342 stores. The company does not provide vehicle repair or installation services.
Financial performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales | $16.25 billion | $14.63 billion | Up 11.1% |
| Domestic comparable-store sales | Up 8.4% | Up 13.6% | Growth moderated |
| Gross profit / margin | $8.47 billion / 52.1% | $7.72 billion / 52.8% | Margin down 62 basis points |
| Operating profit | $3.27 billion | $2.94 billion | Up 11.1%; operating margin was 20.1%, versus 20.1% |
| Net income | $2.43 billion | $2.17 billion | Up 11.9%; record annual net income |
| Diluted EPS | $117.19 | $95.19 | Up 23.1%; repurchases added $5.27 per share |
| Operating cash flow | $3.21 billion | $3.52 billion | Down, primarily due to higher inventory purchases |
| Capital expenditures | $672 million | $622 million | Increased for growth and supply-chain projects |
| Debt at year-end | $6.12 billion | $5.27 billion | Includes $603 million commercial paper |
Operating, selling, general and administrative expenses were $5.20 billion, or 32.0% of sales, compared with $4.77 billion, or 32.6%. Net interest expense was $191.6 million, and the effective tax rate was 21.1%. Domestic commercial sales rose 26.5% and reached 28.8% of domestic auto-parts sales. Adjusted after-tax return on invested capital, a non-GAAP measure, was 52.9% versus 41.0%; adjusted debt to EBITDAR was 2.1x versus 2.0x.
Liquidity, debt and capital allocation
Cash and cash equivalents were $264 million at year-end, down from $1.17 billion. The company reported $2.2 billion of available revolving-credit capacity, excluding commercial-paper borrowings, and no outstanding revolving borrowings. Working capital was negative $1.96 billion, reflecting the company’s accounts-payable-funded inventory model; accounts payable equaled 129.5% of inventory. The revolving facility’s interest-coverage ratio was 7.4x against a 2.5x minimum, and the company reported compliance with debt covenants.
AutoZone repurchased $4.36 billion of stock in FY2022, compared with $3.38 billion in FY2021; it pays no common-stock dividend. On October 4, 2022, the board added $2.5 billion to the repurchase authorization. The company issued $750 million of 4.75% notes due 2032 and repaid $500 million of notes due 2022.
Changes, outlook and risks
- Sales and net income grew, but gross margin contracted, with management citing initiatives to accelerate commercial growth. Commercial sales grew substantially faster than overall sales.
- Inventory rose to $5.64 billion from $4.64 billion. Management attributed lower operating cash flow year over year primarily to higher inventory purchase volume.
- Management expects FY2023 investment in the business to increase from FY2022, principally for supply-chain initiatives, hubs and mega hubs, distribution-center expansions and new stores. The filing provides no specific earnings or sales guidance.
- Management cited inflation, fuel prices, wage pressure, hiring challenges and supply-chain disruption as current uncertainties. U.S. average gasoline prices were $3.83 per gallon in FY2022 versus $2.62 in FY2021.
- Principal disclosed risks include demand and macroeconomic changes, competition and digital retail, labor availability and costs, product sourcing and supply interruptions, international and currency exposure, cybersecurity and data privacy, self-insurance estimates, debt-market access, regulation, climate-related impacts and litigation.
- Pending legal matters include employee wage-and-hour and termination lawsuits; management does not currently expect them to result in material liabilities. The independent auditor issued unqualified opinions on the financial statements and internal controls. Valuation of self-insurance reserves was identified as a critical audit matter.
Important facts for investors to verify
- Standalone fourth-quarter sales, earnings and margins in the company’s quarterly earnings release, since this 10-K supplies annual results and only Q4’s share of annual totals.
- Whether commercial-sales growth and the related gross-margin pressure persist, and how commercial expansion affects profitability.
- Inventory growth, product availability and supplier payment terms, including the sustainability of the accounts-payable-to-inventory ratio.
- Cash generation relative to capital spending and substantial share repurchases, alongside rising debt and near-term maturities.
- Progress and returns from planned FY2023 supply-chain, hub, distribution-center and store investments, as well as wage, inflation and fuel-cost trends.
- Developments in self-insurance reserves, employee litigation, cybersecurity exposure and other material contingencies.