AutoZone, Inc. — Form 10-Q Summary
Reporting period: Third quarter of fiscal 2023, the 12 weeks ended May 6, 2023, with year-to-date results for the 36 weeks ended that date. Comparatives are the periods ended May 7, 2022. AutoZone operates automotive-parts stores in the U.S., Mexico and Brazil, plus ALLDATA and e-commerce businesses. The filing was reviewed by the independent accountant; this was not an audit.
Financial performance
| Metric | 12 weeks ended May 6, 2023 | Comparable 2022 period | 36 weeks ended May 6, 2023 | Comparable 2022 period |
|---|---|---|---|---|
| Net sales | $4,090.5 million | $3,865.2 million | $11,766.6 million | $10,903.9 million |
| Gross profit | $2,146.1 million | $2,006.4 million | $6,070.8 million | $5,716.8 million |
| Gross margin | 52.5% | 51.9% | 51.6% | 52.4% |
| Operating profit | $858.5 million | $785.7 million | $2,251.5 million | $2,166.9 million |
| Net income | $647.7 million | $592.6 million | $1,663.6 million | $1,619.6 million |
| Diluted EPS | $34.12 | $29.03 | $86.10 | $76.90 |
- Quarterly growth: Sales increased 5.8%, operating profit 9.3%, net income 9.3% and diluted EPS 17.5%. Domestic same-store sales rose 1.9%; domestic commercial sales grew 6.3%. New stores contributed $71.8 million in sales.
- Year-to-date growth: Sales increased 7.9%, while net income rose 2.7% and diluted EPS rose 12.0%. Domestic same-store sales increased 4.2%; domestic commercial sales grew 11.2%. New stores contributed $207.1 million.
- Quarterly operating and net margins were approximately 21.0% and 15.8%, versus 20.3% and 15.3%. Year-to-date operating and net margins were approximately 19.1% and 14.1%, versus 19.9% and 14.9%.
- Quarterly gross-margin improvement included a $17.0 million non-cash LIFO benefit. Excluding that benefit, management reported adjusted operating profit growth of 7.1%, adjusted net income growth of 7.1% and adjusted diluted EPS of $33.43, up 15.2%.
- Year-to-date gross margin declined, primarily due to a $74.0 million non-cash LIFO charge, driven mainly by freight costs. Excluding the charge, management reported adjusted net income of $1,720.4 million and adjusted diluted EPS of $89.04, up 6.2% and 15.8%, respectively. These are non-GAAP measures.
Cash flow, liquidity and capital
- Year-to-date cash from operations was $1,872.8 million, down from $1,983.1 million. Capital expenditures were $430.4 million, versus $369.4 million; investing cash outflow was $479.0 million.
- Financing cash outflow was $1,388.3 million, including $2.7 billion of share repurchases. Cash increased $10.5 million from the fiscal-year opening balance to $274.9 million.
- At May 6, 2023, reported long-term debt was $7,340.5 million, compared with $6,122.1 million at August 27, 2022. Debt before discounts and issuance costs totaled $7,377.4 million, including $1,127.4 million of commercial paper. Interest expense rose to $74.3 million for the quarter and $197.6 million year to date.
- AutoZone reported $2.2 billion of revolving-credit availability before commercial-paper borrowings, with no revolver borrowings outstanding. The filing classifies commercial paper and notes due in 2023 and 2024 as long-term based on management’s ability and intent to refinance; the company said it was in compliance with debt covenants.
- Stockholders’ deficit was $4,301.6 million at May 6, 2023. The company repurchased 1.1 million shares for $2.7 billion year to date; $843.6 million remained authorized at quarter-end. Through June 2, it repurchased another 86.7 thousand shares for $219.9 million.
Outlook, commentary and risks
- No specific sales or earnings guidance was provided. Management expects fiscal 2023 investment to increase versus fiscal 2022, primarily for new stores and supply-chain projects, including hub and mega-hub expansion and distribution centers. It opened 101 net new stores year to date, compared with 79 in the prior-year period.
- Management said liquidity from operations, credit availability and long-term borrowings should be adequate for operations, investments, debt repayment and repurchases. It cautioned that weaker demand or changes in customer buying patterns could reduce operating cash flow and affect debt-covenant capacity.
- Macroeconomic and operating exposures cited include inflation, fuel and freight costs, wage rates, supply-chain disruption, hiring and retention, competition, weather, consumer demand, financing access, cybersecurity and IT disruption, and international-market risks. Management noted failure and maintenance categories represented about 85% of quarterly sales and that it saw no fundamental change in sales mix.
- The company’s adjusted debt-to-EBITDAR ratio increased to 2.3x from 2.1x a year earlier. Management targets debt levels relative to EBITDAR to support investment-grade credit ratings and expects the ratio to return to pre-pandemic levels over time.
- AutoZone is involved in ordinary-course legal matters, including employee wage-and-hour and termination lawsuits; management did not believe these would result in material liabilities. The filing reported no material changes to previously disclosed risk factors or material legal proceedings.
Most important facts for investors to verify
- How durable sales and margin trends are after separating out the quarterly LIFO benefit and year-to-date LIFO charge.
- Whether higher freight, wage and interest costs continue to pressure margins, cash generation and earnings.
- The refinancing outlook and terms for commercial paper and near-term maturities, and the company’s ability to maintain covenant compliance and credit access.
- Planned spending on stores and supply-chain capacity, and the extent to which buybacks continue to be funded by operating cash flow or additional debt.
- Whether demand, inventory availability, vendor payment terms or other disclosed risks materially change; the filing’s interim results are not necessarily indicative of the full fiscal year.