AutoZone EPS up 32% to $1.04; Total Sales Up 3.4%; ROIC Improves to 24.5%
MEMPHIS, Tenn., March 3 -- AutoZone, Inc. today reported sales of $1.159 billion for its second fiscal quarter (12 weeks) ended February 14, 2004, an increase of 3.4% from fiscal 2003. Same store sales, or sales for domestic stores open at least one year, were flat overall. Retail same store sales were down 1% while AZ Commercial same store sales were up 10%. Gross profit, as a percentage of sales, for the quarter improved by 4.4 percentage points while operating expenses, as a percentage of sales, increased by 3.0 percentage points. This resulted in an operating margin of 14.5%, up 1.4 percentage points from last year. Operating profit increased 14.3% over the prior year.
Net income for the quarter increased by 15.6% to $91.7 million, and diluted earnings per share, reflecting net income and the benefit of the company share repurchase program, increased 32% to $1.04 per share from $0.79 per share reported in the year-ago quarter. During the quarter, the Company experienced no one-time gain from warranty.
Return on invested capital for the trailing four quarters increased to 24.5% from 21.4% the previous year.
For the fiscal year-to-date period (24 weeks), sales were $2.44 billion, an increase of 4.4% from the prior year, with a same store sales increase of 1% on flat growth in retail same store sales and 13% growth in AZ Commercial same store sales. Year-to-date net income increased 15.9% to $213.4 million, while diluted earnings per share for the period increased 30.9% to $2.39 from $1.83.
Under its ongoing share repurchase program, AutoZone repurchased 4.0 million shares of its common stock for $337 million during the second quarter. Since 1998, cumulative share repurchases have totaled $3.2 billion, or 76.7 million shares at an average price of $42.04 per share.
For the quarter, gross profit, as a percentage of sales, was 48.7% while operating expenses, as a percentage of sales, were 34.1%. During the quarter, gross profit was affected by the accounting required by the Emerging Issues Task Force Issue 02-16, "Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor" (EITF Issue 02-16). AutoZone adopted the new accounting effective January 1, 2003. For the twelve weeks ended February 14, 2004, this resulted in a change in classification of $29.6 million of vendor funding from operating expenses to cost of goods sold. Excluding the impact of EITF Issue 02-16, gross margin for the quarter would have been 46.1% (versus 44.3% last year) and selling, general and administrative expenses as a percent of sales would have been 31.6% (versus 31.1% last year). This increase in selling, general and administrative expenses as a percent of sales primarily reflects costs associated with the company's initiative to refresh approximately 200 stores during the quarter and to open 62 incremental commercial programs.
The Company reduced its per store inventory levels as of February 14, 2004, to $443 thousand from $471 thousand last year. Total inventory was down while total sales were up 3.4%. Net inventory, defined as inventory less accounts payable, declined on a per store level to $81 thousand from $140 thousand last year.
During the quarter AutoZone opened 40 new stores in the U.S. and 5 new stores in Mexico. As of February 14, 2004, AutoZone sells auto and light truck parts, chemicals and accessories through 3,299 AutoZone stores in 48 states plus the District of Columbia in the U.S. and 55 AutoZone stores in Mexico and also sells the ALLDATA brand diagnostic and repair software. On the web, AutoZone sells diagnostic and repair information and auto and light truck parts through www.autozone.com .
AutoZone will host a one-hour conference call this morning, Wednesday, March 3, 2004, beginning at 9:00 a.m. (CST) to discuss the first quarter results. Investors may listen to the conference call live and review supporting slides on the AutoZone corporate website, www.autozoneinc.com by clicking "Investor Relations," "Conference Calls". The call will also be available by dialing (210) 234-0004. A replay of the call and slides will be available on AutoZone's website. In addition, a replay of the call will be available by dialing (402) 220-4124 through Wednesday, March 10, 2004, at 10:00 p.m. (CST).
This release includes certain financial information not derived in accordance with generally accepted accounting principles ("GAAP"). This information should not be considered a substitute for any measures derived in accordance with GAAP. The Company believes that this information is useful to investors as it indicates more clearly the Company's comparative year-to-year operating results. The financial impact of the adoption of EITF Issue 02-16 was identified as an "adjustment" for comparative purposes. The Company's management uses comparative information regarding the adoption of EITF Issue 02-16 to analyze and compare the Company's underlying operating results. Management also manages the Company's debt levels to a ratio of adjusted debt to EBITDAR, as shown on the attached tables. This is important information for the Company's management of its debt levels. We have included a reconciliation of this information to the most comparable GAAP measures in the accompanying reconciliation tables.
Certain statements contained in this press release are forward-looking statements. These statements discuss, among other things, business strategies and future performance. These forward-looking statements are subject to risks, uncertainties and assumptions, including, without limitation, competition, product demand, the economy, inflation, gasoline prices, consumer debt levels, war and the prospect of war, including terrorist activity, and the availability of commercial transportation. Actual results may materially differ from anticipated results. Please refer to the Risk Factors section of AutoZone's Form 10-K for the fiscal year ended August 30, 2003, for more information related to those risks. AutoZone undertakes no obligation to publicly release any revisions to any forward-looking statements contained in this press release to reflect events or circumstances occurring after the date of this release or to reflect the occurrence of unanticipated events.
AutoZone's 2nd Quarter Highlights - Fiscal 2004
Condensed Consolidated Statements of Operations
2nd Quarter, F2004 Only
(in thousands, except per share data)
GAAP Results
12 Weeks Ended 12 Weeks Ended
February 14, 2004 February 15, 2003
Net sales $1,159,236 $1,120,696
Cost of Sales 594,925 624,697
Gross profit 564,311 495,999
Operating SG&A expenses 395,785 348,501
Operating profit (EBIT) 168,526 147,498
Interest expense, net 21,922 19,633
Income before taxes 146,604 127,865
Taxes 54,950 48,590
Net income $91,654 $79,275
Net income per share:
Basic $1.06 $0.81
Diluted $1.04 $0.79
Weighted Average Shares outstanding:
Basic 86,618 98,446
Diluted 88,028 100,393
Adjustments
12 Weeks Ended 12 Weeks Ended
February 14, 2004 February 15, 2003
Net sales $- $-
Cost of Sales 29,608
Gross profit (29,608)
Operating SG&A expenses (29,608)
Operating profit (EBIT) -
Interest expense, net 0
Income before taxes -
Taxes 0
Net income $- $-
Net income per share:
Basic $-
Diluted $-
Weighted Average Shares outstanding:
Basic 86,618
Diluted 88,028
*Adjusted
12 Weeks Ended 12 Weeks Ended
February 14, 2004 February 15, 2003
Net sales $1,159,236 $1,120,696
Cost of Sales 624,533 624,697
Gross profit 534,703 495,999
Operating SG&A expenses 366,177 348,501
Operating profit (EBIT) 168,526 147,498
Interest expense, net 21,922 19,633
Income before taxes 146,604 127,865
Taxes 54,950 48,590
Net income $91,654 $79,275
Net income per share:
Basic $1.06 $0.81
Diluted $1.04 $0.79
Weighted Average Shares outstanding:
Basic 86,618 98,446
Diluted 88,028 100,393
*Adjusted Statement of Operations for F2004 excludes EITF Issue 02-16
impact.
Year-to-date 2nd Quarter, F2004
GAAP Results
24 Weeks Ended 24 Weeks Ended
February 14, 2004 February 15, 2003
Net sales $2,441,276 $2,339,331
Cost of Sales 1,263,875 1,293,942
Gross profit 1,177,401 1,045,389
Operating SG&A expenses 793,771 709,565
Operating profit (EBIT) 383,630 335,824
Interest expense, net 42,182 38,738
Income before taxes 341,448 297,086
Taxes 128,050 112,900
Net income $213,398 $184,186
Net income per share:
Basic $2.43 $1.87
Diluted $2.39 $1.83
Weighted Average Shares outstanding:
Basic 87,679 98,627
Diluted 89,219 100,800
Adjustments
24 Weeks Ended 24 Weeks Ended
February 14, 2004 February 15, 2003
Net sales $- $-
Cost of Sales 51,228
Gross profit (51,228)
Operating SG&A expenses (51,228)
Operating profit (EBIT) -
Interest expense, net 0
Income before taxes -
Taxes 0
Net income $- $-
Net income per share:
Basic $-
Diluted $-
Weighted Average Shares outstanding:
Basic 87,679
Diluted 89,219
*Adjusted
24 Weeks Ended 24 Weeks Ended
February 14, 2004 February 15, 2003
Net sales $2,441,276 $2,339,331
Cost of Sales 1,315,103 1,293,942
Gross profit 1,126,173 1,045,389
Operating SG&A expenses 742,543 709,565
Operating profit (EBIT) 383,630 335,824
Interest expense, net 42,182 38,738
Income before taxes 341,448 297,086
Taxes 128,050 112,900
Net income $213,398 $184,186
Net income per share:
Basic $2.43 $1.87
Diluted $2.39 $1.83
Weighted Average Shares outstanding:
Basic 87,679 98,627
Diluted 89,219 100,800
*Adjusted Statement of Operations for F2004 excludes EITF Issue 02-16
impact.
Selected Balance Sheet Information
(in thousands)
February 14, February 15, August 30,
2004 2003 2003
Merchandise inventories $1,487,478 $1,490,172 $1,511,316
Current assets 1,600,354 1,577,914 1,584,994
Property and equipment, net 1,735,505 1,662,567 1,715,753
Total assets 3,701,716 3,614,582 3,680,466
Accounts payable 1,216,404 1,048,077 1,321,905
Current liabilities 1,597,837 1,469,797 1,675,566
Debt 1,786,945 1,339,542 1,546,845
Stockholders' equity 233,877 747,774 373,758
Working capital 2,517 108,117 (90,572)
Adjusted Debt / EBITDAR (Trailing 4 Qtrs)
February 14, 2004 February 15, 2003
Net income 546,816 464,485
Add: Interest 88,234 80,893
Taxes 330,553 284,801
EBIT 965,603 830,179
Depreciation/Amortization 107,254 112,998
Rent Expense 114,213 103,702
EBITDAR 1,187,070 1,046,879
Debt 1,786,945 1,339,542
Add : Rent x 6 685,278 622,214
Adjusted Debt 2,472,223 1,961,756
Adjusted Debt to EBITDAR 2.1 1.9
Selected Cash Flow Information
(in thousands)
12 Weeks Ended 12 Weeks Ended
February 14, 2004 February 15, 2003
Depreciation $24,392 $25,243
Capital spending $40,123 $31,367
Cash flow before share repurchase:
Net increase (decrease) in cash and
cash equivalents $47 $29
Subtract increase (decrease) in debt 333,600 26,450
Subtract share repurchases (337,218) (80,972)
Cash flow before share repurchases $3,665 $54,551
24 Weeks Ended 24 Weeks Ended
February 14, 2004 February 15, 2003
Depreciation $48,342 $50,836
Capital spending $69,478 $61,832
Cash flow before share repurchase:
Net increase (decrease) in cash and
cash equivalents $(31) $61
Subtract increase (decrease) in debt 240,100 145,025
Subtract share repurchases (397,663) (159,495)
Cash flow before share repurchases $157,532 $14,531
Trailing 4 Quarters Trailing 4 Quarters
February 14, 2004 February 15, 2003
Depreciation $107,254 $112,998
Capital spending $189,888 $138,449
Cash flow before share repurchase:
Net increase (decrease) in cash and
cash equivalents $152 $(669)
Subtract increase (decrease) in debt 447,403 87,600
Subtract share repurchases (1,129,263) (689,267)
Cash flow before share repurchases $682,012 $600,998
Other Selected Financial Information
(in thousands)
February 14, 2004 February 15, 2003
Cumulative share repurchases ($):
On balance sheet $3,224,474 $2,095,191
Forward contracts - 297,525
Total $3,224,474 $2,392,716
Cumulative share repurchases (shares):
On balance sheet 76,698 62,032
Forward contracts - 4,283
Total 76,698 66,315
Shares outstanding, end of quarter 84,756 97,857
February 14, 2004 February 15, 2003
Return on Equity (ROE) 111.4% 56.7%
Trailing 4 Quarters Trailing 4 Quarters
February 14, 2004 February 15, 2003
Return on Invested
Capital (ROIC) 24.5% 21.4%
AutoZone's 2nd Quarter Fiscal 2004
Selected Operating Highlights
Store Count & Square Footage
12 Weeks 12 Weeks 24 Weeks 24 Weeks
Ended Ended Ended Ended
February February February February
14, 2004 15, 2003 14, 2004 15, 2003
Domestic stores:
Store count:
Stores opened 40 30 80 61
Stores closed 0 6 0 7
Replacement stores 0 3 1 4
Total domestic stores 3,299 3,122 3,299 3,122
Stores with commercial sales 2,048 1,954 2,048 1,954
Square footage (in thousands): 20,944 19,986 20,944 19,986
Square footage per store 6,349 6,402 6,349 6,402
Stores in Mexico:
Stores opened 5 1 6 2
Total stores in Mexico 55 41 55 41
Sales & Inventory Statistics (Domestic Stores Only):
12 Weeks 12 Weeks Trailing 4 Trailing 4
Ended Ended Quarters Quarters
February February February February
14, 2004 15, 2003 14, 2004 15, 2003
Total Retail Sales
($ in thousands) $966,698 $948,733 $4,691,038 $4,577,740 *
% Increase vs. LY Retail
Sales 2% 1% 2% 6%
Total AZ
Commercial Sales
($ in thousands) $153,871 $137,972 $711,131 $584,561 *
% Increase vs. LY AZ
Commercial Sales 12% 31% 22% 24%
Sales per average store
($ in thousands) $342 $349 $1,683 $1,676 *
Sales per average square foot 54 55 264 261 *
12 Weeks 12 Weeks 24 Weeks 24 Weeks
Ended Ended Ended Ended
February February February February
14, 2004 15, 2003 14, 2004 15, 2003
Same store sales -rolling 13
periods
Total 0% 2% 1% 3% *
Retail vs. commercial
Retail (1%) (1%) 0% 1% *
Commercial 10% 29% 13% 29% *
* For comparison purposes, excludes 53rd week in fiscal 2002.
Trailing 4 Quarters Trailing 4 Quarters
February 14, 2004 February 15, 2003
Inventory turns:
Based on average inventories 1.9 x 2.1 x
Based on ending inventories 2.0 x 2.0 x
Inventory turns, net of payables:
Based on average inventories 10.7 x 8.4 x
Based on ending inventories 11.8 x 6.9 x
Inventory Statistics (Total Stores):
February 14, 2004 February 15, 2003
Accounts payable/inventory
(total company) 82% 70%
as of as of
February 14, 2004 February 15, 2003
($ in thousands)
Gross Inventory $1,487,478 $1,490,172
Gross Inventory / Store $443 $471
Net Inventory (net of payables) $271,074 $442,095
Net Inventory / Store $81 $140
