AutoZone First Quarter EPS Up 30% to $1.35; Total Sales Up 5.2%; ROIC Improves to 24.0%
MEMPHIS, Tenn., Dec. 9, 2003 -- AutoZone, Inc. today reported sales of $1.282 billion for its first fiscal quarter (12 weeks) ended November 22, 2003, an increase of 5.2% from fiscal 2003. Same store sales, or sales for domestic stores open at least one year, increased 1% for retail and 17% for AZ Commercial. Gross profit, as a percentage of sales, for the quarter improved by 2.7 percentage points while operating expenses, as a percentage of sales, increased by 1.4 percentage points. This resulted in an operating margin of 16.8%, up 1.3 percentage points from last year. Operating profit increased 14% over the prior year.
Net income for the quarter increased by 16% to $121.7 million, and diluted earnings per share, reflecting net income and the benefit of our share repurchase program, increased 30% to $1.35 per share from $1.04 reported in the year-ago quarter.
Return on invested capital for the trailing four quarters increased to 24.0% from 20.6% the previous year.
"We are very pleased with our performance as we continue to build on the momentum from our prior fiscal year and implement our new initiatives for this fiscal year. Our industry-leading results show that AutoZone continues to build shareholder value over time," said Steve Odland, Chairman, President, and Chief Executive Officer. "We have developed new sales initiatives for retail and AZ Commercial that we began to implement at the end of the previous quarter. We are beginning to see initial results through stronger sales performance for the last period of the quarter.
"Additionally, our ongoing focus on gross margin improvement and relentless expense discipline continues to drive profitability. The combined impact of these efforts considerably improved our operating margin in the quarter over the last year."
Under its ongoing share repurchase program, AutoZone repurchased 644,000 shares of its common stock for $60 million during the first quarter. Since 1998, cumulative share repurchases have totaled $2.9 billion, or 72.7 million shares at an average price of $39.73 per share.
For the quarter gross profit, as a percentage of sales, was 47.8% while operating expenses, as a percentage of sales, was 31.0%. As 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. This resulted in a reclassification of $21.6 million of vendor funding from operating expenses to cost of goods sold. Excluding this impact of the new pronouncement, gross margin for the quarter would have been 46.1% (vs. 45.1% last year) and selling, general and administrative expenses as a percent of sales would have been 29.4% (vs. 29.6% last year).
Additionally, during the quarter the Company continued with savings initiatives that will have ongoing impact. In the area of gross profit the Company has continued its multi year strategy of category management including warranty expense renegotiations with vendors. For the quarter $14.1 million pre-tax, or $.10 per share, was recognized as savings toward our continued work with our vendors to minimize our warranty exposure. In the area of operating expenses the Company was favorably impacted by the continuation of cost savings initiatives. One example of these savings included lower expense from utilizing an enriched 401(k) plan in place of a pension plan that was frozen in January of 2003. Also, depreciation expense was $1.6 million lower than last year due primarily to assets being fully depreciated from acquisitions completed in fiscal years 1998 and 1999.
In the area of inventory the Company reduced its per store levels down to $459 thousand from $473 thousand last year. Gross inventory was up 2.3% while total sales were up 5.2%.
During the quarter AutoZone opened 40 new stores and replaced 1 store in the U.S. and opened 1 new store in Mexico. As of November 22, 2003, AutoZone sells auto and light truck parts, chemicals and accessories through 3,259 AutoZone stores in 48 states plus the District of Columbia in the U.S. and 50 AutoZone stores in Mexico and also sells the ALLDATA brand diagnostic and repair software. On the web, AutoZone sells diagnostic and repair information though www.alldatadiy.com , and auto and light truck parts through www.autozone.com .
AutoZone will host a one-hour conference call tomorrow morning Wednesday, December 10, 2003, 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) 998-1742 through Tuesday, December 16, 2003, at 10:00 p.m. (CST).
AutoZone will also host its Annual Meeting of Stockholders on Thursday, December 11, 2003, beginning at 8:30 a.m. (CST) at its Store Support Center in Memphis, Tennessee. Investors may listen to the Meeting of Stockholders live and review supporting slides on the AutoZone corporate website, www.autozoneinc.com , by clicking "Investor Relations," "Conference Calls". A replay of the meeting and slides will be available on AutoZone's website.
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.
Condensed Consolidated Statements of Operations
1st Quarter, F2004
(in thousands, except per share data)
GAAP Results Adjustments
12 Weeks 12 Weeks 12 Weeks 12 Weeks
Ended Ended Ended Ended
Nov. 22, Nov. 23, Nov. 22, Nov. 23,
2003 2002 2003 2002
Net sales $1,282,040 $1,218,635 $- $-
Cost of goods sold 668,950 669,245 21,620
Gross profit 613,090 549,390 (21,620)
Operating expenses 397,986 361,064 (21,620)
Operating profit (EBIT) 215,104 188,326 -
Interest expense, net 20,260 19,105 0
Income before taxes 194,845 169,221 -
Taxes 73,100 64,310 0
Net income $121,745 $104,911 $- $-
Net income per share:
Basic $1.37 $1.06 $-
Diluted $1.35 $1.04 $-
Weighted Average Shares
outstanding:
Basic 88,741 98,808 88,741
Diluted 90,422 101,206 90,422
Condensed Consolidated Statements of Operations
1st Quarter, F2004
(in thousands, except per share data)
*Adjusted
12 Weeks Ended 12 Weeks Ended
Nov. 22, 2003 Nov. 23, 2002
Net sales $1,282,040 $1,218,635
Cost of goods sold 690,570 669,245
Gross profit 591,470 549,390
Operating expenses 376,366 361,064
Operating profit (EBIT) 215,104 188,326
Interest expense, net 20,260 19,105
Income before taxes 194,845 169,221
Taxes 73,100 64,310
Net income $121,745 $104,911
Net income per share:
Basic $1.37 $1.06
Diluted $1.35 $1.04
Weighted Average Shares outstanding:
Basic 88,741 98,808
Diluted 90,422 101,206
*Adjusted Statement of Operations for
F2004 excludes EITF Issue 02-16 impact.
Selected Balance Sheet Information
(in thousands)
Nov. 22, 2003 Nov 23, 2002
Merchandise inventories $1,519,573 $1,484,699
Current assets 1,632,385 1,565,845
Property and equipment, net 1,719,386 1,663,684
Total assets 3,720,275 3,612,513
Accounts payable 1,346,909 1,120,748
Current liabilities 1,710,119 1,485,123
Debt 1,453,345 1,313,092
Stockholders' equity 473,271 753,842
Working capital (77,734) 80,722
Adjusted Debt / EBITDAR Nov. 22, 2003 Nov 23, 2002
(Trailing 4 Qtrs)
Net income 534,438 448,982
Add: Interest 85,945 79,538
Taxes 324,193 275,310
EBIT 944,575 803,830
Depreciation/Amortization 108,105 115,679
Rent Expense 112,503 100,562
EBITDAR 1,165,183 1,020,071
Debt 1,453,345 1,313,092
Add : Rent x 6 675,018 603,372
Adjusted Debt 2,128,363 1,916,464
Adjusted Debt to EBITDAR 1.8 1.9
Selected Cash Flow Information
(in thousands)
12 Weeks 12 Weeks Trailing 4 Trailing 4
Ended Ended Quarters Quarters
Nov. 22, Nov. 23, Nov. 22 Nov. 23
2003 2002 2003 2002
Depreciation & amortization $23,950 $25,593 $108,105 $115,679
Capital spending $29,355 $30,465 $181,132 $131,493
Cashflow before share repurchase:
Net increase (decrease) in
cash and cash equivalents $(78) $32 $134 $(755)
Subtract increase (decrease)
in debt (93,500) 118,575 140,253 32,450
Subtract share repurchases (60,445) (78,523) (873,017) (708,059)
Cashflow before share
repurchases $153,867 $(40,020) $732,898 $674,854
Other Selected Financial Information
(in thousands)
Nov. 22, 2003 Nov. 23, 2002
Cumulative share repurchases($):
On balance sheet $2,887,256 $2,014,220
Forward contracts - 119,801
Total $2,887,256 $2,134,021
Cumulative share repurchases (shares):
On balance sheet 72,664 60,871
Forward contracts - 1,646
Total 72,664 62,517
Shares outstanding, end of quarter 88,663 98,962
Nov. 22, 2003 Nov. 23, 2002
Return on Equity (ROE) 87.1% 54.0%
Nov. 22, 2003 Nov. 23, 2002
Return on Invested Capital
(ROIC) 24.0% 20.6%
AutoZone's 1st Quarter Fiscal 2004
Selected Operating Highlights
Store Count & Square Footage
12 Weeks Ended 12 Weeks Ended
Nov. 22, 2003 Nov. 23, 2002
Domestic stores:
Store count:
Stores opened 40 31
Stores closed 0 1
Replacement stores 1 1
Total domestic stores 3,259 3,098
Stores with commercial sales 1,986 2,001
Square footage (in thousands): 20,719 19,852
Stores in Mexico:
Stores opened 1 1
Total stores in Mexico 50 40
Sales & Inventory Statistics
(Domestic Stores Only):
12 Weeks 12 Weeks Trailing 4 Trailing 4
Ended Ended Quarters Quarters
Nov. 22, Nov. 23, Nov. 22 Nov. 23
2003 2002 2003 2002
Sales per average store
($ in thousands) $385 $385 $1,689 $1,679
Sales per average square foot 60 60 265 262
Same store sales - rolling 13
periods
Total 2% 4%
Retail vs. commercial
Retail 1% 2%
Commercial 17% 28%
* For comparison purposes,
excludes 53rd week in fiscal 2002.
Inventory turns:
Based on average inventories 2.0 x 2.2 x
Based on ending inventories 1.9 x 2.0 x
Inventory turns, net of payables:
Based on average inventories 10.1 x 8.5 x
Based on ending inventories 20.4 x 8.5 x
Inventory Statistics (Total Stores):
12 Weeks Ended 12 Weeks Ended
Nov. 22, 2003 Nov. 23, 2002
Accounts payable/inventory
(total company) 89% 75%
as of as of as of as of
($ in thousands) Nov. 22, Aug. 30, May 10, Feb. 15,
2003 2003 2003 2003
Gross Inventory $1,519,573 $1,511,316 $1,497,643 $1,490,172
Gross Inventory /
Store $459 $462 $469 $471
Net Inventory
(net of payables) $172,664 $189,411 $407,485 $442,095
Net Inventory / Store $52 $58 $128 $140