AutoZone Third Quarter EPS up 10%; Adjusted EPS up 16%
MEMPHIS, Tenn., May 25, 2005 -- AutoZone, Inc. today reported sales of $1.338 billion for its fiscal third quarter (12 weeks) ended May 7, 2005, down 1.6% from fiscal third quarter 2004. Same store sales, or sales for domestic stores open at least one year, were down 5% for the quarter. Operating margin increased 91 basis points from last year to 19.4%, while operating profit increased 3.2% over the prior year.
Net income for the quarter increased 3.1% over the same period last year to $147.8 million, and diluted earnings per share, reflecting net income and the benefit of the Company's share repurchase program, increased 10.5% to $1.86 per share from $1.68 per share reported in the year-ago quarter.
Under its ongoing share repurchase program, AutoZone repurchased 3.2 million shares of its common stock for $278.6 million during the third quarter, at an average price of $87 per share. Since 1998 cumulative share repurchases have totaled $4.0 billion, or 85.8 million shares at an average price of $46 per share.
For the quarter, gross profit, as a percentage of sales, was 50.3% (versus 49.7% last year) while operating expenses, as a percentage of sales, were 30.9% (versus 31.2% last year). The improvement in gross margin was largely due to the Company's ongoing category management initiatives as well as reduced sales of discretionary, lower margin, merchandise. The reduction in operating expenses has continued to be driven by a focused effort to reduce expenditures throughout the organization.
Last year's third quarter ended May 8, 2004, contained a $10.6 million non-recurring gain from warranty. Excluding last year's credit, operating profit increased 7.8% and diluted earnings per share increased 15.8% to $1.86 versus the year-ago quarter of $1.61.
The Company's gross per store inventory level (the reported balance sheet inventory, which is total inventory less supplier owned pay-on-scan inventory) as of May 7, 2005, was $458 thousand versus $447 thousand last year. Net inventory, defined as gross inventory less accounts payable, decreased on a per store level to $59 thousand from $74 thousand last year reflecting an increase in accounts payable to 87.2% of inventory from 83.5% of inventory in the prior year. The increase in gross inventory levels reflects the Company's efforts to invest in the right part at the right place to further enhance its industry-leading brand in the eyes of its customers.
"I'd like to thank all our AutoZoners across the country for delivering another record quarter of EPS. However, sales were considerably weaker this quarter than expected. This shortfall has challenged us to take a fresh look at our opportunities for driving profitable sales. While we are encouraged by many of the new initiatives we've implemented, such as the expansion of our inventory coverage at the store level through 'Project Got It,' we will be doing more going forward to grow sales profitably. Our financial model continues to be strong. We will maintain our disciplined approach to growing operating earnings and utilizing our capital effectively, while looking to leverage our industry-leading financial metrics," said Bill Rhodes, President and Chief Executive Officer.
During the quarter ended May 7, 2005, AutoZone opened 33 new stores, replaced 2 stores, and closed 2 stores in the U.S. while additionally opening 6 new stores in Mexico. As of May 7, 2005, the Company had 3,505 domestic stores and 73 stores in Mexico.
AutoZone is the nation's leading retailer of automotive parts and accessories. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products. Many domestic stores also have a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, and service stations. AutoZone 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 http://www.autozone.com/ . AutoZone does not derive revenue from automotive repair or installation.
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. Management 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.
AutoZone's 3rd Quarter Highlights - Fiscal 2005
Condensed Consolidated Statements of Operations
3rd Quarter
(in thousands, except per share data)
GAAP Results Adjustments
12 Weeks 12 Weeks 12 Weeks 12 Weeks
Ended Ended Ended Ended
May 7, May 8, May 7, May 8,
2005 2004 2005 2004*
Net sales $1,338,387 $1,360,022 $- $-
Cost of sales 665,283 683,835 - 10,625
Gross profit 673,104 676,187 - (10,625)
Operating, SG&A expenses 413,642 424,866 - -
Operating profit (EBIT) 259,462 251,321 - (10,625)
Interest expense, net 24,223 21,910 - -
Income before taxes 235,239 229,411 - (10,625)
Income taxes 87,450 86,000 - (3,983)
Net income $147,789 $143,411 $- $(6,642)
Net income per share:
Basic $1.88 $1.71 $- $(0.08)
Diluted $1.86 $1.68 $- $(0.08)
Weighted Average Shares
outstanding:
Basic 78,521 83,897 78,521 83,897
Diluted 79,494 85,202 79,494 85,202
Condensed Consolidated Statements of Operations
3rd Quarter
(in thousands, except per share data)
Adjusted
12 Weeks Ended 12 Weeks Ended
May 7, 2005 May 8, 2004*
Net sales $1,338,387 $1,360,022
Cost of sales 665,283 694,460
Gross profit 673,104 665,562
Operating, SG&A expenses 413,642 424,866
Operating profit (EBIT) 259,462 240,696
Interest expense, net 24,223 21,910
Income before taxes 235,239 218,786
Income taxes 87,450 82,017
Net income $147,789 $136,769
Net income per share:
Basic $1.88 $1.63
Diluted $1.86 $1.61
Weighted Average Shares outstanding:
Basic 78,521 83,897
Diluted 79,494 85,202
* Fiscal 2004 cost of sales includes a $10.6 million pre-tax gain from
warranty.
Year-to-date 3rd Quarter, F2005
GAAP Results Adjustments
36 Weeks 36 Weeks 36 Weeks 36 Weeks
Ended Ended Ended Ended
May 7, May 8, May 7, May 8,
2005 2004 2005* 2004**
Net sales $3,828,645 $3,801,298 $- $-
Cost of sales 1,952,370 1,947,710 - 26,625
Gross profit 1,876,275 1,853,588 - (26,625)
Operating, SG&A expenses 1,251,781 1,218,637 (40,321) -
Operating profit (EBIT) 624,494 634,951 40,321 (26,625)
Interest expense, net 69,659 64,092 - -
Income before taxes 554,835 570,859 40,321 (26,625)
Income taxes 190,431 214,050 30,219 (9,983)
Net income $364,404 $356,809 $10,102 $(16,642)
Net income per share:
Basic $4.59 $4.13 $0.13 $(0.19)
Diluted $4.53 $4.06 $0.13 $(0.19)
Weighted Average Shares
outstanding:
Basic 79,308 86,432 79,308 86,432
Diluted 80,369 87,890 80,369 87,890
Year-to-date 3rd Quarter, F2005
Adjusted
36 Weeks Ended 36 Weeks Ended
May 7, 2005* May 8, 2004**
Net sales $3,828,645 $3,801,298
Cost of sales 1,952,370 1,974,335
Gross profit 1,876,275 1,826,963
Operating, SG&A expenses 1,211,460 1,218,637
Operating profit (EBIT) 664,815 608,326
Interest expense, net 69,659 64,092
Income before taxes 595,156 544,234
Income taxes 220,650 204,067
Net income $374,506 $340,167
Net income per share:
Basic $4.72 $3.94
Diluted $4.66 $3.87
Weighted Average Shares outstanding:
Basic 79,308 86,432
Diluted 80,369 87,890
* Fiscal year 2005 includes a non-cash adjustment, substantially all of
which relates to prior years, of $25.4 million (net of tax)
associated with accounting for leases and leasehold improvements.
Additionally, fiscal year 2005 income taxes include a $15.3 million
benefit primarily from the planned one-time repatriation from foreign
subsidiaries.
** Fiscal 2004 cost of sales includes a $26.6 million pre-tax gain from
warranty.
Selected Balance Sheet Information
(in thousands)
May 7, May 8, August 28,
2005 2004 2004
Merchandise inventories $1,639,190 $1,517,071 $1,561,479
Current assets 1,911,738 1,724,497 1,755,757
Property and equipment, net 1,880,218 1,752,474 1,790,089
Total assets 4,168,502 3,869,600 3,912,565
Accounts payable 1,429,675 1,266,486 1,429,128
Current liabilities 1,816,585 1,670,559 1,751,051
Debt 1,914,525 1,798,917 1,869,250
Stockholders' equity 298,746 260,141 171,393
Working capital 95,153 53,939 4,706
Adjusted Debt/EBITDAR (Trailing 4 Qtrs) May 7, 2005 May 8, 2004
Net income $573,797 $564,250
Add: Interest 98,371 90,790
Taxes 316,081 340,000
EBIT 988,249 995,040
Add: Depreciation 130,719 107,063
Rent expense 146,924 115,958
EBITDAR $1,265,892 $1,218,061
Debt $1,914,525 $1,798,917
Add: Rent x 6* 752,382 695,747
Adjusted debt $2,666,907 $2,494,664
Adjusted debt to EBITDAR 2.1 2.0
* Excludes the impact from the cumulative lease accounting adjustment
recorded in the second quarter of fiscal year 2005.
Selected Cash Flow Information
(in thousands)
12 Weeks 12 Weeks 36 Weeks
Ended Ended Ended
May 7, 2005 May 8, 2004 May 7, 2005
Depreciation $25,345 $24,499 $96,669
Capital spending $68,161 $42,700 $186,939
Cash flow before share repurchase:
Net increase (decrease) in cash and
cash equivalents $(2,761) $7,267 $526
Subtract increase in debt 13,025 11,972 45,275
Subtract share repurchases (278,558) (132,640) (308,558)
Cash flow before share repurchases
and changes in debt $262,772 $127,935 $263,809
Selected Cash Flow Information
(in thousands)
36 Weeks Trailing 4 Trailing 4
Ended Quarters Quarters
May 8, 2004 May 7, 2005 May 8, 2004
Depreciation $72,841 $130,719 $107,063
Capital spending $112,178 $259,631 $195,620
Cash flow before share repurchase:
Net increase (decrease) in cash and
cash equivalents $(5,300) $(10,424) $4,071
Subtract increase in debt 252,072 115,608 378,950
Subtract share repurchases (530,303) (626,357) (976,840)
Cash flow before share repurchases
and changes in debt $272,931 $500,325 $601,961
Other Selected Financial Information
(in thousands)
May 7, 2005 May 8, 2004
Cumulative share repurchases ($): $3,983,472 $3,357,114
Cumulative share repurchases (shares): 85,767 78,269
Shares outstanding, end of quarter 77,317 83,381
May 7, 2005 May 8, 2004
Return on Equity (ROE)* 205.2% 131.0%
Trailing 4 Trailing 4
Quarters Quarters
May 7, May 8,
2005 2004
Return on Invested Capital (ROIC)* 24.5% 25.1%
* Excludes the impact from the cumulative lease accounting adjustment and
the one-time income tax benefit from the repatriation from foreign
subsidiaries recorded in the second quarter of fiscal year 2005.
AutoZone's 3rd Quarter Fiscal 2005
Selected Operating Highlights
Store Count & Square Footage
12 Weeks 12 Weeks 36 Weeks 36 Weeks
Ended Ended Ended Ended
May 7, 2005 May 8, 2004 May 7, 2005 May 8, 2004
Domestic stores:
Store count:
Stores opened 33 38 88 118
Stores closed 2 0 3 0
Replacement stores 2 1 4 2
Total domestic stores 3,505 3,337
Stores with commercial
sales 2,052 2,199
Square footage (in
thousands): 22,236 21,171
Square footage per
store 6,344 6,344
Stores in Mexico:
Stores opened 6 5 10 11
Total stores in Mexico 73 60 73 60
Total stores chainwide: 3,578 3,397
Sales Statistics (Domestic Stores Only):
12 Weeks 12 Weeks Trailing 4 Trailing 4
Ended Ended Quarters Quarters
May 7, 2005 May 8, 2004 May 7, 2005 May 8, 2004
Total retail sales ($ in
thousands) $1,122,259 $1,140,763 $4,750,163 $4,738,613
% Increase vs. LY
retail sales (2%) 4% 0% 3%*
Total commercial sales ($
in thousands) $170,425 $179,712 $728,162 $729,608
% Increase vs. LY
commercial sales (5%) 11% 0% 17%*
Sales per average store ($
in thousands) $370 $398 $1,601 $1,685
Sales per average square
foot 58 63 252 265
* For comparison purposes, excludes 53rd week in fiscal 2002.
12 Weeks 12 Weeks 36 Weeks 36 Weeks
Ended Ended Ended Ended
May 7, 2005 May 8, 2004 May 7, 2005 May 8, 2004
Same store sales (5%) 2% (3%) 2%
Inventory Statistics (Total Stores):
as of as of
May 7, 2005 May 8, 2004
Accounts payable/inventory 87% 83%
($ in thousands)
Gross inventory** $1,639,190 $1,517,071
Gross inventory**/store $458 $447
Net inventory (net of payables) $209,515 $250,585
Net inventory/store $59 $74
** Gross inventory excludes Pay On Scan inventory. This is the reported
balance sheet number.
Trailing 4 Trailing 4
Quarters Quarters
Inventory turns: May 7, 2005 May 8, 2004
Based on average inventories 1.8 x 1.9 x
Based on ending inventories 1.8 x 1.9 x
Inventory turns, net of payables:
Based on average inventories 9.8 x 9.3 x
Based on ending inventories 13.8 x 11.6 x