01—Abstract
Summary
Summary of the 10-K filed October 25, 2010. Cited figures are marked; the original filing is the authoritative source.
AutoZone's fiscal 2010 10-K (fiscal year ended August 28, 2010) reports a strong year: net sales rose 8.0% to $7.36 billiona, operating profit grew 12.2% to $1.32 billion, and net income increased 12.4% to a record $738.3 million, with diluted EPS up 27.6% to $14.97.
Domestic same-store sales grew 5.4%b, driven by improved transaction counts, and the company added 213 new stores, ending the year with 4,627 stores across the U.S., Puerto Rico and Mexico. Gross margin held at about 50.4%, and the commercial (DIFM) business grew 13.8%, which management highlighted as a key growth driver. The balance sheet remains highly leveraged by design.
Stockholders' deficit widened to $(738.8) million, reflecting aggressive share repurchases of $1.12 billionc in fiscal 2010 (and $8.7 billion cumulatively since 1998). Total debt rose to $2.9 billion, and the adjusted debt-to-EBITDAR ratio was 2.4x, which management targets to maintain investment-grade ratings. Operating cash flow was strong at $1.20 billion, and the company's accounts payable-to-inventory ratio of 106% shows vendors financing most of its inventory.
Management also raised the repurchase authorization to $9.4 billiond in September 2010. Key risks flagged include a concentrated shareholder position (ESL Investments owns about 34.7%), exposure to the Robinson-Patman Act lawsuit (which management considers without merit and cannot estimate), potential rating downgrades from higher leverage, and the future cost impact of healthcare reform. Management also noted that miles driven have been flat, while the growing count of vehicles aged seven years or older has supported demand.
02—Key points
Key Highlights
- Record fiscal 2010 net income of $738.3M (+12.4%) and diluted EPS of $14.97 (+27.6%), aided by share count reduction.
- Net sales of $7.36B (+8.0%), with domestic same-store sales up 5.4% driven by transaction count improvement.
- Commercial sales up 13.8% and retail up 6.9%, with 2,424 domestic stores offering commercial delivery programs.
- Gross margin of 50.4% and operating profit of $1.32B (17.9% of sales), with SG&A leverage from higher sales.
- Operating cash flow of $1.20B, funding $315M capex and $1.12B in share repurchases.
- Stockholders' deficit of $(738.8)M and total debt of $2.9B; adjusted debt-to-EBITDAR of 2.4x; repurchase authorization raised to $9.4B.
- Concentration risk: ESL Investments owns about 34.7% of outstanding shares and can exert substantial influence.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, AutoZone Inc kept $0.10.
- Revenue$7.36B100.0%
- Cost of revenue−$3.65B49.6%
- Gross profit$3.71B50.4%
- Operating costs−$2.39B32.5%
- Operating income$1.32B17.9%
- Interest, other & tax−$581.1M7.9%
- Net income$738.3M10.0%
Where FY2010 revenue went
$7.36B- Cost of revenue: $3.65B, 50% of revenue
- SG&A: $2.39B, 32% of revenue
- Net income: $738.3M, 10% of revenue
- Interest, other & tax: $581.1M, 7.9% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed October 25, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $7.36B$6.82B | +8.0% |
| Cost of Revenue | $3.65B$3.40B | +7.4% |
| Gross Profit | $3.71B$3.42B | +8.6% |
| SG&A Expenses | $2.39B$2.24B | +6.8% |
| Operating Expenses | $2.39B$2.24B | +6.8% |
| Operating Income | $1.32B$1.18B | +12.2% |
| Interest Expense | $162.63M$147.50M | +10.3% |
| Net Income | $738.31M$657.05M | +12.4% |
| EPS (Basic) | $15.23$11.89 | +28.1% |
| EPS (Diluted) | $14.97$11.73 | +27.6% |
| Shares Outstanding (Basic) | 48.49M55.28M | −12.3% |
| Shares Outstanding (Diluted) | 49.30M55.99M | −11.9% |
05—Questions
Frequently Asked Questions
How did AutoZone perform financially in fiscal 2010?
AutoZone posted record net income of $738.3 million, up 12.4%, and diluted EPS of $14.97, up 27.6%. Net sales reached $7.36 billion, an 8.0% increase, driven by 5.4% domestic same-store sales growth and $203.4 million from new stores.
Why does AutoZone have a stockholders' deficit?
The deficit results from its long-running share repurchase program, which totaled $1.12 billion in fiscal 2010 and $8.7 billion since 1998. Repurchases are funded mainly by operating cash flow and debt, and the company accepts a negative equity position as part of its capital structure strategy to maintain investment-grade ratings.
What are the main growth drivers for AutoZone?
Growth came from new store openings (213 in fiscal 2010, ending with 4,627 stores), same-store sales gains from improved transaction counts, and the expanding commercial (DIFM) business, which grew 13.8%. Management also cites an aging vehicle fleet, with more cars seven years or older, as supporting demand.
What are the key risks investors should consider?
Key risks include ESL Investments' large ownership stake (about 34.7%), the Robinson-Patman Act lawsuit (management believes it lacks merit but cannot estimate potential loss), possible credit rating downgrades from higher leverage, competitive consolidation, and rising healthcare costs under the Patient Protection and Affordable Care Act.
How is AutoZone's debt position and liquidity?
Total debt was $2.9 billion, with an adjusted debt-to-EBITDAR ratio of 2.4x, and the company was in compliance with its covenants. It had $331.1 million of available capacity under its $800 million revolving credit facility, and its accounts payable-to-inventory ratio of 106% indicates vendors finance most of its inventory.
06—Continue