01—Abstract
Summary
Summary of the 10-K filed October 24, 2011. Cited figures are marked; the original filing is the authoritative source.
AutoZone's fiscal 2011 (year ended August 27, 2011) was a record year: net sales rose 9.6% to $8.073 billiona, and net income grew 15.0% to $849.0 million.
Diluted EPS increased 30.0% to $19.47b, helped in part by aggressive share repurchases, which added roughly $1.15 to EPS. Domestic same-store sales grew 6.3%, with commercial sales up 22.3% and retail up 6.8%. Gross margin improved to 51.0% of sales from 50.4%, driven by lower shrink and higher merchandise margins, while SG&A held at 32.5% of sales.
The balance sheet remains highly leveraged by design. Stockholders' deficit widened to $(1.25) billion, reflecting $1.47 billionc in buybacks during the year, and total debt rose to $3.35 billion. Management reports an adjusted debt-to-EBITDAR ratio of 2.4x and an interest coverage ratio of 4.44x against a 2.50x covenant minimum, and says it remains in compliance with all covenants.
Operating cash flow of $1.29 billiond comfortably funded capital expenditures of $322 million, with the remainder directed to buybacks and debt. The company also expanded its revolving credit facility to $1.0 billion and authorized an additional $750 million in repurchases, bringing the cumulative authorization to $11.15 billion.
Key risks flagged in the filing include the sensitivity of demand to gasoline prices and the broader economy, competitive pressure from both DIY and commercial rivals, and ownership concentration: ESL Investments holds about 29.3% of shares and can exert substantial influence over stockholder votes. Ongoing litigation (the Coalition for a Level Playing Field Robinson-Patman Act case) was dismissed, with the plaintiffs' motion to amend denied, though the company cannot estimate any loss if the case were to continue.
02—Key points
Key Highlights
- Record fiscal 2011 net income of $849.0 million (+15.0%) and diluted EPS of $19.47 (+30.0%), with buybacks contributing about $1.15 per share
- Net sales of $8.07 billion (+9.6%), driven by 6.3% domestic same-store sales growth and $216.8 million from new stores
- Gross margin expanded to 51.0% from 50.4%, reflecting lower shrink (32 bps) and higher merchandise margins (26 bps)
- Commercial sales grew 22.3% and retail sales grew 6.8%; the store base reached 4,813 stores (4,534 U.S., 279 Mexico)
- Share repurchases of $1.47 billion in fiscal 2011 produced a stockholders' deficit of $(1.25) billion; debt rose to $3.35 billion
- Leverage metrics remain within investment-grade targets: adjusted debt/EBITDAR of 2.4x and interest coverage of 4.44x vs. a 2.50x covenant minimum
- ESL Investments owns approximately 29.3% of common stock, giving it substantial influence over stockholder votes and change-of-control matters
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, AutoZone Inc kept $0.11.
- Revenue$8.07B100.0%
- Cost of revenue−$3.95B49.0%
- Gross profit$4.12B51.0%
- Operating costs−$2.62B32.5%
- Operating income$1.49B18.5%
- Interest, other & tax−$645.8M8.0%
- Net income$849.0M10.5%
Where FY2011 revenue went
$8.07B- Cost of revenue: $3.95B, 49% of revenue
- SG&A: $2.62B, 33% of revenue
- Net income: $849.0M, 11% of revenue
- Interest, other & tax: $645.8M, 8.0% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed October 24, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $8.07B$7.36B | +9.6% |
| Cost of Revenue | $3.95B$3.65B | +8.3% |
| Gross Profit | $4.12B$3.71B | +11.0% |
| SG&A Expenses | $2.62B$2.39B | +9.7% |
| Operating Expenses | $2.62B$2.39B | +9.7% |
| Operating Income | $1.49B$1.32B | +13.3% |
| Interest Expense | -$173.67M$162.63M | −206.8% |
| Net Income | $848.97M$738.31M | +15.0% |
| EPS (Basic) | $19.91$15.23 | +30.7% |
| EPS (Diluted) | $19.47$14.97 | +30.1% |
| Shares Outstanding (Basic) | 42.63M48.49M | −12.1% |
| Shares Outstanding (Diluted) | 43.60M49.30M | −11.6% |
05—Questions
Frequently Asked Questions
How did AutoZone perform financially in fiscal 2011?
AutoZone reported record net income of $849.0 million, up 15.0%, and net sales of $8.073 billion, up 9.6%. Diluted EPS rose 30.0% to $19.47, with buybacks contributing roughly $1.15 of that figure. Operating profit grew to $1.49 billion from $1.32 billion.
Why does AutoZone have a stockholders' deficit, and is it a concern?
The deficit ($1.25 billion at year-end) stems from aggressive share repurchases funded by cash flow and debt, which reduce equity. The company targets a leverage level consistent with investment-grade ratings, reporting adjusted debt/EBITDAR of 2.4x and interest coverage of 4.44x, both within its covenant requirements. Investors should weigh the financial flexibility this leaves against the benefit of reduced share count.
What are the main risks to AutoZone's business?
Key risks include lower demand from economic weakness, high gasoline prices reducing discretionary spending, competition from national chains and mass merchandisers, dependence on vendors for quality merchandise, and reliance on hiring qualified staff. The filing also highlights ESL's large ownership stake and the possibility that a credit rating downgrade would raise borrowing costs.
What is the status of the Robinson-Patman Act litigation?
The Coalition for a Level Playing Field lawsuit was dismissed in September 2010. In September 2011, the court denied the four remaining plaintiffs' motion to file a Third Amended Complaint. AutoZone believes the suit is without merit, is vigorously defending against it, and cannot estimate any possible loss.
How does AutoZone plan to use capital going forward?
Management expects to increase investment in fiscal 2012 relative to fiscal 2011, directing spending toward new stores and existing-store enhancements. The company has increased its revolving credit facility to $1.0 billion, and the board raised the cumulative buyback authorization to $11.15 billion, with $218.6 million remaining before the September 2011 increase. The company does not pay a dividend.
06—Continue