01—Abstract
Summary
Summary of the 10-K filed October 28, 2013. Cited figures are marked; the original filing is the authoritative source.
AutoZone's fiscal 2013 (53 weeks ended August 31, 2013) was a year of record profitability and continued expansion.
Net sales rose 6.3% to $9.148 billiona, and net income grew 9.3% to $1.016 billion, with diluted EPS up 18.3% to $27.79. Domestic comparable store sales were flat (0.0%), a sharp slowdown from 3.9% in fiscal 2012, so growth came mainly from 197 new stores (ending at 5,201 locations across the U.S., Mexico and Brazil), the 53rd week (about $177.7 million of sales), and the AutoAnything acquisition. Gross margin improved to 51.8% of sales, helped by lower product acquisition costs, while SG&A held at 32.4% of sales.
Management noted that the slowdown in maintenance sales was partly weather-related and that high gas prices and reduced payroll take-home pay are pressuring consumers. Capital allocation remains aggressive. AutoZone repurchased $1.39 billionb of stock in fiscal 2013 (3.5 million shares), funded by operating cash flow of $1.415 billion and net new debt.
The company pays no dividend. Total debt rose to $4.19 billionc, and stockholders' deficit widened to $(1.69) billion, a structural feature of its buyback strategy rather than a sign of distress. Leverage is managed to an adjusted debt-to-EBITDAR ratio of 2.5x, and the interest coverage covenant of 4.68x is well above the 2.50x minimum.
Investment-grade ratings are a key stated priority. Key risks include sensitivity to miles driven and gas prices, competition from online and mass merchants, reliance on vendor financing (accounts payable to inventory of 115.6%), and a $18.3 milliond goodwill impairment plus $4.1 million trade name impairment on AutoAnything. Investors should watch whether same-store sales can recover, whether the new-store program and higher capex per store continue to earn the company's required return (ROIC of 32.7%), and whether the vendor-financing model remains available.
02—Key points
Key Highlights
- Record net income of $1.016 billion (+9.3%) and diluted EPS of $27.79 (+18.3%), boosted by a 53rd week and a lower share count.
- Net sales reached $9.148 billion (+6.3%), with 197 new stores opened and total store count rising to 5,201.
- Domestic comparable store sales were flat (0.0%), down sharply from 3.9% in fiscal 2012, signaling softer underlying demand.
- Gross margin improved to 51.8% of sales, driven by lower product acquisition costs, while SG&A fell to 32.4% of sales.
- Repurchased $1.39 billion of stock; $468 million remains under the authorization after the June 2013 increase to $13.4 billion cumulative.
- Total debt increased to $4.19 billion, with an adjusted debt-to-EBITDAR of 2.5x and an interest coverage ratio of 4.68x against a 2.50x covenant.
- AutoAnything acquisition ($116 million cash) led to $22.4 million in impairment charges, partly offset by a $23.3 million contingent consideration reversal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, AutoZone Inc kept $0.11.
- Revenue$9.15B100.0%
- Cost of revenue−$4.41B48.2%
- Gross profit$4.74B51.8%
- Operating costs−$2.97B32.4%
- Operating income$1.77B19.4%
- Interest, other & tax−$756.6M8.3%
- Net income$1.02B11.1%
Where FY2013 revenue went
$9.15B- Cost of revenue: $4.41B, 48% of revenue
- SG&A: $2.97B, 32% of revenue
- Net income: $1.02B, 11% of revenue
- Interest, other & tax: $756.6M, 8.3% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed October 28, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $9.15B$8.60B | +6.3% |
| Cost of Revenue | $4.41B$4.17B | +5.6% |
| Gross Profit | $4.74B$4.43B | +7.0% |
| SG&A Expenses | $2.97B$2.80B | +5.9% |
| Operating Income | $1.77B$1.63B | +8.9% |
| Interest Expense | $188.32M$178.55M | +5.5% |
| Net Income | $1.02B$930.37M | +9.3% |
| EPS (Basic) | $28.28$24.04 | +17.6% |
| EPS (Diluted) | $27.79$23.48 | +18.4% |
| Shares Outstanding (Basic) | 35.94M38.70M | −7.1% |
| Shares Outstanding (Diluted) | 36.58M39.63M | −7.7% |
05—Questions
Frequently Asked Questions
Why did AutoZone's growth slow in fiscal 2013 despite record profits?
Domestic same-store sales were flat (0.0%) versus 3.9% a year earlier. Revenue growth came mainly from new stores (about $222 million), the extra 53rd week (about $178 million), and the AutoAnything acquisition. Management attributed part of the maintenance slowdown to milder weather compared with the prior year, and cited high gas prices and reduced take-home pay from payroll tax changes as headwinds.
How is AutoZone funding its share buybacks and does the stockholders' deficit matter?
Buybacks of $1.39 billion were funded by operating cash flow ($1.415 billion) and new debt, including $800 million of notes issued during the year. The stockholders' deficit of $(1.69) billion results from cumulative repurchases exceeding retained earnings, which is a common feature of leveraged buyback programs. Management says the strategy is designed to maintain investment-grade ratings, so the deficit is an accounting consequence rather than a liquidity problem.
What are the main risks to AutoZone's business model?
Key risks include lower vehicle miles driven and high gas prices that reduce DIY spending, competition from national chains, online retailers and mass merchants, and dependence on vendors that extend payment terms and factor receivables. A downgrade in credit ratings could raise borrowing costs. Other items include new-store execution, cyber security, and goodwill impairment risk from acquisitions such as AutoAnything.
Does AutoZone pay dividends, and how much capacity is left for buybacks?
AutoZone pays no dividend on its common stock, and Nevada law governs its ability to pay one. About $468.4 million remained under the repurchase authorization at August 31, 2013. The company repurchased an additional $149.8 million of shares (355,150 shares) after year-end, which reduces that remaining capacity further.
What is the outlook for capital spending and new store growth?
Management expects to invest at a higher rate in fiscal 2014, mainly in new stores and existing store enhancements. Capex rose about 10% in fiscal 2013, and the shift from build-to-suit leases toward ground leases and land purchases is expected to raise capital expenditure per store. Store growth has averaged roughly 5% per year over the past five years, but management did not guarantee that pace will continue.
06—Continue