01—Abstract
Summary
Summary of the 10-K filed October 27, 2014. Cited figures are marked; the original filing is the authoritative source.
AutoZone's fiscal 2014 (ended August 30, 2014) was a year of record profitability and continued store expansion.
Net sales rose 3.6% to $9.475 billiona, driven by a 2.8% domestic same-store sales increase and 190 net new stores, bringing the store base to 5,391 across the U.S., Mexico, and Brazil. Gross margin improved to 52.1% of sales, while operating SG&A rose to 32.8% of sales, leaving operating profit up 3.2% to $1.830 billion. Net income reached a record $1.070 billion (up 5.2%), and diluted EPS grew 13.6% to $31.57, helped by a 7.4% reduction in diluted share count from buybacks.
Capital allocation remains debt-funded and buyback-heavy. AutoZone repurchased $1.099 billionb of stock in fiscal 2014 and has $869 million left under its authorization after the June 2014 increase to $14.9 billion cumulative. Operating cash flow was $1.341 billion against $438 million of capex, and total debt rose to $4.34 billion.
The company carries a stockholders' deficit of $1.62 billionc and pays no dividend, a structure that reflects its use of leverage to return capital. Adjusted debt to EBITDAR held at 2.5x, and the company stated its investment-grade ratings are a priority. Accounts payable equal 115% of inventory, which keeps working capital negative.
Looking forward, management expects increased investment in fiscal 2015, including new stores, supply chain upgrades, and the roughly $80 milliond acquisition of Interamerican Motor Corporation, closed in September 2014. Key risks disclosed include competitive pressure from consolidating rivals, reliance on the aging vehicle fleet and miles driven, a New Jersey environmental liability dispute, and a California hazardous waste subpoena. Given the company's leverage and buyback program, investors should weigh continued earnings growth against rising debt and the sensitivity of demand to consumer cash flows and fuel prices.
02—Key points
Key Highlights
- Record fiscal 2014 net income of $1.070 billion, up 5.2%, with diluted EPS up 13.6% to $31.57
- Net sales of $9.475 billion, up 3.6%; domestic same-store sales rose 2.8%
- Store count reached 5,391 after 190 net new stores; 3,845 domestic stores offer commercial programs
- Gross margin improved to 52.1% of sales, while SG&A rose to 32.8% of sales, leaving operating margin near 19.3%
- Share repurchases of $1.099 billion in fiscal 2014; $869 million remains under the authorization
- Total debt of $4.34 billion and a stockholders' deficit of $1.62 billion; adjusted debt to EBITDAR steady at 2.5x
- Operating cash flow of $1.341 billion funded $438 million of capex; accounts payable at 115% of inventory
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, AutoZone Inc kept $0.11.
- Revenue$9.48B100.0%
- Cost of revenue−$4.54B47.9%
- Gross profit$4.93B52.1%
- Operating costs−$3.10B32.8%
- Operating income$1.83B19.3%
- Interest, other & tax−$760.5M8.0%
- Net income$1.07B11.3%
Where FY2014 revenue went
$9.48B- Cost of revenue: $4.54B, 48% of revenue
- SG&A: $3.10B, 33% of revenue
- Net income: $1.07B, 11% of revenue
- Interest, other & tax: $760.5M, 8.0% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed October 27, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $9.48B$9.15B | +3.6% |
| Cost of Revenue | $4.54B$4.41B | +3.0% |
| Gross Profit | $4.93B$4.74B | +4.1% |
| SG&A Expenses | $3.10B$2.97B | +4.6% |
| Operating Income | $1.83B$1.77B | +3.2% |
| Interest Expense | $170.40M$188.32M | −9.5% |
| Net Income | $1.07B$1.02B | +5.2% |
| EPS (Basic) | $32.16$28.28 | +13.7% |
| EPS (Diluted) | $31.57$27.79 | +13.6% |
| Shares Outstanding (Basic) | 33.27M35.94M | −7.4% |
| Shares Outstanding (Diluted) | 33.88M36.58M | −7.4% |
05—Questions
Frequently Asked Questions
Why does AutoZone have a stockholders' deficit, and is it a concern?
The deficit results mainly from years of large share repurchases funded with debt and cash flow, which reduced equity. The company's cash flow and investment-grade credit ratings support this structure, and management targets a stable adjusted debt-to-EBITDAR ratio of about 2.5x. The deficit reflects capital allocation choices rather than operating losses, since the company is profitable and generates over $1 billion in annual operating cash flow.
How much growth is coming from new stores versus same-store sales?
In fiscal 2014, sales growth came from both sources. Same-store sales rose 2.8% domestically, and new stores plus commercial programs added about $165.9 million. Excluding the 53rd week in fiscal 2013, total sales grew 5.6%, which indicates the underlying growth rate was healthier than the reported 3.6% headline figure.
What are the main risks to AutoZone's business?
The 10-K highlights demand sensitivity to vehicle age, miles driven, fuel prices, and consumer cash flow. Competitive risks include consolidation among rivals and growing price transparency from online channels. Financial risks include reliance on debt markets, a possible ratings downgrade that would raise borrowing costs, and rising capital needs. Specific legal exposures include a New Jersey groundwater remediation dispute and a California hazardous waste subpoena, which management does not currently expect to be material.
What is the outlook for fiscal 2015?
Management said it expects to invest at a higher rate in fiscal 2015, focused on new stores, existing store enhancements, supply chain infrastructure, and the IMC acquisition for about $80 million. Capital expenditures per store are rising as the company shifts toward owned land and ground leases. Future growth also depends on continued new store openings and sustained same-store sales gains.
Why did the fourth quarter matter so much to annual results?
The fourth quarter runs 16 weeks, compared with 12 weeks for each of the first three quarters, and falls in the high-sales spring and summer season. In fiscal 2014, the fourth quarter represented 32.2% of annual sales and 34.9% of net income, so results in that quarter have a large effect on the full-year outcome.
06—Continue