01—Abstract
Summary
Summary of the 10-K filed October 26, 2015. Cited figures are marked; the original filing is the authoritative source.
AutoZone's fiscal 2015 (year ended August 29, 2015) was a record year: net income rose 8.5% to $1.160 billiona, net sales grew 7.5% to $10.187 billion, and diluted EPS increased 14.1% to $36.03.
Domestic same-store sales rose 3.8%, driven by lower gas prices (average $2.69b/gallon versus $3.48 the prior year), an aging vehicle fleet (average age 11.5 years), and the IMC acquisition. Gross margin improved modestly to 52.3% of sales, while SG&A rose to 33.1% of sales, reflecting higher legal costs and IMC integration. Return on invested capital eased to 31.2% from 32.1%, which management attributes to higher average debt and new investments that are currently diluting operating margins.
Capital allocation remained aggressive. AutoZone opened 202 new locations, spent $480.6 millionc on capex, and repurchased $1.271 billion of stock, funded largely by operating cash flow of $1.525 billion and roughly $300 million of net new debt. The board raised the cumulative buyback authorization by $750 million to $16.4 billion in October 2015, leaving about $838 million available after subsequent repurchases.
The company pays no dividend. Its balance sheet carries a stockholders' deficit of $1.70 billiond, a common feature of leveraged buyback strategies, but it maintains investment-grade ratings, with adjusted debt to EBITDAR at 2.5x and interest coverage at 5.3x against a 2.5x covenant. Key risks flagged in the filing include slowing demand if vehicle miles or the aging fleet decline, intensifying competition (including consolidation among rivals and online retailers), reliance on vendors and extended payment terms (accounts payable to inventory of 112.9%), and foreign currency exposure to Mexico, where the peso fell about 29% against the dollar during fiscal 2015.
Mexican net assets exposed to translation were $366.7 million. Legal matters are modest: a New Jersey groundwater remediation dispute, a California hazardous-waste subpoena, and wage-and-hour class actions, none of which management considers material.
02—Key points
Key Highlights
- Record fiscal 2015 net income of $1.160 billion (+8.5%) and diluted EPS of $36.03 (+14.1%), helped by a sharply lower effective interest burden and share count reduction (diluted shares fell to 32.2 million from 33.9 million).
- Net sales reached $10.187 billion (+7.5%), with domestic same-store sales up 3.8% and 202 new store openings, bringing total locations to 5,609 across the U.S., Mexico, Brazil and IMC branches.
- Gross margin expanded to 52.3% from 52.1%, but operating SG&A rose to 33.1% of sales from 32.8%, driven by higher legal costs and the IMC acquisition.
- Operating cash flow of $1.525 billion funded $480.6 million of capex and $1.271 billion of share repurchases, with the board adding $750 million to the buyback authorization in October 2015.
- Balance sheet shows total debt of $4.62 billion and a stockholders' deficit of $1.70 billion; the company remains investment grade with adjusted debt/EBITDAR of 2.5x and interest coverage of 5.3x.
- ROIC declined to 31.2% from 32.1% as higher average debt and new investments dilute operating margins, a point management explicitly flagged.
- Mexican peso depreciated roughly 29% against the dollar in fiscal 2015, creating translation headwinds on the Mexican net asset base of $366.7 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, AutoZone Inc kept $0.11.
- Revenue$10.19B100.0%
- Cost of revenue−$4.86B47.7%
- Gross profit$5.33B52.3%
- Operating costs−$3.37B33.1%
- Operating income$1.95B19.2%
- Interest, other & tax−$792.8M7.8%
- Net income$1.16B11.4%
Where FY2015 revenue went
$10.19B- Cost of revenue: $4.86B, 48% of revenue
- SG&A: $3.37B, 33% of revenue
- Net income: $1.16B, 11% of revenue
- Interest, other & tax: $792.8M, 7.8% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed October 26, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $10.19B$9.48B | +7.5% |
| Cost of Revenue | $4.86B$4.54B | +7.0% |
| Gross Profit | $5.33B$4.93B | +7.9% |
| SG&A Expenses | $3.37B$3.10B | +8.7% |
| Operating Income | $1.95B$1.83B | +6.7% |
| Interest Expense | $153.01M$170.40M | −10.2% |
| Net Income | $1.16B$1.07B | +8.5% |
| EPS (Basic) | $36.76$32.16 | +14.3% |
| EPS (Diluted) | $36.03$31.57 | +14.1% |
| Shares Outstanding (Basic) | 31.56M33.27M | −5.1% |
| Shares Outstanding (Diluted) | 32.21M33.88M | −4.9% |
05—Questions
Frequently Asked Questions
How strong was AutoZone's fiscal 2015 earnings growth?
Net income grew 8.5% to $1.160 billion and diluted EPS rose 14.1% to $36.03. EPS growth outpaced net income growth because of the company's ongoing share repurchases, which reduced diluted shares outstanding by about 5% year over year.
What drove sales growth in fiscal 2015?
Net sales rose 7.5% to $10.187 billion. Growth came primarily from domestic same-store sales (+3.8%), $185.1 million in sales from new stores, and the inclusion of IMC, the import parts distributor acquired in September 2014. Lower gas prices and an aging vehicle fleet (average age 11.5 years) were cited as demand tailwinds.
Is AutoZone's balance sheet a concern given the stockholders' deficit?
The deficit of $1.70 billion results from years of large buybacks funded partly with debt rather than from operating losses. The company remains investment grade, with adjusted debt to EBITDAR of 2.5x and an interest coverage ratio of 5.3x against a 2.5x covenant minimum. Accounts payable of $3.86 billion covers 112.9% of inventory, reducing the working capital needed to fund growth. Investors should still watch the rising debt load, which increased from $4.3 billion to $4.6 billion over the year.
Why did AutoZone's return on invested capital decline?
ROIC fell to 31.2% from 32.1% mainly because average debt increased and recent investments in new locations, supply chain infrastructure and the IMC acquisition are currently diluting operating margins. Management expects capex to rise further in fiscal 2016, which could keep ROIC under pressure in the near term.
What are the main risks highlighted in the filing?
Key risks include demand sensitivity to vehicle miles driven, gas prices and the aging vehicle fleet; competition from national chains, online retailers and mass merchants; consolidation among rivals; reliance on vendor credit terms and supplier financing; foreign currency exposure, particularly in Mexico; and cybersecurity and IT system dependence. Legal proceedings, including a New Jersey remediation dispute and a California hazardous waste subpoena, were not considered material by management.
06—Continue