10-QPeriod: Q1 FY2003

AUTOZONE INC Quarterly Report for Q1 Ended Nov 23, 2002

Filed December 20, 2002For Securities:AZO

Summary

AutoZone, Inc. reported solid performance for the twelve weeks ended November 23, 2002, with a 3.6% increase in net sales to $1.22 billion. This growth was driven by a 4.5% increase in comparable store sales and contributions from new store openings. The company also demonstrated improved profitability, with gross profit margin increasing to 45.1% from 43.9% in the prior year period, largely due to cost savings and the exclusion of the divested TruckPro business. Operating expenses as a percentage of sales decreased to 29.6% from 30.7%, indicating improved operational leverage. Financially, AutoZone strengthened its balance sheet by issuing $300 million in Senior Notes, partially used to pay down existing debt. Despite a significant use of cash from operations due to working capital requirements and derivative settlements, the company maintained a strong liquidity position. The company continues its aggressive share repurchase program, highlighting management's confidence in the business. A notable legal proceeding involving allegations under the Robinson-Patman Act is proceeding to trial, but management believes it has strong defenses.

Key Highlights

  • 1Net sales increased by 3.6% to $1.22 billion for the twelve weeks ended November 23, 2002, driven by comparable store sales growth of 4.5%.
  • 2Gross profit margin improved to 45.1% from 43.9% year-over-year, attributed to cost savings and the absence of the divested TruckPro business.
  • 3Operating expenses as a percentage of net sales decreased to 29.6% from 30.7%, indicating operational efficiencies.
  • 4The company issued $300 million in 5.875% Senior Notes due October 2012, utilizing proceeds to reduce debt.
  • 5Cash used in operating activities was $35.9 million, a decrease from cash provided in the prior year, primarily due to working capital needs.
  • 6Capital expenditures increased to $30.5 million, supporting the opening of 30 net new domestic stores and one new store in Mexico.
  • 7AutoZone continues its share repurchase program, having repurchased a significant amount of stock over time and holding equity forward contracts for future repurchases.

Frequently Asked Questions

Sales growth was primarily driven by a 4.5% increase in comparable store sales, meaning sales from stores open for at least one year, along with contributions from new store openings.

Profitability improved due to an increase in gross profit margin to 45.1%, driven by cost savings initiatives and the exclusion of the TruckPro business which was sold in the prior year. Operating expenses also decreased as a percentage of sales, indicating better operational leverage.

AutoZone is a defendant in a lawsuit concerning alleged violations of the Robinson-Patman Act. The trial is set to begin in January 2003. The company intends to vigorously defend itself and believes it has substantive defenses, though the outcome and potential damages are uncertain.

AutoZone issued $300 million in Senior Notes and used a portion of the proceeds to pay down existing debt. The company maintains significant revolving credit facilities and is confident in its ability to secure future financing. Despite a use of cash from operations, its overall liquidity position is robust.