10-QPeriod: Q2 FY2011

AUTOZONE INC Quarterly Report for Q2 Ended Feb 12, 2011

Filed March 17, 2011For Securities:AZO

Summary

AutoZone Inc. reported strong performance for the twelve weeks ended February 12, 2011, with a 10.3% increase in net sales to $1.66 billion, driven by a 7.1% rise in domestic same-store sales. This growth was observed in both retail and commercial customer segments. The company also saw a significant 35.8% increase in diluted earnings per share to $3.34, compared to the prior year period. This robust performance is attributed to improved merchandise gross margins, partly due to higher penetration of Duralast products and lower acquisition costs, as well as operating expense leverage. The company's strategic focus on refining its product assortment and operational efficiency appears to be yielding positive results. Despite challenging macroeconomic conditions like high unemployment, AutoZone has managed to capitalize on factors such as the increasing average age of vehicles on the road, which historically correlates with market growth. Furthermore, the company's aggressive share repurchase program continues to be a significant driver of shareholder value, with substantial repurchases executed during the period.

Financial Highlights

48 data points
Beta

Revenue

$1.66B

50.9% Gross Margin

Net Income

$148.06M

8.9% Net Margin

EPS (Diluted)

$3.34

Total Assets

$5.77B

Cash & Equivalents

$107.88M

Free Cash Flow

$21.21M

Financial Statements
Beta
Revenue$1.66B
Cost of Revenue$815.34M
Gross Profit$845.61M
SG&A Expenses$573.86M
Operating Expenses$573.86M
Operating Income$271.75M
Net Income$148.06M
EPS (Basic)$3.41
EPS (Diluted)$3.34
Shares Outstanding (Basic)43.40M
Shares Outstanding (Diluted)44.38M

Key Highlights

  • 1Net sales increased by 10.3% to $1.66 billion for the twelve weeks ended February 12, 2011.
  • 2Domestic same-store sales grew by a strong 7.1%, indicating healthy performance in existing locations.
  • 3Diluted earnings per share (EPS) saw a significant increase of 35.8% to $3.34 for the quarter.
  • 4Gross profit margin improved to 50.9% from 50.0% in the prior year period, driven by merchandise margins and lower shrink expense.
  • 5Operating expenses as a percentage of sales decreased slightly due to leverage on higher sales volumes.
  • 6The company repurchased $694.1 million of its common stock during the twenty-four week period ended February 12, 2011, underscoring a commitment to returning capital to shareholders.
  • 7AutoZone's proprietary Duralast product line continues to contribute to improved merchandise gross margins.

Frequently Asked Questions

The substantial increase in diluted earnings per share (35.8% to $3.34) was driven by a combination of strong net sales growth (10.3%), improved gross profit margins (50.9% from 50.0%), and operating expense leverage. The company benefited from higher merchandise gross margins, partially due to increased Duralast product sales and lower acquisition costs, as well as efficiencies in its operating expenses relative to sales. Additionally, significant share repurchases continued to positively impact EPS by reducing the number of outstanding shares.

The report highlights strong performance in AutoZone's physical stores, with a 7.1% increase in domestic same-store sales for the twelve-week period. This indicates that established brick-and-mortar locations are a primary driver of the company's sales growth. While e-commerce is mentioned as a channel, the core business and growth are clearly anchored in the Auto Parts Stores segment, which represents the vast majority of net sales and segment profit.

AutoZone acknowledges that macroeconomic factors like the recent recession and high unemployment have positively impacted its sales growth. The company notes that the increasing average age of vehicles on the road is a favorable long-term trend for the industry. While fuel prices have increased, AutoZone does not believe it had a significant impact on its results for this quarter. The company remains focused on its strategy to help customers save money, positioning itself to benefit from challenging economic conditions, but it cannot predict the duration or extent of these impacts.

AutoZone has a significant level of debt, with long-term debt and commercial paper totaling over $3.2 billion as of February 12, 2011. The company recently issued $500 million in 4.000% Senior Notes due 2020. While average borrowings have increased, the weighted average borrowing rates have seen a slight decrease. AutoZone monitors its adjusted debt to EBITDAR ratio, aiming to maintain investment-grade credit ratings. The company also has a substantial share repurchase program, indicating a focus on returning capital to shareholders and managing its equity structure.