10-QPeriod: Q2 FY2016

AUTOZONE INC Quarterly Report for Q2 Ended Feb 13, 2016

Filed March 22, 2016For Securities:AZO

Summary

AutoZone Inc. reported strong results for the twelve-week period ended February 13, 2016, with net sales increasing by 5.3% year-over-year to $2.257 billion. This growth was primarily driven by a 3.6% increase in domestic same-store sales and contributions from new store openings. Diluted earnings per share saw a significant increase of 14.2%, reaching $7.43, up from $6.51 in the prior year period. This improvement was partly attributed to the company's aggressive share repurchase program, which added $0.42 to the EPS. The company experienced an improvement in gross margin to 52.7% from 52.2% in the prior year, driven by higher merchandise margins. Despite an increase in operating expenses as a percentage of sales due to store payroll and prior year legal settlements, AutoZone demonstrated robust profitability. Financially, the company generated healthy operating cash flow of $530.6 million for the year-to-date period, demonstrating strong operational performance and effective cash management. Management also highlighted the strategic initiatives aimed at increasing inventory availability and expanding product assortments, positioning the company for continued growth.

Financial Highlights

48 data points
Beta

Revenue

$2.26B

52.7% Gross Margin

Net Income

$228.61M

10.1% Net Margin

EPS (Diluted)

$7.43

Total Assets

$8.37B

Cash & Equivalents

$207.96M

Free Cash Flow

$115.48M

Financial Statements
Beta
Revenue$2.26B
Cost of Revenue$1.07B
Gross Profit$1.19B
SG&A Expenses$807.94M
Operating Income$382.66M
Net Income$228.61M
EPS (Basic)$7.58
EPS (Diluted)$7.43
Shares Outstanding (Basic)30.17M
Shares Outstanding (Diluted)30.78M

Key Highlights

  • 1Net sales increased by 5.3% to $2.257 billion for the twelve weeks ended February 13, 2016, compared to the prior year period.
  • 2Domestic same-store sales grew by 3.6%, indicating strong underlying store performance.
  • 3Diluted earnings per share (EPS) rose by 14.2% to $7.43, demonstrating improved profitability.
  • 4Gross profit margin improved to 52.7% from 52.2% due to higher merchandise margins.
  • 5Operating cash flow for the year-to-date period was $530.6 million, up from $476.5 million in the prior year, indicating strong cash generation.
  • 6The company continued its active share repurchase program, with $547.8 million remaining authorization as of February 13, 2016, contributing positively to EPS.
  • 7Strategic initiatives focused on increasing inventory availability and expanding product assortments are being rolled out to drive future growth.

Frequently Asked Questions

AutoZone's sales growth was primarily driven by a 3.6% increase in domestic same-store sales and net sales of $37.0 million from new store openings. The company also benefited from favorable macroeconomic factors like lower gas prices, which potentially increased consumer disposable income, and the timing of income tax refunds.

Profitability improved significantly. The gross profit margin increased to 52.7% from 52.2% due to higher merchandise margins. Diluted earnings per share grew by 14.2% to $7.43. The company's operating profit also saw an increase, reflecting the sales growth and margin improvements.

AutoZone generated strong operating cash flow of $530.6 million for the year-to-date period. The company has significant availability under its revolving credit facilities ($1.709 billion as of February 13, 2016) to support its operations and capital expenditures. While debt levels are substantial, the company maintained its adjusted debt to EBITDAR ratio at 2.5:1, which it uses to manage debt levels and maintain investment-grade credit ratings.

AutoZone is focused on strategic initiatives to increase inventory availability, expand product assortments, and enhance its supply chain. This includes rolling out more frequent deliveries to domestic stores and expanding its 'mega hub' strategy. The company also continues to expand its store footprint with new openings.