10-QPeriod: Q3 FY2017

AUTOZONE INC Quarterly Report for Q3 Ended May 6, 2017

Filed June 14, 2017For Securities:AZO

Summary

AutoZone Inc. reported its third-quarter fiscal year 2017 results, indicating modest top-line growth with net sales increasing by 1.0% to $2.619 billion. This growth was primarily driven by new store openings, as comparable store sales saw a slight decline of 0.8%. Diluted earnings per share (EPS) saw a healthy increase of 6.2% to $11.44, benefiting from effective cost management and a lower effective tax rate due to the adoption of new accounting guidance for share-based payments. The company continued its strategic investments in new locations and supply chain infrastructure, with capital expenditures increasing year-over-year. Despite these investments and some headwinds from delayed tax refunds and rising gas prices impacting consumer spending capacity, AutoZone demonstrated resilience. The company maintained a strong liquidity position with significant availability under its revolving credit facilities and continued its robust share repurchase program, returning substantial capital to shareholders.

Financial Highlights

47 data points
Beta

Revenue

$2.62B

52.6% Gross Margin

Net Income

$331.70M

12.7% Net Margin

EPS (Diluted)

$11.44

Total Assets

$9.03B

Cash & Equivalents

$227.14M

Free Cash Flow

$303.50M

Financial Statements
Beta
Revenue$2.62B
Cost of Revenue$1.24B
Gross Profit$1.38B
SG&A Expenses$848.85M
Operating Income$529.57M
Net Income$331.70M
EPS (Basic)$11.70
EPS (Diluted)$11.44
Shares Outstanding (Basic)28.36M
Shares Outstanding (Diluted)29.00M

Key Highlights

  • 1Net sales increased by 1.0% to $2.619 billion for the twelve weeks ended May 6, 2017.
  • 2Comparable store sales decreased by 0.8%, while sales from new domestic AutoZone stores contributed $41.5 million.
  • 3Diluted earnings per share (EPS) increased by 6.2% to $11.44 compared to the prior year period.
  • 4Gross margin slightly decreased to 52.6% from 52.8% due to higher supply chain costs and inventory shrink.
  • 5Operating expenses as a percentage of sales increased to 32.4% from 32.2% due to fixed cost deleverage and higher self-insurance costs.
  • 6The company adopted new accounting guidance for share-based payments, which positively impacted EPS by $0.32 for the quarter and lowered the effective tax rate.
  • 7Capital expenditures increased to $357.9 million for the thirty-six week period ended May 6, 2017, reflecting investments in new distribution centers and store openings.

Frequently Asked Questions

Sales growth was primarily driven by new store openings, which contributed $41.5 million in net sales for the quarter. However, comparable store sales experienced a slight decline of 0.8%.

AutoZone adopted ASU 2016-09, improving accounting for share-based payments. This adoption positively impacted diluted EPS by $0.32 for the quarter, primarily through a lower effective tax rate (a benefit of $0.40) and a reduction in diluted shares calculation (an offset of $0.08).

AutoZone continued its aggressive share repurchase program, spending $844.2 million during the thirty-six week period ended May 6, 2017. The company had approximately $1.051 billion remaining under its authorization for future repurchases, demonstrating a continued commitment to returning capital to shareholders.

The company highlighted the impact of fuel costs and the timing of income tax refunds on consumer spending. Specifically, a significant increase in gas prices can reduce consumer disposable income, and delays in tax refund processing, as experienced in the current quarter, can negatively affect sales, especially for their more economically challenged customers.