10-QPeriod: Q1 FY2023

AUTOZONE INC Quarterly Report for Q1 Ended Nov 19, 2022

Filed December 20, 2022For Securities:AZO

Summary

AutoZone, Inc. reported a 8.6% increase in net sales for the quarter ended November 19, 2022, reaching $4.0 billion, driven by a 5.6% increase in domestic same-store sales and a strong 14.9% growth in domestic commercial sales. Despite the top-line growth, operating profit saw a slight decrease of 4.2% to $723.0 million, and net income declined by 2.9% to $539.3 million compared to the prior year. This was largely attributed to a significant $81.0 million non-cash LIFO charge recognized in the current quarter, primarily due to increased freight costs. Excluding the LIFO charge, adjusted operating profit increased by 6.6% and adjusted net income grew by 8.3%. Diluted earnings per share (EPS) increased by 6.9% to $27.45, or a notable 19.2% increase to $30.62 on an adjusted basis. The company continues to prioritize returning capital to shareholders, repurchasing $900.0 million in stock during the quarter and having $2.7 billion remaining under its authorized share repurchase program.

Financial Highlights

44 data points
Beta

Revenue

$3.99B

50.1% Gross Margin

Net Income

$539.32M

13.5% Net Margin

EPS (Diluted)

$27.45

Total Assets

$15.32B

Cash & Equivalents

$269.79M

Free Cash Flow

$679.19M

Financial Statements
Beta
Revenue$3.99B
Cost of Revenue$1.99B
Gross Profit$1.99B
SG&A Expenses$1.27B
Operating Income$723.03M
Net Income$539.32M
EPS (Basic)$28.37
EPS (Diluted)$27.45
Shares Outstanding (Basic)19.01M
Shares Outstanding (Diluted)19.64M

Key Highlights

  • 1Net sales increased by 8.6% year-over-year to $4.0 billion, primarily driven by domestic same-store sales growth of 5.6% and strong commercial sales growth of 14.9%.
  • 2Operating profit decreased by 4.2% to $723.0 million due to a significant $81.0 million non-cash LIFO charge, mainly from increased freight costs.
  • 3Net income declined by 2.9% to $539.3 million, but adjusted net income (excluding the LIFO charge) increased by 8.3%.
  • 4Diluted EPS rose 6.9% to $27.45, with adjusted diluted EPS showing a substantial 19.2% increase to $30.62.
  • 5Inventory levels saw a slight decrease to $5.608 billion from $5.638 billion in the prior quarter.
  • 6The company repurchased $900.0 million of its common stock during the quarter, underscoring its commitment to capital return.
  • 7Total assets slightly increased to $15.316 billion from $15.275 billion in the prior quarter, while total liabilities also saw a slight increase.

Frequently Asked Questions

The decrease in gross profit margin from 52.5% to 50.1% was primarily due to a significant $81.0 million non-cash LIFO (Last-In, First-Out) charge. This charge is mainly attributed to rising freight costs. Additionally, the accelerated growth in the commercial business contributed to margin deleverage.

Merchandise inventories decreased slightly from $5.638 billion at the end of the previous quarter (August 27, 2022) to $5.608 billion as of November 19, 2022. The company also noted that its LIFO credit reserve balance increased due to price inflation on merchandise purchases, primarily driven by increased freight costs.

AutoZone continues to actively repurchase its common stock. During the twelve weeks ended November 19, 2022, the company repurchased $900.0 million worth of stock. As of November 19, 2022, there was $2.7 billion remaining under the Board's authorized share repurchase program, indicating an ongoing commitment to capital return.

The $81.0 million non-cash LIFO charge significantly impacted reported net income and earnings per share. Excluding this charge, adjusted net income increased by 8.3% and adjusted diluted EPS saw a substantial rise of 19.2%, highlighting the underlying operational strength of the business before this accounting adjustment.