01—Abstract
Summary
Summary of the 8-K filed February 27, 2024. Cited figures are marked; the original filing is the authoritative source.
AutoZone's fiscal Q2 2024 (12 weeks ended February 10, 2024) showed solid profit growth despite soft U.S. comparable sales.
Net sales rose 4.6% to $3.86 billiona, and total company same store sales increased 3.0% (1.5% in constant currency). Domestic same store sales were essentially flat at +0.3%, pressured by a difficult Christmas and New Year's holiday comparison, while international same store sales surged 23.9% (10.6% constant currency). Gross margin expanded 160 basis points to 53.9%, helped by higher merchandise margins and a $24 million non-cash LIFO benefit, which more than offset operating expense deleverage from domestic store payroll and technology investments.
Operating profit rose 10.9% to $743.2 millionb, and diluted EPS increased 17.2% to $28.89, aided by a sharply lower share count (17.8 million diluted shares versus 19.3 million a year earlier). The quarter also highlighted AutoZone's continued use of leverage to fund buybacks and growth. Interest expense, net rose to $102.6 million from $65.6 million, and total debt climbed to $8.63 billion from $7.04 billion a year earlier, while the stockholders' deficit widened to $(4.84) billion.
The company repurchased 84 thousand shares for $223.8 millionc and had $2.1 billion remaining under its authorization. Management reiterated that it targets a capital structure that maintains investment-grade credit ratings, with adjusted debt to EBITDAR at 2.4x versus 2.3x a year ago. Adjusted after-tax ROIC was 53.5%, slightly below the prior year's 54.7%.
Operationally, AutoZone opened 26 net new stores in the quarter, bringing its total to 7,191 across the U.S., Mexico and Brazil. Inventory grew 4.2%d year over year, driven by new store growth, while accounts payable coverage of inventory declined to 119.8% from 127.7%. Investors will likely focus on whether domestic comparable sales can re-accelerate, whether margin gains persist, and whether rising interest costs and debt levels constrain the company's capital return strategy over time.
02—Key points
Key Highlights
- Net sales increased 4.6% to $3.86 billion; operating profit rose 10.9% to $743.2 million.
- Diluted EPS grew 17.2% to $28.89, supported by a share count reduction of roughly 8% year over year (17.8M vs. 19.3M diluted shares).
- Domestic same store sales were nearly flat at +0.3% versus a 5.3% gain a year earlier, reflecting a tough holiday comparison; international same store sales rose 23.9% (10.6% constant currency).
- Gross margin expanded 160 bps to 53.9%, driven by merchandise margin gains, a $24M non-cash LIFO benefit, and supply chain cost favorability.
- Operating expenses deleveraged to 34.6% of sales from 34.1%, largely due to domestic store payroll and technology investments.
- Interest expense, net nearly doubled? Not quite: it rose 56% to $102.6M, while total debt increased to $8.63B from $7.04B, with the stockholders' deficit widening to $(4.84)B.
- Repurchased $223.8M of stock in the quarter with $2.1B remaining under authorization; adjusted debt/EBITDAR at 2.4x versus 2.3x a year ago.
03—Questions
Frequently Asked Questions
Why were domestic same store sales so weak this quarter?
Management attributed the slowdown to a difficult comparison against the Christmas and New Year's holiday periods, which negatively affected quarterly sales. Domestic same store sales rose just 0.3% compared with a 5.3% increase in the prior-year quarter, and the 24-week figure was 0.8%.
What drove the strong EPS growth despite modest sales growth?
Diluted EPS rose 17.2% to $28.89, outpacing the 8.1% growth in net income. The difference came mainly from a lower diluted share count, which fell to 17.8 million from 19.3 million, reflecting ongoing share repurchases.
Is the margin improvement sustainable?
Part of the 160 bps gross margin gain came from a 63 bps non-cash LIFO benefit worth about $24 million, which is not recurring cash profit. The remaining improvement was attributed to higher merchandise margins and favorable supply chain costs, which may be more durable, though operating expense deleverage partly offset these gains.
Is AutoZone's rising debt a concern for investors?
Total debt increased to $8.63 billion from $7.04 billion, and net interest expense rose to $102.6 million from $65.6 million. However, adjusted debt to EBITDAR was 2.4x, only modestly above 2.3x a year earlier, and management stated it targets a capital structure that preserves investment-grade credit ratings.
How much capital is AutoZone returning to shareholders and how much room remains?
The company repurchased 84 thousand shares for $223.8 million during the quarter at an average price of about $2,676. It had $2.1 billion remaining under its current repurchase authorization at quarter end, and cumulative repurchases since fiscal 1998 totaled $35.5 billion.
04—Continue