01—Abstract
Summary
Summary of the 8-K filed May 21, 2024. Cited figures are marked; the original filing is the authoritative source.
AutoZone reported fiscal Q3 2024 results (12 weeks ended May 4, 2024) with net sales of $4.24 billiona, up 3.5% year over year.
Total company same store sales rose 1.9% as reported and 0.9% in constant currency. Domestic same store sales were flat, while international same store sales grew 9.3% in constant currency. Diluted EPS rose 7.5% to $36.69b, and operating profit increased 4.9% to $900.2 million.
Net income was $651.7 millionc, compared with $647.7 million a year earlier. Management said the quarter was hurt domestically by the timing of tax refunds early in the period and cooler-than-usual weather later on, but that the bottom line came in stronger than planned. Margins were a mixed picture.
Gross margin expanded 102 basis points to 53.5%, driven by higher merchandise margins and a 15 basis point non-cash LIFO benefit. Operating expenses rose to 32.2% of sales from 31.5%, mainly because of higher store payroll. Interest expense, net, nearly doubled to $104.4 milliond from $74.3 million, and capital spending rose sharply to $235 million in the quarter and $726 million year to date.
Quarterly operating cash flow was $669 million, down from $725 million. Balance sheet leverage increased, with adjusted debt to EBITDAR at 2.5x versus 2.3x a year earlier and a $500 million current portion of debt.
The company repurchased $734.7 million of stock during the quarter and had $1.4 billion remaining under its authorization. AutoZone added 45 net new stores, bringing its total to 7,236.
02—Key points
Key Highlights
- Net sales of $4.24 billion, up 3.5% year over year; total company same store sales +0.9% in constant currency (+1.9% reported).
- Domestic same store sales were flat (0.0%), reflecting weather and tax-refund timing headwinds, while international same store sales grew 9.3% in constant currency.
- Diluted EPS rose 7.5% to $36.69; operating profit increased 4.9% to $900.2 million; net income was $651.7 million versus $647.7 million.
- Gross margin expanded 102 basis points to 53.5%, helped by higher merchandise margins and a 15 basis point ($7 million) non-cash LIFO benefit, while operating expenses deleveraged to 32.2% of sales from 31.5%.
- Interest expense, net, rose to $104.4 million from $74.3 million, and adjusted debt to EBITDAR increased to 2.5x from 2.3x, reflecting higher leverage.
- Capital spending rose to $235 million in the quarter and $726 million year to date (vs. $430 million a year earlier), while quarterly operating cash flow declined to $669 million from $725 million.
- Repurchased 242 thousand shares for $734.7 million at an average price of about $3,036; $1.4 billion remains under the buyback authorization. Store count reached 7,236 after 45 net new openings.
03—Questions
Frequently Asked Questions
Why was domestic same store sales flat, and is the weakness expected to continue?
Management attributed the flat domestic result to two factors: a slow start to the quarter caused by the timing of tax refunds, and cooler-than-usual weather in several regions later in the quarter. Management said it is focused on inventory availability, commercial growth, and customer service ahead of the summer selling season. The release does not provide a domestic same store sales outlook, so investors should look to the earnings call and future quarters to judge whether this is temporary.
How did AutoZone achieve EPS growth when same store sales were nearly flat?
EPS growth of 7.5% came mainly from gross margin expansion of 102 basis points, which was driven by higher merchandise margins and a LIFO benefit, along with new store growth and share repurchases. Share count fell meaningfully (diluted weighted average shares were 17.8 million versus 19.0 million a year earlier). Those gains were partly offset by higher operating expense as a share of sales and much higher net interest expense.
Is AutoZone's balance sheet becoming more leveraged?
Yes. Adjusted debt to EBITDAR rose to 2.5x from 2.3x year over year. Debt, excluding the current portion, increased to $8.5 billion from $7.3 billion, and a $500 million current portion of debt now appears on the balance sheet. Net interest expense rose 40% in the quarter. The company's stockholders' deficit also widened to $4.8 billion. Management says it targets a capital structure that maintains its investment-grade credit ratings. Adjusted after-tax ROIC remained high at 51.4%, though it was down from 55.2%.
What are the main drivers of the international business's strong growth?
International same store sales rose 9.3% in constant currency for the quarter (18.1% reported, with the difference from foreign currency effects). The release reports 12 new stores in Mexico and one in Brazil during the quarter, and it describes these markets as strong performers. However, the release does not break out international margins or profit contribution, so investors cannot yet judge how much this growth adds to overall profitability.
Is there an inconsistency in the filing's dates that investors should be aware of?
Yes. Item 2.02 of the 8-K says the press release announcing earnings was issued on March 21, 2024, but the exhibit (Press Release dated May 21, 2024) and the body of the release both show that results were announced on May 21, 2024. The May 21 date is consistent with the fiscal quarter ended May 4, 2024, so the March 21 reference appears to be a typographical error. Investors should confirm the date against the official EDGAR record.
04—Continue