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AutoZone 3rd Quarter Same Store Sales Increase 0.6%; EPS Increases 17.3% to $13.42

MEMPHIS, Tenn., May 22, 2018 (GLOBE NEWSWIRE) -- AutoZone, Inc. (NYSE:AZO) today reported net sales of $2.7 billion for its third quarter (12 weeks) ended May 5, 2018, an increase of 1.6% from the third quarter of fiscal 2017 (12 weeks).  Domestic same store sales, or sales for stores open at least one year, increased 0.6% for the quarter.

Net income for the quarter increased 10.6% over the same period last year to $366.7 million, while diluted earnings per share increased 17.3% to $13.42 per share from $11.44 per share in the year-ago quarter.  Net income and diluted earnings per share benefitted from a lower effective income tax rate, primarily due to the recent tax reform. 

For the quarter, gross profit, as a percentage of sales, was 53.5% (versus 52.6% for the same period last year).  The increase in gross margin was attributable to higher merchandise margins and the favorable comparison from the impact of the previously announced sale of two business units completed during the quarter (40 bps).  Operating expenses, as a percentage of sales, were 33.0% (versus 32.4% the same period last year), with deleverage driven by occupancy costs (27 bps) and increased store payroll.

Under its share repurchase program, AutoZone repurchased 599 thousand shares of its common stock for $400 million during the third quarter, at an average price of $667 per share.  Year-to-date, the Company had repurchased 1.4 million of its common shares for $927 million, at an average price of $651 per share.  At the end of the third quarter, the Company had $897 million remaining under its current share repurchase authorization. 

The Company’s inventory increased 3.7% over the same period last year, driven by new stores and increased product placement, partially offset by the impact of the sale of two business units.  Inventory per location was $658 thousand versus $653 thousand last year and $671 thousand last quarter.  Net inventory, defined as merchandise inventories less accounts payable, on a per location basis, was a negative $48 thousand versus negative $47 thousand last year and negative $46 thousand last quarter.

“I would like to thank our entire organization for delivering solid financial results in spite of a softer than expected sales environment.  As we entered the third quarter, we were optimistic about our sales prospects for Q3 since we were coming off the first reasonably severe winter in the last three years.  Unfortunately, we had a very cold, wet spring through March and much of April and our sales didn’t respond until spring-like weather arrived in late April.  When the conditions improved, our performance improved significantly which reinforces our optimism about the balance of the selling season.  Our ongoing initiatives, which include enhanced inventory availability, further commercial acceleration and new omni-channel selling initiatives, continue to gain traction as we roll them further across our chain.  As we continue to invest in our business, we remain committed to our disciplined approach of increasing operating earnings and cash flow, and utilizing our balance sheet and capital effectively,” said Bill Rhodes, Chairman, President and Chief Executive Officer.

During the quarter ended May 5, 2018, AutoZone opened 26 new stores and relocated two stores in the U.S., opened four new stores in Mexico and opened no new stores in Brazil.  As of May 5, 2018, the Company had 5,540 stores in 50 states in the U.S., the District of Columbia and Puerto Rico, 536 stores in Mexico, and 16 stores in Brazil for a total store count of 6,092.

AutoZone is the leading retailer and a leading distributor of automotive replacement parts and accessories in the United States.  Each AutoZone store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products.  Many stores also have a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations, and public sector accounts.  AutoZone also sells the ALLDATA brand diagnostic and repair software through www.alldata.com. Additionally, we sell automotive hard parts, maintenance items, accessories, and non-automotive products through www.autozone.com and our commercial customers can make purchases through www.autozonepro.comAutoZone does not derive revenue from automotive repair or installation.

AutoZone will host a conference call this morning, Tuesday, May 22, 2018, beginning at 10:00 a.m. (EDT) to discuss its third quarter results.  Investors may listen to the conference call live and review supporting slides on the AutoZone corporate website, www.autozoneinc.com by clicking “Investor Relations,” “Conference Calls.”  The call will also be available by dialing (210) 839-8923.  A replay of the call and slides will be available on AutoZone’s website.  In addition, a replay of the call will be available by dialing (203) 369-1211 through Tuesday, May 29, 2018, at 11:59 p.m. (EDT).

This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”).  These non-GAAP measures include adjustments to reflect return on invested capital, adjusted debt, adjusted debt to EBITDAR and cash flow before share repurchases.  The Company believes that the presentation of these non-GAAP measures provides information that is useful to investors as it indicates more clearly the Company’s comparative year-to-year operating results, but this information should not be considered a substitute for any measures derived in accordance with GAAP.  Management targets the Company’s capital structure in order to maintain its investment grade credit ratings and manages cash flows available for share repurchase by monitoring cash flows before share repurchases, as shown on the attached tables.  The Company believes this is important information for the management of its debt levels and share repurchases.  We have included a reconciliation of this additional information to the most comparable GAAP measures in the accompanying reconciliation tables.

Certain statements contained in this press release are forward-looking statements.  Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate.

These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand; energy prices; weather; competition; credit market conditions; access to available and feasible financing; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; war and the prospect of war, including terrorist activity; inflation; the ability to hire and retain qualified employees; construction delays; the compromising of the confidentiality, availability, or integrity of information, including cyber attacks; and raw material costs of our suppliers.  Certain of these risks are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of the Annual Report on Form 10-K for the year ended August 26, 2017, and these Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance and actual results; developments and business decisions may differ from those contemplated by such forward-looking statements, and events described above and in the “Risk Factors” could materially and adversely affect our business. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results may materially differ from anticipated results.

Contact Information:
Financial: Brian Campbell at (901) 495-7005, brian.campbell@autozone.com
Media: Ray Pohlman at (866) 966-3017, ray.pohlman@autozone.com

AutoZone's 3rd Quarter Highlights - Fiscal 2018        
                     
Condensed Consolidated Statements of Operations              
3rd Quarter, FY2018                
(in thousands, except per share data)                
        GAAP Results        
        12 Weeks Ended   12 Weeks Ended        
        May 5, 2018   May 6, 2017        
                     
Net sales   $ 2,660,152     $ 2,619,007          
Cost of sales     1,237,178       1,240,589          
Gross profit     1,422,974       1,378,418          
Operating, SG&A expenses     877,209       848,848          
Operating profit  (EBIT)     545,765       529,570          
Interest expense, net     41,958       35,675          
Income before taxes     503,807       493,895          
Income taxes(1)     137,086       162,195          
Net income   $ 366,721     $ 331,700          
Net income per share:                
  Basic   $ 13.62     $ 11.70          
  Diluted(1)   $ 13.42     $ 11.44          
Weighted average shares outstanding:                
  Basic     26,926       28,358          
  Diluted     27,329       29,005          
                     
(1) For the twelve weeks ended May 5, 2018 and the comparable prior year period, net income per share includes excess tax benefits from stock option exercises related to the adoption of ASU 2016-09 of $0.01 and $0.40, respectively. Additionally, the current quarter results benefitted from the recent tax reform    
                     
             
Year-To-Date 3rd Quarter, FY2018                
(in thousands, except per share data)   GAAP Results        
        36 Weeks Ended   36 Weeks Ended        
        May 5, 2018   May 6, 2017        
                     
Net sales   $ 7,662,309     $ 7,376,071          
Cost of sales     3,596,442       3,490,575          
Gross profit     4,065,867       3,885,496          
Operating, SG&A expenses     2,846,250       2,513,054          
Operating profit  (EBIT)     1,219,617       1,372,442          
Interest expense, net     120,186       103,180          
Income before taxes     1,099,431       1,269,262          
Income taxes (1)     162,177       422,293          
Net income   $ 937,254     $ 846,969          
Net income per share:                
  Basic   $ 34.32     $ 29.57          
  Diluted(1)   $ 33.75     $ 28.86          
Weighted average shares outstanding:                
  Basic     27,306       28,638          
  Diluted     27,769       29,349          
                     
(1) For the thirty-six weeks ended May 5, 2018 and the comparable prior year period, net income per share includes excess tax benefits from stock option exercises related to the adoption of ASU 2016-09 of $1.25 and $0.93, respectively. Additionally, year-to-date results were negatively impacted by asset impairments of $193.2MM (pre-tax) recognized in the second quarter of fiscal 2018, and benefitted from the recent tax reform (effective January 1, 2018)    
GAAP Reconciliations                
(in thousands, except per share data)                
                     
Selected Balance Sheet Information                
(in thousands)                
        May 5, 2018   May 6, 2017   August 26, 2017    
Cash and cash equivalents   $ 218,386     $ 227,141     $ 293,270      
Merchandise inventories     4,005,820       3,861,052       3,882,086      
Current assets     4,671,277       4,507,249       4,611,255      
Property and equipment, net     4,122,966       3,904,152       4,031,018      
Total assets     9,301,769       9,028,264       9,259,781      
Accounts payable     4,296,677       4,140,690       4,168,940      
Current liabilities     4,918,336       4,793,540       4,766,301      
Total debt     4,954,697       5,152,843       5,081,238      
Stockholders' deficit     (1,361,603 )     (1,714,214 )     (1,428,377 )    
Working capital     (247,059 )     (286,291 )     (155,046 )    
                     


Condensed Consolidated Statements of Operations              
                     
Adjusted Debt / EBITDAR (Trailing 4 Qtrs)                
(in thousands, except adjusted debt to EBITDAR ratio)                
        May 5, 2018   May 6, 2017        
Net income   $ 1,371,154     $ 1,273,737          
Add:  Impairment before tax impact     193,162       -          
Interest     171,586       148,968          
Taxes     384,504       653,103          
Adjusted EBIT     2,120,406       2,075,808          
                     
Add:  Depreciation and amortization     340,154       313,920          
Rent expense     314,525       294,641          
Share-based expense     38,460       40,716          
EBITDAR   $ 2,813,545     $ 2,725,085          
                     
Debt     $ 4,954,697     $ 5,152,843          
Capital lease obligations     160,452       151,961          
Add: rent x 6     1,887,150       1,767,846          
Adjusted debt   $ 7,002,299     $ 7,072,650          
                     
Adjusted debt to EBITDAR     2.5       2.6          
       
                     
Selected Cash Flow Information                
(in thousands)                
        12 Weeks Ended   12 Weeks Ended   36 Weeks Ended   36 Weeks Ended
        May 5, 2018   May 6, 2017   May 5, 2018   May 6, 2017
                     
Depreciation and amortization   $ 79,754     $ 75,343     $ 237,091     $ 219,988
Capital spending     112,401       141,831       327,148       357,934
                     
Cash flow before share repurchases:                
Increase (decrease) in cash and cash equivalents   $ (70,136 )   $ 16,492     $ (74,884 )   $ 37,407
Less (decrease)/increase in debt     (90,000 )     5,100       (129,600 )     230,700
Add back share repurchases     399,701       283,564       927,155       844,183
Cash flow before share repurchases and changes in debt   $ 419,565     $ 294,956     $ 981,871     $ 650,890
                     
Other Selected Financial Information                
(in thousands, except ROIC)                
        May 5, 2018   May 6, 2017        
                     
                     
Cumulative share repurchases ($ since fiscal 1998)   $ 18,753,453     $ 17,598,832          
Remaining share repurchase authorization ($)     896,547       1,051,168          
                     
Cumulative share repurchases (shares since fiscal 1998)     143,714       141,924          
                     
Shares outstanding, end of quarter     26,662       28,155          
                     
        Trailing 4 Quarters        
        May 5, 2018   May 6, 2017        
Net income   $ 1,371,154     $ 1,273,737          
Adjustments:                
Impairment before tax impact     193,162       -          
Interest expense     171,586       148,968          
Rent expense     314,525       294,641          
Tax effect*     (184,103 )     (150,383 )        
Deferred tax liabilities, net     (136,679 )     -          
After-tax return   $ 1,729,645     $ 1,566,963          
                     
Average debt**     5,043,061       5,035,993          
Average stockholders' deficit**     (1,471,968 )     (1,817,540 )        
Add: Rent x 6     1,887,150       1,767,846          
Average capital lease obligations**     155,729       145,749          
Pre-tax invested capital   $ 5,613,972     $ 5,132,048          
                     
Return on Invested Capital (ROIC)     30.8%       30.5%          
                     
* Effective tax rate over trailing four quarters ended May 5, 2018, excluding the impact of the revaluation of net deferred tax liabilities, is 28.3% and May 6, 2017 is 33.9%.
                                   
** All averages are computed based on trailing 5 quarter balances.
                     


AutoZone's 3rd Quarter Fiscal 2018                    
Selected Operating Highlights                        
Condensed Consolidated Statements of Operations                    
                               
Location Count & Square Footage                        
                               
          12 Weeks Ended     12 Weeks Ended     36 Weeks Ended     36 Weeks Ended  
          May 5, 2018     May 6, 2017     May 5, 2018     May 6, 2017  
AutoZone Domestic stores (Domestic):                        
  Store count:                        
  Beginning domestic stores     5,514         5,346         5,465         5,297    
  Stores opened     26         35         77         84    
  Stores closed     -         -         2         -    
  Ending domestic stores     5,540         5,381         5,540         5,381    
                               
  Relocated stores     2         2         3         4    
                               
  Stores with commercial programs     4,683         4,493         4,683         4,493    
                               
  Square footage (in thousands)     36,216         35,150         36,216         35,150    
                               
AutoZone Mexico stores:                        
  Stores opened     4         8         12         16    
  Total stores in Mexico     536         499         536         499    
                               
AutoZone Brazil stores:                        
  Stores opened     -         -         2         1    
  Total stores in Brazil     16         9         16         9    
                               
Total AutoZone stores     6,092         5,889         6,092         5,889    
  Square footage (in thousands)     40,294         38,900         40,294         38,900    
  Square footage per store     6,614         6,606         6,614         6,606    
                               
IMC branches:                          
  Branches sold     (26 )       -         (26 )       -    
  Total IMC branches     -         26         -         26    
                               
Total locations chainwide     6,092         5,915         6,092         5,915    
                               
Sales Statistics                          
($ in thousands, except sales per average square foot)                        
          12 Weeks Ended     12 Weeks Ended     Trailing 4 Quarters     Trailing 4 Quarters  
Total AutoZone Parts (Domestic, Mexico and Brazil)   May 5, 2018     May 6, 2017     May 5, 2018     May 6, 2017  
  Sales per average store   $ 425       $ 424       $ 1,785       $ 1,768    
  Sales per average square foot   $ 64       $ 64       $ 270       $ 268    
                               
Total Auto Parts (Domestic, Mexico, Brazil and IMC)                       
  Total auto parts sales   $ 2,610,485   (1 )   $ 2,530,689       $ 10,849,645   (1 )   $ 10,408,512    
  % Increase vs. LY     3.2%         1.1%         4.2%         2.5%    
                               
Domestic Commercial                        
  Total domestic commercial sales   $ 535,187       $ 498,575       $ 2,154,853       $ 2,025,481    
  % Increase vs. LY     7.3%         3.6%         6.4%         5.5%    
                               
All Other (ALLDATA, E-Commerce and AutoAnything)                      
  All other sales   $ 49,667   (2 )   $ 88,318       $ 325,268   (2 )   $ 366,329    
  % Increase vs. LY     (43.8% )       (2.5% )       (11.2% )       (0.9% )  
                               
  (1 ) Results include IMC which was sold during the quarter, effective April 4, 2018                      
  (2 ) Results include AutoAnything, which was sold during the quarter, effective February 26, 2018                    
                               
          12 Weeks Ended     12 Weeks Ended     36 Weeks Ended     36 Weeks Ended  
          May 5, 2018     May 6, 2017     May 5, 2018     May 6, 2017  
Domestic same store sales     0.6%         (0.8% )       1.7%         0.2%    
                               
Inventory Statistics (Total Locations)                        
          as of     as of              
          May 5, 2018     May 6, 2017              
  Accounts payable/inventory     107.3%         107.2%                
                               
  ($ in thousands)                          
  Inventory     $ 4,005,820       $ 3,861,052                
  Inventory per location     658         653                
  Net inventory (net of payables)     (290,857 )       (279,638 )              
  Net inventory  / per location     (48 )       (47 )              
                               
          Trailing 5 Quarters              
          May 5, 2018     May 6, 2017              
  Inventory turns     1.3   x     1.4   x            
                               

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Source: AutoZone, Inc.

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