AutoZone, which operates more than 3,000 outlets in the U.S., says that its total sales were up 5.2% for the company’s first fiscal quarter, with same store commercial sales up 17%.
The company reported sales of $1.282 billion U.S. for its first fiscal quarter (12 weeks) ended November 22, 2003, an increase of 5.2% from fiscal 2003. Same store sales, or sales for domestic stores open at least one year, increased 1% for retail and 17% for AZ Commercial.
Gross profit, as a percentage of sales, for the quarter improved by 2.7 percentage points while operating expenses, as a percentage of sales, increased by 1.4 percentage points. This resulted in an operating margin of 16.8%, up 1.3 percentage points from last year. Operating profit increased 14% over the prior year.
Net income for the quarter increased by 16% to $121.7 million, and diluted earnings per share, reflecting net income and the benefit of our share repurchase program, increased 30% to $1.35 per share from $1.04 reported in the year-ago quarter. Return on invested capital for the trailing four quarters increased to 24.0% from 20.6% the previous year.
“We are very pleased with our performance as we continue to build on the momentum from our prior fiscal year and implement our new initiatives for this fiscal year. Our industry-leading results show that AutoZone continues to build shareholder value over time,” said Steve Odland, chairman, president, and chief executive officer. “We have developed new sales initiatives for retail and AZ Commercial that we began to implement at the end of the previous quarter. We are beginning to see initial results through stronger sales performance for the last period of the quarter.
“Additionally, our ongoing focus on gross margin improvement and relentless expense discipline continues to drive profitability. The combined impact of these efforts considerably improved our operating margin in the quarter over the last year.”
Under its ongoing share repurchase program, AutoZone repurchased 644,000 shares of its common stock for $60 million during the first quarter. Since 1998, cumulative share repurchases have totaled $2.9 billion, or 72.7 million shares at an average price of $39.73 per share. All figures in U.S. dollars.
For the quarter gross profit, as a percentage of sales, was 47.8% while operating expenses, as a percentage of sales, was 31.0%. As required by the Emerging Issues Task Force Issue 02-16, “Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor” (EITF Issue 02-16), AutoZone adopted the new accounting effective January 1, 2003.
This resulted in a reclassification of $21.6 million of vendor funding from operating expenses to cost of goods sold. Excluding this impact of the new pronouncement, gross margin for the quarter would have been 46.1% (vs. 45.1% last year) and selling, general and administrative expenses as a percent of sales would have been 29.4% (vs. 29.6% last year).
Additionally, during the quarter the company continued with savings initiatives that will have ongoing impact. In the area of gross profit the company has continued its multi-year strategy of category management including warranty expense renegotiations with vendors.
For the quarter $14.1 million pre-tax, or $.10 per share, was recognized as savings toward our continued work with our vendors to minimize our warranty exposure. In the area of operating expenses the company was favourably impacted by the continuation of cost savings initiatives.
One example of these savings included lower expense from utilizing an enriched 401(k) plan in place of a pension plan that was frozen in January of 2003.
Also, depreciation expense was $1.6 million lower than last year due primarily to assets being fully depreciated from acquisitions completed in fiscal years 1998 and 1999. In the area of inventory the company reduced its per store levels down to $459 thousand from $473 thousand last year.
Gross inventory was up 2.3% while total sales were up 5.2%.
During the quarter AutoZone opened 40 new stores and replaced one store in the U.S. and opened one new store in Mexico. As of November 22, 2003, AutoZone sells auto and light truck parts, chemicals and accessories through 3,259 AutoZone stores in 48 states plus the District of Columbia in the U.S. and 50 AutoZone stores in Mexico and also sells the AllData brand diagnostic and repair software.
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