AutoZone, Inc. has reported a very slight loss in sales, though you have took a bit deeper to see why. And it reported a whopping 25% rise in trade business.
The U.S. auto parts retailer reported sales of $1.829 billion for its fourth fiscal quarter (16 weeks) ended August 30, 2003, a decrease of 0.8% from the fourth quarter (17 weeks) ended August 31, 2002. Excluding sales from the extra week included in the prior year, sales were up 5.5%. Same store sales, or sales for domestic stores open at least one year, increased 3% during the quarter, including an increase of 1% for retail same store sales and an increase of 24% for commercial same store sales. Gross profit, as a percentage of sales, for the quarter improved by 1.90 percentage points while operating expenses, as a percentage of sales, declined by 0.86 percentage points. A figures in U.S. dollars.
This resulted in an operating margin of 19.7%, up 2.76 percentage points from last year. Operating profit increased 15% over the prior year. However, both years were impacted by certain non-recurring items including:
* For fiscal 2003 fourth quarter, a $4.6 million pre-tax favorable adjustment this year for the reversal of restructuring accruals
* For fiscal 2003 fourth quarter, a $7.4 million pre-tax negative impact related to the continued implementation of Emerging Issues Task Force Issue 02-16
* For fiscal 2002 fourth quarter, a $29 million pre-tax positive impact based on the benefit of the additional week. Excluding these items, comparable operating profit increased for the quarter 28% as operating margin improved 3.55 percentage points to 19.8% from 16.3% last year. Net income for the quarter increased by 17% to $207.4 million, and diluted earnings per share, reflecting net income and the benefit of our share repurchase program, increased 31% to $2.27 from $1.73 reported in the year-ago quarter.
Excluding the non-recurring items, comparable net income increased 31% and earnings per share increased 47%. For the fiscal year ended August 30, 2003, AutoZone reported sales of $5.457 billion (52 weeks), a 2.5% increase from fiscal 2002. Excluding sales from the extra week included in the prior year, sales were up 4.6%. Same store sales, or sales for domestic stores open at least one year, increased 3% during the year, including flat retail same store sales (against 8% same store sales growth last year) and an increase of 27% for commercial same store sales.
Gross profit, as a percentage of sales, for the year improved by 1.48 percentage points while operating expenses, as a percentage of sales, declined by 0.86 percentage points. This resulted in an operating margin of 16.8%, up 2.34 percentage points from last year. Operating profit increased 19% over the prior year. In addition to the above-mentioned non-recurring items, operating profit for the full fiscal year was also impacted by:
* For fiscal 2003 third quarter, a $4.7 million pre-tax favourable adjustment associated with the sale of the TruckPro business
* For fiscal 2003 third quarter, a $2.6 million pre-tax negative impact related to the implementation of EITF Issue 02-16
Excluding these items, and the fourth fiscal quarter non-recurring items, comparable operating profit for fiscal 2003 increased by 24% as operating margin improved 2.62 percentage points to 16.8% from 14.2% last year. Net income for the fiscal year increased by 21% to $517.6 million, and diluted earnings per share increased by 34% to $5.34 from $4.00 reported for the year-ago. Excluding the non-recurring items, comparable net income increased 26% and earnings per share increased 40%. Return on invested capital for the fiscal year increased to 23.4% from 19.8% the previous year.
“We are very pleased with our comparable performance as we have continued to build on the growth from our prior fiscal year. Our industry-leading results continue to show that AutoZone is a significant cash generator which has enabled us to add shareholder value over time,” said Steve Odland, chairman, president, and chief executive officer.
“This is the fourth straight quarter of over 20% AZ Commercial comparable sales increases. Not only have we continued to build our customer base in this area, but we continue to expand the volume of business we do with our existing commercial customers.
“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 5.8 million shares of its common stock for $447 million during the fourth quarter. Since 1998, cumulative share repurchases have totalled $2.827 billion, or 72.0 million shares at an average price of $39.25 per share. 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 reflected the new accounting for new and modified vendor funding arrangements during the fourth quarter. This resulted in a non-cash pretax deferral of vendor funding of $7.4 million (or $0.05 per share) during the quarter and a reclassification of $37 million of vendor funding from operating expenses to cost of goods sold.
Additionally, as a result of EITF Issue 02-16, for the sixteen weeks ended August 30, 2003, selling, general, and administrative expenses were approximately $37 million higher and gross margin was approximately $30 million higher than such amounts would have been prior to the accounting change.
Excluding the impact of the new pronouncement, gross margin for the quarter would have been 46.0% (vs. 45.7% last year) and selling, general and administrative expenses as a percent of sales would have been 25.9% (vs. 28.8% last year).
The new accounting pronouncement for vendor funding does not impact the way AutoZone runs its business or its relationships with vendors. It is a non-cash deferral of vendor funding. Based on the timing of the issuance of the pronouncement and guidelines, AutoZone was precluded from adopting EITF Issue 02-16 as a cumulative effect of a change in accounting principle. AutoZone’s timing and accounting treatment of EITF Issue 02-16 was not discretionary. The timing of recognition for the remaining pre-tax impact of approximately $15 million is expected to flow evenly over the four quarters of fiscal 2004.
During the quarter AutoZone opened 68 new stores, replaced 2 stores, and closed 1 store in the U.S. and opened 6 new stores in Mexico. As of August 30, 2003, AutoZone sells auto and light truck parts, chemicals and accessories through 3,219 AutoZone stores in 48 states plus the District of Columbia in the U.S. and 49 AutoZone stores in Mexico and also sells the ALLDATA brand diagnostic and repair software.