EX-99.1 2 e20940ex99_1.htm PRESS RELEASE

Exhibit 99.1

News:

For immediate release

AutoZone Third Quarter EPS up 10%;
Adjusted EPS up 16%

Memphis, Tenn. (May 25, 2005) – AutoZone, Inc. (NYSE: AZO) today reported sales of $1.338 billion for its fiscal third quarter (12 weeks) ended May 7, 2005, down 1.6% from fiscal third quarter 2004. Same store sales, or sales for domestic stores open at least one year, were down 5% for the quarter. Operating margin increased 91 basis points from last year to 19.4%, while operating profit increased 3.2% over the prior year.

Net income for the quarter increased 3.1% over the same period last year to $147.8 million, and diluted earnings per share, reflecting net income and the benefit of the Company’s share repurchase program, increased 10.5% to $1.86 per share from $1.68 per share reported in the year-ago quarter.

Under its ongoing share repurchase program, AutoZone repurchased 3.2 million shares of its common stock for $278.6 million during the third quarter, at an average price of $87 per share. Since 1998 cumulative share repurchases have totaled $4.0 billion, or 85.8 million shares at an average price of $46 per share.

For the quarter, gross profit, as a percentage of sales, was 50.3% (versus 49.7% last year) while operating expenses, as a percentage of sales, were 30.9% (versus 31.2% last year). The improvement in gross margin was largely due to the Company’s ongoing category management initiatives as well as reduced sales of discretionary, lower margin, merchandise. The reduction in operating expenses has continued to be driven by a focused effort to reduce expenditures throughout the organization.

Last year’s third quarter ended May 8, 2004, contained a $10.6 million non-recurring gain from warranty. Excluding last year’s credit, operating profit increased 7.8% and diluted earnings per share increased 15.8% to $1.86 versus the year-ago quarter of $1.61.

The Company’s gross per store inventory level (the reported balance sheet inventory, which is total inventory less supplier owned pay-on-scan inventory) as of May 7, 2005, was $458 thousand versus $447 thousand last year. Net inventory, defined as gross inventory less accounts payable, decreased on a per store level to $59 thousand from $74 thousand last year reflecting an increase in accounts payable to 87.2% of inventory from 83.5% of inventory in the prior year. The increase in gross inventory levels reflects the Company’s efforts to invest in the right part at the right place to further enhance its industry-leading brand in the eyes of its customers.

“I’d like to thank all our AutoZoners across the country for delivering another record quarter of EPS. However, sales were considerably weaker this quarter than expected. This shortfall has challenged us to take a fresh look at our opportunities for driving profitable sales. While we are encouraged by many of the new initiatives we’ve implemented, such as the expansion of our inventory coverage at the store level through ‘Project Got It,’ we will be doing more going forward to grow sales profitably. Our financial model continues to be strong. We will maintain our disciplined approach to growing operating earnings and utilizing our capital effectively, while looking to leverage our industry-leading financial metrics,” said Bill Rhodes, President and Chief Executive Officer.

During the quarter ended May 7, 2005, AutoZone opened 33 new stores, replaced 2 stores, and closed 2 stores in the U.S. while additionally opening 6 new stores in Mexico. As of May 7, 2005, the Company had 3,505 domestic stores and 73 stores in Mexico.

AutoZone is the nation’s leading retailer of automotive parts and accessories. Each 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 domestic 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, and service stations. AutoZone also sells the ALLDATA brand diagnostic and repair software. On the web, AutoZone sells diagnostic and repair information, and auto and light truck parts through www.autozone.com. AutoZone does not derive revenue from automotive repair or installation.

AutoZone will host a one-hour conference call this morning, Wednesday, May 25, 2005, beginning at 10:00 a.m. (EDT) to discuss the 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 (402) 220-4124 through Wednesday, June 1, 2005, at 11:59 p.m. (EDT).

This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”). This information should not be considered a substitute for any measures derived in accordance with GAAP. The Company believes that this information is useful to investors as it indicates more clearly the Company’s comparative year-to-year operating results. Management manages the Company’s debt levels to a ratio of adjusted debt to EBITDAR, as shown on the attached tables. This is important information for the Company’s management of its debt levels. We have included a reconciliation of this 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: competition; product demand; the economy; the ability to hire and retain qualified employees; consumer debt levels; inflation; raw material costs of our suppliers; gasoline prices; war and the prospect of war, including terrorist activity; availability of consumer transportation; construction delays; access to available and feasible financing; and our ability to continue to negotiate pay-on-scan and other arrangements with our vendors. 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 such events 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. Please refer to the Risk Factors section of AutoZone’s Form 10-K for the fiscal year ended August 28, 2004, for more information related to those risks.

Contact Information:

Financial: Brian Campbell at (901) 495-7005, brian.campbell@autozone.com
Media: Ray Pohlman at (901) 495-7962, ray.pohlman@autozone.com

AutoZone’s 3rd Quarter Highlights - Fiscal 2005

Condensed Consolidated Statements of Operations
3rd Quarter
(in thousands, except per share data)

GAAP Results
Adjustments
Adjusted
12 Weeks Ende
May 7, 2005
12 Weeks Ended
May 8, 2004
12 Weeks Ended
May 7, 2005
12 Weeks Ended
May 8, 2004 *
12 Weeks Ended
May 7, 2005
12 Weeks Ended
May 8, 2004*
Net sales   $1,338,387   $1,360,022   $      —    $        —   $1,338,387   $1,360,022  
Cost of sales   665,283   683,835   —   10,625   665,283   694,460  
 
 
 
 
 
 
Gross profit   673,104   676,187   —   (10,625 ) 673,104   665,562  
Operating, SG&A expenses   413,642   424,866   —   —   413,642   424,866  
 
 
 
 
 
 
Operating profit (EBIT)   259,462   251,321   —   (10,625 ) 259,462   240,696  
Interest expense, net   24,223   21,910   —   —   24,223   21,910  
 
 
 
 
 
 
Income before taxes   235,239   229,411   —   (10,625 ) 235,239   218,786  
Income taxes   87,450   86,000   —   (3,983 ) 87,450   82,017  
 
 
 
 
 
 
Net income   $   147,789   $   143,411   $       —   $(6,642 ) $   147,789   $   136,769  
 
 
 
 
 
 
Net income per share:  
    Basic   $         1.88   $         1.71   $      —   $  (0.08 ) $         1.88   $         1.63  
    Diluted   $         1.86   $         1.68   $      —   $  (0.08 ) $         1.86   $         1.61  
Weighted Average Shares outstanding:  
    Basic   78,521   83,897   78,521   83,897   78,521   83,897  
    Diluted   79,494   85,202   79,494   85,202   79,494   85,202  

* Fiscal 2004 cost of sales includes a $10.6 million pre-tax gain from warranty.

Year-to-date 3rd Quarter, F2005

GAAP Results
Adjustments
Adjusted
36 Weeks Ended
May 7, 2005
36 Weeks Ended
May 8, 2004
36 Weeks Ended
May 7, 2005 *
36 Weeks Ended
May 8, 2004**
36 Weeks Ended
May 7, 2005*
36 Weeks Ended
May 8, 2004**
Net sales   $3,828,645   $3,801,298   $       —   $         —   $3,828,645   $3,801,298  
Cost of sales   1,952,370   1,947,710   —   26,625   1,952,370   1,974,335  
Gross profit   1,876,275   1,853,588   —   (26,625 ) 1,876,275   1,826,963  
Operating, SG&A expenses   1,251,781   1,218,637   (40,321 ) —   1,211,460   1,218,637  
Operating profit (EBIT)   624,494   634,951   40,321   (26,625 ) 664,815   608,326  
Interest expense, net   69,659   64,092   —   —   69,659   64,092  
Income before taxes   554,835   570,859   40,321   (26,625 ) 595,156   544,234  
Income taxes   190,431   214,050   30,219   (9,983 ) 220,650   204,067  
Net income   $   364,404   $   356,809   $ 10,102   $(16,642 ) $   374,506   $   340,167  
Net income per share:  
    Basic   $         4.59   $         4.13   $     0.13   $  (0.19 ) $         4.72   $         3.94  
    Diluted   $         4.53   $         4.06   $     0.13   $  (0.19 ) $         4.66   $         3.87  
Weighted Average Shares outstanding:  
    Basic   79,308   86,432   79,308   86,432   79,308   86,432  
    Diluted   80,369   87,890   80,369   87,890   80,369   87,890  

* Fiscal year 2005 includes a non-cash adjustment, substantially all of which relates to prior years, of $25.4 million ( net of tax ) associated with accounting for leases and leasehold improvements. Additionally, fiscal year 2005 income taxes include a $15.3 million benefit primarily from the planned one-time repatriation from foreign subsidiaries.
** Fiscal 2004 cost of sales includes a $26.6 million pre-tax gain from warranty.

Selected Balance Sheet Information
(in thousands)

May 7, 2005
May 8, 2004
August 28, 2004
Merchandise inventories   $1,639,190   $1,517,071   $1,561,479  
Current assets   1,911,738   1,724,497   1,755,757  
Property and equipment, net   1,880,218   1,752,474   1,790,089  
Total assets   4,168,502   3,869,600   3,912,565  
Accounts payable   1,429,675   1,266,486   1,429,128  
Current liabilities   1,816,585   1,670,559   1,751,051  
Debt   1,914,525   1,798,917   1,869,250  
Stockholders’ equity   298,746   260,141   171,393  
Working capital   95,153   53,939   4,706  

Adjusted Debt / EBITDAR (Trailing 4 Qtrs)
May 7, 2005
May 8, 2004
Net income   $   573,797   $   564,250  
Add: Interest   98,371   90,790  
           Taxes   316,081   340,000  
EBIT   988,249   995,040  
Add: Depreciation   130,719   107,063  
           Rent expense   146,924   115,958  
EBITDAR   $1,265,892   $1,218,061  
Debt   $1,914,525   $1,798,917  
Add: Rent x 6 *   752,382   695,747  
Adjusted debt   $2,666,907   $2,494,664  
Adjusted debt to EBITDAR   2.1   2.0  

* Excludes the impact from the cumulative lease accounting adjustment recorded in the second quarter of fiscal year 2005.

Selected Cash Flow Information
(in thousands)

12 Weeks Ended
May 7, 2005
12 Weeks Ended
May 8, 2004
36 Weeks Ended
May 7, 2005
36 Weeks Ended
May 8, 2004
Trailing 4 Quarters
May 7, 2005
Trailing 4 Quarters
May 8, 2004
Depreciation   $   25,345   $   24,499   $   96,669   $   72,841   $ 130,719   $ 107,063  
Capital spending   $   68,161   $   42,700   $ 186,939   $ 112,178   $ 259,631   $ 195,620  
Cash flow before share repurchase:  
Net increase (decrease) in cash and cash equivalents   $   (2,761 ) $     7,267   $        526   $    (5,300 ) $  (10,424 ) $     4,071  
Subtract increase in debt   13,025   11,972   45,275   252,072   115,608   378,950  
Subtract share repurchases   (278,558 ) (132,640 ) (308,558 ) (530,303 ) (626,357 ) (976,840 )
Cash flow before share repurchases and changes in debt   $ 262,772   $ 127,935   $ 263,809   $ 272,931   $ 500,325   $ 601,961  

Other Selected Financial Information
(in thousands)

May 7, 2005
May 8, 2004
Cumulative share repurchases ($):   $3,983,472   $3,357,114  
Cumulative share repurchases (shares):   85,767   78,269  
Shares outstanding, end of quarter   77,317   83,381  

May 7, 2005
May 8, 2004
Return on Equity (ROE)*   205.2 % 131.0 %

Trailing 4 Quarters
May 7, 2005
Trailing 4 Quarters
May 8, 2004
Return on Invested Capital (ROIC)*   24.5 % 25.1 %

* Excludes the impact from the cumulative lease accounting adjustment and the one-time income tax benefit from the repatriation from foreign subsidiaries recorded in the second quarter of fiscal year 2005.

AutoZone’s 3rd Quarter Fiscal 2005
Selected Operating Highlights

Store Count & Square Footage

                                                                      
12 Weeks Ended
May 7, 2005
12 Weeks Ended
May 8, 2004
36 Weeks Ended
May 7, 2005
36 Weeks Ended
May 8, 2004
Domestic stores:          
            Store count:  
            Stores opened   33   38   88   118  
            Stores closed   2   0   3   0  
            Replacement stores   2   1   4   2  
            Total domestic stores   3,505   3,337  
           
            Stores with commercial sales   2,052   2,199  
           
            Square footage (in thousands):   22,236   21,171  
            Square footage per store   6,344   6,344  
Stores in Mexico:  
            Stores opened   6   5   10   11  
            Total stores in Mexico   73   60   73   60  
           
Total stores chainwide:   3,578   3,397  

Sales Statistics (Domestic Stores Only):

12 Weeks Ended
May 7, 2005
12 Weeks Ended
May 8, 2004
Trailing 4 Quarters
May 7, 2005
Trailing 4 Quarters
May 8, 2004
Total retail sales ($ in thousands)   $ 1,122,259   $1,140,763   $4,750,163   $4,738,613  
   % Increase vs. LY retail sales   (2 %) 4 % 0 % 3 %*
Total commercial sales ($ in thousands)   $    170,425   $   179,712   $   728,162   $   729,608  
   % Increase vs. LY commercial sales   (5 %) 11 % 0 % 17 %*
                   
Sales per average store ($ in thousands)   $           370   $          398   $       1,601   $       1,685  
Sales per average square foot   58   63   252   265  

* For comparison purposes, excludes 53rd week in fiscal 2002.

12 Weeks Ended
May 7, 2005
12 Weeks Ended
May 8, 2004
36 Weeks Ended
May 7, 2005
36 Weeks Ended
May 8, 2004
Same store sales   (5 %) 2 % (3 %) 2 %

Inventory Statistics (Total Stores):

as of
May 7, 2005
as of
May 8, 2004
Accounts payable/inventory     87 %   83 %
($ in thousands)  
Gross inventory**   $ 1,639,190   $ 1,517,071  
Gross inventory** / store   $ 458   $ 447  
           
Net inventory (net of payables)   $ 209,515   $ 250,585  
Net inventory / store   $ 59   $  74  

** Gross inventory excludes Pay On Scan inventory. This is the reported balance sheet number.

Trailing 4 Quarters
May 7, 2005
Trailing 4 Quarters
May 8, 2004
Inventory turns:      
     Based on average inventories   1.8x   1.9x  
     Based on ending inventories   1.8x   1.9x  
Inventory turns, net of payables:  
     Based on average inventories   9.8x   9.3x  
     Based on ending inventories   13.8x   11.6x