Autozone Inc 10-Q for FY2020 Q3

Autozone Inc (AZO)

10-Q 2020-06-12 For: 2020-05-09

Added on April 07, 2026

About this 10-Q

Autozone Inc filed this 10-Q on June 12, 2020, covering the quarter ended May 9, 2020 (FY2020 Q3).

Headline figures

Quarter ended May 9, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.78B; down 0.1% from $2.78B a year earlier
Net income: $342.9M; down 15.5% from net income of $405.95M a year earlier
Diluted EPS: $14.39; down 10.0% from $15.99 a year earlier

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☒		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended May 9, 2020, or

☐		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from _______ to ________.

		Commission file number 1-10714


Nevada	62-1482048
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)


123 South Front Street, Memphis, Tennessee	38103
(Address of principal executive offices)	(Zip Code)

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on which Registered
Common Stock ($0.01 par value)		AZO		New York Stock Exchange


Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐


PART I.		FINANCIAL INFORMATION	3
	Item 1.	Financial Statements	3
		CONDENSED CONSOLIDATED BALANCE SHEETS	3
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME	4
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
		CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT	6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	21
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31
PART II.		OTHER INFORMATION	32
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 3.	Defaults Upon Senior Securities	33
	Item 4.	Mine Safety Disclosures	33
	Item 5.	Other Information	33
	Item 6.	Exhibits	34
SIGNATURES			36


	May 9,		August 31,
(in thousands)	2020		2019

Assets
Current assets:
Cash and cash equivalents	$	509,118	$	176,300
Accounts receivable		266,920		308,995
Merchandise inventories		4,440,602		4,319,113
Other current assets		181,353		224,277
Total current assets		5,397,993		5,028,685

Property and equipment:
Property and equipment		7,899,183		7,713,196
Less: Accumulated depreciation and amortization		(3,514,597)		(3,314,445)
		4,384,586		4,398,751

Operating lease right-of-use assets		2,613,849		—
Goodwill		302,645		302,645
Deferred income taxes		23,345		26,861
Other long-term assets		179,713		138,971
		3,119,552		468,477
	$	12,902,131	$	9,895,913

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,806,329	$	4,864,912
Current portion of operating lease liabilities		236,759		—
Accrued expenses and other		687,991		621,932
Income taxes payable		37,997		25,297
Total current liabilities		5,769,076		5,512,141

Long-term debt		5,418,272		5,206,344
Operating lease liabilities, less current portion		2,481,280		—
Deferred income taxes		325,919		311,980
Other long-term liabilities		540,320		579,299

Commitments and contingencies

Stockholders’ deficit:
Preferred stock, authorized 1,000 shares; no shares issued		—		—
Common stock, par value $.01 per share, authorized 200,000 shares; 23,669 shares issued and 23,348 shares outstanding as of May 9, 2020; 25,445 shares issued and 24,038 shares outstanding as of August 31, 2019		237		254
Additional paid-in capital		1,259,457		1,264,448
Retained deficit		(2,191,427)		(1,305,347)
Accumulated other comprehensive loss		(344,516)		(269,322)
Treasury stock, at cost		(356,487)		(1,403,884)
Total stockholders’ deficit		(1,632,736)		(1,713,851)
	$	12,902,131	$	9,895,913


	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 9,		May 4,		May 9,		May 4,
(in thousands, except per share data)	2020		2019		2020		2019

Net sales	$	2,779,299	$	2,783,006	$	8,085,999	$	7,875,307
Cost of sales, including warehouse and delivery expenses		1,288,651		1,290,986		3,728,221		3,640,706
Gross profit		1,490,648		1,492,020		4,357,778		4,234,601
Operating, selling, general and administrative expenses		998,975		944,497		2,958,144		2,799,239
Operating profit		491,673		547,523		1,399,634		1,435,362
Interest expense, net		47,450		43,239		135,528		123,608
Income before income taxes		444,223		504,284		1,264,106		1,311,754
Income tax expense		101,327		98,335		271,591		259,762
Net income	$	342,896	$	405,949	$	992,515	$	1,051,992

Weighted average shares for basic earnings per share		23,386		24,836		23,610		25,210
Effect of dilutive stock equivalents		442		558		550		501
Weighted average shares for diluted earnings per share		23,828		25,394		24,160		25,711

Basic earnings per share	$	14.66	$	16.35	$	42.04	$	41.73
Diluted earnings per share	$	14.39	$	15.99	$	41.08	$	40.92


	Twelve Weeks Ended May 9, 2020
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 15, 2020	23,653	$	237	$	1,241,734	$	(2,534,323)	$	(228,337)	$	(190,430)	$	(1,711,119)
Net income	—		—		—		342,896		—		—		342,896
Total other comprehensive loss	—		—		—		—		(116,179)		—		(116,179)
Purchase of 156 shares of treasury stock	—		—		—		—		—		(166,057)		(166,057)
Issuance of common stock under stock options and stock purchase plans	16		—		7,599		—		—		—		7,599
Share-based compensation expense	—		—		10,124		—		—		—		10,124
Balance at May 9, 2020	23,669	$	237	$	1,259,457	$	(2,191,427)	$	(344,516)	$	(356,487)	$	(1,632,736)


	Twelve Weeks Ended May 4, 2019
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 9, 2019	25,259	$	253	$	1,163,831	$	(2,276,525)	$	(235,837)	$	(246,084)	$	(1,594,362)
Net income	—		—		—		405,949		—		—		405,949
Total other comprehensive income	—		—		—		—		(775)		—		(775)
Purchase of 472 shares of treasury stock	—		—		—		—		—		(466,019)		(466,019)
Issuance of common stock under stock options and stock purchase plans	126		1		57,347		—		—		—		57,348
Share-based compensation expense	—		—		8,346		—		—		—		8,346
Balance at May 4, 2019	25,385	$	254	$	1,229,524	$	(1,870,576)	$	(236,612)	$	(712,103)	$	(1,589,513)


	Thirty-Six Weeks Ended May 9, 2020
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 31, 2019	25,445	$	254	$	1,264,448	$	(1,305,347)	$	(269,322)	$	(1,403,884)	$	(1,713,851)
Net income	—		—		—		992,515		—		—		992,515
Total other comprehensive loss	—		—		—		—		(75,194)		—		(75,194)
Retirement of treasury shares	(1,912)		(19)		(99,686)		(1,878,595)		—		1,978,300		—
Purchase of 826 shares of treasury stock	—		—		—		—		—		(930,903)		(930,903)
Issuance of common stock under stock options and stock purchase plans	136		2		62,899		—		—		—		62,901
Share-based compensation expense	—		—		31,796		—		—		—		31,796
Balance at May 9, 2020	23,669	$	237	$	1,259,457	$	(2,191,427)	$	(344,516)	$	(356,487)	$	(1,632,736)


	Thirty-Six Weeks Ended May 4, 2019
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 25, 2018	27,530	$	275	$	1,155,426	$	(1,208,824)	$	(235,805)	$	(1,231,427)	$	(1,520,355)
Cumulative effect of adoption of ASU 2014-09	—		—		—		(6,773)		—		—		(6,773)
Balance at August 25, 2018, as adjusted	27,530	$	275	$	1,155,426	$	(1,215,597)	$	(235,805)	$	(1,231,427)	$	(1,527,128)
Net income	—		—		—		1,051,992		—		—		1,051,992
Total other comprehensive loss	—		—		—		—		(807)		—		(807)
Retirement of treasury shares	(2,563)		(26)		(125,443)		(1,706,971)		—		1,832,440		—
Purchase of 1,548 shares of treasury stock	—		—		—		—		—		(1,313,116)		(1,313,116)
Issuance of common stock under stock options and stock purchase plans	418		5		171,289		—		—		—		171,294
Share-based compensation expense	—		—		28,252		—		—		—		28,252
Balance at May 4, 2019	25,385	$	254	$	1,229,524	$	(1,870,576)	$	(236,612)	$	(712,103)	$	(1,589,513)


		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value
Nonvested at August 31, 2019	10,049	$	773.61
Granted	8,735		1,086.61
Vested	(4,183)		945.58
Canceled or forfeited	(313)		938.64
Nonvested at May 9, 2020	14,288	$	911.01


	May 9, 2020
(in thousands)	Level 1		Level 2		Level 3		Fair Value

Other current assets	$	34,381	$	—	$	—	$	34,381
Other long-term assets		70,726		11,110		—		81,836
	$	105,107	$	11,110	$	—	$	116,217

Accrued expenses and other	$	—	$	(16,842)	$	—	$	(16,842)


	August 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Fair Value

Other current assets	$	65,344	$	2,614	$	—	$	67,958
Other long-term assets		65,573		5,395		—		70,968
	$	130,917	$	8,009	$	—	$	138,926


	Thirty-Six Weeks Ended
	May 9,		May 4,
	2020		2019
Expected price volatility	22	%	21	%
Risk-free interest rate	1.4	%	3.0	%
Weighted average expected lives (in years)	5.5		5.6
Forfeiture rate	10	%	10	%
Dividend yield	0	%	0	%


	May 9, 2020
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value

Corporate debt securities	$	52,423	$	715	$	(28)	$	53,110
Government bonds		45,683		1,468		(13)		47,138
Mortgage-backed securities		2,958		58		—		3,016
Asset-backed securities and other		12,944		70		(61)		12,953
	$	114,008	$	2,311	$	(102)	$	116,217


	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value

Corporate debt securities	$	36,998	$	29	$	(19)	$	37,008
Government bonds		45,741		763		—		46,504
Mortgage-backed securities		2,089		2		(15)		2,076
Asset-backed securities and other		53,345		—		(7)		53,338
	$	138,173	$	794	$	(41)	$	138,926


	May 9,		August 31,
(in thousands)	2020		2019

4.000% Senior Notes due November 2020, effective interest rate of 4.43%	$	500,000	$	500,000
2.500% Senior Notes due April 2021, effective interest rate of 2.62%		250,000		250,000
3.700% Senior Notes due April 2022, effective interest rate of 3.85%		500,000		500,000
2.875% Senior Notes due January 2023, effective interest rate of 3.21%		300,000		300,000
3.125% Senior Notes due July 2023, effective interest rate of 3.26%		500,000		500,000
3.125% Senior Notes due April 2024, effective interest rate 3.32%		300,000		300,000
3.250% Senior Notes due April 2025, effective interest rate 3.36%		400,000		400,000
3.625% Senior Notes due April 2025, effective interest rate 3.78%		500,000		—
3.125% Senior Notes due April 2026, effective interest rate of 3.28%		400,000		400,000
3.750% Senior Notes due June 2027, effective interest rate of 3.83%		600,000		600,000
3.750% Senior Notes due April 2029, effective interest rate of 3.86%		450,000		450,000
4.000% Senior Notes due April 2030, effective interest rate 4.09%		750,000		—
Commercial paper, weighted average interest rate of 2.28% at August 31, 2019		—		1,030,000
Total debt before discounts and debt issuance costs		5,450,000		5,230,000
Less: Discounts and debt issuance costs		31,728		23,656
Long-term debt	$	5,418,272	$	5,206,344


			Net
	Foreign		Unrealized
	Currency and		Gain (Loss)
(in thousands)	Other⁽²⁾		on Securities			Derivatives			Total

Balance at February 15, 2020	$	(225,380)	$	581		$	(3,538)		$	(228,337)
Other comprehensive (loss) income before reclassifications⁽¹⁾		(104,920)		1,116			(12,808)	⁽⁵⁾		(116,612)
Amounts reclassified from Accumulated other comprehensive (loss)⁽¹⁾		—		44	⁽³⁾		389	⁽⁴⁾		433
Balance at May 9, 2020	$	(330,300)	$	1,741		$	(15,957)		$	(344,516)


	Estimated	Gross				Net
	Useful	Carrying		Accumulated		Carrying
(in thousands)	Life	Amount		Amortization		Amount

Amortizing intangible assets:
Technology	3-5 years	$	870	$	(870)	$	—
Customer relationships	3-10 years		29,376		(26,648)		2,728
Total intangible assets other than goodwill		$	30,246	$	(27,518)	$	2,728


(in thousands)	Classification	May 9, 2020

Assets:
Operating	Operating lease right-of-use assets	$	2,613,849
Finance	Property and equipment		291,873
Total lease assets		$	2,905,722
Liabilities:
Current:
Operating	Current portion of operating lease liabilities	$	236,759
Finance	Accrued expenses and other		58,018
Noncurrent:
Operating	Operating lease liabilities, less current portion		2,481,280
Finance	Other long-term liabilities		126,258
Total lease liabilities		$	2,902,315


		Twelve		Thirty-Six
		Weeks Ended		Weeks Ended
(in thousands)	Statement of Income Location	May 9, 2020		May 9, 2020

Finance lease cost:
Amortization of lease assets	Depreciation and amortization	$	13,044	$	38,572
Interest on lease liabilities	Interest expense, net		933		3,600
Operating lease cost⁽¹⁾	Selling, general and administrative expenses		82,258		244,454
Total lease cost		$	96,235	$	286,626


	Finance		Operating
(in thousands)	Leases		Leases		Total

2020	$	15,052	$	79,958	$	95,010
2021		61,531		320,888		382,419
2022		49,532		317,806		367,338
2023		34,827		298,900		333,727
2024		12,837		275,164		288,001
Thereafter		38,271		2,246,943		2,285,214
Total lease payments		212,050		3,539,659		3,751,709
Less: Interest		(27,774)		(821,620)		(849,394)
Present value of lease liabilities	$	184,276	$	2,718,039	$	2,902,315


	May 9, 2020
Weighted-average remaining lease term in years, inclusive of renewal options that are reasonably certain to be exercised
Finance leases – real estate	30
Finance leases – vehicles	3
Operating leases	15
Weighted-average discount rate:
Finance leases – real estate	3.24	%
Finance leases – vehicles	2.70	%
Operating leases	3.43	%


	A		B		A-B=C		D		C+D
	Fiscal Year		Thirty-Six		Seventeen		Thirty-Six		Trailing Four
	Ended		Weeks Ended		Weeks Ended		Weeks Ended		Quarters Ended
	August 31,		May 4,		August 31,		May 9,		May 9,
(in thousands, except percentages)	2019⁽¹⁾		2019		2019		2020		2020

Net income	$	1,617,221	$	1,051,992	$	565,229	$	992,515	$	1,557,744
Adjustments:
Interest expense		184,804		123,608		61,196		135,528		196,724
Rent expense⁽²⁾		332,726		224,259		108,467		227,327		335,794
Tax effect⁽³⁾		(111,269)		(74,791)		(36,478)		(78,014)		(114,492)
Deferred tax liabilities, net of repatriation tax		(6,340)		(6,340)		—		—		—
Adjusted after-tax return	$	2,017,142	$	1,318,728	$	698,414	$	1,277,356	$	1,975,770

Average debt⁽⁴⁾									$	5,303,066
Average stockholders’ deficit⁽⁴⁾										(1,684,662)
Add: Rent x 6										2,014,764
Average finance lease liabilities⁽⁴⁾										184,286
Invested capital									$	5,817,454

Adjusted after-tax ROIC										34.0	%


Total lease cost per ASC 842, for the 36 weeks ended May 9, 2020	$	286,626
Less: Finance lease interest and amortization		(42,172)
Less: Variable operating lease components, related to insurance and common area maintenance for the 36 weeks ended May 9, 2020		(17,127)
Rent expense for the 36 weeks ended May 9, 2020		227,327
Add: Rent expense for the 17 weeks ended August 31, 2019, as previously reported prior to the adoption of ASC 842		108,467
Rent expense for the 53 weeks ended May 9, 2020	$	335,794


				Total Number of	Maximum Dollar
				Shares Purchased as	Value that May Yet
	Total Number	Average		Part of Publicly	Be Purchased Under
	of Shares	Price Paid		Announced Plans or	the Plans or
Period	Purchased	per Share		Programs	Programs
February 16, 2020 to March 14, 2020	146,007	$	1,068.15	146,007	$	805,989,923
March 15, 2020 to April 11, 2020	10,028		1,007.18	10,028		795,889,909
April 12, 2020 to May 9, 2020	—		—	—		795,889,909
Total	156,035	$	1,064.23	156,035	$	795,889,909


3.1		Restated Articles of Incorporation of AutoZone, Inc. incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended February 13, 1999.

3.2		Seventh Amended and Restated By-Laws of AutoZone, Inc. incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated March 19, 2018.

4.1		Officers’ Certificate dated March 30, 2020, pursuant to Section 3.2 of the Indenture, dated March 30, 2020, setting forth the terms of the 3.625% Senior Notes due 2025. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated March 30, 2020.

4.2		Officers’ Certificate dated March 30, 2020, pursuant to Section 3.2 of the Indenture, dated March 30, 2020, setting forth the terms of the 4.000% Senior Notes due 2030. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated March 30, 2020.

4.3		Form of 3.625% Note due 2025. Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K dated March 30, 2020.

4.4		Form of 4.000% Note due 2030. Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K dated March 30, 2020.

4.5		Form of 4.000% Note due 2030. Incorporated by reference to Exhibit 4.5 to the Current Report on Form 8-K dated March 30, 2020.

10.1		364-Day Credit Agreement, dated April 3, 2020, by and among the Company, as borrower, the several lenders from time to time party thereto, and U.S. Bank, National Association., as administrative agent for the lenders. Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated April 7, 2020.

15.1		Letter Regarding Unaudited Interim Financial Statements.

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104.		The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended May 9, 2020, has been formatted in Inline XBRL.


	AUTOZONE, INC.

	By:	/s/ WILLIAM T. GILES
	William T. Giles
	Chief Financial Officer and Executive Vice President
	Finance, Information Technology and Store Development
	(Principal Financial Officer)

	By:	/s/ CHARLIE PLEAS, III
	Charlie Pleas, III
	Senior Vice President, Controller
	(Principal Accounting Officer)
Dated: June 12, 2020