AutoZone (AZO) Q4 2005 earnings summary

Executive summary

• FY05 net sales rose 1.3% to $5.711B, mainly from store growth; domestic comparable sales fell 2%, and transactions declined in both DIY and commercial.

• Net income increased 0.9% to $571.0M and diluted EPS rose 9.5% to $7.18; repurchases added ~$0.10 to diluted EPS.

Financial highlights

• Gross profit was $2.793B, or 48.9% of sales, versus $2.757B and 48.9% in FY04; warranty negotiation gains were $1.7M versus $42.1M.

• Operating profit was $975.7M versus $998.7M; SG&A rose to $1.817B, or 31.8% of sales, including a $40.3M lease-accounting adjustment.

• Net interest expense increased to $102.4M from $92.8M, reflecting higher average borrowings and rates.

• Effective tax rate fell to 34.6% from 37.5%, including $21.3M of one-time repatriation and other discrete tax benefits.

Outlook and guidance

• FY06 investment expected to track historical rates, primarily for new stores and upgrades to existing stores and systems.

• Funding expected primarily from internally generated funds and available borrowing capacity; additional debt may fund the balance of capital needs and repurchases.

• Management expected continued financing of much inventory growth through supplier payment terms.