AutoZone (AZO) Q4 2006 earnings summary

Executive summary

• FY06 net sales rose 4.2% to $5.948B, driven primarily by store growth; domestic comparable sales increased 0.4%.

• Net income edged down 0.3% to $569.3M, while diluted EPS rose 4.5% to $7.50, aided by share repurchases.

Financial highlights

• Gross profit was $2.939B, or 49.4% of sales, versus $2.793B and 48.9% in FY05; category management gains were partly offset by commodity costs.

• Operating profit increased to $1.010B from $975.7M; SG&A rose to $1.929B, or 32.4% of sales, including $17.4M of share-based compensation expense.

• Net interest expense rose to $107.9M from $102.4M; income tax rate was 36.9%, versus 34.6% in FY05, which included repatriation and other discrete tax benefits.

• Operating cash flow increased to $822.7M from $648.1M; investing cash outflow was $268.3M and financing cash outflow was $537.7M.

Outlook and guidance

• FY07 investment is expected to remain consistent with historical rates, principally for new stores and improvements to existing stores and systems.

• Capital spending, working capital needs and repurchases are expected to be funded primarily with internally generated cash and available borrowing capacity, with new borrowings as needed.

• Fiscal Q4 typically contributes disproportionately to annual results because it includes 16 weeks and the seasonally strongest summer period; FY06 Q4 represented 32.6% of sales and 37.5% of net income.