25th May 2005 - AutoZone Third Quarter EPS up 10%; Adjusted EPS up 16%

AutoZone, Inc. 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 http://www.autozone.com . AutoZone does not derive revenue from automotive repair or installation.

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.

Source: Autozone Press Release