1st March 2006 - AutoZone 2nd Quarter Sales up 4.1%; Same Store Sales up 0.4%

AutoZone, Inc. today reported sales of $1.254 billion for its second quarter (12 weeks) ended February 11, 2006, up 4.1% from fiscal second quarter 2005. Same store sales, or sales for stores open at least one year, were up 0.4% for the quarter.

Operating margin for the quarter increased 187 basis points from last year to 14.2%, while operating profit increased 19.9% over the prior year. Net income for the quarter increased 3.1% over the same period last year to $97.0 million, while diluted earnings per share increased 7.6% to $1.25 per share from $1.16 per share reported in the year-ago quarter.

For the quarter, gross profit, as a percentage of sales, was 49.1% (versus 48.4% last year). The improvement in comparable gross margin was largely due to the Company's ongoing category management initiatives as well as reduced sales of non-core, lower-margin merchandise. Operating expenses, as a percentage of sales, were 34.9% (versus 36.0% last year). On a comparable basis, adjusted operating expenses were 34.6% (versus 32.7% last year) or 192 basis points over last year. A portion of the increase in operating expenses this year reflected $4.2 million in share-based expenses resulting from the adoption of the Financial Accounting Standards Board ("FASB") Statement No. 123(R), "Share-Based Payments." The remaining increase in comparable operating expenses reflected both short-term expenditures to complete the remaining store resets underway during the first quarter and longer-term efforts to improve the customer shopping experience, from expanding hours of operation to continuing to improve the in-store merchandising presentation.

Excluding this quarter's share-based expenses and last year's adjustments to both operating expenses and income taxes, adjusted operating profit decreased 3.4%, while adjusted diluted earnings per share were flat versus the year-ago quarter at $1.29.

The Company's total per store inventory level, including supplier owned pay-on-scan inventory, as of February 11, 2006, was $494 thousand versus $484 thousand last year. Net inventory, defined as merchandise inventories less accounts payable, decreased on a per store level to $79 thousand from $86 thousand last year. AutoZone continues to provide excellent product availability while effectively financing those inventory levels.

"The second quarter marked the completion of our store adjacencies initiative, and I would like to thank our AutoZoners for their amazing efforts," said Bill Rhodes, President and Chief Executive Officer of AutoZone. "Additionally during the quarter, we continued our relentless focus on improving the customer shopping experience by increasing store-level training, improving our in-stock position, and continuing to focus on our unique and powerful culture to ensure we provide our customers with trustworthy advice.

"Over the past two quarters, we have deployed many new initiatives designed to deepen the relationship we have with our customers. Our operating margin reflects the impact of those initiatives. While some of them have been completed, many will be ongoing. We are pleased with our progress and believe we are well positioned as we enter our peak selling season," commented Bill Rhodes, President and Chief Executive Officer.

During the quarter ended February 11, 2006, AutoZone opened 41 new stores, replaced 4 stores, and closed 1 store in the U.S. while additionally opening 4 new stores in Mexico. Additionally, the Company re-opened 3 of 13 U.S. stores closed due to hurricane-related damage. As of February 11, 2006, the Company had 3,655 domestic stores and 88 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 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.

This release includes certain financial information not derived in accordance with generally accepted accounting principles ("GAAP"). These non-GAAP measures include adjusted debt, adjusted debt/EBITDAR, adjusted rent expense, adjusted operating expense, adjusted operating profit, adjusted income before taxes, adjusted income taxes, adjusted net income, adjusted basic earnings per share, and adjusted diluted earnings per share. The Company believes that the presentation of these non-GAAP measures provides information that is useful to investors as it indicates more clearly the Company's comparative year-to-year operating results, but this information should not be considered a substitute for any measures derived in accordance with GAAP. Management manages the Company's debt levels to a ratio of adjusted debt to EBITDAR and manages cash flows available for share repurchase by monitoring cash flows before share repurchases, as shown on the following tables. This is important information for the Company's management of its debt levels and share repurchases. 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; weather; 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 changes in laws or regulations. 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 27, 2005, for more information related to those risks

Source: Autozone Press Release