Form 10-Q AUTOZONE INC For: Nov 20

December 17, 2021 4:42 PM EST

News and research before you hear about it on CNBC and others. Claim your 1-week free trial to StreetInsider Premium here.
0000866787--08-272022Q1falseAUTOZONE INC0000866787us-gaap:TreasuryStockMember2021-08-292021-11-200000866787us-gaap:TreasuryStockMember2020-08-302020-11-210000866787us-gaap:SubsequentEventMember2021-12-100000866787us-gaap:SubsequentEventMember2021-12-140000866787azo:StockRepurchaseProgram1998Member2021-11-200000866787us-gaap:CommonStockMember2021-10-050000866787us-gaap:CommonStockMember2021-08-292021-11-200000866787us-gaap:CommonStockMember2020-08-302020-11-210000866787us-gaap:TreasuryStockMember2021-11-200000866787us-gaap:RetainedEarningsMember2021-11-200000866787us-gaap:AdditionalPaidInCapitalMember2021-11-200000866787us-gaap:AccumulatedTranslationAdjustmentMember2021-11-200000866787us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-11-200000866787us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-11-200000866787us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-11-200000866787us-gaap:TreasuryStockMember2021-08-280000866787us-gaap:RetainedEarningsMember2021-08-280000866787us-gaap:AdditionalPaidInCapitalMember2021-08-280000866787us-gaap:AccumulatedTranslationAdjustmentMember2021-08-280000866787us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-08-280000866787us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-08-280000866787us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-08-280000866787us-gaap:TreasuryStockMember2020-11-210000866787us-gaap:RetainedEarningsMember2020-11-210000866787us-gaap:AdditionalPaidInCapitalMember2020-11-210000866787us-gaap:AccumulatedTranslationAdjustmentMember2020-11-210000866787us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-11-210000866787us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-11-210000866787us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-11-210000866787us-gaap:TreasuryStockMember2020-08-290000866787us-gaap:RetainedEarningsMember2020-08-290000866787us-gaap:AdditionalPaidInCapitalMember2020-08-290000866787us-gaap:AccumulatedTranslationAdjustmentMember2020-08-290000866787us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-08-290000866787us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-08-290000866787us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-08-290000866787us-gaap:RestrictedStockUnitsRSUMember2021-11-200000866787us-gaap:RestrictedStockUnitsRSUMember2021-08-292021-11-200000866787us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-08-292021-11-200000866787us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-08-302020-11-210000866787us-gaap:PreferredStockMember2021-11-200000866787us-gaap:PreferredStockMember2021-08-280000866787us-gaap:SubsequentEventMember2021-11-212021-12-1000008667871998-01-012021-11-200000866787us-gaap:AccumulatedTranslationAdjustmentMember2021-08-292021-11-200000866787us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-08-292021-11-200000866787us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-08-292021-11-200000866787us-gaap:AccumulatedTranslationAdjustmentMember2020-08-302020-11-210000866787us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-08-302020-11-210000866787us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-08-302020-11-210000866787us-gaap:RetainedEarningsMember2021-08-292021-11-200000866787us-gaap:RetainedEarningsMember2020-08-302020-11-210000866787us-gaap:LetterOfCreditMember2021-11-150000866787azo:SwinglineLoansMember2021-11-150000866787azo:IndividualIssuerLetterOfCreditMember2021-11-150000866787azo:MasterExtensionAgreementMember2021-11-152021-11-150000866787azo:NewRevolvingCreditAgreementMember2021-11-150000866787azo:NewRevolvingCreditAgreementMember2021-11-140000866787us-gaap:AllOtherSegmentsMember2021-08-292021-11-200000866787azo:AutoPartsLocationsMember2021-08-292021-11-200000866787us-gaap:AllOtherSegmentsMember2020-08-302020-11-210000866787azo:AutoPartsLocationsMember2020-08-302020-11-210000866787azo:SeniorNotesTwentyTwoMember2021-11-200000866787azo:SeniorNotesTwentyThreeMember2021-11-200000866787azo:SeniorNotesTwentyMember2021-11-200000866787azo:SeniorNotesTwelveMember2021-11-200000866787azo:SeniorNotesThirteenMember2021-11-200000866787azo:SeniorNotesTenMember2021-11-200000866787azo:SeniorNotesSeventeenMember2021-11-200000866787azo:SeniorNotesNineteenMember2021-11-200000866787azo:SeniorNotesFifteenMember2021-11-200000866787azo:SeniorNotesElevenMember2021-11-200000866787azo:SeniorNotesEighteenMember2021-11-200000866787azo:SeniorNotesTwentyTwoMember2021-08-280000866787azo:SeniorNotesTwentyThreeMember2021-08-280000866787azo:SeniorNotesTwentyMember2021-08-280000866787azo:SeniorNotesTwelveMember2021-08-280000866787azo:SeniorNotesThirteenMember2021-08-280000866787azo:SeniorNotesTenMember2021-08-280000866787azo:SeniorNotesSeventeenMember2021-08-280000866787azo:SeniorNotesNineteenMember2021-08-280000866787azo:SeniorNotesFifteenMember2021-08-280000866787azo:SeniorNotesElevenMember2021-08-280000866787azo:SeniorNotesEighteenMember2021-08-280000866787us-gaap:CommonStockMember2020-11-210000866787us-gaap:CommonStockMember2020-08-290000866787us-gaap:CommonStockMember2021-11-200000866787us-gaap:CommonStockMember2021-08-2800008667872020-11-2100008667872020-08-290000866787us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-11-200000866787us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-11-200000866787us-gaap:FairValueMeasurementsRecurringMember2021-11-200000866787us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-08-280000866787us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-08-280000866787us-gaap:FairValueMeasurementsRecurringMember2021-08-280000866787us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-11-200000866787us-gaap:MortgageBackedSecuritiesMember2021-11-200000866787us-gaap:CorporateDebtSecuritiesMember2021-11-200000866787azo:AssetBackedSecuritiesAndOtherMember2021-11-200000866787us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-08-280000866787us-gaap:MortgageBackedSecuritiesMember2021-08-280000866787us-gaap:CorporateDebtSecuritiesMember2021-08-280000866787azo:AssetBackedSecuritiesAndOtherMember2021-08-280000866787us-gaap:EmployeeStockOptionMember2021-08-292021-11-200000866787us-gaap:EmployeeStockOptionMember2020-08-302020-11-210000866787us-gaap:AdditionalPaidInCapitalMember2021-08-292021-11-200000866787us-gaap:AdditionalPaidInCapitalMember2020-08-302020-11-2100008667872021-11-2000008667872021-08-2800008667872021-12-1000008667872020-08-302020-11-2100008667872021-08-292021-11-200000866787azo:NewRevolvingCreditAgreementMember2021-11-200000866787us-gaap:SubsequentEventMember2021-12-142021-12-140000866787azo:SeniorNotesTwentyTwoMember2021-08-292021-11-200000866787azo:SeniorNotesTwentyThreeMember2021-08-292021-11-200000866787azo:SeniorNotesTwentyMember2021-08-292021-11-200000866787azo:SeniorNotesTwelveMember2021-08-292021-11-200000866787azo:SeniorNotesThirteenMember2021-08-292021-11-200000866787azo:SeniorNotesTenMember2021-08-292021-11-200000866787azo:SeniorNotesSeventeenMember2021-08-292021-11-200000866787azo:SeniorNotesNineteenMember2021-08-292021-11-200000866787azo:SeniorNotesFifteenMember2021-08-292021-11-200000866787azo:SeniorNotesElevenMember2021-08-292021-11-200000866787azo:SeniorNotesEighteenMember2021-08-292021-11-200000866787azo:SeniorNotesTwentyTwoMember2020-08-302021-08-280000866787azo:SeniorNotesTwentyThreeMember2020-08-302021-08-280000866787azo:SeniorNotesTwentyMember2020-08-302021-08-280000866787azo:SeniorNotesTwelveMember2020-08-302021-08-280000866787azo:SeniorNotesThirteenMember2020-08-302021-08-280000866787azo:SeniorNotesTenMember2020-08-302021-08-280000866787azo:SeniorNotesSeventeenMember2020-08-302021-08-280000866787azo:SeniorNotesNineteenMember2020-08-302021-08-280000866787azo:SeniorNotesFifteenMember2020-08-302021-08-280000866787azo:SeniorNotesElevenMember2020-08-302021-08-280000866787azo:SeniorNotesEighteenMember2020-08-302021-08-2800008667872021-11-202021-11-200000866787azo:NewRevolvingCreditAgreementMember2021-11-152021-11-15iso4217:USDazo:storexbrli:purexbrli:sharesiso4217:USDxbrli:sharesazo:securityazo:segment

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended November 20, 2021, 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

Graphic

AUTOZONE, INC.

(Exact name of registrant as specified in its charter)

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)

(901) 495-6500

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 Par Value – 20,634,396 shares outstanding as of December 10, 2021.

TABLE OF CONTENTS

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

15

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

SIGNATURES

28

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

November 20,

August 28,

(in thousands)

2021

2021

Assets

 

  

Current assets:

 

  

Cash and cash equivalents

$

961,125

$

1,171,335

Accounts receivable

 

379,276

 

378,392

Merchandise inventories

 

4,768,258

 

4,639,813

Other current assets

 

240,487

 

225,763

Total current assets

 

6,349,146

 

6,415,303

Property and equipment:

Property and equipment

 

8,854,872

 

8,807,178

Less: Accumulated depreciation and amortization

 

(3,996,944)

 

(3,950,287)

 

4,857,928

 

4,856,891

Operating lease right-of-use assets

2,717,566

2,718,712

Goodwill

 

302,645

 

302,645

Deferred income taxes

 

40,164

 

41,043

Other long-term assets

 

193,500

 

181,605

 

3,253,875

 

3,244,005

Total assets

$

14,460,949

$

14,516,199

Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable

$

6,171,344

$

6,013,924

Current portion of operating lease liabilities

263,899

236,568

Current portion of debt

500,000

Accrued expenses and other

 

965,898

 

1,039,788

Income taxes payable

 

186,752

 

79,474

Total current liabilities

 

8,087,893

 

7,369,754

Debt, less current portion

 

4,771,266

 

5,269,820

Operating lease liabilities, less current portion

2,624,676

2,632,842

Deferred income taxes

 

355,310

 

337,125

Other long-term liabilities

 

746,554

 

704,194

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; 23,057 shares issued and 20,674 shares outstanding as of November 20, 2021; 23,007 shares issued and 21,138 shares outstanding as of August 28, 2021

 

231

 

230

Additional paid-in capital

 

1,499,557

 

1,465,669

Retained earnings (deficit)

 

135,406

 

(419,829)

Accumulated other comprehensive loss

 

(324,327)

 

(307,986)

Treasury stock, at cost

 

(3,435,617)

 

(2,535,620)

Total stockholders’ deficit

 

(2,124,750)

 

(1,797,536)

Total liabilities and stockholders' deficit

$

14,460,949

$

14,516,199

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Twelve Weeks Ended

November 20,

November 21,

(in thousands, except per share data)

2021

2020

Net sales

    

$

3,668,904

    

$

3,154,261

Cost of sales, including warehouse and delivery expenses

1,743,744

1,478,644

Gross profit

1,925,160

 

1,675,617

Operating, selling, general and administrative expenses

1,170,675

1,060,392

Operating profit

754,485

615,225

Interest expense, net

43,284

46,179

Income before income taxes

711,201

 

569,046

Income tax expense

155,966

126,613

Net income

$

555,235

$

442,433

Weighted average shares for basic earnings per share

 

20,988

 

23,223

Effect of dilutive stock equivalents

621

555

Weighted average shares for diluted earnings per share

 

21,609

 

23,778

Basic earnings per share

$

26.45

$

19.05

Diluted earnings per share

$

25.69

$

18.61

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Twelve Weeks Ended

    

November 20,

    

November 21,

(in thousands)

2021

2020

Net income

$

555,235

$

442,433

Other comprehensive (loss) income:

 

  

 

  

Foreign currency translation adjustments

 

(16,566)

 

46,995

Unrealized losses on marketable debt securities, net of taxes

 

(430)

 

(309)

Net derivative activities, net of taxes

 

655

 

659

Total other comprehensive (loss) income

 

(16,341)

 

47,345

Comprehensive income

$

538,894

$

489,778

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Twelve Weeks Ended

    

November 20,

November 21,

(in thousands)

2021

2020

Cash flows from operating activities:

 

  

 

  

Net income

$

555,235

$

442,433

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization of property and equipment and intangibles

 

99,590

 

89,551

Amortization of debt origination fees

 

2,639

 

3,150

Deferred income taxes

 

18,096

 

10,295

Share-based compensation expense

 

14,295

 

10,508

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(1,576)

 

17,491

Merchandise inventories

 

(136,988)

 

(124,746)

Accounts payable and accrued expenses

 

89,268

 

56,273

Income taxes payable

 

107,411

 

79,558

Other, net

 

29,960

 

98,978

Net cash provided by operating activities

 

777,930

 

683,491

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(102,269)

 

(113,036)

Purchase of marketable debt securities

 

(7,026)

 

(45,985)

Proceeds from sale of marketable debt securities

 

3,709

 

51,210

Proceeds (payments) from disposal of capital assets and other, net

 

14,625

 

(2,368)

Net cash used in investing activities

 

(90,961)

 

(110,179)

Cash flows from financing activities:

 

  

 

  

Net proceeds from sale of common stock

 

21,100

 

28,666

Purchase of treasury stock

(899,997)

(678,324)

Repayment of principal portion of finance lease liabilities

 

(13,687)

(13,786)

Other, net

 

(3,362)

 

Net cash used in financing activities

 

(895,946)

 

(663,444)

Effect of exchange rate changes on cash

 

(1,233)

 

3,322

Net decrease in cash and cash equivalents

 

(210,210)

 

(86,810)

Cash and cash equivalents at beginning of period

 

1,171,335

 

1,750,815

Cash and cash equivalents at end of period

$

961,125

$

1,664,005

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

Twelve Weeks Ended November 20, 2021

Accumulated

Common

Additional

Other

    

Shares

    

Common

    

Paid-in

    

Retained

    

Comprehensive

    

Treasury

    

(in thousands)

Issued

Stock

Capital

(Deficit) Earnings

Loss

Stock

Total

Balance at August 28, 2021

 

23,007

$

230

$

1,465,669

$

(419,829)

$

(307,986)

$

(2,535,620)

$

(1,797,536)

Net income

 

 

 

 

555,235

 

 

 

555,235

Total other comprehensive income

 

 

 

 

 

(16,341)

 

 

(16,341)

Purchase of 515 shares of treasury stock

 

 

 

 

 

 

(899,997)

 

(899,997)

Issuance of common stock under stock options and stock purchase plans

 

50

 

1

 

21,100

 

21,101

Share-based compensation expense

 

 

 

12,788

 

 

 

 

12,788

Balance at November 20, 2021

 

23,057

$

231

$

1,499,557

$

135,406

$

(324,327)

$

(3,435,617)

$

(2,124,750)

Twelve Weeks Ended November 21, 2020

Accumulated

Common

Additional

Other

    

Shares

    

Common

    

Paid-in

    

Retained

    

Comprehensive

    

Treasury

    

(in thousands)

Issued

Stock

Capital

Deficit

Loss

Stock

Total

Balance at August 29, 2020

 

23,697

$

237

$

1,283,495

$

(1,450,970)

$

(354,252)

$

(356,487)

$

(877,977)

Net income

 

 

 

 

442,433

 

 

 

442,433

Total other comprehensive income

 

 

 

 

 

47,345

 

 

47,345

Purchase of 584 shares of treasury stock

 

 

 

 

 

 

(678,324)

 

(678,324)

Issuance of common stock under stock options and stock purchase plans

 

64

 

1

 

28,665

 

28,666

Share-based compensation expense

 

 

 

10,877

 

 

 

 

10,877

Balance at November 21, 2020

 

23,761

$

238

$

1,323,037

$

(1,008,537)

$

(306,907)

$

(1,034,811)

$

(1,026,980)

See Notes to Condensed Consolidated Financial Statements.

6

AUTOZONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A – General

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form 10-K for the year ended August 28, 2021.

Operating results for the twelve weeks ended November 20, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 27, 2022. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2022 and 2021 each have 16 weeks.

The Company does not expect any recently issued accounting pronouncements to have a material effect on the Company’s financial statements and related disclosures.

Note B – Share-Based Payments

AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.

7

Stock Options:

The Company made stock option grants of 163,786 shares during the twelve week period ended November 20, 2021 and granted options to purchase 194,511 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.

The weighted average fair value of the stock option awards granted during the twelve week periods ended November 20, 2021 and November 21, 2020, using the Black-Scholes-Merton multiple-option pricing valuation model, was $462.80 and $299.48 per share, respectively, using the following weighted average key assumptions:

Twelve Weeks Ended

    

November 20,

    

November 21,

    

    

2021

2020

Expected price volatility

 

28

%  

28

%

Risk-free interest rate

 

1.1

%  

0.4

%

Weighted average expected lives (in years)

 

5.6

 

5.6

 

Forfeiture rate

 

10

%  

10

%

Dividend yield

 

0

%  

0

%

During the twelve week period ended November 20, 2021, 47,705 stock options were exercised at a weighted average exercise price of $549.86. In the comparable prior year period, 59,990 stock options were exercised at a weighted average exercise price of $496.58.

As of November 20, 2021, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $98.4 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.2 years.

Restricted Stock Units:

Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately.

As of November 20, 2021, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $15.6 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.9 years.

Transactions related to restricted stock units for the twelve weeks ended November 20, 2021 were as follows:

Weighted-

    

Number

    

Average Grant

of Shares

Date Fair Value

Nonvested at August 28, 2021

 

15,751

$

1,005.41

Granted

 

4,352

1,651.22

Vested

 

(5,373)

 

957.89

Canceled or forfeited

 

(696)

 

1,023.97

Nonvested at November 20, 2021

 

14,034

$

1,222.96

8

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $14.3 million for the twelve week period ended November 20, 2021, and $10.5 million for the comparable prior year period.

For the twelve week period ended November 20, 2021, 97,942 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 293,280 anti-dilutive stock options were excluded from the dilutive earnings per share computation.

See AutoZone’s Annual Report on Form 10-K for the year ended August 28, 2021 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the 2020 Director Compensation Program.

Note C – Fair Value Measurements

The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:

Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2 inputs—inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability.

Level 3 inputs—unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities.

Marketable Debt Securities Measured at Fair Value on a Recurring Basis

The Company’s marketable debt securities measured at fair value on a recurring basis were as follows:

November 20, 2021

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Other current assets

$

55,414

$

106

$

$

55,520

Other long-term assets

 

48,272

 

12,894

 

 

61,166

$

103,686

$

13,000

$

$

116,686

August 28, 2021

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Other current assets

$

46,007

$

$

$

46,007

Other long-term assets

 

54,105

 

13,806

 

 

67,911

$

100,112

$

13,806

$

$

113,918

9

At November 20, 2021, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.”

Financial Instruments not Recognized at Fair Value

The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note F – Financing.”

Note D – Marketable Debt Securities

Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.”

The Company’s available-for-sale marketable debt securities consisted of the following:

November 20, 2021

    

Amortized

    

Gross

    

Gross

    

Cost

Unrealized

Unrealized

Fair

(in thousands)

Basis

Gains

Losses

Value

Corporate debt securities

$

20,956

$

196

$

(26)

$

21,126

Government bonds

 

61,258

 

202

 

(151)

 

61,309

Mortgage-backed securities

 

6,047

 

35

 

(36)

 

6,046

Asset-backed securities and other

 

28,225

 

27

 

(47)

 

28,205

$

116,486

$

460

$

(260)

$

116,686

August 28, 2021

    

Amortized

    

Gross

    

Gross

    

Cost

Unrealized

Unrealized

Fair

(in thousands)

Basis

Gains

Losses

Value

Corporate debt securities

$

23,650

$

329

$

(2)

$

23,977

Government bonds

 

65,416

 

338

 

(2)

 

65,752

Mortgage-backed securities

 

6,552

 

58

 

(8)

 

6,602

Asset-backed securities and other

 

17,551

 

43

 

(7)

 

17,587

$

113,169

$

768

$

(19)

$

113,918

10

The debt securities held at November 20, 2021, had effective maturities ranging from less than one year to approximately four years. At November 20, 2021, the Company held 20 securities that are in an unrealized loss position of approximately $260 thousand. In evaluating whether a credit loss exists for the securities, the Company considers factors such as the severity of the loss position, the credit worthiness of the investee, the term to maturity and the intent and ability to hold the investments until maturity or until recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above.

Included above in total available-for-sale marketable debt securities are $92.8 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses.

Note E – Merchandise Inventories

Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using the last-in, first-out (“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories. Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance. The Company’s policy is not to write up inventory in excess of replacement cost. The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $312.7 million at November 20, 2021 and $335.3 million at August 28, 2021.

Note F – Financing

The Company’s debt consisted of the following:

    

November 20,

    

August 28,

(in thousands)

2021

2021

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

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

750,000

1.650% Senior Notes due January 2031, effective interest rate of 2.19%

600,000

600,000

Total debt before discounts and debt issuance costs

 

5,300,000

 

5,300,000

Less: Current portion of debt

 

500,000

 

Less: Discounts and debt issuance costs

28,734

 

30,180

Debt, less current portion

$

4,771,266

$

5,269,820

On November 15, 2021, the Company amended and restated its existing revolving credit facility (the “Revolving Credit Agreement”) pursuant to which the Company’s borrowing capacity was increased from $2.0 billion to $2.25 billion and the maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $2.25 billion to $3.25 billion. The Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable on November 15, 2026, but AutoZone may make up to two requests to extend the termination date for an additional period of one year each. Revolving borrowings under the Revolving Credit Agreement may be base rate loans, Eurodollar loans, or a combination of both, at AutoZone’s election. The Revolving Credit Agreement includes (i) a $75 million sublimit for swingline loans, (ii) a $50 million individual issuer letter of credit sublimit and (iii) a $250 million aggregate sublimit for all letters of credit.

11

Under the Company’s Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.

As of November 20, 2021, the Company had no outstanding borrowings, $1.8 million of outstanding letters of credit and $2.2 billion of availability under the Revolving Credit Agreement.

As of November 20, 2021, the $500 million 3.700% Senior Notes due April 2022 are classified as current in the accompanying Condensed Consolidated Balance Sheets as the Company has the intent to utilize operating cash to fund the payment.

All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.

The fair value of the Company’s debt was estimated at $5.6 billion as of November 20, 2021, and $5.7 billion as of August 28, 2021, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2). Such fair value is greater than the carrying value of debt by $306.0 million and $413.1 million at November 20, 2021 and August 28, 2021, respectively, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts.

As of November 20, 2021, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements.

Note G – Stock Repurchase Program

From January 1, 1998 to November 20, 2021, the Company has repurchased a total of 150.8 million shares of its common stock at an aggregate cost of $26.6 billion, including 514,534 shares of its common stock at an aggregate cost of $900.0 million during the twelve week period ended November 20, 2021.

On October 5, 2021, the Board voted to authorize the repurchase of an additional $1.5 billion of the Company’s common stock in connection with the Company’s ongoing share repurchase program. Since the inception of the repurchase program in 1998, the Board has authorized $27.7 billion in share repurchases. Considering the cumulative repurchases as of November 20, 2021, the Company had $1.0 billion remaining under the Board’s authorization to repurchase its common stock.

Subsequent to November 20, 2021 and through December 10, 2021, the Company has repurchased 63,909 shares of its common stock at an aggregate cost of $120.0 million. On December 14, 2021, the Board voted to increase the authorization by $1.5 billion to raise the cumulative share repurchase authorization to $29.2 billion. Considering the cumulative repurchases subsequent to November 20, 2021 and through December 10, 2021 and the December 14, 2021 additional authorization, the Company has $2.4 billion remaining under the Board’s authorization to repurchase its common stock.

Note H – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes foreign currency translation adjustments, activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on available-for-sale debt securities.

12

Changes in Accumulated other comprehensive loss for the twelve week periods ended November 20, 2021 and November 21, 2020 consisted of the following:

Net

Foreign

Unrealized

Currency and

Gain (Loss)

(in thousands)

   

Other(1)

   

on Securities

Derivatives

Total

Balance at August 28, 2021

$

(287,638)

$

589

$

(20,937)

$

(307,986)

Other comprehensive (loss) before reclassifications(2)(3)

 

(16,566)

 

(430)

 

 

(16,996)

Amounts reclassified from Accumulated other comprehensive loss(2)(3)

 

 

 

655

 

655

Balance at November 20, 2021

$

(304,204)

$

159

$

(20,282)

$

(324,327)

Net

Foreign

Unrealized

Currency and

Gain (Loss)

(in thousands)

   

Other(1)

   

on Securities

Derivatives

Total

Balance at August 29, 2020

$

(332,321)

$

1,845

$

(23,776)

$

(354,252)

Other comprehensive income (loss) before reclassifications(2)(3)

 

46,995

 

(322)

 

 

46,673

Amounts reclassified from Accumulated other comprehensive loss(2)(3)

 

 

13

 

659

 

672

Balance at November 21, 2020

$

(285,326)

$

1,536

$

(23,117)

$

(306,907)

(1)Foreign currency is shown net of U.S. tax to account for foreign currency impacts of certain undistributed non-U.S. subsidiaries earnings. Other foreign currency is not shown net of additional U.S. tax as other basis differences of non-U.S. subsidiaries are intended to be permanently reinvested.
(2)Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss.
(3)Amounts shown are net of tax.

Note I – Litigation

The Company is involved in various legal proceedings incidental to the conduct of its business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. While the resolution of these matters cannot be predicted with certainty, management does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

Note J – Segment Reporting

The Company’s operating segments (Domestic Auto Parts, Mexico and Brazil) are aggregated as one reportable segment: Auto Parts Stores. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Company’s reportable segment are the same as those described in “Note A – Significant Accounting Policies” in its Annual Report on Form 10-K for the year ended August 28, 2021.

The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,785 locations in the U.S., Mexico and Brazil. 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.

13

The Other category reflects business activities of two operating segments that are not separately reportable due to the materiality of these operating segments. The operating segments include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry and E-commerce, which includes direct sales to customers through www.autozone.com for sales that are not fulfilled by local stores.

The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented were as follows:

Twelve Weeks Ended

    

November 20,

    

November 21,

(in thousands)

2021

2020

Net Sales

 

  

 

  

Auto Parts Stores

$

3,605,508

$

3,101,597

Other

 

63,396

 

52,664

Total

$

3,668,904

$

3,154,261

Segment Profit

 

  

 

  

Auto Parts Stores

$

1,887,453

$

1,639,904

Other

 

37,707

 

35,713

Gross profit

 

1,925,160

 

1,675,617

Operating, selling, general and administrative expenses

 

(1,170,675)

 

(1,060,392)

Interest expense, net

 

(43,284)

 

(46,179)

Income before income taxes

$

711,201

$

569,046

14

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

AutoZone, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc. (the Company) as of November 20, 2021, the related condensed consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the twelve week periods ended November 20, 2021 and November 21, 2020, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of August 28, 2021, the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated October 25, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 28, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Memphis, Tennessee

December 17, 2021

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc. (“AutoZone” or the “Company”). The following MD&A discussion should be read in conjunction with our Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and risk factors, that appear elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended August 28, 2021 and other filings we make with the SEC.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “seek,” “may,” “could,” 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: product demand; energy prices; weather; competition; credit market conditions; cash flows; access to available and feasible financing; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self -insurance; war and the prospect of war, including terrorist activity; the impact of public health issues, such as the ongoing global coronavirus (“COVID-19”) pandemic; inflation; the ability to hire, train and retain qualified employees; construction delays; the compromising of confidentiality, availability or integrity of information, including due to cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damage to our reputation; challenges in international markets; failure or interruption of our information technology systems; origin and raw material costs of suppliers; inventory availability; disruption in our supply chain; impact of tariffs; anticipated impact of new accounting standards; and business interruptions. Certain of these risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 28, 2021, and these Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance, actual results, developments and business decisions may differ from those contemplated by such forward-looking statements, and events described above and in the “Risk Factors” could materially and adversely affect our business. However, it should be understood that it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. 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.

Overview

We are the leading retailer, and a leading distributor, of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at November 20, 2021, operated 6,066 stores in the U.S., 666 stores in Mexico and 53 stores in Brazil. 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. At November 20, 2021, in 5,211 of our domestic stores, we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. We also have commercial programs in all stores in Mexico and Brazil. We sell the ALLDATA brand automotive diagnostic, repair and shop management software through www.alldata.com. Additionally, we sell automotive hard parts, maintenance items, accessories and non-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services.

16

Operating results for the twelve weeks ended November 20, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending August 27, 2022. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2022 and 2021 each have 16 weeks. Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January.

COVID-19 Impact

The COVID-19 pandemic continues to impact the global economy and numerous aspects of our business including our customers, employees and suppliers. Our highest priority remains the safety and well-being of our customers and employees. Since the beginning of the COVID-19 pandemic, we have experienced strong same store sales growth and our sales have remained at all-time high volumes.

The long-term impact to our business remains unknown, may magnify risks associated with our business and operations and may continue to cause fluctuations in demand for our products, our store hours and our workforce availability. Other unknowns include the potential impact of any related vaccine mandates on our workforce.

Please refer to the “Risk Factors” section of our Annual report on Form 10-K for the year ended August 28, 2021 for additional information.

Executive Summary

Net sales increased 16.3% for the quarter ended November 20, 2021 compared to the prior year period, which was driven by an increase in domestic same store sales (sales from stores open at least one year) of 13.6%. Domestic commercial sales increased 29.4%, which represents approximately 25% of our total sales. Operating profit increased 22.6% to $754.5 million compared to $615.2 million. Net income for the quarter increased 25.5% to $555.2 million compared to $442.4 million. Diluted earnings per share increased 38.1% to $25.69 per share from $18.61 per share. The increase in net income for the quarter ended November 20, 2021 was driven by strong topline growth and operating expense leverage.

Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to fuel costs, wage rates, supply chain disruptions, hiring and other economic conditions, including the effects of, and responses to, COVID-19. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

During the first quarter of fiscal 2022, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 84% of total sales, which is consistent with the comparable prior year period, with failure related categories continuing to be the largest portion of our sales mix. We did not experience any fundamental shifts in our category sales mix as compared to the previous year. Our sales mix can be impacted by severe or unusual weather over a short-term period. Over the long-term, we believe the impact of the weather on our sales mix is not significant.

17

The two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road. While over the long-term we have seen a close correlation between our net sales and the number of miles driven, we have also seen time frames of minimal correlation in sales performance and miles driven. During the periods of minimal correlation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road. The average age of the U.S. light vehicle fleet continues to trend in our industry’s favor as the average age has exceeded 11 years since 2012, according to the latest data provided by the Auto Care Association. As of January 1, 2021, the average age of light vehicles on the road was 12.1 years. For September 2021 (latest publicly available information), miles driven in the U.S. increased 7.9% compared to the same period in the prior year. We believe the increase in miles driven is due to the nation beginning to return to pre-pandemic levels, but we are unable to predict if the increase will continue or the extent of the impact it will have on our business.

Twelve Weeks Ended November 20, 2021

Compared with Twelve Weeks Ended November 21, 2020

Net sales for the twelve weeks ended November 20, 2021 increased $514.6 million to $3.7 billion, or 16.3% over net sales of $3.2 billion for the comparable prior year period. Total auto parts sales increased by 16.2%, primarily driven by an increase in domestic same store sales of 13.6% and net sales of $68.7 million from new stores. Domestic commercial sales increased $204.6 million to $899.9 million, or 29.4%, over the comparable prior year period.

Gross profit for the twelve weeks ended November 20, 2021 was $1.9 billion, compared with $1.7 billion during the comparable prior year period. Gross profit, as a percentage of sales was 52.5% compared to 53.1% during the comparable prior year period. The decrease in gross margin was primarily driven by initiatives to accelerate commercial business growth.

Operating, selling, general and administrative expenses for the twelve weeks ended November 20, 2021 were $1.2 billion, or 31.9% of net sales, compared with $1.1 billion, or 33.6% of net sales during the comparable prior year period. The decrease in operating expenses, as a percentage of sales, was driven by strong sales growth.

Net interest expense for the twelve weeks ended November 20, 2021 was $43.3 million compared with $46.2 million during the comparable prior year period. Average borrowings for the twelve weeks ended November 20, 2021 were $5.3 billion, compared with $5.5 billion for the comparable prior year period. Weighted average borrowing rates were 3.30% and 3.27% for the quarter ended November 20, 2021 and November 21, 2020, respectively.

Our effective income tax rate was 21.9% of pretax income for the twelve weeks ended November 20, 2021, and 22.2% for the comparable prior year period. The decrease in the tax rate was primarily attributable to an increased benefit from stock options exercised during the twelve weeks ended November 20, 2021. The benefit of stock options exercised for the twelve weeks ended November 20, 2021 was $11.3 million compared to $7.6 million in the comparable prior year period.

Net income for the twelve week period ended November 20, 2021 increased by $112.8 million to $555.2 million from $442.4 million in the comparable prior year period, and diluted earnings per share increased by 38.1% to $25.69 from $18.61. The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $2.33.

18

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. Our cash flow results benefitted from the quarters strong sales and continued progress on our initiatives. We believe that our cash generated from operating activities, available cash reserves and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support long-term growth initiatives and return excess cash to shareholders in the form of share repurchases. As of November 20, 2021, we held $961.1 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our revolving credit facility. We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities. Decreased demand or changes in buying patterns could also impact our ability to meet our debt covenants of our credit agreements and, therefore, negatively impact the funds available under our revolving credit facility. In the event our liquidity is insufficient, we may be required to limit our spending.

For the twelve weeks ended November 20, 2021, our net cash flows from operating activities provided $777.9 million compared with $683.5 million provided during the comparable prior year period. The increase is primarily due to growth in net income due to accelerated sales growth and a result of favorable changes in accounts payable, driven by higher sustained inventory purchase volume in the current period as compared to the same period in the prior year. These favorable changes were partially offset by a smaller increase in accrued benefits and withholdings in the current period, as compared to the same period in the prior year due to the ability to defer certain payroll tax payments in the prior year under the Coronavirus Aid, Relief, and Economic Security Act.

Our net cash flows used in investing activities for the twelve weeks ended November 20, 2021 were $91.0 million as compared with $110.2 million in the comparable prior year period. Capital expenditures for the twelve weeks ended November 20, 2021 were $102.3 million compared to $113.0 million in the comparable prior year period. The decrease is primarily driven by decreased store openings. During the twelve week period ended November 20, 2021 and November 21, 2020, we opened 18 and 41 net new stores, respectively. Investing cash flows were impacted by our wholly owned captive, which purchased $7.0 million and sold $3.7 million in marketable debt securities during the twelve weeks ended November 20, 2021. During the comparable prior year period, the captive purchased $46.0 million in marketable debt securities and sold $51.2 million.

Our net cash flows used in financing activities for the twelve weeks ended November 20, 2021 were $895.9 million compared to $663.4 million in the comparable prior year period. Stock repurchases were $900.0 million in the current twelve week period as compared with $678.3 million in the prior year period. The treasury stock repurchases were primarily funded by cash flows from operations. Proceeds from the sale of common stock and exercises of stock options for the twelve weeks ended November 20, 2021 and November 21, 2020 provided $21.1 million and $28.7 million, respectively.

During fiscal 2022, we expect to increase the investment in our business as compared to fiscal 2021. Our investments are expected to be directed primarily to expansion of our store base and supply chain to fuel the growth of our domestic and international businesses, which includes new stores, including mega hubs, as well as distribution center expansions and remodels. The amount of investments in our new stores is impacted by different factors, including whether the building and land are purchased (requiring higher investment) or leased (generally lower investment) and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.

19

In addition to the building and land costs, our new stores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our vendors’ capacity to factor their receivables from us. Certain vendors participate in arrangements with financial institutions whereby they factor their AutoZone receivables, allowing them to receive early payment from the financial institution on our invoices at a discounted rate. The terms of these agreements are between the vendor and the financial institution. Upon request from the vendor, we confirm to the vendor’s financial institution the balances owed to the vendor, the due date and agree to waive any right of offset to the confirmed balances. A downgrade in our credit or changes in the financial markets may limit the financial institutions’ willingness to participate in these arrangements, which may result in t