MEMPHIS, TN — AutoZone has reported sales of $1.159 billion for its second fiscal quarter, which ended February 14, an increase of 3.4 percent from fiscal 2003. Same store sales, or sales for domestic stores open at least one year, were flat overall, the company said. Retail same store sales were down 1 percent while AZ Commercial same store sales were up 10 percent.

Gross profit, as a percentage of sales, for the quarter improved by 4.4 percentage points while operating expenses, as a percentage of sales, increased by 3 percentage points. This resulted in an operating margin of 14.5 percent, up 1.4 percentage points from last year, according to AutoZone. Operating profit increased 14.3 percent over the prior year.

Net income for the quarter increased by 15.6 percnet to $91.7 million, and diluted earnings per share, reflecting net income and the benefit of the company share repurchase program, increased 32 percent to $1.04 per share from $0.79 per share reported in the year-ago quarter. During the quarter, the company experienced no one-time gain from warranty.

Return on invested capital for the trailing four quarters increased to 24.5 percent from 21.4 percent the previous year.

For the fiscal year-to-date period, sales were $2.44 billion, an increase of 4.4 percent from the prior year, with a same store sales increase of 1 percent on flat growth in retail same store sales and 13 percent growth in AZ Commercial same store sales. Year-to-date net income increased 15.9 percent to $213.4 million, while diluted earnings per share for the period increased 30.9 percent to $2.39 from $1.83.

Under its ongoing share repurchase program, AutoZone repurchased 4 million shares of its common stock for $337 million during the second quarter. Since 1998, cumulative share repurchases have totaled $3.2 billion, or 76.7 million shares at an average price of $42.04 per share.

For the quarter, gross profit, as a percentage of sales, was 48.7 percent while operating expenses, as a percentage of sales, were 34.1 percent. During the quarter, gross profit was affected by the accounting required by the Emerging Issues Task Force Issue 02-16, “Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor” (EITF Issue 02-16). AutoZone adopted the new accounting effective January 1, 2003.

For the twelve weeks ended February 14, this resulted in a change in classification of $29.6 million of vendor funding from operating expenses to cost of goods sold. Excluding the impact of EITF Issue 02-16, gross margin for the quarter would have been 46.1 percent (versus 44.3 percent last year) and selling, general and administrative expenses as a percent of sales would have been 31.6 percent (versus 31.1 percent last year). This increase in selling, general and administrative expenses as a percent of sales primarily reflects costs associated with the company’s initiative to refresh approximately 200 stores during the quarter and to open 62 incremental commercial programs.

The company reduced its per store inventory levels as of February 14, 2004, to $443 thousand from $471 thousand last year. Total inventory was down while total sales were up 3.4 percent. Net inventory, defined as inventory less accounts payable, declined on a per store level to $81 thousand from $140 thousand last year.

For more information, go to: www.autozone.com

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