Item 2. Management’s Discussion and Analysis
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 27, 2022 and other filings we make with the SEC.
Forward-Looking Statements
Certain statements contained herein 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, due to changes in fuel prices, miles driven or otherwise; 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; failure or interruption of our information technology systems; issues relating to the confidentiality, integrity or availability of information, including due to cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damage to our reputation; challenges in international markets; origin and raw material costs of suppliers; inventory availability; disruption in our supply chain; impact of tariffs; 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 27, 2022, and these Risk Factors should be read carefully. 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. 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 distributor of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at November 19, 2022, operated 6,196 stores in the U.S., 706 stores in Mexico and 76 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 19, 2022, in 5,459 of our domestic stores, we 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 the majority of our 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. Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.
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Operating results for the twelve weeks ended November 19, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2023. 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 2023 and 2022 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.
Executive Summary
Net sales increased 8.6% for the quarter ended November 19, 2022 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 5.6%. Domestic commercial sales increased 14.9%, which represents approximately 28.9% of our domestic auto parts sales. Operating profit decreased 4.2% to $723.0 million compared to $754.5 million. Net income for the quarter decreased 2.9% to $539.3 million compared to $555.2 million. Diluted earnings per share increased 6.9% to $27.45 per share from $25.69 per share.
The above results include an $81.0 million non-cash LIFO charge incurred in the current quarter. Adjusting for the non-cash LIFO charge, adjusted operating profit increased 6.6%, adjusted net income increased 8.3% and adjusted diluted earnings per share increased 19.2% compared to the prior year period. Management believes these non-GAAP financial measures are useful in providing quarter-to-quarter comparisons of the results of our operations. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for a reconciliation of these non-GAAP measures to the most comparable GAAP measure .
Our business is impacted by various factors within the economy that affect both our consumers and our industry, including but not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring and other economic conditions. 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 2023, failure and maintenance related categories represented the largest portion of our sales mix at approximately 86% of total sales, which is consistent with the comparable prior year period. Failure related categories continue 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 weather on our sales mix is not significant.
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 remains 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, 2022, the average age of light vehicles on the road was 12.2 years. For September 2022 (latest publicly available information), miles driven in the U.S. increased 1.0% compared to the same period in the prior year.
Twelve Weeks Ended November 19, 2022
Compared with Twelve Weeks Ended November 20, 2021
Net sales for the twelve weeks ended November 19, 2022 increased $316.2 million to $4.0 billion, or 8.6% over net sales of $3.7 billion for the comparable prior year period. Total auto parts sales increased by 8.6%, primarily driven by an increase in domestic same store sales of 5.6% and net sales of $71.6 million from new stores. Domestic commercial sales increased $134.4 million to $1.0 billion, or 14.9%, over the comparable prior year period.
Gross profit for the twelve weeks ended November 19, 2022 was $2.0 billion, compared with $1.9 billion during the comparable prior year period. Gross profit, as a percentage of sales, was 50.1% compared to 52.5% during the comparable prior year period. The decrease in gross margin was driven by a 203 basis point ($81.0 million) non-cash
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LIFO charge driven primarily by rising freight costs, with the remaining deleverage primarily from accelerated growth in our commercial business.
Operating, selling, general and administrative expenses for the twelve weeks ended November 19, 2022 were $1.3 billion compared with $1.2 billion during the comparable prior year period. As a percentage of sales, these expenses were flat to the prior year at 31.9%.
Net interest expense for the twelve weeks ended November 19, 2022 was $57.7 million compared with $43.3 million during the comparable prior year period. Average borrowings for the twelve weeks ended November 19, 2022 were $6.2 billion, compared with $5.3 billion for the comparable prior year period. Weighted average borrowing rates were 3.47% and 3.30% for the quarters ended November 19, 2022 and November 20, 2021, respectively.
Our effective income tax rate was 18.9% of pretax income for the twelve weeks ended November 19, 2022, and 21.9% 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 19, 2022. The benefit of stock options exercised for the twelve weeks ended November 19, 2022 was $29.7 million compared to $11.3 million in the comparable prior year period.
Net income for the twelve week period ended November 19, 2022 decreased by $15.9 million to $539.3 million due to the factors set forth above, and diluted earnings per share increased by 6.9% to $27.45 from $25.69. Excluding the non-cash LIFO charge, adjusted net income increased 8.3% to $601.5 million and adjusted diluted earnings per share increased 19.2% to $30.62. 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 $1.19.
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 quarter’s strong sales and continued progress on our initiatives. We believe that our cash generated from operating activities 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 19, 2022, we held $269.8 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings. 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 Agreement. In the event our liquidity is insufficient, we may be required to limit our spending.
For the twelve weeks ended November 19, 2022, our net cash flows from operating activities provided $793.6 million compared with $777.9 million during the comparable prior year period. The increase is primarily driven by reduced inventory growth, net of accounts payable in the current year.
Our net cash flows used in investing activities for the twelve weeks ended November 19, 2022 were $113.9 million as compared with $91.0 million in the comparable prior year period. Capital expenditures for the twelve weeks ended November 19, 2022 were $114.4 million compared to $102.3 million in the comparable prior year period. Investing cash flows were impacted by our wholly owned captive, which purchased $12.0 million and sold $4.9 million in marketable debt securities during the twelve weeks ended November 19, 2022. During the comparable prior year period, the captive purchased $7.0 million in marketable debt securities and sold $3.7 million.
Our net cash flows used in financing activities for the twelve weeks ended November 19, 2022 were $675.6 million compared to $895.9 million in the comparable prior year period. Stock repurchases were $900.0 million in the current
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twelve week period and in the prior year period. The treasury stock repurchases were primarily funded by cash flows from operations. For the twelve week period ended November 19, 2022, our commercial paper activity resulted in $204.9 million in net proceeds from commercial paper compared to no commercial paper borrowings in the prior year period. Proceeds from the sale of common stock and exercises of stock options for the twelve weeks ended November 19, 2022 and November 20, 2021 provided $40.8 million and $21.1 million, respectively.
During fiscal 2023, we expect to increase the investment in our business as compared to fiscal 2022. Our investments are expected to be directed primarily to our supply chain initiatives, which includes expanded hub and mega hubs, as well as new distribution centers, distribution center expansions and new stores. 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.
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 the vendor wanting to renegotiate payment terms. A reduction in payment terms would increase the working capital required to fund future inventory investments. Extended payment terms from our vendors have allowed us to continue our high accounts payable to inventory ratio. Accounts payable, as a percentage of gross inventory, was 131.0% at November 19, 2022, compared to 129.4% at November 20, 2021. The increase from the comparable prior year period was primarily due to recent price inflation.
Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. We anticipate that we will be able to obtain such financing based on our current credit ratings and favorable experiences in the debt markets in the past.
For the trailing four quarters ended November 19, 2022, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 54.3% as compared to 44.7% for the comparable prior year period. Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.
Debt Facilities
On November 15, 2021, we amended and restated our existing revolving credit facility (as amended from time to time, the “Revolving Credit Agreement”) pursuant to which our borrowing capacity under the Revolving Credit Agreement was increased from $2.0 billion to $2.25 billion and the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders approval, be increased from $2.25 billion to $3.25 billion. On November 15, 2022, the Company amended the Revolving Credit Agreement, extending the termination date by one year. As amended, the Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable, on November 15, 2027, but we may make one additional request to extend the termination date for an additional period of one year. Revolving borrowings under the Revolving Credit Agreement may be base rate loans, Term SOFR loans, or a combination of both, at our 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.
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Under our 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 19, 2022, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement.
We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of November 19, 2022, we had $25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2025.
In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $107.2 million in letters of credit outstanding as of November 19, 2022. These letters of credit have various maturity dates and were issued on an uncommitted basis.
As of November 19, 2022, the commercial paper borrowings, the $300 million 2.875% Senior Notes due January 2023 and the $500 million 3.125% Senior Notes due July 2023 were classified as long-term in the Consolidated Balance Sheets, as we have the current ability and intent to refinance them on a long-term basis through available capacity in our Revolving Credit Agreement. As of November 19, 2022, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility.
The Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements). The Company’s borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs. As of November 19, 2022, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.
As of November 19, 2022, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements
Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.2:1 as of November 19, 2022 and was 2.0:1 as of November 20, 2021. We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six; and we calculate adjusted EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. We expect the ratio of adjusted debt to EBITDAR to return to pre-pandemic levels in the future, increasing debt levels. Once the target ratio is achieved, to the extent adjusted EBITDAR increases, we expect our debt levels to increase; conversely, if adjusted EBITDAR decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.
Stock Repurchases
From January 1, 1998 to November 19, 2022, we have repurchased a total of 152.9 million shares of our common stock at an aggregate cost of $31.0 billion, including 392.2 thousand shares of our common stock at an aggregate cost of $900.0 million during the twelve week period ended November 19, 2022.
On October 4, 2022, the Board voted to authorize the repurchase of an additional $2.5 billion of our common stock in connection with our ongoing share repurchase program, which raised the total value of shares authorized to be repurchased to $33.7 billion. Considering the cumulative repurchases as of November 19, 2022, we had $2.7 billion remaining under the Board’s authorization to repurchase our common stock.
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Subsequent to November 19, 2022 and through December 9, 2022, we have repurchased 42.9 thousand shares of our common stock at an aggregate cost of $108.0 million.
Off-Balance Sheet Arrangements
Since our fiscal year end, we have canceled, issued and modified stand-by letters of credit that are primarily renewed on an annual basis to cover deductible payments to our casualty insurance carriers. Our total stand-by letters of credit commitment at November 19, 2022, was $133.9 million, compared with $130.5 million at August 27, 2022, and our total surety bonds commitment at November 19, 2022, was $47.0 million, compared with $46.0 million at August 27, 2022.
Financial Commitments
Except for the previously discussed Revolving Credit Agreement, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 27, 2022.
Reconciliation of Non-GAAP Financial Measures
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures not derived in accordance with GAAP, including Adjusted operating profit, Adjusted net income, Adjusted diluted earnings per share, Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR. Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented non-GAAP financial measures, as we believe they provide additional information that is useful to investors. Additionally, our management uses these non-GAAP financial measures to review and assess our underlying operating results and the Compensation Committee of the Board uses select measures to determine payments of performance-based compensation against pre-established targets.
Adjusted operating profit, Adjusted net income and Adjusted diluted earnings per share present our financial results excluding the non-cash LIFO charge, which vary from period to period, and assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry. Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR provide additional information for determining our optimal capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.
We have included reconciliations of this information to the most comparable GAAP measures in the following reconciliation tables.
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Reconciliation of Non-GAAP Financial Measure: Adjusted operating profit, Adjusted net income and Adjusted diluted earnings per share
The following tables reconcile operating profit, net income, and diluted EPS to adjusted operating profit, adjusted net income and adjusted diluted earnings per share, which are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the twelve weeks ended November 19, 2022 and November 20, 2021.
Twelve Weeks Ended
November 19,
November 20,
(in thousands, except per share data)
2022
2021
Operating profit (GAAP)
$
723,033
$
754,485
Cost of sales adjustment:
Non-cash LIFO charge
81,000
—
Adjusted operating profit (Non-GAAP)
$
804,033
$
754,485
Net income (GAAP)
$
539,318
$
555,235
Cost of sales adjustment:
Non-cash LIFO charge
81,000
—
Provision for income taxes on adjustment (1)
(18,788)
—
Adjusted net income (Non-GAAP)
$
601,530
$
555,235
Diluted earnings per share (GAAP)
$
27.45
$
25.69
Non-cash LIFO charge, net of tax
3.17
—
Adjusted diluted earnings per share (Non-GAAP)
$
30.62
$
25.69
(1) The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustment.
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Reconciliation of Non-GAAP Financial Measure: Adjusted After-Tax ROIC
The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended November 19, 2022 and November 20, 2021.
A
B
A-B=C
D
C+D
Fiscal Year
Twelve
Forty
Twelve
Trailing Four
Ended
Weeks Ended
Weeks Ended
Weeks Ended
Quarters Ended
August 27,
November 20,
August 27,
November 19,
November 19,
(in thousands, except percentage)
2022
2021
2022
2022
2022
Net income
$
2,429,604
$
555,235
$
1,874,369
$
539,318
$
2,413,687
Adjustments:
Interest expense
191,638
43,284
148,354
57,723
206,077
Rent expense (1)
373,278
82,327
290,951
92,929
383,880
Tax effect (2)
(115,243)
(25,625)
(89,618)
(30,733)
(120,351)
Adjusted after-tax return
$
2,879,277
$
655,221
$
2,224,056
$
659,237
$
2,883,293
Average debt (3)
$
5,924,006
Average stockholders’ deficit (3)
(3,205,259)
Add: Rent x 6 (1)
2,303,280
Average finance lease liabilities (3)
291,106
Invested capital
$
5,313,133
Adjusted after-tax ROIC
54.3
%
A
B
A-B=C
D
C+D
Fiscal Year
Twelve
Forty
Twelve
Trailing Four
Ended
Weeks Ended
Weeks Ended
Weeks Ended
Quarters Ended
August 28,
November 21,
August 28,
November 20,
November 20,
(in thousands, except percentage)
2021
2020
2021
2021
2021
Net income
$
2,170,314
$
442,433
$
1,727,881
$
555,235
$
2,283,116
Adjustments:
Interest expense
195,337
46,179
149,158
43,284
192,442
Rent expense (1)
345,380
78,027
267,353
82,327
349,680
Tax effect (2)
(113,551)
(26,083)
(87,468)
(26,378)
(113,846)
Adjusted after-tax return
$
2,597,480
$
540,556
$
2,056,924
$
654,468
$
2,711,392
Average debt (3)
$
5,368,050
Average stockholders' deficit (3)
(1,647,246)
Add: Rent x 6 (1)
2,098,080
Average finance lease liabilities (3)
247,537
Invested capital
$
6,066,421
Adjusted after-tax ROIC
44.7
%
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Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDAR
A
B
A-B=C
D
C+D
Fiscal Year
Twelve
Forty
Twelve
Trailing Four
Ended
Weeks Ended
Weeks Ended
Weeks Ended
Quarters Ended
August 27,
November 20,
August 27,
November 19,
November 19,
(in thousands, except ratio)
2022
2021
2022
2022
2022
Net income
$
2,429,604
$
555,235
$
1,874,369
$
539,318
$
2,413,687
Add: Interest expense
191,638
43,284
148,354
57,723
206,077
Income tax expense
649,487
155,966
493,521
125,992
619,513
EBIT
3,270,729
754,485
2,516,244
723,033
3,239,277
Add: Depreciation and amortization expense
442,223
99,590
342,633
109,253
451,886
Rent expense (1)
373,278
82,327
290,951
92,929
383,880
Share-based expense
70,612
14,295
56,317
19,005
75,322
EBITDAR
$
4,156,842
$
950,697
$
3,206,145
$
944,220
$
4,150,365
Debt
$
6,328,344
Financing lease liabilities
309,320
Add: Rent x 6 (1)
2,303,280
Adjusted debt
$
8,940,944
Adjusted debt to EBITDAR
2.2
A
B
A-B=C
D
C+D
Fiscal Year
Twelve
Forty
Twelve
Trailing Four
Ended
Weeks Ended
Weeks Ended
Weeks Ended
Quarters Ended
August 28,
November 21,
August 28,
November 20,
November 20,
(in thousands, except ratio)
2021
2020
2021
2021
2021
Net income
$
2,170,314
$
442,433
$
1,727,881
$
555,235
$
2,283,116
Add: Interest expense
195,337
46,179
149,158
43,284
192,442
Income tax expense
578,876
126,613
452,263
155,966
608,229
EBIT
2,944,527
615,225
2,329,302
754,485
3,083,787
Add: Depreciation and amortization expense
407,683
89,551
318,132
99,590
417,722
Rent expense (1)
345,380
78,027
267,353
82,327
349,680
Share-based expense
56,112
10,508
45,604
14,295
59,899
EBITDAR
$
3,753,702
$
793,311
$
2,960,391
$
950,697
$
3,911,088
Debt
$
5,271,266
Financing lease liabilities
274,703
Add: Rent x 6 (1)
2,098,080
Adjusted debt
$
7,644,049
Adjusted debt to EBITDAR
2.0
(1) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the trailing four quarters ended November 19, 2022 and November 20, 2021 .
Trailing Four Quarters Ended
(in thousands)
November 19, 2022
November 20, 2021
Total lease cost, per ASC 842
$
483,867
$
436,488
Less: Finance lease interest and amortization
(72,400)
(61,102)
Less: Variable operating lease components, related to insurance and common area maintenance
(27,587)
(25,706)
Rent expense
$
383,880
$
349,680
(2) Effective tax rate over trailing four quarters ended November 19, 2022 and November 20, 2021 is 20.4% and 21.0%, respectively.
(3) All averages are computed based on trailing five quarter balances.
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Table of Contents
Recent Accounting Pronouncements
Refer to Note A of the Notes to Condensed Consolidated Financial Statements for the discussion of recent accounting pronouncements.
Critical Accounting Policies and Estimates
Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended August 27, 2022. There have been no significant changes to our critical accounting policies since the filing of our Annual Report on Form 10-K for the year ended August 27, 2022.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.