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Item 2. Management’s Discussion and Analysis

2024-06-07 compared with 2024-03-15 · 88 added, 98 removed, 191 unchanged (49% of the section changed)

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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.

Certain statements herein constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and 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, historical trends, current conditions, expected future developments and other factors that we believe appropriate.

These forward-looking statements are subject to a number of risks and uncertainties, including without limitation:

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energy prices;

weather, including extreme temperatures, natural disasters and general weather conditions;

weather, including extreme temperatures and natural disasters;

credit market conditions;

access to available and feasible financing on favorable terms;

access to financing on favorable terms;

future stock repurchases;

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war and the prospect of war, including terrorist activity;

the impact of public health issues;

public health issues;

inflation, including wage inflation;

the ability to hire, train and retain qualified employees including members of management and other key personnel;

the ability to hire, train and retain qualified employees, including members of management;

construction delays;

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disruption in our supply chain;

impact of tariffs;

impact of new accounting standards;

new accounting standards;

our ability to execute our growth initiatives;

and other 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 26, 2023 .

T hese 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.

These and other risks and uncertainties could materially and adversely affect our business and are discussed in more detail in the “Risk Factors” section in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 26, 2023 .

Forward-looking statements are not guarantees of future performance and actual results may differ from those contemplated by such forward-looking statements.

However, 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.

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We are the leading retailer and distributor of automotive replacement parts and accessories in the Americas.

We began operations in 1979 and at February 10, 2024, operated 6,332 stores in the U.S., 751 stores in Mexico and 108 stores in Brazil.

We began operations in 1979 and at May 4, 2024, operated 6,364 stores in the U.S., 763 stores in Mexico and 109 stores in Brazil.

Each store carries an extensive product line for cars, sport utility vehicles, vans and light duty trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products.

At February 10, 2024, in 5,823 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provides prompt delivery of parts and other products and commercial credit to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts.

Through our mobile application and websites, including autozone.com, we also sell automotive hard parts, maintenance items, accessories and non-automotive products, and our commercial customers can make purchases through www.autozonepro.com.

At May 4, 2024, in 5,843 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provides prompt delivery of parts and other products and commercial credit to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts.

Through our mobile applications and websites, including www.autozone.com, we also sell automotive hard parts, maintenance items, accessories and non-automotive products, and our commercial customers can make purchases through www.autozonepro.com.

Additionally, we sell the ALLDATA brand automotive diagnostic, repair, collision and shop management software through www.alldata.com.

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Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.

Operating results for the twelve and twenty-four weeks ended February 10, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2024.

Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks.

Operating results for the twelve and thirty-six weeks ended May 4, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2024.

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 quarter of fiscal 2024 has 17 weeks, and the fourth quarter of fiscal 2023 had 16 weeks.

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Executive Summary

Net sales increased to $3.9 billion, a 4.6% increase over the prior year period.

Net sales for the twelve weeks ended May 4, 2024 increased to $4.2 billion, a 3.5% increase over the comparable prior year period.

Our retail and commercial sales in our domestic and international markets grew as we continue to make progress on our growth initiatives.

Operating profit increased 10.9% to $743.2 million, net income for the quarter increased 8.1% to $515.0 million and diluted earnings per share increased 17.2% to $28.89.

During the second quarter of fiscal 2024, 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.

Operating profit increased 4.9% to $900.2 million, net income increased 0.6% to $651.7 million and diluted earnings per share increased 7.5% to $36.69 for the quarter.

During the third quarter of fiscal 2024, failure and maintenance related categories represented the largest portion of our sales mix at approximately 85% 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.

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As of January 1, 2024, the average age of light vehicles on the road was 12.6 years.

Since the beginning of the fiscal year and through December 2023 (latest publicly available information), miles driven in the U.S.

Since the beginning of the fiscal year and through March 2024 (latest publicly available information from the U.S.

Department of Transportation), miles driven in the U.S.

were up 1.2% compared to the same period in the prior year.

Twelve Weeks Ended February 10, 2024

Compared with Twelve Weeks Ended February 11, 2023

Net sales for the twelve weeks ended February 10, 2024 increased $168.1 million to $3.9 billion, or 4.6% over net sales of $3.7 billion for the comparable prior year period.

Twelve Weeks Ended May 4, 2024

Compared with Twelve Weeks Ended May 6, 2023

Net sales for the twelve weeks ended May 4, 2024 increased $144.9 million to $4.2 billion, or 3.5% over net sales of $4.1 billion for the comparable prior year period.

This growth was primarily driven by net sales of $76.9 million from new domestic and international stores and an increase in total company same store sales of 0.9% on a constant currency basis.

Domestic commercial sales increased $25.6 million to $980.1 million, or 2.7% over the comparable prior year.

Domestic commercial sales increased $36.6 million to $1.1 billion, or 3.3% over the comparable prior year.

Same store sales, or sales from our domestic and international stores open at least one year, are as follows:

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Constant Currency (1)

February 10, 2024

February 11, 2023

February 10, 2024

February 11, 2023

International

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(1) Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.

Gross profit for the twelve weeks ended February 10, 2024 was $2.1 billion, compared with $1.9 billion during the comparable prior year period.

Gross profit for the twelve weeks ended May 4, 2024 was $2.3 billion, compared with $2.1 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 53.5% compared to 52.5% during the comparable prior year period.

The increase in gross margin was driven by higher merchandise margins and a 63 basis point ($24.0 million net) non-cash LIFO favorability, with the remaining increase primarily from favorable supply chain costs.

Operating, selling, general and administrative expenses for the twelve weeks ended February 10, 2024 and the comparable prior year period were $1.3 billion.

The increase in gross margin was driven by higher merchandise margins and a 15 basis point ($7.0 million net) non-cash LIFO favorability.

Operating, selling, general and administrative expenses for the twelve weeks ended May 4, 2024 were $1.4 billion compared with $1.3 billion during the comparable prior year period.

As a percentage of sales, these expenses were 32.2% compared with 31.5% during the comparable prior year period.

The increase was driven primarily by domestic store payroll and investments in technology related initiatives.

Net interest expense was $102.6 million and $65.6 million for the twelve weeks ended February 10, 2024 and February 11, 2023, respectively.

Average borrowings were $8.7 billion and $6.9 billion and weighted average borrowing rates were 4.40% and 3.70% for the twelve weeks ended February 10, 2024 and February 11, 2023, respectively.

Our effective income tax rate was 19.6% and 21.2% of pretax income for the twelve weeks ended February 10, 2024 and February 11, 2023, respectively.

The benefit from stock options exercised for the twelve week period ended February 10, 2024 was $23.0 million compared to $13.4 million in the comparable prior year period.

Net income for the twelve weeks ended February 10, 2024 increased by $38.5 million from the comparable prior year period to $515.0 million due to the factors set forth above, and diluted earnings per share increased by 17.2% to $28.89 from $24.64.

The increase was primarily driven by domestic store payroll.

Net interest expense was $104.4 million and $74.3 million for the twelve weeks ended May 4, 2024 and May 6, 2023, respectively.

Average borrowings were $8.8 billion and $7.2 billion and weighted average borrowing rates were 4.43% and 3.85% for the twelve weeks ended May 4, 2024 and May 6, 2023, respectively.

Our effective income tax rate was 18.1% and 17.4% of pretax income for the twelve weeks ended May 4, 2024 and May 6, 2023, respectively.

The benefit from stock options exercised for the twelve week period ended May 4, 2024 was $38.1 million compared to $46.7 million in the comparable prior year period.

Net income for the twelve weeks ended May 4, 2024 increased by $4.0 million from the comparable prior year period to $651.7 million due to the factors set forth above, and diluted earnings per share increased by 7.5% to $36.69 from $34.12.

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 $0.55 per share.

Twenty-Four Weeks Ended February 10, 2024

Compared with Twenty-Four Weeks Ended February 11, 2023

Net sales for the twenty-four weeks ended February 10, 2024 increased $373.4 million to $8.0 billion, or 4.9% over net sales of $7.7 billion for the comparable prior year period.

Thirty-six Weeks Ended May 4, 2024

Compared with Thirty-six Weeks Ended May 6, 2023

Net sales for the thirty-six weeks ended May 4, 2024 increased $518.3 million to $12.3 billion, or 4.4% over net sales of $11.8 billion for the comparable prior year period.

This growth was driven primarily by net sales of $220.4 million from new domestic and international stores and an increase in total company same store sales of 1.5% on a constant currency basis.

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Same store sales, or sales from our domestic and international stores open at least one year, are as follows:

Twenty-Four Weeks Ended

Thirty-Six Weeks Ended

Constant Currency (1)

February 10, 2024

February 11, 2023

February 10, 2024

February 11, 2023

International

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Gross profit for the twenty-four weeks ended February 10, 2024 was $4.3 billion, compared with $3.9 billion during the comparable prior year period.

Gross profit for the thirty-six weeks ended May 4, 2024 was $6.6 billion, compared with $6.1 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 53.4% compared to 51.6% during the comparable prior year period.

The increase in gross margin was driven by 138 basis point ($107.0 million net) non-cash LIFO favorability, with the remaining increase resulting primarily from higher merchandise margins and favorable supply chain costs.

Operating, selling, general and administrative expenses for the twenty-four weeks ended February 10, 2024, were $2.7 billion compared with $2.5 billion during the comparable prior year period.

The increase in gross margin was driven by a 95 basis point ($114.0 million net) non-cash LIFO favorability, with the remaining increase resulting primarily from higher merchandise margins and favorable supply chain costs.

Operating, selling, general and administrative expenses for the thirty-six weeks ended May 4, 2024, were $4.1 billion compared with $3.8 billion during the comparable prior year period.

As a percentage of sales, these expenses were 33.1% compared with 32.5% during the comparable prior year period.

The increase was driven primarily by domestic store payroll and investment in technology related initiatives.

Net interest expense was $194.0 million and $123.3 million for the twenty-four weeks ended February 10, 2024 and February 11, 2023, respectively.

Average borrowings were $8.4 billion and $6.5 billion and weighted average borrowing rates were 4.31% and 3.58% for the twenty-four week periods ended February 10, 2024 and February 11, 2023, respectively.

Our effective income tax rate was 20.7% and 20.0% of pretax income for the twenty-four weeks ended February 10, 2024 and February 11, 2023, respectively.

The benefit from stock options exercised for the twenty-four week period ended February 10, 2024 was $34.2 million compared to $43.1 million in the comparable prior year period.

Net income for the twenty-four weeks ended February 10, 2024 increased by $92.6 million from the comparable prior year period to $1.1 billion due to the factors set forth above, and diluted earnings per share increased by 18.0% to $61.48 from $52.12.

The increase was primarily driven by domestic store payroll.

Net interest expense was $298.4 million and $197.6 million for the thirty-six weeks ended May 4, 2024 and May 6, 2023, respectively.

Average borrowings were $8.5 billion and $6.8 billion and weighted average borrowing rates were 4.35% and 3.67% for the thirty-six week periods ended May 4, 2024 and May 6, 2023, respectively.

Our effective income tax rate was 19.8% and 19.0% of pretax income for the thirty-six weeks ended May 4, 2024 and May 6, 2023, respectively.

The benefit from stock options exercised for the thirty-six week period ended May 4, 2024 was $72.3 million compared to $89.8 million in the comparable prior year period.

Net income for the thirty-six weeks ended May 4, 2024 increased by $96.6 million from the comparable prior year period to $1.8 billion due to the factors set forth above, and diluted earnings per share increased by 14.0% to $98.11 from $86.10.

The impact on current year to date diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $0.80.

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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 February 10, 2024, we held $304.1 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.

As of May 4, 2024, we held $275.4 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.

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In the event our liquidity is insufficient, we may be required to limit our spending.

For the twenty-four week periods ended February 10, 2024 and February 11, 2023, our net cash flows from operating activities provided $1.3 billion and $1.1 billion, respectively.

Cash flows from operations are favorable to last year primarily due to changes in working capital and higher net income.

Our net cash flows used in investing activities for the twenty-four weeks ended February 10, 2024 were $544.0 million as compared with $270.0 million in the comparable prior year period.

Capital expenditures for the twenty-four weeks ended February 10, 2024 were $490.8 million compared to $259.2 million in the comparable prior year period.

The increase in capital expenditures was primarily driven by our growth initiatives, including investments in distribution centers and stores to be opened in subsequent periods as well as stores opened in the current twenty-four week period.

During the twenty-four week periods ended February 10, 2024 and February 11, 2023, we opened 51 and 71 net new stores, respectively.

Investing cash flows were impacted by our wholly-owned captive, which purchased $14.0 million and sold $12.6 million in marketable debt securities during the twenty-four weeks ended February 10, 2024.

For the each of the thirty-six week periods ended May 4, 2024 and May 6, 2023, our net cash flows from operating activities provided $1.9 billion.

Cash flows from operations are slightly favorable to last year primarily due to higher net income.

Our net cash flows used in investing activities for the thirty-six weeks ended May 4, 2024 were $916.3 million as compared with $479.0 million in the comparable prior year period.

Capital expenditures for the thirty-six weeks ended May 4, 2024 were $725.9 million compared to $430.4 million in the comparable prior year period.

During the thirty-six week periods ended May 4, 2024 and May 6, 2023, we opened 96 and 101 net new stores, respectively.

Investing cash flows were impacted by our wholly-owned captive, which purchased $17.6 million and sold $21.2 million in marketable debt securities during the thirty-six weeks ended May 4, 2024.

During the comparable prior year period, the captive purchased $48.4 million and sold $37.5 million in marketable debt securities.

Our investment in tax credit equity investments was $42.5 million during the twenty-four weeks ended February 10, 2024 compared to $12.1 million during the comparable prior year period.

Our net cash flows used in financing activities for the twenty-four weeks ended February 10, 2024 were $692.8 million compared to $844.7 million in the comparable prior year period.

During the twenty-four weeks ended February 10, 2024, we received $1.0 billion in debt issuances.

During the comparable prior year period, we received $1.0 billion in debt issuances and repaid our $300 million 2.875% Senior Notes due January 2023.

Stock repurchases were $1.7 billion in the current twenty-four week period as compared with $1.8 billion in the comparable prior year period.

The treasury stock repurchases were primarily funded by cash flows from operations and increased borrowings.

For the twenty-four week period ended February 10, 2024, we had $32.2 million in net payments of commercial paper compared to $227.6 million in net proceeds from commercial paper in the comparable prior year period.

Proceeds from the issuance of common stock from exercises of stock options for the twenty-four weeks ended February 10, 2024 and February 11, 2023 provided $98.3 million and $72.8 million, respectively.

During fiscal 2024, we expect to increase the investment in our business as compared to fiscal 2023.

Our investments are expected to be directed primarily to new stores and our supply chain initiatives, which include new distribution centers as well as expanded hubs and mega hubs.

Our investment in tax credit equity investments was $193.3 million during the thirty-six weeks ended May 4, 2024 compared to $50.7 million during the comparable prior year period.

Our net cash flows used in financing activities for the thirty-six weeks ended May 4, 2024 were $1.0 billion compared to $1.4 billion in the comparable prior year period.

During each of the thirty-six week periods ended May 4, 2024 and May 6, 2023, we received $1.0 billion in debt issuances.

We repaid our $300 million 3.125% Senior Notes due April 2024 and our $300 million 2.875% Senior Notes due January 2023 during the thirty-six weeks ended May 4, 2024 and May 6, 2023, respectively.

Stock repurchases were $2.4 billion in the current thirty-six week period as compared with $2.7 billion in the comparable prior year period.

The stock repurchases were primarily funded by cash flows from operations and increased borrowings.

For the thirty-six week period ended May 4, 2024 and the comparable prior year period, we had $631.3 million and $524.0 million in net proceeds from commercial paper, respectively.

Proceeds from the issuance of common stock from exercises of stock options for the thirty-six weeks ended May 4, 2024 and May 6, 2023 provided $154.4 million and $154.9 million, respectively.

During fiscal 2024, we are increasing the investment in our business as compared to fiscal 2023.

Our investment increases are primarily due to our supply chain initiatives, which include new distribution centers as well as expanded hubs and mega hubs, 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.

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Supplier participation is optional and our obligations to our suppliers, including the amount and dates due, are not impacted by our suppliers’ decision to enter into an agreement with a third-party financial institution.

A downgrade in our credit or changes in the financial markets could limit the financial institutions’ willingness to participate in these arrangements.

We plan to continue negotiating extended terms with our suppliers, reducing our working capital required resulting in a high accounts payable to inventory ratio.

We had an accounts payable to inventory ratio of 119.8% at February 10, 2024 and 127.7% at February 11, 2023.

A downgrade in our credit ratings or changes in the financial markets could limit the financial institutions’ willingness to participate in these arrangements.

We plan to continue negotiating extended terms with our suppliers, benefitting our required working capital and resulting in a high accounts payable to inventory ratio.

We had an accounts payable to inventory ratio of 119.7% at May 4, 2024 and 126.5% at May 6, 2023.

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.

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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 February 10, 2024, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 53.5% as compared to 54.7% for the comparable prior year period.

For the trailing four quarters ended May 4, 2024, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 51.4% as compared to 55.2% 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.

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.

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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 February 10, 2024, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement.

As of May 4, 2024, 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 February 10, 2024, we had $16.1 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 $128.4 million in letters of credit outstanding as of February 10, 2024.

As of May 4, 2024, we had $16.1 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 $128.5 million in letters of credit outstanding as of May 4, 2024.

These letters of credit have various maturity dates and were issued on an uncommitted basis.

As of February 10, 2024, the $1.2 billion commercial paper borrowings and the $300 million 3.125% Senior Notes due April 2024 were included in Long-term debt in the accompanying Condensed Consolidated Balance Sheets as we currently have the ability and intent to refinance them on a long-term basis through available capacity under our Revolving Credit Agreement .

As of February 10, 2024, 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.

As of May 4, 2024, the $1.8 billion commercial paper borrowings and the $400 million 3.250% Senior Notes due April 2025 were included in Long-term debt in the accompanying Condensed Consolidated Balance Sheets as we currently have the ability and intent to refinance them on a long-term basis through available capacity under our Revolving Credit Agreement .

As of May 4, 2024, 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.

On April 18, 2024, we repaid the $300 million 3.125% Senior Notes due April 2024.

On October 25, 2023, we issued $500 million in 6.250% Senior Notes due November 2028 and $500 million in 6.550% Senior Notes due November 2033.

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All of the repayment obligations under our 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 February 10, 2024, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.4:1 as of February 10, 2024 and was 2.3:1 as of February 11, 2023.

As of May 4, 2024, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.5:1 as of May 4, 2024 and was 2.3:1 as of May 6, 2023.

We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six;

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Stock Repurchases

From January 1, 1998 to February 10, 2024, we have repurchased a total of 154.7 million shares of our common stock at an aggregate cost of $35.5 billion, including 663.4 thousand shares of our common stock at an aggregate cost of $1.7 billion during the twenty-four week period ended February 10, 2024.

From January 1, 1998 to May 4, 2024, we have repurchased a total of 154.9 million shares of our common stock at an aggregate cost of $36.3 billion, including 905.4 thousand shares of our common stock at an aggregate cost of $2.5 billion during the thirty-six week period ended May 4, 2024.

On December 20, 2023, the Board voted to authorize the repurchase of an additional $2.0 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 $37.7 billion.

Considering the cumulative repurchases as of February 10, 2024, we had $2.1 billion remaining under the Board’s authorization to repurchase our common stock.

Subsequent to February 10, 2024 and through March 8, 2024, we have repurchased 63.0 thousand shares of our common stock at an aggregate cost of $180.7 million.

Considering the cumulative repurchases as of May 4, 2024, we had $1.4 billion remaining under the Board’s authorization to repurchase our common stock.

Subsequent to May 4, 2024 and through May 31, 2024, we have repurchased 65.6 thousand shares of our common stock at an aggregate cost of $188.0 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 February 10, 2024, was $146.2 million, compared with $134.0 million at August 26, 2023, and our total surety bonds commitment at February 10, 2024, was $47.8 million, compared with $43.1 million at August 26, 2023.

Our total stand-by letters of credit commitment at May 4, 2024, was $146.4 million, compared with $134.0 million at August 26, 2023, and our total surety bonds commitment at May 4, 2024, was $47.7 million, compared with $43.1 million at August 26, 2023.

Financial Commitments

Except for the $500 million 6.250% Senior Notes due November 2028 and $500 million 6.550% Senior Notes due November 2033 debt issuances and the $32.2 net decrease in commercial paper, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 26, 2023.

Except for the $500 million 6.250% Senior Notes due November 2028 and $500 million 6.550% Senior Notes due November 2033 debt issuances, the $300 million 3.125% Senior Notes debt repayment and the $631.3 million net increase in commercial paper, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 26, 2023.

Reconciliation of Non-GAAP Financial Measures

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Adjusted After-Tax ROIC

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 10, 2024 and February 11, 2023.

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended May 4, 2024 and May 6, 2023.

Trailing Four

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Adjusted Debt to EBITDAR

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended February 10, 2024 and February 11, 2023.

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended May 4, 2024 and May 6, 2023.

Trailing Four

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Adjusted debt to EBITDAR

(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 February 10, 2024 and February 11, 2023.

Trailing Four Quarters Ended

(in thousands)

February 10, 2024

February 11, 2023

Total lease cost, per ASC 842

1 unchanged sentence

Variable operating lease components, related to insurance and common area maintenance

(2) Effective tax rate over trailing four quarters ended February 10, 2024 and February 11, 2023 was 20.5% and 20.8%, respectively.

(2) Effective tax rate over trailing four quarters ended May 4, 2024 and May 6, 2023 was 20.6% and 20.0%, respectively.

(3) All averages are computed based on trailing five quarter balances.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis