AutoZone 2011 Annual Report Download - page 84

focused on refining and expanding our product assortment to ensure we have the best merchandise at the right
price in each of our categories.
Our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message,
store staffing, and product assortment. We continue to believe we are well positioned to help our customers save
money and meet their needs in a challenging macroeconomic environment.
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.
Miles Driven
We believe that as the number of miles driven increases, consumers’ vehicles are more likely to need service and
maintenance, resulting in an increase in the need for automotive hard parts and maintenance items. Prior to the
recession, we had seen a close correlation between annual miles driven and our annual net sales; however, this
correlation has not existed in the recessionary period. Since the beginning of the fiscal year and through July 2011
(latest publicly available information), miles driven were relatively flat as compared to the comparable prior year
period. Throughout this period and contrary to the correlation experienced prior to the recession, sales have
grown at an increased rate, while miles driven have declined or grown at a slower rate than what we have
historically experienced. We believe that the impact of changes in other factors, primarily an increase in the
average age of vehicles, more than offset the impact of miles driven. Over the long-term, we believe that annual
miles driven will return to pre-recession low single digit growth rates, and the correlation between annual miles
driven and the annual sales growth of our industry should return.
Seven Year Old or Older Vehicles
Since 2008, new vehicle sales have been significantly lower than historical levels, which we believe contributed to
an increasing number of seven year old or older vehicles on the road. We estimate vehicles are driven an average
of approximately 12,500 miles each year. In seven years, the average miles driven equates to approximately
87,500 miles. Our experience is that at this point in a vehicle’s life, most vehicles are not covered by warranties
and increased maintenance is needed to keep the vehicle operating. According to data provided by the
Automotive Aftermarket Industry Association, as of December 2010, the average age of vehicles on the road is
10.6 years as compared to 10.3 years as of December 2009. As the number of seven year old or older vehicles on
the road increases, we expect an increase in demand for the products that we sell. Although we have seen a slight
improvement in new car sales during fiscal 2011, in the near term, we expect the aging vehicle population to
continue to increase, as consumers keep their cars longer in an effort to save money during this uncertain
economy.
Results of Operations
Fiscal 2011 Compared with Fiscal 2010
For the fiscal year ended August 27, 2011, we reported net sales of $8.073 billion compared with $7.363 billion
for the year ended August 28, 2010, a 9.6% increase from fiscal 2010. This growth was driven primarily by an
increase in domestic same store sales of 6.3% and sales from new stores of $216.8 million. The improvement in
domestic same store sales was driven by higher transaction value and, to a lesser extent, higher transaction count
trends. Higher transaction value is attributable to product inflation due to more complex, costly products and
commodity price increases.
At August 27, 2011, we operated 4,534 domestic stores and 279 stores in Mexico, compared with 4,389 domestic
stores and 238 stores in Mexico at August 28, 2010. We reported a domestic retail sales increase of 6.8% and a
domestic commercial sales increase of 22.3% for fiscal 2011.
Gross profit for fiscal 2011 was $4.119 billion, or 51.0% of net sales, compared with $3.712 billion, or 50.4% of
net sales for fiscal 2010. The improvement in gross margin was primarily attributable to lower shrink expense (32
basis points) and higher merchandise margins (26 basis points). Increased penetration of Duralast product sales, as
well as retail price increases on commodity based products, drove the higher merchandise margins, which were
partially offset by increased penetration of commercial sales.
Operating, selling, general and administrative expenses for fiscal 2011 increased to $2.625 billion, or 32.5% of net
sales, from $2.392 billion, or 32.5% of net sales for fiscal 2010. The slight increase in operating expenses, as a
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10-K