AutoZone 2015 Annual Report Download - page 116

23
During fiscal 2015, failure and maintenance related categories represented the largest portion of our sales mix, at
approximately 84% of total sales, with failure related categories continuing to be our strongest performers. While
we have not experienced any fundamental shifts in our category sales mix as compared to previous years, we did
experience a slight increase in mix of sales of the failure related categories. We believe the increase in failure
related products is largely due to increased miles driven and favorable weather related impacts in various regions
of the U.S.
Our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message,
store staffing, and product assortment. Specifically, during fiscal 2014 and 2015, we have closely studied our hub
distribution model and store inventory levels and assortment and performed strategic tests on increased frequency
of delivery to our stores and significantly expanding parts assortments in select stores. During fiscal 2015, we
concluded our tests on these specific new concepts and have plans to continue to roll out these strategic initiatives
in fiscal 2016 and beyond.
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. 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 certain 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 the number of seven year old or older vehicles on the road. Since the beginning of the
fiscal year and through June 2015 (latest publicly available information), miles driven increased compared to the
same period last year.
Seven Year Old or Older Vehicles
Between 2008 and 2012, new vehicle sales were 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 the latest data
provided by the Auto Care Association, as of January 1, 2015, the average age of vehicles on the road is 11.5
years as compared to 11.4 years as of January 1, 2014. Although the average age of vehicles continues to increase,
it is increasing at a decelerated rate primarily driven by the improvement in new car sales in recent years.
However, 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. As the number of seven year old or older
vehicles on the road increases, we expect an increase in demand for the products we sell.
Effective September 27, 2014, we acquired the outstanding stock of Interamerican Motor Corporation (IMC), the
second largest distributor of quality import replacement parts in the United States, for $75.7 million, net of cash.
IMC specializes in parts coverage for European and Asian cars. With this acquisition, we expect to grow our share
in the aftermarket import car parts market. The results of operations from IMC have been included in our Auto
Parts Locations business activities since the date of acquisition.
Results of Operations
Fiscal 2015 Compared with Fiscal 2014
For the fiscal year ended August 29, 2015, we reported net sales of $10.187 billion compared with $9.475 billion
for the year ended August 30, 2014, a 7.5% increase from fiscal 2014. This growth was driven primarily by
domestic same store sales increase of 3.8%, net sales of $185.1 million from new stores, and the inclusion of IMC
sales.
At August 29, 2015, we operated 5,141 domestic AutoZone stores, 441 stores in Mexico, seven stores in Brazil,
and 20 IMC branches compared with 4,984 domestic AutoZone stores, 402 stores in Mexico and five stores in
10-K