Overview: AutoZone incorporated is a leading automobile parts retailer and distributor in the United States, Puerto Rico, and Mexico. AutoZone offers a wide variety of automobile products such as replacement parts, maintenance items, and discretionary accessories. In addition, AutoZone Inc. (AZO) AutoZone also specializes in commercial retail by offering specialty products used in repair CEO: William C. Rhodes 4627 Stores 63,000 Employees Founded 1979 garages, service stations and dealerships. AutoZone's Vision & Values include"Relentlessly Located in 3 countries creating the most exciting Zone for vehicle solutions!" Also, AutoZone's value statements: Integrity, Respect, Teamwork, Communication, Discretionary accessories:
• Air fresheners
• Floor mats
• Seat covers
• Mirrors
• Cleaners
• Adhesives
• Stereos and radios
• Wash and wax
Innovation, Initiative, Accountability, Thriftiness, Leadership, Excellence. History: Founded in 1979, as a division of Malone and Hyde grocer in Forest Hard (Failure) Product Line:
• Batteries and accessories
• Belts and hoses
• Carburetors
• Clutches
• Engines
• Fuel pumps
• Radiators
• Mufflers
City, Arkansas, AutoZone originally gain success under the name; Auto Shack. Doc Crain was the first Auto Shack manager and helped the company grow Maintenance Items:
to 194 Auto Shack stores nationwide by 1984. In 1987, The newly renamed • Antifreeze
• Brakes and accessories
• Sparkplugs
• W indshield wipers
• Oil
• Sensors
• Steering fluid
• Transmission filters “AutoZone” developed an electronic parts and inventory catalog to be used within the store to quickly identify 1979:
•  First Auto Shack opened
and locate certain parts based on 1984:
•  First retailer to create a quality
control program for its parts
the automobiles year, make and 1987:
•  Name changed to AutoZone
1987:
•  Electronic catalog first used
model. This creation is key to the success of the company and is still being used today. After 500 stores had been opened nationwide, AutoZone goes public on the New York Stock Exchange in 1991. Later in 1995, AutoZone launches its new brand, Duralast, which becomes the number one selling automobile 1989:
•  Began using Store Management System
(SMS) to manage in store inventory
1991:
•  AutoZone goes public (AZO)
1995:
•  Duralast batteries introduced
1996:
•  autozone.com launched
1998:
•  First international store
opened
2001:
•  Launches Duralast brand of
tools
2003:
•  Partners with CarMax and
Midas
2004:
•  Entered sponsorship with
Nascar
battery in the United States. Strengths: When analyzing AutoZone’s strengths, the staff and free services offered are key components. AutoZone employees, known as “AutoZoners” must be certified by the National Institute for Automotive Service Excellence and partake in corporate training programs. On average there are 10 to 16 AutoZoners per store, and most have previous experience working in the automotive industry. In addition, check engine light readings, battery charging, and simple part installation preformed by an AutoZoner at an AutoZone store is free of charge for customers. These are strengths because a knowledgeable and qualified employee being able to assist in diagnosing and repairing automobile components saves time and money for customers not taking to a service station or dealership. Weaknesses: Weaknesses for AutoZone are highlighted by lack of further expansion into Strengths
Weaknesses
•  Free Services
•  Knowledgeable Staff
•  Electronic Catalog
•  Brand Name
•  Marketing
•  Global Expansion
•  Price
international markets. Currently AutoZone has only 263 stores in Mexico SWOT
Opportunities
Threats
•  Declining New Car Sales
•  Inclement Weather
•  Global Expansion
•  Gas Prices
•  New Car Technology
•  Competitors Merging
and Puerto Rico compared to 4,364 domestic. With this disparity there is clearly more room for international growth. Opportunities: The current recession is creating opportunities for AutoZone through declining rates of consumers purchasing new vehicles, and instead opting to drive their current car longer. The longer a car stays on the road the more maintenance will be required. In addition inclement weather may require increased vehicle maintenance. Threats: Threats for AutoZone also include the current recession, which could cause consumers to drive less due to gas prices. Less driving means less wear on vehicles and a AutoZone Core Competencies
• Free Services
• Knowledgeable Staff
• Store Location
• Electronic Inventory Management
decreasing demand for AutoZone Sustainable
Competitive Advantage
maintenance. Also technological • Innovation
advances to automobiles could result in parts lasting longer and vehicles needing less maintenance. Core Competencies: A core competence is a fundamental knowledge, ability, or expertise in a special subject area or skill set, which is critical to the success of a company. AutoZone’s core competencies are highlighted by the placement of store locations, maintaining a knowledgeable staff, and the offering of free services. Store locations are a core competence for AutoZone because the company places stores in very high traffic areas to create awareness for the stores. In addition, offering of the revolutionary electronic parts catalog is significant and was an industry first and still a strong advantage over the industry today. Sustainable Competitive Advantage: Innovation is AutoZone’s sustainable competitive advantage. The reasoning for this is because as mentioned AutoZone was innovative in its electronic store management system and using an electronic catalog. Also AutoZone was one of the first of its competitors to enter into foreign markets. When looking at AutoZone’s consolidated balance sheet, total stockholder’s (deficit) equity increased from 2009 to 2010 by approximately $300 million due to a decrease in common shares issued. This decrease in common shares issued is contributed to the purchase of approximately 22 thousand-­‐treasury stock. Looking at AutoZone’s consolidated income statement, total sales increased by 8% between 2009 and 2010. The increase was a result of an increase in domestic same store sales of 5.4%, driven by the increase of average transactions. In addition when looking at net income from 2009 to 2010, there was a 12.4% increase contributed to the increase in total revenue. The increase in sales and net income caused a 27.6% increase in earnings per share from 2009 to 2010. Competitors: In the auto part stores industry, AutoZone has three major competitors, O’Reilly Auto Parts, Advance Auto Parts, and Pep Boys. Much like AutoZone, O’Reilly, Advance, and Pep Boys offer replacement auto parts, maintenance items and accessories. O’Reilly (ORLY): Mission: “O'Reilly Automotive Founded:
• 1957
intends to be the dominant supplier of auto parts in Headquarters:
our market areas by offering our retail customers, • Springfield, Missouri
professional installers, and jobbers the best Number of Stores:
combination of price and quality provided with the • 3,613
CEO:
• Gregory L. Henslee
highest possible service level.” O’Reilly Auto Parts (ORLY) was founded in 1957, in Missouri, and later in 1965, the second store opened. Then in 1993 O’Reilly went public for the first time and in 1998 acquired Hi-­‐Lo Automotive, a fellow competitor. Following that acquisition came the acquisition of Midwest Automotive Distributors Inc. in 2005, and CSK Auto Corporation in 2006. Currently, the company is headquartered in Springfield, Missouri and has 3,613 total stores, and lastly Gregory L. Henslee is the current CEO. O’Reilly Products: O’Reilly categorizes its products into three sectors. First is the new and remanufactured hard parts, this includes such automotive items as; alternators, fuel pumps, batteries, belts and hoses. The next sector is maintenance items, which includes oil, antifreeze, filters, wiper blades, and lighting. The last is an accessories sector, which includes floor mats, seat covers and truck accessories. O’Reilly also offers various services throughout their stores, they include; used oil and battery recycling, loan a tool program, professional paint shop mixing and related services, and machine shops. (ORLY) Consolidated Balance Sheet (in thousands $)
2008
2009
2010
31,301
26,935
29,721
Total Current Assets
1,875,433
2,226,719
2,301,252
Long Term Assets
2,317,884
2,554,752
2,746,575
Total Assets
4,193,317
4,781,471
5,047,827
Total Current Liabilities
1,053,501
1,231,375
1,228,958
732,695
790,748
358,704
Total Stockholder's Equity
2,282,218
2,685,865
3,209,685
Total Liabilities and
Stockholder's Equity
4,193,317
4,781,471
5,047,827
Cash and Equivalents
Total Debt
O’Reilly’s consolidated balance sheet indicates that total current assets increase by $75 million from 2009 to 2010. This is due to the addition of 149 new store facilities in 2010 and the increase in physical properties due to the CSK Stores acquisition. When looking at O’Reilly’s (ORLY) Consolidated Income Statement
(in thousands $)
2010 consolidated income statement, 2008
2009
Total Revenue
3,576,553
4,847,062
5,397,525
Cost of Revenue
1,831,545
2,364,597
2,607,239
Gross Profit
1,745,008
2,482,465
2,790,286
Operating Expenses
1,292,309
1,788,909
1,908,216
186,232
307,498
419,373
1.48
2.23
2.95
Net Income
Earnings per share
total revenue increased by approximately $550 million from 2009 to 2010. In addition this triggered a $111 million increase in net income. The increase in sales is contributed to the increase of 149 new stores opened in 2010, and the acquisition of underachieving brand of CSK stores. Founded: • 1929 Headquarters:
• Roanoke, Virginia
Number of Stores:
• 3,343
CEO: • Darren R. Jackson Advance Auto Parts (AAP): Mission: “Advance Auto Parts is a leader in the automotive aftermarket, and we have more than 78 years of grease, grime and grit under our fingernails to prove it. Not only do we sell quality, affordable parts, but we also sell confidence. We have over 3,500 stores and more than 51,000 of the best-­‐equipped Team Members in the business to help you get the right part and find the best answers to all your repair questions.” When looking at a brief history of Advance, the company was founded in 1929, and Arthur Taubman purchased the company three years later in 1932. Later in 1972, Advance formally changes the direction of the company from a full sporting goods store to focus on becoming a specialty auto parts chain. In 1998, Advance acquires Western Auto Supply Company and Parts America, and acquires Autopart International in 2005. Advance Products: Advance has many different automotive parts such as; alternators, batteries, clutches, radiators, and transmissions. In addition Advance also offer accessories that include floor mats, mirrors, and seat covers. Lastly, Advance offers chemicals and oils such as antifreeze, fuel additives, and waxes. Much like AutoZone, Advance also offers a variety of free services that include battery and wiper installation, check engine light reading, and “How To” resources. Looking at Advance’s (AAP) Consolidated Balance Sheet (in thousands $)
2008
2009
2010
37,358
100,018
59,209
Total Current Assets
1,807,626
1,887,618
2,124,271
Long Term Assets
1,156,439
1,185,345
1,229,946
Total Assets
2,964,065
3,072,963
3,354,217
Total Current Liabilities
1,364,994
1,466,027
1,848,049
613,130
204,271
301,824
Total Stockholder's Equity
1,075,166
1,282,365
1,039,374
Total Liabilities and
Stockholder's Equity
2,964,065
3,072,963
3,354,217
Cash and Equivalents
Total Debt
consolidated balance sheet, it should be noted that in 2010, due to a $300 million stock repurchase program, Advance repurchased 1.9 million shares of common stock with caused a 31% decrease in cash and (AAP) Consolidated Income Statement
(in thousands $)
equivalents from 2009 to 2010. 2008
2009
2010
Total Revenue
5,142,255
5,412,623
5,925,203
Cost of Revenue
2,532,251
2,617,120
2,799,451
Gross Profit
2,610,004
2,795,503
3,125,752
Operating Expenses
2,048,137
454,385
584,933
238,038
270,373
346,053
2.50
2.83
3.95
Also when looking at the consolidated income statement, there was a 9.5% Net Income
Earnings per share
increase in total revenue due to an 8% increase in comparable store sales. Pep Boys (PBY): AutoZone’s last competitor is Pep Boys. In 1921, Pep Auto Supplies was founded and 25 years later in 1946, the company went public. Later in 1976 AutoSense was introduced, which was the industry’s first diagnostic computer system. In 1988, Pep Boys created a sustainable competitive advantage by first offering Founded:
tires, which is not commonly offered by • 1921
Headquarters:
any competitors. Following this move • Philadelphia, Pennsylvania
came a series of acquisitions including Number of Stores:
Florida Tire in 2009, and more recently Big • 723
CEO:
O Tires and Big 10 Tires in 2011. • Michael R. Odell
Pep Boys Products: As mentioned earlier, Pep Boys is unique amongst its competitors because they offer vehicle tires. In addition Pep Boys also offers batteries, automotive maintenance items and power tools. When looking at Pep Boys consolidated balance sheet it is important to note that total debt decreases each year by a consistent amount due to the company’s strong stance in decreasing total debt. (PBY) Consolidated Balance Sheet (in thousands $)
Next when looking at the 2008
2009
2010
20,926
21,332
39,326
Total Current Assets
749,757
715,558
716,077
Long Term Assets
834,163
836,831
783,009
1,583,920
1,552,389
1,499,086
Total Current Liabilities
554,414
536,325
510,552
Total Debt
402,130
353,835
307,280
Total Stockholder's Equity
470,712
423,156
443,295
1,583,920
1,552,389
1,499,086
Cash and Equivalents
Total Assets
Total Liabilities and
Stockholder's Equity
consolidated income statement, total revenue decreased each year from 2008 to 2010, however the company did open 35 new sales in 2010, but new store revenues are not added to (PBY) Consolidated Income Statement
(in thousands $)
2008
2009
2010
Total Revenue
2,138,075
1,927,788
1,910,938
Cost of Revenue
1,571,832
1,389,149
1,366,627
Gross Profit
566,243
538,639
544,311
Operating Expenses
518,373
485,044
430,261
Net Income
(41,039)
(30,429)
23,036
-0.55
0.46
0.70
Earnings per share
total revenue until stores reach their 13th month of operation. This means the company expects total revenue to rebound and increase in 2011. Comparative Financials: 2
First when looking at the Comparative Current Ratio
1.8
1.6
comparative current ratio, 1.4
O’Reilly, over the past three years has ranked highest amongst its competitors in being able to pay back its short term 1:1
1.2
1
0.8
0.6
0.4
0.2
0
AZO
2008
1.03
2009
0.95
2010
0.85
ORLY
1.78
1.8
1.87
AAP
1.32
0.8
1.14
PBY
1.35
1.33
1.4
liabilities with its short term assets. However, Pep Boys has had a more consistent ratio over the past three years. 0.4
Next, when looking at the Comparative Quick Ratio
comparative quick ratio, 0.35
0.3
Pep Boys has been the 1:1
0.25
leader amongst its 0.2
0.15
competitors in being able 0.1
0.05
0
to meet its short-­‐term AZO
2008
0.17
2009
0.13
2010
0.1
ORLY
0.28
0.25
0.22
AAP
0.13
0.17
0.14
PBY
0.34
0.28
0.3
Lastly, when looking at comparative net profit margin, 14.00%
AutoZone has led its competitors 10.00%
percentage of every sales dollar liquid assets. Comparative Net Profit Margin
12.00%
8.00%
Percent
over the past three years in the obligations with its most 6.00%
4.00%
2.00%
0.00%
being retained in earnings. Due -2.00%
-4.00%
to a net loss in income in 2008 and 2009, Pep Boys net profit AZO
2008
9.80%
2009
9.60%
2010
11.50%
ORLY
5.20%
6.30%
7.70%
AAP
4.62%
4.99%
5.84%
PBY
-1.91%
-1.57%
1.20%
margin percentage was negative. Industry Analysis: AutoZone competes in the specialty retail industry but more specifically the automotive retail industry. Some key facts about the industry are that a few, large companies dominate the industry with large market shares. And in addition over the past decade there has been a shift in the industry, and instead of “do it yourself” school of thought, more recently the market has shift to “do it for me” mentality. Also when looking at the specialty retail market capitalization, it can be noted that Specialty Retail Market Cap ($)
AutoZone’s market cap is over $7 billion 14,000,000,000
12,900,000,000
12,000,000,000
larger than the industry average. 10,000,000,000
Industry
8,000,000,000
AutoZone Key Factor Evaluation: 6,000,000,000
In analyzing the key internal factors for AutoZone
5,080,000,000
4,000,000,000
2,000,000,000
AutoZone, it should be noticed that free 0
Industry
AutoZone
servicing, the Duralast brand of batteries and a broad product rage all rank highest of the strengths AZO Key Internal Factors: IFE
Strengths
Weight
Rating
Weighted Score
with a rating of 4, while weak Free Servicing
0.20
4
0.80
Knowledgable staff
0.10
3
0.30
Electronic catelog
0.10
3
0.30
Hours of operation
0.05
3
0.15
Brand name
0.05
3
0.15
Duralast
0.10
4
0.40
Broad product range
0.10
4
0.40
of 1. However when looking at the Management
0.10
1
0.10
Pricing
0.10
1
0.10
total weighted score, AutoZone has a Advertising
0.05
2
0.10
Expansion
0.05
2
0.10
Total
1.00
management and high prices rate lowest as the weaknesses with rating Weaknesses
2.9 rating which is slightly above the 2.90
2.5 average meaning they are efficient and successful in handling internal affairs. Next when looking at the external factors evaluation, less new cars being bought is a high rated opportunity because due to the AZO Key External Factors: EFE
Opportunities
recession, consumers are less likely to purchase new vehicles and opt for driving their current Weight
Rating
Weighted Score
Less new cars being bought
0.15
2
0.30
Inclement weather
0.05
2
0.10
Global expansion
0.10
3
0.30
More do it yourselfers
0.15
4
0.60
Extended vehicle
warranties
0.05
3
0.10
Threats
vehicles longer, meaning more Gas prices
0.20
2
0.40
Technology
0.05
1
0.05
repairs will eventually be needed. Merging competitors
0.10
3
0.30
Government restrictions
0.05
1
0.05
Recession
0.10
4
0.40
Total
1.00
AutoZone’s total weighted score is 2.60
2.6, meaning the company is again just slightly above the average of 2.5 and currently fairly successful in handling external affairs. Porter’s Analysis: Threat of
substitute
products
Rivalry
among
competitors
•  High
•  High
Threat of
new
entrants
•  Low
There are five main components when looking at Bargaining
power of
suppliers
the Porter’s analysis of the specialty retail industry. •  Moderate
The threat of new entrants are low due to the fact Porter’s
Analysis
Bargaining
power of
buyers
that as mentioned earlier, few, large companies •  High
dominate the market share, therefore it would be difficult for another company to enter the market. Also rivalry among competitors is high because as looked at earlier acquisitions a are common trend for companies to keep a competitive edge over the competition. Bargaining power of buyers is high because of the fact that most of the competitors offer similar products, so buyers have options of where to buy their automotive products. Competitive Profile Matrix: When analyzing the competitive profile matrix for AutoZone, Competitive Profile Matrix
AutoZone
O'Reilly
Advance
Weight
Rating
Weighted
Score
Rating
Market Share
0.10
4
0.40
3
0.30
3
0.30
1
0.10
Price competitiveness
0.20
2
0.40
3
0.60
2
0.40
2
0.40
Customer service
0.15
4
0.60
2
0.30
2
0.30
2
0.30
Management
0.20
2
0.40
4
0.80
3
0.60
2
0.40
Number of stores
0.10
4
0.40
4
0.40
4
0.40
2
0.20
Global expansion
0.10
1
0.10
3
0.30
3
0.30
2
0.20
Brand recognition
0.05
4
0.20
2
0.10
3
0.15
2
0.10
Marketing
0.10
2
0.20
3
0.30
3
0.30
2
0.20
Total
1.00
Critical Success Factors
2.70
Weighted
Score
Pep Boys
3.10
Rating
Weighted
Score
2.75
Rating
Weighted
Score
1.90
management has helped O’Reilly lead its competitors. Also it can be seen that Pep Boys is struggling significantly. Comparative Income Statements: The 2010 comparative income statements for AutoZone and its competitors shows that AutoZone generates a much higher revenue and net income than O’Reilly, Advance and Pep Boys. Comparative 2010 Income Statements (in thousands $)
AZO
ORLY
AAP
PBY
Total Revenue
7,362,618
5,397,525
5,925,203
1,910,938
Cost of Revenue
3,452,295
2,607,239
2,799,451
1,366,627
Gross Profit
3,910,323
2,790,286
3,125,752
544,311
Operating Expenses 2,392,330
1,908,216
584,933
430,261
738,311
419,373
346,053
23,036
14.97
2.95
3.95
0.70
Net Income
Earnings per share
Comparative Sustainable Competitive Advantage: Because of the electronic resources pioneered by AutoZone, innovation is its sustainable competitive advantage. O’Reilly’s strong management helps make them more financially stable then the competitors. Due to the free services offered, Advance’s AutoZone
•  Innovation
O’Reilly
•  Management
Advance
•  Customer Service
Pep Boys
•  Service and Tire Centers
sustainable competitive advantage is customer service. Lastly due to the uniqueness of tires being offered compared to its competitors, Pep Boys sustainable competitive advantage is their service and tire centers. Alternative Strategy One: First when looking at alternative strategies to help make AutoZone more profitable, one consideration is for AutoZone to make a commercial and air it during the entire NFL season during Monday Night Football. In order to do this AutoZone, would produce a commercial that aired twice during a Monday Night Cost to Air
• $8,000,000
(500,000 x
16weeks)
Cost to
Make
$8,400,000
Football game. According to research, a • 400,000
30 second advertisement costs $250 thousand to air at the time of Monday Night Football. To air the commercial twice each game, for each of the 16 games, the total cost to air would be $8 million. In addition it would cost $400 thousand for AutoZone to create the commercial, making the grand total of this strategy $8.4 million. This strategy would not work due to the fact that the Monday Night Football commercials only average a 2% response rate. The average amount consumers $8,400,000 cost
2% response rate
$38 average unit cost
8,679,000 US viewers
Return of only $6,596,040
usually spend at AutoZone is $38, and during the 2010 football season an average of 8,679,000 viewers watched Monday Night Football. Therefore the return on this strategy would only be $6,596,040 and not profitable for AutoZone. Alternative Strategy Two: Another alternative strategy for AutoZone is to acquire its struggling competitor Pep Boys. Pep Boys market cap is Pep Boys
Market Cap
•  $564,680,000
Discount Rate
•  25%
currently $564,680,000, and typically to $705,850,000
purchase a company in this industry would require a 25% discount rate, making the total cost of this investment $750,850,000. One reason not to acquire Pep Boys is because this investment would decrease free cash flow by 65.7%, if AutoZone financed the purchase this way. In addition this acquisition would not fit $705,850,000 cost
into AutoZone’s sustainable competitive $947,643,000 AutoZone
free cash flow
advantage because of the tires and service Drain Cash
Adds service centers
centers. It is an area AutoZone has never been involved in. Root Problem: AutoZone’s root problem is not taking advantage of growing global markets. This is true because AutoZone stores are currently only located in the United States, Puerto Rico, and AutoZone Pro Forma Income Statement
(in thousands $)
Mexico. Therefore there are many 2011
2012
2013
2014
Total Revenue
7,822,782
8,311,705
8,831,187
9,383,136
Cost of Revenue
3,598,479
3,823,384
4,062,346
4,316,242
Gross Profit
4,146,074
4,405,203
4,680,529
4,973,062
Operating
Expenses
2,503,290
2,659,745
2,825,979
3,002,603
Net Income
782,278
831,170
883,118
938,313
Earnings per
share
19.61
20.83
22.13
23.52
potential markets yet for AutoZone to enter. Final Strategy: To help solve this root Fastest growing automobile
market (14m new units sold
in 2010)
problem, AutoZone should expand into Chinese markets. There are various Huge and rapidly expanding
economy
reasons for expanding into China. First, Ford and General Motors
fast growing
China is the fastest growing automobile market in the world. In 2010 more than 14 million new car units were sold throughout China. Also China has a huge economy that is rapidly expanding. Currently China has more than 1.3 billion citizens and only a 4% unemployment rate. The majority of the population has incomes to support spending money on an automobile and properly maintaining them. When analyzing AutoZone’s projected income statement, over the previous 5 50 New AutoZone’s to be
leased throughout China
years total revenue has increased by 6.25% and is projected to increase at Located in 30 popular
Chinese cities
All property leased for 5
years
this rate throughout 2014. This strategy includes opening 50 new AutoZone stores throughout 30 popular Chinese cities. These cities include Shanghai, Beijing, Hong Kong and Tianjin, which are China’s top four populated cities respectively. All properties are to be leased rather than buying to reduce the risk. The average cost to rent a building in China is $13 per square foot in heavy populated areas. The Cost to
Rent in
China
• $13 per sq/
ft
Average
AutoZone
Size
• 6500 sq/ft
$84,500
per year
currently the average size of an AutoZone store is 6,500 square feet, so the total cost to rent each store is $84,000 per year. Given this $84,000 times 50 stores over 5 years, the total rent cost would be $21,125,000, plus an additional $20,000,000 in moving costs, Total Rent:
50 Stores (5
years)
Addition
Costs of
Moving:
• $21,125,000
• $20,000,000
the total cost of investment would $41,125,000
Total Cost
of
Investment
be $41,125,000. In financing the strategy of expansion into China, the total cost $41,125,000 will be taken from $947,643,000 in free cash flow, leaving a total of $906,518,000, so this is very feasible. $947,643,000: Free Cash Flow
Now looking at the comparative projected $41,125,000: Total Cost of Investment
income statement with and without the strategy, it should be noted that total $906,518,000: Remaining Free Cash Flow
revenue is higher each year with the strategy in place and grows at a faster rate, resulting in the same increases in net income and earnings per share. When looking at AutoZone’s increase in shareholders wealth, with the strategy, shareholders wealth increases from $10.8 billion to $14.1 billion over the next 4 years. Shares outstanding remain constant throughout the 4 years because the investment was financed with free cash flow and no new share issuance was required. Comparative AutoZone Pro Forma Income Statement With Strategy
(in thousands $)
2011
New 2011
2012
New 2012
2013
New 2013
2014
New 2014
Total Revenue
7,822,782
7,902,343
8,311,705 8,396,437 8,831,187 8,921,427 9,383,136 10,344,119
Cost of Revenue
3,598,479
3,635,077
3,823,384 3,862,361 4,062,346 4,103,856 4,316,242
4,758,294
Gross Profit
4,146,074
4,188,241
4,405,203 4,450,111 4,680,529 4,728,356 4,973,062
5,482,383
Operating
Expenses
2,503,290
2,528,749 2,659,745 2,686,859 2,825,979 2,854,856 3,002,603
3,310,118
Net Income
782,278
790,234
831,170
839,643
883,118
892,142
938,313
1,034,411
Earnings per share
19.61
19.81
20.83
21.05
22.13
22.36
23.52
25.93
AutoZone increase in shareholder's
wealth
PE
Year Ratio
EPS
Shares
Outstanding
Shareholders
Wealth
2011
13.70
19.81
39,888,000
$10,825,483,536
2012
13.70
21.05
39,888,000
$11,503,100,880
2013
13.70
22.36
39,888,000
$12,218,970,816
2014
13.70
25.93
39,888,000
$14,169,853,008
Lastly, when looking at AutoZone’s return on investment, it can be seen that it increases each year. The change in net income compared to with and without the strategy is taken and divided by the total cost of the investment in order to give the return on investment each year. AutoZone Return on Investment
Year
New Net
Income
Old Net
Income
NI Change
ROI
2011
$790,000,000
$782,278,000
$7,722,000
18.78%
2012
$839,643,000
$831,170,000
$8,473,000
20.60%
2013
$892,142,000
$883,118,000
$9,024,000
21.94%