KEY RATING DRIVERS
The rating reflects AutoZone's leading position in the retail auto parts and accessories aftermarket, its strong operating performance, and steady credit metrics. The ratings also consider the company's aggressive share repurchase posture.
AutoZone is a leader in the large, growing and fragmented auto parts aftermarket. AutoZone competes in two markets. It is the number one player in its primary sub-sector, the
After flat comparable store (comp) sales in fiscal 2013, comp sales were in the 4% range in the past two quarters due in part to wear and tear on vehicles caused by the harsh winter. Going forward, Fitch expects AutoZone can sustain low single digit comps supported by 1 - 2% comps on the retail side of the business and relatively faster growth in the commercial business. Overall sales growth should be in the mid-single digits due to addition of 175 - 200 units annually.
AutoZone has among the strongest operating margins in the retail sector. The company's size, national footprint (it owns around half of its real estate), and retail-orientation have contributed to its industry leading EBITDA margin of 22.3% in the twelve months ending
AutoZone's credit metrics have been stable despite aggressive share repurchase activity that is partly debt-financed. AutoZone's adjusted debt/EBITDAR ratio has remained steady at 2.7x over the past four years (capitalizing operating leases on an 8x rents basis).
Fitch expects AutoZone will generate free cash flow of around
AutoZone's liquidity is adequate, supported by a cash balance of
A negative rating action could be driven by softer operating results, including sales growth that trails the industry, a FCF margin below 8-10% and/or an EBITDA margin below 20% for an extended period, or more aggressive share repurchase activity resulting in an increase in adjusted debt/EBITDAR to the low 3x area.
A positive rating action could be driven by stronger than expected operating results with a commitment by management to manage leverage in the low to mid 2x area.
Fitch currently rates AutoZone, Inc. as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured debt at 'BBB';
--Bank credit facility at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
Most Popular Stories
- Steve Ballmer Files Six-Figure Counterclaim vs. Steve Gordon
- Creepers! Microsoft Buys 'Minecraft' Maker for $2.5 Billion
- Back to School, Even in Immigration Jail
- When to Say No to Investors, Yes to Mentors
- Hispanic Buying Power Slow but Growing in South
- Apple: Record iPhones 6 Orders on 1st Day
- U.S. Factory Output Slowed 0.4 Percent in August
- Is a Mayweather, Pacquiao Big-Money Fight Possible?
- Clinton: 'Fabulous to Be Back' in Iowa
- 'No Good Deed' Defeats 'Guardians' at Theaters