CHICAGO, November 01 (Fitch) Fitch Ratings has assigned a
rating of 'BBB' to AutoZone, Inc.'s (Autozone) $300 million of
2.875% senior unsecured notes due January 2023. The Rating
Outlook is Stable. The proceeds will be used towards refinancing
the $300 million 5.875% senior unsecured notes due October 2012.
AutoZone had $3.9 billion in debt outstanding at Aug. 25, 2012.
A full list of ratings follows at the end of this release.
The rating reflects AutoZone's leading position in the
retail auto parts and accessories aftermarket, and its solid
operating performance and credit metrics. The ratings also
consider the company's aggressive share repurchase posture.
AutoZone is a leader in the large, growing and fragmented auto
AutoZone competes in two markets. It is the number one
player in its primary sub-sector, the 'Do-It-Yourself' auto
aftermarket and a small but growing player in the 'Do-It-For-Me'
commercial auto aftermarket. AutoZone's revenue compound annual
growth rate (CAGR) over the five-year period from fiscal year
(FY) 2007 through 2012 of 6.9% has outpaced the industry
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 private label offerings
have contributed to its industry leading operating EBIT margin
of 19.3% in FY 2012. These margins should enable AutoZone to
generate healthy free cash flow of $800 million to $1 billion
over the next two years, with this cash flow invested in share
Approximately 83% of AutoZone's merchandise mix consists of
either maintenance or replenishment of failed products, for
which demand is relatively stable. AutoZone has produced strong
sales growth and cash flows over the past three years, pointing
to the counter-cyclical nature of its business.
Working against the company is persistent high unemployment,
high gasoline prices and a rise in new vehicle sales. Despite
this, the company's comparable store sales increased 3.9% in
fiscal 2012, following a 6.3% increase in fiscal 2011. Fitch
anticipates comparable store sales will moderate to the low
single-digit range, consistent with long-term industry growth
rates. At the same time, gross margins may show some modest
compression over time as the company increases its mix of
lower-margin commercial sales.
AutoZone's credit metrics have been stable despite
aggressive share repurchase activity that is partly
debt-financed. AutoZone's adjusted debt/EBITDAR ratio held
steady year over year at 2.7x for FY 2012 (capitalizing
operating leases on an 8x rents basis). These ratios provide a
degree of headroom in the current ratings, which management has
indicated it is committed to maintaining.
AutoZone's liquidity is adequate, supported by a cash
balance of $103 million at year end and $528 million of
availability under its $1 billion revolving credit facility (net
of CP outstanding), which expires in September 2016.
Guidelines for Further Rating Actions:
A negative rating action would be caused by softer operating
results and/or more aggressive share repurchase activity
resulting in weaker credit metrics, including an increase in
adjusted debt/EBITDAR to the low 3x area.
A positive rating action would be caused by stronger than
expected operating results combined with the intention to manage
leverage in the low to mid 2x area.
Fitch currently rates AutoZone, Inc. as follows:
--Long-term 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.