AutoZone Inc. (NYSE:AZO)

The analysis of the annual current and deferred income tax expense reveals distinct trends and fluctuations over the six-year period.

Current Income Tax Expense

The current income tax expense exhibits variability with a generally upward trajectory. Starting at 423,054 thousand US dollars in 2018, it decreased slightly to 379,061 thousand in 2019, then increased to 432,465 thousand in 2020. A substantial rise occurred in 2021, reaching 613,308 thousand, followed by a decrease to 463,893 thousand in 2022. The most recent figure in 2023 shows a significant increase to 664,895 thousand, marking the highest value in the observed period.

Deferred Income Tax Expense

The deferred income tax expense shows considerable volatility and a lack of a clear directional trend. The value started negative at -124,261 thousand in 2018, shifted to positive values in the next two years (35,051 thousand in 2019 and 51,077 thousand in 2020), then reverted to a negative figure in 2021 (-34,432 thousand). It sharply rose to a peak positive value of 185,594 thousand in 2022 and dropped again to a negative of -25,707 thousand in 2023. This oscillation indicates fluctuations in the timing differences related to tax recognition.

Total Income Tax Expense

Total income tax expense follows a generally increasing trend across the years. It started at 298,793 thousand in 2018 and rose steadily through 2019 (414,112 thousand), 2020 (483,542 thousand), and 2021 (578,876 thousand). The apex occurred in 2022 with 649,487 thousand, followed by a slight decrease to 639,188 thousand in 2023. The trend reflects growing taxable income or changes in tax rates, offset at times by deferred tax fluctuations.

Overall, the current income tax expense is the primary driver of the total tax expense's upward trend, while the deferred tax expense contributes to short-term variability. The alternating positive and negative values in deferred tax expense suggest shifts in temporary differences and their impact on tax liabilities over the years.

Federal tax at statutory U.S. income tax rate

The statutory U.S. federal tax rate remained stable at 21% from 2019 through 2023, down from 25.9% in 2018.

State income taxes, net

State income taxes as a percentage of income showed minor fluctuations, peaking at 2.2% in 2020 and 2021, then declining to 1.6% by 2023.

Transition tax

The transition tax was present only in 2018 at 1.6%, with no recorded values in subsequent years.

Share-based compensation

Share-based compensation consistently reduced the effective tax rate, varying between -0.7% and -2.3%, reaching the most significant negative impact in 2023.

US Tax on Non-US Income, GILTI and Subpart F

This item emerged starting in 2019 and progressively increased from 1.3% to 3.3% by 2023, reflecting growing taxes on global intangible low-taxed income and related subpart F income.

Non-US Permanent Differences

Negative values were recorded beginning in 2020, deepening from -0.5% to around -1.4% by 2023, indicating increasing permanent differences related to foreign operations.

Foreign Tax Credits

Foreign tax credits grew in magnitude over the years, reflecting higher credits that reduced the overall tax burden, from -1.1% in 2019 to -2.3% in 2023.

Other

The "Other" category fluctuated around zero without a consistent trend, showing negative values in some years and positive ones in others, indicating miscellaneous impacts on the tax rate.

Effective tax rate, before impact of tax reform

This rate hovered between 20.2% and 21.8% from 2019 onwards after a sharp decline from 27.9% in 2018, showing relative stability in the effective tax burden excluding tax reform effects.

Impact of tax reform

The impact of tax reform was significant in 2018 with a -9.6% effect, diminishing substantially in 2019 and absent thereafter, reflecting the fiscal impact of legislative changes during that period.

Effective tax rate

The overall effective tax rate decreased sharply from 18.3% in 2018 to a range around 20.2% to 21.8% in the following years, stabilizing near 20.2% by 2023. This pattern mirrors changes in statutory rates, tax reform impacts, and evolving international tax considerations.

The financial data reveals several key trends over the six-year period ending in August 2023.

Net Operating Loss and Credit Carryforwards

This item shows a fluctuating but overall declining trend from 47,190 thousand US$ in 2018 to 33,924 thousand US$ in 2022, before rising again to 45,081 thousand US$ in 2023. This suggests varying utilization or recognition of tax loss carryforwards and credits over time.

Accrued Benefits

There is notable volatility in accrued benefits, with a decline from 62,867 thousand US$ in 2018 to 58,900 thousand US$ in 2019, followed by a sharp increase to 126,086 thousand US$ in 2021. This peak is succeeded by a decrease to 60,561 thousand US$ in 2022, and a rise again to 82,318 thousand US$ in 2023. The pattern indicates changes in employee-related liabilities or other accrued benefit obligations.

Operating Lease Liabilities

Data for operating lease liabilities begins in 2020 with a value of 617,002 thousand US$, increasing steadily to 698,728 thousand US$ by 2023. This upward trend reflects growth in lease obligations, possibly due to expanded leasing activities or accounting changes related to leases.

Other (Assets and Liabilities)

The category labeled "Other" (recorded twice) presents mixed behavior. The positive values increase from 46,375 thousand US$ in 2018 to 90,897 thousand US$ in 2023, indicating growth in miscellaneous assets or receivables. Conversely, the negative "Other" values exhibit fluctuations, with a decline from -44,210 thousand US$ in 2018 to -25,211 thousand US$ in 2022, but a sharp drop back to -43,662 thousand US$ in 2023, implying irregular movements in miscellaneous liabilities or adjustments.

Deferred Tax Assets and Valuation Allowances

Deferred tax assets surged significantly from 156,432 thousand US$ in 2018 to over 916,000 thousand US$ in 2023, indicating increased recognition of future tax benefits. Simultaneously, valuation allowances also increased in absolute terms from -19,619 thousand US$ to a peak of -31,098 thousand US$ in 2021, then declined to -24,940 thousand US$ in 2023. These trends suggest that despite growing tax asset recognition, the management has periodically adjusted allowances for realizability concerns.

Net Deferred Tax Assets

Net deferred tax assets (gross deferred tax assets minus valuation allowances) follow a similar trend to gross deferred tax assets, rising sharply from 136,813 thousand US$ in 2018 to a high of 853,091 thousand US$ in 2021. A moderate drop follows in 2022, with recovery to 892,084 thousand US$ in 2023, reflecting overall positive expectations regarding future tax benefits after allowances.

Property and Equipment

Property and equipment balances are consistently negative and show a declining trend from -101,049 thousand US$ in 2018 to approximately -194,686 thousand US$ in 2023. This suggests continued capital expenditures offset by accumulated depreciation, leading to a net reduction over time.

Inventory

Inventory shows a major increasing negative trend, growing from -242,138 thousand US$ in 2018 to -451,360 thousand US$ in 2023. The sharp increase between 2021 and 2022 (-316,736 thousand to -448,273 thousand US$) reflects either stock accumulation or adjustments in inventory accounting, possibly impacting working capital management.

Operating Lease Assets

Operating lease assets data is available from 2020 onwards and mirrors the lease liabilities trend, with values around -581,381 thousand US$ in 2020 increasing moderately to -652,652 thousand US$ by 2023, indicating capitalized lease asset growth consistent with lease obligations.

Deferred Tax Liabilities

Deferred tax liabilities increased substantially from -387,397 thousand US$ in 2018 to -1,342,360 thousand US$ in 2023. This sharp rise suggests mounting future tax obligations, possibly related to timing differences on taxable income or asset bases.

Net Deferred Tax Assets (Liabilities)

The net deferred tax assets (liabilities) balance moved from a negative -250,584 thousand US$ in 2018 to a larger negative position of approximately -450,276 thousand US$ in 2023. This deterioration reflects that deferred tax liabilities have outpaced deferred tax assets, increasing the overall net tax liability position in the balance sheet.

In summary, the data illustrates increasing lease obligations and related assets, growing deferred tax asset recognition alongside rising tax liabilities, and noticeable fluctuations in accrued benefits and inventory levels. The net deferred tax position's negative trend indicates a higher future tax burden. These patterns suggest evolving operational commitments and significant tax timing differences impacting the financial position over the analysis period.

Deferred Tax Assets

The deferred tax assets exhibit a generally increasing trend over the six-year period. Beginning at approximately 34.6 million USD in 2018, there is a slight decline observed in 2019 and 2020, reaching a low of approximately 27.8 million USD in 2020. However, from 2020 onwards, the value consistently rises, culminating at 86.0 million USD in 2023. This represents a significant growth, particularly notable between 2022 and 2023, where the asset value increased by over 65%.

Deferred Tax Liabilities

Deferred tax liabilities show substantial growth over the period examined. Starting at roughly 285.2 million USD in 2018, the liabilities increase steadily through 2020 to about 354.2 million USD. There is a minor decrease in 2021 but this is followed by a sharp rise in 2022 reaching over 533.9 million USD. The value remains relatively stable into 2023, ending at about 536.3 million USD. The overall pattern indicates a significant rise in deferred tax liabilities, with the most pronounced increase occurring between 2021 and 2022.

The financial data reveals several trends relating to reported and deferred income tax adjusted figures over the six annual periods ending in August 2023.

Total Assets

Both reported and adjusted total assets exhibit a consistent upward trend throughout the analyzed periods. Reported total assets increased from approximately $9.35 billion in 2018 to nearly $16.0 billion in 2023, showing substantial asset growth. Adjusted total assets mirror this pattern closely, rising steadily from about $9.31 billion to $15.9 billion across the same timeframe. The slight difference between reported and adjusted figures suggests that deferred income tax adjustments have a moderate but consistent impact on asset valuations.

Total Liabilities

Total liabilities, both reported and adjusted, rose significantly over the years. Reported liabilities grew from around $10.87 billion in 2018 to over $20.3 billion in 2023, almost doubling in value. Adjusted liabilities follow a similar upward trajectory, increasing from nearly $10.6 billion to approximately $19.8 billion. This increase in liabilities outpaces the growth in assets, which contributes to changes in equity positions observed later.

Stockholders’ Deficit

Reported stockholders’ deficit shows considerable fluctuation, with a peak deficit of approximately -$1.71 billion in 2019, improving to about -$877 million in 2020, but then worsening substantially to nearly -$4.35 billion by 2023. Adjusted stockholders’ deficit follows a similar pattern but with consistently smaller negative values, indicating that deferred tax adjustments somewhat mitigate the reported deficit. The sharp increase in deficit from 2021 onwards suggests increased financial leverage or reduced equity levels relative to liabilities.

Net Income

Reported net income demonstrates steady growth over the periods, rising from $1.34 billion in 2018 to approximately $2.53 billion in 2023. Adjusted net income also trends upward but exhibits greater volatility. Notably, adjusted net income peaks at around $2.62 billion in 2022 before slightly declining to $2.50 billion in 2023. This variation indicates that deferred income tax adjustments might contribute to earnings fluctuations, impacting net income recognition from year to year.

Overall, the data reveals a consistent expansion in asset base and liabilities, with liabilities increasing at a faster rate, which leads to a growing stockholders' deficit. Net income improvements reflect operational profitability, yet the elevated deficit highlights the potential challenges in shareholder equity sustainability. The differences between reported and adjusted figures emphasize the material impact of deferred income tax adjustments on the company’s financial position and profitability metrics.

The analysis of the adjusted financial data over the reported periods reveals several notable trends in profitability and efficiency measures.

Net Profit Margin

The reported net profit margin shows a progressive increase from 11.92% in 2018 to a peak of 14.95% in 2022, followed by a slight decline to 14.48% in 2023. The adjusted net profit margin follows a similar upward trajectory, starting at 10.81% in 2018 and rising steadily to 16.09% in 2022 before decreasing to 14.34% in 2023. The adjusted figures generally present marginally higher profitability than the reported values during the middle years, indicating that adjustments related to deferred and annual reported income taxes improve the apparent profitability margin, especially in 2022.

Total Asset Turnover

The reported total asset turnover remained stable at 1.2 for 2018 and 2019, then decreased sharply to 0.88 in 2020. It gradually improved in subsequent years, reaching 1.09 by 2023. The adjusted total asset turnover shows an identical pattern with slightly higher values from 2021 onward, suggesting minor adjustments affect the firm's asset utilization efficiency positively. The decline in 2020 likely reflects operational or market challenges during that period, with a rebound visible afterward.

Return on Assets (ROA)

The reported ROA follows a trend resembling that of net profit margin and asset turnover; it starts at 14.31% in 2018, peaks at 16.34% in 2019, then drops substantially to 12.01% in 2020. A recovery phase ensues, culminating in 15.91% in 2022, with a marginal decrease to 15.82% in 2023. Adjusted ROA values are consistently higher than reported values, highlighting benefits from income tax-related adjustments, with a significant peak of 17.18% in 2022. The general pattern indicates temporary performance disruption in 2020, followed by a strong recovery and stabilization.

Financial Leverage and Return on Equity (ROE)

No data is available for both reported and adjusted financial leverage and ROE, limiting the ability to analyze their trends or contributions to overall financial performance.

In summary, the company exhibits increasing profitability and improving asset efficiency from 2018 through 2022, with a noticeable dip in 2020 likely due to external factors impacting performance. Adjusted figures typically surpass reported ones, emphasizing the positive impact of tax adjustments on perceived profitability and returns. The slight declines in net profit margin and ROA in 2023 warrant attention to understand underlying causes, although efficiency metrics continue to show improvement.

Reported Net Income

The reported net income exhibited a consistent upward trend over the six-year period. Starting at approximately $1.34 billion in 2018, it increased each year, reaching about $2.53 billion in 2023. This represents a significant growth in profitability, reflecting strong financial performance and earnings expansion.

Adjusted Net Income

Adjusted net income also showed an overall increasing trajectory from 2018 to 2023, rising from around $1.21 billion to approximately $2.50 billion. Notably, the adjusted net income surpassed the reported net income in several years, especially during 2019, 2020, and 2022, suggesting that the adjustments for reported and deferred income taxes had a material impact on the net income figures. The only deviation from this pattern occurred in 2023, where adjusted net income slightly decreased compared to the previous year, indicating possible changes in tax adjustments or operational factors.

Reported Net Profit Margin

The reported net profit margin demonstrated a steady improvement from 11.92% in 2018 to a peak of 14.95% in 2022, followed by a slight decline to 14.48% in 2023. This upward trend over the majority of the period indicates an enhanced ability to convert revenues into profits, with a marginal tightening of margins in the latest year.

Adjusted Net Profit Margin

The adjusted net profit margin began at a lower level of 10.81% in 2018 but showed more pronounced growth than the reported margin, reaching a high of 16.09% in 2022 before decreasing to 14.34% in 2023. The movement of the adjusted margin above the reported margin in most years, especially from 2019 onwards, highlights the influence of tax adjustments on strengthening profitability metrics. The decline in 2023 aligns with the pattern seen in adjusted net income, suggesting an overall compression in profitability ratios after adjustments.

Summary of Trends

Overall, the data reveals a solid growth pattern in both reported and adjusted net income and profit margins across most years analyzed. The adjustments for income tax appear to have a significant effect in inflating the adjusted profitability metrics relative to the reported figures. However, both metrics experienced a minor decline in the most recent year, signaling that the company may be facing emerging challenges or changes in its tax or operational landscape that could affect future earnings quality and margin sustainability.

Total Assets

Over the period observed, both reported and adjusted total assets demonstrate a consistent upward trajectory from 2018 through 2023. Reported total assets increased from approximately $9.35 billion in 2018 to nearly $16.0 billion by 2023. Similarly, adjusted total assets steadily rose from about $9.31 billion in 2018 to nearly $15.9 billion in 2023. The difference between reported and adjusted figures remains relatively small throughout the years, indicating minimal deferred income tax adjustments impacting total asset values.

Total Asset Turnover

The reported total asset turnover ratio remained stable at 1.2 from 2018 to 2019 before experiencing a significant decline to 0.88 in 2020. From 2020 onward, this ratio exhibited a recovery trend, increasing gradually to reach 1.09 by 2023. The adjusted total asset turnover follows a nearly identical pattern, mirroring the decline to 0.88 in 2020 and the subsequent recovery, ending slightly higher at 1.1 in 2023. This pattern suggests a temporary reduction in efficiency in asset utilization around 2020, followed by improvement in later years.

Insights and Trends

The steady growth in total assets indicates ongoing asset expansion or acquisition. Despite this growth, the decline in asset turnover ratios in 2020 suggests a period of reduced operational efficiency or asset utilization. However, the gradual recovery in turnover ratios after 2020 implies improvements in generating revenue from the asset base. The consistency between reported and adjusted figures reflects limited impact of deferred tax adjustments on the company's asset base and efficiency metrics over the observed period.

Total Assets

The reported total assets demonstrate a consistent upward trend over the six-year period from August 2018 through August 2023. The asset base increased from approximately $9.35 billion in 2018 to nearly $16.0 billion in 2023. Adjusted total assets follow a similar trajectory, starting slightly below reported values but maintaining close alignment throughout the timeframe. This steady growth indicates continual expansion or accumulation of resources by the entity.

Stockholders’ Deficit

Both reported and adjusted stockholders' deficits show significant fluctuations and an overall increase in the magnitude of the deficit over the period. Initially, the reported deficit deepened from approximately -$1.52 billion in 2018 to -$1.71 billion in 2019, improved markedly to -$878 million in 2020, then deteriorated again, reaching a low point of -$4.35 billion in 2023. Adjusted deficits follow a similar pattern, with a notable reduction in 2020 followed by a worsening trend through 2023. The volatility and general increase in deficit values suggest challenges in equity or accumulated losses that have intensified in more recent years.

Financial Leverage

Data for reported and adjusted financial leverage ratios is unavailable, preventing direct analysis of leverage trends. However, given the increasing total assets paired with growing stockholders’ deficits, there may be implications for leverage and capital structure that warrant further investigation once data is available.

Net Income Trends

The reported net income demonstrates an overall upward trend from 2018 to 2023. It increased from approximately $1.34 billion in 2018 to about $2.53 billion in 2023, reflecting substantial growth over the six-year period. Adjusted net income follows a similar pattern, rising from approximately $1.21 billion in 2018 to peak at around $2.62 billion in 2022 before slightly declining to approximately $2.50 billion in 2023. This indicates a consistent improvement in profitability when accounting for deferred income tax adjustments, with a minor dip in the latest year.

Stockholders’ Deficit Trends

Both reported and adjusted stockholders’ deficit exhibit significant fluctuations throughout the period. The reported stockholders’ deficit was about -$1.52 billion in 2018, deteriorated slightly in 2019 to approximately -$1.71 billion, and substantially improved to nearly -$0.88 billion in 2020. However, from 2020 onwards, there was a pronounced worsening, with the deficit deepening to -$1.80 billion in 2021 and increasing sharply to -$3.54 billion in 2022, then further to -$4.35 billion in 2023. The adjusted stockholders’ deficit shows a comparable pattern, improving in 2020 and then deteriorating notably in the following years, ending at an adjusted deficit of approximately -$3.90 billion in 2023. This trend suggests significant financial challenges in terms of equity position despite improving earnings.

Return on Equity (ROE)

Data for both reported and adjusted Return on Equity (ROE) is unavailable for the entire period, precluding any analysis of trends or comparison in profitability relative to equity.

Interpretation and Insights

The company exhibits consistent growth in net income over the analyzed period, reflecting strong operational performance or profitability improvements. Adjusted net income being generally higher than reported figures in later years suggests that deferred income tax adjustments positively impact earnings metrics. Conversely, the significant and worsening stockholders’ deficits, both reported and adjusted, raise concerns about the company’s balance sheet stability and equity base. The increasing negative equity values despite growing profits may imply factors such as increased liabilities, share repurchases, or other balance sheet activities adversely affecting shareholder equity. The lack of ROE data is a limitation and restricts a more in-depth analysis of return efficiencies in capital usage.

Net Income Trends

Both reported and adjusted net income show an overall increasing trend over the six-year period. Reported net income rose steadily from approximately $1.34 billion in 2018 to about $2.53 billion in 2023. Adjusted net income follows a similar trajectory, increasing from around $1.21 billion in 2018, peaking at approximately $2.62 billion in 2022, before slightly declining to about $2.50 billion in 2023. The adjusted figures generally exceed the reported amounts starting from 2019, highlighting the impact of tax-related adjustments on net income.

Total Assets Trends

Total assets, both reported and adjusted, show continuous growth over the period. Reported total assets increased from roughly $9.35 billion in 2018 to nearly $16.0 billion in 2023. Adjusted total assets follow a similar upward trend, rising from about $9.31 billion in 2018 to nearly $15.90 billion in 2023. The adjustments have a minimal differential impact on asset totals compared to reported figures, indicating that deferred income tax adjustments have limited effect on the asset base representation.

Return on Assets (ROA) Patterns

Reported ROA fluctuates across the years, starting at 14.31% in 2018 and increasing to a peak of 16.34% in 2019, then declining to 12.01% in 2020 before recovering to approximately 15.82% by 2023. Adjusted ROA follows a somewhat similar pattern but exhibits greater volatility, with values ranging from 13.03% in 2018, peaking at 17.18% in 2022, and then declining to 15.74% in 2023. The adjusted ROA generally reflects higher profitability in relation to assets compared to reported ROA, particularly noticeable in the latter years.

Insights and Observations

The adjusted metrics, accounting for deferred income tax effects, tend to show higher net income and ROA values than the reported figures, indicating that the tax adjustments improve perceived profitability. The slight decline in adjusted net income and ROA in 2023 following peak values in 2022 might suggest potential shifts in tax strategy or operational efficiency. Total assets consistently expand, supporting the growing income trends. The divergence between adjusted and reported data emphasizes the importance of considering tax effects when analyzing profitability and asset efficiency over time.