AutoZone Inc. (NYSE:AZO)

Over the observed five-year period, the financial performance, as measured by economic profit, demonstrates a generally positive trajectory with some recent moderation. Net operating profit after taxes (NOPAT) increased significantly from 2018 to 2022, but experienced a decline in the most recent year. Simultaneously, the cost of capital fluctuated, while invested capital showed an initial increase followed by a period of relative stability and a subsequent rise. These movements collectively influenced the company’s economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a consistent upward trend from US$1,350,649 thousand in 2018 to US$3,175,174 thousand in 2022, representing substantial growth. However, 2023 saw a decrease to US$2,804,292 thousand, indicating a potential shift in operational profitability. The largest year-over-year increase occurred between 2020 and 2021.

Cost of Capital

The cost of capital experienced moderate fluctuations throughout the period. It rose from 10.74% in 2018 to 11.26% in 2019, decreased to 11.06% in 2020, increased again to 11.79% in 2021, peaked at 12.00% in 2022, and then slightly decreased to 11.75% in 2023. These changes suggest sensitivity to broader economic conditions and potentially company-specific risk factors.

Invested Capital

Invested capital increased from US$5,277,396 thousand in 2018 to US$7,636,912 thousand in 2020, reflecting significant investment in the business. It then decreased to US$6,383,299 thousand in 2022 before rising again to US$6,986,333 thousand in 2023. This pattern suggests potential capital allocation adjustments and strategic shifts.

Economic Profit

Economic profit demonstrated a strong positive trend, increasing from US$783,601 thousand in 2018 to US$2,409,223 thousand in 2022. This indicates the company was generating returns exceeding its cost of capital. However, similar to NOPAT, economic profit decreased in 2023 to US$1,983,582 thousand, suggesting a potential weakening in value creation despite remaining positive. The largest increase in economic profit occurred between 2021 and 2022.

The interplay between NOPAT, cost of capital, and invested capital resulted in a generally improving economic profit profile until 2022. The decline observed in both NOPAT and economic profit in 2023 warrants further investigation to determine the underlying causes and potential implications for future performance.

Net Income Trend

Net income has exhibited consistent growth over the six-year period under review. Starting at approximately $1.34 billion in 2018, it increased to about $1.62 billion in 2019 and continued to rise steadily each year. The upward trajectory continued through 2020 and 2021, reaching around $2.17 billion. In 2022, net income rose further to nearly $2.43 billion and reached approximately $2.53 billion in 2023. This indicates robust profitability with a consistent positive trend, though the growth rate appears to moderate slightly in the last year.

Net Operating Profit After Taxes (NOPAT) Trend

NOPAT also demonstrated an overall upward trend but with some variation in growth momentum toward the end of the period. In 2018, it stood at about $1.35 billion, growing significantly to around $1.87 billion in 2019. It continued to increase, reaching $2.07 billion in 2020 and $2.39 billion in 2021. The peak was observed in 2022 with approximately $3.18 billion, marking the highest value in the dataset. However, in 2023, NOPAT decreased to about $2.80 billion, indicating a decline after several years of growth.

Comparative Insights

Both net income and NOPAT revealed general growth patterns from 2018 to 2022, reflecting improving operational efficiency and profitability. The divergence in 2023, where net income continued to increase but NOPAT declined, may suggest variations in operating performance metrics, tax impacts, or extraordinary items affecting operational profit. The decline in NOPAT, despite rising net income, could warrant further analysis of underlying factors to assess operational challenges or changes in cost structures.

Income Tax Expense

The income tax expense has shown a consistent upward trend over the six-year period. Starting at approximately 299 million US dollars in 2018, it increased steadily each year, reaching about 649 million in 2022. There was a slight decrease in 2023, with the expense falling marginally to around 639 million dollars. This general increase suggests rising taxable income or changes in tax rates or policies affecting the company.

Cash Operating Taxes

Cash operating taxes exhibited a more volatile pattern compared to income tax expense. Beginning at roughly 484 million dollars in 2018, there was a decline in 2019 to approximately 421 million. This was followed by a rebound in 2020 to nearly 495 million and a significant jump in 2021 to about 675 million dollars. The subsequent year, 2022, saw a reduction to around 527 million, but in 2023, cash operating taxes increased sharply to approximately 755 million dollars, the highest in the observed timeframe. These fluctuations may indicate changes in operational profitability, timing of tax payments, or adjustments in tax planning strategies.

Total Reported Debt & Leases

The total reported debt and leases exhibit a generally upward trend over the six-year period. Starting at approximately $7.0 billion in fiscal year 2018, the amount increased steadily year over year, reaching about $11.1 billion in fiscal year 2023. There is a noticeable acceleration in the increase from 2021 to 2023, suggesting enhanced leverage or increased reliance on debt and lease obligations.

Stockholders’ Deficit

The stockholders’ deficit shows a fluctuating but overall deepening negative position during the timeframe. Initially, the deficit increased from roughly -$1.52 billion in 2018 to nearly -$1.71 billion in 2019, then improved to around -$0.88 billion in 2020, indicating some recovery. However, from 2020 onwards, the deficit worsened significantly, reaching approximately -$4.35 billion by 2023. This trend reflects a substantial erosion of equity, which may signal challenges in profitability or asset valuation.

Invested Capital

Invested capital increased considerably from 2018 to 2020, rising from about $5.3 billion to $7.6 billion, indicating growing investment or capital expenditures during this period. However, in 2021 and 2022, invested capital declined to around $6.6 billion and $6.4 billion respectively, before slightly rebounding to about $7.0 billion in 2023. This pattern suggests a period of reduced capital investment or asset base contraction followed by a modest recovery.

Overall, the financial data indicates increasing leverage alongside a deteriorating equity position, with invested capital showing volatility. The rise in debt and leases coupled with a deepening stockholders’ deficit points to increasing financial risk, while fluctuations in invested capital reveal shifts in the company’s capital deployment strategy over the years.

The period between 2018 and 2023 demonstrates a generally positive trajectory in economic profit, alongside fluctuations in invested capital. The economic spread ratio exhibits significant variability over the same timeframe, indicating changing efficiency in capital allocation and profitability.

Economic Profit

Economic profit increased substantially from 2018 to 2019, rising from US$783.6 million to US$1,228.2 million. It remained relatively stable through 2020, at US$1,220.3 million, before experiencing further growth in 2021, reaching US$1,613.4 million. The largest increase occurred between 2021 and 2022, with economic profit reaching US$2,409.2 million. A decrease was observed in 2023, with economic profit reported at US$1,983.6 million, though still significantly above the 2018 level.

Invested Capital

Invested capital showed an initial increase from US$5,277.4 million in 2018 to US$5,730.8 million in 2019. A substantial rise occurred between 2019 and 2020, reaching US$7,636.9 million. A decrease was then noted in 2021, falling to US$6,599.7 million, and continued in 2022 to US$6,383.3 million. Invested capital increased again in 2023, reaching US$6,986.3 million.

Economic Spread Ratio

The economic spread ratio began at 14.85% in 2018 and increased to 21.43% in 2019, reflecting improved profitability relative to invested capital. It decreased to 15.98% in 2020, before rising sharply to 24.45% in 2021. The most significant increase occurred between 2021 and 2022, reaching 37.74%. A decrease was observed in 2023, with the ratio falling to 28.39%, although it remained at a comparatively high level. The fluctuations suggest a dynamic relationship between profitability and the amount of capital employed.

The observed patterns indicate a period of strong economic profit generation, particularly in 2022, coupled with varying levels of capital investment. The economic spread ratio’s movements suggest that the company has, at times, become more efficient in generating returns from its invested capital, although this efficiency experienced a decline in the most recent period.

The economic profit and net sales figures demonstrate a generally positive trajectory over the observed period, with the economic profit margin exhibiting corresponding fluctuations. Economic profit increased significantly from 2018 to 2022, then experienced a decline in the most recent year. Net sales consistently increased year-over-year throughout the entire period.

Economic Profit

Economic profit increased from US$783.6 million in 2018 to US$1.228 billion in 2019, representing substantial growth. It remained relatively stable between 2019 and 2020, at US$1.220 billion. A further increase was observed in 2021, reaching US$1.613 billion, followed by a significant jump to US$2.409 billion in 2022. However, in 2023, economic profit decreased to US$1.984 billion, indicating a reversal of the prior year’s growth.

Net Sales

Net sales exhibited consistent year-over-year growth throughout the period. Starting at US$11.221 billion in 2018, net sales rose to US$11.864 billion in 2019, US$12.632 billion in 2020, US$14.630 billion in 2021, US$16.252 billion in 2022, and ultimately reached US$17.457 billion in 2023. This demonstrates a sustained expansion in revenue generation.

Economic Profit Margin

The economic profit margin showed an upward trend from 6.98% in 2018 to 10.35% in 2019. It experienced a slight decrease to 9.66% in 2020, before increasing again to 11.03% in 2021. The most substantial increase occurred between 2021 and 2022, with the margin reaching 14.82%. In 2023, the economic profit margin decreased to 11.36%, aligning with the decline in economic profit observed for that year. The margin’s fluctuation suggests a dynamic relationship between profitability and revenue generation.

The decrease in both economic profit and economic profit margin in 2023, despite continued growth in net sales, warrants further investigation to determine the underlying factors contributing to this shift. Potential areas of inquiry could include changes in operating costs, capital efficiency, or the cost of capital.