# Autozone Inc: Form 10-Q for the period ended Nov 18, 2023

- Company: [Autozone Inc](/companies/azo.md) (CIK 866787)
- Form: 10-Q
- Filed: 2023-12-18
- Accepted by EDGAR: Dec 18, 2023, 16:30 ET
- Period: 2023-11-18
- Accession: 0001558370-23-019871
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/866787/000155837023019871/azo-20231118x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/866787/000155837023019871/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-11-18.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-08-27 to 2023-11-18 | $4.19bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-08-27 to 2023-11-18 | $1.98bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-08-27 to 2023-11-18 | $2.21bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-08-27 to 2023-11-18 | $1.37bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-08-27 to 2023-11-18 | $848.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-08-27 to 2023-11-18 | $163.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-08-27 to 2023-11-18 | $593.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-08-27 to 2023-11-18 | $32.55 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-08-27 to 2023-11-18 | $33.51 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-08-27 to 2023-11-18 | 18,234,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-08-27 to 2023-11-18 | $830.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-08-27 to 2023-11-18 | $235.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-08-27 to 2023-11-18 | $1.49bn | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-11-18 | $283.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-11-18 | $6.96bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-11-18 | $16.29bn | us-gaap:Assets |
| Current liabilities | at 2023-11-18 | $8.79bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-11-18 | $8.58bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-11-18 | −$5.21bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,639 characters.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc. (“AutoZone” or the “Company”). The following MD&A discussion should be read in conjunction with our Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and risk factors, that appear elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended August 26, 2023 and other filings we make with the SEC.

### Forward-Looking Statements

Certain statements contained herein constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “seek,” “may,” “could” and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand, due to changes in fuel prices, miles driven or otherwise; energy prices; weather, including extreme temperatures, natural disasters and general weather conditions; competition; credit market conditions; cash flows; access to available and feasible financing on favorable terms; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self-insurance; war and the prospect of war, including terrorist activity; the impact of public health issues; inflation, including wage inflation; the ability to hire, train and retain qualified employees including members of management and other key personnel; construction delays; failure or interruption of our information technology systems; issues relating to the confidentiality, integrity or availability of information, including due to cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damage to our reputation; challenges associated with doing business in and expanding into international markets; origin and raw material costs of suppliers; inventory availability; disruption in our supply chain; impact of tariffs; impact of new accounting standards; our ability to execute our growth initiatives; and other business interruptions. Certain of these risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 26, 2023. These Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ from those contemplated by such forward-looking statements. Events described above and in the “Risk Factors” could materially and adversely affect our business. However, it should be understood that it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

### Overview

We are the leading retailer and distributor of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at November 18, 2023, operated 6,316 stores in the U.S., 745 stores in Mexico and 104 stores in Brazil. Each store carries an extensive product line for cars, sport utility vehicles, vans and light duty trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. At November 18, 2023, in 5,803 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provided commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts. We also sell automotive hard parts, maintenance items, accessories and non-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com. Additionally, we sell the ALLDATA brand of automotive diagnostic, repair, collision and shop management software through www.alldata.com. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services. Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.

Operating results for the twelve weeks ended November 18, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2024. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarter of fiscal 2024 has 17 weeks and the fourth quarter of fiscal 2023 has 16 weeks. Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January.

### Executive Summary

Net sales increased to $4.2 billion, a 5.1% increase over the prior year period. Our retail and commercial sales in our domestic and international markets grew as we continue to make progress on our growth initiatives. Operating profit increased 17.4% to $848.6 million, net income increased 10.0% to $593.5 million and diluted earnings per share increased 18.6% to $32.55.

During the first quarter of fiscal 2024, failure and maintenance related categories represented the largest portion of our sales mix at approximately 86% of total sales, which is consistent with the comparable prior year period. Failure related categories continue to be the largest portion of our sales mix. We did not experience any fundamental shifts in our category sales mix as compared to the previous year. Our sales mix can be impacted by weather over a short-term period. Over the long-term, we believe the impact of weather on our sales mix is not significant.

Our business is impacted by various factors within the economy that affect both our consumers and our industry, including but not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring and other economic conditions. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

The two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road. While over the long-term we have seen a close correlation between our net sales and the number of miles driven, we have also seen time frames of minimal correlation in sales performance and miles driven. During the periods of minimal correlation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road. The average age of the U.S. light vehicle fleet remains in our industry’s favor as the average age has exceeded 11 years since 2012, according to the latest data provided by the Auto Care Association. As of January 1, 2023, the average age of light vehicles on the road was 12.5 years. Since the beginning of the fiscal year and through September 2023 (latest publicly available information), miles driven in the U.S. increased 0.9% compared to the same period in the prior year.

### Twelve Weeks Ended November 18, 2023

### Compared with Twelve Weeks Ended November 19, 2022

Net sales for the twelve weeks ended November 18, 2023 increased $205.2 million to $4.2 billion, or 5.1% over net sales of $4.0 billion for the comparable prior year period. This growth was driven primarily by an increase in total company same store sales of 2.1% on a constant currency basis and net sales of $75.7 million from new domestic and international stores. Domestic commercial sales increased $58.6 million to $1.1 billion, or 5.7% over the comparable prior year period.

Same store sales, or sales for our domestic and international stores open at least one year, are as follows:

| ​ ​ ​ ​ ​ | ​ Twelve Weeks Ended ​ ​ ​ | ​ ​ ​ November 18, 2023 | ​ ​ ​ ​ | ​ ​ ​ November 19, 2022 | ​ ​ ​ ​ | ​ ​ Constant Currency (1) November 18, 2023 | ​ ​ ​ | ​ ​ ​ November 19, 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Domestic | ​ | 1.2% | ​ | 5.6% | ​ | 1.2% | ​ | 5.6% |
| International |  | 25.1% | ​ | 23.3% |  | 10.9% |  | 20.8% |
| Total Company |  | 3.4% | ​ | 7.0% |  | 2.1% |  | 6.8% |

*(1) Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.*

Gross profit for the twelve weeks ended November 18, 2023 was $2.2 billion, compared with $2.0 billion during the comparable prior year period. Gross profit, as a percentage of sales, was 52.8% compared to 50.1% during the comparable prior year period. The increase in gross margin was driven by 208 basis point ($83.0 million net) non-cash LIFO favorability, with the remaining increase primarily from favorable supply chain costs and higher merchandise margins.

Operating, selling, general and administrative expenses for the twelve weeks ended November 18, 2023 were $1.4 billion compared with $1.3 billion during the comparable prior year period. As a percentage of sales, these expenses were 32.6% compared with 31.9% during the comparable prior year period. The increase was driven primarily by domestic store payroll and investment in technology related initiatives.

Net interest expense was $91.4 million and $57.7 million for the twelve weeks ended November 18, 2023 and November 19, 2022, respectively. Average borrowings were $8.1 billion and $6.2 billion, and weighted average borrowing rates were 4.23% and 3.47% for the twelve weeks ended November 18, 2023 and November 19, 2022, respectively.

Our effective income tax rate was 21.6% and 18.9% of pretax income for the twelve weeks ended November 18, 2023, and November 19, 2022, respectively. The benefit from stock options exercised for the twelve week period ended November 18, 2023 was $11.2 million compared to $29.7 million in the comparable prior year period.

Net income for the twelve weeks ended November 18, 2023 increased by $54.1 million from the comparable prior year period to $593.5 million due to the factors set forth above, and diluted earnings per share increased by 18.6% to $32.55 from $27.45. The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $0.41.

### Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. We believe that our cash generated from operating activities and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support long-term growth initiatives and return excess cash to shareholders in the form of share repurchases. As of November 18, 2023, we held $283.0 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings. We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities. Decreased demand or changes in buying patterns could also impact our ability to meet the debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement. In the event our liquidity is insufficient, we may be required to limit our spending.

For the twelve week periods ended November 18, 2023 and November 19, 2022, our net cash flows from operating activities provided $830.3 million and $793.6 million, respectively.

Our net cash flows used in investing activities for the twelve weeks ended November 18, 2023 were $270.5 million as compared with $113.9 million in the comparable prior year period. Capital expenditures for the twelve weeks ended November 18, 2023 were $235.4 million compared to $114.4 million in the comparable prior year period. The increase in capital expenditures was primarily driven by our growth initiatives, including new stores, hub and mega hub expansion projects and new distribution centers. During the twelve weeks ended November 18, 2023 and November 19, 2022, we opened 25 and 35 net new stores, respectively. Investing cash flows were impacted by our wholly owned captive, which purchased $4.1 million and sold $1.9 million in marketable debt securities during the twelve weeks ended November 18, 2023. During the comparable prior year period, the captive purchased $12.0 million and sold $4.9 million in marketable debt securities. Our investment in tax credit equity investments was $41.2 million during the twelve weeks ended November 18, 2023 compared to $2.5 million during the comparable prior year period.

Our net cash flows used in financing activities for the twelve weeks ended November 18, 2023 were $552.2 million compared to $675.6 million in the comparable prior year period. During the twelve weeks ended November 18, 2023, we received $1.0 billion in debt issuances and no debt was issued in the comparable prior year period. Stock repurchases were $1.5 billion in the current twelve week period as compared with $900.0 million in the comparable prior year period. The treasury stock repurchases were primarily funded by cash flows from operations. For the twelve week period ended November 18, 2023, we had $76.9 million in net repayments of commercial paper compared to $204.9 million in net proceeds from commercial paper in the comparable prior year period. Proceeds from the sale of common stock and exercises of stock options for the twelve weeks ended November 18, 2023 and November 19, 2022 provided $41.4 million and $40.8 million, respectively.

During fiscal 2024, we expect to increase the investment in our business as compared to fiscal 2023. Our investments are expected to be directed primarily to our supply chain initiatives, which include expanded hub and mega hubs, as well as distribution center expansions and new stores. The amount of investments in our new stores is impacted by different factors, including whether the building and land are purchased (requiring higher investment) or leased (generally lower investment) and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.

In addition to the building and land costs, our new stores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our supplier’s capacity to factor their receivables from us. The Company has arrangements with third-party financial institutions to confirm invoice balances owed by the Company to certain suppliers and pay the financial institutions the confirmed amounts on the invoice due dates. These arrangements allow the Company’s inventory suppliers, at their sole discretion, to enter into agreements with these financial institutions to finance the Company’s obligations to the suppliers at terms negotiated between the suppliers and the financial institutions. Supplier participation is optional and our obligations to our suppliers, including the amount and dates due, are not impacted by our suppliers’ decision to enter into an agreement with a third-party financial institution. A downgrade in our credit or changes in the financial markets could limit the financial institutions’ willingness to participate in these arrangements; however, we do not believe such risk would have a material impact on our working capital or cash flows. We plan to continue negotiating extended terms with our suppliers, reducing our working capital required and resulting in a high accounts payable to inventory ratio. We had an accounts payable to inventory ratio of 124.4% at November 18, 2023 and 131.0% at November 19, 2022.

Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. We anticipate that we will be able to obtain such financing based on our current credit ratings and favorable experiences in the debt markets in the past.

For the trailing four quarters ended November 18, 2023, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 55.0% as compared to 54.3% for the comparable prior year period. Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.

#### Debt Facilities

On November 15, 2021, we amended and restated our existing revolving credit facility (as amended from time to time, the “Revolving Credit Agreement”) pursuant to which our borrowing capacity under the Revolving Credit Agreement was increased from $2.0 billion to $2.25 billion, and the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders’ approval, be increased from $2.25 billion to $3.25 billion. On November 15, 2022, we amended the Revolving Credit Agreement, extending the termination date by one year. As amended, the Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable, on November 15, 2027, but we may make one additional request to extend the termination date for an additional period of one year. Revolving borrowings under the Revolving Credit Agreement may be base rate loans, Term SOFR loans, or a combination of both, at our election. The Revolving Credit Agreement includes (i) a $75 million sublimit for swingline loans, (ii) a $50 million individual issuer letter of credit sublimit and (iii) a $250 million aggregate sublimit for all letters of credit.

Under our Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.

As of November 18, 2023, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement.

We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of November 18, 2023, we had $25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2025.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $120.5 million in letters of credit outstanding as of November 18, 2023. These letters of credit have various maturity dates and were issued on an uncommitted basis.

As of November 18, 2023, the $1.1 billion commercial paper borrowings and the $300 million 3.125% Senior Notes due April 2024 were classified as long-term in the accompanying Consolidated Balance Sheets as we currently have the ability and intent to refinance them on a long-term basis through available capacity under our Revolving Credit Agreement. As of November 18, 2023, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility.

On October 25, 2023, we issued $500 million in 6.250% Senior Notes due November 2028 and $500 million in 6.550% Senior Notes due November 2033. Proceeds from the debt issuance were used for general corporate purposes.

The Senior Notes contain a provision that repayment may be accelerated if we experience a change of control (as defined in the agreements governing the Senior Notes). The Company’s borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs.

As of November 18, 2023, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.5:1 as of November 18, 2023 and was 2.2:1 as of November 19, 2022. We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six; and we calculate EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. To the extent EBITDAR increases, we expect our debt levels to increase; conversely, if EBITDAR decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.

#### Stock Repurchases

From January 1, 1998 to November 18, 2023, we have repurchased a total of 154.6 million shares of our common stock at an aggregate cost of $35.3 billion, including 579.7 thousand shares of our common stock at an aggregate cost of $1.5 billion (inclusive of excise tax of $14.4 million) during the twelve week period ended November 18, 2023. The excise tax is assessed at one percent of the fair market value of net stock repurchases after December 31, 2022.

On June 14, 2023, the Board voted to authorize the repurchase of an additional $2.0 billion of our common stock in connection with our ongoing share repurchase program, which raised the total value of shares authorized to be repurchased to $35.7 billion. Considering the cumulative repurchases as of November 18, 2023, we had $333.1 million remaining under the Board’s authorization to repurchase our common stock.

Subsequent to November 18, 2023 and through December 11, 2023, we have repurchased 40.1 thousand shares of our common stock at an aggregate cost of $106.0 million.

#### Off-Balance Sheet Arrangements

Since our fiscal year end, we have canceled, issued and modified stand-by letters of credit that are primarily renewed on an annual basis to cover deductible payments to our casualty insurance carriers. Our total stand-by letters of credit commitment at November 18, 2023, was $147.2 million, compared with $134.0 million at August 26, 2023, and our total surety bonds commitment at November 18, 2023, was $43.4 million, compared with $43.1 million at August 26, 2023.

### Financial Commitments

Except for the previously discussed Revolving Credit Agreement, the $500 million 6.250% Senior Notes due November 2028 and $500 million 6.550% Senior Notes due November 2033 debt issuances, and the $76.9 million net decrease in commercial paper, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 26, 2023.

### Reconciliation of Non-GAAP Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures not derived in accordance with GAAP, including Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR. Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented non-GAAP financial measures, as we believe they provide additional information that is useful to investors. Additionally, our management uses these non-GAAP financial measures to review and assess our underlying operating results and the Compensation Committee of the Board uses select measures to determine payments of performance-based compensation against pre-established targets.

Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR provide additional information for determining our optimal capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.

We have included reconciliations of this information to the most comparable GAAP measures in the following reconciliation tables.

#### Reconciliation of Non-GAAP Financial Measure: Adjusted After-Tax ROIC

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended November 18, 2023 and November 19, 2022.

*(in thousands, except percentage)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ A Fiscal Year Ended August 26, 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ B Twelve Weeks Ended November 19, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ A-B=C Forty Weeks Ended August 26, 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ D Twelve Weeks Ended November 18, 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ C+D ​ Trailing Four Quarters Ended ​ November 18, ​ 2023 ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Net income | ​ | $2,528,426 | ​ | $539,318 | ​ | $1,989,108 | ​ | $593,463 | ​ | $2,582,571 |
| Adjustments: | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| Interest expense | ​ | 306,372 | ​ | 57,723 | ​ | 248,649 | ​ | 91,384 | ​ | 340,033 ​ |
| Rent expense(1) | ​ | 406,398 | ​ | 92,881 | ​ | 313,517 | ​ | 98,693 | ​ | 412,210 ​ |
| Tax effect(2) | ​ | (148,256) | ​ | (31,326) | ​ | (116,930) | ​ | (39,536) | ​ | (156,466) ​ |
| Adjusted after-tax return | ​ | $3,092,940 | ​ | $658,596 | ​ | $2,434,344 | ​ | $744,004 | ​ | $3,178,348 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ ​ |
| Average debt(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $7,392,640 ​ |
| Average stockholders’ deficit(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | (4,377,447) ​ |
| Add: Rent x 6(1) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 2,473,260 ​ |
| Average finance lease liabilities(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 291,567 ​ |
| Invested capital | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $5,780,020 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ ​ |
| Adjusted after-tax ROIC | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 55.0% |

*(in thousands, except percentage)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ A Fiscal Year Ended August 27, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ B Twelve Weeks Ended November 20, 2021 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ A-B=C Forty Weeks Ended August 27, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ D Twelve Weeks Ended November 19, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ C+D ​ Trailing Four ​ Quarters Ended ​ November 19, ​ 2022 ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Net income | ​ | $2,429,604 | ​ | $555,235 | ​ | $1,874,369 | ​ | $539,318 | ​ | $2,413,687 ​ |
| Adjustments: | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ ​ |
| Interest expense | ​ | 191,638 | ​ | 43,284 | ​ | 148,354 | ​ | 57,723 | ​ | 206,077 ​ |
| Rent expense(1) | ​ | 373,278 | ​ | 82,327 | ​ | 290,951 | ​ | 92,929 | ​ | 383,880 ​ |
| Tax effect(2) | ​ | (115,243) | ​ | (25,625) | ​ | (89,618) | ​ | (30,733) | ​ | (120,351) ​ |
| Adjusted after-tax return | ​ | $2,879,277 | ​ | $655,221 | ​ | $2,224,056 | ​ | $659,237 | ​ | $2,883,293 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ ​ |
| Average debt(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $5,924,006 ​ |
| Average stockholders' deficit(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | (3,205,259) ​ |
| Add: Rent x 6(1) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 2,303,280 ​ |
| Average finance lease liabilities(3) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 291,106 ​ |
| Invested capital | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $5,313,133 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ ​ |
| Adjusted after-tax ROIC | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 54.3% |

#### Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDAR

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended November 18, 2023 and November 19, 2022.

*(in thousands, except ratio)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ A Fiscal Year Ended August 26, 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ B Twelve Weeks Ended November 19, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ A-B=C Forty Weeks Ended August 26, 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ D Twelve Weeks Ended November 18, 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ C+D Trailing Four Quarters Ended November 18, 2023 ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Net income |  | $2,528,426 |  | $539,318 |  | $1,989,108 |  | $593,463 |  | $2,582,571 |
| Add: Interest expense | ​ | 306,372 | ​ | 57,723 | ​ | 248,649 | ​ | 91,384 | ​ | 340,033 |
| Income tax expense | ​ | ​ 639,188 | ​ | ​ 125,992 | ​ | ​ 513,196 | ​ | ​ 163,757 | ​ | ​ 676,953 |
| EBIT | ​ | 3,473,986 | ​ | 723,033 | ​ | 2,750,953 | ​ | 848,604 | ​ | 3,599,557 |
| Add: Depreciation and amortization expense | ​ | 497,577 | ​ | 109,253 | ​ | 388,324 | ​ | 120,224 | ​ | 508,548 |
| Rent expense(1) | ​ | 406,398 | ​ | 92,881 | ​ | 313,517 | ​ | 98,693 | ​ | 412,210 |
| Share-based expense | ​ | 93,087 | ​ | 19,005 | ​ | 74,082 | ​ | 22,913 | ​ | 96,995 |
| EBITDAR | ​ | $4,471,048 | ​ | $944,172 | ​ | $3,526,876 | ​ | $1,090,434 | ​ | $4,617,310 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Debt | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $8,583,523 |
| Financing lease liabilities | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ 285,145 |
| Add: Rent x 6(1) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 2,473,260 |
| Adjusted debt | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $11,341,928 |
| Adjusted debt to EBITDAR | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ 2.5 |

*(in thousands, except ratio)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ A Fiscal Year Ended August 27, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ B Twelve Weeks Ended November 20, 2021 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ A-B=C Forty Weeks Ended August 27, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ D Twelve Weeks Ended November 19, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ C+D Trailing Four Quarters Ended November 19, 2022 ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Net income |  | $2,429,604 |  | $555,235 |  | $1,874,369 |  | $539,318 |  | $2,413,687 |
| Add: Interest expense | ​ | 191,638 | ​ | 43,284 | ​ | 148,354 | ​ | 57,723 | ​ | 206,077 |
| Income tax expense | ​ | ​ 649,487 | ​ | ​ 155,966 | ​ | ​ 493,521 | ​ | ​ 125,992 | ​ | ​ 619,513 |
| EBIT | ​ | 3,270,729 | ​ | 754,485 | ​ | 2,516,244 | ​ | 723,033 | ​ | 3,239,277 |
| Add: Depreciation and amortization expense | ​ | 442,223 | ​ | 99,590 | ​ | 342,633 | ​ | 109,253 | ​ | 451,886 |
| Rent expense(1) | ​ | 373,278 | ​ | 82,327 | ​ | 290,951 | ​ | 92,929 | ​ | 383,880 |
| Share-based expense | ​ | 70,612 | ​ | 14,295 | ​ | 56,317 | ​ | 19,005 | ​ | 75,322 |
| EBITDAR | ​ | $4,156,842 | ​ | $950,697 | ​ | $3,206,145 | ​ | $944,220 | ​ | $4,150,365 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Debt | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $6,328,344 |
| Financing lease liabilities | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | 309,320 |
| Add: Rent x 6(1) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ 2,303,280 |
| Adjusted debt | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | $8,940,944 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Adjusted debt to EBITDAR | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ 2.2 |

*(1) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the trailing four quarters ended November 18, 2023 and November 19, 2022.*

*(in thousands)*

| ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Trailing Four Quarters Ended November 18, 2023 ​ | ​ ​ ​ | ​ ​ November 19, 2022 ​ |
| --- | --- | ---: | --- | ---: |
| Total lease cost, per ASC 842 |  | $536,217 | **​** | $483,867 |
| Less: Finance lease interest and amortization | ​ | (90,864) | ​ | ​ (72,400) |
| Less: Variable operating lease components, related to insurance and common area maintenance | ​ | (33,143) | ​ | ​ (27,587) |
| Rent expense | ​ | $412,210 | ​ | $383,880 |

*(2) Effective tax rate over trailing four quarters ended November 18, 2023 and November 19, 2022 was 20.8% and 20.4%, respectively.*

#### (3) All averages are computed based on trailing five quarter balances.

### Recent Accounting Pronouncements

Refer to Note A of the Notes to Condensed Consolidated Financial Statements for the discussion of recent accounting pronouncements.

### Critical Accounting Policies and Estimates

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended August 26, 2023. There have been no significant changes to our critical accounting policies since the filing of our Annual Report on Form 10-K for the year ended August 26, 2023.

## Market risk

As filed, 1,727 characters.

At November 18, 2023, the only material changes to our instruments and positions that are sensitive to market risk since the disclosures in our Annual Report on Form 10-K for the year ended August 26, 2023 were the $500 million 6.250% Senior Notes due November 2028 and $500 million 6.550% Senior Notes due November 2033 debt issuances, and the $76.9 million net decrease in commercial paper.

The fair value of the Company’s debt was estimated at $8.2 billion as of November 18, 2023, and $7.3 billion as of August 26, 2023, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2). Such fair value is less than the carrying value of debt by $372.0 million and $406.6 million at November 18, 2023 and August 26, 2023, respectively, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts. We had $1.1 billion of variable rate debt outstanding at November 18, 2023 and $1.2 billion in variable rate debt outstanding at August 26, 2023. At these borrowing levels for variable rate debt, a one percentage point increase in interest rates would have had an unfavorable annual impact on our pre-tax earnings and cash flows of $11.3 million in fiscal 2024. The primary interest rate exposure is based on the federal funds rate. We had outstanding fixed rate debt of $7.5 billion, net of unamortized debt issuance costs of $49.2 million at November 18, 2023 and $6.5 billion, net of unamortized debt issuance costs of $41.1 million at August 26, 2023. A one percentage point increase in interest rates would have reduced the fair value of our fixed rate debt by $310.2 million at November 18, 2023.

## Controls and procedures

As filed, 900 characters.

### Evaluation of Disclosure Controls and Procedures

As of November 18, 2023, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of November 18, 2023.

### Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the quarter ended November 18, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 204 characters.

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023.

Filed Dec 18, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-019871. Last ingested by Listed: Oct 27, 2026, 16:35 ET. No prices; not investment advice.