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OFFON

AUTOZONE, INC.

(AZO)
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AUTOZONE : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

06/11/2021 | 04:15pm EDT
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 29, 2020 and other filings we
make
with the SEC.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q 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; energy prices; weather; competition; credit market conditions;
cash flows; access to available and feasible financing; 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, such as the ongoing global coronavirus ("COVID-19") pandemic; inflation;
the ability to hire, train and retain qualified employees; construction delays;
the compromising of confidentiality, availability or integrity of information,
including cyber-attacks; historic growth rate sustainability; downgrade of our
credit ratings; damages to our reputation; challenges in international markets;
failure or interruption of our information technology systems; origin and raw
material costs of suppliers; disruption in our supply chain; impact of tariffs;
anticipated impact of new accounting standards; and 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 29, 2020, and these Risk Factors should be
read carefully. Forward-looking statements are not guarantees of future
performance, actual results, developments and business decisions may differ from
those contemplated by such forward-looking statements, and 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 a leading distributor, of automotive
replacement parts and accessories in the Americas. We began operations in 1979
and at May 8, 2021 operated 5,975 stores in the U.S., 635 stores in Mexico and
47 stores in Brazil. Each store carries an extensive product line for cars,
sport utility vehicles, vans and light trucks, including new and remanufactured
automotive hard parts, maintenance items, accessories and non-automotive
products. At May 8, 2021 in 5,107 of our domestic stores, we also had a
commercial sales program that provides commercial credit and prompt delivery of
parts and other products to local, regional and national repair garages,
dealers, service stations and public sector accounts. We also have commercial
programs in all stores in Mexico and Brazil. We sell the ALLDATA brand
automotive diagnostic and repair software through www.alldata.com. Additionally,
we 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. 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.



                                       17

  Table of Contents
Operating results for the twelve and thirty-six weeks ended May 8, 2021 are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 28, 2021. 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 quarters of fiscal 2021 and 2020 each have 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.

COVID-19 Impact

The COVID-19 pandemic continues to impact numerous aspects of our business. Our
sales remain at an elevated level compared to sales prior to the pandemic, as we
believe the additional pandemic-related government stimulus benefitted many of
our customers. Our main priority continues to be the health, safety and
well-being of our customers and employees. For fiscal 2021, we have incurred
approximately $46 million in pandemic related expenses, including Emergency Time
Off ("ETO") benefit enhancements as compared to approximately $75 million in the
comparable prior year period.



The long-term impact to our business remains unknown as we are unable to
accurately predict the impact COVID-19 will have due to numerous uncertainties,
including the duration of the outbreak, the impact of variants of the disease,
the distribution and efficacy of vaccines, the speed at which such vaccines are
administered, actions that may be taken by governmental authorities intended to
minimize the spread of the pandemic or to stimulate the economy and other
unintended consequences.  Accordingly, business disruption related to the
COVID-19 outbreak may continue to cause significant fluctuations in our
business, unusually impacting demand for our products, our store hours and our
workforce availability and magnify risks associated with our business and
operations.



See "Risk Factors-The ongoing outbreak of COVID-19 has been declared a pandemic
by the World Health Organization, continues to spread within the United States
and many other parts of the world and may have a material adverse effect on our
business operations, financial condition, liquidity and cash flow" in our Annual
Report on Form 10-K for additional information.



Executive Summary

Net sales increased 31.4% for the quarter ended May 8, 2021 compared to the
prior year period, which was driven by an increase in domestic same store sales
(sales from stores open at least one year) of 28.9%. Domestic commercial sales
increased 44.4%, which represents approximately 23% of our total sales.
Operating profit increased 63.4% to $803.5 million compared to $491.7 million.
Net income for the quarter increased 73.9% to $596.2 million compared to $342.9
million. Diluted earnings per share increased 84.0% to $26.48 per share from
$14.39 per share. The increase in net income for the quarter ended May 8, 2021
was driven by strong topline growth.

Our business is impacted by various factors within the economy that affect both
our consumer and our industry, including but not limited to fuel costs, wage
rates and other economic conditions, including the effects of, and responses to,
COVID-19. 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.

During the third quarter of fiscal 2021, failure and maintenance related
categories represented the largest portion of our sales mix, at approximately
82% of total sales, which is consistent with the comparable prior year period,
with failure related categories continuing to be the largest portion of our
sales mix. While we have not experienced any fundamental shifts in our category
sales mix as compared to the previous year, in our domestic stores we continue
to experience a slight increase in mix of sales of the discretionary category as
compared to previous quarters. We believe the improvement in this sales category
continues to benefit from the pandemic as many of our customers spent more time
and money to work on projects.

The two statistics we believe have the most positive 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

                                       18

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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 continues to trend in our
industry's favor. According to the latest data provided by the Auto Care
Association in the 2021 Auto Care Factbook, for the ninth consecutive year, the
average age of vehicles on the road has exceeded 11 years. Since the beginning
of the fiscal year and through March 2021 (latest publicly available
information), miles driven in the U.S. decreased 7.2% compared to the same
period in the prior year; however, the March 2021 data showed significant
improvement in the number of miles driven. We believe the increase in miles
driven is due to the nation beginning to return to pre-pandemic levels, but we
are unable to predict if the increase will continue or the extent of the impact
it will have on our business.

Twelve Weeks Ended May 8, 2021

Compared with Twelve Weeks Ended May 9, 2020


Net sales for the twelve weeks ended May 8, 2021 increased $871.7 million to
$3.651 billion, or 31.4% over net sales of $2.779 billion for the comparable
prior year period. Total auto parts sales increased by 31.8%, primarily driven
by an increase in domestic same store sales of 28.9% and net sales of $51.5
million from new stores. Domestic commercial sales increased $254.8 million to
$828.6 million, or 44.4%, over the comparable prior year period.

Gross profit for the twelve weeks ended May 8, 2021 was $1.915 billion, compared
with $1.491 billion during the comparable prior year period. Gross profit, as
a percentage of sales was 52.4% compared to 53.6% during the comparable prior
year period. The decrease in gross margin was primarily driven by the
accelerated growth in our Commercial business and our investment in pricing
initiatives.

Operating, selling, general and administrative expenses for the twelve weeks
ended May 8, 2021 were $1.111 billion, or 30.4% of net sales, compared with
$999.0 million, or 35.9% of net sales during the comparable prior year period.
The decrease in operating expenses, as a percentage of sales, was driven by
strong sales growth and approximately $75 million in pandemic related expenses,
including ETO for our AutoZoners, incurred in the prior year.

Net interest expense for the twelve weeks ended May 8, 2021 was $45.0 million
compared with $47.5 million during the comparable prior year period. The
decrease was primarily due to a decrease in the weighted average borrowing rate.
Average borrowings for the twelve weeks ended May 8, 2021 were $5.351 billion,
compared with $5.460 billion for the comparable prior year period. Weighted
average borrowing rates were 3.3% and 3.4% for the quarter ended May 8, 2021 and
May 9, 2020, respectively.

Our effective income tax rate was 21.4% of pretax income for the twelve weeks
ended May 8, 2021, and 22.8% for the comparable prior year period. The decrease
in the tax rate was primarily attributable to an increased benefit from stock
options exercised during the twelve weeks ended May 8, 2021. The benefit of
stock options exercised for the twelve weeks ended May 8, 2021 was $16.0 million
compared to $1.1 million in the comparable prior year period.

Net income for the twelve week period ended May 8, 2021 increased by $253.3
million to $596.2 million from $342.9 million in the comparable prior year
period, and diluted earnings per share increased by 84.0% to $26.48 from $14.39.
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 $1.77.

Thirty-Six Weeks Ended May 8, 2021

Compared with Thirty-Six Weeks Ended May 9, 2020




Net sales for the thirty-six weeks ended May 8, 2021 increased $1.630 million to
$9.716 billion, or 20.2%, over net sales of $8.086 billion for the comparable
prior year period. Total auto parts sales increased by 20.4%, primarily driven
by an increase in domestic same store sales of 19.0% and net sales of $133.4
million from new stores. Domestic commercial sales increased by $410.6 million,
or 23.4%, to $2.163 billion.


Gross profit for the thirty-six weeks ended May 8, 2021 was $5.150 billion, or
53.0% of net sales, compared with $4.358 billion, or 53.9% of net sales, during
the comparable prior year period. The decrease in gross margin was primarily
driven by the accelerated growth in our Commercial business and our investment
in pricing initiatives.

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  Table of Contents
Operating, selling, general and administrative expenses for the thirty-six weeks
ended May 8, 2021 were $3.249 billion, or 33.4% of net sales, compared with
$2.958 billion, or 36.6% of net sales, during the comparable prior year period.
The decrease in operating expenses, as a percentage of sales, was primarily
driven by strong sales growth. Total pandemic related expenses, including ETO
were approximately $46 million for the thirty-six week period ended May 8, 2021
compared to approximately $75 million during the comparable prior year period.



Net interest expense for the thirty-six weeks ended May 8, 2021 was $137.2
million compared with $135.5 million during the comparable prior year period.
The increase was primarily due to an increase in the weighted average borrowing
rate. Average borrowings for the thirty-six weeks ended May 8, 2021 were $5.460
billion, compared with $5.371 billion for the comparable prior year period.
Weighted average borrowing rates were 3.3% and 3.2% for the thirty-six week
periods ended May 8, 2021 and May 9, 2020, respectively.



Our effective income tax rate was 21.5% of pretax income for the thirty-six
weeks ended May 8, 2021, which was flat to the comparable prior year period. The
benefit of stock options exercised for the thirty-six week period ended May 8,
2021 was $35.2 million compared to $17.6 million in the comparable prior year
period.



Net income for the thirty-six week period ended May 8, 2021 increased by $392.0
million to $1.385 billion due to the factors set forth above, and diluted
earnings per share increased by 45.6% to $59.80 from $41.08 in the comparable
prior year period. The impact on current year to date diluted earnings per share
from stock repurchases since the end of the comparable prior year period
resulted in an increase of $2.18 per share.

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale
of automotive parts, products and accessories. For the thirty-six weeks ended
May 8, 2021, our net cash flows from operating activities provided $2.230
billion compared with $1.303 billion provided during the comparable prior year
period. The increase is primarily due to favorable changes in accounts payable
and growth in net income due to accelerated sales growth as a result of the
effect of the COVID-19 pandemic on our customers.

Our net cash flows used in investing activities for the thirty-six weeks ended
May 8, 2021 were $358.7 million as compared with $247.9 million in the
comparable prior year period. Capital expenditures for the thirty-six weeks
ended May 8, 2021 were $375.7 million compared to $273.9 million. The increase
is primarily driven by increased store openings. During the thirty-six week
period ended May 8, 2021 and May 9, 2020, we opened 108 and 73 net new stores,
respectively. Investing cash flows were impacted by our wholly owned captive,
which purchased $52.6 million and sold $72.3 million in marketable debt
securities during the thirty-six weeks ended May 8, 2021. During the comparable
prior year period, the captive purchased $82.5 million in marketable debt
securities and sold $106.7 million.

Our net cash flows used in financing activities for the thirty-six weeks ended
May 8, 2021 were $2.651 billion compared to $712.2 million in the comparable
prior year period. During the thirty-six weeks ended May 8, 2021, we repaid our
$250 million 2.500% Senior Notes due April 2021, which were callable at par in
March 2021. In the comparable prior year period, we received $500 million from
the issuance of 3.625% Senior Notes due April 2025 and received $750 million
from the issuance of 4.000% Senior Notes due April 2030. We did not have any
commercial paper activity during the thirty-six week period ended May 8, 2021 as
compared to $1.030 billion in net proceeds in the comparable prior year period.
Stock repurchases were $2.478 billion in the current thirty-six week period as
compared with $930.9 million in the prior year period. Proceeds from the sale of
common stock and exercises of stock options for the thirty-six weeks ended May
8, 2021 and May 9, 2020 provided $121.9 million and $56.3 million, respectively.

During fiscal 2021, we expect to increase the investment in our business as
compared to fiscal 2020. The expected increase is driven by delays in capital
spending for the third and fourth quarter of fiscal 2020 related to the
uncertainties surrounding the COVID-19 pandemic. Our investments continue to be
directed primarily to new stores, supply chain infrastructure, technology and
enhancements to existing stores. The amount of our investments in our new stores
is impacted by different factors, including such factors as whether the building
and land are purchased (requiring higher investment) or leased (generally lower
investment), located in the U.S., Mexico or Brazil, or located in urban or
rural
areas.

                                       20

  Table of Contents
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 vendors' capacity to factor their receivables from us. Certain vendors
participate in arrangements with financial institutions whereby they factor
their AutoZone receivables, allowing them to receive early payment from the
financial institution on our invoices at a discounted rate. The terms of these
agreements are between the vendor and the financial institution. Upon request
from the vendor, we confirm to the vendor's financial institution the balances
owed to the vendor, the due date and agree to waive any right of offset to the
confirmed balances. A downgrade in our credit or changes in the financial
markets may limit the financial institutions' willingness to participate in
these arrangements, which may result in the vendor wanting to renegotiate
payment terms. A reduction in payment terms would increase the working capital
required to fund future inventory investments. Extended payment terms from our
vendors have allowed us to continue our high accounts payable to inventory
ratio. Accounts payable, as a percentage of gross inventory, was 123.9% at May
8, 2021, compared to 108.2% at May 9, 2020. The increase from the comparable
prior year period was primarily due to increased accounts payable purchases with
favorable vendor terms and higher inventory turns.

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 May 8, 2021, our adjusted after-tax return
on invested capital ("ROIC"), which is a non-GAAP measure, was 40.2% as compared
to 34.0% for the comparable prior year period. 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 March 15, 2021, we repaid the $250 million 2.500% Senior Notes due April 2021 which were callable at par in March 2021.

As of May 8, 2021, the $500 million 3.700% Senior Notes due April 2022 were
classified as long-term in the Consolidated Balance Sheets as we had the ability
and intent to refinance them on a long-term basis through available capacity in
our revolving credit facilities. As of May 8, 2021, we had $1.998 billion of
availability under our $2.0 billion Revolving Credit Agreement.

We entered into a Master Extension, New Commitment and Amendment Agreement dated
as of November 18, 2017 (the "Extension Amendment") to the Third Amended and
Restated Credit Agreement dated as of November 18, 2016, as amended, modified,
extended or restated from time to time (the "Revolving Credit Agreement"). Under
the Extension Amendment: (i) our borrowing capacity under the Revolving Credit
Agreement was increased from $1.6 billion to $2.0 billion; (ii) the maximum
borrowing under the Revolving Credit Agreement may, at our option, subject to
lenders approval, be increased from $2.0 billion to $2.4 billion; (iii) the
termination date of the Revolving Credit Agreement was extended from
November 18, 2021 until November 18, 2022; and (iv) we have the option to make
one additional written request of the lenders to extend the termination date
then in effect for an additional year. Under the Revolving Credit Agreement, we
may borrow funds consisting of Eurodollar loans, base rate loans or a
combination of both. Interest accrues on Eurodollar loans at a defined
Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in
the Revolving Credit Agreement, depending upon our senior, unsecured,
(non-credit enhanced) long-term debt ratings. Interest accrues on base rate
loans as defined in the Revolving Credit Agreement.

As of May 8, 2021, we had no outstanding borrowings and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement.


                                       21

Table of Contents

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.

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
May 8, 2021, we had $25.0 million in letters of credit outstanding under the
letter of credit facility, which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $136.9 million in letters of credit outstanding as of May 8, 2021. These letters of credit have various maturity dates and were issued on an uncommitted basis.

On April 3, 2020, we entered into a 364-Day Credit Agreement (the "364-Day
Credit Agreement") to supplement our existing Revolving Credit Agreement. The
364-Day Credit Agreement provided for loans in the aggregate principal amount of
up to $750 million. The 364-Day Credit Agreement had a termination date of, and
any amounts borrowed under the 364-Day Credit Agreement were due and payable on,
April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base
rate loans, Eurodollar loans, or a combination of both, at our election.

Effective February 22, 2021, we terminated the 364-Day Credit Agreement. There
were no borrowings outstanding under the 364-Day Credit Agreement. We entered
into the 364-Day Credit Agreement to augment our access to liquidity due to
macroeconomic conditions existing at the time, and we determined the additional
access to liquidity was no longer necessary.

All Senior Notes are subject to an interest rate adjustment if the debt ratings
assigned are downgraded (as defined in the agreements). Further, the Senior
Notes contain a provision that repayment may be accelerated if we experience a
change in control (as defined in the agreements). Our borrowings under our
Senior Notes contain minimal covenants, primarily restrictions on liens, sale
and leaseback transactions and consolidations, mergers and the sale of assets.
All of the repayment obligations under our 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 May 8, 2021, 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
2.0:1 as of May 8, 2021 and was 2.6:1 as of May 9, 2020. We calculate adjusted
debt as the sum of total debt, financing lease liabilities and rent times six;
and we calculate adjusted 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 continues to grow in
future years, we expect our debt levels to increase; conversely, if EBITDAR
declines, 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 May 8, 2021, we have repurchased a total of 149.7 million shares of our common stock at an aggregate cost of $24.832 billion, including 2.0 million shares of our common stock at an aggregate cost of $2.478 billion during the thirty-six week period ended May 8, 2021.


On December 15, 2020, the Board voted to increase the repurchase authorization
by $1.5 billion. On March 23, 2021, the Board voted to increase the repurchase
authorization by an additional $1.5 billion. This raised the total value of
shares authorized to be repurchased to $26.15 billion. Considering cumulative
repurchases as of May 8, 2021, we had $1.318 billion remaining under the Board's
authorization to repurchase our common stock.

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Table of Contents

Subsequent to May 8, 2021 we have repurchased 119,391 shares of our common stock at an aggregate cost of $174.8 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 May 8, 2021, was $163.5 million, compared with
$246.9 million at August 29, 2020, and our total surety bonds commitment at May
8, 2021, was $41.9 million, compared with $56.7 million at August 29, 2020.

Financial Commitments


Except for the previously discussed termination of the 364-Day Credit Agreement
and the repayment of the $250 million 2.500% Senior Notes due April 2021, as of
May 8, 2021, there were no significant changes to our contractual obligations as
described in our Annual Report on Form 10-K for the year ended August 29, 2020.

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. These non-GAAP financial measures 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.

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 as it indicates more clearly our
comparative year-to-year operating results. Furthermore, our management and the
Compensation Committee of the Board use these non-GAAP financial measures to
analyze and compare our underlying operating results and use select measurements
to determine payments of performance-based compensation. We have included a
reconciliation of this information to the most comparable GAAP measures in the
following reconciliation tables.























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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 May 8, 2021 and May 9, 2020.



                                      A               B              A-B=C             D                C+D
                                 Fiscal Year      Thirty-Six        Sixteen        Thirty-Six      Trailing Four
                                    Ended        Weeks Ended      Weeks Ended     Weeks Ended     Quarters Ended
                                  August 29,        May 9,        August 29,         May 8,           May 8,
(in thousands, except
percentage)                        2020(1)           2020            2020             2021             2021

Net income                       $  1,732,972$    992,515$     740,457$  1,384,543$     2,125,000
Adjustments:
Interest expense                      201,165         135,528           65,637         137,217            202,854
Rent expense(2)                       329,783         227,327          102,456         236,737            339,193
Tax effect(3)                       (115,747)        (79,102)         (36,645)        (81,522)          (118,167)
Adjusted after-tax return        $  2,148,173$  1,276,268$     871,905$  1,676,975$     2,548,880

Average debt(4)                                                                                   $     5,446,162
Average stockholders'
deficit(4)                                                                                            (1,364,932)
Add: Rent x 6(2)                                                                                        2,035,158
Average finance lease
liabilities(4)                                                                                            227,061
Invested capital                                                                                  $     6,343,449

Adjusted after-tax ROIC                                                                                      40.2 %





                                      A               B              A-B=C             D                C+D
                                 Fiscal Year      Thirty-Six       Seventeen       Thirty-Six      Trailing Four
                                    Ended        Weeks Ended      Weeks Ended     Weeks Ended     Quarters Ended
                                  August 31,        May 4,        August 31,         May 9,           May 9,
(in thousands, except
percentage)                        2019(1)           2019            2019             2020             2020

Net income                       $  1,617,221$  1,051,992$     565,229$    992,515$     1,557,744
Adjustments:
Interest expense                      184,804         123,608           61,196         135,528            196,724
Rent expense(2)                       332,726         224,259          108,467         227,327            335,794
Tax effect(3)                       (111,269)        (74,791)         (36,478)        (78,014)          (114,492)
Deferred tax liabilities, net
of repatriation tax                   (6,340)         (6,340)                -               -                  -
Adjusted after-tax return        $  2,017,142$  1,318,728$     698,414$  1,277,356$     1,975,770

Average debt(4)                                                                                   $     5,303,066
Average stockholders'
deficit(4)                                                                                            (1,684,662)
Add: Rent x 6(2)                                                                                        2,014,764
Average finance lease
liabilities(4)                                                                                            184,286
Invested capital                                                                                  $     5,817,454

Adjusted after-tax ROIC                                                                                      34.0 %






                                       24

  Table of Contents

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 May 8, 2021 and May 9, 2020.


                                         A               B             A-B=C             D                C+D
                                    Fiscal Year      Thirty-Six       Sixteen        Thirty-Six      Trailing Four
                                       Ended        Weeks Ended     Weeks

Ended Weeks Ended Quarters Ended

                                     August 29,        May 9,        August 29,        May 8,           May 8,
(in thousands, except ratio)          2020(1)           2020            2020            2021             2021

Net income                          $  1,732,972$    992,515$    740,457$  1,384,543$     2,125,000
Add: Interest expense                    201,165         135,528          65,637         137,217            202,854
Income tax expense                       483,542         271,591         211,951         378,737            590,688
Adjusted EBIT                          2,417,679       1,399,634       1,018,045       1,900,497          2,918,542
Add: Depreciation and
amortization expense                     397,466         272,115         125,351         278,044            403,395
Rent expense(2)                          329,783         227,327         102,456         236,737            339,193
Share-based expense                       44,835          32,251          12,584          38,061             50,645
Adjusted EBITDAR                    $  3,189,763$  1,931,327$  1,258,436$  2,453,339$     3,711,775

Debt                                                                                                $     5,267,896
Financing lease liabilities                                                
                                228,597
Add: Rent x 6(2)                                                                                          2,035,158
Adjusted debt                                                                                       $     7,531,651
Adjusted debt to EBITDAR                                                   
                                    2.0





                                         A               B             A-B=C             D                C+D
                                    Fiscal Year      Thirty-Six      Seventeen       Thirty-Six      Trailing Four
                                       Ended        Weeks Ended     Weeks

Ended Weeks Ended Quarters Ended

                                     August 31,        May 4,        August 31,        May 9,           May 9,
(in thousands, except ratio)          2019(1)           2019            2019            2020             2020

Net income                          $  1,617,221$  1,051,992$    565,229$    992,515$     1,557,744
Add: Interest expense                    184,804         123,608          61,196         135,528            196,724
Income tax expense                       414,112         259,762         154,350         271,591            425,941
Adjusted EBIT                          2,216,137       1,435,362         780,775       1,399,634          2,180,409
Add: Depreciation and
amortization expense                     369,957         251,118         118,839         272,115            390,954
Rent expense(2)                          332,726         224,259         108,467         227,327            335,794
Share-based expense                       43,255          31,529          11,726          32,251             43,977
Adjusted EBITDAR                    $  2,962,075$  1,942,268$  1,019,807$  1,931,327$     2,951,134

Debt                                                                                                $     5,418,272
Financing lease liabilities                                                
                                184,276
Add: Rent x 6(2)                                                                                          2,014,764
Adjusted debt                                                                                       $     7,617,312
Adjusted debt to EBITDAR                                                   
                                    2.6






                                       25

  Table of Contents

(1) The fiscal year ended August 31, 2019 consists of 53 weeks. All other

presented fiscal years are based on 52 weeks.

The table below outlines the calculation of rent expense and reconciles rent (2) expense to total lease cost, per ASC 842, the most directly comparable GAAP

financial measure, for the trailing four quarters ended May 8, 2021 and May

    9, 2020 (in thousands):



Total lease cost, per ASC 842, for the trailing four quarters ended May 8, 2021

                                     $          

421,750

Less: Finance lease interest and amortization                            

(55,725)

Less: Variable operating lease components, related to insurance and common area maintenance

(26,832)

Rent expense for the trailing four quarters ended May 8, 2021

                                                           $          

339,193

Total lease cost, per ASC 842, for the 36 weeks ended May 9, 2020

                                                        $          

286,626

Less: Finance lease interest and amortization                            

(42,172)

Less: Variable operating lease components, related to insurance and common area maintenance

(17,127)

Rent expense for the 36 weeks ended May 9, 2020                $          

227,327

Add: Rent expense for the 17 weeks ended August 31, 2019 as previously reported prior to the adoption of ASC 842

108,467

Rent expense for the trailing four quarters ended May 9,
2020                                                           $          335,794



(3) Effective tax rate over trailing four quarters ended May 8, 2021 and May 9,

2020 is 21.8% and 21.5%, respectively.

(4) 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 29, 2020. 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 29, 2020.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 14 280 M - -
Net income 2021 2 038 M - -
Net Debt 2021 4 822 M - -
P/E ratio 2021 17,8x
Yield 2021 -
Capitalization 34 318 M 34 318 M -
EV / Sales 2021 2,74x
EV / Sales 2022 2,74x
Nbr of Employees 80 000
Free-Float 93,7%
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Number of Analysts 25
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Average target price 1 650,53 $
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Managers and Directors
William C. Rhodes Chairman, President & Chief Executive Officer
Jamere Jackson Chief Financial Officer & Executive Vice President
Thomas B. Newbern EVP-International & Information Technology
K. Michelle Borninkhof Chief Information Officer & Senior Vice President
Earl G. Graves Lead Independent Director
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