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AUTOZONE, INC.

(AZO)
  Report
Real-time Estimate Cboe BZX  -  02:18 2022-10-06 pm EDT
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AUTOZONE INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

06/10/2022 | 04:05pm 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 28, 2021 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, due to changes in fuel prices, miles driven or otherwise; 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 due to
cyber-attacks; historic growth rate sustainability; downgrade of our credit
ratings; damage to our reputation; challenges in international markets; failure
or interruption of our information technology systems; origin and raw material
costs of suppliers; inventory availability; 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 28, 2021, 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 distributor of automotive replacement parts and
accessories in the Americas. We began operations in 1979 and at May 7, 2022,
operated 6,115 stores in the U.S., 673 stores in Mexico and 58 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 7, 2022, in
5,276 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, repair and shop
management 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.

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Operating results for the twelve and thirty-six weeks ended May 7, 2022 are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 27, 2022. 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 2022 and 2021 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 the global economy and numerous
aspects of our business including our customers, employees and suppliers. Our
highest priority remains the safety and well-being of our customers and
employees. Since the beginning of the COVID-19 pandemic, we have experienced
strong same store sales, and our sales have remained at all-time high volumes.

The long-term impact of COVID-19 to our business remains unknown, may magnify
risks associated with our business and operations and may continue to cause
fluctuations in demand and availability for our products, our store hours and
our workforce availability.

Please refer to the "Risk Factors" section of our Annual report on Form 10-K for the year ended August 28, 2021 for additional information.

Executive Summary

Net sales increased 5.9% for the quarter ended May 7, 2022 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 2.6%. Domestic commercial sales increased
26.0%, which represents approximately 30% of our domestic auto parts sales.
Operating profit decreased 2.2% to $785.7 million compared to $803.5 million.
Net income for the quarter decreased 0.6% to $592.6 million compared to $596.2
million. Diluted earnings per share increased 9.6% to $29.03 per share from
$26.48 per share.

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, including the effects of, and responses to, the ongoing COVID-19
pandemic. 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 2022, failure and maintenance related
categories represented the largest portion of our sales mix, at approximately
84% 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. 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 severe or
unusual weather over a short-term period. Over the long-term, we believe the
impact of the weather on our sales mix is not significant.

                                       17

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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 continues to trend 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, 2022,
the average age of light vehicles on the road was 12.2 years, up from 12.1 years
in 2021. Since the beginning of the fiscal year and through March 2022 (latest
publicly available information), miles driven in the U.S. increased 7.9%
compared to the same period in the prior year. 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, due to rising fuel prices,
general macroeconomic conditions or otherwise, or the extent of the impact it
will have on our business.

Twelve Weeks Ended May 7, 2022

Compared with Twelve Weeks Ended May 8, 2021


Net sales for the twelve weeks ended May 7, 2022 increased $214.2 million to
$3.9 billion, or 5.9% over net sales of $3.7 billion for the comparable
prior year period. Total auto parts sales increased by 5.7%, primarily driven by
an increase in domestic same store sales of 2.6% and net sales of $69.6 million
from new stores. Domestic commercial sales increased $215.7 million to $1.0
billion, or 26.0%, over the comparable prior year period.

Gross profit for the twelve weeks ended May 7, 2022 was $2.0 billion, compared
with $1.9 billion during the comparable prior year period. Gross profit, as
a percentage of sales, was 51.9% compared to 52.4% during the comparable prior
year period. The decrease in gross margin was primarily driven by accelerated
growth in our lower margin commercial business.

Operating, selling, general and administrative expenses for the twelve weeks
ended May 7, 2022 were $1.2 billion, or 31.6% of net sales, compared with $1.1
billion, or 30.4% of net sales during the comparable prior year period. The
increase in operating expenses, as a percentage of sales, was driven by payroll
deleverage as last year's historic comparable store sales drove significant
leverage.

Net interest expense for the twelve weeks ended May 7, 2022 was $41.9 million
compared with $45.0 million during the comparable prior year period. Average
borrowings for the twelve weeks ended May 7, 2022 were $6.0 billion, compared
with $5.4 billion for the comparable prior year period. Weighted average
borrowing rates were 2.74% and 3.29% for the quarter ended May 7, 2022 and May
8, 2021, respectively.

Our effective income tax rate was 20.3% of pretax income for the twelve weeks
ended May 7, 2022, and 21.4% 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 7, 2022. The benefit of
stock options exercised for the twelve weeks ended May 7, 2022 was $21.1 million
compared to $16.0 million in the comparable prior year period.

Net income for the twelve week period ended May 7, 2022 decreased by $3.6 million to $592.6 million due to the factors set forth above, and diluted earnings per share increased by 9.6% to $29.03 from $26.48. 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 $2.51.


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Thirty-Six Weeks Ended May 7, 2022

Compared with Thirty-Six Weeks Ended May 8, 2021

Net sales for the thirty-six weeks ended May 7, 2022 increased $1.2 billion to
$10.9 billion, or 12.2% over net sales of $9.7 billion for the comparable
prior year period. Total auto parts sales increased by 12.1%, primarily driven
by an increase in domestic same store sales of 9.5% and net sales of $200.3
million from new stores. Domestic commercial sales increased $625.3 million to
$2.8 billion, or 28.9%, over the comparable prior year period.

Gross profit for the thirty-six weeks ended May 7, 2022 was $5.7 billion, compared with $5.1 billion during the comparable prior year period. Gross profit, as a percentage of sales was 52.4% compared to 53.0% during the comparable prior year period. The decrease in gross margin was primarily driven by initiatives to accelerate commercial business growth.

Operating, selling, general and administrative expenses for the thirty-six weeks
ended May 7, 2022 were $3.5 billion, or 32.6% of net sales, compared with $3.2
billion, or 33.4% 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 $46 million in prior year pandemic related
expenses, including Emergency Time-Off benefit enhancements for our AutoZoners.

Net interest expense for the thirty-six weeks ended May 7, 2022 was $127.6
million compared with $137.2 million during the comparable prior year period.
Average borrowings for the thirty-six weeks ended May 7, 2022 were $5.6 billion,
compared with $5.5 billion for the comparable prior year period. Weighted
average borrowing rates were 3.03% and 3.28% for the thirty-six week periods
ended May 7, 2022 and May 8, 2021, respectively.

Our effective income tax rate was 20.6% of pretax income for the thirty-six
weeks ended May 7, 2022, and 21.5% 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 thirty-six weeks ended May 7, 2022. The
benefit of stock options exercised for the thirty-six week period ended May 7,
2022 was $55.9 million compared to $35.2 million in the comparable prior year
period.

Net income for the thirty-six week period ended May 7, 2022 increased by $235.0
million to $1.6 billion due to the factors set forth above, and diluted earnings
per share increased by 28.6% to $76.90 from $59.80. The impact on current year
to date diluted earnings per share from stock repurchases since the end of the
comparable prior year period was an increase of $4.58.

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale
of automotive parts, products and accessories. Our cash flow results benefitted
from the quarter's strong sales and continued progress on our initiatives. 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 May 7, 2022, we held $263.0 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 our 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.

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  Table of Contents

For the thirty-six weeks ended May 7, 2022, our net cash flows from operating
activities provided $2.0 billion compared with $2.2 billion during the
comparable prior year period. The decrease is primarily driven by higher
inventory growth, net of accounts payable in the current year, and a decrease in
accrued benefits and withholdings in the current period, as compared to the same
period in the prior year due to the ability to defer certain payroll tax
payments in the prior year under the Coronavirus Aid, Relief, and Economic
Security Act. The decrease was partially offset by growth in net income due to
accelerated sales growth.

Our net cash flows used in investing activities for the thirty-six weeks ended
May 7, 2022 were $360.7 million as compared with $358.7 million in the
comparable prior year period. Capital expenditures for the thirty-six weeks
ended May 7, 2022 were $369.4 million compared to $375.7 million in the
comparable prior year period. Investing cash flows were impacted by our wholly
owned captive, which purchased $46.5 million and sold $37.9 million in
marketable debt securities during the thirty-six weeks ended May 7, 2022. During
the comparable prior year period, the captive purchased $52.6 million in
marketable debt securities and sold $72.3 million.

Our net cash flows used in financing activities for the thirty-six weeks ended
May 7, 2022 were $2.5 billion compared to $2.7 billion in the comparable
prior year period. Stock repurchases were $3.4 billion in the current thirty-six
week period as compared with $2.5 billion in the prior year period. The treasury
stock repurchases were primarily funded by cash flows from operations. During
the thirty-six weeks ended May 7, 2022, we repaid our $500 million 3.700% Senior
Notes due April 2022, which were callable at par in January 2022. In the
comparable prior year period, we repaid the $250 million 2.500% Senior Notes due
April 2021, which were callable at par in March 2021. For the thirty-six week
period ended May 7, 2022, our commercial paper activity resulted in $1.3 billion
in net proceeds from commercial paper compared to no commercial paper borrowings
in the prior year period. Proceeds from the sale of common stock and exercises
of stock options for the thirty-six weeks ended May 7, 2022 and May 8, 2021
provided $98.1 million and $121.9 million, respectively.

During fiscal 2022, we expect to increase the investment in our business as
compared to fiscal 2021. Our investments are expected to be directed primarily
to expansion of our store base and supply chain to fuel the growth of our
domestic and international businesses, which includes new stores, including hubs
and mega hubs, as well as new distribution centers and expansions of existing
distribution centers. 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 initial 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 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 127.9% at May
7, 2022, compared to 123.9% at May 8, 2021. The increase from the comparable
prior year period was primarily due to increased purchases with favorable vendor
terms and higher inventory turns.

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Table of Contents

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 7, 2022, our adjusted after-tax return
on invested capital ("ROIC"), which is a non-GAAP measure, was 51.4% as compared
to 40.2% 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 (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. The Revolving Credit Agreement will terminate, and all amounts
borrowed will be due and payable, on November 15, 2026, but we may make up to
two requests to extend the termination date for an additional period of one year
each. Revolving borrowings under the Revolving Credit Agreement may be base rate
loans, Eurodollar 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 May 7, 2022, 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
May 7, 2022, we had $25.0 million in letters of credit outstanding under the
letter of credit facility, which expires in June 2022. On May 16, 2022, we
amended and restated the letter of credit facility to, among other things,
extend the facility through June 2025.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $105.1 million in letters of credit outstanding as of May 7, 2022. These letters of credit have various maturity dates and were issued on an uncommitted basis.

On January 18, 2022, we repaid the $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022.

As of May 7, 2022, our $1.3 billion of commercial paper borrowings and the $300
million 2.875% Senior Notes due January 2023 were classified as long-term in the
Consolidated Balance Sheets, as we have the current ability and intent to
refinance them on a long-term basis through available capacity in our Revolving
Credit Agreement. As of May 7, 2022, 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.

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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 7, 2022, 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
2.1:1 as of May 7, 2022 and was 2.0:1 as of May 8, 2021. 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. Management expects the ratio of adjusted debt
to EBITDAR to return to pre-pandemic levels in the future, increasing debt
levels. Once the target ratio is achieved, to the extent adjusted EBITDAR
increases, we expect our debt levels to increase; conversely, if adjusted
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 May 7, 2022, we have repurchased a total of 152.0 million shares of our common stock at an aggregate cost of $29.1 billion, including 1.7 million shares of our common stock at an aggregate cost of $3.4 billion during the thirty-six week period ended May 7, 2022.


On March 22, 2022, 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
$31.2 billion. Considering the cumulative repurchases as of May 7, 2022, we had
$2.1 billion remaining under the Board's authorization to repurchase our common
stock.

Subsequent to May 7, 2022 and through June 3, 2022, we have repurchased 103,726 shares of our common stock at an aggregate cost of $203.6 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 7, 2022, was $131.9 million, compared with
$162.4 million at August 28, 2021, and our total surety bonds commitment at May
7, 2022, was $37.6 million, compared with $35.4 million at August 28, 2021.

Financial Commitments


Except for the previously discussed Revolving Credit Agreement and the repayment
of the $500 million 3.700% Senior Notes due April 2022, as of May 7, 2022, there
were no significant changes to our contractual obligations as described in our
Annual Report on Form 10-K for the year ended August 28, 2021.

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.

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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.

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 7, 2022 and May 8, 2021.

                                   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 28,       May 8,       August 28,        May 7,          May 7,
(in thousands, except
percentage)                       2021           2021           2021            2022            2022

Net income                    $  2,170,314   $  1,384,543   $     785,771   $  1,619,561   $     2,405,332
Adjustments:
Interest expense                   195,337        137,217          58,120        127,642           185,762
Rent expense(1)                    345,380        236,737         108,643        251,433           360,076
Tax effect(2)                    (110,847)       (76,661)        (34,186)  

(77,710) (111,896) Adjusted after-tax return $ 2,600,184 $ 1,681,836 $ 918,348 $ 1,920,926 $ 2,839,274

Average debt(3)                                                                            $     5,541,462
Average stockholders'
deficit(3)                                                                                     (2,442,077)
Add: Rent x 6(1)                                                                                 2,160,456
Average finance lease
liabilities(3)                                                                                     268,111
Invested capital                                                                           $     5,527,952
Adjusted after-tax ROIC                                                    
                          51.4 %


                                   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           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(1)                    329,783        227,327         102,456        236,737           339,193
Tax effect(2)                    (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(3)                                                                            $     5,446,162
Average stockholders'
deficit(3)                                                                                     (1,364,932)
Add: Rent x 6(1)                                                                                 2,035,158
Average finance lease
liabilities(3)                                                                                     227,061
Invested capital                                                                           $     6,343,449
Adjusted after-tax ROIC                                                                               40.2 %


                                       23

  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 7, 2022 and May 8, 2021.

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

Ended Weeks Ended Quarters Ended

                                     August 28,        May 8,        August 28,        May 7,           May 7,
(in thousands, except ratio)            2021            2021            2021            2022             2022

Net income                          $  2,170,314    $  1,384,543    $    785,771    $  1,619,561    $     2,405,332
Add: Interest expense                    195,337         137,217          58,120         127,642            185,762
Income tax expense                       578,876         378,737         200,139         419,712            619,851
EBIT                                   2,944,527       1,900,497       1,044,030       2,166,915          3,210,945
Add: Depreciation and
amortization expense                     407,683         278,044         129,639         301,365            431,004
Rent expense(1)                          345,380         236,737         108,643         251,433            360,076
Share-based expense                       56,112          38,061          18,051          49,058             67,109
EBITDAR                             $  3,753,702    $  2,453,339    $  1,300,363    $  2,768,771    $     4,069,134

Debt                                                                                                $     6,057,444
Financing lease liabilities                                                
                                288,483
Add: Rent x 6(1)                                                                                          2,160,456
Adjusted debt                                                                                       $     8,506,383
Adjusted debt to EBITDAR                                                   
                                    2.1


                                         A               B             A-B=C             D                C+D
                                    Fiscal Year      Thirty-Six       Sixteen       Twenty-Four      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            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
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(1)                          329,783         227,327         102,456         236,737            339,193
Share-based expense                       44,835          32,251          12,584          38,061             50,645
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(1)                                                                                          2,035,158
Adjusted debt                                                                                       $     7,531,651

Adjusted debt to EBITDAR                                                                                        2.0

The table below outlines the calculation of rent expense and reconciles rent (1) expense to total lease cost, per ASC 842, the most directly comparable GAAP

    financial measure, for the trailing four quarters ended May 7, 2022 and May
    8, 2021.


                                                         Trailing Four Quarters Ended
(in thousands)                                      May 7, 2022                 May 8, 2021
Total lease cost, per ASC 842                     $        451,601            $       421,750
Less: Finance lease interest and amortization             (65,128)         

(55,725)

Less: Variable operating lease components,
related to insurance and common area
maintenance                                               (26,397)                   (26,832)
Rent expense                                      $        360,076            $       339,193

(2) Effective tax rate over trailing four quarters ended May 7, 2022 and May 8,

2021 is 20.5% and 21.8%, respectively.

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


                                       24

  Table of Contents

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 28, 2021. 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 28, 2021.

© Edgar Online, source Glimpses

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Sales 2022 16 063 M - -
Net income 2022 2 392 M - -
Net Debt 2022 5 714 M - -
P/E ratio 2022 19,5x
Yield 2022 -
Capitalization 42 946 M 42 946 M -
EV / Sales 2022 3,03x
EV / Sales 2023 2,88x
Nbr of Employees 85 050
Free-Float 94,1%
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