Advanced Auto Parts and Auto Zone Financial Statement Analysis

Executive Summary

This report analyzes Advance Auto Parts (“Advance”) and AutoZone, two leading auto parts retailers. Both firms have faced the same difficult economic conditions in the past couple of years, but they are today in much different financial positions. While Advance is generally a moderately successful company, AutoZone has experienced significant debt management problems. Both firms have been forced to stretch their working capital in order to make ends meet in the face of depressed demand.

This report analyzes the two companies in terms of their basic operations, their financial statements, their financial ratios and the basic trends in their financial data. In the short-run, AutoZone has outperformed its rival, growing sales faster than costs and profits faster than sales; by contrast Advance saw its cost structure escalate at twice the rate of sales. The report will also show that in the long run, Advance is outperforming AutoZone, as the latter has significant debt issues that must be addressed.

Part I: Advanced Auto Parts and AutoZone compete in the auto parts business, on the retail side. Both companies market auto parts through chains of retail outlets and both are in the multi-billion dollar class. Advanced Auto Parts has made a significant turnaround that began in 2008. In the Advance Auto Parts’ 2009 letter to stockholders they claim that they’ve seen strong financial results; they’ve successfully rolled out a number of important strategic initiatives; and – most importantly – they’ve strengthened their relationships with their Team Members and our customers. A list of notable strategic and financial accomplishments in 2009 and improvements over 2008 include:

• Second full year of double-digit Commercial comparable store sales growth

• Positive DIY comparable store sales growth for the year

• Store portfolio was expanded by opening 75 new Advance stores and 32 new Autopart International stores

• Completed approximately 1,500...