AutoZone, Inc. EQUITY RESEARCH QUARTERLY UPDATE OUTPERFORM. Quick Read: Sales a Bit Soft, But Results Solid. September 22, 2016

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1 EQUITY RESEARCH QUARTERLY UPDATE September 22, 2016 Stock Rating: OUTPERFORM mo. Price Target $ AZO - NYSE $ Yr. EPS Gr. Rate 14% 52-Wk Range $ $ Shares Outstanding 30.8M Float 30.6M Market Capitalization $21,966.4M Avg. Daily Trading Volume 248,735 Dividend/Div Yield NA/NM Book Value NM Fiscal Year Ends Aug 2017E ROE NM LT Debt $4,625.0M Preferred $0.0M Common Equity NM Convertible Available No EPS Basic Q1 Q2 Q3 Q4 Year Mult. 2016A x Prior (E) NM 2017E x Prior (E) NM 2018E x CONSUMER/HARDLINES RETAILING Quick Read: Sales a Bit Soft, But Results Solid SUMMARY We look upon the fiscal Q4 (Aug.) results that AutoZone announced today as solid. EPS of $14.30 compared with a Street estimate of $ Comp sales of 1% tracked modestly shy of a consensus estimate of +2%. Nearly every retailer we cover has highlighted sales weakness lately. We await further commentary from management on the company's conference call. Directionally, comps at AZO remained consistent or even improved vs. those recently reported by O'Reilly (ORLY). We believe that unfavorable weather continues to weigh upon AZO and the Auto Parts sector. Our rating remains Outperform. KEY POINTS EPS In Line with Consensus. Q4 EPS increased 12.2% to $14.30 from $12.75 in the prior year, about consistent with a Street forecast for earnings of $ Modestly better gross margins and the lapping of higher legal costs in the prior year offset slightly softer sales in the quarter. Sales Growth Slightly Below Expectations. Q4 comps increased 1.0% on top of a 4.5% gain in the prior year and fell below a consensus estimate for comps of +2.0%. Two-year trends accelerated 1.2 percentage points to +5.5% from +4.3% in Q3 (May). We await further commentary from management during the conference call later this morning. Gross Margins Continue to Expand. Gross margins increased 30 bps to 52.8% from 52.5% in the prior year. This compares with gains of 50 bps in Q3 and 50 bps in Q2 (Feb.). Supply chain costs remain a slight headwind to margin expansion, detracting 19 bps from Q4 margins, consistent with a 19 bps negative impact in Q3. AZO Authorizes Additional Share Repurchases. This morning, the AutoZone board of directors authorized an additional $750M of share repurchases. Including the new authorization, the company now has the ability to repurchase about $1.1B in outstanding equity. We are currently forecasting about $1.3B in repurchases in each of the next 2 years. Updating Estimates. We are modestly adjusting estimates to reflect reported results. Our FY17 (Aug. 2017) EPS estimate goes to $45.05 from $45.15 previously, vs. a Street $45.51E. Our FY18 (Aug. 2018) estimate remains unchanged at $50.05, slightly below a consensus EPS estimate of $ Brian Nagel, CFA Brian.Nagel@opco.com David Bellinger David.Bellinger@opco.com Dan Farrell Daniel.Farrell@opco.com Disseminated: September 22, :21 EDT; Produced: September 22, :21 EDT Stock Price Performance Company Description AutoZone is the largest retailer in the automotive aftermarket sector. The company operates more than 5,000 stores. For analyst certification and important disclosures, see the Disclosure Appendix. Oppenheimer & Co Inc. 85 Broad Street, New York, NY Tel: Fax:

2 AZO (OUTPERFORM) - $ YEAR PRICE PERFORMANCE INVESTMENT THESIS Source: Bloomberg AZO AZO has defined itself as one of the best-run and most returndisciplined retailers. Management recently introduced inventory and supply chain-related initiatives. While maybe not gamechanging, we are optimistic that, over time, these efforts will further enhance sales productivity and spur a modest incremental uptick in comp-store sales growth. We increasingly view AZO as possessing the combination of continued positive late-cycle economic sensitivity and business model security that the market is craving against current broader headwinds. AZO ranks with COST and HD as our top large-cap picks. BASE CASE ASSUMPTION Continued low-single-digit comp gains Consistent modest operating margin expansion Annual share repurchases of about $1B CATALYSTS New car sales data Management commentary from auto dealers and OEMs Quarterly earnings reports from AZO UPSIDE SCENARIO Sales benefit from recent inventory and supply chain initiatives More aggressive market share gains in the still fragmented commercial market More muted expense impacts from the company s new and ongoing strategic initiatives DOWNSIDE SCENARIO Unfavorable weather impacting demand for maintenance and repairoriented auto parts A downshift in prospects for lower income consumer spending amid a potentially softer economic environment No let-up in the hold that small distribution companies have on the commercial space in select markets PRICE TARGET CALCULATION Our $900 price target is predicated upon a multiple of about 18x our FY18 (Aug.) EPS forecast of $50.05, a level consistent with the current forward four-quarter P/E multiple of AZO and the valuations of other high-quality, steady-growth retail stocks. KEY RISKS Risks include a potential worsening of economic conditions for lower income consumers, waning benefits of reduced fuel prices or a spike higher in gas prices, stepped-up competition in the Aftermarket Auto Parts sector, and/or declining interest on the part of investors in highquality albeit now somewhat higher multiple larger cap Retail stocks. 2 Brian Nagel, CFA:

3 AZO (OUTPERFORM) - $ Sep-2016 AUTOZONE QUARTERLY INCOME STATEMENT ANALYSIS Fiscal year ends in August; Dollars in thousands except for per share amounts First Quarter Second Quarter Third Quarter Fourth Quarter Q1 15A Q1 16A Q1 17E Q2 15A Q2 16A Q2 17E Q3 15A Q3 16A Q3 17E Q4 15A Q4 16A Q4 17E FY 15A FY 16A FY 17E FY 18E Auto Parts (Domestic & Mexico) 1,787,510 1,871,005 1,955,246 1,687,464 1,768,972 1,836,559 1,952,316 2,021,664 2,117,717 2,575,518 2,647,552 2,767,125 8,002,808 8,309,193 8,676,646 8,930,389 Domestic Commercial Sales 394, , , , , , , , , , , ,301 1,822,069 1,951,919 2,036,509 2,232,597 All Other (ALLDATA AND E-Commerce) 78,732 81,725 84,994 83,940 86,206 89,654 88,552 90,564 98, , , , , , , ,871 Net Sales $2,260,264 $2,386,043 $2,495,901 $2,143,651 $2,257,192 $2,357,011 $2,493,021 $2,593,672 $2,713,180 $3,290,404 $3,398,769 $3,546,941 10,187,340 10,635,676 11,113,033 11,586,858 Cost of Goods Sold 1,083,603 1,133,109 1,184,555 1,023,618 1,066,596 1,111,095 1,190,232 1,223,214 1,282,520 1,562,856 1,604,021 1,663,516 4,860,309 5,026,940 5,241,685 5,457,410 Gross Profit 1,176,661 1,252,934 1,311,346 1,120,033 1,190,596 1,245,916 1,302,789 1,370,458 1,430,660 1,727,548 1,794,748 1,883,426 5,327,031 5,608,736 5,871,348 6,129,448 Operating, SG&A Expenses 768, , , , , , , , ,396 1,058,276 1,091,382 1,124,380 3,373,979 3,548,341 3,666,973 3,796,434 Operating Income 408, , , , , , , , , , , ,045 1,953,052 2,060,395 2,204,375 2,333,014 Net Interest Expense 37,060 35,010 33,211 34,536 32,832 39,508 31,779 34,051 38,016 47,065 45,789 51, , , , ,062 Pretax Income 371, , , , , , , , , , , ,578 1,802,612 1,912,713 2,042,173 2,160,951 Income Taxes 133, , , , , , , , , , , , , , , ,943 Net Income $238,310 $258,112 $272,662 $211,723 $228,613 $235,080 $309,071 $327,515 $346,399 $401,137 $426,768 $452,850 $1,160,241 $1,241,008 $1,306,990 $1,383,009 Earnings Per Share $7.27 $8.29 $9.24 $6.51 $7.43 $8.06 $9.57 $10.77 $12.00 $12.75 $14.30 $15.90 $35.96 $40.63 $45.05 $50.05 Weighted Average Shares (Diluted) 32,761 31,138 29,503 32,540 30,778 29,183 32,301 30,405 28,866 31,469 29,847 28,487 32,268 30,542 29,010 27,634 Annual Growth Auto Parts Sales Growth 7.0% 4.7% 4.5% 6.2% 4.8% 3.8% 5.4% 3.6% 4.8% 7.0% 2.8% 4.5% 6.4% 3.8% 4.4% 2.9% Commercial Sales Growth 13.0% 10.0% 5.2% 14.5% 8.0% 7.2% 11.4% 6.5% 3.2% 13.1% 5.2% 2.9% 12.9% 7.1% 4.3% 9.6% Other Sales Growth 6.4% 3.8% 4.0% 9.2% 2.7% 4.0% 6.5% 2.3% 9.0% 2.0% 4.3% 9.0% 5.6% 3.3% 6.8% 6.0% Total Sales Growth 8.0% 5.6% 4.6% 7.7% 5.3% 4.4% 6.5% 4.0% 4.6% 7.9% 3.3% 4.4% 7.5% 4.4% 4.5% 4.3% Comp Sales 4.5% 3.5% 2.0% 3.6% 3.6% 2.0% 2.3% 2.0% 2.0% 4.5% 1.0% 2.0% 3.8% 2.3% 2.0% 2.0% SG&A Expense Growth 9.4% 6.1% 4.6% 8.4% 6.5% 3.9% 6.9% 5.7% 2.1% 9.7% 3.1% 3.0% 8.7% 5.2% 3.3% 3.5% Operating Income 6.5% 7.2% 4.9% 7.1% 5.9% 6.3% 7.3% 4.4% 8.0% 6.2% 5.1% 7.9% 6.7% 5.5% 7.0% 5.8% Net Income 9.3% 8.3% 5.6% 9.8% 8.0% 2.8% 8.4% 6.0% 5.8% 7.4% 6.4% 6.1% 8.5% 7.0% 5.3% 5.8% Earnings Per Share 15.7% 14.0% 11.5% 15.6% 14.2% 8.4% 13.1% 12.6% 11.4% 13.0% 12.2% 11.2% 14.1% 13.0% 10.9% 11.1% Margins Gross 52.1% 52.5% 52.5% 52.2% 52.7% 52.9% 52.3% 52.8% 52.7% 52.5% 52.8% 53.1% 52.3% 52.7% 52.8% 52.9% SG&A 34.0% 34.2% 34.1% 35.4% 35.8% 35.6% 31.6% 32.2% 31.4% 32.2% 32.1% 31.7% 33.1% 33.4% 33.0% 32.8% Operating Income 18.1% 18.4% 18.4% 16.9% 17.0% 17.3% 20.6% 20.7% 21.4% 20.3% 20.7% 21.4% 19.2% 19.4% 19.8% 20.1% Pretax Income 16.4% 16.9% 17.1% 15.2% 15.5% 15.6% 19.3% 19.4% 19.9% 18.9% 19.3% 19.9% 17.7% 18.0% 18.4% 18.7% Net Income 10.5% 10.8% 10.9% 9.9% 10.1% 10.0% 12.4% 12.6% 12.8% 12.2% 12.6% 12.8% 11.4% 11.7% 11.8% 11.9% Tax Rate 35.9% 35.9% 36.0% 35.2% 34.6% 36.0% 35.9% 34.8% 36.0% 35.5% 35.1% 36.0% 35.6% 35.1% 36.0% 36.0% Source: Company Reports and OpCo Estimates 3

4 AZO (OUTPERFORM) - $ Disclosure Appendix Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Analyst Certification - The author certifies that this research report accurately states his/her personal views about the subject securities, which are reflected in the ratings as well as in the substance of this report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Potential Conflicts of Interest: Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest. Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc: Stock Prices as of September 22, 2016 O'Reilly Automotive, Inc. (ORLY - NASDAQ, $279.55, OUTPERFORM) 4

5 AZO (OUTPERFORM) - $ All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories, please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager. Oppenheimer & Co. Inc. Rating System as of January 14th, 2008: Outperform(O) - Stock expected to outperform the S&P 500 within the next months. Perform (P) - Stock expected to perform in line with the S&P 500 within the next months. Underperform (U) - Stock expected to underperform the S&P 500 within the next months. Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflict of interest. Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008: Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere. Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group. 5

6 AZO (OUTPERFORM) - $ Distribution of Ratings/IB Services Firmwide IB Serv/Past 12 Mos. Rating Count Percent Count Percent OUTPERFORM [O] PERFORM [P] UNDERPERFORM [U] Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform. Company Specific Disclosures Oppenheimer & Co. Inc. makes a market in the securities of ORLY. Additional Information Available Please log on to or write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager. Other Disclosures This report is issued and approved for distribution by Oppenheimer & Co. Inc. Oppenheimer & Co. Inc. transacts business on all principal exchanges and is a member of SIPC. This report is provided, for informational purposes only, to institutional and retail investor clients of Oppenheimer & Co. Inc. and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal. Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report, except to the extent that liability may arise under specific statutes or regulations applicable to Oppenheimer & Co. Inc. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by Oppenheimer & Co. Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser. This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. 6

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