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ROANOKE, Va.--(BUSINESS WIRE)-- Advance Auto Parts, Inc. (NYSE: AAP), a leading retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, today announced its financial results for the third quarter ended October 10, 2009. Third quarter earnings per diluted share (EPS) were $0.65 which included a $0.04 charge related to store divestitures. Excluding the impact of the store divestitures, EPS increased 19% to $0.69. On a year-to-date basis and excluding the $0.15 impact of store divestitures, EPS increased 17% to $2.61 on top of a 16% increase in EPS last year.
Third Quarter and Year-to-Date Performance Summary
Twelve Weeks Ended Forty Weeks Ended
October 10, October 4, October 10, October 4,
2009 2008 2009 2008
Sales(in millions) $ 1,262.6 $ 1,188.0 $ 4,269.1 $ 3,949.9
Comp Store Sales % 4.7% (0.1%) 6.1% 1.1%
Gross Profit %(1) 49.2% 47.3% 49.1% 47.4%
SG&A %(1) 40.9% 39.3% 39.8% 38.1%
Operating Income % 8.3% 8.1% 9.3% 9.3%
Diluted EPS(2) $ 0.65 $ 0.58 $ 2.46 $ 2.23
The Company has retrospectively applied a change in accounting principle
made in the first quarter for costs included in inventory to all prior
(1) periods presented herein related to cost of sales and selling, general and
administrative expenses (SG&A). Refer to the accompanying financial
statements included in this press release for further explanation.
For the twelve and forty weeks ended October 10, 2009, diluted EPS includes
a $0.04 and $0.15 charge, respectively, related to store divestitures. In
(2) addition, the Company's adoption of the two-class method of calculating
earnings per share during the first quarter 2009 decreased the Company's
diluted EPS for the twelve weeks ended October 4, 2008 by $0.01.
"I am very proud of our Team Members' ability to drive continuous improvements in customer satisfaction and Team Member engagement. Their ability to revitalize our core values and actions to drive our four strategies resulted in strong top line growth, a 53% increase in free cash flow and a 100 basis-point increase on our return on invested capital," said Darren R. Jackson, Chief Executive Officer.
Third Quarter and Year-to-Date Highlights
Total sales for the third quarter increased 6.3% to $1.26 billion, compared with total sales of $1.19 billion in the third quarter of fiscal year 2008. The sales increase reflected the net addition of 66 new stores during the past 12 months and a comparable store sales gain of 4.7% compared to a decrease of 0.1% during the third quarter last year. Adjusting for the calendar shift due to the 53rd week last year, third quarter comparable store sales increased approximately 5.2%. The 4.7% comparable store sales gain was comprised of an 11.8% increase in Commercial and a 1.7% increase in do-it-yourself (DIY). This compares to a 10.8% increase in Commercial and a 4.1% decrease in DIY during the third quarter last year. Year-to-date comparable store sales increased 6.1% driven by a 14.9% increase in Commercial and a 2.4% increase in DIY.
The Company's gross profit rate was 49.2% of sales during the third quarter as compared to 47.3% in the prior year, which reflects a 190 basis-point improvement. The 190 basis-point improvement was primarily due to continued investments in pricing and merchandising capabilities, parts availability, decreased inventory shrink and improved store execution. Year-to-date, the Company's gross profit rate was 49.1%, or 167 basis points favorable to the same period in fiscal 2008.
The Company's SG&A rate was 40.9% of sales during the third quarter as compared to 39.3% during the third quarter last year. Excluding the impact of store divestitures, the Company's SG&A rate increased 110 basis points. This increase was driven by higher incentive compensation, increased investments in store labor and Commercial Sales force, higher medical expenses and continued investments to improve the Company's gross profit rate and to launch the Company's new E-commerce website. The SG&A rate increase was partially offset by lower advertising expenses and occupancy expense leverage as a result of the Company's 4.7% comparable store sales increase. Year-to-date, the Company's SG&A rate was 39.8% versus 38.1% during the same period last year. Excluding the impact of store divestitures, the year-to-date SG&A rate was 39.3%.
Operating cash flow through the third quarter increased 67% to $628.5 million from $375.8 million through the same period last year. Free cash flow through the third quarter was $414.0 million or a 53% increase through the same period last year. This increase was primarily driven by an improvement in working capital management, increased deferred taxes and an increase in net income. The increase in free cash flow, allowed the Company to decrease its total outstanding bank debt by $192 million over the past year. Capital expenditures were $132.6 million through the third quarter. This compares to capital expenditures of $137.0 million in 2008, a decrease of $4.4 million primarily due to the timing of new store development, partially offset by routine spending on existing stores and Information Technology investments.
"Our third quarter marked our seventh consecutive quarter of double-digit Commercial comp sales growth, our third consecutive quarter of positive DIY comps and our fourth consecutive quarter of strong gross profit rate improvements. These results fueled our third consecutive quarter of double-digit operating income and EPS growth on a comparable basis. We are pleased with the $414 million year-to-date free cash flow we generated and the fact that we continued to strengthen our balance sheet while making solid progress on our goal to obtain investment grade ratings," said Mike Norona, Executive Vice President and Chief Financial Officer.
Key Financial Metrics and Statistics(1)
Twelve Comparable Forty Comparable Comparable
Weeks Twelve Weeks Ended Weeks Forty Weeks Ended Fifty-Two Weeks
Ended Ended Ended
October October October October October October
10, 10, 4, 10, 10, 4,
2009 2009 2008 2009 2009 2008 FY 2008 FY 2007
Sales 6.3% 6.3% 2.6% 8.1% 8.1% 4.1% 6.1% 4.9%
Growth %
Sales per
Square $ 217 $ 217 $ 207 $ 217 $ 217 $ 207 $ 208 $ 207
Foot(2)(3)
DIY Comp % 1.7% 1.7% (4.1%) 2.4% 2.4% (2.6%) (2.3%) (1.1%)
Commercial 11.8% 11.8% 10.8% 14.9% 14.9% 11.6% 12.1% 6.2%
Comp %
Operating
Income per
Team $ 9.13 $ 10.04 $ 9.25 $ 9.13 $ 10.04 $ 9.25 $ 9.49 $ 9.40
Member(2)
(4)
SG&A per
Store(2) $ 643 $ 629 $ 584 $ 643 $ 629 $ 584 $ 590 $ 581
(5)(6)
Return on
Invested 14.4% 15.1% 14.1% 14.4% 15.1% 14.1% 14.0% 13.7%
Capital(2)
(7)
Gross
Margin
Return on $ 3.95 $ 3.83 $ 3.46 $ 3.95 $ 3.83 $ 3.46 $ 3.37 $ 3.29
Inventory
(2)(5)(8)
Total
Store
Square 24,952 24,952 24,627 24,952 24,952 24,627 24,711 23,982
Footage,
end of
period
Total Team
Members, 49,341 49,341 47,886 49,341 49,341 47,886 47,582 44,141
end of
period
(1) In thousands except for sales per square foot, gross margin return on
inventory and total Team Members.
The financial metrics presented are calculated on an annual basis and
accordingly reflect the last four quarters completed. The Company has
presented its financial metrics on a comparable basis as a result of
certain non-comparable items included in its financial results for the last
(2) four quarters. Third quarter and year-to-date 2009 comparable results
exclude expenses associated with the store divestitures as discussed later
in this press release. Fiscal 2008 comparable results exclude the
additional week of business (53rd week) as well as a non-cash inventory
adjustment resulting from a change in inventory management approach for
slow-moving inventory.
(3) Sales per square foot is calculated as net sales divided by an average of
beginning and ending store square footage.
(4) Operating income per Team Member is calculated as operating income divided
by an average of beginning and ending Team Members.
The Company has retroactively applied the change in accounting principle
(5) made in the first quarter 2009 to all financial metrics presented herein
containing cost of sales and SG&A as explained in the accompanying
financial statements included in this press release.
(6) SG&A per store is calculated as SG&A divided by the average of beginning
and ending store count.
(7) Return on invested capital (ROIC) is calculated in detail in the
accompanying financial statements included in this press release.
Gross margin return on inventory is calculated as gross profit divided by
(8) an average of beginning and ending inventory, net of accounts payable and
financed vendor accounts payable.
Store Information
During the third quarter, the Company opened 24 stores, including 9 Autopart International stores. The Company also closed 13 stores. As of October 10, 2009, the Company's total store count was 3,418 including 151 Autopart International stores.
Share Repurchases
Under the Company's share repurchase authorization plan, the Company repurchased 879,910 shares of its common stock during the third quarter at an aggregate cost of $35.2 million, or an average price of $40.00 per share. At the end of the third quarter, the Company had $139.4 million available from the $250 million share repurchase authorization approved by the Board of Directors in May 2008.
2009 Store Divestitures
As a result of the previously announced store divestiture initiative, the Company closed 12 stores during the quarter and expects to divest a total of 40 to 50 unprofitable stores in 2009 that are delivering unacceptable strategic or financial results. During the third quarter, the Company recorded a $0.04 EPS charge primarily due to lease exit costs for the 12 stores that were closed during the quarter. Year-to-date, the Company has closed 36 stores which resulted in a $0.15 EPS charge. The Company estimates that the incremental store divestitures will result in a $0.15 to $0.22 charge to EPS in fiscal 2009.
Dividend
On November 10, 2009, the Company's Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on January 8, 2010 to stockholders of record as of December 24, 2009.
Investor Conference Call
The Company will host a conference call on Thursday, November 12, 2009 at 10:00 a.m. Eastern Time to discuss its quarterly results. To listen to the live call, please log on to the Company's website, www.AdvanceAutoParts.com, or dial (866) 908-1AAP. The call will be archived on the Company's website until November 12, 2010.
About Advance Auto Parts
Headquartered in Roanoke, Va., Advance Auto Parts, Inc., a leading automotive aftermarket retailer of parts, accessories, batteries, and maintenance items in the United States, serves both the do-it-yourself and professional installer markets. As of October 10, 2009, the Company operated 3,418 stores in 39 states, Puerto Rico, and the Virgin Islands. Additional information about the Company, employment opportunities, customer services, and online shopping for parts and accessories can be found on the Company's website at www.AdvanceAutoParts.com.
Certain statements contained in this release are forward-looking statements, as that statement is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events or developments, and typically use words such as believe, anticipate, expect, intend, plan, forecast, outlook or estimate. These statements discuss, among other things, expected growth and future performance, including store growth, capital expenditures, comparable store sales, SG&A, operating income, gross profit rate, free cash flow, profitability and earnings per diluted share for fiscal year 2009. These forward-looking statements are subject to risks, uncertainties and assumptions including, but not limited to, competitive pressures, demand for the Company's products, the market for auto parts, the economy in general, inflation, consumer debt levels, the weather, acts of terrorism, availability of suitable real estate, dependence on foreign suppliers and other factors disclosed in the Company's 10-K for the fiscal year ended January 3, 2009 on file with the Securities and Exchange Commission. Actual results may differ materially from anticipated results described in these forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of this news release and does not undertake to update or revise them as more information becomes available.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
October 10, January 3, October 4,
2009 2009 2008
Assets
Current assets:
Cash and cash equivalents $ 216,215 $ 37,358 $ 21,307
Receivables, net 92,993 97,203 93,778
Inventories, net 1,657,067 1,623,088 1,717,656
Other current assets 46,381 49,977 46,078
Total current assets 2,012,656 1,807,626 1,878,819
Property and equipment, net 1,070,217 1,071,405 1,053,789
Assets held for sale 3,062 2,301 2,295
Goodwill 34,387 34,603 34,603
Intangible assets, net 26,670 27,567 27,888
Other assets, net 18,906 20,563 10,865
$ 3,165,898 $ 2,964,065 $ 3,008,259
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $ - $ 20,588 $ -
Current portion of long-term debt 1,307 1,003 680
Financed vendor accounts payable 51,953 136,386 181,929
Accounts payable 959,692 791,330 853,839
Accrued expenses 400,965 372,510 335,454
Other current liabilities 59,041 43,177 50,560
Total current liabilities 1,472,958 1,364,994 1,422,462
Long-term debt 278,149 455,161 470,494
Other long-term liabilities 122,235 68,744 57,792
Total stockholders' equity 1,292,556 1,075,166 1,057,511
$ 3,165,898 $ 2,964,065 $ 3,008,259
NOTE: These preliminary condensed consolidated balance sheets have been prepared on a basis consistent with our previously prepared balance sheets filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by generally accepted accounting principles, or GAAP, for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Twelve Week Periods Ended
October 10, 2009 and October 4, 2008
(in thousands, except per share data)
(unaudited)
October 10, October 4,
2009 2008
Net sales $ 1,262,576 $ 1,187,952
Cost of sales, including purchasing 641,117 625,777
and warehousing costs (a)
Gross profit (a) 621,459 562,175
Selling, general and administrative 516,604 466,278
expenses (a)
Operating income 104,855 95,897
Other, net:
Interest expense (5,339 ) (6,672 )
Other income (expense), net 487 (223 )
Total other, net (4,852 ) (6,895 )
Income before provision for income 100,003 89,002
taxes
Provision for income taxes 38,024 32,847
Net income $ 61,979 $ 56,155
Basic earnings per share (b) $ 0.65 $ 0.59
Diluted earnings per share (b) $ 0.65 $ 0.58
Average common shares outstanding 94,656 95,019
(b)
Average common shares outstanding - 95,474 95,758
assuming dilution (b)
Effective first quarter 2009, the Company implemented a change in
(a) accounting principle for costs included in inventory. The table below
represents the impact of the accounting change on previously reported
amounts (in thousands):
As Previously
Twelve week period ended Reported Adjustments As Adjusted
October 4, 2008:
Cost of sales, including
purchasing and warehousing $ 610,833 $ 14,944 $ 625,777
costs
Gross profit 577,119 (14,944 ) 562,175
Selling, general and 481,222 (14,944 ) 466,278
administrative expenses
Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At October 10, 2009
and October 4, 2008, we had 94,663 and 94,678 shares outstanding,
respectively. Effective first quarter 2009, the Company adopted the
(b) two-class method of calculating its earnings per share. Accordingly, the
Company reduced its net income by $309 and $215 for the twelve weeks ended
October 10, 2009 and October 4, 2008, respectively, for purposes of
calculating its basic and diluted earnings per share. As a result of this
adoption, the Company's diluted earnings per share for the twelve weeks
ended October 4, 2008 has been reduced by $0.01.
NOTE: These preliminary condensed consolidated statements of operations have
been prepared on a basis consistent with our previously prepared statements of
operations filed with the Securities and Exchange Commission for our prior
quarter and annual report, except for the change in accounting principle for
inventory costs, but do not include the footnotes required by GAAP for complete
financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Forty Week Periods Ended
October 10, 2009 and October 4, 2008
(in thousands, except per share data)
(unaudited)
October 10, October 4,
2009 2008
Net sales $ 4,269,056 $ 3,949,867
Cost of sales, including purchasing 2,172,959 2,076,555
and warehousing costs (a)
Gross profit (a) 2,096,097 1,873,312
Selling, general and administrative 1,698,885 1,505,178
expenses (a)
Operating income 397,212 368,134
Other, net:
Interest expense (18,430 ) (26,247 )
Other income (expense), net 633 (287 )
Total other, net (17,797 ) (26,534 )
Income before provision for income 379,415 341,600
taxes
Provision for income taxes 143,521 127,973
Net income $ 235,894 $ 213,627
Basic earnings per share (b) $ 2.48 $ 2.24
Diluted earnings per share (b) $ 2.46 $ 2.23
Average common shares outstanding (b) 94,647 95,003
Average common shares outstanding - 95,325 95,669
assuming dilution (b)
Effective first quarter 2009, the Company implemented a change in
(a) accounting principle for costs included in inventory. The table below
represents the impact of the accounting change on previously reported
amounts (in thousands):
As
Previously
Forty week period ended October Reported Adjustments As Adjusted
4, 2008:
Cost of sales, including $ 2,028,459 $ 48,096 $ 2,076,555
purchasing and warehousing costs
Gross profit 1,921,408 (48,096 ) 1,873,312
Selling, general and 1,553,274 (48,096 ) 1,505,178
administrative expenses
Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At October 10, 2009
and October 4, 2008, we had 94,663 and 94,678 shares outstanding,
respectively. Effective first quarter 2009, the Company adopted the
(b) two-class method of calculating its earnings per share. Accordingly, the
Company reduced its net income by $1,214 and $740 for the forty weeks ended
October 10, 2009 and October 4, 2008, respectively, for purposes of
calculating its basic and diluted earnings per share. As a result of this
adoption, the Company's basic earnings per share for the forty weeks ended
October 4, 2008 has been reduced by $0.01.
NOTE: These preliminary condensed consolidated statements of operations have
been prepared on a basis consistent with our previously prepared statements of
operations filed with the Securities and Exchange Commission for our prior
quarter and annual report, except for the change in accounting principle for
inventory costs, but do not include the footnotes required by GAAP for complete
financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Forty Week Periods Ended
October 10, 2009 and October 4, 2008
(in thousands)
(unaudited)
October 10, October 4,
2009 2008
Cash flows from operating activities:
Net income $ 235,894 $ 213,627
Depreciation and amortization 114,856 113,297
Share-based compensation 13,446 13,405
Provision (benefit) for deferred income taxes 56,013 (1,465 )
Excess tax benefit from share-based compensation (2,531 ) (8,994 )
Other non-cash adjustments to net income 8,256 1,549
Decrease (increase) in:
Receivables, net 4,210 (8,518 )
Inventories, net (33,979 ) (187,741 )
Other assets 4,988 7,501
Increase in:
Accounts payable 168,362 164,869
Accrued expenses 43,576 60,656
Other liabilities 15,359 7,658
Net cash provided by operating activities 628,450 375,844
Cash flows from investing activities:
Purchases of property and equipment (132,622 ) (136,954 )
Proceeds from sales of property and equipment 2,565 6,351
Other - (3,413 )
Net cash used in investing activities (130,057 ) (134,016 )
Cash flows from financing activities:
Decrease in bank overdrafts (20,565 ) (30,000 )
(Decrease) increase in financed vendor accounts (84,433 ) 28,380
payable
Dividends paid (22,772 ) (23,155 )
Net payments on credit facilities (176,500 ) (34,000 )
Proceeds from the issuance of common stock, 31,978 34,533
primarily exercise of stock options
Excess tax benefit from share-based compensation 2,531 8,994
Repurchase of common stock (49,567 ) (219,429 )
Other (208 ) (498 )
Net cash used in financing activities (319,536 ) (235,175 )
Net increase in cash and cash equivalents 178,857 6,653
Cash and cash equivalents, beginning of period 37,358 14,654
Cash and cash equivalents, end of period $ 216,215 $ 21,307
NOTE: These preliminary condensed consolidated statements of cash flows have been prepared on a consistent basis with previously prepared statements of cash flows filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by GAAP for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Supplemental Financial Schedules
(in thousands, except per share data)
(unaudited)
Reconciliation
of Free Cash
Flow:
Forty Week
Periods Ended
October 10, October 4,
2009 2008
Cash flows
from operating $ 628,450 $ 375,844
activities
Cash flows
used in (130,057 ) (134,016 )
investing
activities
498,393 241,828
(Decrease)
increase in
financed (84,433 ) 28,380
vendor
accounts
payable
Free cash flow $ 413,960 $ 270,208
Note: Management uses free cash flow as a measure of our liquidity and believes it is a
useful indicator to stockholders of our ability to implement our growth strategies and
service our debt. Free cash flow is a non-GAAP measure and should be considered in
addition to, but not as a substitute for, information contained in our condensed
consolidated statement of cash flows.
Detail of
Return on
Invested
Capital (ROIC)
Calculation:
Last Four Quarters Ended
Comparable
October 10, Comparable October 10, October 4,
2009 Adjustments 2009 2008
(a)
Net income $ 260,305 $ 27,872 $ 288,177 $ 248,379
Add:
After-tax
interest 15,897 (322 ) 15,575 21,846
expense and
other, net
After-tax rent 183,159 - 183,159 172,131
expense
After-Tax
Operating 459,361 27,550 486,911 442,356
Earnings
Average assets 2,968,318 29,859 2,998,177 2,869,342
(less cash)
Less: Average
liabilities (1,536,731 ) (11,103 ) (1,547,834 ) (1,373,158 )
(excluding
total debt)
Add:
Capitalized
lease 1,765,260 - 1,765,260 1,649,862
obligation
(rent expense
* 6) (b)
Total Invested 3,196,847 18,756 3,215,603 3,146,046
Capital
ROIC 14.4 % - 15.1 % 14.1 %
Rent expense $ 294,210 - $ 294,210 $ 274,977
Interest
expense and 25,499 (511 ) 24,988 34,899
other, net
The Company has also presented its ROIC calculation on a comparable basis
as a result of certain non-comparable items included in its financial
results for the last four quarters ended October 10, 2009. The comparable
results for the last four quarters ended October 10, 2009 exclude
(a) year-to-date 2009 expenses associated with the store divestiture plan as
discussed on page 5 of this release, the additional week of business (53rd
week) of fiscal 2008 and the fiscal 2008 non-cash inventory adjustment
resulting from a change in inventory management approach for slow moving
inventory.
(b) Capitalized lease obligation is estimated as annualized rent expense for
the applicable period times six years.
Note: Management uses ROIC to evaluate return on investments to the business
and believes it is a useful indicator to stockholders given the future
investments the Company plans to make in areas including information
technology, supply chain and stores. ROIC is a non-GAAP measure and should be
considered in addition to, but not as a substitute for, information contained
in our condensed consolidated financial statements. Management believes our
comparable results of operations are a useful indicator to stockholders for
consistency purposes.
Source: Advance Auto Parts, Inc.
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