Advance Auto Parts Reports Record First Quarter 2004 Results
Comparable Store Sales Grew 6.9 Percent
First Quarter EPS of $0.68
ROANOKE, Va., May 19 -- Advance Auto Parts, Inc. , a leading retailer of automotive parts and accessories, today announced record revenue and earnings for its first quarter ended April 24, 2004.
Sales increased 11.6% in the first quarter to $1.1 billion from $1.0 billion in the same quarter last year. Comparable store sales grew 6.9% in the first quarter versus 1.1% in the same quarter last year. Sales to both the do-it-yourself (DIY) and commercial customers were strong as DIY comparable store sales grew 4.5% and comparable commercial sales were up 19.3%.
Due to the positive impact of category management initiatives and supply chain leverage, gross margin increased 26 basis points to 46.4% of net sales in the first quarter versus 46.1% for the same quarter last year. Selling, general and administrative (SG&A) expenses declined by 20 basis points to 38.4% of net sales. SG&A expenses for the prior year were 38.6% of net sales, excluding merger and integration costs associated with the Discount Auto Parts acquisition, and 38.9% of net sales on a GAAP basis. First quarter operating margins rose to 8.0% of net sales compared to operating margins of 7.6% for the same quarter of the prior year, which excluded the merger and integration costs, and GAAP operating margins of 7.2%.
Net earnings for the first quarter of 2004 increased to $51.3 million. Earnings per diluted share rose 38.8% to $0.68 in the first quarter over prior year first quarter comparable earnings per diluted share of $0.49. The 2003 first quarter GAAP earnings per diluted share were $0.07 and included expenses of $0.39 per diluted share resulting from the early redemption of previously outstanding notes and debentures and $0.03 per diluted share associated with the Discount Auto Parts' integration.
In 2003, the Company used comparable results, which are non-GAAP measures because they excluded the expenses associated with the Discount Auto Parts' integration and the early redemption of notes and debentures, as reconciled on the accompanying financial tables. The Company used these non-GAAP measures as an indication of its earnings from its core operations and believes they are important to the Company's stockholders because of the nature and significance of the excluded expenses.
Commenting on the first quarter results, Larry Castellani, Chairman and Chief Executive Officer, said, "Our team is focused on executing our numerous initiatives to serve our customers better than ever. We are seeing returns on the investments we have made in category management, our national advertising program, and our new 2010 store format."
"During the quarter, we completed the roll-out of our proprietary POS and electronic parts catalog system, which we refer to as APAL, ahead of schedule and it's already contributing to our results," he added. "By putting the right tools at our team members' fingertips, we expect to generate an even higher level of customer service and build customer loyalty."
In the first quarter, the Company generated free cash flow of $64 million as defined on the accompanying financial tables. As a result of this strong free cash flow, the Company repaid $65 million in debt, bringing its debt level to $380 million at the end of the first quarter. The Company uses free cash flow as a measure of its liquidity and believes it is a useful indicator to stockholders of its ability to implement its growth strategies and service its debt.
During the quarter, the Company opened 20 new stores, closed six under- performing stores, and relocated five stores, resulting in a store count of 2,553 stores at April 24, 2004. The Company anticipates opening 125 to 135 stores for the 2004 year.
Guidance
The Company increased its earnings per diluted share guidance for 2004 to a range of $2.53 to $2.58 compared to prior guidance of $2.50 to $2.55, reflecting the Company's first quarter $0.03 above-guidance results. Guidance for the remainder of the year is based on achieving mid-single-digit comparable store sales growth, a slight increase in gross margin and a proportionate decline in SG&A expenses, resulting in earnings per diluted share guidance in the range of $0.69 to $0.72 for the second quarter and $0.70 to $0.73 for the third quarter.
The Company also announced it has identified a location for a new distribution center to better serve its growing store count in the northeast. Pending the successful completion of due diligence, the purchase of this facility is anticipated to occur in the second quarter and open in the spring of 2005. As a result, the Company is modifying its guidance for free cash flow in 2004 to $130 million from the previous guidance of $180 million, to reflect the anticipated cost of approximately $50 million.
Annual Meeting Announcements
The Company's Annual Meeting of Stockholders was held today. At the meeting, stockholders:
* Elected all of the nominees to the Company's Board of Directors,
including:
* John C. Brouillard
* Lawrence P. Castellani
* Gilbert T. Ray
* John M. Roth
* Carlos A. Saladrigas
* William L. Salter
* Francesca Spinelli, Ph.D
* Nicholas F. Taubman
* Approved an amendment to the Company's certificate of incorporation to
increase the number of authorized shares of common stock to 200 million
shares
* Approved the 2004 Long-Term Incentive Plan; and
* Ratified the audit committee's appointment of Deloitte & Touche LLP as
the Company's independent public auditors.
Board of Directors Announcements
The board of directors today announced the following:
* John C. Brouillard, Director and Chief Administrative and Financial
Officer of H.E. Butt Grocery Company, a large supermarket chain
headquartered in Texas, was appointed to serve on the Company's audit
committee.
* William L. Salter was elected Lead Director. Mr. Salter has been a
member of the Company's board of directors since 1999 and has served on
the nominating and corporate governance committee as well as the
compensation committee. He is the retired President of the Specialty
Retail Division of Sears, Roebuck and Co.
Castellani stated, "I am delighted to welcome John Brouillard to our board of directors and audit committee. His retail experience and strong financial background will prove invaluable as Advance Auto Parts continues to build market share and strives to be the best in the automotive aftermarket industry. We also look forward to the contributions that Bill Salter will make as lead director. His knowledge and experience in specialty retail will continue to guide Advance Auto Parts to higher levels of customer service and satisfaction."
Headquartered in Roanoke, Va., Advance Auto Parts is a leading retailer of automotive parts in the United States. At April 24, 2004, the Company had 2,553 stores in 39 states, Puerto Rico and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
April 24, January 3, April 19,
2004 2004 2003
Assets
Current assets:
Cash and cash equivalents $ 12,867 $ 11,487 $ 24,738
Receivables, net 94,299 84,799 101,483
Inventories, net 1,174,001 1,113,781 1,066,366
Other current assets 24,254 16,387 42,936
Total current assets 1,305,421 1,226,454 1,235,523
Property and equipment, net 710,503 712,702 716,804
Assets held for sale 21,113 20,191 26,394
Other assets, net 26,243 23,724 11,130
$2,063,280 $1,983,071 $1,989,851
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $ 26,942 $ 31,085 $ -
Current portion of long-term debt 5,615 22,220 20,775
Financed vendor accounts payable 32,526 - -
Accounts payable 603,148 568,275 520,472
Accrued expenses 187,646 173,818 200,508
Other current liabilities 66,658 58,547 35,779
Total current liabilities 922,535 853,945 777,534
Long-term debt 374,385 422,780 660,314
Other long-term liabilities 77,468 75,102 65,857
Total stockholders' equity 688,892 631,244 486,146
$2,063,280 $1,983,071 $1,989,851
NOTE: These preliminary condensed consolidated balance sheets do not
include the footnotes required by generally accepted accounting
principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Sixteen Week Periods Ended
(in thousands, except per share data)
(unaudited)
April 24, 2004 April 19, 2003
Merger and
Integration Comparable
GAAP GAAP Expenses 2003
Net sales $1,122,918 $1,005,968 $ - $1,005,968
Cost of sales, including
purchasing and
warehousing costs 602,020 541,979 - 541,979
Gross profit 520,898 463,989 - 463,989
Selling, general and
administrative expenses 430,876 391,369 (3,381)(a) 387,988
Operating income 90,022 72,620 3,381 76,001
Other, net:
Interest expense (6,317) (19,340) - (19,340)
Loss on extinguishment
of debt (244) (46,887) 46,887(b) -
Other income, net 25 60 - 60
Total other, net (6,536) (66,167) 46,887 (19,280)
Income before provision
for income taxes and
income on discontinued
operations 83,486 6,453 50,268 56,721
Provision for income taxes 32,143 2,485 19,353(c) 21,838
Income from
continuing operations 51,343 3,968 30,915 34,883
Discontinued operations:
(Loss)/income from
operations of
discontinued
wholesale distribution
network (85) 1,744 - 1,744
(Benefit)/provision for
income taxes (33) 671 - 671
Income on
discontinued operations (52) 1,073 - 1,073
Net income $51,291 $5,041 $30,915 $35,956
Net income per basic share
from:
Income before
income on
discontinued
operations $0.69 $0.06 $0.43 $0.49
Income on
discontinued
operations - 0.01 - 0.01
$0.69 $0.07 $0.43 $0.50
Net income per
diluted share from:
Income before
income on
discontinued
operations $0.68 $0.06 $0.42 $0.48
Income on
discontinued
operations - 0.01 - 0.01
$0.68 $0.07 $0.42 $0.49
Average common shares
outstanding(d) 73,992 71,806 71,806 71,806
Dilutive effect of
stock options 1,924 1,432 1,432 1,432
Average common shares
outstanding -
assuming dilution 75,916 73,238 73,238 73,238
(a) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(b) This adjustment reflects the deferred loan costs, unamortized
discounts and the premiums paid upon the early redemption of our
outstanding senior discount notes and senior discount debentures.
(c) This adjustment reflects the tax impact for the items in (a) and (b)
at a 38.5% effective tax rate.
(d) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter ended. At April
24, 2004 and April 19, 2003, we had 74,148 and 72,662 shares
outstanding, respectively.
Note: The preliminary condensed consolidated statements above titled
"GAAP" have been prepared on a basis consistent with our previously
issued financial statements filed on Form 10-Q for the respective
quarter, but do not include the footnotes required by generally
accepted accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Sixteen Week Periods Ended
(in thousands)
(unaudited)
April 24, April 19,
2004 2003
Cash flows from operating activities:
Net income $51,291 $5,041
Depreciation 31,338 30,524
Loss on extinguishment of debt 244 46,887
Provision for deferred income taxes 3,077 3,137
Other non-cash adjustments to net income 4,160 6,304
Decrease (increase) in:
Receivables, net (9,500) 1,091
Inventories, net (60,220) (17,563)
Other assets (11,211) (7,948)
Increase (decrease) in:
Accounts payable 34,873 49,732
Accrued expenses 12,755 (1,289)
Other liabilities 4,233 1,588
Net cash provided by
operating activities 61,040 117,504
Cash flows from investing activities:
Purchases of property and equipment (32,005) (30,312)
Proceeds from sales of
property and equipment 2,497 6,933
Net cash used in
investing activities (29,508) (23,379)
Cash flows from financing activities:
Increase (decrease) in bank overdrafts (4,143) (869)
Increase in financed vendor
accounts payable 32,526 -
Early extinguishment of debt (60,000) (406,374)
Net borrowings under the
credit facility (5,000) 348,300
Payment of debt related costs - (36,895)
Proceeds from the exercise
of stock options 3,089 10,080
Other net financing activities 3,376 2,486
Net cash used in
financing activities (30,152) (83,272)
Increase in cash and cash equivalents 1,380 10,853
Cash and cash equivalents,
beginning of period 11,487 13,885
Cash and cash equivalents,
end of period $12,867 $24,738
NOTE: These preliminary condensed cosolidated statements of cash flows
have been prepared on a consistent basis with previously presented
statements of cash flows and do not include the footnotes required
by generally accepted accounting principles for complete financial
statements.
Advance Auto Parts, Inc. and Subsidiaries
Supplemental Financial Schedules
(in thousands)
(unaudited)
April 24, April 19,
2004 2003
Cash flows from operating activities $61,040 $117,504
Cash flows from investing activities (29,508) (23,379)
31,532 94,125
Establishment of financed vendor
accounts payable 32,526 -
Payment of debt costs associated
with early redemption (a) - (36,895)
Free cash flow $64,058 $57,230
(a) Represents the cash expense associated with the early redemption of
the high interest bearing notes and debentures in the first quarter of
2003.
