Advance Auto Parts Reports Record Second Quarter 2004 Results
Comparable Store Sales Grew 5.0% and EPS Rose to $0.70; Company Generates First Quarter of Double-Digit Operating Margins; $200 Million Stock Repurchase Program Announced
ROANOKE, Va., Aug. 11 -- Advance Auto Parts, Inc. , a leading retailer of automotive parts and accessories, today announced record revenue and earnings for its second quarter ended July 17, 2004.
Second Quarter 2004
Sales increased 9.8% in the second quarter to $908.4 million from $827.3 million in the same quarter last year. Comparable store sales grew 5.0% in the second quarter. Do-it-yourself (DIY) comparable store sales grew 1.8% and comparable commercial sales were up 22.3%.
Gross margin increased 62 basis points to 46.5% of net sales in the second quarter due to the continued positive impact of category management initiatives and enhanced supply chain efficiencies. Selling, general and administrative (SG&A) expenses increased by 30 basis points to 36.4% of net sales. SG&A expenses for the prior year were 36.1% of net sales, excluding merger and integration costs associated with the Discount Auto Parts acquisition, and 36.5% of net sales on a GAAP basis. Second quarter operating margins rose to 10.0% of net sales, the Company's first quarter of double- digit operating margins. During last year's second quarter, the Company achieved operating margins of 9.7% of net sales excluding the merger and integration costs, and on a GAAP basis achieved operating margins of 9.4% of net sales.
Net earnings for the second quarter of 2004 increased 17.7% to $53.2 million from comparable net earnings of $45.2 million in the same quarter of last year. Earnings per diluted share rose 16.7% to $0.70 in the second quarter of 2004 versus comparable earnings per diluted share of $0.60 in the prior year's second quarter. The 2003 second quarter GAAP net earnings were $43.5 million, or $0.58 per diluted share, and included expenses of $0.02 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 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 believed they were important to the Company's stockholders because of the nature and significance of the excluded expenses.
Commenting on the second quarter results, Larry Castellani, Chairman and Chief Executive Officer, said, "Our team produced industry-leading comparable store sales growth by delivering legendary customer service. During the quarter, we continued to invest in initiatives that provide us the foundation to produce continued strong long-term results. Once again we would like to thank our Team Members for their dedication to serving our customers."
In the second quarter, the Company generated free cash flow of $58.3 million as defined in the accompanying financial tables. The Company uses free cash flow, which is a non-GAAP measure, 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 31 new stores, closed one under- performing store, and relocated six stores, resulting in a total count of 2,583 stores at July 17, 2004. The Company is on track to open 125 to 135 stores in 2004.
Year-to-Date 2004
Sales for the first two quarters of 2004 increased to $2.0 billion, or 10.8%. Comparable store sales grew 6.1% during the first two quarters of this year.
Year-to-date gross margin increased 43 basis points to 46.4% of net sales. SG&A expenses were 37.5% of net sales for the first two quarters of this year, flat with the prior year's comparable results, which excluded merger and integration costs associated with the Discount Auto Parts acquisition. On a GAAP basis, SG&A expenses were 37.8% of net sales for the first two quarters of last year. Year-to-date operating margins rose to 8.9% of net sales. During the first two quarters of last year, the Company achieved operating margins of 8.5% of net sales, which excluded the merger and integration costs, and GAAP operating margins of 8.2% of net sales.
Year-to-date, net earnings rose to $104.5 million, an increase of 28.7%, versus comparable net earnings of $81.2 million for the same period of last year. Earnings per diluted share rose 24.5% to $1.37 over prior year's comparable earnings per diluted share of $1.10. The 2003 year-to-date GAAP net earnings were $48.5 million, or $0.66 per diluted share, and included expenses of $0.05 per diluted share associated with the Discount Auto Parts' integration and $0.39 per diluted share resulting from the early redemption of the Company's outstanding notes and debentures.
Stock Repurchase Program
Advance Auto Parts also announced that its board of directors has authorized a stock repurchase program of up to $200 million. The program will allow the Company to repurchase its shares on the open market or in privately negotiated transactions from time to time in accordance with the requirements of the Securities and Exchange Commission. The Company currently has $87 million available in fiscal 2004 for stock repurchases under its existing credit agreement and is evaluating the opportunity to modify its credit agreement to allow flexibility to accelerate the stock repurchase program.
Mr. Castellani commented, "This stock repurchase program reflects our board of directors' and management's confidence in our financial outlook and growth opportunities. It is our strong financial position that provides us the opportunity to drive shareholder value through investing in our business, as well as buying back our shares at attractive valuations."
Guidance
The Company updated its earnings guidance for the third quarter to $0.68 to $0.71 earnings per diluted share from its previous guidance of $0.70 to $0.73. The Company also initiated guidance of $0.42 to $0.46 for the fourth quarter. Guidance for both quarters is based on 3% to 4% comparable store sales increases, which is in line with current sales. The fourth quarter of 2004 includes twelve weeks compared to thirteen weeks in the fourth quarter of 2003. The extra week last year contributed earnings per diluted share of approximately $0.07. For the 2004 fiscal year, the Company's guidance for earnings per diluted share is $2.48 to $2.55 updated from $2.53 to $2.58 previously.
These anticipated results do not include the potential positive impact of the stock repurchase program, or any costs associated with modifying its existing credit agreement, if the Company chooses to do so.
Headquartered in Roanoke, Va., Advance Auto Parts is a leading retailer of automotive parts in the United States. At July 17, 2004, the Company had 2,583 stores in 39 states, Puerto Rico and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
-Financial Tables To Follow-
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
July 17, January 3, July 12,
2004 2004 2003
Assets
Current assets:
Cash and cash equivalents $ 19,817 $ 11,487 $ 46,074
Receivables, net 99,262 84,799 93,350
Inventories, net 1,189,567 1,113,781 1,079,884
Other current assets 27,734 16,387 34,664
Total current assets 1,336,380 1,226,454 1,253,972
Property and equipment, net 743,945 712,702 711,222
Assets held for sale 20,290 20,191 24,897
Other assets, net 25,332 23,724 11,997
$2,125,947 $1,983,071 $2,002,088
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $ 11,509 $ 31,085 $ 14,372
Current portion of long-term debt 17,024 22,220 4,577
Financed vendor accounts payable 40,236 - -
Accounts payable 629,915 568,275 591,827
Accrued expenses 198,957 173,818 207,055
Other current liabilities 74,745 58,547 44,068
Total current liabilities 972,386 853,945 861,899
Long-term debt 317,976 422,780 531,512
Other long-term liabilities 75,837 75,102 67,698
Total stockholders' equity 759,748 631,244 540,979
$2,125,947 $1,983,071 $2,002,088
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
Twelve Week Periods Ended
(in thousands, except per share data)
(unaudited)
July 17, July 12, 2003
2004
Merger and
Integration Comparable
GAAP GAAP Expenses 2003
Net sales $ 908,412 $ 827,348 $ - $ 827,348
Cost of sales, including
purchasing and warehousing
costs 486,110 447,874 - 447,874
Gross profit 422,302 379,474 - 379,474
Selling, general and
administrative expenses 331,055 301,897 (2,890)(a) 299,007
Operating income 91,247 77,577 2,890 80,467
Other, net:
Interest expense (4,531) (7,025) - (7,025)
Loss on extinguishment
of debt (168) (254) - (254)
Other income, net 10 93 - 93
Total other, net (4,689) (7,186) - (7,186)
Income before provision for
income taxes and income on
discontinued operations 86,558 70,391 2,890 73,281
Provision for income taxes 33,329 27,100 1,113(b) 28,213
Income from continuing
operations 53,229 43,291 1,777 45,068
Discontinued operations:
(Loss)/income from
operations of discontinued
wholesale distribution
network 10 271 - 271
(Benefit)/provision for
income taxes 4 104 - 104
Income on discontinued
operations 6 167 - 167
Net income $ 53,235 $ 43,458 $ 1,777 $ 45,235
Net income per basic share
from:
Income before income on
discontinued operations $ 0.71 $ 0.60 $ 0.02 $ 0.62
Income on discontinued
operations - - - -
$ 0.71 $ 0.60 $ 0.02 $ 0.62
Net income per diluted share
from:
Income before income on
discontinued operations $ 0.70 $ 0.58 $ 0.02 $ 0.60
Income on discontinued
operations - - - -
$ 0.70 $ 0.58 $ 0.02 $ 0.60
Average common shares
outstanding(c) 74,590 73,092 73,092 73,092
Dilutive effect of stock
options 1,694 1,738 1,738 1,738
Average common shares
outstanding - assuming
dilution 76,284 74,830 74,830 74,830
(a) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(b) This adjustment reflects the tax impact for the merger and integration
expenses at a 38.5% effective tax rate.
(c) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter ended. At July
17, 2004 and July 12, 2003, we had 74,867 and 73,372 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 Operations
Twenty-Eight Week Periods Ended
(in thousands, except per share data)
(unaudited)
July 17, July 12, 2003
200
Merger and
Integration and
Extinguishment
of Debt Comparable
GAAP GAAP Expenses 2003
Net sales $2,031,330 $1,833,316 $ - $1,833,316
Cost of sales, including
purchasing and
warehousing costs 1,088,130 989,853 - 989,853
Gross profit 943,200 843,463 - 843,463
Selling, general and
administrative expenses 761,931 693,266 (6,271)(a) 686,995
Operating income 181,269 150,197 6,271 156,468
Other, net:
Interest expense (10,848) (26,365) - (26,365)
Loss on extinguishment
of debt (412) (47,141) 46,887(b) (254)
Other income, net 35 153 - 153
Total other, net (11,225) (73,353) 46,887 (26,466)
Income before provision
for income taxes and
income on discontinued
operations 170,044 76,844 53,158 130,002
Provision for income taxes 65,472 29,585 20,466(c) 50,051
Income from continuing
operations 104,572 47,259 32,692 79,951
Discontinued operations:
(Loss)/income from
operations of
discontinued
wholesale distribution
network (75) 2,015 - 2,015
(Benefit)/provision for
income taxes (29) 775 - 775
Income on discontinued
operations (46) 1,240 - 1,240
Net income $ 104,526 $ 48,499 $32,692 $ 81,191
Net income per basic share
from:
Income before income
on discontinued
operations $ 1.41 $ 0.65 $ 0.45 $ 1.10
Income on discontinued
operations - 0.02 - 0.02
$ 1.41 $ 0.67 $ 0.45 $ 1.12
Net income per diluted
share from:
Income before income
on discontinued
operations $ 1.37 $ 0.64 $ 0.44 $ 1.08
Income on discontinued
operations - 0.02 - 0.02
$ 1.37 $ 0.66 $ 0.44 $ 1.10
Average common shares
outstanding(d) 74,248 72,356 72,356 72,356
Dilutive effect of stock
options 1,826 1,564 1,564 1,564
Average common shares
outstanding - assuming
dilution 76,074 73,920 73,920 73,920
(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 July
17, 2004 and July 12, 2003, we had 74,867 and 73,372 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
Twenty-Eight Week Periods Ended
(in thousands)
(unaudited)
July 17, July 12,
2004 2003
Cash flows from operating activities:
Net income $ 104,526 $ 48,499
Depreciation 55,416 53,807
Loss on extinguishment of debt 412 47,141
Provision for deferred income taxes 9,172 30,142
Other non-cash adjustments to net income 13,889 10,742
(Increase) decrease in:
Receivables, net (14,463) 9,224
Inventories, net (75,786) (31,081)
Other assets (14,373) (18,609)
Increase (decrease) in:
Accounts payable 61,640 121,087
Accrued expenses 20,082 6,687
Other liabilities 3,250 (1,707)
Net cash provided by operating activities 163,765 275,932
Cash flows from investing activities:
Purchases of property and equipment (87,093) (50,595)
Proceeds from sales of property and equipment 5,468 8,974
Net cash used in investing activities (81,625) (41,621)
Cash flows from financing activities:
(Decrease) increase in bank overdrafts (19,576) 13,503
Increase in financed vendor accounts payable 40,236 -
Early extinguishment of debt (105,000) (551,374)
Net borrowings under the credit facility (5,000) 348,300
Payment of debt related costs - (36,895)
Proceeds from the exercise of stock options 10,204 18,824
Other net financing activities 5,326 5,520
Net cash used in financing activities (73,810) (202,122)
Increase in cash and cash equivalents 8,330 32,189
Cash and cash equivalents, beginning of period 11,487 13,885
Cash and cash equivalents, end of period $ 19,817 $ 46,074
NOTE: These preliminary condensed consolidated 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)
Twenty-Eight
Twelve Weeks Ended Weeks Ended
July 17, July 12, July 17, July 12,
2004 2003 2004 2003
Cash flows from operating
activities $ 102,725 $ 158,428 $ 163,765 $ 275,932
Cash flows used in
investing activities (52,117) (18,242) (81,625) (41,621)
50,608 140,186 82,140 234,311
Increase in financed vendor
accounts payable 7,710 - 40,236 -
Payment of debt costs
associated with early
redemption (a) - - - (36,895)
Free cash flow $ 58,318 $ 140,186 $ 122,376 $ 197,416
(a) Represents the cash expense associated with the early redemption of
the high interest bearing notes and debentures in the first quarter of
2003.
