Advance Auto Parts Reports Record Fourth Quarter and Fiscal 2004 Results
Same Store Sales Grew 9.7% for the Fourth Quarter
ROANOKE, Va., Feb. 16 -- Advance Auto Parts, Inc. , a leading retailer of automotive parts, today announced record revenue and earnings for its fourth quarter and fiscal year ended January 1, 2005. Fiscal 2004 included 52 weeks of operations compared to 53 weeks in fiscal 2003, with the additional week falling in the fourth quarter of fiscal 2003.
Fourth Quarter 2004
Earnings per diluted share for the fourth quarter were $0.43 compared to prior year earnings per diluted share of $0.41. Earnings per diluted share from continuing operations rose 21.1% to $0.46 before refinancing costs of $2.8 million versus comparable earnings per diluted share from continuing operations of $0.38 last year. These results compare to the high end of the Company's guidance range of $0.42 to $0.46, which excluded these refinancing costs. Comparable results for last year exclude the benefit of the fifty- third week and integration expenses associated with the Discount Auto Parts' acquisition.
Net sales increased 3.4% in the fourth quarter to $848.8 million from $821.3 million last year. Excluding $63.0 million in sales from the extra week in fiscal 2003, sales increased 11.9%. Same store sales grew 9.7% in the fourth quarter compared to 7.0% in the same quarter last year. Do-it-yourself (DIY) same store sales increased 5.6% and do-it-for-me (DIFM) same store sales increased 29.7%.
Commenting on the fourth quarter results, Larry Castellani, Chairman and Chief Executive Officer, noted, "We are pleased with the sales momentum our team produced during the quarter as demonstrated by the strong 9.7% same store sales growth, and we have sustained strong sales increases into the first six weeks of 2005. Our strong and consistent growth continues to be driven by the execution of our strategic initiatives and our positive industry fundamentals."
Fourth quarter gross margin increased 83 basis points to 46.4% of net sales compared to 45.6% in the same quarter of last year, reflecting the positive impact of category management and shrink reduction initiatives.
Selling, general and administrative (SG&A) expenses increased by 64 basis points to 39.4% of net sales versus the comparable SG&A of 38.7% last year as a result of higher costs from our self-insured workers' compensation, liability, and medical programs. These incremental costs, which totaled 127 basis points, or $10.8 million in the fourth quarter, reflect a higher projected cost trend to close these claims. The Company's guidance for 2005 fully reflects its expectations for the costs of these programs. In addition, higher team member incentive costs, driven by the strong fourth-quarter results, also contributed to the higher SG&A percent in the fourth quarter. Together, these two areas increased SG&A expenses by 167 basis points for the quarter. On a GAAP basis, SG&A expenses for the prior year were 38.3% of net sales.
Fourth quarter operating margin rose to 7.0% of net sales versus last year's comparable 6.8% of net sales and 7.2% on a GAAP basis. Earnings from continuing operations for the fourth quarter increased to $32.1 million versus comparable earnings from continuing operations of $28.8 million for the fourth quarter of last year. GAAP earnings from continuing operations were $33.3 million for the same quarter of last year.
Comparable results are non-GAAP measures because they exclude the benefit of the extra week in the fourth quarter last year, 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 uses these non-GAAP measures as an indication of its earnings from its core operations and believes it is important to the Company's stockholders due to the nature and significance of the excluded expenses.
Fiscal 2004
Net sales increased 7.9% to $3.8 billion from $3.5 billion. Excluding the impact of the extra week in fiscal 2003, sales rose 9.9% in fiscal 2004 compared to fiscal 2003. Same store sales rose 6.1% for the year compared to 3.1% last year. Do-it-yourself (DIY) same store sales increased 2.8% and do- it-for-me (DIFM) same store sales increased 22.9%.
For 2004, gross profit margin improved 57 basis points to 46.5% of net sales from 45.9% last year. SG&A expenses were 37.8% of net sales for the year versus the comparable SG&A expenses of 37.5% for the prior year. GAAP SG&A expenses were 37.7% of net sales for fiscal 2003.
Fiscal 2004 operating margin rose to 8.7% of net sales. Comparable operating margins were 8.4% of net sales for the prior year, while GAAP operating margins were 8.3% of net sales. As noted earlier, comparable results exclude the benefit from the fifty-third week, expenses associated with the Discount Auto Parts' integration and the early redemption of notes and debentures.
Earnings from continuing operations for the year were $188.0 million, an increase of 21.2% versus prior year comparable earnings from continuing operations of $155.1 million. GAAP earnings from continuing operations were $125.3 million in 2003. Earnings per diluted share from continuing operations were $2.49 in fiscal 2004 versus $1.68 last year. Excluding the fourth quarter refinancing costs of $2.8 million, earnings per diluted share from continuing operations rose 20.7% to $2.51 in fiscal 2004 versus comparable earnings per diluted share from continuing operations of $2.08 in 2003.
In fiscal 2004, the Company opened 125 new stores, closed 12 stores and relocated 34 stores, resulting in a total store count of 2,652 at January 1, 2005.
Guidance
The Company is issuing guidance for earnings per diluted share in the range of $0.85 to $0.90 for the first quarter of 2005 compared to last year's $0.68, and $0.82 to $0.88 for the second quarter of 2005 compared to last year's $0.70. The Company also is initiating guidance for earnings per diluted share of $3.00 to $3.10 for fiscal 2005, an increase of 20% to 24% over last year. The Company has not included in its guidance any cost associated with expensing of stock options, as it is still evaluating the impact of this new accounting pronouncement, including date of implementation. The Company currently estimates the expensing of options to approximate $0.02 to $0.03 per diluted share each quarter.
Castellani added, "We believe we can achieve our long term goal of increasing our earnings per share 20% or more for the next several years, by continuing to execute our strategic initiatives and investing for the long term. We are extremely proud of our 2004 results and believe we are well positioned to have an outstanding 2005."
He added, "We plan to open between 150 to 175 new stores this year, and we expect to have more than half of our stores operating with our new 2010 store format by the end of 2005, as we work to achieve our goal of having the newest, freshest store base in the industry."
Investor Conference Call
The Company will host a conference call on February 17, 2005, at 8:00 a.m. Eastern Standard Time to discuss its fourth quarter and fiscal year results. To listen to the live webcast, please log on to http://www.advanceautoparts.com/. The call will be archived on the Company's website http://www.advanceautoparts.com/ until February 16, 2006.
Headquartered in Roanoke, Va., Advance Auto Parts is the second largest retailer of automotive parts in the United States. At January 1, 2005, the Company had 2,652 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)
January 1, January 3,
2005 2004
Assets
Current assets:
Cash and cash equivalents $56,321 $11,487
Receivables, net 101,969 84,799
Inventories, net 1,201,450 1,113,781
Other current assets 17,687 16,387
Total current assets 1,377,427 1,226,454
Property and equipment, net 779,712 712,702
Assets held for sale 18,298 20,191
Other assets, net 20,025 23,724
$2,195,462 $1,983,071
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $20,184 $31,085
Current portion of long-term debt 31,700 22,220
Financed vendor accounts payable 56,896 -
Accounts payable 587,948 568,275
Accrued expenses 191,979 173,818
Other current liabilities 65,918 58,547
Total current liabilities 954,625 853,945
Long-term debt 438,300 422,780
Other long-term liabilities 80,222 75,102
Total stockholders' equity 722,315 631,244
$2,195,462 $1,983,071
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 and Thirteen Week Periods Ended
January 1, 2005 and January 3, 2004
(in thousands, except per share data)
(unaudited)
January 1, 2005 January 3, 2004
Adjustments
Needed for Comparable
GAAP GAAP Comparability(a) 2003
Net sales $848,806 $821,279 $(63,016)(b) $758,263
Cost of sales, including
purchasing and
warehousing costs 455,150 447,152 (34,254)(b) 412,898
Gross profit 393,656 374,127 (28,762) 345,365
Selling, general and
administrative expenses 334,009 314,720 (21,176)(c) 293,544
Operating income 59,647 59,407 (7,586) 51,821
Other, net:
Interest expense (4,891) (5,351) 368(b) (4,983)
Loss on extinguishment
of debt (2,818) (22) - (22)
Other income, net 187 82 - 82
Total other, net (7,522) (5,291) 368 (4,923)
Income before provision
for income taxes and
income (loss) on
discontinued operations 52,125 54,116 (7,218) 46,898
Provision for income taxes 20,069 20,833 (2,779)(d) 18,054
Income from continuing
operations 32,056 33,283 (4,439) 28,844
Discontinued operations:
Income (loss) from
operations of
discontinued wholesale
distribution network 22 (3,268) - (3,268)
Provision (benefit) for
income taxes 9 (1,257) - (1,257)
Income (loss) on
discontinued operations 13 (2,011) - (2,011)
Net income $32,069 $31,272 $(4,439) $26,833
Net income per basic share
from:
Income from continuing
operations $0.44 $0.45 $(0.06) $0.39
Income on discontinued
operations - (0.03) - (0.03)
$0.44 $0.42 $(0.06) $0.36
Net income per diluted
share from:
Income from continuing
operations $0.43 $0.44 $(0.06) $0.38
Income on discontinued
operations - (0.03) - (0.03)
$0.43 $0.41 $(0.06) $0.35
Average common shares
outstanding(e) 73,007 73,849 73,849 73,849
Dilutive effect of stock
options 1,147 2,010 2,010 2,010
Average common shares
outstanding - assuming
dilution 74,154 75,859 75,859 75,859
(a) Management believes these adjustments (as detailed in (b), (c) and (d)
below) should be made to allow comparability among the periods
presented.
(b) Adjustment reflects the exclusion of the effect of the 53rd week of
operations in fiscal 2003.
(c) Adjustments include the exclusion of the following:
Effect of the 53rd week of operations
in fiscal 2003 $19,552
The integration expenses associated with
the integration of the Discount Auto Parts
operations 1,624
$21,176
(d) Adjustment reflects the tax impact for the items in (b) and (c) at a
38.5% effective tax rate.
(e) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At January 1,
2005 and January 3, 2004, we had 72,245 and 73,884 shares outstanding,
respectively.
Note: The preliminary condensed consolidated statements above titled
"GAAP" have been prepared on a basis consistent with our previously
prepared financial statements filed with the Securities and Exchange
Commission for our prior quarter and annual reports, 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
Fifty-Two and Fifty-Three Week Periods Ended
January 1, 2005 and January 3, 2004
(in thousands, except per share data)
(unaudited)
January 1, 2005 January 3, 2004
Adjustments
Needed for Comparable
GAAP GAAP Comparability(a) 2003
Net sales $3,770,297 $3,493,696 $(63,016)(b) $3,430,680
Cost of sales,
including purchasing
and warehousing costs 2,016,926 1,889,178 (34,254)(b) 1,854,924
Gross profit 1,753,371 1,604,518 (28,762) 1,575,756
Selling, general and
administrative expenses 1,424,613 1,316,284 (29,969)(c) 1,286,315
Operating income 328,758 288,234 1,207 289,441
Other, net:
Interest expense (20,069) (37,576) 368(b) (37,208)
Loss on extinguishment
of debt (3,230) (47,288) 46,887(d) (401)
Other income, net 289 341 - 341
Total other, net (23,010) (84,523) 47,255 (37,268)
Income before provision
for income taxes and
loss on discontinued
operations 305,748 203,711 48,462 252,173
Provision for income
taxes 117,721 78,424 18,658(e) 97,082
Income from continuing
operations 188,027 125,287 29,804 155,091
Discontinued operations:
Loss from operations
of discontinued
wholesale
distribution network (63) (572) - (572)
Benefit for income
taxes (24) (220) - (220)
Loss on discontinued
operations (39) (352) - (352)
Net income $187,988 $124,935 $29,804 $154,739
Net income per basic
share from:
Income from continuing
operations $2.54 $1.72 $0.41 $2.13
Income on discontinued
operations - (0.01) - (0.01)
$2.54 $1.71 $0.41 $2.12
Net income per diluted
share from:
Income from continuing
operations $2.49 $1.68 $0.40 $2.08
Income on discontinued
operations - (0.01) - (0.01)
$2.49 $1.67 $0.40 $2.07
Average common shares
outstanding (f) 73,897 72,999 72,999 72,999
Dilutive effect of stock
options 1,584 1,744 1,744 1,744
Average common shares
outstanding - assuming
dilution 75,481 74,743 74,743 74,743
(a) Management believes these adjustments (as detailed in (b), (c), (d)
and (e) below) should be made to allow comparability among the periods
presented.
(b) Adjustment reflects the exclusion of the effect of the 53rd week of
operations in fiscal 2003.
(c) Adjustments include the exclusion of the following:
Effect of the 53rd week of operations in fiscal 2003 $19,552
The integration expenses associated with the
integration of the Discount Auto Parts operations 10,417
$29,969
(d) This adjustment reflects the deferred loan costs, unamortized
discounts and the premiums paid upon the early redemption of our
outstanding senior subordinated notes and senior discount debentures.
(e) Adjustment reflects the tax impact for the items in (b), (c)
and (d) at a 38.5% effective tax rate.
(f) Average common shares outstanding is calculated based on the
weighted average number of shares outstanding for the period. At
January 1, 2005 and January 3, 2004, we had 72,245 and 73,884 shares
outstanding, respectively.
Note: The preliminary condensed consolidated statements above titled
"GAAP" have been prepared on a basis consistent with our previously
prepared financial statements filed with the Securities and Exchange
Commission for our prior quarter and annual reports, 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
Fifty-Two and Fifty-Three Week Periods Ended
January 1, 2005 and January 3, 2004
(in thousands)
(unaudited)
January 1, January 3,
2005 2004
Cash flows from operating activities:
Net income $187,988 $124,935
Depreciation 104,877 100,737
Loss on extinguishment of debt 3,230 47,288
Provision for deferred income taxes 11,172 53,742
Other non-cash adjustments to net
income 29,169 17,410
(Increase) decrease in:
Receivables, net (15,945) 17,775
Inventories, net (87,669) (64,893)
Other assets 1,712 (7,216)
Increase (decrease) in:
Accounts payable 19,673 97,535
Accrued expenses 12,582 (27,985)
Other liabilities (2,994) (3,407)
Net cash provided by operating
activities 263,795 355,921
Cash flows from investing activities:
Purchases of property and equipment (179,766) (101,177)
Proceeds from sales of property and
equipment 12,944 15,703
Net cash used in investing
activities (166,822) (85,474)
Cash flows from financing activities:
(Decrease) increase in bank
overdrafts (10,901) 30,216
Increase in financed vendor accounts
payable 56,896 -
Early extinguishment of debt (105,000) (647,462)
Net borrowings under the credit
facility 130,000 353,300
Payment of debt related costs (3,509) (38,330)
Proceeds from the exercise of stock
options 20,469 25,407
Repurchase of common stock (146,370) -
Other net financing activities 6,276 4,024
Net cash used in financing
activities (52,139) (272,845)
Increase (decrease) in cash and cash
equivalents 44,834 (2,398)
Cash and cash equivalents, beginning
of period 11,487 13,885
Cash and cash equivalents, end of period $56,321 $11,487
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 reports, but do not include
the footnotes required by generally accepted accounting principles for
complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Supplemental Financial Schedules
Fifty-Two and Fifty-Three Week Periods Ended
January 1, 2005 and January 3, 2004
(in thousands)
(unaudited)
January 1, January 3,
2005 2004
Cash flows from operating activities $263,795 $355,921
Cash flows used in investing activities (166,822) (85,474)
96,973 270,447
Increase in financed vendor accounts
payable 56,896 -
Payment of debt costs associated
with early redemption (a) - (36,895)
Free cash flow $153,869 $233,552
(a) Represents the cash expense associated with the early redemption of
our senior subordinated notes and senior discount debentures in the
first quarter of 2003.
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.
