Discount Auto Slows Expansion

LAKELAND, Fla.--Discount Auto Parts Inc. says it is slowing down its expansion efforts and seeking other cost-cutting measures to offset a falling financial picture.

“For fiscal 2001, the company has determined it will reduce its pace of opening new stores,” said Bill Perkins, president and chief operating officer. “We believe by slowing growth for some period of time it will allow us to better focus on improving the profitability of our commercial operations and our overall inventory performance, as well as improving our overall utilization of our available capital resources.”

The operation, which serves DIY consumers, professional mechanics and service technicians, has 653 stores throughout Florida, Georgia, Mississippi, Alabama, Louisiana and South Carolina. During the first quarter of fiscal 2001, the company added 12 new mini-depot stores and closed two stores. For fiscal year 2001, it plans to open about 40 new stores.

Discount Auto reported net income for the first quarter of fiscal 2001 of $3.6 million or 21 cents per diluted share--down considerably from the $7.3 million or 44 cents per diluted share for the first quarter of fiscal 2000.

“We are disappointed with our overall earnings results for the first quarter and, particularly our gross margin results,” said Peter Fontaine, chairman and CEO. “We have taken and are continuing to take aggressive actions to address these matters, including the continuation of our extensive review of all our supply chain processes. We are already seeing an improving trend in our product distribution costs and continue to investigate and address, to the extent possible, the factors leading to increases in inventory shrinkage. Based on the work performed to date, we are optimistic we will begin to see meaningful improvements in gross margins in the second half of the year.”

Income from operations for the first quarter of fiscal 2001 was $11.1 million as compared to $14.7 million for the first quarter of fiscal 2000.

Interest expense for the first quarter of fiscal 2001 increased 52.9 percent to $5.6 million as compared to $3.7 million for the first quarter of fiscal 2000. The increase was the result of increased borrowings primarily associated with new store growth and overall higher interest rates, according to the company.

As a percentage of sales, gross profit was 38.3 percent for the first quarter of fiscal 2001 as compared to 40.7 percent for the first quarter of fiscal 2000. “Gross profit for the first quarter of fiscal 2001 was negatively impacted by continued margin pressure in commodity categories such as oil and freon, higher than anticipated inventory shrinkage expense and higher product distribution costs,” the company reported.

Total sales for the first quarter of fiscal 2001 increased 16.3 percent to a record $167.1 million, as compared to $143.6 million a year earlier. Comparable store sales increased 6.5 percent for the first quarter of fiscal 2001 as compared to the first quarter of fiscal year 2000. Comparable store sales results include sales from the company’s commercial delivery program. The balance of the increase in total sales for the first quarter was attributable to sales from new stores being opened.

Gross profit for the first quarter of fiscal 2001 increased 9.4 percent to $63.9 million as compared to $58.4 million for the first quarter of fiscal 2000.

Selling, general and administrative expenses increased as a percentage of sales from 30.4 percent in the first quarter of fiscal 2000 to 31.6 percent in the first quarter of fiscal 2001. “The increase is due in part to increases in salaries and wages at our retail stores that are primarily being driven by the continuing strong economy and resulting lower levels of unemployment,” according to the company.