CSK Auto Corporation Reports Second Quarter Fiscal 2001 Financial Results
CSK Auto Corporation Reports Second Quarter Fiscal 2001 Financial Results
PHOENIX, Sept. 6 CSK Auto Corporation , the
parent company of CSK Auto, Inc., a specialty retailer in the automotive
aftermarket, today reported its financial results for the second quarter of
fiscal 2001.
Thirteen Weeks Ended August 5, 2001
Net sales for the thirteen weeks ended August 5, 2001 (the "second quarter
of fiscal 2001") increased 2% to $381.7 million from sales of $374.8 million
in the thirteen weeks ended July 30, 2000 ("the second quarter of fiscal
2000"). Comparable store sales increased by 2%. During the second quarter of
fiscal 2001, the Company opened 3 stores, relocated 1 store and closed
4 stores in addition to the store closed due to relocation, 3 of which were
closed in connection with the Company's previously announced Profitability
Enhancement Program. At August 5, 2001, the Company had 1,154 stores in
operation, compared to 1,143 at the end of the second quarter of fiscal 2000.
Gross profit, excluding non-recurring charges, was $170.2 million, or
44.6% of net sales, in the second quarter of fiscal 2001 as compared to
$173.6 million, or 46.6% of net sales, in the second quarter of fiscal 2000.
The lower realized gross profit margin was a result of the Company having
lower vendor allowances and cash discounts in the period due to a significant
reduction in inventory.
Operating profit for the second quarter of fiscal 2001, excluding
non-recurring charges, totaled $22.6 million or 5.9% of net sales compared to
$28.8 million, or 7.7% of net sales, for the second quarter of fiscal 2000.
The decrease in operating profit resulted primarily from a lower gross profit
margin as discussed above.
Excluding non-recurring charges, net income for the second quarter of
fiscal 2001 was $5.2 million or $0.19 per diluted common share, compared to
net income of $8.4 million or $0.30 per diluted common share in the second
quarter of fiscal 2000.
As announced on August 15, 2001, the Company is implementing several
strategic and financial initiatives toward improving its balance sheet and
enhancing future profitability. These steps include:
$30 Million of New Capital Investment
The Company announced the closing of a private placement of $30.0 million
aggregate principal amount of 7% convertible subordinated notes due
September 1, 2006 with OppenheimerFunds. This subordinated, equity-linked
capital will increase the Company's financial flexibility and will be deployed
in a series of transactions aimed at deleveraging the Company's balance sheet
and generating increased earnings through vendor allowances. In addition, it
is possible that, under certain mandatory conversion provisions of the notes,
the notes will be converted into common stock in the short to medium term.
Profitability Enhancement Program
In recent quarters, the Company has instituted an intensive focus
throughout the organization on maximizing cash flow generation and increasing
return on assets in order to enhance earnings by improving store profitability
and lowering debt levels. As a result of a thorough review of the Company's
asset utilization performance and operating effectiveness, the Company
announced that in order to maximize cash flow generation, it has:
* identified underperforming stores that have been or will be closed,
which is expected to increase profitability by $4 million annually;
* reduced corporate staffing, which is expected to reduce cash salaries
by $7 million annually;
* completed a review of slower-selling merchandise, which will either be
eliminated or transferred to stores that are turning the items
satisfactorily; and
* re-negotiated certain equipment leases and service arrangements to a
lower cost.
These initiatives are expected to reduce operating expenses by
approximately $9.3 million during the second half of fiscal 2001, and by
approximately $16.5 million in fiscal 2002.
As part of the immediate implementation of the Profitability Enhancement
Program, the Company recorded a non-recurring after-tax charge of
approximately $28 million in the second quarter of fiscal 2001. The majority
of the non-recurring charge will be non-cash. The non-recurring charge
includes expenses related to the anticipated store closures (which includes
future lease obligations), employee severance costs and charges related to
merchandise and property that are in excess of anticipated needs or are
otherwise under-performing.
"Although it is very early in the process, we believe the strategic
initiatives we have implemented as part of our Profitability Enhancement
Program, as well as the new capital resources we have obtained, are important
steps in strengthening the Company operationally and financially and
ultimately preparing the Company to restructure its senior credit facility,"
said Maynard Jenkins, Chairman and Chief Executive Officer of CSK Auto
Corporation. "Second quarter fiscal 2001 financial results, excluding the
non-recurring charges, were in line with previous guidance. Looking ahead, we
expect our actions will position the Company to achieve our goals of lowered
debt levels, improved operating performance and increased inventory turns
which, in the short term, are expected to increase the Company's net income
for the third quarter ending November 4, 2001 by approximately 50% over this
year's second quarter."
Twenty-six Weeks Ended August 5, 2001
Net sales for the twenty-six weeks ended August 5, 2001 ("first half of
fiscal 2001") increased 1% to $737.8 million from sales of $731.2 in the
comparable period of twenty-six weeks ended July 30, 2000 ("first half of
fiscal 2000"). Comparable store sales were flat for the twenty-six weeks
ended August 5, 2001.
Gross profit, excluding non-recurring charges, was $338.8 million, or
45.9% of net sales for the first half of 2001 as compared to $346.5 million or
47.8% of net sales in the first half of 2000. The lower gross profit is a
reflection of lower vendor allowances and cash discounts due to a significant
reduction in inventory.
Operating profit for the first half of 2001 totaled $45.9 million, or 6.2%
of net sales, excluding non-recurring charges, compared to $64.8 million, or
8.9% of net sales for the first half of 2000. The decrease in operating
profit resulted from lower gross profit margins as discussed above.
Interest expense for the first half of 2001 increased to $31.4 million
from $29.8 million in the same period last year, primarily due to increased
costs associated with financing vendor payables.
Excluding non-recurring items, net income for the first half of fiscal
2001 was $9.5 million or $0.34 per diluted common share. This compares to net
income of $21.5 million or $0.77 per diluted common share for the first half
of fiscal 2000. Net income for the first half of fiscal 2001, inclusive of
all charges, decreased to a loss of $21.6 million or $0.78 per diluted common
share, from income of $4.2 million or $0.15 per diluted common share in the
first half of fiscal 2000.
Outlook
The Company expects net income for the third quarter of fiscal 2001 to
increase approximately 50% over the results of the second quarter of fiscal
2001, excluding the effect of the second quarter's non-recurring charges and
the fourth quarter to increase slightly over the third quarter. The Company
noted that the improvement in expected quarter-over-quarter net income
reflects the anticipated effect of the steps taken to reduce costs and improve
profitability.
CSK Auto Corporation is the parent company of CSK Auto, Inc., a specialty
retailer in the automotive aftermarket. As of August 5, 2001, the Company
operated 1,154 stores in 19 states under the brand names Checker Auto Parts,
Schuck's Auto Supply and Kragen Auto Parts.
Certain statements contained in this release are forward-looking
statements. They discuss, among other things, expected growth, future store
development and relocation strategy, business strategies, future revenues and
future performance. The forward-looking statements are subject to risks,
uncertainties and assumptions, including, but not limited to, competitive
pressures, demand for the Company's products, the state of the economy,
inflation, consumer debt levels and the weather. Actual results may differ
materially from anticipated results described in these forward-looking
statements.
Conference Call
In conjunction with this release, the Company will hold a quarterly
conference call for the investing public. Interested parties may hear a
replay of the conference call from 8:30 p.m. (ET) Thursday September 6, 2001
through 11:59 p.m. (ET) Friday September 7, 2001 by dialing 800-615-3210 and
using access code 5470672. Additionally, a simultaneous webcast of the
conference call will be available commencing at 5:00 p.m. (ET) on September 6,
2001 at http://www.cskauto.com by pointing one's browser and clicking on
"Company," "Investor Info" and then "Conference Call".
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share data)
(As Adjusted)
Thirteen Weeks Ended Thirteen Weeks Ended
August 5, July 30, August 5, July 30,
2001 2000 2001 (1) 2000 (2)
Net sales $381,722 $374,802 $381,722 $372,303
Cost of sales 234,648 201,348 211,556 198,749
Gross profit 147,074 173,454 170,166 173,554
Other costs and expenses:
Operating and
administrative 146,322 143,399 146,322 142,321
Store closing costs 19,524 4,018 29 291
Restructuring and
other non-recurring
charges 3,952 -- -- --
Transition and
integration
expenses (3) -- 11,063 -- --
Equity in loss of
joint venture -- 716 -- 716
Goodwill amortization 1,235 1,416 1,235 1,416
Operating profit
(loss) (23,959) 12,842 22,580 28,810
Interest expense, net 14,663 15,263 14,663 15,263
Income (loss) before
income taxes (38,622) (2,421) 7,917 13,547
Income tax expense
(benefit) (14,785) (926) 2,690 5,182
Net income (loss) $(23,837) $(1,495) $5,227 $8,365
Basic earnings per share:
Net income (loss) $(0.86) $(0.05) $0.19 $0.30
Shares used in computing
per share
amounts 27,841,535 27,838,889 27,841,535 27,838,889
Diluted earnings per share:
Net income (loss) $(0.86) $(0.05) $0.19 $0.30
Shares used in computing
per share
amounts 27,858,481 27,838,889 27,858,481 27,838,889
1) The "as adjusted" column excludes: (i) $23.1 million in cost of
sales, $21.9 million from the Profitability Enhancement Program and a
$1.2 million LIFO inventory adjustment related to that inventory
devaluation; (ii) $19.5 million in store closing costs taken as part
of the Profitability Enhancement Program; and (iii) $4.0 million in
restructuring charges, also a part of our Profitability Enhancement
Program. Total pre-tax charges associated with the Profitability
Enhancement Program are $45.4 million or $28.0 million, after tax.
2) The "as adjusted" column excludes: (i) $2.5 million of sales made by
acquired automotive service centers that the Company had closed or
was closing; (ii) $2.6 million of cost of sales associated with the
excluded sales; (iii) $1.1 million of operating expenses of
automotive service centers that the Company had closed or was
closing; (iv) $3.7 million of store closing costs incurred with
respect to CSK stores that overlapped with acquired stores; and (v)
$11.1 million of transition and integration costs related to the
acquisitions.
3) Reflects costs incurred to replace store systems, re-merchandise
stores, train employees and conduct other activities associated with
the integration of acquired stores into the Company's operations.
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share data)
(As Adjusted)
Twenty-six Weeks Ended Twenty-six Weeks Ended
August 5, July 30, August 5, July 30,
2001 2000 2001 (1) 2000 (2)
Net sales $737,843 $731,156 $737,843 $724,754
Cost of sales 422,183 384,159 399,091 378,260
Gross profit 315,660 346,997 338,752 346,494
Other costs and expenses:
Operating and
administrative 290,993 278,753 289,833 276,341
Store closing costs 21,819 5,863 574 2,136
Restructuring and
other non-
recurring charges 3,952 -- -- --
Transition and
integration
expenses (3) 250 22,510 -- --
Equity in loss of
joint venture -- 716 -- 716
Goodwill amortization 2,418 2,528 2,418 2,528
Operating profit
(loss) (3,772) 36,627 45,927 64,773
Interest expense, net 31,410 29,821 31,410 29,821
Income (loss) before
income taxes (35,182) 6,806 14,517 34,952
Income tax expense
(benefit) (13,598) 2,626 4,967 13,484
Net income (loss) $(21,584) $4,180 $9,550 $21,468
Basic earnings per share:
Net income (loss) $(0.78) $0.15 $0.34 $0.77
Shares used in computing
per share
amounts 27,841,356 27,837,735 27,841,356 27,837,735
Diluted earnings per share:
Net income (loss) $(0.78) $0.15 $0.34 $0.77
Shares used in computing
per share
amounts 27,841,356 27,837,735 27,841,356 27,837,735
1) The "as adjusted" column excludes: (i) $23.1 million in cost of
sales, $21.9 million to address slow-selling inventory identified as
part of our Profitability Enhancement Program and $1.2 million for
LIFO inventory adjustments related to the inventory devaluation; (ii)
$1.1 million in operating and administrative costs for a loss on the
disposition of certain fixed assets; (iii) $21.2 million in store
closing costs, $19.5 million for closings as part of our
Profitability Enhancement Program and $1.7 million due to longer
vacancy periods at stores closed as a result of acquisitions; (iv)
$4.0 million in restructuring and other non-recurring charges
identified as part of our Profitability Enhancement Program and (v)
$0.2 million of transition and integration expenses relating to
prior acquisitions.
2) The "as adjusted" column excludes: (i) $6.4 million of sales made by
acquired automotive service centers that the Company had closed or
was closing; (ii) $5.9 million of cost of sales associated with the
excluded sales; (iii) $2.4 million of operation expenses of the
automotive service centers that the Company had closed or was
closing; (iv) $3.7 million of store closing costs incurred with
respect to CSK stores that overlap with acquired stores; and (v)
$22.5 million of transition and integration costs related to the
acquisitions.
3) Reflects costs incurred to replace store systems, re-merchandise
stores, train employees and conduct other activities associated with
the integration of acquired stores into the Company's operations.