CSK Auto Corporation Reports Fiscal 2002 Second Quarter Same Store Sales Growth of 7%
PHOENIX, Aug. 29-- 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 2002.Thirteen Weeks Ended August 4, 2002
The Company reported the following highlights for the quarter ended August 4, 2002:
* Net income increased to approximately $4.1 million from a loss of
$23.8 million in the second quarter of 2001;
* Net income before one time items increased 69% to $8.8 million, as
compared to the second quarter of fiscal 2001, exceeding by $0.8
million or $0.02 per share the guidance provided by the Company at the
time of its recent equity offering;
* Same store sales grew by 7%;
* Successfully completed a common stock offering of approximately 6.9
million primary shares including the exercise of the underwriters'
over-allotment option;
* Reduced total outstanding debt by $89.0 million year over year; and
* Successfully completed the sale of 13 stores that were geographically
remote from the Company's other operations.
Net sales for the thirteen weeks ended August 4, 2002 (the "second quarter of fiscal 2002") increased 4.3% to $398.3 million from sales of $381.7 million in the thirteen weeks ended August 5, 2001 ("the second quarter of fiscal 2001"). Comparable store sales increased by 7%. During the second quarter of fiscal 2002, the Company opened 4 stores, relocated 1 store, closed 1 store in addition to the store closed due to relocation and sold 13 stores in west Texas, as previously announced. At August 4, 2002, the Company had 1,114 stores in operation, compared to 1,154 at the end of the second quarter of fiscal 2001.
Gross profit was $182.1 million, or 45.7% of net sales, in the second quarter of fiscal 2002 as compared to $147.1 million, or 38.5% of net sales on a GAAP basis, for the second quarter of fiscal 2001, or $170.2 million or 44.6% of net sales, excluding the Company's Profitability Enhancement Program ("PEP") charges of $23.1 million, in the second quarter of fiscal 2001. The higher gross profit margin reflected the Company's improved inventory in-stock position and the realization of more cash discounts and vendor allowances as a result of the Company's increased liquidity.
Operating profit for the second quarter of fiscal 2002 totaled $28.2 million, or 7.1% of net sales, compared to an operating loss of $24.0 million, or 6.3% of net sales, for the second quarter of fiscal 2001. Operating profit for the second quarter of fiscal 2002 includes a loss of $0.8 million on the sale of the 13 stores in west Texas, as well as $0.3 million of expenses that were incurred in connection with the Company's offering of common stock in June 2002. Operating profit for the second quarter of fiscal 2001 includes $21.4 million of costs and charges incurred largely in connection with the Company's PEP, as well as $2.0 million of charges incurred in connection with certain legal settlements. Excluding these items discussed above from operating profit of the respective periods, operating profit increased in the fiscal 2002 quarter to $29.3 million, or 7.3% of net sales, from $22.6 million, or 5.9% of net sales, in the fiscal 2001 quarter.
Interest expense was $16.2 million for the second quarter of fiscal 2002 compared to $14.7 million in the second quarter of fiscal 2001. The increased interest expense is a result of higher amortization of fees associated with the recent refinancing and more high- yield debt outstanding when compared to the second quarter of fiscal 2001. Due to a required 30 day notice period, the Company was precluded from immediately retiring the $71.7 million of 11% senior subordinated notes that were redeemed with the proceeds of the Company's common stock offering. As a result of the delay, the Company incurred $0.3 million of interest expense on the notes that could have been avoided had immediate redemption been possible.
Net income for the second quarter of fiscal 2002 was $4.1 million, or $0.10 per diluted common share, on a weighted average share base of 40.1 million shares, compared to a net loss of $23.8 million, or $(0.86) per diluted common share, on a weighted average share base of 27.8 million shares in the second quarter of fiscal 2001. Excluding the items discussed above that affect operating profit, as well as approximately $0.1 million of interest expense associated with certain convertible debentures and $0.3 million of additional interest required by the delay in retirement of the 11% senior subordinated notes and the $3.7 million extraordinary loss, net income was $8.8 million or $0.21 per diluted common share on a weighted average share base of 41.1 million shares for the second quarter of fiscal 2002. (This share count assumes the conversion of the convertible debentures into common stock as of the beginning of the fiscal year.) This compares to net income of $5.2 million, or $0.19 per diluted common share on a weighted average share base of 27.9 million shares for the second quarter of fiscal 2001. The substantial increase in the weighted average number of fully diluted outstanding common shares is the result of the recent offering that included 5.6 million shares and an over-allotment option exercise of approximately 1.3 million shares for a total of approximately 6.9 million shares and the conversion in May 2002 of $50.0 million of convertible debentures into approximately 5.8 million shares of common stock.
The fiscal 2002 second quarter net income exceeded the guidance the Company provided in connection with its recent equity offering by $0.8 million. The outstanding share count, however, is higher than was expected as a result of strong demand for the Company's stock resulting in the exercise in full of the over-allotment option granted to the underwriters. In addition, recent strength in the Company's stock price has increased the dilutive effect of the Company's outstanding stock options. The impact of these share count increases caused fully diluted earnings per share, excluding the items discussed above, to be approximately $0.03 less than the approximately $0.24 per fully diluted share it would have otherwise been.
As previously announced, the Company implemented several strategic financial initiatives to improve its balance sheet and enhance future profitability. These steps included: (1) The conversion of $50.0 million in subordinated debentures into approximately 5.8 million shares of CSK Auto Corporation common stock in May 2002; and (2) the sale of approximately 6.9 million additional shares of common stock with the proceeds from the sale used on August 1, 2002 to redeem approximately $71.7 million of CSK Auto, Inc.'s 11% senior subordinated notes due 2006. This early retirement of the 11% senior subordinated notes will reduce cash needed to fund interest expense by approximately $3.9 million for the balance of fiscal 2002.
"The Management of CSK Auto is very pleased with the continued operating and financial improvements we have achieved so far this year," said Maynard Jenkins, Chairman and Chief Executive Officer of CSK Auto Corporation. "The improved liquidity from the Company's refinancing at year-end 2001 has already had a significant impact on our operating results. The continued improvement in the second quarter is evidenced by the 7% increase in comparable store sales, a sequential increase in gross profit margins of 170 basis points and the continued leveraging of our selling, general and administrative costs resulting in a net income increase, before one-time items, of almost 70% over the same period of 2001. Since the second quarter of fiscal 2001, our outstanding debt has been reduced by approximately $89.0 million. This is largely the result of the retirement of approximately $71.7 million of 11% senior subordinated notes. As a result, our debt to EBITDA ratio has been reduced from 4.75 times to 4.00 times."
Twenty-six Weeks Ended August 4, 2002
Net sales for the twenty-six weeks ended August 4, 2002 ("first half of fiscal 2002") increased 4.9 % to $773.9 million from sales of $737.8 in the comparable twenty-six weeks ended August 5, 2001 ("first half of fiscal 2001"). Comparable store sales increased 7% for the twenty-six weeks ended August 4, 2002.
Gross profit was $347.2 million, or 44.9% of net sales, for the first half of 2002 as compared to $315.7 million or 42.8% of net sales in the first half of 2001. Gross profit in the fiscal 2001 period was reduced by $23.1 million of charges incurred in connection with the PEP.
Operating profit for the first half of 2002 totaled $51.3 million, or 6.6% of net sales, compared to an operating loss of $3.8 million, or 0.5% of net sales for the first half of 2001. The operating profit increase is primarily the result of cost reductions associated with the PEP and the leveraging of fixed administrative costs over rising comparable store sales. In addition, fiscal 2001 operating profit was affected by $21.4 million of costs and charges incurred largely in connection with the PEP, as well as by $2.0 million of charges incurred in connection with certain legal settlements.
Interest expense for the first half of 2002 increased to $33.9 million from $31.4 million in the same period last year, due to increased amortization of costs associated with the refinancing, slightly higher outstanding loan balances and slightly higher interest rates.
Net income for the first half of fiscal 2002, inclusive of all charges, increased to $7.5 million or $0.21 per diluted common share, assuming a share count of 36.2 million shares, from a loss of $21.6 million, or $(0.78) per diluted common share, assuming a share count of 27.8 million shares in the first half of fiscal 2001. Net income for the first half of fiscal 2002 was $12.9 million or $0.32 per diluted common share, excluding the loss on the sale of the west Texas stores, the secondary offering costs, the interest adjustments for the convertible notes and the delay on redemption of the $71.7 million senior subordinated notes and the extraordinary loss. Share count for the first half of fiscal 2002 was 39.6 million shares. (This share count assumes the conversion of the convertible debentures into common stock as of the beginning of the fiscal year.) This compares to net income of $9.6 million, or $0.34 per diluted common share, excluding non-recurring charges and assuming a share count of 27.8 million, for the first half of fiscal 2001.
Outlook
Strong sales trends have continued into the third quarter and the Company expects its comparable store sales increase to remain in the mid single digit range for the remainder of the fiscal year. As a result, barring unforeseen changes in the general economy, the Company expects its full year fiscal 2002 net income, exclusive of one-time items, to range between $29.0 million and $31.0 million, representing an increase from its previous guidance of between $27.0 million and $29.0 million.
CSK Auto Corporation is the parent company of CSK Auto, Inc., a specialty retailer in the automotive aftermarket. As of August 4, 2002, the Company operated 1,114 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 August 29, 2002 through 8:30 p.m. (ET) Friday August 30, 2002 by dialing (877) 519-4471 and using passcode 3450516. (If retrieving digital replay outside of the U.S. please dial (973) 341-3080, passcode 3450516.) Additionally, a simultaneous webcast of the conference call will be available commencing at 5:00 p.m. (ET) on August 29, 2002 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 4, August 5, August 4, August 5,
2002 2001 2002 (1) 2001 (2)
Net sales $398,306 $381,722 $398,306 $381,722
Cost of sales 216,238 234,648 216,238 211,556
Gross profit 182,068 147,074 182,068 170,166
Other costs
and expenses:
Operating and
administrative 152,565 146,322 152,565 146,322
Store closing and
other restructuring
costs 239 21,476 239 29
Legal settlement -- 2,000 -- --
Loss on sale of stores 847 -- -- --
Secondary offering costs 265 -- -- --
Goodwill amortization -- 1,235 -- 1,235
Operating profit (loss) 28,152 (23,959) 29,264 22,580
Interest expense, net 16,240 14,663 15,772 14,663
Income (loss) before
income taxes 11,912 (38,622) 13,492 7,917
Income tax expense
(benefit) 4,130 (14,785) 4,668 2,690
Income (loss) before
extraordinary loss 7,782 (23,837) 8,824 5,227
Extraordinary loss,
net of $2,313 of
income tax (3,695) -- -- --
Net income (loss) $4,087 $(23,837) $8,824 $5,227
Basic earnings per share:
Income (loss) before
extraordinary loss $0.19 $(0.86) $0.22 $0.19
Extraordinary loss,
net of income tax (0.09) -- -- --
Net income (loss) $0.10 $(0.86) $0.22 $0.19
Shares used in computing
per share amounts 39,826,079 27,841,178 40,790,181 27,841,535
Diluted earnings per share:
Income (loss) before
extraordinary loss $0.19 $(0.86) $0.21 $0.19
Extraordinary loss,
net of income tax (0.09) -- -- --
Net income (loss) $0.10 $(0.86) $0.21 $0.19
Shares used in computing
per share amounts 40,138,663 27,841,178 41,102,765 27,858,481
1) The "as adjusted" column excludes: (i) $0.8 million loss related to
the sale of certain Texas stores; (ii) $0.3 million in costs related
to the secondary stock offering; (iii) $0.1 million of interest
related to the $50.0 million convertible notes which were converted in
May 2002; (iv) $0.3 million of additional interest paid due to the
delay in retiring the $71.7 million of senior subordinated notes; and
(v) $3.7 million (net of $2.3 million of income tax benefit) for costs
associated with the early extinguishment of approximately $71.7
million of the Company's 11% senior subordinated notes due 2006.
Share count for basic and diluted earnings per share assumes that the
conversion of the Company's $50.0 million subordinated debentures in
May 2002 occurred at the beginning of the fiscal year.
2) 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; (iii) $2.0 million in
restructuring and other non-recurring charges identified as part of
our Profitability Enhancement Program; and (iv) $2.0 million in
charges associated with certain legal settlements.
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 4, August 5, August 4, August 5,
2002 2001 2002 (1) 2001 (2)
Net sales $773,856 $737,843 $773,856 $737,843
Cost of sales 426,658 422,183 426,658 399,091
Gross profit 347,198 315,660 347,198 338,752
Other costs
and expenses:
Operating and
administrative 294,203 290,993 294,203 289,833
Store closing and
other restructuring
costs 539 23,771 539 574
Legal settlement -- 2,000 -- --
Loss on sale of stores 847 -- -- --
Secondary offering costs 265 -- -- --
Transition and
integration expenses -- 250 -- --
Goodwill amortization -- 2,418 -- 2,418
Operating profit (loss) 51,344 (3,772) 52,456 45,927
Interest expense, net 33,958 31,410 32,427 31,410
Income (loss) before
income taxes 17,386 (35,182) 20,029 14,517
Income tax expense
(benefit) 6,224 (13,598) 7,170 4,967
Income (loss) before
extraordinary loss 11,162 (21,584) 12,859 9,550
Extraordinary loss,
net of $2,313 of
income tax (3,695) -- -- --
Net income (loss) $7,467 $(21,584) $12,859 $9,550
Basic earnings per share:
Income (loss) before
extraordinary loss $0.31 $(0.78) $0.33 $0.34
Extraordinary loss,
net of income tax (0.10) -- -- --
Net income (loss) $0.21 $(0.78) $0.33 $0.34
Shares used in computing
per share amounts 36,099,845 27,841,178 39,520,223 27,841,356
Diluted earnings per share:
Income (loss) before
extraordinary loss $0.31 $(0.78) $0.32 $0.34
Extraordinary loss,
net of income tax (0.10) -- -- --
Net income (loss) $0.21 $(0.78) $0.32 $0.34
Shares used in computing
per share amounts 36,178,528 27,841,178 39,598,907 27,841,356
1) The "as adjusted" column excludes: (i) $0.8 million loss related to the
sale of certain Texas stores; (ii) $0.3 million in costs related to the
secondary stock offering; (iii) $1.2 million of interest related to the
$50.0 million convertible notes which were converted in May 2002; (iv)
$0.3 million of additional interest paid due to the delay in retiring
the $71.7 million of senior subordinated notes; and (v) $3.7 million
(net of $2.3 million of income tax benefit) for costs associated with
the early extinguishment of approximately $71.7 million of the
Company's 11% senior subordinated notes due 2006. Share count for
basic and diluted earnings per share assumes that the conversion of the
Company's $50.0 million subordinated debentures in May 2002 occurred at
the beginning of the fiscal year.
2) The "as adjusted" column excludes: (i) $23.1 million in cost of sales,
$21.9 million 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) $2.0
million in restructuring and other non-recurring charges identified as
part of our Profitability Enhancement Program; (v) $2.0 million in
charges associated with certain legal settlements; and (iv) $0.2
million of transition and integration expenses relating to prior
acquisitions.
Selected Financial Data:
($ in thousands)
Thirteen Weeks Ended Twenty-six Weeks Ended
August 4, August 5, August 4, August 5,
2002 2001 2002 2001
EBITDA, as adjusted(1) $38,209 $33,035 $70,414 $66,751
Depreciation $8,005 $8,299 $16,122 $16,659
Amortization (net
of deferred
financing costs) $940 $2,156 $1,836 $4,165
FIFO inventory $549,488 $533,328 $549,488 $533,328
Interest expense $16,240 $14,663 $33,958 $31,410
Cash interest $14,620 $13,822 $29,717 $29,876
Capital expenditures $1,514 $3,230 $3,617 $7,873
Availability under
revolving credit
facility $49,124 $22,000 $49,124 $22,000
Total debt (including
current maturities
and excluding
convertible debt) $544,689 $633,587 $544,689 $633,587
Net debt (including
current maturities
less cash and cash
equivalents $528,170 $619,480 $528,170 $619,480
Calculation of EBITDA, as adjusted:
($ in thousands)
Thirteen Weeks Ended Twenty-six Weeks Ended
August 4, August 5, August 4, August 5,
2002 2001 2002 2001
Operating profit
(loss) $28,152 $(23,959) $51,344 $(3,772)
Depreciation 8,005 8,299 16,122 16,659
Amortization (net of
deferred financing
costs) 940 2,156 1,836 4,165
EBITDA 37,097 (13,504) 69,302 17,052
Other adjustments(1) 1,112 46,539 1,112 49,699
EBITDA, as adjusted(1) $38,209 $33,035 $70,414 $66,751
Share Count Reconciliation:
Thirteen Weeks Ended Twenty-six Weeks Ended
Weighted Weighted
Actual shares shares Actual shares shares
outstanding outstanding outstanding outstanding
Beginning share
count 32,479,305 32,479,305 32,370,746 32,370,746
Conversion of
subordinated
debentures 5,753,740 4,794,783 5,753,740 2,384,146
Issuance of interest
shares 30,872 25,727 136,580 85,795
Secondary offering
shares (including
over-allotment) 6,878,300 2,522,043 6,878,300 1,254,055
Exercise of options
and other 12,240 4,221 15,091 5,103
Ending share count
(basic) 45,154,457 39,826,079 45,154,457 36,099,845
Dilutive effect of
outstanding stock
options 312,584 78,683
Ending share count
(diluted) 40,138,663 36,178,528