Advance Auto Parts Reports Record Fourth Quarter and Fiscal 2003 Results
Best Quarterly and Year-End Results in Company History; Fourth Quarter Same Store Sales Gain of 7%; Fourth Quarter Earnings Exceed Company Guidance
ROANOKE, Va., Feb. 18 -- 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 3, 2004. Fiscal 2003 included 53 weeks of operations compared to 52 weeks in 2002, with the additional week falling in the fourth quarter of 2003.
Fourth Quarter 2003
Sales increased 19.2% in the fourth quarter to $821.3 million from $689.2 million. Excluding $63.0 million in sales from the extra week, sales increased 10.0%. Same store sales grew 7.0% in the fourth quarter versus 3.1% in the same quarter last year. The stores acquired as part of the Discount Auto Parts' acquisition, which are included in the comparable store base, produced a comparable store sales increase of 7.5% during the fourth quarter compared to 3.3% last year. Fourth quarter same store sales are based on the equivalent 13-week period in both 2002 and 2003.
During the fourth quarter, gross margin increased 49 basis points to 45.6% versus 45.1% in the same quarter of last year, reflecting the positive impact of category management initiatives and improved efficiencies in the logistics network. On a GAAP basis, fourth quarter operating margins improved 243 basis points to 7.2% compared to 4.8% last year. Comparable operating margins rose 131 basis points to 7.4% compared to 6.1% in the same quarter last year. Comparable results exclude the expenses associated with the Discount Auto Parts' integration.
On a GAAP basis, net earnings increased by 262.8% to $31.3 million for the fourth quarter of 2003. GAAP earnings per diluted share were $0.41, compared to $0.12 last year. The 2003 fourth quarter GAAP earnings included expenses of $0.01 per diluted share associated with the Discount Auto Parts' integration and a $0.03 loss per diluted share from discontinued operations related to the Western Auto wholesale business.
Comparable earnings from continuing operations rose 121.7% to $34.3 million, representing a comparable earnings per diluted share gain of 114.3%, to $0.45 in the 2003 fourth quarter versus $0.21 in the same quarter of the previous year. Including the impact of discontinued operations, comparable earnings per diluted share rose 90.9% to $0.42, $0.02 over the top end of the Company's guidance range. The 2003 fourth quarter earnings included an estimated $0.07 per diluted share for the 53rd week.
Comparable results are non-GAAP measures because they exclude the 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.
Larry Castellani, Chairman and Chief Executive Officer, noted, "In the fourth quarter, our team generated the strongest same store sales growth of the year, as we built momentum from our operating initiatives; including refining our category management process, launching a nationwide brand- building advertising program, and enhancing our in-store systems. The same store sales increase came from a rise in both customer count and higher average transactions. We also produced strong gains in both our gross and operating margins."
Other highlights for the 2003 fourth quarter included:
* The Company opened 46 new stores during the quarter.
* Both do-it-yourself (DIY) and commercial sales were strong. DIY
comparable store sales rose 5.4% compared to 2.7% last year and
commercial comparable store sales climbed 15.4% compared to 5.3%
last year.
* On a GAAP basis, selling, general and administrative (SG&A) expenses
declined to 38.3% versus last year's 40.3% of net sales. The
majority of the decline came from a year-over-year reduction in
integration expenses associated with the Discount Auto Parts'
acquisition.
* Comparable SG&A expenses declined 82 basis points to 38.1% of net
sales. The drop in SG&A expenses as a percent to sales was due to
its strong comparable store sales gain and the impact of the 53rd
week. The Company estimates that excluding the 53rd week, SG&A
declined approximately 25 basis points.
Fiscal 2003
Sales increased 9.0% to $3.5 billion, including the effect of the 53rd week. Excluding the impact of the extra week, sales rose 7.1% in 2003. Same store sales rose 3.1% for the year compared to 5.5% last year. The same store sales calculation for the year is based on a 53-week year in 2003 compared to the equivalent 53-weeks last year.
For 2003, gross profit margin improved 116 basis points to 45.9% from 44.8% last year. On a GAAP basis, operating profit margins increased 212 basis points to 8.3% compared to 6.1% last year. For the year, comparable operating profit margins improved 131 basis points to 8.5% from 7.2% in 2002. As noted earlier, comparable results exclude the expenses associated with the Discount Auto Parts' integration and the early redemption of notes and debentures.
On a GAAP basis, net earnings for 2003 increased to $124.9 million, up 92.2%. GAAP earnings per diluted share increased 85.6% to $1.67 compared to $0.90 in 2002. Earnings per diluted share for 2003 included expenses of $0.39 per diluted share resulting from the early redemption of outstanding notes and debentures, $0.08 per diluted share in integration expenses, and a $0.01 loss per diluted share on discontinued operations.
The Company discontinued the operations of its Western Auto wholesale business in December 2003. The wholesale business's results of operations for fiscal 2003, 2002 and 2001, which were historically reported as part of the Wholesale Segment, will be reflected as discontinued operations in the 2003 annual reports. The wholesale business incurred a loss of $0.4 million, income of $2.9 million and income of $2.4 million, all net of tax, for the fiscal years ended 2003, 2002 and 2001, respectively. The 2001 financial statements were audited by the Company's former auditors who have subsequently ceased operations. As a result, the current independent auditors are in the process of completing the audit procedures required to incorporate 2001 in their report for the Form 10-K to be filed on March 18, 2004.
Comparable earnings from continuing operations for the year were $160.5 million, an increase of 70.3%. Comparable earnings per diluted share from continuing operations rose 65.4% to $2.15 versus $1.30 in 2002. The 2003 earnings included an estimated $0.07 per diluted share for the 53rd week.
Other highlights for 2003 included:
* The Company opened 125 new stores, bringing the year-end store count
to 2,539.
* The Company generated $270.4 million in free cash flow in 2003.
Free cash flow is calculated as cash provided by operating
activities reduced by cash used in investing activities. The free
cash flow results do not include the cash expense of $36.9 million
associated with the early redemption of the Company's high interest
bearing notes and debentures in the first quarter of 2003.
Including these expenses, the Company generated $233.6 million in
adjusted free cash flow. The Company uses free cash flow as a
measure of its liquidity and believes it is a useful indicator to
shareholders of its ability to implement its growth strategies and
service its debt.
* The Company repaid $291 million of debt in 2003, resulting in a
41.3% year-end debt-to-capitalization ratio.
* Return on invested capital increased to 15.0% from 13.4% in the
prior year.
Guidance
The Company has issued guidance for its 2004 first and second quarter earnings per diluted share from continuing operations in the range of $0.62 to $0.65 compared to last year's $0.48 for the first quarter and $0.68 to $0.72 compared to last year's $0.60 for the second quarter. The Company is reiterating its guidance for earnings per diluted share of $2.50 to $2.55 for the 2004 year. The Company also announced that it expects to generate free cash flow of $180 million in 2004.
Castellani added, "Increasing our sales productivity is the centerpiece of our 2004 initiatives. We will continue to grow our sales per store by refining our category management initiatives, adding functionality to our proprietary point of sale and electronic catalog system, and continuing to remodel our stores on a market-by-market basis to our 2010 store format, which is generating a strong, positive customer response."
He added, "We plan to open between 125 to 135 new stores this year, and we'll have more than 1,000 stores operating under our new 2010 format by the end of 2004."
Board of Directors Announcements
The board of directors today announced the following additions and changes:
* Nicholas F. Taubman, the Company's former Chairman and Chief
Executive Officer will rejoin the board of directors.
* Stephen M. Peck, General Partner of the Wilderness Partners, LLP,
was appointed lead director. Peck joined the Company's board in
January 2002.
* In conjunction with Peck's appointment, John M. Roth, Partner of
Freeman Spogli & Co., stepped down as lead director, a position he
has held since February 2003.
* The Company's board of directors appointed Carlos A. Saladrigas,
Chairman of Premier American Bank, as chairman of the audit
committee, replacing Stephen Peck. Saladrigas joined the board in
May 2003.
Castellani stated, "I am delighted that Nick Taubman has returned to our board of directors. Nick had the vision and the determination to lead Advance Auto Parts from a small regional chain of automotive and home stores to the industry powerhouse it is today. Nick's vast industry knowledge will be a tremendous help to our leadership team, as we continue to move aggressively on our growth plans."
"We would like to thank John Roth for his leadership and guidance as lead director during the past year," he added. "His insight and business acumen have truly helped the Advance Auto Parts team build a strong foundation for the future. John will continue to have a positive impact on our Company as an active participant on our board.
"We look forward to the contributions that Stephen Peck will make as lead director," continued Castellani. "Stephen's achievements and reputation in the investment community are well known. We are privileged to have someone with his impeccable credentials serving in this leadership position on our board."
Investor Conference Call
The Company will host a conference call today, February 18, 2004, at 5:00 p.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 19, 2005.
Headquartered in Roanoke, Va., Advance Auto Parts is the second largest retailer of automotive parts in the United States. At January 3, 2004, the Company had 2,539 stores in 39 states, Puerto Rico and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
Certain statements contained in this news release are forward-looking statements. These statements discuss, among other things, expected growth, store development and expansion strategy, business strategies, future revenues and future performance, including our future free cash flow and earnings per share. These forward-looking statements are subject to risks, uncertainties and assumptions including, but not limited to, competitive pressures, demand for the Company's products, the market for auto parts, the economy in general, inflation, consumer debt levels, the weather, and other risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Actual results may materially differ from anticipated results described in these forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of the news release and does not undertake to update or revise them, as more information becomes available.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
January 3, December 28,
2004 2002
Assets
Current assets:
Cash and cash equivalents $ 11,487 $ 13,885
Receivables, net 84,799 102,574
Inventories, net 1,113,781 1,048,803
Other current assets 16,387 20,210
Total current assets 1,226,454 1,185,472
Property and equipment, net 712,702 728,432
Assets held for sale 20,191 28,346
Other assets, net 23,724 22,975
$ 1,983,071 $ 1,965,225
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $ 31,085 $ 869
Current portion of long-term debt 22,220 10,690
Accounts payable 568,275 470,740
Accrued expenses 173,818 208,176
Other current liabilities 58,547 32,101
Total current liabilities 853,945 722,576
Long-term debt 422,780 724,832
Other long-term liabilities 75,102 49,461
Total stockholders' equity 631,244 468,356
$ 1,983,071 $ 1,965,225
NOTE: These balance sheets do not include the footnotes required by
generally accepted accounting principles for complete financial
statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Thirteen Week Periods Ended
(in thousands, except per share data)
January 3, 2004 (a)
Merger and
Integration Comparable
GAAP Expenses 2003
Net sales $ 821,279 $ - $ 821,279
Cost of sales, including
purchasing and warehousing
costs 447,152 - 447,152
Gross profit 374,127 - 374,127
Selling, general and
administrative expenses 314,720 (1,624)(b) 313,096
Operating income 59,407 1,624 61,031
Other, net:
Interest expense (5,351) - (5,351)
Loss on extinguishment
of debt (22) - (22)
Other income, net 82 - 82
Total other, net (5,291) - (5,291)
Income from continuing operations
before provision for income
taxes and loss on discontinued
operations 54,116 1,624 55,740
Provision for income taxes 20,834 625 (c) 21,459
Income from continuing
operations before loss
on discontinued operations 33,282 999 34,281
Discontinued operations:
Loss from operations of
discontinued Wholesale
Distribution Network
(including loss on
disposal of $2,693) (3,269) - (3,269)
Income tax benefit (1,259) - (1,259)
Loss on discontinued operations (2,010) - (2,010)
Net income $ 31,272 $ 999 $ 32,271
Net income per basic share from:
Income from continuing
operations $ 0.45 $ 0.01 $ 0.46
Loss on discontinued
operations $ (0.03) $ - $ (0.03)
$ 0.42 $ 0.01 $ 0.43
Net income per diluted
share from:
Income from continuing
operations $ 0.44 $ 0.01 $ 0.45
Loss on discontinued
operations $ (0.03) $ - $ (0.03)
$ 0.41 $ 0.01 $ 0.42
Average common shares
outstanding (d) 73,849 73,849 73,849
Dilutive effect of stock options 2,010 2,010 2,010
Average common shares outstanding
-- assuming dilution 75,859 75,859 75,859
(a) Includes the 53rd week of operations for fiscal 2003.
(b) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(c) This adjustment reflects the tax impact for the items discussed above
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 period. At January 3,
2004, we had 73,884 shares outstanding as adjusted for the stock
split.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Fifty-Three Week Periods Ended
(in thousands, except per share data)
January 3, 2004 (a)
Merger and
Integration and
Extinguishment Comparable
GAAP of Debt Expenses 2003
Net sales $3,493,696 $ - $3,493,696
Cost of sales, including
purchasing and warehousing
costs 1,889,178 - 1,889,178
Gross profit 1,604,518 - 1,604,518
Selling, general and
administrative expenses 1,316,284 (10,417)(b) 1,305,867
Operating income 288,234 10,417 298,651
Other, net:
Interest expense (37,576) - (37,576)
Loss on extinguishment
of debt (47,288) 46,887 (c) (401)
Other income, net 341 - 341
Total other, net (84,523) 46,887 (37,636)
Income from continuing
operations before provision
for income taxes and loss
on discontinued operations 203,711 57,304 261,015
Provision for income taxes 78,424 22,062 (d) 100,486
Income from continuing
operations before loss on
discontinued operations 125,287 35,242 160,529
Discontinued operations:
Loss from operations of
discontinued Wholesale
Distribution Network
(including loss on
disposal of $2,693) (572) - (572)
Income tax benefit (220) - (220)
Loss on discontinued
operations (352) - (352)
Net income $ 124,935 $ 35,242 $ 160,177
Net income per basic share from:
Income from continuing
operations $ 1.72 $ 0.48 $ 2.20
Loss on discontinued
operations $ (0.01) $ - $ (0.01)
$ 1.71 $ 0.48 $ 2.19
Net income per diluted
share from:
Income from continuing
operations $ 1.68 $ 0.47 $ 2.15
Loss on discontinued
operations $ (0.01) $ - $ (0.01)
$ 1.67 $ 0.47 $ 2.14
Average common shares
outstanding (e) 72,999 72,999 72,999
Dilutive effect of stock
options 1,744 1,744 1,744
Average common shares
outstanding -- assuming dilution 74,743 74,743 74,743
(a) Includes the 53rd week of operations for fiscal 2003.
(b) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(c) This adjustment reflects the deferred loan costs, unamortized
discounts and the premiums paid upon the complete repurchase and
retirement of our outstanding bonds during the first quarter of 2003
(d) This adjustment reflects the tax impact for the items discussed
above 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 period. At January 3,
2004, we had 73,884 shares outstanding as adjusted for the stock
split.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Twelve Week Periods Ended
(in thousands, except per share data)
December 28, 2002
Merger and
Integration and
Extinguishment Comparable
GAAP of Debt Expenses 2002
Net sales $ 689,195 $ - $ 689,195
Cost of sales, including
purchasing and warehousing
costs 378,628 - 378,628
Gross profit 310,567 - 310,567
Selling, general and
administrative expenses 277,457 (9,090)(a) 268,367
Operating income 33,110 9,090 42,200
Other, net:
Interest expense (15,361) - (15,361)
Loss on extinguishment
of debt (2,616) 2,616 (b) -
Expenses associated with
secondary offering (1,733) (1,733)
Other income, net 164 - 164
Total other, net (19,546) 2,616 (16,930)
Income from continuing operations
before provision for income
taxes and income on discontinued
operations 13,564 11,706 25,270
Provision for income taxes 5,341 4,463 (c) 9,804
Income from continuing
operations before income
on discontinued operations 8,223 7,243 15,466
Discontinued operations:
Income from discontinued
operations of Wholesale
Distribution Network 647 - 647
Provision for income taxes 251 - 251
Income on discontinued
operations 396 - 396
Net income $ 8,619 $ 7,243 $ 15,862
Net income per basic share from:
Income from continuing
operations $ 0.11 $ 0.10 $ 0.21
Income on discontinued
operations 0.01 - 0.01
$ 0.12 $ 0.10 $ 0.22
Net income per diluted
share from:
Income from continuing
operations $ 0.11 $ 0.10 $ 0.21
Income on discontinued
operations 0.01 - 0.01
$ 0.12 $ 0.10 $ 0.22
Average common shares
outstanding (d) 71,420 71,420 71,420
Dilutive effect of stock options 2,118 2,118 2,118
Average common shares outstanding
-- assuming dilution 73,538 73,538 73,538
(a) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(b) This adjustment reflects the current and deferred loan costs
associated with the Company's refinancing of the tranche B term loan
under its senior credit facility and reflects the ratable portion of
deferred loan costs and the premium paid upon the repurchase and
retirement of outstanding bonds.
(c) This adjustment reflects the tax impact for the items discussed above
at a 38.1% effective tax rate.
(d) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the period. At December 28,
2002, we had 71,470 shares outstanding adjusted for the stock split.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Fifty-Two Week Periods Ended
(in thousands, except per share data)
December 28, 2002
Merger and
Integration and
Extinguishment Comparable
GAAP of Debt Expenses 2002
Net sales $3,204,140 $ - $3,204,140
Cost of sales, including purchasing
and warehousing costs 1,769,733 - 1,769,733
Gross profit 1,434,407 - 1,434,407
Selling, general and administrative
expenses 1,238,056 (35,532)(a) 1,202,524
Operating income 196,351 35,532 231,883
Other, net:
Interest expense (77,081) - (77,081)
Loss on extinguishment of debt (16,822) 16,822 (b) -
Expenses associated with secondary
offering (1,733) (1,733)
Other income, net 963 - 963
Total other, net (94,673) 16,822 (77,851)
Income from continuing operations
before provision for
income taxes and income on
discontinued operations 101,678 52,354 154,032
Provision for income taxes 39,530 20,235 (c) 59,765
Income from continuing operations
before income
on discontinued operations 62,148 32,119 94,267
Discontinued operations:
Income from discontinued
operations of Wholesale
Distribution Network 4,691 - 4,691
Provision for income taxes 1,820 - 1,820
Income on discontinued operations 2,871 - 2,871
Net income $ 65,019 $32,119 $ 97,138
Net income per basic share from:
Income from continuing operations $ 0.89 $ 0.46 $ 1.35
Income on discontinued operations 0.04 - 0.04
$ 0.93 $ 0.46 $ 1.39
Net income per diluted share from:
Income from continuing operations $ 0.86 $ 0.44 $ 1.30
Income on discontinued operations 0.04 - 0.04
$ 0.90 $ 0.44 $ 1.34
Average common shares outstanding (d) 70,098 70,098 70,098
Dilutive effect of stock options 2,278 2,278 2,278
Average common shares outstanding --
assuming dilution 72,376 72,376 72,376
(a) Represents the merger and integration expenses associated with
the integration of the Discount Auto Parts operations.
(b) This adjustment reflects the current and deferred loan costs
associated with the Company's refinancing of the tranche B term loan
under its senior credit facility and reflects the ratable portion of
deferred loan costs and the premium paid upon the repurchase and
retirement of outstanding bonds.
(c) This adjustment reflects the tax impact for the items discussed
above at a 38.7% effective tax rate.
(d) Average common shares outstanding is calculated based on the
weighted average number of shares outstanding for the period. At
December 28, 2002, we had 71,470 shares outstanding adjusted for
the stock split.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Fifty-Three and Fifty-Two Week Periods Ended
(in thousands, except per share data)
January 3, December 28,
2004 (a) 2002
Cash flows from operating activities:
Net income $124,935 $65,019
Depreciation 100,737 94,090
Loss on extinguishment of debt 47,288 16,822
Provision for deferred income taxes 53,742 51,426
Other non-cash adjustments to
net income 17,410 22,409
Decrease (increase) in:
Receivables, net 17,775 (6,610)
Inventories, net (64,893) (69,481)
Other assets (7,216) (9,824)
Increase (decrease) in:
Accounts payable 97,535 41,699
Accrued expenses (27,985) 34,110
Other liabilities (3,407) 3,336
Net cash provided by operating
activities 355,921 242,996
Cash flows from investing activities:
Purchases of property and equipment (101,177) (98,186)
Acquisitions, net of cash acquired - (13,176)
Proceeds from sales of property
and equipment 15,703 33,357
Net cash used in investing activities (85,474) (78,005)
Cash flows from financing activities:
Increase (decrease) in bank overdrafts 30,216 (33,879)
Early extinguishment of debt (647,462) (464,991)
Net borrowings under the credit facility 353,300 241,700
Payment of debt related costs (38,330) (10,955)
Proceeds from the exercise of stock options 25,407 17,369
Proceeds from the issuance of common stock - 88,658
Other net financing activities 4,024 (7,125)
Net cash used in financing activities (272,845) (169,223)
Increase in cash and cash equivalents (2,398) (4,232)
Cash and cash equivalents,
beginning of period 13,885 18,117
Cash and cash equivalents,
end of period $ 11,487 $13,885
(a) Includes the 53rd week of operations for fiscal 2003.
NOTE: These preliminary 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
Fifty-Three and Fifty-Two Week Periods Ended
(in thousands)
January 3, December 28,
2004 2002
Cash flows from operating activities $355,921 $242,996
Cash flows from investing activities (85,474) (78,005)
Free cash flow 270,447 164,991
Payment of debt costs associated
with early redemption (a) (36,895) -
Free cash flow, as adjusted $233,552 $164,991
(a) Represents the cash expense associated with the early redemption of
the high interest bearing notes and debentures in the first quarter
of 2003.