Advance Auto Parts Reports Record Third Quarter Sales and Earnings
Comparable Store Sales Grew 3.0% and EPS Rose to $0.68
Company Reiterates Fourth Quarter Guidance
Announces New Senior Credit Facility
ROANOKE, Va., Nov. 3 -- Advance Auto Parts, Inc. , a leading retailer of automotive parts and accessories, today announced record sales and earnings for its third quarter ended October 9, 2004.
Third Quarter 2004
Net sales increased 6.1% in the third quarter to $890.2 million from $839.1 million in the same quarter last year. Comparable store sales grew 3.0% in the third quarter. Do-it-yourself (DIY) comparable store sales decreased 0.6% and do-it-for-me (DIFM) comparable sales increased 21.4%.
Commenting on the third quarter results, Larry Castellani, Chairman and Chief Executive Officer, said, "Our results were especially strong in light of the impact of the four major hurricanes that disrupted our operations in Florida, the Southeast and the Mid-Atlantic. We believe we would have achieved the high end of our guidance range of 3% to 4% for comparable store sales and $0.68 to $0.71 for earnings per share without the effects of these hurricanes. Our growth is attributable to the strength of our business model and the execution of our strategic initiatives."
Mr. Castellani added, "We are pleased our comparable store sales increases in the last four weeks of the third quarter were in the mid-single digit range, and that trend has continued in the first three weeks of the fourth quarter. We remain optimistic and are prepared to maximize our results if these trends continue. We are very encouraged by the strength and consistency of our DIFM sales and the rebound of our DIY sales to solid, positive comps during these past seven weeks."
Gross margin increased 68 basis points to 46.8% of net sales in the third quarter from 46.1% for the same quarter last year. Selling, general and administrative (SG&A) expenses increased by 48 basis points during the quarter to 36.9% of net sales as a result of higher medical costs and the de- leveraging caused by lower sales from the hurricane disruptions. SG&A expenses for the prior year were 36.4% of net sales, excluding merger and integration costs associated with the Discount Auto Parts acquisition, and 36.7% of net sales on a GAAP basis. Third quarter operating margins rose to 9.9% of net sales versus last year's 9.7% of net sales excluding merger and integration costs, and 9.4% of net sales on a GAAP basis.
Earnings from continuing operations for the third quarter of 2004 increased to $51.4 million versus comparable earnings from continuing operations of $46.3 million from the same quarter of last year. GAAP earnings from continuing operations were $44.7 million for the same quarter of last year. Earnings per diluted share from continuing operations rose 11.5% to $0.68 in the third quarter of 2004 versus comparable earnings per diluted share from continuing operations of $0.61 in the third quarter last year. GAAP earnings per diluted share from continuing operations were $0.59 in the third quarter last year.
The 2003 comparable results are non-GAAP measures because they excluded 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 used these non-GAAP measures as an indication of earnings from its core operations and believed they were important to the Company's stockholders because of the nature and significance of the excluded expenses.
During the quarter, the Company opened 31 new stores, closed two stores, and relocated 11 stores, resulting in a total store count of 2,612 stores at October 9, 2004. The Company anticipates the opening of approximately 125 stores in fiscal year 2004.
Year-to-Date 2004
Net sales for the first three quarters of 2004 increased to $2.9 billion, or 9.3% over the same period in the prior year. Comparable store sales grew 5.1% during the first three quarters of this year.
Year-to-date gross margin increased 50 basis points to 46.5% of net sales. SG&A expenses were 37.3% of net sales for the first three quarters of this year. Comparable SG&A expenses were 37.1% of net sales for the prior year, while GAAP SG&A expenses were 37.5% of net sales. Year-to-date operating margins rose to 9.2% of net sales. Comparable operating margins were 8.9% of net sales for the prior year, while GAAP operating margins were 8.6% of net sales.
Year-to-date earnings from continuing operations rose to $156.0 million, an increase of 23.5%, versus comparable earnings from continuing operations of $126.2 million for the same period last year. GAAP earnings from continuing operations were $92.0 million for the same period last year. Earnings per diluted share from continuing operations rose to $2.05, a 20.6% increase over last year's comparable earnings per diluted share from continuing operations of $1.70. GAAP earnings per diluted share from continuing operations were $1.24 for the same period last year.
Guidance
The Company reiterated its fourth quarter earnings guidance of $0.42 to $0.46 per diluted share. As stated in previous releases, this guidance does not include the costs of replacing its existing credit facility that will approximate $0.02 per diluted share or the positive effects of potential stock buybacks during the fourth quarter. The fourth quarter of 2004 includes 12 weeks compared to 13 weeks in the fourth quarter of 2003. The extra week last year contributed earnings per diluted share of approximately $0.07. On a GAAP basis, the Company anticipates fourth quarter earnings per diluted share to be $0.40 to $0.44, including the refinancing costs.
New Senior Credit Facility
The Company announced it has closed on a new $670 million Senior Credit Facility. The Company intends to use the proceeds from this new facility to refinance outstanding term loans and the revolver under its existing $495 million facility and to fund potential stock repurchases under its previously authorized stock repurchase program through a new delayed draw term loan. The new facility will also provide for lower effective borrowing rates and increase the capacity of its financed vendor accounts payable program.
Investor Conference Call
The Company will host a conference call tomorrow, November 4, 2004, at 8:00 a.m. Eastern Standard Time to discuss its third quarter results. To listen to the live web cast, please log on to http://www.advanceautoparts.com/ or dial 1-800-295-4740. The call will be archived on the Company's website http://www.advanceautoparts.com/ until November 4, 2005. There will not be a telephonic replay available.
Headquartered in Roanoke, Va., Advance Auto Parts is a leading retailer of automotive parts in the United States. At October 9, 2004, the Company had 2,612 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)
October 9, January 3, October 4,
2004 2004 2003
Assets
Current assets:
Cash and cash equivalents $ 27,479 $ 11,487 $ 49,858
Receivables, net 100,109 84,799 92,828
Inventories, net 1,194,943 1,113,781 1,102,565
Other current assets 27,152 16,387 24,453
Total current assets 1,349,683 1,226,454 1,269,704
Property and equipment, net 754,374 712,702 707,309
Assets held for sale 20,984 20,191 23,177
Other assets, net 20,981 23,724 11,059
$2,146,022 $1,983,071 $2,011,249
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $ 18,846 $ 31,085 $ 24,233
Current portion of long-term debt 17,024 22,220 -
Financed vendor accounts payable 38,076 - -
Accounts payable 598,878 568,275 606,343
Accrued expenses 210,312 173,818 214,649
Other current liabilities 76,012 58,547 44,121
Total current liabilities 959,148 853,945 889,346
Long-term debt 350,976 422,780 456,089
Other long-term liabilities 73,325 75,102 68,527
Total stockholders' equity 762,573 631,244 597,287
$2,146,022 $1,983,071 $2,011,249
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 Week Periods Ended
(in thousands, except per share data)
(unaudited)
October 9, October 4, 2003
2004
Merger and
Integration Comparable
GAAP GAAP Expenses 2003
Net sales $ 890,161 $ 839,101 $ - $ 839,101
Cost of sales, including
purchasing and warehousing
costs 473,646 452,173 - 452,173
Gross profit 416,515 386,928 - 386,928
Selling, general and
administrative expenses 328,673 308,298 (2,522)(a) 305,776
Operating income 87,842 78,630 2,522 81,152
Other, net:
Interest expense (4,330) (5,860) - (5,860)
Loss on extinguishment
of debt - (125) - (125)
Other income, net 67 106 - 106
Total other, net (4,263) (5,879) - (5,879)
Income before provision for
income taxes and (loss)
income on discontinued
operations 83,579 72,751 2,522 5,273
Provision for income taxes 32,180 28,006 971(b) 28,977
Income from continuing
operations 51,399 44,745 1,551 46,296
Discontinued operations:
(Loss)/income from
operations of discontinued
wholesale distribution
network (10) 681 - 681
(Benefit)/provision for
income taxes (4) 262 - 262
(Loss) income on
discontinued operations (6) 419 - 419
Net income $ 51,393 $ 45,164 $ 1,551 $ 46,715
Net income per basic share
from:
Income from continuing
operations $ 0.69 $ 0.60 $ 0.02 $ 0.62
Income on discontinued
operations - 0.01 - 0.01
$ 0.69 $ 0.61 $ 0.02 $ 0.63
Net income per diluted share
from:
Income from continuing
operations $ 0.68 $ 0.59 $ 0.02 $ 0.61
Income on discontinued
operations - 0.01 - 0.01
$ 0.68 $ 0.60 $ 0.02 $ 0.62
Average common shares
outstanding (c) 73,968 73,650 73,650 73,650
Dilutive effect of stock
options 1,458 1,898 1,898 1,898
Average common shares
outstanding - assuming
dilution 75,426 75,548 75,548 75,548
(a) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(b) This adjustment reflects the tax impact for the items in (a) at a
38.5% effective tax rate.
(c) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At October 9,
2004 and October 4, 2003, we had 73,520 and 73,812 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
Forty Week Periods Ended
(in thousands, except per share data)
(unaudited)
October 9, October 4, 2003
2004
Merger and
Integration and
Extinguishment
of Debt Comparable
GAAP GAAP Expenses 2003
Net sales $2,921,491 $2,672,417 $ - $2,672,417
Cost of sales, including
purchasing and
warehousing costs 1,561,776 1,442,026 - 1,442,026
Gross profit 1,359,715 1,230,391 - 1,230,391
Selling, general and
administrative expenses 1,090,604 1,001,564 (8,793)(a) 992,771
Operating income 269,111 228,827 8,793 237,620
Other, net:
Interest expense (15,178) (32,225) - (32,225)
Loss on extinguishment
of debt (412) (47,266) 46,887(b) (379)
Other income, net 102 259 - 259
Total other, net (15,488) (79,232) 46,887 (32,345)
Income before provision
for income taxes and
(loss) income on
discontinued operations 253,623 149,595 55,680 205,275
Provision for income taxes 97,652 57,591 21,437(c) 79,028
Income from continuing
operations 155,971 92,004 34,243 126,247
Discontinued operations:
(Loss)/income from
operations of
discontinued wholesale
distribution network (85) 2,696 - 2,696
(Benefit)/provision for
income taxes (33) 1,037 - 1,037
(Loss) income on
discontinued operations (52) 1,659 - 1,659
Net income $ 155,919 $ 93,663 $ 34,243 $ 127,906
Net income per basic
share from:
Income from continuing
operations $ 2.10 $ 1.27 $ 0.47 $ 1.74
Income on discontinued
operations - 0.02 - 0.02
$ 2.10 $ 1.29 $ 0.47 $ 1.76
Net income per diluted
share from:
Income from continuing
operations $ 2.05 $ 1.24 $ 0.46 $ 1.70
Income on discontinued
operations - 0.02 - 0.02
$ 2.05 $ 1.26 $ 0.46 $ 1.72
Average common shares
outstanding (d) 74,165 72,744 72,744 72,744
Dilutive effect of stock
options 1,715 1,664 1,664 1,664
Average common shares
outstanding - assuming
dilution 75,880 74,408 74,408 74,408
(a) Represents the merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(b) This adjustment reflects the deferred loan costs, unamortized
discounts and the premiums paid upon the early redemption of our
outstanding senior discount notes and senior discount debentures.
(c) This adjustment reflects the tax impact for the items in (a) and (b)
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 forty week period. At
October 9, 2004 and October 4, 2003, we had 73,520 and 73,812 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
Forty Week Periods Ended
(in thousands)
(unaudited)
October 9, October 4,
2004 2003
Cash flows from operating activities:
Net income $ 155,919 $ 93,663
Depreciation 80,145 77,483
Loss on extinguishment of debt 412 47,266
Provision for deferred income taxes 9,218 36,945
Other non-cash adjustments to
net income 15,082 14,815
(Increase) decrease in:
Receivables, net (14,453) 9,746
Inventories, net (81,162) (53,677)
Other assets (8,699) (11,120)
Increase (decrease) in:
Accounts payable 30,603 135,603
Accrued expenses 30,705 12,750
Other liabilities 79 (3,257)
Net cash provided by
operating activities 217,849 360,217
Cash flows from investing activities:
Purchases of property and equipment (125,294) (70,331)
Proceeds from sales of property
and equipment 6,809 12,165
Net cash used in investing
activities (118,485) (58,166)
Cash flows from financing activities:
(Decrease) increase in bank overdrafts (12,239) 23,364
Increase in financed vendor
accounts payable 38,076 -
Early extinguishment of debt (105,000) (631,374)
Net borrowings under the credit facility 28,000 348,300
Payment of debt related costs - (36,895)
Proceeds from the exercise of
stock options 10,471 24,435
Purchase of treasury stock (49,997) -
Other net financing activities 7,317 6,092
Net cash used in financing activities (83,372) (266,078)
Increase in cash and cash equivalents 15,992 35,973
Cash and cash equivalents,
beginning of period 11,487 13,885
Cash and cash equivalents, end of period $ 27,479 $ 49,858
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
(in thousands)
(unaudited)
Forty Weeks Ended
October 9, October 4,
2004 2003
Cash flows from operating activities $ 217,849 $ 360,217
Cash flows used in investing activities (118,485) (58,166)
99,364 302,051
Increase in financed vendor
accounts payable 38,076 -
Payment of debt costs associated
with early redemption (a) - (36,895)
Free cash flow $ 137,440 $ 265,156
(a) Represents the cash expense associated with the early redemption of
the high interest bearing notes and debentures in the first quarter of
2003.
Note: The Company uses free cash flow, which is a non-GAAP measure, as a
measure of its liquidity and believes it is a useful indicator to
stockholders of its ability to implement its growth strategies and
service its debt.