CSK Auto Corp. Reports Fiscal 2004 Third Quarter Financial Results
PHOENIX--Dec. 2, 2004--CSK Auto Corp. , the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket, today reported its financial results for the third quarter of fiscal 2004.Financial Results
Thirteen Weeks Ended Oct. 31, 2004
Net sales for the 13 weeks ended Oct. 31, 2004 (the "third quarter of fiscal 2004") were $401.5 million, compared to $409.8 million for the 13 weeks ended Nov. 2, 2003 (the "third quarter of fiscal 2003"). Same store sales decreased 3.2% in the third quarter of fiscal 2004 as compared to the third quarter of fiscal 2003.
Gross profit was $190.9 million, or 47.5% of net sales, in the third quarter of fiscal 2004 as compared to $192.2 million, or 46.9% of net sales, in the third quarter of fiscal 2003. Gross profit, as a percent to sales, increased over the third quarter of fiscal 2003 due to lower product acquisition costs on selected items, improvements in our balance of sales through enhanced category management, and our continued reduction in store inventory shrinkage as a result of improved store procedures and enhanced inventory control systems.
Operating profit for the third quarter of fiscal 2004 was $31.5 million compared to $36.9 million for the third quarter of fiscal 2003. The decrease in operating profit relates primarily to lower sales, slightly higher advertising expenditures and benefit-related expenses.
Interest expense for the third quarter of fiscal 2004 declined by $4.6 million to $7.8 million from $12.4 million in the third quarter of fiscal 2003 due to lower interest expense achieved as a result of our refinancing completed in January 2004.
Net income for the third quarter of fiscal 2004 was $14.4 million, or $0.32 per diluted share, compared to net income of $15.0 million, or $0.33 per diluted share, for the third quarter of fiscal 2003. Net income for the third quarter of fiscal 2003 was negatively impacted by $0.2 million of costs related to a secondary stock offering.
"Our financial performance for the third quarter, although consistent with our prior guidance, continued to be adversely impacted by a difficult sales environment," said Maynard Jenkins, chairman and chief executive officer of CSK Auto Corp. "Since the beginning of our second quarter, we have experienced lower than anticipated sales. We believe our sales have been negatively impacted by higher gas prices and general economic conditions. Although we are not satisfied with our current sales performance, our gross margin rate continued to improve due to lower product acquisition costs and improved store inventory shrinkage results. Additionally, we generated in excess of $73 million in operating cash flow for the first three quarters of the year. We are focused on our long-term objectives of maximizing the productivity within our existing stores, debt reduction, and acceleration of our new store growth, which will allow us to further leverage our fixed expenses. We remain positive about the strength and growth potential of the retail automotive aftermarket industry."
Thirty-nine Weeks Ended Oct. 31, 2004
Net sales for the 39 weeks ended Oct. 31, 2004 (the "39 weeks of fiscal 2004") were $1,207.6 million, compared to $1,205.7 million for the 39 weeks ended Nov. 2, 2003 (the "39 weeks of fiscal 2003"). Same store sales were flat as compared to the 39 weeks of fiscal 2003.
Gross profit was $570.8 million, or 47.3% of net sales, in the 39 weeks of fiscal 2004, as compared to $560.9 million, or 46.5% of net sales, in the 39 weeks of fiscal 2003. The improvement in gross margin rates year over year has resulted from lower product acquisition costs on selected items, improvements in our balance of sales through enhanced category management, and reduced store inventory shrinkage as a result of improved store procedures and enhanced inventory control systems.
Operating profit for the 39 weeks of fiscal 2004 totaled $91.3 million, or 7.6% of net sales, compared to $98.3 million, or 8.2% of net sales, for the 39 weeks of fiscal 2003. The decrease in operating profit is primarily the result of higher advertising expenditures and payroll and benefit-related expenses.
Interest expense for the 39 weeks of fiscal 2004 decreased to $23.7 million from $39.6 million in the 39 weeks of fiscal 2003 due primarily to lower interest expense achieved as a result of our refinancing completed in January 2004.
Net income for the 39 weeks of fiscal 2004 was $41.2 million, or $0.89 per diluted share, compared to net income of $33.4 million, or $0.73 per diluted share, for the 39 weeks of fiscal 2003. Net income for the 39 weeks of fiscal 2003 was negatively impacted by $4.3 million of costs related to debt retirement and $0.2 million of costs associated with a secondary stock offering.
Outlook
Based on our third quarter sales performance and the strong 7.5% same store sales increase in the fourth quarter of fiscal 2003, we now expect same store sales to decline between 1.5% and 3.5% during the fourth quarter. Assuming these results, we expect fourth quarter net income of between $9.5 million and $12.0 million, or approximately $0.21 to $0.26 per diluted share, and full-year net income of between $50.7 million to $53.2 million, or $1.11 to $1.16 per diluted share (assuming approximately 46 million diluted shares outstanding), excluding any costs associated with the planned redemption this month of the approximately $15 million remaining balance of our 12% Senior Notes. We also now expect free cash flow (a non-GAAP measure, defined and described further below) for fiscal 2004 of approximately $70 million.
Conference Call
In conjunction with this release, we will hold a quarterly conference call for the investing public commencing at 5 p.m. (ET) on Thursday, Dec. 2, 2004. Interested parties may hear a replay of the conference call from 7 p.m. (ET) Thursday, Dec. 2, 2004 through 8 p.m. (ET) Friday, Dec. 3, 2004 by dialing 877-519-4471 and using passcode 5401224. (If retrieving digital replay outside of the United States, please dial 973-341-3080, passcode 5401224.) A simultaneous webcast of the conference call will be available at www.cskauto.com by clicking on "Investors" and then "Conference Call." This webcast will be archived for five days.
CSK Auto Corp. is the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket. As of Oct. 3, 20041, 2004, we operated 1,129 stores in 19 states under the brand names Checker Auto Parts, Schuck's Auto Supply and Kragen Auto Parts.
CSK AUTO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
13 Weeks Ended 39 Weeks Ended
------------------ ----------------------
Oct. 31, Nov. 2, Oct. 31, Nov. 2,
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $401,457 $409,750 $1,207,568 $1,205,713
Cost of sales 210,565 217,565 636,763 644,802
--------- -------- ---------- ----------
Gross profit 190,892 192,185 570,805 560,911
Other costs and expenses:
Operating and
administrative 158,718 155,068 477,900 462,266
Store closing costs 721 203 1,608 339
--------- -------- ---------- ----------
Operating profit 31,453 36,914 91,297 98,306
Interest expense, net 7,837 12,396 23,684 39,583
Loss on debt retirement -- -- -- 4,315
--------- -------- ---------- ----------
Income before income taxes 23,616 24,518 67,613 54,408
Income tax expense 9,248 9,476 26,434 21,029
--------- -------- ---------- ----------
Net income $14,368 $15,042 $41,179 $33,379
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Basic earnings per share:
Net income $0.32 $0.33 $0.90 $0.74
========= ======== ========== ==========
Shares used in computing
per share amounts 45,126 45,827 45,939 45,396
========= ======== ========== ==========
Diluted earnings per share:
Net income $0.32 $0.33 $0.89 $0.73
========= ======== ========== ==========
Shares used in computing
per share amounts 45,269 46,239 46,211 45,619
========= ======== ========== ==========
During the periods presented we incurred certain costs, which we have excluded below for comparability. In order to evaluate our operating performance, we have adjusted income before income taxes to remove the effect of these non-comparable items to more accurately compare our operating performance from period to period.
Comparable Basis
---------------------------------------
13 Weeks Ended 39 Weeks Ended
---------------------------------------
Oct. 31, Nov. 2, Oct. 31, Nov. 2,
2004 2003 2004 2003
-------- --------- --------- ---------
Income before income taxes $23,616 $24,518 $67,613 $54,408
Non-comparable items:
Secondary offering costs (1) -- 182 -- 182
Loss on debt retirement (2) -- -- -- 4,315
--------- --------- --------- ---------
Comparable income before
income taxes 23,616 24,700 67,613 58,905
Income tax expense, adjusted 9,248 9,547 26,434 22,766
--------- --------- --------- ---------
Net income - comparable basis $14,368 $15,153 $41,179 $36,139
========= ========= ========= =========
Diluted earnings per share -
comparable basis:
Net income - comparable
basis $0.32 $0.33 $0.89 $0.79
========= ========= ========= =========
Shares used in computing per
share amounts 45,269 46,239 46,211 45,619
========= ========= ========= =========
Non-comparable items consist of charges relating to: (1) a secondary stock offering in September 2003 and; (2) the write-off of deferred financing fees and redemption premiums associated with the redemption of our 11% Senior Subordinated Notes and other costs associated with our June 2003 refinancing.
Selected Financial Data:
($ in thousands)
13 Weeks Ended 39 Weeks Ended
----------------------------------------
Oct. 31, Nov. 2, Oct. 31, Nov. 2,
2004 2003 2004 2003
---------- --------- --------- ---------
Cash $54,673 $46,852 $54,673 $46,852
FIFO inventory $570,710 $564,523 $570,710 $564,523
Accounts payable $183,557 $154,963 $183,557 $154,963
Interest expense, net $7,837 $12,396 $23,684 $39,583
Capital expenditures $3,568 $5,766 $16,399 $10,568
Availability under revolving
credit facility $115,038 $105,904 $115,038 $105,904
Total debt (including current
maturities) $503,796 $507,109 $503,796 $507,109
Net debt (total debt less
cash) $449,123 $460,257 $449,123 $460,257
EBITDA, as adjusted $39,080 $45,655 $114,838 $124,384
EBITDAR, as adjusted $67,739 $74,540 $201,141 $210,365
We believe that EBITDA, as adjusted, and EBITDAR, as adjusted, are recognized supplemental measurement tools widely used by analysts and investors to help evaluate our overall operating performance, our ability to incur and service debt, and our capacity for making capital expenditures. We use EBITDA, as adjusted, and EBITDAR, as adjusted, in addition to operating income and cash flows from operating activities, to monitor compliance with certain financial covenants and to assess our performance relative to our competitors and relative to our own performance in prior periods. We believe that it is important for investors to have the opportunity to evaluate us using the same measures. EBITDA, as adjusted, and EBITDAR, as adjusted, are calculated as follows ($ in thousands):
13 Weeks Ended 39 Weeks Ended
---------------------------------------
Oct. 31, Nov. 2, Oct. 31, Nov. 2,
2004 2003 2004 2003
-------- -------- -------- --------
Calculation of EBITDA,
as adjusted and EBITDAR,
as adjusted:
Income before income
taxes $23,616 $24,518 $67,613 $54,408
Interest expense, net 7,837 12,396 23,684 39,583
Depreciation 6,552 7,562 20,333 22,999
Amortization (net of
deferred financing
costs) 1,075 997 3,208 2,897
-------- -------- -------- --------
EBITDA 39,080 45,473 114,838 119,887
======== ======== ======== ========
Non-comparable items -- 182 -- 4,497
-------- -------- -------- --------
EBITDA (as adjusted) 39,080 45,655 114,838 124,384
======== ======== ======== ========
Rent expense 28,659 28,885 86,303 85,981
-------- -------- -------- --------
EBITDAR (as adjusted) $67,739 $74,540 $201,141 $210,365
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EBITDA, as adjusted, and EBITDAR, as adjusted, do not represent funds available for our discretionary use and are not intended to represent or to be used as a substitute for net income or cash flow from operations data as measured under GAAP. The items excluded from EBITDA, as adjusted, and EBITDAR, as adjusted, are significant components of our statement of operations and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA, as adjusted, EBITDAR, as adjusted, and the associated year-to-year trends should not be considered in isolation. EBITDA, as adjusted, has been calculated in accordance with the terms of our senior credit facility and may differ in method of calculation from similarly titled measures used by other companies.
EBITDA can be reconciled to net cash provided by operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows ($ in thousands):
Reconciliation of EBITDA:
13 Weeks Ended 39 Weeks Ended
----------------------------------------
Oct. 31, Nov. 2, Oct. 31, Nov. 2,
2004 2003 2004 2003
-------- -------- -------- ---------
EBITDA $39,080 $45,473 $114,838 $119,887
Cash interest payments (3,291) (3,572) (18,233) (28,534)
Cash tax payments (352) (722) (398) (1,409)
Other non-cash expenses 100 1,679 875 2,541
Other changes in operating
assets and liabilities (14,875) (29,287) (24,019) (33,422)
-------- -------- -------- --------
Net cash flow provided by
operating activities $20,662 $13,571 $73,063 $59,063
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We define free cash flow as net cash provided by operating activities less cash paid for capital expenditures. Free cash may differ in method of calculation from similarly titled measures used by other companies. Free cash flow can be reconciled to net cash provided by operating activities as follows ($ in thousands):
Reconciliation of Free
Cash Flow:
13 Weeks Ended 39 Weeks Ended
----------------------------------------
Oct. 31, Nov. 2, Oct. 31, Nov. 2,
2004 2003 2004 2003
-------- -------- -------- --------
Net cash provided by
operating activities $20,662 $13,571 $73,063 $59,063
Cash paid for capital
expenditures (3,568) (5,766) (16,399) (10,568)
-------- -------- -------- --------
Free cash flow $17,094 $7,805 $56,664 $48,495
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We define net debt as total debt (including current maturities) less cash and cash equivalents. Net debt may differ in method of calculation from similarly titled measures used by other companies. Net debt can be reconciled as follows ($ in thousands):
Reconciliation of Net Debt:
Oct. 31, Nov. 2,
2004 2003
---------- ----------
Total debt (including
current maturities) $503,796 $507,109
Cash and cash
equivalents (54,673) (46,852)
---------- ----------
Net debt $449,123 $460,257
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