CSK Auto Corp. Reports Second Quarter 2005 Results
PHOENIX--Sept. 1, 2005--CSK Auto Corp. , 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 2005.Financial Results
Net sales for the thirteen weeks ended July 31, 2005, (the "second quarter of fiscal 2005") increased 2.4% to $419.0 million from $409.1 million for the thirteen weeks ended Aug. 1, 2004, (the "second quarter of fiscal 2004"). Same store sales for the second quarter of fiscal 2005 increased 1.1% over the second quarter of fiscal 2004, consisting of an increase of 10.2% in commercial same store sales and a decline of 0.8% in retail same store sales.
Net sales for the twenty-six weeks ended July 31, 2005, (the "first half of fiscal 2005") increased 1.3% to $816.2 million from $806.1 million for the twenty-six weeks ended Aug. 1, 2004, (the "first half of fiscal 2004"). Same store sales for the first half of fiscal 2005 declined 0.1% compared to the first half of fiscal 2004, consisting of an increase of 8.0% in commercial same store sales and a decline of 1.7% in retail same store sales.
Gross profit decreased $1.1 million to $193.0 million, or 46.1% of net sales, for the second quarter of fiscal 2005, compared to $194.1 million, or 47.4% of net sales, for the second quarter of fiscal 2004. Gross profit decreased $9.9 million to $372.9 million, or 45.7% of net sales, for the first half of fiscal 2005 compared to $382.8 million, or 47.5% of net sales, for the first half of fiscal 2004. The decline in gross margin rate is primarily related to a higher balance of commercial sales, which carry lower gross margin rates, as well as higher transportation costs.
Operating and administrative expenses for the second quarter of fiscal 2005 were $160.9 million, or 38.4% of net sales, compared to $160.5 million, or 39.2% of net sales, for the second quarter of fiscal 2004. Operating and administrative expenses for the first half of fiscal 2005 were $318.8 million, or 39.1% of net sales, compared to $319.2 million, or 39.6% of net sales, for the first half of fiscal 2004. Our operating expenses, as a percent of sales, decreased despite the addition of 22 net new stores since Aug. 1, 2004 (based on year-to-year end of second quarter store count).
Interest expense for the second quarter of fiscal 2005 increased to $8.3 million from $8.0 million in the second quarter of fiscal 2004. Interest expense for the first half of fiscal 2005 increased to $16.9 million from $16.6 million in the first half of fiscal 2004. Interest expense increased primarily as a result of higher variable interest rates.
In the second quarter of fiscal 2005, we recorded a loss on debt retirement of $1.6 million relative to our recent refinancing, which is described in more detail below.
Net income for the second quarter of fiscal 2005 was $13.1 million, or $0.29 per diluted common share, compared to net income of $15.3 million, or $0.33 per diluted common share, for the second quarter of fiscal 2004. During the second quarter of fiscal 2005, we incurred charges of $1.6 million relating to the loss on debt retirement and approximately $0.7 million of severance costs. These charges (net of income tax) negatively impacted net income and earnings per share for the second quarter of fiscal 2005 by $1.3 million and $0.03, respectively.
Net income for the first half of fiscal 2005 was $21.1 million, or $0.46 per diluted common share, compared to net income of $28.1 million, or $0.60 per diluted common share, for the first half of fiscal 2004. During the first half of fiscal 2005, we incurred charges of $1.6 million relating to the loss on debt retirement and approximately $0.7 million of severance costs. These charges (net of income tax) negatively impacted net income and earnings per share for the first half of fiscal 2005 by $1.3 million and $0.03, respectively.
"While our retail same store sales have been weaker than anticipated, the second quarter trend improved as we expected and this improvement has continued into the third quarter. We continue to see solid gains in our commercial sales and remain optimistic about the fundamentals of our business," said Maynard Jenkins, chairman and chief executive officer of CSK Auto Corp. "Our expense control initiatives are proving to be effective and we continue to focus on improving our inventory mix. In addition, we are pleased with the completion of our recent refinancing, which will reduce our interest expense and enable us to better manage our excess cash."
Debt Refinancing
As previously announced, in July 2005 we completed a refinancing that included the execution of a new $250.0 million asset-based senior credit facility, which was subsequently increased in August 2005 by an additional $75.0 million to a total of $325.0 million. In addition, we issued $110.0 million principal amount of 3.375% senior exchangeable unsecured notes in a private offering, which was subsequently increased to $125.0 million as a result of the exercise by the initial purchasers of an over-allotment option in August 2005. The notes are exchangeable into cash and shares, if any, of our common stock at an initial exchange rate equivalent to approximately $23.09 per share. These transactions are consistent with one of our primary objectives of obtaining the lowest cost of capital available, which will allow us to further reduce our long-term debt.
We used proceeds from the note offering, borrowings under the new senior credit facility, and cash on hand to repay in full our $251.2 million of indebtedness plus accrued and unpaid interest under our former senior credit facility, repurchase approximately $25.0 million in aggregate purchase price (approximately 1.4 million shares) of CSK Auto Corp. common stock, and for general corporate purposes. A portion of the proceeds also was used to pay costs associated with an exchangeable note hedge transaction entered into in connection with the issuance of the notes and which, in combination with a warrant option transaction also entered into in connection with such issuance, is intended to eliminate the potential economic dilution resulting from any exchange of the notes until the price of our common stock exceeds $26.29 per share. In connection with this refinancing, we wrote off $1.6 million of deferred financing fees associated with our former credit facility.
CSK Auto Corp. is the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket. As of July 31, 2005, we operated 1,142 stores in 19 states under the brand names Checker Auto Parts, Schuck's Auto Supply and Kragen Auto Parts. We also operated three value concept retail stores under the brand name Pay N Save.
CSK AUTO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Twenty-Six Weeks
Ended Ended
--------------------- --------------------
July 31, Aug. 1, July 31, Aug. 1,
2005 2004 2005 2004
---------- ---------- ---------- ---------
Net sales $419,048 $409,057 $816,249 $806,111
Cost of sales 226,082 214,989 443,300 423,348
-------- -------- -------- --------
Gross profit 192,966 194,068 372,949 382,763
Other costs and expenses:
Operating and
administrative 160,947 160,498 318,830 319,210
Store closing costs 654 561 969 887
-------- -------- -------- --------
Operating profit 31,365 33,009 53,150 62,666
Interest expense, net 8,300 7,966 16,870 16,580
Loss on debt retirement 1,600 -- 1,600 --
-------- -------- -------- --------
Income before income taxes 21,465 25,043 34,680 46,086
Income tax expense 8,407 9,779 13,577 18,007
-------- -------- -------- --------
Net income $ 13,058 $ 15,264 $ 21,103 $ 28,079
======== ======== ======== ========
Basic earnings per share:
Net income $ 0.29 $ 0.33 $ 0.47 $ 0.61
======== ======== ======== ========
Shares used in computing
per share amounts 45,135 46,184 45,133 46,349
======== ======== ======== ========
Diluted earnings per share:
Net income $ 0.29 $ 0.33 $ 0.46 $ 0.60
======== ======== ======== ========
Shares used in computing
per share amounts 45,539 46,466 45,514 46,675
======== ======== ======== ========
The following pages provide certain financial information not derived in accordance with generally accepted accounting principles ("GAAP"). We have included calculations of these non-GAAP measures and reconciliations to the most comparable GAAP financial measures.
Selected Financial Data:
($ in thousands)
Thirteen Weeks Twenty-Six Weeks
Ended Ended
-------------------- -------------------
July 31, Aug. 1, July 31, Aug. 1,
2005 2004 2005 2004
---------- --------- --------- ---------
Cash $ 18,748 $ 44,615 $ 18,748 $ 44,615
FIFO inventory (which
excludes supplies) $552,282 $549,433 $552,282 $549,433
Accounts payable $215,631 $206,022 $215,631 $206,022
Interest expense, net $ 8,300 $ 7,966 $ 16,870 $ 16,580
Capital expenditures $ 7,272 $ 9,711 $ 13,656 $ 14,528
Availability under revolving
credit facility $134,372 $113,616 $134,372 $113,616
Total debt (including
current maturities) $430,964 $508,684 $430,964 $508,684
Net debt (total debt less
cash) $412,216 $464,069 $412,216 $464,069
EBITDA (as adjusted) $ 40,185 $ 41,577 $ 70,700 $ 80,451
EBITDAR (as adjusted) $ 68,671 $ 69,476 $127,534 $136,145
We believe that EBITDA, as adjusted, and EBITDAR, as adjusted, are recognized supplemental measurement tools widely used by analysts and investors to help evaluate a company's overall operating performance, its ability to incur and service debt, and its capacity for making capital expenditures. We use EBITDA, as adjusted, and EBITDAR, as adjusted, in addition to operating income and cash flows from operating activities, to assess our performance relative to our competitors and relative to our own performance in prior periods. We believe that it is important for investors to have the opportunity to evaluate us using the same measures. EBITDA, as adjusted, and EBITDAR, as adjusted, are calculated as follows ($ in thousands):
Thirteen Weeks Twenty-Six Weeks
Ended Ended
------------------- --------------------
July 31, Aug. 1, July 31, Aug. 1,
2005 2004 2005 2004
--------- -------- --------- ---------
Calculation of EBITDA, as
adjusted and EBITDAR, as
adjusted:
Income before income taxes $ 21,465 $ 25,043 $ 34,680 $ 46,086
Interest expense, net 8,300 7,966 16,870 16,580
Depreciation 7,159 7,467 14,884 15,652
Amortization (net of
deferred financing costs) 1,003 1,101 2,008 2,133
--------- -------- --------- ---------
EBITDA 37,927 41,577 68,442 80,451
--------- -------- --------- ---------
Non-comparable items 2,258 -- 2,258 --
--------- -------- --------- ---------
EBITDA (as adjusted) 40,185 41,577 70,700 80,451
--------- -------- --------- ---------
Rent expense 28,486 27,899 56,834 55,694
--------- -------- --------- ---------
EBITDAR (as adjusted) $68,671 $69,476 $127,534 $136,145
========= ======== ========= =========
EBITDA, as adjusted, and EBITDAR, as adjusted, do not represent funds available for our discretionary use and are not intended to represent or to be used as a substitute for net income or cash flow from operations data as measured under GAAP. The items excluded from EBITDA, as adjusted, and EBITDAR, as adjusted, are significant components of our statement of operations and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA, as adjusted, EBITDAR, as adjusted, and the associated year-to-year trends should not be considered in isolation. EBITDA, as adjusted, may differ in method of calculation from similarly titled measures used by other companies.
EBITDA can be reconciled to net cash provided by operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows ($ in thousands):
Reconciliation of EBITDA:
Thirteen Weeks Twenty-Six Weeks
Ended Ended
------------------ ------------------
July 31, Aug. 1, July 31, Aug. 1,
2005 2004 2005 2004
-------- -------- -------- --------
EBITDA $ 37,927 $ 41,577 $ 68,442 $ 80,451
Cash interest payments (12,806) (11,367) (17,169) (14,942)
Cash tax payments (3,000) (821) (3,000) (821)
Tax refunds -- -- -- 775
Other non-cash expenses 95 304 460 478
Other changes in operating
assets and liabilities 8,028 8,685 30,312 (12,392)
-------- -------- -------- --------
Net cash flow provided by
operating activities $ 30,244 $ 38,378 $ 79,045 $ 53,549
======== ======== ======== ========
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:
Thirteen Weeks Twenty-Six Weeks
Ended Ended
------------------ --------------------
July 31, Aug. 1, July 31, Aug. 1,
2005 2004 2005 2004
-------- -------- --------- ---------
Net cash provided by
operating activities $30,244 $38,378 $ 79,045 $ 53,549
Cash paid for capital
expenditures (7,272) (9,711) (13,656) (14,528)
-------- -------- --------- ---------
Free cash flow $22,972 $28,667 $ 65,389 $ 39,021
======== ======== ========= =========
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:
July 31, 2005 Aug. 1, 2004
--------------- --------------
Total debt (including current
maturities) $ 430,964 $ 508,684
Cash and cash equivalents (18,748) (44,615)
--------------- --------------
Net debt
$ 412,216 $ 464,069
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