Advance Auto Parts Reports Second Quarter Results
ROANOKE, Va.--Aug. 10, 2006--Advance Auto Parts, Inc. , a leading retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, today announced its financial results for the fiscal second quarter ended July 15, 2006.Earnings per diluted share for the second quarter were $0.59, compared to $0.60 last year. This year's second quarter results include $0.03 per share of stock-option expense, whereas last year's quarter does not include pro forma stock-option expense of $0.02 per share. (All per-share amounts referenced in this release reflect the Company's 3-for-2 stock split, which took effect September 26, 2005).
In the second quarter, sales increased 8.3% to $1.11 billion from $1.02 billion last year. Comparable-store sales increased 1.2% in the quarter, comprised of a 1.0% decrease in do-it-yourself (DIY) and a 9.1% increase in do-it-for-me (DIFM). The 1.2% comparable-store sales increase compares to a 9.0% increase in last year's second quarter.
"Our sales for the quarter were disappointing," said Mike Coppola, Chairman and CEO. "We believe that sales are being impacted unfavorably by macroeconomic conditions that have reduced our customers' discretionary income, and second quarter sales compared to a strong 9.0% comparable-store increase last year. In this challenging environment, we must improve our execution in every area of the Company. We are working to continue improving our store execution, customer service and advertising effectiveness, while at the same time optimizing our expense structure. We believe that these actions will more-effectively position us for the future."
Second quarter gross margin was 47.6% of sales, a 50 basis point improvement compared to last year's quarter, primarily reflecting category management initiatives and logistics efficiencies.
Second quarter selling, general and administrative (SG&A) expenses were 37.6% of sales, compared to 36.1% in second quarter 2005. This reflects 60 basis points loss of leverage on rent, depreciation and other fixed costs from softer-than-anticipated comparable-store sales and the acceleration of our new-store openings. In addition, SG&A was unfavorably impacted by higher costs for fuel and insurance programs, including property, worker's compensation and medical, which in total account for another 55 basis points. Non-comparable stock-option expense also increased SG&A in this year's quarter by 41 basis points.
The quarter's income tax rate was 38.1%, and the Company anticipates its tax rate to be in the range of 38.0% to 38.2% for the balance of 2006.
For the first half of the year, total sales grew 9.6% to $2.50 billion. Comparable-store sales grew 2.7% over this time, comprised of a 0.1% decrease in DIY and a 13.1% increase in DIFM. The 2.7% comparable-store sales increase compares to a 9.1% increase in last year's first half. First half earnings per diluted share increased to $1.27 compared to $1.23 last year. Earnings in this year's first half include stock-option expense of $0.06 per share, whereas last year's first-half results do not include pro forma stock-option expense of $0.04 per share.
"While we are adjusting our spending in line with a challenging macroeconomic environment and current sales trend, we remain committed to our strategic objectives," Coppola said. "We have the financial and human resources to continue rolling out strategic investments, such as opening new stores, remodeling existing stores, and adding commercial-delivery programs to selected stores. These investments are key to our future. While we remain committed to our long-term goals, we are developing a leaner expense structure, which better positions Advance for the future."
Store Information
During the second quarter, the Company opened 44 new stores, of which six were Autopart International (AI) stores. The Company also relocated 10 existing stores, and remodeled 56 stores to the innovative Advance 2010 format. Year-to-date, the Company has opened 102 new stores. Since acquiring AI in September 2005, AI has opened 11 new stores, and now operates a total of 72 locations. Advance now expects to open 205 to 215 new stores in 2006, including AI. This level of new-store openings represents unit growth of 7% to 8% compared to 2005, and compares to prior guidance of 185 to 195 new stores (or 6% to 7% unit growth). As of July 15, 2006, 1,765 (or 61%) of the Company's stores are 2010-format stores, and approximately 81% of the Company's stores offer commercial delivery programs.
2006 Guidance
Based on recent sales trends, the Company projects comparable-store sales to be in the range of zero to 2% for the third quarter (compared to a 10% increase in last year's third quarter), and slightly higher in the fourth quarter (compared to a 6.3% increase in last year's fourth quarter). The Company continues to anticipate gross margin improvement for the balance of the year, with pressure on SG&A, particularly in the third quarter, as a result of modest comparable-store sales. Accordingly, the Company is projecting 2006 earnings per diluted share in the range of $2.10 to $2.20, inclusive of $0.12 per share of stock-option expense; 2005 EPS of $2.13 did not include pro forma stock-option expense of $0.09 per share. For the year, the Company now expects capital expenditures to be in the range of $245 million to $255 million.
For third quarter 2006, the Company forecasts earnings per diluted share in the range of $0.50 to $0.55, inclusive of $0.03 of stock-option expense. Last year's third quarter EPS of $0.55 do not include pro forma stock-option expense of $0.02 per share.
Share Repurchases and Quarterly Dividend
During the second quarter, the Company repurchased 2.4 million shares of its common stock for $84 million. Cumulatively since August 2004, the Company has repurchased over 12 million shares of its common stock for $385 million.
On August 8, 2006, the Company's Board of Directors declared a regular quarterly cash dividend of six cents per share be paid on October 6, 2006 to stockholders of record as of September 22, 2006.
-Financial Tables to Follow-
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
July 15, Dec. 31, July 16,
2006 2005 2005
----------- ----------- -----------
Assets
------
Current assets:
Cash and cash equivalents $13,128 $40,783 $175,888
Receivables, net 87,414 94,689 94,380
Inventories, net 1,433,126 1,367,099 1,327,332
Other current assets 41,088 45,369 31,380
----------- ----------- -----------
Total current assets 1,574,756 1,547,940 1,628,980
Property and equipment, net 954,620 898,851 843,034
Assets held for sale 4,099 8,198 16,912
Goodwill 67,208 67,094 2,707
Other assets, net 22,037 20,066 17,098
----------- ----------- -----------
$2,622,720 $2,542,149 $2,508,731
=========== =========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Bank overdrafts $38,297 $50,170 $25,561
Current portion of long-term debt 37,767 32,760 32,200
Financed vendor accounts
payable 128,511 119,351 120,825
Accounts payable 688,727 629,248 643,686
Accrued expenses 291,278 265,437 243,140
Other current liabilities 44,628 44,498 75,053
----------- ----------- -----------
Total current liabilities 1,229,208 1,141,464 1,140,465
Long-term debt 392,651 406,040 421,950
Other long-term liabilities 67,765 74,874 75,899
Total stockholders' equity 933,096 919,771 870,417
----------- ----------- -----------
$2,622,720 $2,542,149 $2,508,731
=========== =========== ===========
NOTE: These preliminary condensed consolidated balance sheets have
been prepared on a basis consistent with our previously prepared
balance sheets filed with the Securities and Exchange Commission for
our prior quarter and annual reports except for the effect of adopting
Financial Accounting Standards Board's Statement No. 123 (revised
2004), "Share-Based Payment," (SFAS 123R) as of January 1, 2006, 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
Twelve Week Periods Ended
July 15, 2006 and July 16, 2005
(in thousands, except per share data)
(unaudited)
July 15, July 16,
2006 2005
----------- -----------
Net sales $1,107,857 $1,023,146
Cost of sales, including purchasing and
warehousing costs 580,498 541,096
----------- -----------
Gross profit 527,359 482,050
Selling, general and administrative
expenses 412,351 369,530
Share-based compensation 4,562 -
----------- -----------
Operating income 110,446 112,520
----------- -----------
Other, net:
Interest expense (8,752) (7,575)
Other (expense) income, net (21) 1,045
----------- -----------
Total other, net (8,773) (6,530)
----------- -----------
Income before provision for income taxes 101,673 105,990
Provision for income taxes 38,737 40,061
----------- -----------
Net income $62,936 $65,929
=========== ===========
Basic earnings per share $0.60 $0.61
Diluted earnings per share (a) $0.59 $0.60
Average common shares outstanding (b) 105,650 108,777
Dilutive effect of stock options 1,143 1,571
----------- -----------
Average common shares outstanding -
assuming dilution 106,793 110,348
=========== ===========
(a)Diluted earnings per share include $0.03 of share-based
compensation for the twelve weeks ended July 15, 2006. The twelve
weeks ended July 16, 2005 do not include share-based compensation. On
a pro forma basis, share-based compensation for the twelve weeks ended
July 16, 2005 was $0.02 per diluted share.
(b)Average common shares outstanding is calculated based on the
weighted average number of shares outstanding for the quarter. At July
15, 2006 and July 16, 2005, we had 105,005 and 109,463 shares
outstanding, respectively.
NOTE: These preliminary condensed consolidated statements of
operations have been prepared on a basis consistent with our
previously prepared statements of operations filed with the Securities
and Exchange Commission for our prior quarter and annual reports
except for the effect of adopting SFAS 123R as of January 1, 2006, 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
Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in thousands, except per share data)
(unaudited)
July 15, July 16,
2006 2005
----------- -----------
Net sales $2,500,867 $2,281,510
Cost of sales, including purchasing and
warehousing costs 1,308,340 1,198,529
----------- -----------
Gross profit 1,192,527 1,082,981
Selling, general and administrative expenses 946,176 850,247
Share-based compensation 9,607 -
----------- -----------
Operating income 236,744 232,734
----------- -----------
Other, net:
Interest expense (18,915) (16,486)
Other income, net 599 1,365
----------- -----------
Total other, net (18,316) (15,121)
----------- -----------
Income before provision for income taxes 218,428 217,613
Provision for income taxes 81,411 83,037
----------- -----------
Net income $137,017 $134,576
=========== ===========
Basic earnings per share $1.28 $1.25
Diluted earnings per share (a) $1.27 $1.23
Average common shares outstanding (b) 106,923 107,910
Dilutive effect of stock options 1,277 1,757
----------- -----------
Average common shares outstanding - assuming
dilution 108,200 109,667
=========== ===========
(a) Diluted earnings per share include $0.06 of share-based
compensation for the twenty-eight weeks ended July 15, 2006. The
twenty-eight weeks ended July 16, 2005 do not include share-based
compensation. On a pro forma basis, share-based compensation for the
twenty-eight weeks ended July 16, 2005 was $0.04 per diluted share.
(b) Average common shares outstanding is calculated based on the
weighted average number of shares outstanding for the quarter. At July
15, 2006 and July 16, 2005, we had 105,005 and 109,463 shares
outstanding, respectively.
NOTE: These preliminary condensed consolidated statements of
operations have been prepared on a basis consistent with our
previously prepared statements of operations filed with the Securities
and Exchange Commission for our prior quarter and annual reports
except for the effect of adopting SFAS 123R as of January 1, 2006, 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
Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in thousands)
(unaudited)
July 15, July 16,
2006 2005
--------- ---------
Cash flows from operating activities:
Net income $137,017 $134,576
Depreciation and amortization 70,860 62,476
Share-based compensation 9,607 -
Benefit for deferred income taxes (7,425) (6,297)
Excess tax benefit from share-based
compensation (3,427) -
Tax benefit related to exercise of stock
options - 27,998
Other non-cash adjustments to net income 791 1,050
Decrease (increase) in:
Receivables, net 7,395 7,589
Inventories, net (66,027) (125,882)
Other assets 2,300 (13,241)
Increase in:
Accounts payable 59,479 55,738
Accrued expenses 44,339 42,370
Other liabilities 2,230 2,740
--------- ---------
Net cash provided by operating activities 257,139 189,117
Cash flows from investing activities:
Purchases of property and equipment (132,015) (119,777)
Business acquisitions, net of cash acquired (12,500) -
Proceeds from sales of property and equipment 6,788 2,874
--------- ---------
Net cash used in investing activities (137,727) (116,903)
Cash flows from financing activities:
(Decrease) increase in bank overdrafts (11,873) 5,377
Increase in financed vendor accounts payable 9,160 63,929
Dividends paid (12,839) -
Net payments on credit facilities (8,382) (15,850)
Proceeds from the insuance of common stock,
primarily exercise of stock options 10,871 28,672
Excess tax benefit from share-based
compensation 3,427 -
Repurchase of common stock (137,560) (42,978)
Increase in borrowings secured by trade
receivables 129 8,203
--------- ---------
Net cash (used in) provided by financing
activities (147,067) 47,353
--------- ---------
Net (decrease) increase in cash and cash
equivalents (27,655) 119,567
Cash and cash equivalents, beginning of period 40,783 56,321
--------- ---------
Cash and cash equivalents, end of period $13,128 $175,888
========= =========
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 except
for the effect of adopting SFAS 123R as of January 1, 2006, 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
Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in thousands, except per share data)
(unaudited)
Reconciliation of Free Cash Flow
--------------------------------
July 15, July 16,
2006 2005
--------- ---------
Cash flows from operating activities $257,139 $189,117
Cash flows used in investing activities (137,727) (116,903)
--------- ---------
119,412 72,214
Increase in financed vendor accounts payable 9,160 63,929
--------- ---------
Free cash flow $128,572 $136,143
========= =========
Note: Management uses free cash flow as a measure of our liquidity
and believes it is a useful indicator to stockholders of our ability
to implement our growth strategies and service our debt. Free cash
flow is a non-GAAP measure and should be considered in addition to,
but not as a substitute for, information contained in our condensed
consolidated statement of cash flows.
Reconciliation of Non-GAAP Operating Metrics
--------------------------------------------
Twelve Weeks Ended
-------------------- %
July 15, July 16, (dec)
2006 2005 inc
--------- --------- ------
Adjusted diluted earnings per share:
Diluted earnings per share $0.59 $0.60 (1.7%)
Pro forma share-based compensation - (0.02)
--------- ---------
Adjusted diluted earnings per share $0.59 $0.58 1.7%
========= =========
Adjusted selling, general and administrative (SG&A)
expenses per store:
SG&A expense $416,913 $369,530
Pro forma share-based compensation - 3,568
--------- ---------
Adjusted SG&A expense 416,913 373,098
Ending store count 2,971 2,708
--------- ---------
SG&A expense per store $140 $136 2.8%
========= ========= ======
Adjusted SG&A expense per store $140 $138 1.9%
========= ========= ======
Reconciliation of Non-GAAP Operating Metrics
---------------------------------------------
Twenty-Eight Weeks Ended
------------------------
July 15, July 16, %
2006 2005 inc
--------- --------- ----
Adjusted diluted earnings per share:
Diluted earnings per share $1.27 $1.23 3.3%
Pro forma share-based compensation - (0.04)
--------- ---------
Adjusted diluted earnings per share $1.27 $1.19 6.7%
========= =========
Adjusted selling, general and administrative
(SG&A) expenses per store:
SG&A expense $955,783 $850,247
Pro forma share-based compensation - 7,313
--------- ---------
Adjusted SG&A expense 955,783 857,560
Ending store count 2,971 2,708
--------- ---------
SG&A expense per store $322 $314 2.5%
========= ========= ====
Adjusted SG&A expense per store $322 $317 1.6%
========= ========= ====
Note: Management believes adjusted diluted earnings per share and
adjusted selling, general and administrative expenses per store are
useful to our stockholders as they present a comparable measure of our
operating results due to the adoption of SFAS 123R as of January 1,
2006. Adjusted diluted earnings per share and adjusted selling,
general and administrative expenses per store are non-GAAP measures
and should be considered in addition to, but not as a substitute for,
information contained in our condensed consolidated statement of
operations.