Advance Auto Parts Reports Third Quarter 2006 Results
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ROANOKE, Va.--Advance Auto Parts, Inc. , a leading retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, today announced its financial results for the fiscal third quarter ended October 7, 2006.
Earnings per diluted share for the third quarter were $0.56, compared to $0.55 last year. This year’s third 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.
In the third quarter, sales increased 7.8% to $1.10 billion from $1.02 billion last year. Comparable-store sales increased 1.4% in the quarter, comprised of a 0.6% decrease in do-it-yourself (DIY) and an 8.7% increase in do-it-for-me (DIFM). The 1.4% comparable-store sales increase compares to a 10.0% increase in last year’s third quarter.
“These results reflect our initiatives to drive sales and enhance customer satisfaction, which are gaining traction,” said Mike Coppola, Chairman, President and CEO. “We believe that by focusing on superior customer service, we can achieve much-better financial performance, and we are committed to achieving it.”
Third quarter gross margin was 48.2% of sales, a 100 basis point improvement compared to last year’s quarter, primarily reflecting improved procurement costs, a favorable merchandise mix compared to last year, ongoing category management initiatives and logistics efficiencies.
Third quarter selling, general and administrative (SG&A) expenses were 38.9% of sales, compared to 36.9% in third quarter 2005. This reflects approximately 70 basis points loss of leverage on rent, depreciation and other fixed costs from modest comparable-store sales. In addition, SG&A was unfavorably impacted by higher costs for utilities, and insurance programs, including property, workers’ compensation and medical, which in total accounted for another 60 basis points. Non-comparable stock-option expense also increased SG&A in this year’s quarter by 42 basis points.
In the quarter, the Company recorded two items, both of which were associated with the Company’s prior credit facility. These include a charge of $1.9 million, representing deferred financing costs, and $2.9 million of previously unrealized gains on interest-rate swaps. These amounts netted to a pre-tax gain of $1.0 million, and are recorded in the gain on extinguishment of debt caption on the company’s statement of operations.
For the first three quarters of the year, sales grew 9.1% to $3.60 billion from $3.30 billion last year. Comparable-store sales increased 2.3% over this time, comprised of a 0.3% decrease in DIY and an 11.7% increase in DIFM. The 2.3% comparable-store sales increase compares to a 9.4% increase for the comparable period last year. Year-to-date earnings per share are $1.82 (inclusive of eight cents of non-comparable stock-option expense), compared to $1.78 over the same time period last year (which did not include pro forma stock-option expense of seven cents).
Store Information
During the third quarter, the Company opened 60 new stores, of which eight were Autopart International (AI) stores. The Company also closed two stores, relocated 10 existing stores, and remodeled 56 stores to the innovative Advance 2010 format. Year-to-date, the Company has opened 162 new stores. Since acquiring AI in September 2005, AI has opened 19 new stores, and now operates a total of 80 locations. The Company continues to expect 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. As of October 7, 2006, 1,884 (or 64%) of the Company’s stores are 2010-format stores, and more than 81% of the Company’s Advance stores offer commercial delivery programs.
“During the quarter, we celebrated the opening of our 3,000th store, a significant milestone in our company’s history,” Coppola said. “We continue to see solid returns on our new-store investments, and believe there is an opportunity to add 1,500 more stores within our existing geography. Meanwhile, we know excellent execution and superior customer service at every store is essential. These are the factors that will separate us from the competition and provide us with the platform to continue our growth.”
Guidance
Based on recent sales trends, the Company projects comparable-store sales to be in the range of 1% to 3% for the fourth quarter (compared to a 6.3% increase in last year’s fourth quarter). For the fourth quarter, the Company continues to anticipate gross margin improvement, and a slowing rate of growth in SG&A as compared to the third quarter. Accordingly, the Company forecasts fourth-quarter 2006 earnings per diluted share in the range of $0.33 to $0.37, inclusive of $0.03 of stock-option expense. Last year’s fourth-quarter EPS of $0.36 do not include pro forma stock-option expense of $0.02 per share.
For the year, this would result in EPS guidance of $2.15 to $2.19, inclusive of $0.12 of stock-option expense. Last year’s $2.13 of EPS do not include pro forma stock-option expense of $0.09 per share.
For 2007, the Company anticipates new-store growth in the range of 7% to 8% (from the opening of both Advance and AI stores). In addition, the Company expects to remodel approximately 150 stores and relocate approximately 40 existing stores. The Company will provide more-detailed 2007 guidance in its fiscal year-end press release.
Investor Conference Call
The Company will host a conference call on November 2, 2006, at 8:00 a.m. Eastern Standard Time to discuss its quarterly results. To listen to the live call, please log on to the Company’s Web site, www.AdvanceAutoParts.com, or dial (866) 908-1AAP. The call will be archived on the Company’s Web site until November 1, 2007.
About Advance Auto Parts
Headquartered in Roanoke, Va., Advance Auto Parts is the second-largest retailer of automotive aftermarket parts, accessories, batteries, and maintenance items in the United States, based on store count and sales. As of October 7, 2006, the Company operated 3,029 stores in 40 states, Puerto Rico, and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
Certain statements contained in this release are forward-looking statements, as that statement is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events or developments, and typically use words such as believe, anticipate, expect, intend, plan, forecast, outlook or estimate. These statements discuss, among other things, expected growth and future performance, including store growth, the impact of stock-option expense, comparable-store sales, gross margin and SG&A rates, and earnings per share for fourth-quarter 2006, fiscal year 2006 and fiscal year 2007. 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, acts of terrorism, dependence on foreign suppliers and other factors disclosed in the Company’s 10-K for the fiscal year ended December 31, 2005, on file with the Securities and Exchange Commission. Actual results may differ materially from anticipated results described in these forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of this news release and does not undertake to update or revise them, as more information becomes available.
| Advance Auto Parts, Inc. and Subsidiaries | ||||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||
| (in thousands) | ||||||||||||
| (unaudited) | ||||||||||||
| October 7, | December 31, | October 8, | ||||||||||
| 2006 | 2005 | 2005 | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 13,987 | $ | 40,783 | $ | 112,704 | ||||||
| Receivables, net | 83,733 | 94,689 | 83,877 | |||||||||
| Inventories, net | 1,462,067 | 1,367,099 | 1,374,866 | |||||||||
| Other current assets | 38,207 | 45,369 | 34,312 | |||||||||
| Total current assets | 1,597,994 | 1,547,940 | 1,605,759 | |||||||||
| Property and equipment, net | 983,609 | 898,851 | 869,114 | |||||||||
| Assets held for sale | 2,777 | 8,198 | 14,602 | |||||||||
| Goodwill | 33,765 | 67,094 | 54,344 | |||||||||
| Intangible assets, net | 27,920 | - | - | |||||||||
| Other assets, net | 15,520 | 20,066 | 18,755 | |||||||||
| $ | 2,661,585 | $ | 2,542,149 | $ | 2,562,574 | |||||||
| Liabilities and Stockholders' Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Bank overdrafts | $ | 36,689 | $ | 50,170 | $ | 24,226 | ||||||
| Current portion of long-term debt | 67 | 32,760 | 32,450 | |||||||||
| Financed vendor accounts payable | 140,736 | 119,351 | 117,689 | |||||||||
| Accounts payable | 669,720 | 629,248 | 660,893 | |||||||||
| Accrued expenses | 257,334 | 265,437 | 280,622 | |||||||||
| Other current liabilities | 48,953 | 44,498 | 41,279 | |||||||||
| Total current liabilities | 1,153,499 | 1,141,464 | 1,157,159 | |||||||||
| Long-term debt | 450,859 | 406,040 | 413,775 | |||||||||
| Other long-term liabilities | 66,773 | 74,874 | 78,581 | |||||||||
| Total stockholders' equity | 990,454 | 919,771 | 913,059 | |||||||||
| $ | 2,661,585 | $ | 2,542,149 | $ | 2,562,574 | |||||||
| 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 | ||||||||
| October 7, 2006 and October 8, 2005 | ||||||||
| (in thousands, except per share data) | ||||||||
| (unaudited) | ||||||||
| October 7, | October 8, | |||||||
| 2006 | 2005 | |||||||
| Net sales | $ | 1,099,486 | $ | 1,019,736 | ||||
| Cost of sales, including purchasing and warehousing costs | 569,280 | 538,321 | ||||||
| Gross profit | 530,206 | 481,415 | ||||||
| Selling, general and administrative expenses | 423,105 | 375,999 | ||||||
| Share-based compensation | 4,580 | - | ||||||
| Operating income | 102,521 | 105,416 | ||||||
| Other, net: | ||||||||
| Interest expense | (9,232) | (8,196) | ||||||
| Gain on extinguishment of debt, net | 986 | - | ||||||
| Other income, net | 154 | 933 | ||||||
| Total other, net | (8,092) | (7,263) | ||||||
| Income before provision for income taxes | 94,429 | 98,153 | ||||||
| Provision for income taxes | 35,482 | 37,360 | ||||||
| Net income | $ | 58,947 | $ | 60,793 | ||||
|
Basic earnings per share (a) |
$ | 0.56 | $ | 0.56 | ||||
|
Diluted earnings per share (a) |
$ | 0.56 | $ | 0.55 | ||||
|
Average common shares outstanding (b) |
105,112 | 109,306 | ||||||
| Dilutive effect of stock options | 939 | 1,635 | ||||||
| Average common shares outstanding - assuming dilution | 106,051 | 110,941 | ||||||
|
(a) Basic and diluted earnings per share include $0.03 of share-based compensation for the twelve weeks ended October 7, 2006. The twelve weeks ended October 8, 2005 do not include share-based compensation. On a pro forma basis, share-based compensation for the twelve weeks ended October 8, 2005 was $0.02 per basic and diluted share. |
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|
(b) Average common shares outstanding is calculated based on the weighted average number of shares outstanding for the quarter. At October 7, 2006 and October 8, 2005, we had 105,208 and 109,013 shares outstanding, respectively. |
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| 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 | ||||||||
| Forty Week Periods Ended | ||||||||
| October 7, 2006 and October 8, 2005 | ||||||||
| (in thousands, except per share data) | ||||||||
| (unaudited) | ||||||||
| October 7, | October 8, | |||||||
| 2006 | 2005 | |||||||
| Net sales | $ | 3,600,353 | $ | 3,301,246 | ||||
| Cost of sales, including purchasing and warehousing costs | 1,877,620 | 1,736,850 | ||||||
| Gross profit | 1,722,733 | 1,564,396 | ||||||
| Selling, general and administrative expenses | 1,368,995 | 1,226,009 | ||||||
| Share-based compensation | 14,473 | 237 | ||||||
| Operating income | 339,265 | 338,150 | ||||||
| Other, net: | ||||||||
| Interest expense | (28,147) | (24,682) | ||||||
|
Gain on extinguishment of debt, net |
986 | - | ||||||
| Other income, net | 753 | 2,298 | ||||||
| Total other, net | (26,408) | (22,384) | ||||||
| Income before provision for income taxes | 312,857 | 315,766 | ||||||
| Provision for income taxes | 116,893 | 120,397 | ||||||
| Net income | $ | 195,964 | $ | 195,369 | ||||
|
Basic earnings per share (a) |
$ | 1.84 | $ | 1.80 | ||||
|
Diluted earnings per share (a) |
$ | 1.82 | $ | 1.78 | ||||
|
Average common shares outstanding (b) |
106,380 | 108,329 | ||||||
| Dilutive effect of stock options | 1,175 | 1,720 | ||||||
| Average common shares outstanding - assuming dilution | 107,555 | 110,049 | ||||||
|
(a) Basic and diluted earnings per share include $0.08 of share-based compensation for the forty weeks ended October 7, 2006. The forty weeks ended October 8, 2005 include only nominal share-based compensation prior to the adoption of SFAS 123 on January 1, 2006. On a pro forma basis, share-based compensation for the forty weeks ended October 8, 2005 was $0.07 per basic and diluted share. |
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|
(b) Average common shares outstanding is calculated based on the weighted average number of shares outstanding for the quarter. At October 7, 2006 and October 8, 2005, we had 105,208 and 109,013 shares outstanding, respectively. |
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| 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 | ||||||||||||
| Forty Week Periods Ended | ||||||||||||
| October 7, 2006 and October 8, 2005 | ||||||||||||
| (in thousands) | ||||||||||||
| (unaudited) | ||||||||||||
| October 7, | October 8, | |||||||||||
| 2006 | 2005 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 195,964 | $ | 195,369 | ||||||||
| Depreciation and amortization | 104,156 | 90,693 | ||||||||||
| Share-based compensation | 14,473 | 237 | ||||||||||
| Benefit for deferred income taxes | (2,332) | (190) | ||||||||||
| Excess tax benefit from share-based compensation | (4,398) | - | ||||||||||
| Tax benefit related to exercise of stock options | - | 28,469 | ||||||||||
| Loss on extinguishment of debt | 1,887 | - | ||||||||||
| Other non-cash adjustments to net income | 2,002 | 1,267 | ||||||||||
| Decrease (increase) in: | ||||||||||||
| Receivables, net | 10,995 | 30,489 | ||||||||||
| Inventories, net | (90,966) | (138,193) | ||||||||||
| Other assets | 9,031 | (13,737) | ||||||||||
| Increase (decrease) in: | ||||||||||||
| Accounts payable | 40,472 | 67,255 | ||||||||||
| Accrued expenses | 17,056 | 63,774 | ||||||||||
| Other liabilities | (1,337) | 1,876 | ||||||||||
| Net cash provided by operating activities | 297,003 | 327,309 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of property and equipment | (200,784) | (159,391) | ||||||||||
| Business acquisitions, net of cash acquired | (12,500) | (99,300) | ||||||||||
| Proceeds from sales of property and equipment | 8,726 | 5,818 | ||||||||||
| Net cash used in investing activities | (204,558) | (252,873) | ||||||||||
| Cash flows from financing activities: | ||||||||||||
| (Decrease) increase in bank overdrafts | (13,481) | 4,042 | ||||||||||
| Increase in financed vendor accounts payable | 21,385 | 60,793 | ||||||||||
| Early extinguishment of debt | (433,775) | - | ||||||||||
| Dividends paid | (19,153) | - | ||||||||||
| Net borrowings (payments) on credit facilities | 445,901 | (23,775) | ||||||||||
| Payment of debt related costs | (1,078) | - | ||||||||||
|
Proceeds from the issuance of common stock, primarily exercise of stock options |
||||||||||||
| 14,100 | 30,155 | |||||||||||
| Excess tax benefit from share-based compensation | 4,398 | - | ||||||||||
| Repurchase of common stock | (137,560) | (62,552) | ||||||||||
| Increase (decrease) in borrowings secured by trade receivables | 22 | (26,716) | ||||||||||
| Net cash used in financing activities | (119,241) | (18,053) | ||||||||||
| Net (decrease) increase in cash and cash equivalents | (26,796) | 56,383 | ||||||||||
| Cash and cash equivalents, beginning of period | 40,783 | 56,321 | ||||||||||
| Cash and cash equivalents, end of period | $ | 13,987 | $ | 112,704 | ||||||||
| 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 | |||||||||
| Forty Week Periods Ended | |||||||||
| October 7, 2006 and October 8, 2005 | |||||||||
| (in thousands, except per share data) | |||||||||
| (unaudited) | |||||||||
| Reconciliation of Free Cash Flow | |||||||||
| October 7, | October 8, | ||||||||
| 2006 | 2005 | ||||||||
| Cash flows from operating activities | $ | 297,003 | $ | 327,309 | |||||
| Cash flows used in investing activities | (204,558) | (252,873) | |||||||
| 92,445 | 74,436 | ||||||||
| Increase in financed vendor accounts payable | 21,385 | 60,793 | |||||||
| Free cash flow | $ | 113,830 | $ | 135,229 | |||||
| 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 | Forty Weeks Ended | |||||||||||||||||
|
October 7, |
October 8, | % | October 7, | October 8, | % | |||||||||||||
| 2006 | 2005 | increase |
2006 |
2005 | increase | |||||||||||||
| Adjusted diluted earnings per share: | ||||||||||||||||||
| Diluted earnings per share | $ | 0.56 | $ | 0.55 | 1.8% | $ | 1.82 | $ | 1.78 | 2.2% | ||||||||
| Pro forma share-based compensation | - | (0.02) | - | (0.07) | ||||||||||||||
| Adjusted diluted earnings per share | $ | 0.56 | $ | 0.53 | 5.7% | $ | 1.82 | $ | 1.71 | 6.4% | ||||||||
| Adjusted selling, general and administrative (SG&A) expenses per store: | ||||||||||||||||||
| SG&A expense | $ | 427,685 | $ | 375,999 | $ | 1,383,468 | $ | 1,226,246 | ||||||||||
| Pro forma share-based compensation | - | 3,620 | - | 10,933 | ||||||||||||||
| Adjusted SG&A expense | 427,685 | 379,619 | 1,383,468 | 1,237,179 | ||||||||||||||
| Ending store count | 3,029 | 2,829 | 3,029 | 2,829 | ||||||||||||||
| SG&A expense per store | $ | 141 | $ | 133 | 6.2% | $ | 457 | $ | 433 | 5.4% | ||||||||
| Adjusted SG&A expense per store | $ | 141 | $ | 134 | 5.2% | $ | 457 | $ | 437 | 4.4% | ||||||||
| 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. | ||||||||||||||||||