Discount Auto Parts, Inc. Reports Fiscal 1999 Second Quarter Results
15 December 1998
Discount Auto Parts, Inc. Reports Fiscal 1999 Second Quarter Results
LAKELAND, Fla.--Dec. 15, 1998--Discount Auto Parts, Inc. today announced results for the Company's second quarter ended December 1, 1998. Total sales for the second quarter of fiscal 1999 increased 14.3% to a record $120.3 million, as compared to $105.2 million a year earlier. Comparable store sales (which include sales from the Company's commercial delivery program) increased 2.0% for the second quarter of fiscal 1999 as compared to the second quarter of fiscal year 1998. Total sales for the first six months of fiscal 1999 increased 13.2% to $243.3 million, from $215.0 million a year earlier. Comparable store sales increased 2.2% for the first six months of fiscal 1999 as compared to the first six months of fiscal 1998. The balance of the increase in total sales for the second quarter and first six months of fiscal 1999 was attributable to new stores opened since the beginning of the respective periods in fiscal 1998, as well as sales associated with the Rose Auto Parts stores which were acquired effective September 28, 1998.
The Company emphasized that comparable store sales for the second quarter and first six months of fiscal 1999 are being compared to comparable traditional Do-It-Yourself ("DIY") store sales increases of 9.6% and 10.3%, respectively, for the comparable fiscal 1998 periods.
Gross profit for the second quarter of fiscal 1999 increased to $49.2 million as compared to $41.4 million for the second quarter of fiscal 1998. As a percentage of sales, gross profit was 40.9% for the second quarter of fiscal 1999 as compared to 39.3% for the second quarter of fiscal 1998. Gross profit for the first six months of fiscal 1999 increased to $98.9 million as compared to $83.8 million a year earlier. As a percentage of sales, gross profit was 40.6% for the first six months of fiscal 1999 as compared to 39.0% a year earlier.
The improvement in gross margins for the second quarter and first six months of fiscal 1999 was due in part to overall lower product cost, a shift in merchandising strategies to promote higher gross margin product offerings and a shift in vendor cooperative advertising allowances to direct product cost reductions.
Selling, general and administrative ("SG&A") expenses increased as a percentage of sales from 28.0% in the second quarter of fiscal 1998 to 30.6% in the second quarter of fiscal 1999. SG&A expenses increased as a percentage of sales from 27.5% for the first six months of fiscal 1998 to 29.5% for the first six months of fiscal 1999. The increase is primarily due to the expenses incurred related to the implementation of the Company's commercial delivery program and the shift in cooperative advertising credits to direct product purchase price reductions.
"Sales and SG&A expenses as a percentage of sales were both negatively impacted in part by the ramifications of Hurricane Georges in late September 1998", commented Bill Perkins, President and Chief Operating Officer. "Although our stores experienced only minimal physical damage from the storm, approximately 140 of our stores were closed for periods up to three days as a result of mandatory and voluntary evacuations".
Income from operations for the second quarter of fiscal 1999 increased 4.3% to $12.4 million as compared to $11.9 million for the second quarter of fiscal 1998. Income from operations for the first six months of fiscal 1999 increased 9.3% to $27.0 million as compared to $24.7 million for the first six months of fiscal 1998. Operating margins for the second quarter of fiscal 1999 were 10.3% as compared to 11.3% for the second quarter of fiscal 1998. Operating margins for the first six months of fiscal 1999 were 11.1% as compared to 11.5% for the first six months of fiscal 1998.
Mr. Perkins also commented that "Even though earnings were negatively impacted by Hurricane Georges, as well as expenses associated with the continued rollout of our commercial delivery program, our operating margins continued to remain among the highest in our industry".
Interest expense for the second quarter of fiscal 1999 was $3.1 million as compared to $2.6 million for the second quarter of fiscal 1998. Interest expense for the first six months of fiscal 1999 was $5.7 million as compared to $4.7 million during the first six months of fiscal 1998. The increase was primarily the result of increased borrowings associated with new store growth and the costs associated with the expansion of the Company's existing distribution center.
Net income for the second quarter of fiscal 1999 decreased to $5.8 million or $.35 per diluted share as compared to $6.1 million or $.37 per diluted share reported for the second quarter of fiscal 1998 as a result of the combination of the various factors described above. Net income for the first six months of fiscal 1999 increased to $13.2 million or $.78 per diluted share as compared to $12.5 million or $.75 per diluted share for the first six months of fiscal 1998.
Effective September 28, 1998, Discount Auto Parts acquired the Rose Auto Parts chain through an asset purchase from Eastern Automotive Warehouse, Inc., a wholly-owned subsidiary of National Auto Parts Warehouse, Inc. The acquisition included 39 retail store locations, primarily located in southeast Florida, and a warehouse facility in Miami. The acquisition involved the purchase of inventory and furniture and equipment at these various locations. As of the end of the second quarter of fiscal 1999, 26 of the 39 Rose retail locations were in operation. Consistent with its plan, Discount Auto Parts does not expect to continue operations in any of the remaining 13 stores.
During the second quarter of fiscal 1999, the Company added 46 mini-depot stores, including the 26 Rose Auto Parts stores. As of December 1, 1998, the Company had 518 stores in operation consisting of 23 depot stores and 495 mini-depot stores. For all of fiscal year 1999, the Company expects to add approximately 100 stores, of which 66 had been added as of December 1, 1998.
Discount Auto Parts, Inc. is one of the Southeast's leading specialty retailers of automotive replacement parts, maintenance items and accessories for the DIY consumer. The Company currently operates stores located throughout Florida, Georgia, Alabama, Mississippi, South Carolina and Louisiana.
Forward Looking Statements
This release may contain forward looking statements which reflect the current views of the Company with respect to certain events that could have an effect on the Company's future financial performance. These statements include the word "expects", "expected" and similar expressions. Any such forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated.
These risks and uncertainties include increased competition, extent of the market demand for auto parts, availability of inventory supply, propriety of inventory mix, adequacy and perception of customer service, product quality and defect experience, availability of and ability to take advantage of vendor pricing programs and incentives, rate of new store openings, cannibalization of store sites, mix of types of merchandise sold, governmental regulation, new store development, performance of information systems, effectiveness of deliveries from the distribution center, ability to hire, train and retain qualified team members, availability of quality store sites, ability to successfully roll-out the commercial delivery service, credit risk associated with the commercial delivery service, environmental risks, availability of expanded and extended credit facilities, legal expenses associated with material matters and disputes, expenses associated with investigations concerning freon matters, potential for liability with respect to these matters and other risks.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
------------ ---------- ---------- ----------
12/1/98 12/2/97 12/1/98 12/2/97
------------ ---------- ---------- ----------
Net sales $ 120,290 $ 105,240 $ 243,329 $ 214,977
Cost of sales,
including
distribution
costs 71,084 63,890 144,449 131,225
--------- --------- --------- ---------
Gross profit 49,206 41,350 98,880 83,752
Selling,
general and
administrative
expenses 36,776 29,438 71,845 59,015
--------- --------- --------- ---------
Income from
operations 12,430 11,912 27,035 24,737
Other income,
net 107 592 131 316
Interest
expense (3,065) (2,614) (5,727) (4,667)
--------- --------- --------- ---------
Income
before
income
taxes 9,472 9,890 21,439 20,386
Income
taxes 3,656 3,803 8,275 7,849
--------- --------- --------- ---------
Net
income $ 5,816 $ 6,087 $ 13,164 $ 12,537
========= ========= ========= =========
Net
income
per share:
Basic $ 0.35 $ 0.37 $ 0.79 $ 0.76
========= ========= ========= =========
Diluted $ 0.35 $ 0.37 $ 0.78 $ 0.75
========= ========= ========= =========
Average
number of
shares:
Basic 16,641 16,601 16,638 16,597
========= ========= ========= =========
Assuming
Dilution 16,802 16,675 16,815 16,662
========= ========= ========= =========
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) December 1 June 2
1998 1998
----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 5,164 $ 5,064
Inventories 196,909 172,027
Prepaid expenses and other
current assets 21,172 17,657
--------- ---------
Total current assets 223,245 194,748
Property and equipment 424,206 379,991
Less allowances for
depreciation and amortization (73,883) (65,472)
350,323 314,519
Other assets 2,681 2,468
--------- ---------
Total assets $ 576,249 $ 511,735
========= =========
Liabilities and stockholders'
equity
Current liabilities:
Trade accounts payable $ 63,346 $ 67,083
Other current liabilities 22,698 19,603
Current maturities of
long-term debt 2,400 2,400
--------- ---------
Total current liabilities 88,444 89,086
Deferred income taxes 5,069 5,069
Long-term debt 212,331 160,695
Total stockholders' equity 270,405 256,885
--------- ---------
Total liabilities and
stockholders' equity $ 576,249 $ 511,735
========= =========