Discount Auto Parts, Inc. Reports Fiscal 1999 Year End and Q4 Results
7 July 1999
Discount Auto Parts, Inc. Reports Fiscal 1999 Year End and Fourth Quarter Results
LAKELAND, Fla.--July 7, 1999--Discount Auto Parts, Inc. today announced results for the Company's fiscal year and fourth quarter ended June 1, 1999. Total sales for the fourth quarter of fiscal 1999 increased 15.2% to a record $140.8 million, as compared to $122.2 million a year earlier. Comparable store sales were flat for the fourth quarter of fiscal 1999 as compared to an increase of 7% in the fourth quarter of fiscal year 1998. Total sales for fiscal 1999 increased 14.3% to $511.5 million, from $447.5 million a year earlier. Comparable store sales increased 1% for fiscal 1999 as compared to 8% in fiscal 1998. Comparable store sales results include sales from the Company's commercial delivery program. The balance of the increase in total sales for the fourth quarter and 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."As I had previously observed, our comparable store sales for the fourth quarter and fiscal 1999 were impacted in large part by our continued opening of selected stores in close proximity to other Discount Auto Parts' stores," commented Bill Perkins, President and Chief Operating Officer. "While this strategy has short term implications to same store sales, we believe this strategy is critical to our long term market share objectives. Further, this strategy is designed to complement the continued implementation and expansion of our commercial delivery program".
Gross profit for the fourth quarter of fiscal 1999 increased 17.6% to $57.6 million as compared to $48.9 million for the fourth quarter of fiscal 1998. As a percentage of sales, gross profit was 40.9% for the fourth quarter of fiscal 1999 as compared to 40.1% for the fourth quarter of fiscal 1998. Gross profit for fiscal 1999 increased 18.5% to $208.6 million as compared to $176.1 million a year earlier. As a percentage of sales, gross profit was 40.8% for fiscal 1999 as compared to 39.3% for the comparable period a year earlier. Gross profit for the fourth quarter of fiscal 1999 and for fiscal 1999 was reduced by $.3 million and $1.3 million, respectively, for the estimated current year impact of the Company's change in inventory accounting method, as discussed below.
The improvement in gross margins for the fourth quarter and 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 27.7% in the fourth quarter of fiscal 1998 to 29.8% in the fourth quarter of fiscal 1999. SG&A expenses increased as a percentage of sales from 27.7% for fiscal 1998 to 29.9% for fiscal 1999. The increase is primarily due to the expenses incurred related to the implementation and expansion of the Company's commercial delivery program and the shift in cooperative advertising credits to direct product purchase price reductions.
Income from operations for the fourth quarter of fiscal 1999 increased 3.4% to $15.7 million as compared to $15.1 million for the fourth quarter of fiscal 1998. Income from operations for fiscal 1999 increased 7.5% to $55.9 million as compared to $52.0 million for fiscal 1998. Operating margins for the fourth quarter of fiscal 1999 were 11.1% as compared to 12.4% for the fourth quarter of fiscal 1998. Operating margins for fiscal 1999 were 10.9% as compared to 11.6% for fiscal 1998.
Operating income and the resulting margins for both the fourth quarter and fiscal 1999 were negatively impacted by the implementation and expansion of the Company's commercial delivery program. Excluding the impact of the commercial delivery program, operating margins were approximately 12.3% for the fourth quarter of fiscal 1999 and approximately 12.0% for fiscal 1999.
Interest expense for the fourth quarter of fiscal 1999 was $3.6 million as compared to $2.7 million for the fourth quarter of fiscal 1998. Interest expense for fiscal 1999 was $12.9 million as compared to $10.2 million during 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 and corporate office space which was completed in fiscal 1999.
Other income for fiscal 1998 included a $4.0 million fee received from the termination of the proposed acquisition of Hi-Lo Automotive, Inc., less related expenses.
Income before the cumulative effect of a change in accounting method for the fourth quarter of fiscal 1999 was $7.8 million or $.47 per diluted share as compared to $7.7 million or $.46 per diluted share reported for the fourth quarter of fiscal 1998. Income before the cumulative effect of a change in accounting method for fiscal 1999 was $27.1 million or $1.61 per diluted share as compared to $27.2 million or $1.63 per diluted share for fiscal 1998.
During the fourth quarter of fiscal 1999, the Company implemented a change in its method of accounting for store inventories from the first-in, first-out method calculated using a form of the retail inventory method to the weighted average cost method. The Company believes the new method for computing inventory is preferable because it provides for better matching of revenues and expenses. The Company made this change in connection with new store-level perpetual inventory systems installed throughout fiscal 1999. Accordingly, it is believed that the new inventory valuation method will better correspond with the Company's current operating practices for store inventory management. As a result of this change in accounting method, the Company reported a non-cash, fiscal 1999 after tax charge of $8.2 million, or $.49 per diluted share representing the beginning of the year impact of the change in accounting method.
The Company reported net income of $7.8 million, or $.47 per diluted share for the fourth quarter of fiscal 1999 as compared to $7.7 million, or $.46 per diluted share for the fourth quarter of fiscal 1998. As a result of the change in accounting method, net income for fiscal 1999 was $18.8 million, or $1.12 per diluted share as compared to $27.2 million, or $1.63 per diluted share, for fiscal 1998.
During the fourth quarter of fiscal 1999, the Company added 21 mini-depot stores. As of June 1, 1999, the Company had 558 stores in operation consisting of 28 depot stores and 530 mini-depot stores. For all of fiscal year 1999, the Company added 106 stores (which includes the 26 stores acquired in the Rose acquisition). For fiscal 2000 the Company expects to add approximately 80 to 90 stores.
Discount Auto Parts, Inc. is one of the Southeast's leading specialty retailers and suppliers of automotive replacement parts, maintenance items and accessories to both Do-It-Yourself ("DIY") consumers and professional mechanics and service technicians. The Company currently operates stores located throughout Florida, Georgia, Mississippi, Alabama, Mississippi, Louisiana and South Carolina.
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", "believe" 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, but are not limited to, 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, sourcing availability, rate of new store openings, cannibalization of store sites, mix of types of merchandise sold, governmental regulation of products, new store development and the like, 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 implement the commercial delivery service, credit risk associated with the commercial delivery service, environmental risks, availability of expanded and extended credit facilities, Year 2000 compliance issues, expenses associated with investigations concerning freon matters, and potential for liability with respect to these matters and other risks.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Thirteen Thirteen Fifty-Two Fifty-Two
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
6/1/99 6/2/98 6/1/99 6/2/98
--------- --------- --------- ---------
Net sales $ 140,774 $ 122,186 $ 511,483 $ 447,491
Cost of sales,
including distribution
costs 83,207 73,238 302,843 271,404
--------- --------- --------- ---------
Gross profit 57,567 48,948 208,640 176,087
Selling, general and
administrative expenses 41,915 33,809 152,777 124,125
--------- --------- --------- ---------
Income from operations 15,652 15,139 55,863 51,962
Other income, net 406 55 817 2,434
Interest expense (3,577) (2,723) (12,856) (10,203)
--------- --------- --------- ---------
Income before income
taxes and cumulative
effect of change in
accounting principle 12,481 12,471 43,824 44,193
Income taxes 4,667 4,800 16,766 17,013
--------- --------- --------- ---------
Income before
cumulative effect
of change in
accounting principle 7,814 7,671 27,058 27,180
Cumulative effect of
change in accounting
principle, net of
income tax benefit - - (8,245) -
--------- --------- --------- ---------
Net income $ 7,814 $ 7,671 $ 18,813 $ 27,180
========= ========= ========= =========
Earnings (loss)
per basic share:
From continuing
operations $ 0.47 $ 0.46 $ 1.63 $ 1.64
From cumulative
effect of change
in accounting
principle - - (0.50) -
--------- --------- --------- ---------
Net income $ 0.47 $ 0.46 $ 1.13 $ 1.64
========= ========= ========= =========
Earnings (loss) per
diluted share:
From continuing
operations $ 0.47 $ 0.46 $ 1.61 $ 1.63
From cumulative
effect of change
in accounting
principle - - (0.49) -
--------- --------- --------- ---------
Net income $ 0.47 $ 0.46 $ 1.12 $ 1.63
========= ========= ========= =========
Average number of shares:
Basic 16,667 16,618 16,650 16,604
========= ========= ========= =========
Assuming Dilution 16,801 16,789 16,803 16,715
========= ========= ========= =========
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 1 June 2
1999 1998
--------- ----------
Assets
Current assets:
Cash and cash equivalents $ 8,795 $ 5,064
Inventories 209,028 172,027
Prepaid expenses and other current assets 22,773 17,657
--------- ----------
Total current assets 240,596 194,748
Property and equipment 457,994 379,991
Less allowances for
depreciation and amortization (83,417) (65,472)
--------- ----------
374,577 314,519
Other assets 5,141 2,468
--------- ----------
Total assets $ 620,314 $ 511,735
========= ==========
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 87,867 $ 67,083
Other current liabilities 21,390 19,603
Current maturities of long-term debt 2,400 2,400
--------- ----------
Total current liabilities 111,657 89,086
Deferred income taxes 7,091 5,069
Long-term debt 224,800 160,695
Total stockholders' equity 276,766 256,885
--------- ----------
Total liabilities and stockholders' equity $ 620,314 $ 511,735
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