CSK Auto Reports Second Quarter Fiscal 2000 Financial Results
8 September 2000
CSK Auto Corporation Reports Second Quarter Fiscal 2000 Financial Results
PHOENIX, Sept. 7 CSK Auto Corporation, the parent company of CSK Auto, Inc.,
today reported its financial results for the second quarter of fiscal 2000.
Thirteen Weeks Ended July 30, 2000
The number of stores operated by the Company increased to 1,143 at
July 30, 2000, from 926 stores at August 1, 1999. The increase reflects the
acquisition of the Al's and Grand Auto Supply stores (154 units, net of
closures) in the third quarter of fiscal 1999, the acquisition of All Car
Distributors (22 units) in the first quarter of fiscal 2000 and new store
openings. The number of stores at both July 30, 2000 and August 1, 1999
include the 86 stores, net of relocations, acquired from Big Wheel/Rossi
during the second quarter of fiscal 1999. However, the operating results of
the Big Wheel/Rossi stores are reflected for only one month in the 1999
quarter and are reflected for the full fiscal quarter ended July 30, 2000.
Net sales for the thirteen weeks ended July 30, 2000, increased approximately
24% to $374.8 million from $302.3 million in the second quarter of fiscal 1999.
Comparable store sales, however, were flat in the second quarter of fiscal 2000.
Sales in the second quarter of fiscal 2000 were lower than anticipated with the
softness affecting both the do-it-yourself (DIY) retail and commercial sales
levels. Furthermore, initial sales results at our recently acquired stores
have been disappointing, with a significant portion of the sales shortfall
coming from the loss of automotive service sales that were assumed to be retained
until the service centers were subleased or closed. As of July 30, 2000, the
Company has sublet a majority of the acquired service centers and is finalizing
sublease and/or closure arrangements for the remaining service centers with the
intention of eliminating all of the service centers by the end of the third
quarter of fiscal 2000.
Excluding non-recurring charges for (i) acquisition-related transition
expenses including associated store closing costs and (ii) the operating
losses of service centers that the Company is exiting, operating profit for
the second quarter of fiscal 2000 totaled $28.8 million compared to
$29.4 million, for the second quarter of fiscal 1999. The decrease in
operating profit resulted from lower gross profit contribution due to lower
than anticipated sales levels and the assimilation of acquired inventories
without customary purchase allowances. In addition, the Company recorded a
non-cash charge of $0.7 million to record its proportionate equity share of
the development stage losses of the PartsAmerica.com joint venture in which
the Company participates.
Interest expense for the second quarter of fiscal 2000 increased to $15.3
million from $8.1 million for the second quarter of fiscal 1999, primarily due
to increased debt levels and higher variable interest rates.
Excluding the above-described non-recurring charges, net income for the
second quarter of fiscal 2000 was $8.4 million, or $0.30 per diluted common
share ($0.32 per diluted common share excluding the charge for PartsAmerica.com).
This compares to net income of $13.1 million, or $0.46 per diluted common share,
for the second quarter of fiscal 1999. Including the one-time charges, net loss
for the second quarter of fiscal 2000 was $1.5 million, or ($0.05) per diluted
common share.
During the second quarter of fiscal 2000, the Company opened 8 new stores,
relocated 5 stores, expanded 2 stores, acquired 1 store and closed 4 stores in
addition to those closed due to relocation.
Twenty-six Weeks Ended July 30, 2000
Net sales for the twenty-six weeks ended July 30, 2000, increased 28% to
$731.2 million from $571.7 million for the comparable period of fiscal 1999.
Comparable store sales increased 2% for the twenty-six weeks ended
July 30, 2000.
Operating profit, excluding the above-described charges, increased to
$64.8 million for the twenty-six weeks ended July 30, 2000 from $52.6 million
for the comparable period of fiscal 1999. Inclusive of all items, operating
profit declined to $36.6 million for the first two quarters of fiscal 2000
from $52.0 million for the comparable period of fiscal 1999.
Interest expense for the twenty-six weeks ended July 30, 2000 increased to
$29.8 million from $15.5 million for the comparable period of fiscal 1999,
primarily due to increased debt levels and higher variable interest rates.
Net income for the twenty-six weeks ended July 30, 2000, excluding all of
the non-recurring items discussed above that affected operating profit,
decreased to $21.5 million or $0.77 per diluted common share ($0.79 per
diluted common share excluding the charge for PartsAmerica.com) from
$22.9 million, or $0.80 per diluted common share, excluding non-recurring
charges, for the comparable period of fiscal 1999. Inclusive of all
non-recurring charges, net income for the twenty-six weeks ended July 30, 2000
totaled $4.2 million or $0.15 per diluted common share compared to net income
of $21.8 million, or $0.76 per diluted common share for the comparable period
of the prior year.
"We are very disappointed by our second quarter and year-to-date fiscal
2000 financial results," said Mr. Jenkins. "We believe that the soft sales
trends which we are experiencing are reflective of the general market
conditions that are also being experienced by many of our suppliers and
competitors. Despite these conditions, we are maintaining our focus on
serving our customers, operating our stores efficiently and improving our
operating results."
Outlook for the Remainder of Fiscal 2000
With respect to the remainder of fiscal 2000, the Company expects
comparable store sales increases of approximately 3% for the second half of
the fiscal year with the increases being driven largely by the commercial
sales program and the maturation of newly opened stores. Total annual net
sales are expected to approximate $1.48 billion. Gross profit margins are
expected to remain consistent with the second quarter run rate and earnings
per diluted common share are expected to range from $0.55 to $0.60 for the
second half of the fiscal year. In addition, the Company expects to generate
annual earnings before interest, taxes, depreciation and amortization
("EBITDA") of approximately $155 million. For fiscal 2001, the Company's
preliminary projection anticipates top-line growth of approximately 8 to
10 percent, a net income increase of between 15 and 20 percent over fiscal
2000 earnings and the production of approximately $175 million of EBITDA.
The Company has entered into an agreement in principle to settle the class
action lawsuits brought by former and present California store managers and
senior assistant managers seeking overtime pay under California law. The
maximum amount of the settlement is $11.0 million (which includes plaintiffs'
attorneys' fees and costs), but may be lower depending upon the number of
potential class members that submit claims. The tentative settlement will not
be final until the parties execute a definitive settlement agreement, which
must be approved by the court in which the lawsuits are pending. The Company
will record a charge when the final settlement amount is determined. The
Company believes that the settlement amount is reasonable in light of the
projected legal expenses and other costs necessary to defend these lawsuits
and the potential incremental exposure to the Company in the event of an
unfavorable outcome.
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share data)
(As adjusted)
Thirteen Weeks Ended Thirteen Weeks Ended
July 30, Aug 1, July 30, Aug 1,
2000 1999 2000 (1) 1999
Net sales $374,802 $302,322 $372,303 $302,322
Cost of sales 201,348 159,593 198,749 159,593
Gross profit 173,454 142,729 173,554 142,729
Other costs and expenses:
Operating and
administrative 143,399 112,374 142,321 112,374
Store closing costs 4,018 675 291 675
Transition and
integration
expenses (2) 11,063 619 -- --
Equity in loss of
joint venture 716 -- 716 --
Goodwill amortization 1,416 280 1,416 280
Operating profit 12,842 28,781 28,810 29,400
Interest expense, net 15,263 8,143 15,263 8,143
Income (loss) before
income taxes (2,421) 20,638 13,547 21,257
Income tax expense
(benefit) (926) 7,945 5,182 8,183
Net income (loss) $(1,495) $12,693 $8,365 $13,074
Basic earnings (loss)
per share:
Net income (loss) $(0.05) $0.46 $0.30 $0.47
Shares used in
computing per
share amounts 27,838,889 27,814,773 27,838,889 27,814,773
Diluted earnings
(loss) per share:
Net income (loss) $(0.05) $0.44 $0.30 $0.46
Shares used in computing
per share amounts 27,838,889 28,673,234 27,838,889 28,673,234
(1) The "As adjusted" column excludes: (i) $2.499 million of sales made
by acquired automotive service centers that the Company has closed or
will be closing; (ii) $2.599 million of cost of sales associated with
the excluded sales; (iii) $1.078 million of operating expenses of the
automotive service centers that the Company has closed or will be
closing; and (iv) $3.7 million of store closing costs incurred with
respect to CSK stores that overlap with acquired stores.
(2) Reflects costs incurred to replace store systems, re-merchandise
stores, train employees and conduct other activities associated with
the integration of acquired stores into the Company's operations.
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share data)
(As adjusted)
Twenty-six Weeks Ended Twenty-six Weeks Ended
July 30, Aug 1, July 30, Aug 1,
2000 1999 2000 (1) 1999
Net sales $731,156 $571,724 $724,754 $571,724
Cost of sales 384,159 298,844 378,260 298,844
Gross profit 346,997 272,880 346,494 272,880
Other costs and expenses:
Operating and
administrative 278,753 218,764 276,341 218,764
Store closing costs 5,863 1,210 2,136 1,210
Transition and
integration
expenses (2) 22,510 619 -- --
Equity in loss of
joint venture 716 -- 716 --
Goodwill amortization 2,528 283 2,528 283
Operating profit 36,627 52,004 64,773 52,623
Interest expense, net 29,821 15,492 29,821 15,492
Income before income
taxes and cumulative
effect of change
in accounting
principle 6,806 36,512 34,952 37,131
Income tax expense 2,626 13,957 13,484 14,194
Income before cumulative
effect of change in
accounting principle 4,180 22,555 21,468 22,937
Cumulative effect of
change in accounting
principle, net of
$468 of income taxes (3) -- (741) -- --
Net income $4,180 $21,814 $21,468 $22,937
Basic earnings (loss)
per share:
Income before cumulative
effect of change in
accounting principle $0.15 $0.81 $0.77 $0.83
Cumulative effect of
change in accounting
principle, net of
income taxes -- (0.03) -- --
Net income $0.15 $0.78 $0.77 $0.83
Shares used in computing
per share amounts 27,837,735 27,800,049 27,837,735 27,800,049
Diluted earnings (loss)
per share:
Income before cumulative
effect of change in
accounting principle $0.15 $0.78 $0.77 $0.80
Cumulative effect of
change in accounting
principle, net of
income taxes -- (0.02) -- --
Net income $0.15 $0.76 $0.77 $0.80
Shares used in computing
per share amounts 27,837,735 28,804,643 27,837,735 28,804,643
(1) The "As adjusted" column excludes: (i) $6.402 million of sales made
by acquired automotive service centers that the Company has closed or
will be closing; (ii) $5.899 million of cost of sales associated with
the excluded sales; (iii) $2.412 million of operating expenses of the
automotive service centers that the Company has closed or will be
closing; and (iv) $3.7 million of store closing costs incurred with
respect to CSK stores that overlap with acquired stores.
(2) Reflects costs incurred to replace store systems, re-merchandise
stores, train employees and conduct other activities associated with
the integration of acquired stores into the Company's operations.
(3) Reflects the cumulative effect of a change in the method of
accounting for store pre-opening costs.