Advance Auto Parts Reports Record Second Quarter Results
Gross Margin Climbed 140 Basis Points to 45.4% Compared to 44.0% Last Year
Comparable Store Sales Rose 2.0% Compared to 5.0% Last Year
ROANOKE, Va., Aug. 6 -- Advance Auto Parts, Inc. today announced it achieved earnings per diluted share of $1.16 for the second quarter ended July 12, 2003, after non-recurring expenses of $0.05 per diluted share associated with the Discount Auto Parts' integration. Year-to-date earnings per diluted share rose to $1.31, after non-recurring expenses of $0.79 per diluted share resulting from the early redemption of outstanding notes and debentures and $0.10 per diluted share in integration expenses.
Comparable earnings per diluted share rose by 57.1% to $1.21 in the second quarter from $0.77 last year. Year-to-date comparable earnings per diluted share rose 65.4% to $2.20 compared to $1.33 last year. Comparable results do not include the non-recurring expenses associated with the Discount Auto Parts' integration and the early redemption of notes and debentures, as reconciled on the accompanying statements. The Company uses these non-GAAP- comparable measures as an indication of its earnings from recurring operations and believes it is important to the Company's stockholders due to the non- recurring nature and significance of the excluded expenses.
Sales increased 5.9% in the second quarter to $839.2 million compared to $792.7 million last year. Same store sales grew 2.0% in the second quarter on top of 5.0% in the same quarter last year. The Discount Auto Parts stores, which are in the comparable store base this year, produced a comparable store sales increase of 6.6% during the second quarter compared to 3.7% last year. Year-to-date sales increased 4.2% to $1,872.7 million compared to $1,796.8 million last year as same store sales rose 1.5% compared to 6.5% during the same period last year.
During the second quarter, gross margin increased 140 basis points to 45.4% compared to 44.0% last year as the Company reaped the benefits of its category management initiatives and leveraged its logistics expenses. Year- to-date, gross margin improved 160 basis points to 45.3% from 43.7% last year.
As a result of the strong gross margin improvement, comparable operating income increased 24.6% in the second quarter to $80.9 million from $64.9 million in the same quarter last year, generating an operating margin increase of 140 basis points to 9.6%. On a GAAP basis, operating income increased 36.2% to $78.0 million.
Comparable net income rose 60.2% in the second quarter to $45.2 million from $28.2 million in the second quarter last year. On a GAAP basis, net income increased 172.6% to $43.5 million in the second quarter, which included $1.8 million of after-tax non-recurring integration expenses associated with the Discount Auto Parts' acquisition. Year-to-date comparable net income increased 70.7% to $81.2 million compared to $47.6 million last year. On a GAAP basis, net income increased 73.0% to $48.5 million, which included $3.9 million of after-tax non-recurring integration expenses associated with the Discount Auto Parts' acquisition and $28.8 million of after-tax non-recurring expenses related to the early redemption of outstanding notes and debentures in the first quarter.
Commenting on the second quarter results, Larry Castellani, the Company's Chairman and Chief Executive Officer, said, "Our team proved this quarter that even in a challenging sales environment we can achieve our goal of expanding our operating margins. Our category management initiatives are running ahead of plan. We have developed a game plan to expand our sales growth and we see tremendous opportunities for the future."
Year-to-date, the Company generated $234.3 million in free cash flow, including $140.2 million in the second quarter. These results do not include the non-recurring cash expenses of $36.9 million associated with the early redemption of the Company's high interest bearing notes and debentures in the first quarter of 2003. Including these non-recurring expenses, year-to-date the Company generated $197.4 million in free cash flow. Free cash flow is calculated as cash provided by operating activities reduced by cash used in investing activities. The Company expects to be a slight user of cash in the second half of the year and raised its 2003 fiscal year guidance for free cash flow to $170 million.
During the quarter 27 new stores were opened, six stores were relocated, and one store was closed resulting in an ending store count of 2,482. Year- to-date, the Company has opened 60 new stores, relocated 18 stores, and closed 13 stores. The Company expects to open 125 stores this year, relocate approximately 40 stores, and close 25 stores.
The Company also issued comparable earnings per diluted share guidance for the third quarter in the range of $1.18 to $1.22 compared to $0.92 last year, a 28% to 33% increase. Due to its strong earnings growth during the first half of 2003, the Company's comparable earnings per diluted share guidance for the full year has increased to a range of $4.01 to $4.11 compared to its previous guidance of $3.85 to $3.95 per diluted share. This guidance excludes the non-recurring expenses of the redemption of notes and debentures, integration expenses, and the positive effect of the 53rd week in the fourth quarter. On a GAAP basis, the Company raised its earnings per diluted share guidance to $3.14 to $3.22, which includes the non-recurring expenses associated with the redemption of bonds and debentures in the first quarter and integration expenses related to the Discount Auto Parts acquisition.
The Company will host a conference call this evening, August 6, 2003, at 5:00 p.m. Eastern Standard Time to discuss its second quarter results. To listen to the live webcast please log on to http://www.advanceautoparts.com/. The call will be archived on the Company's website: http://www.advanceautoparts.com/ until August 6, 2004.
Advance Auto Parts, Inc., based in Roanoke, Va., is the second largest retailer of automotive parts in the United States. At July 12, 2003, the Company had 2,482 stores in 37 states, Puerto Rico and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
Certain statements contained in this news release are forward-looking statements. These statements discuss, among other things, expected growth, store development and expansion strategy, business strategies, future revenues and future performance, including our future free cash flow and earnings per share. 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, and other risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Actual results may materially differ from anticipated results described in these forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of the news release and does not undertake to update or revise them, as more information becomes available.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
July 12, December 28, July 13,
2003 2002 2002
Assets
Current assets:
Cash and cash equivalents $46,074 $13,885 $39,544
Receivables, net 93,350 102,574 118,101
Inventories, net 1,079,884 1,048,803 1,074,653
Other current assets 34,664 20,210 49,970
Total current assets 1,253,972 1,185,472 1,282,268
Property and equipment, net 711,222 728,432 715,697
Assets held for sale 24,897 28,346 46,200
Other assets, net 11,997 22,975 25,933
$2,002,088 $1,965,225 $2,070,098
Liabilities and Stockholders'
Equity
Current liabilities:
Bank overdrafts $14,372 $869 $-
Current portion of long-term debt 4,577 10,690 11,549
Accounts payable 591,827 470,740 585,119
Accrued expenses 207,055 208,176 209,192
Other current liabilities 44,068 32,101 39,676
Total current liabilities 861,899 722,576 845,536
Long-term debt 531,512 724,832 762,270
Other long-term liabilities 67,698 49,461 35,400
Total stockholders' equity 540,979 468,356 426,892
$2,002,088 $1,965,225 $2,070,098
NOTE: These balance sheets do not include the footnotes required by
generally accepted accounting principles for complete financial
statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Twelve Week Periods Ended
(in thousands, except per share data)
July 12, 2003
Adjustment for
Non-recurring Comparable
GAAP Items 2003
Net sales $839,168 $- $839,168
Cost of sales, including purchasing
and warehousing costs 457,881 - 457,881
Gross profit 381,287 - 381,287
Selling, general and administrative
expenses 303,310 (2,890) (a) 300,420
Operating income 77,977 2,890 80,867
Other, net:
Interest expense (7,182) - (7,182)
Loss on extinguishment of debt (254) - (254)
Other income, net 121 - 121
Total other, net (7,315) - (7,315)
Income before provision for income
taxes 70,662 2,890 73,552
Provision for income taxes 27,204 1,113 (b) 28,317
Net income $43,458 $1,777 $45,235
Net income per share:
Basic $1.19 $0.05 $1.24
Diluted 1.16 0.05 1.21
Average common shares outstanding (c) 36,546 36,546 36,546
Dilutive effect of stock options 869 869 869
Average common shares outstanding -
assuming dilution 37,415 37,415 37,415
(a) Represents the non-recurring merger and integration expenses
associated with the integration of the Discount Auto Parts operations.
(b) This adjustment reflects the tax impact for the non-recurring items
discussed above at a 38.5% effective tax rate.
(c) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At July 12,
2003, we had 36,686 shares outstanding.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Twenty-Eight Week Periods Ended
(in thousands, except per share data)
July 12, 2003
Adjustment for
Non-recurring Comparable
GAAP Items 2003
Net sales $1,872,705 $- $1,872,705
Cost of sales, including purchasing
and warehousing costs 1,023,609 - 1,023,609
Gross profit 849,096 - 849,096
Selling, general and administrative
expenses 696,586 (6,271) (a) 690,315
Operating income 152,510 6,271 158,781
Other, net:
Interest expense (26,749) - (26,749)
Loss on extinguishment of debt (47,141) 46,887 (b) (254)
Other income, net 239 - 239
Total other, net (73,651) 46,887 (26,764)
Income before provision for income
taxes 78,859 53,158 132,017
Provision for income taxes 30,360 20,466 (c) 50,826
Net income $48,499 $32,692 $81,191
Net income per share:
Basic $1.34 $0.90 $2.24
Diluted 1.31 0.89 2.20
Average common shares outstanding (d) 36,178 36,178 36,178
Dilutive effect of stock options 782 782 782
Average common shares outstanding -
assuming dilution 36,960 36,960 36,960
(a) Represents the non-recurring merger and integration expenses
associated with the integration of the Discount Auto Parts operations.
(b) This adjustment reflects the deferred loan costs, unamortized
discounts and the premiums paid upon the complete repurchase and
retirement of our outstanding bonds during the first quarter of 2003.
(c) This adjustment reflects the tax impact for the non-recurring items
discussed above at a 38.5% effective tax rate.
(d) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At July 12,
2003, we had 36,686 shares outstanding.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Twelve Week Periods Ended
(in thousands, except per share data)
July 13, 2002
Adjustment for
Non-recurring Comparable
GAAP Items 2002
Net sales $792,717 $- $792,717
Cost of sales, including purchasing
and warehousing costs 443,703 - 443,703
Gross profit 349,014 - 349,014
Selling, general and administrative
expenses 291,764 (7,629) (a) 284,135
Operating income 57,250 7,629 64,879
Other, net:
Interest expense (19,120) - (19,120)
Loss on extinguishment of debt (12,458) 12,458 (b) -
Other income, net 377 - 377
Total other, net (31,201) 12,458 (18,743)
Income before provision for income
taxes 26,049 20,087 46,136
Provision for income taxes 10,108 7,794 (c) 17,902
Net income $15,941 $12,293 $28,234
Net income per share:
Basic $0.45 $0.35 $0.80
Diluted 0.44 0.33 0.77
Average common shares outstanding (d) 35,386 35,386 35,386
Dilutive effect of stock options 1,156 1,156 1,156
Average common shares outstanding -
assuming dilution 36,542 36,542 36,542
(a) Represents the non-recurring merger and integration expenses
associated with the integration of the Discount Auto Parts operations.
(b) This adjustment reflects the current and deferred loan costs
associated with the Company's refinancing of the tranche B term loan
under its senior credit facility and reflects the ratable portion of
deferred loan costs and the premium paid upon the repurchase and
retirement of outstanding bonds.
(c) This adjustment reflects the tax impact for the non-recurring items
discussed above at a 38.8% effective tax rate.
(d) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At July 13,
2002, we had 35,665 shares outstanding.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
Twenty-Eight Week Periods Ended
(in thousands, except per share data)
July 13, 2002
Adjustment for
Non-recurring Comparable
GAAP Items 2002
Net sales $1,796,804 $- $1,796,804
Cost of sales, including purchasing
and warehousing costs 1,011,282 - 1,011,282
Gross profit 785,522 - 785,522
Selling, general and administrative
expenses 679,918 (18,194) (a) 661,724
Operating income 105,604 18,194 123,798
Other, net:
Interest expense (46,718) - (46,718)
Loss on extinguishment of debt (13,724) 13,724 (b) -
Other income, net 650 - 650
Total other, net (59,792) 13,724 (46,068)
Income before provision for income
taxes 45,812 31,918 77,730
Provision for income taxes 17,775 12,384 (c) 30,159
Net income $28,037 $19,534 $47,571
Net income per share:
Basic $0.81 $0.57 $1.38
Diluted 0.79 0.54 1.33
Average common shares outstanding (d) 34,498 34,498 34,498
Dilutive effect of stock options 1,212 1,212 1,212
Average common shares outstanding -
assuming dilution 35,710 35,710 35,710
(a) Represents the non-recurring merger and integration expenses
associated with the integration of the Discount Auto Parts operations.
(b) This adjustment reflects the current and deferred loan costs
associated with the Company's refinancing of the tranche B term loan
under its senior credit facility and reflects the ratable portion of
deferred loan costs and the premium paid upon the repurchase and
retirement of outstanding bonds.
(c) This adjustment reflects the tax impact for the non-recurring items
discussed above at a 38.8% effective tax rate.
(d) Average common shares outstanding is calculated based on the weighted
average number of shares outstanding for the quarter. At July 13,
2002, we had 35,665 shares outstanding.
NOTE: These preliminary statements of operations have been prepared on a
consistent basis with previously presented statements of operations
and do not include the footnotes required by generally accepted
accounting principles for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Twenty-Eight Week Periods Ended
(in thousands, except per share data)
July 12, July 13,
2003 2002
Cash flows from operating activities:
Net income $48,499 $28,037
Depreciation 53,807 48,983
Loss on extinguishment of debt 47,141 13,724
Provision for deferred income taxes 30,142 17,706
Other non-cash adjustments to net income 10,742 15,764
Decrease (increase) in:
Receivables, net 9,224 (24,397)
Inventories, net (31,081) (101,427)
Other assets (18,609) (18,005)
Increase (decrease) in:
Accounts payable 121,087 156,078
Accrued expenses 6,687 40,589
Other liabilities (1,707) 4,852
Net cash provided by operating
activities 275,932 181,904
Cash flows from investing activities:
Purchases of property and equipment (50,595) (46,638)
Proceeds from sales of property and
equipment 8,974 9,410
Net cash used in investing activities (41,621) (37,228)
Cash flows from financing activities:
Increase in bank overdrafts 13,503 (34,748)
Early extinguishment of debt,
including debt related costs (551,374) (429,214)
Net borrowings under the credit facility 348,300 240,000
Payment of debt related costs (36,895) (8,098)
Proceeds from the exercise of stock options 18,824 16,089
Proceeds from the issuance of common stock - 88,695
Other net financing activities 5,520 4,027
Net cash used in financing activities (202,122) (123,249)
Increase in cash and cash equivalents 32,189 21,427
Cash and cash equivalents, beginning
of period 13,885 18,117
Cash and cash equivalents, end of period $46,074 $39,544
NOTE: These preliminary statements of cash flows have been prepared on
a consistent basis with previously presented statements of cash
flows and do not include the footnotes required by generally
accepted accounting principles for complete financial statements.