Advance Auto Parts Reports Record Third Quarter Results
Declares a Two-for-One Stock Split in the Form of a Dividend
ROANOKE, Va., Oct. 29 -- Advance Auto Parts, Inc. today announced it achieved strong third quarter results. The highlights of the quarter include:
* Achieving a comparable store sales gain of 3.1% on top of 5.5% last
year.
* Generating a gross margin increase of 143 basis points to 45.8%.
* Repaying $80 million in debt during the quarter and $279 million year-
to-date.
The Company produced earnings per diluted share of $1.20 for the third quarter ended October 4, 2003, which includes expenses of $0.04 per diluted share associated with the Discount Auto Parts' integration. Year-to-date earnings per diluted share rose to $2.52, which includes expenses of $0.78 per diluted share resulting from the early redemption of outstanding notes and debentures and $0.14 per diluted share in integration expenses.
Comparable earnings per diluted share rose by 34.8% to $1.24 in the third quarter from $0.92 last year. Year-to-date comparable earnings per diluted share rose 52.2% to $3.44 compared to $2.26 last year. Comparable results are non-GAAP measures because they exclude the expenses associated with the Discount Auto Parts' integration and the early redemption of notes and debentures, as reconciled on the accompanying financial tables. The Company uses these non-GAAP measures as an indication of its earnings from its core operations and believes it is important to the Company's stockholders due to the nature and significance of the excluded expenses.
Sales increased 7.7% in the third quarter to $849.3 million compared to $788.7 million last year. Same store sales grew 3.1% in the third quarter on top of 5.5% in the same quarter last year. The stores acquired as part of the Discount Auto Parts' acquisition, which are in the comparable store base this year, produced a comparable store sales increase of 3.1% during the third quarter on top of 6.3% last year. Year-to-date sales increased 5.3% to $2,722.0 million compared to $2,585.5 million last year as same store sales rose 2.0% compared to 6.2% during the same period last year.
During the third quarter, gross margin increased 143 basis points to 45.8% compared to 44.3% last year, reflecting the benefits realized from the Company's category management initiatives and continued leveraging of its logistics costs. Year-to-date, gross margin improved 157 basis points to 45.5% from 43.9% last year.
During the third quarter, the Company invested a portion of its gross margin improvements in increased advertising to grow the Company's brand recognition and in expanded customer service levels through a slight increase in store labor hours. This investment resulted in an increase in comparable selling, general and administrative expenses to 36.1% as a percent of net sales from 35.4% last year. On a GAAP basis, selling, general and administrative expenses as a percent of net sales were consistent with last year at 36.4%. On a year-to-date basis, comparable selling, general and administrative expenses as a percent of sales increased 25 basis points to 36.6% compared to 36.4% last year. On a GAAP basis selling, general and administration costs year-to-date declined 45 basis points to 37.0% from 37.4% last year, reflecting the decrease in integration expenses.
Comparable operating margins improved in the third quarter to 9.6% compared to 9.0% in the same quarter last year. On a GAAP basis, third quarter operating margins rose to 9.3% compared to 7.9% last year. Year-to- date, comparable operating margins improved 131 basis points to 8.8% compared to 7.5% last year. On a GAAP basis, year-to-date operating margins improved to 8.5% from 6.5% last year.
Comparable net income rose 38.6% in the third quarter to $46.7 million from $33.7 million in the third quarter last year. On a GAAP basis, net income increased 59.2% to $45.2 million in the third quarter, which includes $1.6 million of after-tax integration expenses associated with the Discount Auto Parts' acquisition. Year-to-date comparable net income increased 57.4% to $127.9 million compared to $81.3 million last year. On a GAAP basis, net income increased 66.1% to $93.7 million, which includes $5.4 million of after- tax integration expenses associated with the Discount Auto Parts' acquisition and $28.8 million of after-tax expenses related to the early redemption of outstanding notes and debentures in the first quarter.
Commenting on the third quarter results, Larry Castellani, the Company's Chairman and Chief Executive Officer, said, "Our investments in building Advance Auto Parts, including category management, are generating strong results. Our enhanced merchandising gives our team the opportunity to service our customers more effectively and we believe that these investments will continue to produce strong results."
Year-to-date, the Company generated $302.1 million in free cash flow, including $67.8 million in the third quarter. These results do not include the 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 expenses, year-to-date the Company generated $265.2 million in free cash flow. The generation of this free cash flow allowed the Company to repay $80 million in debt during the third quarter and $279 million of debt since December 28, 2002. Free cash flow is calculated as cash provided by operating activities reduced by cash used in investing activities. The Company expects to be a user of cash in the fourth quarter and raised its 2003 fiscal year guidance for free cash flow to $210 million.
During the quarter 19 new stores were opened, six stores were relocated, and five stores were closed resulting in an ending store count of 2,496. Year-to-date, the Company opened 79 new stores, relocated 24 stores, and closed 18 stores. The Company expects to open approximately 125 stores this year, relocate approximately 40 stores, and close approximately 25 stores.
The Company also reconfirmed its comparable earnings per diluted share guidance for the fourth quarter in the range of $0.74 to $0.80 compared to $0.43 last year, a 72% to 86% increase. The Company's comparable earnings per diluted share are anticipated to be in the range of $4.18 to $4.24 for the full year. This guidance excludes the expenses of the redemption of notes and debentures of $0.78 and integration expenses of $0.16. Expenses associated with the discontinuance of the Western Auto wholesale supply program and the positive effect of the 53rd week in the fourth quarter are included. On a GAAP basis, the Company raised its earnings per diluted share guidance to $3.24 to $3.30, which includes the expenses associated with the redemption of bonds and debentures in the first quarter, integration expenses related to the Discount Auto Parts acquisition, expenses associated with the discontinuance of the Western Auto wholesale supply program and the positive effect of the 53rd week in fourth quarter. The Company anticipates earnings per diluted share in 2004 to be in the range of $5.00 to $5.10. The above earnings per share guidance does not include the impact of a stock split.
Also today, the Company's Board of Directors declared a two-for-one stock split of the Company's common stock, which will be effected as a 100% stock dividend. The dividend shares will be distributed on January 2, 2004 to stockholders of record on December 11, 2003. The Company's common stock will trade on a post-split basis, on January 5, 2003, the next trading day following the distribution date.
The Board of Directors also announced today that Peter Fontaine, former Chairman and Chief Executive Officer of Discount Auto Parts, submitted his resignation to the Board effective immediately. Discount Auto Parts was acquired by Advance Auto Parts in November 2001.
"Peter has made a tremendous contribution to our Board during the last two years especially in regards to the integration of Discount Auto Parts," commented Larry Castellani. "We sincerely thank Peter for all his contributions."
The Company will host a conference call tomorrow, October 30, 2003, at 8:00 a.m. Eastern Standard Time to discuss its third 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 October 30, 2004.
Advance Auto Parts, Inc., based in Roanoke, Va., is the second largest retailer of automotive parts in the United States. At October 4, 2003, the Company had 2,496 stores in 38 states, Puerto Rico and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
October 4, December 28, October 5,
2003 2002 2002
Assets
Current assets:
Cash and cash equivalents $49,858 $13,885 $56,843
Receivables, net 92,828 102,574 131,957
Inventories, net 1,102,565 1,048,803 1,078,388
Other current assets 24,453 20,210 32,065
Total current assets 1,269,704 1,185,472 1,299,253
Property and equipment, net 707,309 728,432 718,352
Assets held for sale 23,177 28,346 38,569
Other assets, net 11,059 22,975 27,029
$2,011,249 $1,965,225 $2,083,203
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $24,233 $869 $-
Current portion of long-term debt - 10,690 11,542
Accounts payable 606,343 470,740 554,609
Accrued expenses 214,649 208,176 223,682
Other current liabilities 44,121 32,101 35,276
Total current liabilities 889,346 722,576 825,109
Long-term debt 456,089 724,832 761,226
Other long-term liabilities 68,527 49,461 40,677
Total stockholders' equity 597,287 468,356 456,191
$2,011,249 $1,965,225 $2,083,203
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 Period Ended
(in thousands, except per share data)
October 4, 2003
Adjustment for
Integration Comparable
GAAP Expenses 2003
Net sales $849,323 $- $849,323
Cost of sales, including purchasing
and warehousing costs 460,579 - 460,579
Gross profit 388,744 - 388,744
Selling, general and administrative
expenses 309,390 (2,522)(a) 306,868
Operating income 79,354 2,522 81,876
Other, net:
Interest expense (5,935) - (5,935)
Loss on extinguishment of debt (125) - (125)
Other income, net 138 - 138
Total other, net (5,922) - (5,922)
Income before provision for income
taxes 73,432 2,522 75,954
Provision for income taxes 28,268 971(b) 29,239
Net income $45,164 $1,551 $46,715
Net income per share:
Basic $1.23 $0.04 $1.27
Diluted 1.20 0.04 1.24
Average common shares outstanding (c) 36,825 36,825 36,825
Dilutive effect of stock options 949 949 949
Average common shares outstanding -
assuming dilution 37,774 37,774 37,774
(a) Represents merger and integration expenses associated with the
integration of the Discount Auto Parts operations.
(b) This adjustment reflects the tax impact for the expenses 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 October 4,
2003, we had 36,906 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
Forty Week Period Ended
(in thousands, except per share data)
October 4, 2003
Adjustment for
Integration and
Debt Comparable
GAAP Extinguishment 2003
Net sales $2,722,028 $- $2,722,028
Cost of sales, including purchasing
and warehousing costs 1,484,188 - 1,484,188
Gross profit 1,237,840 - 1,237,840
Selling, general and administrative
expenses 1,005,976 (8,793)(a) 997,183
Operating income 231,864 8,793 240,657
Other, net:
Interest expense (32,684) - (32,684)
Loss on extinguishment of debt (47,266) 46,887(b) (379)
Other income, net 377 - 377
Total other, net (79,573) 46,887 (32,686)
Income before provision for income
taxes 152,291 55,680 207,971
Provision for income taxes 58,628 21,437(c) 80,065
Net income $93,663 $34,243 $127,906
Net income per share:
Basic $2.58 $0.94 $3.52
Diluted 2.52 0.92 3.44
Average common shares outstanding (d) 36,372 36,372 36,372
Dilutive effect of stock options 832 832 832
Average common shares outstanding -
assuming dilution 37,204 37,204 37,204
(a) Represents 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 expenses 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 October 4,
2003, we had 36,906 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 Period Ended
(in thousands, except per share data)
October 5, 2002
Adjustment for
Integration and
Debt Comparable
GAAP Extinguishment 2002
Net sales $788,662 $- $788,662
Cost of sales, including purchasing
and warehousing costs 439,000 - 439,000
Gross profit 349,662 - 349,662
Selling, general and administrative
expenses 287,117 (8,248)(a) 278,869
Operating income 62,545 8,248 70,793
Other, net:
Interest expense (16,016) - (16,016)
Loss on extinguishment of debt (482) 482 (b) -
Other income, net 299 - 299
Total other, net (16,199) 482 (15,717)
Income before provision for income
taxes 46,346 8,730 55,076
Provision for income taxes 17,983 3,387 (c) 21,370
Net income $28,363 $5,343 $33,706
Net income per share:
Basic $0.80 $0.14 $0.94
Diluted 0.77 0.15 0.92
Average common shares outstanding (d) 35,673 35,673 35,673
Dilutive effect of stock options 1,052 1,052 1,052
Average common shares outstanding -
assuming dilution 36,725 36,725 36,725
(a) Represents 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 expenses 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 October 5,
2002, we had 35,686 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
Forty Week Period Ended
(in thousands, except per share data)
October 5, 2002
Adjustment for
Integration and
Debt Comparable
GAAP Extinguishment 2002
Net sales $2,585,466 $- $2,585,466
Cost of sales, including purchasing
and warehousing costs 1,450,282 - 1,450,282
Gross profit 1,135,184 - 1,135,184
Selling, general and administrative
expenses 967,035 (26,442)(a) 940,593
Operating income 168,149 26,442 194,591
Other, net:
Interest expense (62,734) - (62,734)
Loss on extinguishment of debt (14,206) 14,206 (b) -
Other income, net 949 - 949
Total other, net (75,991) 14,206 (61,785)
Income before provision for income
taxes 92,158 40,648 132,806
Provision for income taxes 35,758 15,771 (c) 51,529
Net income $56,400 $24,877 $81,277
Net income per share:
Basic $1.62 $0.71 $2.33
Diluted 1.57 0.69 2.26
Average common shares outstanding (d) 34,851 34,851 34,851
Dilutive effect of stock options 1,163 1,163 1,163
Average common shares outstanding -
assuming dilution 36,014 36,014 36,014
(a) Represents 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 expenses 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
October 5, 2002, we had 35,686 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 Cash Flows
Forty Week Periods Ended
(in thousands)
October 4, October 5,
2003 2002
Cash flows from operating activities:
Net income $93,663 $56,400
Depreciation 77,483 71,455
Loss on extinguishment of debt 47,266 14,206
Provision for deferred income taxes 36,945 35,540
Other non-cash adjustments to net
income 14,815 17,789
Decrease (increase) in:
Receivables, net 9,746 (35,310)
Inventories, net (53,677) (110,030)
Other assets (11,120) (16,178)
Increase (decrease) in:
Accounts payable 135,603 126,960
Accrued expenses 12,750 53,452
Other liabilities (3,257) 4,596
Net cash provided by operating
activities 360,217 218,880
Cash flows from investing activities:
Purchases of property and equipment (70,331) (68,524)
Acquisitions, net of cash acquired - (3,411)
Proceeds from sales of property and
equipment 12,165 19,989
Net cash used in investing
activities (58,166) (51,946)
Cash flows from financing activities:
Increase in bank overdrafts 23,364 (34,748)
Early extinguishment of debt (631,374) (433,103)
Net borrowings under the credit
facility 348,300 240,000
Payment of debt related costs (36,895) (8,982)
Proceeds from the exercise of stock
options 24,435 16,321
Proceeds from the issuance of common
stock - 88,677
Other net financing activities 6,092 3,627
Net cash used in financing
activities (266,078) (128,208)
Increase in cash and cash equivalents 35,973 38,726
Cash and cash equivalents, beginning
of period 13,885 18,117
Cash and cash equivalents, end of
period $49,858 $56,843
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.