Advance Auto Parts Reports Third Quarter Fiscal 2012 Results

ROANOKE, Va.--()--Advance Auto Parts, Inc. (NYSE: AAP), a leading retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, today announced its financial results for the third fiscal quarter ended October 6, 2012. Third quarter earnings per diluted share (EPS) were $1.21 which was a 14.2% decrease versus the third quarter last year. Year-to-date, EPS was $4.34 which was an increase of 3.6% over the same period last year.

 
Third Quarter Performance Summary
       
Twelve Weeks Ended Forty Weeks Ended
October 6, October 8, October 6, October 8,
2012 2011 2012 2011
 
Sales (in millions) $ 1,457.5 $ 1,465.0 $ 4,875.8 $ 4,842.9
 
Comp Store Sales % (1.8 %) 2.2 % (0.5 %) 2.0 %
 
Gross Profit % 49.8 % 49.5 % 49.9 % 49.9 %
 
SG&A % 39.4 % 37.3 % 38.8 % 38.5 %
 
Operating Income % 10.3 % 12.1 % 11.2 % 11.4 %
 
Diluted EPS $ 1.21 $ 1.41 $ 4.34 $ 4.19
 
Avg Diluted Shares (in thousands) 73,992 74,730 74,107 78,058
 

“Our efforts to invest in the continued long-term growth of Commercial and increase customer traffic helped drive improvements in our comp store sales from the second quarter to the third quarter of this year and strengthened our positive Commercial comps for Advance stores through the quarter. Despite these improved sales trends, we were still unable to achieve our profitability expectations and fully mitigate the weak consumer demand within several of our markets, especially in our colder weather markets,” said Darren R. Jackson, President and Chief Executive Officer. “As we look beyond our current quarter, we believe the industry fundamentals remain positive and that we are well positioned with our initiatives to fuel our future growth. These initiatives include the successful launch of our Advance Commercial Credit program, our new distribution center in Remington, IN, our recent expansion into New York City and our continued momentum from our B2B online ordering capability, hub investments and inventory upgrades.”

Fiscal Third Quarter and Year-to-Date Highlights

Total sales for the third quarter decreased 0.5% to nearly $1.46 billion, as compared with total sales during the third quarter of fiscal 2011. The sales decrease reflected a comparable store sales decrease of 1.8% versus a comparable store sales increase of 2.2% during the third quarter of fiscal 2011, partially offset by the net addition of 82 new stores during the past 12 months. Year-to-date, total sales increased 0.7% to $4.88 billion, compared with total sales of $4.84 billion over the same period last year.

The Company's gross profit rate was 49.8% of sales during the third quarter as compared to 49.5% during the third quarter last year. The 31 basis-point increase in gross profit rate was primarily due to improved shrink, cost deflation and supply chain efficiencies, partially offset by increased promotional activity. Year-to-date, the Company's gross profit rate was 49.9%, which was consistent with the same period in fiscal 2011.

The Company's SG&A rate was 39.4% of sales during the third quarter as compared to 37.3% during the same period last year. The 213 basis-point increase was primarily due to increased spending on in-store labor and advertising in an effort to drive consumer traffic and maintain market share in the softer consumer environment and expense deleverage as a result of the Company's lower sales volume. Year-to-date, the Company's SG&A rate was 38.8% versus 38.5% during the same period last year.

The Company's operating income during the third quarter of $150.4 million decreased 15.4% versus the third quarter of fiscal 2011. On a rate basis, operating income was 10.3% of total sales as compared to 12.1% during the third quarter of fiscal 2011. Year-to-date the Company's operating income rate was 11.2% versus 11.4% during the same period last year.

Operating cash flow decreased 17.4% to $504.8 million from $611.0 million through the third quarter of fiscal 2011. Free cash flow was $298.6 million versus $354.8 million through the third quarter of fiscal 2011. Capital expenditures were $201.2 million as compared to $207.5 million through the third quarter of fiscal 2011.

“Our third quarter performance continued to reflect the ongoing softness in our colder weather markets and a tougher economic environment impacting consumer demand for auto parts as evidenced by softness in both our maintenance and failure categories. While we are disappointed we did not achieve our profitability expectations, we are encouraged by the improvements in our sales trends, particularly in Commercial, from our second to third quarter,” said Mike Norona, Executive Vice President and Chief Financial Officer. “Our decision to trade off profitability in the short term is driven by our confidence in the long-term industry fundamentals and ensuring we position the company for fiscal 2013 with momentum as we expect a more normalized winter. As a result of the short-term softness in our performance, we now anticipate our fiscal 2012 EPS to be in the range $5.05 to $5.15 per share.”

 
Comparable Key Financial Metrics and Statistics (1)
           
Twelve Weeks Ended Forty Weeks Ended Fifty-Two Weeks Ended
October 6, October 8,

October 6,

October 8,
2012 2011 2012 2011 FY 2011 FY 2010
 
Sales Growth % (0.5 %) 4.2 % 0.7 % 4.0 % 4.1 % 9.5 %
 
Sales per Store (2) $ 1,683 $ 1,702 $ 1,683 $ 1,702 $ 1,708 $ 1,697
 
Operating Income per Store (3) $ 178 $ 177 $ 178 $ 177 $ 184 $ 168
 
Return on Invested Capital (4) 18.9 % 18.8 % 18.9 % 18.8 % 19.5 % 17.5 %
 
Gross Margin Return on Inventory (5) 6.9 5.8 6.9 5.8 6.6 5.1
 
Total Store Square Footage, end of period 27,194 26,533 27,194 26,533 26,663 25,950
 
Total Team Members, end of period 54,220 52,386 54,220 52,386 52,002 51,017
 
(1)   In thousands except for gross margin return on inventory and total Team Members. The financial metrics presented are calculated on an annual basis and accordingly reflect the last four quarters completed, except for Sales Growth % and where noted.
(2) Sales per store is calculated as net sales divided by an average of beginning and ending store count.
(3) Operating income per store is calculated as operating income divided by an average of beginning and ending store count.
(4) Return on invested capital (ROIC) is calculated in detail in the supplemental financial schedules.
(5) Gross margin return on inventory is calculated as gross profit divided by an average of beginning and ending inventory, net of accounts payable and financed vendor accounts payable.
 

Store Information

During the third quarter, the Company opened 35 stores, including seven Autopart International stores. Year-to-date, the Company opened 70 stores, including 13 Autopart International stores. As of October 6, 2012, the Company's total store count was 3,727 including 210 Autopart International stores. The Company remains on pace to open approximately 120 to 140 stores in fiscal 2012.

Dividend

On November 6, 2012, the Company's Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on January 4, 2013 to stockholders of record as of December 21, 2012.

Investor Conference Call

The Company will host a conference call on Thursday, November 8, 2012 at 10:00 a.m. Eastern Time to discuss its quarterly results. To listen to the live call, please log on to the Company's website, www.AdvanceAutoParts.com, or dial (866) 908-1AAP. The call will be archived on the Company's website until November 8, 2013.

About Advance Auto Parts

Headquartered in Roanoke, Va., Advance Auto Parts, Inc., a leading automotive aftermarket retailer of parts, accessories, batteries, and maintenance items in the United States, serves both the do-it-yourself and professional installer markets. As of October 6, 2012, the Company operated 3,727 stores in 39 states, Puerto Rico, and the Virgin Islands. Additional information about the Company, employment opportunities, customer services, and online shopping for parts, accessories and other offerings can be found on the Company's website at www.AdvanceAutoParts.com.

Certain statements contained in this release are forward-looking statements, as that statement is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events or developments, and typically use words such as believe, anticipate, expect, intend, plan, forecast, outlook or estimate. These statements discuss, among other things, expected growth and future performance, including store growth, capital expenditures, comparable store sales, SG&A, operating income, gross profit rate, free cash flow, profitability and earnings per diluted share for fiscal year 2012. 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, business interruptions, information technology security, availability of suitable real estate, dependence on foreign suppliers and other factors disclosed in the Company's 10-K for the fiscal year ended December 31, 2011 on file with the Securities and Exchange Commission. Actual results may differ materially from anticipated results described in these forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of this news release and does not undertake to update or revise them as more information becomes available.

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
     
October 6, December 31, October 8,
2012 2011 2011
 

Assets

 
Current assets:
Cash and cash equivalents $ 479,383 $ 57,901 $ 65,929
Receivables, net 204,555 140,007 131,409
Inventories, net 2,193,369 2,043,158 2,109,721
Other current assets 70,582   52,754   67,063
Total current assets 2,947,889 2,293,820 2,374,122
 
Property and equipment, net 1,270,432 1,223,099 1,191,453
Assets held for sale 788 615 707
Goodwill 76,389 76,389 51,378
Intangible assets, net 28,649 31,380 29,122
Other assets, net 33,059   30,451   31,286
$ 4,357,206   $ 3,655,754   $ 3,678,068
 

Liabilities and Stockholders' Equity

 
Current liabilities:
Current portion of long-term debt $ 699 $ 848 $ 949
Accounts payable 1,825,162 1,653,183 1,586,058
Accrued expenses 413,950 385,746 390,283
Other current liabilities 141,043   148,098   128,338
Total current liabilities 2,380,854 2,187,875 2,105,628
 
Long-term debt 599,550 415,136 599,438
Other long-term liabilities 229,324 204,829 195,376
Total stockholders' equity 1,147,478   847,914   777,626
$ 4,357,206   $ 3,655,754   $ 3,678,068
 

NOTE: These preliminary condensed consolidated balance sheets have been prepared on a basis consistent with our previously prepared balance sheets filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by generally accepted accounting principles, or GAAP, for complete financial statements.

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Twelve Week Periods Ended
October 6, 2012 and October 8, 2011
(in thousands, except per share data)
(unaudited)
     
October 6, October 8,
2012 2011
 
Net sales $ 1,457,527 $ 1,464,988
Cost of sales, including purchasing and warehousing costs 732,177   740,485  
Gross profit 725,350 724,503
Selling, general and administrative expenses 574,990   546,683  
Operating income 150,360   177,820  
Other, net:
Interest expense (8,048 ) (8,150 )
Other income (expense), net 312   (614 )
Total other, net (7,736 ) (8,764 )
Income before provision for income taxes 142,624 169,056
Provision for income taxes 53,121   63,503  
Net income $ 89,503   $ 105,553  
 
Basic earnings per share (a) $ 1.22 $ 1.43
Diluted earnings per share (a) $ 1.21 $ 1.41
 
Average common shares outstanding (a) 73,166 73,381
Average common shares outstanding - assuming dilution (a) 73,992 74,730
 
(a)   Average common shares outstanding is calculated based on the weighted average number of shares outstanding during the quarter. At October 6, 2012 and October 8, 2011, we had 73,366 and 72,443 shares outstanding, respectively.
 

NOTE: These preliminary condensed consolidated statements of operations have been prepared on a basis consistent with our previously prepared statements of operations filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by GAAP for complete financial statements.

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Forty Week Periods Ended
October 6, 2012 and October 8, 2011
(in thousands, except per share data)
(unaudited)
   
October 6, October 8,
2012 2011
 
Net sales $ 4,875,802 $ 4,842,890
Cost of sales, including purchasing and warehousing costs 2,440,921   2,424,338  
Gross profit 2,434,881 2,418,552
Selling, general and administrative expenses 1,890,762   1,865,828  
Operating income 544,119   552,724  
Other, net:
Interest expense (25,849 ) (25,876 )
Other income (expense), net 759   (771 )
Total other, net (25,090 ) (26,647 )
Income before provision for income taxes 519,029 526,077
Provision for income taxes 196,414   197,834  
Net income $ 322,615   $ 328,243  
 
Basic earnings per share (a) $ 4.41 $ 4.27
Diluted earnings per share (a) $ 4.34 $ 4.19
 
Average common shares outstanding (a) 73,052 76,595
Average common shares outstanding - assuming dilution (a) 74,107 78,058
 
(a)   Average common shares outstanding is calculated based on the weighted average number of shares outstanding during the year-to-date period. At October 6, 2012 and October 8, 2011, we had 73,366 and 72,443 shares outstanding, respectively.
 

NOTE: These preliminary condensed consolidated statements of operations have been prepared on a basis consistent with our previously prepared statements of operations filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by GAAP for complete financial statements.

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Forty Week Periods Ended
October 6, 2012 and October 8, 2011
(in thousands)
(unaudited)
   
October 6, October 8,
2012 2011
 
Cash flows from operating activities:
Net income $ 322,615 $ 328,243
Depreciation and amortization 143,767 134,480
Share-based compensation 12,132 14,232
Provision for deferred income taxes 18,402 45,374
Excess tax benefit from share-based compensation (21,867 ) (5,099 )
Other non-cash adjustments to net income 3,125 4,153
(Increase) decrease in:
Receivables, net (64,171 ) (6,854 )
Inventories, net (148,759 ) (245,851 )
Other assets (14,827 ) 17,715
Increase in:
Accounts payable 171,979 293,609
Accrued expenses 75,876 14,720
Other liabilities 6,510   16,260  
Net cash provided by operating activities 504,782 610,982
 
Cash flows from investing activities:
Purchases of property and equipment (201,210 ) (207,505 )
Business acquisitions, net of cash acquired (5,332 ) (18,170 )
Proceeds from sales of property and equipment 348   1,114  
Net cash used in investing activities (206,194 ) (224,561 )
Cash flows from financing activities:
Decrease in bank overdrafts (14,527 ) (9,555 )
Decrease in financed vendor accounts payable (31,648 )
Net (payments) borrowings on credit facilities (115,000 ) 299,200
Issuance of senior unsecured notes 299,904
Payment of debt related costs (2,648 ) (3,656 )
Dividends paid (17,586 ) (18,541 )
Proceeds from the issuance of common stock, primarily exercise of stock options 7,182 12,452
Tax withholdings related to the exercise of stock appreciation rights (25,627 ) (3,151 )
Excess tax benefit from share-based compensation 21,867 5,099
Repurchase of common stock (25,193 ) (629,189 )
Contingent consideration related to previous business acquisition (4,755 )
Other (723 ) (712 )
Net cash provided by (used in) financing activities 122,894   (379,701 )
 
Net increase in cash and cash equivalents 421,482 6,720
Cash and cash equivalents, beginning of period 57,901   59,209  
Cash and cash equivalents, end of period $ 479,383   $ 65,929  
 

NOTE: These preliminary condensed consolidated statements of cash flows have been prepared on a consistent basis with previously prepared statements of cash flows filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by GAAP for complete financial statements.

Advance Auto Parts, Inc. and Subsidiaries
Supplemental Financial Schedules
Forty Week Periods Ended
October 6, 2012 and October 8, 2011
(in thousands)
(unaudited)
   

Reconciliation of Free Cash Flow:

 
October 6, October 8,
2012 2011
 
Cash flows from operating activities $ 504,782 $ 610,982
Cash flows used in investing activities (206,194 ) (224,561 )
298,588 386,421
 
Decrease in financed vendor accounts payable   (31,648 )
 
Free cash flow $ 298,588   $ 354,773  
 

Note: Management uses free cash flow as a measure of our liquidity and believes it is a useful indicator to stockholders of our ability to implement our growth strategies and service our debt. Free cash flow is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in our condensed consolidated statement of cash flows.

Detail of Return on Invested Capital (ROIC) Calculation:

   
Last Four Quarters Ended
October 6, 2012 October 8, 2011
 
Net income $ 389,053 $ 376,353
Add:
After-tax interest expense and other, net 18,543 20,529
After-tax rent expense 196,804   192,777  
After-Tax Operating Earnings 604,400 589,659
 
Average assets (less cash) 3,744,982 3,405,982
Less: Average liabilities (excluding total debt) (2,454,768 ) (2,125,062 )
Add: Capitalized lease obligation (rent expense * 6) (a) 1,900,062   1,855,242  
Total Invested Capital 3,190,276 3,136,162
 
ROIC 18.9 % 18.8 %
 
Rent expense $ 316,677 $ 309,207
Interest expense and other, net $ 29,848 $ 32,920
 

(a) Capitalized lease obligation is estimated as annualized rent expense for the applicable period times six years.

Note: Management uses ROIC to evaluate return on investments to the business and believes it is a useful indicator to stockholders given the future investments the Company plans to make in areas including information technology, supply chain and stores. ROIC is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in our condensed consolidated financial statements. Management believes our comparable results of operations are a useful indicator to stockholders for consistency purposes.

Contacts

Advance Auto Parts, Inc.
Media Contact
Shelly Whitaker, APR, 540-561-8452
shelly.whitaker@advanceautoparts.com
or
Investor Contact
Joshua Moore, 952-715-5076
joshua.moore@advanceautoparts.com

Sharing

Contacts

Advance Auto Parts, Inc.
Media Contact
Shelly Whitaker, APR, 540-561-8452
shelly.whitaker@advanceautoparts.com
or
Investor Contact
Joshua Moore, 952-715-5076
joshua.moore@advanceautoparts.com