• Company continues crucial investments in the
Customer
• Increases multi-year gross productivity
target from $500 million to $750 million
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive
aftermarket parts provider in North America, serving both
professional installer and do-it-yourself customers, today
announced its financial results for the first quarter ended
April 22, 2017. First quarter GAAP earnings per diluted share
(Diluted EPS) were $1.46. First quarter Adjusted earnings per
diluted share (Adjusted EPS) were $1.60, which exclude $0.14 of
non-GAAP adjustments.
First Quarter Performance Summary
Sixteen Weeks Ended April
22, 2017 April 23,
2016 BPS Inc(Dec)
Sales (in millions) $ 2,890.8 $ 2,979.8
Comp Store
Sales % (2.7 %) (1.9 %)
Gross Profit (in
millions) $ 1,270.7 $ 1,349.9
Gross Profit (% sales)
44.0
%
45.3
%
(135
)
SG&A (in millions) $ 1,090.9 $ 1,078.9
SG&A (% sales)
37.7
%
36.2
%
153
Adjusted SG&A (in millions) (1) $ 1,065.8 $
1,034.9
Adjusted SG&A (% sales)
36.9
%
34.7
%
214
Operating Income (in millions) $ 179.8 $ 271.0
Operating Income (% sales)
6.2
%
9.1
%
(288
)
Adjusted Operating Income (in millions) (1) $ 204.9 $
315.0
Adjusted Operating Income (% sales)
7.1
%
10.6
%
(349
)
Diluted EPS $ 1.46 $ 2.14
Adjusted EPS (1) $
1.60 $ 2.51
Avg Diluted Shares (in thousands) 74,093
73,847
(1)
For a better understanding of the
Company's adjusted results, refer to the reconciliation of non-GAAP
adjustments in the accompanying financial tables in this press
release.
“Our first quarter comparable store sales declined 2.7%. As
expected, comparable store sales were unfavorably impacted by the
shift in New Year’s Day to the first quarter of 2017 as well as the
significant shift of winter related demand into December. These
factors pulled sales forward into the fourth quarter of 2016 and
reduced comparable store sales in the first quarter. Taking into
account these shifts and normalizing for their impact across the 28
week period including the fourth quarter of 2016 and first quarter
of 2017, we delivered positive sequential improvement in comparable
store sales performance of approximately 70 basis points versus the
third quarter of 2016. This steady improvement demonstrates that we
are making progress to improve our top line performance by taking
decisive and consistent actions across the organization as we
refocus the company on the customer,” said Tom Greco, President and
Chief Executive Officer.
Greco continued, “As in the past several quarters, our operating
margin reflects our deliberate choices to restore investments in
the customer and improve overall service and delivery. In
addition to making these critical customer investments, we are
increasing and accelerating our initial gross productivity target
of $500 million over 5 years to $750 million over 4 years. While
some of this cost benefit will be used to fund growth initiatives,
much of it will drive margin improvement. Our sustained focus on
the customer will position us to deliver sequential top line
improvement in comparable store sales and improved profitability as
our productivity agenda accelerates in the second half of
2017.”
First Quarter 2017 Highlights
The sales decrease of 3.0% was primarily driven by the
comparable store sales decline of 2.7%, which reflects the
sequential timing impacts from the fourth quarter related to the
shift in holiday timing, the seasonal demand shifts that occurred
between quarters together with overall industry macro headwinds,
partially offset by positive first quarter growth at Worldpac.
The Company's Gross Profit rate decrease was primarily driven by
investments in the customer, inventory optimization efforts and
supply chain expense deleverage due to the comparable store sales
decline.
The Company's SG&A increase was in-line with Company
expectations and reflects the incremental customer focused
investments and expense deleverage due to the comparable store
sales decline. In contrast to the first quarter of 2016, which
included the impact of aggressive cost reduction actions that
negatively impacted customer service, the Company is refocusing its
priorities to put the customer first and is reinvesting to restore
and enhance critical customer capabilities.
Overall, the Company's Operating Income decline was primarily
driven by investments in the customer, expense deleverage due to
the comparable store sales decline and inventory optimization
efforts as outlined.
Operating cash flow decreased approximately 60.3% to $35.1
million through the first quarter of 2017 from $88.4 million
through the first quarter of 2016. Free cash flow was negative
$30.2 million through the first quarter of 2017 compared to
negative $0.7 million through the first quarter of 2016 primarily
driven by lower sales, partially offset by lower capital
expenditures of $65.3 million versus $89.1 million in 2016.
Store Information
As of April 22, 2017, the Company operated 5,059 stores and
130 Worldpac branches and served approximately 1,250 independently
owned Carquest stores.
Dividend
On May 16, 2017, the Company's Board of Directors declared
a regular quarterly cash dividend of $0.06 per share to be paid on
July 7, 2017 to stockholders of record as of June 23,
2017.
Investor Conference Call
The Company will host a conference call on Wednesday, May 24,
2017, at 8:00 a.m. Eastern time to discuss its quarterly results.
To listen to the live call, 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 May 23, 2018.
About Advance Auto Parts
Advance Auto Parts, Inc. is a leading automotive aftermarket
parts provider that serves both professional installer and
do-it-yourself customers. As of April 22, 2017, Advance
operated 5,059 stores and 130 Worldpac branches and employed 74,000
Team Members in the United States, Canada, Puerto Rico and the U.S.
Virgin Islands. The Company also serves approximately 1,250
independently owned Carquest branded stores across these locations
in addition to Mexico and the Bahamas, Turks and Caicos, British
Virgin Islands and Pacific Islands. Additional information about
the Company, employment opportunities, customer services, and
on-line shopping for parts, accessories and other offerings can be
found on the Company's website at www.AdvanceAutoParts.com.
Forward Looking Statements
Certain statements contained in this release are forward-looking
statements, as that term 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 forward looking statements include, but are not
limited to, key assumptions for 2017 financial performance
including adjusted operating income; statements regarding expected
growth and future performance of Advance Auto Parts, Inc. (AAP),
including store growth, capital expenditures, comparable store
sales, gross profit rate, SG&A, adjusted operating income, free
cash flow, income tax rate, General Parts integration costs and
adjusted operating income rate targets; expectations regarding
leadership changes and their impact on the company’s strategies,
opportunities and results; statements regarding enhancements to
shareholder value; statements regarding strategic plans or
initiatives, growth or profitability; statements regarding
productivity targets; and all other statements that are not
statements of historical facts. These forward-looking statements
are subject to significant risks, uncertainties and assumptions,
and actual future events or results may differ materially from such
forward-looking statements. Such differences may result from, among
other things, AAP’s ability to implement its business and growth
strategy; ability to attract, develop and retain executives and
other employees; changes in regulatory, social and political
conditions, as well as general economic conditions; competitive
pressures; demand for AAP’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 AAP’s 10-K for the fiscal
year ended December 31, 2016 and other filings made by AAP with the
Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements. AAP
intends these forward-looking statements to speak only as of the
time of this communication 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)
April 22, 2017 December 31, 2016
Assets
Current assets: Cash and cash equivalents $ 126,087 $
135,178 Receivables, net 683,024 641,252 Inventories 4,413,803
4,325,868 Other current assets 83,779 70,466
Total current assets
5,306,693 5,172,764
Property and equipment, net
1,439,621 1,446,340
Goodwill 990,695 990,877
Intangible
assets, net 626,974 640,903
Other assets, net 64,674
64,149 $ 8,428,657 $ 8,315,033
Liabilities and
Stockholders' Equity
Current liabilities: Accounts payable $ 3,049,218 $
3,086,177 Accrued expenses 563,276 554,397 Other current
liabilities 47,137 35,472 Total current liabilities
3,659,631 3,676,046
Long-term debt 1,073,372
1,042,949
Deferred income taxes 446,128 454,282
Other
long-term liabilities 225,851 225,564
Total stockholders'
equity 3,023,675 2,916,192 $ 8,428,657 $
8,315,033
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, 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 Sixteen
Week Periods Ended April 22, 2017 and April 23, 2016 (in
thousands, except per share data) (unaudited)
Q1 2017 Q1 2016
Net sales $ 2,890,838 $ 2,979,778 Cost of sales 1,620,154
1,629,889 Gross profit 1,270,684 1,349,889 Selling,
general and administrative expenses 1,090,904 1,078,890
Operating income 179,780 270,999 Other, net:
Interest expense (18,430 ) (18,943 ) Other income, net 4,813
3,123 Total other, net (13,617 ) (15,820 ) Income before
provision for income taxes 166,163 255,179 Provision for income
taxes 58,203 96,366 Net income $ 107,960 $
158,813 Basic earnings per share (a) $ 1.46 $
2.16 Average shares outstanding (a) 73,782 73,401
Diluted earnings per share (a) $ 1.46 $ 2.14
Average diluted shares outstanding (a) 74,093 73,847
(a)
Average shares outstanding is calculated
based on the weighted average number of shares outstanding during
the quarter or year-to-date period, as applicable. At April 22,
2017 and April 23, 2016, we had 73,840 and 73,544 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, 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 Sixteen
Week Periods Ended April 22, 2017 and April 23, 2016 (in
thousands) (unaudited)
April 22, 2017 April 23,
2016 Cash flows from operating activities: Net
income $ 107,960 $ 158,813 Depreciation and amortization 77,430
79,320 Share-based compensation 12,374 6,654 (Benefit) provision
for deferred income taxes (7,704 ) 7,164 Other non-cash adjustments
to net income 1,974 (522 ) Net change in: Receivables, net (42,207
) (50,224 ) Inventories (89,384 ) (246,458 ) Accounts payable
(36,710 ) 108,500 Accrued expenses 20,293 20,025 Other assets and
liabilities (8,945 ) 5,174 Net cash provided by operating
activities 35,081 88,446
Cash flows from investing
activities: Purchases of property and equipment (65,279 )
(89,138 ) Proceeds from sales of property and equipment 947 1,227
Other, net
193 —
Net cash used in investing activities
(64,139 ) (87,911 )
Cash flows from financing
activities: Increase in bank overdrafts 8,490 14,644 Net
borrowings on credit facilities 30,000 26,000 Dividends paid (8,902
) (8,850 ) Proceeds from the issuance of common stock 1,036 1,085
Tax withholdings related to the exercise of stock appreciation
rights (5,707 ) (11,134 ) Repurchase of common stock (3,121 )
(11,813 ) Other, net (1,924 ) (125 ) Net cash provided by financing
activities 19,872 9,807 Effect of exchange
rate changes on cash 95 2,584
Net
(decrease) increase in cash and cash equivalents (9,091 )
12,926
Cash and cash equivalents, beginning of period
135,178 90,782
Cash and cash equivalents, end of
period $ 126,087 $ 103,708
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, but do not include the footnotes required by
GAAP for complete financial statements. The Company retrospectively
adopted ASU 2016-09 in the first quarter of 2017, which resulted in
a reclassification of $13,145 of excess tax benefits related to
share-based compensation from financing activities to operating
activities in the comparable period of last year.
Reconciliation of Non-GAAP Financial
Measures
The Company's financial results include certain financial
measures not derived in accordance with generally accepted
accounting principles (“GAAP”). Non-GAAP financial measures
should not be used as a substitute for GAAP financial measures, or
considered in isolation, for the purpose of analyzing our operating
performance, financial position or cash flows. However, the Company
has presented these non-GAAP financial measures as management
believes that the presentation of its financial results that
exclude non-cash charges related to the acquired General Parts
intangibles and non-operational expenses associated with i) the
integration of General Parts and ii) store closure and
consolidation costs is useful and indicative of its base operations
because the expenses vary from period to period in terms of size,
nature and significance and relate to the integration of General
Parts and store closure activity in excess of historical levels.
These measures assist in comparing the Company's current operating
results with past periods and with the operational performance of
other companies in its industry. The disclosure of these measures
allows investors to evaluate the Company’s performance using the
same measures management uses in developing internal budgets and
forecasts and in evaluating management’s compensation. Included
below is a description of the expenses the Company has determined
are not normal, recurring cash operating expenses necessary to
operate the Company’s business and the rationale for why providing
these measures are useful to investors as a supplement to the GAAP
measures.
General Parts Integration Expenses
- As disclosed in the Company’s filings with the Securities and
Exchange Commission, the Company acquired General Parts
International, Inc. (“General Parts”) for $2.08 billion on January
2, 2014 and is in the midst of a multi-year integration plan to
integrate the operations of General Parts with Advance Auto Parts.
This includes the integration of product brands and assortments,
supply chain and information technology. The integration is being
completed in phases and the nature and timing of expenses will vary
from quarter to quarter over several years. The integration of
product brands and assortments was primarily completed in 2015 and
the focus shifted to integrating the supply chain and information
technology systems. Due to the size of the acquisition, the Company
considers these expenses to be outside of its base business.
Therefore, the Company believes providing additional information in
the form of non-GAAP measures that exclude these costs is
beneficial to the users of its financial statements in evaluating
the operating performance of the base business and its
sustainability once the integration is completed.
Store Closure and Consolidation
Expenses - Store closure and consolidation expenses consist
of expenses associated with the Company’s plans to convert and
consolidate the Carquest stores acquired from General Parts. The
conversion and consolidation of the Carquest stores is a multi-year
process that began in 2014. As of April 22, 2017, 659 Carquest
stores acquired from General Parts had been consolidated into
existing Advance Auto Parts stores format. As of April 22, 2017,
the Company operated 565 stores under the Carquest name. While
periodic store closures are common, these closures represent a
major program outside of the Company’s typical market evaluation
process. The Company believes it is useful to provide additional
non-GAAP measures that exclude these costs to provide investors
greater comparability of its base business and core operating
performance. The Company also continues to have store closures that
occur as part of its normal market evaluation process and has not
excluded the expenses associated with these store closures in
computing the Company’s non-GAAP measures.
The Company has included a reconciliation of this information to
the most comparable GAAP measures in the following tables.
Reconciliation of
Adjusted Net Income and Adjusted EPS:
Sixteen Week Periods Ended
(in thousands, except per share data)
April 22, 2017 April 23,
2016 Net income (GAAP) $ 107,960 $ 158,813 SG&A
adjustments: GPI integration and store consolidation costs 12,865
31,353 GPI amortization of acquired intangible assets 12,279 12,662
Other income adjustment (a) (8,375 ) — Provision for income taxes
on adjustments (b) (6,372 ) (16,726 ) Adjusted net
income (Non-GAAP) $ 118,357 $ 186,102 Diluted
earnings per share (GAAP) $ 1.46 $ 2.14 Adjustments, net of tax
0.14 0.37 Adjusted EPS (Non-GAAP) $
1.60 $ 2.51
Reconciliation of
Adjusted Selling, General and Administrative
Expenses:
Sixteen Week Periods Ended
(in thousands)
April 22, 2017 April 23, 2016 SG&A
(GAAP) $ 1,090,904 $ 1,078,890 SG&A adjustments (25,144
) (44,015 ) Adjusted SG&A (Non-GAAP) $ 1,065,760
$ 1,034,875
Reconciliation of
Adjusted Operating Income:
Sixteen Week Periods Ended
(in thousands)
April 22, 2017 April 23, 2016 Operating
income (GAAP) $ 179,780 $ 270,999 SG&A adjustments
25,144 44,015 Adjusted operating income
(Non-GAAP) $ 204,924 $ 315,014
(a) The adjustment to Other income for the
sixteen weeks ended April 22, 2017 relates to income recognized
from an indemnification agreement associated with the acquisition
of General Parts.
(b) The income tax impact of non-GAAP
adjustments is calculated using the estimated tax rate in effect
for the respective non-GAAP adjustments.
Reconciliation of
Free Cash Flow:
Sixteen Week Periods Ended April 22, 2017
April 23, 2016 Cash flows from operating activities $
35,081
$
88,446
Purchases of property and equipment (65,279 ) (89,138
) Free cash flow $ (30,198 )
$
(692
)
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.
Adjusted Debt to
Adjusted EBITDAR:
(In thousands, except adjusted debt to adjusted EBITDAR ratio)
Four Quarters Ended April 22, 2017 December
31, 2016 Total debt $ 1,073,892 $ 1,043,255 Add:
Capitalized lease obligation (Rent expense * 6) 3,226,140
3,221,202 Adjusted debt 4,300,032 4,264,457 Operating income
696,379 787,598 Add: Adjustments (a) 54,339 72,828
Depreciation and amortization
256,497 258,387 Adjusted EBITDA 1,007,215 1,118,813 Rent
expense (less favorable lease amortization of $733 and $3,498,
respectively) 537,690 536,867 Adjusted EBITDAR $ 1,544,905 $
1,655,680
Adjusted Debt to Adjusted EBITDAR
2.8 2.6
(a)
The adjustments to the four quarters ended
April 22, 2017 include General Parts integration and store
consolidation costs of $54.3 million. The adjustments to Fiscal
2016 include General Parts integration and store consolidation
costs of $72.8 million.
NOTE: Management believes its Adjusted Debt to Adjusted EBITDAR
ratio (“leverage ratio”) is a key financial metric for debt
securities, as reviewed by rating agencies, and believes its debt
levels are best analyzed using this measure. The Company’s goal is
to maintain a 2.5 times leverage ratio and investment grade rating.
The Company's credit rating directly impacts the interest rates on
borrowings under its existing credit facility and could impact the
Company's ability to obtain additional funding. If the Company was
unable to maintain its investment grade rating this could
negatively impact future performance and limit growth
opportunities. Similar measures are utilized in the calculation of
the financial covenants and ratios contained in the Company's
financing arrangements. The leverage ratio calculated by the
Company is a non-GAAP measure and should not be considered a
substitute for debt to net earnings, net earnings or debt as
determined in accordance with GAAP. The Company adjusts the
calculation to remove rent expense and capitalize the Company’s
existing operating leases to provide a more meaningful comparison
with the Company’s peers and to account for differences in debt
structures and leasing arrangements. The use of a multiple of rent
expense to calculate the adjustment for capitalized operating lease
obligations is a commonly used method of estimating the debt the
Company would record for its leases that are classified as
operating if they had met the criteria for a capital lease or the
Company had purchased the property. The Company’s calculation of
its leverage ratio might not be calculated in the same manner as,
and thus might not be comparable to, similarly titled measures by
other companies.
Store Information:
As of April 22, 2017, the Company operated 5,059 stores and
130 Worldpac branches and served approximately 1,250 independently
owned Carquest stores. The below table summarizes the changes in
the number of the company-operated stores and branches during the
sixteen weeks ended April 22, 2017.
AAP AI CARQUEST
WORLDPAC Total
December 31, 2016 4,273
181 608 127 5,189 New 8 1 3 3 15 Closed
(4 ) — (2 ) — (6 ) Consolidated (3 ) — (6 ) — (9 ) Converted
38
— (38 ) —
—
April 22, 2017
4,312
182 565 130
5,189
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170524005329/en/
Advance Auto PartsZaheed Mawani, 919-573-3848Investor
Contactzaheed.mawani@advanceautoparts.comorLaurie Stacy,
540-561-1206Media Contactlaurie.stacy@advanceautoparts.com
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