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
23, 2016. First quarter adjusted earnings per diluted share
(Adjusted Cash EPS) were $2.51. These results exclude $0.11 of
amortization of acquired intangible assets and integration and
restructuring costs of $0.26, primarily associated with the
acquisition of General Parts International, Inc. (General
Parts).
Adjusted First Quarter Performance Summary (1)
Sixteen Weeks Ended April 23,
2016 April 25, 2015 Sales (in
millions) $ 2,979.8 $ 3,038.2
Comp Store
Sales % (1.9 %) 0.7 %
Gross Profit (in millions)
$ 1,349.9 $ 1,393.9
Adjusted SG&A (in millions) $
1,034.9 $ 1,085.6
Adjusted Operating Income (in
millions) $ 315.0 $ 308.3
Adjusted Cash EPS $ 2.51 $
2.39
Avg Diluted Shares (in thousands) 73,847 73,653
(1)
Fiscal 2016 and 2015 include certain
non-operational expenses. The Adjusted SG&A, Adjusted Operating
Income and Adjusted Cash EPS for the sixteen weeks ended April 23,
2016 and April 25, 2015, respectively, have been reported on an
adjusted basis to exclude General Parts integration, store
consolidation costs and support center restructuring costs of $31.4
million and $32.7 million, respectively, and General Parts
amortization of acquired intangible assets of $12.7 million and
$13.0 million, respectively. For a better understanding of the
Company's adjusted results, refer to the presentation of the
respective financial measures on a GAAP basis and reconciliation of
the financial results reported on an adjusted basis to the GAAP
basis in the accompanying financial tables in this press
release.
“Our first quarter results did not meet our expectations," said
Tom Greco, Chief Executive Officer. "We are moving forward with
urgency to drive improved performance. Our customers are our top
priority and we are elevating our intensity to get the right parts
to the right place at the right time as we empower our team members
to serve the customer better than anyone else.”
Greco continued, “I have been energized by the strength and the
quality of our team and the opportunity that lies ahead. I am
confident our focus and commitment around delivering improved
service for our customers will translate into increased
profitability and shareholder value."
First Quarter 2016 Highlights
Total sales for the first quarter decreased 1.9% to $2.98
billion, as compared with total sales during the first quarter of
fiscal 2015 of $3.04 billion. The sales decline was driven by the
comparable store sales decrease of 1.9% primarily due to
availability and service shortfalls. The comparable sales cadence
experienced a more pronounced decline in the latter portion of the
quarter. The Company's comparable store sales were also partially
impacted by lower demand due to unfavorable weather during the
quarter and benefited from the favorable consolidation impact from
Carquest stores.
The Company's Gross Profit rate was 45.3% of sales during the
first quarter as compared to 45.9% during the first quarter last
year. The 58 basis-point decrease in gross profit rate was
primarily the result of supply chain expense deleverage due to the
comparable store sales decline.
The Company's Adjusted SG&A rate was 34.7% of sales during
the first quarter as compared to 35.7% during the same period last
year. The 100 basis-point decrease was primarily the result of the
Company's continued cost reduction initiatives and benefits from
the cost reduction actions taken in 2015 partially offset by
expense deleverage. On a GAAP basis, the Company's SG&A rate
was 36.2% of sales during the first quarter as compared to 37.2%
during the same period last year.
The Company's Adjusted Operating Income was $315.0 million
during the first quarter, an increase of 2.2% versus the first
quarter of fiscal 2015. As a percentage of sales, Adjusted
Operating Income in the first quarter expanded to 10.6% versus
10.1% during the first quarter of fiscal 2015. On a GAAP basis, the
Company's operating income during the first quarter of $271.0
million increased 3.2% versus the first quarter of fiscal 2015. On
a GAAP basis, the Operating Income rate was 9.1% during the first
quarter as compared to 8.6% during the first quarter of fiscal
2015.
Operating cash flow decreased approximately 26.3% to $75.3
million in the first quarter of fiscal 2016 from $102.2 million in
the first quarter of fiscal 2015. Free cash flow was a decrease of
$13.8 million in the first quarter of fiscal 2016 compared to an
increase of $45.2 million in the first quarter of fiscal 2015.
Capital expenditures in the first quarter of fiscal 2016 were $89.1
million as compared to $57.0 million in the first quarter of fiscal
2015.
Store Information
As of April 23, 2016, the Company operated 5,086 stores and 125
Worldpac branches and served approximately 1,300 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 23, 2016.
AAP
AI CARQUEST (a) WORLDPAC Total
January 2, 2016
4,102 184 885 122 5,293 New 13 —
1 3 17 Closed (5) (3) (2) — (10) Consolidated — — (89) — (89)
Converted 27
— (27) —
—
April 23, 2016
4,137
181 768 125
5,211
(a)
Includes activity for stores acquired with
B.W.P. Distributors, Inc. that operate under the Carquest trade
name.
Updated 2016 Key Assumptions
Due to the sales trends the Company experienced as it exited its
first quarter and outlook for the balance of the year, the
assumption for annual comparable store sales is now expected to be
between negative 3% and negative 5% and given this updated
assumption, the Company no longer expects to achieve its annual
Free Cash Flow assumption of a minimum of $500 million for fiscal
2016. In addition, the Company is no longer targeting an Adjusted
Operating Income (a) rate of 12% for fiscal 2016. The Company
intends to provide additional commentary on its first quarter
earnings conference call.
As previously provided, the Company reaffirms other key
assumptions for fiscal 2016 below:
New Stores
65 to 75 new stores including Worldpac branches Carquest Store
Consolidations, Conversions & Relocations
325 to 350 Income tax rate 37.5% to 38.0%
One-time Integration & Restructuring
Expenses (b)
Approximately $75 million to $90 million
Capital Expenditures $260 million to $280
million Diluted Share Count Approximately 74
million shares
(a)
Adjusted Operating Income excludes
one-time expenses related to the integration of General Parts,
restructuring expenses and the recurring amortization of General
Parts' intangible assets. Adjusted Operating Income is a non-GAAP
measure. Because of the forward-looking nature of these non-GAAP
financial measures, specific quantifications of the amounts that
would be required to reconcile these non-GAAP financial measures to
their most directly comparable GAAP financial measures are not
available at this time. Management believes Adjusted Operating
Income is an important measure in assessing the overall performance
of the business and utilizes this metric in its ongoing reporting.
On that basis, Management believes it is useful to provide Adjusted
Operating Income to investors and prospective investors to evaluate
Advance’s operating performance across periods adjusting for
non-operational items. Adjusted Operating Income might not be
calculated in the same manner as, and thus might not be comparable
to, similarly titled measures reported by other companies. Adjusted
Operating Income should not be used by investors or third parties
as the sole basis for formulating investment decisions, as it
excludes a number of important cash and non-cash recurring
items.
(b)
The $75 million to $90 million estimate of
incremental one-time costs includes $65 million to $75 million
related to ongoing integration efforts and an additional $10
million to $15 million related to supply chain optimization work
which includes the closure of the Company's Sutton, MA distribution
center and additional activities contemplated as part of the first
phase of work. The Company will provide additional details of its
multi-year supply chain optimization work and potential future
one-time costs as it finalizes those plans. One-time integration
related costs are expected to exceed the initial $190 million
estimate previously shared at the time of the GPI acquisition as we
have trued up estimates, expanded the scope and taken additional
structural actions to drive improved efficiency and
profitability.
Dividend
On May 17, 2016, the Company's Board of Directors declared a
regular quarterly cash dividend of $0.06 per share to be paid on
July 1, 2016 to stockholders of record as of June 17, 2016.
Advance Commences CFO Transition
Advance also announced that Mike Norona, Chief Financial
Officer, will be leaving the Company. Mr. Norona has agreed to
remain in his current role until a successor has been named and
will assist with an orderly transition. The Company has commenced
an external search for a new CFO.
Mr. Greco commented, “I want to thank Mike for his eight years
of strong financial leadership during a time when the company more
than doubled its market cap. He has played a key role in developing
a strong finance team and building a capital structure to support
our future growth. I am appreciative of Mike’s willingness to
support our transition with his leadership, passion and
experience.”
Investor Conference Call
The Company will host a conference call on Thursday, May 19,
2016, at 8:30 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 May 20, 2017.
About Advance Auto Parts
Advance Auto Parts, Inc., a leading automotive aftermarket parts
provider in North America, serves both professional installer and
do-it-yourself customers. As of April 23, 2016, Advance operated
5,086 stores and 125 Worldpac branches and served approximately
1,300 independently owned Carquest branded stores in the United
States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance
employs approximately 74,000 Team Members. 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 2016 financial performance
including adjusted operating income; statements regarding the
benefits and other effects of the acquisition of General Parts and
the combined company’s plans, objectives and expectations;
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 store consolidation costs, synergies,
expenses to achieve synergies 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; 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, the risk that the
benefits of the General Parts acquisition, including synergies, may
not be fully realized or may take longer to realize than expected;
the possibility that the General Parts acquisition may not advance
AAP’s business strategy; the risk that AAP may experience
difficulty integrating General Parts’ employees, business systems
and technology; the potential diversion of AAP’s management’s
attention from AAP’s other businesses resulting from the General
Parts acquisition; the impact of the General Parts acquisition on
third-party relationships, including customers, wholesalers,
independently owned and jobber stores and suppliers; AAP’s 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 and General Parts' 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 January 2, 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 23, 2016
January 2, 2016
Assets
Current assets: Cash and cash equivalents $
103,708 $ 90,782 Receivables, net 650,993 597,788
Inventories, net 4,432,968 4,174,768 Other current assets 78,558
77,408 Total current assets 5,266,227 4,940,746
Property and equipment, net 1,432,698 1,434,577
Goodwill 993,742 989,484
Intangible assets, net
676,427 687,125
Other assets, net 69,869 75,769 $
8,438,963 $ 8,127,701
Liabilities and
Stockholders' Equity
Current liabilities: Current portion of long-term
debt $ 598 $ 598 Accounts payable 3,318,048 3,203,922 Accrued
expenses 534,674 553,163 Other current liabilities 55,243
39,794 Total current liabilities 3,908,563 3,797,477
Long-term debt 1,229,888 1,206,297
Deferred income
taxes 442,294 433,925
Other long-term liabilities
229,079 229,354
Total stockholders' equity 2,629,139
2,460,648 $ 8,438,963 $ 8,127,701
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. The Company retrospectively adopted ASU
2015-03 in the first quarter of 2016, which resulted in a
reclassification of debt issuance costs from Other assets, net to
Long-term debt.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Sixteen
Week Periods Ended April 23, 2016 and April 25, 2015 (in
thousands, except per share data) (unaudited)
Q1 2016 Q1 2015 As
Reported Adjustments (a) Adjusted As
Reported Adjustments (a) Adjusted
Net sales $ 2,979,778 $ — $
2,979,778
$ 3,038,233 $ — $ 3,038,233 Cost of sales 1,629,889 —
1,629,889 1,644,309 — 1,644,309 Gross profit 1,349,889 — 1,349,889
1,393,924 — 1,393,924 Selling, general and administrative expenses
1,078,890 (44,015) 1,034,875 1,131,396 (45,751) 1,085,645 Operating
income 270,999 44,015 315,014 262,528 45,751 308,279 Other, net:
Interest expense (18,943) — (18,943) (21,777) — (21,777) Other
income (expense), net 3,123 — 3,123 (1,908) — (1,908) Total other,
net (15,820) — (15,820) (23,685) — (23,685) Income before
provision for income taxes 255,179 44,015 299,194 238,843 45,751
284,594 Provision for income taxes 96,366 16,726 113,092 90,731
17,385 108,116 Net income $ 158,813 $ 27,289 $
186,102 $ 148,112 $ 28,366 $ 176,478 Basic
earnings per share (b) $ 2.16 $ 0.37 $ 2.53 $ 2.02 $ 0.38 $ 2.40
Diluted earnings per share (b) $ 2.14 $ 0.37 $ 2.51 $ 2.00 $ 0.39 $
2.39 Average common shares outstanding (b) 73,401 73,401
73,401 73,122 73,122 73,122 Average diluted common shares
outstanding (b) 73,847 73,847 73,847 73,653 73,653 73,653
(a)
The adjustments to Selling, general and
administrative expenses for Q1 2016 primarily include General Parts
integration, store consolidation costs and support center
restructuring costs of $31.4 million and General Parts amortization
of acquired intangible assets of $12.7 million. The adjustments to
Q1 2015 include adjustments to Selling, general and administrative
expenses for General Parts integration and store consolidation
costs of $32.7 million and General Parts amortization of acquired
intangible assets of $13.0 million.
(b)
Average common shares outstanding is
calculated based on the weighted average number of shares
outstanding during the quarter. At April 23, 2016 and April 25,
2015, we had 73,544 and 73,168 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, with the exception of the footnotes
required by GAAP for complete financial statements and inclusion of
certain non-GAAP adjustments and measures as described in footnote
(a) above. Management believes the reporting of adjusted results is
important in assessing the overall performance of the business and
is therefore useful for investors and prospective investors.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows Fiscal
Years Ended January 2, 2016 and January 3, 2015 (in
thousands) (unaudited)
April 23, 2016
April 25, 2015 Cash flows from operating
activities: Net income $ 158,813 $ 148,112
Depreciation and amortization 79,320 83,247 Share-based
compensation 6,654 8,945 Provision (benefit) for deferred income
taxes 7,164 (5,206) Excess tax benefit from share-based
compensation (13,145) (6,498) Other non-cash adjustments to net
income (522) 6,189 (Increase) decrease in: Receivables, net
(50,224) (53,526) Inventories, net (246,458) (171,865) Other assets
3,806 (845) Increase in: Accounts payable 108,500 45,678 Accrued
expenses 20,025 39,494 Other liabilities 1,368 8,486 Net cash
provided by operating activities 75,301 102,211
Cash
flows from investing activities: Purchases of property and
equipment (89,138) (57,038) Business acquisitions, net of cash
acquired — (433) Proceeds from sales of property and equipment
1,227 295 Net cash used in investing activities (87,911) (57,176)
Cash flows from financing activities: Increase in bank
overdrafts 14,644 11,628 Net borrowings (payments) on credit
facilities 26,000 (26,700) Dividends paid (8,850) (8,813) Proceeds
from the issuance of common stock, primarily for employee stock
purchase plan 1,085 1,352 Tax withholdings related to the exercise
of stock appreciation rights (11,134) (7,572) Excess tax benefit
from share-based compensation 13,145 6,498 Repurchase of common
stock (11,813) (1,590) Other (125) (110) Net cash provided by (used
in) financing activities 22,952 (25,307) Effect of exchange
rate changes on cash 2,584 (578)
Net increase in cash and
cash equivalents 12,926 19,150
Cash and cash equivalents,
beginning of period 90,782 104,671
Cash and cash
equivalents, end of period $ 103,708 $ 123,821
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 Sixteen Week Periods
Ended April 23, 2016 and April 25, 2015 (in thousands)
(unaudited)
Reconciliation of
Free Cash Flow:
April 23, 2016 April 25, 2015
Cash flows from operating activities $ 75,301 $
102,211 Purchases of property and equipment (89,138)
(57,038) Free cash flow $ (13,837) $ 45,173
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
EBITDAR:
(In thousands, except adjusted debt to EBITDAR ratio)
Four
Quarters Ended
April 23, 2016
January 2, 2016
(Four Quarters Ended) (52 Weeks) Total debt (a) $ 1,230,486 $
1,206,895 Add: Capitalized lease obligation (rent expense *
6) 3,182,952 3,190,728 Adjusted debt 4,413,438 4,397,623
Operating income 834,251 825,780 Add: Adjustments (b) 125,707
127,059 Depreciation and amortization 265,549 269,476 EBITDA
1,225,507 1,222,315 Rent expense (less favorable lease amortization
of $1,153 and $4,786, respectively) 530,492 531,788 EBITDAR $
1,755,999 $ 1,754,103
Adjusted Debt to EBITDAR
2.5 2.5
(a)
The Company retrospectively adopted ASU
2015-03 in the first quarter of 2016, which resulted in a
reclassification of debt issuance costs from Other assets, net to
Long-term debt.
(b)
The adjustments to the four quarters ended
April 23, 2016 include General Parts integration, store closure and
consolidation costs and support center restructuring costs of
$125.7 million. The adjustments to Fiscal 2015 include General
Parts integration, store closure and store consolidation costs and
support center restructuring costs of $127.1 million.
NOTE: Management believes its Adjusted
Debt to EBITDAR ratio (“leverage ratio”) is a key financial metric
and believes its debt levels are best analyzed using this measure.
The Company’s goal was to quickly pay down debt resulting from the
GPI acquisition in order to get back to a 2.5 times leverage ratio
and maintain an investment grade rating. 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’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.
First Quarter
Performance Summary on a GAAP
Basis(a):
Sixteen Weeks Ended April 23, 2016
April 25, 2015 Sales (in millions) $
2,979.8 $ 3,038.2
Comp Store Sales %
(1.9%) 0.7%
Gross Profit (in millions) $ 1,349.9 $
1,393.9
SG&A (in millions) $ 1,078.9 $ 1,131.4
Operating Income (in millions) $ 271.0 $ 262.5
Diluted EPS $ 2.14 $ 2.00
Avg Diluted Shares
(in thousands) 73,847 73,653
(a)
These financial measures for the sixteen
weeks ended April 23, 2016 have been reported on a GAAP basis which
includes the impact of General Parts integration, store
consolidation and support center restructuring costs of $31.4
million and General Parts amortization of acquired intangible
assets of $12.7 million. These financial measures for the sixteen
weeks ended April 25, 2015 have been reported on a GAAP basis which
includes the impact of General Parts integration and store
consolidation costs of $32.7 million and General Parts amortization
of acquired intangible assets of $13.0 million. These financial
measures should be read in conjunction with our financial measures
presented on an adjusted basis earlier in this press release.
Management believes Adjusted Operating Income is important in
assessing the overall performance of the business and utilizes this
metric in its ongoing reporting. On that basis, Management believes
it is useful to provide Adjusted Operating Income to investors and
prospective investors to evaluate Advance’s operating performance
across periods adjusting for non-operational items. Adjusted
Operating Income might not be calculated in the same manner as, and
thus might not be comparable to, similarly titled measures reported
by other companies. Adjusted Operating Income should not be used by
investors or third parties as the sole basis for formulating
investment decisions, as it excludes a number of important cash and
non-cash recurring items.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160519005459/en/
Advance Auto Parts, Inc.MediaAnna Gurney,
919-573-2608anna.gurney@advanceautoparts.comorInvestorsZaheed
Mawani, 919-573-3848zaheed.mawani@advanceautoparts.com
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