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 second quarter ended
July 16, 2016. Second quarter GAAP earnings per diluted share
(Diluted EPS) were $1.68. Second quarter Adjusted earnings per
diluted share (Adjusted EPS) were $1.90 which exclude $0.08 of
amortization of acquired intangible assets and integration and
restructuring costs of $0.14, primarily associated with the
acquisition of General Parts International, Inc. (General
Parts).
Second Quarter Performance Summary
Twelve Weeks Ended Twenty-Eight
Weeks Ended July 16, 2016 July 18,
2015 July 16, 2016 July 18, 2015
Sales (in millions) $ 2,256.2 $ 2,370.0 $ 5,235.9 $
5,408.3
Comp Store Sales % (4.1 %) 1.0 % (2.8 %) 0.8
%
Gross Profit (in millions) $ 1,010.3 $ 1,087.3 $
2,360.1 $ 2,481.2
SG&A (in millions) $ 793.6 $
830.2 $ 1,872.5 $ 1,961.6
Adjusted SG&A (in millions)
(1) $ 767.1 $ 801.8 $ 1,802.0 $ 1,887.5
Operating
Income (in millions) $ 216.7 $ 257.0 $ 487.7 $ 519.6
Adjusted Operating Income (in millions) (1) $ 243.1 $ 285.5
$ 558.2 $ 593.8
Diluted EPS $ 1.68 $ 2.03 $ 3.82 $
4.03
Adjusted EPS (1) $ 1.90 $ 2.27 $ 4.41 $ 4.65
Avg Diluted Shares (in thousands) 73,835 73,682 73,842
73,665
(1)
Fiscal 2016 and 2015 include certain
non-operational expenses. The Adjusted SG&A, Adjusted Operating
Income and Adjusted EPS for the twelve weeks ended July 16, 2016
and July 18, 2015, respectively, have been reported on an adjusted
basis to exclude General Parts integration, store consolidation
costs and support center restructuring costs of $17.0 million and
$18.6 million, respectively, and General Parts amortization of
acquired intangible assets of $9.5 million and $9.8 million,
respectively. The Adjusted SG&A, Adjusted Operating Income and
Adjusted EPS for the twenty-eight weeks ended July 16, 2016 and
July 18, 2015, respectively, have been reported on an adjusted
basis to exclude General Parts integration, store consolidation
costs and support center restructuring costs of $48.4 million and
$51.3 million, respectively, and General Parts amortization of
acquired intangible assets of $22.1 million and $22.9 million,
respectively. For a better understanding of the Company's adjusted
results, refer to the reconciliation of the financial results
reported on a GAAP basis to the adjusted basis in the accompanying
financial tables in this press release.
“Our second quarter results were not acceptable and we are
moving thoughtfully and swiftly to make the necessary changes
across a number of critical areas within the organization to alter
the trajectory of the business and improve our operating
performance," said Tom Greco, Chief Executive Officer. “There’s a
heightened sense of urgency and accountability throughout the
organization and we are taking decisive actions to deliver
near-term improvement with a focus on accelerating our commercial
growth and improving our execution.”
Greco continued, “I continue to be energized by the immense
opportunity for improvement. The actions we need to take are well
within our control and we are focused on building the right
foundation for the long term. We are hard at work constructing a
comprehensive strategic plan, which will help us reliably and
consistently deliver industry leading performance and unparalleled
customer service going forward. We remain confident in our
business, our people and the opportunity that lies ahead to create
long-term value."
Second Quarter 2016 Highlights
Total sales for the second quarter decreased 4.8% to $2.26
billion, as compared with total sales during the second quarter of
fiscal 2015 of $2.37 billion. The sales decline was driven by the
comparable store sales decrease of 4.1%, the store closures in 2015
and the effect of Carquest consolidations. The sales decline was
partially offset by new store and Worldpac branch openings.
The Company's Gross Profit rate was 44.8% of sales during the
second quarter as compared to 45.9% during the second quarter last
year. The 110 basis-point decrease in gross profit rate was
primarily the result of supply chain expense deleverage due to the
comparable store sales decline and higher supply chain operating
expenses.
On a GAAP basis, the Company's SG&A rate was 35.2% of sales
during the second quarter as compared to 35.0% during the same
period last year. The 14 basis-point increase was driven primarily
by fixed cost deleverage due to our comparable store sales decline
and higher self-insurance expense partially offset by lower
incentive compensation costs and the Company's continued cost
reduction initiatives and expense reduction actions to offset lower
sales. The Company's Adjusted SG&A rate was 34.0% of sales
during the second quarter as compared to 33.8% during the same
period last year.
On a GAAP basis, the Company's operating income during the
second quarter of $216.7 million decreased 15.7% versus the second
quarter of fiscal 2015. On a GAAP basis, the Operating Income rate
was 9.6% during the second quarter as compared to 10.8% during the
second quarter of fiscal 2015. The Company's Adjusted Operating
Income was $243.1 million during the second quarter, a decrease of
14.8% versus the second quarter of fiscal 2015. As a percentage of
sales, Adjusted Operating Income in the second quarter was 10.8%
versus 12.0% during the second quarter of fiscal 2015.
Operating cash flow decreased approximately 41.7% to $192.9
million through the second quarter of fiscal 2016 from $330.8
million through the second quarter of fiscal 2015. Free cash flow
was $55.0 million through the second quarter of fiscal 2016
compared to $216.3 million through the second quarter of fiscal
2015. Capital expenditures through the second quarter of fiscal
2016 were $137.9 million as compared to $114.5 million through the
second quarter of fiscal 2015.
Store Information
As of July 16, 2016, the Company operated 5,066 stores and
126 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
twenty-eight weeks ended July 16, 2016.
AAP
AI
CARQUEST (a) WORLDPAC
Total
January 2, 2016 4,102 184 885
122 5,293 New 26 — 4 4 34 Closed (8) (3) (4) — (15)
Consolidated (3) — (117) — (120) Converted 72 — (72) — —
July
16, 2016 4,189 181 696 126
5,192
(a)
Includes activity for stores acquired with
B.W.P. Distributors, Inc. that operate under the Carquest trade
name.
Dividend
On August 9, 2016, the Company's Board of Directors
declared a regular quarterly cash dividend of $0.06 per share to be
paid on October 7, 2016 to stockholders of record as of
September 23, 2016.
Advance Names Robert Cushing to Lead Commercial
Business
The Company also announced that Robert (Bob) B. Cushing, who
currently serves as President, Worldpac, has been promoted to the
newly created position of Executive Vice President, Commercial. In
this new role, Mr. Cushing will report to Tom Greco, Chief
Executive Officer, and will oversee all of the Company’s Commercial
operations, including Autopart International and continue to lead
Worldpac.
“The consolidation of all of our Commercial operations under one
leader will enable us to implement a more holistic Commercial
strategy and enhance our ability to serve customers,” said Greco.
“Bob is uniquely qualified to lead this effort. He has a proven
track record of delivering results including establishing Worldpac
as one of the premier import distributors of original equipment and
aftermarket parts to Commercial customers. Bob’s customer-focused
approach, along with his expertise in developing an integrated
e-commerce platform and leveraging technology to more effectively
meet customer demands will be critical as we work to deliver
improved results. We have valuable and distinctive commercial
assets and I am excited that Bob will focus on using those assets
to our competitive advantage.”
Mr. Cushing joined Worldpac via the acquisition of Metrix Parts
Warehouse, Inc. in 1999 and was named President in January 2008.
Prior to serving as President, Mr. Cushing served as Executive Vice
President, Sales and Operations for the U.S. and Canada Worldpac
operations and its affiliates from 1999 to 2007. Prior to joining
Worldpac, Mr. Cushing held executive-level sales, marketing and
operations positions with Metrix, Interco and Robert Bosch
Corporation.
Investor Conference Call
The Company will host a conference call on Tuesday, August 16,
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 August 16, 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 July 16, 2016, Advance
operated 5,066 stores and 126 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)
July 16, 2016 January 2, 2016
Assets
Current assets: Cash and cash equivalents $ 104,827 $
90,782 Receivables, net 657,483 597,788 Inventories, net 4,421,274
4,174,768 Other current assets 96,200 77,408 Total
current assets 5,279,784 4,940,746
Property and
equipment, net 1,431,922 1,434,577
Goodwill 992,579
989,484
Intangible assets, net 664,678 687,125
Other
assets, net 68,566 75,769 $ 8,437,529 $ 8,127,701
Liabilities and
Stockholders' Equity
Current liabilities: Current portion of long-term
debt $ 404 $ 598 Accounts payable 3,219,718 3,203,922 Accrued
expenses 564,757 553,163 Other current liabilities 56,354
39,794 Total current liabilities 3,841,233 3,797,477
Long-term debt 1,169,702 1,206,297
Deferred income
taxes 446,124 433,925
Other long-term liabilities
231,573 229,354
Total stockholders' equity 2,748,897
2,460,648 $ 8,437,529 $ 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 Twelve and Twenty-Eight Week Periods Ended
July 16, 2016 and July 18, 2015
(in thousands, except per share data)
(unaudited)
Q2 2016 Q2 2015 YTD 2016 YTD
2015 Net sales $ 2,256,155 $ 2,370,037 $ 5,235,933 $
5,408,270 Cost of sales 1,245,898 1,282,748
2,875,787 2,927,057 Gross profit
1,010,257 1,087,289 2,360,146 2,481,213 Selling, general and
administrative expenses 793,573 830,240
1,872,463 1,961,636 Operating income
216,684 257,049 487,683
519,577 Other, net: Interest expense (14,021 )
(15,438 ) (32,964 ) (37,215 ) Other income (expense), net
6,244 (3,808 ) 9,367 (5,716 )
Total other, net (7,777 ) (19,246 ) (23,597 )
(42,931 ) Income before provision for income taxes 208,907
237,803 464,086 476,646 Provision for income taxes 84,307
87,805 180,673 178,536
Net income $ 124,600 $ 149,998 $ 283,413
$ 298,110 Basic earnings per share (a) $ 1.69
$ 2.04 $ 3.84 $ 4.06 Diluted earnings per share (a) $ 1.68 $ 2.03 $
3.82 $ 4.03 Average common shares outstanding (a) 73,576
73,183 73,476 73,148 Average diluted common shares outstanding (a)
73,835 73,682 73,842 73,665
(a)
Average common shares outstanding is
calculated based on the weighted average number of shares
outstanding during the quarter. At July 16, 2016 and July 18, 2015,
we had 73,613 and 73,204 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.
Advance Auto Parts, Inc. and
Subsidiaries Condensed Consolidated Statements of Cash
Flows
Twenty-Eight Week Periods Ended
July 16, 2016 and July 18, 2015
(in thousands)
(unaudited)
July 16, 2016 July 18, 2015
Cash flows from operating activities: Net income $
283,413 $ 298,110 Depreciation and amortization 139,265 145,860
Share-based compensation 9,142 17,726 Provision (benefit) for
deferred income taxes 11,454 (8,481 ) Excess tax benefit from
share-based compensation (15,535 ) (8,435 ) Other non-cash
adjustments to net income 1,012 8,459 Increase in: Receivables, net
(57,241 ) (76,124 ) Inventories, net (236,403 ) (182,504 ) Other
assets (12,194 ) (10,498 ) Increase in: Accounts payable 11,611
85,907 Accrued expenses 51,488 55,741 Other liabilities
6,893 5,055 Net cash provided by operating
activities 192,905 330,816
Cash flows from investing
activities: Purchases of property and equipment (137,920 )
(114,535 ) Business acquisitions, net of cash acquired (2,430 )
(16,431 ) Proceeds from sales of property and equipment
1,293 477 Net cash used in investing
activities (139,057 ) (130,489 )
Cash flows from financing
activities: Increase in bank overdrafts 13,656 9,880 Net
borrowings (payments) on credit facilities (34,500 ) (183,400 )
Dividends paid (13,291 ) (13,227 ) Proceeds from the issuance of
common stock, primarily for employee stock purchase plan 2,222
2,512 Tax withholdings related to the exercise of stock
appreciation rights (12,489 ) (9,589 ) Excess tax benefit from
share-based compensation 15,535 8,435 Repurchase of common stock
(12,179 ) (1,734 ) Other (224 ) (207 ) Net cash used
in financing activities (41,270 ) (187,330 )
Effect of exchange rate changes on cash 1,467
(3,132 )
Net increase in cash and cash equivalents
14,045 9,865
Cash and cash equivalents, beginning of period
90,782 104,671
Cash and cash
equivalents, end of period $ 104,827 $ 114,536
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.
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 the
integration of General Parts, store consolidation costs and support
center restructuring costs is more indicative of our base
operations and useful for investors. These measures assist in
comparing the Company's current operating results with past and
future periods and with the operational performance of other
companies in the Company's industry. The Company uses these
measures in developing internal budgets and forecasts and as a
significant factor in evaluating management for compensation
purposes.
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:
Twelve Week Periods Ended(in
thousands, except per share data)
Twenty-Eight Week Periods Ended(in
thousands, except per share data)
July 16, 2016 July 18, 2015 July 16, 2016
July 18, 2015 Net income (GAAP) $ 124,600 $ 149,998 $
283,413 $ 298,110 SG&A adjustments (a) 26,461 28,425 70,476
74,176 Provision for income taxes on adjustments (b) (10,055
) (10,801 ) (26,781 ) (28,187 ) Adjusted net
income $ 141,006 $ 167,622 $ 327,108 $ 344,099
Diluted earnings per common share (GAAP) $ 1.68 $
2.03 $ 3.82 $ 4.03 SG&A adjustments, net of tax 0.22
0.24 0.59 0.62
Adjusted EPS $ 1.90 $ 2.27 $ 4.41 $ 4.65
Reconciliation of
Adjusted Selling, General and Administrative
Expenses:
Twelve Week Periods Ended(in
thousands)
Twenty-Eight Week Periods Ended(in
thousands)
July 16, 2016 July 18, 2015 July 16,
2016 July 18, 2015 SG&A (GAAP) $ 793,573 $ 830,240 $
1,872,463 $ 1,961,636 SG&A adjustments (a) (26,461 )
(28,425 ) (70,476 ) (74,176 ) Adjusted
SG&A $ 767,112 $ 801,815 $ 1,801,987 $
1,887,460
Reconciliation of
Adjusted Operating Income:
Twelve Week Periods Ended(in
thousands)
Twenty-Eight Week Periods Ended(in
thousands)
July 16, 2016 July 18, 2015 July 16,
2016 July 18, 2015 Operating income (GAAP) $ 216,684 $
257,049 $ 487,683 $ 519,577 SG&A adjustments (a) 26,461
28,425 70,476 74,176
Adjusted operating income $ 243,145 $ 285,474
$ 558,159 $ 593,753
(a)
The adjustments to SG&A expenses for
the twelve and twenty-eight weeks ended July 16, 2016 include
General Parts integration, store consolidation costs and support
center restructuring costs of $17,002 and $48,355 and General Parts
amortization of acquired intangible assets of $9,459 and $22,121,
respectively. The adjustments to SG&A expenses for the twelve
and twenty-eight weeks ended July 18, 2015 include General Parts
integration and store consolidation costs of $18,585 and $51,291
and General Parts amortization of acquired intangible assets of
$9,839 and $22,885, respectively.
(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:
Twenty-Eight Week Periods Ended July 16, 2016
July 18, 2015 Cash flows from operating
activities $ 192,905 $ 330,816 Purchases of property and equipment
(137,920 ) (114,535 ) Free cash flow $ 54,985
$ 216,281
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 July 16, 2016 January 2,
2016 Total debt (a) $ 1,170,106 $ 1,206,895 Add:
Capitalized lease obligation (rent expense * 6) 3,199,722
3,190,728 Adjusted debt 4,369,828 4,397,623 Operating
income 793,886 825,780 Add: Adjustments (b) 124,123 127,059
Depreciation and amortization 262,881 269,476 EBITDA
1,180,890 1,222,315 Rent expense (less favorable lease amortization
of $4,051 and $4,786, respectively) 533,287 531,788
EBITDAR $ 1,714,177 $ 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
July 16, 2016 include General Parts integration, store closure and
consolidation costs and support center restructuring costs of
$124.1 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 is
to maintain a 2.5 times leverage ratio and investment grade rating.
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’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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160816005413/en/
Advance Auto Parts, Inc.Media ContactAnna Gurney,
919-573-2608anna.gurney@advanceautoparts.comorInvestor
ContactZaheed Mawani,
919-573-3848zaheed.mawani@advanceautoparts.com
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