Fourth Quarter Net Sales Increased 0.4% to
$2.1B; Comparable Store Sales Increased 0.1%
Diluted EPS increased 86.5% to $1.38; Adjusted
Diluted EPS increased 40.2% to $1.64
Full Year Net Sales Increased 1.3% to $9.7B;
Comparable Store Sales Increased 1.1%
Operating Income Increased 12.1% to $677.2M;
Adjusted Operating Income Increased 6.0% to $795.0M
Operating Cash Flow Increased 6.9% to
$866.9M
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive
aftermarket parts provider in North America that serves both
professional installer and do-it-yourself customers, today
announced its financial results for the fourth quarter and full
year ended December 28, 2019.
“Advance once again delivered another quarter of net sales
growth along with an acceleration of adjusted operating income
growth amidst a challenging demand environment in Q4. Although
sales growth was below our expectations, we grew adjusted operating
margin by 106 basis points, which reinforces our team's commitment
to delivering continuous, incremental improvement on the
substantial margin expansion opportunity we have. In addition, our
entire Advance team, including our network of Independent Carquest
Partners, delivered net sales growth for the second consecutive
year, which enabled us to make excellent progress on our long-term
objectives," said Tom Greco, president and chief executive officer.
"In particular, we ramped up investment in supply chain, eCommerce
and technology, which will strengthen our customer value
proposition in the future."
Fourth Quarter Highlights
- Net sales increased 0.4% to $2.1B; Comparable store sales (a)
increased 0.1%
- Operating income increased 49.7% to $126.1M; Operating income
margin expanded 197 bps to 6.0%
- Adjusted operating income (a) increased 18.0% to $149.9M;
Adjusted operating income margin expanded 106 bps to 7.1%
- Diluted EPS increased 86.5% to $1.38; Adjusted Diluted EPS (a)
increased 40.2% to $1.64
- Acquired the DieHard® brand for $200.0 million utilizing cash
on hand
Full Year 2019 Highlights
- Net sales increased 1.3% to $9.7B; Comparable store sales (a)
increased 1.1%
- Operating income increased 12.1% to $677.2M; Operating income
margin expanded 67 bps to 7.0%
- Adjusted operating income (a) increased 6.0% to $795.0M;
Adjusted operating income margin expanded 36 bps to 8.2%
- Diluted EPS increased 19.4% to $6.84; Adjusted Diluted EPS (a)
increased 14.9% to $8.19
- Operating cash flow increased 6.9% to $866.9M; Free cash flow
(a) decreased 3.3% to $596.8M
- Returned $504.6M to stockholders through the Company's share
repurchase program and dividends
(a)
Comparable store sales exclude sales to
independently owned Carquest locations. For a better understanding
of the Company's adjusted results, refer to the reconciliation of
non-GAAP adjustments in the accompanying financial tables included
herein.
Fourth Quarter and Full Year 2019 Highlights
Net sales for the fourth quarter 2019 were $2.1 billion, a 0.4%
increase versus the fourth quarter of the prior year. Comparable
store sales for the fourth quarter 2019 increased 0.1%. For the
full year 2019, Net sales were $9.7 billion, an increase of 1.3%
from the full year 2018. Comparable store sales for the full year
2019 increased 1.1%.
Adjusted gross profit margin was 44.0% of Net sales in the
fourth quarter 2019, a 19 basis point decrease from the fourth
quarter of 2018. The primary drivers of the decrease were related
to the impact of the LIFO accounting method and the planned
headwind from customer incentive discounts, which were partially
offset by lower material costs. The Company's GAAP Gross profit
margin decreased to 44.0% from 44.1% in the fourth quarter of the
prior year. Adjusted gross profit margin for the full year 2019 was
44.0%, a decrease of 12 basis points from the full year 2018. The
Company's full year 2019 GAAP Gross profit margin decreased to
43.8% from 44.0% for the full year 2018.
Adjusted SG&A was 36.9% of Net sales in the fourth quarter
2019, an improvement of 125 basis points as compared to the fourth
quarter of 2018. This was primarily driven by improvements in labor
related costs and continued reduction in insurance claims. The
Company's GAAP SG&A for the fourth quarter 2019 was 38.0% of
Net sales compared to 40.1% in the same quarter of the prior year.
For the full year 2019, Adjusted SG&A was 35.8%, an improvement
of 48 basis points compared to the full year 2018. The Company's
full year 2019 GAAP SG&A was 36.8% of Net sales compared to
37.7% for the full year 2018.
The Company's Adjusted operating income was $149.9 million in
the fourth quarter 2019, an increase of 18.0% versus the fourth
quarter of the prior year. Adjusted operating income margin
improved to 7.1% of Net sales for the fourth quarter 2019, an
increase of 106 basis points compared to the fourth quarter of the
prior year. On a GAAP basis, the Company's Operating income was
$126.1 million, an increase of 49.7% compared to the fourth quarter
of the prior year. Operating income margin in the fourth quarter
2019 was 6.0% of Net sales, an increase of 197 basis points from
the fourth quarter 2018. For full year 2019, Adjusted operating
income was $795.0 million, an increase of 6.0% from the full year
2018. Adjusted operating income margin for the full year 2019
improved to 8.2% of Net sales, an increase of 36 basis points
compared to the full year 2018. The Company's full year 2019 GAAP
Operating income was $677.2 million, 7.0% of Net sales, an increase
of 67 basis points compared to the full year 2018.
The Company's effective tax rate in the fourth quarter 2019 was
20.1%. The Company's Adjusted Diluted EPS was $1.64 for the fourth
quarter 2019, an increase of 40.2% compared to the same quarter in
the prior year. On a GAAP basis, the Company's Diluted EPS
increased 86.5% to $1.38. The effective tax rate for the full year
2019 was 23.7%. The Company's Adjusted Diluted EPS was $8.19 for
the full year 2019, an increase of 14.9% versus the full year 2018.
The Company's Diluted EPS on a GAAP basis increased 19.4% to $6.84
year over year.
Operating cash flow was $866.9 million for the full year 2019
versus $811.0 million for the full year 2018, an increase of 6.9%.
Free cash flow for the full year 2019 was $596.8 million, a
decrease of 3.3% compared to the full year 2018.
53-Week 2020 Full Year Guidance
"We remain disciplined in our approach to executing on our
strategic objectives and meeting our financial priorities in 2020.
We know that we have continued work ahead of us, but have a
dedicated team in place to continue the momentum to drive customer
and shareholder value. With that in mind, we are pleased to
announce our current year outlook, which is inclusive of the 53rd
week we have in our fiscal year 2020," said Jeff Shepherd,
executive vice president and chief financial officer.
The Company provided the following guidance ranges related to
its 2020 outlook:
2020 (a)
($ in millions)
Low
High
Net sales
$9,880
$10,100
Comparable store sales
0.0%
2.0%
Adjusted operating income margin (b)
8.4%
8.7%
Income tax rate
24%
26%
Capital expenditures
$275
$325
Free cash flow (b)
Minimum $600
(a)
The Company's fiscal year ending January
2, 2021 consists of 53 weeks. As a result, with the exception of
Comparable store sales, the financial outlook metrics provided
include the contribution of the 53rd week, including an estimated
$125 million to $150 million in Net sales and approximately 10 to
20 basis points of Adjusted operating income margin expansion.
(b)
For a better understanding of the
Company's adjusted results, refer to the reconciliation of non-GAAP
adjustments in the accompanying financial tables included herein.
Because of the forward-looking nature of the 2020 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.
Capital Allocation
On November 8, 2019 the Company's Board of Directors authorized
an additional $700.0 million to the Company's $400.0 million share
repurchase program. Under this share repurchase program, the
Company repurchased 3.4 million shares of its common stock at an
aggregate amount of $487.4 million for an average price of $144.23
per share. At the end of the fourth quarter of 2019, the Company
had $890.8 million remaining under the share repurchase
program.
On February 12, 2020, the Company's Board of Directors declared
a quarterly cash dividend of $0.25 per share to be paid on April 3,
2020 to all stockholders of record as of March 20, 2020.
Investor Conference Call
The Company will detail its results for the fourth quarter and
full year 2019 via a webcast scheduled to begin at 8 a.m. Eastern
Time on Tuesday, February 18, 2020. The webcast will be accessible
via the Investor Relations page of the Company's website
(ir.AdvanceAutoParts.com).
For individuals unable to access the webcast, the event will be
available by dialing (866) 209-9668 and referencing conference
identification number 6092935. A replay of the conference call will
be available on the Company's website for one year.
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 December 28, 2019, Advance operated
4,877 stores and 160 Worldpac branches in the United States,
Canada, Puerto Rico and the U.S. Virgin Islands. The Company also
serves 1,253 independently owned Carquest branded stores across
these locations in addition to Mexico, the Bahamas, Turks and
Caicos and British Virgin Islands. Additional information about
Advance, including employment opportunities, customer services, and
online shopping for parts, accessories and other offerings can be
found at www.AdvanceAutoParts.com.
Forward-Looking Statements
Certain statements in this report are “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of
historical facts, may be forward-looking statements.
Forward-looking statements address future events or developments,
and typically use words such as “believe,” “anticipate,” “expect,”
“intend,” “plan,” “forecast,” “guidance,” “outlook” or “estimate”
or similar expressions. These forward-looking statements include,
but are not limited to, key assumptions for future financial
performance including net sales, store growth, comparable store
sales, gross profit rate, SG&A, adjusted operating income,
income tax rate, transformation costs, adjusted operating income
rate targets, capital expenditures, inventory levels and free cash
flow; statements regarding expected growth and future performance
of the Company; statements regarding enhancements to stockholder
value, strategic plans or initiatives, growth or profitability,
productivity targets; and all other statements that are not
statements of historical facts. These statements are based upon
assessments and assumptions of management in light of historical
results and trends, current conditions and potential future
developments that often involve judgment, estimates, assumptions
and projections. Forward-looking statements reflect current views
about the Company's plans, strategies and prospects, which are
based on information currently available as of the date of this
release. Except as required by law, the Company undertakes no
obligation to update any forward-looking statements to reflect
events or circumstances after the date of such statements. Please
refer to the risk factors discussed in "Item 1a. Risk Factors" in
the Company's most recent Annual Report on Form 10-K, as updated by
its Quarterly Reports on Form 10-Q and other filings made by the
Company with the Securities and Exchange Commission, for a
discussion of factors that could materially affect the Company’s
actual results. Forward-looking statements are subject to risks and
uncertainties, many of which are outside its control, which could
cause actual results to differ materially from these statements.
Therefore, you should not place undue reliance on those
statements.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
(unaudited)
December 28, 2019 (a)
December 29, 2018 (b)
Assets
Current assets:
Cash and cash equivalents
$
418,665
$
896,527
Receivables, net
689,469
624,972
Inventories
4,432,168
4,362,547
Other current assets
155,241
198,408
Total current assets
5,695,543
6,082,454
Property and equipment, net
1,433,213
1,368,985
Operating lease right-of-use
assets
2,365,325
—
Goodwill
992,240
990,237
Intangible assets, net
709,756
550,593
Other assets, net
52,448
48,379
$
11,248,525
$
9,040,648
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
3,421,987
$
3,172,790
Accrued expenses
535,863
623,141
Other current liabilities
519,852
90,019
Total current liabilities
4,477,702
3,885,950
Long-term debt
747,320
1,045,720
Noncurrent operating lease
liabilities
2,017,159
—
Deferred income taxes
334,013
318,353
Other long-term liabilities
123,250
239,812
Total stockholders' equity
3,549,081
3,550,813
$
11,248,525
$
9,040,648
(a)
This preliminary condensed consolidated
balance sheet has been prepared on a basis consistent with the
Company's previously prepared balance sheets filed with the
Securities and Exchange Commission ("SEC"), but does not include
the footnotes required by accounting principles generally accepted
in the United States of America (“GAAP”).
(b)
The balance sheet at December 29, 2018 has
been derived from the audited consolidated financial statements at
that date, but does not include the footnotes required by GAAP.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per share
data)
(unaudited)
Twelve Weeks Ended
Fifty-Two Weeks Ended
December 28, 2019 (a)
December 29, 2018 (a)
December 28, 2019 (a)
December 29, 2018 (b)
Net sales
$
2,112,614
$
2,105,072
$
9,709,003
$
9,580,554
Cost of sales
1,183,845
1,176,429
5,454,257
5,361,141
Gross profit
928,769
928,643
4,254,746
4,219,413
Selling, general and administrative
expenses
802,630
844,391
3,577,566
3,615,138
Operating income
126,139
84,252
677,180
604,275
Other, net:
Interest expense
(7,836
)
(12,975
)
(39,898
)
(56,588
)
Other income (expense), net
1,736
(1,421
)
464
7,577
Total other, net
(6,100
)
(14,396
)
(39,434
)
(49,011
)
Income before provision for income
taxes
120,039
69,856
637,746
555,264
Provision for income taxes
24,132
16,415
150,850
131,417
Net income
$
95,907
$
53,441
$
486,896
$
423,847
Basic earnings per share
$
1.39
$
0.74
$
6.87
$
5.75
Average shares outstanding
69,262
72,906
70,869
73,728
Diluted earnings per share
$
1.38
$
0.74
$
6.84
$
5.73
Average diluted shares outstanding
69,570
73,254
71,165
73,991
(a)
These preliminary condensed consolidated
statements of operations have been prepared on a basis consistent
with the Company's previously prepared statements of operations
filed with the SEC, but do not include the footnotes required by
GAAP.
(b)
The condensed consolidated statement of
operations for the year ended December 29, 2018 has been derived
from the audited consolidated financial statements at that date,
but does not include the footnotes required by GAAP.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Fifty-Two Weeks Ended
December 28, 2019 (a)
December 29, 2018 (b)
Cash flows from operating
activities:
Net income
$
486,896
$
423,847
Depreciation and amortization
238,371
238,184
Share-based compensation
37,438
27,760
Provision for deferred income taxes
23,148
15,956
Other non-cash adjustments to Net
income
19,108
18,151
Net change in:
Receivables, net
(62,837
)
(21,471
)
Inventories
(63,130
)
(206,125
)
Accounts payable
245,785
285,493
Accrued expenses
(72,288
)
93,940
Other assets and liabilities, net
14,418
(64,707
)
Net cash provided by operating
activities
866,909
811,028
Cash flows from investing
activities:
Purchases of property and equipment
(270,129
)
(193,715
)
Purchase of an indefinite-lived intangible
asset
(201,519
)
—
Proceeds from sales of property and
equipment
8,709
1,888
Net cash used in investing activities
(462,939
)
(191,827
)
Cash flows from financing
activities:
(Decrease) increase in bank overdrafts
(59,339
)
32,014
Redemption on senior unsecured note
(310,047
)
—
Dividends paid
(17,185
)
(17,819
)
Proceeds from the issuance of common
stock
3,334
3,200
Repurchases of common stock
(498,435
)
(281,354
)
Other, net
(481
)
44
Net cash used in financing activities
(882,153
)
(263,915
)
Effect of exchange rate changes on
cash
321
(5,696
)
Net (decrease) increase in cash and
cash equivalents
(477,862
)
349,590
Cash and cash equivalents,
beginning of period
896,527
546,937
Cash and cash equivalents, end of
period
$
418,665
$
896,527
(a)
This preliminary condensed consolidated
statement of cash flows has been prepared on a basis consistent
with the Company's previously prepared statements of operations
filed with the SEC, but does not include the footnotes required by
GAAP.
(b)
The condensed consolidated statement of
cash flows for the year ended December 29, 2018 has been derived
from the audited consolidated financial statements at that date,
but does not include the footnotes required by GAAP.
Reconciliation of Non-GAAP Financial
Measures
The Company's financial results include certain financial
measures not derived in accordance with 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
operating performance, financial position or cash flows. Management
presented these non-GAAP financial measures as they believe that
the presentation of its financial results that exclude (1)
transformation expenses under our strategic business plan; (2)
non-operational expenses associated with the integration of General
Parts International, Inc. (“GPI”) and store closure and
consolidation; (3) non-cash amortization related to the acquired
GPI intangible assets; (4) other non-recurring adjustments; and (5)
nonrecurring impact of the U.S. Tax Cuts and Jobs Act (the “Act”),
is useful and indicative of its base operations because the
expenses vary from period to period in terms of size, nature and
significance and/or relate to the integration of GPI and store
closure and consolidation activity in excess of historical levels.
These measures assist in comparing 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 that the Company have
determined are not normal, recurring cash operating expenses
necessary to operate its business and the rationale for why
providing these measures is useful to investors as a supplement to
the GAAP measures.
Transformation Expenses - The
Company expects to recognize a significant amount of transformation
expenses over the next several years as it transitions from
integration of our Advance Auto Parts and Carquest US businesses to
a plan that involves a more holistic and integrated transformation
of the entire Company, including Worldpac and Autopart
International. These expenses will include, but are not limited to,
restructuring costs, store closure costs and third-party
professional services and other significant costs to integrate and
streamline the Company's operating structure across the enterprise.
The Company is focused on several areas throughout Advance, such as
supply chain and information technology.
GPI Integration and Store Closure and
Consolidation Expenses - The multi-year plan to integrate
the operations of GPI that the Company acquired in 2014 with
Advance Auto Parts substantially ended in 2018. Due to the size of
this acquisition, the Company considered these expenses to be
outside of its base business. Management believed providing
additional information in the form of non-GAAP measures that
excluded these costs was beneficial to the users of its financial
statements in evaluating the operating performance of its base
business and the sustainability once the integration was complete.
In addition to integration expenses, the Company incurred store
closure and consolidation expenses that consisted of expenses
associated with plans to convert and consolidate the Carquest
stores acquired from GPI. While periodic store closures are common,
these closures represented a significant program outside of the
Company's typical market evaluation process. The Company believes
it was useful to provide additional non-GAAP measures that excluded
these costs to provide investors greater comparability of its base
business and core operating performance.
GPI Amortization of Acquired Intangible
Assets — As part of our acquisition of GPI, we obtained
various intangible assets, including customer relationships,
non-compete contracts and favorable leases agreements, which we
expect to be subject to amortization through 2025.
U.S. Tax Reform - On December 22,
2017, the Act was signed into law. The Act amends the Internal
Revenue Code of 1986 by, among other things, permanently lowering
the corporate tax rate to 21% from the existing maximum rate of
35%, implementing a territorial tax system and imposing a one-time
repatriation tax on deemed repatriated earnings of foreign
subsidiaries. During the third quarter of 2018, and in conjunction
with the completion of our 2017 U.S. income tax return, the Company
identified a change in estimate, in accordance with Staff
Accounting Bulletin No. 118, to amounts previously estimated for
the remeasurement of the net deferred tax liability and
nonrecurring repatriation tax on accumulated earnings foreign
subsidiaries. The Company's analysis under Staff Accounting
Bulletin No. 118 is complete.
Reconciliation of
Adjusted Net Income and Adjusted EPS:
Twelve Weeks Ended
Fifty-Two Weeks Ended
(in thousands, except per share
data)
December 28, 2019
December 29, 2018
December 28, 2019
December 29, 2018
Net income (GAAP)
$
95,907
$
53,441
$
486,896
$
423,847
Cost of sales adjustments:
Transformation expenses
73
854
3,345
6,740
Other adjustment (a)
—
—
13,010
—
SG&A adjustments:
GPI integration and store closure and
consolidation expenses
—
2,654
—
7,360
GPI amortization of acquired intangible
assets
6,343
8,750
27,500
38,018
Transformation expenses
17,325
30,542
73,958
93,767
Other income adjustment (b)
—
—
10,756
—
Provision for income taxes on adjustments
(c)
(5,935
)
(10,700
)
(32,142
)
(36,274
)
Impact of the Act
$
—
$
—
$
—
$
(5,665
)
Adjusted net income (Non-GAAP)
$
113,713
$
85,541
$
583,323
$
527,793
Diluted earnings per share (GAAP)
$
1.38
$
0.74
$
6.84
$
5.73
Adjustments, net of tax
0.26
0.43
1.35
1.40
Adjusted EPS (Non-GAAP)
$
1.64
$
1.17
$
8.19
$
7.13
(a)
During the sixteen weeks ended April 20,
2019, the Company made an out-of-period correction, which increased
Cost of sales by $13.0 million, related to received not invoiced
inventory.
(b)
During the sixteen weeks ended April 20,
2019, the Company incurred charges relating to a make-whole
provision and debt issuance costs of $10.1 million and $0.7 million
resulting from the early redemption of its 2020 senior unsecured
notes.
(c)
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
Adjusted Gross Profit:
Twelve Weeks Ended
Fifty-Two Weeks Ended
(in thousands)
December 28, 2019
December 29, 2018
December 28, 2019
December 29, 2018
Gross profit (GAAP)
$
928,769
$
928,643
$
4,254,746
$
4,219,413
Gross profit adjustments
73
854
16,355
6,740
Adjusted gross profit (Non-GAAP)
$
928,842
$
929,497
$
4,271,101
$
4,226,153
Reconciliation of
Adjusted Selling, General and Administrative
Expenses:
Twelve Weeks Ended
Fifty-Two Weeks Ended
(in thousands)
December 28, 2019
December 29, 2018
December 28, 2019
December 29, 2018
SG&A (GAAP)
$
802,630
$
844,391
$
3,577,566
$
3,615,138
SG&A adjustments
(23,668
)
(41,946
)
(101,458
)
(139,145
)
Adjusted SG&A (Non-GAAP)
$
778,962
$
802,445
$
3,476,108
$
3,475,993
Reconciliation of
Adjusted Operating Income:
Twelve Weeks Ended
Fifty-Two Weeks Ended
(in thousands)
December 28, 2019
December 29, 2018
December 28, 2019
December 29, 2018
Operating income (GAAP)
$
126,139
$
84,252
$
677,180
$
604,275
Cost of sales and SG&A adjustments
23,741
42,800
117,813
145,885
Adjusted operating income (Non-GAAP)
$
149,880
$
127,052
$
794,993
$
750,160
NOTE: Adjusted gross profit, Adjusted gross profit margin
(calculated by dividing Adjusted gross profit by Net sales),
Adjusted SG&A, Adjusted SG&A as a percentage of Net sales,
Adjusted operating income and Adjusted operating income margin
(calculated by dividing Adjusted operating income by Net sales) are
non-GAAP measures. Management believes these non-GAAP measures are
important metrics in assessing the overall performance of the
business and utilizes these metrics in its ongoing reporting. On
that basis, management believes it is useful to provide these
metrics to investors and prospective investors to evaluate the
Company’s operating performance across periods adjusting for these
items (refer to the reconciliations of non-GAAP adjustments above).
These non-GAAP measures might not be calculated in the same manner
as, and thus might not be comparable to, similarly titled measures
reported by other companies. Non-GAAP measures should not be used
by investors or third parties as the sole basis for formulating
investment decisions, as they may exclude a number of important
cash and non-cash recurring items.
Reconciliation of
Free Cash Flow:
Fifty-Two Weeks Ended
(In thousands)
December 28, 2019
December 29, 2018
Cash flows from operating activities
$
866,909
$
811,028
Purchases of property and equipment
(270,129
)
(193,715
)
Free cash flow
$
596,780
$
617,313
NOTE: Management uses Free cash flow as a measure of its
liquidity and believes it is a useful indicator to investors or
potential investors of the Company's ability to implement growth
strategies and service 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 the Company's condensed consolidated
statement of cash flows as a measure of liquidity.
Adjusted Debt to
Adjusted EBITDAR:
Four Quarters Ended
(In thousands, except adjusted
debt to adjusted EBITDAR ratio)
December 28, 2019
December 29, 2018
Total debt
$
747,320
$
1,045,930
Add: Operating lease liabilities (a)
2,495,141
2,425,325
Adjusted debt
3,242,461
3,471,255
Operating income
677,180
604,275
Adjustments (b)
101,239
107,867
Depreciation and amortization
238,371
238,184
Adjusted EBITDA
1,016,790
950,326
Rent expense
552,027
553,377
Share-based compensation
37,438
27,760
Adjusted EBITDAR
$
1,606,255
$
1,531,463
Adjusted Debt to Adjusted EBITDAR
(c)
2.0
2.3
(a)
On December 30, 2018, the Company recorded
operating lease liabilities of $2.4 billion upon adoption of
Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU
2016-2”) and ASU 2018-11, Leases (Topic 842): Targeted
Improvements. As of December 28, 2019, $2.5 billion of operating
lease liabilities were recorded in the Company's condensed
consolidated balance sheet.
(b)
The adjustments to the four quarters ended
December 28, 2019 and December 29, 2018 represent transformation,
GPI integration and store closure and consolidation expenses.
(c)
Ratio is derived by utilizing the
operating lease liabilities recorded by the Company upon adoption
of ASU 2016-02 rather than utilizing estimated capitalized lease
obligations (six times rent expense), which were $3.3 billion as of
December 28, 2019 and December 29, 2018. For comparability
purposes, the Adjusted Debt to Adjusted EBITDAR ratio calculated
using the historical estimated capitalized lease obligations would
be 2.5 and 2.9 as of December 28, 2019 and December 29, 2018.
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 to add back the Company’s
existing operating lease liabilities related to their right-of-use
assets to provide a more meaningful comparison with the Company’s
peers and to account for differences in debt structures and leasing
arrangements. 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:
During the fifty-two weeks ended December 28, 2019, 26 stores
and branches were opened and 98 were closed or consolidated,
resulting in a total of 5,037 stores and branches as of December
28, 2019, compared to a total of 5,109 stores and branches as of
December 29, 2018.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200218005490/en/
Investor Relations: Elisabeth Eisleben T: (919) 227-5466
E: invrelations@advanceautoparts.com
Media: Darryl Carr T: (984) 389-7207 E:
AAPCommunications@advance-auto.com
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