First Quarter Net Sales of $2.9B; Gross Profit
of $1.3B
Operating Income Increased 10.3% to $198.2M,
Adjusted Operating Income Increased 9.3% to $224.1M
Diluted EPS Increased 26.0% to $1.84; Adjusted
EPS Increased 31.3% to $2.10
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 first-quarter ended
April 21, 2018.
“We are pleased to report another quarter of operational
improvement as we begin the second year of our five-year plan.
Through the commitment of our entire team and a relentless focus on
execution, we were able to deliver operating margin expansion and
double-digit EPS growth in the first quarter. In addition, we have
taken a disciplined approach to significantly improve both working
capital and cash generation. Our first quarter performance
reinforces our commitment to making consistent progress on the
transformation of Advance, strengthening our Customer Value
Proposition and driving increased value for our shareholders," said
Tom Greco, President and Chief Executive Officer.
First Quarter Performance Summary Sixteen
Weeks Ended Favorable/(Unfavorable)
April 21,
2018 April 22, 2017 Net Sales (in
millions) $ 2,873.8 $ 2,890.8 change in Sales (0.6 %)
Comp Store Sales % (0.8 %) (2.7 %)
Gross
Profit (in millions) $ 1,272.3 $ 1,270.7 Gross Profit Margin (%
net sales) 44.3 % 44.0 % change in Gross Margin 32 bps
SG&A (in millions) $ 1,074.0 $ 1,090.9 SG&A (% net
sales) 37.4 % 37.7 % change in SG&A 36 bps
Adjusted
SG&A (in millions) (a) $ 1,048.2 $ 1,065.8 Adjusted
SG&A (% net sales) 36.5 % 36.9 % change in Adjusted SG&A 39
bps
Operating Income (in millions) $ 198.2 $ 179.8
Operating Income Margin (% net sales) 6.9 % 6.2 % change in
Operating Income Margin 68 bps
Adjusted Operating
Income (in millions) (a) $ 224.1 $ 204.9 Adjusted Operating
Income Margin (% net sales) 7.8 % 7.1 % change in Adjusted
Operating Income Margin 71 bps
Diluted EPS $ 1.84 $
1.46
Adjusted EPS (a) $ 2.10 $ 1.60
Average
Diluted Shares (in thousands) 74,205 74,093
(a)
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.
First Quarter 2018 Highlights
Total net sales for the first quarter were $2.9 billion, a 0.6%
decrease versus the prior-year period. Comparable store sales for
the first quarter decreased 0.8%.
The Company's Gross Profit margin increased 32 basis points in
the first quarter to 44.3% from 44.0% in the first quarter of the
prior year. The increase was primarily driven by a reduction in
material costs and related items.
Adjusted SG&A was 36.5% of net sales in the first quarter, a
39 basis point improvement from the first quarter 2017. Continued
progress in expense management initiatives during the quarter,
including third-party fee reductions and lower travel costs, were
partially offset by higher utilities and rent expenses. The
Company's GAAP SG&A was 37.4% of net sales, 36 basis points
favorable for the first quarter versus 37.7% for the comparable
prior-year period.
The Company's Adjusted Operating Income was $224.1 million, 7.8%
of net sales for the quarter. This represented an increase of 71
basis points versus the prior-year period, driven by the increase
in gross profit, as well as a decrease in SG&A from the expense
management initiatives described above. On a GAAP basis, the
Company's Operating Income was $198.2 million, 6.9% of net sales,
an increase of 68 basis points.
As a result of the recently signed Tax Cut and Jobs Act, which
lowered the federal tax rate, the Company's effective tax rate in
the first quarter was 24.5%, compared to 35.0% in the previous
prior-year first quarter. The Company's Adjusted EPS was $2.10 for
the quarter, an increase of 31.3% compared the first quarter of the
prior year. On a GAAP basis, the Company's diluted EPS increased
26.0% to $1.84.
Operating cash flow was $154.0 million in the first quarter 2018
versus $35.1 million in the same period 2017. Free cash flow in the
quarter was $119.5 million compared to negative $30.2 million.
These increases were primarily driven by improved net income and
the optimization of working capital.
Dividend
On May 15, 2018, the Company's Board of Directors declared
a regular quarterly cash dividend of $0.06 per share to be paid on
July 6, 2018 to all common stockholders of record as of
June 22, 2018.
Investor Conference Call
The Company will detail its results for the first quarter 2018
via a webcast scheduled to begin at 8 a.m. Eastern Time on Tuesday,
May 22, 2018. The webcast will be accessible via the Investor
Relations page of the Company's website
(www.AdvanceAutoParts.com).
For individuals unable to access the webcast, the event will be
available by dialing (844) 877-5989 and referencing conference
identification number 1967709. 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 April 21, 2018, Advance
operated 5,044 stores and 131 Worldpac branches and employed
approximately 71,000 Team Members in the United States, Canada,
Puerto Rico and the U.S. Virgin Islands. The Company also serves
1,225 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, 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 contained in this release are forward-looking
statements as defined by 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,” “guidance,”
“outlook” or “estimate.” 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, integration and transformation costs, adjusted
operating income rate targets, capital expenditures, inventory
levels and free cash flow; statements regarding expected growth and
future performance of Advance Auto Parts, Inc. (the “Company”);
statements regarding enhancements to shareholder 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 our plans, strategies and
prospects, which are based on information currently available as of
the date of this report. Except as required by law, we undertake 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” section of the annual report on Form
10-K for the fiscal year ended December 30, 2017, and other
filings made by the Company with the Securities and Exchange
Commission for additional risk factors that could materially affect
the Company’s actual results. Forward-looking statements are
subject to risks and uncertainties, many of which are outside our
control, which could cause actual results to differ materially from
these statements. Therefore, you should not place undue reliance on
those statements. We intend for any forward-looking statements to
be covered by, and we claim the protection under, the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
Advance Auto Parts, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets (in thousands) (unaudited)
April 21, 2018 December 30, 2017
Assets
Current assets: Cash and cash equivalents $ 639,143 $
546,937 Receivables, net 620,378 606,357 Inventories 4,230,473
4,168,492 Other current assets 127,522 105,106 Total current
assets 5,617,516 5,426,892
Property and equipment,
net 1,358,397 1,394,138
Goodwill 993,461 994,293
Intangible assets, net 583,346 597,674
Other assets,
net 62,233 69,304 $ 8,614,953 $ 8,482,301
Liabilities and
Stockholders' Equity
Current liabilities: Accounts payable $ 2,890,317 $
2,894,582 Accrued expenses 543,343 533,548 Other current
liabilities 46,479 51,967 Total current liabilities
3,480,139 3,480,097
Long-term debt 1,044,755
1,044,327
Deferred income taxes 310,686 303,620
Other
long-term liabilities 232,752 239,061
Total stockholders'
equity 3,546,621 3,415,196 $ 8,614,953 $
8,482,301
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 (in
thousands, except per share data) (unaudited)
Sixteen Weeks Ended April 21, 2018 April 22,
2017 Net sales $ 2,873,848 $ 2,890,838 Cost of sales
1,601,564 1,620,154 Gross profit 1,272,284 1,270,684
Selling, general and administrative expenses 1,074,043
1,090,904 Operating income 198,241 179,780
Other, net: Interest expense (17,682 ) (18,430 ) Other income, net
458 4,813 Total other, net (17,224 ) (13,617 ) Income
before provision for income taxes 181,017 166,163 Provision for
income taxes 44,290 58,203 Net income $ 136,727
$ 107,960 Basic earnings per share $ 1.85 $
1.46 Average shares outstanding 73,979 73,782 Diluted
earnings per share $ 1.84 $ 1.46 Average diluted shares outstanding
74,205 74,093
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 (in
thousands) (unaudited)
Sixteen Weeks Ended April
21, 2018 April 22, 2017
Cash flows from operating activities: Net income $ 136,727 $
107,960 Depreciation and amortization 71,692 77,430 Share-based
compensation 7,642 12,374 Provision (benefit) for deferred income
taxes 7,340 (7,704 ) Other non-cash adjustments to net income 3,880
1,974 Net change in: Receivables, net (14,012 ) (42,207 )
Inventories (64,369 ) (89,384 ) Accounts payable (2,948 ) (36,710 )
Accrued expenses 20,765 20,293 Other assets and liabilities, net
(12,747 ) (8,945 ) Net cash provided by operating activities
153,970 35,081
Cash flows from investing
activities: Purchases of property and equipment (34,474 )
(65,279 ) Proceeds from sales of property and equipment 530 947
Other, net — 193 Net cash used in investing
activities (33,944 ) (64,139 )
Cash flows from financing
activities: (Decrease) increase in bank overdrafts (12,101 )
8,490 Net payments on credit facilities — 30,000 Dividends paid
(8,930 ) (8,902 ) Proceeds from the issuance of common stock 754
1,036 Tax withholdings related to the exercise of stock
appreciation rights (93 ) (5,707 ) Repurchase of common stock
(5,223 ) (3,121 ) Other, net (1,164 ) (1,924 ) Net cash (used in)
provided by financing activities (26,757 ) 19,872 Effect of
exchange rate changes on cash (1,063 ) 95
Net
increase (decrease) in cash and cash equivalents 92,206 (9,091
)
Cash and cash equivalents, beginning of period 546,937
135,178
Cash and cash equivalents, end of
period $ 639,143 $ 126,087
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.
Reconciliation of Non-GAAP Financial
Measures
The Company's financial results include certain financial
measures not derived in accordance with accounting principles
generally accepted in the United States of America
(“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. We have presented these non-GAAP financial
measures as we believe that the presentation of our financial
results that exclude (1) non-operational expenses associated with
the integration of General Parts International, Inc. ("GPI") and
store closure and consolidation costs; (2) non-cash charges related
to the acquired GPI intangibles; and (3) transformation expenses
under our strategic business plan, is useful and indicative of our
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 our
current operating results with past periods and with the
operational performance of other companies in our industry. The
disclosure of these measures allows investors to evaluate our
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 we
have determined are not normal, recurring cash operating expenses
necessary to operate our business and the rationale for why
providing these measures is useful to investors as a supplement to
the GAAP measures.
GPI Integration Expenses - We
acquired GPI for $2.08 billion in 2014 and are in the midst of a
multi-year plan to integrate the operations of GPI with AAP. 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,
which our focus then shifted to integrating the supply chain and
information technology systems. Due to the size of the acquisition,
we consider these expenses to be outside of our base business.
Therefore, we believe providing additional information in the form
of non-GAAP measures that exclude these costs is beneficial to the
users of our financial statements in evaluating the operating
performance of our base business and our sustainability once the
integration is completed.
Store Closure and Consolidation
Expenses - Store closure and consolidation expenses consist
of expenses associated with our plans to convert and consolidate
the Carquest stores acquired from GPI. The conversion and
consolidation of the Carquest stores is a multi-year process that
began in 2014. As of April 21, 2018, 348 Carquest stores
acquired from GPI had been consolidated into existing Advance Auto
Parts (“AAP”) stores and 423 stores had been converted to the AAP
format. While periodic store closures are common, these closures
represent a major program outside of our typical market evaluation
process. We believe it is useful to provide additional non-GAAP
measures that exclude these costs to provide investors greater
comparability of our base business and core operating performance.
We also continue to have store closures that occur as part of our
normal market evaluation process and have not excluded the expenses
associated with these store closures in computing our non-GAAP
measures.
Transformation Expenses - We expect
to recognize a significant amount of transformation expenses over
the next several years as we transition from integration of our
Advance Auto Parts and Carquest US ("AAP/CQUS") businesses to a
plan that involves a more holistic and integrated transformation of
the entire Company across all four banners, including Worldpac and
Autopart International ("AI"). These expenses will include, but not
be limited to, restructuring costs, third-party professional
services and other significant costs to integrate and streamline
our operating structure across the enterprise. We focused our
initial transformation efforts on our AAP/CQUS field structure in
2017 and are reviewing other areas throughout the Company, such as
supply chain and information technology.
Reconciliation of
Adjusted Net Income and Adjusted EPS:
Sixteen Weeks Ended (in
thousands, except per share data)
April 21, 2018
April 22, 2017 Net income (GAAP) $ 136,727 $
107,960 SG&A adjustments: GPI integration and store
consolidation costs 2,222 12,865 GPI amortization of acquired
intangible assets 11,716 12,279 Transformation expenses 11,880 —
Other income adjustment (a) — (8,375 ) Provision for income taxes
on adjustments (b) (6,454 ) (6,372 ) Adjusted net income (Non-GAAP)
$ 156,091 $ 118,357 Diluted earnings per share
(GAAP) $ 1.84 $ 1.46 Adjustments, net of tax 0.26 0.14
Adjusted EPS (Non-GAAP) $ 2.10 $ 1.60
(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
Adjusted Selling, General and Administrative
Expenses:
Sixteen Weeks Ended (in
thousands)
April 21, 2018 April 22,
2017 SG&A (GAAP) $ 1,074,043 $ 1,090,904 SG&A
adjustments (25,818 ) (25,144 ) Adjusted SG&A (Non-GAAP) $
1,048,225 $ 1,065,760
Reconciliation of
Adjusted Operating Income:
Sixteen Weeks Ended (in thousands)
April 21, 2018 April 22, 2017 Operating
income (GAAP) $ 198,241 $ 179,780 SG&A adjustments 25,818
25,144 Adjusted operating income (Non-GAAP) $ 224,059
$ 204,924
Reconciliation of
Free Cash Flow:
Sixteen Weeks Ended (In thousands)
April
21, 2018 April 22, 2017 Cash flows from
operating activities $ 153,970 $ 35,081 Purchases of property and
equipment (34,474 ) (65,279 ) Free cash flow $ 119,496 $
(30,198 )
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:
Four Quarters Ended (In thousands, except
adjusted debt to adjusted EBITDAR ratio)
April 21,
2018 December 30, 2017 Total debt $ 1,044,930
$ 1,044,677 Add: Capitalized lease obligations (six times rent
expense) 3,211,878 3,189,756 Adjusted debt 4,256,808
4,234,433 Operating income 588,673 570,212 Add: Adjustments
(a) 77,869 76,632 Depreciation and amortization 243,522
249,260 Adjusted EBITDA 910,064 896,104 Rent expense (less
favorable lease amortization of $1,260 and $1,864) 535,313 531,626
Share-based compensation 30,535 35,267 Adjusted EBITDAR $
1,475,912 $ 1,462,997
Adjusted Debt to Adjusted
EBITDAR 2.9 2.9
(a)
The adjustments to the four quarters ended
April 21, 2018 include General Parts integration, store
consolidation costs and transformation expenses of $77.9 million.
The adjustments to the four quarters ended December 30, 2017
include General Parts integration and store consolidation costs of
$76.6 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:
During the sixteen weeks ended April 21, 2018, 7 stores and
branches were opened and 15 were closed or consolidated, resulting
in a total of 5,175 stores and branches as of April 21, 2018,
compared to a total of 5,183 stores and branches as of
December 30, 2017.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180522005309/en/
Advance Auto Parts, Inc.Investor Relations
Contact:Elisabeth Eisleben,
919-227-5466invrelations@advanceautoparts.comorMedia
Contact:Kevin Nash, 866-463-4512kevin.nash@advance-auto.com
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