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, announced its
financial results for the fourth quarter and full year ended
December 30, 2023.
“As we closed out 2023, we continued to act with a sense of
urgency to stabilize the business and position the company to
return to profitable growth,” said Shane O'Kelly, president and
chief executive officer. “Our full year results are well below our
expectations, and we are focused on instilling greater discipline
and accountability both in the fundamental business and in how the
organization executes across the board. In addition to the
operational improvements we are implementing, we are strengthening
internal controls and enhancing the quality of our accounting
information to help better inform how we drive the business
forward.
“We continue to advance our ongoing operational and strategic
review of the business, including the separate sales processes for
Worldpac and our Canadian business. We have streamlined and
reorganized the company’s leadership structure and have made
several important new hires, including the appointments of Ryan
Grimsland as Chief Financial Officer and Elizabeth Dreyer as Chief
Accounting Officer. Building on the $150 million in annualized
SG&A reductions our team executed in the fourth quarter, we
recently launched an initiative to eliminate costs related to our
indirect spend by an additional $50 million on an annualized basis.
We are also moving forward with the consolidation of our supply
chain to a single, unified network to create efficiencies and
better serve customers. Looking ahead, we are committed to driving
enhanced value for shareholders by executing on the fundamentals of
our business – focusing on the customer, investing in our frontline
and strengthening our competitive position.”
Fourth Quarter and Full Year 2023 Results (1)
Fourth quarter 2023 Net sales totaled $2.5 billion, a 0.4%
decrease compared with the prior year. Comparable store sales for
the fourth quarter 2023 decreased 1.4%. For full year 2023, Net
sales of $11.3 billion increased 1.2% from 2022. Comparable store
sales for the full year decreased 0.3%.
The company's Gross profit decreased 11.9% from the fourth
quarter of the prior year to $950.8 million or 38.6% of Net sales
compared with 43.6% in the prior year quarter. This result reflects
both business performance and atypical drivers, primarily
attributable to a change in inventory related items and elevated
supply chain costs. The company's full year Gross profit was $4.5
billion, or 40.1% of Net sales, representing a 414 basis points
decrease from the prior year primarily driven by inventory related
items and costs not fully covered by pricing actions.
The company's SG&A was $999.4 million in the fourth quarter,
or 40.6% of Net sales compared with 38.8% for the prior year
quarter. This was primarily driven by a year over year increase in
occupancy costs and store labor. The company's full year SG&A
was $4.4 billion, or 39.1% of Net sales compared with 38.2% in the
prior year.
The company's fourth quarter Operating loss was $48.6 million,
or (2.0)% of Net sales compared with the fourth quarter of the
prior year Operating income of $119.3 million or 4.8% of Net sales.
The company's full year Operating income was $114.4 million, or
1.0% of Net sales, compared with $670.3 million, or 6.0% of Net
sales, in the prior year.
The company's effective tax rate in the fourth quarter of 2023
was 42.3%. The company's Diluted loss per share was $0.59 compared
with Diluted earnings per share of $1.39 in the fourth quarter of
the prior year. The company's effective tax rate for full year 2023
was 6.6%. The company's 2023 Diluted earnings per share was $0.50
compared with $7.65 in the prior year.
Net cash provided by operating activities was $0.3 billion for
the full year 2023 versus $0.7 billion for the prior year. The
decrease was primarily driven by lower Net income and working
capital. Free cash flow for the full year 2023 was $43.7 million,
compared with $312.5 million for the prior year.
During management’s review, the company identified issues with
certain previously reported financials. All comparisons are based
on the corrected historical results as depicted in the financial
tables herein, which include the correction of non-material errors
in previously reported results.
The company filed a Form 12b-25 with the Securities and Exchange
Commission and disclosed that it expects to file its Form 10-K
prior to the expiration of the extension period.
(1) All comparisons are based on the same time period in the
prior year. Comparable store sales include locations open for 13
complete accounting periods and excludes sales to independently
owned Carquest locations.
Capital Allocation
On February 13, 2024, the company declared a regular cash
dividend of $0.25 per share to be paid on April 26, 2024 to all
common stockholders of record as of April 12, 2024.
Subsequent Events
On February 26, 2024, the company entered into an amendment to
its revolving credit facility to enable certain addbacks to
financial covenants for specific write-downs of inventory and
vendor receivables. As of December 30, 2023, considering the
amendment, the company was in compliance with the credit facility’s
financial covenants.
Full Year 2024 Guidance (1)
"In 2024, we are refining our operational improvement plans and
building on the decisive actions we have taken to turn around the
company’s performance. We are committed to improving overall
productivity and taking a disciplined approach to reducing
expenses, which will support our focus on investing in our team
members. Our 2024 full year guidance is reflective of the steps we
must take to reset the business and solidify our foundation for the
long term," said Ryan Grimsland, executive vice president and chief
financial officer.
2024
($ in millions, except per share data)
Low
High
Net sales
$
11,300
$
11,400
Comparable store sales (2)
0.0
%
1.0
%
Operating income margin
3.2
%
3.5
%
Diluted EPS
$
3.75
$
4.25
Capital expenditures
$
200
$
250
Free cash flow (3)
Minimum $250
(1)
The company is providing guidance as of
February 28, 2024, which does not reflect any potential future
acquisitions, dispositions or share repurchases.
(2)
Comparable store sales include locations
open for 13 complete accounting periods and excludes sales to
independently owned Carquest locations.
(3)
Free cash flow is a non-GAAP measure. For
a better understanding of the company's adjusted results, refer to
the reconciliation of non-GAAP adjustment in the accompanying
financial tables included herein.
Investor Conference Call
The company will detail its results for the fourth quarter and
full year 2023 via a webcast scheduled to begin at 8 a.m. Eastern
Time on Wednesday, February 28, 2024. The webcast will be
accessible via the Investor Relations page of the company's website
(ir.AdvanceAutoParts.com).
To join by phone, please pre-register online for dial-in and
passcode information. Upon registering, participants will receive a
confirmation with call details and a registrant ID. While
registration is open through the live call, the company suggests
registering a minimum 10 minutes before the start of the call. A
replay of the conference call will be available on the company's
Investor Relations 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 30, 2023, Advance operated
4,786 stores and 321 Worldpac branches primarily within the United
States, with additional locations in Canada, Puerto Rico and the
U.S. Virgin Islands. The company also served 1,245 independently
owned Carquest branded stores across these locations in addition to
Mexico and various Caribbean 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 herein are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are usually identifiable by
words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “forecast,” “guidance,” “intend,” “likely,” “may,”
“plan,” “position,” “possible,” “potential,” “probable,” “project,”
“should,” “strategy,” “will,” or similar language. All statements
other than statements of historical fact are forward-looking
statements, including, but not limited to, statements about our
strategic initiatives, operational plans and objectives, our
ability to complete the potential divestiture of Worldpac and the
company’s Canada business, the timing of the filing of our Annual
Report on Form 10-K, improvements to our internal controls and
expectations for economic conditions, future business results and
future financial performance, as well as statements regarding
underlying assumptions related thereto. Forward-looking statements
reflect our views based on historical results, current information
and assumptions related to future developments. Except as may be
required by law, the company undertakes no obligation to update any
forward-looking statements made herein. Forward-looking statements
are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those projected or implied
by the forward-looking statements. They include, among others,
factors related to the company’s leadership transition, the timing
and implementation of our initiatives, our potential divestiture of
Worldpac and the company's Canada business, our ability to hire,
train and retain qualified employees, deterioration of general
macroeconomic conditions, the highly competitive nature of our
industry, demand for our products and services, complexities in our
inventory and supply chain and challenges with transforming and
growing our business. Please refer to “Item 1A. Risk Factors” of
our most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission (“SEC”), as updated by our
subsequent filings with the SEC, for a description of these and
other risks and uncertainties that could cause actual results to
differ materially from those projected or implied by the
forward-looking statements.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
(unaudited)
December 30, 2023 (1)
December 31, 2022
(1,2)
Assets
Current assets:
Cash and cash equivalents
$
503,471
$
270,805
Receivables, net
800,141
684,048
Inventories
4,857,702
4,896,269
Other current assets
215,707
163,695
Total current assets
6,377,021
6,014,817
Property and equipment, net
1,648,546
1,690,139
Operating lease right-of-use assets
2,578,776
2,607,690
Goodwill
991,743
990,471
Other intangible assets, net
593,341
620,901
Other assets
86,899
62,429
Total assets
$
12,276,326
$
11,986,447
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable
$
4,177,974
$
4,178,907
Accrued expenses
671,237
629,464
Current portion of long-term debt
—
185,000
Other current liabilities
458,194
427,480
Total current liabilities
5,307,405
5,420,851
Long-term debt
1,786,361
1,188,283
Non-current operating lease
liabilities
2,215,766
2,278,318
Deferred income taxes
362,542
410,749
Other long-term liabilities
84,524
89,054
Total stockholders' equity
2,519,728
2,599,192
Total liabilities and stockholders’
equity
$
12,276,326
$
11,986,447
(1)
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”).
(2)
The fifty-two weeks ended December 31,
2022 reflect the corrected results as depicted in the financial
tables herein, which include the correction of non-material errors
the company discovered in previously reported results.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per share
data)
(unaudited)
Twelve Weeks Ended
Twelve Weeks Ended
Fifty-Two Weeks Ended
Fifty-Two Weeks Ended
December 30, 2023 (1)
December 31, 2022
(1,2)
December 30, 2023 (1)
December 31, 2022
(1,2)
Net sales
$
2,464,869
$
2,473,745
$
11,287,607
$
11,154,722
Cost of sales
1,514,028
1,394,853
6,764,105
6,222,487
Gross profit
950,841
1,078,892
4,523,502
4,932,235
Selling, general and administrative
expenses
999,407
959,583
4,409,125
4,261,982
Operating (loss) income
(48,566
)
119,309
114,377
670,253
Other, net:
Interest expense
(18,062
)
(15,946
)
(88,055
)
(51,060
)
Loss on early redemptions of senior
unsecured notes
—
—
—
(7,408
)
Other income (expense), net
5,731
(2,141
)
5,525
(7,423
)
Total other, net
(12,331
)
(18,087
)
(82,530
)
(65,891
)
(Loss) Income before provision for
income taxes
(60,897
)
101,222
31,847
604,362
Provision for income taxes
(25,770
)
18,318
2,112
139,960
Net (loss) income
$
(35,127
)
$
82,904
$
29,735
$
464,402
Basic (loss) earnings per common
share
$
(0.59
)
$
1.40
$
0.50
$
7.70
Weighted average common shares
outstanding
59,504
59,333
59,432
60,351
Diluted (loss) earnings per common
share
$
(0.59
)
$
1.39
$
0.50
$
7.65
Weighted average common shares
outstanding
59,675
59,623
59,608
60,717
(1)
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.
(2)
The twelve weeks ended December 31, 2022
and fifty-two weeks ended December 31, 2022 reflect the corrected
results as depicted in the financial tables herein, which include
the correction of non-material errors the company discovered in
previously reported results.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Fifty-Two Weeks Ended
December 30, 2023 (1)
December 31, 2022
(1,2)
Cash flows from operating
activities:
Net income
$
29,735
$
464,402
Depreciation and amortization
306,454
283,800
Share-based compensation
45,647
50,978
Loss on early redemption of senior
unsecured notes
—
7,408
Provision for deferred income taxes
(47,782
)
16,528
Other, net
2,813
6,168
Net change in:
Receivables, net
(114,665
)
67,147
Inventories
44,821
(229,643
)
Accounts payable
(4,645
)
227,774
Accrued expenses
115,673
(167,723
)
Other assets and liabilities, net
(91,987
)
9,732
Net cash provided by operating
activities
286,064
736,571
Cash flows from investing
activities:
Purchases of property and equipment
(242,411
)
(424,061
)
Purchase of intangible asset
—
(1,900
)
Proceeds from sales of property and
equipment
6,922
1,513
Net cash used in investing activities
(235,489
)
(424,448
)
Cash flows from financing
activities:
Payments on senior unsecured notes
—
(201,081
)
Borrowings under credit facilities
4,805,000
2,035,000
Payments on credit facilities
(4,990,000
)
(1,850,000
)
Proceeds from issuance of senior unsecured
notes, net
599,571
348,618
Dividends paid
(209,293
)
(336,230
)
Repurchases of common stock
(14,518
)
(618,480
)
Other, net
(182
)
1,469
Net cash provided by (used in) financing
activities
190,578
(620,704
)
Effect of exchange rate changes on
cash
(8,487
)
(8,664
)
Net increase (decrease) in cash and
cash equivalents
232,666
(317,245
)
Cash and cash equivalents,
beginning of period
270,805
588,050
Cash and cash equivalents, end of
period
$
503,471
$
270,805
(1)
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.
(2)
The fifty-two weeks ended December 31,
2022 reflect the corrected results as depicted in the financial
tables herein, which include the correction of the non-material
errors the company discovered in previously reported results.
Restatement of Previously Issued
Financial Statements
In connection with the preparation of the financial statements
for the fourth quarter of 2023, the company identified additional
errors primarily impacting cost of sales and selling, general and
administrative costs. The company evaluated the errors and
determined that the related impacts were not material to the
previously issued consolidated financial statements for any prior
period. A summary of the corrections to the impacted financial
statement line items in our Consolidated Balance Sheet as of
December 31, 2022 and our Consolidated Statements of Operations for
the and Consolidated Statement of Cash Flows for the year ended
December 31, 2022 included in our previously filed Annual Report on
Form 10-K and our Consolidated Statements of Operations for the
twelve weeks ended December 31, 2022 included in our previously
filed Form 8-K and earnings release are presented below:
Condensed Consolidated Balance
Sheet
December 31, 2022
As Previously Reported
Adjustments
As Corrected
Assets
Cash and cash equivalents
$
269,282
$
1,523
$
270,805
Receivables, net
698,613
(14,565
)
684,048
Inventories, net
4,915,262
(18,993
)
4,896,269
Total current assets
6,046,852
(32,035
)
6,014,817
Total assets
$
12,018,482
$
(32,035
)
$
11,986,447
Liabilities and
Stockholders’ Equity
Accounts payable
$
4,123,462
$
55,445
$
4,178,907
Accrued expenses
634,447
(4,983
)
629,464
Total current liabilities
5,370,389
50,462
5,420,851
Deferred income taxes
415,997
(5,248
)
410,749
Other long-term liabilities
87,214
1,840
89,054
Total liabilities
9,340,201
47,054
9,387,255
Accumulated other comprehensive loss
(45,143
)
448
(44,695
)
Retained earnings
4,744,624
(79,537
)
4,665,087
Total stockholders’ equity
2,678,281
(79,089
)
2,599,192
Total liabilities and stockholders’
equity
$
12,018,482
$
(32,035
)
$
11,986,447
Condensed Consolidated
Statement of Operations
December 31, 2022
Twelve Weeks Ended
Fifty-Two Weeks Ended
As Previously
Reported
Adjustments
As
Corrected
As Previously
Reported
Adjustments
As
Corrected
Cost of sales
$
1,383,734
$
11,119
$
1,394,853
$
6,192,622
$
29,865
$
6,222,487
Gross profit
1,090,011
(11,119
)
1,078,892
4,962,100
(29,865
)
4,932,235
Selling, general and administrative
expenses
958,009
1,574
959,583
4,247,949
14,033
4,261,982
Operating income
132,002
(12,693
)
119,309
714,151
(43,898
)
670,253
Other (expense) income, net
11,320
(13,461
)
(2,141
)
(6,996
)
(427
)
(7,423
)
Total other, net
(4,626
)
(13,461
)
(18,087
)
(65,464
)
(427
)
(65,891
)
Income before provision for income
taxes
127,376
(26,154
)
101,222
648,687
(44,325
)
604,362
Provision for income taxes
20,679
(2,361
)
18,318
(146,815
)
6,855
(139,960
)
Net income
$
106,697
$
(23,793
)
$
82,904
$
501,872
$
(37,470
)
$
464,402
Basic earnings per share
$
1.80
$
(0.40
)
$
1.40
$
8.32
$
(0.62
)
$
7.70
Diluted earnings per common share
$
1.79
$
(0.40
)
$
1.39
$
8.27
$
(0.62
)
$
7.65
Condensed Consolidated
Statement of Cash Flows
Fifty-Two Weeks Ended December
31, 2022
As Previously Reported
Adjustments
As Corrected
Net income
$
501,872
$
(37,470
)
$
464,402
Provision for deferred income taxes
6,338
10,190
16,528
Net change in:
Receivables, net
81,254
(14,107
)
67,147
Inventories, net
(272,253
)
42,610
(229,643
)
Accounts payable
212,568
15,206
227,774
Accrued expenses
(165,643
)
(2,080
)
(167,723
)
Net cash provided by operating
activities
722,222
14,349
736,571
Effect of exchange rate changes on
cash
(9,216
)
552
(8,664
)
Net (decrease) increase in cash and cash
equivalents
(332,146
)
14,901
(317,245
)
Cash and cash equivalents, beginning of
period
601,428
(13,378
)
588,050
Cash and cash equivalents, end of
period
$
269,282
$
1,523
$
270,805
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”).
Management uses Free cash flow as a measure of its liquidity and
believes it is a useful indicator for 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.
Reconciliation of
Free Cash Flow:(1)
Fifty-Two Weeks Ended
(in thousands)
December 30, 2023
December 31, 2022
Cash flows from operating activities
$
286,064
$
736,571
Purchases of property and equipment
(242,411
)
(424,061
)
Free cash flow
$
43,653
$
312,510
Adjusted Debt to
Adjusted EBITDAR Ratio: (1)
Four Quarters Ended
(in thousands, except adjusted debt to
adjusted EBITDAR ratio)
December 30, 2023
December 31, 2022
Total GAAP debt
$
1,786,361
$
1,373,283
Add: Operating lease liabilities
2,660,827
2,692,861
Adjusted debt
$
4,447,188
$
4,066,144
GAAP Net income
$
29,735
$
464,402
Depreciation and amortization
306,454
283,800
Interest expense
88,055
51,060
Other expense (income), net
(5,525
)
7,423
Provision for income taxes
2,112
139,960
Rent expense
613,859
594,838
Share-based compensation
45,647
50,978
Other nonrecurring charges(2)
12,419
7,408
Transformation related charges
29,719
37,083
Adjusted EBITDAR
$
1,122,475
$
1,636,952
Adjusted debt to adjusted EBITDAR
ratio
4.0
2.5
(1)
The fifty-two weeks ended December 31, 2022 reflect the
corrected results as depicted in the financial tables herein, which
include the correction of non-material errors the company
discovered in previously reported results.
(2)
The adjustments to the four quarters ended
December 30, 2023 include expenses associated with our remediation
efforts and executive search charges and the adjustments to the
four quarters ended December 31, 2022 represent charges incurred
resulting from the early redemption of the company's 2023 senior
unsecured notes.
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 an 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 30, 2023, 61 stores
and branches were opened and 40 were closed or consolidated,
resulting in a total of 5,107 stores and branches as of December
30, 2023, compared with a total of 5,086 stores and branches as of
December 31, 2022.
The below table summarizes the changes in the number of
company-operated stores and branches during the twelve and
fifty-two weeks ended December 30, 2023:
Twelve Weeks Ended
AAP
CARQUEST
WORLDPAC (1)
Total
October 7, 2023
4,477
308
320
5,105
New
9
—
1
10
Closed
(3
)
(5
)
—
(8
)
Relocated
1
(1
)
—
—
December 30, 2023
4,484
302
321
5,107
Fifty-Two Weeks Ended
AAP
CARQUEST
WORLDPAC (1)
Total
December 31, 2022
4,440
330
316
5,086
New
55
1
5
61
Closed
(13
)
(27
)
—
(40
)
Relocated
2
(2
)
—
—
December 30, 2023
4,484
302
321
5,107
(1)
Certain converted Autopart International
(AI) locations will remain branded as AI going forward.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240227515136/en/
Investor Relations Contact: Elisabeth Eisleben T: (919)
227-5466 E: invrelations@advanceautoparts.com Media Contact:
Darryl Carr T: (984) 389-7207 E: darryl.carr@advance-auto.com
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