Net Sales Increased 2.7% to $3.0B; Comparable
Store Sales Increased 2.7%Operating Income Increased 4.9% to
$207.9M; Adjusted Operating Income Increased 8.7% to $243.6M
Diluted EPS Increased 7.6% to $1.98; Adjusted
Diluted EPS Increased 17.1% to $2.46Operating Cash Flow Increased
32.8% to $204.5M; Free Cash Flow Increased 19.9% to $143.2M
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 20, 2019.
"We delivered our fourth consecutive quarter of increased top
line sales and gross profit expansion," said Tom Greco, President
and Chief Executive Officer. "Our free cash flow improved by nearly
20% as a result of our continued disciplined approach to cash
management. The early progress against our strategic transformation
agenda is becoming more evident throughout our culture and in our
improving results. We saw positive improvement in our comp sales
performance while we continue to drive margin expansion. Despite
inflationary headwinds, our team’s diligent efforts on operational
improvement to reduce costs is evident in our first quarter
SG&A results where we continued to leverage store labor in the
quarter and further reduce insurance and claims expense through
improved safety initiatives. I am confident our more than 70,000
Team Members will enable continued success for AAP throughout 2019
and beyond through their focus and commitment to our Mission,
Passion for Customers…Passion for Yes!"
First Quarter Highlights
- Net sales increased 2.7% to $3.0B;
Comparable store sales (a) increased 2.7%
- Operating income increased 4.9% to
$207.9M; Operating income margin expansion of 15 bps to 7.0%
- Adjusted operating income (a) increased
8.7% to $243.6M; Adjusted operating income margin expansion of 46
bps to 8.3%
- Diluted EPS increased 7.6% to $1.98;
Adjusted Diluted EPS (a) increased 17.1% to $2.46
(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.
First Quarter 2019 Highlights
Net sales for the first quarter of 2019 were $3.0 billion, a
2.7% increase versus the first quarter of the prior year.
Comparable store sales for the first quarter of 2019 increased
2.7%.
Adjusted gross profit margin was 44.6% of Net sales in the first
quarter of 2019, a 37 basis point increase from the first quarter
of 2018. The increase was primarily driven by favorable product
margin and improved inventory management, partially offset by
supply chain headwinds due to planned wage investments. The
Company's GAAP Gross profit margin decreased to 44.2% from 44.3% in
the first quarter of the prior year.
Adjusted SG&A was 36.4% of Net sales in the first quarter of
2019, an improvement of 8 basis points as compared to the first
quarter of 2018. The improvement was driven by leveraging store
labor and lower insurance and claims expenses, which were partially
offset by an increase in professional fees related to investments
in IT infrastructure. The Company's GAAP SG&A of 37.2% of Net
sales improved from 37.4% in the same quarter of the prior
year.
The Company's Adjusted operating income was $243.6 million in
the first quarter of 2019, an increase of 8.7% versus the first
quarter of the prior year. Adjusted operating income margin
improved to 8.3% of Net sales for the first quarter, an increase of
46 basis points compared to the first quarter of the prior year. On
a GAAP basis, the Company's Operating income was $207.9 million,
7.0% of Net sales, an increase of 15 basis points from the first
quarter of 2018.
The Company's effective tax rate in the first quarter of 2019
was 25.3%, compared to 24.5% in the first quarter of the prior
year. The Company's Adjusted Diluted EPS was $2.46 for the first
quarter of 2019, an increase of 17.1% compared to the first quarter
of the prior year. On a GAAP basis, the Company's Diluted EPS
increased 7.6% to $1.98.
Operating cash flow was $204.5 million in the first quarter of
2019 versus $154.0 million in the same period of the prior year, an
increase of 32.8%. Free cash flow in the first quarter of 2019 was
$143.2 million, an increase of 19.9% compared to the same period of
the prior year.
2019 Full Year Guidance
Full Year 2019 ($ in millions)
Low
High Net sales $ 9,650 $ 9,800 Comparable
store sales 1.0 % 2.5 % Adjusted operating income margin (a) 8.0 %
8.4 % Income tax rate 24 % 26 % Transformation expenses (a) $ 80 $
100 Capital expenditures $ 250 $ 300 Free cash flow (a) Minimum
$650
(a)
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 2019 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 August 8, 2018, the Company's Board of Directors authorized a
$600 million share repurchase program. Under this program, the
Company repurchased 0.8 million shares of its common stock for
$127.2 million during the first quarter. At the end of the first
quarter of 2019, the Company had $200 million remaining under the
share repurchase program.
On May 14, 2019, the Company's Board of Directors declared
a regular quarterly cash dividend of $0.06 per share to be paid on
July 5, 2019 to all common shareholders of record as of
June 21, 2019.
On February 28, 2019, the Company redeemed all of the $300.0
million aggregate principal amount of its outstanding 2020 senior
unsecured notes. 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 the 2020 senior
unsecured notes.
Investor Conference Call
The Company will discuss its results for the first quarter of
2019 via a webcast scheduled to begin at 8 a.m. Eastern Time on
Wednesday, May 22, 2019. 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 1584508. 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 20, 2019, Advance
operated 4,931 stores and 146 Worldpac branches in the United
States, Canada, Puerto Rico and the U.S. Virgin Islands. The
Company also serves 1,238 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 our 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 Report on Form 10-Q and other filings made by the Company
with the Securities and Exchange Commission for additional 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)
April 20, 2019
December 29, 2018
Assets
Current assets: Cash and cash equivalents $ 537,330 $
896,527 Receivables, net 684,419 624,972 Inventories 4,433,981
4,362,547 Other current assets 126,108 198,408 Total
current assets 5,781,838 6,082,454
Property and
equipment, net 1,363,128 1,368,985
Operating lease
right-of-use assets 2,371,362 —
Goodwill 991,240 990,237
Intangible assets, net 527,702 550,593
Other assets
46,241 48,379 $ 11,081,511 $ 9,040,648
Liabilities and
Stockholders' Equity
Current liabilities: Accounts payable $ 3,276,955 $
3,172,790 Accrued expenses 530,277 623,141 Other current
liabilities 491,645 90,019 Total current liabilities
4,298,877 3,885,950
Long-term debt 746,767 1,045,720
Noncurrent operating lease liabilities 2,054,173 —
Deferred income taxes 310,404 318,353
Other long-term
liabilities 124,067 239,812
Total stockholders' equity
3,547,223 3,550,813 $ 11,081,511 $ 9,040,648
NOTE: These preliminary condensed
consolidated balance sheets have been prepared on a basis
consistent with the Company's previously prepared balance sheets
filed with the Securities and Exchange Commission ("SEC"), but do
not include the footnotes required by accounting principles
generally accepted in the United States of America (“GAAP”).
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (in
thousands, except per share data) (unaudited)
Sixteen Weeks Ended April 20, 2019 April
21, 2018 Net sales $ 2,952,036 $ 2,873,848 Cost of
sales, including purchasing and warehousing costs 1,647,424
1,601,564 Gross profit 1,304,612 1,272,284
Selling, general and administrative expenses 1,096,672
1,074,043 Operating income 207,940
198,241 Other, net: Interest expense (14,944 )
(17,682 ) Other (expense) income, net (2,238 ) 458
Total other, net (17,182 ) (17,224 ) Income
before provision for income taxes 190,758 181,017 Provision for
income taxes 48,258 44,290 Net income $
142,500 $ 136,727 Basic earnings per common
share $ 1.99 $ 1.85 Weighted average common shares outstanding
71,787 73,979 Diluted earnings per common share $ 1.98 $
1.84 Weighted average common shares outstanding 72,103 74,205
NOTE: 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 for complete financial statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (in
thousands) (unaudited)
Sixteen Weeks Ended
April 20, 2019 April 21, 2018
Cash flows from operating activities: Net income $ 142,500 $
136,727 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 69,885 71,692
Share-based compensation 10,984 7,642 (Benefit) provision for
deferred income taxes (250 ) 7,340 Other, net 11,473 3,880 Net
change in: Receivables, net (58,757 ) (14,012 ) Inventories (68,742
) (64,369 ) Accounts payable 102,941 (2,948 ) Accrued expenses
(62,751 ) 20,765 Other assets and liabilities, net 57,259
(12,747 ) Net cash provided by operating activities
204,542 153,970
Cash flows from
investing activities: Purchases of property and equipment
(61,312 ) (34,474 ) Proceeds from sales of property and equipment
553 530 Net cash used in investing
activities (60,759 ) (33,944 )
Cash flows from
financing activities: Decrease in bank overdrafts (50,578 )
(12,101 ) Redemption of senior unsecured notes (310,047 ) —
Dividends paid (8,723 ) (8,930 ) Proceeds from the issuance of
common stock 678 754 Tax withholdings related to the exercise of
stock appreciation rights (99 ) (93 ) Repurchases of common stock
(134,291 ) (5,224 ) Other, net (116 ) (1,163 ) Net
cash used in financing activities (503,176 ) (26,757
) Effect of exchange rate changes on cash 196
(1,063 )
Net (decrease) increase in cash and cash
equivalents (359,197 ) 92,206
Cash and cash equivalents,
beginning of period 896,527 546,937
Cash and cash equivalents, end of period $ 537,330 $
639,143
NOTE: These preliminary condensed
consolidated statements of cash flows have been prepared on a
consistent basis with the Company's previously prepared statements
of cash flows filed with the SEC, 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 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 its strategic business plan; (2)
non-operational expenses associated with the integration of General
Parts International ("GPI") and store closure and consolidation;
(3) non-cash charges related to the acquired GPI intangible assets;
and (4) other non-recurring adjustments 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 -
Management expects to recognize a significant amount of
transformation expenses over the next several years as they
transition from integration of the Advance Auto Parts/Carquest
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 not be
limited to, restructuring costs, store closure costs and
third-party professional services and other significant costs to
integrate and streamline our operating structure across the
enterprise. Management 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 represent 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.
Reconciliation of
Adjusted Net Income and Adjusted EPS:
Sixteen Weeks Ended (in thousands, except per
share data)
April 20, 2019 April 21,
2018 Net income (GAAP) $ 142,500 $ 136,727 Cost of sales
adjustments: Transformation expenses 281 — Other adjustment (a)
13,009 — SG&A adjustments: Transformation expenses 13,930
11,880 GPI integration and store closure and consolidation expenses
— 2,222 GPI amortization of acquired intangible assets 8,459 11,716
Other income adjustment (b) 10,756 — Provision for income taxes on
adjustments (c) (11,609 ) (6,454 ) Adjusted net
income (Non-GAAP) $ 177,326 $ 156,091 Diluted
earnings per share (GAAP) $ 1.98 $ 1.84 Adjustments, net of tax
0.48 0.26 Adjusted EPS (Non-GAAP) $
2.46 $ 2.10
Note: Table amounts may not foot due to
rounding.
(a)
During the sixteen weeks ended April 20,
2019, the Company made an out-of-period correction, which increased
Accounts payable and 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:
Sixteen Weeks Ended (in thousands)
April 20, 2019
April 21, 2018 Gross profit (GAAP) $ 1,304,612
$ 1,272,284 Gross profit adjustments 13,290 —
Adjusted gross profit (Non-GAAP) $ 1,317,902 $
1,272,284
Reconciliation of
Adjusted Selling, General and Administrative
Expenses:
Sixteen Weeks Ended (in thousands)
April 20, 2019
April 21, 2018 SG&A (GAAP) $ 1,096,672 $ 1,074,043
SG&A adjustments (22,389 ) (25,818 ) Adjusted
SG&A (Non-GAAP) $ 1,074,283 $ 1,048,225
Reconciliation of
Adjusted Operating Income:
Sixteen Weeks Ended (in thousands)
April 20, 2019
April 21, 2018 Operating income (GAAP) $ 207,940 $ 198,241
Cost of sales and SG&A adjustments 35,679
25,818 Adjusted operating income (Non-GAAP) $ 243,619
$ 224,059
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 reconciliation 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:
Sixteen Weeks Ended (In
thousands)
April 20, 2019 April 21, 2018 Cash flows
from operating activities $ 204,542 $ 153,970 Purchases of property
and equipment (61,312 ) (34,474 ) Free cash flow $
143,230 $ 119,496
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)
April
20, 2019 December 29, 2018 Total debt $ 746,830 $
1,045,930 Add: Operating lease liabilities (a) 2,503,875
2,425,325 Adjusted debt 3,250,705 3,471,255 Operating
income 613,974 604,275 Add: Adjustments (b) 131,742 107,867
Depreciation and amortization 236,377 238,184
Adjusted EBITDA 982,093 950,326 Rent expense 554,960 553,377
Share-based compensation 31,102 27,760 Adjusted
EBITDAR $ 1,568,155 $ 1,531,463
Adjusted Debt to Adjusted
EBITDAR (c) 2.1 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”). As of April 20, 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
April 20, 2019 and December 29, 2018 include GPI integration, store
consolidation costs and transformation 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
April 20, 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 2.6 and
2.9 as of April 20, 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 sixteen weeks ended April 20, 2019, 6 stores and
branches were opened and 38 were closed or consolidated, resulting
in a total of 5,077 stores and branches as of April 20, 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/20190522005242/en/
Investor Relations Contact:Elisabeth EislebenT: (919)
227-5466E: invrelations@advanceautoparts.com
Media Contact:Darryl CarrT: (540) 589-8102E:
darryl.carr@advance-auto.com
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