|
|
|
|
ITEM 1.
|
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
October 5, 2019
|
|
December 29, 2018
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
573,726
|
|
|
$
|
896,527
|
|
|
Receivables, net
|
721,342
|
|
|
624,972
|
|
|
Inventories
|
4,391,093
|
|
|
4,362,547
|
|
|
Other current assets
|
140,487
|
|
|
198,408
|
|
|
Total current assets
|
5,826,648
|
|
|
6,082,454
|
|
|
Property and equipment, net of accumulated depreciation of $2,008,278 and $1,918,502
|
1,389,089
|
|
|
1,368,985
|
|
|
Operating lease right-of-use assets
|
2,335,732
|
|
|
—
|
|
|
Goodwill
|
991,375
|
|
|
990,237
|
|
|
Intangible assets, net
|
514,512
|
|
|
550,593
|
|
|
Other assets
|
49,446
|
|
|
48,379
|
|
|
|
$
|
11,106,802
|
|
|
$
|
9,040,648
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
$
|
3,402,538
|
|
|
$
|
3,172,790
|
|
|
Accrued expenses
|
579,074
|
|
|
623,141
|
|
|
Other current liabilities
|
482,301
|
|
|
90,019
|
|
|
Total current liabilities
|
4,463,913
|
|
|
3,885,950
|
|
|
Long-term debt
|
747,136
|
|
|
1,045,720
|
|
|
Noncurrent operating lease liabilities
|
1,997,721
|
|
|
—
|
|
|
Deferred income taxes
|
318,309
|
|
|
318,353
|
|
|
Other long-term liabilities
|
124,781
|
|
|
239,812
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
Preferred stock, nonvoting, $0.0001 par value
|
—
|
|
|
—
|
|
|
Common stock, voting, $0.0001 par value
|
8
|
|
|
8
|
|
|
Additional paid-in capital
|
725,031
|
|
|
694,797
|
|
|
Treasury stock, at cost
|
(912,335
|
)
|
|
(425,954
|
)
|
|
Accumulated other comprehensive loss
|
(38,862
|
)
|
|
(44,193
|
)
|
|
Retained earnings
|
3,681,100
|
|
|
3,326,155
|
|
|
Total stockholders’ equity
|
3,454,942
|
|
|
3,550,813
|
|
|
|
$
|
11,106,802
|
|
|
$
|
9,040,648
|
|
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
|
October 5, 2019
|
|
October 6, 2018
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Net Sales
|
$
|
2,312,106
|
|
|
$
|
2,274,982
|
|
|
$
|
7,596,389
|
|
|
$
|
7,475,482
|
|
|
Cost of sales, including purchasing and warehousing costs
|
1,300,180
|
|
|
1,268,055
|
|
|
4,270,412
|
|
|
4,184,713
|
|
|
Gross profit
|
1,011,926
|
|
|
1,006,927
|
|
|
3,325,977
|
|
|
3,290,769
|
|
|
Selling, general and administrative expenses
|
839,598
|
|
|
852,686
|
|
|
2,774,936
|
|
|
2,770,747
|
|
|
Operating income
|
172,328
|
|
|
154,241
|
|
|
551,041
|
|
|
520,022
|
|
|
Other, net:
|
|
|
|
|
|
|
|
|
Interest expense
|
(8,443
|
)
|
|
(13,076
|
)
|
|
(32,062
|
)
|
|
(43,613
|
)
|
|
Other (expense) income, net
|
(3,145
|
)
|
|
5,755
|
|
|
(1,272
|
)
|
|
8,998
|
|
|
Total other, net
|
(11,588
|
)
|
|
(7,321
|
)
|
|
(33,334
|
)
|
|
(34,615
|
)
|
|
Income before provision for income taxes
|
160,740
|
|
|
146,920
|
|
|
517,707
|
|
|
485,407
|
|
|
Provision for income taxes
|
37,071
|
|
|
31,077
|
|
|
126,718
|
|
|
115,002
|
|
|
Net income
|
$
|
123,669
|
|
|
$
|
115,843
|
|
|
$
|
390,989
|
|
|
$
|
370,405
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
1.76
|
|
|
$
|
1.57
|
|
|
$
|
5.48
|
|
|
$
|
5.01
|
|
|
Weighted average common shares outstanding
|
70,381
|
|
|
73,888
|
|
|
71,351
|
|
|
73,974
|
|
|
Diluted earnings per common share
|
$
|
1.75
|
|
|
$
|
1.56
|
|
|
$
|
5.46
|
|
|
$
|
4.99
|
|
|
Weighted average common shares outstanding
|
70,664
|
|
|
74,190
|
|
|
71,643
|
|
|
74,212
|
|
Condensed Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
|
October 5, 2019
|
|
October 6, 2018
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Net income
|
$
|
123,669
|
|
|
$
|
115,843
|
|
|
$
|
390,989
|
|
|
$
|
370,405
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Changes in net unrecognized other postretirement costs, net of tax of $32, $24, $40 and $80
|
(92
|
)
|
|
(69
|
)
|
|
(66
|
)
|
|
(227
|
)
|
|
Currency translation adjustments
|
(5,289
|
)
|
|
3,900
|
|
|
5,397
|
|
|
(6,902
|
)
|
|
Total other comprehensive (loss) income
|
(5,381
|
)
|
|
3,831
|
|
|
5,331
|
|
|
(7,129
|
)
|
|
Comprehensive income
|
$
|
118,288
|
|
|
$
|
119,674
|
|
|
$
|
396,320
|
|
|
$
|
363,276
|
|
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except per share data) (Unaudited)
|
|
|
|
|
|
Twelve Weeks Ended October 5, 2019
|
|
|
Common Stock
|
|
Additional
Paid-in Capital
|
|
Treasury Stock, at Cost
|
|
Accumulated Other
Comprehensive Loss
|
|
Retained Earnings
|
|
Total
Stockholders’ Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
Balance, July 13, 2019
|
71,697
|
|
|
$
|
8
|
|
|
$
|
715,747
|
|
|
$
|
(572,592
|
)
|
|
$
|
(33,481
|
)
|
|
$
|
3,561,620
|
|
|
$
|
3,671,302
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123,669
|
|
|
123,669
|
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,381
|
)
|
|
—
|
|
|
(5,381
|
)
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
Restricted stock units and deferred stock units vested
|
22
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
8,613
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,613
|
|
|
Stock issued under employee stock purchase plan
|
5
|
|
|
—
|
|
|
710
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
710
|
|
|
Repurchases of common stock
|
(2,449
|
)
|
|
—
|
|
|
—
|
|
|
(339,743
|
)
|
|
—
|
|
|
—
|
|
|
(339,743
|
)
|
|
Cash dividends declared ($0.06 per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,189
|
)
|
|
(4,189
|
)
|
|
Balance, October 5, 2019
|
69,275
|
|
|
$
|
8
|
|
|
$
|
725,031
|
|
|
$
|
(912,335
|
)
|
|
$
|
(38,862
|
)
|
|
$
|
3,681,100
|
|
|
$
|
3,454,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended October 6, 2018
|
|
|
Common Stock
|
|
Additional
Paid-in Capital
|
|
Treasury Stock, at Cost
|
|
Accumulated Other
Comprehensive Loss
|
|
Retained Earnings
|
|
Total
Stockholders’ Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
Balance, July 14, 2018
|
74,081
|
|
|
$
|
8
|
|
|
$
|
678,416
|
|
|
$
|
(150,257
|
)
|
|
$
|
(35,914
|
)
|
|
$
|
3,165,697
|
|
|
$
|
3,657,950
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
115,843
|
|
|
115,843
|
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,831
|
|
|
—
|
|
|
3,831
|
|
|
Issuance of shares upon the exercise of stock appreciation rights
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
Restricted stock units and deferred stock units vested
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
|
|
6,852
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,852
|
|
|
Stock issued under employee stock purchase plan
|
4
|
|
|
—
|
|
|
593
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
593
|
|
|
Repurchases of common stock
|
(726
|
)
|
|
—
|
|
|
—
|
|
|
(120,825
|
)
|
|
—
|
|
|
—
|
|
|
(120,825
|
)
|
|
Cash dividends declared ($0.06 per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,422
|
)
|
|
(4,422
|
)
|
|
Balance, October 6, 2018
|
73,378
|
|
|
$
|
8
|
|
|
$
|
685,675
|
|
|
$
|
(271,082
|
)
|
|
$
|
(32,083
|
)
|
|
$
|
3,277,118
|
|
|
$
|
3,659,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forty Weeks Ended October 5, 2019
|
|
|
Common Stock
|
|
Additional
Paid-in Capital
|
|
Treasury Stock, at Cost
|
|
Accumulated Other
Comprehensive Loss
|
|
Retained Earnings
|
|
Total
Stockholders’ Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance, December 29, 2018
|
72,460
|
|
|
$
|
8
|
|
|
$
|
694,797
|
|
|
$
|
(425,954
|
)
|
|
$
|
(44,193
|
)
|
|
$
|
3,326,155
|
|
|
$
|
3,550,813
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
390,989
|
|
|
390,989
|
|
|
Cumulative effect of accounting change from adoption of ASU 2016-02, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,165
|
)
|
|
(23,165
|
)
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,331
|
|
|
—
|
|
|
5,331
|
|
|
Issuance of shares upon the exercise of stock appreciation rights
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
—
|
|
|
—
|
|
|
(162
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(162
|
)
|
|
Restricted stock units and deferred stock units vested
|
167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
28,038
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,038
|
|
|
Stock issued under employee stock purchase plan
|
16
|
|
|
—
|
|
|
2,358
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,358
|
|
|
Repurchases of common stock
|
(3,370
|
)
|
|
—
|
|
|
—
|
|
|
(486,381
|
)
|
|
—
|
|
|
—
|
|
|
(486,381
|
)
|
|
Cash dividends declared ($0.18 per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,879
|
)
|
|
(12,879
|
)
|
|
Balance, October 5, 2019
|
69,275
|
|
|
$
|
8
|
|
|
$
|
725,031
|
|
|
$
|
(912,335
|
)
|
|
$
|
(38,862
|
)
|
|
$
|
3,681,100
|
|
|
$
|
3,454,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forty Weeks Ended October 6, 2018
|
|
|
Common Stock
|
|
Additional
Paid-in Capital
|
|
Treasury Stock, at Cost
|
|
Accumulated Other
Comprehensive Loss
|
|
Retained Earnings
|
|
Total
Stockholders’ Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance, December 30, 2017
|
73,936
|
|
|
$
|
8
|
|
|
$
|
664,646
|
|
|
$
|
(144,600
|
)
|
|
$
|
(24,954
|
)
|
|
$
|
2,920,096
|
|
|
$
|
3,415,196
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
370,405
|
|
|
370,405
|
|
|
Total other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,129
|
)
|
|
—
|
|
|
(7,129
|
)
|
|
Issuance of shares upon the exercise of stock appreciation rights
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
—
|
|
|
—
|
|
|
(490
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(490
|
)
|
|
Restricted stock units and deferred stock units vested
|
179
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
|
|
19,265
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,265
|
|
|
Stock issued under employee stock purchase plan
|
29
|
|
|
—
|
|
|
2,290
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,290
|
|
|
Repurchases of common stock
|
(774
|
)
|
|
—
|
|
|
—
|
|
|
(126,482
|
)
|
|
—
|
|
|
—
|
|
|
(126,482
|
)
|
|
Cash dividends declared ($0.18 per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,383
|
)
|
|
(13,383
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
Balance, October 6, 2018
|
73,378
|
|
|
$
|
8
|
|
|
$
|
685,675
|
|
|
$
|
(271,082
|
)
|
|
$
|
(32,083
|
)
|
|
$
|
3,277,118
|
|
|
$
|
3,659,636
|
|
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forty Weeks Ended
|
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
$
|
390,989
|
|
|
$
|
370,405
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
179,565
|
|
|
183,584
|
|
|
Share-based compensation
|
28,038
|
|
|
19,265
|
|
|
Loss and impairment of long-lived assets
|
4,413
|
|
|
6,267
|
|
|
Provision for deferred income taxes
|
7,653
|
|
|
17,029
|
|
|
Other
|
12,084
|
|
|
1,686
|
|
|
Net change in:
|
|
|
|
|
Receivables, net
|
(95,280
|
)
|
|
(93,595
|
)
|
|
Inventories
|
(24,985
|
)
|
|
(22,862
|
)
|
|
Accounts payable
|
227,822
|
|
|
131,572
|
|
|
Accrued expenses
|
(29,672
|
)
|
|
122,779
|
|
|
Other assets and liabilities, net
|
7,919
|
|
|
(54,627
|
)
|
|
Net cash provided by operating activities
|
708,546
|
|
|
681,503
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchases of property and equipment
|
(169,224
|
)
|
|
(105,132
|
)
|
|
Proceeds from sales of property and equipment
|
8,714
|
|
|
1,450
|
|
|
Net cash used in investing activities
|
(160,510
|
)
|
|
(103,682
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Decrease in bank overdrafts
|
(59,351
|
)
|
|
(11,973
|
)
|
|
Redemption of senior unsecured notes
|
(310,047
|
)
|
|
—
|
|
|
Dividends paid
|
(17,185
|
)
|
|
(17,819
|
)
|
|
Proceeds from the issuance of common stock
|
2,358
|
|
|
2,290
|
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
(162
|
)
|
|
(490
|
)
|
|
Repurchases of common stock
|
(486,381
|
)
|
|
(126,482
|
)
|
|
Other, net
|
(96
|
)
|
|
814
|
|
|
Net cash used in financing activities
|
(870,864
|
)
|
|
(153,660
|
)
|
|
Effect of exchange rate changes on cash
|
27
|
|
|
(1,092
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
(322,801
|
)
|
|
423,069
|
|
|
Cash and cash equivalents, beginning of period
|
896,527
|
|
|
546,937
|
|
|
Cash and cash equivalents, end of period
|
$
|
573,726
|
|
|
$
|
970,006
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
Accrued purchases of property and equipment
|
$
|
30,331
|
|
|
$
|
11,066
|
|
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
1.
|
Nature of Operations and Basis of Presentation:
|
Advance Auto Parts, Inc. and subsidiaries is a leading automotive aftermarket parts provider in North America, serving both professional installers (“Professional”), and “do-it-yourself” (“DIY”), customers. The accompanying consolidated financial statements have been prepared by us and include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiary, Advance Stores Company, Incorporated (“Advance Stores”), and its subsidiaries (collectively referred to as “Advance,” “we,” “us” or “our”).
As of October 5, 2019, we operated a total of 4,891 stores and 152 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 5, 2019, we served 1,260 independently owned Carquest branded stores across the same geographic locations served by our stores and branches in addition to Mexico, the Bahamas, Turks and Caicos and the British Virgin Islands.
The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted based upon the Securities and Exchange Commission (“SEC”) interim reporting guidance. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for 2018 as filed with the SEC on February 19, 2019.
During the sixteen weeks ended April 20, 2019, we made an out-of-period correction, which increased Cost of sales by $13.0 million, related to received not invoiced inventory.
The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. Our first quarter of the year contains sixteen weeks. Our remaining three quarters consist of twelve weeks.
|
|
|
|
2.
|
Significant Accounting Policies:
|
Revenues
The following table summarizes disaggregated revenue from contracts with customers by product group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
|
October 5, 2019
|
|
October 6, 2018
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Percentage of Net sales, by product group:
|
|
|
|
|
|
|
|
|
Parts and batteries
|
68
|
%
|
|
67
|
%
|
|
67
|
%
|
|
66
|
%
|
|
Accessories and chemicals
|
20
|
|
|
19
|
|
|
21
|
|
|
20
|
|
|
Engine maintenance
|
11
|
|
|
13
|
|
|
11
|
|
|
13
|
|
|
Other
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the condensed consolidated balance sheets as of October 5, 2019 and December 29, 2018.
Recently Issued Accounting Pronouncements
We adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), as of December 30, 2018, using the alternative transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Using the alternative transition method, we applied the transition requirements at the effective date of ASU 2016-02 with the impact of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the first quarter of 2019. Consequently, the comparative periods presented continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
We elected the package of practical expedients permitted under the transition guidance within the new standard. In addition, as a practical expedient relating to our facility and vehicle leases, we elected not to separate lease components from nonlease components.
The adoption of ASU 2016-02 resulted in the recording of lease assets and lease liabilities of $2.4 billion as of December 30, 2018. At the date of adoption, there was a difference between the operating lease right-of-use assets and lease liabilities recorded that included an adjustment to retained earnings, net of a $7.9 million deferred tax impact, which primarily resulted from the impairment of operating lease right-of-use assets. For the forty weeks ended October 5, 2019, the adoption of the new standard did not have a material impact on our condensed consolidated statements of operations and condensed consolidated statements of cash flows as substantially all of our leases remained operating in nature.
Inventories are stated at the lower of cost or market. We used the last in, first out (“LIFO”) method of accounting for approximately 89% of inventories as of October 5, 2019 and December 29, 2018. Under the LIFO method, our Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in the forty weeks ended October 5, 2019 and prior years. We recorded an increase to Cost of sales of $33.8 million for the twelve weeks ended October 5, 2019, a reduction to Cost of sales of $22.0 million for the twelve weeks ended October 6, 2018, an increase to Cost of sales of $76.7 million for the forty weeks ended October 5, 2019 and a reduction to Cost of sales of $54.3 million for the forty weeks ended October 6, 2018 to state inventories at LIFO.
An actual valuation of inventory under the LIFO method is performed by us at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.
Inventory balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
October 5, 2019
|
|
December 29, 2018
|
|
Inventories at first in, first out (“FIFO”)
|
$
|
4,224,869
|
|
|
$
|
4,119,617
|
|
|
Adjustments to state inventories at LIFO
|
166,224
|
|
|
242,930
|
|
|
Inventories at LIFO
|
$
|
4,391,093
|
|
|
$
|
4,362,547
|
|
As of December 29, 2018, and in accordance with ASC 420, Exit or Disposal Cost Obligations, the closed facility lease obligation, which comprised of sublease assets and lease liabilities for closed facilities, was $42.3 million recorded in connection with the initiatives and liabilities associated with facility closures that occurred as part of our normal market evaluation process as described in our 2018 Form 10-K. As a result of our transition to ASU 2016-02, our lease liabilities for closed facilities are included within the lease liability recorded in Other current liabilities and Noncurrent operating lease liabilities, and the operating lease right-of-use assets recorded upon transition was recorded net of the previously recorded closed facility lease obligation.
Our definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expense was $7.3 million and $9.4 million for the twelve weeks ended October 5, 2019 and October 6, 2018 and $24.4 million and $31.3 million for the forty weeks ended October 5, 2019 and October 6, 2018.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
October 5, 2019
|
|
December 29, 2018
|
|
Trade
|
$
|
487,210
|
|
|
$
|
397,909
|
|
|
Vendor
|
238,441
|
|
|
228,024
|
|
|
Other
|
10,593
|
|
|
17,081
|
|
|
Total receivables
|
736,244
|
|
|
643,014
|
|
|
Less: allowance for doubtful accounts
|
(14,902
|
)
|
|
(18,042
|
)
|
|
Receivables, net
|
$
|
721,342
|
|
|
$
|
624,972
|
|
|
|
|
|
7.
|
Long-term Debt and Fair Value of Financial Instruments
|
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
October 5, 2019
|
|
December 29, 2018
|
|
Total long-term debt
|
$
|
747,136
|
|
|
$
|
1,045,930
|
|
|
Less: current portion of long-term debt
|
—
|
|
|
(210
|
)
|
|
Long-term debt, excluding current portion
|
$
|
747,136
|
|
|
$
|
1,045,720
|
|
|
|
|
|
|
|
Fair value of long-term debt
|
$
|
801,000
|
|
|
$
|
1,074,000
|
|
Fair Value of Financial Assets and Liabilities
The fair value of our senior unsecured notes was determined using Level 2 inputs based on quoted market prices. We believe the carrying value of our other long-term debt approximates fair value. The carrying amounts of our cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.
Bank Debt
As of October 5, 2019 and December 29, 2018, we had no outstanding borrowings under the unsecured revolving credit facility (the “2017 Credit Agreement”) and borrowing availability was $1.0 billion and $998.0 million. Under the 2017 Credit Agreement, we had no letters of credit and $2.0 million of letters of credit outstanding as of October 5, 2019 and December 29, 2018.
In connection with our bilateral credit facility, we had outstanding letters of credit of $113.1 million and $100.5 million as of October 5, 2019 and December 29, 2018, which generally have a term of one year or less and primarily serve as collateral for our self-insurance policies. We were in compliance with all financial covenants required by our debt arrangements as of October 5, 2019.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Senior Unsecured Notes
On February 28, 2019, we redeemed all $300.0 million aggregate principal amount of our outstanding 5.75% senior unsecured notes that were issued in April 2010 at 99.587% of the principal amount (the “2020 Notes”). During the sixteen weeks ended April 20, 2019, we 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 our 2020 Notes, which are included in Other (expense) income, net in the accompanying condensed consolidated statements of operations.
Debt Guarantees
We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are our customers totaling $27.6 million and $24.3 million as of October 5, 2019 and December 29, 2018. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements is $58.5 million and $53.9 million as of October 5, 2019 and December 29, 2018. We believe that the likelihood of performance under these guarantees is remote.
Substantially all of our leases are for facilities and vehicles. The initial term for facilities are typically 5 years to 10 years, with renewal options at 5 year intervals, with the exercise of lease renewal options at our sole discretion. Our vehicle and equipment leases are typically 3 years to 5 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease liabilities consist of the following:
|
|
|
|
|
|
|
|
(in thousands)
|
October 5, 2019
|
|
Total operating lease liabilities
|
$
|
2,441,221
|
|
|
Less: Current portion of operating lease liabilities
|
(443,500
|
)
|
|
Noncurrent operating lease liabilities
|
$
|
1,997,721
|
|
The current portion of operating lease liabilities is included in Other current liabilities in the accompanying condensed consolidated balance sheet.
Total lease cost is included in Cost of sales and selling, general and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
(in thousands)
|
October 5, 2019
|
|
October 5, 2019
|
|
Operating lease cost
|
$
|
121,057
|
|
|
$
|
405,868
|
|
|
Variable lease cost
|
36,808
|
|
|
119,354
|
|
|
Total lease cost
|
$
|
157,865
|
|
|
$
|
525,222
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The future maturity of lease liabilities are as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
October 5, 2019
|
|
Remainder of 2019
|
$
|
93,573
|
|
|
2020
|
564,627
|
|
|
2021
|
469,282
|
|
|
2022
|
375,141
|
|
|
2023
|
332,882
|
|
|
Thereafter
|
1,011,831
|
|
|
Total lease payments
|
2,847,336
|
|
|
Less: Imputed interest
|
(406,115
|
)
|
|
Total operating lease liabilities
|
$
|
2,441,221
|
|
Operating lease payments include $147.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $142.7 million of legally binding minimum lease payments for leases signed, but not yet commenced.
The weighted-average remaining lease term and weighted-average discount rate for our operating leases are 7.13 years and 4.1% as of October 5, 2019. We calculated the weighted-average discount rates using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.
Other information relating to our lease liabilities is as follows:
|
|
|
|
|
|
|
|
|
Forty Weeks Ended
|
|
(in thousands)
|
October 5, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
417,262
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
$
|
270,440
|
|
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments due under non-cancelable operating leases were as follows:
|
|
|
|
|
|
|
|
|
December 29, 2018
|
|
(in thousands)
|
|
|
2019
|
$
|
520,541
|
|
|
2020
|
481,812
|
|
|
2021
|
416,895
|
|
|
2022
|
349,470
|
|
|
2023
|
270,116
|
|
|
Thereafter
|
837,441
|
|
|
|
$
|
2,876,275
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table presents changes in our warranty reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forty Weeks Ended
|
|
Fifty-Two Weeks Ended
|
|
(in thousands)
|
October 5, 2019
|
|
December 29, 2018
|
|
Warranty reserve, beginning of period
|
$
|
45,280
|
|
|
$
|
49,024
|
|
|
Additions to warranty reserves
|
28,788
|
|
|
43,200
|
|
|
Reduction and utilization of reserve
|
(32,624
|
)
|
|
(46,944
|
)
|
|
Warranty reserve, end of period
|
$
|
41,444
|
|
|
$
|
45,280
|
|
|
|
|
|
10.
|
Share Repurchase Program
|
Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time. On August 7, 2019, our Board of Directors authorized a $400.0 million share repurchase program to replace the previous $600.0 million share repurchase program that was authorized by our Board of Directors in August 2018, which had $49.1 million remaining at the time of its replacement.
During the twelve and forty weeks ended October 5, 2019, we repurchased 2.4 million and 3.3 million shares of our common stock under the share repurchase program. The shares repurchased during the twelve and forty weeks ended October 5, 2019 were at an aggregate cost of $338.6 million and $476.7 million, or an average price of $138.71 and $144.03 per share. During the twelve and forty weeks ended October 6, 2018, we repurchased 0.7 million shares of our common stock at an aggregate cost of $119.9 million, or an average price of $166.57 per share, in connection with our share repurchase program. As of October 5, 2019, we had $201.4 million remaining under our share repurchase program that was authorized by our Board of Directors on August 7, 2019.
On November 8, 2019, our Board of Directors authorized $700.0 million as an addition to the existing share repurchase program.
The computation of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
(in thousands, except per share data)
|
October 5, 2019
|
|
October 6, 2018
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income applicable to common shares
|
$
|
123,669
|
|
|
$
|
115,843
|
|
|
$
|
390,989
|
|
|
$
|
370,405
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
70,381
|
|
|
73,888
|
|
|
71,351
|
|
|
73,974
|
|
|
Dilutive impact of share-based awards
|
283
|
|
|
302
|
|
|
292
|
|
|
238
|
|
|
Diluted weighted average common shares (1)
|
70,664
|
|
|
74,190
|
|
|
71,643
|
|
|
74,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
1.76
|
|
|
$
|
1.57
|
|
|
$
|
5.48
|
|
|
$
|
5.01
|
|
|
Diluted earnings per common share
|
$
|
1.75
|
|
|
$
|
1.56
|
|
|
$
|
5.46
|
|
|
$
|
4.99
|
|
|
|
|
|
(1)
|
For the twelve and forty weeks ended October 5, 2019, 175 thousand and 115 thousand restricted stock units (“RSUs”) were excluded from the diluted calculation as their inclusion would have been anti-dilutive. For the twelve and forty weeks ended October 6, 2018, these anti-dilutive RSUs were insignificant.
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
12.
|
Share-Based Compensation
|
During the forty weeks ended October 5, 2019, we granted 254 thousand time-based RSUs, 55 thousand performance-based RSUs and 28 thousand market-based RSUs. The general terms of the time-based, performance-based and market-based RSUs are similar to awards previously granted by us.
The weighted average fair values of the time-based, performance-based and market-based RSUs granted during the forty weeks ended October 5, 2019 were $156.71, $159.80 and $165.70 per share. For time-based and performance-based RSUs, the fair value of each award was determined based on the market price of our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.
Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 5, 2019 was $1.7 million and $6.7 million. Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 6, 2018 was $1.7 million and $4.7 million. As of October 5, 2019, there was $69.0 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted average period of 1.6 years.
|
|
|
|
13.
|
Condensed Consolidating Financial Statements
|
Certain 100% wholly owned domestic subsidiaries of Advance, including our Material Subsidiaries (as defined in the 2017 Credit Agreement) serve as guarantors (“Guarantor Subsidiaries”) of our senior unsecured notes. The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of Advance to obtain funds from its Guarantor Subsidiaries. Certain of our wholly owned subsidiaries, including all of our foreign subsidiaries and captive insurance subsidiary, do not serve as guarantors of our senior unsecured notes (“Non-Guarantor Subsidiaries”).
Set forth below are condensed consolidating financial statements presenting the financial position, results of operations, and cash flows of (i) Advance, (ii) the Guarantor Subsidiaries, (iii) the Non-Guarantor Subsidiaries, and (iv) the eliminations necessary to arrive at consolidated information for Advance. Investments in subsidiaries of Advance are presented under the equity method. The statement of operations eliminations relate primarily to the sale of inventory from a Non-Guarantor Subsidiary to a Guarantor Subsidiary. The balance sheet eliminations relate primarily to the elimination of intercompany receivables and payables and subsidiary investment accounts.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
As of October 5, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
467,692
|
|
|
$
|
106,034
|
|
|
$
|
—
|
|
|
$
|
573,726
|
|
|
Receivables, net
|
—
|
|
|
674,524
|
|
|
46,818
|
|
|
—
|
|
|
721,342
|
|
|
Inventories
|
—
|
|
|
4,209,180
|
|
|
181,913
|
|
|
—
|
|
|
4,391,093
|
|
|
Other current assets
|
3,284
|
|
|
135,308
|
|
|
3,789
|
|
|
(1,894
|
)
|
|
140,487
|
|
|
Total current assets
|
3,284
|
|
|
5,486,704
|
|
|
338,554
|
|
|
(1,894
|
)
|
|
5,826,648
|
|
|
Property and equipment, net of accumulated depreciation
|
60
|
|
|
1,380,941
|
|
|
8,088
|
|
|
—
|
|
|
1,389,089
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
2,294,661
|
|
|
41,071
|
|
|
—
|
|
|
2,335,732
|
|
|
Goodwill
|
—
|
|
|
943,361
|
|
|
48,014
|
|
|
—
|
|
|
991,375
|
|
|
Intangible assets, net
|
—
|
|
|
475,356
|
|
|
39,156
|
|
|
—
|
|
|
514,512
|
|
|
Other assets, net
|
1,748
|
|
|
48,856
|
|
|
589
|
|
|
(1,747
|
)
|
|
49,446
|
|
|
Investment in subsidiaries
|
4,338,807
|
|
|
571,883
|
|
|
—
|
|
|
(4,910,690
|
)
|
|
—
|
|
|
Intercompany note receivable
|
749,318
|
|
|
—
|
|
|
—
|
|
|
(749,318
|
)
|
|
—
|
|
|
Due from intercompany, net
|
—
|
|
|
536,674
|
|
|
354,465
|
|
|
(891,139
|
)
|
|
—
|
|
|
|
$
|
5,093,217
|
|
|
$
|
11,738,436
|
|
|
$
|
829,937
|
|
|
$
|
(6,554,788
|
)
|
|
$
|
11,106,802
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
3,205,362
|
|
|
$
|
197,176
|
|
|
$
|
—
|
|
|
$
|
3,402,538
|
|
|
Accrued expenses
|
—
|
|
|
561,495
|
|
|
19,473
|
|
|
(1,894
|
)
|
|
579,074
|
|
|
Other current liabilities
|
—
|
|
|
455,746
|
|
|
26,555
|
|
|
—
|
|
|
482,301
|
|
|
Total current liabilities
|
—
|
|
|
4,222,603
|
|
|
243,204
|
|
|
(1,894
|
)
|
|
4,463,913
|
|
|
Long-term debt
|
747,136
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
747,136
|
|
|
Noncurrent operating lease liabilities
|
—
|
|
|
1,966,016
|
|
|
31,705
|
|
|
—
|
|
|
1,997,721
|
|
|
Deferred income taxes
|
—
|
|
|
303,886
|
|
|
16,170
|
|
|
(1,747
|
)
|
|
318,309
|
|
|
Other long-term liabilities
|
—
|
|
|
157,806
|
|
|
(33,025
|
)
|
|
—
|
|
|
124,781
|
|
|
Intercompany note payable
|
—
|
|
|
749,318
|
|
|
—
|
|
|
(749,318
|
)
|
|
—
|
|
|
Due to intercompany, net
|
891,139
|
|
|
—
|
|
|
—
|
|
|
(891,139
|
)
|
|
—
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
3,454,942
|
|
|
4,338,807
|
|
|
571,883
|
|
|
(4,910,690
|
)
|
|
3,454,942
|
|
|
|
$
|
5,093,217
|
|
|
$
|
11,738,436
|
|
|
$
|
829,937
|
|
|
$
|
(6,554,788
|
)
|
|
$
|
11,106,802
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
As of December 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
785,605
|
|
|
$
|
110,922
|
|
|
$
|
—
|
|
|
$
|
896,527
|
|
|
Receivables, net
|
—
|
|
|
590,269
|
|
|
34,703
|
|
|
—
|
|
|
624,972
|
|
|
Inventories
|
—
|
|
|
4,182,973
|
|
|
179,574
|
|
|
—
|
|
|
4,362,547
|
|
|
Other current assets
|
3,103
|
|
|
191,318
|
|
|
3,987
|
|
|
—
|
|
|
198,408
|
|
|
Total current assets
|
3,103
|
|
|
5,750,165
|
|
|
329,186
|
|
|
—
|
|
|
6,082,454
|
|
|
Property and equipment, net of accumulated depreciation
|
77
|
|
|
1,359,980
|
|
|
8,928
|
|
|
—
|
|
|
1,368,985
|
|
|
Goodwill
|
—
|
|
|
943,364
|
|
|
46,873
|
|
|
—
|
|
|
990,237
|
|
|
Intangible assets, net
|
—
|
|
|
510,586
|
|
|
40,007
|
|
|
—
|
|
|
550,593
|
|
|
Other assets, net
|
2,408
|
|
|
47,815
|
|
|
564
|
|
|
(2,408
|
)
|
|
48,379
|
|
|
Investment in subsidiaries
|
3,945,862
|
|
|
474,772
|
|
|
—
|
|
|
(4,420,634
|
)
|
|
—
|
|
|
Intercompany note receivable
|
1,048,993
|
|
|
—
|
|
|
—
|
|
|
(1,048,993
|
)
|
|
—
|
|
|
Due from intercompany, net
|
—
|
|
|
102,886
|
|
|
297,580
|
|
|
(400,466
|
)
|
|
—
|
|
|
|
$
|
5,000,443
|
|
|
$
|
9,189,568
|
|
|
$
|
723,138
|
|
|
$
|
(5,872,501
|
)
|
|
$
|
9,040,648
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
2,954,632
|
|
|
$
|
218,158
|
|
|
$
|
—
|
|
|
$
|
3,172,790
|
|
|
Accrued expenses
|
3,444
|
|
|
603,460
|
|
|
16,237
|
|
|
—
|
|
|
623,141
|
|
|
Other current liabilities
|
—
|
|
|
91,994
|
|
|
(1,975
|
)
|
|
—
|
|
|
90,019
|
|
|
Total current liabilities
|
3,444
|
|
|
3,650,086
|
|
|
232,420
|
|
|
—
|
|
|
3,885,950
|
|
|
Long-term debt
|
1,045,720
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,045,720
|
|
|
Deferred income taxes
|
—
|
|
|
306,127
|
|
|
14,634
|
|
|
(2,408
|
)
|
|
318,353
|
|
|
Other long-term liabilities
|
—
|
|
|
238,500
|
|
|
1,312
|
|
|
—
|
|
|
239,812
|
|
|
Intercompany note payable
|
—
|
|
|
1,048,993
|
|
|
—
|
|
|
(1,048,993
|
)
|
|
—
|
|
|
Due to intercompany, net
|
400,466
|
|
|
—
|
|
|
—
|
|
|
(400,466
|
)
|
|
—
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
3,550,813
|
|
|
3,945,862
|
|
|
474,772
|
|
|
(4,420,634
|
)
|
|
3,550,813
|
|
|
|
$
|
5,000,443
|
|
|
$
|
9,189,568
|
|
|
$
|
723,138
|
|
|
$
|
(5,872,501
|
)
|
|
$
|
9,040,648
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended October 5, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
2,223,257
|
|
|
$
|
168,679
|
|
|
$
|
(79,830
|
)
|
|
$
|
2,312,106
|
|
|
Cost of sales, including purchasing and warehousing costs
|
—
|
|
|
1,248,730
|
|
|
79,451
|
|
|
(28,001
|
)
|
|
1,300,180
|
|
|
Gross profit
|
—
|
|
|
974,527
|
|
|
89,228
|
|
|
(51,829
|
)
|
|
1,011,926
|
|
|
Selling, general and administrative expenses
|
5,808
|
|
|
869,018
|
|
|
24,403
|
|
|
(59,631
|
)
|
|
839,598
|
|
|
Operating (loss) income
|
(5,808
|
)
|
|
105,509
|
|
|
64,825
|
|
|
7,802
|
|
|
172,328
|
|
|
Other, net:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(7,951
|
)
|
|
(492
|
)
|
|
—
|
|
|
—
|
|
|
(8,443
|
)
|
|
Other income (expense) income, net
|
14,017
|
|
|
(3,619
|
)
|
|
(5,741
|
)
|
|
(7,802
|
)
|
|
(3,145
|
)
|
|
Total other, net
|
6,066
|
|
|
(4,111
|
)
|
|
(5,741
|
)
|
|
(7,802
|
)
|
|
(11,588
|
)
|
|
Income before provision for income taxes
|
258
|
|
|
101,398
|
|
|
59,084
|
|
|
—
|
|
|
160,740
|
|
|
Provision for income taxes
|
698
|
|
|
34,438
|
|
|
1,935
|
|
|
—
|
|
|
37,071
|
|
|
(Loss) income before equity in earnings of subsidiaries
|
(440
|
)
|
|
66,960
|
|
|
57,149
|
|
|
—
|
|
|
123,669
|
|
|
Equity in earnings of subsidiaries
|
124,109
|
|
|
57,149
|
|
|
—
|
|
|
(181,258
|
)
|
|
—
|
|
|
Net income
|
$
|
123,669
|
|
|
$
|
124,109
|
|
|
$
|
57,149
|
|
|
$
|
(181,258
|
)
|
|
$
|
123,669
|
|
Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended October 6, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
2,190,822
|
|
|
$
|
115,675
|
|
|
$
|
(31,515
|
)
|
|
$
|
2,274,982
|
|
|
Cost of sales, including purchasing and warehousing costs
|
—
|
|
|
1,220,367
|
|
|
79,203
|
|
|
(31,515
|
)
|
|
1,268,055
|
|
|
Gross profit
|
—
|
|
|
970,455
|
|
|
36,472
|
|
|
—
|
|
|
1,006,927
|
|
|
Selling, general and administrative expenses
|
4,631
|
|
|
837,047
|
|
|
22,812
|
|
|
(11,804
|
)
|
|
852,686
|
|
|
Operating (loss) income
|
(4,631
|
)
|
|
133,408
|
|
|
13,660
|
|
|
11,804
|
|
|
154,241
|
|
|
Other, net:
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
(12,059
|
)
|
|
(1,018
|
)
|
|
1
|
|
|
—
|
|
|
(13,076
|
)
|
|
Other income (expense) income, net
|
16,759
|
|
|
(564
|
)
|
|
1,364
|
|
|
(11,804
|
)
|
|
5,755
|
|
|
Total other, net
|
4,700
|
|
|
(1,582
|
)
|
|
1,365
|
|
|
(11,804
|
)
|
|
(7,321
|
)
|
|
Income before provision for income taxes
|
69
|
|
|
131,826
|
|
|
15,025
|
|
|
—
|
|
|
146,920
|
|
|
Provision for income taxes
|
229
|
|
|
27,624
|
|
|
3,224
|
|
|
—
|
|
|
31,077
|
|
|
(Loss) income before equity in earnings of subsidiaries
|
(160
|
)
|
|
104,202
|
|
|
11,801
|
|
|
—
|
|
|
115,843
|
|
|
Equity in earnings of subsidiaries
|
116,003
|
|
|
11,801
|
|
|
—
|
|
|
(133,031
|
)
|
|
—
|
|
|
Net income
|
$
|
115,843
|
|
|
$
|
116,003
|
|
|
$
|
11,801
|
|
|
$
|
(127,804
|
)
|
|
$
|
115,843
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Operations
For the Forty Weeks Ended October 5, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
7,310,012
|
|
|
$
|
442,936
|
|
|
$
|
(156,559
|
)
|
|
$
|
7,596,389
|
|
|
Cost of sales, including purchasing and warehousing costs
|
—
|
|
|
4,116,052
|
|
|
259,090
|
|
|
(104,730
|
)
|
|
4,270,412
|
|
|
Gross profit
|
—
|
|
|
3,193,960
|
|
|
183,846
|
|
|
(51,829
|
)
|
|
3,325,977
|
|
|
Selling, general and administrative expenses
|
23,778
|
|
|
2,764,102
|
|
|
78,490
|
|
|
(91,434
|
)
|
|
2,774,936
|
|
|
Operating (loss) income
|
(23,778
|
)
|
|
429,858
|
|
|
105,356
|
|
|
39,605
|
|
|
551,041
|
|
|
Other, net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(29,415
|
)
|
|
(2,425
|
)
|
|
(222
|
)
|
|
—
|
|
|
(32,062
|
)
|
|
Other income (expense), net
|
54,292
|
|
|
(14,206
|
)
|
|
(1,753
|
)
|
|
(39,605
|
)
|
|
(1,272
|
)
|
|
Total other, net
|
24,877
|
|
|
(16,631
|
)
|
|
(1,975
|
)
|
|
(39,605
|
)
|
|
(33,334
|
)
|
|
Income before provision for income taxes
|
1,099
|
|
|
413,227
|
|
|
103,381
|
|
|
—
|
|
|
517,707
|
|
|
Provision for income taxes
|
2,420
|
|
|
112,240
|
|
|
12,058
|
|
|
—
|
|
|
126,718
|
|
|
(Loss) income before equity in earnings of subsidiaries
|
(1,321
|
)
|
|
300,987
|
|
|
91,323
|
|
|
—
|
|
|
390,989
|
|
|
Equity in earnings of subsidiaries
|
392,310
|
|
|
91,323
|
|
|
—
|
|
|
(483,633
|
)
|
|
—
|
|
|
Net income
|
$
|
390,989
|
|
|
$
|
392,310
|
|
|
$
|
91,323
|
|
|
$
|
(483,633
|
)
|
|
$
|
390,989
|
|
Condensed Consolidating Statement of Operations
For the Forty Weeks Ended October 6, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
7,197,953
|
|
|
$
|
405,864
|
|
|
$
|
(128,335
|
)
|
|
$
|
7,475,482
|
|
|
Cost of sales, including purchasing and warehousing costs
|
—
|
|
|
4,035,319
|
|
|
277,729
|
|
|
(128,335
|
)
|
|
4,184,713
|
|
|
Gross profit
|
—
|
|
|
3,162,634
|
|
|
128,135
|
|
|
—
|
|
|
3,290,769
|
|
|
Selling, general and administrative expenses
|
14,290
|
|
|
2,719,172
|
|
|
76,634
|
|
|
(39,349
|
)
|
|
2,770,747
|
|
|
Operating (loss) income
|
(14,290
|
)
|
|
443,462
|
|
|
51,501
|
|
|
39,349
|
|
|
520,022
|
|
|
Other, net:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(40,194
|
)
|
|
(3,419
|
)
|
|
—
|
|
|
—
|
|
|
(43,613
|
)
|
|
Other income (expense), net
|
55,007
|
|
|
(4,766
|
)
|
|
(1,894
|
)
|
|
(39,349
|
)
|
|
8,998
|
|
|
Total other, net
|
14,813
|
|
|
(8,185
|
)
|
|
(1,894
|
)
|
|
(39,349
|
)
|
|
(34,615
|
)
|
|
Income before provision for income taxes
|
523
|
|
|
435,277
|
|
|
49,607
|
|
|
—
|
|
|
485,407
|
|
|
Provision for income taxes
|
1,287
|
|
|
103,589
|
|
|
10,126
|
|
|
—
|
|
|
115,002
|
|
|
(Loss) income before equity in earnings of subsidiaries
|
(764
|
)
|
|
331,688
|
|
|
39,481
|
|
|
—
|
|
|
370,405
|
|
|
Equity in earnings of subsidiaries
|
371,169
|
|
|
39,481
|
|
|
—
|
|
|
(410,650
|
)
|
|
—
|
|
|
Net income
|
$
|
370,405
|
|
|
$
|
371,169
|
|
|
$
|
39,481
|
|
|
$
|
(410,650
|
)
|
|
$
|
370,405
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the Twelve Weeks Ended October 5, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net income
|
$
|
123,669
|
|
|
$
|
124,109
|
|
|
$
|
57,149
|
|
|
$
|
(181,258
|
)
|
|
$
|
123,669
|
|
|
Other comprehensive loss
|
(5,381
|
)
|
|
(5,381
|
)
|
|
(5,289
|
)
|
|
10,670
|
|
|
(5,381
|
)
|
|
Comprehensive income
|
$
|
118,288
|
|
|
$
|
118,728
|
|
|
$
|
51,860
|
|
|
$
|
(170,588
|
)
|
|
$
|
118,288
|
|
Condensed Consolidating Statement of Comprehensive Income
For the Twelve Weeks Ended October 6, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net income
|
$
|
115,843
|
|
|
$
|
116,003
|
|
|
$
|
11,801
|
|
|
$
|
(127,804
|
)
|
|
$
|
115,843
|
|
|
Other comprehensive income
|
3,831
|
|
|
3,831
|
|
|
3,900
|
|
|
(7,731
|
)
|
|
3,831
|
|
|
Comprehensive income
|
$
|
119,674
|
|
|
$
|
119,834
|
|
|
$
|
15,701
|
|
|
$
|
(135,535
|
)
|
|
$
|
119,674
|
|
Condensed Consolidating Statement of Comprehensive Income
For the Forty Weeks Ended October 5, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net income
|
$
|
390,989
|
|
|
$
|
392,310
|
|
|
$
|
91,323
|
|
|
$
|
(483,633
|
)
|
|
$
|
390,989
|
|
|
Other comprehensive income
|
5,331
|
|
|
5,331
|
|
|
5,397
|
|
|
(10,728
|
)
|
|
5,331
|
|
|
Comprehensive income
|
$
|
396,320
|
|
|
$
|
397,641
|
|
|
$
|
96,720
|
|
|
$
|
(494,361
|
)
|
|
$
|
396,320
|
|
Condensed Consolidating Statement of Comprehensive Income
For the Forty Weeks Ended October 6, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net income
|
$
|
370,405
|
|
|
$
|
371,169
|
|
|
$
|
39,481
|
|
|
$
|
(410,650
|
)
|
|
$
|
370,405
|
|
|
Other comprehensive loss
|
(7,129
|
)
|
|
(7,129
|
)
|
|
(6,902
|
)
|
|
14,031
|
|
|
(7,129
|
)
|
|
Comprehensive income
|
$
|
363,276
|
|
|
$
|
364,040
|
|
|
$
|
32,579
|
|
|
$
|
(396,619
|
)
|
|
$
|
363,276
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the Forty Weeks Ended October 5, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
715,513
|
|
|
$
|
(6,967
|
)
|
|
$
|
—
|
|
|
$
|
708,546
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
—
|
|
|
(168,710
|
)
|
|
(514
|
)
|
|
—
|
|
|
(169,224
|
)
|
|
Proceeds from sales of property and equipment
|
—
|
|
|
8,713
|
|
|
1
|
|
|
—
|
|
|
8,714
|
|
|
Net cash used in investing activities
|
—
|
|
|
(159,997
|
)
|
|
(513
|
)
|
|
—
|
|
|
(160,510
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in bank overdrafts
|
—
|
|
|
(61,916
|
)
|
|
2,565
|
|
|
—
|
|
|
(59,351
|
)
|
|
Redemption of senior unsecured notes
|
—
|
|
|
(310,047
|
)
|
|
—
|
|
|
—
|
|
|
(310,047
|
)
|
|
Dividends paid
|
—
|
|
|
(17,185
|
)
|
|
—
|
|
|
—
|
|
|
(17,185
|
)
|
|
Proceeds from the issuance of common stock
|
—
|
|
|
2,358
|
|
|
—
|
|
|
—
|
|
|
2,358
|
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
—
|
|
|
(162
|
)
|
|
—
|
|
|
—
|
|
|
(162
|
)
|
|
Repurchases of common stock
|
—
|
|
|
(486,381
|
)
|
|
—
|
|
|
—
|
|
|
(486,381
|
)
|
|
Other, net
|
—
|
|
|
(96
|
)
|
|
—
|
|
|
—
|
|
|
(96
|
)
|
|
Net cash (used in) provided by financing activities
|
—
|
|
|
(873,429
|
)
|
|
2,565
|
|
|
—
|
|
|
(870,864
|
)
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|
Net decrease in cash and cash equivalents
|
—
|
|
|
(317,913
|
)
|
|
(4,888
|
)
|
|
—
|
|
|
(322,801
|
)
|
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
785,605
|
|
|
110,922
|
|
|
—
|
|
|
896,527
|
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
467,692
|
|
|
$
|
106,034
|
|
|
$
|
—
|
|
|
$
|
573,726
|
|
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the Forty Weeks Ended October 6, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Advance Auto Parts, Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
656,847
|
|
|
$
|
24,656
|
|
|
$
|
—
|
|
|
$
|
681,503
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
—
|
|
|
(104,065
|
)
|
|
(1,067
|
)
|
|
—
|
|
|
(105,132
|
)
|
|
Proceeds from sales of property and equipment
|
—
|
|
|
1,406
|
|
|
44
|
|
|
—
|
|
|
1,450
|
|
|
Net cash used in investing activities
|
—
|
|
|
(102,659
|
)
|
|
(1,023
|
)
|
|
—
|
|
|
(103,682
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Decrease in bank overdrafts
|
—
|
|
|
(8,513
|
)
|
|
(3,460
|
)
|
|
—
|
|
|
(11,973
|
)
|
|
Dividends paid
|
—
|
|
|
(17,819
|
)
|
|
—
|
|
|
—
|
|
|
(17,819
|
)
|
|
Proceeds from the issuance of common stock
|
—
|
|
|
2,290
|
|
|
—
|
|
|
—
|
|
|
2,290
|
|
|
Tax withholdings related to the exercise of stock appreciation rights
|
—
|
|
|
(490
|
)
|
|
—
|
|
|
—
|
|
|
(490
|
)
|
|
Repurchases of common stock
|
—
|
|
|
(126,482
|
)
|
|
—
|
|
|
—
|
|
|
(126,482
|
)
|
|
Other, net
|
(23
|
)
|
|
814
|
|
|
—
|
|
|
23
|
|
|
814
|
|
|
Net cash used in financing activities
|
(23
|
)
|
|
(150,200
|
)
|
|
(3,460
|
)
|
|
23
|
|
|
(153,660
|
)
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(1,092
|
)
|
|
—
|
|
|
(1,092
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
(23
|
)
|
|
403,988
|
|
|
19,081
|
|
|
23
|
|
|
423,069
|
|
|
Cash and cash equivalents, beginning of period
|
23
|
|
|
482,620
|
|
|
64,317
|
|
|
(23
|
)
|
|
546,937
|
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
886,608
|
|
|
$
|
83,398
|
|
|
$
|
—
|
|
|
$
|
970,006
|
|
|
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 29, 2018 (filed with the SEC on February 19, 2019), which we refer to as our 2018 Form 10-K, and our unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report.
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 are usually identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “projection,” “should,” “strategy,” “will,” or similar expressions. 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, 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 discussed in "Item 1a. Risk Factors" in the Company's most recent Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q and other filings made by the Company with the SEC, 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 our control, which could cause actual results to differ materially from these statements. Therefore, you should not place undue reliance on those statements.
Management Overview
Net sales increased 1.6% in the third quarter of 2019 as compared to the same period of prior year, primarily driven by an increase in comparable store sales, as well as improvement in our independent Carquest network and the opening of additional branches. We experienced our strongest sales growth in our Midwest, Appalachian, Carolinas and Central regions, as well as increased sales in several product categories.
We generated diluted earnings per share (“diluted EPS”) of $1.75 during our third quarter of 2019 compared to $1.56 for the comparable period of 2018. When adjusted for the following non-operational items, our adjusted diluted earnings per share (“Adjusted EPS”) for the twelve weeks ended October 5, 2019 and October 6, 2018 were $2.10 and $1.89.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
|
October 5, 2019
|
|
October 6, 2018
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Transformation expenses
|
$
|
0.28
|
|
|
$
|
0.30
|
|
|
$
|
0.63
|
|
|
$
|
0.70
|
|
|
GPI integration and store closure and consolidation expenses
|
—
|
|
|
0.02
|
|
|
—
|
|
|
0.05
|
|
|
GPI amortization of acquired intangible assets
|
0.07
|
|
|
0.09
|
|
|
0.21
|
|
|
0.30
|
|
|
Other adjustments
|
—
|
|
|
—
|
|
|
0.25
|
|
|
—
|
|
|
Impact of the U.S. Tax Cuts and Jobs Act
|
—
|
|
|
(0.08
|
)
|
|
—
|
|
|
(0.08
|
)
|
Note: The amounts for the forty weeks ended October 5, 2019 and October 6, 2018 may not calculate due to rounding.
Refer to “Reconciliation of Non-GAAP Financial Measures” for further details of our comparable adjustments and the usefulness of such measures to investors.
Summary of Third Quarter Financial Results
A high-level summary of our financial results for the third quarter of 2019 includes:
|
|
|
|
•
|
Net sales during the third quarter of 2019 were $2.3 billion, an increase of 1.6% as compared to the third quarter of 2018, primarily driven by an increase in comparable store sales of 1.2%.
|
|
|
|
|
•
|
Gross profit margin for the third quarter of 2019 was 43.8%, a decrease of 49 basis points as compared to the third quarter of 2018. This decrease was primarily driven by the impact of the launch of our enhanced loyalty program initiatives during the third quarter of 2019. These decreases were partially offset by improvements in operational productivity relating to our ability to leverage our supply chain.
|
|
|
|
|
•
|
Selling, general and administrative expenses (“SG&A”) for the third quarter of 2019 were 36.3% of Net sales, a decrease of 117 basis points as compared to the third quarter of 2018. This decrease was primarily due to our lower incident rate and claims that we attribute to continued focus on employee safety and by improvements in labor-related and occupancy costs. These improvements were partially offset by our investment in information technology (“IT”) projects.
|
Business and Risks Update
We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience and driving consistent execution for both Professional and “do-it-yourself” (“DIY”) customers. To achieve these improvements, we have undertaken planned strategic initiatives to help build a foundation for long-term success across the organization, which include:
|
|
|
|
•
|
Development of a demand-based assortment, leveraging purchase and search history from our common catalog, versus our existing push-down supply approach. This technology is a first step in moving from a supply-driven to a demand-driven assortment.
|
|
|
|
|
•
|
Continued movement towards optimizing our footprint by market to drive share, repurposing our in-market store and asset base and optimizing our distribution centers.
|
|
|
|
|
•
|
Progress in the development of a more efficient end-to-end supply chain to deliver our broad assortment.
|
|
|
|
|
•
|
Enhancement of our DIY omni-channel business, including our eCommerce performance and continued success of the roll-out of our partnership with Walmart.com.
|
|
|
|
|
•
|
Continued roll-out of our new Speed Perks 2.0 program to improve customer loyalty and traffic.
|
|
|
|
|
•
|
Launched a new program that focuses on our fleet safety by educating our drivers of various safety issues.
|
|
|
|
|
•
|
Continued focus on branch openings in 2019 to drive Professional growth while investing in online and digital to drive DIY improvements.
|
Industry Update
Operating within the automotive aftermarket industry, we are influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. During the forty weeks ended October 5, 2019, there were no changes to the factors discussed in our 2018 Form 10-K. For a complete discussion of these factors, refer to the 2018 Form 10-K.
Stores and Branches
Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. During the forty weeks ended October 5, 2019, 16 stores and branches were opened and 82 were closed or consolidated, resulting in a total of 5,043 stores and branches as of October 5, 2019, compared to a total of 5,109 stores and branches as of December 29, 2018.
Results of Operations
The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
$ Increase/(Decrease)
|
|
Basis Points
|
|
(in millions)
|
October 5, 2019
|
|
October 6, 2018
|
|
|
|
Net sales
|
$
|
2,312.1
|
|
|
100.0
|
%
|
|
$
|
2,275.0
|
|
|
100.0
|
%
|
|
$
|
37.1
|
|
|
—
|
|
|
Cost of sales
|
1,300.2
|
|
|
56.2
|
|
|
1,268.1
|
|
|
55.7
|
|
|
32.1
|
|
|
49
|
|
|
Gross profit
|
1,011.9
|
|
|
43.8
|
|
|
1,006.9
|
|
|
44.3
|
|
|
5.0
|
|
|
(49
|
)
|
|
SG&A
|
839.6
|
|
|
36.3
|
|
|
852.7
|
|
|
37.5
|
|
|
(13.1
|
)
|
|
(117
|
)
|
|
Operating income
|
172.3
|
|
|
7.5
|
|
|
154.2
|
|
|
6.8
|
|
|
18.1
|
|
|
67
|
|
|
Interest expense
|
(8.4
|
)
|
|
(0.4
|
)
|
|
(13.1
|
)
|
|
(0.6
|
)
|
|
4.7
|
|
|
21
|
|
|
Other (expense) income, net
|
(3.1
|
)
|
|
(0.1
|
)
|
|
5.8
|
|
|
0.3
|
|
|
(8.9
|
)
|
|
(39
|
)
|
|
Provision for income taxes
|
37.1
|
|
|
1.6
|
|
|
31.1
|
|
|
1.4
|
|
|
6.0
|
|
|
24
|
|
|
Net income
|
$
|
123.7
|
|
|
5.3
|
%
|
|
$
|
115.8
|
|
|
5.1
|
%
|
|
$
|
7.9
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forty Weeks Ended
|
|
$ Increase/(Decrease)
|
|
Basis Points
|
|
(in millions)
|
October 5, 2019
|
|
October 6, 2018
|
|
|
|
Net sales
|
$
|
7,596.4
|
|
|
100.0
|
%
|
|
$
|
7,475.5
|
|
|
100.0
|
%
|
|
$
|
120.9
|
|
|
—
|
|
|
Cost of sales
|
4,270.4
|
|
|
56.2
|
|
|
4,184.7
|
|
|
56.0
|
|
|
85.7
|
|
|
24
|
|
|
Gross profit
|
3,326.0
|
|
|
43.8
|
|
|
3,290.8
|
|
|
44.0
|
|
|
35.2
|
|
|
(24
|
)
|
|
SG&A
|
2,774.9
|
|
|
36.5
|
|
|
2,770.7
|
|
|
37.1
|
|
|
4.2
|
|
|
53
|
|
|
Operating income
|
551.0
|
|
|
7.3
|
|
|
520.0
|
|
|
7.0
|
|
|
31.0
|
|
|
30
|
|
|
Interest expense
|
(32.1
|
)
|
|
(0.4
|
)
|
|
(43.6
|
)
|
|
(0.6
|
)
|
|
11.5
|
|
|
16
|
|
|
Other (expense) income, net
|
(1.3
|
)
|
|
0.0
|
|
|
9.0
|
|
|
0.1
|
|
|
(10.3
|
)
|
|
(14
|
)
|
|
Provision for income taxes
|
126.7
|
|
|
1.7
|
|
|
115.0
|
|
|
1.5
|
|
|
11.7
|
|
|
13
|
|
|
Net income
|
$
|
391.0
|
|
|
5.1
|
%
|
|
$
|
370.4
|
|
|
5.0
|
%
|
|
$
|
20.6
|
|
|
19
|
|
Note: Table amounts may not foot due to rounding.
Net Sales
Net sales increased 1.6% during the third quarter of 2019 compared to the same period of 2018, primarily driven by an increase in comparable store sales of 1.2% due to delivery of Net sales growth across all product categories, with the strongest growth in parts and batteries and accessories and chemicals. We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales. Sales to independently owned Carquest stores are excluded from our comparable store sales. Acquired stores are included in our comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date. We include sales from relocated stores in comparable store sales from the original date of opening. Additionally, we saw growth in Net sales due to improvement in our independent Carquest network and the opening of additional branches.
For the forty weeks ended October 5, 2019, Net sales increased 1.6% compared to the same period of 2018, primarily driven by a 1.4% increase in comparable stores sales due to improved performance of certain product categories, specifically parts and batteries and accessories and chemicals. These improvements were partially offset by a decline in engine maintenance related products.
Gross Profit
The increase in gross profit for the twelve weeks ended October 5, 2019 was primarily driven by improvements in operational productivity relating to our ability to leverage our supply chain. These improvements were partially offset by the impact of the launch of our enhanced loyalty program initiatives during the third quarter of 2019.
The increase in gross profit for the forty weeks ended October 5, 2019 was primarily driven by an increase in comparable store sales and continued improvements in inventory management. These improvements were partially offset by factors discussed above. In addition, we made an out-of-period correction in the sixteen weeks ended April 20, 2019, which increased Cost of sales by $13.0 million, related to received not invoiced inventory.
Selling, general and administrative expenses
The decrease in SG&A for the twelve weeks ended October 5, 2019 was primarily driven by expense reductions due to our lower incident rate and claims that we attribute to continued focus on employee safety and by improvements in labor-related and occupancy costs. These improvements were partially offset by our investment in IT projects.
The increase in SG&A for the forty weeks ended October 5, 2019 was primarily driven by our investment in IT projects, increases in minimum wages and planned merit increases. These increases were partially offset by factors discussed above.
Reconciliation of Non-GAAP Financial Measures
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes 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) 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 charges 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 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.
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/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. We are focused on several areas throughout Advance, such as supply chain and information technology.
GPI Integration and Store Closure and Consolidation Expenses— Our multi-year plan to integrate the operations of GPI that we acquired in 2014 with AAP substantially ended in 2018. Due to the size of this acquisition, we considered these expenses to be outside of our base business. We believed providing additional information in the form of non-GAAP measures that excluded these costs was beneficial to the users of our financial statements in evaluating the operating performance of our base business and our sustainability once the integration was complete. In addition to integration expenses, we incurred store closure and consolidation expenses that consisted of expenses associated with our 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 our typical market evaluation process. We believe it was useful to provide additional non-GAAP measures that excluded these costs to provide investors greater comparability of our base business and core operating performance.
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, we 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.
We have included a reconciliation of this information to the most comparable GAAP measures in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Forty Weeks Ended
|
|
(in thousands, except per share data)
|
|
October 5, 2019
|
|
October 6, 2018
|
|
October 5, 2019
|
|
October 6, 2018
|
|
Net income (GAAP)
|
|
$
|
123,669
|
|
|
$
|
115,843
|
|
|
$
|
390,989
|
|
|
$
|
370,405
|
|
|
Cost of sales adjustments:
|
|
|
|
|
|
|
|
|
|
Transformation expenses
|
|
2,991
|
|
|
513
|
|
|
3,272
|
|
|
5,839
|
|
|
Other adjustment (1)
|
|
—
|
|
|
—
|
|
|
13,010
|
|
|
—
|
|
|
SG&A adjustments:
|
|
|
|
|
|
|
|
|
|
Transformation expenses
|
|
23,386
|
|
|
28,360
|
|
|
56,633
|
|
|
63,214
|
|
|
GPI integration and store closure and consolidation expenses
|
|
—
|
|
|
1,768
|
|
|
—
|
|
|
4,706
|
|
|
GPI amortization of acquired intangible assets
|
|
6,362
|
|
|
8,802
|
|
|
21,157
|
|
|
29,268
|
|
|
Other income adjustment (2)
|
|
—
|
|
|
—
|
|
|
10,756
|
|
|
—
|
|
|
Provision for income taxes on adjustments (3)
|
|
(8,185
|
)
|
|
(9,664
|
)
|
|
(26,207
|
)
|
|
(25,242
|
)
|
|
Impact of the Act
|
|
—
|
|
|
(5,665
|
)
|
|
—
|
|
|
(5,665
|
)
|
|
Adjusted net income (Non-GAAP)
|
|
$
|
148,223
|
|
|
$
|
139,957
|
|
|
$
|
469,610
|
|
|
$
|
442,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (GAAP)
|
|
$
|
1.75
|
|
|
$
|
1.56
|
|
|
$
|
5.46
|
|
|
$
|
4.99
|
|
|
Adjustments, net of tax
|
|
0.35
|
|
|
0.33
|
|
|
1.09
|
|
|
0.97
|
|
|
Adjusted EPS (Non-GAAP)
|
|
$
|
2.10
|
|
|
$
|
1.89
|
|
|
$
|
6.55
|
|
|
$
|
5.96
|
|
|
|
|
|
(1)
|
During the sixteen weeks ended April 20, 2019, we made an out-of-period correction, which increased Cost of sales by $13.0 million, related to received not invoiced inventory.
|
|
|
|
|
(2)
|
During the sixteen weeks ended April 20, 2019, we 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 our 2020 Notes. For further information, see Note 7, Long-term Debt and Fair Value of Financial Instruments, included in our condensed consolidated financial statements.
|
|
|
|
|
(3)
|
The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.
|
Liquidity and Capital Resources
Overview
Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes and funding of initiatives under our strategic business plan. In addition, we may use available funds for acquisitions, to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our stock repurchase program and for the payment of quarterly cash dividends. Historically, we have funded these requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowings under our credit facility will be sufficient to fund our obligations for the next year.
Share Repurchase Program
On August 7, 2019, our Board of Directors authorized a $400.0 million share repurchase program to replace the previous $600.0 million share repurchase program that was authorized by our Board of Directors in August 2018, which had $49.1 million remaining at the time of its replacement.
During the twelve and forty weeks ended October 5, 2019, we repurchased 2.4 million and 3.3 million shares of our common stock under the share repurchase program. The shares repurchased during the twelve and forty weeks ended October 5, 2019 were at an aggregate cost of $338.6 million and $476.7 million, or an average price of $138.71 and $144.03 per share. During the twelve and forty weeks ended October 6, 2018, we repurchased 0.7 million shares of our common stock at an aggregate cost of $119.9 million, or an average price of $166.57 per share, in connection with our share repurchase program. As of October 5, 2019, we had $201.4 million remaining under our share repurchase program that was authorized by our Board of Directors on August 7, 2019.
On November 8, 2019, our Board of Directors authorized $700.0 million as an addition to the existing share repurchase program.