Advance Auto Parts Reports Record Second Quarter Results
Gross Margin Climbed 140 Basis Points to 45.4% Compared to 44.0% Last Year
Comparable Store Sales Rose 2.0% Compared to 5.0% Last Year
ROANOKE, Va., Aug. 6 -- Advance Auto Parts, Inc. today announced it achieved earnings per diluted share of $1.16 for the second quarter ended July 12, 2003, after non-recurring expenses of $0.05 per diluted share associated with the Discount Auto Parts' integration. Year-to-date earnings per diluted share rose to $1.31, after non-recurring expenses of $0.79 per diluted share resulting from the early redemption of outstanding notes and debentures and $0.10 per diluted share in integration expenses.
Comparable earnings per diluted share rose by 57.1% to $1.21 in the second quarter from $0.77 last year. Year-to-date comparable earnings per diluted share rose 65.4% to $2.20 compared to $1.33 last year. Comparable results do not include the non-recurring expenses associated with the Discount Auto Parts' integration and the early redemption of notes and debentures, as reconciled on the accompanying statements. The Company uses these non-GAAP- comparable measures as an indication of its earnings from recurring operations and believes it is important to the Company's stockholders due to the non- recurring nature and significance of the excluded expenses.
Sales increased 5.9% in the second quarter to $839.2 million compared to $792.7 million last year. Same store sales grew 2.0% in the second quarter on top of 5.0% in the same quarter last year. The Discount Auto Parts stores, which are in the comparable store base this year, produced a comparable store sales increase of 6.6% during the second quarter compared to 3.7% last year. Year-to-date sales increased 4.2% to $1,872.7 million compared to $1,796.8 million last year as same store sales rose 1.5% compared to 6.5% during the same period last year.
During the second quarter, gross margin increased 140 basis points to 45.4% compared to 44.0% last year as the Company reaped the benefits of its category management initiatives and leveraged its logistics expenses. Year- to-date, gross margin improved 160 basis points to 45.3% from 43.7% last year.
As a result of the strong gross margin improvement, comparable operating income increased 24.6% in the second quarter to $80.9 million from $64.9 million in the same quarter last year, generating an operating margin increase of 140 basis points to 9.6%. On a GAAP basis, operating income increased 36.2% to $78.0 million.
Comparable net income rose 60.2% in the second quarter to $45.2 million from $28.2 million in the second quarter last year. On a GAAP basis, net income increased 172.6% to $43.5 million in the second quarter, which included $1.8 million of after-tax non-recurring integration expenses associated with the Discount Auto Parts' acquisition. Year-to-date comparable net income increased 70.7% to $81.2 million compared to $47.6 million last year. On a GAAP basis, net income increased 73.0% to $48.5 million, which included $3.9 million of after-tax non-recurring integration expenses associated with the Discount Auto Parts' acquisition and $28.8 million of after-tax non-recurring expenses related to the early redemption of outstanding notes and debentures in the first quarter.
Commenting on the second quarter results, Larry Castellani, the Company's Chairman and Chief Executive Officer, said, "Our team proved this quarter that even in a challenging sales environment we can achieve our goal of expanding our operating margins. Our category management initiatives are running ahead of plan. We have developed a game plan to expand our sales growth and we see tremendous opportunities for the future."
Year-to-date, the Company generated $234.3 million in free cash flow, including $140.2 million in the second quarter. These results do not include the non-recurring cash expenses of $36.9 million associated with the early redemption of the Company's high interest bearing notes and debentures in the first quarter of 2003. Including these non-recurring expenses, year-to-date the Company generated $197.4 million in free cash flow. Free cash flow is calculated as cash provided by operating activities reduced by cash used in investing activities. The Company expects to be a slight user of cash in the second half of the year and raised its 2003 fiscal year guidance for free cash flow to $170 million.
During the quarter 27 new stores were opened, six stores were relocated, and one store was closed resulting in an ending store count of 2,482. Year- to-date, the Company has opened 60 new stores, relocated 18 stores, and closed 13 stores. The Company expects to open 125 stores this year, relocate approximately 40 stores, and close 25 stores.
The Company also issued comparable earnings per diluted share guidance for the third quarter in the range of $1.18 to $1.22 compared to $0.92 last year, a 28% to 33% increase. Due to its strong earnings growth during the first half of 2003, the Company's comparable earnings per diluted share guidance for the full year has increased to a range of $4.01 to $4.11 compared to its previous guidance of $3.85 to $3.95 per diluted share. This guidance excludes the non-recurring expenses of the redemption of notes and debentures, integration expenses, and the positive effect of the 53rd week in the fourth quarter. On a GAAP basis, the Company raised its earnings per diluted share guidance to $3.14 to $3.22, which includes the non-recurring expenses associated with the redemption of bonds and debentures in the first quarter and integration expenses related to the Discount Auto Parts acquisition.
The Company will host a conference call this evening, August 6, 2003, at 5:00 p.m. Eastern Standard Time to discuss its second quarter results. To listen to the live webcast please log on to http://www.advanceautoparts.com/. The call will be archived on the Company's website: http://www.advanceautoparts.com/ until August 6, 2004.
Advance Auto Parts, Inc., based in Roanoke, Va., is the second largest retailer of automotive parts in the United States. At July 12, 2003, the Company had 2,482 stores in 37 states, Puerto Rico and the Virgin Islands. The Company serves both the do-it-yourself and professional installer markets.
Certain statements contained in this news release are forward-looking statements. These statements discuss, among other things, expected growth, store development and expansion strategy, business strategies, future revenues and future performance, including our future free cash flow and earnings per share. These forward-looking statements are subject to risks, uncertainties and assumptions including, but not limited to, competitive pressures, demand for the Company's products, the market for auto parts, the economy in general, inflation, consumer debt levels, the weather, and other risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Actual results may materially differ from anticipated results described in these forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of the news release and does not undertake to update or revise them, as more information becomes available.
Advance Auto Parts, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands) July 12, December 28, July 13, 2003 2002 2002 Assets Current assets: Cash and cash equivalents $46,074 $13,885 $39,544 Receivables, net 93,350 102,574 118,101 Inventories, net 1,079,884 1,048,803 1,074,653 Other current assets 34,664 20,210 49,970 Total current assets 1,253,972 1,185,472 1,282,268 Property and equipment, net 711,222 728,432 715,697 Assets held for sale 24,897 28,346 46,200 Other assets, net 11,997 22,975 25,933 $2,002,088 $1,965,225 $2,070,098 Liabilities and Stockholders' Equity Current liabilities: Bank overdrafts $14,372 $869 $- Current portion of long-term debt 4,577 10,690 11,549 Accounts payable 591,827 470,740 585,119 Accrued expenses 207,055 208,176 209,192 Other current liabilities 44,068 32,101 39,676 Total current liabilities 861,899 722,576 845,536 Long-term debt 531,512 724,832 762,270 Other long-term liabilities 67,698 49,461 35,400 Total stockholders' equity 540,979 468,356 426,892 $2,002,088 $1,965,225 $2,070,098 NOTE: These balance sheets do not include the footnotes required by generally accepted accounting principles for complete financial statements. Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Operations Twelve Week Periods Ended (in thousands, except per share data) July 12, 2003 Adjustment for Non-recurring Comparable GAAP Items 2003 Net sales $839,168 $- $839,168 Cost of sales, including purchasing and warehousing costs 457,881 - 457,881 Gross profit 381,287 - 381,287 Selling, general and administrative expenses 303,310 (2,890) (a) 300,420 Operating income 77,977 2,890 80,867 Other, net: Interest expense (7,182) - (7,182) Loss on extinguishment of debt (254) - (254) Other income, net 121 - 121 Total other, net (7,315) - (7,315) Income before provision for income taxes 70,662 2,890 73,552 Provision for income taxes 27,204 1,113 (b) 28,317 Net income $43,458 $1,777 $45,235 Net income per share: Basic $1.19 $0.05 $1.24 Diluted 1.16 0.05 1.21 Average common shares outstanding (c) 36,546 36,546 36,546 Dilutive effect of stock options 869 869 869 Average common shares outstanding - assuming dilution 37,415 37,415 37,415 (a) Represents the non-recurring merger and integration expenses associated with the integration of the Discount Auto Parts operations. (b) This adjustment reflects the tax impact for the non-recurring items discussed above at a 38.5% effective tax rate. (c) Average common shares outstanding is calculated based on the weighted average number of shares outstanding for the quarter. At July 12, 2003, we had 36,686 shares outstanding. NOTE: These preliminary statements of operations have been prepared on a consistent basis with previously presented statements of operations and do not include the footnotes required by generally accepted accounting principles for complete financial statements. Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Operations Twenty-Eight Week Periods Ended (in thousands, except per share data) July 12, 2003 Adjustment for Non-recurring Comparable GAAP Items 2003 Net sales $1,872,705 $- $1,872,705 Cost of sales, including purchasing and warehousing costs 1,023,609 - 1,023,609 Gross profit 849,096 - 849,096 Selling, general and administrative expenses 696,586 (6,271) (a) 690,315 Operating income 152,510 6,271 158,781 Other, net: Interest expense (26,749) - (26,749) Loss on extinguishment of debt (47,141) 46,887 (b) (254) Other income, net 239 - 239 Total other, net (73,651) 46,887 (26,764) Income before provision for income taxes 78,859 53,158 132,017 Provision for income taxes 30,360 20,466 (c) 50,826 Net income $48,499 $32,692 $81,191 Net income per share: Basic $1.34 $0.90 $2.24 Diluted 1.31 0.89 2.20 Average common shares outstanding (d) 36,178 36,178 36,178 Dilutive effect of stock options 782 782 782 Average common shares outstanding - assuming dilution 36,960 36,960 36,960 (a) Represents the non-recurring merger and integration expenses associated with the integration of the Discount Auto Parts operations. (b) This adjustment reflects the deferred loan costs, unamortized discounts and the premiums paid upon the complete repurchase and retirement of our outstanding bonds during the first quarter of 2003. (c) This adjustment reflects the tax impact for the non-recurring items discussed above at a 38.5% effective tax rate. (d) Average common shares outstanding is calculated based on the weighted average number of shares outstanding for the quarter. At July 12, 2003, we had 36,686 shares outstanding. NOTE: These preliminary statements of operations have been prepared on a consistent basis with previously presented statements of operations and do not include the footnotes required by generally accepted accounting principles for complete financial statements. Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Operations Twelve Week Periods Ended (in thousands, except per share data) July 13, 2002 Adjustment for Non-recurring Comparable GAAP Items 2002 Net sales $792,717 $- $792,717 Cost of sales, including purchasing and warehousing costs 443,703 - 443,703 Gross profit 349,014 - 349,014 Selling, general and administrative expenses 291,764 (7,629) (a) 284,135 Operating income 57,250 7,629 64,879 Other, net: Interest expense (19,120) - (19,120) Loss on extinguishment of debt (12,458) 12,458 (b) - Other income, net 377 - 377 Total other, net (31,201) 12,458 (18,743) Income before provision for income taxes 26,049 20,087 46,136 Provision for income taxes 10,108 7,794 (c) 17,902 Net income $15,941 $12,293 $28,234 Net income per share: Basic $0.45 $0.35 $0.80 Diluted 0.44 0.33 0.77 Average common shares outstanding (d) 35,386 35,386 35,386 Dilutive effect of stock options 1,156 1,156 1,156 Average common shares outstanding - assuming dilution 36,542 36,542 36,542 (a) Represents the non-recurring merger and integration expenses associated with the integration of the Discount Auto Parts operations. (b) This adjustment reflects the current and deferred loan costs associated with the Company's refinancing of the tranche B term loan under its senior credit facility and reflects the ratable portion of deferred loan costs and the premium paid upon the repurchase and retirement of outstanding bonds. (c) This adjustment reflects the tax impact for the non-recurring items discussed above at a 38.8% effective tax rate. (d) Average common shares outstanding is calculated based on the weighted average number of shares outstanding for the quarter. At July 13, 2002, we had 35,665 shares outstanding. NOTE: These preliminary statements of operations have been prepared on a consistent basis with previously presented statements of operations and do not include the footnotes required by generally accepted accounting principles for complete financial statements. Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Operations Twenty-Eight Week Periods Ended (in thousands, except per share data) July 13, 2002 Adjustment for Non-recurring Comparable GAAP Items 2002 Net sales $1,796,804 $- $1,796,804 Cost of sales, including purchasing and warehousing costs 1,011,282 - 1,011,282 Gross profit 785,522 - 785,522 Selling, general and administrative expenses 679,918 (18,194) (a) 661,724 Operating income 105,604 18,194 123,798 Other, net: Interest expense (46,718) - (46,718) Loss on extinguishment of debt (13,724) 13,724 (b) - Other income, net 650 - 650 Total other, net (59,792) 13,724 (46,068) Income before provision for income taxes 45,812 31,918 77,730 Provision for income taxes 17,775 12,384 (c) 30,159 Net income $28,037 $19,534 $47,571 Net income per share: Basic $0.81 $0.57 $1.38 Diluted 0.79 0.54 1.33 Average common shares outstanding (d) 34,498 34,498 34,498 Dilutive effect of stock options 1,212 1,212 1,212 Average common shares outstanding - assuming dilution 35,710 35,710 35,710 (a) Represents the non-recurring merger and integration expenses associated with the integration of the Discount Auto Parts operations. (b) This adjustment reflects the current and deferred loan costs associated with the Company's refinancing of the tranche B term loan under its senior credit facility and reflects the ratable portion of deferred loan costs and the premium paid upon the repurchase and retirement of outstanding bonds. (c) This adjustment reflects the tax impact for the non-recurring items discussed above at a 38.8% effective tax rate. (d) Average common shares outstanding is calculated based on the weighted average number of shares outstanding for the quarter. At July 13, 2002, we had 35,665 shares outstanding. NOTE: These preliminary statements of operations have been prepared on a consistent basis with previously presented statements of operations and do not include the footnotes required by generally accepted accounting principles for complete financial statements. Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Cash Flows Twenty-Eight Week Periods Ended (in thousands, except per share data) July 12, July 13, 2003 2002 Cash flows from operating activities: Net income $48,499 $28,037 Depreciation 53,807 48,983 Loss on extinguishment of debt 47,141 13,724 Provision for deferred income taxes 30,142 17,706 Other non-cash adjustments to net income 10,742 15,764 Decrease (increase) in: Receivables, net 9,224 (24,397) Inventories, net (31,081) (101,427) Other assets (18,609) (18,005) Increase (decrease) in: Accounts payable 121,087 156,078 Accrued expenses 6,687 40,589 Other liabilities (1,707) 4,852 Net cash provided by operating activities 275,932 181,904 Cash flows from investing activities: Purchases of property and equipment (50,595) (46,638) Proceeds from sales of property and equipment 8,974 9,410 Net cash used in investing activities (41,621) (37,228) Cash flows from financing activities: Increase in bank overdrafts 13,503 (34,748) Early extinguishment of debt, including debt related costs (551,374) (429,214) Net borrowings under the credit facility 348,300 240,000 Payment of debt related costs (36,895) (8,098) Proceeds from the exercise of stock options 18,824 16,089 Proceeds from the issuance of common stock - 88,695 Other net financing activities 5,520 4,027 Net cash used in financing activities (202,122) (123,249) Increase in cash and cash equivalents 32,189 21,427 Cash and cash equivalents, beginning of period 13,885 18,117 Cash and cash equivalents, end of period $46,074 $39,544 NOTE: These preliminary statements of cash flows have been prepared on a consistent basis with previously presented statements of cash flows and do not include the footnotes required by generally accepted accounting principles for complete financial statements.