Industry Press Releases

Advance Auto Parts Reports First Quarter Fiscal 2015 Comparable Cash EPS Growth of 6.2% to $2.39

Friday, May 22, 2015
Pressreleases

Advance Auto Parts, Inc. (NYSE: AAP), the largest automotive aftermarket parts provider in North America, serving both professional installer and do-it-yourself customers, today announced its financial results for the first quarter ended April 25, 2015. First quarter comparable cash earnings per diluted share (Comparable Cash EPS) were $2.39, an increase of 6.2% versus the first quarter last year. These first quarter comparable results exclude $0.11 of amortization of acquired intangible assets and integration costs of $0.28 primarily associated with the acquisition of General Parts International, Inc. (General Parts).

 
Comparable First Quarter Performance Summary (1,2)
                       
                Sixteen Weeks Ended
                April 25,
2015
    April 19,
2014
                       
Sales (in millions)               $ 3,038.2       $ 2,969.5  
                       
Comp Store Sales %               0.7 %     2.4 %
                       
Gross Profit (in millions)               $ 1,393.9       $ 1,353.1  
                       
Comparable SG&A (in millions)               $ 1,085.6       $ 1,068.7  
                       
Comparable Operating Income (in millions)               $ 308.3       $ 284.4  
                       
Comparable Cash EPS               $ 2.39       $ 2.25  
                       
Avg Diluted Shares (in thousands)               73,653       73,355  
     

(1)

 

Fiscal 2015 and 2014 include certain non-comparable expenses. The Comparable SG&A, Comparable Operating Income and Comparable Cash EPS for the sixteen weeks ended April 25, 2015 and April 19, 2014, respectively, have been reported on a comparable basis to exclude General Parts integration and store consolidation costs of $32.7 million and $15.5 million, respectively, and General Parts amortization of acquired intangible assets of $13.0 million and $13.1 million, respectively. For a better understanding of the Company's comparable results, refer to the presentation of the respective financial measures on a GAAP basis and reconciliation of the financial results reported on a comparable basis to the GAAP basis in the accompanying financial tables in this press release.

     

(2)

 

Consistent with its comparable store sales policy, the Company has included the sales from the Carquest stores and Worldpac branches in its comparable store sales beginning with the Company's second fiscal period of 2015.

 “I would like to thank all our Team Members for their hard work during the first quarter of 2015,” said Darren R. Jackson, Chief Executive Officer. “As we enter our second year of the General Parts integration, we remain very confident with the growth, service and earnings potential of the combined companies. We have undertaken the industry’s largest acquisition and just completed our heaviest quarter of integration activities to-date. Our first quarter comparable store sales increased 0.7% and Comparable Cash EPS grew 6.2% to $2.39. While these results did not meet our high expectations, we remain confident in our integration plan and are focused on executing the foundational work necessary to deliver the full potential of the combination.”

First Quarter 2015 Highlights

Total sales for the first quarter increased 2.3% to $3.04 billion, as compared with total sales during the first quarter of fiscal 2014 of $2.97 billion. The sales increase was driven by the addition of new stores over the past 12 months and a comparable store sales increase of 0.7%. Our sales were unfavorably impacted primarily from integration activities and unfavorable weather.

The Company's Gross Profit rate was 45.9% of sales during the first quarter as compared to 45.6% during the first quarter last year. The 31 basis-point increase in gross profit rate was primarily due to achieved merchandise cost synergies partially offset by the costs from our new Hartford, CT distribution center, which opened in late 2014.

The Company's Comparable SG&A rate was 35.7% of sales during the first quarter as compared to 36.0% during the same period last year. The 26 basis-point decrease was primarily the result of achieved cost synergies and lower incentive compensation partially offset by slightly higher advertising expenses. On a GAAP basis, the Company's SG&A rate was 37.2% of sales during the first quarter as compared to 37.0% during the same period last year.

The Company's Comparable Operating Income was $308.3 million during the first quarter, an increase of 8.4% versus the first quarter of fiscal 2014. As a percentage of sales, Comparable Operating Income in the first quarter was 10.1% compared to 9.6% during the first quarter of fiscal 2014. On a GAAP basis, the Company's operating income during the first quarter of $262.5 million increased 2.6% versus the first quarter of fiscal 2014. On a GAAP basis, the Operating Income rate was 8.6% during the first quarter as compared to 8.6% during the first quarter of fiscal 2014.

Operating cash flow increased approximately 26.0% to $102.2 million in the first quarter of fiscal 2015 from $81.1 million in the first quarter of fiscal 2014. Free cash flow increased to $45.2 million in the first quarter of fiscal 2015 from $20.6 million in the first quarter of fiscal 2014. Capital expenditures in the first quarter of fiscal 2015 were $57.0 million as compared to $60.5 million for the first quarter of fiscal 2014.

“Our first quarter results were softer than we expected primarily driven by the change impacts of our integration activities,” said Mike Norona, Executive Vice President and Chief Financial Officer. "Despite the softness, we were pleased that we delivered our synergy expectations and grew our Comparable Operating Income 8.4%."

2015 Full-Year Outlook

The Company’s integration activities have progressed to the operational phase of aligning the Company’s people, processes, systems and capabilities to a common foundation. These integration activities are an integral and necessary next step for the Company to leverage the full potential of the acquisition. In the first quarter of 2015, the Company executed a number of simultaneous customer-facing organizational changes including product and price alignment, integrating field organizational structures, aligning compensation programs and changing aspects of its customer processes. These activities were more taxing on the Company and impacted the first quarter results.

"Turning to the balance of the year, we do expect to see some continued short term business volatility from our integration activities, given that these changes were sequenced throughout the first quarter and our teams were still working through the changes as we exited the quarter," said Mike Norona, Executive Vice President and Chief Financial Officer. "It is prudent to build in the earnings miss we experienced in our first quarter and also factor in some continued integration headwinds into our results, primarily impacting commercial sales. We now expect our annual comparable store sales to be at the low end of the previously communicated range. As part of this outlook, we expect our share count to be 73.7 million shares, our tax rate to be in the range of 37.5% - 38% and our full-year interest expense to be approximately $64 million. As a result, we are revising our full year Comparable Cash EPS outlook down to $8.10 to $8.30. We are confident in our team’s ability to execute and our revised full year outlook reflects our best view of the short term change impacts from the integration. Our 2015 synergy estimates remain unchanged at $45 million to $55 million for the full year."

Store Information

As of April 25, 2015, the Company operated 5,235 stores and 115 Worldpac branches and served approximately 1,300 independently-owned Carquest stores. The below table summarizes the changes in the number of the company-operated stores and branches during the sixteen weeks ended April 25, 2015.

                                       
                  AAP   AI   BWP   CARQUEST   WORLDPAC   Total
                                       
January 3, 2015                 3,888     210     38     1,125     111     5,372  
New                 20             1     4     25  
Closed                 (6 )           (1 )       (7 )
Consolidated                 (1 )   (25 )   (2 )   (12 )       (40 )
Converted                 7     (4 )       (3 )        
April 25, 2015                 3,908     181     36     1,110     115     5,350  

 Dividend

On May 20, 2015, the Company's Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on July 2, 2015 to stockholders of record as of June 19, 2015.

Annual Stockholders' Meeting Announcements

The Company held its annual meeting of stockholders on May 20, 2015. During the meeting, the following individuals were elected to serve on the Company's Board of Directors for the next year: John F. Bergstrom, John C. Brouillard, Fiona P. Dias, John F. Ferraro, Darren R. Jackson, Adriana Karaboutis, William S. Oglesby, J. Paul Raines, Gilbert T. Ray, Carlos A. Saladrigas, O. Temple Sloan III, and Jimmie L. Wade.

The Company's stockholders voted to approve the compensation of the Company's named executive officers. The stockholders also ratified the appointment by the Company's Audit Committee of Deloitte & Touche LLP as its independent registered public accounting firm for 2015. A majority of the shares voted were cast against an advisory proposal regarding the ability of stockholders to act by written consent.

Investor Conference Call

The Company will host a conference call on Thursday, May 21, 2015, at 10:00 a.m. Eastern Time to discuss its quarterly results. To listen to the live call, please log on to the Company's website, www.AdvanceAutoParts.com, or dial (866) 908-1AAP. The call will be archived on the Company's website until May 21, 2016.

About Advance Auto Parts

Headquartered in Roanoke, Va., Advance Auto Parts, Inc., the largest automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. As of April 25, 2015 Advance operated 5,235 stores and 115 Worldpac branches and served approximately 1,300 independently-owned Carquest branded stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance employs approximately 74,000 Team Members. Additional information about the Company, employment opportunities, customer services, and on-line shopping for parts, accessories and other offerings can be found on the Company's website at www.AdvanceAutoParts.com.

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
                           
                  April 25,
2015
  January 3,
2015
  April 19,
2014
                           

Assets

                         
                           
Current assets:                          
Cash and cash equivalents                 $ 123,821     $ 104,671     $ 83,358
Receivables, net                 631,926     579,825     574,998
Inventories, net                 4,104,777     3,936,955     3,912,038
Other current assets                 76,341     119,589     70,515
Total current assets                 4,936,865     4,741,040     4,640,909
                           
Property and equipment, net                 1,397,950     1,432,030     1,425,923
Assets held for sale                 615     615     615
Goodwill                 993,276     995,426     1,025,239
Intangible assets, net                 729,765     748,125     789,825
Other assets, net                 88,224     45,122     44,434
                  $ 8,146,695     $ 7,962,358     $ 7,926,945
                           

Liabilities and Stockholders' Equity

                         
                           
Current liabilities:                          
Current portion of long-term debt                 $ 587     $ 582     $ 70,865
Accounts payable                 3,138,574     3,095,365     2,967,861
Accrued expenses                 536,931     520,673     551,642
Other current liabilities                 148,386     126,446     82,415
Total current liabilities                 3,824,478     3,743,066     3,672,783
                           
Long-term debt                 1,609,687     1,636,311     2,001,740
Other long-term liabilities                 565,942     580,069     585,791
Total stockholders' equity                 2,146,588     2,002,912     1,666,631
                  $ 8,146,695     $ 7,962,358     $ 7,926,945
                                     

NOTE: These preliminary condensed consolidated balance sheets have been prepared on a basis consistent with our previously prepared balance sheets filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by generally accepted accounting principles, or GAAP, for complete financial statements. Certain balance sheet lines as of April 19, 2014 have been adjusted for opening balance sheet entries made subsequent to our first quarter ended April 19, 2014.

 
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Sixteen Week Periods Ended
April 25, 2015 and April 19, 2014
(in thousands, except per share data)
(unaudited)
                         
    Q1 2015   Q1 2014
    As Reported  

Comparable
Adjustments (a)

  Comparable   As Reported  

Comparable
Adjustments (a)

  Comparable
                         
Net sales   $ 3,038,233     $     $ 3,038,233     $ 2,969,499     $     $ 2,969,499  
Cost of sales   1,644,309         1,644,309     1,616,377         1,616,377  
Gross profit   1,393,924         1,393,924     1,353,122         1,353,122  
Selling, general and administrative expenses   1,131,396     (45,751 )   1,085,645     1,097,320     (28,579 )   1,068,741  
Operating income   262,528     45,751     308,279     255,802     28,579     284,381  
Other, net:                        
Interest expense   (21,777 )       (21,777 )   (23,642 )       (23,642 )
Other income, net   (1,908 )       (1,908 )   603         603  
Total other, net   (23,685 )       (23,685 )   (23,039 )       (23,039 )
Income before provision for income taxes   238,843     45,751     284,594     232,763     28,579     261,342  
Provision for income taxes   90,731     17,385     108,116     85,037     10,860     95,897  
Net income   $ 148,112     $ 28,366     $ 176,478     $ 147,726     $ 17,719     $ 165,445  
                         
Basic earnings per share (b)   $ 2.02     $ 0.38     $ 2.40     $ 2.02     $ 0.24     $ 2.26  
Diluted earnings per share (b)   $ 2.00     $ 0.39     $ 2.39     $ 2.01     $ 0.24     $ 2.25  
                         
Average common shares outstanding (b)   73,122     73,122     73,122     72,869     72,869     72,869  
Average diluted common shares outstanding (b)   73,653     73,653     73,653     73,355     73,355     73,355  
     

(a)

 

The comparable adjustments to Selling, general and administrative expenses for Q1 2015 include General Parts integration and store consolidation costs of $32.7 million and General Parts amortization of acquired intangible assets of $13.0 million. The comparable adjustments to Selling, general and administrative expenses for Q1 2014 include General Parts integration and store consolidation costs of $15.5 million and General Parts amortization of acquired intangible assets of $13.1 million.

     

(b)

 

Average common shares outstanding is calculated based on the weighted average number of shares outstanding during the quarter. At April 25, 2015 and April 19, 2014, we had 73,168 and 72,947 shares outstanding, respectively.

     

NOTE: These preliminary condensed consolidated statements of operations have been prepared on a basis consistent with our previously prepared statements of operations filed with the Securities and Exchange Commission for our prior quarter and annual report, with the exception of the footnotes required by GAAP for complete financial statements and inclusion of certain non-GAAP adjustments and measures as described in footnote (a) above. Management believes the reporting of comparable results is important in assessing the overall performance of the business and is therefore useful for investors and prospective investors.

 
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Sixteen Week Periods Ended
April 25, 2015 and April 19, 2014
(in thousands)
(unaudited)
         
    April 25,
2015
  April 19,
2014
         
Cash flows from operating activities:        
Net income   $ 148,112     $ 147,726  
Depreciation and amortization   83,247     88,205  
Share-based compensation   8,945     7,133  
(Benefit) provision for deferred income taxes   (5,206 )   5,202  
Excess tax benefit from share-based compensation   (6,498 )   (4,165 )
Other non-cash adjustments to net income   6,189     1,247  
Increase in:        
Receivables, net   (53,526 )   (45,507 )
Inventories, net   (171,865 )   (196,062 )
Other assets   (845 )   (16,458 )
Increase (decrease) in:        
Accounts payable   45,678     101,381  
Accrued expenses   39,494     (10,739 )
Other liabilities   8,486     3,168  
Net cash provided by operating activities   102,211     81,131  
         
Cash flows from investing activities:        
Purchases of property and equipment   (57,038 )   (60,529 )
Business acquisitions, net of cash acquired   (433 )   (2,056,937 )
Proceeds from sales of property and equipment   295     33  
Net cash used in investing activities   (57,176 )   (2,117,433 )
Cash flows from financing activities:        
Increase (decrease) in bank overdrafts   11,628     (5,796 )
Net (payments) borrowings on credit facilities   (26,700 )   1,019,000  
Dividends paid   (8,813 )   (8,781 )
Proceeds from the issuance of common stock, primarily exercise of stock options   1,352     2,979  
Tax withholdings related to the exercise of stock appreciation rights   (7,572 )   (3,118 )
Excess tax benefit from share-based compensation   6,506     4,165  
Repurchase of common stock   (1,590 )   (615 )
Other   (118 )   (232 )
Net cash (used in) provided by financing activities   (25,307 )   1,007,602  
         
Effect of exchange rate changes on cash   (578 )   (413 )
         
Net increase (decrease) in cash and cash equivalents   19,150     (1,029,113 )
Cash and cash equivalents, beginning of period   104,671     1,112,471  
Cash and cash equivalents, end of period   $ 123,821     $ 83,358  
                 

NOTE: These preliminary condensed consolidated statements of cash flows have been prepared on a consistent basis with previously prepared statements of cash flows filed with the Securities and Exchange Commission for our prior quarter and annual report, but do not include the footnotes required by GAAP for complete financial statements.

 
Advance Auto Parts, Inc. and Subsidiaries
Supplemental Financial Schedules
Sixteen Week Periods Ended
April 25, 2015 and April 19, 2014
(in thousands)
(unaudited)
                       

Reconciliation of Free Cash Flow:

                     
                       
                  April 25,
2015
  April 19,
2014
                       
Cash flows from operating activities                 $ 102,211     $ 81,131  
Purchases of property and equipment                 (57,038 )   (60,529 )
Free cash flow                 $ 45,173     $ 20,602  
                               

NOTE: Management uses free cash flow as a measure of our liquidity and believes it is a useful indicator to stockholders of our ability to implement our growth strategies and service our debt. Free cash flow is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in our condensed consolidated statement of cash flows.

             

Adjusted Debt to EBITDAR:

         
(In thousands, except adjusted debt to EBITDAR ratio)   Four Quarters Ended
      April 25,
2015
  January 3,
2015
     

(Four Quarters
Ended)

  (53 weeks)  
Total debt   $ 1,610,274     $ 1,636,893  

Add:

Capitalized lease obligation (rent expense * 6)

  3,127,428     3,038,904  
Adjusted debt   4,737,702     4,675,797  
             
Operating income   858,436     851,710  

Add:

Comparable adjustments (a)

  99,417     82,234  
  Depreciation and amortization   280,351     284,693  
EBITDA   1,238,204     1,218,637  
Rent expense (less favorable lease amortization of $4,923 and $4,972, respectively)   521,238     506,484  
EBITDAR   $ 1,759,442     $ 1,725,121  
             
Adjusted Debt to EBITDAR   2.7     2.7  
     

(a)

 

The comparable adjustments to the four quarters ended April 25, 2015 include General Parts integration and store consolidation costs of $99.4 million. The comparable adjustments to Fiscal 2014 include General Parts integration and store consolidation costs of $82.2 million.

     

NOTE: Management believes its Adjusted Debt to EBITDAR ratio (“leverage ratio”) is a key financial metric and believes its debt levels are best analyzed using this measure. The Company’s goal is to quickly pay down debt resulting from the GPI acquisition, get back to a 2.5 times leverage ratio and to maintain an investment grade rating. The leverage ratio calculated by the Company is a non-GAAP measure and should not be considered a substitute for debt to net earnings, net earnings or debt as determined in accordance with GAAP. The Company’s calculation of its leverage ratio might not be calculated in the same manner as, and thus might not be comparable to, similarly titled measures by other companies.

         

First Quarter Performance Summary on a GAAP Basis(a):

       
         
    Sixteen Weeks Ended
    April 25,
2015
  April 19,
2014
         
Sales (in millions)   $ 3,038.2     $ 2,969.5  
         
Comp Store Sales %   0.7 %   2.4 %
         
Gross Profit (in millions)   $ 1,393.9     $ 1,353.1  
         
SG&A (in millions)   $ 1,131.4     $ 1,097.3  
         
Operating Income (in millions)   $ 262.5     $ 255.8  
         
Diluted EPS   $ 2.00     $ 2.01  
         
Avg Diluted Shares (in thousands)   73,653     73,355  
     
(a)  

These financial measures for the sixteen weeks ended April 25, 2015 have been reported on a GAAP basis which includes the impact of General Parts integration and store consolidation costs of $32.7 million and General Parts amortization of acquired intangible assets of $13.0 million. These financial measures for the sixteen weeks ended April 19, 2014 have been reported on a GAAP basis which includes the impact of General Parts integration and store consolidation costs of $15.5 million and General Parts amortization of acquired intangible assets of $13.1 million. These financial measures should be read in conjunction with our financial measures presented on a comparable basis earlier in this press release. Management believes the reporting of financial results on a non-GAAP basis to remain comparable is important in assessing the overall performance of our base business and is therefore useful for investors and prospective investors.

Contacts:

Advance Auto Parts, Inc.
Media:
Laurie Stacy, 540-561-8452
laurie.stacy@advanceautoparts.com
or
Investor:
Zaheed Mawani, 919-573-3848
zaheed.mawani@advanceautoparts.com

 

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