Delivered Net Sales of $2.7 Billion Increased
on Balance Sheet Liquidity by $1 Billion Declares $0.25 Quarterly
Cash Dividend Published 2nd Annual Corporate Sustainability and
Social Report
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive
aftermarket parts provider in North America, that serves both
professional installer and do-it-yourself customers, today
announced its financial results for the first quarter ended April
18, 2020.
“During the first quarter of 2020, Advance was significantly
impacted by COVID-19,” said Tom Greco, President and Chief
Executive Officer. “As we disclosed previously, stay at home orders
in all of our markets from mid-March to the end of our first
quarter ending April 18th resulted in significantly reduced car
counts in our professional business and less retail traffic in DIY.
As an essential business, I could not be prouder of how our Team
Members and Independent Partners continued to serve our customers
with CARE and SPEED during this difficult time. In terms of CARE,
nothing is more important than the health and safety of our Team
Members and customers. We responded to the pandemic with urgency
making significant investments in PPE to help keep our Team Members
and customers safe. In terms of SPEED, we repurposed investments in
digital, eCommerce and marketing to launch our mobile app along
with a new suite of services we’ve branded 'Advance Same Day' for
DIY customers. We supported our professional customers by providing
contact free delivery options and virtual, instructor-led training
courses. We did this while remaining focused on our financial
priorities, including increasing on balance sheet liquidity by $1
billion and continuing to return cash to shareholders through our
recently declared $0.25 per share quarterly cash dividend. Our hard
work in strengthening our balance sheet has allowed us to remain
committed to the increased dividend we announced earlier this
year.
Mr. Greco concluded, “No matter how challenging this crisis has
been, we remain steadfast in our vision of Advancing a World in
Motion. This entails driving financial performance as we develop
our people, reduce our environmental impact and give back to our
communities. These themes are brought to life in our 2019 Corporate
Sustainability and Social report, which we are pleased to publish
in conjunction with our Q1 results. We expect that we will emerge
from this difficult time stronger by continuing to focus on our
people, our planet and the communities we serve, and by delivering
for our customers with CARE and SPEED.”
Business Highlights
Protecting P&L and Preserving
Cash
- Prioritized initiatives that the Company believes have the best
return on investment including cross banner replenishment, single
finance ERP and launch of DieHard®
- Reviewed all, and reduced or differed many, operating costs and
investments remaining for 2020, given the lower sales environment
from COVID-19
- Increased on balance sheet liquidity by $1 billion
Second Quarter Observations to
Date(1)
- Through the first four weeks of the second quarter, comparable
store sales improved significantly each week
- Quarter to date comparable store sales are approximately in
line with the prior year with DIY omnichannel growing double digits
and significantly outperforming DIFM segment
- While many uncertainties remain with respect to factors that
drive demand, the Company expects that DIFM sales will continue to
improve as stay at home orders are lifted
(1) The information is based on preliminary internal sales data
available as of the date of this release and, given market
uncertainties, may not be representative of future periods or the
Company’s results for the second quarter of 2020.
First Quarter 2020 Financial Results
Net sales for the first quarter of 2020 were $2.7 billion, an
8.6% decrease versus the first quarter of the prior year.
Comparable store sales for the first quarter of 2020 decreased
9.3%.
Adjusted gross profit decreased 10.9% to $1.2 billion, primarily
due to significantly lower sales volume. Adjusted gross profit
margin was 43.5% of Net sales in the first quarter of 2020, a 113
basis point decrease from the first quarter of 2019, due to supply
chain deleverage, product mix and tariff related cost increases,
which were partially offset by pricing and the reduced impact of
the LIFO accounting method. The Company's GAAP Gross profit margin
decreased to 43.5% from 44.2% in the first quarter of the prior
year.
Adjusted SG&A decreased $4.6 million to $1.1 billion driven
by reductions in labor related costs and a decrease in professional
services. The savings were partially offset by approximately $16
million of increased costs related to COVID-19. As a result,
Adjusted SG&A was 39.6% of Net sales in the first quarter of
2020, which declined 326 basis points as compared to the first
quarter of 2019. Despite significant actions taken late in the
first quarter, the savings did not fully offset the rapid decline
of revenue. The Company's GAAP SG&A was 40.6% of Net sales in
the first quarter of 2020 compared to 37.2% in the first quarter of
2019.
The Company's Adjusted operating income was $104.3 million in
the first quarter of 2020, a decrease of 57.2% versus the first
quarter of the prior year. Adjusted operating income margin was
3.9% of Net sales for the first quarter, a decrease of 439 basis
points compared to the first quarter of the prior year. On a GAAP
basis, the Company's Operating income was $78.4 million, or 2.9% of
Net sales, a decline of 414 basis points from the first quarter of
2019.
The Company's effective tax rate in the first quarter of 2020
was 27.6%, compared to 25.3% in the first quarter of the prior
year. The Company's Adjusted Diluted EPS was $0.91 for the first
quarter of 2020, a decrease of 63.0% compared to the first quarter
of the prior year. On a GAAP basis, the Company's Diluted EPS
decreased 68.2% to $0.63.
Operating cash flow was $10.9 million through the first quarter
of 2020 versus $204.5 million in the same period of the prior year,
a decrease of 94.7%. Free cash flow through the first quarter of
2020 was negative $72.1 million, a decrease of 150.3% compared to
the same period of the prior year.
2020 Full Year Guidance
The Company withdrew guidance on April 9th, 2020 and given
uncertainties related to the full impact of the COVID-19 pandemic,
the Company is not providing guidance at this time.
Capital Allocation
On November 8, 2019, our Board of Directors authorized a $700.0
million share repurchase program as an addition to the previous
$400.0 million share repurchase program that was authorized by our
Board of Directors in August 2019. During the first quarter, the
Company repurchased 0.2 million shares of its common stock at an
aggregate amount of $29.0 million, or an average price of $128.36
per share, in connection with the share repurchase program. At the
end of the first quarter of 2020, the Company had $861.7 million
remaining under the share repurchase program. During the quarter,
the Company has suspended its activity under share repurchase
program.
On May 15, 2020 the Company declared a regular cash dividend of
$0.25 per share to be paid on July 03, 2020 to all common
stockholders of record as of June 13, 2020.
During the quarter, the Company drew down $500 million from its
previously undrawn $1 billion revolving credit facility, which may
be increased to $1.25 billion based on customary requirements.
On April 16, 2020, the Company closed on $500 million in
aggregate principal amount of its 3.9% Notes due 2030 in a private
placement.
Investor Conference Call
The Company will host a webcast to discuss its results for the
first quarter of 2020 and other business updates scheduled to begin
at 8 a.m. Eastern Time on Tuesday, May 19, 2020. The webcast will
be accessible via the Investor Relations page of the Company's
website (www.AdvanceAutoParts.com).
For individuals unable to access the webcast, the event will be
available by dialing (833) 921-1650 and referencing conference
identification number 2134447. A replay of the conference call will
be available on the Company's website for one year.
About Advance Auto Parts
Advance Auto Parts, Inc. is a leading automotive aftermarket
parts provider that serves both professional installer and
do-it-yourself customers. As of April 18, 2020, Advance operated
4,843 stores and 168 Worldpac branches in the United States,
Canada, Puerto Rico and the U.S. Virgin Islands. The Company also
serves 1,258 independently owned Carquest branded stores across
these locations in addition to Mexico, the Bahamas, Turks and
Caicos and British Virgin Islands. Additional information about
Advance, including employment opportunities, customer services, and
online shopping for parts, accessories and other offerings can be
found at www.AdvanceAutoParts.com.
Forward-Looking Statements
Certain statements herein are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are usually identifiable by
words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “forecast,” “intend,” “likely,” “may,” “plan,”
“position,” “possible,” “potential,” “probable,” “project,”
“should,” “strategy,” “will,” or similar language. All statements
other than statements of historical fact are forward-looking
statements, including, but not limited to, statements about the
Company's strategic initiatives, operational plans and objectives,
and future business and financial performance, as well as
statements regarding underlying assumptions related thereto.
Forward-looking statements reflect the Company's views based on
historical results, current information and assumptions related to
future developments. Except as may be required by law, the Company
undertakes no obligation to update any forward-looking statements
made herein. Forward-looking statements are subject to a number of
risks and uncertainties that could cause actual results to differ
materially from those projected or implied by the forward-looking
statements. They include, among others, factors related to the
timing and implementation of strategic initiatives, the highly
competitive nature of the Company's industry, demand for the
Company's products and services, complexities in the Company's
inventory and supply chain, and challenges with transforming and
growing the Company's business, as well as factors related to the
current global pandemic, including, but not limited to, the spread
of COVID-19, regulatory measures or voluntary actions that may be
adopted such as temporary store closures or enhanced health and
safety practices, macroeconomic impacts, business disruptions and
changes in customer demand. Please refer to “Item 1A. Risk
Factors.” of the Company's most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission, as updated by
the Company's subsequent filings with the Commission, for a
description of these and other risks and uncertainties that could
cause actual results to differ materially from those projected or
implied by the forward-looking statements.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
(unaudited)
April 18, 2020 (a)
December 28, 2019 (b)
Assets
Current assets:
Cash and cash equivalents
$
1,279,838
$
418,665
Receivables, net
627,405
689,469
Inventories
4,526,003
4,432,168
Other current assets
138,749
155,241
Total current assets
6,571,995
5,695,543
Property and equipment, net
1,444,478
1,433,213
Operating lease right-of-use
assets
2,319,511
2,365,325
Goodwill
989,112
992,240
Intangible assets, net
698,032
709,756
Other assets
49,444
52,448
$
12,072,572
$
11,248,525
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable
$
3,304,207
$
3,421,987
Accrued expenses
528,156
535,863
Short-term borrowings on revolving credit
facility
500,000
—
Other current liabilities
498,686
519,852
Total current liabilities
4,831,049
4,477,702
Long-term debt, less current
portion
1,241,094
747,320
Noncurrent operating lease
liabilities
1,996,156
2,017,159
Deferred income taxes
333,265
334,013
Other long-term liabilities
133,979
123,250
Total stockholders' equity
3,537,029
3,549,081
$
12,072,572
$
11,248,525
(a)
This preliminary condensed consolidated balance sheet has been
prepared on a basis consistent with the Company's previously
prepared balance sheets filed with the Securities and Exchange
Commission (“SEC”), but does not include the footnotes required by
accounting principles generally accepted in the United States of
America (“GAAP”).
(b)
The balance sheet at December 28, 2019 has been derived from the
audited consolidated financial statements at that date, but does
not include the footnotes required by GAAP.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per share
data)
(unaudited)
Sixteen Weeks Ended
April 18, 2020 (a)
April 20, 2019 (a)
Net sales
$
2,697,882
$
2,952,036
Cost of sales, including purchasing and
warehousing costs
1,525,149
1,647,424
Gross profit
1,172,733
1,304,612
Selling, general and administrative
expenses
1,094,308
1,096,672
Operating income
78,425
207,940
Other, net:
Interest expense
(12,243)
(14,944)
Other expense, net
(5,989)
(2,238)
Total other, net
(18,232)
(17,182)
Income before provision for income
taxes
60,193
190,758
Provision for income taxes
16,605
48,258
Net income
$
43,588
$
142,500
Basic earnings per common share
$
0.63
$
1.99
Weighted average common shares
outstanding
69,181
71,787
Diluted earnings per common share
$
0.63
$
1.98
Weighted average common shares
outstanding
69,392
72,103
(a)
These preliminary condensed consolidated statements of cash
flows have been prepared on a consistent basis with the Company's
previously prepared statements of cash flows filed with the SEC,
but do not include the footnotes required by GAAP.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Sixteen Weeks Ended
April 18, 2020 (a)
April 20, 2019 (a)
Net income
$
43,588
$
142,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
78,579
69,885
Share-based compensation
13,809
10,984
Provision (benefit) for deferred income
taxes
146
(250)
Other, net
1,415
11,473
Net change in:
Receivables, net
59,303
(58,757)
Inventories
(104,899)
(68,742)
Accounts payable
(112,459)
102,941
Accrued expenses
(1,824)
(62,751)
Other assets and liabilities, net
33,250
57,259
Net cash provided by operating
activities
10,908
204,542
Cash flows from investing
activities:
Purchases of property and equipment
(82,973)
(61,312)
Purchase of an indefinite-lived intangible
asset
(230)
—
Proceeds from sales of property and
equipment
71
553
Net cash used in investing activities
(83,132)
(60,759)
Cash flows from financing
activities:
Redemption of senior unsecured notes
—
(50,578)
Proceeds from borrowings on credit
facility
500,000
—
Proceeds from issuance of senior unsecured
notes
498,240
—
Redemption of senior unsecured notes
—
(310,047)
Dividends paid
(21,593)
(8,723)
Proceeds from the issuance of common
stock
735
678
Repurchases of common stock
(35,761)
(134,291)
Other, net
(4,763)
(215)
Net cash used in (provided by) financing
activities
936,858
(503,176)
Effect of exchange rate changes on
cash
(3,461)
196
Net increase (decrease) in cash and
cash equivalents
861,173
(359,197)
Cash and cash equivalents,
beginning of period
418,665
896,527
Cash and cash equivalents, end of
period
$
1,279,838
$
537,330
(a)
These preliminary condensed consolidated
statements of operations have been prepared on a basis consistent
with the Company's previously prepared statements of operations
filed with the SEC, but do not include the footnotes required by
GAAP.
Reconciliation of Non-GAAP Financial
Measures
The Company's financial results include certain financial
measures not derived in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
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. The Company has presented these non-GAAP financial
measures as it believes that the presentation of its financial
results that exclude (1) transformation expenses under our
strategic business plan; (2) non-cash amortization related to the
acquired General Parts International, Inc. (“GPI”) intangible
assets; and (3) other non-recurring adjustments 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 the Company's current operating
results with past periods and with the operational performance of
other companies in its industry. The disclosure of these measures
allows investors to evaluate the Company's performance using the
same measures management uses in developing internal budgets and
forecasts and in evaluating management’s compensation. Included
below is a description of the expenses that the Company has
determined are not normal, recurring cash operating expenses
necessary to operate its business and the rationale for why
providing these measures is useful to investors as a supplement to
the GAAP measures.
Transformation Expenses — Costs
incurred in connection with the Company's business plan that
focuses on specific transformative activities that relate to the
integration and streamlining of its operating structure across the
enterprise, that the Company does not view to be normal cash
operating expenses. These expenses will include, but not be limited
to the following:
- Restructuring costs - Costs primarily relating to the early
termination of lease obligations, asset impairment charges, other
facility closure costs and Team Member severance in connection with
the Company's 2018 Store Rationalization plan and 2017 Store and
Supply Chain and Rationalization plan.
- Third-party professional services - Costs primarily relating to
services rendered by vendors for assisting the Company with the
development of various information technology and supply chain
projects in connection with the Company's enterprise integration
initiatives.
- Other significant costs - Costs primarily relating to
accelerated depreciation of various legacy information technology
and supply chain systems in connection with the Company's
enterprise integration initiatives and temporary off-site workspace
for project teams who are primarily working on the development of
specific transformative activities that relate to the integration
and streamlining of the Company's operating structure across the
enterprise.
GPI Amortization of Acquired Intangible
Assets — As part of the Company's acquisition of GPI, they
obtained various intangible assets, including customer
relationships, non-compete contracts and favorable leases
agreements, which they expect to be subject to amortization through
2025.
Reconciliation of
Adjusted Net Income and Adjusted EPS:
Sixteen Weeks Ended
(in thousands, except per share
data)
April 18, 2020
April 20, 2019
Net income (GAAP)
$
43,588
$
142,500
Cost of sales adjustments:
Transformation expenses:
Restructuring costs
—
281
Other significant costs
1,253
—
Other adjustment (a)
—
13,009
SG&A adjustments:
GPI amortization of acquired intangible
assets
8,443
8,459
Transformation expenses:
Restructuring costs
4,064
5,550
Third-party professional services
2,983
6,855
Other significant costs
9,160
1,525
Other income adjustment (b)
—
10,756
Provision for income taxes on adjustments
(c)
(6,476)
(11,609)
Adjusted net income (Non-GAAP)
$
63,015
$
177,326
Diluted earnings per share (GAAP)
$
0.63
$
1.98
Adjustments, net of tax
0.28
0.48
Adjusted EPS (Non-GAAP)
$
0.91
$
2.46
(a)
During the sixteen weeks ended April 20, 2019, the Company made
an out-of-period correction, which increased Cost of sales by $13.0
million, related to received not invoiced inventory.
(b)
During the sixteen weeks ended April 20, 2019, the Company
incurred charges relating to a make-whole provision and debt
issuance costs of $10.1 million and $0.7 million resulting from the
early redemption of its 2020 senior unsecured notes.
(c)
The income tax impact of non-GAAP adjustments is calculated
using the estimated tax rate in effect for the respective non-GAAP
adjustments.
Reconciliation of
Adjusted Gross Profit:
Sixteen Weeks Ended
(in thousands)
April 18, 2020
April 20, 2019
Gross profit (GAAP)
$
1,172,733
$
1,304,612
Gross profit adjustments
1,253
13,290
Adjusted gross profit (Non-GAAP)
$
1,173,986
$
1,317,902
Reconciliation of
Adjusted Selling, General and Administrative
Expenses:
Sixteen Weeks Ended
(in thousands)
April 18, 2020
April 20, 2019
SG&A (GAAP)
$
1,094,308
$
1,096,672
SG&A adjustments
(24,650)
(22,389)
Adjusted SG&A (Non-GAAP)
$
1,069,658
$
1,074,283
Reconciliation of
Adjusted Operating Income:
Sixteen Weeks Ended
(in thousands)
April 18, 2020
April 20, 2019
Operating income (GAAP)
$
78,425
$
207,940
Cost of sales and SG&A adjustments
25,903
35,679
Adjusted operating income (Non-GAAP)
$
104,328
$
243,619
NOTE: Adjusted gross profit, Adjusted gross profit margin
(calculated by dividing Adjusted gross profit by Net sales),
Adjusted SG&A, Adjusted SG&A as a percentage of Net sales,
Adjusted operating income and Adjusted operating income margin
(calculated by dividing Adjusted operating income by Net sales) are
non-GAAP measures. Management believes these non-GAAP measures are
important metrics in assessing the overall performance of the
business and utilizes these metrics in its ongoing reporting. On
that basis, management believes it is useful to provide these
metrics to investors and prospective investors to evaluate the
Company’s operating performance across periods adjusting for these
items (refer to the reconciliations of non-GAAP adjustments above).
These non-GAAP measures might not be calculated in the same manner
as, and thus might not be comparable to, similarly titled measures
reported by other companies. Non-GAAP measures should not be used
by investors or third parties as the sole basis for formulating
investment decisions, as they may exclude a number of important
cash and non-cash recurring items.
Reconciliation of Free Cash
Flow:
Sixteen Weeks Ended
(In thousands)
April 18, 2020
April 20, 2019
Cash flows from operating activities
$
10,908
$
204,542
Purchases of property and equipment
(82,973)
(61,312)
Free cash flow
$
(72,065)
$
143,230
NOTE: Management uses Free cash flow as a measure of its
liquidity and believes it is a useful indicator to investors or
potential investors of the Company's ability to implement growth
strategies and service debt. Free cash flow is a non-GAAP measure
and should be considered in addition to, but not as a substitute
for, information contained in the Company's condensed consolidated
statement of cash flows as a measure of liquidity.
Adjusted Debt to Adjusted
EBITDAR:
Four Quarters Ended
(In thousands, except adjusted
debt to adjusted EBITDAR ratio)
April 18, 2020
December 28, 2019
Total GAAP debt
$
1,741,094
$
747,320
Add: Operating lease liabilities
2,440,996
2,495,141
Adjusted debt
4,182,090
3,242,461
GAAP Net income
387,984
486,896
Depreciation and amortization
247,065
238,371
Interest expense
37,197
39,898
Other (expense) income, net
3,287
(464)
Provision for income taxes
119,197
150,850
Restructuring costs
20,416
22,181
Third-party professional services
31,713
35,585
Other significant costs
28,422
19,537
Transformation expenses
80,551
77,303
Other adjustments (a)
—
23,936
Total net adjustments
487,297
529,894
Adjusted EBITDA
875,281
1,016,790
Rent expense
549,776
552,027
Share-based compensation
40,263
37,438
Adjusted EBITDAR
$
1,465,320
$
1,606,255
Adjusted Debt to Adjusted
EBITDAR
2.9
2.0
(a)
The adjustments to the four quarters ended December 28, 2019
primarily represent an out-of-period correction related to received
not invoiced inventory and charges incurred relating to a
make-whole provision and debt issuance costs resulting from the
early redemption of our 2020 Notes.
NOTE: Management believes its Adjusted Debt to Adjusted EBITDAR
ratio (“leverage ratio”) is a key financial metric for debt
securities, as reviewed by rating agencies, and believes its debt
levels are best analyzed using this measure. The Company’s goal is
to maintain a 2.5 times leverage ratio and investment grade rating.
The Company's credit rating directly impacts the interest rates on
borrowings under its existing credit facility and could impact the
Company's ability to obtain additional funding. If the Company was
unable to maintain its investment grade rating this could
negatively impact future performance and limit growth
opportunities. Similar measures are utilized in the calculation of
the financial covenants and ratios contained in the Company's
financing arrangements. The leverage ratio calculated by the
Company is a non-GAAP measure and should not be considered a
substitute for debt to net earnings, net earnings or debt as
determined in accordance with GAAP. The Company adjusts the
calculation to remove rent expense and to add back the Company’s
existing operating lease liabilities related to their right-of-use
assets to provide a more meaningful comparison with the Company’s
peers and to account for differences in debt structures and leasing
arrangements. The Company’s calculation of its leverage ratio might
not be calculated in the same manner as, and thus might not be
comparable to, similarly titled measures by other companies.
Store Information
During the sixteen weeks ended April 18, 2020, 2 stores and
branches were opened and 28 were closed or consolidated, resulting
in a total of 5,011 stores and branches as of April 18, 2020,
compared to a total of 5,037 stores and branches as of December 28,
2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200519005497/en/
Investor Relations: Elisabeth Eisleben T: (919) 227-5466
E: invrelations@advanceautoparts.com
Media: Darryl Carr T: (984) 389-7207 E:
darryl.carr@advance-auto.com
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