AAP Advance Auto Parts

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, announced its financial results for the second quarter ended July 13, 2024.

“Our team delivered positive comparable sales growth while navigating a challenging demand environment during the second quarter. I would like to thank the team for their hard work and dedication to serving our customers,” said Shane O’Kelly, president and chief executive officer. “We continue to make progress on our decisive actions with an increased focus on the Advance blended box. This morning, we announced the sale of Worldpac for $1.5 billion. This transaction is a critical milestone in our turnaround as it enables us to strengthen our balance sheet and streamline our focus. The next chapter of our strategic and operational review will now focus on the remaining Advance business, with the goal of improving our sales trajectory and the productivity of all our assets to deliver stronger returns for our shareholders.”

Second Quarter 2024 Results (1,2)

Second quarter 2024 net sales totaled $2.7 billion, which was flat compared with the second quarter of the prior year. Comparable store sales increased 0.4%.

The company's gross profit decreased 2.3% to $1.1 billion. Gross profit margin was 41.5% compared with 42.5% in the second quarter of the prior year. This was primarily due to the company's strategic pricing investments and higher product costs.

SG&A expenses were $1.0 billion, or 38.9% of net sales compared with 37.8% in the second quarter of 2023. This increase was primarily due to wage investments in frontline team members and an increase in professional fees, including costs associated with the implementation of the company's strategic plan and the remediation of the company’s previously-disclosed material weaknesses. This was partially offset by a reduction in marketing expenses.

The company's operating income was $71.8 million, or 2.7% of net sales compared with 4.7% in the second quarter of 2023.

The company's effective tax rate was 27.5%, compared with 26.4% in the second quarter of 2023. The company's diluted EPS was $0.75, compared with $1.32 in the second quarter of 2023.

Net cash provided by operating activities was $87.8 million through the second quarter of 2024 versus $167.1 million of cash used in operating activities in the same period of the prior year. Free cash flow through the second quarter of 2024 was an outflow of $4.6 million compared with an outflow of $312.0 million in the same period of the prior year.

Capital Allocation

On August 7, 2024, the company declared a regular cash dividend of $0.25 per share to be paid on October 25, 2024, to all common stockholders of record as of October 11, 2024.

_______________________________

(1) All comparisons are based on the same time period in the prior year. The company calculates comparable store sales based on the change in store or branch sales starting once a location has been open for approximately one year and by including e-commerce sales and excluding sales fulfilled by distribution centers to independently owned Carquest locations. Acquired stores are included in the company's comparable store sales one year after acquisition. The company includes sales from relocated stores in comparable store sales from the original date of opening.

(2) As reported in the company’s fourth quarter and full year 2023 earnings release, the company corrected non-material errors in certain previously reported financials. All comparisons are based on the corrected historical results as presented in the company’s prior earnings release dated February 29, 2024.

Full Year 2024 Guidance

 

 

As of August 22, 2024

($ in millions, except per share data)

 

Low

 

High

Net sales

 

$

11,150

 

 

$

11,250

 

Comparable store sales (1)

 

 

(1.0

)%

 

 

0.0

%

Operating income margin

 

 

2.1

%

 

 

2.5

%

Diluted EPS

 

$

2.00

 

 

$

2.50

 

Capital expenditures

 

$

200

 

 

$

250

 

Free cash flow (2)

 

Minimum $100

(1)

The company calculates comparable store sales based on the change in store or branch sales starting once a location has been open for approximately one year and by including e-commerce sales and excluding sales fulfilled by distribution centers to independently owned Carquest locations. Acquired stores are included in the company's comparable store sales one year after acquisition. The company includes sales from relocated stores in comparable store sales from the original date of opening.

(2)

Free cash flow is a non-GAAP measure. For a better understanding of the company's non-GAAP adjustments, refer to the reconciliation of non-GAAP financial measures in the accompanying financial tables.

Investor Conference Call

The company will detail its results for the second quarter ended July 13, 2024, via a webcast scheduled to begin at 8 a.m. Eastern Time on Thursday, August 22, 2024. The webcast will be accessible via the Investor Relations page of the company's website (ir.AdvanceAutoParts.com).

To join by phone, please pre-register online for dial-in and passcode information. Upon registering, participants will receive a confirmation with call details and a registrant ID. While registration is open through the live call, the company suggests registering a day in advance or at minimum 10 minutes before the start of the call. A replay of the conference call will be available on the company's Investor Relations website for one year.

About Advance Auto Parts

Advance Auto Parts, Inc. is a leading automotive aftermarket parts provider that serves both professional installers and do-it-yourself customers. As of July 13, 2024, Advance operated 4,776 stores and 321 Worldpac branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. The company also served 1,138 independently owned Carquest branded stores across these locations in addition to Mexico and various Caribbean 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, “guidance,” “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, statements about the sale of the company’s Worldpac business, including statements regarding the benefits of the sale and the anticipated timing of closing, statements regarding expectations for economic conditions, 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, the company’s ability to hire, train and retain qualified employees, the timing and implementation of strategic initiatives, deterioration of general macroeconomic conditions, geopolitical conflicts, the highly competitive nature of the industry, demand for the company’s products and services, the company’s ability to consummate the sale of Worldpac on a timely basis or at all, including failure to obtain the required regulatory approvals or to satisfy the other conditions to the closing, the company’s use of proceeds and ability to maintain credit ratings, access to financing on favorable terms, complexities in the company’s inventory and supply chain challenges with transforming and growing its business. 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 (“SEC”), as updated by the company’s subsequent filings with the SEC, 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)

 

 

July 13, 2024

 

December 30, 2023

 

(Unaudited)

 

(Audited)

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

479,418

 

$

503,471

Receivables, net

 

847,609

 

 

800,141

Inventories, net

 

4,903,490

 

 

4,857,702

Other current assets

 

229,623

 

 

215,707

Total current assets

 

6,460,140

 

 

6,377,021

Property and equipment, net

 

1,579,886

 

 

1,648,546

Operating lease right-of-use assets

 

2,596,201

 

 

2,578,776

Goodwill

 

990,266

 

 

991,743

Other intangible assets, net

 

577,275

 

 

593,341

Other assets

 

86,038

 

 

86,899

Total assets

$

12,289,806

 

$

12,276,326

Liabilities and Stockholders' Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

4,048,321

 

$

4,177,974

Accrued expenses

 

694,970

 

 

671,237

Other current liabilities

 

513,483

 

 

458,194

Total current liabilities

 

5,256,774

 

 

5,307,405

Long-term debt

 

1,787,867

 

 

1,786,361

Noncurrent operating lease liabilities

 

2,177,074

 

 

2,215,766

Deferred income taxes

 

375,658

 

 

362,542

Other long-term liabilities

 

85,681

 

 

84,524

Total stockholders' equity

 

2,606,752

 

 

2,519,728

Total liabilities and stockholders’ equity

$

12,289,806

 

$

12,276,326

Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data) (unaudited)

 

 

 

 

 

 

Twelve Weeks Ended

 

Twenty-Eight Weeks Ended

 

July 13, 2024

 

July 15, 2023 (1)

 

July 13, 2024

 

July 15, 2023 (1)

Net sales

$

2,683,053

 

 

$

2,686,066

 

 

$

6,089,307

 

 

$

6,103,659

 

Cost of sales, including purchasing and warehousing costs

 

1,568,745

 

 

 

1,545,611

 

 

 

3,545,924

 

 

 

3,501,277

 

Gross profit

 

1,114,308

 

 

 

1,140,455

 

 

 

2,543,383

 

 

 

2,602,382

 

Selling, general and administrative expenses

 

1,042,557

 

 

 

1,014,495

 

 

 

2,385,610

 

 

 

2,378,484

 

Operating income

 

71,751

 

 

 

125,960

 

 

 

157,773

 

 

 

223,898

 

Other, net:

 

 

 

 

 

 

 

Interest expense

 

(18,668

)

 

 

(20,869

)

 

 

(43,543

)

 

 

(50,587

)

Other income, net

 

9,011

 

 

 

1,684

 

 

 

7,720

 

 

 

1,009

 

Total other, net

 

(9,657

)

 

 

(19,185

)

 

 

(35,823

)

 

 

(49,578

)

Income before provision for income taxes

 

62,094

 

 

 

106,775

 

 

 

121,950

 

 

 

174,320

 

Provision for income taxes

 

17,103

 

 

 

28,198

 

 

 

36,947

 

 

 

47,420

 

Net income

$

44,991

 

 

$

78,577

 

 

$

85,003

 

 

$

126,900

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.75

 

 

$

1.32

 

 

$

1.43

 

 

$

2.14

 

Weighted-average common shares outstanding

 

59,633

 

 

 

59,451

 

 

 

59,590

 

 

 

59,384

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.75

 

 

$

1.32

 

 

$

1.42

 

 

$

2.13

 

Weighted-average common shares outstanding

 

59,905

 

 

 

59,604

 

 

 

59,868

 

 

 

59,570

 

(1)

The condensed consolidated statement of operations for the twelve and twenty-eight weeks ended July 15, 2023, reflects the correction of non-material errors the company discovered in previously reported results.

Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands) (unaudited)

 

 

 

 

 

Twenty-Eight Weeks Ended

 

July 13, 2024

 

July 15, 2023 (1)

Cash flows from operating activities:

 

 

 

Net income

$

85,003

 

 

$

126,900

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

167,443

 

 

 

162,974

 

Share-based compensation

 

27,653

 

 

 

26,791

 

(Gain) Loss and impairment of long-lived assets

 

(15,645

)

 

 

859

 

Provision for deferred income taxes

 

13,634

 

 

 

21,497

 

Other, net

 

2,076

 

 

 

1,628

 

Net change in:

 

 

 

Receivables, net

 

(49,546

)

 

 

(97,022

)

Inventories, net

 

(53,472

)

 

 

(148,918

)

Accounts payable

 

(125,351

)

 

 

(319,785

)

Accrued expenses

 

33,166

 

 

 

118,781

 

Other assets and liabilities, net

 

2,853

 

 

 

(60,836

)

Net cash provided by (used in) operating activities

 

87,814

 

 

 

(167,131

)

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

 

(92,445

)

 

 

(144,874

)

Proceeds from sales of property and equipment

 

12,820

 

 

 

1,532

 

Net cash used in investing activities

 

(79,625

)

 

 

(143,342

)

Cash flows from financing activities:

 

 

 

Borrowings under credit facilities

 

—

 

 

 

4,327,000

 

Payments on credit facilities

 

—

 

 

 

(4,417,000

)

Borrowings on senior unsecured notes

 

—

 

 

 

599,571

 

Dividends paid

 

(29,920

)

 

 

(179,347

)

Purchases of noncontrolling interests

 

(9,101

)

 

 

—

 

Proceeds from the issuance of common stock

 

1,788

 

 

 

2,060

 

Repurchases of common stock

 

(4,617

)

 

 

(13,808

)

Other, net

 

(1,143

)

 

 

(4,531

)

Net cash (used in) provided by financing activities

 

(42,993

)

 

 

313,945

 

Effect of exchange rate changes on cash

 

10,751

 

 

 

949

 

Net (decrease) increase in cash and cash equivalents

 

(24,053

)

 

 

4,421

 

Cash and cash equivalents, beginning of period

 

503,471

 

 

 

270,805

 

Cash and cash equivalents, end of period

$

479,418

 

 

$

275,226

 

(1)

The condensed consolidated statement of cash flows for the twenty-eight weeks ended July 15, 2023, reflects the correction of non-material errors the company discovered in previously reported results.

Restatement of Previously Issued Financial Statements

During the fiscal year ended December 30, 2023, the company identified errors primarily impacting cost of sales, selling, general and administrative costs and other income/expenses, net, incurred in prior years but not previously recognized. The company evaluated the errors and determined that the related impacts were not material to the previously issued consolidated financial statements for any prior period. A summary of the corrections to the impacted financial statement line items in the company's Consolidated Statement of Operations for the twelve and twenty-eight weeks ended July 15, 2023, and the company's Consolidated Statement of Cash Flows for the twenty-eight weeks ended July 15, 2023, included in the company's previously filed Annual Report on Form 10-K are presented below:

Condensed Consolidated Statement of Operations

 

July 15, 2023

 

Twelve Weeks Ended

 

Twenty-Eight Weeks Ended

(in thousands)

As Previously Reported

 

Adjustments

 

As Corrected

 

As Previously Reported

 

Adjustments

 

As Corrected

Cost of sales

$

1,537,997

 

$

7,614

 

 

$

1,545,611

 

$

3,484,927

 

$

16,350

 

 

$

3,501,277

Gross profit

 

1,148,069

 

 

(7,614

)

 

 

1,140,455

 

 

2,618,732

 

 

(16,350

)

 

 

2,602,382

Selling, general and administrative expenses

 

1,013,701

 

 

794

 

 

 

1,014,495

 

 

2,394,365

 

 

(15,881

)

 

 

2,378,484

Operating income

 

134,368

 

 

(8,408

)

 

 

125,960

 

 

224,367

 

 

(469

)

 

 

223,898

Income before provision for income taxes

 

115,183

 

 

(8,408

)

 

 

106,775

 

 

174,789

 

 

(469

)

 

 

174,320

Provision for income taxes

 

29,821

 

 

(1,623

)

 

 

28,198

 

 

46,776

 

 

644

 

 

 

47,420

Net income

$

85,362

 

$

(6,785

)

 

$

78,577

 

$

128,013

 

$

(1,113

)

 

$

126,900

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.44

 

$

(0.12

)

 

$

1.32

 

$

2.16

 

$

(0.02

)

 

$

2.14

Diluted earnings per common share

$

1.43

 

$

(0.11

)

 

$

1.32

 

$

2.15

 

$

(0.02

)

 

$

2.13

Condensed Consolidated Statement of Cash Flows

Twenty-Eight Weeks Ended July 15, 2023

(in thousands)

As Previously Reported

 

Adjustments

 

As Corrected

Net income

$

128,013

 

 

$

(1,113

)

 

$

126,900

 

Provision for deferred income taxes

 

16,249

 

 

 

5,248

 

 

 

21,497

 

Other, net

 

1,170

 

 

 

458

 

 

 

1,628

 

Net change in:

 

 

 

 

 

Receivables, net

 

(93,539

)

 

 

(3,483

)

 

 

(97,022

)

Inventories, net

 

(145,148

)

 

 

(3,770

)

 

 

(148,918

)

Accounts payable

 

(346,808

)

 

 

27,023

 

 

 

(319,785

)

Accrued expenses

 

120,888

 

 

 

(2,107

)

 

 

118,781

 

Other assets and liabilities, net

 

(36,008

)

 

 

(24,828

)

 

 

(60,836

)

Net cash used in operating activities

 

(164,559

)

 

 

(2,572

)

 

 

(167,131

)

Other, net (1)

 

(4,073

)

 

 

(458

)

 

 

(4,531

)

Net cash provided by financing activities

 

314,403

 

 

 

(458

)

 

 

313,945

 

Effect of exchange rate changes on cash

 

1,280

 

 

 

(331

)

 

 

949

 

Net increase in cash and cash equivalents

 

7,782

 

 

 

(3,361

)

 

 

4,421

 

Cash and cash equivalents, beginning of period

 

269,282

 

 

 

1,523

 

 

 

270,805

 

Cash and cash equivalents, end of period

$

277,064

 

 

$

(1,838

)

 

$

275,226

 

(1)

The summary of corrections table above inadvertently omitted disclosure for proceeds from the issuance of common stock as follows: $2.1 million as previously reported, $0 adjustments and $2.1 million as corrected.

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”). Management uses Free cash flow as a measure of its liquidity and believes it is a useful indicator for 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.

Reconciliation of Free Cash Flow:(1)

 

 

 

 

Twenty-Eight Weeks Ended

(in thousands)

July 13, 2024

 

July 15, 2023

Cash flows provided by operating activities

$

87,814

 

 

$

(167,131

)

Purchases of property and equipment

 

(92,445

)

 

 

(144,874

)

Free cash flow

$

(4,631

)

 

$

(312,005

)

Adjusted Debt to Adjusted EBITDAR: (1)

 

 

 

 

Four Quarters Ended

(In thousands, except adjusted debt to adjusted EBITDAR ratio)

July 13, 2024

 

December 30, 2023

Total GAAP debt

$

1,787,867

 

 

$

1,786,361

 

Add: Operating lease liabilities

 

2,685,542

 

 

 

2,660,827

 

Adjusted debt

$

4,473,409

 

 

$

4,447,188

 

 

 

 

 

GAAP Net (loss) income

$

(12,162

)

 

$

29,735

 

Depreciation and amortization

 

310,923

 

 

 

306,454

 

Interest expense

 

81,012

 

 

 

88,055

 

Other expense, net

 

(12,237

)

 

 

(5,525

)

Provision for income taxes

 

(8,361

)

 

 

2,112

 

Rent expense

 

636,395

 

 

 

613,859

 

Share-based compensation

 

46,509

 

 

 

45,647

 

Other nonrecurring charges (2)

 

25,757

 

 

 

12,419

 

Transformation related charges

 

40,293

 

 

 

29,719

 

Adjusted EBITDAR

$

1,108,129

 

 

$

1,122,475

 

 

 

 

 

Adjusted Debt to Adjusted EBITDAR

 

4.0

 

 

 

4.0

 

(1)

The four quarters ended July 13, 2024, includes the correction of non-material errors the company discovered in previously reported results.

(2)

The adjustments to the four quarters ended July 13, 2024, and December 30, 2023, include expenses associated with the company's material weakness remediation efforts and professional executive recruiting fees.

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 an 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, 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 may not be calculated in the same manner as other companies, and thus may not be comparable to similarly titled measures used by other companies.

Store Information

During the twenty-eight weeks ended July 13, 2024, 16 stores and branches were opened and 26 were closed, resulting in a total of 5,097 stores and branches as of July 13, 2024, compared with a total of 5,107 stores and branches as of December 30, 2023.

The below table summarizes the changes in the number of company-operated store and branch locations during the twelve and twenty-eight weeks ended July 13, 2024:

 

 

Twelve Weeks Ended

 

 

AAP

 

CARQUEST

 

WORLDPAC (1)

 

Total

April 20, 2024

 

4,483

 

 

294

 

 

320

 

5,097

 

New

 

7

 

 

1

 

 

1

 

9

 

Closed

 

(6

)

 

(3

)

 

—

 

(9

)

July 13, 2024

 

4,484

 

 

292

 

 

321

 

5,097

 

 

 

Twenty-Eight Weeks Ended

 

 

AAP

 

CARQUEST

 

WORLDPAC (1)

 

Total

December 30, 2023

 

4,484

 

 

302

 

 

321

 

 

5,107

 

New

 

14

 

 

1

 

 

1

 

 

16

 

Closed

 

(15

)

 

(10

)

 

(1

)

 

(26

)

Converted

 

1

 

 

(1

)

 

—

 

 

—

 

July 13, 2024

 

4,484

 

 

292

 

 

321

 

 

5,097

 

(1)

Certain converted Autopart International ("AI") locations will remain branded as AI going forward.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240821458253/en/

Investor Relations Contact: Lavesh Hemnani T: (919) 227-5466 E: invrelations@advanceautoparts.com Media Contact: Darryl Carr T: (984) 389-7207 E: AAPCommunications@advance-auto.com