Attached files

file filename
8-K - AAP 8K - ADVANCE AUTO PARTS INCaap8k.htm
Exhibit 99.1
 
 
 
 
ADVANCE AUTO PARTS REPORTS COMPARABLE
DILUTED EPS INCREASE OF 46% TO $0.57, PROVIDES FISCAL 2011
DILUTED EPS OUTLOOK OF $4.60 TO $4.80
 
ROANOKE, Va, February 9, 2011 – Advance Auto Parts, Inc. (NYSE: AAP), a leading retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, today announced its financial results for the fourth quarter ended January 1, 2011.
 
Fourth quarter comparable earnings per diluted share (EPS) were $0.57 which was a 46% increase over the fourth quarter of fiscal 2009.  Including the $0.03 charge related to store divestitures recorded during the fourth quarter of fiscal 2009, EPS increased 58%.
 
Fourth Quarter Performance Summary
                       
   
Twelve Weeks Ended
   
Fifty-Two Weeks Ended
   
January 1, 2011
   
January 2, 2010
   
January 1, 2011
   
January 2, 2010
                       
Sales (in millions)
  $ 1,270.1     $ 1,143.6     $ 5,925.2     $ 5,412.6
                               
Comp Store Sales %
    8.9%       2.4%       8.0%       5.3%
                               
Gross Profit %
    49.4%       47.9%       50.0%       48.9%
                               
SG&A %
    42.8%       42.9%       40.1%       40.5%
                               
Operating Income %
    6.6%       5.0%       9.9%       8.4%
                               
Diluted EPS
  $ 0.57     $ 0.36     $ 3.95     $ 2.83
                               
Avg Diluted Shares (in thousands)
    84,494       94,409       87,155       95,113
 
 
 
 

 
 
“I would like to thank our 51,000 Team Members for their hard work during the fourth quarter and the 2010 fiscal year,” said Darren R. Jackson, Chief Executive Officer.  “Our team reached many record strategic and financial milestones this year.  The revitalizing of our core values to Inspire, Serve and Grow have enabled us to develop stronger relationships with our customers, increase the overall engagement of our Team Members and drive strong financial outcomes. The strong financial outcomes include three consecutive years of double-digit Commercial comp store sales growth, which has led to industry leading sales per store, and three consecutive years of double-digit EPS increases.   In 2011, our brand promise of ‘Service is our best part’ will be how we differentiate and provide our customers the reason to choose Advance for every job every time.”
 
Fourth Quarter and Fiscal 2010 Highlights
 
Total sales for the fourth quarter increased 11.1% to $1.27 billion, compared with total sales of $1.14 billion during the fourth quarter of fiscal 2009.  The sales increase reflects the net addition of 143 new stores during the past 12 months and a comparable store sales gain of 8.9% compared to a 2.4% comparable store sales gain during the fourth quarter of fiscal 2009.  Fiscal 2010 comparable store sales increased 8.0% on top of a 5.3% increase in fiscal 2009.
 
The Company’s gross profit rate was 49.4% of sales during the fourth quarter as compared to 47.9% during the fourth quarter of fiscal 2009.  The 147 basis-point improvement in the gross profit rate was driven by improved merchandising and pricing capabilities, improved parts availability and supply chain efficiencies. For fiscal 2010, the Company’s gross profit rate was 50.0%, or 113 basis points favorable to fiscal 2009.
 
The Company’s SG&A rate was 42.8% of sales during the fourth quarter as compared to 42.6% during the same period in fiscal 2009, excluding the impact of store divestitures.  This 20 basis-point  increase was driven by increased incentive compensation, partially offset by fixed cost leverage due to strong comparable store sales and a decelerated pace of net incremental spending on the Company’s strategic capabilities. Including the impact of store divestitures in fiscal 2009, the SG&A rate decreased 14 basis points.  For fiscal 2010, the Company’s SG&A rate was 40.1% versus 40.0% in fiscal 2009, or 40.5% when including the impact of store divestitures.
 
 
2

 
 
The Company’s operating income increased 38% during the fourth quarter to $83.9 million as compared to the fourth quarter of fiscal 2009.   The Company’s operating income rate increased 127 basis points to 6.6% of sales.  Including the impact of store divestitures in fiscal 2009, the Company’s operating income increased 47% and operating income rate increased 161 basis points.
 
During fiscal 2010, the Company generated $666.2 million in operating cash flow and a record $466.4 million of free cash flow.  Free cash flow increased 13.8% from $409.9 million last year primarily due to strong growth in net income.  Capital expenditures were $199.6 million for fiscal 2010 as compared to $192.9 million in fiscal 2009.
 
“Overall, 2010 marked our third consecutive year of improved financial and operational performance.  While our performance in 2010 was fueled by strong industry dynamics and favorable weather patterns, the strategic choices we have made through our investments and the superior execution of our team played a significant role and enabled us to gain market share and position our Company for long-term growth and success,” said Mike Norona, Executive Vice President and Chief Financial Officer.
 
Comparable Key Financial Metrics and Statistics (1)
                             
   
Twelve Weeks Ended
   
Fifty-Two Weeks Ended
   
January 1, 2011
   
January 2, 2010
     
FY 2010
 
FY 2009
   
FY 2008
                             
Sales Growth %
    11.1%       3.6%       9.5%     7.1%       4.3%
                                     
Sales per Store
  $ 1,697     $ 1,595     $ 1,697   $ 1,595     $ 1,524
                                     
Operating Income per Store
  $ 168     $ 142     $ 168   $ 142     $ 132
                                     
Return on Invested Capital
    17.5%       15.1%       17.5%     15.1%       14.0%
                                     
Gross Margin Return on Inventory
  $ 5.05     $ 3.98     $ 5.05   $ 3.98     $ 3.37
                                     
Total Store Square Footage, end of period
    25,950       24,973       25,950     24,973       24,711
                                     
Total Team Members, end of period
    51,017       48,771       51,017     48,771       47,853
                                     
                                     
 
(1)  
In thousands except for gross margin return on inventory and total Team Members. The financial metrics have been reported on a comparable basis to exclude the impact of store divestiture expenses in fiscal 2009 and the 53rd week results and non-cash inventory adjustment in fiscal 2008. The financial metrics presented are calculated on an annual basis and accordingly reflect the last four quarters completed, except for Sales Growth % and where noted.  Refer to the presentation of the
 
 
3

 
 
  
financial metrics on a GAAP basis, definitions of the financial metrics and reconciliation of the financial results reported on a comparable basis to the GAAP basis in the accompanying financial statements in this press release.
 
Store Information
 
During the fourth quarter, the Company opened 26 stores, including three Autopart International stores, and closed three stores.  For fiscal 2010, the Company opened 148 stores, including 38 Autopart International stores, and closed five stores.  As of January 1, 2011, the Company’s total store count was 3,563 including 194 Autopart International stores.
 
Share Repurchases
 
During the fourth quarter, the Company repurchased approximately 2.4 million shares of its common stock at an aggregate cost of $157.8 million or an average price of $66.71.  In fiscal 2010, the Company repurchased approximately 13.0 million shares of its common stock at an aggregate cost of $633.9 million, or an average price of $48.67 per share.  Subsequent to the end of fiscal 2010 and up to the date of this release, the Company has repurchased an additional 1.9 million shares of its common stock at an aggregate cost of $121.6 million, or an average price of $62.72 per share.
 
Share Repurchase Authorization
 
As a result of the share repurchases made subsequent to the end of fiscal 2010, the Company has completed the $300.0 million share repurchase authorization approved by the Board of Directors in August 2010.  On February 8, 2011, the Company’s Board of Directors authorized a new $500 million share repurchase program.
 
2011 Annual Financial Outlook
 
The Company has provided the following annual financial outlook and certain key assumptions for fiscal 2011.
 
 
 
4

 
 
Fiscal 2011 Annual Financial Outlook Key Assumptions
 
New Stores
120 - 140 (110 - 120 Advance Auto Parts stores, 10 - 20 Autopart International stores)
Comparable Store Sales
Low to mid-single digits
EPS
$4.60 - $4.80
Capital Expenditures
$275 million - $300 million
Diluted Share Count
Approximately 82 million shares
Free Cash Flow
Minimum of $300 million
 
In fiscal 2011, the Company anticipates a low to mid single-digit increase in comparable store sales driven by continued strong Commercial sales growth. The Company expects a more modest increase in gross profit rate primarily due to benefits from its merchandising capabilities, supply chain efficiencies and global sourcing, partially offset by supply chain investments.
 
The Company expects its total SG&A dollar growth to continue to decelerate due to lower growth in its fixed cost structure and improved flexibility of its variable expenses. The Company estimates an EPS range of approximately $4.60 to $4.80 for fiscal 2011, which assumes an average diluted share count of approximately 82 million shares.
 
“Our focus on Service Leadership and Superior Availability will position our Company to grow our comp store sales in the low to mid-single digits and our EPS double digits for the fourth consecutive year.  We expect our gross profit rate to continue to expand; however, at a much more moderate pace,” said Mike Norona, Executive Vice President and Chief Financial Officer.  “The pursuit of differentiation will require continued investments in the areas of Service Leadership and Superior Availability; however, we expect SG&A dollar growth per store to continue to decelerate in 2011 from 2010 driven by cost savings in the areas of labor management, operational efficiencies and variability in store performance.  These savings will somewhat offset our 2011 investment spend and result in our SG&A leveraging at a lower level of comp sales.  We have shown over the past three years that investing in the right areas of our business can deliver solid growth and returns.”
 
 
5

 
 
Dividend
 
On February 8, 2011, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on April 8, 2011 to stockholders of record as of March 25, 2011.
 
Investor Conference Call
 
The Company will host a conference call on Thursday, February 10, 2011 at 10:00 a.m. Eastern Standard 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 February 10, 2012.
 
About Advance Auto Parts
 
Headquartered in Roanoke, Va., Advance Auto Parts, Inc., a leading automotive aftermarket retailer of parts, accessories, batteries, and maintenance items in the United States, serves both the do-it-yourself and professional installer markets.  As of January 1, 2011, the Company operated 3,563 stores in 39 states, Puerto Rico, and the Virgin Islands.  Additional information about the Company, employment opportunities, customer services, and online shopping for parts and accessories can be found on the Company’s website at www.AdvanceAutoParts.com.
 
Certain statements contained in this release are forward-looking statements, as that statement is used in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements address future events or developments, and typically use words such as believe, anticipate, expect, intend, plan, forecast, outlook or estimate.  These statements discuss, among other things, expected growth and future performance, including store growth, capital expenditures, comparable store sales, SG&A, operating income, gross profit rate, free cash flow, profitability and earnings per diluted share for fiscal year 2011.  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, business interruptions, acts of terrorism, availability of suitable real estate, dependence on foreign suppliers and other factors disclosed in the Company’s 10-K for the fiscal year ended January 2, 2010 on file with the Securities and Exchange Commission.  Actual results may differ materially from anticipated results described in these forward-looking statements.  The Company intends these forward-looking statements to speak only as of the time of this news release and does not undertake to update or revise them as more information becomes available.

 
6

 

Advance Auto Parts, Inc. and Subsidiaries
 
Condensed Consolidated Balance Sheets
 
(in thousands)
 
(unaudited)
 
             
   
January 1,
   
January 2,
 
   
2011
   
2010
 
             
Assets
           
             
Current assets:
           
Cash and cash equivalents
  $ 59,209     $ 100,018  
Receivables, net
    124,227       92,560  
Inventories, net
    1,863,870       1,631,867  
Other current assets
    76,965       63,173  
Total current assets
    2,124,271       1,887,618  
                 
Property and equipment, net
    1,143,170       1,100,338  
Assets held for sale
    1,472       1,492  
Goodwill
    34,387       34,387  
Intangible assets, net
    25,360       26,419  
Other assets, net
    25,557       22,709  
    $ 3,354,217     $ 3,072,963  
                 
Liabilities and Stockholders' Equity
               
                 
Current liabilities:
               
Current portion of long-term debt
  $ 973     $ 1,344  
Financed vendor accounts payable
    31,648       32,092  
Accounts payable
    1,292,113       966,274  
Accrued expenses (a)
    404,086       393,060  
Other current liabilities (a)
    119,229       73,257  
Total current liabilities
    1,848,049       1,466,027  
                 
Long-term debt
    300,851       202,927  
Other long-term liabilities (a)
    165,943       121,644  
Total stockholders' equity
    1,039,374       1,282,365  
    $ 3,354,217     $ 3,072,963  
                 
 
(a)
Effective January 1, 2011, the Company reclassified $50.3 million of its self-insurance liability from Accrued expenses to Other long-term liabilities because the timing of future payments is now predictable based on the historical patterns and maturity of the program and is relied upon in determining the current portion of these liabilities. This reclassification was partially offset by the related income tax impact.
 
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.


 
 

 
 

Advance Auto Parts, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Operations
 
Twelve Week Periods Ended
 
January 1, 2011 and January 2, 2010
 
(in thousands, except per share data)
 
(unaudited)
 
             
   
January 1,
   
January 2,
 
   
2011
   
2010
 
             
Net sales
  $ 1,270,130     $ 1,143,567  
Cost of sales, including purchasing and warehousing costs
    642,645       595,438  
                 
Gross profit
    627,485       548,129  
Selling, general and administrative expenses
    543,548       490,956  
                 
Operating income
    83,937       57,173  
                 
Other, net:
               
   Interest expense
    (6,727 )     (4,907 )
   Other income (expense), net
    454       (26 )
Total other, net
    (6,273 )     (4,933 )
                 
Income before provision for income taxes
    77,664       52,240  
Provision for income taxes
    29,551       17,761  
                 
Net income
  $ 48,113     $ 34,479  
                 
Basic earnings per share (a)
  $ 0.58     $ 0.37  
Diluted earnings per share (a)
  $ 0.57     $ 0.36  
                 
Average common shares outstanding (a)
    82,983       93,836  
Average common shares outstanding - assuming dilution (a)
    84,494       94,409  
 
( a )
Average common shares outstanding is calculated based on the weighted average number of shares outstanding during the quarter.  At January 1, 2011 and January 2, 2010, we had 81,956 and 93,623 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, but do not include the footnotes required by GAAP for complete financial statements.


 
 

 
 

Advance Auto Parts, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Operations
 
Fifty-Two Week Periods Ended
 
January 1, 2011 and January 2, 2010
 
(in thousands, except per share data)
 
(unaudited)
 
             
   
January 1,
   
January 2,
 
   
2011
   
2010
 
             
Net sales
  $ 5,925,203     $ 5,412,623  
Cost of sales, including purchasing and warehousing costs
    2,963,888       2,768,397  
                 
Gross profit
    2,961,315       2,644,226  
Selling, general and administrative expenses
    2,376,382       2,189,841  
                 
Operating income
    584,933       454,385  
                 
Other, net:
               
   Interest expense
    (26,861 )     (23,337 )
   Other (expense) income, net
    (1,017 )     607  
Total other, net
    (27,878 )     (22,730 )
                 
Income before provision for income taxes
    557,055       431,655  
Provision for income taxes
    211,002       161,282  
                 
Net income
  $ 346,053     $ 270,373  
                 
Basic earnings per share (a)
  $ 4.00     $ 2.85  
Diluted earnings per share (a)
  $ 3.95     $ 2.83  
                 
Average common shares outstanding (a)
    86,082       94,459  
Average common shares outstanding - assuming dilution (a)
    87,155       95,113  

( a )
Average common shares outstanding is calculated based on the weighted average number of shares outstanding during the year.  At January 1, 2011 and January 2, 2010, we had 81,956 and 93,623 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, but do not include the footnotes required by GAAP for complete financial statements.

 
 
 

 
 
 
Advance Auto Parts, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Cash Flows
 
Fifty-Two Week Periods Ended
 
January 1, 2011 and January 2, 2010
 
(in thousands)
 
(unaudited)
 
             
   
January 1,
   
January 2,
 
   
2011
   
2010
 
             
Cash flows from operating activities:
           
Net income
  $ 346,053     $ 270,373  
Depreciation and amortization
    164,437       150,917  
Share-based compensation
    22,311       19,682  
Provision for deferred income taxes
    40,503       66,622  
Excess tax benefit from share-based compensation
    (7,260 )     (3,219 )
Other non-cash adjustments to net income
    7,640       9,335  
(Increase) decrease in:
               
Receivables, net
    (31,667 )     4,643  
Inventories, net
    (232,003 )     (8,779 )
Other assets
    (13,105 )     (15,694 )
Increase in:
               
Accounts payable
    325,839       174,944  
Accrued expenses
    38,715       20,778  
Other liabilities
    4,696       10,088  
Net cash provided by operating activities
    666,159       699,690  
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (199,585 )     (192,934 )
Proceeds from sales of property and equipment
    235       7,395  
Net cash used in investing activities
    (199,350 )     (185,539 )
                 
Cash flows from financing activities:
               
Increase (decrease) in bank overdrafts
    28       (11,060 )
Decrease in financed vendor accounts payable
    (444 )     (104,294 )
Issuance of senior unsecured notes
    298,761       -  
Payment of debt related costs
    (4,572 )     -  
Early extinguishment of debt
    (200,000 )     -  
Net borrowings (payments) on credit facilities
    -       (251,500 )
Dividends paid
    (21,051 )     (22,803 )
Proceeds from the issuance of common stock, primarily exercise
               
of stock options
    36,113       35,402  
Excess tax benefit from share-based compensation
    7,260       3,219  
Repurchase of common stock
    (622,442 )     (100,062 )
Other
    (1,271 )     (393 )
Net cash used in financing activities
    (507,618 )     (451,491 )
                 
Net (decrease) increase in cash and cash equivalents
    (40,809 )     62,660  
Cash and cash equivalents, beginning of period
    100,018       37,358  
Cash and cash equivalents, end of period
  $ 59,209     $ 100,018  
                 
                 
                 
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
Fifty-Two Week Periods Ended
January 1, 2011 and January 2, 2010
(in thousands, except per share data)
(unaudited)
                                 
Reconciliation of Free Cash Flow:
                               
   
January 1,
   
January 2,
   
 
             
   
2011
   
2010
   
 
             
                                 
Cash flows from operating activities
  $ 666,159     $ 699,690                      
Cash flows used in investing activities
    (199,350 )     (185,539
)
                   
      466,809       514,151                      
                                     
Decrease in financed vendor accounts payable
    (444     (104,294
)
                   
                                     
Free cash flow
  $ 466,365     $ 409,857                      
                                     
                                     
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.
 
 
 
Key Financial Metrics and Statistics(1):
                     
     
Twelve Weeks Ended
 
 
 
 
     
     
January 1, 2011
 
January 2, 2010
 
FY 2010
 
FY 2009
 
FY 2008
 
                         
 
Sales Growth %
    11.1%     (4.1%)     9.5%     5.3%     6.1%  
                                   
 
Sales per Store (2)(3)
  $ 1,697   $ 1,595   $ 1,697   $ 1,595   $ 1,551  
                                   
 
Operating Income per Store (2)(4)
  $ 168   $ 134   $ 168   $ 134   $ 125  
                                   
 
Return on Invested Capital (2)(5)
    17.5%     14.6%     17.5%     14.6%     13.6%  
                                   
 
Gross Margin Return on Inventory (2)(6)
  $ 5.05   $ 3.98   $ 5.05   $ 3.98   $ 3.47  
                                   
 
Total Store Square Footage, end of period
    25,950     24,973     25,950     24,973     24,711  
                                   
 
Total Team Members, end of period
    51,017     48,771     51,017     48,771     47,853  
                                   
                                   
(1)
In thousands except for gross margin return on inventory and total Team Members. These financial metrics have been reported on a GAAP basis which include the impact of store divestiture expenses in fiscal 2009 and the 53rd week results and non-cash inventory adjustment in fiscal 2008. These financial metrics should be read in conjunction with our financial metrics presented on a comparable basis earlier in this press release. Refer to the “Selected Consolidated Data” on page 18 of our 2009 Form 10-K for further explanation of these items.
 
                                   
(2)
The financial metrics presented are calculated on an annual basis and accordingly reflect the last four quarters completed.
 
                                   
(3)
Sales per store is calculated as net sales divided by an average of beginning and ending store count.
       
                                   
(4)
Operating income per store is calculated as operating income divided by an average of beginning and ending store count.
 
                                   
(5)
Return on invested capital (ROIC) is calculated in detail in these supplemental financial schedules.
       
                                   
(6)
Gross margin return on inventory is calculated as gross profit divided by an average of beginning and ending inventory, net of accounts payable and financed vendor accounts payable.
 


 
 

 

Detail of Return on Invested Capital (ROIC) Calculation:
                       
   
Last Four Quarters Ended
 
   
2010
   
2009
 
   
As Reported
   
As Reported
   
Comparable Adjustments (a)
   
Comparable
 
                         
Net income
  $ 346,053     $ 270,373     $ 16,322     $ 286,695  
Add:
                               
After-tax interest expense and other, net
    17,318       14,237       -       14,237  
After-tax rent expense
    187,407       185,344       -       185,344  
   After-Tax Operating Earnings
    550,778       469,954       16,322       486,276  
                                 
Average assets (less cash)
    3,133,977       2,949,826       13,029       2,962,855  
Less: Average liabilities (excluding total debt)
    (1,799,674 )     (1,514,467 )     -       (1,514,467 )
Add: Capitalized lease obligation (rent expense * 6) (b)
    1,810,056       1,775,424       -       1,775,424  
   Total Invested Capital
    3,144,359       3,210,783       13,029       3,223,812  
                                 
ROIC
    17.5 %     14.6 %     -       15.1 %
                                 
Rent expense
  $ 301,676     $ 295,904     $ -     $ 295,904  
Interest expense and other, net
  $ 27,877     $ 22,730     $ -     $ 22,730  

( a )
The Company has also presented its ROIC calculation on a comparable basis which excludes the impact of store divestiture expenses in fiscal 2009.  Refer to the “Selected Consolidated Data” on page 18 of our 2009 Form 10-K for further explanation of these items.
                   
( b )
Capitalized lease obligation is estimated as annualized rent expense for the applicable period times six years.

Note:  Management uses ROIC to evaluate return on investments to the business and believes it is a useful indicator to stockholders given the future investments the Company plans to make in areas including information technology, supply chain and stores.  ROIC is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in our condensed consolidated financial statements. Management believes our comparable results of operations are a useful indicator to stockholders for consistency purposes.