(Source: Business Wire)
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 second quarter ended July 18, 2009. Second quarter earnings per diluted share were $0.83 which included a $0.06 charge related to store divestitures. Excluding the impact of the store divestitures, diluted earnings per share (EPS) of $0.89 increased 14% on top of a 22% increase in EPS last year. On a year-to-date basis, EPS of $1.92, excluding the $0.10 impact of store divestitures, increased 17% on top of a 21% increase in EPS last year.
Second Quarter Performance Summary Twelve Weeks Ended Twenty-Eight Weeks Ended July 18, July 12, July 18, July 12, 2009 2008 2009 2008 Sales (in millions) $ 1,322.8 $ 1,235.8 $ 3,006.5 $ 2,761.9 Comparable Store Sales % 4.8% 2.9% 6.7% 1.6% Gross Profit %(1) 49.3% 47.4% 49.0% 47.5% Selling, General & Administrative (SG&A) %(1) 39.1% 37.1% 39.3% 37.6% Operating Income % 10.2% 10.4% 9.7% 9.9% Diluted EPS(2) $ 0.83 $ 0.78 $ 1.82 $ 1.64 -------------------------------------------------------------------------------
(1) The Company has retrospectively applied a change in accounting principle for costs included in inventory made in the first quarter to all prior periods presented herein related to cost of sales and selling, general and administrative expenses (SG&A). Refer to the accompanying financial statements included in this press release for further explanation. (2) For the twelve and twenty-eight weeks ended July 18, 2009, diluted EPS includes a $0.06 and $0.10 charge, respectively, related to store divestitures. In addition, the Company's adoption of FSP EITF 03-6-1 "Determining Whether Instruments Granted in Share-Based Transactions Are Participating Securities" during the first quarter 2009 decreased the Company's diluted EPS for the twelve and twenty-eight weeks ended July 12, 2008 by $0.01. -------------------------------------------------------------------------------
"Our 49,000 Advance Team Members continue to deliver strong top and bottom line performance, market share gains and improvements in our customer satisfaction and Team Member engagement scores," said Darren R. Jackson, Chief Executive Officer. "Over the last 18 months we have been on a journey to turnaround the Company. Our focus on our customers, Team Members, growth and profitability is building the foundation to transform our Company into the industry customer experience leader."
Second Quarter Highlights
Total sales for the second quarter increased 7% to $1.32 billion, compared with total sales of $1.24 billion in the second quarter of fiscal year 2008. The sales increase reflected the net addition of 82 new stores in the past 12 months and a comparable store sales increase of 4.8% during the quarter compared to an increase of 2.9% during the second quarter last year. The comparable store sales gain was comprised of a 14.8% increase in Commercial sales and a 0.7% increase in do-it-yourself (DIY) sales. This compares to a 13.5% increase in Commercial and a 0.8% decrease in DIY during the second quarter last year. Year-to-date comparable store sales increased 6.7% driven by a 16.3% increase in Commercial and a 2.7% increase in DIY.
The Company's gross profit rate was 49.3% of sales in the second quarter as compared to 47.4% in the prior year, which reflects a 189 basis-point improvement. The 189 basis-point improvement was primarily due to continued investments in pricing capabilities, merchandising capabilities and parts availability, decreased inventory shrink and better store execution resulting from the impact of previous changes to better align Team Member incentives.
The Company's second quarter SG&A rate was 39.1% of sales as compared to 37.1% during the second quarter last year. Excluding the impact of store divestitures, the SG&A rate increased 136 basis points. This increase was driven by higher incentive compensation, continued strategic capability investments to improve the Company's gross profit rate and to accelerate the Commercial business and higher medical expenses. The SG&A rate increase was partially offset by lower advertising expenses and occupancy expense leverage as a result of the Company's 4.8% comparable store sales increase.
Operating cash flow through the second quarter increased 24% to $433.8 million from $350.0 million in the second quarter last year. Free cash flow through the second quarter was $287.4 million or an 18% increase over second quarter last year. This increase was primarily driven by an increase in net income, improved working capital management and a decrease in capital expenditures. As a result of the increased free cash flow, the Company has decreased its total bank debt outstanding by $173 million over the past year. Capital expenditures were $90.8 million through the second quarter. This compares to $106.0 million in 2008, a decrease of $15.2 million primarily due to the timing of new store development partially offset by routine spending on existing stores.
"We are pleased with our sixth consecutive quarter of double-digit Commercial comparable sales growth, our second consecutive quarter of positive DIY comparable sales in over 3 years, as well as the strong gross profit rate improvement which fueled an increase in our operating income rate of over 50 basis-points before the impact of store divestitures. We are also pleased with the cash flow we generated and the fact that we continued to strengthen our balance sheet. Looking ahead, we continue to be optimistic about our growth and profitability potential based on our second quarter results and we remain committed to our strategic objectives and investment profile," said Mike Norona, Executive Vice President and Chief Financial Officer.
Key Financial Metrics and Statistics (1) Twelve Comparable Twenty-Eight Comparable Twenty- Comparable Weeks Ended Twelve Weeks Ended Weeks Ended Eight Weeks Ended Fifty-Two Weeks Ended July 18, July 18, July 12, July 18, July 18, July 12, 2009 2009 2008 2009 2009 2008 FY 2008 FY 2007 Sales Growth % 7.0% 7.0% 5.6% 8.9% 8.9% 4.7% 6.1% 4.9% Sales per Square Foot (2)(3) $ 215 $ 215 $ 207 $ 215 $ 215 $ 207 $ 208 $ 207 DIY Comparable Sales % 0.7% 0.7% (0.8%) 2.7% 2.7% (2.0%) (2.3%) (1.1%) Commercial Comparable Sales % 14.8% 14.8% 13.5% 16.3% 16.3% 11.9% 12.1% 6.2% Operating Income per Team Member (2)(4) $ 9.02 $ 9.78 $ 9.42 $ 9.02 $ 9.78 $ 9.42 $ 9.49 $ 9.40 SG&A per Store (2)(5)(6) $ 632 $ 620 $ 582 $ 632 $ 620 $ 582 $ 590 $ 581 Return on Invested Capital (2)(7) 14.2% 14.9% 14.3% 14.2% 14.9% 14.3% 14.0% 13.7% Gross Margin Return on Inventory (2)(5)(8) $ 3.86 $ 3.74 $ 3.54 $ 3.86 $ 3.74 $ 3.54 $ 3.37 $ 3.29 Total Store Square Footage, end of period 24,920 24,920 24,431 24,920 24,920 24,431 24,711 23,982 Total Team Members, end of period 49,427 49,427 47,050 49,427 49,427 47,050 47,582 44,141 -------------------------------------------------------------------------------
(1) In thousands except for sales per square foot, gross margin return on inventory and total Team Members. (2) The financial metrics presented are calculated on an annual basis and accordingly reflect the last four quarters completed. The Company has presented its financial metrics on a comparable basis as a result of certain non-comparable items included in its financial results for the last four quarters. Second quarter and year-to-date 2009 comparable results exclude expenses associated with the store divestitures as discussed later in this press release. Fiscal 2008 comparable results exclude the additional week of business (53rd week) as well as a non-cash inventory adjustment resulting from a change in inventory management and related accounting policy for slow-moving inventory. (3) Sales per square foot is calculated as net sales divided by an average of beginning and ending square footage. (4) Operating income per Team Member is calculated as operating income divided by an average of beginning and ending Team Members. (5) The Company has retroactively applied the change in accounting principle made in the first quarter 2009 to all financial metrics presented herein containing cost of sales and SG&A as explained in the accompanying financial statements included in this press release. (6) SG&A per store is calculated as SG&A divided by the average of beginning and ending store count. (7) Return on invested capital (ROIC) is calculated in detail in the accompanying financial statements included in this press release. (8) 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. -------------------------------------------------------------------------------
Store Information
During the second quarter, the Company opened 23 stores, including 7 Autopart International stores. The Company also closed 21 stores and relocated 3 stores. As of July 18, 2009, the Company's total store count was 3,407, including 142 Autopart International stores.
Share Repurchases
Under the Company's share repurchase authorization plan, the Company repurchased 344,530 shares of its common stock during the second quarter at an aggregate cost of $14.4 million, or an average price of $41.71 per share. At the end of the second quarter, the Company had $174.6 million available from the $250 million share repurchase authorization approved by the Board of Directors in May 2008.
2009 Store Divestitures
As a result of the previously announced store divestiture initiative, the Company closed 20 stores during the quarter and expects to divest a total of 40 to 55 unprofitable stores in 2009 that are delivering unacceptable strategic or financial results. During the second quarter, the Company recorded a $0.06 EPS charge primarily due to lease exit costs for the 20 stores that were closed during the quarter. Year-to-date, the Company has closed 24 stores which resulted in a $0.10 EPS charge. Currently, the Company estimates that the incremental store divestitures will result in a $0.15 to $0.22 charge to EPS in fiscal 2009.
Dividend
On August 11, 2009, the Company's Board of Directors declared a regular quarterly cash dividend of six cents per share to be paid on October 9, 2009 to stockholders of record as of September 25, 2009.
