RALEIGH, N.C.--(BUSINESS WIRE)--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 third quarter ended October 5, 2024.
"We are pleased to have made progress on our strategic actions, including the completion of the sale of Worldpac and a comprehensive operational productivity review of our business," said Shane O'Kelly, president and chief executive officer. "We are charting a clear path forward and introducing a new three-year financial plan, with a focus on executing core retail fundamentals to improve the productivity of all our assets and to create shareholder value."
On November 1, 2024, the company completed its previously announced sale of Worldpac for aggregate cash consideration of approximately $1.5 billion, as adjusted for working capital and other items. Unless otherwise specified, results are presented on a continuing operations basis.
Third Quarter 2024 Results (1,2,3,4)
Third quarter 2024 net sales from continuing operations totaled $2.1 billion, compared with $2.2 billion in the third quarter of the prior year. Comparable store sales decreased 2.3%.
The company's gross profit increased 11.0% to $907.9 million, or 42.3% of net sales compared with 36.9% in the third quarter of the prior year. The leverage improvement was primarily due to lapping the one-time impact in the change for inventory reserves in the prior year as well as stabilizing product costs offset by strategic pricing investments.
The company's SG&A expenses were $907.5 million, or 42.2% of net sales. Adjusted SG&A expenses were $891.2 million, or 41.5% of net sales compared with 40.2% in the third quarter of 2023, primarily due to lower sales. The company also incurred high labor-related expenses due to wage investments in frontline team members that were partially offset by a reduction in marketing expenses.
The company's operating income was $403.0 thousand, or zero percent of net sales. Adjusted operating income was $16.7 million, or 0.8% of net sales compared with (3.3)% in the third quarter of 2023. In addition, our operating income margin was negatively impacted by approximately 125 basis points of atypical items and headwinds in the period (such as lost revenue from Hurricane Helene and downtime from the CrowdStrike outage) that are not included in non-GAAP adjustments.
The company's effective tax rate was (58.4)%, compared with 24.5% in the third quarter of 2023. The company's diluted loss per share for the quarter was $0.42. The company's adjusted diluted loss per share was $0.04 compared with a loss per share of $1.19 in the third quarter of 2023. The types of unusual headwinds in the quarter noted above, which are not included in the non-GAAP adjustments, negatively impacted the company's earnings per share by 34 cents.
Net cash provided by operating activities was $81.0 million through the third quarter of 2024 versus $28.3 million of cash used in operating activities in the same period of the prior year. Free cash flow through the third quarter of 2024 was an outflow of $48.7 million compared with an outflow of $202.5 million in the same period of the prior year.
(1) | Adjusted Operating Income Margin 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. | |
(2) | All comparisons are based on continuing operations for the same time period in the prior year, unless otherwise specified. 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. | |
(3) | 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 28, 2024. | |
(4) | On August 22, 2024, the company entered into a definitive purchase agreement to sell its Worldpac Inc. business ("Worldpac"), which reflects a strategic shift in its business. The sale was completed on November 1, 2024. As a result, the company has classified the results of operations and cash flows of Worldpac as discontinued operations in its condensed consolidated statements of operations and condensed consolidated statements of cash flows for all periods presented. The related assets and liabilities associated with the discontinued operations are classified as held for sale in the condensed consolidated balance sheets. |
Capital Allocation
On October 29, 2024, the company declared a regular cash dividend of $0.25 per share to be paid on January 24, 2025, to all common stockholders of record as of January 10, 2025.
Full Year 2024 Guidance
For the balance of 2024, the company is providing guidance that includes expectations for continuing operations as well as adjusted metrics that take into account non-GAAP adjustments.
As of November 14, 2024 | ||||||||
($ in millions, except per share data) | Low | High | ||||||
Net sales from continuing operations | Approx. $9,000 | |||||||
Comparable store sales (1) | Approx. (1.0%) | |||||||
Adjusted operating income margin from continuing operations | 0.25 | % | 0.75 | % | ||||
Adjusted diluted EPS from continuing operations | $ | (0.60 | ) | $ | 0.00 | |||
Capital expenditures | $ | 175 | $ | 225 | ||||
Free cash flow (2) | Approx. flat (including strategic costs) | |||||||
(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) | Adjusted operating income margin from continuing operations, Adjusted diluted EPS from continuing operations and Free cash flow are non-GAAP measures. 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. The company is not able to provide a reconciliation of these forward-looking non-GAAP measures because it is unable to predict with reasonable accuracy the value of certain adjustments and as a result, the comparable GAAP measures are unavailable without unreasonable efforts. |
Strategic Priorities and Financial Objectives
Strategic Priorities
The company is executing a strategic plan to improve business performance with a focus on core retail improvements. The company has identified opportunities that it believes can improve adjusted operating income margin by more than 500-basis points through fiscal 2027. This strategic plan is anchored on three pillars outlined below to put the company on the path to deliver consistent profitable growth.
- Store operations
- Reduction in U.S. asset footprint - closing 523 Advance corporate stores, exiting 204 independent locations, and closing four distribution centers.
- Standardization of store operating model and improving labor productivity.
- Acceleration in pace of new store openings.
- Merchandising excellence
- Strategic sourcing to improve first costs and bring parts to market faster.
- Assortment management to enhance availability of parts.
- Pricing and promotions management to improve gross margin.
- Supply chain
- Consolidation of distribution centers to operate 13 large facilities by 2026.
- Opening of 60 market hub locations by mid-2027.
- Optimization of transportation routes and freight to lower costs and improve productivity.
Financial Objectives (Advance Auto Parts continuing operations)
The company is introducing new fiscal 2027 financial objectives and providing preliminary fiscal 2025 guidance.
Preliminary FY 2025 Guidance (53 weeks) | FY 2027 Objectives | |||
Net sales ($ in millions) | $8,400 - $8,600 | Approx. $9,000 | ||
Comparable sales growth | 0.50% - 1.50% | Positive low-single-digit % | ||
New store growth | 30 new stores | 50 to 70 new stores | ||
Adjusted operating income margin (1) | 2.00% - 3.00% | Approx. 7.00% | ||
Leverage Ratio (Adj. debt/ Adj. EBITDAR) (1) | 3.0x - 4.0x | Approx. 2.5x |
(1) | Adjusted operating income margin is based on performance of Advance continuing operations and excludes intercompany margins related to Worldpac. Adjusted operating income margin from continuing operations and Adjusted Debt to Adjusted EBITDAR ratio ("leverage ratio") are non-GAAP measures. 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. The company is not able to provide a reconciliation of these forward-looking non-GAAP measures because it is unable to predict with reasonable accuracy the value of certain adjustments and as a result, the comparable GAAP measures are unavailable without unreasonable efforts. |
Investor Conference Call
The company will detail its results for the third quarter ended October 5, 2024, via a webcast scheduled to begin at 8 a.m. Eastern Time on Thursday, November 14, 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 October 5, 2024, Advance operated 4,781 stores primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. The company also served 1,125 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," "target," "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, restructuring and asset optimization plans, financial objectives, operational plans and objectives, statements about the sale of the company's Worldpac business, including statements regarding the benefits of the sale and use of proceeds therefrom, 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, risks associated with the company's restructuring and asset optimization plans, deterioration of general macroeconomic conditions, geopolitical factors, the highly competitive nature of the industry, demand for the company's products and services, ongoing risks associated with the disposition of Worldpac, the company's ability to maintain credit ratings, risks relating to the impairment of assets, including intangible assets such as goodwill, access to financing on favorable terms, complexities in the company's inventory and supply chain and 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) (unaudited) | ||||||
October 5, 2024 | December 30, 2023 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 464,492 | $ | 488,049 | ||
Receivables, net | 668,937 | 609,528 | ||||
Inventories, net | 4,042,200 | 3,893,569 | ||||
Other current assets | 180,448 | 180,402 | ||||
Current assets held for sale | 2,137,690 | 1,205,473 | ||||
Total current assets | 7,493,767 | 6,377,021 | ||||
Property and equipment, net | 1,479,738 | 1,555,985 | ||||
Operating lease right-of-use assets | 2,399,630 | 2,347,073 | ||||
Goodwill | 600,182 | 601,159 | ||||
Other intangible assets, net | 409,501 | 419,161 | ||||
Other noncurrent assets | 85,366 | 85,988 | ||||
Noncurrent assets held for sale | - | 889,939 | ||||
Total assets | $ | 12,468,184 | $ | 12,276,326 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 3,498,460 | $ | 3,526,079 | ||
Accrued expenses | 641,914 | 616,067 | ||||
Other current liabilities | 458,343 | 396,408 | ||||
Current liabilities held for sale | 994,824 | 768,851 | ||||
Total current liabilities | 5,593,541 | 5,307,405 | ||||
Long-term debt | 1,788,513 | 1,786,361 | ||||
Noncurrent operating lease liabilities | 2,018,383 | 2,039,908 | ||||
Deferred income taxes | 380,118 | 355,635 | ||||
Other long-term liabilities | 89,949 | 83,538 | ||||
Noncurrent liabilities held for sale | - | 183,751 | ||||
Total stockholders' equity | 2,597,680 | 2,519,728 | ||||
Total liabilities and stockholders' equity | $ | 12,468,184 | $ | 12,276,326 | ||
Advance Auto Parts, Inc. and Subsidiaries | ||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||
(In thousands, except per share data) (unaudited) | ||||||||||||||||
Twelve Weeks Ended | Forty Weeks Ended | |||||||||||||||
October 5, 2024 | October 7, 2023(1) | October 5, 2024 | October 7, 2023(1) | |||||||||||||
Net sales | $ | 2,147,991 | $ | 2,218,205 | $ | 7,098,302 | $ | 7,194,670 | ||||||||
Cost of sales, including purchasing and warehousing costs | 1,240,093 | 1,400,638 | 4,036,898 | 4,154,190 | ||||||||||||
Gross profit | 907,898 | 817,567 | 3,061,404 | 3,040,480 | ||||||||||||
Selling, general and administrative expenses | 907,495 | 896,145 | 2,954,707 | 2,959,238 | ||||||||||||
Operating income (loss) | 403 | (78,578 | ) | 106,697 | 81,242 | |||||||||||
Other, net: | ||||||||||||||||
Interest expense | (18,805 | ) | (19,375 | ) | (62,127 | ) | (69,948 | ) | ||||||||
Other income (expense), net | 2,393 | (305 | ) | 12,769 | 232 | |||||||||||
Total other, net | (16,412 | ) | (19,680 | ) | (49,358 | ) | (69,716 | ) | ||||||||
(Loss) income before provision for income taxes | (16,009 | ) | (98,258 | ) | 57,339 | 11,526 | ||||||||||
Provision for income taxes | 9,354 | (24,072 | ) | 34,763 | 6,360 | |||||||||||
Net (loss) income from continuing operations | (25,363 | ) | (74,186 | ) | 22,576 | 5,166 | ||||||||||
Net income from discontinued operations | 19,349 | 12,149 | 56,413 | 59,696 | ||||||||||||
Net (loss) income | $ | (6,014 | ) | $ | (62,037 | ) | $ | 78,989 | $ | 64,862 | ||||||
Basic (loss) earnings per common share from continuing operations | $ | (0.42 | ) | $ | (1.25 | ) | $ | 0.38 | $ | 0.09 | ||||||
Basic earnings per common share from discontinued operations | 0.32 | 0.20 | 0.95 | 1.00 | ||||||||||||
Basic (loss) earnings per common share | $ | (0.10 | ) | $ | (1.05 | ) | $ | 1.33 | $ | 1.09 | ||||||
Basic weighted-average common shares outstanding | 59,684 | 59,474 | 59,618 | 59,411 | ||||||||||||
Diluted (loss) earnings per common share from continuing operations | $ | (0.42 | ) | $ | (1.24 | ) | $ | 0.38 | $ | 0.09 | ||||||
Diluted earnings per common share from discontinued operations | 0.32 | 0.20 | 0.94 | 1.00 | ||||||||||||
Diluted (loss) earnings per common share | $ | (0.10 | ) | $ | (1.04 | ) | $ | 1.32 | $ | 1.09 | ||||||
Diluted weighted-average common shares outstanding | 59,902 | 59,630 | 59,878 | 59,588 | ||||||||||||
(1) | The condensed consolidated statement of operations for the twelve and forty weeks ended October 7, 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) | ||||||||
Forty Weeks Ended | ||||||||
October 5, 2024 | October 7, 2023 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 78,989 | $ | 64,862 | ||||
Net income from discontinued operations | 56,413 | 59,696 | ||||||
Net income from continuing operations | 22,576 | 5,166 | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation and amortization | 217,197 | 206,658 | ||||||
Share-based compensation | 33,810 | 33,777 | ||||||
(Gain) Loss on sale and impairment of long-lived assets | (14,273 | ) | 1,886 | |||||
Provision for deferred income taxes | 24,289 | (27,811 | ) | |||||
Other, net | 2,986 | 2,436 | ||||||
Net change in: | ||||||||
Receivables, net | (60,383 | ) | (161,629 | ) | ||||
Inventories, net | (152,229 | ) | (110,871 | ) | ||||
Accounts payable | (25,225 | ) | (77,336 | ) | ||||
Accrued expenses | 30,794 | 171,117 | ||||||
Other assets and liabilities, net | 1,477 | (71,707 | ) | |||||
Net cash provided by (used in) operating activities from continuing operations | 81,019 | (28,314 | ) | |||||
Net cash provided by operating activities from discontinued operations | 76,917 | 57,148 | ||||||
Net cash provided by operating activities | 157,936 | 28,834 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (129,714 | ) | (174,186 | ) | ||||
Proceeds from sales of property and equipment | 13,232 | 2,001 | ||||||
Net cash used in investing activities of continuing operations | (116,482 | ) | (172,185 | ) | ||||
Net cash used in investing activities of discontinued operations | (7,988 | ) | (13,015 | ) | ||||
Net cash used in investing activities | (124,470 | ) | (185,200 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings under credit facilities | - | 4,805,000 | ||||||
Payments on credit facilities | - | (4,990,000 | ) | |||||
Borrowings on senior unsecured notes | - | 599,571 | ||||||
Dividends paid | (44,882 | ) | (194,322 | ) | ||||
Purchases of noncontrolling interests | (9,101 | ) | - | |||||
Proceeds from the issuance of common stock | 2,995 | 3,045 | ||||||
Repurchases of common stock | (5,601 | ) | (14,237 | ) | ||||
Other, net | (1,143 | ) | (5,010 | ) | ||||
Net cash (used in) provided by financing activities | (57,732 | ) | 204,047 | |||||
Forty Weeks Ended | ||||||||
October 5, 2024 | October 7, 2023 | |||||||
Effect of exchange rate changes on cash | 11,766 | (1,932 | ) | |||||
Net (decrease) increase in cash and cash equivalents | (12,500 | ) | 45,749 | |||||
Cash and cash equivalents, beginning of period | 503,471 | 270,805 | ||||||
Cash and cash equivalents, end of period | $ | 490,971 | $ | 316,554 | ||||
Summary of cash and cash equivalents: | ||||||||
Cash and cash equivalents of continuing operations, end of period | $ | 464,492 | $ | 308,804 | ||||
Cash and cash equivalents of discontinued operations, end of period | 26,479 | 7,750 | ||||||
Cash and cash equivalents, end of period | $ | 490,971 | $ | 316,554 | ||||
(1) | The condensed consolidated statement of cash flows for the forty weeks ended October 7, 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 Condensed Consolidated Statement of Operations for the twelve and forty weeks ended October 7, 2023, and the company's Condensed Consolidated Statement of Cash Flows for the forty weeks ended October 7, 2023, included in the company's previously filed Annual Report on Form 10-K are presented below:
Condensed Consolidated Statement of Operations | |||||||||||||||||||
October 7, 2023 | |||||||||||||||||||
Twelve Weeks Ended | |||||||||||||||||||
(in thousands) | As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | ||||||||||||||
Cost of sales | $ | 1,732,420 | $ | 16,379 | $ | 1,748,799 | $ | 348,161 | $ | 1,400,638 | |||||||||
Gross profit | 986,659 | (16,379 | ) | 970,280 | 152,713 | 817,567 | |||||||||||||
Selling, general and administrative expenses | 1,030,355 | 878 | 1,031,233 | 135,088 | 896,145 | ||||||||||||||
Operating (loss) income | (43,696 | ) | (17,257 | ) | (60,953 | ) | 17,625 | (78,578 | ) | ||||||||||
(Loss) Income before provision for income taxes | (64,319 | ) | (17,257 | ) | (81,576 | ) | 16,682 | (98,258 | ) | ||||||||||
Provision for income taxes | (15,686 | ) | (3,853 | ) | (19,539 | ) | 4,533 | (24,072 | ) | ||||||||||
Net (loss) income | $ | (48,633 | ) | $ | (13,404 | ) | $ | (62,037 | ) | $ | 12,149 | $ | (74,186 | ) | |||||
Basic (loss) earnings per share | $ | (0.82 | ) | $ | (0.23 | ) | $ | (1.05 | ) | $ | 0.20 | $ | (1.25 | ) | |||||
Diluted (loss) earnings per common share | $ | (0.82 | ) | $ | (0.22 | ) | $ | (1.04 | ) | $ | 0.20 | $ | (1.24 | ) | |||||
Condensed Consolidated Statement of Operations | ||||||||||||||||
October 7, 2023 | ||||||||||||||||
Forty Weeks Ended | ||||||||||||||||
(in thousands) | As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | |||||||||||
Cost of sales | $ | 5,220,200 | $ | 29,877 | $ | 5,250,077 | $ | 1,095,887 | $ | 4,154,190 | ||||||
Gross profit | 3,602,538 | (29,877 | ) | 3,572,661 | 532,181 | 3,040,480 | ||||||||||
Selling, general and administrative expenses | 3,407,445 | 2,272 | 3,409,717 | 450,479 | 2,959,238 | |||||||||||
Operating income (loss) | 195,093 | (32,149 | ) | 162,944 | 81,702 | 81,242 | ||||||||||
Income (loss) before provision for income taxes | 124,894 | (32,149 | ) | 92,745 | 81,219 | 11,526 | ||||||||||
Provision for income taxes | 34,649 | (6,766 | ) | 27,883 | 21,523 | 6,360 | ||||||||||
Net income (loss) | $ | 90,245 | $ | (25,383 | ) | $ | 64,862 | $ | 59,696 | $ | 5,166 | |||||
Basic earnings (loss) per share | $ | 1.52 | $ | (0.43 | ) | $ | 1.09 | $ | 1.00 | $ | 0.09 | |||||
Diluted earnings (loss) per common share | $ | 1.51 | $ | (0.42 | ) | $ | 1.09 | $ | 1.00 | $ | 0.09 | |||||
Condensed Consolidated Statement of Cash Flows | ||||||||||||||||||||
Forty Weeks Ended October 7, 2023 | ||||||||||||||||||||
(in thousands) | As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | |||||||||||||||
Net income | $ | 90,245 | $ | (25,383 | ) | $ | 64,862 | $ | 59,696 | $ | 5,166 | |||||||||
Provision for deferred income taxes | (33,059 | ) | 5,248 | (27,811 | ) | - | (27,811 | ) | ||||||||||||
Other, net | 1,499 | 937 | 2,436 | - | 2,436 | |||||||||||||||
Net change in: | ||||||||||||||||||||
Receivables, net | (170,371 | ) | (9,519 | ) | (179,890 | ) | (18,261 | ) | (161,629 | ) | ||||||||||
Inventories, net | (41,025 | ) | 15,442 | (25,583 | ) | 85,288 | (110,871 | ) | ||||||||||||
Accounts payable | (191,871 | ) | 28,500 | (163,371 | ) | (86,035 | ) | (77,336 | ) | |||||||||||
Accrued expenses | 145,704 | 21,521 | 167,225 | (3,892 | ) | 171,117 | ||||||||||||||
Other assets and liabilities, net | (45,015 | ) | (38,316 | ) | (83,331 | ) | (11,624 | ) | (71,707 | ) | ||||||||||
Net cash provided by (used in) operating activities | 30,404 | (1,570 | ) | 28,834 | 57,148 | (28,314 | ) | |||||||||||||
Other, net (1) | (4,073 | ) | (937 | ) | (5,010 | ) | - | (5,010 | ) | |||||||||||
Net cash provided by financing activities | 204,984 | (937 | ) | 204,047 | ||||||||||||||||
Effect of exchange rate changes on cash | (1,942 | ) | 10 | (1,932 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 48,246 | (2,497 | ) | 45,749 | ||||||||||||||||
Cash and cash equivalents, beginning of period | 269,282 | 1,523 | 270,805 | 50,670 | 220,135 | |||||||||||||||
Cash and cash equivalents, end of period | $ | 317,528 | $ | (974 | ) | $ | 316,554 | $ | 7,750 | $ | 308,804 | |||||||||
(1) | The summary of corrections table above inadvertently omitted disclosure for proceeds from the issuance of common stock as follows: $3.0 million as previously reported, $0 adjustments and $3.0 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"). Non-GAAP financial measures, including Adjusted Net income, Adjusted EPS, Adjusted SG&A Margin, and Adjusted Operating Income, 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 the company believes that the presentation of the financial results that exclude (1) transformation expenses under the company's turnaround plan, (2) other significant costs and (3) nonrecurring tax expense are useful and indicative of the company's base operations because the expenses vary from period to period in terms of size, nature and significance. These measures assist in comparing the company's current operating results with past periods and with the operational performance of other companies in the 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 the company has determined are not normal, recurring cash operating expenses necessary to operate the company's 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 turnaround plan and specific transformative activities related to asset optimization that the company does not view to be normal cash operating expenses. These expenses primarily include:
- Distribution network optimization - Costs primarily relating to the conversion of the stores and DCs to market hubs, including temporary labor, team member severance, long-lived asset write off charges and incremental depreciation, as a result of accelerating depreciation of long-lived assets over a shorter useful life as a result of the optimization plans.
- Third-party professional services - Costs relating to non-recurring services rendered by third-party vendors assisting with the turnaround initiatives.
Other Expenses - Costs incurred by the company that are not viewed as normal cash operating expenses and vary from period to period in terms of size, nature, and significance, including but not limited to executive turnover and incremental costs associated with remediating the company's previously-disclosed material weaknesses in internal control over financial reporting.
Nonrecurring Tax Expense - Income tax incurred by the company from the book to tax basis difference in the Worldpac Canada stock directly resulting from the sale of Worldpac.
The following tables include reconciliations of this information to the most comparable GAAP measures:
Reconciliation of Adjusted Net Income and Adjusted EPS: | ||||||||||||||||
Twelve Weeks Ended | Forty Weeks Ended | |||||||||||||||
(in thousands, except per share data) | October 5, 2024 | October 7, 2023 | October 5, 2024 | October 7, 2023 | ||||||||||||
Net (loss) income from continuing operations (GAAP) | $ | (25,363 | ) | $ | (74,186 | ) | $ | 22,576 | $ | 5,166 | ||||||
Selling, general and administrative adjustments: | ||||||||||||||||
Transformation expenses: | ||||||||||||||||
Distribution network optimization | 8,909 | - | 13,943 | - | ||||||||||||
Third-party professional services | 3,582 | 50 | 5,301 | 320 | ||||||||||||
Other charges: | ||||||||||||||||
Executive turnover | 87 | 3,799 | 1,561 | 5,360 | ||||||||||||
Material weakness remediation | 1,293 | 429 | 3,649 | 429 | ||||||||||||
Other significant costs(1) | 2,394 | - | 3,491 | - | ||||||||||||
Provision for income taxes on adjustments(2) | (4,066 | ) | (1,070 | ) | (6,986 | ) | (1,527 | ) | ||||||||
Nonrecurring tax expense | 10,000 | - | 10,000 | - | ||||||||||||
Adjusted net (loss) income (Non-GAAP) | $ | (3,164 | ) | $ | (70,978 | ) | $ | 53,535 | $ | 9,748 | ||||||
Diluted (loss) earnings per share from continuing operations (GAAP) | $ | (0.42 | ) | $ | (1.24 | ) | $ | 0.38 | $ | 0.09 | ||||||
Adjustments, net of tax | 0.38 | 0.05 | 0.52 | 0.08 | ||||||||||||
Adjusted EPS (Non-GAAP) | $ | (0.04 | ) | $ | (1.19 | ) | $ | 0.90 | $ | 0.17 | ||||||
(1) | During the twelve and forty weeks ended October 5, 2024, the Company recorded expense of $2.4 million and $3.5 million for costs incurred following a cybersecurity incident that occurred over these periods. | |
(2) | 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 Selling, General and Administrative Expenses | ||||||||||||
Twelve Weeks Ended | Forty Weeks Ended | |||||||||||
(in thousands) | October 5, 2024 | October 7, 2023 | October 5, 2024 | October 7, 2023 | ||||||||
SG&A (GAAP) | $ | 907,495 | $ | 896,145 | $ | 2,954,707 | $ | 2,959,238 | ||||
SG&A adjustments | 16,265 | 4,278 | 27,945 | 6,109 | ||||||||
Adjusted SG&A (Non-GAAP) | $ | 891,230 | $ | 891,867 | $ | 2,926,762 | $ | 2,953,129 | ||||
Reconciliation of Adjusted Operating Income: | |||||||||||||
Twelve Weeks Ended | Forty Weeks Ended | ||||||||||||
(in thousands) | October 5, 2024 | October 7, 2023 | October 5, 2024 | October 7, 2023 | |||||||||
Operating income (GAAP) | $ | 403 | $ | (78,578 | ) | $ | 106,697 | $ | 81,242 | ||||
SG&A adjustments | 16,265 | 4,278 | 27,945 | 6,109 | |||||||||
Adjusted operating income (Non-GAAP) | $ | 16,668 | $ | (74,300 | ) | $ | 134,642 | $ | 87,351 | ||||
NOTE: | 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: (1) | ||||||||
Forty Weeks Ended | ||||||||
(in thousands) | October 5, 2024 | October 7, 2023 | ||||||
Cash flows provided by operating activities of continuing operations | $ | 81,019 | $ | (28,314 | ) | |||
Purchases of property and equipment | (129,714 | ) | (174,186 | ) | ||||
Free cash flow | $ | (48,695 | ) | $ | (202,500 | ) | ||
Adjusted Debt to Adjusted EBITDAR: (1) | ||||||||
Four Quarters Ended | ||||||||
(In thousands, except adjusted debt to adjusted EBITDAR ratio) | October 5, 2024 | December 30, 2023 | ||||||
Total GAAP debt | $ | 1,788,513 | $ | 1,786,361 | ||||
Add: Operating lease liabilities | 2,711,578 | 2,660,827 | ||||||
Adjusted debt | $ | 4,500,091 | $ | 4,447,188 | ||||
GAAP Net income | $ | 50,819 | $ | 29,735 | ||||
Depreciation and amortization | 309,566 | 306,454 | ||||||
Interest expense | 80,559 | 88,055 | ||||||
Other expense, net | (16,174 | ) | (5,525 | ) | ||||
Provision for income taxes | 23,843 | 2,112 | ||||||
Rent expense | 638,232 | 613,859 | ||||||
Share-based compensation | 46,557 | 45,647 | ||||||
Other charges (2) | 40,091 | 12,419 | ||||||
Transformation related charges | 27,131 | 29,719 | ||||||
Adjusted EBITDAR | $ | 1,200,624 | $ | 1,122,475 | ||||
Adjusted Debt to Adjusted EBITDAR | 3.7 | 4.0 | ||||||
(1) | The four quarters ended October 5, 2024, includes the correction of non-material errors the company discovered in previously reported results. | |
(2) | The adjustments to the four quarters ended October 5, 2024, and December 30, 2023, include expenses associated with the company's material weakness remediation efforts and executive turnover. | |
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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 forty weeks ended October 5, 2024, 23 stores were opened and 29 were closed, resulting in a total of 4,781 stores as of October 5, 2024, compared with a total of 4,786 stores as of December 30, 2023.
The below table summarizes the changes in the number of company-operated stores during the twelve and forty weeks ended October 5, 2024:
Twelve Weeks Ended | |||||||||
AAP | CARQUEST | Total | |||||||
July 15, 2024 | 4,484 | 292 | 4,776 | ||||||
New | 9 | - | 9 | ||||||
Closed | (2 | ) | (2 | ) | (4 | ) | |||
Converted | 1 | (1 | ) | - | |||||
October 5, 2024 | 4,492 | 289 | 4,781 | ||||||
Forty Weeks Ended | |||||||||
AAP | CARQUEST | Total | |||||||
December 30, 2023 | 4,484 | 302 | 4,786 | ||||||
New | 23 | - | 23 | ||||||
Closed | (17 | ) | (12 | ) | (29 | ) | |||
Converted | 2 | (1 | ) | 1 | |||||
October 5, 2024 | 4,492 | 289 | 4,781 | ||||||
Contacts
Investor Relations Contact:
Lavesh Hemnani
T: (919) 227-5466
E: invrelations@advance-auto.com
Media Contact:
Darryl Carr
T: (984) 389-7207
E: AAPCommunications@advance-auto.com
