- Announces Asset Optimization Program Targeting Reduction of 500
Corporate Stores, 200 Independently Owned Locations and Four
Distribution Centers by Mid-2025
- Introduces New Fiscal 2027 Financial Objectives Targeting
Approximately 7% Adjusted Operating Income Margin (1) and
Approximately 2.5x Debt Leverage Ratio; Provides Preliminary 2025
Guidance
- Identifies Over 500-basis points of Operating Margin Expansion
Opportunity Through Fiscal 2027 With Focus on Core Retail
Fundamental Excellence
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.
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241113582088/en/
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
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