Advance Auto Parts has announced its financial results for the first quarter ended April 23, 2016. First quarter adjusted earnings per diluted share (Adjusted Cash EPS) were $2.51. These results exclude 11 cents of amortization of acquired intangible assets and integration and restructuring costs of 26 cents, primarily associated with the acquisition of General Parts International Inc.
“Our first quarter results did not meet our expectations,” said Tom Greco, CEO. “We are moving forward with urgency to drive improved performance. Our customers are our top priority and we are elevating our intensity to get the right parts to the right place at the right time as we empower our team members to serve the customer better than anyone else.”
Greco continued, “I have been energized by the strength and the quality of our team and the opportunity that lies ahead. I am confident our focus and commitment around delivering improved service for our customers will translate into increased profitability and shareholder value.”
First Quarter 2016 Highlights
Total sales for the first quarter decreased 1.9 percent to $2.98 billion, as compared with total sales during the first quarter of fiscal 2015 of $3.04 billion. The company said this sales decline was driven by the comparable store sales decrease of 1.9 percent primarily due to availability and service shortfalls. The company’s comparable store sales also were partially impacted by lower demand due to unfavorable weather during the quarter and benefited from the favorable consolidation impact from Carquest stores.
The company’s adjusted operating income was $315 million during the first quarter, an increase of 2.2 percent versus the first quarter of fiscal 2015. As a percentage of sales, adjusted operating income in the first quarter expanded to 10.6 percent versus 10.1 percent during the first quarter of fiscal 2015. On a GAAP basis, the company’s operating income during the first quarter of $271 million increased 3.2 percent versus the first quarter of fiscal 2015. On a GAAP basis, the operating income rate was 9.1 percent during the first quarter as compared to 8.6 percent during the first quarter of fiscal 2015.
Updated 2016 Key Assumptions
Due to the sales trends the Company experienced as it exited its first quarter and outlook for the balance of the year, the assumption for annual comparable store sales is now expected to be between negative 3 percent and negative 5 percent and given this updated assumption, the company no longer expects to achieve its annual free cash flow assumption of a minimum of $500 million for fiscal 2016. In addition, the company is no longer targeting an adjusted operating income rate of 12 percent for fiscal 2016.
Advance Commences CFO Transition
Advance also announced that Mike Norona, chief financial officer (CFO), will be leaving the company. Norona has agreed to remain in his current role until a successor has been named and will assist with an orderly transition. The company has commenced an external search for a new CFO.
Greco commented, “I want to thank Mike for his eight years of strong financial leadership during a time when the company more than doubled its market cap. He has played a key role in developing a strong finance team and building a capital structure to support our future growth. I am appreciative of Mike’s willingness to support our transition with his leadership, passion and experience.”
In addition, Advance announced that current independent director, Jeffrey Smith, has been appointed chair of the company’s board of directors, effective immediately. Smith succeeds Executive Chair John “Jack” Brouillard, who will continue to serve as a director on the Advance Auto Parts Board. In addition, John Ferraro is no longer lead independent director but will continue to serve as a director and has been appointed chair of the nominating and corporate governance committee.
Smith stated, “I am honored to serve Advance Auto Parts as its board chair. Since joining the board in November, Advance has taken important steps to generate shareholder value, including implementing a more field-centric organization and appointing a new CEO. I look forward to continuing to work with the board and management team to help realize the exceptional future potential for the company. I would also like to thank Jack and John for their leadership and continued contributions to the board.”
Jeffrey Smith is managing member, CEO and chief investment officer of Starboard Value LP. He joined the Advance Auto Parts Board on Nov. 12, 2015. Smith also is currently on the board of Yahoo! Inc. He was formerly chairman of the boards of Darden Restaurants Inc. and Phoenix Technologies Ltd. and formerly on the boards of Quantum Corp., Office Depot, Regis Corp., Surmodics Inc., Zoran Corp., Actel Corp., Kensey Nash Corp., S1 Corp and the Fresh Juice Co.
