Advance Auto Parts announced its financial results for the third quarter ended Oct. 10, 2015. Third quarter comparable cash earnings per diluted share (Comparable Cash EPS) were $1.95, which was an increase of 3.2 percent versus the third quarter last year. These third quarter comparable results exclude 8 cents of amortization of acquired intangible assets and integration and restructuring costs of 24 cents, primarily associated with the acquisition of General Parts International Inc. (General Parts).
“I would like to thank all our team members for their hard work during the third quarter of 2015,” said Darren Jackson, CEO, who this week announced his plans for retirement. “Our third quarter comparable store sales increased 0.5 percent and Comparable Cash EPS grew 3.2 percent to $1.95. These results were unfavorably impacted by the continuing demands of the General Parts integration as well as some headwinds due to foreign exchange. We remain focused on structurally improving our business and progressing through our integration milestones to position the company for long term growth.”
Third Quarter 2015 Highlights
Total sales for the third quarter increased 0.3 percent to $2.30 billion, as compared with total sales during the third quarter of fiscal 2014 of $2.29 billion. The sales increase was driven by the addition of new stores over the past 12 months and a comparable store sales increase of 0.5 percent partially offset by changes in independent store count.
The company’s gross profit rate was 45 percent of sales during the third quarter as compared to 45.2 percent during the third quarter last year. The 20 basis-point decrease in gross profit rate was primarily the result of higher inventory expenses related to the product integration, modest supply chain expense deleverage due to low comparable store sales growth partially offset by lower product acquisition costs inclusive of the company’s ongoing merchandise synergy savings.
The company’s comparable operating income was $243.8 million during the third quarter, an increase of 2.9 percent versus the third quarter of fiscal 2014. As a percentage of sales, comparable operating income in the third quarter was 10.6 percent compared to 10.3 percent during the third quarter of fiscal 2014. On a GAAP basis, the company’s operating income during the third quarter of $205.5 million decreased 1.7 percent versus the third quarter of fiscal 2014. On a GAAP basis, the operating income rate was 9 percent during the third quarter as compared to 9.1 percent during the third quarter of fiscal 2014.
Operating cash flow decreased approximately 3.7 percent to $520.1 million through the third quarter of fiscal 2015 from $540.3 million through the third quarter of fiscal 2014. Free cash flow decreased to $358.9 million through the third quarter of fiscal 2015 from $378.8 million through the third quarter of fiscal 2014. Capital expenditures through the third quarter of fiscal 2015 were $161.2 million as compared to $161.5 million through the third quarter of fiscal 2014.
“Our teams once again delivered on our synergy expectations and demonstrated continued G&A expense discipline to grow our comparable operating income 2.9 percent in the quarter despite softer top-line performance,” said Mike Norona, executive vice president and chief financial officer. “Our third quarter reflected ongoing demands from our integration activities, and we expect our earnings will be pressured for the remainder of the year due to these continued integration impacts. That said, we remain focused on making the necessary changes to the business and delivering our comparable operating income target of 12 percent in 2016.”
2015 Full-Year Outlook
“Given our third quarter earnings shortfall coupled with continuing integration headwinds and the soft start to our lowest volume fourth quarter, we are revising our full year comparable cash EPS down to $7.75 to $7.90,” said Norona. “This revised outlook assumes flat to slightly negative fourth quarter comparable store sales, roughly flat year over year fourth quarter gross margin rate and achievement of our full year synergies estimate of between $45 million and $55 million for the full year.”
In addition, as part of its ongoing process of store evaluations, Advance reports that it has further identified, and is subsequently planning to close an additional 30 stores in the latter part of 2015. The one-time expense impact of these closures is expected to be between $10 and $15 million in 2015. The company says this action effectively increases the 2015 full-year estimates for one-time integration and restructuring expenses from the most current outlook of $91 to $105 million disclosed in the company’s second quarter 2015 earnings release to now be between $101 to $120 million.
“Looking ahead, I welcome the opportunity and look forward to working with our teams to realize the full potential of our company that both we and our shareholders expect,” said George Sherman, president and incoming interim CEO. “We are on course to combine as one company and are making the right foundational investments this year and are confident this positions us to achieve our business objectives in 2016 and beyond. That said, we must have relentless bias for action and a higher level of accountability than we have to date to ensure consistent execution at all levels and deliver the necessary improvements to our business performance which I am confident is within our sights.”
As of Oct. 10, 2015, the company operated 5,240 stores and 118 WORLDPAC branches and served approximately 1,300 independently-owned CARQUEST stores.
