ROANOKE, Va. — Advance Auto Parts has announced its financial results for the second quarter ended July 18. Second quarter earnings per diluted share were 83 cents, which included a 6-cent charge related to store divestitures. Excluding the impact of the store divestitures, diluted earnings per share (EPS) of 89 cents increased 14 percent on top of a 22 percent increase in EPS last year. On a year-to-date basis, EPS of $1.92, excluding the 10-cent impact of store divestitures, increased 17 percent on top of a 21 percent increase in EPS last year.
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).
For the 12 and 28 weeks ended July 18, diluted EPS includes a 6-cent and 10-cent 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 12 and 28 weeks ended July 12, 2008, by 1 cent.
“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 Jackson, chief executive officer. “Over the last 18 months we have been on a journey to turn around 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.”
Total sales for the second quarter increased 7 percent 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 percent during the quarter compared to an increase of 2.9 percent during the second quarter last year. The comparable store sales gain was comprised of a 14.8 percent increase in Commercial sales and a 0.7 percent increase in do-it-yourself (DIY) sales. This compares to a 13.5 percent increase in Commercial and a 0.8 percent decrease in DIY during the second quarter last year. Year-to-date comparable store sales increased 6.7 percent driven by a 16.3 percent increase in Commercial and a 2.7 percent increase in DIY.
The company’s gross profit rate was 49.3 percent of sales in the second quarter as compared to 47.4 percent 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 percent of sales as compared to 37.1 percent 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 percent comparable store sales increase.
Operating cash flow through the second quarter increased 24 percent to $433.8 million from $350 million in the second quarter last year. Free cash flow through the second quarter was $287.4 million or an 18 percent 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 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 three 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,” said Mike Norona, executive vice president and chief financial officer. “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.”
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, the company’s total store count was 3,407, including 142 Autopart International stores.
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.
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 6-cent 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 10-cent EPS charge. Currently, the company estimates that the incremental store divestitures will result in a 15 cents to 22 cents charge to EPS in fiscal 2009.
On Aug. 11, the company’s board of directors declared a regular quarterly cash dividend of 6 cents per share to be paid on Oct. 9, to stockholders of record as of Sept. 25.
