ROANOKE, Va. — Advance Auto Parts has announced its financial results for the fourth quarter and fiscal year ended Jan. 3.
Fourth quarter and fiscal 2008 results include the impact of an additional fiscal week of business (53rd week) as well as a non-cash inventory adjustment resulting from a change in inventory management and related accounting policy for slow moving inventory. With this change in inventory management, the company expects to add faster moving custom mix inventory which should increase inventory turns, accelerate sales and improve margins. As a result of the inclusion of the 53rd week and the non-cash inventory adjustment, the company’s fiscal fourth quarter and fiscal 2008 financial results are not comparable with prior periods.
Higher sales and improved gross profit rate in the 53rd week added approximately 10 cents to diluted earnings per share (EPS) versus our previous estimate of 7 cents. The non-cash inventory adjustment decreased diluted EPS by 25 cents for the fourth quarter and fiscal 2008.
The company’s operating performance during the fourth quarter including the 53rd week of business but excluding the non-cash inventory adjustment was 51 cents versus 35 cents for the same period last year. On a comparable 12-week basis, fourth quarter fiscal 2008 EPS of 41 cents increased 17 percent over the same period last year driven by increased operating income, reduced interest expense and a lower share count. On a GAAP basis, fourth quarter fiscal 2008 EPS was 26 cents.
The company’s operating performance during fiscal 2008 including the 53rd week of business but excluding the non-cash inventory adjustment was $2.75 versus $2.28 for the same period last year. On a comparable 52-week basis, fiscal 2008 EPS of $2.65 increased 16 percent over the same period last year.
Total sales for the fourth quarter increased 13.7 percent to $1.19 billion, compared with total sales of $1.05 billion in the fourth quarter of fiscal 2007. The sales increase reflects the net addition of 107 new stores during fiscal 2008, an increase of $88.8 million or 8.5 percent in sales due to the inclusion of a 53rd week and a comparable store sales increase of 3 percent during the quarter. The comparable store sales increase of 3 percent compares to a decrease of 0.3 percent in the fourth quarter last year. The comparable store sales increase was comprised of a 13.7 percent increase in Commercial sales partially offset by a 1.1 percent decrease in do-it-yourself (DIY) sales. This compares to an 8.1 percent increase in Commercial sales and a 3.1 percent decrease in DIY sales in the fourth quarter last year. Fiscal 2008 sales increased 6.1 percent to $5.14 billion, while comparable store sales increased 1.5 percent driven by a 12.1 percent increase in Commercial sales partially offset by a 2.3 percent decrease in DIY sales.
Operating cash flow for the year increased $68.2 million to $478.7 million. Free cash flow for the year increased 19 percent to $280.0 million, a $45.6 million improvement as compared to last year due to the impact of the 53rd week and reduced capital expenditures. Capital expenditures were $185. million for the year, as compared to $210.6 million for the same period last year. The decrease in capital expenditures is primarily due to a reduction in new store development.
“Overall, I am very pleased with our performance in 2008,” said CEO Darren Jackson. “Despite a deteriorating economic environment, our turnaround and transformation are off to a good start. We achieved many strategic and financial goals in 2008. These achievements were driven by the hard work and dedicated efforts of our 48,000 Team Members who helped us grow our company’s success and serve our customers better than anyone else.”
During the fourth quarter, the company opened 26 AAP stores. The company also closed 10 stores and relocated 2 stores. During fiscal 2008, the company opened 127 stores, including 18 Autopart International stores, closed 20 stores and relocated 10 stores. As of Jan. 3, the company’s total store count was 3,368.
Commenting on Advances Commercial results vs DIY, Advance President Jim Wade said he is encouraged by improved DIY results in the fourth quarter and pleased with the company’s Commercial results. “We believe we have significant growth opportunities given we have less than 3 percent Commercial market share,” Wade said. “We are committed to aggressively growing our business. Despite the broader economic challenges, we believe we can continue to achieve double-digit Commercial comparable store sales growth in 2009 and we remain focused on improving our DIY comparable store sales trends.”
With respect to store locations, the company recently completed a thorough examination of its real estate store portfolio and said it believes that its current occupancy costs for its leased store portfolio are uncompetitive due to the recent downturn in commercial lease rates. In addition, an unprecedented amount of retail store closings has provided the company significant opportunities to improve its store portfolio. As a result, Advance said it intends to aggressively renegotiate rents and relocate or close existing stores to improve profitability and could divest 40 to 55 unprofitable stores this year.
In 2009, the company anticipates a double-digit increase in Commercial comparable store sales, partially offset by a low single-digit decrease in DIY comparable store sales. The company assumes a modest increase in the gross profit rate driven by continued decreases in inventory shrink and a favorable revenue mix in Autopart International, which generates a higher gross profit rate.
