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Advance Auto Parts Reports 3rd Quarter 2019 Results

Net sales increased 1.6% to $2.3 billion. The company also announced an additional $700 million share repurchase authorization.

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Advance Auto Parts has announced its financial results for the third quarter ended Oct. 5, 2019.

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“The Advance team, including our network of Independent Partners, delivered our sixth consecutive quarter of net sales growth in the third quarter as a result of our unrelenting focus on the customer. We also expanded margins and remained highly disciplined in our approach to cost reduction,” said Tom Greco, president and CEO. “In addition to our performance improvements and margin expansion, we continue to invest in critical information technology and supply chain initiatives that are expected to unlock significant productivity over the next several years. Notably, our working capital improvements were driven by our focus on cash management across the board. I am confident in our teams’ ability to drive additional sales and margin progress. We are on track to deliver record free cash flow, resulting in a substantial year over year increase in 2019 versus the prior year. Consistent with our commitment to drive significant value growth for our shareholders, I am also pleased to announce an additional $700.0 million share repurchase authorization.”

Net sales for the third quarter of 2019 were $2.3 billion, a 1.6% increase versus the third quarter of the prior year. Comparable store sales for the third quarter of 2019 increased 1.2%.

Adjusted gross profit margin was 43.9% of net sales in the third quarter of 2019, a 39-basis point decrease from the third quarter of 2018. The decrease was primarily driven by an approximate $14 million increase in coupon redemptions in connection with the impact of the launch of the company’s enhanced loyalty program initiatives. The headwinds were partially offset by improvements in operational productivity relating to the company’s ability to leverage its supply chain. Advance’s GAAP gross profit margin decreased to 43.8% from 44.3% in the third quarter of the prior year.

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The company’s adjusted operating income was $205.1 million in the third quarter of 2019, an increase of 5.9% versus the third quarter of the prior year. Adjusted operating income margin increased to 8.9% of Net sales for the third quarter, an increase of 36 basis points compared to the third quarter of the prior year. On a GAAP basis, the company’s operating income was $172.3 million, or 7.5% of net sales, an increase of 67 basis points from the third quarter of 2018.

The company’s effective tax rate in the third quarter of 2019 was 23.1%, compared to 21.2% in the third quarter of the prior year. The company’s adjusted diluted EPS was $2.10 for the third quarter of 2019, an increase of 11.1% compared to the third quarter of the prior year. On a GAAP basis, the Company’s Diluted EPS increased 12.2% in the third quarter of 2019 to $1.75.

Operating cash flow was $708.5 million through the third quarter of 2019 versus $681.5 million in the same period of the prior year, an increase of 4.0%. Free cash flow through the third quarter of 2019 was $539.3 million, a decrease of 6.4% compared to the same period of the prior year, primarily driven by a 61.0% increase in capital spending.

Capital Allocation

During the third quarter, the company repurchased 1 million shares of its common stock at an aggregate amount of $140 million under the Aug. 8, 2018, share repurchase program for an average price of $141.54. On Aug. 7, 2019 the company’s board of directors authorized a new $400 million share repurchase program that replaced the previous $600 million share repurchase program. Under this new share repurchase program the company repurchased 1.4 million shares of its common stock at an aggregate amount of $198.6 million for an average price of $136.77 per share. At the end of the third quarter of 2019, the company had $201.4 million remaining under the share repurchase program. On Nov. 8, 2019, the company’s board of directors authorized $700 million as an addition to the existing share repurchase program.

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On Nov. 8, 2019, the Advance Board of Directors declared a regular quarterly cash dividend of 6 cents per share to be paid on January 3, 2020, to all common shareholders of record as of Dec. 20, 2019.

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