ROANOKE, Va. — Advance Auto Parts has announced its financial results for the first quarter ended April 25. First quarter earnings per diluted share were 98 cents including a 4-cent charge related to store divestures, which were not included in, and continue to be excluded from, the company’s 2009 annual outlook. Excluding the impact of the store divestures, diluted earnings per share (EPS) increased 19 percent to $1.02, which was a 16-cent increase over the prior year.
Effective first quarter 2009, the company implemented a change in accounting principle for costs included in inventory. Accordingly, the company has retrospectively applied the change in accounting principle to all prior periods presented herein related to cost of sales and selling, general and administrative expenses (SG&A). Advance said this change decreased gross profit and SG&A by $18.8 million. However, there was no impact to the company’s operating income or cash flow. Diluted EPS includes a 4-cent charge related to store divestitures, which were not included in the company’s 2009 annual outlook.
Total sales for the first quarter increased 10.3 percent to $1.68 billion, compared with total sales of $1.53 billion in the first quarter of fiscal year 2008. The sales increase reflected the net addition of 114 new stores in the past 12 months and a comparable store sales increase of 8.2 percent during the quarter compared to an increase of 0.6 percent during the first quarter last year. The comparable store sales gain was comprised of a 17.5 percent increase in commercial sales and a 4.4 percent increase in do-it-yourself (DIY) sales. This compares to a 10.6 percent increase in commercial and a 3 percent decrease in DIY during the first quarter last year. As a result of the 53rd week in fiscal 2008, the company experienced a calendar shift in fiscal 2009 which added approximately 100 basis-points to the company’s total comparable stores sales increase during the first quarter. The calendar shift will reverse and reduce the company’s total comparable store sales growth during the back half of 2009.
The company’s gross profit rate was 48.8 percent of sales in the first quarter as compared to 47.5 percent in the prior year, which reflects a 133 basis-point improvement. Advance said the 133 basis-point improvement was primarily due to continued investments in pricing capabilities, merchandising capabilities and parts availability, combined with changes to better align team member incentives resulting in better store execution.
The company’s first quarter SG&A rate was 39.5 percent of sales in the first quarter as compared to 38 percent last year. The 142 basis-point increase was driven by higher incentive compensation, store divesture expenses and continued strategic capability investments to improve the company’s gross profit rate and accelerate the commercial business. The higher incentive compensation and store divestiture expenses drove over 100 basis-points of the increase during the quarter. These increases were partially offset by occupancy and advertising expense leverage as a result of the company’s 8.2 percent comparable store sales increase.
Operating cash flow for the quarter increased 37 percent to $292.7 million from $213.6 million in the first quarter 2008. Free cash flow for the quarter increased 34 percent to $201.4 million from $150.5 million in first quarter 2008. This increase was primarily driven by improved working capital management, an increase in net income and a decrease in capital expenditures. As a result of the increased free cash flow, the company paid down debt by $176.1 million during the first quarter. Capital expenditures were $50.2 million for the quarter. This compares to $58.9 million in 2008, a decrease of $8.7 million primarily due to the timing of new store development.
“Our strong start to 2009 is traced directly back to our 49,000 team members,” said Darren Jackson, chief executive officer. “Our commitment and focus on the customer and our four strategies compel us to increase our investments to transform our business. Our commitment to our customers, confidence in our team members and our strong results allow us to move forward at an accelerated pace.”
“Based on our first quarter results, we remain confident in our strategic initiatives to accelerate growth and improve profitability. As a result, we will continue to accelerate our rate of investment to strengthen our core strategic capabilities. We now expect each 1 percent increase in comparable store sales will add approximately 5 cents in EPS on an annual basis and a 10 basis-point improvement in operating margin is still expected to add approximately 3 cents of EPS to our comparable fiscal 2008 EPS of $2.65,” said Mike Norona, executive vice president and chief financial officer.
During the first quarter, the company opened 46 stores, including 11 Autopart International stores. The company also closed 9 stores and relocated 3 stores. As of April 25, the company’s total store count was 3,405, including 135 Autopart International stores.
During the first quarter, the company completed a thorough examination of its entire real estate store portfolio based on profitability, cash flow, strategic market importance, operating income, store sales potential and current lease rates. As a result of this examination, the company closed four 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. In the first quarter, the company recorded a 4-cent EPS charge due to asset impairments for certain stores that were identified as part of this initiative and expenses associated with the four stores that were closed during the quarter. As disclosed in the fourth quarter 2008 earnings release, the incremental store divesture costs were not included in the company’s 2009 annual outlook. Currently, the company estimates that the incremental store divestures will result in a 15 to 22 cents charge to EPS in fiscal 2009, with the majority of the expenses occurring during the second and third quarters.
In other news, Advance held its annual meeting of stockholders on May 20. During the meeting, the following individuals were elected to serve on the company’s board of directors for the next year:
· John Bergstrom
· John Brouillard
· Darren Jackson
· William Oglesby
· Gilbert Ray
· Carlos Saladrigas
· Francesca Spinelli
The other proposal approved by the stockholders was the ratification of the appointment by the company’s audit committee of Deloitte & Touche LLP as its independent registered public accounting firm for 2009.
