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Financial

Advance Auto Parts Reports Q2 2020 Results

Net sales increased 7.3% to $2.5 billion; Comparable store sales increased 7.5%.

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Advance Auto Parts, Inc., a leading automotive aftermarket parts provider in North America that serves both professional installer and do-it-yourself customers, recently announced its financial results for the second quarter ended July 11, 2020.

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“Throughout our second quarter, people in the communities we serve felt the significant impact of COVID-19. Our Advance team responded with care and speed to these challenges as we continued to prioritize the health and safety of our customers and team members,” said Tom Greco, president and CEO. “We delivered very strong comparable sales growth of 7.5% in the quarter, our highest quarterly growth rate in nearly 10 years. Adjusted operating income grew 42%, with margins expanding 274 basis points to 11.2%. Behind strong sales growth and margin expansion, we also delivered a 60% increase in quarterly Free cash flow. Without question, we benefited from a surge in industry demand in the quarter fueled by the government stimulus, unemployment benefits and the impact COVID-19 had on consumer behavior in terms of how they repaired and maintained their vehicles. With that said, we could not be prouder and more thankful of how our AAP team members and Carquest Independent Partners stepped up to serve our customers. To support them, we made further investments in PPE as well as ongoing sanitation efforts to help ensure our stores and DCs are safe. We supported our professional customers by providing contact free delivery options and virtual instructor-led training which led to sequential improvements throughout Q2. In DIY Omnichannel, investments in marketing, Speed Perks and our digital platforms drove double digit growth. Though we’re living in a time of great uncertainty, we will continue to prioritize health and safety while leveraging our industry-leading portfolio, which now includes DieHard. We believe that this focus will continue to drive strong results in the back half of the year.”

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Business Highlights

Q2 2020 Highlights

• Net sales increased 7.3% to $2.5 billion; Comparable store sales increased 7.5%

• Operating income increased 53.9% to $262.8 million; Operating income margin expanded 319 basis points to 10.5%

• Adjusted operating income increased 42.2% to $279.3 million; Adjusted operating income margin expanded 274 basis points to 11.2%

• Diluted EPS increased 58.4% to $2.74; Adjusted Diluted EPS increased 46.0% to $2.92

• Declared $0.25 quarterly cash dividend

Third Quarter Observations to Date

• Through the first five weeks of the third quarter, the company continues to see strong growth in DIY Omnichannel and positive comparable store sales in Professional

• While uncertainties remain around the continued impact of COVID-19 during the balance of the year, the company believes it is well positioned to meet the demands of the business

Second Quarter 2020 Financial Results 

Net sales for the second quarter of 2020 were $2.5 billion, a 7.3% increase versus the second quarter of the prior year. Comparable store sales for the second quarter of 2020 increased 7.5%. The increase in net sales was driven by an increase in comparable store sales primarily contributed to the company’s DIY Omnichannel business.

Adjusted gross profit increased 8.7% to $1.1 billion. Adjusted gross profit margin was 43.9% of net sales in the second quarter of 2020, a 57 basis point increase from the second quarter of 2019, driven by improvements in channel mix and supply chain efficiencies. The company’s GAAP gross profit margin increased to 43.8% from 43.3% in the second quarter of 2019.

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Adjusted SG&A increased $4.7 million to $817.7 million. Adjusted SG&A was 32.7% of net sales in the second quarter of 2020, which improved 217 basis points as compared to the second quarter of 2019. The improvement was driven by reductions in labor related costs as well as travel. The savings were partially offset by investments in marketing expenses associated with the launch of the company’s new marketing campaign and DieHard brand. Savings were also offset by approximately $15 million of costs related to COVID-19. The company’s GAAP SG&A was 33.3% of net sales in the second quarter of 2020 compared to 36.0% in the second quarter of 2019.

The company’s adjusted operating income was $279.3 million in the second quarter of 2020, an increase of 42.2% versus the second quarter of the prior year. Adjusted operating income margin increased 274 basis points to 11.2% of net sales for the second quarter compared to the second quarter of the prior year. On a GAAP basis, the company’s operating income was $262.8 million, or 10.5% of net sales, an increase of 319 basis points from the second quarter of 2019.

The company’s effective tax rate in the second quarter of 2020 was 24.8%, compared to 24.9% in the second quarter of the prior year. The company’s adjusted diluted EPS was $2.92 for the second quarter of 2020, an increase of 46.0% compared to the second quarter of the prior year. On a GAAP basis, the Company’s Diluted EPS increased 58.4% to $2.74.

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Year-to-date operating cash flow was $448.2 million through the second quarter of 2020 versus $492.2 million in the same period of the prior year, a decrease of 8.9%. The decrease was primarily driven by a decrease in net income, largely due to the impact of the COVID-19 pandemic and a decrease in overall working capital. Free cash flow through the second quarter of 2020 was $308.1 million, a decrease of 19.1% compared to the same period of the prior year.

Capital Allocation

As previously disclosed, the company temporarily discontinued the use of its share repurchase program in the first quarter. Based on current liquidity and overall financial position, the company has lifted its temporary suspension as of August 12, 2020. At the end of the second quarter of 2020, the company had $861.7 million remaining under the share repurchase program.

On August 11, 2020 the company declared a regular cash dividend of $0.25 per share to be paid on October 02, 2020 to all common stockholders of record as of September 18, 2020.

During the second quarter of 2020, the company elected to repay the $500.0 million outstanding under its revolving credit facility that was borrowed during the first quarter of 2020. On August 17, 2020, the company notified the trustee of its intent to redeem the $300 million aggregate principal of its 4.50% notes due 2022 using available cash on hand.

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2020 Full Year Guidance

The company withdrew guidance on April 9, 2020, given uncertainties related to the full impact of the COVID-19 pandemic. At this time, the company is not providing guidance, however, remains committed to maintaining liquidity to meet the needs of the business and return cash to shareholders.

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