Advance Auto Parts, Inc. recently announced its financial results for the fourth quarter and full year ended December 30, 2023. Shane O’Kelly, president and CEO, said as the company closed out 2023 it “continued to act with a sense of urgency to stabilize the business and position the company to return to profitable growth.”

“Our full year results are well below our expectations, and we are focused on instilling greater discipline and accountability both in the fundamental business and in how the organization executes across the board. In addition to the operational improvements we are implementing, we are strengthening internal controls and enhancing the quality of our accounting information to help better inform how we drive the business forward.

“We continue to advance our ongoing operational and strategic review of the business, including the separate sales processes for Worldpac and our Canadian business. We have streamlined and reorganized the company’s leadership structure and have made several important new hires, including the appointments of Ryan Grimsland as chief financial officer and Elizabeth Dreyer as chief accounting officer. Building on the $150 million in annualized SG&A reductions our team executed in the fourth quarter, we recently launched an initiative to eliminate costs related to our indirect spend by an additional $50 million on an annualized basis. We are also moving forward with the consolidation of our supply chain to a single, unified network to create efficiencies and better serve customers. Looking ahead, we are committed to driving enhanced value for shareholders by executing on the fundamentals of our business – focusing on the customer, investing in our frontline and strengthening our competitive position.”

In the fourth quarter of 2023, net sales totaled $2.5 billion, marking a 0.4% decrease compared with the prior year. Comparable store sales for the same period decreased 1.4%. For the full year 2023, net sales amounted to $11.3 billion, reflecting a 1.2% increase from 2022. Comparable store sales for the full year decreased 0.3%.

The company’s gross profit decreased 11.9% from the fourth quarter of the prior year to $950.8 million or 38.6% of net sales compared with 43.6% in the prior year quarter. This result reflects both business performance and atypical drivers, primarily attributable to a change in inventory-related items and elevated supply chain costs. The company’s full year gross profit was $4.5 billion, or 40.1% of net sales, representing a 414 basis points decrease from the prior year primarily driven by inventory related items and costs not fully covered by pricing actions.

The company’s SG&A was $999.4 million in the fourth quarter, or 40.6% of net sales compared with 38.8% for the prior year quarter. This was primarily driven by a year over year increase in occupancy costs and store labor. The company’s full year SG&A was $4.4 billion, or 39.1% of net sales compared with 38.2% in the prior year.

The company’s fourth quarter operating loss was $48.6 million, or (2)% of net sales compared with the fourth quarter of the prior year operating income of $119.3 million or 4.8% of net sales. The company’s full year operating income was $114.4 million, or 1% of net sales, compared with $670.3 million, or 6.0% of net sales, in the prior year.

The company’s effective tax rate in the fourth quarter of 2023 was 42.3%. The company’s diluted loss per share was $0.59 compared with diluted earnings per share of $1.39 in the fourth quarter of the prior year. The company’s effective tax rate for full year 2023 was 6.6%. The company’s 2023 diluted earnings per share was $0.50 compared with $7.65 in the prior year.

Net cash provided by operating activities was $0.3 billion for the full year 2023 versus $0.7 billion for the prior year. The decrease was primarily driven by lower net income and working capital. Free cash flow for the full year 2023 was $43.7 million, compared with $312.5 million for the prior year.

During management’s review, the company identified issues with certain previously reported financials, Advance said. The company filed a Form 12b-25 with the Securities and Exchange Commission and disclosed that it expects to file its Form 10-K prior to the expiration of the extension period.

Full Year 2024 Guidance

On Feb. 26, the company entered into an amendment to its revolving credit facility to enable certain addbacks to financial covenants for specific write-downs of inventory and vendor receivables. As of December 30, 2023, considering the amendment, the company was in compliance with the credit facility’s financial covenants.

“In 2024, we are refining our operational improvement plans and building on the decisive actions we have taken to turn around the company’s performance. We are committed to improving overall productivity and taking a disciplined approach to reducing expenses, which will support our focus on investing in our team members. Our 2024 full year guidance is reflective of the steps we must take to reset the business and solidify our foundation for the long term,” said Ryan Grimsland, executive vice president and CFO.