ROANOKE, Va. — Advance Auto Parts has announced its financial results for the third quarter ended Oct. 4. Third quarter earnings per diluted share (EPS) increased 4 percent to 59 cents versus 57 cents last year. The company’s EPS increase was primarily driven by a reduced share count as a result of share repurchases. Through the first three quarters of the year, EPS increased 16 percent driven by a reduction in share count as a result of share repurchases and increased operating income.
Total revenue for the third quarter increased 2.6 percent to $1.19 billion, compared with revenue of $1.16 billion in the third quarter of fiscal year 2007. The revenue increase reflected the net addition of 124 new stores in the past 12 months and a comparable store sales decrease of 0.1 percent during the quarter compared to an increase of 1 percent in the third quarter last year. The comparable store sales decrease was comprised of a 10.8 percent increase in commercial sales partially offset by a 4.1 percent decrease in do-it-yourself (DIY) sales. This compares to a 7.5 percent increase in commercial and a 1.2 percent decrease in DIY in the third quarter last year. Year-to-date revenue was $3.95 billion. Year-to-date comparable store sales increased 1.1 percent driven by an 11.6 percent increase in commercial sales partially offset by a 2.6 percent decrease in DIY.
The company’s gross profit rate was 48.6 percent in the third quarter as compared to 47.9 percent last year, which reflects a 65 basis point improvement from the prior year. The 65 basis point improvement was primarily due to more effective pricing, improved shrink rates and higher sales from Autopart International which generated a higher gross profit rate.
The company’s third quarter selling, general and administrative (SG&A) expenses were 40.5 percent of sales compared to 39.3 percent last year. The 124 basis point SG&A increase was primarily driven by higher investments in strategic initiatives, de-leverage of the company’s fixed costs resulting from flat comparable store sales and the inability to quickly adjust variable expenses to match decelerating sales trends from the second quarter. Partially offsetting these increases were lower medical expenses, reduced advertising and charges incurred during the prior year third quarter related to asset impairments and severance.
Interest expense was $6.7 million in the quarter, compared to $8 million last year driven by reduced borrowing costs. The company’s current borrowing costs are approximately 5 percent.
Operating cash flow for the year decreased $1.9 million to $375.8 million. Free cash flow for the year increased 1.8 percent to $270.2 million which reflects a $4.8 million improvement as compared to last year. Capital expenditures were $137 million for the year, as compared to $146.5 million last year. The decrease is primarily due to a reduction in new store development.
“Our third quarter financial results were below our expectations. However, our strategic results exceeded our expectations in the quarter. Despite the financial outcomes, I am proud of how our Team Members served our customers. Our market share numbers indicate we were able to significantly grow our commercial share and maintain our DIY share in the quarter,” said Darren Jackson, president and chief executive officer. “We continue to remain committed to our growth strategies. As a result, we are resolving to move faster on availability excellence, continue with our confidence in commercial and acknowledge the urgency to stabilize DIY through a superior experience.”
“We believe the current economic environment will continue to put short-term pressure on our earnings growth and our challenge is two-fold. We must adjust our variable expenses to the current trends in our business while also continuing to invest in the structural and systemic changes needed to turnaround our business. These investments will differentiate us longer term and are in the best interests of our shareholders, customers and Team Members,” said Mike Norona, executive vice president and chief financial officer.
