Fourth Quarter Net Sales Increased 12.0% to
$2.4B; Comparable Store Sales Increased 4.7% Diluted EPS Increased
19.6% to $1.65; Adjusted Diluted EPS Increased 14.0% to $1.87
Including $0.22 Impact from COVID-19
Full Year Net Sales Increased 4.1% to $10.1B;
Comparable Store Sales Increased 2.4% Diluted EPS Increased 4.4% to
$7.14; Adjusted Diluted EPS increased 3.9% to $8.51 Including $0.66
Impact from COVID-19 Operating Cash Flow Increased 11.9% to
$969.7M; Free Cash Flow Increased 17.7% to $702.1M
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive
aftermarket parts provider in North America that serves both
professional installer and do-it-yourself customers, today
announced its financial results for the fourth quarter and full
year ended January 2, 2021.
"Since the onset of the pandemic, we have prioritized the
health, safety and wellbeing of our team members and customers. We
are incredibly grateful to our team members and independent
partners for their dedication and perseverance. They were an
inspiration to all of us as they cared for each other and our
customers while balancing numerous obstacles both at work and at
home. This enabled us to do our part to keep America moving," said
Tom Greco, president and chief executive officer.
"As a result, Advance delivered another quarter of growth in
comp sales, margin expansion and free cash flow as we crossed $10B
in annual net sales for the first time ever. We believe our DIY
omnichannel net sales continued to benefit from the impact COVID-19
had on the economy and resulting consumer behaviors. Meanwhile, we
leveraged our scale to differentiate Advance and gain market share
in the quarter. This was highlighted by the successful launch of
the DieHard® brand, the expansion of our Carquest® brand and
continued success from our Advance Same Day™ suite of fulfillment
options. We also ramped up execution on our primary initiatives to
expand gross margin in the quarter including strategic pricing,
owned brand expansion and the streamlining of our supply chain. We
believe our actions in the fourth quarter position us well to drive
additional top-line growth and further margin expansion in
2021.
"Through the first four weeks of 2021, we are growing comparable
store sales low double digits with strength across both DIY
omnichannel and Professional. We are also encouraged by improving
trends in the Northeast and Mid Atlantic Regions, which are still
lagging the country, but closing the gap. In addition, we remain
laser focused on the execution of our long term plan to drive
growth at or above industry growth rates, deliver meaningful margin
expansion, and return excess cash to shareholders. We look forward
to sharing more details in our March release of our third annual
Sustainability and Social Responsibility Report, as well as an
update on our strategic business plan, which we will share with
investors on April 20th."
Fourth Quarter 2020 Highlights (a)
- Net sales increased 12.0% to $2.4B; Comparable store sales (b)
increased 4.7%
- Operating income increased 20.4% to $151.8M; Operating income
margin expanded 45 bps to 6.4%
- Including approximately $19 million in COVID-19 related
expenses, Adjusted operating income (b) increased 14.6% to 171.8M;
Adjusted operating income margin (b) expanded 17 bps to 7.3%
- Including the impact of approximately $0.22 as a result of
COVID-19 expenses, Diluted EPS increased 19.6% to $1.65 and
Adjusted diluted EPS (b) increased 14.0% to $1.87
- Returned $319.9M to shareholders through the Company's share
repurchase program
Full Year 2020 Highlights (a)
- Net sales increased 4.1% to $10.1B; Comparable store sales (b)
increased 2.4%
- Operating income increased 10.7% to $749.9M; Operating income
margin expanded 45 bps to 7.4%
- Including approximately $60M in COVID-19 related expenses,
Adjusted operating income (b) increased 4.1% to $827.3M; Adjusted
operating income margin (b) was in-line with prior year at
8.2%
- Including the impact of approximately $0.66 as a result of
COVID-19 expenses, Diluted EPS increased 4.4% to $7.14 and Adjusted
diluted EPS (b) increased 3.9% to $8.51
- Operating cash flow increased 11.9% to $969.7M; Free cash flow
(b) increased 17.7% to $702.1M
- Returned $514.9M to shareholders through the combination of
share repurchases and the Company's quarterly cash dividends
(a) The fourth quarter and full year 2020
included 13 weeks and 53 weeks, while the fourth quarter and full
year 2019 included 12 weeks and 52 weeks.
(b) Comparable store sales exclude sales
to independently owned Carquest locations, as well as the impact of
the additional week in 2020. For a better understanding of the
Company's adjusted results, refer to the reconciliation of non-GAAP
adjustments in the accompanying financial tables included
herein.
Fourth Quarter and Full Year 2020 Operating Results
Fourth quarter 2020 Net sales totaled $2.4 billion, a 12.0%
increase compared to the fourth quarter of the prior year.
Comparable store sales growth for the fourth quarter 2020 was 4.7%.
For the full year 2020, Net sales were $10.1 billion, an increase
of 4.1% from full year 2019 results. Full year 2020 Comparable
store sales growth was 2.4%. The fourth quarter and full year 2020
included 13 weeks and 53 weeks compared to 12 week and 52 weeks for
the fourth quarter and full year 2019. The additional week in 2020
added $158.5 million to fourth quarter and full year Net sales.
Adjusted gross profit margin was 45.9% of Net sales in the
fourth quarter of 2020, a 192 basis point increase from the fourth
quarter of 2019. This improvement was primarily driven by price
improvements, inventory management, including a reduction in
inventory shrink, and supply chain leverage. The Company's GAAP
Gross profit margin increased to 45.8% from 44.0% in the fourth
quarter of the prior year. Adjusted gross profit margin for the
full year 2020 was 44.4%, a 38 basis points improvement from prior
year, while full year 2020 GAAP Gross profit margin increased 52
basis points to 44.3%.
Increased costs associated with COVID-19, as well as well as the
additional week in the fourth quarter of 2020, resulted in higher
SG&A expense compared to the fourth quarter of 2019. Adjusted
SG&A as a percent of Net sales increased to 38.6% in the fourth
quarter 2020, compared to 36.9% in the prior year. In addition to
the COVID-19 related expenses and additional week, the increase in
adjusted SG&A as a percent of Net sales was driven by lease
termination costs related to the ongoing optimization of our real
estate footprint, higher medical claim expenses and investment in
marketing in the fourth quarter of 2020. The Company's GAAP
SG&A for the fourth quarter 2020 was 39.4% of Net sales
compared to 38.0% in the same quarter of the prior year. For the
full year 2020, Adjusted SG&A was 36.2%, a 39-basis point
increase compared to the full year 2019. The Company's full year
2020 GAAP SG&A was 36.9% of Net sales compared to 36.8% for the
full year 2019. The additional week in 2020 contributed $53.5
million to fourth quarter and full year SG&A.
The Company generated Adjusted operating income of $171.8
million in the fourth quarter 2020, an increase of 14.6% from prior
year results. Fourth quarter 2020 Adjusted operating income margin
increased to 7.3% of Net sales, an improvement of 17 basis points
from the prior year. On a GAAP basis, the Company's Operating
income was $151.8 million, an increase of 20.4% compared to the
fourth quarter of the prior year and Operating income margin was
6.4% of Net sales, which was 45 basis points improved from the
prior year. For full year 2020, Adjusted operating income was
$827.3 million, an increase of 4.1% from the full year 2019. Full
year 2020 Adjusted operating income margin was unchanged from prior
year results at 8.2% of Net sales. The Company's full year 2020
GAAP Operating income totaled $749.9 million, 7.4% of Net sales, an
increase of 45 basis points compared to the full year 2019. The
additional week in 2020 contributed $20.1 million to fourth quarter
and full year Operating income.
The Company's effective tax rate in the fourth quarter 2020 was
20.4%. The Company's Adjusted diluted EPS was $1.87 for the fourth
quarter 2020, an increase of 14.0% compared to the same quarter in
the prior year. On a GAAP basis, the Company's Diluted EPS
increased 19.6% to $1.65. The effective tax rate for the full year
2020 was 24.3%. Full year 2020 Adjusted diluted EPS was $8.51, an
increase of 3.9% from full year 2019 results. The Company's diluted
EPS on a GAAP basis increased 4.4% to $7.14 year over year. The
additional week in 2020 contributed $0.23 to the fourth quarter and
full year Diluted EPS.
Operating cash flow was $969.7 million for the full year 2020
versus $866.9 million for the full year 2019, an increase of 11.9%.
Free cash flow for the full year 2020 was $702.1 million, an
increase of 17.7% compared to the full year 2019.
Capital Allocation
During 2020, the Company repurchased a total of 3.0 million
shares of its common stock for an aggregate amount of $458.5
million, or an average price of $150.65 per share. At the end of
the fourth quarter of 2020, the Company had $432.2 million
remaining under the share repurchase program.
On February 10, 2021, the Company's Board of Directors declared
a quarterly cash dividend of $0.25 per share to be paid on April 2,
2021 to all common shareholders of record as of March 19, 2021.
Full Year 2021 Guidance
"Given our belief that our economy is beginning to see signs of
stabilization and progress is underway with COVID-19 vaccinations,
we are optimistic regarding a continued recovery in 2021. While
uncertainty remains, we are providing financial guidance for the
full year 2021 based on the factors we know today. In addition to
our 2021 outlook, we are highlighting key assumptions impacting our
current financial models," said Jeff Shepherd, executive vice
president and chief financial officer.
The Company provided the following assumptions based on
projections for the U.S. and guidance ranges related to its 2021
outlook:
- An increase in total vehicle miles driven in the U.S. from 2020
but to remain below 2019
- Consistent year-over-year federal tax rate
- No material increases in the federal minimum wage
- A reduction in COVID-19 related expenses
2021
($ in millions)
Low
High
Net sales
$
10,100
$
10,300
Comparable store sales
1.0
%
3.0
%
Adjusted operating income margin (a)
8.7
%
8.9
%
Income tax rate
24
%
26
%
Capital expenditures
$
275
$
325
Free cash flow (a)
Minimum $600
New store openings
50
100
(a)
For a better understanding of the
Company's adjusted results, refer to the reconciliation of non-GAAP
adjustments in the accompanying financial tables included herein.
Because of the forward-looking nature of the 2021 non-GAAP
financial measures, specific quantification of the amounts that
would be required to reconcile these non-GAAP financial measures to
their most directly comparable GAAP financial measures are not
available at this time.
Beginning in first quarter 2021, the impact of last in, first
out ("LIFO") on the Company's results of operations will be a
reconciling item to arrive at its non-GAAP financial measures, as
applicable. The Company believes this measure will assist in
comparing the Company's operating results with the operational
performance of other companies in its industry. For a better
understanding of the Company's adjusted results, refer to the
reconciliation of non-GAAP adjustments in the accompanying
financial tables included herein.
Investor Conference Call
The Company will detail its results for the fourth quarter and
full year 2020 via a webcast scheduled to begin at 8 a.m. Eastern
Time on Tuesday, February 16, 2021. The webcast will be accessible
via the Investor Relations page of the Company's website
(ir.AdvanceAutoParts.com).
To join by phone, please pre-register online for dial-in and
passcode information. Upon registering, participants will receive a
confirmation with call details and a registrant ID. While
registration is open through the live call, the company suggests
registering a day in advance or at minimum 10 minutes before the
start of the call. A replay of the conference call will be
available on the Advance website for one year.
About Advance Auto Parts
Advance Auto Parts, Inc. is a leading automotive aftermarket
parts provider that serves both professional installer and
do-it-yourself customers. As of January 2, 2021, Advance operated
4,806 stores and 170 Worldpac branches in the United States,
Canada, Puerto Rico and the U.S. Virgin Islands. The Company also
serves 1,277 independently owned Carquest branded stores across
these locations in addition to Mexico, Grand Cayman, the Bahamas,
Turks and Caicos and British Virgin Islands. Additional information
about Advance, including employment opportunities, customer
services, and online shopping for parts, accessories and other
offerings can be found at www.AdvanceAutoParts.com.
Forward-Looking Statements
Certain statements herein are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are usually identifiable by
words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “forecast,” "guidance," “intend,” “likely,” “may,”
“plan,” “position,” “possible,” “potential,” “probable,” “project,”
“should,” “strategy,” “will,” or similar language. All statements
other than statements of historical fact are forward-looking
statements, including, but not limited to, statements about the
Company's strategic initiatives, operational plans and objectives,
expectations for economic recovery and future business and
financial performance, as well as statements regarding underlying
assumptions related thereto. Forward-looking statements reflect the
Company's views based on historical results, current information
and assumptions related to future developments. Except as may be
required by law, the Company undertakes no obligation to update any
forward-looking statements made herein. Forward-looking statements
are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those projected or implied
by the forward-looking statements. They include, among others,
factors related to the timing and implementation of strategic
initiatives, the highly competitive nature of the Company's
industry, demand for the Company's products and services,
complexities in its inventory and supply chain, challenges with
transforming and growing its business and factors related to the
current global pandemic. Please refer to “Item 1A. Risk Factors.”
of the Company's most recent Annual Report on Form 10-K, as updated
by its Quarterly Reports on Form 10-Q and other filings made by the
Company with the Securities and Exchange Commission for a
description of these and other risks and uncertainties that could
cause actual results to differ materially from those projected or
implied by the forward-looking statements.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
(unaudited)
January 2, 2021 (a)
December 28, 2019 (b)
Assets
Current assets:
Cash and cash equivalents
$
834,992
$
418,665
Receivables, net
749,999
689,469
Inventories
4,538,199
4,432,168
Other current assets
146,811
155,241
Total current assets
6,270,001
5,695,543
Property and equipment, net
1,462,602
1,433,213
Operating lease right-of-use
assets
2,379,987
2,365,325
Goodwill
993,590
992,240
Intangible assets, net
681,127
709,756
Other assets, net
52,329
52,448
$
11,839,636
$
11,248,525
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
3,640,639
$
3,421,987
Accrued expenses
606,804
535,863
Other current liabilities
496,472
519,852
Total current liabilities
4,743,915
4,477,702
Long-term debt
1,032,984
747,320
Noncurrent operating lease
liabilities
2,014,499
2,017,159
Deferred income taxes
342,445
334,013
Other long-term liabilities
146,281
123,250
Total stockholders' equity
3,559,512
3,549,081
$
11,839,636
$
11,248,525
(a)
This preliminary condensed
consolidated balance sheet has been prepared on a basis consistent
with the Company's previously prepared balance sheets filed with
the Securities and Exchange Commission ("SEC"), but does not
include the footnotes required by accounting principles generally
accepted in the United States of America (“GAAP”).
(b)
The balance sheet at December 28,
2019 has been derived from the audited consolidated financial
statements at that date, but does not include the footnotes
required by GAAP.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per share
data)
(unaudited)
Thirteen Weeks Ended
Twelve Weeks Ended
Fifty-Three Weeks
Ended
Fifty-Two Weeks Ended
January 2, 2021 (a)
December 28, 2019 (a)
January 2, 2021 (a)
December 28, 2019 (b)
Net sales
$
2,365,131
$
2,112,614
$
10,106,321
$
9,709,003
Cost of sales
1,281,435
1,183,845
5,624,707
5,454,257
Gross profit
1,083,696
928,769
4,481,614
4,254,746
Selling, general and administrative
expenses
931,870
802,630
3,731,707
3,577,566
Operating income
151,826
126,139
749,907
677,180
Other, net:
Interest expense
(9,297
)
(7,836
)
(46,886
)
(39,898
)
Loss on early redemptions of senior
unsecured notes
—
—
(48,022
)
(10,756
)
Other income (expense), net
(1,786
)
1,736
(3,984
)
11,220
Total other, net
(11,083
)
(6,100
)
(98,892
)
(39,434
)
Income before provision for income
taxes
140,743
120,039
651,015
637,746
Provision for income taxes
28,747
24,132
157,994
150,850
Net income
$
111,996
$
95,907
$
493,021
$
486,896
Basic earnings per share
$
1.66
$
1.39
$
7.17
$
6.87
Average shares outstanding
67,581
69,262
68,748
70,869
Diluted earnings per share
$
1.65
$
1.38
$
7.14
$
6.84
Average diluted shares outstanding
67,929
69,570
69,003
71,165
(a)
These preliminary condensed
consolidated statements of operations have been prepared on a basis
consistent with the Company's previously prepared statements of
operations filed with the SEC, but do not include the footnotes
required by GAAP.
(b)
The condensed consolidated
statement of operations for the year ended December 28, 2019 has
been derived from the audited consolidated financial statements at
that date, but does not include the footnotes required by GAAP.
Advance Auto Parts, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Year End
January 2, 2021 (a)
December 28, 2019 (b)
Cash flows from operating
activities:
Net income
$
493,021
$
486,896
Depreciation and amortization
250,081
238,371
Share-based compensation
45,271
37,438
Loss on early redemptions of senior
unsecured notes
48,022
10,756
Provision for deferred income taxes
8,136
23,148
Other non-cash adjustments to Net
income
6,194
8,352
Net change in:
Receivables, net
(59,014
)
(62,837
)
Inventories
(101,449
)
(63,130
)
Accounts payable
216,488
245,785
Accrued expenses
78,507
(72,288
)
Other assets and liabilities, net
(15,569
)
14,418
Net cash provided by operating
activities
969,688
866,909
Cash flows from investing
activities:
Purchases of property and equipment
(267,576
)
(270,129
)
Purchase of an indefinite-lived intangible
asset
(230
)
(201,519
)
Proceeds from sales of property and
equipment
909
8,709
Net cash used in investing activities
(266,897
)
(462,939
)
Cash flows from financing
activities:
Decrease in bank overdrafts
—
(59,339
)
Redemption on senior unsecured note
(602,568
)
(310,047
)
Borrowings under credit facilities
500,000
—
Payments on credit facilities
(500,000
)
—
Proceeds from issuance of senior unsecured
notes, net
847,092
—
Dividends paid
(56,347
)
(17,185
)
Proceeds from the issuance of common
stock
3,270
3,334
Repurchases of common stock
(469,691
)
(498,435
)
Other, net
(7,753
)
(481
)
Net cash used in financing activities
(285,997
)
(882,153
)
Effect of exchange rate changes on
cash
(467
)
321
Net increase (decrease) in cash and
cash equivalents
416,327
(477,862
)
Cash and cash equivalents,
beginning of period
418,665
896,527
Cash and cash equivalents, end of
period
$
834,992
$
418,665
(a)
This preliminary condensed
consolidated statement of cash flows has been prepared on a basis
consistent with the Company's previously prepared statements of
operations filed with the SEC, but does not include the footnotes
required by GAAP.
(b)
The condensed consolidated
statement of cash flows for the year ended December 28, 2019 has
been derived from the audited consolidated financial statements at
that date, but does not include the footnotes required by GAAP.
Reconciliation of Non-GAAP Financial
Measures
The Company's financial results include certain financial
measures not derived in accordance with accounting principles
generally accepted in the United States of America. Non-GAAP
financial measures should not be used as a substitute for GAAP
financial measures, or considered in isolation, for the purpose of
analyzing the Company's operating performance, financial position
or cash flows. The Company has presented these non-GAAP financial
measures as it believes that the presentation of its financial
results that exclude transformation expenses under the Company's
strategic business plan and non-cash amortization related to the
acquired General Parts International, Inc. (“GPI”) intangible
assets and other non-recurring adjustments is useful and indicative
of the Company's base operations because the expenses vary from
period to period in terms of size, nature and significance and/or
relate to store closure and consolidation activity in excess of
historical levels. These measures assist in comparing the Company's
current operating results with past periods and with the
operational performance of other companies in its industry. The
disclosure of these measures allows investors to evaluate the
Company's performance using the same measures management uses in
developing internal budgets and forecasts and in evaluating
management’s compensation. Included below is a description of the
expenses that the Company has determined are not normal, recurring
cash operating expenses necessary to operate its business and the
rationale for why providing these measures is useful to investors
as a supplement to the GAAP measures.
Transformation Expenses — Costs
incurred in connection with our business plan that focuses on
specific transformative activities that relate to the integration
and streamlining of our operating structure across the enterprise,
that we do not view to be normal cash operating expenses. These
expenses will include, but not be limited to the following:
- Restructuring costs - Costs primarily relating to the early
termination of lease obligations, asset impairment charges, other
facility closure costs and Team Member severance in connection with
our 2018 Store Rationalization plan and 2017 Store and Supply Chain
Rationalization plan.
- Third-party professional services - Costs primarily relating to
services rendered by vendors for assisting us with the development
of various information technology and supply chain projects in
connection with our enterprise integration initiatives.
- Other significant costs - Costs primarily relating to
accelerated depreciation of various legacy information technology
and supply chain systems in connection with our enterprise
integration initiatives and temporary off-site workspace for
project teams who are primarily working on the development of
specific transformative activities that relate to the integration
and streamlining of our operating structure across the
enterprise.
GPI Amortization of Acquired Intangible
Assets — As part of our acquisition of GPI, we obtained
various intangible assets, including customer relationships,
non-compete contracts and favorable leases agreements, which we
expect to be subject to amortization through 2025.
Reconciliation of
Adjusted Net Income and Adjusted EPS:
Thirteen Weeks Ended
Twelve Weeks Ended
Fifty-Three Weeks
Ended
Fifty-Two Weeks Ended
(in thousands, except per share
data)
January 2, 2021
December 28, 2019
January 2, 2021
December 28, 2019
Net income (GAAP)
$
111,996
$
95,907
$
493,021
$
486,896
Cost of sales adjustments:
Transformation expenses:
Restructuring costs
—
73
—
3,345
Other significant costs
1,534
—
3,161
—
Other adjustment (a)
—
—
—
13,010
SG&A adjustments:
GPI amortization of acquired intangible
assets
6,251
6,343
27,337
27,500
Transformation expenses:
Restructuring costs
4,544
4,433
16,765
19,028
Third-party professional services
5,193
4,297
14,117
35,579
Other significant costs
2,405
8,595
15,965
19,351
Other income adjustment (b)
—
—
48,022
10,756
Provision for income taxes on adjustments
(c)
(4,982
)
(5,935
)
(31,342
)
(32,142
)
Adjusted net income (Non-GAAP)
$
126,941
$
113,713
$
587,046
$
583,323
Diluted earnings per share (GAAP)
$
1.65
$
1.38
$
7.14
$
6.84
Adjustments, net of tax
0.22
0.26
1.37
1.35
Adjusted EPS (Non-GAAP)
$
1.87
$
1.64
$
8.51
$
8.19
(a)
During the sixteen weeks ended
April 20, 2019, the Company made an out-of-period correction, which
increased Cost of sales by 13.0 million, related to received not
invoiced inventory.
(b)
During 2020, we incurred charges
relating to a make-whole provision or tender premiums and debt
issuance costs of $46.3 million and $1.7 million resulting from the
early redemption of the Company's 2022 and 2023 senior unsecured
notes. During the sixteen weeks ended April 20, 2019, we incurred
charges relating to a make-whole provision and debt issuance costs
of $10.1 million and $0.7 million resulting from the early
redemption of the Company's 2020 senior unsecured notes.
(c)
The income tax impact of non-GAAP
adjustments is calculated using the estimated tax rate in effect
for the respective non-GAAP adjustments.
Reconciliation of
Adjusted Gross Profit:
Thirteen Weeks Ended
Twelve Weeks Ended
Fifty-Three Weeks
Ended
Fifty-Two Weeks Ended
(in thousands)
January 2, 2021
December 28, 2019
January 2, 2021
December 28, 2019
Gross profit (GAAP)
$
1,083,696
$
928,769
$
4,481,614
$
4,254,746
Gross profit adjustments
1,534
73
3,161
16,355
Adjusted gross profit (Non-GAAP)
$
1,085,230
$
928,842
$
4,484,775
$
4,271,101
Reconciliation of
Adjusted Selling, General and Administrative
Expenses:
Thirteen Weeks Ended
Twelve Weeks Ended
Fifty-Three Weeks
Ended
Fifty-Two Weeks Ended
(in thousands)
January 2, 2021
December 28, 2019
January 2, 2021
December 28, 2019
SG&A (GAAP)
$
931,870
$
802,630
$
3,731,707
$
3,577,566
SG&A adjustments
(18,393
)
(23,668
)
(74,184
)
(101,458
)
Adjusted SG&A (Non-GAAP)
$
913,477
$
778,962
$
3,657,523
$
3,476,108
Reconciliation of
Adjusted Operating Income:
Thirteen Weeks Ended
Twelve Weeks Ended
Fifty-Three Weeks
Ended
Fifty-Two Weeks Ended
(in thousands)
January 2, 2021
December 28, 2019
January 2, 2021
December 28, 2019
Operating income (GAAP)
$
151,826
$
126,139
$
749,907
$
677,180
Cost of sales and SG&A adjustments
19,927
23,741
77,345
117,813
Adjusted operating income (Non-GAAP)
$
171,753
$
149,880
$
827,252
$
794,993
NOTE: Adjusted gross profit, Adjusted
gross profit margin (calculated by dividing Adjusted gross profit
by Net sales), Adjusted SG&A, Adjusted SG&A as a percentage
of Net sales, Adjusted operating income and Adjusted operating
income margin (calculated by dividing Adjusted operating income by
Net sales) are non-GAAP measures. Management believes these
non-GAAP measures are important metrics in assessing the overall
performance of the business and utilizes these metrics in its
ongoing reporting. On that basis, management believes it is useful
to provide these metrics to investors and prospective investors to
evaluate the Company’s operating performance across periods
adjusting for these items (refer to the reconciliations of non-GAAP
adjustments above). These non-GAAP measures might not be calculated
in the same manner as, and thus might not be comparable to,
similarly titled measures reported by other companies. Non-GAAP
measures should not be used by investors or third parties as the
sole basis for formulating investment decisions, as they may
exclude a number of important cash and non-cash recurring
items.
Reconciliation of
Free Cash Flow:
Fifty-Three Weeks
Ended
Fifty-Two Weeks Ended
(In thousands)
January 2, 2021
December 28, 2019
Cash flows from operating activities
$
969,688
$
866,909
Purchases of property and equipment
(267,576
)
(270,129
)
Free cash flow
$
702,112
$
596,780
NOTE: Management uses Free cash flow as a
measure of its liquidity and believes it is a useful indicator to
investors or potential investors of the Company's ability to
implement growth strategies and service debt. Free cash flow is a
non-GAAP measure and should be considered in addition to, but not
as a substitute for, information contained in the Company's
condensed consolidated statement of cash flows as a measure of
liquidity.
2021 Update to Non-GAAP
Measures
Beginning Q1 2021, the impact of LIFO on the Company's results
of operations will be a reconciling item to arrive at its non-GAAP
financial measures, as applicable. The following table summarizes
the quarterly and full year LIFO adjustments that were recorded in
Cost of sales for 2020 and 2019.
(in thousands)
2020
2019
First quarter
$
8,836
$
26,444
Second quarter
3,111
16,497
Third quarter
(15,855
)
33,765
Fourth quarter
(9,909
)
24,621
Full year impact of LIFO adjustment
$
(13,817
)
$
101,327
Adjusted Debt to
Adjusted EBITDAR:
Four Quarters Ended
(In thousands, except adjusted
debt to adjusted EBITDAR ratio)
January 2, 2021
December 28,
2019
Total GAAP debt
$
1,032,984
$
747,320
Add: Operating lease liabilities
2,477,087
2,495,141
Adjusted debt
3,510,071
3,242,461
GAAP Net income
493,021
486,896
Depreciation and amortization
250,081
238,371
Interest expense
46,886
39,898
Other income (expense), net
3,984
(11,220
)
Provision for income taxes
157,994
150,850
Restructuring costs
16,765
22,181
Third-party professional services
14,117
35,585
Other significant costs
19,126
19,537
Transformation expenses
50,008
77,303
Other adjustments (a)
48,022
23,936
Total net adjustments
556,975
519,138
Adjusted EBITDA
1,049,996
1,006,034
Rent expense
553,751
552,027
Share-based compensation
45,271
37,438
Adjusted EBITDAR
$
1,649,018
$
1,595,499
Adjusted Debt to Adjusted
EBITDAR
2.1
2.0
(a)
The adjustments to the four
quarters ended January 2, 2021 represent charges incurred resulting
from the early redemption of the Company's 2022 and 2023 senior
unsecured notes. The adjustments to the four quarters ended
December 28, 2019 represent an out-of-period correction related to
received not invoiced inventory and charges incurred resulting from
the early redemption of the Company's 2020 senior unsecured
notes.
NOTE: Management believes its Adjusted
Debt to Adjusted EBITDAR ratio (“leverage ratio”) is a key
financial metric for debt securities, as reviewed by rating
agencies, and believes its debt levels are best analyzed using this
measure. The Company’s goal is to maintain a 2.5 times leverage
ratio and investment grade rating. The Company's credit rating
directly impacts the interest rates on borrowings under its
existing credit facility and could impact the Company's ability to
obtain additional funding. If the Company was unable to maintain
its investment grade rating this could negatively impact future
performance and limit growth opportunities. Similar measures are
utilized in the calculation of the financial covenants and ratios
contained in the Company's financing arrangements. The leverage
ratio calculated by the Company is a non-GAAP measure and should
not be considered a substitute for debt to net earnings, net
earnings or debt as determined in accordance with GAAP. The Company
adjusts the calculation to remove rent expense and to add back the
Company’s existing operating lease liabilities related to their
right-of-use assets to provide a more meaningful comparison with
the Company’s peers and to account for differences in debt
structures and leasing arrangements. The Company’s calculation of
its leverage ratio might not be calculated in the same manner as,
and thus might not be comparable to, similarly titled measures by
other companies.
Store Information:
During the fifty-three weeks ended January 2, 2021, 13 stores
and branches were opened and 74 were closed or consolidated,
resulting in a total of 4,976 stores and branches as of January 2,
2021, compared to a total of 5,037 stores and branches as of
December 28, 2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210216005634/en/
Investor Relations Contact: Elisabeth Eisleben T: (919)
227-5466 E: invrelations@advanceautoparts.com
Media Contact: Darryl Carr T: (984) 389-7207 E:
darryl.carr@advance-auto.com
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