Advance Auto Parts, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022 (52 weeks), compared with fiscal 2021 ended January 1, 2022 (52 weeks). This is an annual filing, not a standalone fourth-quarter report.
Business context
Advance Auto Parts sells automotive replacement parts, accessories, batteries and maintenance products to professional installers and DIY customers across North America. At year-end, it operated 4,770 stores and 316 branches and served 1,311 independently owned Carquest stores. Professional sales were approximately 59% of revenue, up from 58% in 2021.
Key financial metrics
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales | $11.155 billion | $10.998 billion | Up 1.4%; comparable-store sales up 0.3% |
| Gross profit / margin | $4.962 billion / 44.5% | $4.929 billion / 44.8% | Margin down 33 basis points |
| SG&A | $4.248 billion / 38.1% of sales | $4.090 billion / 37.2% | Ratio increased 89 basis points |
| Operating income / margin | $714.2 million / 6.4% | $838.7 million / 7.6% | Down $124.6 million; margin down 122 basis points |
| Net income / diluted EPS | $501.9 million / $8.27 | $616.1 million / $9.55 | Both declined |
| Adjusted diluted EPS (non-GAAP) | $13.04 | $12.02 | Increased; excludes specified items including LIFO impacts and transformation costs |
| Cash from operations | $722.2 million | $1.112 billion | Down 35.1% |
| Capital expenditures | $424.1 million | $289.6 million | Up $134.4 million |
| Cash and cash equivalents | $269.3 million | $601.4 million | Down $332.1 million |
| Debt outstanding | $1.373 billion | $1.034 billion | Includes $185 million drawn on revolver |
Operating cash flow less property and equipment purchases was approximately $298 million. Current assets were $6.047 billion and current liabilities $5.370 billion. The company reported $1.0 billion of available revolver capacity at December 31, 2022. Operating lease obligations totaled $2.693 billion; future interest payable on long-term debt was $293.3 million. The effective tax rate was 22.6%, versus 23.6% in 2021.
Material changes versus FY2021
- Revenue growth reflected strategic pricing, new-store openings and professional sales, offset by lower DIY sales and units sold. Batteries, fluids and chemicals, and motor oil led category growth.
- Gross margin pressure came primarily from inflationary product costs, including LIFO-related costs, and unfavorable channel mix; pricing and product mix partly offset those effects.
- SG&A increased due mainly to labor inflation and transportation and fuel costs, partly offset by lower incentive compensation and COVID-related expenses.
- Operating cash flow fell amid lower net income and working-capital use, including higher cash used by inventories and accrued expenses.
- The company issued $350 million of 3.50% notes due 2032 and redeemed the remaining $193.2 million of 4.50% notes due 2023, recording $7.4 million in early-redemption charges.
Outlook, commentary and risks
- Management cited strategic priorities including demand-based assortment, supply-chain efficiency, footprint optimization, customer experience and continued store openings. It expressed confidence in the industry’s long-term growth prospects but gave no revenue or EPS forecast in the supplied filing text.
- Expected FY2023 capital expenditures were $300 million to $350 million. The company expected to temporarily pause share repurchases in 2023 to preserve cash amid macroeconomic uncertainty and focus on working capital.
- In February 2023, CEO Thomas Greco informed the Board of his intention to retire at year-end 2023. The filing identifies leadership transition as a risk.
- Other key risks include inflation and labor costs, supply-chain and inventory disruption, intense competition, execution of strategic and information-systems initiatives, macroeconomic weakness, cyber incidents, weather and changing vehicle technology.
- After year-end, the company reported an additional $469 million of net revolver borrowings through the filing date. A February 2023 credit amendment extended facility maturity to November 2027 and replaced LIBOR with Term SOFR plus a 10-basis-point adjustment.
- The company said pending legal matters, including asbestos-related claims, were not expected to have a material adverse effect. A previously disclosed securities class-action settlement of $49.3 million was paid by insurers.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Vendor incentives were identified as a critical audit matter; deferred incentives reduced inventory by $77.5 million at year-end.
Investor facts to verify
- Track whether post-year-end revolver borrowings increased further and how liquidity and covenant headroom are affected.
- Assess whether pricing, professional-channel growth and store additions can offset DIY softness and cost inflation, and whether gross margin stabilizes.
- Review inventory levels, LIFO impacts and vendor-incentive accounting, including the terms and realization of deferred incentives.
- Monitor execution of supply-chain, technology and footprint initiatives, FY2023 capital spending, and the CEO succession process.
- Confirm the pace of cash generation and dividend commitments while buybacks are paused; evaluate lease obligations and other contractual commitments alongside debt.