Advance Auto Parts, Inc. — Q1 2013 10-Q Summary
Business context and reporting period. The filing covers the 16 weeks ended April 20, 2013; the comparable period ended April 21, 2012. Advance Auto Parts operates automotive aftermarket stores serving do-it-yourself and Commercial customers. It reported 3,969 stores across its AAP and Autopart International segments.
Key financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $2,015.3 million | $1,957.3 million |
| Comparable-store sales | (3.2%) | 2.1% |
| Gross profit / margin | $1,008.2 million / 50.0% | $980.7 million / 50.1% |
| SG&A / percent of sales | $804.1 million / 39.9% | $756.1 million / 38.6% |
| Operating income / margin | $204.1 million / 10.1% | $224.6 million / 11.5% |
| Net income | $121.8 million | $133.5 million |
| Diluted EPS | $1.65 | $1.79 |
| Operating cash flow | $135.3 million | $235.4 million |
Cash and cash equivalents were $407.7 million at April 20, 2013, down $190.4 million from fiscal year-end. Total debt was approximately $605.0 million, with no revolver borrowings and $671.2 million of revolving-facility availability after letters of credit. Current assets were $3,162.9 million and current liabilities were $2,624.1 million. Capital expenditures were $63.1 million. The company paid $8.8 million in dividends and repurchased $58.8 million of stock under its buyback program.
Material changes and drivers
- Sales increased 3.0%, primarily from the B.W.P. Distributors acquisition and store openings, but comparable-store sales declined 3.2%. Management cited a slow spring selling season, lower maintenance and discretionary purchases, payroll-tax increases, delayed tax refunds, and higher fuel prices.
- Operating income fell $20.5 million. SG&A deleverage from weaker comparable sales and new-store costs more than offset modest sales growth; gross margin declined 8 basis points, partly reflecting distribution-center ramp-up costs and BWP’s higher Commercial sales mix.
- Operating cash flow decreased $100.1 million, principally due to inventory investment net of accounts payable, expense-payment timing, increased receivables, lower earnings, and other asset timing.
- The company acquired BWP on December 31, 2012 for $190.2 million. It retained 124 company-owned stores and two distribution centers, transferring distribution rights for 92 independent locations and one distribution center to a GPI affiliate. Integration was planned over 12–15 months beginning in Q2. The acquisition added $125.4 million of goodwill.
Outlook, risks, and unusual items
- Management anticipated constrained sales for the remainder of fiscal 2013, while expressing confidence in long-term aftermarket industry prospects and its Commercial growth, availability, and service strategies.
- Fiscal 2013 plans included approximately $250–$275 million in capital expenditures, 155–165 AAP store openings excluding acquired BWP stores, and 10–15 AI openings.
- Management said cash from operations, cash on hand, and revolver availability should be sufficient for primary obligations over the next fiscal year. The company was in compliance with credit-facility covenants.
- Disclosed risks include weaker demand, competitive pressures, macroeconomic conditions, acquisition integration, supplier quality and availability, execution and hiring challenges, legal/regulatory matters, cybersecurity incidents, weather and other business interruptions, and climate-related effects. Ratings were BBB- at S&P and Baa3 at Moody’s, both with stable outlooks.
- There were no material changes in contractual obligations and no defined off-balance-sheet arrangements. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether comparable-store sales recover and management’s anticipated demand constraints persist through the rest of fiscal 2013.
- Whether BWP integration delivers expected Commercial growth and whether acquisition-related costs or purchase-price adjustments change materially.
- Whether inventory growth, vendor-payment timing, and working-capital needs continue to pressure operating cash flow.
- Whether SG&A and distribution-center costs moderate as sales and supply-chain initiatives develop.
- Progress against capital-spending, store-opening, debt-covenant, and share-repurchase plans.