Advance Auto Parts, Inc. — Q1 2021 Form 10-Q
Reporting period: Sixteen weeks ended April 24, 2021; comparable period was the sixteen weeks ended April 18, 2020. The company sells automotive aftermarket parts and serves professional installers and do-it-yourself customers.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $3.330 billion | $2.698 billion | +23.4% |
| Comparable store sales | +24.7% | Not stated here | Growth across every region |
| Gross profit / margin | $1.485 billion / 44.6% | $1.173 billion / 43.5% | Margin +112 bps |
| SG&A / share of sales | $1.233 billion / 37.0% | $1.094 billion / 40.6% | Share of sales improved 354 bps |
| Operating income / margin | $252.1 million / 7.6% | $78.4 million / 2.9% | Operating income +$173.7 million |
| Net income | $185.9 million | $43.6 million | +$142.3 million |
| Diluted EPS | $2.81 | $0.63 | Up from prior year |
| Adjusted diluted EPS (non-GAAP) | $3.34 | $1.00 | Excludes specified adjustments |
| Operating cash flow | $329.9 million | $10.9 million | +$319.0 million |
Financial position and capital allocation
- Cash and cash equivalents were $880.2 million at April 24, 2021, versus $835.0 million at January 2, 2021. Inventories were $4.477 billion; current liabilities were $4.792 billion.
- Long-term debt was $1.033 billion. The company had no revolver borrowings and reported $1.0 billion of available capacity; it was in compliance with debt covenants.
- Operating lease liabilities totaled $2.461 billion, including $2.036 billion non-current.
- Investing cash outflow was $70.3 million, primarily property and equipment purchases. Financing cash outflow was $216.7 million, mainly share repurchases and dividends.
- The company repurchased 1.1 million shares for $170.4 million under its program and had $1.3 billion remaining. The board authorized an additional $1.0 billion in repurchases on April 19, 2021. A $1.00-per-share dividend was declared, payable July 2, 2021.
Material changes and management commentary
Management attributed sales growth to stronger DIY omnichannel and Professional demand. It cited pandemic-related stimulus, greater use of personal vehicles, and increased DIY projects, alongside marketing, same-day fulfillment options, and improved store execution. The prior-year quarter included pandemic restrictions and stay-at-home orders that hurt demand, particularly in its last six weeks, making the comparison a notable factor.
Gross margin improvement reflected material-cost improvements, supply-chain leverage, channel mix, and favorable pricing; unfavorable product mix, shrink, and defectives partly offset those benefits. SG&A leverage reflected payroll and lower insurance and claims costs, partly offset by higher bonuses, marketing, and technology-related service costs.
The company continued work on demand-based assortment, supply-chain and warehouse systems, business integration, digital and same-day service, and store/network expansion. It opened 9 stores and branches and closed or consolidated 14 during the period; total company-operated stores and branches were 4,971.
Outlook, risks, and contingencies
- No quantified earnings, sales, or margin guidance is provided in this filing. Management said cash from expected operations, available cash, and revolver capacity should fund obligations for the next year.
- COVID-19 remained an evolving risk; management said it was monitoring developments that could require changes to operations. Forward-looking results are also exposed to competition, demand, supply-chain complexity, execution of strategic initiatives, and pandemic-related factors.
- A securities class action remains pending, with surviving claims subject to discovery; the company disputes the allegations and moved for reconsideration of a prior ruling. Two derivative actions were dismissed or voluntarily dismissed.
- The company guarantees certain loans to independent Carquest-branded stores: $73.7 million outstanding at quarter-end; management considered performance under the guarantees remote.
- Non-GAAP adjusted results exclude LIFO impacts, transformation costs, acquired-intangible amortization, and other adjustments; they should be considered alongside, not instead of, GAAP results.
Investor verification points
- Assess how much of the 23.4% sales growth and 24.7% comparable-sales increase reflects the unusually weak pandemic-affected prior-year comparison, and whether demand persists.
- Track gross-margin and SG&A trends, including product mix, shrink, defectives, labor, marketing, and transformation spending.
- Review operating cash conversion and working-capital changes, alongside substantial inventory and lease obligations.
- Monitor repurchases, dividends, debt ratings, and the use of the remaining repurchase authorization.
- Follow pandemic and supply-chain developments and the status of the securities litigation.