Advance Auto Parts, Inc. showed increased net sales and operating income in its financial results for the second quarter ended July 16, 2022.

“In Q2 we delivered another quarter of growth in net sales and adjusted operating income, underscored by adjusted operating income margin expansion,” said Tom Greco, president and chief executive officer.

“Our adjusted operating income margin rate of 11.7% was the highest-level AAP has achieved in seven years. This helped enable a quarterly record for adjusted diluted earnings per share of $3.74, which increased 10.0% compared with Q2 2021 and 72% compared with Q2 2019. Additionally, we returned $291 million dollars to our shareholders through a combination of share repurchases and our quarterly cash dividend. This was despite a more challenging quarter on the topline than we expected, with net sales growing 0.6% and comparable store sales declining 0.6%. Our deliberate move to increase owned brand penetration reduced both net and comp sales by approximately one full point. Our DIY omnichannel sales were particularly challenged in the quarter and we expect that high inflation and significant year over year increases in fuel prices will continue to pressure DIY consumers in the back half of the year. As a result, we are updating our 2022 full year guidance.

“While our industry is not immune to the inflationary pressures consumers and broader retail have been experiencing, we believe our industry is well positioned for the long-term within the broader retail space to withstand these headwinds. In addition, our team continues to make progress on our strategic initiatives to drive long-term shareholder value. We remain relentlessly focused on customer service, parts availability and reliability of delivery. We’re confident this will help enable sustainable sales growth, margin expansion and strong cash returns.”

Second Quarter 2022 Results ⁽¹⁾

• Net sales increased 0.6% to $2.7 billion
• Comparable store sales ⁽²⁾ decreased 0.6%
• Gross profit decreased 0.3% to $1.2 billion; Adjusted gross profit ⁽³⁾ increased 4.2% to $1.3 billion
• Gross profit margin decreased 40 basis points to 44.5% of Net sales; Adjusted gross profit margin ⁽³⁾ increased 166 basis points to 48.0% of Net sales
• SG&A increased 4.2% to $984.0 million; Adjusted SG&A ⁽³⁾ increased 4.4% to $967.2 million
• SG&A was 36.9% of Net sales compared with 35.6% of Net sales; Adjusted SG&A ⁽³⁾ was 36.3% of Net sales compared with 35.0% of Net sales
• Operating income decreased 17.7% to $201.7 million; Adjusted operating income ⁽³⁾ increased 3.6% to $312.8 million
• Operating income margin decreased by 168 basis points to 7.6%; Adjusted operating income margin ⁽³⁾ increased 34 basis points to 11.7%
• Diluted EPS decreased 13.1% to $2.38; Adjusted diluted EPS ⁽³⁾ increased 10.0% to $3.74
• Net cash provided by operating activities was $308.5 million; Free cash flow ⁽³⁾ was an inflow of $97.3 million
• Opened 43 new store and branch locations

Second quarter of 2022 Net sales totaled $2.7 billion, a 0.6% increase compared with the second quarter of the prior year. This was driven primarily by year over year growth in our professional business. Comparable store sales for the second quarter of 2022 decreased 0.6%. This was primarily driven by a decrease in consumer demand within DIY omnichannel and an increase in owned brands, partially offset by an increase in professional.

The company’s GAAP Gross profit margin of 44.5% of Net sales decreased 40 basis points compared with the second quarter of the prior year. Adjusted gross profit increased 4.2% to $1.3 billion. Adjusted gross profit margin increased 166 basis points to 48.0% of Net sales, compared with 46.4% in the second quarter of 2021. This was primarily driven by improvements in strategic pricing and owned brand expansion. These improvements were partially offset by continued inflationary product costs, unfavorable channel and product mix as well as supply chain deleverage due to wage and transportation inflationary pressures.

The company’s GAAP SG&A was 36.9% of Net sales compared with 35.6% in the second quarter of 2021. Adjusted SG&A increased to $967.2 million from $926.4 million in the second quarter of the prior year. As a percent of Net sales, Adjusted SG&A was 36.3% of Net sales, which deleveraged 132 basis points compared with the second quarter of 2021. This was primarily driven by inflation in store labor and fuel costs as well as costs related with new store openings. These costs were partially offset by a year over year decrease in incentive compensation and COVID-19 related expenses.

On a GAAP basis, the company’s Operating income was $201.7 million, or 7.6% of Net sales, compared with 9.2% in the second quarter of 2021. The company’s Adjusted operating income was $312.8 million, an increase of 3.6% versus the second quarter of the prior year. Adjusted operating income margin increased 34 basis points to 11.7% of Net sales compared with 11.4% of Net sales in the second quarter of the prior year.

The company’s effective tax rate was 24.3%, compared with 24.8% in the second quarter of 2021. On a GAAP basis, the company’s Diluted EPS was $2.38, a decrease of 13.1% from $2.74 in the second quarter of 2021. The company’s Adjusted Diluted EPS was $3.74, an increase of 10.0% from $3.40 in the second quarter of the prior year.

Net cash provided by operating activities was $308.5 million through the second quarter of 2022 versus $776.2 million in the same period of the prior year. The decrease was primarily driven by lower Net income and working capital. Free cash flow through the second quarter of 2022 was $97.3 million compared with $646.6 million in the same period of the prior year.

Investor Conference Call 

The detailed its results for the second quarter ended July 16, 2022 via a webcast scheduled to begin at 8 a.m. Eastern Time on Wednesday, August 24, 2022. The webcast will be accessible via the Investor Relations page of the company’s website (ir.AdvanceAutoParts.com).

A replay of the conference call will be available on the company’s Investor Relations 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 July 16, 2022 Advance operated 4,724 stores and 312 Worldpac branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. The company also served 1,329 independently owned Carquest branded stores across these locations in addition to Mexico and various Caribbean 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.