Advance Auto Parts, Inc., a North American automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers, announced its financial results for the fourth quarter and full year ended December 31, 2022.
“In 2022, our team members once again worked to serve our customers with relentless focus and dedication. Despite challenges throughout 2022, we made progress on our strategic initiatives, including the expansion of our footprint, further strengthening of our DieHard brand and improved customer loyalty,” said Tom Greco, president and chief executive officer.
“However, we are not satisfied with our results in 2022 and are taking decisive actions to improve performance in 2023. Importantly, the disciplined inventory and pricing actions we discussed last quarter to adapt to an evolving competitive landscape contributed to stronger results in Q4 and we ended the year with positive momentum.
“We expect to see further improvements in inventory availability throughout 2023, which we view as the single most important driver to accelerate topline growth. After several years of significant investments in complex transformation initiatives and the majority of the integration behind us, we’re now able to focus more time and resources on leveraging our differentiated asset base and improving execution to drive long-term shareholder value.”
Fourth Quarter and Full Year 2022 Results
Fourth quarter 2022 Net sales totalled $2.5 billion, a 3.2% increase compared with the prior year, primarily driven by strategic pricing and new store openings. Comparable store sales for the fourth quarter 2022 increased 2.1%. For full year 2022, net sales of $11.2 billion increased 1.4% from 2021. Comparable store sales for the full year increased 0.3%.
The company’s GAAP Gross profit increased 1.7% from the fourth quarter of the prior year to $1.1 billion or 44.1% of Net sales compared with 44.7% the prior year quarter. Adjusted gross profit increased 3.4% from the fourth quarter of the prior year to $1.2 billion.
Adjusted gross profit margin as 46.9% of Net sales was relatively flat compared with the fourth quarter of the prior year, primarily driven by improvements in strategic pricing, channel mix favourability and owned brand expansion. This was partially offset by product cost inflation.
The company’s full year GAAP Gross profit was $5.0 billion, or 44.5% of Net sales which decreased 33 basis points compared with the prior year. Adjusted gross profit was $5.3 billion, or 47.3% of Net sales which increased 135 basis points from the prior year.
The company’s GAAP SG&A was $958.0 million which was 38.7% of Net sales compared with 40.0% for the prior year quarter. Adjusted SG&A decreased 0.4% from the fourth quarter of the prior year to $942.5 million.
As a percentage of Net sales, Adjusted SG&A was 38.1% in the fourth quarter, an improvement of 136 basis points from the fourth quarter of the prior year. This was primarily driven by a year over year decrease in incentive compensation and marketing expenses. These were partially offset by inflation in store labor as well as higher medical costs. The company’s full year GAAP SG&A was $4.2 billion, or 38.1% of Net sales compared with 37.2% in the prior year. For full year 2022, Adjusted SG&A was $4.2 billion, or 37.5% of Net sales compared with 36.4% in the prior year.
The company’s fourth quarter GAAP Operating income was $132.0 million, an increase of 17.4% compared with the fourth quarter of the prior year and increased 64 basis points to 5.3% of Net sales compared with 4.7% in the prior year. Adjusted operating income was $218.5 million, an increase of 23.6% compared with the fourth quarter of the prior year. Adjusted operating income margin increased to 8.8%, an improvement of 146 basis points compared with the fourth quarter of the prior year. The company’s full year GAAP Operating income was $714.2 million, which was 6.4% of Net sales compared with 7.6% in the prior year. Adjusted operating income was $1.1 billion, which was 9.8% of Net sales compared with 9.6% in the prior year.
The company’s effective tax rate in the fourth quarter of 2022 was 16.2%. On a GAAP basis, the company’s Diluted EPS increased 37.7% to $1.79 compared with $1.30 in the fourth quarter of 2021. The company’s Adjusted diluted EPS increased 39.1% to $2.88 compared with $2.07 in the fourth quarter of the prior year. In the fourth quarter, diluted EPS improvement on both a GAAP and adjusted basis was driven by strong operating performance and the adjustment of approximately $0.16 due to a change in the functional currency designation of a foreign subsidiary. The effective tax rate for full year 2022 was 22.6%. On a GAAP basis, the company’s 2022 Diluted EPS declined 13.4% to $8.27 compared with $9.55 in the prior year. Adjusted diluted EPS increased 8.5% to $13.04 compared with $12.02 in the prior year.
Net cash provided by operating activities was $0.7 billion for the full year 2022 versus $1.1 billion for the prior year. The decrease was primarily driven by lower Net income and working capital. Free cash flow for the full year 2022 was $298.2 million, compared with $822.6 million for the prior year.
During 2022, the company repurchased a total of 3.0 million shares of its common stock for an aggregate amount of $598.2 million, or an average price of $201.88 per share. At the end of the fourth quarter of 2022, the company had $947.3 million remaining under the share repurchase program.
On February 21, 2023, the company declared a regular cash dividend of $1.50 per share to be paid on April 28, 2023 to all common stockholders of record as of April 14, 2023.
Full Year 2023 Guidance
“In 2023 we are shifting to GAAP as our reporting method for annual guidance. As the GPI integration nears completion, we expect transformation costs to be less impactful, which reduces the need for non-GAAP adjustments. In addition, we believe that focusing on GAAP results will improve the understanding and comparability with our closest peers,” said Jeff Shepherd, executive vice president and chief financial officer. “In 2023 we are elevating our performance to improve topline growth and share gains while delivering operating income margin expansion.”
Investor Conference Call
The company detailed its results for the fourth quarter and full year 2022 via a webcast scheduled to begin at 8 a.m. Eastern Time on Tuesday, February 28, 2023. 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 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 December 31, 2022, Advance operated 4,770 stores and 316 Worldpac branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. The company also served 1,311 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.
During the fifty-two weeks ended December 31, 2022, 144 stores and branches were opened and 30 were closed or consolidated, resulting in a total of 5,086 stores and branches as of December 31, 2022, compared with a total of 4,972 stores and branches as of January 1, 2022.