In Canada Worldpac and Carquest share headquarters and main distribution facilities; the Bolton, Ont., distribution centre, boasting nearly 600,000 square feet of space, opened in Spring 2023.

Advance Auto Parts, Inc. , the automotive aftermarket parts provider, announced its financial results for the third quarter and said it has initiated separate sale processes for the potential divestiture of Worldpac and the company’s Canadian business, operating as Carquest Canada.

Third quarter 2023 Net sales totaled $2.7 billion USD, a 2.9% increase compared with the third quarter of the prior year. Comparable store sales increased to 1.2%.

In what it called a Strategic Review Update, Advance said it has initiated separate sale processes for the potential divestiture of Worldpac and the company’s Canadian business. Worldpac, is a leading automotive wholesale distributor of original equipment and aftermarket parts for all makes/all models. The company’s Canadian business, which predominantly serves commercial customers, goes to market under the Carquest banner.

The company has engaged Centerview Partners to assist in the sale processes.

In an interesting wrinkle to this move, it should be noted that in Canada Worldpac and Carquest share headquarters and main distribution facilities; the combined distribution centre, in Bolton, Ont., boasting nearly 600,000 square feet of space, opened in Spring 2023.

The company has not set a timetable for the conclusion of the sale processes and does not intend to comment on or provide updates regarding these matters unless and until the processes are concluded or it determines that further disclosure is appropriate or required.

In discussing the moves and the Q3 results, Shane O’Kelly, president and chief executive officer. said “Since joining Advance, I have partnered with the board and management team to move with speed in conducting a comprehensive review of the business.

“We are taking decisive actions to position Advance for long-term success and create meaningful value for our shareholders. Today we are announcing initial actions from our review process that will allow us to capitalize on significant opportunities ahead. First, we are launching a new cost reduction program that we expect will generate at least $150 million in savings on an annualized basis. We expect to reinvest up to $50 million of these savings in our team members with a clear focus on improving the retention of our frontline team members.

“At the same time, we have made a strategic decision to focus on our blended box business model and are therefore initiating separate sale processes for Worldpac as well as our Canadian business.

“We are committed to stabilizing the company and returning Advance to profitable growth, and our frontline team’s passion and extensive knowledge is integral to how we succeed. Seeing our frontline team members in action delivering for customers, coupled with robust industry fundamentals and strong vendor relationships, has reaffirmed my optimism that by making rigorous strategic and operational decisions now, Advance will be well positioned to capitalize on the opportunities ahead and deliver value for shareholders.”

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Third Quarter 2023 Results ⁽¹⁾

Third quarter 2023 Net sales totaled $2.7 billion, a 2.9% increase compared with the third quarter of the prior year. Comparable store sales increased to 1.2%.

Gross profit decreased 16.3% to $1.0 billion. Gross profit margin was 36.3% of Net sales compared with 44.6% of Net sales in the third quarter of the prior year. This was primarily driven by a change in estimate for inventory reserves that resulted in a one-time impact of approximately $119 million. In addition, the company incurred higher product costs that were not fully covered by pricing actions and elevated supply chain costs. This was partially offset by a reduction in LIFO-related expenses.

SG&A expenses were $1.0 billion, which were 37.9% of Net sales compared with 38.2% in the third quarter of the prior year.

The company’s Operating loss was $43.7 million, or (1.6)% of Net sales, compared with 6.5% in the third quarter of the prior year.

The company’s effective tax rate was 24.4%, compared with 24.7% in the third quarter of the prior year. The company’s Diluted loss per share was $(0.82), compared with Diluted earnings per share of $1.92 in the third quarter of the prior year.

Net cash provided by operating activities was $30.4 million through the third quarter of 2023 versus $483.1 million in the same period of the prior year. This was primarily driven by lower Net income and an increase in cash used in working capital. Through the third quarter of 2023, Free cash flow was an outflow of $156.8 million compared with an inflow of $149.5 million in the same period of the prior year.

All comparisons are based on the corrected results of the same time period in the prior year as depicted in the financial tables herein, which include the correction of non-material errors the company discovered in previously reported results.

Strategic Review Update

As noted, the company has initiated separate sale processes for the potential divestiture of Worldpac and the company’s Canada business. Worldpac, a leading automotive wholesale distributor of original equipment and aftermarket parts for all makes/all models, is highly recognized for its world class technology, catalog, product brand assortment and training. The company’s Canadian business, which predominantly serves commercial customers, goes to market under the Carquest banner.

The company has engaged Centerview Partners to assist in the sale processes. The company has not set a timetable for the conclusion of the sale processes and does not intend to comment on or provide updates regarding these matters unless and until the processes are concluded or it determines that further disclosure is appropriate or required.

⁽¹⁾ Comparable store sales include locations open for 13 complete accounting periods and excludes sales to independently owned Carquest locations.

Capital Allocation

On October 31, 2023, the company declared a regular cash dividend of $0.25 per share to be paid on January 26, 2024 to all common stockholders of record as of January 12, 2024.

Full Year 2023 Guidance

Tony Iskander, interim chief financial officer, said, “Based on our year-to-date results and current business trends, we are adjusting our previously provided full year outlook ranges. Our updates include the impact of non-recurring expenses in Q3 as well as continued pressure in Q4 from higher product costs that we do not expect to offset with price. We are taking significant steps to improve our cost structure and remain focused on returning the business to profitable growth.”

	Prior FY 2023 Outlook								Updated FY 2023 Outlook
	As of August 23, 2023								As of November 15, 2023
($ in millions, except per share data)	Low				High				Low				High
Net sales		11,250			$	11,350			$	11,250			$	11,300
Comparable store sales (1)		(0.5	)%			0.5	%			(0.5	)%			0.0	%
Operating income margin		4.0	%			4.3	%			1.8	%			2.0	%
Income tax rate		25.0	%			25.0	%			25.0	%			25.0	%
Diluted EPS		4.50			$	5.10			$	1.40			$	1.80
Capital expenditures		200			$	250			$	200			$	250
Free cash flow (2)		150			$	250			$	50			$	100
New store and branch openings		40				60				55				65

(1)		Comparable store sales include locations open for 13 complete accounting periods and excludes sales to independently owned Carquest locations.
(2)		Free cash flow is a non-GAAP measure. For a better understanding of the company’s non-GAAP adjustments, refer to the reconciliation of non-GAAP financial measures in the accompanying financial tables included herein.

Investor Conference Call

The company will detail its results for the third quarter ended October 7, 2023 via a webcast scheduled to begin at 8 a.m. Eastern Time on Wednesday, November 15, 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.