Advance Auto Parts, Inc., a leading automotive aftermarket parts provider in North America–and parent company of Carquest Canada and Worldpac, announced its financial results for the third quarter ended October 3, 2020.
Business Highlights (a)
Q3 2020 Highlights
- Net sales increased 9.9% to $2.5 billion; Comparable store sales(b) increased 10.2%
- Operating income increased 49.0% to $256.8 million; Operating income margin expanded 265 basis points to 10.1%
- Adjusted operating income(b) increased 32.6% to $271.9 million; Adjusted operating income margin(b) expanded 183 basis points to 10.7%
- Diluted EPS increased 21.7% to $2.13; Adjusted Diluted EPS(b) increased 33.8% to $2.81
- Declared $0.25 quarterly cash dividend
- Used proceeds from 7-year 1.75% senior notes offering to partially repurchase existing 4.50% senior notes due 2023
(a) All comparisons are based on the same time period prior year.
(b) Comparable store sales exclude sales to independently owned Carquest locations. For a better understanding of the Company’s adjusted results, refer to the reconciliation of non-GAAP adjustments in the accompanying financial tables included herein.
“Never has it been more important for us to put the health and safety of our customers and team members first as COVID-19 continues to impact our communities and ongoing operations. As a result, we continue to adapt and take the steps necessary to prioritize the well-being of our customers and team members” said Tom Greco, President and Chief Executive Officer. “Our third quarter comparable sales growth of 10.2% is the strongest in 15 years, and was led by our DIY Omnichannel performance. Double digit comp sales combined with disciplined cost control resulted in 183 basis points of adjusted operating income margin expansion and a 95% increase in quarterly free cash flow. Industry demand remained strong in the quarter, however our performance is also a testament to the resilience of our team members and independent partners during the COVID-19 pandemic. While we cannot predict the direction of the pandemic from here, we remain laser focused on the execution of our long-term plans. This includes the introduction of our #DieHardisBack marketing campaign on October 18. The energy and excitement surrounding this integrated campaign has driven widespread coverage and recognition not only for DieHard, but for the Advance and Carquest brands. Including DieHard, we’re building an increasingly differentiated assortment to complement our strong digital presence and a comprehensive suite of fulfillment options including over 6000 conveniently located stores and Advance Same Day delivery. We believe that these capabilities, combined with a strong balance sheet and talented team, position us well to continue to drive growth and margin expansion in the years ahead.”
Third Quarter 2020 Financial Results
Net sales for the third quarter of 2020 were $2.5 billion, a 9.9% increase versus the third quarter of the prior year. Comparable store sales for the third quarter of 2020 increased 10.2%. The increase in Net sales was led by the Company’s DIY Omnichannel business.
All figures in USD.
Adjusted gross profit increased 11.2% to $1.1 billion. Adjusted gross profit margin was 44.4% of Net sales in the third quarter of 2020, a 50 basis point increase from the third quarter of 2019, driven by improvements in pricing actions and supply chain efficiencies as well as favorable channel mix. These improvements were slightly offset by unfavorable product mix and headwinds associated with shrink and defectives. The Company’s GAAP Gross profit margin increased to 44.4% from 43.8% in the third quarter of 2019.
Adjusted SG&A increased $46.8 million to $856.7 million. Adjusted SG&A was 33.7% of Net sales in the third quarter of 2020, which improved 133 basis points as compared to the third quarter of 2019. The improvement was driven by improved payroll and rent leverage, reductions in travel and a continued focus on safety which has lowered claim-related expenses. The savings were partially offset by an increase in support contracts as well as approximately $9 million of costs related to COVID-19. The Company’s GAAP SG&A was 34.3% of Net sales in the third quarter of 2020 compared to 36.3% in the third quarter of 2019.
The Company’s Adjusted operating income was $271.9 million in the third quarter of 2020, an increase of 32.6% versus the third quarter of the prior year. Adjusted operating income margin increased 183 basis points to 10.7% of Net sales for the third quarter compared to the third quarter of the prior year. On a GAAP basis, the Company’s Operating income was $256.8 million, or 10.1% of Net sales, an increase of 265 basis points from the third quarter of 2019.
The Company’s effective tax rate in the third quarter of 2020 was 25.3%, compared to 23.1% in the third quarter of the prior year. The Company’s Adjusted diluted EPS was $2.81 for the third quarter of 2020, an increase of 33.8% compared to the third quarter of the prior year. On a GAAP basis, the Company’s Diluted EPS increased 21.7% to $2.13.
Year to date Operating cash flow was $809.2 million through the third quarter of 2020 versus $708.5 million in the same period of the prior year, an increase of 14.2%. The increase was primarily driven by the increased cash generated from operations and other working capital improvements. Free cash flow through the third quarter of 2020 was $616.6 million, an increase of 14.3% compared to the same period of the prior year.
During the twelve weeks ended October 3, 2020, the Company repurchased 0.7 million shares of its common stock at an aggregate cost of $109.6 million, or an average price of $153.06 per share, in connection with its share repurchase program. At the end of the third quarter of 2020, the Company had $752.2 million remaining under the share repurchase program.
On October 26, 2020 the Company declared a regular cash dividend of $0.25 per share to be paid on January 4, 2021 to all common stockholders of record as of December 18, 2020.
On September 16, 2020, the Company redeemed all $300.0 million aggregate principal amount of its outstanding 4.50% Notes due 2022. In connection with this early redemption, the Company incurred charges relating to a make-whole provision and debt issuance costs of $15.8 million and $0.3 million.
On September 29, 2020, the Company issued $350.0 million aggregate principal amount 1.75% Notes due 2027. Using the net proceeds from this issuance and pursuant to a cash tender offer that was completed on the same date, the Company repurchased $256.3 million of its 4.50% Notes due 2023. In connection with this tender offer, the Company incurred charges relating to tender premiums and debt issuance costs of $30.5 million and $1.4 million.
2020 Full Year Guidance
The Company withdrew guidance on April 9, 2020, given uncertainties related to the full impact of the COVID-19 pandemic. Due to continued volatility, the Company is not providing guidance at this time.
Investor Conference Call
The Company will host a webcast to discuss its results for the third quarter of 2020 and other business updates scheduled to begin at 8 a.m. Eastern Time on Tuesday, November 10, 2020. The webcast will be accessible via the Investor Relations page of the Company’s website (www.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 Advance 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 October 3, 2020, Advance operated 4,811 stores and 168 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The Company also serves 1,269 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 forty weeks ended October 3, 2020, 10 stores and branches were opened and 68 were closed or consolidated, resulting in a total of 4,979 stores and branches as of October 3, 2020, compared to a total of 5,037 stores and branches as of December 28, 2019.