Automotive aftermarket parts provider Advance Auto Parts, Inc., announced its financial results for the fourth quarter and full year ended December 29, 2018.
“I am proud to report another quarter of comp sales and adjusted operating income growth as we concluded the second year of our transformation agenda with consistent, balanced improvement in nearly every metric. The dedication of our entire team is evident as they focused on delighting the customer and growing the top-line while remaining disciplined in controlling costs to deliver margin expansion.
“We are pleased with the continuous progress throughout 2018 versus our long-term strategic objectives and remain committed to further strengthening our Customer Value Proposition to capitalize on the substantial opportunity still ahead for Advance,” said President and Chief Executive Officer Tom Greco.
Fourth Quarter and Full Year 2018 Highlights
Net sales for the fourth quarter 2018 were $2.1 billion, a 3.3% increase versus the fourth quarter of the prior year. Comparable store sales for the fourth quarter 2018 increased 3.4%. For the full year 2018, Net sales were $9.6 billion, an increase of 2.2% from the full year 2017. Comparable store sales for the full year 2018 increased 2.3%.
All figures in USD.
Adjusted gross profit margin was 44.2% of Net sales in the fourth quarter 2018, a 127 basis point increase from the fourth quarter 2017. Productivity initiatives, including material cost optimization, better inventory management and a reduction in shrink were the primary drivers and were partially offset by commodity and tariff headwinds. The company’s GAAP Gross profit margin increased to 44.1% from 42.9% in the fourth quarter of the prior year. Adjusted gross profit margin for the full year 2018 was 44.1%, an increase of 53 basis points from the full year 2017. The Company’s full year 2018 GAAP Gross profit margin increased to 44.0% from 43.6% for the full year 2017.
Adjusted SG&A was 38.1% of Net sales in the fourth quarter 2018, an increase of 82 basis points as compared to the fourth quarter 2017. This was primarily driven by higher bonus costs and an increase in marketing spend, which were partially offset by leveraging labor as well as reduced insurance and claims expense. The company’s GAAP SG&A for the fourth quarter 2018 increased to 40.1% of Net sales compared to 38.6% in the same quarter of the prior year. For the full year 2018, Adjusted SG&A was 36.3%, which was flat compared to the full year 2017. The Company’s full year 2018 GAAP SG&A of 37.7% of Net sales increased from 37.5% for the full year 2017.
The company’s Adjusted operating income was $127.1 million in the fourth quarter 2018, an increase of 11.7% versus the fourth quarter of the prior year. Adjusted operating income margin improved to 6.0% of Net sales for the fourth quarter 2018, an increase of 45 basis points compared to the fourth quarter of the prior year. On a GAAP basis, the company’s Operating income was $84.3 million, a decrease of 3.3% compared to the fourth quarter of the prior year. Operating income margin in the fourth quarter 2018 was 4.0% of Net sales, a decline of 28 basis points from the fourth quarter 2017.
For full year 2018, Adjusted operating income was $750.2 million, an increase of 9.3% from the full year 2017. Adjusted operating income margin for the full year 2018 improved to 7.8% of Net sales, an increase of 51 basis points compared to the full year 2017. The Company’s full year 2018 GAAP Operating income was $604.3 million, 6.3% of Net sales, an increase of 22 basis points compared to the full year 2017.
The company’s effective tax rate in the fourth quarter 2018 was 23.5%. The company’s Adjusted EPS was $1.17 for the fourth quarter 2018, an increase of 51.9% compared to the same quarter in the prior year. On a GAAP basis, due to the $1.94 benefit related to the tax reform in the fourth quarter 2017, the company’s Diluted EPS decreased 70.3% to $0.74. The effective tax rate for the full year 2018 was 23.7%. The company’s Adjusted EPS was $7.13 for the full year 2018, an increase of 32.8% versus the full year 2017. The company’s Diluted EPS on a GAAP basis decreased 10.7% to $5.73 year over year.
Operating cash flow was $811.0 million for the full year 2018 versus $600.8 million for the full year 2017, an increase of 35.0%. Free cash flow for the full year 2018 was $617.3 million, an increase of 50.2% compared to the same period in the prior year.
2019 Full Year Guidance
Greco commented, “As we begin the third year of our transformation, we remain disciplined in our approach to executing on our strategic objectives and dedicated to delivering further improvements across our business in 2019. We realize we have important work still ahead and are confident we have the right team in place at AAP to continue our momentum and enable us to successfully achieve our long-term strategic objectives. With that in mind, we are pleased to announce our full year 2019 outlook.”
The company provided the following guidance ranges related to their full year 2019 outlook:
| Full Year 2019 | ||
| ($ in millions) | Low | High |
| Net sales | $9,650 | $9,800 |
| Comparable store sales | 1.0% | 2.5% |
| Adjusted operating income margin (a) | 8.0% | 8.4% |
| Income tax rate | 24.0% | 26.0% |
| Integration & transformation expenses (a) | $80 | $100 |
| Capital expenditures | $250 | $300 |
| Free cash flow (a) | Minimum $650 | |
Investor Conference Call
The company detailed its results for the fourth quarter and full year 2018 via a webcast that scheduled to begin at 8 a.m. Eastern Time on Tuesday, February 19, 2019. The webcast will be accessible via the Investor Relations page of the company’s website (www.AdvanceAutoParts.com).
For individuals unable to access the webcast, the event will be available by dialing (844) 877-5989 and referencing conference identification number 4245428. A replay of the conference call will be available on the company’s website for one year.
Advance Auto Parts, Inc. operates 4,966 stores and 143 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands.
The Company also serves 1,231 independently owned Carquest branded stores across these locations in addition to Mexico, the Bahamas, Turks and Caicos, British Virgin Islands and Pacific Islands.
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