Advance Auto Parts, Inc. , an automotive aftermarket parts provider in North America that serves both professional installer and do-it-yourself customers, announced that its financial results for the fourth quarter and full year ended December 28, 2019 showed growth across most key metrics.

“Advance once again delivered another quarter of net sales growth along with an acceleration of adjusted operating income growth amidst a challenging demand environment in Q4. Although sales growth was below our expectations, we grew adjusted operating margin by 106 basis points, which reinforces our team’s commitment to delivering continuous, incremental improvement on the substantial margin expansion opportunity we have. In addition, our entire Advance team, including our network of Independent Carquest Partners, delivered net sales growth for the second consecutive year, which enabled us to make excellent progress on our long-term objectives,” said Tom Greco, president and chief executive officer. “In particular, we ramped up investment in supply chain, eCommerce and technology, which will strengthen our customer value proposition in the future.”

As of December 28, 2019, Advance operated 4,877 stores and 160 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The company also serves 1,253 independently owned Carquest branded stores across these locations in addition to Mexico, the Bahamas, Turks and Caicos and British Virgin Islands.

Fourth Quarter Highlights (all figures in USD)

• Net sales increased 0.4% to $2.1B; Comparable store sales ^(a) increased 0.1%
• Operating income increased 49.7% to $126.1M; Operating income margin expanded 197 bps to 6.0%
• Adjusted operating income ^(a) increased 18.0% to $149.9M; Adjusted operating income margin expanded 106 bps to 7.1%
• Diluted EPS increased 86.5% to $1.38; Adjusted Diluted EPS ^(a) increased 40.2% to $1.64
• Acquired the DieHard brand for $200.0 million utilizing cash on hand

Full Year 2019 Highlights

• Net sales increased 1.3% to $9.7B; Comparable store sales ^(a) increased 1.1%
• Operating income increased 12.1% to $677.2M; Operating income margin expanded 67 bps to 7.0%
• Adjusted operating income ^(a) increased 6.0% to $795.0M; Adjusted operating income margin expanded 36 bps to 8.2%
• Diluted EPS increased 19.4% to $6.84; Adjusted Diluted EPS ^(a) increased 14.9% to $8.19
• Operating cash flow increased 6.9% to $866.9M; Free cash flow ^(a) decreased 3.3% to $596.8M
• Returned $504.6M to stockholders through the company’s share repurchase program and dividends

(a)

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.

Fourth Quarter and Full Year 2019 Highlights

Net sales for the fourth quarter 2019 were $2.1 billion, a 0.4% increase versus the fourth quarter of the prior year. Comparable store sales for the fourth quarter 2019 increased 0.1%. For the full year 2019, Net sales were $9.7 billion, an increase of 1.3% from the full year 2018. Comparable store sales for the full year 2019 increased 1.1%.

Adjusted gross profit margin was 44.0% of Net sales in the fourth quarter 2019, a 19 basis point decrease from the fourth quarter of 2018. The primary drivers of the decrease were related to the impact of the LIFO accounting method and the planned headwind from customer incentive discounts, which were partially offset by lower material costs. The company’s GAAP Gross profit margin decreased to 44.0% from 44.1% in the fourth quarter of the prior year. Adjusted gross profit margin for the full year 2019 was 44.0%, a decrease of 12 basis points from the full year 2018. The company’s full year 2019 GAAP Gross profit margin decreased to 43.8% from 44.0% for the full year 2018.

Adjusted SG&A was 36.9% of Net sales in the fourth quarter 2019, an improvement of 125 basis points as compared to the fourth quarter of 2018. This was primarily driven by improvements in labor related costs and continued reduction in insurance claims. The Company’s GAAP SG&A for the fourth quarter 2019 was 38.0% of Net sales compared to 40.1% in the same quarter of the prior year. For the full year 2019, Adjusted SG&A was 35.8%, an improvement of 48 basis points compared to the full year 2018. The Company’s full year 2019 GAAP SG&A was 36.8% of Net sales compared to 37.7% for the full year 2018.

Advance Auto Parts adjusted operating income was $149.9 million in the fourth quarter 2019, an increase of 18.0% versus the fourth quarter of the prior year. Adjusted operating income margin improved to 7.1% of Net sales for the fourth quarter 2019, an increase of 106 basis points compared to the fourth quarter of the prior year. On a GAAP basis, the Advance Auto Parts operating income was $126.1 million, an increase of 49.7% compared to the fourth quarter of the prior year. Operating income margin in the fourth quarter 2019 was 6.0% of Net sales, an increase of 197 basis points from the fourth quarter 2018. For full year 2019, Adjusted operating income was $795.0 million, an increase of 6.0% from the full year 2018. Adjusted operating income margin for the full year 2019 improved to 8.2% of Net sales, an increase of 36 basis points compared to the full year 2018. The Company’s full year 2019 GAAP Operating income was $677.2 million, 7.0% of Net sales, an increase of 67 basis points compared to the full year 2018.

The company’s effective tax rate in the fourth quarter 2019 was 20.1%. The Company’s Adjusted Diluted EPS was $1.64 for the fourth quarter 2019, an increase of 40.2% compared to the same quarter in the prior year. On a GAAP basis, the Company’s Diluted EPS increased 86.5% to $1.38. The effective tax rate for the full year 2019 was 23.7%. The Company’s Adjusted Diluted EPS was $8.19 for the full year 2019, an increase of 14.9% versus the full year 2018. The Company’s Diluted EPS on a GAAP basis increased 19.4% to $6.84 year over year.

Operating cash flow was $866.9 million for the full year 2019 versus $811.0 million for the full year 2018, an increase of 6.9%. Free cash flow for the full year 2019 was $596.8 million, a decrease of 3.3% compared to the full year 2018.

53-Week 2020 Full Year Guidance

“We remain disciplined in our approach to executing on our strategic objectives and meeting our financial priorities in 2020. We know that we have continued work ahead of us, but have a dedicated team in place to continue the momentum to drive customer and shareholder value. With that in mind, we are pleased to announce our current year outlook, which is inclusive of the 53rd week we have in our fiscal year 2020,” said Jeff Shepherd, executive vice president and chief financial officer, Advance Auto Parts.

The company provided the following guidance ranges related to its 2020 outlook:

		2020 (a)
($ in millions)		Low			High
Net sales		$9,880			$10,100
Comparable store sales		0.0%			2.0%
Adjusted operating income margin (b)		8.4%			8.7%
Income tax rate		24%			26%
Capital expenditures		$275			$325
Free cash flow (b)		Minimum $600

(a)		The Company’s fiscal year ending January 2, 2021 consists of 53 weeks. As a result, with the exception of Comparable store sales, the financial outlook metrics provided include the contribution of the 53rd week, including an estimated $125 million to $150 million in Net sales and approximately 10 to 20 basis points of Adjusted operating income margin expansion.
(b)		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. Because of the forward-looking nature of the 2020 non-GAAP financial measures, specific quantifications of the amounts that would be required to reconcile these non-GAAP financial measures to their most directly comparable GAAP financial measures are not available at this time.

Advance Auto Parts held a webcast and conference all to discuss the results. A replay of the presentation is available at ir.AdvanceAutoParts.com