Advance Auto Parts, Inc. (NYSE:AAP) Q3 2022 Earnings Conference Call November 16, 2022 8:00 AM ET Company Participants Elisabeth Eisleben - Senior Vice President, Communications and Investor Relations Tom Greco - President and Chief Executive Officer Jeff Shepherd - Executive Vice President and Chief Financial Officer Conference Call Participants Christian Carlino - JPMorgan Simeon Gutman - Morgan Stanley Steven Zaccone - Citigroup Atul Maheswari - UBS Zachary Fadem - Wells Fargo David Bellinger - MKM P ...

[Note Regarding Forward-Looking Statements](index=4&type=section&id=NOTE%20REGARDING%20FORWARD%20LOOKING%20STATEMENTS) This section outlines the nature of forward-looking statements within the report, emphasizing their inherent risks and uncertainties - The report contains forward-looking statements, identifiable by specific terminology, reflecting views based on historical results, current information, and future development assumptions, subject to risks and uncertainties detailed in the company's Form 10-K[5](index=5&type=chunk) Part I. Financial Information [Item 1. Condensed Consolidated Financial Statements](index=5&type=section&id=ITEM%201.%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements and accompanying notes for specified periods [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | October 8, 2022 | January 1, 2022 | | :--------------------------------------- | :-------------- | :-------------- | | Total current assets | $6,162,519 | $6,275,476 | | Total assets | $12,132,079 | $12,194,209 | | Total current liabilities | $5,442,901 | $5,180,307 | | Total liabilities | $9,416,004 | $9,065,918 | | Total stockholders' equity | $2,716,075 | $3,128,291 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Twelve Weeks Ended Oct 8, 2022 | Twelve Weeks Ended Oct 9, 2021 | Forty Weeks Ended Oct 8, 2022 | Forty Weeks Ended Oct 9, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Net sales | $2,641,341 | $2,621,229 | $8,680,977 | $8,601,014 | | Gross profit | $1,179,851 | $1,182,454 | $3,872,089 | $3,856,631 | | Operating income | $177,198 | $229,198 | $582,149 | $726,255 | | Net income | $110,982 | $169,813 | $395,176 | $534,439 | | Basic earnings per common share | $1.85 | $2.70 | $6.52 | $8.28 | | Diluted earnings per common share | $1.84 | $2.68 | $6.47 | $8.22 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Twelve Weeks Ended Oct 8, 2022 | Twelve Weeks Ended Oct 9, 2021 | Forty Weeks Ended Oct 8, 2022 | Forty Weeks Ended Oct 9, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Net income | $110,982 | $169,813 | $395,176 | $534,439 | | Total other comprehensive (loss) income | $(33,509) | $1,457 | $(31,671) | $4,933 | | Comprehensive income | $77,473 | $171,270 | $363,505 | $539,372 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Changes in Stockholders' Equity (Forty Weeks Ended October 8, 2022, in thousands) | Metric | Amount | | :--------------------------------------- | :-------------------- | | Balance at January 1, 2022 | $3,128,291 | | Net income | $395,176 | | Total other comprehensive loss | $(31,671) | | Repurchases of common stock | $(542,608) | | Cash dividends declared ($4.50 per common share) | $(274,144) | | Balance at October 8, 2022 | $2,716,075 | Changes in Stockholders' Equity (Forty Weeks Ended October 9, 2021, in thousands) | Metric | Amount | | :--------------------------------------- | :-------------------- | | Balance at January 2, 2021 | $3,559,512 | | Net income | $534,439 | | Total other comprehensive income | $4,933 | | Repurchases of common stock | $(809,504) | | Cash dividends declared ($2.25 per common share) | $(144,169) | | Balance at October 9, 2021 | $3,196,535 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Forty Weeks Ended, in thousands) | Metric | October 8, 2022 | October 9, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $483,094 | $924,936 | | Net cash used in investing activities | $(331,818) | $(188,881) | | Net cash used in financing activities | $(545,838) | $(968,738) | | Net decrease in cash and cash equivalents | $(410,224) | $(230,347) | | Cash and cash equivalents, end of period | $191,204 | $604,645 | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [1. Nature of Operations and Basis of Presentation](index=10&type=section&id=1.%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) - Advance Auto Parts, Inc. is a leading automotive aftermarket parts provider in North America, serving both professional installers and 'do-it-yourself' customers[24](index=24&type=chunk) - As of October 8, 2022, the company operated **4,747 stores** and **313 branches**, primarily in the U.S., and served **1,335 independently owned Carquest branded stores**[25](index=25&type=chunk) [2. Significant Accounting Policies - Revenues](index=10&type=section&id=2.%20Significant%20Accounting%20Policies) Disaggregated Revenue by Product Group (Percentage of Sales) | Product Group | October 8, 2022 (Twelve Weeks) | October 9, 2021 (Twelve Weeks) | October 8, 2022 (Forty Weeks) | October 9, 2021 (Forty Weeks) | | :---------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Parts and Batteries | 67 % | 68 % | 66 % | 66 % | | Accessories and Chemicals | 20 % | 19 % | 20 % | 21 % | | Engine Maintenance | 12 % | 12 % | 13 % | 12 % | | Other | 1 % | 1 % | 1 % | 1 % | | **Total** | **100 %** | **100 %** | **100 %** | **100 %** | [3. Inventories](index=10&type=section&id=3.%20Inventories) - The company uses the LIFO method for approximately **90.8% of inventories** as of October 8, 2022 (89.8% as of January 1, 2022)[30](index=30&type=chunk) - LIFO adjustments increased Cost of sales by **$67.5 million** for the twelve weeks ended October 8, 2022 (vs. $29.4 million prior year) and by **$240.8 million** for the forty weeks ended October 8, 2022 (vs. $71.6 million prior year)[30](index=30&type=chunk) Inventory Balances (in thousands) | Metric | October 8, 2022 | January 1, 2022 | | :--------------------------------------- | :-------------- | :-------------- | | Inventories at FIFO | $5,134,220 | $4,625,900 | | Adjustments to state inventories at LIFO | $(207,641) | $33,118 | | Inventories at LIFO | $4,926,579 | $4,659,018 | [4. Intangible Assets](index=11&type=section&id=4.%20Intangible%20Assets) Amortization Expense (in thousands) | Period | Amortization Expense | | :--------------------------------------- | :------------------- | | Twelve weeks ended October 8, 2022 | $7,000 | | Twelve weeks ended October 9, 2021 | $7,200 | | Forty weeks ended October 8, 2022 | $23,600 | | Forty weeks ended October 9, 2021 | $24,100 | [5. Receivables, net](index=11&type=section&id=5.%20Receivables,%20net) Receivables, net (in thousands) | Metric | October 8, 2022 | January 1, 2022 | | :--------------------------------------- | :-------------- | :-------------- | | Trade | $659,373 | $506,725 | | Vendor | $193,019 | $201,933 | | Other | $13,820 | $84,289 | | Total receivables | $866,212 | $792,947 | | Less: allowance for credit losses | $(20,545) | $(10,162) | | Receivables, net | $845,667 | $782,785 | - The decrease in 'Other receivables' as of October 8, 2022, was primarily due to the release of a **$49.3 million settlement** related to securities class action litigation, fully paid by insurance carriers on June 13, 2022[34](index=34&type=chunk) [6. Long-term Debt and Fair Value of Financial Instruments](index=12&type=section&id=6.%20Long-term%20Debt%20and%20Fair%20Value%20of%20Financial%20Instruments) Long-term Debt Composition (in thousands) | Debt Type | October 8, 2022 | January 1, 2022 | | :--------------------------------------- | :-------------- | :-------------- | | 4.50% Senior Unsecured Notes due Dec 1, 2023 | — | $193,220 | | 1.75% Senior Unsecured Notes due Oct 1, 2027 | $346,816 | $346,382 | | 3.90% Senior Unsecured Notes due Apr 15, 2030 | $495,427 | $494,718 | | 3.50% Senior Unsecured Notes due Mar 15, 2032 | $345,673 | — | | Revolver credit facility | $185,000 | — | | **Total** | **$1,372,916** | **$1,034,320** | | Less: Current portion of long-term debt | $(185,000) | — | | Long-term debt, excluding current portion | $1,187,916 | $1,034,320 | | Fair value of long-term debt | $998,000 | $1,092,000 | - As of October 8, 2022, the company had **$185.0 million** in outstanding borrowings and **$1.0 billion** in borrowing availability under its unsecured revolving credit facility, compared to no outstanding borrowings and $1.2 billion availability as of January 1, 2022[39](index=39&type=chunk) - On April 4, 2022, the remaining **$193.2 million** principal amount of 4.50% senior unsecured notes due December 1, 2023, were redeemed using proceeds from the issuance of 3.50% senior unsecured notes due March 15, 2032, incurring **$7.4 million** in charges[40](index=40&type=chunk) [7. Leases](index=13&type=section&id=7.%20Leases) Operating Lease Liabilities (in thousands) | Metric | October 8, 2022 | January 1, 2022 | | :--------------------------------------- | :-------------- | :-------------- | | Total operating lease liabilities | $2,713,940 | $2,802,772 | | Less: Current portion of operating lease liabilities | $(462,380) | $(465,121) | | Noncurrent operating lease liabilities | $2,251,560 | $2,337,651 | Total Lease Cost (in thousands) | Metric | Twelve Weeks Ended Oct 8, 2022 | Twelve Weeks Ended Oct 9, 2021 | Forty Weeks Ended Oct 8, 2022 | Forty Weeks Ended Oct 9, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Operating lease cost | $130,108 | $124,084 | $433,147 | $410,253 | | Variable lease cost | $40,910 | $35,144 | $136,183 | $112,864 | | **Total lease cost** | **$171,018** | **$159,228** | **$569,330** | **$523,117** | - As of October 8, 2022, the weighted-average remaining lease term for operating leases was **7.0 years**, and the weighted-average discount rate was **3.3%**[51](index=51&type=chunk) [8. Share Repurchase Program](index=14&type=section&id=8.%20Share%20Repurchase%20Program) - On February 8, 2022, the Board of Directors authorized an additional **$1.0 billion** for the share repurchase program, incremental to the existing **$1.7 billion** authorization[53](index=53&type=chunk) Share Repurchases (in millions, except average price per share) | Period | Shares Repurchased | Aggregate Cost | Average Price per Share | | :--------------------------------------- | :---------------------------- | :------------------------ | :---------------------- | | Twelve weeks ended Oct 8, 2022 | 0.4 | $75.0 | $168.93 | | Twelve weeks ended Oct 9, 2021 | 1.1 | $228.3 | $205.65 | | Forty weeks ended Oct 8, 2022 | 2.5 | $523.2 | $207.50 | | Forty weeks ended Oct 9, 2021 | 4.2 | $791.7 | $189.43 | - As of October 8, 2022, **$1.0 billion** remained under the share repurchase program[54](index=54&type=chunk) [9. Earnings per Share](index=15&type=section&id=9.%20Earnings%20per%20Share) Earnings per Share Calculation (in thousands, except per share data) | Metric | Twelve Weeks Ended Oct 8, 2022 | Twelve Weeks Ended Oct 9, 2021 | Forty Weeks Ended Oct 8, 2022 | Forty Weeks Ended Oct 9, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Net income applicable to common shares | $110,982 | $169,813 | $395,176 | $534,439 | | Basic weighted-average common shares | 60,053 | 62,854 | 60,656 | 64,555 | | Diluted weighted-average common shares | 60,384 | 63,348 | 61,045 | 65,008 | | Basic earnings per common share | $1.85 | $2.70 | $6.52 | $8.28 | | Diluted earnings per common share | $1.84 | $2.68 | $6.47 | $8.22 | [10. Share-Based Compensation](index=15&type=section&id=10.%20Share-Based%20Compensation) - During the forty weeks ended October 8, 2022, the company granted **188 thousand time-based RSUs**, **58 thousand market-based RSUs**, and **114 thousand stock options**[57](index=57&type=chunk) - The weighted-average fair values of time-based and market-based RSUs granted were **$201.89** and **$205.52 per share**, respectively[58](index=58&type=chunk) - As of October 8, 2022, **$76.0 million** of unrecognized compensation expense related to share-based awards remained, expected to be recognized over a weighted-average period of **1.5 years**[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's analysis of financial performance, condition, and liquidity, highlighting key drivers and challenges [Management Overview](index=16&type=section&id=Management%20Overview) - Net sales increased **0.8%** in Q3 2022 year-over-year, driven by strategic pricing and new store openings, while comparable store sales decreased **0.7%** due to owned brand penetration[61](index=61&type=chunk) Key Financial Highlights (Q3 2022 vs. Q3 2021, in billions, except percentages and EPS) | Metric | Q3 2022 | Q3 2021 | Change | | :--------------------------------------- | :------ | :------ | :----- | | Net sales | $2.64 billion | $2.62 billion | +0.8% | | Gross profit margin | 44.7% | 45.1% | -44 bps | | SG&A expenses (% of Net sales) | 38.0% | 36.4% | +159 bps | | Diluted EPS | $1.84 | $2.68 | -31.3% | | Adjusted Diluted EPS (Non-GAAP) | $2.84 | $3.21 | -11.5% | [Business and Risks Update](index=16&type=section&id=Business%20and%20Risks%20Update) - The company is progressing on a strategic business plan focused on improving customer experience, margin expansion, and consistent execution for professional and DIY customers[63](index=63&type=chunk) - Strategic initiatives include developing demand-based assortment, optimizing footprint, evolving marketing campaigns, implementing efficient supply chain processes, enhancing e-commerce, pursuing new store openings, and negotiating with vendors to mitigate inflationary pressures[63](index=63&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - The automotive aftermarket industry is influenced by macroeconomic factors such as inflationary pressures (logistics, labor), global supply chain disruptions, rising fuel costs, miles driven, unemployment rates, consumer confidence, competition, new car sales changes, economic/geopolitical uncertainty, and increased foreign currency exchange volatility[66](index=66&type=chunk) [Stores and Branches](index=17&type=section&id=Stores%20and%20Branches) - During the forty weeks ended October 8, 2022, **115 stores and branches were opened**, and **27 were closed or consolidated**, resulting in a total of **5,060 stores and branches**[67](index=67&type=chunk) [Results of Operations](index=17&type=section&id=Results%20of%20Operations) [Net Sales](index=18&type=section&id=Net%20Sales) - Net sales for the twelve weeks ended October 8, 2022, increased **0.8%** year-over-year, driven by strategic pricing and new store openings, while comparable store sales decreased **0.7%**[70](index=70&type=chunk) - Net sales for the forty weeks ended October 8, 2022, increased **0.9%** year-over-year, also driven by strategic pricing and new store openings, but partially offset by softness in DIY omnichannel[70](index=70&type=chunk) - Category growth for both periods was led by batteries, fluids and chemicals, and brakes[70](index=70&type=chunk) [Gross Profit](index=18&type=section&id=Gross%20Profit) - Gross profit margin for the twelve weeks ended October 8, 2022, was **44.7% of Net sales**, a decrease of **44 basis points** year-over-year[72](index=72&type=chunk) - The margin decrease was primarily due to inflationary product costs (including LIFO impact), unfavorable channel mix, and supply chain headwinds (labor, transportation), partially offset by strategic pricing and owned brand expansion[72](index=72&type=chunk) - LIFO related expenses increased Cost of sales by **$67.5 million** for the twelve weeks and **$240.8 million** for the forty weeks ended October 8, 2022[73](index=73&type=chunk) [Selling, General and Administrative Expenses](index=19&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) - SG&A expenses for the twelve weeks ended October 8, 2022, were **38.0% of Net sales**, an increase of **159 basis points** year-over-year, driven by inflation in store labor, medical, and fuel costs[74](index=74&type=chunk) - For the forty weeks ended October 8, 2022, SG&A expenses were **37.9% of Net sales**, an increase of **150 basis points** year-over-year, primarily due to inflation in store labor and fuel costs, and new store opening costs, partially offset by decreased incentive compensation and COVID-19 related expenses[74](index=74&type=chunk) [Loss on Early Redemption of Senior Unsecured Notes](index=19&type=section&id=Loss%20on%20Early%20Redemption%20of%20Senior%20Unsecured%20Notes) - During the forty weeks ended October 8, 2022, the company incurred charges of **$7.0 million** (make-whole provision) and **$0.4 million** (debt issuance costs) related to the early redemption of its 4.50% senior unsecured notes due December 1, 2023[75](index=75&type=chunk) [Provision for Income Taxes](index=19&type=section&id=Provision%20for%20Income%20Taxes) - Provision for income taxes for the twelve weeks ended October 8, 2022, was **$36.4 million** (effective tax rate of **24.7%**), down from $52.6 million (23.7%) in the prior year, primarily due to lower income before taxes[76](index=76&type=chunk) - For the forty weeks ended October 8, 2022, the provision was **$126.1 million** (effective tax rate of **24.2%**), down from $171.5 million (24.3%) in the prior year, also due to lower income before taxes[76](index=76&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=19&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) - Non-GAAP financial measures, including Adjusted net income and Adjusted EPS, are presented to provide insights into base operations by excluding LIFO impacts, transformation expenses, non-cash amortization of acquired GPI intangible assets, and other non-recurring adjustments[77](index=77&type=chunk) Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands, except per share data) | Metric | Twelve Weeks Ended Oct 8, 2022 | Twelve Weeks Ended Oct 9, 2021 | Forty Weeks Ended Oct 8, 2022 | Forty Weeks Ended Oct 9, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Net income (GAAP) | $110,982 | $169,813 | $395,176 | $534,439 | | LIFO impacts | $67,491 | $29,410 | $240,758 | $71,599 | | Transformation expenses (Cost of sales) | — | $143 | $2,572 | $2,611 | | GPI amortization of acquired intangible assets | $6,308 | $6,341 | $21,065 | $21,246 | | Transformation expenses (SG&A) | $6,996 | $8,675 | $27,930 | $52,865 | | Other income adjustment | — | $36 | $7,408 | — | | Provision for income taxes on adjustments | $(20,198) | $(11,151) | $(74,933) | $(37,080) | | **Adjusted net income (Non-GAAP)** | **$171,579** | **$203,267** | **$619,976** | **$645,678** | | Diluted earnings per share (GAAP) | $1.84 | $2.68 | $6.47 | $8.22 | | Adjustments, net of tax | $1.00 | $0.53 | $3.68 | $1.71 | | **Adjusted EPS (Non-GAAP)** | **$2.84** | **$3.21** | **$10.15** | **$9.93** | [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) [Overview](index=21&type=section&id=Overview) - Primary cash requirements include payroll, inventory, contractual obligations, capital expenditures, taxes, strategic initiatives, and debt interest[83](index=83&type=chunk) - Cash requirements are primarily funded by operations, supplemented by credit facilities and notes offerings, deemed sufficient for long-term obligations[83](index=83&type=chunk) - Proceeds from the **3.50% senior unsecured notes due 2032**, issued March 4, 2022, were used to fund the early redemption of 2023 Notes and supplement operational and capital expenditures[84](index=84&type=chunk) [Share Repurchase Program](index=21&type=section&id=Share%20Repurchase%20Program%20(Liquidity)) - The Board authorized an additional **$1.0 billion** for the share repurchase program on February 8, 2022, adding to the existing **$1.7 billion**[85](index=85&type=chunk) - During the forty weeks ended October 8, 2022, **2.5 million shares** were repurchased at an aggregate cost of **$523.2 million** (average **$207.50/share**)[86](index=86&type=chunk) - As of October 8, 2022, **$1.0 billion** remained available under the share repurchase program[86](index=86&type=chunk) [Analysis of Cash Flows](index=21&type=section&id=Analysis%20of%20Cash%20Flows) [Operating Activities](index=21&type=section&id=Operating%20Activities) - Cash flows from operating activities decreased by **$441.8 million** to **$483.1 million** for the forty weeks ended October 8, 2022, compared to the prior year[87](index=87&type=chunk) - The decrease was primarily driven by lower Net income and a decrease in overall working capital, mainly due to increased cash used by inventories from direct product cost increases and higher inventory on hand[87](index=87&type=chunk) [Investing Activities](index=22&type=section&id=Investing%20Activities) - Cash flows used in investing activities increased by **$142.9 million** to **$331.8 million** for the forty weeks ended October 8, 2022[89](index=89&type=chunk) - This increase was primarily due to **$333.6 million** in purchases of property and equipment, driven by investments in information technology for back-office integration and leasehold improvements for new store openings[89](index=89&type=chunk) [Financing Activities](index=22&type=section&id=Financing%20Activities) - Cash flows used in financing activities decreased by **$422.9 million** to **$545.8 million** for the forty weeks ended October 8, 2022[90](index=90&type=chunk) - This decrease was attributed to net proceeds from 2032 Notes, a **$266.9 million decrease** in share repurchases, and **$185.0 million** from credit facility borrowings, partially offset by the early redemption of 2023 Notes and a **$175.3 million increase** in dividends paid[90](index=90&type=chunk) [Long-Term Debt](index=22&type=section&id=Long-Term%20Debt%20(Liquidity)) - On March 4, 2022, the company issued **$350.0 million** aggregate principal amount of **3.50% senior unsecured notes due March 15, 2032**[92](index=92&type=chunk) - On April 3, 2022, the remaining **$193.2 million** principal amount of 2023 Notes was redeemed, incurring **$7.4 million** in charges[92](index=92&type=chunk) - As of October 8, 2022, the company held credit ratings of **BBB- from Standard & Poor's** (positive outlook) and **Baa2 from Moody's Investor Service** (stable outlook)[93](index=93&type=chunk) [Critical Accounting Policies and Estimates](index=22&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There were no changes to the critical accounting policies discussed in the company's 2021 Form 10-K during the forty weeks ended October 8, 2022[96](index=96&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section confirms no significant changes in market risk exposure since January 1, 2022 - No significant changes in market risk exposure have occurred since January 1, 2022[97](index=97&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of disclosure controls and procedures and the absence of material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of October 8, 2022[99](index=99&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended October 8, 2022[100](index=100&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=24&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section details the settlement of a securities class action lawsuit, fully paid by insurance carriers - A securities class action lawsuit was settled for **$49.3 million**, fully paid by insurance carriers, with final court approval on June 13, 2022[102](index=102&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers to the 2021 Form 10-K for a comprehensive description of the company's risk factors - Refers to 'Item 1A. Risk Factors' in the 2021 Form 10-K for a description of risks and uncertainties[103](index=103&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details common stock repurchases and remaining authorization under the share repurchase program Common Stock Repurchases (Quarter Ended October 8, 2022, in thousands, except average price per share) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--------------------------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | July 17, 2022 to August 13, 2022 | 25 | $190.65 | — | $1,097,338 | | August 14, 2022 to September 10, 2022 | 451,942 | $169.12 | 443,969 | $1,022,339 | | September 11, 2022 to October 08, 2022 | 7 | $169.06 | — | $1,022,339 | | **Total** | **451,974** | **$169.19** | **443,969** | | - On February 8, 2022, the Board of Directors authorized an additional **$1.0 billion** for the existing share repurchase program[105](index=105&type=chunk) [Item 6. Exhibits](index=25&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the 10-Q report

Advance Auto Parts, Inc. (NYSE:AAP) Q2 2022 Results Conference Call August 24, 2022 8:00 AM ET Company Participants Elisabeth Eisleben - Senior Vice President, Communications and Investor Relations Tom Greco - President and Chief Executive Officer Jeff Shepherd - Executive Vice President and Chief Financial Officer Conference Call Participants Christopher Horvers - JPMorgan Michael Lasser - UBS Simeon Gutman - Morgan Stanley Bret Jordan - Jefferies Scott Ciccarelli - Truist Nathan Friedman - Wedbush Securit ...

Advance Auto Parts, Inc. (NYSE:AAP) Q1 2022 Earnings Conference Call May 24, 2022 8:00 AM ET Company Participants Elisabeth Eisleben - SVP Communications and IR Tom Greco - President and CEO Jeff Shepherd - EVP and CFO Conference Call Participants Simeon Gutman - Morgan Stanley Christopher Horvers - JPMorgan Michael Lasser - UBS Bret Jordan - Jefferies Michael Montani - Evercore ISI Daniel Imbro - Stephens Operator Welcome to the Advance Auto Parts First Quarter 2022 Conference Call. Before we begin, Elisab ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) Advance Auto Parts reported a slight increase in net sales to $3.37 billion, but a decrease in net income to $139.8 million, with operating cash flow turning negative due to working capital changes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased to $12.00 billion, driven by reduced cash, while total liabilities marginally increased and stockholders' equity declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 23, 2022 | January 1, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $138,733 | $601,428 | | Inventories | $4,778,849 | $4,659,018 | | Total current assets | $6,057,780 | $6,275,476 | | Total assets | $12,002,481 | $12,194,209 | | **Liabilities & Equity** | | | | Accounts payable | $3,942,388 | $3,922,007 | | Long-term debt | $1,187,170 | $1,034,320 | | Total liabilities | $9,092,801 | $9,065,918 | | Total stockholders' equity | $2,909,680 | $3,128,291 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales increased 1.3% to $3.37 billion, but operating income and net income decreased to $203.3 million and $139.8 million respectively, leading to lower diluted EPS Statement of Operations Summary (in thousands, except per share data) | Metric | Sixteen Weeks Ended April 23, 2022 | Sixteen Weeks Ended April 24, 2021 | | :--- | :--- | :--- | | Net sales | $3,374,210 | $3,330,370 | | Gross profit | $1,506,520 | $1,484,926 | | Operating income | $203,270 | $252,129 | | Net income | $139,791 | $185,930 | | Diluted EPS | $2.26 | $2.81 | - The company recorded a **$7.4 million loss** on early redemption of senior unsecured notes, absent in the prior year period[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating activities resulted in a **$54.9 million net cash outflow**, a significant reversal from the prior year, with increased cash usage in investing and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Sixteen Weeks Ended April 23, 2022 | Sixteen Weeks Ended April 24, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(54,940) | $329,932 | | Net cash used in investing activities | $(114,026) | $(70,294) | | Net cash used in financing activities | $(273,735) | $(216,689) | | Net (decrease) increase in cash | $(462,695) | $45,241 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail operations, accounting policies, and financial activities, including store count, LIFO impact, debt issuance, and share repurchases - As of April 23, 2022, the company operated **4,687 stores** and **311 branches** under "Advance Auto Parts" and "Carquest" trade names[21](index=21&type=chunk) - The LIFO method, applied to **90.3% of inventories**, increased Cost of Sales by **$81.5 million** in Q1 2022, compared to $3.1 million in Q1 2021[26](index=26&type=chunk) - Total long-term debt increased to **$1.19 billion** from $1.03 billion, driven by issuing **$350 million** in 3.50% Senior Unsecured Notes due 2032 and redeeming $193.2 million of 4.50% notes due 2023[31](index=31&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) - The company repurchased **1.1 million shares** for **$248.2 million** in Q1 2022, with **$1.3 billion** remaining under the repurchase authorization[48](index=48&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net sales increased 1.3%, but gross profit margin remained flat, while SG&A expenses rose, leading to decreased GAAP EPS but increased Adjusted EPS, with operating cash flow significantly impacted by working capital [Management Overview and Results of Operations](index=15&type=section&id=Management%20Overview%20and%20Results%20of%20Operations) Net sales grew 1.3% with 0.6% comparable store sales growth, gross profit margin remained flat at 44.6%, and SG&A expenses increased to 38.6% of sales due to inflation, reducing operating income - Net sales increased **1.3%** in Q1 2022, driven by professional and independent businesses, with comparable store sales up **0.6%**[58](index=58&type=chunk)[61](index=61&type=chunk)[66](index=66&type=chunk) - Gross profit margin was flat at **44.6% of Net sales**, with strategic pricing offset by LIFO expense, inflationary costs, and unfavorable product mix[61](index=61&type=chunk)[67](index=67&type=chunk) - SG&A as a percentage of Net sales increased by **161 basis points to 38.6%**, primarily due to inflationary cost increases in store labor, fuel, and delivery, and new store openings[61](index=61&type=chunk)[68](index=68&type=chunk) GAAP vs. Adjusted EPS | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $2.26 | $2.81 | | Adjusted EPS (Non-GAAP) | $3.57 | $3.34 | [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) Operating cash flow significantly decreased to a **$54.9 million use of cash** due to working capital changes, while the company issued new senior notes, repurchased shares, and declared a dividend - Cash flow from operating activities decreased by **$384.9 million** to a use of **$54.9 million**, primarily due to increased cash used by Inventories and Receivables, and decreased cash from Accounts Payable[82](index=82&type=chunk) - The company issued **$350.0 million** of 3.50% senior unsecured notes due 2032 and redeemed the remaining **$193.2 million** of its 4.50% notes due 2023[80](index=80&type=chunk)[87](index=87&type=chunk) - During the quarter, **1.1 million shares** were repurchased for **$248.2 million**, with an additional **$1 billion** authorized, leaving **$1.3 billion** available for repurchase[81](index=81&type=chunk) - A regular cash dividend of **$1.50 per share** was declared on May 18, 2022[86](index=86&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No significant changes in market risk exposure have occurred since January 1, 2022, with further details available in the 2021 Form 10-K - There were no significant changes in the company's exposure to market risk since the fiscal year-end of January 1, 2022[91](index=91&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of April 23, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that disclosure controls and procedures were effective at a reasonable assurance level as of April 23, 2022[93](index=93&type=chunk) - No material changes occurred to the company's internal control over financial reporting during the quarter ended April 23, 2022[94](index=94&type=chunk) [PART II. OTHER INFORMATION](index=23&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) A **$49.3 million class action settlement**, fully covered by insurance, received preliminary court approval and awaits finalization - A settlement agreement for **$49.3 million** in a class action lawsuit will be fully covered by the company's insurance carriers[96](index=96&type=chunk) - The settlement received preliminary court approval on January 11, 2022, and remains subject to final court approval[96](index=96&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) No new risk factors were identified, with a comprehensive discussion of potential business risks available in the 2021 Form 10-K - The company refers to "Item 1A. Risk Factors" in its 2021 Form 10-K for a description of risks that could materially adversely affect its business[97](index=97&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **1.16 million shares** for an average of **$229.37 per share** during the quarter, with an additional **$1 billion** authorized for the repurchase program Share Repurchases for the Quarter Ended April 23, 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2 - Jan 29, 2022 | 646,647 | $235.05 | | Jan 30 - Feb 26, 2022 | 430,251 | $225.67 | | Feb 27 - Mar 26, 2022 | 77,970 | $203.17 | | Mar 27 - Apr 23, 2022 | 1,365 | $202.68 | | **Total** | **1,156,233** | **$229.37** | - On February 8, 2022, the Board of Directors authorized an additional **$1 billion** for the share repurchase program[99](index=99&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including debt agreements, stock award forms, and officer certifications - Exhibits filed include the Ninth Supplemental Indenture for the 3.500% Notes due 2032, various employee stock award agreements, and CEO and CFO certifications[101](index=101&type=chunk)

Advance Auto Parts, Inc. (NYSE:AAP) Q4 2021 Earnings Conference Call February 15, 2022 8:00 AM ET Company Participants Elisabeth Eisleben - SVP Communications and IR Tom Greco - President and CEO Jeff Shepherd - EVP and CFO Conference Call Participants Chris Horvers - JPMorgan Michael Lasser - UBS Liz Suzuki - Bank of America Merrill Lynch Seth Basham - Wedbush Greg Melich - Evercore ISI Scot Ciccarelli - Truist Securities Simeon Gutman - Morgan Stanley Michael Baker - D.A. Davidson Kate McShane - Goldman ...

Advance Auto Parts, Inc. (NYSE:AAP) Q3 2021 Earnings Conference Call November 16, 2021 8:00 AM ET Company Participants Elisabeth Eisleben – Senior Vice President Communications and Investor Relations Tom Greco – President and Chief Executive Officer Jeff Shepherd – Executive Vice President and Chief Financial Officer Conference Call Participants Michael Lasser – UBS Mitch Ingles – Raymond James Unidentified Analyst – JPMorgan Jackie Sussman – Morgan Stanley Zachary Fadem – Wells Fargo Bret Jordan – Jefferie ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________ FORM 10-Q ________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 9, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________. Commission file number 001-16797 ________________________ ...

Advance Auto Parts, Inc. (NYSE:AAP) Q2 2021 Earnings Conference Call August 24, 2021 8:00 AM ET Company Participants Tom Greco – President and CEO Elisabeth Eisleben – Senior Vice President Communications and Investor Relations Jeff Shepherd – Executive Vice President and CFO Conference Call Participants Simeon Gutman – Morgan Stanley Christopher Horvers – JP Morgan Jason Hobbs – Bank of America Steven Sycuan – Citigroup Kate McShane – Goldman Sachs Bret Jordan – Jefferies Daniel Imbro – Stephens Michael Mo ...