Advance Auto Parts(AAP) - 2024 Q3 - Quarterly Results

Executive Summary and Strategic Overview Q3 2024 Performance Summary Q3 2024 saw net sales of $2.1B and a 2.3% comparable store sales decline, offset by improved gross profit margin to 42.3% and adjusted operating income to $16.7M Q3 2024 Financial Highlights (Continuing Operations) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.1B | $2.2B | (4.5%) | | Comparable Store Sales | -2.3% | N/A | N/A | | Gross Profit Margin | 42.3% | 36.9% | +5.4 p.p. | | Adjusted Operating Income | $16.7M | ($74.3M) | Improvement | | Adjusted Operating Income Margin | 0.8% | (3.3%) | +4.1 p.p. | | Diluted Loss Per Share | ($0.42) | ($1.24) | Improvement | | Adjusted Diluted Loss Per Share | ($0.04) | ($1.19) | Improvement | - The significant improvement in gross profit margin was primarily due to lapping a one-time change in inventory reserves from the prior year and stabilizing product costs, which was partially offset by strategic pricing investments[4] - Adjusted SG&A expenses as a percentage of net sales increased to 41.5% from 40.2% in Q3 2023, driven by lower sales and wage investments in frontline team members[5] - Operating income margin was negatively impacted by approximately 125 basis points due to atypical items like Hurricane Helene and the CrowdStrike outage, which are not included in non-GAAP adjustments[6] Cash Flow and Capital Allocation The company generated $81.0M in net cash from operating activities year-to-date Q3 2024, a significant improvement, with free cash flow at an outflow of $48.7M Cash Flow Summary (Year-to-Date) | Metric | YTD Q3 2024 | YTD Q3 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $81.0M | ($28.3M) | | Free Cash Flow | ($48.7M) | ($202.5M) | - A regular cash dividend of $0.25 per share was declared on October 29, 2024, payable on January 24, 2025[9] Strategic Plan and Financial Outlook Strategic Priorities and Asset Optimization The company launched a new strategic plan targeting over 500 basis points of adjusted operating income margin expansion by FY2027, including significant asset optimization - Completed the sale of its Worldpac business for approximately $1.5 billion in cash, marking a significant strategic shift[2] - Announced a significant asset optimization program targeting the reduction of 500 corporate stores, 200 independently owned locations, and four distribution centers by mid-2025[1][14] - The strategic plan is anchored on three pillars: - Store operations: Reducing asset footprint, standardizing operating models, and accelerating new store openings - Merchandising excellence: Improving sourcing, assortment management, and pricing - Supply chain: Consolidating distribution centers, opening market hubs, and optimizing transportation[14] Full Year 2024 Guidance For FY2024, the company projects net sales of approximately $9.0B, comparable store sales around -1.0%, and adjusted operating income margin between 0.25% and 0.75% Full Year 2024 Guidance (Continuing Operations) | Metric | Guidance Range | | :--- | :--- | | Net Sales | Approx. $9,000M | | Comparable Store Sales | Approx. (1.0%) | | Adjusted Operating Income Margin | 0.25% - 0.75% | | Adjusted Diluted EPS | ($0.60) - $0.00 | | Capital Expenditures | $175M - $225M | | Free Cash Flow | Approx. flat | Preliminary FY 2025 Guidance and FY 2027 Objectives The company set FY2027 objectives including $9.0B net sales and 7.0% adjusted operating income margin, with preliminary FY2025 guidance of $8.4B-$8.6B net sales Financial Objectives and Preliminary 2025 Guidance | Metric | Preliminary FY 2025 Guidance | FY 2027 Objectives | | :--- | :--- | :--- | | Net Sales | $8,400M - $8,600M | Approx. $9,000M | | Comparable Sales Growth | 0.50% - 1.50% | Positive low-single-digit % | | New Store Growth | 30 new stores | 50 to 70 new stores | | Adjusted Operating Income Margin | 2.00% - 3.00% | Approx. 7.00% | | Leverage Ratio (Adj. debt/Adj. EBITDAR) | 3.0x – 4.0x | Approx. 2.5x | - The company has identified opportunities to improve adjusted operating income margin by more than 500 basis points through fiscal 2027[13] Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets As of October 5, 2024, total assets were $12.47B, with a significant increase in current assets held for sale to $2.14B, and total stockholders' equity at $2.60B Balance Sheet Summary (in thousands) | Account | Oct 5, 2024 | Dec 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $7,493,767 | $6,377,021 | | Total Assets | $12,468,184 | $12,276,326 | | Total Current Liabilities | $5,593,541 | $5,307,405 | | Long-Term Debt | $1,788,513 | $1,786,361 | | Total Stockholders' Equity | $2,597,680 | $2,519,728 | Condensed Consolidated Statements of Operations For Q3 2024, the company reported a net loss from continuing operations of $25.4M on net sales of $2.15B, an improvement from the prior year's $74.2M loss Statement of Operations Summary - Q3 (in thousands) | Account | Twelve Weeks Ended Oct 5, 2024 | Twelve Weeks Ended Oct 7, 2023 | | :--- | :--- | :--- | | Net Sales | $2,147,991 | $2,218,205 | | Gross Profit | $907,898 | $817,567 | | Operating Income (Loss) | $403 | ($78,578) | | Net (Loss) Income from Continuing Operations | ($25,363) | ($74,186) | Condensed Consolidated Statements of Cash Flows For the forty weeks ended October 5, 2024, net cash from operating activities was $81.0M, a significant improvement from the $28.3M used in the prior year Cash Flow Summary - YTD (in thousands) | Account | Forty Weeks Ended Oct 5, 2024 | Forty Weeks Ended Oct 7, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities (Continuing) | $81,019 | ($28,314) | | Net Cash used in Investing Activities (Continuing) | ($116,482) | ($172,185) | | Net Cash (used in) provided by Financing Activities | ($57,732) | $204,047 | Reconciliation of Non-GAAP Financial Measures Reconciliation of Adjusted Net Income and EPS The company adjusts GAAP net income and EPS to exclude non-recurring items, resulting in a Q3 2024 adjusted net loss of $3.2M and adjusted diluted loss per share of $0.04 - Non-GAAP measures exclude transformation expenses (e.g., distribution network optimization), executive turnover costs, and non-recurring tax expenses to better reflect base operations[31] Q3 2024 GAAP to Non-GAAP Reconciliation (in thousands) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Loss from Continuing Operations | ($25,363) | $22,199 | ($3,164) | | Diluted Loss Per Share | ($0.42) | $0.38 | ($0.04) | Reconciliation of Adjusted SG&A and Adjusted Operating Income Q3 2024 GAAP operating income of $0.4M was adjusted by $16.3M in SG&A costs, resulting in a non-GAAP adjusted operating income of $16.7M Q3 2024 Operating Income Reconciliation (in thousands) | Metric | GAAP | SG&A Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Operating Income | $403 | $16,265 | $16,668 | Reconciliation of Free Cash Flow Free cash flow, a non-GAAP measure, was an outflow of $48.7M for the forty weeks ended October 5, 2024, derived from $81.0M operating cash flow YTD 2024 Free Cash Flow Reconciliation (in thousands) | Metric | Amount | | :--- | :--- | | Cash flows from operating activities (continuing) | $81,019 | | Purchases of property and equipment | ($129,714) | | Free cash flow | ($48,695) | Store Information Store Count Activity During the forty weeks ended October 5, 2024, Advance Auto Parts experienced a net decrease of 6 stores, resulting in an ending count of 4,781 locations Store Count Change (Forty Weeks Ended Oct 5, 2024) | Activity | Count | | :--- | :--- | | Beginning Store Count (Dec 30, 2023) | 4,786 | | New Stores Opened | 23 | | Stores Closed | (29) | | Ending Store Count (Oct 5, 2024) | 4,781 |