ADVANCE AUTO PARTS INC
For the period ended Jul 13, 2024. Filed Aug 22, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jul 13, 2024 · Filed Aug 22, 2024
AAP$45.50-5.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-04-20; filed 2024-05-30.
0001158449-24-000132
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-07-13; filed 2024-08-22.
0001158449-24-000195
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 62 previous paragraphs and 68 current paragraphs.
39 unchanged; 15 reworded; 14 added; 8 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 2 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
•Selling, general and administrative (“SG&A”) expenses for the second quarter of 2024 were 38.9% of net sales, an increase of 109 basis points compared with the second quarter of 2023. This was primarily due to higher labor costs.
Current report
•Entering into a definitive purchase agreement on August 22, 2024 to sell Worldpac for $1.5 billion, with customary adjustments for working capital and other items. The transaction is expected to close in the fourth quarter of 2024;
Current report
The entry into the definitive agreement for the sale of Worldpac was part of the Company’s previously announced strategic and operational review. As part of this review, the Company also previously announced that it was evaluating whether to divest the Company’s Canadian business. The Company's Canadian business predominantly serves commercial customers and operates under the Carquest banner. The Company has determined to retain its Canadian business. The strategic and operational review is ongoing.
Current report
•Cost of fuel
Current report
•Interest rates
Current report
For thesecond quarter of 2024, net sales decreased 0.1% and comparable store sales increased 0.4%compared with the second quarter of 2023. Category growth was led by heating and cooling, fluids and chemicals and engine management.
Current report
Net sales for the twenty-eight weeks ended July 13, 2024, decreased 0.2% compared with the same period in 2023. Comparable store sales increased 0.03% for the twenty-eight weeks ended July 13, 2024, compared with the twenty-eight weeks ended July 15, 2023. Category growth was led by batteries, filters and engine management.
Current report
Gross profit for the second quarter of 2024 was $1.11 billion, or 41.5% of net sales, compared with $1.14 billion, or 42.5% of net sales, for the second quarter of 2023.
Current report
Gross profit for the twenty-eight weeks ended July 13, 2024 and July 15, 2023 was $2.54 billion, or 41.8% of Net sales, and $2.60 billion, or 42.6% of Net sales.
Current report
During the second quarter of 2024 and the twenty-eight weeks ended July 13, 2024, gross profit margin was negatively impacted by strategic pricing investments and higher product costs.
Current report
SG&A expenses for the second quarter of 2024 were $1.04 billion, or 38.9% of net sales, compared with $1.01 billion, or 37.8% of net sales, for the second quarter of 2023. The increase of SG&A as a percentage of net sales was due to wage investments in frontline team members as well as an increase in professional fees, including costs associated with the implementation of the Company’s strategic plan and the remediation of the previously disclosed material weaknesses. This was partially offset by a reduction in marketing program expenses.
Current report
SG&A expenses for the twenty-eight weeks ended July 13, 2024 were $2.39 billion, or 39.2% of Net sales, compared with $2.38 billion, or 39.0% of Net sales, for the twenty-eight weeks ended July 15, 2023.
Current report
The Company’s provision for income taxes for the second quarter of 2024 was$17.1 million compared with $28.2 million for the same period in 2023. The Company’s provision for income taxes for the twenty-eight weeks ended July 13, 2024 and July 15, 2023 was $36.9 million and $47.4 million. The decrease in tax expense for the second quarter of 2024 and the twenty-eight weeks ended July 13, 2024 resulted from lower income before provision for income taxes compared with prior year.
Current report
The Company’s effective tax rate was 30.3% and 27.2% for the twenty-eight weeks ended July 13, 2024 and July 15, 2023.
Removed paragraphs (8)
Previous report
•Selling, general & administrative (“SG&A”) expenses for the first quarter of 2024 were 39.4% of net sales, an improvement of 48 basis points compared with the first quarter of 2023. This was primarily driven by cost control efforts initiated at the end of 2023 and a net gain on sale of assets, partially offset by increased field wages and training and ongoing expense inflationary pressure.
Previous report
•Conducting sales process for the potential disposition of Worldpac;
Previous report
•Rising fuel costs
Previous report
For thefirst quarter of 2024, net sales decreased 0.3% and comparable store sales declined 0.2%compared with the first quarter of 2023.
Previous report
Gross profit for the first quarter of 2024 was $1.43 billion, or 42.0% of net sales, compared with $1.46 billion, or 42.8% of net sales, for the first quarter of 2023. During the first quarter of 2024, gross profit margin was negatively impacted by increased costs that were not fully covered by pricing actions. These were partially offset by supply chain productivity.
Previous report
SG&A expenses for the first quarter of 2024 were $1.34 billion, or 39.4% of net sales, compared with $1.36 billion, or 39.9% of net sales, for the first quarter of 2023. The improvement in SG&A as a percentage of net sales was driven by cost control efforts initiated at the end of 2023, including reduced corporate expenditures from the decrease in headcount and significant reduction of marketing expenses, as well as a net gain on asset sales (see Note 7. Leasesfor additional information). These were partially offset by increased field wages and trainingand ongoing expense inflationary pressure.
Previous report
The Company’s provision for income taxes for the first quarter of 2024 was $19.8 million compared with $19.2 million for the same period in 2023. The Company’s effective tax rate was 33.2% for thefirst quarter of 2024 and 28.5% for the first quarter of 2023. The higher effective income tax rate for thefirst quarter of 2024 compared with the same period in the prior year was due to a discrete charge for stock-based compensation in the first quarter of 2024.
Previous report
On February 26, 2024, the Company entered into Amendment No. 4 (“Amendment No. 4”) to the 2021 Credit Agreementto enable certain addbacks to the definition of Consolidated EBITDA contained therein for specific write-downs of inventory and vendor receivables. Amendment No. 4 also updated certain limitations on future incurrences of other indebtedness and liens, replacing the cap thereon of 10% of consolidated net tangible assets with $400 million, and eliminated the $250 million basket for accounts receivable securitization transactions. Amendment No. 4 made no other material changes to the terms of the 2021 Credit Agreement.
Reworded paragraphs (15)
Previous wording
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023 (filed with the SEC on March 12, 2024), which the Company refers to as the 2023 Form 10-K, and the Company’s condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report. The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. The Company’s first quarter of the year contains sixteen weeks. The Company’s remaining three quarters each consist of twelve weeks.
Current wording
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023 (filed with the SEC on March 12, 2024, and the amended Annual Report on Form 10-K/A filed with the SEC on May 30, 2024 (collectively the “2023 Form 10-K”)), and the Company’s condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report. The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. The Company’s first quarter of the year contains sixteen weeks. The Company’s remaining three quarters each consist of twelve weeks.
Previous wording
A high-level summary of the Company’s financial results for the first quarter of 2024 includes:
Current wording
A high-level summary of the Company’s financial results for the second quarter of 2024 includes:
Previous wording
•Net sales during the first quarter of 2024 were $3.41 billion, a decrease of 0.3% compared with the first quarter of 2023. Comparable store sales declined 0.2%.
Current wording
•Net sales during the second quarter of 2024 were $2.68 billion, a decrease of 0.1% compared with the second quarter of 2023. Comparable store sales increased 0.4%.
Previous wording
•Gross profit margin for the first quarter of 2024 was 42.0% of net sales, a decrease of 82 basis points compared with the first quarter of 2023. Gross profit margin was negatively impacted by increased costs not fully covered by pricing actions, partially offset by supply chain productivity.
Current wording
•Gross profit margin for the second quarter of 2024 was 41.5% of net sales, a decrease of 93 basis points compared with the second quarter of 2023. Gross profit margin was negatively impacted by strategic pricing investments and higher product costs.
Previous wording
•The Company generated diluted earnings per share (“Diluted EPS”) of $0.67 during the first quarter of 2024, compared with $0.81 for the comparable period of 2023.
Current wording
•The Company generated diluted earnings per share (“Diluted EPS”) of $0.75 during the second quarter of 2024, compared with$1.32 for the comparable period of 2023.
Previous wording
Key factors in selecting sites and market locations in which the Company operates include population, demographics, traffic count, vehicle profile, competitive landscape and the cost of real estate. During the sixteen weeks ended April 20, 2024, seven stores and branches were opened and 17 were closed, resulting in a total of 5,097 stores and branches compared with a total of 5,107 stores and branches as of December 30, 2023.
Current wording
Key factors in selecting sites and market locations in which the Company operates include population, demographics, traffic count, vehicle profile, competitive landscape, and the cost of real estate. During the twenty-eight weeks ended July 13, 2024, 16 stores and branches were opened and 26 were closed, resulting in a total of 5,097 stores and branches as of the end of the second fiscal quarter compared with a total of 5,107 stores and branches as of December 30, 2023.
Previous wording
The Company calculates comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales and exclude sales fulfilled by distribution centers to independently owned Carquest locations. Acquired stores are included in the Company’s comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date. The Company includes sales from relocated stores in comparable store sales from the original date of opening.
Current wording
The Company calculates comparable store sales based on the change in store or branch sales starting once a location has been open for approximately one year and by including e-commerce sales and excluding sales fulfilled by distribution centers to independently owned Carquest locations. Acquired stores are included in the Company’s comparable store sales one year after acquisition. The Company includes sales from relocated stores in comparable store sales from the original date of opening.
Previous wording
The Company’s primary cash requirements necessary to maintain the Company’s current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives under the Company’s strategic business plan and other operational priorities, including payment of interest on the Company’s long-term debt. Historically, the Company has also used available funds to repay borrowings under the Company’s credit facility, to periodically repurchase shares of the Company’s common stock under the share repurchase program, to pay the Company’s quarterly cash dividend and for acquisitions. However, the Company’s future uses of cash may differ, including with respect to the weight the Company places on the preservation of cash and liquidity, degree of investment in the Company’s business and other capital allocation factors.
Current wording
The Company’s primary cash requirements necessary to maintain the Company’s current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives and other operational priorities, including payment of interest on the Company’s long-term debt. Historically, the Company has also used available funds to repay borrowings under the Company’s credit facility, to periodically repurchase shares of the Company’s common stock under the share repurchase program, to pay the Company’s quarterly cash dividend and for acquisitions. However, the Company’s future uses of cash may differ, including with respect to the weight the Company places on the preservation of cash and liquidity, degree of investment in the Company’s business and other capital allocation priorities.
Previous wording
Typically, the Company has funded its cash requirements primarily through cash generated from operations, supplemented by borrowings under the Company’s credit facilities and notes offerings as needed. The Company believes funds generated from its expected results of operations, available cash and cash equivalents, and available borrowings under the Company’s credit facility will be sufficient to fund its obligations for the next year. The Company also believes such funds, cash and available borrowings, together with the Company’s ability to generate cash through credit facilities and notes offerings as needed, will be sufficient to fund its ongoing obligations.
Current wording
Typically, the Company has funded its cash requirements primarily through cash generated from operations, supplemented by borrowings under the Company’s credit facilities and note offerings as needed. On August 22, 2024, the Company entered into a definitive purchase agreement to sell its Worldpac business for $1.5 billion, with customary adjustments for working capital and other items, as well as provision of a $200 million letter of credit for up to 12 months following the closing of the transaction, which letter of credit will reduce to zero no later than 24 months after the closing, to support supply chain financing for the buyer. The transaction is expected to close in the fourth quarter of 2024. The Company expects net proceeds from the transaction after paying expenses and taxes to be approximately $1.2 billion. The Company intends to use net proceeds from the transaction for general corporate purposes, which may include the provision of additional working capital, funding internal operational improvement initiatives and repayment or refinancing of outstanding indebtedness. The Company believes funds generated from its expected results of operations, available cash and cash equivalents, net proceeds from the Worldpac sale and available borrowings under credit facilities and note offerings as needed will be sufficient to fund its obligations for the next year and beyond.
Previous wording
The Company’s supplier finance programs did not have a material impact on its liquidity or capital resources in the periods presented nor does the Company expect such arrangements to have a material impact on its liquidity or capital resources for the foreseeable future. See Note 11. Supplier Finance Programs of the Company’s condensed consolidated financial statements for further discussion.
Current wording
The Company’s supplier finance programs did not have a material impact on its liquidity or capital resources in the periods presented nor does the Company expect such arrangements to have a material impact on its liquidity for the foreseeable future. However, as further described below, a future decline in our credit ratings would be expected to result in a significant impact to bank participation in the Company’s supplier finance programs. While the Company does not expect such an impact to have a material impact on our overall liquidity, the Company does expect that it would have a material impact on its capital resources and capital allocation. See Note 11. Supplier Finance Programs of the Company’s condensed consolidated financial statements for further discussion.
Previous wording
During the first quarter of 2024 and 2023, the Company did not purchase any shares of its common stock under the share repurchase program. The Company had $947.3 million remaining under the share repurchase program as of April 20, 2024.
Current wording
During the second quarter and twenty-eight weeks ended July 13, 2024 and July 15, 2023, the Company did not purchase any shares of its common stock under the share repurchase program. The Company had $947.3 million remaining under the share repurchase program as of July 13, 2024.
Previous wording
For the first quarter of 2024, cash flows provided by operating activities increased by $385.2 million to $2.7 million compared with the same period of prior year. The net increase in cash flows provided by operating activities was driven by an increase in working capital, namely accounts payable, inventories and accrued expenses.
Current wording
For the twenty-eight weeks ended July 13, 2024, cash flows provided by operating activities increased by $254.9 million to $87.8 million compared with the same period of prior year. The net increase in cash flows provided by operating activities was primarily attributable to a decrease in cash utilized for working capital mainly due to accounts payable payments and inventory purchases.
Previous wording
For the first quarter of 2024, cash flows used in investing activities decreased by $50.7 million to $38.9 million compared with the same period of prior year. The decrease in cash used in investing activities was due to lower capital spend in the current year coupled with higher proceeds on asset sales (see Note 7. Leases for additional information).
Current wording
For the twenty-eight weeks ended July 13, 2024, cash flows used in investing activities decreased by $63.7 million to $79.6 million compared with the same period of prior year. The decrease in cash used in investing activities was attributable to lower capital spend due to fewer store openings and projects in the current year coupled with higher proceeds on asset sales (see Note 7. Leases for additional information).
Previous wording
For the first quarter of 2024, cash flows used in financing activities was $25.6 million, a decrease of $450.8 million compared with the same period of prior year. The decrease in cash provided by financing activities was due to no issuances of senior unsecured notes offset by a decrease in dividends paid during thefirst quarter of 2024 compared with the same period of prior year.
Current wording
For the twenty-eight weeks ended July 13, 2024, cash flows used in financing activities was$43.0 million, adecrease of$356.9 million compared with the same period of prior year. The decrease in cash provided by financing activities was due to the issuances of senior unsecured notes in the prior year and a decrease in dividends paid during thetwenty-eight weeks ended July 13, 2024 compared with the same period of prior year.
Previous wording
As of April 20, 2024, the Company had a credit rating from Standard & Poor’s of BB+ and from Moody’s Investor Service of Baa3. As of April 20, 2024, the outlooks by Standard & Poor’s and Moody’s on the Company’s credit rating were stable and negative. The current pricing grid used to determine the Company’s borrowing rate under the Credit Agreement is based on the Company’s credit ratings. If the Company’s credit ratings decline, the interest rate on outstanding balances may increase and the Company’s access to additional financing on favorable terms may be limited. In addition, declines could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to the Company’s vendors based on the Company’s credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, the Company’s interest rate may decrease.
Current wording
As of July 13, 2024, the Company had a credit rating from Standard & Poor’s of BB+ and from Moody’s Investor Service of Baa3. As of July 13, 2024, the outlooks by Standard & Poor’s and Moody’s on the Company’s credit rating were stable and negative. The current pricing grid used to determine the Company’s borrowing rate under the Credit Agreement is based on the Company’s credit ratings. The Company anticipates that it may receive a future downgrade in its credit ratings dependent on the strengthening of its balance sheet and the success and timing of its efforts to improve business operations. If the Company’s credit ratings decline, the interest rate on outstanding balances may increase and the Company’s access to additional financing on favorable terms may be limited. In addition, declines could reduce the attractiveness of certain supplier finance programs whereby third-party institutions finance arrangements to the Company’s vendors based on the Company’s credit rating, which could result in increased working capital requirements. The Company expects that a future decline in its credit ratings would have a significant impact on bank participation in its supplier finance programs, resulting in increased working capital requirements. The Company believes that its sources of cash, together with its ability to generate cash through existing or new credit facilities and notes offerings as needed, will be sufficient to fund any increases in working capital requirements.