One day before announcing disappointing first quarter financial results, Advance Auto Parts announced that current independent director, Jeffrey C. Smith, was appointed Chair of the company’s Board of Directors, effective immediately. Smith succeeds Executive Chair John C. (“Jack”) Brouillard, who will continue to serve as a director on the Advance Auto Parts Board. In addition, John F. Ferraro is no longer Lead Independent Director but will continue to serve as a director and has been appointed Chair of the Nominating and Corporate Governance Committee.
Advance Auto Parts announced on May 19 its financial results for the first quarter ended April 23, 2016. First quarter adjusted earnings per diluted share (Adjusted Cash EPS) were $2.51. These results exclude $0.11 of amortization of acquired intangible assets and integration and restructuring costs of $0.26, primarily associated with the acquisition of General Parts International.
“Our first quarter results did not meet our expectations," said Tom Greco, Chief Executive Officer. "We are moving forward with urgency to drive improved performance. Our customers are our top priority and we are elevating our intensity to get the right parts to the right place at the right time as we empower our team members to serve the customer better than anyone else.”
Greco continued, “I have been energized by the strength and the quality of our team and the opportunity that lies ahead. I am confident our focus and commitment around delivering improved service for our customers will translate into increased profitability and shareholder value."
First quarter 2016 highlights
Total sales for the first quarter decreased 1.9% to $2.98 billion, as compared with total sales during the first quarter of fiscal 2015 of $3.04 billion. The sales decline was driven by the comparable store sales decrease of 1.9% primarily due to availability and service shortfalls. The comparable sales cadence experienced a more pronounced decline in the latter portion of the quarter. The company's comparable store sales were also partially impacted by lower demand due to unfavorable weather during the quarter and benefited from the favorable consolidation impact from Carquest stores.
The company's Gross Profit rate was 45.3% of sales during the first quarter as compared to 45.9% during the first quarter last year. The 58 basis-point decrease in gross profit rate was primarily the result of supply chain expense deleverage due to the comparable store sales decline.
The company's Adjusted SG&A rate was 34.7% of sales during the first quarter as compared to 35.7% during the same period last year. The 100 basis-point decrease was primarily the result of the company's continued cost reduction initiatives and benefits from the cost reduction actions taken in 2015 partially offset by expense deleverage. On a GAAP basis, the company's SG&A rate was 36.2% of sales during the first quarter as compared to 37.2% during the same period last year.
The company's Adjusted Operating Income was $315.0 million during the first quarter, an increase of 2.2% versus the first quarter of fiscal 2015. As a percentage of sales, Adjusted Operating Income in the first quarter expanded to 10.6% versus 10.1% during the first quarter of fiscal 2015. On a GAAP basis, the company's operating income during the first quarter of $271.0 million increased 3.2% versus the first quarter of fiscal 2015. On a GAAP basis, the Operating Income rate was 9.1% during the first quarter as compared to 8.6% during the first quarter of fiscal 2015.
Operating cash flow decreased approximately 26.3% to $75.3 million in the first quarter of fiscal 2016 from $102.2 million in the first quarter of fiscal 2015. Free cash flow was a decrease of $13.8 million in the first quarter of fiscal 2016 compared to an increase of $45.2 million in the first quarter of fiscal 2015. Capital expenditures in the first quarter of fiscal 2016 were $89.1 million as compared to $57.0 million in the first quarter of fiscal 2015.
As of April 23, 2016, the company operated 5,086 stores and 125 Worldpac branches and served approximately 1,300 independently owned Carquest stores.
New board leadership
The newly appointed Smith said, “I am honored to serve Advance Auto Parts as its Board Chair. Since joining the Board in November, Advance has taken important steps to generate shareholder value, including implementing a more field-centric organization and appointing a new Chief Executive Officer. I look forward to continuing to work with the Board and management team to help realize the exceptional future potential for the company. I would also like to thank Jack and John for their leadership and continued contributions to the Board.”
Smith is Managing Member, Chief Executive Officer and Chief Investment Officer of Starboard Value LP. He joined the Advance Auto Parts Board on November 12, 2015. He is also currently on the Board of Yahoo! Inc. He was formerly Chairman of the Boards of Darden Restaurants, Inc. and Phoenix Technologies Ltd. and formerly on the Boards of Quantum Corporation, Office Depot, Regis Corporation, Surmodics Inc., Zoran Corporation, Actel Corporation, Kensey Nash Corp., S1 Corp and the Fresh Juice Company.
Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.
