Store Execution Plan Tops List to Improve Advance Chain’s Numbers

U.S. auto parts chain Advance Auto Parts Inc., registered a disappointing quarter, and its chief executive says that execution needs to improve regardless of the economic factors that led to the softer than expected balance sheet.
The store chain logged earnings per diluted share for the second quarter of $0.59, compared to $0.60 last year, despite an increase in sales of 8.3%.
In the second quarter, sales increased to $1.11 billion from $1.02 billion last year. Comparable-store sales increased 1.2% in the quarter, comprised of a 1.0% decrease in do-it-yourself (DIY) and a 9.1% increase in do-it-for-me (DIFM). The 1.2% comparable-store sales increase compares to a 9.0% increase in last year’s second quarter.
“Our sales for the quarter were disappointing,” said Mike Coppola, chairman and CEO. “We believe that sales are being impacted unfavourably by macroeconomic conditions that have reduced our customers’ discretionary income, and second quarter sales compared to a strong 9.0% comparable-store increase last year. In this challenging environment, we must improve our execution in every area of the Company. We are working to continue improving our store execution, customer service and advertising effectiveness, while at the same time optimizing our expense structure. We believe that these actions will more-effectively position us for the future.”
Second quarter gross margin was 47.6% of sales, a 50 basis point improvement compared to last year’s quarter, primarily reflecting category management initiatives and logistics efficiencies.
Second quarter selling, general and administrative (SG&A) expenses were 37.6% of sales, compared to 36.1% in second quarter 2005. This reflects 60 basis points loss of leverage on rent, depreciation and other fixed costs from softer-than-anticipated comparable-store sales and the acceleration of our new-store openings. In addition, SG&A was unfavourably impacted by higher costs for fuel and insurance programs, including property, worker’s compensation and medical, which in total account for another 55 basis points. Non-comparable stock-option expense also increased SG&A in this year’s quarter by 41 basis points.
The quarter’s income tax rate was 38.1%, and the Company anticipates its tax rate to be in the range of 38.0% to 38.2% for the balance of 2006.
For the first half of the year, total sales grew 9.6% to $2.50 billion. Comparable-store sales grew 2.7% over this time, comprised of a 0.1% decrease in DIY and a 13.1% increase in DIFM. The 2.7% comparable-store sales increase compares to a 9.1% increase in last year’s first half. First half earnings per diluted share increased to $1.27 compared to $1.23 last year. Earnings in this year’s first half include stock-option expense of $0.06 per share, whereas last year’s first-half results do not include pro forma stock-option expense of $0.04 per share.
“While we are adjusting our spending in line with a challenging macroeconomic environment and current sales trend, we remain committed to our strategic objectives,” Coppola said. “We have the financial and human resources to continue rolling out strategic investments, such as opening new stores, remodelling existing stores, and adding commercial-delivery programs to selected stores. These investments are key to our future. While we remain committed to our long-term goals, we are developing a leaner expense structure, which better positions Advance for the future.”