U.S. News: CSK Reports Slight Rise in 2002 Results

CSK Auto Corporation, the parent company of CSK Auto, Inc., which operates the Checkers, Shucks and Kragen stores, reports that sales were up 7% in 2002.
For the 2002 fiscal year ended February 2, 2003, the Company noted the following highlights for the fourth quarter and fiscal year (the results described as being on a “comparable basis” exclude certain items described below and in the footnotes of the accompanying financial data):
* Net sales were $349.7 million for the quarter and $1.507 billion for the full year.
* Comparable store sales increased 6% for the quarter and 7% for the full year.
* Operating profit for the fourth quarter increased to $19.8 million, and on a comparable basis increased to $30.8 million, or 8.8% of net sales, compared to $19.9 million or 6.0% of net sales for the fourth quarter of fiscal 2001.
* Operating profit for the full year increased 165.2% to $102.5 million, or 6.8% of net sales, and on a comparable basis increased to $114.6 million, or 7.6% of net sales, compared to $93.1 million, or 6.5% of net sales, for the full year of fiscal 2001.
* Net income increased to $3.7 million ($0.08 per share) for the fourth quarter compared to a loss of $1.5 million ($0.05 loss per share) in the fourth quarter of fiscal 2001. On a comparable basis, net income was $10.8 million or $0.24 per diluted common share in the fourth quarter of 2002, on a weighted average share base of 45.2 million shares, compared to $2.8 million or $0.09 per diluted common share in the fourth quarter of fiscal 2001, on a weighted average share base of 30.1 million shares.
* Net income for fiscal 2002 increased to $21.8 million or $0.54 per share, after an extraordinary loss of $3.7 million (net of tax), compared to a loss of $17.2 million or a $0.61 loss per share in fiscal 2001. On a comparable basis, net income was $34.2 million or $0.81 per diluted common share in fiscal 2002 compared to $20.7 million or $0.64 per diluted common share in fiscal 2001.
* During fiscal 2002, total debt outstanding was reduced by $146.0 million or 22%.

Quarter Ended February 2, 2003
On a U.S. GAAP basis, earnings per diluted share increased to $0.08 compared to a loss of ($0.05) in the same quarter of fiscal 2001. Comparable basis earnings per diluted share increased 166.6% to $0.24 for the fourth quarter ended February 2, 2003, compared to $0.09 for the same quarter in fiscal 2001.
The comparable 2002 fourth quarter earnings exclude:
(1) $4.9 million of workers’ compensation expense reflecting increased loss reserves for claims incurred during plan years 1999 through 2001 and claims relating to the acquired PACCAR stores, in response to increasing medical and claims costs, primarily in California;
(2) $4.4 million of closed store charges due to revisions in reserves primarily for the Profitability Enhancement Program (PEP) relating to longer than anticipated vacancy periods for our closed stores as a result of the economic slowdown;
(3) a $1.7 million non-cash charge relating to the vesting of a supplemental executive retirement agreement for the Company’s chairman; and
(4) $0.2 million of expenses incurred in connection with the company’s secondary stock offering in November 2002.
Gross profit was $172.2 million, or 49.2% of net sales for the fourth quarter of fiscal 2002 as compared to $161.2 million or 48.3% of net sales for the fourth quarter of fiscal 2001.
The improvement in gross profit is mainly due to the continued increasing sales and additional vendor allowances obtained during the fourth quarter of fiscal 2002 as a result of improved liquidity. Fiscal 2002 On a U.S. GAAP basis, earnings per diluted share increased to $0.54 compared to a loss of ($0.61) in fiscal 2001. Comparable basis earnings per diluted share increased to $0.81 compared to $0.64 in fiscal 2001. The comparable 2002 fiscal year earnings exclude the previously discussed items in addition to:
(1) $0.8 million in expense related to the sale of certain stores in west Texas;
(2) an additional $0.3 million in expense incurred in connection with the Company’s secondary stock offering in July 2002;
(3) $1.2 million of interest expense associated with the Company’s $50.0 million convertible debentures which were converted in May 2002 and $0.3 million of interest paid due to certain advance notice requirements associated with the retirement in August 2002 of the Company’s senior subordinated notes; and
(4) $3.7 million extraordinary loss (net of $2.3 million of income tax benefit) for costs associated with the early extinguishment of approximately $71.7 million of the Company’s senior subordinated notes. Gross profit was $700.2 million, or 46.5% of net sales, for fiscal 2002 as compared to $648.0 million, or 45.0% of net sales, in fiscal 2001.
Gross profit increased in fiscal 2002 as the company realized cash discounts and vendor allowances as a result of its increasing sales and improved liquidity. In addition, gross profit in fiscal 2001 included $23.1 million of charges which were incurred in connection with the company’s PEP.
“Our sales and net income increased significantly in fiscal 2002. We were very pleased with our 7% same store sales increase and our improvement in gross profit dollars and percentage,” said Maynard Jenkins, Chairman and Chief Executive Officer of CSK Auto Corporation. “Expense control improved, as evidenced by our 131 basis point reduction in total comparable SG&A year over year, but there are still opportunities for us to add to the bottom line by reducing expense. During fiscal 2003, the Company will continue our focus on increasing earnings and maximizing cash flow generation to pay down existing debt and increase return on assets.”
Outlook In fiscal 2003, the Company expects to grow sales 3.5% to 4.0% on a comparable basis. We expect to report net income of between $45.0 million and $47.0 million. Of the estimated annual net income, we anticipate approximately 16% to be earned in the first quarter.
This results in an increase in earnings per share of 60% in the first quarter year over year and a net income increase of over 30% on a full year basis, assuming approximately 45.3 million shares outstanding during fiscal 2003 on a fully diluted basis.
The company also expects to pay down our long-term debt by an additional $60.0 million during fiscal 2003. In addition, the Company expects to open or relocate between 20 to 30 stores during the fiscal year. The Company’s outlook for the first quarter of fiscal 2003 does not reflect the potential adverse impact of the recent military action in Iraq and the effect this action could have on consumer shopping patterns.
CSK Auto Corporation is the parent company of CSK Auto, Inc., a specialty retailer in the automotive aftermarket. As of February 2, 2003, the Company operated 1,109 stores in 19 states under the brand names Checker Auto Parts, Schuck’s Auto Supply and Kragen Auto Parts.