aap-20221008

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 8, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission file number 001-16797

________________________

ADVANCE AUTO PARTS, INC.

(Exact name of registrant as specified in its charter)

________________________


Delaware			54-2049910
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

4200 Six Forks Road, Raleigh, North Carolina 27609

(Address of principal executive offices) (Zip Code)

(540) 362-4911

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

AAP

New York Stock Exchange

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 14, 2022, the number of shares of the registrant’s common stock outstanding was 59,253,716 shares.

Table of Contents


TABLE OF CONTENTS
			Page
NOTE REGARDING FORWARD LOOKING STATEMENTS			1
PART I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements of Advance Auto Parts, Inc. and Subsidiaries (unaudited)	2
		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Comprehensive Income	3
		Condensed Consolidated Statements of Changes in Stockholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	6
		Notes to the Condensed Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
	Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	21
	Item 1A.	Risk Factors	21
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
	Item 6.	Exhibits	22
SIGNATURE			23

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identifiable by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “should,” “strategy,” “will,” or similar language. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our strategic initiatives, operational plans and objectives, expectations for economic conditions and recovery and future business and financial performance, as well as statements regarding underlying assumptions related thereto. Forward-looking statements reflect our views based on historical results, current information and assumptions related to future developments. Except as may be required by law, we undertake no obligation to update any forward-looking statements made herein. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. They include, among others, factors related to the timing and implementation of strategic initiatives, including with respect to labor shortages or disruptions and the impact on our ability to complete store openings, deterioration of general macroeconomic conditions, the highly competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business and factors related to the current global pandemic. Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), as updated by our subsequent filings with the SEC, for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data) (Unaudited)


Assets	October 8, 2022		January 1, 2022
Current assets:
Cash and cash equivalents	$	191,204	$	601,428
Receivables, net	845,667		782,785
Inventories	4,926,579		4,659,018
Other current assets	199,069		232,245
Total current assets	6,162,519		6,275,476
Property and equipment, net of accumulated depreciation of $2,534,559 and $2,403,567	1,663,939		1,528,311
Operating lease right-of-use assets	2,625,638		2,671,810
Goodwill	989,946		993,744
Other intangible assets, net	625,673		651,217
Other assets	64,364		73,651
Total assets	$	12,132,079	$	12,194,209
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,097,412	$	3,922,007
Accrued expenses	681,216		777,051
Current portion of long-term debt	185,000		—
Other current liabilities	479,273		481,249
Total current liabilities	5,442,901		5,180,307
Long-term debt	1,187,916		1,034,320
Noncurrent operating lease liabilities	2,251,560		2,337,651
Deferred income taxes	433,717		410,606
Other long-term liabilities	99,910		103,034
Total liabilities	9,416,004		9,065,918

Commitments and contingencies

Stockholders’ equity:
Preferred stock, nonvoting, $0.0001 par value	—		—
Common stock, voting, $0.0001 par value	8		8
Additional paid-in capital	886,438		845,407
Treasury stock, at cost	(2,842,896)		(2,300,288)
Accumulated other comprehensive loss	(54,298)		(22,627)
Retained earnings	4,726,823		4,605,791
Total stockholders’ equity	2,716,075		3,128,291
Total liabilities and stockholders’ equity	$	12,132,079	$	12,194,209

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

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Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data) (Unaudited)


	Twelve Weeks Ended				Forty Weeks Ended
	October 8, 2022		October 9, 2021		October 8, 2022		October 9, 2021
Net sales	$	2,641,341	$	2,621,229	$	8,680,977	$	8,601,014
Cost of sales, including purchasing and warehousing costs	1,461,490		1,438,775		4,808,888		4,744,383
Gross profit	1,179,851		1,182,454		3,872,089		3,856,631
Selling, general and administrative expenses	1,002,653		953,256		3,289,940		3,130,376
Operating income	177,198		229,198		582,149		726,255
Other, net:
Interest expense	(12,039)		(8,587)		(35,114)		(28,085)
Loss on early redemption of senior unsecured notes	—		—		(7,408)		—
Other (expense) income, net	(17,741)		1,810		(18,314)		7,790
Total other, net	(29,780)		(6,777)		(60,836)		(20,295)
Income before provision for income taxes	147,418		222,421		521,313		705,960
Provision for income taxes	36,436		52,608		126,137		171,521
Net income	$	110,982	$	169,813	$	395,176	$	534,439

Basic earnings per common share	$	1.85	$	2.70	$	6.52	$	8.28
Weighted-average common shares outstanding	60,053		62,854		60,656		64,555
Diluted earnings per common share	$	1.84	$	2.68	$	6.47	$	8.22
Weighted-average common shares outstanding	60,384		63,348		61,045		65,008

Condensed Consolidated Statements of Comprehensive Income

(in thousands) (Unaudited)


	Twelve Weeks Ended				Forty Weeks Ended
	October 8, 2022		October 9, 2021		October 8, 2022		October 9, 2021
Net income	$	110,982	$	169,813	$	395,176	$	534,439
Other comprehensive (loss) income:
Changes in net unrecognized other postretirement costs, net of tax of $25, $25, $41 and $69	(70)		(70)		(116)		(194)
Currency translation adjustments	(33,439)		1,527		(31,555)		5,127
Total other comprehensive (loss) income	(33,509)		1,457		(31,671)		4,933
Comprehensive income	$	77,473	$	171,270	$	363,505	$	539,372

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

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Advance Auto Parts, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except per share data) (Unaudited)

	Twelve Weeks Ended October 8, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at July 16, 2022	60,118	$	8	$	875,500	$	(2,766,457)	$	(20,789)	$	4,706,547	$	2,794,809
Net income	—	—		—		—		—		110,982		110,982
Total other comprehensive loss	—	—		—		—		(33,509)		—		(33,509)
Issuance of shares upon the exercise of stock options	1	—		142		—		—		—		142
Restricted stock units and deferred stock units vested	22	—		—		—		—		—		—
Share-based compensation	—	—		10,946		—		—		—		10,946
Stock issued under employee stock purchase plan	7	—		1,050		—		—		—		1,050
Repurchases of common stock	(452)	—		—		(76,439)		—		—		(76,439)
Cash dividends declared ($1.50 per common share)	—	—		—		—		—		(90,706)		(90,706)
Other	—	—		(1,200)		—		—		—		(1,200)
Balance at October 8, 2022	59,696	$	8	$	886,438	$	(2,842,896)	$	(54,298)	$	4,726,823	$	2,716,075

	Twelve Weeks Ended October 9, 2021
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at July 17, 2021	63,499	$	8	$	818,126	$	(1,973,371)	$	(23,283)	$	4,480,085	$	3,301,565
Net income	—	—		—		—		—		169,813		169,813
Total other comprehensive income	—	—		—		—		1,457		—		1,457
Restricted stock units and deferred stock units vested	29	—		—		—		—		—		—
Share-based compensation	—	—		16,040		—		—		—		16,040
Stock issued under employee stock purchase plan	4	—		868		—		—		—		868
Repurchases of common stock	(1,119)	—		—		(230,213)		—		—		(230,213)
Cash dividends declared ($1.00 per common share)	—	—		—		—		—		(62,994)		(62,994)
Other	—	—		(1)		—		—		—		(1)
Balance at October 9, 2021	62,413	$	8	$	835,033	$	(2,203,584)	$	(21,826)	$	4,586,904	$	3,196,535

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

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Advance Auto Parts, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except per share data) (Unaudited)

	Forty Weeks Ended October 8, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at January 1, 2022	62,009	$	8	$	845,407	$	(2,300,288)	$	(22,627)	$	4,605,791	$	3,128,291
Net income	—	—		—		—		—		395,176		395,176
Total other comprehensive loss	—	—		—		—		(31,671)		—		(31,671)
Issuance of shares upon the exercise of stock options	3	—		496		—		—		—		496
Restricted stock units and deferred stock units vested	281	—		—		—		—		—		—
Share-based compensation	—	—		40,291		—		—		—		40,291
Stock issued under employee stock purchase plan	25	—		3,144		—

SEC Form 10-Q filed by Advance Auto Parts Inc.