aap-20240713

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 July 13, 2024

☐ 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 August 16, 2024, the number of shares of the registrant’s common stock outstanding was 59,674,284 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	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	28
SIGNATURE			29

Table of Contents

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 the Company’s strategic initiatives, operational plans and objectives, statements about the sale of the Company’s Worldpac business, including statements regarding the benefits of the sale and the anticipated timing of closing, statements regarding expectations for economic conditions, future business and financial performance, as well as statements regarding underlying assumptions related thereto. Forward-looking statements reflect the Company’s views based on historical results, current information and assumptions related to future developments. 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, the Company’s ability to hire, train and retain qualified employees, the timing and implementation of strategic initiatives, deterioration of general macroeconomic conditions, geopolitical conflicts, the highly competitive nature of the industry, demand for the Company’s products and services, the Company’s ability to consummate the sale of Worldpac on a timely basis or at all, including failure to obtain the required regulatory approvals or to satisfy the other conditions to the closing, the Company’s use of proceeds and ability to maintain credit ratings, access to financing on favorable terms, complexities in the Company’s inventory and supply chain challenges with transforming and growing its business. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statements made herein. Please refer to “Item 1A. Risk Factors” of the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), as updated by the Company’s 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.

Table of Contents

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	July 13, 2024		December 30, 2023
Current assets:
Cash and cash equivalents	$	479,418	$	503,471
Receivables, net	847,609		800,141
Inventories, net	4,903,490		4,857,702
Other current assets	229,623		215,707
Total current assets	6,460,140		6,377,021
Property and equipment, net of accumulated depreciation of $2,996,092 and $2,857,726	1,579,886		1,648,546
Operating lease right-of-use assets	2,596,201		2,578,776
Goodwill	990,266		991,743
Other intangible assets, net	577,275		593,341
Other assets	86,038		86,899
Total assets	$	12,289,806	$	12,276,326
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,048,321	$	4,177,974
Accrued expenses	694,970		671,237

Other current liabilities	513,483		458,194
Total current liabilities	5,256,774		5,307,405
Long-term debt	1,787,867		1,786,361
Noncurrent operating lease liabilities	2,177,074		2,215,766
Deferred income taxes	375,658		362,542
Other long-term liabilities	85,681		84,524
Total liabilities	9,683,054		9,756,598

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	975,540		946,099
Treasury stock, at cost	(2,937,903)		(2,933,286)
Accumulated other comprehensive loss	(44,531)		(52,232)
Retained earnings	4,613,638		4,559,139
Total stockholders’ equity	2,606,752		2,519,728
Total liabilities and stockholders’ equity	$	12,289,806	$	12,276,326

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

Table of Contents

Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

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


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 13, 2024		July 15, 2023		July 13, 2024		July 15, 2023
Net sales	$	2,683,053	$	2,686,066	$	6,089,307	$	6,103,659
Cost of sales, including purchasing and warehousing costs	1,568,745		1,545,611		3,545,924		3,501,277
Gross profit	1,114,308		1,140,455		2,543,383		2,602,382
Selling, general and administrative expenses	1,042,557		1,014,495		2,385,610		2,378,484
Operating income	71,751		125,960		157,773		223,898
Other, net:
Interest expense	(18,668)		(20,869)		(43,543)		(50,587)

Other income, net	9,011		1,684		7,720		1,009
Total other, net	(9,657)		(19,185)		(35,823)		(49,578)
Income before provision for income taxes	62,094		106,775		121,950		174,320
Provision for income taxes	17,103		28,198		36,947		47,420
Net income	$	44,991	$	78,577	$	85,003	$	126,900

Basic earnings per common share	$	0.75	$	1.32	$	1.43	$	2.14
Weighted-average common shares outstanding	59,633		59,451		59,590		59,384
Diluted earnings per common share	$	0.75	$	1.32	$	1.42	$	2.13
Weighted-average common shares outstanding	59,905		59,604		59,868		59,570

Condensed Consolidated Statements of Comprehensive Income

(in thousands) (Unaudited)


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 13, 2024		July 15, 2023		July 13, 2024		July 15, 2023
Net income	$	44,991	$	78,577	$	85,003	$	126,900
Other comprehensive income:
Changes in net unrecognized other postretirement benefits, net of tax of $(10), $(14), $(31) and $56	(30)		(38)		(88)		159
Currency translation adjustments	1,949		7,262		7,789		7,829
Total other comprehensive income	1,919		7,224		7,701		7,988
Comprehensive income	$	46,910	$	85,801	$	92,704	$	134,888

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

Table of Contents


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

	Twelve Weeks Ended July 13, 2024
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at April 20, 2024	59,623	$	8	$	963,741	$	(2,936,624)	$	(46,450)	$	4,583,975	$	2,564,650
Net income	—	—		—		—		—		44,991		44,991
Total other comprehensive income	—	—		—		—		1,919		—		1,919

Restricted stock units and deferred stock units vested	55	—		—		—		—		—		—
Share-based compensation	—	—		10,957		—		—		—		10,957
Stock issued under employee stock purchase plan	15	—		842		—		—		—		842
Repurchases of common stock	(18)	—		—		(1,279)		—		—		(1,279)
Cash dividends declared ($0.25 per common share)	—	—		—		—		—		(15,328)		(15,328)

Balance at July 13, 2024	59,675	$	8	$	975,540	$	(2,937,903)	$	(44,531)	$	4,613,638	$	2,606,752

	Twelve Weeks Ended July 15, 2023
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at April 22, 2023	59,444	$	8	$	914,184	$	(2,931,373)	$	(43,931)	$	4,623,832	$	2,562,720
Net income	—	—		—		—		—		78,577		78,577
Total other comprehensive income	—	—		—		—		7,224		—		7,224

Restricted stock units and deferred stock units vested	20	—		—		—		—		—		—
Share-based compensation	—	—		10,329		—		—		—		10,329
Stock issued under employee stock purchase plan	—	—		898		—		—		—		898
Repurchases of common stock	(7)	—		—		(1,203)		—		—		(1,203)
Cash dividends declared ($0.25 per common share)	—	—		—		—		—		(15,891)		(15,891)

Balance at July 15, 2023	59,457	$	8	$	925,411	$	(2,932,576)	$	(36,707)	$	4,686,518	$	2,642,654

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

Table of Contents


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

	Twenty-Eight Weeks Ended July 13, 2024
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at Balance at December 30, 2023	59,512	$	8	$	946,099	$	(2,933,286)	$	(52,232)	$	4,559,139	$	2,519,728
Net income	—	—		—		—		—		85,003		85,003
Total other comprehensive income	—	—		—		—		7,701		—		7,701

Restricted stock units and deferred stock units vested	187	—		—		—		—		—		—
Share-based compensation	—	—		27,653		—		—		—		27,653
Stock issued under employee stock purchase plan	43	—		1,788		—		—		—		1,788
Repurchases of common stock	(67)	—		—		(4,617)		—		—		(4,617)
Cash dividends declared ($0.50 per common share)	—	—		—		—		—		(30,504)		(30,504)

Balance at July 13, 2024	59,675	$	8	$	975,540	$	(2,937,903)	$	(44,531)	$	4,613,638	$	2,606,752

	Twenty-Eight Weeks Ended July 15, 2023
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	59,264	$	8	$	897,560	$	(2,918,768)	$	(44,695)	$	4,665,087	$	2,599,192
Net income	—	—		—		—		—		126,900		126,900
Total other comprehensive income	—	—		—		—		7,988		—		7,988

Restricted stock units and deferred stock units vested	276	—		—		—		—		—		—
Share-based compensation	—	—		26,853		—		—		—		26,853
Stock issued under employee stock purchase plan	18	—		1,998		—		—		—		1,998
Repurchases of common stock	(101)	—		—		(13,808)		—		—		(13,808)
Cash dividends declared ($1.75 per common share)	—	—		—		—		—		(105,469)		(105,469)
Other	—	—		(1,000)		—		—		—		(1,000)
Balance at July 15, 2023	59,457	$	8	$	925,411	$	(2,932,576)	$	(36,707)	$	4,686,518	$	2,642,654

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

Table of Contents

Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands) (Unaudited)


	Twenty-Eight Weeks Ended
	July 13, 2024		July 15, 2023
Cash flows from operating activities:
Net income	$	85,003	$	126,900
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	167,443		162,974
Share-based compensation	27,653		26,791
(Gain) Loss and impairment of long-lived assets	(15,645)		859

Provision for deferred income taxes	13,634		21,497
Other, net	2,076		1,628
Net change in:
Receivables, net	(49,546)		(97,022)
Inventories, net	(53,472)		(148,918)
Accounts payable	(125,351)		(319,785)
Accrued expenses	33,166		118,781
Other assets and liabilities, net	2,853		(60,836)
Net cash provided by (used in) operating activities	87,814		(167,131)
Cash flows from investing activities:
Purchases of property and equipment	(92,445)		(144,874)

Proceeds from sales of property and equipment	12,820		1,532
Net cash used in investing activities	(79,625)		(143,342)
Cash flows from financing activities:
Borrowings under credit facilities	—		4,327,000
Payments on credit facilities	—		(4,417,000)
Borrowings on senior unsecured notes	—		599,571
Dividends paid	(29,920)		(179,347)
Purchase of noncontrolling interest	(9,101)		—
Proceeds from the issuance of common stock	1,788		2,060
Repurchases of common stock	(4,617)		(13,808)
Other, net	(1,143)		(4,531)
Net cash (used in) provided by financing activities	(42,993)		313,945
Effect of exchange rate changes on cash	10,751		949
Net (decrease) increase in cash and cash equivalents	(24,053)		4,421
Cash and cash equivalents, beginning of period	503,471		270,805
Cash and cash equivalents, end of period	$	479,418	$	275,226




Non-cash transactions:
Accrued purchases of property and equipment	$	5,041	$	10,177

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

Table of Contents

1. Nature of Operations and Basis of Presentation

Description of Business

Advance Auto Parts, Inc. and subsidiaries is a leading automotive aftermarket parts provider in North America, serving both professional installers (“professional”) and “do-it-yourself” (“DIY”) customers. The accompanying condensed consolidated financial statements include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiaries, Advance Stores Company, Incorporated (“Advance Stores”) and Neuse River Insurance Company, Inc., and their subsidiaries (collectively referred to as “the Company”).

As of July 13, 2024, the Company operated a total of 4,776 stores and 321 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of July 13, 2024, the Company served 1,138 independently owned Carquest branded stores across the same geographic locations served by the Company’s stores and branches in addition to Mexico and various Caribbean islands. The Company’s stores operate primarily under the trade names “Advance Auto Parts” and “Carquest” and the Company’s branches operate under the “Worldpac” and “Autopart International” trade names.

Basis of Presentation

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted based upon the Securities and Exchange Commission (“SEC”) interim reporting principles. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for 2023 as 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”).

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. 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.

Revision of Previously Issued Financial Statements for Correction of Immaterial Errors

During the year ended December 30, 2023, the Company identified errors impacting cost of sales, selling, general and administrative expenses (“SG&A”) and other income (expense), net, of $62.9 million, $36.6 million and $1.7 million incurred in prior years but not previously recognized. These charges primarily related to product costs and vendor credits. Management assessed the materiality of the errors, including the presentation on prior period consolidated financial statements, on a qualitative and quantitative basis in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections. The Company concluded that these errors and the related impacts did not result in a material misstatement of its previously issued consolidated financial statements as of and for the years ended December 31, 2022 and January 1, 2022 and its previously issued unaudited condensed consolidated interim financial statements as of and for the sixteen weeks ended April 22, 2023; the twelve and twenty-eight weeks ended July 15, 2023; and the twelve and forty weeks ended October 7, 2023. Correcting the cumulative effect of these errors in the fifty-two weeks ended December 30, 2023 would have had a significant effect on the results of operations for such period.

Table of Contents

The Company has corrected the relevant prior periods of its consolidated financial statements and related footnotes for these and other immaterial corrections for comparative purposes, as previously disclosed in Note 18. Immaterial Restatement of Prior Period Financial Statements of the Company’s 2023 Form 10-K. The Company will also adjust previously reported financial information for such immaterial errors in future filings, as applicable. A summary of the corrections to the impacted financial statement line items from our previously issued financial statements are presented in Note 12. Immaterial Misstatement of Prior Period Financial Statements.

2. Significant Accounting Policies

Revenues

The following table summarizes disaggregated revenue from contracts with customers by product group:


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 13, 2024		July 15, 2023		July 13, 2024		July 15, 2023
Percentage of Sales:
Parts and Batteries	65	%	66	%	66	%	66	%
Accessories and Chemicals	20		20		20		20
Engine Maintenance	14		13		13		13
Other	1		1		1		1
Total	100	%	100	%	100	%	100	%

Recently Issued Accounting Pronouncements - Not Yet Adopted

Disclosure Improvements

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements (“ASU 2023-06”), which defines when companies will be required to improve and clarify disclosure and presentation requirements. This ASU should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the applicable requirements have not been removed by the SEC by June 30, 2027, this ASU will not become effective. Early adoption is prohibited. The Company is currently evaluating the impact of adopting ASU 2023-06 on the consolidated financial statements and related disclosures, and does not believe it will have a material impact on the consolidated financial statements.

Improvements to Reportable Segment Disclosures

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