Advance Auto Parts Inc 10-Q for FY2023 Q3
Advance Auto Parts Inc (AAP)
10-Q
2023-11-21
For: 2023-10-07
View Original
Added on
April 10, 2026
About this 10-Q
Advance Auto Parts Inc filed this 10-Q on November 21, 2023, covering the quarter ended October 7, 2023 (FY2023 Q3).
Headline figures
Quarter ended October 7, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.72B
- up 2.9% from $2.64B a year earlier
- Net loss
- $48.63M
- compared with net income of $115.88M a year earlier
- Diluted EPS
- -$0.82
- compared with $1.92 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
________________________________________________________________
For the quarterly period ended October 7, 2023
For the transition period from ________ to ________.
Commission file number 001-16797
_______________________________
(Exact name of registrant as specified in its charter)
_________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(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 | ||||||||||||
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.
| ☒ | 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 13, 2023, the number of shares of the registrant’s common stock outstanding was 59,501,990 shares.
| TABLE OF CONTENTS | |||||||||||
Page | |||||||||||
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, including cost reduction initiatives, our intended sale of the Worldpac and Carquest Canada portions of our business, operational plans and objectives, expectations for economic conditions 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 company’s leadership transitions, our ability to complete the planned divestitures of Worldpac and Carquest Canada, our 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 our industry, demand for our products and services, access to financing on favorable terms, complexities in our inventory and supply chain and challenges with transforming and growing our business. Except as may be required by law, we undertake no obligation to update any forward-looking statements made herein. 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.
1
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 7, 2023 | December 31, 2022 | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of long-term debt | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, nonvoting, $ | |||||||||||
Common stock, voting, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Treasury stock, at cost | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
2
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 7, 2023 | October 8, 2022 | October 7, 2023 | October 8, 2022 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
Cost of sales, including purchasing and warehousing costs | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
Operating (loss) income | ( | ||||||||||||||||||||||
| Other, net: | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Loss on early redemption of senior unsecured notes | ( | ||||||||||||||||||||||
| Other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Total other, net | ( | ( | ( | ( | |||||||||||||||||||
(Loss) Income before provision for income taxes | ( | ||||||||||||||||||||||
| Provision for income taxes | ( | ||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
Basic (loss) earnings per common share | $ | ( | $ | $ | $ | ||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
Diluted (loss) earnings per common share | $ | ( | $ | $ | $ | ||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
Condensed Consolidated Statements of Comprehensive (Loss) Income
(in thousands) (Unaudited)
| Twelve Weeks Ended | Forty Weeks Ended | ||||||||||||||||||||||
| October 7, 2023 | October 8, 2022 | October 7, 2023 | October 8, 2022 | ||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Changes in net unrecognized other postretirement benefits, net of tax (benefit) expense of $( | ( | ( | ( | ||||||||||||||||||||
| Currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
Total other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
3
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 7, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock, at Cost | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at July 15, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Total other comprehensive loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at October 7, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
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 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon the exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at October 8, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
4
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 7, 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 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total other comprehensive loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon the exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at October 7, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
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 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon the exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at October 8, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
5
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited)
| Forty Weeks Ended | |||||||||||
| October 7, 2023 | October 8, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Loss and impairment of long-lived assets | |||||||||||
| Loss on early redemption of senior unsecured notes | |||||||||||
| Provision for deferred income taxes | ( | ||||||||||
| Other, net | |||||||||||
| Net change in: | |||||||||||
| Receivables, net | ( | ( | |||||||||
| Inventories, net | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses | ( | ||||||||||
| Other assets and liabilities, net | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sales of property and equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under credit facilities | |||||||||||
| Payments on credit facilities | ( | ( | |||||||||
| Borrowings on senior unsecured notes | |||||||||||
| Payments on senior unsecured notes | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
Cash and cash equivalents, beginning of period | |||||||||||
Cash and cash equivalents, end of period | $ | $ | |||||||||
| Non-cash transactions: | |||||||||||
| Accrued purchases of property and equipment | $ | $ | |||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
6
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
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 have been prepared by us and 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 “Advance,” “we,” “us” or “our”).
As of October 7, 2023, we operated a total of 4,785 stores and 320 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 7, 2023, we served 1,307 independently owned Carquest branded stores across the same geographic locations served by our stores and branches in addition to Mexico and various Caribbean islands. Our stores operate primarily under the trade names “Advance Auto Parts” and “Carquest” and our 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 our Annual Report on Form 10-K for 2022 as filed with the SEC on February 28, 2023.
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. Our first quarter of the year contains sixteen weeks. Our remaining three quarters each consist of twelve weeks.
As previously disclosed in our quarterly report on Form 10-Q for the period ended April 22, 2023, we identified an out of period charge of $17.3 million, which related to Selling, general and administrative (“SG&A”) expenses incurred in prior years but not previously expensed and was corrected by recognizing the charge in the sixteen weeks ended April 22, 2023. In connection with the preparation of our financial statements for the third quarter of 2023, we identified additional errors impacting Cost of sales. These errors reduced Cost of sales in periods prior to fiscal year 2023 by $10.2 million and primarily related to product returns and vendor credits. We 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. Based on this assessment, we concluded that these errors and the related impacts did not result in a material misstatement of our previously issued consolidated financial statements as of and for the fiscal year ended December 31, 2022 and our previously issued unaudited condensed consolidated interim financial statements as of and for the twelve and forty weeks ended October 8, 2022, the sixteen weeks ended April 22, 2023 and the twelve and twenty-eight weeks ended July 15, 2023. However, correcting the cumulative effect of these errors in the twelve and forty weeks ended October 7, 2023 would have had a significant effect on the results of operations for such periods.
7
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Therefore, we have corrected the relevant prior periods Condensed Consolidated Financial Statements and related footnotes for these and other immaterial errors for comparative purposes. We will also correct 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 | Forty Weeks Ended | ||||||||||||||||||||||
| October 7, 2023 | October 8, 2022 | October 7, 2023 | October 8, 2022 | ||||||||||||||||||||
| Percentage of Sales: | |||||||||||||||||||||||
| Parts and Batteries | % | % | % | % | |||||||||||||||||||
| Accessories and Chemicals | |||||||||||||||||||||||
| Engine Maintenance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
Recently Issued Accounting Pronouncements - Adopted
Supplier Finance Programs
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”), which requires a buyer in a supplier finance program to disclose sufficient information about the program, enabling users of the financial statements to understand the nature of the program and activity and changes during the period. ASU 2022-04 was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement on rollforward information, which is effective for fiscal years beginning after December 15, 2023. During the first quarter 2023, we adopted ASU 2022-04, which did not have a material impact on our consolidated financial position, results of operations and cash flows. Refer to Note 11. Supplier Finance Programs for further details.
3. Inventories, net
8
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
An actual valuation of inventory under the LIFO method is performed at the end of each fiscal year based on inventory levels and carrying costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.
Inventory balances were as follows:
| October 7, 2023 | December 31, 2022 | ||||||||||
| Inventories at first in, first out (“FIFO”), net | $ | $ | |||||||||
| Adjustments to state inventories at LIFO | ( | ( | |||||||||
| Inventories at LIFO, net | $ | $ | |||||||||
4. Intangible Assets
Our definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expense was $6.7 million and $7.0 million for the twelve weeks ended October 7, 2023 and October 8, 2022, respectively, and $22.7 million and $23.6 million for the forty weeks ended October 7, 2023 and October 8, 2022, respectively.
5. Receivables, net
Receivables, net, consisted of the following:
| October 7, 2023 | December 31, 2022 | ||||||||||
| Trade | $ | $ | |||||||||
| Vendor | |||||||||||
| Other | |||||||||||
| Total receivables | |||||||||||
| Less: allowance for credit losses | ( | ( | |||||||||
| Receivables, net | $ | $ | |||||||||
9
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
6. Long-term Debt and Fair Value of Financial Instruments
Long-term debt consists of the following:
| October 7, 2023 | December 31, 2022 | ||||||||||
| $ | $ | — | |||||||||
| — | |||||||||||
Revolving credit facility | |||||||||||
| $ | $ | ||||||||||
| Less: Current portion of long-term debt | ( | ||||||||||
| Long-term debt, excluding the current portion | $ | $ | |||||||||
| Fair value of long-term debt | $ | $ | |||||||||
Fair Value of Financial Assets and Liabilities
The fair value of our senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The carrying amounts of our Cash and cash equivalents, Receivables, net, Accounts payable and Accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.
Bank Debt
On February 27, 2023, we entered into Amendment No. 1 (the “Amendment No. 1”) to the Credit Agreement dated November 9, 2021, with Advance Auto Parts, Inc., as Borrower, Advance Stores Company, Incorporated, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “2021 Credit Agreement”). Amendment No. 1 extended the maturity date of the 2021 Credit Agreement by one year from November 9, 2026, to November 9, 2027 and replaced an adjusted LIBOR benchmark rate with a term secured overnight financing rate benchmark rate, as adjusted by an increase of ten basis points, plus the applicable margin under the 2021 Credit Agreement. Amendment No. 1 made no other material changes to the terms of the 2021 Credit Agreement. On August 21, 2023, we entered into Amendment No. 2 (“Amendment No. 2”) to the 2021 Credit Agreement in order to amend certain financial covenants related to the Consolidated Coverage Ratio (as defined therein). Pursuant to Amendment No. 2, we will not permit the Consolidated Coverage Ratio for each period of four fiscal quarters to be less than (a) 1.75 to 1.00 for quarters ending on October 7, 2023 and December 30, 2023, (b) 2.0 to 1.00 for quarters ending on April 20, 2024 through and including the quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for quarters ending after October 4, 2025. Amendment No. 2 made no other material changes to the terms of the 2021 Credit Agreement. On November 20, 2023, we entered into Amendment No. 3 (“Amendment No. 3”) to the 2021 Credit Agreement to further amend certain financial covenants related to the Consolidated Coverage Ratio. Refer to Note 14. Subsequent Event for further details.
As of October 7, 2023, we had no outstanding borrowings, $1.2 billion of borrowing availability and no letters of credit outstanding under the 2021 Credit Agreement. As of December 31, 2022, we had $185.0 million outstanding borrowings, $1.0 billion of borrowing availability and no letters of credit outstanding under the 2021 Credit Agreement.
10
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
As of October 7, 2023 and December 31, 2022, we had $91.0 million and $90.2 million of bilateral letters of credit issued separately from the 2021 Credit Agreement, none of which were drawn upon. These bilateral letters of credit generally have a term of one year or less and primarily serve as collateral for our self-insurance policies.
Senior Unsecured Notes
Our 3.90 % senior unsecured notes due April 15, 2030 (the “Original Notes”) were issued April 16, 2020, at 99.65 % of the principal amount of $500.0 million, and were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The Original Notes bear interest, payable semi-annually in arrears on April 15 and October 15, at a rate of 3.90 % per year. On July 28, 2020, we completed an exchange offer whereby the Original Notes in the aggregate principal amount of $500.0 million were exchanged for a like principal amount (the “Exchange Notes” or “2030 Notes”), and which have been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except the Exchange Notes are registered under the Securities Act and are not subject to the transfer restrictions and certain registration rights agreement provisions applicable to the Original Notes.
Our 1.75 % senior unsecured notes due October 1, 2027 (the “2027 Notes”) were issued September 29, 2020, at 99.67 % of the principal amount of $350.0 million. The 2027 Notes bear interest, payable semi-annually in arrears on April 1 and October 1, at a rate of 1.75 % per year. In connection with the 2027 Notes offering, we incurred $2.9 million of debt issuance costs.
Our 3.50 % senior unsecured notes due 2032 (the “2032 Notes”) were issued March 4, 2022, at 99.61 % of the principal amount of $350.0 million. The 2032 Notes bear interest, payable semi-annually in arrears on March 15 and September 15, at a rate of 3.50 % per year. In connection with the 2032 Notes offering, we incurred $3.2 million of debt issuance costs.
Our 5.90 % senior unsecured notes due March 9, 2026 (the “2026 Notes”) were issued March 9, 2023, at 99.94 % of the principal amount of $300.0 million. The 2026 Notes bear interest, payable semi-annually in arrears on March 9 and September 9, at a rate of 5.90 % per year. In connection with the 2026 Notes offering, we incurred $1.6 million of debt issuance costs.
Our 5.95 % senior unsecured notes due March 9, 2028 (the “2028 Notes”) were issued March 9, 2023, at 99.92 % of the principal amount of $300.0 million. The 2028 Notes bear interest, payable semi-annually in arrears on March 9 and September 9, at a rate of 5.95 % per year. In connection with the 2028 Notes offering, we incurred $1.7 million of debt issuance costs.
We may redeem some or all of our 2026 Notes and 2028 Notes (the “Notes”) at any time, or from time to time, prior to March 9, 2026 in the case of our 2026 Notes, or February 9, 2028 in the case of our 2028 Notes, at the redemption price described in the related indenture for the Notes (the “Indenture”). In the event of a change of control triggering event, as defined in the Indenture, we will be required to offer the repurchase of the Notes at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. Currently, the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated unsecured basis by guarantor and subsidiary guarantees, as defined by the Indenture.
11
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
7. Leases
Substantially all of our leases are for facilities and vehicles. The initial term for facilities is typically to ten years , with renewal options typically at five-year intervals, and the exercise of lease renewal options at our sole discretion. Our vehicle and equipment lease terms are typically to six years . Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
| Twelve Weeks Ended | Forty Weeks Ended | ||||||||||||||||||||||
| October 7, 2023 | October 8, 2022 | October 7, 2023 | October 8, 2022 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | |||||||||||||||||||
Other information relating to our lease liabilities is as follows:
| Forty Weeks Ended | |||||||||||
| October 7, 2023 | October 8, 2022 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | $ | |||||||||
8. Share Repurchase Program
Our Board of Directors had previously authorized a total aggregate of $2.7 billion for our share repurchase program. Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time.
During the twelve weeks ended and forty weeks ended October 7, 2023, we did not purchase any shares of our common stock under our share repurchase program. During the twelve weeks ended October 8, 2022, we repurchased 0.4 million shares at an aggregate cost of $75.0 million, or an average price of $168.93 per share. During the forty weeks ended October 8, 2022, we repurchased 2.5 million shares of our common stock under our share repurchase program at an aggregate cost of $523.2 million, or an average price of $207.50 per share. We had $947.3 million remaining under our share repurchase program as of October 7, 2023.
12
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
9. Earnings per Share
The computations of basic and diluted earnings per share were as follows:
| Twelve Weeks Ended | Forty Weeks Ended | ||||||||||||||||||||||
| October 7, 2023 | October 8, 2022 | October 7, 2023 | October 8, 2022 | ||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
Net (loss) income applicable to common shares | $ | ( | $ | $ | $ | ||||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Basic weighted-average common shares | |||||||||||||||||||||||
| Dilutive impact of share-based awards | |||||||||||||||||||||||
Diluted weighted-average common shares (1) | |||||||||||||||||||||||
Basic (loss) earnings per common share | $ | ( | $ | $ | $ | ||||||||||||||||||
Diluted (loss) earnings per common share | $ | ( | $ | $ | $ | ||||||||||||||||||
(1)For the twelve weeks ended October 7, 2023 and October 8, 2022, 515 thousand and 163 thousand restricted stock units (“RSUs”) were excluded from the diluted calculation as their inclusion would have been anti-dilutive. For the forty weeks ended October 7, 2023 and October 8, 2022, 299 thousand and 122 thousand RSUs were excluded from the diluted calculation as their inclusion would have been anti-dilutive.
10. Share-Based Compensation
During the twelve weeks ended October 7, 2023, we granted 133 thousand time-based RSUs and 150 thousand stock options. During the forty weeks ended October 7, 2023, we granted 546 thousand time-based RSUs, 22 thousand performance-based RSUs, 73 thousand market-based RSUs and 298 thousand stock options. The general terms of the time-based and market-based RSUs are similar to awards previously granted by us. The performance-based RSUs granted may vest following a one-year period subject to the achievement of certain financial goals and employment service as specified in the grant agreement. We grant options to purchase common stock to certain employees under our 2023 Omnibus Incentive Compensation Plan, which recently replaced our 2014 Long-Term Incentive Plan (the “Prior Plan”). Options issued prior to June 2023 were granted under the Prior Plan. The general terms of the stock options will be similar to awards previously granted. We record compensation expense for the grant date fair value of the option awards evenly over the vesting period.
The weighted-average fair values of the time-based RSUs granted during the twelve weeks ended October 7, 2023 were $61.19 per share. The weighted-average fair values of the time-based, performance-based and market-based RSUs granted during the forty weeks ended October 7, 2023 were $95.09 , $135.13 and $139.75 per share. The fair value of each market-based RSU was determined using a Monte Carlo simulation model. For time-based and performance-based RSUs, the fair value of each award was determined based on the market price of our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable.
13
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
The weighted-average fair value of stock options granted during the twelve weeks ended October 7, 2023 was $23.49 per share. The weighted-average fair value of stock options granted during the forty weeks ended October 7, 2023 was $29.39 per share. The fair value was estimated on the date of grant by applying the Black-Scholes option-pricing valuation model.
| Twelve Weeks Ended | Forty Weeks Ended | |||||||||||||
| October 7, 2023 | October 7, 2023 | |||||||||||||
Risk-free interest rate (1) | % | - | % | |||||||||||
Expected term (2) | ||||||||||||||
Expected volatility (3) | % | - | % | |||||||||||
Expected dividend yield (4) | % | - | % | |||||||||||
(1) The risk-free interest rate is based on the yield in effect at grant for zero-coupon U.S. Treasury notes with maturities equivalent to the expected term of the stock options.
(2) The expected term represents the period of time options granted are expected to be outstanding. As we do not have sufficient historical data, we utilized the simplified method provided by the SEC to calculate the expected term as the average of the contractual term and vesting period.
(3) Expected volatility is the measure of the amount by which the stock price has fluctuated or is expected to fluctuate. We utilized historical trends and the implied volatility of our publicly traded financial instruments in developing the volatility estimate for our stock options.
(4) The expected dividend yield is calculated based on our expected quarterly dividend and the three month average stock price as of the grant date.
The total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 7, 2023 was $2.6 million and $9.1 million, respectively. As of October 7, 2023, there was $83.1 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted-average period of 1.6 years.
11. Supplier Finance Programs
We maintain supply chain financing agreements with third-party financial institutions to provide our suppliers with enhanced receivables options. Through these agreements, our suppliers, at their sole discretion, may elect to sell their receivables due from us to the third-party financial institution at terms negotiated between the supplier and the third-party financial institution. We do not provide any guarantees to any third party in connection with these financing arrangements. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted, and no assets are pledged under the agreements. All outstanding amounts due to third-party financial institutions related to suppliers participating in such financing arrangements are recorded within Accounts payable and represent obligations outstanding under these supplier finance programs for invoices that were confirmed as valid and owed to the third-party financial institutions in our Condensed Consolidated Balance Sheets. As of October 7, 2023 and December 31, 2022, $3.2 billion and $3.2 billion of our Accounts payable were to suppliers participating in these financing arrangements.
12. Immaterial Restatement of Prior Period Financial Statements
14
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Condensed Consolidated Balance Sheet | |||||||||||||||||
| October 8, 2022 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Assets | |||||||||||||||||
| Receivables, net | $ | $ | ( | $ | |||||||||||||
| Total current assets | ( | ||||||||||||||||
| Total assets | $ | $ | ( | $ | |||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Accounts payable | $ | $ | ( | $ | |||||||||||||
| Accrued expenses | |||||||||||||||||
| Total current liabilities | ( | ||||||||||||||||
| Total liabilities | ( | ||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||||||||
| Retained earnings | ( | ||||||||||||||||
| Total stockholders’ equity | |||||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ( | $ | |||||||||||||
Condensed Consolidated Balance Sheet | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Assets | |||||||||||||||||
| Inventories, net | $ | $ | ( | $ | |||||||||||||
| Total current assets | ( | ||||||||||||||||
| Total assets | $ | $ | ( | $ | |||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Accounts payable | $ | $ | $ | ||||||||||||||
| Accrued expenses | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Retained earnings | ( | ||||||||||||||||
| Total stockholders’ equity | ( | ||||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ( | $ | |||||||||||||
15
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Condensed Consolidated Balance Sheet | |||||||||||||||||
| April 22, 2023 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Accounts payable | $ | $ | $ | ||||||||||||||
| Accrued expenses | ( | ||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Retained earnings | ( | ||||||||||||||||
| Total stockholders’ equity | $ | $ | ( | $ | |||||||||||||
Condensed Consolidated Balance Sheet | |||||||||||||||||
| July 15, 2023 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Accounts payable | $ | $ | $ | ||||||||||||||
| Accrued expenses | ( | ||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Retained earnings | ( | ||||||||||||||||
| Total stockholders’ equity | $ | $ | ( | $ | |||||||||||||
16
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Condensed Consolidated Statements of Operations | ||||||||||||||||||||||||||
| October 8, 2022 | ||||||||||||||||||||||||||
| Twelve Weeks Ended | Forty Weeks Ended | |||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | As Previously Reported | Adjustments | As Corrected | |||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Gross profit | ( | ( | ||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Operating income | ( | ( | ||||||||||||||||||||||||
| Other (expense) income, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Total other, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Income before provision for income taxes | ( | |||||||||||||||||||||||||
| Provision for income taxes | ( | |||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||
| Basic weighted average shares | — | — | ||||||||||||||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||
| Diluted weighted average shares | — | — | ||||||||||||||||||||||||
Condensed Consolidated Statement of Operations | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Year Ended | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Cost of sales | $ | $ | $ | ||||||||||||||
| Gross profit | ( | ||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||
| Operating income | ( | ||||||||||||||||
| Other (expense) income, net | ( | ( | ( | ||||||||||||||
| Total other, net | ( | ( | ( | ||||||||||||||
| Income before provision for income taxes | ( | ||||||||||||||||
| Provision for income taxes | ( | ||||||||||||||||
| Net income | $ | $ | ( | $ | |||||||||||||
| Basic earnings per share | $ | $ | ( | $ | |||||||||||||
| Basic weighted average shares | — | ||||||||||||||||
| Diluted earnings per common share | $ | $ | ( | $ | |||||||||||||
| Diluted weighted average shares | — | ||||||||||||||||
17
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Condensed Consolidated Statement of Operations | |||||||||||||||||
| April 22, 2023 | |||||||||||||||||
| Sixteen Weeks Ended | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Cost of sales | $ | $ | $ | ||||||||||||||
| Gross profit | ( | ||||||||||||||||
| Selling, general and administrative expenses | ( | ||||||||||||||||
| Operating income | |||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||
| Provision for income taxes | |||||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Basic earnings per share | $ | $ | $ | ||||||||||||||
| Basic weighted average shares | — | ||||||||||||||||
| Diluted earnings per common share | $ | $ | $ | ||||||||||||||
| Diluted weighted average shares | — | ||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||||||||||||
| July 15, 2023 | ||||||||||||||||||||||||||
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | |||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | As Previously Reported | Adjustments | As Corrected | |||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Gross profit | ( | ( | ||||||||||||||||||||||||
| Selling, general and administrative expenses | ( | |||||||||||||||||||||||||
| Operating income | ( | |||||||||||||||||||||||||
| Income before provision for income taxes | ( | |||||||||||||||||||||||||
| Provision for income taxes | ( | |||||||||||||||||||||||||
| Net income | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average shares | — | — | ||||||||||||||||||||||||
| — | — | |||||||||||||||||||||||||
| Diluted earnings per common share | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||
| Diluted weighted average shares | — | — | ||||||||||||||||||||||||
18
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Condensed Consolidated Statements of Comprehensive Income | |||||||||||||||||||||||||||||||||||
| October 8, 2022 | |||||||||||||||||||||||||||||||||||
| Twelve Weeks Ended | Forty Weeks Ended | ||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | As Previously Reported | Adjustments | As Corrected | ||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Total other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Year Ended | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | $ | ( | $ | |||||||||||||
| Currency translation adjustments | ( | ( | |||||||||||||||
| Total other comprehensive loss | ( | ( | |||||||||||||||
| Comprehensive income | $ | $ | ( | $ | |||||||||||||
Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||
| April 22, 2023 | |||||||||||||||||
| Sixteen Weeks Ended | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Comprehensive income | $ | $ | $ | ||||||||||||||
Condensed Consolidated Statements of Comprehensive Income | |||||||||||||||||||||||||||||||||||
| July 15, 2023 | |||||||||||||||||||||||||||||||||||
| Twelve Weeks Ended | Twenty-Eight Weeks Ended | ||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | As Previously Reported | Adjustments | As Corrected | ||||||||||||||||||||||||||||||
| Net income | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Comprehensive income | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
19
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Condensed Consolidated Statements of Changes in Stockholders’ Equity | |||||||||||||||||||||||
Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||
| Twelve Weeks As Previously Reported | |||||||||||||||||||||||
| Balance at July 16, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive loss | ( | — | ( | ||||||||||||||||||||
| Balance at October 8, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Balance at July 16, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive income | — | ||||||||||||||||||||||
| Balance at October 8, 2022 | $ | $ | ( | $ | |||||||||||||||||||
| As Corrected | |||||||||||||||||||||||
Balance at July 16, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive loss | ( | — | ( | ||||||||||||||||||||
| Balance at October 8, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Forty Weeks As Previously Reported | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive loss | ( | — | ( | ||||||||||||||||||||
| Balance at October 8, 2022 | $ | ( | $ | $ | |||||||||||||||||||
Adjustments | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ( | ( | ||||||||||||||||||||
Total other comprehensive income | — | ||||||||||||||||||||||
| Balance at October 8, 2022 | $ | $ | ( | $ | |||||||||||||||||||
As Corrected | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive loss | ( | — | ( | ||||||||||||||||||||
| Balance at October 8, 2022 | $ | ( | $ | $ | |||||||||||||||||||
20
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
| Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||
| Fifty-Two Weeks As Previously Reported | |||||||||||||||||||||||
Balance at January 1, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive loss | ( | — | ( | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net Income | — | ( | ( | ||||||||||||||||||||
Total other comprehensive income | — | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | — | $ | ( | $ | ( | |||||||||||||||||
| As Corrected | |||||||||||||||||||||||
Balance at January 1, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Net income | — | ||||||||||||||||||||||
Total other comprehensive loss | ( | — | ( | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | $ | |||||||||||||||||||
| Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||
| Sixteen Weeks As Previously Reported | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
Balance at April 22, 2023 | $ | $ | |||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | ( | |||||||||||||||||||
| Net Income | |||||||||||||||||||||||
Balance at April 22, 2023 | $ | ( | $ | ( | |||||||||||||||||||
| As Corrected | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
Balance at April 22, 2023 | $ | $ | |||||||||||||||||||||
21
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
| Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||
Twelve Weeks As Previously Reported | |||||||||||||||||||||||
Balance at April 22, 2023 | $ | $ | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
Balance at July 15, 2023 | $ | $ | |||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
Balance at April 22, 2023 | $ | ( | $ | ( | |||||||||||||||||||
| Net Income | ( | ( | |||||||||||||||||||||
Balance at July 15, 2023 | $ | ( | $ | ( | |||||||||||||||||||
| As Corrected | |||||||||||||||||||||||
| Balance at April 22, 2023 | $ | $ | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
Balance at July 15, 2023 | $ | $ | |||||||||||||||||||||
Twenty-Eight Weeks As Previously Reported | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Balance at July 15, 2023 | $ | $ | |||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | ( | |||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Balance at July 15, 2023 | $ | ( | $ | ( | |||||||||||||||||||
| As Corrected | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | |||||||||||||||||||||
Net Income | |||||||||||||||||||||||
Balance at July 15, 2023 | $ | $ | |||||||||||||||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||
| Forty Weeks Ended October 8, 2022 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | $ | ( | $ | |||||||||||||
| Net change in: | |||||||||||||||||
| Receivables, net | ( | ( | ( | ||||||||||||||
| Inventories, net | ( | ( | |||||||||||||||
| Accounts payable | ( | ||||||||||||||||
| Accrued expenses | $ | ( | $ | $ | ( | ||||||||||||
22
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||
| Fifty-Two Weeks Ended December 31, 2022 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | $ | ( | $ | |||||||||||||
| Net change in: | |||||||||||||||||
| Receivables, net | ( | ||||||||||||||||
| Inventories, net | ( | ( | |||||||||||||||
| Accounts payable | |||||||||||||||||
| Accrued expenses | $ | ( | $ | $ | ( | ||||||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||
| Sixteen Weeks Ended April 22, 2023 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Net change in: | |||||||||||||||||
| Inventories, net | ( | ( | ( | ||||||||||||||
| Accounts payable | ( | ( | |||||||||||||||
| Accrued expenses | $ | $ | ( | $ | |||||||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||
| Twenty-Eight Weeks ended July 15, 2023 | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Net change in: | |||||||||||||||||
| Inventories, net | ( | ( | ( | ||||||||||||||
| Accounts payable | ( | ( | |||||||||||||||
| Accrued expenses | $ | $ | ( | $ | |||||||||||||
13. Other Contingency
In the normal course of business, the Company identified a potential discrepancy in trade compliance pertaining to customs transactions. The Company is conducting a thorough review of transactions, and if the review identifies any relevant errors, the Company will reimburse U.S. Customs and Border Protection (“CBP”) for duties, fees and interest owed, if any. The Company has submitted a voluntary initial prior disclosure with the CBP. Based on currently known information, it is too early for management to reasonably estimate the loss, or range of loss, if any, that may result. Accordingly, management has not recorded a loss contingency as of October 7, 2023, related to this matter.
14. Subsequent Event
On November 20, 2023, we entered into Amendment No. 3 to further amend financial covenants related to the Consolidated Coverage Ratio (as defined therein). Pursuant to Amendment No. 3, we will not permit the Consolidated Coverage Ratio to be less than (a) 1.75 to 1.00 for each period of four fiscal quarters ending on October 7, 2023 through and including the period of four fiscal quarters ending on October 5, 2024, (b) 2.0 to 1.00
23
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
for each period of four fiscal quarters ending on December 28, 2024 through and including the period of four fiscal quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for each period of four fiscal quarters ending after October 4, 2025. Amendment No. 3 made no other material changes to the terms of the 2021 Credit Agreement.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (filed with the SEC on February 28, 2023), which we refer to as our 2022 Form 10-K, and our condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report.
Management Overview
A high-level summary of our financial results for the third quarter of 2023 included:
•Net sales during the third quarter of 2023 was $2.72 billion, an increase of 2.9% compared with the third quarter of 2022. Comparable store sales increased 1.2% compared with the third quarter of 2022, primarily driven by an increase in demand within our professional business, and partially offset by a decrease in our DIY omnichannel business.
•Gross profit margin for the third quarter of 2023 was 36.3% of Net sales, a decrease of 836 basis points compared with the third quarter of 2022. Gross profit margin was negatively impacted by higher product costs, a change in estimate for reserves that resulted in a $119.0 million reduction of inventory and associated charges and supply chain deleverage. This was offset by a reduction in LIFO expense.
•Selling, General & Administrative (“SG&A”) expenses for the third quarter of 2023 were 37.9% of Net sales, a twenty-eight-basis-point improvement compared with the third quarter of 2022.
•Diluted loss per share was $0.82 in the third quarter of 2023, compared with Diluted earnings per share of $1.92 in the third quarter of 2022.
Business Update
We have been executing various initiatives to improve the customer experience, expand margins and drive consistent execution for both professional and DIY customers, including:
•Continued refinement of a demand-based assortment, leveraging purchase and search history from our common catalog.
•Advancement towards optimizing our footprint by market to drive share, repurpose our in-market store and asset base and streamline our distribution network.
•Progress in the implementation of a more efficient and optimized end-to-end supply chain to deliver our broad assortment of inventory.
•Continued negotiations with vendors on strategic sourcing and pricing to help mitigate inflationary pressures.
•Rationalization of product assortment.
As previously disclosed, in the third quarter of 2023, we initiated a comprehensive operational and strategic review of our business to help improve execution and position Advance for long-term success and increased shareholder value. We have identified and are pursuing cost reductions that we expect will generate at least $150 million in savings on an annualized basis, of which, we intend to invest approximately $50 million in employee compensation and training with a clear focus on improving the retention of our frontline team members. We have also announced that we are initiating separate sale processes for Worldpac and the Canadian Carquest portions of our business. Our operational and strategic review progress is ongoing.
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Industry Update
Operating within the automotive aftermarket industry, we are impacted by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry, and include but are not limited to:
•Inflationary pressures, including logistics and labor
•Global supply chain disruptions
•Rising fuel costs
•Miles driven
•Unemployment rates
•Consumer confidence and purchasing power
•Competition
•Changes in new car sales
•Economic and geopolitical uncertainty
•Increased foreign currency exchange volatility
Stores and Branches
Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, competitive landscape and the cost of real estate. During the forty weeks ended October 7, 2023, 51 stores and branches were opened and 32 were closed, resulting in a total of 5,105 stores and branches compared with a total of 5,086 stores and branches as of December 31, 2022.
Results of Operations
Twelve Weeks Ended | $ Favorable/ (Unfavorable) | Basis Points | |||||||||||||||||||||||||||||||||
| ($ in millions) | October 7, 2023 | October 8, 2022 (1) | |||||||||||||||||||||||||||||||||
| Net sales | $ | 2,719.1 | 100.0 | % | $ | 2,641.3 | 100.0 | % | $ | 77.8 | — | ||||||||||||||||||||||||
| Cost of sales | 1,732.4 | 63.7 | 1,462.1 | 55.4 | (270.3) | (836) | |||||||||||||||||||||||||||||
| Gross profit | 986.7 | 36.3 | 1,179.2 | 44.6 | (192.5) | (836) | |||||||||||||||||||||||||||||
| SG&A | 1,030.4 | 37.9 | 1,008.2 | 38.2 | (22.2) | 28 | |||||||||||||||||||||||||||||
Operating (loss) income | (43.7) | (1.6) | 171.0 | 6.5 | (214.7) | (808) | |||||||||||||||||||||||||||||
| Interest expense | (19.4) | (0.7) | (12.0) | (0.5) | (7.4) | (26) | |||||||||||||||||||||||||||||
Other expense, net | (1.2) | 0.0 | (5.1) | (0.2) | 3.9 | 15 | |||||||||||||||||||||||||||||
Provision for income taxes | (15.7) | (0.6) | 38.0 | 1.4 | 53.7 | 202 | |||||||||||||||||||||||||||||
Net (loss) income | $ | (48.6) | (1.8) | % | $ | 115.9 | 4.4 | % | $ | (164.5) | (617) | ||||||||||||||||||||||||
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| Forty Weeks Ended | $ Favorable/ (Unfavorable) | Basis Points | |||||||||||||||||||||||||||||||||
| ($ in millions) | October 7, 2023 | October 8, 2022 (1) | |||||||||||||||||||||||||||||||||
| Net sales | $ | 8,822.7 | 100.0 | % | $ | 8,681.0 | 100.0 | % | $ | 141.7 | — | ||||||||||||||||||||||||
| Cost of sales | 5,220.2 | 59.2 | 4,821.0 | 55.5 | (399.2) | (363) | |||||||||||||||||||||||||||||
| Gross profit | 3,602.5 | 40.8 | 3,860.0 | 44.5 | (257.5) | (363) | |||||||||||||||||||||||||||||
SG&A | 3,407.4 | 38.6 | 3,302.0 | 38.0 | (105.4) | (58) | |||||||||||||||||||||||||||||
| Operating income | 195.1 | 2.2 | 558.0 | 6.4 | (362.9) | (422) | |||||||||||||||||||||||||||||
| Interest expense | (70.0) | (0.8) | (35.1) | (0.4) | (34.9) | (39) | |||||||||||||||||||||||||||||
| Loss on early redemptions of senior unsecured notes | — | 0.0 | (7.4) | (0.1) | 7.4 | 9 | |||||||||||||||||||||||||||||
Other expense, net | (0.2) | 0.0 | (5.3) | (0.1) | 5.1 | 6 | |||||||||||||||||||||||||||||
| Provision for income taxes | 34.6 | 0.4 | 123.4 | 1.4 | 88.8 | 103 | |||||||||||||||||||||||||||||
| Net income | $ | 90.2 | 1.0 | % | $ | 386.8 | 4.5 | % | $ | (296.5) | (343) | ||||||||||||||||||||||||
Note: Table amounts may not foot due to rounding.
(1) We revised prior Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income to correct certain errors impacting cost of sales and SG&A costs. For additional information, refer to Notes 1 and 12 of the Notes to the Condensed Consolidated Financial Statements included herein.
Net Sales
Net sales for the twelve weeks ended October 7, 2023 increased 2.9% compared with the same period in 2022, driven predominately by product mix and strength in the professional business. Comparable store sales increased 1.2% for the twelve weeks ended October 7, 2023 compared with the twelve weeks ended October 8, 2022, primarily driven by an increase in demand within our professional business, and partially offset by a decrease in our DIY omnichannel business. From a category perspective, we saw strength in filters, engine management, motor oil and batteries.
Net sales for the forty weeks ended October 7, 2023 increased 1.6% compared with the same period in 2022, driven predominately by new store openings and favorable product mix. Comparable store sales was flat for the forty weeks ended October 7, 2023 compared with the forty weeks ended October 8, 2022. Category growth was led by motor oil and brakes.
We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales. Sales to independently owned Carquest stores are excluded from our comparable store sales. Acquired stores are included in our comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date. We include sales from relocated stores in comparable store sales from the original date of opening.
Gross Profit
Gross profit for the twelve weeks ended October 7, 2023 was $986.7 million, or 36.3% of Net sales, compared with $1.18 billion, or 44.6% of Net sales, for the twelve weeks ended October 8, 2022. For the forty weeks ended October 7, 2023 and October 8, 2022, Gross profit was $3.6 billion, or 40.8% of Net sales, and $3.86 billion, or 44.5% of Net sales.
During the twelve and forty weeks ended October 7, 2023, Gross profit margin was negatively impacted by a change in estimate associated with inventory reserves of $119 million. Higher product costs were not fully covered by pricing actions and elevated supply chain costs contributed to gross profit margin decline. This was partially offset by a reduction in LIFO-related expenses.
27
Selling, General and Administrative Expenses
SG&A expenses for the twelve weeks ended October 7, 2023 were $1.03 billion, or 37.9% of Net sales, compared with $1.01 billion, or 38.2% of Net sales, for the twelve weeks ended October 8, 2022.
SG&A expenses for the forty weeks ended October 7, 2023 were $3.41 billion, or 38.6% of Net sales, compared with $3.30 billion, or 38.0% of Net sales, for the forty weeks ended October 8, 2022. The increase in SG&A as a percentage of Net sales was primarily driven by inflation within labor and benefits partially offset by a decrease in new store start-up costs.
Provision for Income Taxes
Our Provision for income taxes for the twelve weeks ended October 7, 2023 was a benefit of $15.7 million compared with an expense of $38.0 million for the twelve weeks ended October 8, 2022. For the forty weeks ended October 7, 2023 and October 8, 2022, our Provision for income taxes was an expense of $34.6 million and $123.4 million. The decrease in tax expense primarily resulted from lower Income before provision for income taxes compared with the prior year.
Our effective tax rate was 24.4% and 24.7% for the twelve weeks ended October 7, 2023 and October 8, 2022. Our effective tax rate was 27.7% and 24.2% for the forty weeks ended October 7, 2023 and October 8, 2022. The higher effective income tax rate for the twelve weeks ended and forty weeks ended October 7, 2023 compared with October 8, 2022 reflected a discrete charge related to share based compensation.
Liquidity and Capital Resources
Overview
Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of our strategic and operational priorities and payment of interest on our long-term debt. Historically, we have also used available funds to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our share repurchase program, to pay our quarterly cash dividend and for acquisitions. However, our future uses of cash may differ, including with respect to the weight we place on the preservation of cash and liquidity, degree of investment in our business and other capital allocation factors.
Typically, we have funded our cash requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowings under our credit facility will be sufficient to fund our obligations for the next year. We also believe such funds, cash and available borrowings, together with our ability to generate cash through credit facilities and notes offerings, as needed, will be sufficient to fund our ongoing obligations.
Our supplier finance programs did not have a material impact on our liquidity or capital resources in the periods presented nor do we expect such arrangements to have a material impact on our liquidity or capital resources for the foreseeable future. However, as further described below, if we experience meaningfully lower supplier or bank participation in our supplier finance programs as a result of a decline in our credit ratings, it may have a material negative impact on our liquidity or capital resources.
28
On March 9, 2023, we issued our 5.90% senior unsecured notes due 2026 (the “2026 Notes”) and our 5.95% senior unsecured notes due 2028 (the “2028 Notes”). Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Condensed Consolidated Financial Statements included herein for further details. Proceeds from our 2026 Notes and 2028 Notes were utilized to make repayments on our revolving facility and supplement operational and capital expenditures.
On February 27, 2023, we entered into Amendment No. 1 (the “Amendment No. 1”) to the Credit Agreement, dated November 9, 2021, with Advance Auto Parts, Inc., as Borrower, Advance Stores Company, Incorporated, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “2021 Credit Agreement”). Amendment No. 1 extends the maturity date of the 2021 Credit Agreement by one year from November 9, 2026, to November 9, 2027. Amendment No. 1 also replaces an adjusted LIBOR benchmark rate with a Term Secured Overnight Financing Rate benchmark rate, as adjusted by an increase of ten basis points, plus the applicable margin under 2021 Credit Agreement. Amendment No. 1 made no other material changes to the terms of the 2021 Credit Agreement. On August 21, 2023, we entered into Amendment No. 2 (“Amendment No. 2”) to the 2021 Credit Agreement in order to amend certain financial covenants related to the Consolidated Coverage Ratio (as defined therein), and on November 20, 2023, we entered into Amendment No. 3 (“Amendment No. 3”) to the 2021 Credit Agreement in order to further amend financial covenants related to the Consolidated Coverage Ratio. Pursuant to Amendment No. 2 and Amendment No. 3, we will not permit the Consolidated Coverage Ratio to be less than (a) 1.75 to 1.00 for each period of four fiscal quarters ending on October 7, 2023 through and including the period of four fiscal quarters ending on October 5, 2024, (b) 2.00 to 1.00 for each period of four fiscal quarters ending on December 28, 2024 through and including the period of four fiscal quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for each period of four fiscal quarters ending after October 4, 2025. Amendment No. 2. and Amendment No. 3 made no other material changes to the terms of the 2021 Credit Agreement.
As of October 7, 2023, we were in compliance with the financial covenants required by our 2021 Credit Agreement. To provide further leverage cushion, we amended the Consolidated Coverage Ratio on November 20, 2023 to a minimum of 1.75 to 1.00 through fiscal quarter ending October 5, 2024. In addition, we are required to maintain a maximum leverage ratio of 3.75 to 1.00. Our compliance with these covenants will depend upon achieving our financial targets including improvements in operating income. Based on management’s current financial projections, we currently expect to be in compliance with these financial covenants for the next 12 months. However, risk of noncompliance increases if our financial performance worsens or we are required to increase borrowings to fund operations. If we are not in compliance with the financial covenants required by our 2021 Credit Agreement, and cannot timely secure an amendment or waiver thereof, we would be in default of our 2021 Credit Agreement and our outstanding senior unsecured notes, which would have a material adverse impact on our financial condition.
Share Repurchase Program
Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time. We will continue our pause on repurchases under our existing share repurchase program for the remainder of 2023 and will continue to evaluate current and expected business conditions with respect to possible resumption of share repurchase activity in 2024.
During the twelve weeks ended and forty weeks ended October 7, 2023, we purchased no shares of our common stock under our share repurchase program. During the twelve weeks ended October 8, 2022, we repurchased 0.4 million shares at an aggregate cost of $75.0 million, or an average price of $168.93 per share. During the forty weeks ended October 8, 2022, we repurchased 2.5 million shares of our common stock under our share repurchase program at an aggregate cost of $523.2 million, or an average price of $207.50 per share. We had $947.3 million remaining under our share repurchase program as of October 7, 2023.
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Analysis of Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities:
| Forty Weeks Ended | |||||||||||
| (in thousands) | October 7, 2023 | October 8, 2022(1) | |||||||||
| Cash flows provided by operating activities | $ | 30,404 | $ | 483,094 | |||||||
| Cash flows used in investing activities | (185,200) | (331,818) | |||||||||
| Cash flows provided by (used in) financing activities | 204,984 | (545,838) | |||||||||
| Effect of exchange rate changes on cash | (1,942) | (15,662) | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 48,246 | $ | (410,224) | |||||||
(1) We revised prior Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income to correct certain errors impacting cost of sales and selling, general and administrative costs. For additional information, refer to Notes 1 and 12 of the Notes to the Condensed Consolidated Financial Statements included herein.
Operating Activities
For the forty weeks ended October 7, 2023, Cash flows provided by operating activities decreased by $452.7 million to $30.4 million compared with the same period of prior year. The net decrease in cash flows provided by operating activities was driven by lower Net income and an increase in cash used in working capital, primarily in Accounts payable.
Investing Activities
For the forty weeks ended October 7, 2023, Cash flows used in investing activities were $185.2 million, a decrease of $146.6 million compared with the same period of prior year. The decrease in cash used in investing activities was primarily attributable to lower capital spend compared with the prior year.
Financing Activities
For the forty weeks ended October 7, 2023, Cash flows provided by financing activities was $205.0 million, an increase of $750.8 million compared with the same period of prior year. The increase in cash provided by financing activities was attributable to net proceeds received from the issuance of the 2026 Notes and 2028 Notes, a decrease in share repurchases of our common stock and a decrease in dividends paid during the forty weeks ended October 7, 2023.
Our Board of Directors has declared a cash dividend every quarter since 2006. Any payments of dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors.
Long-Term Debt
On March 9, 2023, we issued $300.0 million aggregate principal amount of our 2026 Notes and $300.0 million aggregate principal amount of our 2028 Notes. The 2026 Notes were issued at 99.94% of the principal amount of $300.0 million, are due March 9, 2026 and bear interest at 5.90% per year payable semi-annually in arrears on March 9 and September 9 of each year. The 2028 Notes were issued at 99.92% of the principal amount of $300.0 million, are due March 9, 2028 and bear interest at 5.95% per year payable semi-annually in arrears on March 9 and September 9 of each year.
For additional information, refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Condensed Consolidated Financial Statements included herein.
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As of October 7, 2023, we had a credit rating from Standard & Poor’s of BB+ and from Moody’s Investor Service of Baa2. As of October 7, 2023, the outlooks by Standard & Poor’s and Moody’s on our credit rating were stable and negative, respectively. The current pricing grid used to determine our borrowing rate under the 2021 Credit Agreement is based on our credit ratings. If our credit ratings improve, our interest rate on future borrowings under the Credit Agreement may decrease. However, if our credit ratings further decline, it would negatively impact our interest rate, and our access to additional financing on favorable terms may be limited. In addition, further decline in our credit ratings would likely reduce the attractiveness of our supplier finance programs, whereby our suppliers are provided financing arrangements based on our credit rating. This could result in significantly lower supplier or bank participation in those programs. Following the downgrade in our credit rating from Standard & Poor’s, certain banks reduced participation in our programs. However, this capacity has been substantially replaced with new participating banks as well as existing participating banks providing increased capacity. Meaningfully lower participation in our supplier payment programs would shorten our payable terms, resulting in an increase in our working capital requirements, and may have a material negative impact on our liquidity or capital resources.
With respect to all senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides full and unconditional guarantee, Advance Stores, a wholly owned subsidiary of the Issuer, serves as the guarantor (“Guarantor Subsidiary”). The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of the Issuer to obtain funds from its Guarantor Subsidiary. Our captive insurance subsidiary, an insignificant wholly owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates.
During the forty weeks ended October 7, 2023, there were no changes to the critical accounting policies discussed in our 2022 Form 10-K. For a complete discussion of our critical accounting policies, refer to the 2022 Form 10-K.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our exposure to market risk since December 31, 2022. Refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 2022 Form 10-K.
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ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the override of controls. Therefore, even those systems determined to be effective can provide only “reasonable assurance” with respect to the reliability of financial reporting and financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of our internal controls may vary over time.
Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of October 7, 2023. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective to accomplish their objectives at the reasonable assurance level solely due to the material weakness described below.
Control Environment
As previously disclosed in our Form 10-Q for the period ended April 22, 2023, management identified a material weakness in our internal control over financial reporting that existed due to turnover of key accounting positions during the first quarter of 2023. The Company was unable to attract, develop and retain sufficient resources to fulfill internal control responsibilities during the first quarter.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Management believes that the Condensed Consolidated Financial Statements and related financial information included in this Form 10-Q present fairly, in all material respects, our balance sheets, statements of operations, comprehensive income and cash flows as of and for the periods presented.
Remediation Efforts to Address the Previously Disclosed Material Weakness
The Company has devoted, and will continue to devote, significant time and resources to execute our plan to remediate the aforementioned material weakness and enable us to conclude full remediation once these steps have been completed and are operating effectively. The following components of the remediation plan, among others, have been executed:
•Hired experienced personnel (both permanent employees and contract labor) with the requisite accounting and internal controls knowledge and experience to sufficiently complement the existing global controllership organization;
•Engaged a third-party consultant to review the organizational structure of the global controllership function;
•Assessed our methodologies, policies and procedures to ensure adequate design and effectiveness of processes supporting internal control over financial reporting;
32
•Assessed the specific training needs for newly hired and existing personnel and developed and delivered training programs, designed to uphold our internal controls standards; and
•Following the departure of the Company’s Chief Financial Officer during the third fiscal quarter, hired a new Chief Financial Officer who will begin employment with the Company on November 27, 2023.
The Company is continuing to implement its remediation plan, including its determination if additional updates are appropriate in the enumerated points above. As previously disclosed, the Company’s Chief Accounting Officer resigned from the Company effective October 18, 2023. The Company is actively searching for a new Chief Accounting Officer. In accordance with the Company’s defined internal controls policies, the material weakness will not be considered fully remediated until the remediation actions, including those bulleted above and any other determined to be appropriate, have been completed and have operated effectively for a sufficient period of time. The Company is committed to validating that the changes implemented are operating as intended within our remediation plan.
Changes in Internal Control Over Financial Reporting
Except for the changes described above, there has been no change in the Company’s internal control over financial reporting during the third quarter ended October 7, 2023 that has materially affected or is reasonably likely to materially affect its internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
33
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
On October 9, 2023 and October 27, 2023, respectively, two putative class actions on behalf of purchasers of our securities who purchased or otherwise acquired their securities between November 16, 2022 and May 30, 2023, inclusive (the “Class Period”), were commenced against us and certain of our former officers in the United States District Court for the Eastern District of North Carolina. The plaintiffs allege that the defendants made certain false and materially misleading statements during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. These cases are still in preliminary stages and we expect that they will be consolidated. We strongly dispute the allegations of the complaints and intend to defend the case vigorously.
ITEM 1A.RISK FACTORS
We are exposed to risks associated with our potential divestitures, which may impact our ability to fully realize the anticipated benefits of those transactions.
We recently announced our intention to divest our Worldpac business and Carquest Canada business in separate sales processes as part of our strategic review. There can be no assurance that we will be able to complete these transactions. Divestitures are complex transactions involving inherent risks, including the potential for distractions of management from the core remaining business of the Company and the occurrence of events that may impact our ability to fully realize the anticipated benefits of the divestitures. We have not yet set a timetable for the sale processes, but transactions of this nature carry risks associated to variation from expectations with respect to expense, timing and post-closing claims for liability. If any of these risks materialize, the benefits of such divestitures may not be fully realized, if at all, which could adversely affect our business, financial condition, results of operations and cash flows.
Please refer to “Item 1A. Risk Factors” found in our 2022 Form 10-K filed for the year ended December 31, 2022 for other risks identified that, if they were to occur, could materially adversely affect our business, financial condition, results of operations, cash flows and future prospects, which could in turn materially affect the price of our common stock.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth the information with respect to repurchases of our common stock for the quarter ended October 7, 2023:
Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | |||||||||||||||||||||||
| July 16, 2023 to August 12, 2023 | 50 | $ | 73.05 | — | $ | 947,338,896 | ||||||||||||||||||||
| August 13, 2023 to September 9, 2023 | 6,272 | $ | 67.77 | — | $ | 947,338,896 | ||||||||||||||||||||
| September 10, 2023 to October 7, 2023 | 6 | $ | 57.60 | — | $ | 947,338,896 | ||||||||||||||||||||
| Total | 6,328 | $ | 67.80 | — | ||||||||||||||||||||||
(1)The aggregate cost of repurchasing shares in connection with the net settlement of shares issued as a result of the vesting of restricted stock units was $0.4 million, or an average price of $67.80 per share, during the twelve weeks ended October 7, 2023.
34
ITEM 5. OTHER INFORMATION
During the twelve weeks ended October 7, 2023, no “Rule 10b5-1 trading arrangements” were adopted or terminated by the Company’s officers or directors and no “non-Rule 10b5-1 trading arrangements” were adopted or terminated by the Company’s officers or directors during the twelve weeks ended October 7, 2023, as each term is defined in Item 408 of Regulation S-K.
35
ITEM 6.EXHIBITS
| Incorporated by Reference | ||||||||||||||
| Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date | ||||||||||
| 10-Q | 3.1 | 8/14/2018 | ||||||||||||
| 8-K | 3.2 | 8/14/2023 | ||||||||||||
| 8-K | 10.1 | 8/23/2023 | ||||||||||||
| 8-K | 10.1 | 8/23/2023 | ||||||||||||
| 8-K | 10.1 | 8/23/2023 | ||||||||||||
| 10-Q | 10.1 | 8/23/2023 | ||||||||||||
* | * | * | ||||||||||||
| 10-Q | 22.1 | 8/23/2023 | ||||||||||||
31.1* | ||||||||||||||
31.2* | ||||||||||||||
32.1** | ||||||||||||||
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||||||||
| 104.1* | Cover Page Interactive Data file (Embedded within Inline XBRL Documents and Included in Exhibit 101). | |||||||||||||
* Filed herewith
** Furnished herewith
36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADVANCE AUTO PARTS, INC. | ||||||||
| Date: November 21, 2023 | /s/ Anthony A. Iskander | |||||||
| Anthony A. Iskander Interim Chief Financial Officer, Senior Vice President, Finance and Treasurer | ||||||||
37
Exhibit 10.5
EXECUTION COPY
AMENDMENT NO. 3 TO THE
CREDIT AGREEMENT
Dated as of November 20, 2023
AMENDMENT NO. 3 TO THE CREDIT AGREEMENT (this “Amendment”) among ADVANCE AUTO PARTS, INC., a Delaware corporation (the “Borrower”), ADVANCE STORES COMPANY, INCORPORATED, a Virginia corporation (the “Company”), the LENDERS party hereto, and BANK OF AMERICA, N.A., as Administrative Agent.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Company, the Lenders and the Administrative Agent have entered into a Credit Agreement dated as of November 9, 2021 (as amended by Amendment No. 1 dated as of February 27, 2023 and Amendment No. 2 dated as of August 21, 2023, the “Credit Agreement”). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement.
(2) The Borrower has requested certain amendments to the Credit Agreement, and the parties hereto agree to such amendments as set forth in, and in accordance with the terms and conditions of, this Amendment (the Credit Agreement as so amended, the “Amended Credit Agreement”).
SECTION 1.Amendment to Credit Agreement. As of the date first above written but subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Required Lenders and the Borrower hereby agree to amend Section 6.09 of the Credit Agreement in full to read as follows:
SECTION 6.09. Consolidated Coverage Ratio. The Borrower will not permit the Consolidated Coverage Ratio to be less than (a) 1.75 to 1.00 for each period of four fiscal quarters ending on October 7, 2023 through and including the period of four fiscal quarters ending on October 5, 2024, (b) 2.0 to 1.00 for each period of four fiscal quarters ending on December 28, 2024 through and including the period of four fiscal quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for each period of four fiscal quarters ending after October 4, 2025.
SECTION 2.Conditions of Effectiveness of Section 1. Section 1 of this Amendment shall become effective, as of the date first above written, on the date on which each of the following conditions precedent shall have been satisfied or waived:
(a)The Administrative Agent shall have received counterparts of this Amendment executed by the Borrower, the Company and the Required Lenders; and
(b)The Borrower shall have paid all accrued and invoiced fees and expenses of the Administrative Agent and the Lenders associated with this Amendment (including an
amendment fee equal to 0.03% of the Commitment of each Lender that executes this Amendment and the accrued and invoiced fees and expenses of Shearman & Sterling LLP, counsel to the Administrative Agent).
SECTION 3.Representations and Warranties of the Borrower. The Borrower represents and warrants as of the date hereof as follows:
(a) no Default exists; and
(b) the representations and warranties contained in Article III of the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date (other than any such representation and warranty that is already qualified by materiality or “Material Adverse Effect” in the text thereof, in which case such representation and warranty shall be true and correct in all respects), and except that for purposes of this Amendment, the representations and warranties contained in subsections (a) and (c) of Section 3.04 of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to subsections (a) and (b), respectively, of Section 5.01 of the Credit Agreement).
SECTION 4.Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Amended Credit Agreement.
(a) The Credit Agreement and the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.
(b) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under the Credit Agreement or any other Loan Document, nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document.
(c) This Amendment is subject to the provisions of Section 9.02 of the Credit Agreement and shall be deemed to constitute a Loan Document.
SECTION 5.Costs and Expenses. The Borrower shall pay all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the preparation and administration of this Amendment in accordance with the terms of Section 9.03 of the Credit Agreement.
SECTION 6.Execution in Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.
SECTION 7.Governing Law. This Amendment shall be construed in accordance with and governed by the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.
| ADVANCE AUTO PARTS, INC., | |||||
| by | |||||
| /s/ Anthony A. Iskander | |||||
| Name: Anthony A. Iskander | |||||
| Title: Interim Chief Financial Officer, Senior Vice President, Finance and Treasurer | |||||
| ADVANCE STORES COMPANY, INCORPORATED, | |||||
| by | |||||
| /s/ Anthony A. Iskander | |||||
| Name: Anthony A. Iskander | |||||
| Title: Interim Chief Financial Officer, Senior Vice President, Finance and Treasurer | |||||
| BANK OF AMERICA, N.A., as Administrative Agent, | |||||
| by | |||||
| /s/ Angela Berry | |||||
| Name: Angela Berry | |||||
| Title: Assistant Vice President | |||||
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: BANK OF AMERICA, N.A.
| by | /s/ Robert D. Davis III | ||||
| Name: Robert D. Davis III | |||||
| Title: Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: JPMORGAN CHASE BANK, N.A.
| by | /s/ Eduardo Lopez Peiro | ||||
| Name: Eduardo Lopez Peiro | |||||
| Title: Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: TRUIST BANK
| by | /s/ Alysa Trakas | ||||
| Name: Alysa Trakas | |||||
| Title: Director | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: U.S. BANK NATIONAL ASSOCIATION:
| by | /s/ Conan Schleicher | ||||
| Name: Conan Schleicher | |||||
| Title: Senior Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: WELLS FARGO BANK, N.A.
| by | /s/ Ryan Tegeler | ||||
| Name: Ryan Tegeler | |||||
| Title: Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: FIFTH THIRD BANK, NATIONAL ASSOCIATION
| by | /s/ Nate Calloway | ||||
| Name: Nate Calloway | |||||
| Title: Associate, Officer | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: PNC BANK, NATIONAL ASSOCIATION
| by | /s/ Stephanie Gray | ||||
| Name: Stephanie Gray | |||||
| Title: Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: CITIBANK, N.A.
| by | /s/ Thomas Vajda | ||||
| Name: Thomas Vajda | |||||
| Title: Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: CITIZENS BANK, N.A.
| by | /s/ Walter Pickell | ||||
| Name: Walter Pickell | |||||
| Title: Managing Director | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: KEYBANK NATIONAL ASSOCIATION
| by | /s/ Marianne T. Meil | ||||
| Name: Marianne T. Meil | |||||
| Title: Sr. Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: TD BANK, N.A., as a Lender
| by | /s/ Bernadette Collins | ||||
| Name: Bernadette Collins | |||||
| Title: Senior Vice President | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
SIGNATURE PAGE
Consent to amend the Credit Agreement as provided in the forgoing Amendment:
Name of Lender: SUMITOMO MITSUI BANKING CORPORATION
| by | /s/ Minxiao Tian | ||||
| Name: Minxiao Tian | |||||
| Title: Director | |||||
[Signature Page to Advance Auto Parts Amendment No. 3]
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shane M. O'Kelly, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Advance Auto Parts, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 21, 2023 | ||
| /s/ Shane M. O'Kelly | ||
| Shane M. O'Kelly | ||
| President and Chief Executive Officer and Director | ||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony A. Iskander, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Advance Auto Parts, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 21, 2023 | ||
| /s/ Anthony A. Iskander | ||
| Anthony A. Iskander | ||
| Interim Chief Financial Officer, Senior Vice President, Finance and Treasurer | ||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Shane O'Kelly, certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. Section 1350, that, to my knowledge, the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. for the quarterly period ended October 7, 2023 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in such Report fairly presents in all material respects the financial condition and results of operations of the Company. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying Report.
| Date: November 21, 2023 | /s/ Shane M. O'Kelly | |||||||
| Shane M. O'Kelly | ||||||||
| President and Chief Executive Officer and Director | ||||||||
I, Anthony A. Iskander, certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. Section 1350, that, to my knowledge, the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. for the quarterly period ended October 7, 2023 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in such Report fairly presents in all material respects the financial condition and results of operations of the Company. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying Report.
| Date: November 21, 2023 | /s/ Anthony A. Iskander | |||||||
| Anthony A. Iskander | ||||||||
| Interim Chief Financial Officer, Senior Vice President, Finance and Treasurer | ||||||||