Summary

• Advance Auto Parts, Inc. is a prominent figure in the automotive aftermarket parts industry within North America. Catering to a diverse clientele including professional installers, “do-it-yourself” (DIY) enthusiasts, and independently owned operators.
• Their stores and branches boast an extensive array of brand names, original equipment manufacturer (OEM) parts, and proprietary automotive replacements. From accessories to batteries, maintenance items to essential components, AAP caters to the needs of domestic and imported vehicles.
• AAP's expansive reach spanned 4,770 total stores and 316 branches, predominantly operating under the well-known trade names of "Advance Auto Parts," "Carquest," and "Worldpac."
• Their supply chain consists of a network of distribution centers, hubs, stores, and branches that enable them to provide same-day or next-day availability to their customers.
• In 2022, the company experienced growth in sales, with total sales reaching $11,154.72 million. This marked an increase of $156.72 million or 1.42% compared to the sales figure of $10,998 million in 2021.
• The company's gross profit for 2022 amounted to $4,962 million, reflecting a difference of $33.25 million or 0.68% from the gross profit of $4,928.75 million in the previous year, 2021.
• Additionally, the company's operating profit decreased in 2022, totaling $714 million, which was lower by $124.72 million or 14.88% compared to the operating profit of $838.72 million in 2021.
• The net profit for the year 2022 was $501.87 million, representing a decrease of $114.13 million or 18.52% compared to the net profit of $616 million in 2021.
• Moreover, the diluted earnings per share (EPS) for 2022 were reported as $8.27, which showed a decrease of $1.28 or 13.4% compared to the diluted EPS of $9.55 in 2021.

Brief Company Overview

Advance Auto Parts, Inc. (NYSE:AAP) stands as a prominent figure in the automotive aftermarket parts industry within North America. Catering to a diverse clientele including professional installers, “do-it-yourself” (DIY) enthusiasts, and independently owned operators, AAP prides itself on its comprehensive offerings. Their stores and branches boast an extensive array of brand names, original equipment manufacturer (OEM) parts, and proprietary automotive replacements. From accessories to batteries, maintenance items to essential components, AAP caters to the needs of domestic and imported vehicles, including cars, vans, SUVs, and both light and heavy-duty trucks. As of December 31, 2022, AAP's expansive reach spanned 4,770 total stores and 316 branches, predominantly operating under the well-known trade names of "Advance Auto Parts," "Carquest," and "Worldpac."

Their supply chain consists of a network of distribution centers, hubs, stores, and branches that enable them to provide same-day or next-day availability to their customers. They operated 50 distribution centers, ranging in size from approximately 57,000 to 943,000 square feet with total square footage of approximately 12.6 million, including one distribution center dedicated to reclamations. Through their integrated operating approach, they serve their professional and DIY customers through a variety of channels ranging from traditional “brick and mortar” store locations to self-service e-commerce sites. Their DIY customers are primarily served through their stores, but can also order online to pick up merchandise at a conveniently located store or have their purchases shipped directly to them. Key factors in selecting sites and market locations in which they operate include population, demographics, traffic count, vehicle profile, competitive landscape, and the cost of real estate.

As of December 2023, the company had a 52-week share price range of $149.17 to $47.73. The forwarding P/E ratio of the company is 16.72 times, the price-to-sales ratio (ttm) is .32 times, the profit margin is 1.82%, the operating margin is -1.61%, the return on assets (ttm) is 2%, the return on equity is 7.66%, and the diluted earnings per share (ttm) is $3.44. As of July 16, 2022, the aggregate market value of common stock held by non-affiliates of the registrant was $11,302,276,702. As of February 24, 2023, the number of shares of the registrant’s common stock outstanding was 59,273,781 shares.

Recent Developments

• In November 2023, Advance Auto Parts announced its initiative to reduce costs by $150 million and disclosed plans to sell two subsidiaries. The company revealed its intention to divest its Canadian business and its Worldpac parts operation.¹

Recent Financing Activities

• On August 21, 2023, Advance Auto Parts amended its $1.2 billion revolving credit facility to finance general corporate purposes.²
• During 2022, the company repurchased 3.0 million shares of its common stock at an aggregate cost of $598.2 million, averaging $201.88 per share, as part of its share repurchase program.³

Financial Performance Highlights

Q3 2023 Highlights

In the third quarter of 2023, the company reported sales of $2,719 million, reflecting an increase of $78 million or 3% compared to the third quarter of 2022, which had sales of $2,641 million. The net profit for the third quarter of 2023 was $-48.6 million, showing a decrease of $164.4 million or 142% when compared to the net profit of $115.8 million in the third quarter of 2022. Furthermore, the company's diluted earnings per share (EPS) for the third quarter of 2023 decreased to $-0.82, a negative change of $2.74 or 143% compared to the diluted EPS of $1.92 in the third quarter of 2022.

Annual Performance Highlights

In 2022, the company experienced growth in sales, with total sales reaching $11,154.72 million. This marked an increase of $156.72 million or 1.42% compared to the sales figure of $10,998 million in 2021. The company's gross profit for 2022 amounted to $4,962 million, reflecting a difference of $33.25 million or 0.68% from the gross profit of $4,928.75 million in the previous year, 2021. Additionally, the company's operating profit decreased in 2022, totaling $714 million, which was lower by $124.72 million or 14.88% compared to the operating profit of $838.72 million in 2021. The net profit for the year 2022 was $501.87 million, representing a decrease of $114.13 million or 18.52% compared to the net profit of $616 million in 2021. Moreover, the diluted earnings per share (EPS) for 2022 were reported as $8.27, which showed a decrease of $1.28 or 13.4% compared to the diluted EPS of $9.55 in 2021.

The increase in net sales for 2022, reaching $11.2 billion, was primarily propelled by strategic pricing enhancements and growth in new store openings and professional sales, although offset by declines in DIY customer sales and units sold. Comparable store sales saw a modest uptick of 0.3%, particularly driven by the professional business segment, with notable category growth observed in batteries, fluids and chemicals, and motor oil. Gross profit slightly decreased to $5.0 billion, representing 44.5% of net sales, primarily influenced by inflationary product costs, including increased LIFO-related expenses, and an unfavorable channel mix, albeit partially mitigated by strategic pricing and product mix improvements. Selling, general, and administrative expenses (SG&A) rose to $4.2 billion, accounting for 38.1% of net sales, driven by increases in labor-related inflation and transportation and fuel costs, although tempered by decreases in incentive compensation and COVID-19-related expenses. Interest expense increased to $51.1 million, primarily due to incremental borrowings on the unsecured revolving credit facility, offsetting a 100-basis-point rate differential between issued and retired senior unsecured notes in 2022.

In 2022, the company experienced a decline in net cash provided by operating activities, decreasing by $390.0 million to $722.2 million compared to the previous year, primarily due to lower net income, increased incentive compensation expense payout, and a reduction in overall working capital, driven by higher cash usage in accrued expenses and inventories. In investing activities, net cash used increased by $137.1 million to $424.4 million, primarily from investments in new store openings, leasehold improvements, and information technology. Meanwhile, net cash used in financing activities decreased by $443.4 million to $620.7 million, attributed to various factors including proceeds from the issuance of the 2032 Notes, reduced share repurchases, and proceeds from net borrowings, partially offset by payments for the early redemption of the 2023 Notes and increased dividends paid compared to the prior year.

Business Overview

Founded in 1929 as Advance Stores Company, the company began its journey as a retailer of general merchandise. Over the years, they experienced substantial growth, propelled by strategic acquisitions, new store openings, and notable comparable store sales growth. Their professional customer base primarily consists of those who rely on product deliveries from their store or branch locations to their places of business, which include garages, service stations, and auto dealerships. To cater to the diverse needs of their customers, the company operates under several trade names, each serving as a pillar of their expansive presence in the automotive industry, which are as follows:

Advance Auto Parts: Advance Auto Parts, with 4,440 stores, inclusive of 328 hubs are generally situated in freestanding buildings, strategically positioned to cater to both professional and DIY customers. The average size of an Advance Auto Parts store is approximately 7,800 square feet. These outlets boast a diverse range of products tailored to meet aftermarket auto part needs for both domestic and import vehicles. Those stores offer a product inventory of approximately 23,000 stock keeping units (SKUs), carefully curated to suit the unique demands of each store's market. To ensure comprehensive access to less common SKUs, which may not be readily available in-store, customers can rely on the larger hub stores. These hubs offer same-day or next-day delivery services, supplementing the inventory of the smaller stores and enhancing the overall customer experience.

Carquest: Carquest stores—comprising 330 outlets including 148 stores in Canada—are typically situated in freestanding buildings, primarily targeting professional customers while also catering to DIY customers. With an average size of approximately 7,300 square feet per store, Carquest outlets offer a diverse range of products tailored to meet the aftermarket auto part needs for both domestic and import vehicles. These stores boast a product inventory of approximately 25,000 stock keeping units (SKUs), ensuring they can address a wide array of customer needs. Additionally, as of December 31, 2022, Carquest extends its reach by serving 1,311 independently owned stores operating under the Carquest name. This network amplifies their presence in the market, allowing them to further serve customers and maintain their reputation for quality and reliability.

Worldpac: The Worldpac brand comprises 316 branches, with 135 of them branded as Autopart International ("AI"). These branches primarily cater to professional customers, utilizing an efficient and sophisticated online ordering and fulfillment system to streamline operations and enhance customer satisfaction. Distinguished by their larger size, Worldpac's branches boast an average area of approximately 18,400 square feet, providing ample space to accommodate their extensive inventory and serve customers effectively. With a comprehensive product offering exceeding 285,000 stock keeping units (SKUs) for both domestic and import vehicles, Worldpac specializes in imported OEM parts, catering to the specific needs of their clientele. As part of their ongoing transformation efforts all Autopart International (AI) stores have been successfully converted into the Worldpac technology format, aligning with the company's strategic objectives and ensuring consistency in service delivery and technological advancements across their network.

Advance Auto Parts, Inc.’s Products

The following table shows some of the types of products that AAP sell by major category:

Advance Auto Parts, Inc. also provides a variety of services at its stores free of charge to its customers, including:

• Battery and wiper installation
• Check engine light scanning
• Electrical system testing, including batteries, starters, and alternators
• Oil and battery recycling
• Loaner tool programs

Additionally, Advance Auto Parts, Inc. serves its customers online at www.AdvanceAutoParts.com or on its Advance Mobile App. Professional customers can conveniently place their orders electronically, including through MyAdvance.com and Technet, by phone, or in-store, and products are delivered from stores or branch locations to their places of business.

Other Business Information:

Advance Auto Parts, Inc.'s business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months. Additionally, their business can be significantly affected by weather conditions. Unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods. However, extremely hot or cold weather tends to enhance sales by causing automotive parts to fail at an accelerated rate. Advance Auto Parts, Inc.'s fourth quarter is generally their most volatile period as weather and spending trade-offs typically influence their professional and DIY sales.

Company History

Advance Auto Parts, Inc.: Pioneering the Future of Auto Parts Retail

Advance Auto Parts, Inc. has been a cornerstone of the automotive industry since its inception in 1932. Founded during the tumultuous years of the Great Depression, the company's journey is a testament to resilience, innovation, and a steadfast commitment to customer satisfaction. From its humble beginnings to its status as a global leader in auto parts retail, Advance Auto Parts has forged a legacy of excellence and forward-thinking that continues to shape the industry today.

The Early Years (1932-1969)

In 1932, against the backdrop of economic uncertainty, Advance Auto Parts was founded with a simple yet ambitious mission: to provide quality auto parts and exceptional service to customers. Under the visionary leadership of its founder, the company quickly established itself as a trusted destination for automotive enthusiasts and do-it-yourself car repairmen alike. With a focus on customer satisfaction and product quality, Advance Auto Parts laid the foundation for its future success.

Transition of Leadership (1969-1978)

In 1969, leadership of Advance Auto Parts passed to Arthur Taubman's son, Nicholas Taubman, marking a pivotal moment in the company's history. Under Nicholas's guidance, Advance Auto Parts began a period of strategic transformation, transitioning from a general retailer to a high-volume auto parts retailer. This strategic shift laid the groundwork for future growth and positioned the company as an industry leader.

Strategic Shifts and Expansion (1978-1996)

Throughout the late 1970s and 1980s, Advance Auto Parts underwent significant changes to better serve its growing customer base. In 1978, the company rebranded as Advance Auto and implemented strategic initiatives to streamline operations and focus on its core market of do-it-yourself car repairmen. The introduction of the Parts Delivered Quickly (PDQ) system in 1982 revolutionized the customer experience, offering swift delivery of auto parts within 24 hours. Despite facing challenges such as a devastating flood in 1985 that destroyed its home office and distribution center, Advance Auto Parts emerged stronger than ever, opening a new, state-of-the-art distribution center in 1988 and continuing its rapid expansion. By 1996, the company had become the fastest-growing aftermarket parts retailer in the country, boasting 660 stores and generating substantial revenues.

Strategic Moves and Acquisitions (1997-2013)

The late 1990s and early 2000s saw Advance Auto Parts strategically expand its operational footprint through acquisitions and partnerships. Notable milestones included the acquisition of Nationwise Auto Parts stores in Georgia in 1995 and the purchase of Discount Auto Parts, Inc. in 2001, significantly expanding the company's presence across the southeastern United States. In 2013, Advance Auto Parts made a transformative move by acquiring General Parts International, Inc., including Carquest and Worldpac brands, further solidifying its position as a major player in the industry.

Innovation and Partnerships (2015-Present)

In recent years, Advance Auto Parts has focused on innovation and strategic partnerships to drive growth and enhance customer experience. Initiatives such as the acquisition of the DieHard battery brand from Sears in 2019 and a partnership with FRAM in 2021 underscore the company's commitment to offering high-quality products and innovative solutions. As Advance Auto Parts continues to evolve and adapt to the changing needs of the automotive industry, its legacy of excellence and innovation remains stronger than ever, ensuring its continued success for years to come.

References

1. ^ https://businessnc.com/advance-auto-to-cut-150-million-in-costs-sell-two-subsidiaries/
2. ^ https://www.shearman.com/en/news-and-events/news/2023/08/advance-auto-parts-1-billion-amended-revolving-credit-facility
3. ^ https://www.businesswire.com/news/home/20230227005941/en/Advance-Auto-Parts-Reports-Fourth-Quarter-and-Full-Year-2022-Results