Automotive aftermarket parts provider Advance Auto Parts, Inc. announced its financial results for the second quarter ended July 13, 2019, characterizing the period as “challenging”.

“As we begin the second half of 2019, I want to recognize the relentless focus and commitment of our entire team, including our network of Independent partners, as we work every day to execute our Strategic Plan,” said Tom Greco, President and Chief Executive Officer. “While the second quarter was challenging, we continue to make progress, including building a differentiated Customer Value Proposition in both Professional and DIY Omnichannel in addition to driving productivity for the long term.

“We remain committed to our disciplined approach to increasing comparable store sales, expanding margins and delivering significant cash flow in the back half of 2019. This, combined with a strong industry backdrop, gives us confidence that our transformation plan is on track. Importantly, we continue to make meaningful improvements in working capital and free cash flow and are pleased to announce a new $400 million share repurchase authorization.

“In line with our financial priorities, coupled with the strength of our balance sheet, we expect to deliver significant shareholder value throughout the remainder of 2019 and for several years to come.”

Year to Date Highlights

• Net sales increased 1.6% to $5.3B; Comparable store sales ^(a) increased 1.5%
• Operating income increased 3.5% to $378.7M; Adjusted operating income ^(a) increased 2.5% to $440.0M
• Operating cash flow increased 10.9% to $492.2M
• Diluted EPS Increased 8.2% to $3.71; Adjusted Diluted EPS ^(a) Increased 9.6% to $4.46

^(a) Comparable store sales exclude sales to independently owned Carquest locations. Figures in USD.

Second Quarter and Year to Date 2019 Financial Results

Net sales for the second quarter of 2019 were $2.3 billion, a 0.2% increase versus the second quarter of the prior year. Comparable store sales for the second quarter of 2019 were flat. Year to date 2019, Net sales were $5.3 billion, an increase of 1.6% from the same period of the prior year. Through the second quarter 2019, Comparable store sales increased 1.5%. Figures in USD.

Adjusted gross profit margin was 43.3% of Net sales in the second quarter of 2019, a 42 basis point decrease from the second quarter of 2018. The decrease was primarily driven by channel and product mix, in addition to planned supply chain wage investments in the second quarter. These headwinds were partially offset by continued improvements in utilization and management of inventory. Increased material costs due to both inflation and tariff related costs were fully offset by pricing actions in the quarter.

The Company’s GAAP Gross profit margin decreased to 43.3% from 43.5% in the second quarter of the prior year. Adjusted gross profit margin was 44.0% year to date, an increase of 2 basis points from the same period prior year. The Company’s GAAP Gross profit margin decreased 43.8% year to date, from 43.9% for the same period of 2018.

Adjusted SG&A was 34.9% of Net sales in the second quarter of 2019, which was flat as compared to the second quarter of 2018. This was driven by an increase in professional fees and support contracts related to investments and targeted marketing spend, which were offset primarily by safety related improvements driving favorability in insurance and claims expenses.

The Company’s GAAP SG&A of 36.0% of Net sales improved from 36.3% in the second quarter of 2018. Year to date, Adjusted SG&A was 35.7% of Net sales, which was an improvement of 5 basis points compared to the same period of the prior year. The Company’s year to date 2019 GAAP SG&A of 36.6% of Net sales improved from 36.9% for the same period of 2018.

The Company’s Adjusted operating income was $196.4 million in the second quarter of 2019, a decrease of 4.3% versus the second quarter of the prior year. Adjusted operating income margin declined to 8.4% of Net sales for the second quarter, a decrease of 40 basis points compared to the second quarter of the prior year. On a GAAP basis, the Company’s Operating income was $170.8 million, 7.3% of Net sales, an increase of 12 basis points from the second quarter of 2018. Year to date, the Company’s Adjusted operating income was $440.0 million, an increase of 2.5% compared to the same period of the prior year.

On a rate basis, the year to date Adjusted operating income margin was 8.3%, which was an improvement of 7 basis points compared to the same period of the prior year. On a GAAP basis, the Company’s Operating income was $378.7 million year to date, 7.2% of Net sales, an increase of 13 basis points from the same period of the prior year.

The Company’s effective tax rate in the second quarter of 2019 was 24.9%, compared to 25.2% in the second quarter of the prior year. The Company’s Adjusted Diluted EPS was $2.00 for the second quarter of 2019, an increase of 1.5% compared to the second quarter of the prior year.

On a GAAP basis, the Company’s Diluted EPS increased 8.8% to $1.73. The Company’s effective tax rate year to date was 25.1%, compared to 24.8% in the same period of the prior year. The Company’s Adjusted Diluted EPS was $4.46 year to date, an increase of 9.6% compared to the prior year. On a GAAP basis, the Company’s Diluted EPS increased year to date 8.2% to $3.71.

Operating cash flow was $492.2 million through the second quarter of 2019 versus $444.0 million in the same period of the prior year, an increase of 10.9%. Free cash flow through the second quarter of 2019 was $380.7 million, a decrease of 0.4% compared to the same period of the prior year.

2019 Full Year Guidance

“We remain focused on executing our long term strategic objectives,” said Executive Vice President and Chief Financial Officer Jeff Shepherd. “We are confident that despite short term headwinds in the second quarter, which caused volatility in our financial results, we will deliver meaningful progress against our transformation plan in 2019. In addition, we expect to deliver sales growth and margin expansion in the back half of the year, resulting in our second consecutive year of top and bottom line growth. Importantly, we continue to invest in critical technology and systems integration to unlock long term margin expansion.”

Investor Conference Call

A replay of the second quarter conference call will be available on the Company’s website for one year at the Investor Relations page of the company’s website (www.AdvanceAutoParts.com). HERE