Advance Auto Parts reports third quarter 2021 results
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive aftermarket parts provider in North America, that serves both professional installer and do-it-yourself customers, announced its financial results for the third quarter ended October 9, 2021.
"In Q3, we delivered another quarter of improved top-line growth and margin expansion and returned significant cash to our shareholders in line with the strategy we outlined in April,” said Tom Greco, president and chief executive officer. “Following several years of investments in both our team as well as our diversified physical and digital asset base, we continue to differentiate Advance in the marketplace. Our team members and independent partners once again adapted to a dynamic landscape and executed our plan with excellence. Third quarter comparable sales grew 3.1% on top of double-digit comparable store sales in the third quarter of 2020. Importantly, we delivered a two-year stack of 13.3% in the quarter directly in line with our Q2 2021 two-year stack comp growth of 13.3%. Our professional business once again led our sales improvement as well as the ongoing recovery in key urban markets where miles driven was most impacted in 2020. In terms of our DIY omnichannel business, we were pleased to end the quarter slightly positive after lapping our toughest quarterly comparison of high double-digit growth from the prior year.
"Several years of focus on our balance sheet resulted in Free cash flow improvement of 19% to $734.0 million compared with $616.6 million year-to-date in 2020. Free cash flow was up 36% when compared to 2019. As a result, and in line with our commitment of returning excess cash to our shareholders, we returned $291.2 million in Q3 and $952.6 million through the first three quarters of 2021 through a combination of share repurchases and our quarterly cash dividend. We’re encouraged by the positive sales trends during the first four weeks of our fourth quarter with our two-year stack remaining in line with Q3. We look forward to finishing 2021 with momentum and remain confident in our ability to drive total shareholder return in the coming years.”
Q3 2021 Highlights:
•Net sales increased 3.1% to $2.6 billion
•Comparable store sales (2) increased 3.1%; On a two-year stack, Comparable store sales increased 13.3%
•Operating income decreased 10.8% to $229.2 million; Adjusted operating income (3) increased 6.9% to $273.8 million
•Operating income margin decreased by 136 basis points to 8.7%; Adjusted operating income margin (3) expanded 37 basis points to 10.4%
•Diluted EPS of $2.68 increased 25.8% compared with the third quarter of 2020 and increased 53.1% compared with the third quarter of 2019; Adjusted Diluted EPS (3) increased 21.6% to $3.21 compared with the third quarter of 2020 and increased 30.5% compared with the third quarter of 2019
•Year to date Operating cash flow increased to $924.9 million; Free cash flow (3) increased to $734.0 million
•Returned $291.2 million to shareholders through a combination of share repurchases and quarterly cash dividends
Third Quarter 2021 Financial Results:
Net sales for the third quarter of 2021 were $2.6 billion, a 3.1% increase versus the third quarter of the prior year. Comparable store sales for the third quarter of 2021 increased 3.1%. The increase was led by continued recovery in the company's professional business.
Adjusted gross profit increased 8.9% to $1.2 billion. Adjusted gross profit margin was 46.2% of Net sales in the third quarter of 2021, a 246 basis point increase from the third quarter of 2020. This was driven by improvements in category management, including strategic pricing, strategic sourcing, and owned brand expansion as well as favorable product mix. These improvements were partially offset by inflationary costs and unfavorable channel mix. The company's GAAP Gross profit margin increased 72 basis points to 45.1% from 44.4% in the third quarter of 2020.
Adjusted SG&A increased 9.5% to $938.2 million. Adjusted SG&A was 35.8% of Net sales in the third quarter of 2021, which deleveraged 209 basis points compared with the third quarter of 2020. This was primarily driven by inflationary headwinds in store labor as well as higher incentive compensation. The company also incurred start up costs for new store openings and higher delivery associated with the recovery of the professional business. These costs were partially offset by a year over year decrease in COVID-19 related expenses. The company's GAAP SG&A was 36.4% of Net sales in the third quarter of 2021 compared with 34.3% in the third quarter of 2020.
The company's Adjusted operating income was $273.8 million in the third quarter of 2021, an increase of 6.9% versus the third quarter of the prior year. Adjusted operating income margin increased 37 basis points to 10.4% of Net sales for the third quarter compared with the third quarter of the prior year. On a GAAP basis, the company's Operating income was $229.2 million, or 8.7% of Net sales, compared with 10.1% in the third quarter of 2020.
The company's effective tax rate in the third quarter of 2021 was 23.7%, compared with 25.3% in the third quarter of 2020. The company's Adjusted Diluted EPS was $3.21 for the third quarter of 2021, an increase of 21.6% compared with the third quarter of the prior year. On a GAAP basis, the company's Diluted EPS of $2.68 increased 25.8% compared with the third quarter of 2020.
Year to date Operating cash flow was $924.9 million through the third quarter of 2021 versus $809.2 million in the same period of the prior year, an increase of 14.3%. The increase was primarily driven by an improvement in net sales and higher cash generated from operations, as well as other working capital improvements. Free cash flow through the third quarter of 2021 increased to $734.0 million from $616.6 million in the same period of the prior year.
