Advance Auto Parts 2003 Annual Report Download - page 4

We are pleased to report 2003 was another record year for Advance
Auto Parts.
Our Company built momentum in a number of ways this year. We
raised the sales productivity of our stores, increased our operating
margins, generated strong free cash flow, and increased our return on
invested capital.
Once again, our hard working team took our operating initiatives and
executed at an even higher level than they did in 2002. These initiatives
include category management, an expanded store brands program,
improved supply chain efficiencies, and heightened emphasis on
commercial sales. We also focused on refining our customer-driven
technology systems, including our point-of-sale and electronic catalog
system (APAL) and our Management Planning and Training system
(MPT). Together, these initiatives have increased the number of cus-
tomers who visit our stores and raised the average transaction size.
In 2003:
• We served over 200 million customers.
• We opened 125 new stores for a total of 2,539 stores.
• We increased our gross margin by 116 basis points to 45.9%.
• Our GAAP operating margin increased to 8.3% and we raised our
comparable operating margin to 8.5% from 7.2% last year.
• Our GAAP earnings per share rose to $1.67 from $0.90 last year and
we grew comparable earnings per share from continuing operations
65% to $2.15 from $1.30 last year.
(The Company uses non-GAAP measures as an indication of its earnings from its
core operations and believes it is important to the Company’s stockholders due to
the nature and significance of the excluded expenses. Please see our reconciliation
of comparable operating income and comparable earnings per share included on
page 1 of this annual report.)
During 2003, we also further strengthened our balance sheet. At the end
of our first quarter, we retired our high yield bonds and debentures, low-
ering the weighted average interest rate of our debt from 8.7% to 3.2%.
We paid down $291 million in debt, ending the year with a total debt to
capitalization rate of 41% compared to 61% in 2002, and 77% in 2001.
Although our team has achieved much, we are hardly satisfied.
We have tremendous opportunities to serve our customers more
efficiently, enhance our profitability and further increase our return
on invested capital.
In 2004, we will continue to build momentum by remaining focused on
the same objectives that generated our past success and by having the
best parts, people, and prices:
Parts—We are committed to having the right parts available for our
customers. In 2004, we will launch the next wave of our custom mix
program, further refine our category management initiatives, and com-
plete the rollout of our new store system.
People—Our team’s dedication to customer service is the primary
reason our customers keep coming back to us. In 2004, we will con-
tinue to emphasize training to equip our Team Members with the
knowledge and skills to enhance our customers’ shopping experience.
We also plan to open 125–135 new locations, which will bring our team
exciting advancement opportunities.
Prices—In 2004, we will continue to bring savings to our customers
by offering great value on quality parts and products.
As stockholders, we hope that you agree that we are serving our
customers better than ever and invite you to visit one of our over
2,500 conveniently located stores. Then you will see that “We’re ready
in Advance.”
Advance Auto Parts was built on integrity and an unwavering commit-
ment to our customers. As guardians of this legacy, we commit to you
that these values will remain at the core of everything we do.
As we begin another year, we would like to thank our stockholders for
their confidence, our Team Members for their dedication to serving our
customers, and our families for their support.
Jim Wade
President
Larry Castellani
Chairman and Chief Executive Officer
Letter to Our Stockholders