Advance Auto Parts 2004 Annual Report Download - page 18

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฀ The฀following฀discussion฀and฀analysis฀of฀financial฀con-
dition฀and฀results฀of฀operations฀should฀be฀read฀in฀conjunc-
tion฀ with฀ “Selected฀ Financial฀ Data,”฀ our฀ consolidated฀
historical฀financial฀statements฀and฀the฀notes฀to฀those฀state-
ments฀that฀appear฀elsewhere฀in฀this฀report.฀Our฀discussion฀
contains฀ forward-looking฀ statements฀ based฀ upon฀ current฀
expectations฀that฀involve฀risks฀and฀uncertainties,฀such฀as฀
our฀plans,฀objectives,฀expectations฀and฀intentions.฀Actual฀
results฀ and฀ the฀ timing฀ of฀ events฀ could฀ differ฀ materially฀
from฀ those฀ anticipated฀ in฀ these฀ forward-looking฀ state-
ments฀as฀a฀result฀of฀a฀number฀of฀factors,฀ including฀those฀
set฀forth฀under฀“Forward-Looking฀Statements”฀elsewhere฀
in฀this฀report฀and฀“Risk฀Factors”฀found฀in฀our฀Form฀10-K฀
filed฀on฀March฀17,฀2005฀with฀the฀Securities฀and฀Exchange฀
Commission.
฀ Our฀fiscal฀year฀ends฀on฀the฀Saturday฀nearest฀December฀31฀
of฀each฀year.฀ Our฀first฀quarter฀consists฀of฀16฀weeks,฀ and฀
the฀ other฀ three฀ quarters฀ consist฀ of฀ 12฀ weeks,฀ with฀ the฀
exception฀ of฀ the฀ fourth฀ quarter฀ fiscal฀ 2003,฀ which฀ con-
sisted฀of฀13฀weeks฀due฀to฀our฀53-week฀fiscal฀year฀in฀2003.
Introduction
฀ We฀primarily฀operate฀within฀the฀United฀States฀automo-
tive฀aftermarket฀industry,฀which฀includes฀replacement฀parts฀
(excluding฀tires),฀accessories,฀maintenance฀items,฀batteries฀
and฀automotive฀chemicals฀for฀cars฀and฀light฀trucks฀(pickup฀
trucks,฀ vans,฀ minivans฀ and฀ sport฀ utility฀ vehicles).฀ We฀฀
currently฀are฀the฀second฀largest฀specialty฀retailer฀of฀auto-
motive฀parts,฀accessories฀and฀maintenance฀items฀to฀“do-it-
yourself,”฀or฀DIY,฀customers฀in฀the฀United฀States,฀based฀on฀
store฀count฀and฀sales.฀Our฀operations฀are฀conducted฀in฀one฀
operating฀segment.
฀ We฀ were฀ formed฀ in฀ 1929฀ and฀ operated฀ as฀ a฀ retailer฀ of฀
general฀merchandise฀until฀the฀1980s.฀During฀the฀1980s,฀we฀
sharpened฀our฀focus฀to฀target฀sales฀of฀automotive฀parts฀and฀
accessories฀to฀DIY฀customers.฀From฀the฀1980s฀to฀the฀present,฀
we฀have฀grown฀significantly฀as฀a฀result฀of฀strong฀compara-
ble฀ store฀ sales฀ growth,฀ new฀ store฀ openings฀ and฀ strategic฀
acquisitions,฀ including฀ our฀ 1998฀ Western฀ Auto฀ Supply฀
Company฀acquisition฀and฀our฀2001฀acquisition฀of฀Discount฀
Auto฀Parts,฀or฀Discount.฀Additionally,฀in฀1996,฀we฀began฀to฀
aggressively฀expand฀our฀sales฀to฀“do-it-for-me,”฀or฀DIFM,฀
customers฀by฀implementing฀a฀commercial฀delivery฀program.
฀ At฀January฀1,฀2005,฀we฀operated฀2,617฀stores฀throughout฀
39฀states฀in฀the฀Northeastern,฀Southeastern฀and฀Midwestern฀
regions฀of฀the฀United฀States.฀These฀stores฀operated฀under฀
the฀ “Advance฀ Auto฀ Parts”฀ trade฀ name฀ except฀ for฀ certain฀
stores฀in฀the฀state฀of฀Florida,฀which฀operated฀under฀the฀
“Advance฀Discount฀Auto฀Parts”฀or฀“Discount฀Auto฀Parts”฀฀
trade฀ names.฀These฀ stores฀offered฀automotive฀replacement฀฀
parts,฀accessories฀and฀maintenance฀items,฀with฀no฀signifi-
cant฀concentration฀in฀any฀specific฀product฀area.฀In฀addition,฀
we฀operated฀35฀stores฀under฀the฀“Western฀Auto”฀trade฀name,฀
located฀ primarily฀ in฀ Puerto฀ Rico฀ and฀ the฀ Virgin฀ Islands,฀
which฀ offer฀ automotive฀ tires฀ and฀ service฀ in฀ addition฀ to฀
automotive฀parts,฀accessories฀and฀maintenance฀items.
฀ The฀following฀table฀sets฀forth฀the฀number฀of฀new,฀closed฀
and฀ relocated฀ stores฀ and฀ stores฀ with฀ commercial฀ delivery฀
programs฀ during฀ fiscal฀ 2004,฀ 2003฀ and฀ 2002.฀ We฀ lease฀
approximately฀80%฀of฀our฀stores.
Fiscal฀Year
2004 2003 2002
Number฀of฀stores฀at฀beginning฀฀
of฀year฀................................................ 2,539 2,435 2,484
New฀stores฀............................................. 125 125 110
Closed฀stores฀.......................................... (12) (21) (159)
Number฀of฀stores,฀end฀of฀period฀........... 2,652 2,539 2,435
Relocated฀stores฀..................................... 34 32 39
Stores฀with฀commercial฀delivery฀฀
programs฀............................................ 1,945 1,625 1,411
฀ We฀ anticipate฀ adding฀ approximately฀ 150฀ to฀ 175฀ new฀
stores฀during฀2005฀primarily฀through฀new฀store฀openings฀
and฀selective฀acquisitions.
Management฀Overview
฀ In฀ 2004,฀ we฀ produced฀ solid฀ growth฀ in฀ our฀ sales฀ and฀
earnings฀and฀ended฀the฀year฀with฀strong฀sales฀momentum฀
during฀the฀fourth฀quarter.฀We฀believe฀this฀momentum฀con-
firms฀that฀our฀initiatives฀are฀working฀and฀further฀makes฀us฀
believe฀we฀are฀very฀well฀positioned฀for฀2005฀and฀beyond.฀
In฀ addition,฀ our฀ industry฀ dynamics฀ continue฀ to฀ become฀
more฀positive฀each฀year.฀The฀average฀age฀of฀vehicles฀con-
tinues฀to฀increase฀and฀is฀now฀over฀nine฀years฀old.฀Currently,฀
over฀60%฀of฀actively฀driven฀vehicles฀are฀at฀least฀six฀years฀
old฀and฀are฀beginning฀to฀enter฀the฀period฀when฀parts฀begin฀
to฀fail.฀The฀cost฀of฀replacement฀parts฀for฀these฀vehicles฀are฀
higher฀ due฀ to฀ the฀technological฀changes฀in฀recent฀models฀
and฀ the฀ shift฀ from฀ cars฀ to฀ light฀ trucks฀ and฀ sport฀ utility฀
vehicles.฀ Beyond฀ the฀ positive฀ fundamentals฀ of฀ our฀ indus-
try,฀the฀implementation฀of฀our฀initiatives฀remains฀on฀sched-
ule.฀Our฀specific฀focus฀is฀to฀drive฀higher฀sales฀per฀store฀and฀
thereby฀ leverage฀ our฀ fixed฀ expenses.฀ The฀ initiatives฀ for฀
driving฀this฀sales฀growth฀include:
•฀ ฀Continued฀ execution฀ of฀ our฀ category฀ management฀฀
program;
•฀ ฀Ongoing฀ implementation฀ of฀ our฀ 2010฀ store฀ remodeling฀
program;
Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations