Advance Auto Parts 2004 Annual Report Download - page 19

Advance฀Auto฀Parts,฀Inc.฀and฀Subsidiaries
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•฀ ฀Consistent฀ growth฀ and฀ execution฀ of฀ our฀ commercial฀
delivery฀program;
•฀ ฀Enhanced฀advertising฀and฀focus฀on฀serving฀the฀customer;
•฀ ฀Training฀and฀development฀of฀our฀team฀members;฀and
•฀ ฀Investing฀in฀technology฀and฀innovative฀store฀systems.
฀ In฀ addition,฀ we฀ are฀ focused฀ on฀ optimizing฀ our฀ overall฀
expenses฀ at฀ all฀ levels฀ of฀ the฀ organization฀ as฀ well฀ as฀ con-
tinuing฀ to฀ execute฀ our฀ supply฀ chain฀ initiatives฀ to฀ better฀
optimize฀our฀distribution฀costs฀and฀make฀our฀logistics฀net-
work฀operate฀more฀efficiently฀and฀more฀productively.
฀ The฀following฀table฀highlights฀certain฀operating฀results฀
and฀key฀metrics฀for฀2004,฀2003฀and฀2002:
Fiscal฀Year
2004 2003(1) 2002
Total฀net฀sales฀฀
(in฀thousands)฀............... $3,770,297 $3,493,696 $3,204,140
Comparable฀store฀sales฀
growth฀....................... 6.1% 3.1% 5.5%
DIY฀comparable฀store฀
sales฀growth฀.............. 2.8% 2.4% 5.6%
DIFM฀comparable฀store฀
sales฀growth฀.............. 22.9% 7.2% 5.0%
Average฀net฀sales฀per฀
store฀(in฀thousands)฀...... $฀ 1,453 $฀ 1,379 $฀ 1,303
Inventory฀per฀store฀฀
(in฀thousands)฀............... $฀ 453,035 $฀ 438,669 $฀ 429,399
Inventory฀turnover฀........ 1.74 1.72 1.75
Gross฀margins฀............... 46.5% 45.9% 44.8%
Operating฀margins฀........ 8.7% 8.3% 6.1%
Note:฀These฀metrics฀should฀be฀reviewed฀along฀with฀the฀footnotes฀to฀the฀table฀฀
setting฀forth฀our฀selected฀store฀data฀in฀Item฀6.฀“Selected฀Financial฀Data”฀located฀
elsewhere฀in฀this฀report.฀The฀footnotes฀contain฀descriptions฀regarding฀the฀calcu-
lation฀of฀these฀metrics.
(1)฀฀All฀financial฀ metrics฀for฀2003฀ include฀ the฀53rd฀week,฀ except฀ the฀average฀net฀
sales฀per฀store฀and฀inventory฀turnover฀metrics.
Key฀2004฀Events
฀ The฀ following฀ key฀ events฀ occurred฀ during฀ 2004฀ and฀
reflect฀opportunities฀that฀ will฀support฀our฀strategic฀initia-
tives฀discussed฀above:
•฀ ฀Our฀board฀of฀directors฀authorized฀a฀$200฀million฀stock฀
repurchase฀ program฀ during฀ the฀ third฀ quarter฀ of฀ 2004.฀
This฀program฀allows฀us฀to฀repurchase฀outstanding฀shares฀
of฀our฀common฀stock฀at฀prices฀that฀we฀believe฀are฀attrac-
tive฀ with฀ confidence฀ of฀ our฀ ability฀ to฀ produce฀ strong฀
operating฀results฀in฀the฀future.฀As฀of฀January฀1,฀2005,฀we฀
had฀repurchased฀a฀total฀of฀3.7฀million฀shares฀at฀an฀aggre-
gate฀cost฀of฀$146.2฀million.
•฀ ฀We฀entered฀into฀a฀vendor฀financing฀program฀during฀the฀
first฀quarter฀of฀2004฀allowing฀us฀to฀extend฀our฀payment฀
terms฀ on฀ certain฀merchandise฀ purchases.฀This฀program฀฀
will฀ allow฀ us฀ to฀ leverage฀ our฀ working฀ capital฀ and฀ utilize฀
existing฀cash฀flow฀to฀fund฀our฀strategic฀initiatives฀and฀cap-
ital฀requirements.
•฀ ฀During฀2004,฀we฀purchased฀a฀new฀Northeast฀distribution฀
center฀in฀Pennsylvania.฀This฀facility฀is฀planned฀to฀begin฀
servicing฀our฀expanding฀store฀base฀in฀the฀Northeast฀region฀
of฀the฀United฀States฀during฀the฀first฀quarter฀of฀2005.
•฀ ฀We฀completed฀the฀refinancing฀of฀our฀senior฀credit฀facility฀
during฀the฀fourth฀quarter฀of฀2004.฀Our฀amended฀senior฀
credit฀ facility฀ provided฀ for฀ an฀ additional฀ $100฀ million฀
for฀stock฀buybacks฀under฀our฀stock฀repurchase฀program.
Discontinued฀Operations
฀ Prior฀ to฀ 2004,฀ we฀ operated฀ a฀ second฀ segment฀ for฀ our฀
wholesale฀business.฀On฀December฀19,฀2003,฀we฀discontin-
ued฀the฀supplying฀of฀merchandise฀to฀our฀wholesale฀distri-
bution฀ network,฀ or฀ Wholesale.฀ Wholesale฀ consisted฀ of฀
independently฀ owned฀ and฀ operated฀ dealer฀ locations,฀ for฀
which฀we฀supplied฀merchandise฀inventory฀and฀certain฀ser-
vices.฀Due฀to฀the฀wide฀variety฀of฀products฀supplied฀to฀the฀
dealers฀and฀the฀reduced฀concentration฀of฀stores฀spread฀over฀
a฀ wide฀ geographic฀ area,฀ it฀ had฀ become฀ difficult฀ to฀ serve฀
these฀ dealers฀effectively.฀ This฀component฀ of฀our฀business฀
operated฀ in฀ the฀ wholesale฀ segment฀ and฀ excluding฀ certain฀
allocated฀and฀team฀member฀benefit฀expenses฀of฀$2.4฀mil-
lion฀and฀$3.3฀million฀for฀fiscal฀years฀2003฀and฀2002,฀rep-
resented฀the฀entire฀results฀of฀operations฀previously฀reported฀
in฀that฀segment.฀We฀have฀classified฀these฀operating฀results฀
as฀ discontinued฀ operations฀ in฀ the฀ accompanying฀ consoli-
dated฀ statements฀ of฀ operations฀ for฀ the฀ fiscal฀ years฀ ended฀
January฀ 3,฀ 2004฀ and฀ December฀ 28,฀ 2002฀ to฀ reflect฀ this฀
decision.฀ For฀ the฀ fiscal฀ year฀ ended฀ January฀ 1,฀ 2005,฀ the฀
operating฀ results฀ related฀ to฀ the฀ discontinued฀ wholesale฀
business฀were฀minimal฀as฀ a฀result฀of฀recognizing฀an฀esti-
mate฀of฀exit฀costs฀in฀fiscal฀2003.
Critical฀Accounting฀Policies
฀ Our฀ financial฀ statements฀ have฀ been฀ prepared฀ in฀ accor-
dance฀ with฀ accounting฀ policies฀ generally฀ accepted฀ in฀ the฀
United฀States฀of฀America.฀Our฀discussion฀and฀analysis฀of฀
the฀financial฀condition฀and฀results฀of฀operations฀are฀based฀
on฀ these฀ financial฀ statements.฀ The฀ preparation฀ of฀ these฀
financial฀statements฀requires฀the฀application฀of฀accounting฀
policies฀in฀addition฀to฀certain฀estimates฀and฀judgments฀by฀
our฀management.฀Our฀estimates฀ and฀judgments฀are฀based฀
on฀ currently฀ available฀ information,฀ historical฀ results฀ and฀
other฀assumptions฀we฀believe฀are฀reasonable.฀Actual฀results฀
could฀differ฀from฀these฀estimates.
฀ The฀preparation฀of฀our฀financial฀statements฀included฀the฀
following฀significant฀estimates.