Advance Auto Parts 2004 Annual Report Download - page 22

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20
Results฀of฀Operations
฀ The฀following฀table฀sets฀forth฀certain฀of฀our฀operating฀data฀expressed฀as฀a฀percentage฀of฀net฀sales฀for฀the฀periods฀indicated.
Fiscal฀Year฀Ended
January฀1,฀฀
2005
January฀3,฀฀
2004
December฀28,฀฀
2002
Net฀sales฀....................................................................................................................................................... 100.0% 100.0% 100.0%
Cost฀of฀sales฀................................................................................................................................................. 53.5 54.1 55.2
฀ Gross฀profit฀.............................................................................................................................................. 46.5 45.9 44.8
Selling,฀general฀and฀administrative฀expenses฀............................................................................................ 37.8 37.3 37.6
Expenses฀associated฀with฀merger฀and฀integration฀..................................................................................... —0.3 1.1
Expenses฀associated฀with฀merger฀related฀restructuring฀............................................................................. —— 0.0
฀ Operating฀income฀.................................................................................................................................... 8.7 8.3 6.1
Interest฀expense฀........................................................................................................................................... (0.5) (1.1) (2.4)
Loss฀on฀extinguishment฀of฀debt฀.................................................................................................................. (0.1) (1.4) (0.5)
Expenses฀associated฀with฀secondary฀offering฀............................................................................................ —— (0.1)
Other฀income,฀net฀........................................................................................................................................ 0.0 0.0 0.0
Income฀tax฀expense฀..................................................................................................................................... 3.1 2.2 1.2
฀ Income฀from฀continuing฀operations฀before฀discontinued฀operations฀.................................................... 5.0 3.6 1.9
Discontinued฀operations:
฀ (Loss)฀income฀from฀operations฀of฀discontinued฀wholesale฀distribution฀network฀................................. (0.0) (0.0) 0.1
฀ (Benefit)฀provision฀for฀income฀taxes฀...................................................................................................... (0.0) (0.0) 0.0
฀ (Loss)฀income฀on฀discontinued฀operations฀............................................................................................. (0.0) (0.0) 0.1
฀ Net฀income฀............................................................................................................................................... 5.0% 3.6% 2.0%
Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations฀(continued)
Fiscal฀2004฀Compared฀to฀Fiscal฀2003
฀ Net฀sales฀for฀2004฀were฀$3,770.3฀million,฀an฀increase฀of฀
$276.6฀million,฀or฀7.9%,฀over฀net฀sales฀for฀2003.฀Excluding฀
the฀effect฀of฀the฀53rd฀week฀for฀2003฀our฀net฀sales฀increased฀
$339.6฀million,฀or฀ 9.9%,฀over฀net฀sales฀ for฀2003.฀The฀net฀
sales฀ increase฀ was฀ due฀ to฀ an฀ increase฀ in฀ the฀ comparable฀
store฀ sales฀ of฀ 6.1%฀ and฀ contributions฀ from฀ our฀ 125฀ new฀
stores฀ opened฀ within฀ the฀ last฀ year.฀ The฀ comparable฀ store฀
sales฀ increase฀ was฀ driven฀ by฀ increases฀ in฀ both฀ customer฀
traffic฀ and฀ average฀ ticket฀ sales.฀ Overall,฀ we฀ believe฀ our฀
2010฀ store฀ format,฀ category฀ management฀ and฀ enhanced฀
nationwide฀ advertising฀ program฀ drove฀ our฀ growth฀ in฀ net฀
sales.฀In฀addition,฀we฀believe฀our฀DIFM฀sales฀have฀increased฀
as฀ a฀ result฀ of฀ the฀ continued฀ execution฀ of฀ our฀ commercial฀
delivery฀programs฀in฀our฀existing฀markets฀and฀our฀continued฀
focus฀on฀a฀high฀level฀of฀service฀to฀our฀DIFM฀customers.
฀ Gross฀profit฀for฀2004฀was฀$1,753.4฀million,฀or฀46.5%฀of฀
net฀sales,฀as฀compared฀to฀$1,604.5฀million,฀or฀45.9%฀of฀net฀
sales,฀in฀2003.฀The฀increase฀in฀gross฀profit฀as฀a฀percentage฀
of฀sales฀reflects฀continued฀benefits฀realized฀from฀our฀cate-
gory฀management฀initiatives฀and฀reduced฀inventory฀shrink-
age.฀In฀2005,฀we฀anticipate฀our฀gross฀profit฀to฀continue฀to฀฀
improve฀as฀a฀result฀of฀the฀benefits฀realized฀from฀our฀cate-
gory฀ management฀ initiatives,฀ including฀ the฀ expansion฀ of฀
our฀ private฀ label฀ brand฀ and฀ proprietary฀ brands,฀ and฀ the฀
continued฀execution฀of฀our฀supply฀chain฀initiatives.
฀ Selling,฀ general฀ and฀ administrative฀ expenses฀ increased฀
to฀$1,424.6฀million,฀or฀37.8%฀of฀net฀sales,฀for฀2004,฀from฀
$1,316.3฀ million,฀ or฀ 37.6%฀ of฀ net฀ sales,฀ for฀ 2003.฀ The฀
increase฀in฀selling,฀general฀and฀administrative฀expenses฀as฀
a฀percentage฀of฀net฀sales฀in฀2004฀was฀primarily฀a฀result฀of฀
increased฀expenses฀associated฀with฀our฀self-insurance฀pro-
grams,฀ including฀ the฀ increased฀ costs฀ required฀ to฀ close฀
claims฀ below฀ our฀ stop-loss฀ limits฀ and฀ increased฀ medical฀
costs฀ for฀ covered฀ team฀ members฀ due฀ to฀ inflation฀ in฀ the฀
health฀ care฀ sector.฀ Selling,฀ general฀ and฀ administrative฀
expenses฀ for฀ 2003฀ included฀ $10.4฀ million฀ in฀ merger฀ and฀
integration฀expenses฀related฀to฀the฀integration฀of฀Discount.฀
These฀ integration฀ expenses฀ were฀ related฀ to,฀ among฀ other฀
things,฀overlapping฀administrative฀functions฀and฀store฀con-
version฀ expenses.฀ Excluding฀ the฀ merger฀ and฀ integration฀
expenses฀ from฀ 2003,฀ selling,฀ general฀ and฀ administrative฀
expenses฀were฀37.3%฀of฀net฀sales.