Advance Auto Parts 2005 Annual Report Download - page 23

The following discussion and analysis of financial
condition and results of operations should be read in
conjunction with “Selected Financial Data,” our
consolidated historical financial statements and the
notes to those statements that appear elsewhere in
this report. Our discussion contains forward-looking
statements based upon expectations that involve
risks and uncertainties, such as our plans, objec-
tives, 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 16, 2006 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 consisted of 13 weeks due to our
53-week fiscal year in 2003.
INTRODUCTION
We operate primarily within the United States
automotive aftermarket industry, which includes
replacement parts (excluding tires), accessories,
maintenance items, batteries and automotive chemi-
cals for cars and light trucks (pickup trucks, vans,
minivans and sport utility vehicles). We currently are
the second largest specialty retailer of automotive
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 reportable segment.
We were formed in 1929 and operated as a retail-
er 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 signif-
icantly as a result of strong comparable store sales
growth, new store openings and strategic acquisi-
tions, including our 1998 Western Auto Supply
Company acquisition and our 2001 acquisition of
Discount Auto Parts, or Discount. More recently in
2005, we acquired Autopart International, Inc. and
substantially all the assets of Lappen Auto Supply.
In addition to our DIY business we also serve
“do-it-for-me,” or DIFM, customers via sales to
commercial accounts through our retail stores. Since
1996, we have aggressively expanded our sales to
DIFM customers through our commercial delivery
program. Sales to DIFM customers represented
approximately 22% of our sales in 2005 and consisted
of sales to both walk-in commercial customers and
sales delivered to our commercial customers’ places
of business, including independent garages, service
stations and auto dealers. At December 31, 2005, we
had 2,254 stores with commercial delivery programs.
At December 31, 2005, we operated 2,774 stores
throughout 40 states in the Northeastern,
Southeastern and Midwestern regions of the United
States. These stores operate under the “Advance
Auto Parts” trade name except for certain stores in
the state of Florida, which operate under the
“Advance Discount Auto Parts” trade name. These
stores offer automotive replacement parts, acces-
sories and maintenance items, with no significant
concentration in any specific product area. In
addition, we operated 36 stores under the “Western
Auto” and “Advance Auto Parts” trade names,
located primarily in Puerto Rico and the Virgin
Islands. The Western Auto stores offer automotive
tires and service in addition to automotive parts,
accessories and maintenance items. At December 31,
2005, we also operated 62 stores under the “Autopart
International” trade name throughout the Northeastern
region of the United States.
The following table sets forth the total number of
new, closed and relocated stores and stores with com-
mercial delivery programs during fiscal 2005, 2004
and 2003. We lease approximately 80% of our stores.
Fiscal Year
2005 2004 2003
Number of stores at beginning
of year ......................................... 2,652 2,539 2,435
New stores(a) ............................ 231 125 125
Closed stores........................... (11) (12) (21)
Number of stores, end of period(b) ... 2,872 2,652 2,539
Relocated stores............................... 54 34 32
Stores with commercial
delivery programs(c) ..................... 2,254 1,945 1,625
(a) Includes 61 stores acquired in fiscal 2005 as a result of our
Autopart International acquisition and 19 stores acquired in
fiscal 2005 as a result of our Lappen Auto Supply acquisition.
(b) Includes seven stores not operating at December 31, 2005,
primarily due to hurricane damage.
(c) Includes 62 AI stores operating at December 31, 2005.
We anticipate adding approximately 170 to 180
new Advance Auto Parts stores during 2006, excluding
any acquisitions during 2006.
MANAGEMENT OVERVIEW
In 2005, we produced solid earnings primarily
reflective of our continued sales momentum and gross
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Advance Auto Parts I Annual Report 2005 I 21