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Advance Auto Parts Inc.$168.44($1.11)(.65%)

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 Advance Auto Parts Reports Fourth Quarter Fiscal 2016 Results
   Tuesday, February 21, 2017 6:30:01 AM ET

Advance Auto Parts, Inc. (AAP ), a leading automotive aftermarket parts provider in North America, serving both professional installer and do-it-yourself customers, today announced its financial results for the fourth quarter ended December 31, 2016. Fourth quarter GAAP earnings per diluted share (Diluted EPS) were $0.84. Fourth quarter Adjusted earnings per diluted share (Adjusted EPS) were $1.00, which exclude $0.08 of amortization of acquired intangible assets and integration and restructuring costs of $0.08 primarily associated with the acquisition of General Parts International, Inc. (General Parts).

 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Fourth Quarter Performance Summary
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               
                                                                                                                   Twelve Weeks Ended                                                                                                     Fifty-Two Weeks Ended
                                                                                      ----------------------------------------------------------------------------                                          ---------------------------------------------------------------------------------
                                                                                         December 31,                                                January 2,                                                December 31,                                                  January 2,
                                                                                             2016                                                       2016                                                       2016                                                         2016
                                                                                      ---------------                                             -------------                                             ---------------                                             ------------------
                                                                                                                                                                                                                                                                         
Sales (in millions)                                                                      $ 2,082.9                                                  $ 2,033.5                                                  $ 9,567.7                                                     $ 9,737.0
                                                                                                                                                                                                                                                                         
Comp Store Sales %                                                                             3.1 %                                                     (2.5 %)                                                    (1.4 %)                                                        0.0 %
                                                                                                                                                                                                                                                                         
Gross Profit (in millions)                                                               $   907.6                                                  $   909.2                                                  $ 4,255.9                                                     $ 4,422.8
                                                                                                                                                                                                                                                                         
SG&A (in millions)                                                                       $   801.4                                                  $   808.5                                                  $ 3,468.3                                                     $ 3,597.0
Adjusted SG&A (in millions) (1)                                                          $   781.9                                                  $   751.6                                                  $ 3,354.5                                                     $ 3,427.7
                                                                                                                                                                                                                                                                         
Operating Income (in millions)                                                           $   106.1                                                  $   100.7                                                  $   787.6                                                     $   825.8
Adjusted Operating Income (in millions) (1)                                              $   125.6                                                  $   157.6                                                  $   901.4                                                     $   995.1
                                                                                                                                                                                                                                                                         
Diluted EPS                                                                              $    0.84                                                  $    0.74                                                  $    6.20                                                     $    6.40
Adjusted EPS (1)                                                                         $    1.00                                                  $    1.22                                                  $    7.15                                                     $    7.82
                                                                                                                                                                                                                                                                         
Avg Diluted Shares (in thousands)                                                           73,886                                                     73,861                                                     73,856                                                        73,733
                                                                                                                                                                                                                                                                         
(1)   Fiscal 2016 and 2015 include certain non-operational expenses. The
                         Adjusted SG&A, Adjusted Operating Income and Adjusted EPS for the
                         twelve weeks ended December 31, 2016 and January 2, 2016,
                         respectively, have been reported on an adjusted basis to exclude
                         General Parts integration, store consolidation costs and support
                         center restructuring costs of $10.1 million and $47.2 million,
                         respectively, and General Parts amortization of acquired intangible
                         assets of $9.4 million and $9.7 million, respectively. The Adjusted
                         SG&A, Adjusted Operating Income and Adjusted EPS for the fifty-two
                         weeks ended December 31, 2016 and January 2, 2016, respectively,
                         have been reported on an adjusted basis to exclude General Parts
                         integration, store consolidation costs and support center
                         restructuring costs of $72.8 million and $127.1 million,
                         respectively, and General Parts amortization of acquired intangible
                         assets of $40.9 million and $42.3 million, respectively. For a
                         better understanding of the Company’s adjusted results, refer to the
                         reconciliation of the financial results reported on a GAAP basis to
                         the adjusted basis in the accompanying financial tables in this
                         press release.
                          

"We are pleased with the sequential improvement in our sales performance and positive comparable sales for the quarter. Our top line progress is a direct reflection of sustained investment in the customer. Our stronger sales execution and improved availability enabled us to serve our customers better," said Tom Greco, President and Chief Executive Officer.

Greco continued, "Our bottom line in the quarter reflects a planned inventory reduction along with sustained investments in the customer to accelerate top line growth. Our first priority is to deliver an outstanding experience for our customers and deliver consistent top line performance. We fully expect to balance our top and bottom line performance over time as we offset investments with a robust productivity agenda."

Fourth Quarter and Full Year 2016 Highlights

Total sales for the fourth quarter increased 2.4% to $2.08 billion, as compared with total sales during the fourth quarter of fiscal 2015 of $2.03 billion. The sales increase was driven by the comparable store sales growth of 3.1%, inclusive of the positive impact of the year-over-year comparable benefit from holiday timing and new store and Worldpac branch openings partially offset by the store closures and Carquest store consolidations. Total sales for fiscal 2016 were $9.57 billion compared to fiscal 2015 of $9.74 billion.

The Company’s Gross Profit rate was 43.6% of sales during the fourth quarter as compared to 44.7% during the fourth quarter last year. The 114 basis-point decrease was primarily driven by previously capitalized supply chain costs flowing through the income statement and reducing gross profit as a result of the planned reduction of inventory levels. The Company’s Gross Profit rate was 44.5% of sales for fiscal 2016 as compared to 45.4% for fiscal 2015.

On a GAAP basis, the Company’s SG&A rate was 38.5% of sales during the fourth quarter as compared to 39.8% during the same period last year. The 128 basis-point decrease was primarily due to lower integration and restructuring related costs during the fourth quarter compared to last year. Excluding this impact, the Company’s Adjusted SG&A rate was 37.5% of sales during the fourth quarter as compared to 37.0% during the same period last year. The 58 basis-point increase in Adjusted SG&A was primarily driven by ongoing customer focused investments. On a GAAP basis, the Company’s SG&A rate was 36.3% of sales for fiscal 2016 as compared to 36.9% during the same period last year. The Company’s Adjusted SG&A rate was 35.1% of sales during fiscal 2016 as compared to 35.2% during the same period last year.

On a GAAP basis, the Company’s Operating Income during the fourth quarter was $106.1 million, an increase of 5.4% versus the fourth quarter of fiscal 2015. On a GAAP basis, the Operating Income rate was 5.1% during the fourth quarter as compared to 5.0% during the fourth quarter of fiscal 2015. The Company’s Adjusted Operating Income was $125.6 million during the fourth quarter, a decrease of 20.3% versus the fourth quarter of fiscal 2015. As a percentage of sales, Adjusted Operating Income in the fourth quarter was 6.0% versus 7.7% during the fourth quarter of fiscal 2015. For fiscal 2016, the Company’s GAAP Operating Income rate was 8.2% versus 8.5% during fiscal 2015. For fiscal 2016, the Company’s Adjusted Operating Income was 9.4% versus 10.2% during fiscal 2015.

Operating cash flow decreased approximately 27.4% to $500.9 million in fiscal 2016 from $689.6 million in fiscal 2015. Free cash flow was $241.3 million in fiscal 2016 compared to $454.9 million in fiscal 2015. Capital expenditures in fiscal 2016 were $259.6 million as compared to $234.7 million in fiscal 2015.

Store Information

As of December 31, 2016, the Company operated 5,062 stores and 127 Worldpac branches and served approximately 1,250 independently owned Carquest stores.

2017 Full Year Assumptions

                                 
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
New Stores                                         75 to 85 new stores including Worldpac branches
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Comparable Store Sales (1)                         0% to 2%
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Adjusted Operating Income Rate (2)                 15 to 35 basis points improvement
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Income Tax Rate (3)                                37.5% to 38.0%
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Integration Expenses (2)                           Approximately $30 million to $35 million
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Capital Expenditures                               Approximately $250 million
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Free Cash Flow                                     Minimum $400 million
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
Diluted Share Count                                Approximately 74 million shares
---------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -----------------------------------------------
                                                  
1.   Comparable store sales estimate excludes sales to independently
                        owned Carquest locations and includes the impact of Carquest store
                        consolidations.
                         
2.                      Adjusted Operating Income excludes non-operational expenses related
                        to the integration of General Parts ("Integration Expenses") and the
                        recurring non-cash amortization of General Parts’ intangible assets.
                        Adjusted Operating Income is a non-GAAP measure. Management believes
                        Adjusted Operating Income is an important measure in assessing the
                        overall performance of the business and utilizes this metric in its
                        ongoing reporting. On that basis, Management believes it is useful
                        to provide Adjusted Operating Income to investors and prospective
                        investors to evaluate Advance’s operating performance across periods
                        adjusting for these items. Adjusted Operating Income might not be
                        calculated in the same manner as, and thus might not be comparable
                        to, similarly titled measures reported by other companies. Adjusted
                        Operating Income should not be used by investors or third parties as
                        the sole basis for formulating investment decisions, as it excludes
                        a number of important cash and non-cash recurring items. Please
                        refer to a more detailed explanation of the Company’s use of
                        non-GAAP financial measures in the accompanying financial tables
                        where the Company provides a reconciliation of its 2016 and 2015
                        financial results reported on a GAAP basis to the adjusted basis.
                        Because of the forward-looking nature of the 2017 non-GAAP financial
                        measures, specific quantifications of the amounts that would be
                        required to reconcile these non-GAAP financial measures to their
                        most directly comparable GAAP financial measures are not available
                        at this time.
                         
3.                      Income tax rate estimate does not factor in any impact from the
                        adoption of Accounting Standards Update (ASU) 2016-09 related to
                        changes in the presentation of excess tax benefits (deficits) from
                        share-based payment awards. The Company will adopt the provisions,
                        as specified by the ASU, effective fiscal 2017.
                         

Dividend

On February 15, 2017, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on April 7, 2017 to stockholders of record as of March 24, 2017.

Investor Conference Call

The Company will host a conference call on Tuesday, February 21, 2017, at 8:00 a.m. Eastern time to discuss its quarterly results. To listen to the live call, log on to the Company’s website, www.advanceautoparts.com, or dial (866) 908-1AAP. The call will be archived on the Company’s website until February 22, 2018.

About Advance Auto Parts

Advance Auto Parts, Inc. is a leading automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers. As of December 31, 2016, Advance operated 5,062 stores and 127 Worldpac branches and employed 74,000 Team Members in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The company also serves approximately 1,250 independently owned Carquest branded stores across these locations in addition to Mexico and the Bahamas, Turks and Caicos, British Virgin Islands and Pacific Islands. Additional information about the Company, employment opportunities, customer services, and on-line shopping for parts, accessories and other offerings can be found on the Company’s website at www.AdvanceAutoParts.com.

Forward Looking Statements

Certain statements contained in this release are forward-looking statements, as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address future events or developments, and typically use words such as believe, anticipate, expect, intend, plan, forecast, outlook or estimate. These forward looking statements include, but are not limited to, key assumptions for 2017 financial performance including adjusted operating income; statements regarding expected growth and future performance of Advance Auto Parts, Inc. (AAP), including store growth, capital expenditures, comparable store sales, gross profit rate, SG&A, adjusted operating income, free cash flow, income tax rate, General Parts integration costs and adjusted operating income rate targets; expectations regarding leadership changes and their impact on the company’s strategies, opportunities and results; statements regarding enhancements to shareholder value; statements regarding strategic plans or initiatives, growth or profitability; and all other statements that are not statements of historical facts. These forward-looking statements are subject to significant risks, uncertainties and assumptions, and actual future events or results may differ materially from such forward-looking statements. Such differences may result from, among other things, AAP’s ability to implement its business and growth strategy; ability to attract, develop and retain executives and other employees; changes in regulatory, social and political conditions, as well as general economic conditions; competitive pressures; demand for AAP’s products; the market for auto parts; the economy in general; inflation; consumer debt levels; the weather; business interruptions; information technology security; availability of suitable real estate; dependence on foreign suppliers; and other factors disclosed in AAP’s 10-K for the fiscal year ended January 2, 2016 and other filings made by AAP with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. AAP intends these forward-looking statements to speak only as of the time of this communication and does not undertake to update or revise them as more information becomes available.

 
                                                                        Advance Auto Parts, Inc. and Subsidiaries
                                                                          Condensed Consolidated Balance Sheets
                                                                                     (in thousands)
                                                                                       (unaudited)
                                                                           
                                                                                        December 31,                                                               January 2,
                                                                                            2016                                                                      2016
                                                                               -----------------------------                                            ------------------------------
                                                                                                                                                         
               Assets
------------------------------------
                                                                                                                                                         
Current assets:
  Cash and cash equivalents                                                                       $   135,178                                                              $     90,782
  Receivables, net                                                                                    641,252                                                                   597,788
  Inventories, net                                                                                  4,325,868                                                                 4,174,768
  Other current assets                                                              70,466                                                 77,408
                                                                               -------------------- ---------                                           -------------------- ----------
    Total current assets                                                                            5,172,764                                                                 4,940,746
                                                                                                                                                         
Property and equipment, net                                                                         1,446,340                                                                 1,434,577
Goodwill                                                                                              990,877                                                                   989,484
Intangible assets, net                                                                                640,903                                                                   687,125
Other assets, net                                                                   64,149                                                 75,769
                                                                               -------------------- ---------                                           -------------------- ----------
                                                                                                  $ 8,315,033                                                              $  8,127,701
                                                                               ==================== =========                                           ==================== ==========
                                                                                                                                                         
Liabilities and Stockholders’ Equity
------------------------------------
                                                                                                                                                         
Current liabilities:
  Current portion of long-term debt                                                               $       306                                                              $        598
  Accounts payable                                                                                  3,086,177                                                                 3,203,922
  Accrued expenses                                                                                    554,397                                                                   553,163
  Other current liabilities                                                         35,166                                                 39,794
                                                                               -------------------- ---------                                           -------------------- ----------
    Total current liabilities                                                                       3,676,046                                                                 3,797,477
                                                                                                                                                         
Long-term debt                                                                                      1,042,949                                                                 1,206,297
Deferred income taxes                                                                                 454,282                                                                   433,925
Other long-term liabilities                                                                           225,564                                                                   229,354
Total stockholders’ equity                                                       2,916,192                                              2,460,648
                                                                               -------------------- ---------                                           -------------------- ----------
                                                                                                  $ 8,315,033                                                              $  8,127,701
                                                                               ==================== =========                                           ==================== ==========
                                                                                                                                                         
NOTE: These preliminary condensed consolidated balance sheets
have been prepared on a basis consistent with our previously
prepared balance sheets filed with the Securities and Exchange
Commission for our prior quarter and annual report, but do not
include the footnotes required by generally accepted accounting
principles, or GAAP, for complete financial statements. The
Company retrospectively adopted ASU 2015-03 in the first quarter
of 2016, which resulted in a reclassification of debt issuance
costs from Other assets, net to Long-term debt.
 
 
                                                                                                                                                                                               Advance Auto Parts, Inc. and Subsidiaries
                                                                                                                                                                                            Condensed Consolidated Statements of Operations
                                                                                                                                                                                                Twelve and Fifty-Two Week Periods Ended
                                                                                                                                                                                                 December 31, 2016 and January 2, 2016
                                                                                                                                                                                                 (in thousands, except per share data)
                                                                                                                                                                                                              (unaudited)
                                                                                                                                                                                                                         
                                                                                                               Q4 2016                                                                                       Q4 2015                                                                                      YTD 2016                                                                                      YTD 2015
                                                                                        ----------------------------------------------------                                          ----------------------------------------------------                                          ----------------------------------------------------                                          ----------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                   
Net sales                                                                                                  $ 2,082,891                                                                                   $ 2,033,545                                                                                   $ 9,567,679                                                                                   $ 9,737,018
Cost of sales                                                                             1,175,327                                               1,124,373                                               5,311,764                                               5,314,246  
                                                                                        -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
        Gross profit                                                                                           907,564                                                                                       909,172                                                                                     4,255,915                                                                                     4,422,772
Selling, general and administrative expenses                                                801,417                                                 808,494                                               3,468,317                                               3,596,992  
                                                                                        -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
        Operating income                                                                    106,147                                                 100,678                                                 787,598                                                 825,780  
                                                                                        -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Other, net:
  Interest expense                                                                                             (13,365 )                                                                                     (13,809 )                                                                                     (59,910 )                                                                                     (65,408 )
  Other (expense) income, net                                                                 4,129                                                  (3,044 )                                                                   11,147                                                  (7,484 )
                                                                                        -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
        Total other, net                                                                     (9,236 )                                                                  (16,853 )                                                                  (48,763 )                                                                  (72,892 )
                                                                                        -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Income before provision for income taxes                                                                        96,911                                                                                        83,825                                                                                       738,835                                                                                       752,888
Provision for income taxes                                                                   34,546                                                  29,006                                                 279,213                                                 279,490  
                                                                                        -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Net income                                                                                                 $    62,365                                                                $    54,819                                                                $   459,622                                                                $   473,398  
                                                                                        ==================== ========= ====================                                           ==================== ========= ====================                                           ==================== ========= ====================                                           ==================== ========= ====================
                                                                                                                                                                                                                                                                                                                                                                                   
Basic earnings per common share (a)                                                                        $      0.84                                                                                   $      0.75                                                                                   $      6.22                                                                                   $      6.45
Diluted earnings per common share (a)                                                                      $      0.84                                                                                   $      0.74                                                                                   $      6.20                                                                                   $      6.40
                                                                                                                                                                                                                                                                                                                                                                                   
Average common shares outstanding (a)                                                                           73,685                                                                                        73,263                                                                                        73,562                                                                                        73,190
Average diluted common shares outstanding (a)                                                                   73,886                                                                                        73,861                                                                                        73,856                                                                                        73,733
                                                                                                                                                                                                                                                                                                                                                                                   
(a)   Average common shares outstanding is calculated based on the
                         weighted average number of shares outstanding during the quarter
                         or year-to-date period, as applicable. At December 31, 2016 and
                         January 2, 2016, we had 73,749 and 73,314 shares outstanding,
                         respectively.
                          
NOTE: These preliminary condensed consolidated statements of
operations have been prepared on a basis consistent with our
previously prepared statements of operations filed with the
Securities and Exchange Commission for our prior quarter and
annual report, with the exception of the footnotes required by
GAAP for complete financial statements.
 
 
                                                                                                             Advance Auto Parts, Inc. and Subsidiaries
                                                                                                          Condensed Consolidated Statements of Cash Flows
                                                                                                                     Forty Week Periods Ended
                                                                                                               December 31, 2016 and January 2, 2016
                                                                                                                          (in thousands)
                                                                                                                            (unaudited)
                                                                                                                                  
                                                                                                                                     December 31,                                                                                  January 2,
                                                                                                                                         2016                                                                                         2016
                                                                                                                  ------------------------------------------------                                             ------------------------------------------------
                                                                                                                                                                                                                
Cash flows from operating activities:
  Net income                                                                                                                         $  459,622                                                                                   $  473,398
  Depreciation and amortization                                                                                                         258,387                                                                                      269,476
  Share-based compensation                                                                                                               20,452                                                                                       36,929
  Provision (benefit) for deferred income taxes                                                                                          20,213                                                                                       (9,219 )
  Excess tax benefit from share-based compensation                                                                                      (22,429 )                                                                                    (13,002 )
  Other non-cash adjustments to net income                                                                                                3,960                                                                                       15,542
  (Increase) decrease in:
    Receivables, net                                                                                                                    (41,642 )                                                                                    (21,476 )
    Inventories, net                                                                                                                   (144,603 )                                                                                   (244,096 )
    Other assets                                                                                                                         14,421                                                                                        7,423
  (Decrease) increase in:
    Accounts payable                                                                                                                   (119,325 )                                                                                    119,164
    Accrued expenses                                                                                                                     49,341                                                                                       35,103
    Other liabilities                                                                                                  2,477                                                 20,400  
                                                                                                                  -------------------- -------- --------------------                                           -------------------- -------- --------------------
      Net cash provided by operating activities                                                                                         500,874                                                                                      689,642
                                                                                                                                                                                                                
Cash flows from investing activities:
  Purchases of property and equipment                                                                                                  (259,559 )                                                                                   (234,747 )
  Business acquisitions, net of cash acquired                                                                                            (4,697 )                                                                                    (18,889 )
  Proceeds from sales of property and equipment                                                                        2,212                                                    270  
                                                                                                                  -------------------- -------- --------------------                                           -------------------- -------- --------------------
      Net cash used in investing activities                                                                                            (262,044 )                                                                                   (253,366 )
                                                                                                                                                                                                                
Cash flows from financing activities:
  Decrease in bank overdrafts                                                                                                            (5,573 )                                                                                     (2,922 )
  Net payments on credit facilities                                                                                                    (160,000 )                                                                                   (423,400 )
  Dividends paid                                                                                                                        (17,738 )                                                                                    (17,649 )
  Proceeds from the issuance of common stock, primarily for employee                                                                      4,532                                                                                        5,174
  stock purchase plan
  Tax withholdings related to the exercise of stock appreciation rights                                                                 (19,558 )                                                                                    (13,112 )
  Excess tax benefit from share-based compensation                                                                                       22,429                                                                                       13,002
  Repurchase of common stock                                                                                                            (18,393 )                                                                                     (6,665 )
  Other                                                                                                                 (390 )                                                                    (380 )
                                                                                                                  -------------------- -------- --------------------                                           -------------------- -------- --------------------
      Net cash used in financing activities                                                                         (194,691 )                                                                (445,952 )
                                                                                                                  -------------------- -------- --------------------                                           -------------------- -------- --------------------
                                                                                                                                                                                                                
Effect of exchange rate changes on cash                                                                                  257                                                 (4,213 )
                                                                                                                  -------------------- -------- --------------------                                           -------------------- -------- --------------------
                                                                                                                                                                                                                
Net increase (decrease) in cash and cash equivalents                                                                                     44,396                                                                                      (13,889 )
Cash and cash equivalents, beginning of period                                                                        90,782                                                104,671  
                                                                                                                  -------------------- -------- --------------------                                           -------------------- -------- --------------------
Cash and cash equivalents, end of period                                                                                             $  135,178                                                                $   90,782  
                                                                                                                  ==================== ======== ====================                                           ==================== ======== ====================
                                                                                                                                                                                                                                              
NOTE: These preliminary condensed consolidated statements of
cash flows have been prepared on a consistent basis with
previously prepared statements of cash flows filed with the
Securities and Exchange Commission for our prior quarter and
annual report, but do not include the footnotes required by GAAP
for complete financial statements.
 

Reconciliation of Non-GAAP Financial Measures

The Company’s financial results include certain financial measures not derived in accordance with generally accepted accounting principles ("GAAP"). Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, the Company has presented these non-GAAP financial measures as management believes that the presentation of its financial results that exclude non-cash charges related to the acquired General Parts intangibles and non-operational expenses associated with i) the integration of General Parts, ii) store consolidation costs and iii) support center restructuring costs is useful and indicative of its base operations because the expenses vary from period to period in terms of size, nature and significance and relate to the integration of General Parts and store closure activity in excess of historical levels. These measures assist in comparing the Company’s current operating results with past periods and with the operational performance of other companies in the industry. The disclosure of these measures allow investors to evaluate the Company’s performance using the same measures management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below is a description of the expenses the Company has determined are not normal, recurring cash operating expenses necessary to operate the Company’s business and the rationale for why providing these measures are useful to investors as a supplement to the GAAP measures.

General Parts Integration Expenses - As disclosed in the Company’s filings with the Securities and Exchange Commission, the Company acquired General Parts International, Inc. ("General Parts") for $2.08 billion on January 2, 2014 and is in the midst of a multi-year integration plan to integrate the operations of General Parts with Advance Auto Parts. This includes the integration of product brands and assortments, supply chain and information technology. The integration is being completed in phases and the nature and timing of expenses will vary from quarter to quarter over several years. The integration of product brands and assortments was primarily completed in 2015 and the focus has shifted to integrating the supply chain and information technology systems beginning in 2016. Due to the size of the acquisition, the Company considers these expenses to be outside of its base business. Therefore, the Company believes providing additional information in the form of non-GAAP measures that exclude these costs is beneficial to the users of its financial statements in evaluating the operating performance of the base business and its sustainability once the integration is completed.

Store Closure and Consolidation Expenses - Store consolidation expenses consist of expenses associated with the Company’s announced plans to (i) convert or consolidate the Carquest stores acquired from General Parts, (ii) close its Autopart International stores in Florida and (iii) close approximately 80 underperforming Advance Auto Parts stores in the fourth quarter of fiscal 2015. The conversion and consolidation of the Carquest stores is a multi-year process that began in 2014. As of December 31, 2016, 615 Carquest stores acquired from General Parts had been consolidated or converted into existing Advance Auto Parts stores format. As of December 31, 2016, the Company operated 608 stores under the Carquest name. The closure of the 40 Autopart International stores in Florida, primarily in the first quarter of 2015, and closure of 80 underperforming Advance Auto Parts stores in the fourth quarter of 2015 significantly exceed the Company’s average store closure activity. While periodic store closures are common, these closures represent major programs outside of the Company’s typical market evaluation process. The Company also continues to have store closures that occur as part of its normal market evaluation process and has not excluded the expenses associated with these store closures in computing the Company’s non-GAAP measures. The Company believes it is useful to provide additional non-GAAP measures that exclude these costs to provide investors greater comparability of our base business and core operating performance.

Support Center Restructuring Expenses - The costs excluded for support center restructuring activities include costs associated with (i) closing the Company’s Minnesota office and relocating functions to existing offices, (ii) relocating functions within the Company’s Roanoke, VA office and Raleigh, NC office (formerly the headquarters for General Parts) and (iii) eliminating duplicative functions between these two offices. These actions are a direct consequence of the acquisition and integration of General Parts and therefore the Company does not consider these expenses to be normal, recurring, cash operating expenses necessary to operate its business. These actions were substantially completed as of the end of fiscal 2015 and the Company has had no material support center restructuring expenses following the end of fiscal 2015.

The Company has included a reconciliation of this information to the most comparable GAAP measures in the following tables.

 
Reconciliation of Adjusted Net Income and
Adjusted EPS:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                             Twelve Week Periods Ended                                                                                                                         Fifty-Two Week Periods Ended
                                                                                                                                                   (in thousands, except per                                                                                                                                                                   (in thousands, except
                                                                                                                                                          share data)                                                                                                                                                                             per share data)
                                                                                        --------------------------------------------------------------------------------------------------------------------------------------                                                  ------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           December 31,                                           January 2,                                                                                  December 31,                                             January 2,
                                                                                                               2016                                                                                        2016                                                                                         2016                                                                                          2016
                                                                                        -----------------------------------------------                                             -----------------------------------------------                                             -------------------------------------------------                                             -------------------------------------------------
Net income (GAAP)                                                                                          $  62,365                                                                                   $  54,819                                                                                   $   459,622                                                                                   $   473,398
SG&A adjustments (a)                                                                                          19,477                                                                                      56,881                                                                                       113,768                                                                                       169,340
Provision for income taxes on adjustments (b)                                              (7,401 )                                                                (21,615 )                                                                  (43,232 )                                                                  (64,349 )
                                                                                        -------------------- ------- --------------------                                           -------------------- ------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Adjusted net income                                                                                        $  74,441                                                                $  90,085                                                                $   530,158                                                                $   578,389  
                                                                                        ==================== ======= ====================                                           ==================== ======= ====================                                           ==================== ========= ====================                                           ==================== ========= ====================
                                                                                                                                                                                                                                                                                                                                                                               
Diluted earnings per common share (GAAP)                                                                   $    0.84                                                                                   $    0.74                                                                                   $      6.20                                                                                   $      6.40
SG&A adjustments, net of tax                                                                 0.16                                                  0.48                                                    0.95                                                    1.42  
                                                                                        -------------------- ------- --------------------                                           -------------------- ------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Adjusted EPS                                                                                               $    1.00                                                                $    1.22                                                                $      7.15                                                                $      7.82  
                                                                                        ==================== ======= ====================                                           ==================== ======= ====================                                           ==================== ========= ====================                                           ==================== ========= ====================
 
Reconciliation of Adjusted Selling,
General and Administrative Expenses:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                                                                   Twelve Week Periods Ended                                                                                                                                                               Fifty-Two Week Periods Ended
                                                                                                                                                        (in thousands)                                                                                                                                                                            (in thousands)
                                                                                        --------------------------------------------------------------------------------------------------------------------------------------                                                  ------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           December 31,                                                                                 January 2,                                                                                  December 31,                                                                                   January 2,
                                                                                                               2016                                                                                        2016                                                                                         2016                                                                                          2016
                                                                                        -----------------------------------------------                                             -----------------------------------------------                                             -------------------------------------------------                                             -------------------------------------------------
SG&A (GAAP)                                                                                                $ 801,417                                                                                   $ 808,494                                                                                   $ 3,468,317                                                                                   $ 3,596,992
SG&A adjustments (a)                                                                      (19,477 )                                                                (56,881 )                                                                 (113,768 )                                                                 (169,340 )
                                                                                        -------------------- ------- --------------------                                           -------------------- ------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Adjusted SG&A                                                                                              $ 781,940                                                                $ 751,613                                                                $ 3,354,549                                                                $ 3,427,652  
                                                                                        ==================== ======= ====================                                           ==================== ======= ====================                                           ==================== ========= ====================                                           ==================== ========= ====================
 
Reconciliation of Adjusted Operating
Income:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                   Twelve Week Periods Ended                                                                                                                                                               Fifty-Two Week Periods Ended
                                                                                                                                                        (in thousands)                                                                                                                                                                            (in thousands)
                                                                                        --------------------------------------------------------------------------------------------------------------------------------------                                                  ------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           December 31,                                                                                 January 2,                                                                                  December 31,                                                                                   January 2,
                                                                                                               2016                                                                                        2016                                                                                         2016                                                                                          2016
                                                                                        -----------------------------------------------                                             -----------------------------------------------                                             -------------------------------------------------                                             -------------------------------------------------
Operating income (GAAP)                                                                                    $ 106,147                                                                                   $ 100,678                                                                                   $   787,598                                                                                   $   825,780
SG&A adjustments (a)                                                                       19,477                                                56,881                                                 113,768                                                 169,340  
                                                                                        -------------------- ------- --------------------                                           -------------------- ------- --------------------                                           -------------------- --------- --------------------                                           -------------------- --------- --------------------
Adjusted operating income                                                                                  $ 125,624                                                                $ 157,559                                                                $   901,366                                                                $   995,120  
                                                                                        ==================== ======= ====================                                           ==================== ======= ====================                                           ==================== ========= ====================                                           ==================== ========= ====================
                                                                                                                                                                                                                                                                                                                                                                               
(a)   The adjustments to SG&A expenses for the twelve and fifty-two
                         weeks ended December 31, 2016 include General Parts integration,
                         store consolidation costs and support center restructuring costs
                         of $10,084 and $72,828 and General Parts amortization of acquired
                         intangible assets of $9,393 and $40,940, respectively. The
                         adjustments to SG&A expenses for the twelve and fifty-two weeks
                         ended January 2, 2016 include General Parts integration, store
                         consolidation costs and support center restructuring costs of
                         $47,213 and $127,059 and General Parts amortization of acquired
                         intangible assets of $9,668 and $42,281, respectively.
(b)                      The income tax impact of non-GAAP adjustments is calculated
                         using the estimated tax rate in effect for the respective non-GAAP
                         adjustments.
                          
                                                                                               
Reconciliation of Free Cash Flow:
------------------------------------
                                                                                                                                         Fifty-Two Week Periods Ended
                                                                               ------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  December 31,                                                                                  January 2,
                                                                                                      2016                                                                                         2016
                                                                               ------------------------------------------------                                             ------------------------------------------------
Cash flows from operating activities                                                              $  500,874                                                                                   $  689,642
Purchases of property and equipment                                              (259,559 )                                                                (234,747 )
                                                                               -------------------- -------- --------------------                                           -------------------- -------- --------------------
Free cash flow                                                                                    $  241,315                                                                $  454,895  
                                                                               ==================== ======== ====================                                           ==================== ======== ====================
                                                                                                                                                                                                           
NOTE: Management uses free cash flow as a measure of our
liquidity and believes it is a useful indicator to stockholders of
our ability to implement our growth strategies and service our
debt. Free cash flow is a non-GAAP measure and should be
considered in addition to, but not as a substitute for,
information contained in our condensed consolidated statement of
cash flows.
 
Adjusted Debt to Adjusted EBITDAR:                                                                   
--------------------------------------------------------------
(In thousands, except adjusted debt to adjusted EBITDAR ratio)                                                                                      Four Quarters Ended
                                                                                                         ---------------------------------------------------------------------------------------------------------
                                                                                                                  December 31,                                                               January 2,
                                                                                                                      2016                                                                      2016
                                                                                                         -----------------------------                                            ------------------------------
Total debt (a)                                                                                                              $ 1,043,255                                                              $  1,206,895
  Add: Capitalized lease obligation (rent expense * 6)                                                     3,221,202                                              3,190,728
                                                                                                         -------------------- ---------                                           -------------------- ----------
Adjusted debt                                                                                                                 4,264,457                                                                 4,397,623
                                                                                                                                                                                   
Operating income                                                                                                                787,598                                                                   825,780
  Add: Adjustments (b)                                                                                                           72,828                                                                   127,059
      Depreciation and amortization                                                                          258,387                                                269,476
                                                                                                         -------------------- ---------                                           -------------------- ----------
Adjusted EBITDA                                                                                                               1,118,813                                                                 1,222,315
Rent expense (less favorable lease amortization of $3,498 and                                                536,867                                                531,788
$4,786, respectively)
                                                                                                         -------------------- ---------                                           -------------------- ----------
Adjusted EBITDAR                                                                                                            $ 1,655,680                                                              $  1,754,103
                                                                                                                                                                                   
Adjusted Debt to Adjusted EBITDAR                                                                                                   2.6                                                                       2.5
                                                                                                                                                                                   
(a)   The Company retrospectively adopted ASU 2015-03 in the first
                         quarter of 2016, which resulted in a reclassification of debt
                         issuance costs from Other assets, net to Long-term debt.
(b)                      The adjustments to the four quarters ended December 31, 2016
                         include General Parts integration, store closure and consolidation
                         costs and support center restructuring costs of $72.8 million. The
                         adjustments to Fiscal 2015 include General Parts integration,
                         store closure and store consolidation costs and support center
                         restructuring costs of $127.1 million.
                          
NOTE: Management believes its Adjusted Debt to Adjusted EBITDAR
ratio ("leverage ratio") is a key financial metric for debt
securities, as reviewed by rating agencies, and believes its debt
levels are best analyzed using this measure. The Company’s goal is
to maintain a 2.5 times leverage ratio and investment grade
rating. The Company’s credit rating directly impacts the interest
rates on borrowings under its existing credit facility and could
impact the Company’s ability to obtain additional funding. If the
Company was unable to maintain its investment grade rating this
could negatively impact future performance and limit growth
opportunities. Similar measures are utilized in the calculation of
the financial covenants and ratios contained in the Company’s
financing arrangements. The leverage ratio calculated by the
Company is a non-GAAP measure and should not be considered a
substitute for debt to net earnings, net earnings or debt as
determined in accordance with GAAP. The Company adjusts the
calculation to remove rent expense and capitalize the Company’s
existing operating leases to provide a more meaningful comparison
with the Company’s peers and to account for differences in debt
structures and leasing arrangements. The use of a multiple of rent
expense to calculate the adjustment for capitalized operating
lease obligations is a commonly used method of estimating the debt
the Company would record for its leases that are classified as
operating if they had met the criteria for a capital lease or the
Company had purchased the property. The Company’s calculation of
its leverage ratio might not be calculated in the same manner as,
and thus might not be comparable to, similarly titled measures by
other companies.
 

Store Information:

As of December 31, 2016, the Company operated 5,062 stores and 127 Worldpac branches and served approximately 1,250 independently owned Carquest stores. The below table summarizes the changes in the number of the company-operated stores and branches during the twelve and fifty-two weeks ended December 31, 2016.

                                                                                            
                                                            ------------------------------------                                          -------------------- --------------------------------------------------------                                           --------------------------------                                          --------------------                                           ------------------------------------
                                                                             AAP                                                                             AI                                                                         CARQUEST                                                            WORLDPAC                                                                 Total
                                                            ------------------------------------                                          -------------------- --------------------------------------------------------                                           --------------------------------                                          --------------------                                           ------------------------------------
                                                                                                                                                                                 
October 8, 2016                                                      4,237                                                                                                181                                                                                            640                                                                                 127                                                    5,185
    New                                                                 22                                                                                     --                                                                                              3                                                                      --                                                       25
    Closed                                                              (2 )                                                                                   --                                                                                             (2 )                                                                    --                                                       (4 )
    Consolidated                                            --                                                                                     --                                                                                            (17 )                                                                    --                                                      (17 )
    Converted                                                           16                                               --                                                      (16 )                                                                    --                                           --  
                                                            -------------- --------------------                                           -------------------- -------------- -------------------- --------------------                                           ---------- --------------------                                           --------------------                                           -------------- --------------------
December 31, 2016                                                    4,273                                                          181                                                      608                                                              127                                                    5,189  
                                                            ============== ====================                                           ==================== ============== ==================== ====================                                           ========== ====================                                           ====================                                           ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                            
January 2, 2016                                                      4,102                                                                                                184                                                                                            885                                                                                 122                                                    5,293
    New                                                                 64                                                                                     --                                                                                              9                                                                                   5                                                       78
    Closed                                                             (13 )                                                                                               (3 )                                                                                           (7 )                                                                    --                                                      (23 )
    Consolidated                                                        (3 )                                                                                   --                                                                                           (156 )                                                                    --                                                     (159 )
    Converted                                                          123                                               --                                                     (123 )                                                                    --                                           --  
                                                            -------------- --------------------                                           -------------------- -------------- -------------------- --------------------                                           ---------- --------------------                                           --------------------                                           -------------- --------------------
December 31, 2016                                                    4,273                                                          181                                                      608                                                              127                                                    5,189  
                                                            ============== ====================                                           ==================== ============== ==================== ====================                                           ========== ====================                                           ====================                                           ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                           

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170221005623r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20170221005623/en/

SOURCE: Advance Auto Parts, Inc.

Advance Auto Parts, Inc. 
Media Contact 
Laurie Stacy, 540-561-1206 
laurie.stacy@advanceautoparts.com 
or 
Investor Contact 
Zaheed Mawani, 919-573-3848 
zaheed.mawani@advanceautoparts.com


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