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| () | | | $ | () | | | $ | | | | $ | | |
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The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions) (Unaudited) | | | | | | | | | | | |
| | Sixteen Weeks Ended |
| April 19, 2025 | | April 20, 2024 |
| Cash flows from operating activities: | | | |
| Net income | $ | | | | $ | | |
| Net income from discontinued operations | | | | | |
| Net income from continuing operations | | | | | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | |
| Depreciation and amortization | | | | | |
| Share-based compensation | | | | | |
Loss (Gain) on sale and impairment of long-lived assets, net | | | | () | |
| Provision for deferred income taxes | () | | | | |
| Other, net | | | | | |
| Net change in: | | | |
| Receivables, net | | | | | |
| Inventories, net | () | | | | |
Operating lease right of use assets | | | | () | |
| Other assets | () | | | () | |
| Accounts payable | | | | () | |
| Accrued expenses | () | | | | |
Operating lease liabilities | () | | | | |
| Other liabilities | () | | | () | |
Net cash used in operating activities of continuing operations | () | | | () | |
Net cash provided by operating activities of discontinued operations | | | | | |
Net cash (used in) provided by operating activities | () | | | | |
| Cash flows from investing activities: | | | |
| Purchases of property and equipment | () | | | () | |
| Proceeds from sales of property and equipment | | | | | |
| Net cash used in investing activities of continuing operations | () | | | () | |
| Net cash used in investing activities of discontinued operations | | | | () | |
| Net cash used in investing activities | () | | | () | |
| Cash flows from financing activities: | | | |
| |
| |
| |
| Dividends paid | () | | | () | |
| Purchase of noncontrolling interest | | | | () | |
| Proceeds from the issuance of common stock | | | | | |
| Repurchases of common stock | () | | | () | |
| Other, net | () | | | () | |
| Net cash used in financing activities | () | | | () | |
| | | |
| Effect of exchange rate changes on cash | | | | | |
| | | |
| Net decrease in cash and cash equivalents | () | | | () | |
Cash and cash equivalents, beginning of period | | | | | |
Cash and cash equivalents, end of period | $ | | | | $ | | |
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| | | | | | | | | | | |
| | Sixteen Weeks Ended |
| April 19, 2025 | | April 20, 2024 |
| | | |
| Non-cash transactions of continuing operations: | | | |
| Accrued purchases of property and equipment | $ | | | | $ | | |
| |
| | | |
| Summary of cash and cash equivalents: | | | |
Cash and cash equivalents of continuing operations, end of period | | | | | |
Cash and cash equivalents of discontinued operations, end of period | | | | | |
Cash and cash equivalents, end of period | $ | | | | $ | | |
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
1.
stores primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of April 19, 2025, the Company served independently owned Carquest branded stores across the same geographic locations served by the Company’s stores in addition to Mexico and various Caribbean islands. The Company’s stores operate primarily under the trade names “Advance Auto Parts” and “Carquest”.
The Company has reportable segment. As of December 28, 2024, the Company had operating segments, which were aggregated as a single reportable segment; however, following the stabilization of the Company’s new organizational structure in the first quarter of fiscal 2025, due to significant restructuring activities, the Company now operates under the single operating segment of “Advance Auto Parts/Carquest”. See Note 11. Segment Reporting and Note 3. Restructuring, of the notes to the condensed consolidated financial statements included herein for additional information on the Company’s segments and restructuring activities.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
% | | | % | | |
| Accessories and Chemicals | | | | | | | |
| Engine Maintenance | | | | | | | |
| Other | | | | | | | |
| Total | | % | | | % | | |
There were no major customers individually accounting for 10% or more of consolidated net revenues.
3.
stores, approximately independent locations and distribution centers by mid-2025, as well as headcount reductions. The Company completed the closure of all of these locations during the first quarter of 2025.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
| | |
| Severance and other personnel expenses | | | | |
Other location closure related expenses (1) | | | | |
| | | |
| 2024 Restructuring Plan Expenses | $ | | | | |
| | | |
| Other Restructuring Plan Expenses: | | | |
| Selling, general and administrative expenses: | | | |
Distribution network optimization | $ | | | | |
| Impairment and write-down of long-lived assets | | | | |
| Worldpac post transaction-related expenses | | | | |
Other restructuring expenses (2) | | | | |
| Other Restructuring Plan Expenses | $ | | | | |
)| | | | $ | | |
million, consisting of write-down of inventory to net realizable value in the fourth quarter of fiscal 2024, lease termination impacts, other exit-related expenses related to ceased use buildings and certain employee termination benefits. The Company estimates that it will incur additional expenses of approximately $ million to $ million These expenses primarily relate to lease terminations, professional services, and other exit costs to be incurred by the end of fiscal year 2025.
4.
% of inventories as of April 19, 2025 and December 28, 2024. An actual valuation of inventory under the LIFO method is performed at the end of each fiscal year based on inventory levels and carrying costs at that time. Accordingly, interim LIFO calculations are based on the Company’s estimates of expected inventory levels and costs at the end of the year. The Company’s LIFO debit/(credit) reserve balance was $ million and $() million as of April 19, 2025 and December 28, 2024, respectively, to state inventories at LIFO. Increases to the Company’s LIFO credit reserve balance are recorded as a noncash charge to cost of sales and decreases are recorded as a non-cash benefit to cost of sales.
) | | $ | () | |
As of April 19, 2025, the effect of LIFO liquidations was a decrease to cost of sales of $ million and an increase to net earnings of $ million ($) per diluted share.
million and $ million, respectively.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
5.
| | $ | | | | Vendor | | | | | |
| Other | | | | | |
| Total receivables | | | | | |
| Less: allowance for credit losses | () | | | () | |
| Receivables, net | $ | | | | $ | | |
6.
% Senior Unsecured Notes due March 9, 2026$ | | | | $ | | | % Senior Unsecured Notes due October 1, 2027 | | | | | |
% Senior Unsecured Notes due March 9, 2028 | | | | | |
% Senior Unsecured Notes due April 15, 2030 | | | | | |
% Senior Unsecured Notes due March 15, 2032 | | | | | |
| |
Total long-term debt and current maturities of long-term debt | | | | | |
| Less: Current portion of long-term debt | () | | | | |
| Long-term debt, excluding the current portion | $ | | | | $ | | |
| |
| |
Fair Value of Financial Assets and Liabilities
As of April 19, 2025 and December 28, 2024, the fair value of the Company’s long-term debt, which includes the current portion of long-term debt, was approximately $ million and $ million, respectively. The fair value of the Company’s long-term debt was determined using Level 2 inputs based on quoted market prices. The carrying amounts of the Company’s cash and cash equivalents, receivables, net, accounts payable and accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
outstanding borrowings under the 2021 Credit Agreement. As of April 19, 2025 the Company had $ million of borrowing availability and $ million letters of credit outstanding under the 2021 Credit Agreement. As of December 28, 2024, the Company had $ billion of borrowing availability and letters of credit outstanding under the 2021 Credit Agreement. The Company is required to maintain certain financial covenants related to the 2021 Credit Agreement. On February 25, 2025, the Company entered into Amendment No. 6 (“Amendment No. 6”) to the 2021 Credit Agreement to, among other things, (i) expand the scope of domestic subsidiaries that would be required to grant security interests and guarantee the Company’s obligations under the 2021 Credit Agreement upon the occurrence of a Springing Lien Trigger Event (as defined therein) to include all of the Company’s subsidiaries other than the Company’s Insignificant Subsidiaries (as defined in Amendment No. 6), (ii) revise the definition of Consolidated Coverage Ratio to exclude up to $ million of accelerated rent charges related to lease buyouts and to permit the minimum Consolidated Coverage Ratio to remain at to 1.00 for one additional quarter before increasing to to 1.00 on and after the fiscal quarter ending on January 3, 2026, (iii) revise the definition of Consolidated EBITDA to increase the threshold for Identified Restructuring Charges (as defined therein) from $ million to $ million, and (iv) expand the scope of the guaranteed obligations to include bank product obligations and cash management obligations. As of April 19, 2025, the Company was in compliance with its financial covenants under the 2021 Credit Agreement.
As of April 19, 2025 and December 28, 2024, the Company had $ million and $ million, respectively, of bilateral letters of credit issued separately from the 2021 Credit Agreement, of which were drawn upon. These bilateral letters of credit generally have a term of or less and primarily serve as collateral for the Company’s self-insurance policies.
Debt Guarantees
The Company is a guarantor of loans made by banks to various independently-owned Carquest-branded stores that are customers of the Company totaling $ million and $ million as of April 19, 2025 and December 28, 2024, respectively. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements was $ million and $ million as of April 19, 2025 and December 28, 2024, respectively. The Company continuously assesses the likelihood of performance under these guarantees and believes that performance is remote as of April 19, 2025.
7.
, with renewal options typically at intervals, with the exercise of lease renewal options at the Company’s sole discretion. The Company’s vehicle and equipment lease terms are typically three to . The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
| | $ | | |
| Variable lease cost | | | | | |
| Total lease cost | $ | | | | $ | | |
During the first quarter of fiscal 2025, the Company recorded $ million primarily related to accelerated amortization on leases the Company expects to exit before the end of the contractual term, and non-cash asset impairment net of gains on lease modifications and terminations. These amounts are recorded in restructuring and related expenses within the accompanying condensed consolidated statements of operations. See Note 3. Restructuring, of the notes to the condensed consolidated financial statements included herein.
| | $ | | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | $ | | | | $ | | |
During the first quarter of 2024, the Company entered into a sale-leaseback transaction where the Company sold a building and land and entered into a lease of the property upon the sale. This transaction resulted in a gain of $ million and is included in selling, general and administrative expenses on the condensed consolidated statement of operations for the sixteen weeks ended April 20, 2024.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
8.
| | $ | | | | | | Income from discontinued operations | | | | | | | |
Net income applicable to common shares | $ | | | | $ | | | | |
| | | | | |
| Denominator | | | | | |
| Basic weighted-average common shares | | | | | | | |
| Dilutive impact of share-based awards | | | | | | | |
Diluted weighted-average common shares(1) | | | | | | | |
| | | | | |
Basic earnings per common share from continuing operations | $ | | | | $ | | | | |
| Basic earnings per common share from discontinued operations | | | | | | | |
Basic earnings per common share | $ | | | | $ | | | | |
| | | | | |
Diluted earnings per common share from continuing operations | $ | | | | $ | | | | |
| Diluted earnings per common share from discontinued operations | | | | | | | |
Diluted earnings per common share | $ | | | | $ | | | | | million and $ million, respectively, of restricted stock units (“RSUs”) were excluded from the diluted weighted-average common share count calculation as their inclusion would have been anti-dilutiv
9
billion. As of April 19, 2025, and December 28, 2024, $ billion and $ billion, respectively, is excluded from the Company’s accounts payable balance on the Company’s condensed consolidated balance sheets, as such amounts represent liabilities of Worldpac transferred with the sale of the business in fiscal 2024. Under the provisions of the sale, the Company will provide certain letters of credit to the buyer to support supply chain financing for the buyer. See Note 12. Discontinued Operations, of the notes to the condensed consolidated financial statements included herein.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
10.
putative class actions on behalf of purchasers of the Company’s securities who purchased or otherwise acquired their securities between November 16, 2022, and May 30, 2023, inclusive (the “Class Period”), were commenced against the Company and certain of the Company’s former officers in the United States District Court for the Eastern District of North Carolina. The plaintiffs allege that the defendants made certain false and materially misleading statements during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. These cases were consolidated on February 9, 2024, and the court-appointed lead plaintiff filed a consolidated and amended complaint on April 22, 2024. The consolidated and amended complaint proposes a Class Period of November 16, 2022 to November 15, 2023, and alleges that defendants made false and misleading statements in connection with (a) the Company’s 2023 guidance and (b) certain accounting issues previously disclosed by the Company. On June 21, 2024, defendants filed a motion to dismiss the consolidated and amended complaint. On January 23, 2025, the motion to dismiss was granted by the United States District Court for the Eastern District of North Carolina. On February 21, 2025, plaintiffs filed an appeal to the 4th Circuit Court of Appeals. The Company strongly disputes the allegations and intends to defend the case vigorously.
On January 17, 2024, February 20, 2024, and February 26, 2024, derivative shareholder complaints were commenced against the Company’s directors and certain former officers alleging derivative liability for the allegations made in the securities class action complaints noted above. On April 9, 2024, the court consolidated these actions and appointed co-lead counsel. On June 10, 2024, the court issued a stay order on the consolidated derivative complaint pending resolution of the motion to dismiss for the underlying securities class action complaint.
11.
operating segment and reportable segment, effective during the first quarter of fiscal year 2025, resulting from the stabilization of the Company’s new organizational structure due to the significant restructuring activities announced in fiscal year 2024 as further described in Note 3. Restructuring, of the notes to the condensed consolidated financial statements included herein. Following this restructuring, the Company no longer has operating segments, which were previously aggregated into a single reportable segment. The Company conducts its operations principally in the geographical areas of the U.S. and Canada through its Advance Auto Parts and Carquest trade brands. The products sold by the Company, across all geographic areas, have similar economic characteristics, are sourced from the Company’s suppliers in a similar manner, and are available for sale to all of the Company’s customers through the Company’s stores and self-service e-commerce sites. All of the Company’s stores have similar characteristics, including the nature of the products and services, the type and class of customers, and the methods used to distribute products and provide service to its customers. Due to these reasons, the Company has operating segment, referred to as Advance Auto Parts/Carquest. As geographic information is not a key component of how the chief operating decision maker (“CODM”) reviews performance and allocates resources, such entity-wide information is not disclosed on a quarterly basis.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
| | $ | | |
| Less: | | | |
| Cost of sales | $ | | | | $ | | |
Selling, general and administrative expenses (1) | | | | | |
| Restructuring and related expenses | | | | | |
Depreciation and amortization expense (2) | | | | | |
| Interest expense | | | | | |
Other segment items (3) | () | | | () | |
Income tax (benefit) expense | () | | | | |
| Net (loss) income from continuing operations | $ | | | | $ | | |
| | |
| | |
| | | (1) Selling, general and administrative expenses, excludes restructuring and related expenses and depreciation and amortization.
(2) Excludes depreciation and amortization related to restructuring which is included in restructuring and related expenses.
12.
billion, with customary purchase price adjustments for working capital and other items as well as the provision of letters of credit in an aggregate amount of up to $ million for up to months following the closing of the transaction, which letter of credit exposure will reduce to no later than months after the closing, to support supply chain financing for the buyer. The transaction closed on November 1, 2024. Net proceeds from the transaction after paying expenses and excluding the impact of taxes were approximately $ billion. The Company’s sale of Worldpac was progress towards changing the landscape of the business with increased focus on the Advance blended-box model. As a result, the Company classified the results of operations and cash flows of Worldpac as discontinued operations in its condensed consolidated statements of operations and condensed consolidated statements of cash flows for prior periods presented.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in millions, except per share data, unless otherwise stated)
(Unaudited)
| | |
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| Other, net: | | | | | |
| | | | | |
) | | |
) | | |
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13.
million realized in the first quarter of fiscal 2025 related to certain tax benefits associated with capital loss deductions.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024 (filed with the SEC on February 26, 2025) which the Company refers to as the “2024 Form 10-K”), and the Company’s unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report. The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. Consistent with the previous fiscal year, the Company’s first quarter of the year contains sixteen weeks. The Company’s remaining three quarters each consist of twelve weeks.
First Quarter Fiscal 2025 Management Overview
The Company’s financial results for continuing operations for the first quarter of 2025 includes:
•Net sales during the first quarter of fiscal 2025 were $2.6 billion, a decrease of 6.8% compared with the first quarter of fiscal 2024. Comparable store sales declined 0.6%.
•Gross profit margin for the first quarter of 2025 was 42.9% of net sales, a decrease of (50) basis points compared with the first quarter of fiscal 2024.
•Selling, general and administrative expenses for the first quarter of fiscal 2025 were 48.0% of net sales, an increase of 648 basis points compared with the first quarter of fiscal 2024.
•The Company generated diluted earnings per share of $0.40 during the first quarter of fiscal 2025, compared with diluted earnings per share of $0.29 for the comparable period of 2024.
Business and Risks Update
The Company continues to make progress on the various elements of its business plan, which is focused on improving the customer experience, margin expansion, and driving consistent execution for both professional and DIY customers. Key updates for the first quarter of fiscal 2025 include:
•Completed all store location closures under the 2024 Restructuring Plan designed to improve the Company’s profitability and growth potential, and streamline its operations; and
•Continued focus on cost and supply chain optimization.
For further information related to restructuring and related activities, see Note 3. Restructuring of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
During the first quarter of fiscal 2025, new global trade tariffs were announced on imports to the U.S., including additional tariffs on various countries from which the Company directly or indirectly imports and/or sources merchandise, including Canada, China and Mexico, among others. Various modifications and delays to the U.S. tariffs have been announced and further changes are expected to be made in the future, which may include additional sector-based tariffs or other measures. The ultimate impact of tariffs on the Company’s business remains uncertain. See Part II, Item 1A, “Risk Factors” of this Quarterly Report.
Industry Update
Operating within the automotive aftermarket industry, the Company is influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. In addition to the “Business and Risk Update” section included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, these factors include, but are not limited to:
•Significant changes in U.S trade policies, including the recently enacted and/or proposed new global trade tariffs
•Inflationary pressures, including logistics and labor
•Global supply chain disruptions
•Cost of fuel
•Miles driven
•Unemployment rates
•Interest rates
•Consumer confidence and purchasing power
•Competition
•Changes in new car sales
•Economic and geopolitical uncertainty
•Foreign currency exchange volatility
While these factors tend to fluctuate, the Company remains confident in the long-term growth prospects for the automotive parts industry.
Stores
The key factors used in selecting sites and market locations in which the Company operates include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. During the sixteen weeks ended April 19, 2025, 10 stores were opened and 513 were closed, resulting in a total of 4,285 stores as of the end of the first fiscal quarter compared with a total of 4,788 stores as of December 28, 2024. The significant reduction in stores in the first quarter of fiscal 2025 relates to actions taken under the Company’s restructuring and related activities. See Note 3. Restructuring, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sixteen Weeks Ended | |
Change(1) | | Basis Points |
| ($ in millions) | April 19, 2025 | | April 20, 2024 | | |
| Net sales | $ | 2,583 | | | 100.0 | % | | $ | 2,772 | | | 100.0 | % | | $ | (189) | | | — | |
| Cost of sales | 1,474 | | | 57.1 | | | 1,568 | | | 56.6 | | | 94 | | | 50 | |
| Gross profit | 1,109 | | | 42.9 | | | 1,204 | | | 43.4 | | | (95) | | | (50) | |
| Selling, general and administrative expenses, exclusive of restructuring and related expenses | 1,122 | | | 43.4 | | | 1,151 | | | 41.5 | | | 29 | | | (192) | |
| Restructuring and related expenses | 118 | | | 4.6 | | | — | | | — | | | (118) | | | (457) | |
Selling, general and administrative expenses | 1,240 | | | 48.0 | | | 1,151 | | | 41.5 | | | (89) | | | (648) | |
Operating (loss) income | (131) | | | (5.1) | | | 53 | | 1.9 | | | (184) | | | (698) | |
| Interest expense | (27) | | | (1.0) | | | (25) | | | (0.9) | | | (2) | | | (14) | |
| | | | | | | | | |
| Other income, net | 27 | | | 1.1 | | | 1 | | | — | | | 26 | | | 101 | |
Income tax (benefit) expense | (155) | | | (6.0) | | | 12 | | | 0.4 | | | 167 | | | 643 | |
| Net income | $ | 24 | | | 0.9 | % | | $ | 17 | | | 0.6 | % | | $ | 7 | | | 32 | |
(1) Represents favorable (unfavorable) year over year change
Note: Sums may not equal totals due to rounding.
Net Sales
For the first quarter of fiscal 2025, net sales decreased 6.8% and comparable store sales declined 0.6% compared with the first quarter of fiscal 2024. The decline was driven by lower sales as a result of store closures executed under the 2024 Restructuring Plan during the first quarter of fiscal 2025.
The Company calculates comparable store sales based on the change in store or branch sales starting once a location has been open for approximately one year and by including e-commerce sales and excluding sales fulfilled by distribution centers to independently owned Carquest locations. The Company includes sales from relocated stores in comparable store sales from the original date of opening. Comparable store sales is intended only as supplemental information and is not a substitute for Net sales presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Gross Profit
Gross profit for the first quarter of fiscal 2025 was $1,109 million, or 42.9% of net sales, compared with $1,204 million, or 43.4% of net sales, for the first quarter of fiscal 2024. The decrease in gross profit margin was due to lower margin liquidation sales associated with the 2024 Restructuring Plan. Total gross profit also decreased as a result of lower net sales driven by store closures executed under the 2024 Restructuring Plan.
Selling, General and Administrative Expenses, Exclusive of Restructuring and Related Expenses
Selling, general and administrative (SG&A) expenses, exclusive of restructuring and related expenses for the first quarter of fiscal 2025 were $1,122 million, or 43.4% of net sales, compared with $1,151 million, or 41.5% of net sales, for the first quarter of fiscal 2024. Overall SG&A expenses decreased year over year as a result of store closures executed under the 2024 Restructuring Plan. SG&A expenses as a percentage of net sales in the first quarter of fiscal 2024 benefited from a net gain on asset sales, see Note 7. Leases, of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item1.
Restructuring and Related Expenses
Restructuring and related expenses for the first quarter of 2025 were $118 million, or 4.6% of net sales. The increase in expenses as compared to the same period in fiscal 2024, relates to the Company’s 2024 Restructuring Plan which was announced during the fourth quarter of fiscal 2024. The Company estimates that it will incur additional expenses of approximately $75 million to $100 million. These expenses primarily relate to lease terminations, professional services, and other exit costs to be incurred by the end of fiscal year 2025. See Note 3. Restructuring, of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1.
Other Income, Net
Other income, net increased as compared to the same period in fiscal 2024 due to higher interest income earned resulting from higher cash and cash equivalent balances held, driven by the proceeds received from the sale of the Worldpac business in the fourth quarter of fiscal 2024. Other income, net in the first quarter of fiscal 2025 also includes income recognized from the transition services (“TSA Services”) agreement with Worldpac that commenced in the fourth quarter of fiscal 2024.
Income Tax (Benefit) Expense
The Company’s provision for income taxes for the first quarter of 2025 was a benefit of $155 million compared with a expense of $12 million for the same period in 2024. The decrease in tax expense for the first quarter of 2025 was a result of lower income before taxes and a net discrete tax benefit of $126 million related to certain tax benefits associated with capital loss deductions.
The Company’s effective tax rate was a benefit of (118.3)% and an expense of 41.4% for the sixteen weeks ended April 19, 2025 and April 20, 2024, respectively. The reduction in the effective tax rate compared to the same period in fiscal 2024 was due to a net discrete tax benefit of $126 million related to certain tax benefits associated with capital loss deductions.
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures described below to supplement the Company’s unaudited condensed consolidated financial statements prepared and presented in accordance with GAAP and to understand and evaluate the Company’s core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented as the Company believes that such non-GAAP financial measures provide useful information about the Company’s financial performance, enhance the overall understanding of the Company’s past performance and future prospects, and allow for greater transparency with respect to important metrics used by the Company’s management for financial and operational decision-making. The Company is presenting these non-GAAP metrics to provide investors insight to the information used by the Company’s management to evaluate its business and financial performance. The Company believes that these measures provide investors increased comparability of the Company’s core financial performance over multiple periods with other companies in the Company’s industry. The Company may make reference to certain financial measures not derived in accordance with GAAP within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report. Non-GAAP financial measures, including Adjusted Net (loss) income, Adjusted diluted (loss) Earnings Per Share (“Adjusted Diluted EPS”), Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Sales, General and Administrative expense (“Adjusted SG&A”), Adjusted SG&A Margin, Adjusted Operating (loss) Income and Adjusted Operating (loss) Income Margin, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing the Company’s operating performance, financial position or cash flows.
The Company has presented these non-GAAP financial measures as the company believes that the presentation of the financial results that exclude (1) transformation expenses under the Company’s turnaround plan, inclusive of the Worldpac divestiture and (2) other significant expenses, are useful and indicative of the Company's base operations because the expenses vary from period to period in terms of size, nature and significance. The income tax impact of these non-GAAP adjustments is also adjusted for using the estimated tax rate in effect for the respective non-GAAP adjustments. 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 allows 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 is useful to investors as a supplement to the GAAP measures.
Transformation Expenses
Expenses incurred in connection with the Company's turnaround plan and specific transformative activities related to asset optimization that the Company does not view to be normal cash operating expenses. These expenses primarily include:
•Restructuring and other related expenses: Expenses relating to strategic initiatives, including severance expense, retention bonuses offered to store-level employees to help facilitate the closing of stores, incremental reserves related to the collectibility of receivables resulting from contract terminations with certain independents associated with the 2024 Restructuring Plan and third-party professionals assisting in the development and execution of the strategic initiatives.
•Impairment and write-down of long-lived assets: Expenses relating to the impairment of operating lease ROU assets and property and equipment, incremental depreciation as a result of accelerating long-lived assets over a shorter useful life, depreciation of long-lived assets and ROU asset amortization after store closure, and incremental lease abandonment expenses as a result of accelerating ROU asset amortization for leases the Company expects to exit before the end of the contractual term, net of gains on lease terminations, in connection with the 2024 Restructuring Plan and Other Restructuring Plan.
•Distribution network optimization: Expenses primarily relating to the conversion of the stores and distribution centers to market hubs, including temporary labor, incremental depreciation, as a result of accelerating long-lived assets over a shorter useful life, nonrecurring professional service fees and team member severance.
Other Expenses
Expenses incurred by the Company that are not viewed as normal cash operating expenses and vary from period to period in terms of size, nature, and significance. These expenses primarily include:
•Other professional service fees: Expenses relating to nonrecurring services rendered by third-party vendors engaged to perform a strategic business review, including the Company’s transformation initiatives.
•Worldpac post transaction-related expenses: Expenses primarily relating to non-recurring separation activities provided by third-party professionals subsequent to the sale of Worldpac.
•Executive turnover: Expenses associated with executive level reorganization, including expenses for executive severance, the hiring search for leadership positions and certain compensation benefits.
•Material weakness remediation: Incremental expenses associated with the remediation of the Company’s previously disclosed material weaknesses in internal control over financial reporting.
•Cybersecurity incident: Expenses related to the response and remediation of a cybersecurity incident.
•Other tax adjustments: Certain tax items that are unrelated to the fiscal year in which they are recorded are excluded in order to provide a clearer understanding of the Company’s ongoing Non-GAAP tax rate and after-tax earnings.
The following table includes a reconciliation of this information to the most comparable GAAP measures (in millions):
| | | | | | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| Classification |
Net income from continuing operations (GAAP) | | | $ | 24 | | | $ | 17 | | | |
| Selling, general and administrative adjustments: | | | | | | | |
| Transformation expenses: | | | | | | | |
Restructuring and other related expenses (1) | Restructuring | | 63 | | | — | | | |
Impairment and write-down of long-lived assets (2) | Restructuring | | 45 | | | — | | | |
| Distribution network optimization | Restructuring | | 3 | | | — | | | |
Other expenses: | | | | | | | |
Other professional service fees | Non-restructuring (5) | | 4 | | | 1 | | | |
Worldpac post transaction-related expenses | Restructuring | | 3 | | | | | |
| Executive turnover | Restructuring | | 4 | | | | | |
| Material weakness remediation | Non-restructuring | | 1 | | | 2 | | | |
| | | | | | | |
Other income adjustments: | | | | | | | |
TSA services | | | (4) | | | — | | | |
Provision for income taxes on adjustments (3) | | | (30) | | | — | | | |
Other tax (benefit) expense adjustments (4) | | | (126) | | | — | | | |
| Adjusted net (loss) income (Non-GAAP) | | | $ | (13) | | | $ | 20 | | | |
| | | | | | | |
Diluted earnings per share from continuing operations (GAAP) | | | $ | 0.40 | | | $ | 0.29 | | | |
| Adjustments, net of tax | | | (0.62) | | | 0.04 | | | |
Adjusted diluted (loss) earnings per share (Non-GAAP) (6) | | | $ | (0.22) | | | $ | 0.33 | | | |
|
|
|
| 1,672 | | | $ | 1,869 | | | $ | (197) | |
In addition to cash and cash equivalents presented above, as of April 19, 2025, the Company also maintained access to $885 million in undrawn capacity through the Company’s revolving credit facility (the “2021 Credit Agreement”) as further described below. The Company also maintains certain supplier finance programs. See Note 9. Supplier Finance Programs, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
The decrease in cash and cash equivalents was primarily due to net cash used in operating activities of $156 million, primarily as a result of a decrease in net working capital, inclusive of cash payments made in the period related to the Company’s 2024 Restructuring Plan, $27 million used for purchases of property and equipment, net of proceeds from sales, and the payment of $15 million in dividends.
The Company believes that its cash and cash equivalents and sources of liquidity will satisfy its working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future.
Analysis of Cash Flows
In the fourth quarter of fiscal 2024, the Company completed the sale of Worldpac. As a result, the Company classified the results of operations and cash flows of Worldpac as discontinued operations in its condensed consolidated statements of operations and condensed consolidated statements of cash flows for prior periods presented. The Company’s cash flows from operating, investing and financing activities were as follows (in millions):
| | | | | | | | | | | |
| Sixteen Weeks Ended |
(in millions) | April 19, 2025 | | April 20, 2024 |
| Net cash used in operating activities of continuing operations | $ | (156) | | | $ | (3) | |
| Net cash provided by operating activities of discontinued operations | — | | | 6 | |
| Net cash used in investing activities of continuing operations | (27) | | | (36) | |
| Net cash used in investing activities of discontinued operations | — | | | (3) | |
| Net cash used in financing activities | (17) | | | (25) | |
| Effect of exchange rate changes on cash | 3 | | | 9 | |
| Net decrease in cash and cash equivalents | $ | (197) | | | $ | (52) | |
Operating Activities
For the sixteen weeks ended April 19, 2025, cash used in operating activities decreased by $153 million compared with the same period of prior year. The decrease as compared to the comparative period was primarily driven by a decrease in net working capital, inclusive of cash payments made in the period related to the Company’s 2024 Restructuring Plan.
Investing Activities
For the sixteen weeks ended April 19, 2025, cash flows used in investing activities decreased by $9 million to $27 million as compared with the first quarter of fiscal 2024. The decrease in cash used in investing activities was attributable to lower spend on property and equipment and higher proceeds from the sale of property and equipment.
Financing Activities
For the sixteen weeks ended April 19, 2025, cash flows used in financing activities was $17 million, a decrease of $8 million as compared with the first quarter of fiscal 2024. The decrease in cash used in financing activities was due to the noncontrolling interest purchase payments in the first quarter of fiscal 2024 with no such payments made in the first quarter of fiscal 2025.
The Company’s Board of Directors has declared a cash dividend every quarter since 2006. Any payments of dividends in the future will be at the discretion of the Company’s Board of Directors and will depend upon the Company’s results of operations, cash flows, capital requirements and other factors deemed relevant by the Board of Directors. In addition, Amendment No. 5 to the 2021 Credit Agreement prevents the Company from increasing the amount of the Company’s cash dividends.
Restructuring Activities
On November 13, 2024, the Company’s Board of Directors approved the 2024 Restructuring Plan, which was designed to improve the Company’s profitability and growth potential and streamline its operations. In fiscal 2023, the Company also announced a strategic and operational plan to streamline the Company’s supply chain by configuring a multi-echelon supply chain by leveraging current asset and operating fewer, more productive distribution centers that focus on replenishment and move more parts closer to the customer. The Company estimates that it will incur additional expenses of approximately $75 million to $100 million including $50 million to $75 million of cash expenses primarily composed of lease terminations and other exit expenses and professional services, by the end of fiscal year 2025. For further information, see Note 3. Restructuring, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
Long-Term Debt
As of April 19, 2025 the Company had outstanding long-term debt totaling $1,790 million, of which $299 million is classified as short-term related to the 5.90% Senior Unsecured Notes due March 9, 2026. For further details, see Note 6. Long-term Debt and Fair Value of Financial Instruments, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
Credit Facilities
As of April 19, 2025 and December 28, 2024, the Company had no outstanding borrowings under the 2021 Credit Agreement. As of April 19, 2025 the Company had $885 million of borrowing availability and $115 million letters of credit outstanding under the 2021 Credit Agreement. As of December 28, 2024, the Company had $1 billion of borrowing availability and no letters of credit outstanding under the 2021 Credit Agreement. The Company is required to maintain certain financial covenants related to the 2021 Credit Agreement and as of April 19, 2025, the Company was in compliance with such financial covenants. On February 25, 2025, the Company entered into Amendment No. 6 (“Amendment No. 6”) to the 2021 Credit Agreement.
As of April 19, 2025 and December 28, 2024, the Company also had $90 million and $91 million, respectively, of bilateral letters of credit issued separately from the 2021 Credit Agreement, none of which were drawn upon. These bilateral letters of credit generally have a term of one year or less and primarily serve as collateral for the Company’s self-insurance policies.
For further details, see Note 6. Long-term Debt and Fair Value of Financial Instruments, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
As of April 19, 2025, the Company had a credit rating from S&P of BB+ and from Moody’s Investor Service of Ba1. As of April 19, 2025, the outlooks by Standard & Poor’s and Moody’s on the Company’s credit rating were negative and stable, respectively. The current pricing grid used to determine the Company’s borrowing rate under the Credit Agreement is based on the Company’s credit ratings. A downgrade in the Company’s credit ratings could occur if its business operations deteriorate, its leverage increases or if available liquidity becomes insufficient to maintain operations. If the Company’s credit ratings decline, the interest rate on outstanding balances may increase, the 2021 Credit Agreement would become securitized pursuant to its terms and the Company’s access to additional financing on favorable terms may be limited. A decline in credit ratings or perceived creditworthiness, among other factors, may impact participation in supplier finance programs, which in turn could shorten payable terms, result in an increase in working capital requirements or otherwise negatively impact capital resources, potentially materially. See Note 9. Supplier Finance Programs, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
Additional Capital Requirements
Expected working and other capital requirements, including Contractual and Off-Balance Sheet Obligations are described in the Company’s 2024 Annual Report on Form 10-K in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of April 19, 2025, other than for the changes disclosed in the “Notes to Condensed Consolidated Financial Statements”, and “Liquidity and Capital Resources” in this Quarterly Report, there have been no other material changes to the Company’s expected working and other capital requirements described in the Company’s 2024 Annual Report on Form 10-K.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in the Company’s exposure to market risk since December 28, 2024. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2024 Form 10-K.
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are management’s controls and other procedures that are designed to ensure that information required to be disclosed by management in the Company’s reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the override of controls. Therefore, even those systems determined to be effective can provide only “reasonable assurance” with respect to the reliability of financial reporting and financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness may vary over time.
Management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures as of April 19, 2025. Based on this evaluation, the principal executive officer and the principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the first quarter ended April 19, 2025, that has materially affected or is reasonably likely to materially affect its internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
PART II. OTHER INFORMATION
None.
ITEM 1. LEGAL PROCEEDINGS
Information regarding certain legal proceedings is provided in this Quarterly Report. See Note 10. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1.
ITEM 1A.RISK FACTORS
The Company’s future business, operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024, which could adversely affect the Company’s business, financial condition, results of operations, cash flows and future prospects, which could in turn materially affect the price of the Company’s common stock. Except for the risk factor set forth below, there have been no material changes to the Company’s risk factors since the 2024 Form 10-K.
An unstable global economic and geopolitical landscape increases uncertainty about key areas of doing business internationally and may have a negative impact on our business.
During the first quarter of fiscal 2025, new global trade tariffs were announced on imports to the U.S., including additional tariffs on various countries from which the Company directly or indirectly imports and/or sources merchandise, including Canada, China and Mexico, among others. In response, several countries have imposed, or threatened to impose, reciprocal tariffs on imports from the U.S. and other measures. Various modifications and delays to the U.S. tariffs have been announced and further changes are expected to be made in the future, which may include additional sector-based tariffs or other measures. Additionally, the current administration has directed various federal agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, enforcement priorities, sanctions, treaties and tariffs. Significant uncertainty continues to exist about the future economic and political relationship between the U.S. and other countries. The ultimate impact of tariffs on the Company’s business will depend on several factors, including whether additional or incremental U.S. tariffs or other measures are announced, revised, or rescinded, to what extent other countries implement tariffs or other measures in response, and the overall magnitude and duration of these items. These developments, or the perception that any of them could occur, may have a material effect on global economic conditions, the stability of global financial markets, or global trade, and may impact the Company’s product cost, pricing, or competitive conditions, disrupt supply chains, impact the broader macroeconomic environment and consumer sentiment or otherwise negatively impact the Company’s business, financial condition and results of operations.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth the information with respect to repurchases of the Company’s common stock for the quarter ended April 19, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Purchased (1) | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) |
| December 29, 2024 to January 25, 2025 | | 144 | | | $ | 44.14 | | | — | | | $ | 947 | |
| January 26, 2025 to February 22, 2025 | | 74 | | | $ | 46.41 | | | — | | | $ | 947 | |
| February 23, 2025 to March 22, 2025 | | 60,127 | | | $ | 36.65 | | | — | | | $ | 947 | |
| March 23, 2025 to April 19, 2025 | | 228 | | | $ | 37.50 | | | — | | | $ | 947 | |
| Total | | 60,573 | | | $ | 36.69 | | | — | | | |
(1) The aggregate cost of repurchasing shares in connection with the net settlement of shares issued as a result of the vesting of restricted stock units was $2 million, or an average price of $36.69 per share, during the first quarter of 2025.
Dividend Restrictions
In accordance with Amendment No. 5 to the 2021 Credit Agreement, the Company is restricted from increasing the amount of the Company’s cash dividends. See “Liquidity and Capital Resources” within Part II, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 5. OTHER INFORMATION
During the first quarter of 2025, Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by the Company’s officers or directors as each term is defined in Item 408 of Regulation S-K.
| | | | | | | | | | | | | | | | | | | | |
| | EXHIBIT INDEX | Incorporated by Reference | Filed | |
| Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date | Herewith | |
| | 10-Q | 3.2 | 8/22/2024 | | |
| | 10-Q | 3.1 | 8/18/2020 | | |
| | 8-K | 10.1 | 2/25/2025 | | |
| | | | | X | |
| | | | | X | |
| | 10-Q | 22.1 | 4/20/2024 | | |
| | | | | X | |
| | | | | X | |
| | | | | X | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | X | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | | | | X | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | X | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | X | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. | | | | X | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | X | |
| 104.1 | Cover Page Interactive Data file (Embedded within the Inline XBRL Documents and Included in Exhibit). | | | | X | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | ADVANCE AUTO PARTS, INC. |
| | |
| Date: May 22, 2025 | | /s/ Ryan P. Grimsland |
| | Ryan P. Grimsland
Executive Vice President, Chief Financial Officer |
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