Advance Auto Parts, Inc. (AAP)
Q2 2011 Earnings Call Transcript
August 11, 2011 10:00 a.m. ET

Executives

Joshua Moore – Director of Finance and Investor Relations
Darren R. Jackson – Chief Executive Officer
Jimmie L. Wade – President
Michael A. Norona – Executive Vice President and Chief Financial Officer
Kevin P. Freeland – Chief Operating Officer

Analysts

Daniel Wewer – Raymond James & Associates, Inc
Gary Balter – Credit Suisse
Greg Melich – ISI Group Inc.
Matthew J. Fassler – Goldman Sachs
Kate McShane – Citigroup Inc.
Anthony Cristello – BB&T Capital Markets

Presentation

Operator

Welcome to the Advance Auto Parts Second Quarter 2011 Conference Call. Before we begin, Joshua Moore, Director of Finance and Investor Relations, will make a brief statement concerning forward-looking statements that will be made on this call.

Joshua Moore

Good morning and thank you for joining us on today''s call. I''d like to remind you that our comments today contain forward-looking statements we intend to be covered by, and we claim the protection under, the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements address future events, developments or results, and typically use words such as believe, anticipate, expect, intend, will, plan, forecast, outlook or estimate and are subject to risks, uncertainties and assumptions that may cause the results to differ materially, including competitive pressures, demand for the company''s products, the economy in general, consumer debt levels, dependence on foreign suppliers, the weather, business interruptions and other factors disclosed in the company''s 10-K for the fiscal year ended January 1, 2011 on file with the Securities Exchange Commission. The company intends these forward-looking statements to speak only as of the time of this conference call and does not undertake to update or revise them as more information becomes available. The reconciliation of any non-GAAP financial measures mentioned on the call with the corresponding GAAP measures are described in our earnings release and our SEC filings, which can be found in our website at AdvanceAutoParts.com.

For planning purposes, our third quarter earnings release is scheduled for Wednesday, November 9, 2011, after market close and our quarterly conference call is scheduled for the morning of Thursday, November 10, 2011. To be notified of dates of future earnings reports, you can sign up through the Investor Relations section of our website. Finally, a replay of this call will be available on our website for one year.

Now let me turn the call over to Darren Jackson, our Chief Executive Officer. Darren?

Darren R. Jackson

Thanks, Joshua. Good morning, everyone and welcome to our second quarter conference call. I''d like to thank our 52,000 Advance team members for delivering an outstanding performance in the second quarter through their dedication and service to our customers.

We are pleased with our second quarter results that include our commercial sales growing at double-digit comp rates and our DIY business showing incremental improvements from our first quarter, both combined to generate a 2.5% comparable store sales gain in the quarter. Our external measures for customer satisfaction continued their upward trends for both our commercial and DIY businesses.

Collectively, our service and operations focus is reflected in our 66-basis point improvement and our operating income rate, which rose to 12.8% for the quarter, as well as our earnings per share, which grew 26% to $1.46 during the quarter. These results are very encouraging despite a consumer environment filled with economic uncertainty.

Our expectations reflect the current reality of the more challenging economic landscape, including escalating gas prices that are over $1 per gallon higher than a year ago, miles driven trending downward and a clear slowdown in the industry growth rate versus the record pace last year. The counter balance to the economic pressure is the continued aging of the vehicle fleet, which stands at 10.5 years, lower new car sales and pent-up deferred maintenance cost that have more than offset the economic obstacles. It is important to say our teams have done a terrific job retooling our operations and financial plans without compromising our strategic investments which has allowed us to be successful in the current economic environment.

Our ability to balance solid execution in the short term, with our efforts to evolve our operating model to differentiate in the long term, is a delicate one, especially when the strategic and financial commitments are to achieve record levels. Our team is on track to deliver both. Strategically, we remain committed to accelerating the commercial business through our wave rollout process, building world-class capabilities including global servicing and pricing, aggressively expanding our E-commerce platform for both B2C and B2B, strengthening our distribution capabilities in providing the best-in-market availability through our public expansions and custom mix rollout and igniting our promise, Service is our best part.

Financially, we are on track to grow our commercial comp store sales by double digits for the fourth year in a row. Our 240-basis point improvement in our operating income rate and 420-basis point improvement in our ROIC over the past three years reflects the strength of the industry, but more directly, the systematic approach and determination of the Advance team.