• Fourth-Quarter Net Sales: $2 billion, a 1% decrease compared with Q4 last year.
• Comparable Store Sales: Declined 1% in Q4, excluding closing store locations.
• Adjusted Gross Profit: $779 million or 39% of net sales, with a gross margin contraction of 170 basis points.
• Adjusted SG&A: $878 million or 44% of net sales, resulting in deleverage of 175 basis points.
• Adjusted Operating Loss: $99 million or negative 5% of net sales.
• Adjusted Diluted Loss Per Share: $1.18 compared with a loss of $0.45 per share in the prior year.
• Free Cash Flow: Negative $40 million, includes approximately $90 million of cash expenses associated with store closures.
• Full-Year Net Sales: $9.1 billion, a 1% decrease compared to last year.
• Full-Year Comparable Store Sales: Declined 70 basis points.
• Adjusted Gross Profit for Full Year: $3.8 billion or 42.2% of net sales, an expansion of approximately 30 basis points.
• Adjusted SG&A for Full Year: $3.8 billion or 41.8% of net sales, driving a deleverage of approximately 50 basis points.
• Adjusted Operating Income for Full Year: $35 million and 40 basis points as a percent of net sales.
• Adjusted Diluted Loss Per Share for Full Year: $0.29 compared with a loss of $0.28 last year.
• Cash Position: Approximately $1.9 billion at the end of the fourth quarter.
• 2025 Guidance - Net Sales: Expected in the range of $8.4 billion to $8.6 billion.
• 2025 Guidance - Comparable Sales Growth: 50 to 150 basis points on a 52-week basis.
• 2025 Guidance - Adjusted Operating Income Margin: Expected in the range of 2% to 3%.
• 2025 Guidance - Adjusted Diluted EPS: Expected in the range of $1.50 to $2.50.
• 2025 Guidance - Free Cash Flow: Expected in the range of negative $25 million to $85 million.

• Warning! GuruFocus has detected 6 Warning Signs with AAP.

Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Advance Auto Parts Inc (NYSE:AAP) has introduced a three-year strategic plan aimed at improving operating margins to approximately 7% by 2027.
• The company reported an improvement in comparable sales during Q4, indicating a positive trend in sales performance.
• AAP has made significant progress in transforming its supply chain, including the consolidation of distribution centers, which is expected to improve labor productivity and reduce costs.
• The company is rolling out a new assortment framework across its top 50 DMAs, covering more than 70% of sales, which has shown positive results in pilot tests.
• AAP has successfully negotiated favorable lease terminations for store closures, reducing expected closure costs and strengthening its cash position.

Negative Points

• Fourth-quarter net sales from continuing operations decreased by 1% compared to the previous year, indicating challenges in maintaining sales growth.
• The company reported an adjusted operating loss from continuing operations of $99 million, reflecting ongoing financial challenges.
• AAP's gross margin contracted by 170 basis points in Q4 due to transitory costs and liquidation sales, impacting profitability.
• The company is experiencing volatility in sales performance in Q1, attributed to weather conditions and delayed tax refunds.
• AAP's guidance for 2025 includes a reduction in net sales by 5% to 8% year over year due to store closures, indicating potential revenue challenges.

Q & A Highlights

Q: Could you talk about the new merchandise assortment impacting 70% of your volume? Is it skewed towards private label or branded? A: Shane O'Kelly, CEO: The new assortment is informed by two factors: the vehicles in operation around our stores and the need for store-based availability. We are focusing on having the right parts in stock at each store level, which means replacing several hundred SKUs to better meet customer needs without relying on inter-store transfers.

Q: Can you explain the reporting dynamics of one-time versus transitory costs? A: Ryan Grimsland, CFO: Atypical items are those that occur within the quarter but are not tied to our strategic initiatives. Adjustments to our non-GAAP results are related to large-scale strategic actions. We expect sequential improvement each quarter as our initiatives take hold, despite the messy Q1 due to store closures.

Q: Regarding the 7% EBIT margin goal for 2027, is it driven by SG&A leverage or gross margin improvement? A: Ryan Grimsland, CFO: The target involves achieving a mid-40s gross margin rate and below 40% SG&A rate. Initiatives in merchandising excellence and supply chain productivity will drive significant COGS improvement, while store improvements will offset inflationary impacts on SG&A.

Q: How much progress are you making in improving costs with vendors? A: Shane O'Kelly, CEO: We have seen positive movement in cost improvements and promotional pricing with vendors. This will sequentially improve throughout the year, with significant benefits expected in the back half as previous work starts to reflect in our rates.

Q: Can you discuss the variability in the time to serve metric across DMAs and its impact on comp performance? A: Shane O'Kelly, CEO: There is a broad spectrum in time to serve across stores. We see better sales when time to serve is lower. Our goal is to replicate this across the network, as pro customers are more likely to order when they know they can get parts quickly.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.