Advance Auto Parts 10-K (2022-02-15)

For the fiscal year ended January 1, 2022

 

 

Business

 

 

Overview

 

We are a leading automotive aftermarket parts provider in North America, serving both professional installers (“professional”) and “do-it-yourself” (“DIY”) customers, as well as independently owned operators.

 

 

 

Our stores and branches offer a broad selection of brand name, original equipment manufacturer (“OEM”) and brand owned automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks.

 

 

 

As of January 1, 2022, we operated 4,706 total stores and 266 branches primarily under the trade names “Advance Auto Parts,” “Autopart International,” “Carquest” and “Worldpac.”

 

primarily : mainly

 

 

 

We were founded in 1929 as Advance Stores Company, Incorporated and operated as a retailer of general merchandise until the 1980s.

 

Incorporated : formed into a business company with legal status

 

 

 

During the 1980s, we began targeting the sale of automotive parts and accessories to DIY customers. We initiated our professional delivery program in 1996 and have steadily increased our sales to professional customers since 2000.

 

initiate : to make something begin / to explain something to somebody and/or make them experience it for the first time

 

 

 

We have grown significantly as a result of comparable store sales growth, new store openings and strategic acquisitions. Advance Auto Parts, Inc., a Delaware corporation, was incorporated in 2001 in conjunction with the acquisition of Discount Auto Parts, Inc.

 

comparable-store sales : a measurement of how successful a company is that involves examining the value of sales in a store or stores in a particular period, compared to the value for the same period in a previous year

 

acquisition :  the act of getting something, especially knowledge, a skill, etc. / something that somebody buys to add to what they already own, usually something valuable / a company, piece of land, etc. bought by somebody, especially another company; the act of buying it

 

conjunction : a word that joins words, phrases or sentences, for example ‘and’, ‘but’, ‘or’ or ‘because’ / a combination of events, etc., that causes a particular result

 

 

 

In 2014, we acquired General Parts International, Inc. (“GPI”), a privately held company that was a leading distributor and supplier of original equipment and aftermarket automotive replacement products for professional markets operating under the Carquest and Worldpac trade names.

 

 

 

Stores and Branches

 

Through our integrated operating approach, we serve our professional and DIY customers through a variety of channels ranging from traditional “brick and mortar” store locations to self-service e-commerce sites. We believe we are better able to meet our customers’ needs by operating under several trade names, which are as follows

 

 

 

Advance Auto Parts — Our 4,308 stores as of January 1, 2022 are generally located in freestanding buildings with a focus on both professional and DIY customers. The average size of an Advance Auto Parts store is approximately 7,700 square feet.

 

free-standing : not supported by or attached to anything / not a part of something else

 

 

 

These stores carry a wide variety of products serving aftermarket auto part needs for both domestic and import vehicles. Our Advance Auto Parts stores carry a product offering of approximately 21,000 stock keeping units (“SKUs”), generally consisting of a custom mix of products based on each store’s respective market.

 

 

 

Supplementing the inventory on-hand at our stores, less common SKUs are available in many of our larger stores (known as “HUB” stores). These additional SKUs are typically available on a same-day or next-day basis.

 

 

 

Autopart International (“AI”) — Our 51 stores as of January 1, 2022 operate primarily in the Northeastern and Mid-Atlantic regions of the United States with a focus on professional customers. These stores specialize in imported aftermarket and owned brand auto parts. AI stores offer approximately 52,000 SKUs.

 

 

 

Carquest — Our 347 stores as of January 1, 2022, including 148 stores in Canada, are generally located in freestanding buildings with a primary focus on professional customers, but also serve DIY customers. The average size of a Carquest store is approximately 7,200 square feet.

 

 

 

These stores carry a wide variety of products serving the aftermarket auto part needs for both domestic and import vehicles with a product offering of approximately 25,000 SKUs. As of January 1, 2022, Carquest also served 1,317 independently owned stores that operate under the Carquest name.

 

 

 

Worldpac — Our 266 branches as of January 1, 2022 principally serve professional customers utilizing an efficient and sophisticated online ordering and fulfillment system. Worldpac branches are generally larger than our other store locations, averaging approximately 19,900 square feet in size. Worldpac specializes in imported OEM parts. Worldpac’s complete product offering includes over 273,000 SKUs for import and domestic vehicles. 

 

principally : mainly

 

 

utilize : to use something, especially for a practical purpose

 

sophisticated : clever and complicated in the way that it works or is presented / having a lot of experience of the world and knowing about fashion, culture and other things that people think are socially important

 

fulfilment : the act of doing or achieving what was hoped for or expected / the fact of doing or having what is required or necessary

 

 

 

As part of our transformation efforts, through January 1, 2022 we have converted 88 AI stores into Worldpac operations. Certain converted AI locations will remain branded as AI going forward. Under our current strategic business plan, we plan to continue integrating the operations of AI and Worldpac.

 

convert : to change or make something change from one form, purpose, system, etc. to another / to be able to be changed from one form, purpose, or system to another 

 

integrate : to combine two or more things so that they work together; to combine with something else in this way / to become or make somebody become accepted as a member of a social group, especially when they come from a different culture

 

 

 

Store Development

 

The key factors used in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate.

 

demographics : data relating to the population and different groups within it / a section of the population who are of a similar age, the same sex, etc.

 

 

 

As of January 1, 2022, 4,801 stores and branches were located in 49 U.S. states and two U.S. territories, and 171 stores and branches were located in nine Canadian provinces.

 

 

 

We serve our stores and branches primarily from our principal corporate offices in Raleigh, NC and Roanoke, VA. We also maintain store support centers in Newark, CA and Norton, MA.

 

 

 

Our Products

 

The following table shows some of the types of products that we sell by major category of items:

 

 

 

 

We provide our customers with quality products that are often offered at a good, better or best recommendation differentiated by price and quality. We accept customer returns for many new, core and warranty products.

 

differentiate : to recognize or show that two things are not the same

 

 

 

Our Customers

 

Our professional customers consist primarily of customers for whom we deliver products from our store or branch locations to their places of business, including garages, service stations and auto dealers.

 

 

 

Our professional sales represented approximately 58%, 57% and 60% of our sales in 2021, 2020 and 2019. We also serve 1,317 independently owned Carquest stores with shipments directly from our distribution centers.

 

 

 

Our DIY customers are primarily served through our stores, but can also order online to pick up merchandise at a conveniently located store or have their purchases shipped directly to them. Except where prohibited, we also provide a variety of services at our stores free of charge to our customers, including:

 

 

 

 

 

 

 

Supply Chain

 

Our supply chain consists of a network of distribution centers, HUBs, stores and branches that enable us to provide same-day or next-day availability to our customers. As of January 1, 2022, we operated 52 distribution centers, ranging in size from approximately 51,000 to 943,000 square feet with total square footage of approximately 12.2 million, including one distribution center dedicated to reclamations.

 

reclamations : the process of turning land that is naturally too wet or too dry into land that is suitable to be built on, farmed, etc. / the process of obtaining materials from waste products so that they can be used again

 

 

 

Merchandise, Marketing and Advertising

 

In 2021, we purchased merchandise from over 1,200 vendors, with no single vendor accounting for more than 10% of purchases. Our purchasing strategy involves negotiating agreements to purchase merchandise over a specified period of time along with other provisions, including pricing, volume and payment terms.

 

provision : the act of supplying somebody with something that they need or want; something that is supplied /  preparations that you make for something that might or will happen in the future / supplies of food and drink, especially for a long journey 

 

 

 

 

 

 

Our merchandising strategy is to carry a broad selection of high quality and reputable brand name automotive parts and accessories that we believe will appeal to our professional customers and also generate DIY customer traffic.

 

reputable : that people consider to be honest; having a good reputation

 

 

 

Some of our brands include Bosch®, Castrol®, Dayco®, Denso®, Fram®, Gates®, Meguiar’sTM, Mobil 1TM, Moog®, Monroe®, NGK®, Prestone®, Purolator®, Trico® and Wagner®. In addition to these branded products, we stock a wide selection of high-quality brand owned products with a goal of appealing to value-conscious customers.

 

conscious : aware of something; noticing something / able to use your senses and mental powers to understand what is happening / deliberate; done in a careful way

 

 

 

These lines of merchandise include chemicals, interior automotive accessories, batteries and parts under various brand owned names such as Autocraft®, Autopart International®, Driveworks®, Tough One® and Wearever® as well as the Carquest® brand.

 

 

 

 

 

On December 23, 2019, we purchased the DieHard® brand for a cash purchase price of $200.0 million. This purchase gave us the right to sell DieHard® batteries and enables us to extend the DieHard® brand into other automotive and vehicular categories.

 

 

 

We granted the seller an exclusive royalty-free, perpetual license to develop, market and sell DieHard® branded products in certain non-automotive categories.

 

exclusive : only to be used by one particular person or group; only given to one particular person or group / not very willing to allow new people to become members, especially if they are from a lower social class

 

 

 

 

Our marketing and advertising program is designed to drive brand awareness, consideration by consumers and omnichannel traffic by position in the aftermarket auto parts category.

 

omnichannel : used to refer to a way of selling products that is the same and equally good for the customer whether they are buying from a computer, a mobile phone app, etc., or in a physical shop

 

 

 

We strive to exceed our customers’ expectations end-to-end through a comprehensive online and in-store pick up experience, extensive parts assortment, quality brands, experienced parts professionals, professional programs that are designed to build loyalty with our customers and our DIY customer loyalty program.

 

exceed : to be greater than a particular number or amount / to do more than the law or an order, etc. allows you to do / to be better than expected

 

comprehensive : including all, or almost all, the items, details, facts, information, etc., that may be involved / (of education) designed for students of all abilities in the same school

 

 

 

Our DIY campaign was developed around a multi-channel communications plan that brings together radio, television, digital marketing, social media, sponsorships, store execution, public relations and Speed Perks.

 

multichannel : involving or using many different ways to make a product, information, etc. available

 

 

 

 

 

 

Seasonality

 

 

Our business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months. In addition, our business can be affected by weather conditions.

 

occur : to happen / to exist or be found somewhere

 

 

 

While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot or cold weather tends to enhance sales by causing automotive parts to fail at an accelerated rate. Our fourth quarter is generally our most volatile as weather and spending trade-offs typically influence our professional and DIY sales.

 

precipitation : rain, snow, etc. that falls; the amount of this that falls / (chemistry) a chemical process in which solid material is separated from a liquid

 

 

 

(the rest omitted)