ADVANCE AUTO PARTS INC

Net Sales

Net sales for 2024 were$9.1 billion, a decline of $114.7 million, or 1.2%, compared with 2023. Net sales was negatively impacted by strategic pricing investments coupled with volume decline, partially offset by favorable product mix. Comparable store sales declined 0.7%. Category growth was led by batteries, filters and engine management.

The Company calculates comparable store sales based on the change in store 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. Acquired stores are included in the Company’s comparable store sales one year after acquisition. The Company includes sales from relocated stores in comparable store sales from the original date of opening. Closed stores and stores in process of closing under the 2024 Restructuring Plan are not included in the comparable store sales calculation. 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 in 2024 was $3.41 billion, or 37.5% of net sales, compared with $3.86 billion, or 41.9% of net sales in 2023, a decrease of 444 basis points. Gross profit as a percentage of net sales declined primarily due to $431.5 million of inventory-related charges attributable to the location closures and streamlining product assortment associated with the 2024 Restructuring Plan and liquidation sales at closing stores and distribution center locations.

Selling, General and Administrative Expenses, Exclusive of Restructuring and Related Expenses

Selling, general and administrative (“SG&A”) expenses, exclusive of restructuring expenses for 2024 was $3.81 billion, or 41.9% of net sales, compared with $3.81 billion, or 41.3% of Net sales for 2023, an increase of 61 basis points. The increase in SG&A expense as a percentage of net sales was primarily driven by higher labor-related costs attributable to wage-investments in frontline team members and occupancy costs partially offset by a decline in marketing expenses.

Restructuring and related expenses for 2024 was $308.9 million, or 3.4% of net sales. These expenses represent costs primarily attributable to the 2024 Restructuring Plan and included $204.2 million of long-lived asset impairment and accelerated amortization and depreciation charges, $19.7 million of distribution network optimization, $24.7 million of incremental reserves of the collectibility of receivables resulting from contract terminations with independents, $15.2 million severance and other labor related expenses and third party professional fees. Refer to Note 3. Restructuring of the Notes to the Consolidated Financial Statements included for additional detail.

Interest Expense

Interest expense for 2024 was $81.0 million, a decrease of $7.0 million compared with 2023. This decrease was attributable to an increase in interest income due to higher investment balances compared with the prior year. Refer to Note 7. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details.

Provision for Income Taxes

The Company’s Provision for income taxes for 2024 was a benefit of $181.1 million compared with a benefit of $17.2 million for 2023, an increase of $164.0 million primarily due to a decrease in taxable income. The Company’s effective tax rate was 23.6% for 2024 and 36.4% for 2023. In 2024. The tax rate decreased compared with prior year primarily due to a tax benefit resulting from a discrete charge related to share-based compensation, the expiration of statute of limitations for certain tax years in multiple states as well as enhanced utilization of tax credits in the current year.

Reconciliation of Non-GAAP Financial Measures

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes certain financial measures not derived in accordance with GAAP. Non-GAAP financial measures, including Adjusted Net income, Adjusted EPS, Adjusted SG&A Margin, and Adjusted Operating Income, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing 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 plans, inclusive of the Worldpac divestiture (2) other significant expenses and (3) nonrecurring tax expense 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. 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 plans 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.

•Inventory write-down — Expenses relating to the incremental write-down of inventory to net realizable value due to liquidation sales and streamlining inventory assortment due to store and distribution center closures associated with the 2024 Restructuring Plan.

•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, 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 the hiring search for leadership positions and compensation.

•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.

Nonrecurring Tax Expense — Income tax incurred by the Company from the book to tax basis difference in the Worldpac Canada stock directly resulting from the sale of Worldpac.

The following table includes a reconciliation of this information to the most comparable GAAP measures:

(1) Restructuring and other related expenses included transactional expenses due to incremental receivable reserves resulting from contract terminations with certain independents as part of the 2024 Restructuring Plan of $24.7 million, severance and other labor related costs of $15.2 million as part of the 2024 Restructuring Plan, and nonrecurring services rendered by third-party vendors assisting with the 2024 Restructuring Plan of $20.8 million.

(2) During the fifty-two weeks ended December 28, 2024, the Company recorded impairment charges for ROU assets and property and equipment of $171.4 million and incremental accelerated depreciation and amortization for property and equipment and ROU assets of $32.7 million.

(3) Distribution network optimization includes incremental depreciation as a result of accelerating long-lived assets over a shorter useful life of $5.0 million.

(4) The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.

(5) Income tax incurred by the Company from the book to tax basis difference in the Worldpac Canada stock directly resulting from the sale of Worldpac.