Western Auto Supply Company, a wholly owned subsidiary of Advance Auto Parts, Inc. (NYSE: AAP), Roanoke, VA, announced that after 2003 it will no longer supply merchandise and services to its wholesale distribution network of 304 independent Western Auto dealers, as well as 44 other independent retailers.
Advance, the second largest retailer of automotive parts in the U.S., reported 2002 net sales of $3.3 billion, with $83.7 million in sales through its wholesale business. That compares with wholesale sales of $97.9 million in 2001, and $120.7 million in 2000. The company has 2,500 stores in 38 states, Puerto Rico and the Virgin Islands. Advance Auto Parts serves both the do-it-yourself and professional installer markets.
Due to the wide variety of products supplied to the dealers and the reduced concentration of stores spread over a wide geographic area, it has become difficult to serve these dealers effectively, the company said.
During the transition, Western Auto Supply Company will assist the dealers in finding alternative suppliers for various goods and services, including establishing direct relationships with suppliers, as well as facilitate the dealers' access to ongoing credit card programs. The majority of dealers are currently purchasing some of their products directly from other suppliers. The dealers that choose to continue to use the Western Auto name and trademark will have the opportunity to license them through 2006.
Advance Auto Parts acquired the Western Auto Supply Company in 1998 from Sears Roebuck & Co. for $185 million in cash and roughly 11.5 million shares of Advance stock. The deal included 535 Parts America stores that were converted to Advance Auto Parts stores and the wholesale distribution network.
Sears retained an equity interest in the company until the end of 2002. Western created Parts America in 1997, moving its stores to a parts-only format from a combination service/parts operation. At the time of the acquisition, Western had more than 600 company-owned stores and 800 independently owned dealer stores in 45 states.
Western's wholesale distribution network offers automotive parts, accessories and certain specialty merchandise and/or services to 415 independently-owned dealer stores in 42 states. The dealer stores consist of associate, sales center and franchise dealers. Associate and franchise dealers have the right to the use of the "Western Auto" name and certain services provided by Western. Sales centers only have the right to purchase certain products. Advance has been growing through some aggressive acquisitions in the past few years. It acquired Discount Auto Parts in late 2001. Discount had 671 stores in six southern states, with 437 in Florida. It acquired Trak Auto Corporation, with 57 stores in mid-Atlantic states, in 2002.
Advance Auto Parts, Inc. will report results from its wholesale segment, which consists solely of the wholesale distribution network, as discontinued operations beginning in the fourth quarter of 2003 and will change its presentation of historical results to reflect this decision.
The company is anticipating a net after-tax loss from discontinued operations for 2003 of approximately $2.3 million, the majority of which will be incurred in the fourth quarter of 2003. This loss will include both the results of operations for the wholesale segment and certain expenses associated with discontinuing the wholesale supply program.
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