Discount Auto Parts, Inc. Reports Lower Anticipated Commercial Freon Sales
LAKELAND, Fla., Jan. 22, 1997 - Discount Auto Parts, Inc. (NYSE: DAP) today
announced that it has experienced certain disruptions in the distribution channels for its
commercial R-12 freon sales as well as wholesale price increases for the product. As a
result, the Company presently does not expect to make any significant commercial sales of
R-12 freon during the current fiscal quarter which ends March 4, 1997 and at least into and
possibly through the end of the fourth quarter of fiscal 1997 which ends June 3, 1997.
Consistent with actions taken by the Company in the third and fourth quarters of fiscal
1996, the Company may elect to make certain strategic wholesale purchases of R-12 freon
during the remainder of fiscal 1997 which product the Company would warehouse in
significant part until fiscal 1998 with an expectation that the market and pricing for the
product would be stronger at that time. The Company emphasized that commercial freon
sales are a relatively small part of its business and that the slowdown of such sales does
not affect the Company's core business as a leading retailer of automotive parts and
accessories in the Southeastern United States.
As has been previously disclosed, commercial sales of R-12 freon product have
contributed to the Company's sales and earnings growth over the last two fiscal quarters,
and have accounted during such period for most if not all of its comparable store sales
growth. Accordingly, the slowdown in its commercial sales of R-12 freon is expected to
have a somewhat negative impact not only on the Company's overall sales performance but
also on earnings for at least the third and fourth quarters of fiscal 1997 and that financial
results can be expected to be lower than the current analysts' expectations. Although it is
too early to determine the full impact of this slowdown in freon sales, the Company noted
that approximately 9% of total sales in the first six months of fiscal 1997 represented
commercial sales of R-12 freon and that it could be expected that earnings per share for
the third and fourth quarters could be impacted by as much as 15% or more in each
quarter.
Commenting on these announcements, Peter J. Fontaine, president and chief executive
officer, stated, "While we are disappointed with the anticipated lower commercial freon
sales, we continue to expect substantial revenue growth in the last two quarters of fiscal
1997 over the comparable quarters in fiscal 1996. Moreover, we continue to remain on
track with our new store openings for this fiscal year, we are excited about our new
Q-Lube venture which has previously been disclosed and which is gearing up for the roll
out, and we continue to see success from our strategy to build market share in our principal
markets including Florida.
"Our decision to pull back on commercial sales of R-12 freon has been precipitated by a
number of recent developments. We have recently learned that a company in the freon
distribution business that was one of our freon customers is under federal investigation
with respect to practices it may have engaged in with its own freon customers. Partly as a
result of this investigation, the freon customer under investigation recently filed for
bankruptcy protection. Also, as has been widely reported, the government has expressed
concerns with respect to illegally imported and falsely labeled freon. We believe that in
light of the recent developments and announcements our decision to pull back, at least
temporarily, on the commercial freon sales is the prudent thing to do," Mr. Fontaine said.
The Company also reported that at the time the above-described investigation commenced,
the Company had shipped and has not been paid for approximately $1.0 million of
commercial freon at cost that was sold to a freon distributor but that was shipped, at such
distributor's direction, directly to a warehouse which was operated by the now bankrupt
freon distributor. Although efforts are underway to recover amounts owed to the Company
for such freon from the commercial distributor that is not in bankruptcy, or to recover such
freon product, and although the Company is optimistic that it will ultimately collect what is
owed, there can be no assurance.
This release contains forward looking statements which reflect the current views of the
Company with respect to certain events that could have an effect on the Company's future
financial performance. These statements include the words "expects," "expected,"
"anticipated," "believes," and similar expressions. These forward looking statements are
subject to various risks and uncertainties that could cause actual results to differ materially
from historical results or those currently anticipated. These potential risks and
uncertainties include increased competition, extent of the market demand for auto parts,
availability of inventory supply, propriety of inventory mix, adequacy and perception of
customer service, product quality and defect experience, availability of and ability to take
advantage of vendor pricing programs and incentives, sourcing availability, rate of new
store openings, cannibalization of store sites, mix of types of merchandise sold,
governmental regulation of products, new store development and the like, performance of
information systems, effectiveness of deliveries from the distribution center, ability to
hire, train and retain qualified team members, availability of quality store sites,
environmental risks and other risks.
Discount Auto Parts, Inc. is one of the Southeast's leading specialty retailers of automotive
replacement parts, maintenance items and accessories for the Do-It-Yourself ("DIY")
consumer. The Company currently operates 366 stores located throughout Florida,
Georgia, Alabama and South Carolina.
SOURCE Discount Auto Parts, Inc. /CONTACT: C. Michael Moore, CFO, Discount Auto
Parts, Inc., 941- 284-2010/