HUNTERSVILLE, N.C.—American Tire Distributors Holdings Inc. (ATD) fell into the red on an operating basis and suffered multi-fold increases in net losses in the quarter and six months ended June 29, despite 32.7-percent higher sales.
ATD attributed the second-quarter losses to higher operating costs—including $52 million in incremental costs associated with five acquistions in the past half year—and other increases connected with expansion, according to the company.
ATD's second-quarter operating result fell $30.3 million into the red from an $11.8 million profit a year ago, while the net loss ballooned to $49.5 million from a loss of $5.8 million in 2013.
Management fees and transaction expenses related to acquisitions amounted to more than $30 million in the 2014 quarter vs. $3.5 million a year ago, the firm's financial statements show. Sales, aided by the first-time contributions of ATD's acquisitions of Hercules Tire Holdings L.L.C., Terry's Tire Town Holdings L.L.C., Wholesale Tire Distributors, Tire Distributors Inc. and Regional Tire Distributors Inc., jumped nearly a third to $1.27 billion.
ATD also cited a gain of $35.5 million on increased comparable tire unit sales, but this gain was offset partially by lower net pricing, driven “primarily by manufacturing marketing specials, competitive pricing positions in certain U.S. markets, as well as a shift in product mix in our lower priced-point offerings.”
For the six-month period, ATD fell $54.7 million into the red on an operating basis vs. an operating profit of $6 million in 2013. The net loss ballooned nearly four-fold to $83.6 million. Sales jumped 30.5 percent to $2.34 billion, with first-time revenue from acquisitions accounting for nearly 85 percent of the gain.
The 2014 period included five additional selling days vs. the 2013 period, ATD said, which contributed $47 million in revenue, but this was offset by lower net pricing. During the quarter, ATD made five acquisitions through its TriCan Tire Distributors Inc. subsidiary in Canada:
- The wholesale business of Kirk's Tire Ltd. of Edmonton, Alberta, for $73 million. Kirk's Tire's retail operations were not acquired and will continue to operate under its current ownership, ATD said;
- Regional Tire Distributors (Edmonton) Inc. of Edmonton, Alberta, for $31.9 million;
- Regional Tire Distributors (Calgary) Inc. of Calgary, Alberta, for $20.7 million;
- Trail Tire Distributors Ltd. of Edmonton, for $20.8 million; and c Trail Tire's Extreme Wheel Distributors Ltd. affiliate, also of Edmonton, for $6.5 million.
These were in addition to the first quarter acquisitions of Hercules Tire, Terry's Tire Town and the wholesale business of Kipling Tire Co. Ltd. of Etobicoke, Ontario, for a combined purchase price of $691.6 million. Since the end of the quarter, ATD closed a deal to sell the commercial tire assets of Terry's Tire Town—four commercial outlets and a retread plant—to Best-One Tire.