Advance Auto Parts Up on Q2 Earnings Beat, Guidance Raised

Shares of Advance Auto Parts Inc. (AAP) rose 7% and closed at $131.59 on Aug 14, after the company reported a 30% rise in adjusted comparable earnings to $2.08 per share in the second quarter of fiscal 2014 (ended Jul 12, 2014) from $1.60 in the prior-year quarter. The figure also exceeded the Zacks Consensus Estimate by 7 cents.

Adjusted net earnings rose 30.1% to $153.2 million from $117.7 million in the second quarter of fiscal 2013.

Including amortization of acquired intangible assets of 8 cents, integration costs of 8 cents related to the acquisition of General Parts International and integration expenses of 2 cents for B.W.P. Distributors, earnings per share (on a reported basis) stood at $1.89 as against $1.59 in the year-ago quarter.

Revenues went up 51.5% year over year to $2.35 billion, surpassing the Zacks Consensus Estimate of $2.32 billion. Sales benefited from the General Parts takeover, increase in comparable same-store sales and the addition of new stores over the last 12 months. Meanwhile, comparable store sales increased 2.6% in the second quarter, in contrast to a decrease of 0.3% in the prior-earlier quarter.

Gross profit increased 36.3% to $1.1 billion or 45.2% of sales in the quarter compared with $779.2 million or 50.3% of sales a year ago. The decrease in gross profit margin can be attributed to higher mix of commercial sales (which has a lower gross margin rate), partly offset by synergy savings in the quarter.

Comparable selling, general and administrative (SG&A) expenses totaled $799.4 billion or 34% of sales in the quarter under review, compared with $583.2 million or 37.6% of sales in the second quarter of fiscal 2013.

Comparable operating income increased 34% to $262.7 million from $196.1 million in the second quarter of fiscal 2013. Operating margin stood at 11.2% versus 12.7% a year ago.

Store Openings

During the first half of fiscal 2014, Advance Auto Parts opened 51 stores and closed 13. Also, the company acquired 1,336 Carquest stores and Worldpac branches as part of its acquisition of General Parts on Jan 2, 2014. As of Jul 12, 2014, the company’s total store count stood at 5,289, with 106 Worldpac branches, and it served roughly 1,400 independently owned Carquest stores.

Dividend

The board of Advance Auto Parts declared a regular quarterly dividend of 6 cents per share to be paid on Oct 3, 2014, to stockholders of record as of Sep 19, 2014.

Financial Position

Advance Auto Parts had cash and cash equivalents of $67.4 million as of Jul 12, 2014, implying a decline from $521 million as of Jul 13, 2013. Total long-term debt increased to $1.9 billion as of Jul 12, 2014, from $604.9 million as of Jul 13, 2013. The long-term debt-to-capitalization ratio stood at 50.7% versus 30.6% as of Jul 13, 2013.

In the 28-week period ended Jul 12, 2014, operating cash flow increased to $320.6 million from $310.1 million in the 28-week period ended Jul 13, 2014. Free cash flow in the period stood at $214.3 million versus $198.2 million last year. Capital expenditures in the concerned period, stood at $106.1 million compared with $111.8 million a year ago.

Outlook

Advance Auto Parts raised its earnings expectation to $7.50–$7.60 per share for fiscal 2014 from the previous guidance of $7.30–$7.50. The stock currently carries a Zacks Rank #2 (Buy).

Some other stocks that are performing well in the auto industry include Lithia Motors Inc. (LAD), O’Reilly Automotive Inc. (ORLY) and CarMax Inc. (KMX). Lithia sports a Zacks Rank #1 (Strong Buy) while the other two stocks carry a Zacks Rank #2.

Read the Full Research Report on ORLY
Read the Full Research Report on AAP
Read the Full Research Report on KMX
Read the Full Research Report on LAD


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