Advance Auto Parts' Q3 Earnings and Sales Miss, Rise Y/Y
Advance Auto Parts Inc. AAP reported a 3.2% rise in comparable earnings to $1.95 per share in the third quarter of fiscal 2015 (ended Oct 10, 2015) from $1.89 in the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $2.06. Adjusted net earnings increased 3.5% to $144.2 million from $139.3 million in the third quarter of fiscal 2014.
Revenues went up 0.3% year over year to $2.29 billion, falling short of the Zacks Consensus Estimate of $2.33 billion. Sales benefited from the addition of new stores over the last 12 months and an increase in comparable store sales that inched up 0.5% in the reported quarter compared with 1.5% growth a year ago.
Gross profit declined 0.2% to $1.032 billion, or 45% of sales in the quarter from $1.034 billion or 45.2% of sales a year ago. The decrease in gross profit margin can be attributed to higher inventory expenses due to product integration, modest supply chain expense, partially offset by lower product acquisition costs, including merchandise cost synergies.
Comparable selling, general and administrative (SG&A) expenses totaled $788.6 million or 34.4% of sales in the quarter under review, compared with $797.6 million or 34.8% of sales in the third quarter of fiscal 2014. The decline in SG&A margin resulted from lower incentive compensation, lower administrative costs, partially offset by expense de-leverage arising from low comparable store sales growth.
Comparable operating income improved 2.9% to $243.8 million from $236.8 million in the prior-year quarter. Operating margin stood at 10.6% versus 10.3% a year ago.
Dividend
The board of directors of Advance Auto Parts declared a regular quarterly dividend of 6 cents per share, payable on Jan 8, 2016, to stockholders on record as of Dec 24, 2015.
Financial Position
Advance Auto Parts had cash and cash equivalents of $105.3 million as of Oct 10, 2015, implying a significant increase from $89.7 million as of Oct 4, 2014. Total long-term debt was $1.29 billion as of Oct 10, 2015, compared with $1.74 billion as of Oct 4, 2014.
During the first nine months of fiscal 2015, operating cash flow was $520.1 million compared with $540.3 million in the same period of fiscal 2014. Free cash flow in the period amounted to $358.9 million against $378.8 million in the comparable year-ago period. Capital expenditures in the said period amounted to $161.1 million compared with $160.8 million a year ago.
Outlook
Based on the disappointing third-quarter results, continuing integration headwinds and soft sales volume recorded in the beginning of the fourth quarter, Advance Auto Parts reduced its guidance. The company now expects earnings per share in the range of $7.75–$7.90 in fiscal 2015, down from the previous forecast of $8.10–$8.30. The company also anticipates flat to slightly negative fourth-quarter comparable store sales, and flat year-over-year fourth-quarter gross margin rate.
The company intends to close 30 stores in late 2015. This will lead to one-time expenses of $10–$15 million in 2015, taking the total expected one-time expenses to $101–$120 million, higher than the previous projection of $91–$105 million.
Store Update
As of Oct 10, 2015, the company’s total store count stood at 5,240, including 118 Worldpac branches. Advance Auto Parts served roughly 1,300 independently owned Carquest stores as of that date.
Zacks Rank
Advance Auto Parts currently carries a Zacks Rank #3 (Buy).
Better-ranked automobile stocks include American Axle & Manufacturing Holdings Inc. AXL, Lear Corp. LEA and Cooper-Standard Holdings Inc. CPS. All the stocks carry a Zacks Rank #2 (Buy).
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