Mixed Bag from Advance Auto

Zacks

Advance Auto Parts Inc. (AAP) posted a 2.2% decrease in earnings per share to 88 cents in the fourth quarter of 2012 from 90 cents in the year-ago quarter. However, reported EPS surpassed the Zacks Consensus Estimate by 13 cents. Net income dipped 2.1% to $65.1 million from $66.4 million a year ago.

Revenues remained flat year over year at $1.3 billion, in line with the Zacks Consensus Estimate. Flat revenues reflect a 1.9% decrease in comparable store sales versus a 2.9% rise during the fourth quarter of 2011, offset partially by the positive impact of net addition of 132 stores over the past 12 months.

Gross margin expanded 87 basis points to 49.9% from 49.0% in the fourth quarter of 2011. The improvement was attributable to increased shrink and supply chain efficiencies. Operating profit increased 1.1% to $113.2 million or 8.5% of sales from $111.9 million or 8.4% in the year-ago quarter.

During the quarter, Advance Auto Parts opened 67 stores, including 8 Autopart International stores. With this, the company has opened 137 stores, including 21 Autopart International stores, in 2012. The company has closed 5 stores in 2012. As of Dec 29, 2012, the company’s total store count stood at 3,794, including 218 Autopart International stores.

For full year 2012, Advance Auto Parts reported a 2.2% increase in earnings per share to $5.22 from $5.11 a year ago. Revenues increased marginally to $6.21 billion from $6.17 billion in 2011. Gross margin increased to 49.9% from 49.7% in fiscal 2011.

Share Repurchase and Dividend

In 2012, Advance Auto Parts repurchased shares worth $27.1 million. As of Dec 29, 2012, the company had nearly $492 million shares remaining under its $500 million share repurchase program, which was authorized by the board on May 14, 2012.

On Feb 5, 2013, the board of directors of the company approved a quarterly dividend of 6 cents per share. The dividend is payable on Apr 5 to shareholders of record as of Mar 22.

Financial Position

Advance Auto Parts had cash and cash equivalents of $598.1 million as of Dec 29, 2012, significantly up from $57.9 million as of Dec 31, 2011. Long-term debt increased to $604.5 million as of Dec 29, 2012 from $415.1 million as of Dec 31, 2011. Long-term debt-to-capitalization ratio was 33.3% versus 32.9% as of Dec 31, 2011.

In the 52-week period ended Dec 29, 2012, the company’s operating cash flow declined to $685.3 million from $828.9 million in the year-ago period. Capital expenditures (net) increased marginally to $271.2 million from $268.1 million a year ago.

Outlook

For 2013, Advance Auto Parts expects operating EPS between $5.45 and $5.60, which excludes one-time integration costs for BWP Distributors of roughly 15 cents to 20 cents per share. Revenues are expected to increase roughly $170 million to $180 million during the year due to the acquisition of BWP.

Capital expenditure is estimated in the range of $275 million to $300 million. Free cash flow will be $375 million, excluding the net acquisition price of BWP.

Our Take

Advance Auto Parts operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, maintenance items, batteries and automotive fluids for cars and light trucks. The company is the second leading retailer catering to the DIY and DIFM (or commercial) customers. It retains a Zacks Rank #3 (Hold).

AutoZone Inc. (AZO), another leading retailer and distributor of automotive replacement parts & accessories, reported a 15.6% rise in earnings per share to $5.41 in the first quarter of fiscal 2013 ended Nov 17, 2012 from $4.68 in the year-ago quarter. With this, profits in the quarter surpassed the Zacks Consensus Estimate by a penny. The company’s revenues for the quarter increased 3.5% to $1.99 billion, marginally missing the Zacks Consensus Estimate of $2.03 billion.

Currently, CarMax Inc. (KMX) and O’Reilly Automotive Inc. (ORLY) with Zacks Rank #2 (Buy) are performing well in the same industry where Advance Auto Parts operates.

 

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