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Advance Auto Parts (AAP) Down 4.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Advance Auto Parts (AAP). Shares have lost about 4.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Advance Auto Parts due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Advance Auto Parts Q1 Earnings Beat Estimates, Up Y/Y

Advance Auto Parts reported adjusted earnings of $2.46 per share in first-quarter 2019 (ended Apr 20, 2019), up 17.1% from that of the prior-year quarter. The figure surpassed the Zacks Consensus Estimate of $2.36. Adjusted operating income increased 8.7% year over year to $243.6 million.

Advance Auto Parts reported net revenues of $3 billion, almost in line with the Zacks Consensus Estimate of $2.9 billion. Revenues were 2.7% higher than the year-ago quarter. During the quarter under review, comparable store sales were 2.7% higher year over year.

Operating income rose 4.9% to $207.9 million in the reported quarter. Operating income margin increased 15 basis points year over year to 7%.

Adjusted selling, general and administrative (SG&A) expenses totaled $1.1 billion compared with $1.07 billion in the year-ago period.

Financial Position

Advance Auto Parts had cash and cash equivalents of $537.3 million as of Apr 20, 2019, down from $639.1 million as of Apr 21, 2018. The total long-term debt was $746.8 million as of Apr 20, 2019, lower than $1.05 billion as of Dec 29, 2018.

In first-quarter 2019, operating cash flow was $204.5 million, up 32.8% year over year.

Dividend & Share Repurchase

On May 14, 2019, Advance Auto Parts’ board approved a cash dividend of 6 cents per share to be paid as of Jul 6, 2019, to shareholders of record as of Jun 21, 2019.

On Aug 8, 2018, the company’s board of directors authorized a $600-million share repurchase program, replacing the existing $500-million share repurchase program. Under this program, it repurchased 0.8 million shares for $127.2 million in first-quarter 2019. Advance Auto Parts had $200 million remaining under the share repurchase program at the end of the reported quarter.

Store Update

As of Apr 20, 2019, the company operated 4,931 stores and 146 Worldpac branches, and served approximately 1,238 independently-owned Carquest stores.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Advance Auto Parts has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advance Auto Parts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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