A month has gone by since the last earnings report for Advance Auto Parts (AAP). Shares have lost about 4.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Advance Auto Q1 Earnings Beat Mark & Rise Y/Y
Advance Auto reported adjusted earnings of $3.57 per share for first-quarter 2022 (ended Apr 23, 2022), up 6.9% from the year-ago quarter figure. The reported figure also beat the Zacks Consensus Estimate of $3.53 on higher-than-expected comps growth. Advance Auto generated net revenues of $3,374.2 million, falling short of the Zacks Consensus Estimate of $3,381 million but edging up 1.3% from the year-ago reported figure.
The first quarter of 2022 marked the eighth consecutive quarter of comps and adjusted operating income growth. While comparable same-store sales grew 0.60%, adjusted operating income was up 1.6% year over year to $303.6 million despite a rise in SG&A costs. Adjusted SG&A expenses increased $1.3 billion for first-quarter 2022, up from $1.2 billion in the year-ago period.
Advance Auto had cash and cash equivalents of $138.7 million as of Apr 23, 2022 compared with $601.4 million on Jan 1, 2022. Total long-term debt was $1,187.2 million as of Apr 23, 2022, up from $1,034.3 million on Jan 1, 2022. During the reported quarter, net cash used in operating activities totaled $55 million against $329.9 million of net cash provided by operating activities in the first quarter of 2021. Consequently, AAP recorded a negative Q1’22 FCF of $169.8 million, deteriorating from a positive FCF of $259 million in the comparable year-ago period.
Dividend & Share Repurchase
On May 18, AAP’s board declared a cash dividend of $1.50 a share, which would be payable on Jul 1, 2022 to all common shareholders of record as of Jun 17, 2022.
During the quarter under discussion, AAP — which currently carries a Zacks Rank #3 (Hold) — repurchased around 1.1 million shares for $248.2 million at an average price of $231.41 per share. At the end of first-quarter 2022, AAP had $1.3 billion remaining under the share-repurchase program.
As of Apr 23, 2022, AAP operated 4,687 stores and 311 Worldpac branches in the United States, Canada, Puerto Rico, and U.S. Virgin Islands. It also served 1,318 independently-owned Carquest-branded stores across these locations, in addition to Mexico and various Caribbean Islands.
Guidance for 2022
Advance Auto estimates 2022 net sales in the band of $11.2-$11.5 billion. Comparable store sales growth and adjusted operating income margin are envisioned in the range of 1-3% and 10-10.2%, respectively. Advance Auto expects capex in the $300-$350 million range and targets FCF of a minimum of $775 million. Adjusted EPS is now forecast between $13.30 and $13.85, up from the previously guided range of $13.20-$13.75. The auto parts retailer intends to buy back stocks worth $500-$700 million. AAP aims to open 125-150 new stores this year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
At this time, Advance Auto Parts has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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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