Advance Auto Parts Down on Weak Outlook; Earnings Beat
Shares of Advance Auto Parts Inc. (AAP) fell 2.6%, closing at $145.56 on Nov 6 as its fiscal 2014 guidance failed to meet expectations. The stock fell another 2.6% on Nov 7 as the negative investor sentiment continued.
Advance Auto Parts reported a 27.7% rise in adjusted comparable earnings to $1.89 per share in the third quarter of fiscal 2014 (ended Oct 4, 2014) from $1.48 in the prior-year quarter. The figure also exceeded the Zacks Consensus Estimate of $1.87.
Adjusted net earnings rose 28.9% to $139.3 million from $108.1 million in the third quarter of fiscal 2013.
Including amortization of acquired intangible assets of 8 cents, integration costs of 14 cents related to the acquisition of General Parts International and integration expenses of 1 cent for B.W.P. Distributors, earnings per share (on a reported basis) stood at $1.66 as against $1.42 in the year-ago quarter.
Revenues went up 50.6% year over year to $2.29 billion, in line with the Zacks Consensus Estimate. 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 1.5% in the third quarter, in contrast to a decrease of 2% in the prior-year quarter.
Gross profit increased to $1.03 billion or 45.2% of sales in the quarter, compared with $762.9 million or 50.2% of sales a year ago. The decrease in gross profit margin can be attributed to a higher mix of commercial sales, (which has a lower gross margin rate), partly offset by acquisition synergy savings in the quarter.
Comparable selling, general and administrative expenses totaled $797.6 billion or 34.8% of sales in the quarter under review, compared with $585.3 million or 38.5% of sales in the third quarter of fiscal 2013.
Comparable operating income increased 33.3% to $236.8 million from $177.6 million in the third quarter of fiscal 2013. Operating margin stood at 10.3% versus 11.7% a year ago.
Store Openings
During the 40-week period ended Oct 4, 2014, Advance Auto Parts opened 101 stores and closed 14. 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 Oct 4, 2014, the company’s total store count stood at 5,414, including 109 Worldpac branches. Advance Auto Parts served roughly 1,350 independently owned Carquest stores as of that date.
Dividend
The board of directors of Advance Auto Parts declared a regular quarterly dividend of 6 cents per share to be paid on Jan 9, 2015 to stockholders of record as of Dec 26, 2014.
Financial Position
Advance Auto Parts had cash and cash equivalents of $89.7 million as of Oct 4, 2014, implying a decline from $567.3 million as of Oct 5, 2013. Total long-term debt increased to $1.74 billion as of Oct 4, 2014, from $605.1 million as of Oct 5, 2013. The long-term debt-to-capitalization ratio stood at 47.4% versus 29.2% as of Oct 5, 2013.
In the 40-week period ended Oct 4, 2014, operating cash flow increased to $540.3 million from $398.5 million in the 40-week period ended Oct 5, 2013. Free cash flow in the period stood at $378.8 million versus $250.8 million last year. Capital expenditures in the concerned period stood at $161.5 million, compared with $147.7 million a year ago.
Outlook
Advance Auto Parts affirmed its earnings expectation of $7.50–$7.60 per share for fiscal 2014.
The stock currently carries a Zacks Rank #3 (Hold). Investors interested in the automobile sector may consider better-ranked stocks such as Gentex Corp. (GNTX), Toyota Motor Corporation (TM) and STRATTEC Security Corporation (STRT). All these stocks sport a Zacks Rank #1 (Strong Buy).
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