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Advance Auto Parts Inc. (NYSE:AAP) reported a profit of $109.6 million in the first quarter of fiscal 2011, which was flat compared with $109.4 million in the same quarter of prior fiscal year.

However, on per share basis, earnings improved 13% to $1.35 from $1.19 a year ago due to a decline in average shares outstanding to 81.0 million from 91.5 million in the first quarter of fiscal 2010. The auto parts retailer missed the Zacks Consensus Estimate by 4 cents per share.

The company maintained its profit based on aggressive store expansions, enabling better availability of parts to its customers, partially offset by increased supply chain costs.

Sales in the quarter inched up 4% to $1.90 billion, driven by a net addition of 138 stores during the past 12 months. It was lower than the Zacks Consensus Estimate of $1.92 billion. Sales per store increased to $1,697 from $1,619 a year ago. Comparable store sales gain declined significantly to 1.4% from 7.7% in the first quarter of fiscal 2010.

Gross margin improved 73 basis points to 50.5% from 49.8% in the first quarter of fiscal 2010. The improvement was attributable to enhanced merchandising and pricing capabilities, supply chain efficiencies and better availability of parts.

The company’s selling, general and administrative (SG&A) was 40.7% of sales compared with 39.8% a year ago, excluding the impact of store divestitures. The increase was driven by increased advertising expenditure, store labor and fixed cost deleverage due to the modest comparable store sales increase, partially offset by lower incentive compensations.

Operating income rose marginally by 2% to $186.0 million (9.8% of sales) from $182.2 million (10.0%) in the year-ago period. Operating income per store increased to $167 from $145 in the corresponding quarter of fiscal 2010.

Store Openings

During the quarter, Advance Auto Parts opened 37 stores. As of April 23, 2011, the company’s total store count was 3,600, including 203 Autopart International stores

Share Repurchase

Advance Auto repurchased 4.2 million shares during the quarter at an aggregate cost of $270.0 million, reflecting an average price of $63.72 per share. At the end of the first quarter, the company had $351.6 million remaining under the $500.0 million share repurchase authorization approved by the board of directors in February 2011.

Financial Position

Advance Auto Parts had cash and cash equivalents of $53.7 million as of April 23, 2011, a decrease from $133.3 million in the corresponding period a year ago. Long-term debt amounted to $431.8 million as of the above date compared with $279.0 million as of April 24, 2010. The long-term debt-to-capitalization ratio stood at 32.8%, significantly up from 20.1% as of April 24, 2010.

In the 16-week period ended April 23, 2011, operating cash flow dipped to $272.5 million from $338.0 million in the year-ago period. The decline in cash flow was primarily attributable to increase in inventories.

Free cash flow decreased 42% to $152.9 million from $262.9 million a year ago due to lower cash flow from operations and investing activities. Capital expenditures (net) increased to $87.9 million from $60.6 million a year ago.

Our Take

Advance Auto Parts, a Zacks #3 Rank (Hold) stock, Advance Auto Parts, Inc. 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 reiterated its earnings guidance of $4.60 to $4.80 per share, assuming an average diluted share count of 82 million for fiscal 2011.

Recently, the company’s competitor, O’Reilly Automotive Inc. (NASDAQ:ORLY), revealed a 21% increase in profit to $118.4 million (excluding the impact of the charges relating to the company's new financing plan) in the first quarter of 2011 from $97.5 million in the same quarter of 2010. This is equivalent to earnings of 83 cents per share during the quarter, up from 70 cents per share in the first quarter of 2010 and the Zacks Consensus Estimate of 78 cents per share.

OReilly’s results were attributable to its solid consolidated comparable store sales growth led by its dual market strategy and strong distribution network as well as effective cost control measures. Comparable store sales (change in sales for stores open at least one year) rose 5.7% during the quarter versus 6.9% in the same quarter of prior year.

Source: Advance Auto Parts Maintains Profit in First Quarter