Advance Auto Parts (AAP) posted a profit of 69 cents per share, before special items, in the third quarter of its fiscal ended Oct 10, 2009. This represents a 19% increase from 59 cents reported in the year-ago quarter. With this, the company also exceeded the Zacks Consensus Estimate of 66 cents per share.
Total sales in the quarter rose 6% to $1.26 billion. This was attributed to a net addition of 66 new stores during the past 12 months and a comparable-store sales gain of 4.7% compared to a decrease of 0.1% during the third quarter last year. The comparable-store sales gain was comprised of an 11.8% increase in Commercial, or do-it-for-me (DIFM), and a 1.7% increase in do-it-yourself (DIY) sales.
Gross profit rate was 49.2% of sales compared to 47.3% in the prior year. This 190 basis-point improvement reflects continued investments in pricing and merchandising capabilities, parts availability and improved store execution.
Financial Position
Advance Auto had cash and cash equivalents of $216 million as on Oct 10, 2009. Long-term debt amounted to $279 million as on that date. The long-term debt to capitalization ratio stood at 18%.
In the first three quarters of fiscal 2009, operating cash flow went up 67% to $628.5 million from $375.8 million in the same period last year. The increase was driven by an improvement in working capital management, increased deferred taxes and an increase in net income. The increase allowed the company to decrease its total outstanding bank debt by $192 million over the past year.
Capital expenditures were $132.6 million in the above period. This compares to capital expenditures of $137 million in 2008, a decrease of $4.4 million primarily due to the timing of new store development, partially offset by routine spending on existing stores and information technology investments.
Store Information
During the quarter, Advance Auto opened 24 stores. The company also closed 13 stores. As of Oct 10, 2009, the company’s total store count was 3,418.
As part of the previously announced store divestiture initiative, Advance Auto expects to divest from 40 to 50 unprofitable stores in 2009 that are delivering unacceptable strategic or financial results. Year-to-date, the company has closed 36 stores, which resulted in a 15 cents charge to earnings per share. The company estimates that the incremental store divestitures will result in a 15 cents to 22 cents charge to EPS in fiscal 2009.
Under the existing share repurchase authorization plan, Advance Auto repurchased 879,910 shares of its common stock during the quarter at an aggregate cost of $35.2 million, or an average price of $40 per share. At the end of the reported quarter, the company had $139.4 million available from the $250 million share repurchase authorization approved by the Board of Directors in May 2008.
Advance Auto Parts is a Roanoke, Virginia-based automotive aftermarket retailer of parts, accessories, batteries and maintenance items in the U.S. It serves both the DIY and professional installer/commercial markets. The DIY market accounts for 75% of the company’s revenue. The remaining 25% is generated from the DIFM segment through the commercial delivery program. It operates its stores under two chains — Advance Auto Parts and Autopart International. We recommend the shares of the company as Neutral.
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