Advance Auto Parts (AAP) has posted a profit of $37 million or 39 cents per share in the fourth quarter of 2009. This was lower than the year-ago level profit of $38 million or 41 cents and the Zacks Consensus Estimate of 46 cents. Despite the efforts to drive sales, lower costs and increase return on invested capital, the company has been hit hard by the sluggish economy during the quarter.
 
Sales in the quarter rose 3.6% to $1.14 billion. This was attributable to a net addition of 52 stores during the past 12 months and a comparable store sales gain of 2.4%. The comparable store sales gain comprised a 9.5% increase in Commercial, or do-it-for-me (DIFM) sales, partially offset by a 0.8% decrease in do-it-yourself (DIY) sales.
 
Gross profit rate for the quarter was 47.9% of sales, compared to 47.2% in the prior year. This was a 78 basis-point improvement, driven by continued investments in pricing and merchandising capabilities, increased parts availability and improved store execution.
 
Annual Results
 
Advance Auto Parts’ profit increased to $287 million or $3.00 per share in 2009 from $252 million or $2.64 in 2008. The company has projected an EPS of $3.20 – $3.40 for 2010, which is compatible with the Zacks Consensus Estimate of $3.31.
 
Sales in the year escalated 7% to $5.4 billion. Comparable store sales increased 5.3% versus a 1.5% increase in 2008. This comprised a 1.7% increase for DIY sales and 13.7% for Commercial sales. Gross profit rate was 48.9%, reflecting a 149 basis-point improvement from fiscal 2008.
 
Store Information
 
During the fourth quarter, Advance Auto Parts opened 14 stores (9 Advance Auto Parts stores and 5 Autopart International stores), and closed 12 stores. In 2009, the company opened 107 new stores (75 Advance Auto Parts stores and 32 Autopart International stores) and closed 55 stores. The stores closures included divestment of 9 stores during the quarter and 45 stores during fiscal 2009.
 
As of January 2, 2010, the company’s total store count was 3,420, including 156 Autopart International stores. The company expects to open 150 stores (110 Advance Auto Parts Stores and 40 Autopart International Stores) in 2010.
 
Share Repurchases
 
During the fourth quarter, Advance Auto Parts repurchased approximately 1.2 million shares of its common stock at an aggregate cost of $50 million, reflecting an average price of $40.24 per share. During 2009, the company has repurchased approximately 2.5 million shares of its common stock at an aggregate cost of $99.6 million, at an average price of $40.36 per share.
 
As of January 2, 2010, the company had repurchased 4 million shares at an average price of $39.77 per share under the authorization of $250 million for share repurchase. Further, the company’s Board of Directors authorized a $500 million share repurchase program, replacing the previous repurchase authorization of $250 million in May 2008, which had $89.3 million remaining.
 
Financial Position
 
Advance Auto Parts had cash and cash equivalents of $100 million as of January 2, 2010. This was a significant improvement from $37 million as of January 3, 2009. Long-term debt amounted to $235 million as of that date. The long-term debt to capitalization ratio stood at 15%.
 
Operating cash flow for fiscal 2009 increased to $699.7 million from $478.7 million in fiscal 2008. Free cash flow was $410 million, representing a 46% increase from fiscal 2008. This was attributable to lower working capital, increased deferred taxes and an increase in net income. The company expects free cash flow to be at least $300 million for 2010.
 
The increase in free cash flow enabled the company to decrease its total outstanding bank debt by $252 million over the past year. Capital expenditures were $192.9 million for fiscal 2009 compared to $185 million in 2008. For 2010, the company expects capital expenditures in the range of $220 million–$240 million.
 
Advance Auto Parts stock price fell by 6% to $40.15 after the market closed on February 18 due to its inability to meet market expectations.
 
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