Advance Auto Parts Inc. (AAP) reported a 40% rise in profit to $48.1 million or 57 cents per share for the fourth quarter fiscal 2010 ended January 1, 2011 from $34.5 million or 36 cents per share in the same period a year ago. The profit even exceeded the Zacks Consensus Estimate by 2 cents per share.
The increase in profit was driven by the company’s aggressive store expansion strategy, enabling better availability of parts to its customers, thereby leading to higher comparable store sales.
Sales in the quarter escalated 11% to $1.27 billion, driven by a net addition of 143 stores during the past 12 months. Sales per store increased to $1,697 from $1,595 a year ago. Comparable store sales gain was 8.9%, which improved significantly from 2.4% in the fourth quarter of fiscal 2009.
Gross margin improved 147 basis points to 49.4% from 47.9% in the fourth 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) rate grew 20 basis points to 42.8% of sales from 42.6% a year ago, excluding the impact of store divestitures. The increase was driven by higher incentive compensation, offset partially by fixed cost leverage due to strong comparable store sales and a decelerated pace of net incremental spending to enhance the company’s strategic capabilities.
Operating income soared up 47% to $83.9 million (6.6% of sales) from $57.2 million (5.0%) in the year-ago period. Operating income per store increased to $168 from $134 in the corresponding quarter of fiscal 2009.
Annual Results
For fiscal 2010, Advance Auto Parts recorded a 28% rise in profit to $346.1 million or $3.95 per share from $270.4 million or $2.83 per share in the prior fiscal year. Sales in the year rose 9.5% to $5.9 billion, reflecting comparable store sales gain of 8%.
Gross margin improved 113 basis points to 50% from the prior fiscal year. The company’s SG&A rate was 40.1% versus 40.0% in fiscal 2009, excluding the impact of store divestitures. The company’s operating income was $584.9 million (9.9% of sales) compared with $454.4 million (8.4%) in fiscal 2009.
Store Openings
During the quarter, Advance Auto Parts opened 26 stores, including 3 Autopart International stores, and closed 3 stores. This marked the total opening of 148 stores for fiscal 2010, including 38 Autopart International stores, and closure of 5 stores. As of January 1, 2011, the company’s total store count was 3,563 including 194 Autopart International stores.
During the quarter, Advance Auto Parts repurchased about 2.4 million shares of its common stock for $157.8 million, implying an average price of $66.71. In fiscal 2010, the company repurchased approximately 13.0 million shares of its common stock for $633.9 million, reflecting an average price of $48.67.
Subsequent to the end of fiscal 2010 and till the date of the release of quarterly results, the company has repurchased an additional 1.9 million shares of its common stock for $121.6 million or an average price of $62.72.
With this, the company has completed the $300.0 million share repurchase authorization approved by the board of directors in August 2010. On February 8, 2011, the company’s board of directors authorized a fresh $500 million share repurchase program.
Financials
Advance Auto Parts had cash and cash equivalents of $59.2 million as of January 1, 2011, a decrease from $100.0 million in the comparable quarter-end a year ago. Long-term debt amounted to $301.8 million as of the above date. The long-term debt-to-capitalization ratio stood at 22.5%, significantly higher than 14% as of January 2, 2010.
In the 52-week period ended January 1, 2011, operating cash flow dipped to $666.2 million from $699.7 million in the year-ago period. The decline in cash flow was primarily attributable to lower provision for deferred income taxes and increases in trade receivables and inventories.
Free cash flow rose 14% to $466.4 million from $409.9 million a year ago due to higher profit. Capital expenditures increased to $199.6 million from $192.9 million a year ago.
Fiscal 2011 Guidance
For fiscal 2011, Advance Auto Parts anticipates earnings in the range of $4.60 to $4.80 per share, assuming an average diluted share count of 82 million. The company also expects comparable store sales gain of low to mid single digits.
The automotive retailer has projected to open 120–140 stores during the year. This includes 110–120 Advance Auto Parts stores and 10–20 Autopart International stores.
Capital expenditures are expected to lie in the range of $275 million to $300 million. Meanwhile, the company expects to generate free cash flow of at least $300 million for the fiscal year.
Despite the improved results and impressive guidance, the company retained Zacks #3 Rank (Hold) on its stock for the short term (1 to 3 months) on the back of its deteriorated cash flow and stiff competitive environment.
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