Advance Auto Beats, Opens 43 Stores - Analyst Blog

Advance Auto Parts Inc. (AAP) witnessed a rise in profit to $87.6 million or $1.03 per share for the third quarter ended October 9, 2010 from $61.98 million or 65 cents per share in the same quarter of 2009. The profit was higher than the Zacks Consensus Estimate of 92 cents per share.

The increase in profit was attributable to the company's aggressive store expansion strategy, enabling better availability of parts to its customers and leading to higher comparable store sales.

Sales in the quarter rose 11.4% to $1.41 billion, driven by a net addition of 122 stores during the past 12 months. Sales per store increased to $1,667 from $1,587 a year ago. Comparable store sales gain was 9.9%, which was more than double in terms of percentage when compared with 4.7% in the third quarter of 2009.

Gross margin improved 110 basis points to 50.3% from 49.2% in the third quarter of 2009. The improvement was attributable to enhanced merchandising and pricing capabilities, supply chain efficiencies and better availability of parts. Operating income grew 31.5% to $147.22 million (10.5% of sales) from $104.86 million (8.3% of sales) in the year-ago period. Operating income per store increased to $162 from $144 in the corresponding quarter of 2009.

During the quarter, Advance Auto Parts opened 43 stores, including 10 Autopart International stores. As of October 9, 2010, the company's total store count was 3,540, including 191 Autopart International stores.

Advance Auto Parts repurchased 381,000 shares during the third quarter at an aggregate cost of $20.7 million, reflecting an average price of $54.18 per share. In August this year, the company's board of directors authorized a $300 million share repurchase program, replacing the previous authorization of $500 million. At the end of the third quarter, the company had $279.3 million remaining under the authorization.

In the first three quarters of 2010, the company repurchased about 10.66 million shares of its common stock at an aggregate cost of $476.1 million, translating into an average price of $44.66 per share.

Advance Auto Parts had cash and cash equivalents of $194.5 million as of October 9, 2010, a decrease from $216.22 million in the comparable quarter-end a year ago. Long-term debt amounted to $302.22 million as of the above date. The long-term debt-to-capitalization ratio stood at 21%, up from 18% a year ago.

In the 40-week period, ended October 9, 2010, operating cash flow dipped to $596.49 million from $628.45 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 13% to $$467.75 million during the period from $413.96 million in the same period of 2009 due to higher profit. Capital expenditures increased to $147.16 million from $132.62 million a year ago.

Advance Auto Parts anticipates earnings in the range of $3.80 to $3.90 per share, up from the previous guidance of $3.70–$3.80 per share. Based on the improved results and guidance, the company retained Zacks #2 Rank (Buy) on its stock for the short term (1–3 months).