Advance Auto Parts Outpaces Estimates - Analyst Blog

Advance Auto Parts Inc. (AAP) showed an increase in profit to $100.9 million or $1.16 per share in the second quarter of 2010, ended July 17, 2010. That compares with $80.3 million or 83 cents in the year-ago quarter. The automotive retailer outpaced the Zacks Consensus Estimate of $1.02 per share.

The improvement was attributed to the company's aggressive store expansion strategy, enabling better availability of parts to its customers and fueling a higher comparable store sales gain.

Sales in the quarter grew 7.2% to $1.42 billion, driven by a net addition of 90 stores during the past 12 months. Sales per store improved to $1,638 from $1,600 a year ago. The comparable store sales gain was 5.8%, compared with 4.8% in the second quarter of 2009.

Gross margin was 50.4%, compared with 49.3% last year. This marked an improvement of 111 basis points, caused by enhanced merchandising and pricing capabilities, increased inventory levels, supply chain efficiencies and improved availability of parts. Operating income rose 27.3% to $171.6 million or 12.1% of sales from $134.8 million or 10.2% of sales in the year-ago period.

During the second quarter, Advance Auto Parts opened 36 stores, including 14 Autopart International stores, and closed one store. As of July 17, 2010, the company's total store count was 3,497, including 181 Autopart International stores.

Advance Auto Parts repurchased 3.4 million shares during the second quarter at an aggregate cost of $167.8 million, reflecting an average price of $49.83 per share. The company's Board of Directors authorized a $300 million share repurchase program, replacing the previous authorization of $500 million, which had $44.5 million remaining.

Advance Auto Parts had cash and cash equivalents of $160.8 million as of July 17, 2010, an improvement from $126.4 million as of July 18, 2009. Long-term debt amounted to $302.3 million as of July 17, 2010. The long-term debt-to-capitalization ratio stood at 22%.

In the 28-week period, ended July 17, 2010, operating cash flow rose marginally to $495.5 million from $433.8 million a year ago. Free cash flow for the quarter soared 42% to $407.6 million during the above period. Capital expenditures rose slightly to $99.3 million from $90.8 million a year ago.

Advance Auto Parts anticipates earnings in the range of $3.70–$3.80 per share, up from the previous guidance of $3.20–$3.40 per share. The company is a Zacks #2 Rank ('Buy') in the short term (1–3 months).

 
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