Advance Auto Parts Inc. (AAP) reported a net income of $113.6 million in the second quarter of fiscal 2011, which was 12.6% higher from $100.9 million in the year-ago quarter.
However, on per share basis, earnings improved 26% to $1.46 from $1.16 a year ago due to a decline in average shares outstanding to 77.4 million from 86.4 million in the second quarter of fiscal 2011. The auto parts retailer exceeded the Zacks Consensus Estimate of $1.39 per share.
Sales in the quarter increased 4.4% to $1.48 billion, driven by a net addition of 130 stores during the past 12 months. Sales per store increased to $1,700 from $1,638 a year ago. Comparable store sales gain declined significantly to 2.5% from 5.8% in the second quarter of fiscal 2011.
Gross profit climbed 2.9% year over year to $735.8 million but gross margin reduced to 49.7% from 50.4% in the prior-year quarter. The shrinkage in gross margin was attributed to higher expense, supply chain expense, increased fuel and product acquisition costs, partially offset by continued improvements in merchandising and pricing capabilities.
The company’s selling, general and administrative (SG&A) expense was 37.0% of sales compared with 38.3% a year ago, excluding the impact of store divestitures. The decrease was driven by lower incentive compensations, benefits from the new labor model and significant decrease in support costs, partially offset by the company’s increased strategic investments.
Operating income rose 10.1% to $188.9 million (12.8% of sales) from $171.6 million (12.1%) in the year-ago period. Operating income per store increased to $170 from $153 in the corresponding quarter of fiscal 2010.
Store Openings
During the quarter, Advance Auto Parts opened 28 new stores and closed 1. As of July 16, 2011, the company’s total store count was 3,627, including 203 Autopart International stores.
Share Repurchase
Advance Auto repurchased 4.0 million shares during the quarter at an aggregate cost of $239.7 million, reflecting an average price of $60.31. On August 9, 2011, the company’s Board of Directors authorized a $300 million share repurchase program, replacing the previous $500 million share repurchase program which had $112 million remaining.
Dividend
The Board of Directors announced a quarterly cash dividend of 6 cents per share payable on October 07, 2011 to its stockholders of record as on September 23, 2011.
Financial Position
Advance Auto Parts had cash and cash equivalents of $68.8 million as of July 16, 2011, a marked decrease from $160.8 million in the corresponding period a year ago. Long-term debt amounted to $565.4 million at the end of the second quarter in 2011 compared with $301.3 million at the end of the corresponding quarter in 2010.
In the 28-week period ended July 16, 2011, operating cash flow amounted to $469.6 million from $495.5 million in the year-ago period. The decline in cash flow was primarily attributable to an increase in inventories.
Free cash flow decreased 29.5% to $287.3 million in the 28-week period from $407.6 million a year ago due to lower cash flow from operations and higher cash used in investing activities. Capital expenditures increased to $151.6 million in the quarter from $99.3 million a year ago.
Advance Auto Parts, which has a Zacks#3 Rank (Hold rating), operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, maintenance items, batteries and automotive fluids for cars and light trucks. It is the second leading retailer catering to the DIY and DIFM (or Commercial) customers.
The company primarily targets the DIY market, which accounts for 75% of the revenue. The remaining 25% is generated from the DIFM segment under the commercial delivery program.
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