On Nov 24, 2014, we issued an updated research report on Advance Auto Parts Inc. (AAP). This Zacks Rank #3 (Hold) stock reported a positive surprise of 1.07% in the last quarter.
Advance Auto Parts reported a 27.7% rise in adjusted comparable earnings to $1.89 per share in the third quarter of fiscal 2014 (ended Oct 4, 2014) from $1.48 in the prior-year quarter. The figure also exceeded the Zacks Consensus Estimate of $1.87.
Advance Auto Parts enhances profits through its relentless focus on store expansion. During the 40-week period ended Oct 4, 2014, Advance Auto Parts opened 101 stores and closed 14. As of Oct 4, 2014, the company’s total store count stood at 5,414, including 109 Worldpac branches. The increase in store count ensures higher availability of parts to customers, thereby leading to higher sales volume.
The company expects earnings to increase to $7.50–$7.60 per share in fiscal 2014 from $5.67 per share in fiscal 2013. Based on the sales performance in the first nine months of 2014, full-year comparable store sales are expected to be in the low-single digits. The company also intends to collectively open 120 to 140 Advance Auto Parts stores, Autopart International stores and Worldpac branches by 2014-end.
Advance Auto Parts is also poised to benefit as the industry continues to show stability with the increasing average age of vehicles, along with the increase in miles driven, supported by favorable fuel prices. The average age of cars on U.S. roads is rising and this is expected to lead to an increase in the demand for auto parts.
However, we are concerned about price competition as Advance Auto Parts competes with national and regional automotive retailers such as AutoZone, Inc. (AZO), O'Reilly Automotive Inc. (ORLY), Pep Boys – Manny, Moe & Jack (PBY) and CSK Auto Corp. Its weakening financial position is also challenging for the company.
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