Advance Auto Beats, Opens 20 Stores (AAP) (AZO) (ORLY)

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Advance Auto Parts Inc. (AAP) posted a 21% rise in profit to $105.6 million, equivalent to $1.41 per share, in the third quarter ended October 8, 2011 from $87.6 million, implying $1.03 per share in the same quarter of 2010. The profit was higher than the Zacks Consensus Estimate of $1.19.

The increase in profit was attributable to the company’s aggressive store expansion strategy. The company has opened 105 stores (net) in the last 12 months.

Revenues in the quarter went up 4.2% to $1.46 billion, in line with the Zacks Consensus Estimate. Sales per store increased to $1,702 from $1,667 a year ago. Comparable store sales gain was 2.2% versus 9.9% during the third quarter of 2010.

Gross margin decreased 80 basis points to 49.5% from 50.3% in the third quarter of 2010. The deterioration in margin was attributable to increased shrink, higher supply chain expenses due to investments in Hubs and higher fuel costs, commodity price inflation and the related timing of the company’s retail price changes.

Operating income grew 21% to $177.8 million (12.1% of sales) from $147.2 million (10.5% of sales) in the year-ago period. Operating income per store increased to $177 from $162 in the corresponding quarter of 2010.

During the quarter, Advance Auto Parts opened 20 stores, and closed 2 stores. As of October 8, 2011, the company’s total store count stood at 3,645, including 203 Autopart International stores.

During the quarter, Advance Auto Parts repurchased 1.7 million shares of its common stock for $100 million, reflecting an average price of $58.81. At the end of the quarter, the company had $200 million remaining under its $300.0 million share repurchase authorization approved by the Board of Directors in August 2011.

In the first three months of 2011, the company repurchased 9.9 million shares of its common stock for $609.7 million, implying an average price of $61.51.

Advance Auto Parts had cash and cash equivalents of $65.9 million as of October 8, 2011, a significant decline from $194.5 million as of October 9, 2011. Long-term debt nearly doubled to $600.4 million as of October 8, 2011 compared with $302.2 million as of October 9, 2010. Consequently, long-term debt-to-capitalization ratio increased to 43.6% from 20.9% a year ago.

In the 40-week period, ended October 8, 2011, the company’s operating cash flow rose marginally to $611.0 million from $596.5 million in the year-ago period. Capital expenditures (net) increased to $206.4 million from $147.0 million a year ago due to investments in the company’s supply chain, existing stores and information technology. As a result, free cash flow fell 24.2% to $354.8 million from $467.8 million last year.

Advance Auto Parts upgraded its earnings outlook to $4.90 to $4.95 per share from the previous guidance of $4.60 to $4.80 per share for full year 2011. Based on the improved results and guidance, the company retains a Zacks #2 Rank on its stock, which translates into a short-term (1–3 months) rating of “Buy”.

Advance Auto Parts’ competitor, AutoZone Inc. (AZO) posted a 27% increase in profits to $7.18 per share from $5.66 per share in the year-ago quarter, surpassing the Zacks Consensus Estimate of $6.98 per share. Meanwhile, its other competitor, O’Reilly Automotive Inc. (ORLY) revealed a 28% increase in profit to $1.10 per share in the third quarter of 2011 from 86 cents per share (excluding special items) in the comparable quarter of 2010, beating the Zacks Consensus Estimate by 10 cents per share.

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