Advance Auto Parts Needs To Put The Pedal To The Metal In 2017

Advance Auto Parts, Inc. AAP reported its fourth-quarter 2016 results with the EPS below the estimate and the metrics missing the guidance.

BTIG’s Alan Rifkin reiterated a Sell rating on the company, with a price target of $120.

Q4 Miss

Advance Auto Parts reported its fourth-quarter 2016 EPS at $1.00 on comp of 3.1 percent. The comps during the quarter benefited from the holiday timing and the cold December weather.

However, the company missed the Q4 guidance with a 172-bps year-on-year EBIT margin decline despite facing similar EBIT margin headwinds as in Q3.

“About one-third of the EBIT margin decline was in unplanned inefficiencies, highlighting the difficulty of executing the turnaround, in our view,” Rifkin stated.

Related Link: Auto Parts Retail: Amazon Vs. Brick & Mortars

2017 Outlook

For 2017, Advance Auto Parts guided to comps of 0–2 percent, with 15–35 bps EBIT margin expansion, which the analyst believes are “unambitious goals,” given the weak full-year results for 2016.

Management maintains the 2021 goals for a 500-bps improvement in EBIT margins and cost savings of $500 million, with over $100 million being realized in 2017.

“We are not surprised AAP reaffirmed its targets given they were issued just three months ago. This implies approximately $11.4 billion revs and $13.94 in 2021 EPS,” Rifkin went on to say.

However, the analyst expects the company to continue to lose market share in 2017.

The 2017 EPS estimate has been lowered from $7.80 to $7.70 to reflect the investments being targeted for the year by Advance Auto Parts.