Advance Auto Parts Q1 Earnings Top Ests - Analyst Blog

Advance Auto Parts Inc. AAP saw a 35.5% rise in adjusted comparable earnings to $2.25 per share in the first quarter of fiscal 2014 (ended April 19, 2014) from $1.66 in the prior-year quarter. It also exceeded the Zacks Consensus Estimate by 9 cents per share.

Adjusted net earnings rose 34.7% to $165.4 million from $122.8 million in the first quarter of fiscal 2013.

Including amortization of acquired intangible assets of 11 cents, integration costs of 10 cents related to the acquisition of General Parts International and integration expenses of 3 cents for B.W.P. Distributors, earnings per share (on a reported basis) came in at $2.01 compared with $1.65 in the year-ago quarter.

Revenues went up 47.3% year over year to $2.97 billion, marginally missing the Zacks Consensus Estimate of $2.99 billion. Sales benefited from the acquisition of General Parts, increase in comparable same-store sales and the net addition of new stores in the last 12 months. Comparable store sales increased 2.4% versus a decrease of 3.2% in the first quarter of fiscal 2013.

Gross profit increased 34.2% to $1.4 billion or 45.6% of sales in the quarter compared with $1 billion or 50% of sales a year ago. The decrease in gross profit margin was due to higher mix of commercial sales (which has a lower gross margin rate), partly offset by synergy savings in the quarter.

Comparable selling, general and administrative (SG&A) expenses were $1.1 billion or 36% of sales in the quarter, compared with $802.4 million or 39.8% in the first quarter of fiscal 2013.

Comparable operating income increased 38.2% to $284.4 million from $205.8 million in the first quarter of fiscal 2013. Operating margin stood at 9.6% versus 10.2% a year ago.

Store Openings

During the quarter, Advance Auto Parts opened 22 stores and closed 9 stores and acquired 1,336 Carquest stores and Worldpac branches as part of its acquisition of General Parts on Jan 2, 2014. As of Apr 19, 2014, the company's total store count stood at 5,276, with 105 Worldpac branches, and it served roughly 1,400 independently owned Carquest stores.

Dividend

The Board of Advance Auto Parts declared a regular quarterly dividend of 6 cents per share to be paid on Jul 2, 2014, to stockholders of record as of Jun 18, 2014.

Financial Position

Advance Auto Parts had cash and cash equivalents of $83.4 million as of Apr 19, 2014, a decrease from $407.7 million as of Apr 20, 2013. Total long-term debt increased to $2.1 billion as of Apr 19, 2014, from $604.9 million as of Apr 20, 2013. The long-term debt-to-capitalization ratio stood at 55.4% versus 32.3% as of Apr 20, 2013.

In the 16-week period ended Apr 19, 2014, operating cash flow dipped to $81.1 million from $135.3 million in the year-ago period. Free cash flow in the period was $20.6 million versus $81.3 million last year. This decline can be attributed to the increase in owned inventory, a decrease in accrued expenses, partly offset by an increase in net income. Capital expenditures in the 16-week period ended Apr 19, 2014, stood at $60.5 million compared with $63 million a year ago.

Outlook

Advance Auto Parts increased its earnings expectation to $7.30–$7.50 per share for 2014 from the previous guidance of $7.20–$7.40 per share.

Advance Auto Parts, which is a prominent player in the automotive replacement parts and accessories industry, along with AutoZone Inc. AZO, O'Reilly Automotive Inc. ORLY and CarMax Inc. KMX, currently carries a Zacks Rank #2 (Buy).