Advance Auto Stays Neutral - Analyst Blog
03 Abril 2012 - 10:00AM
Zacks
We continue to recommend the shares of Advance Auto
Parts (AAP) as “Neutral” for the long-term (more than 6
months). We appreciate the company’s efforts to improve supply
chain and vendor terms by pursuing an aggressive store expansion
strategy. However, we believe sluggish economy and unfavorable
pricing due to tough competition will mar the company’s
results.
Advance Auto 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 Do-it-Yourself (DIY) and
Do-it-for-Me (DIFM) customers. As of December 31, 2011, the
company’s total store count was 3,662.
The company remains focused on numerous operational initiatives
designed to improve sales and productivity within its existing
business, while enhancing an already well-established market share
by concentrating on both new and existing stores. Its profit has
advanced through an aggressive store expansion strategy, enabling
better availability of parts to its customers. In 2011, the company
opened 104 stores. Further, it has projected to open 120–140 stores
during 2012.
However, sluggish economy and volatile gasoline prices are some
of the factors raising our concern about Advance Auto Parts’
performance in the near term. The slow economy and uncertainty in
the market are forcing consumers to refrain from expenditures, such
as purchases of replacement parts. Pricing remains an issue as
Advance Auto Parts competes with other national and regional
automotive retailers such as AutoZone (AZO),
O’Reilly Automotive (ORLY) and Pep
Boys (PBY).
Advance Auto Parts Inc. reported a 58% rise in profit to 90
cents per share in the fourth quarter fiscal 2011 ended December
31, 2011 from 57 cents in the comparable quarter ended January 1,
2011. The profit exceeded the Zacks Consensus Estimate by a
considerable margin of 16 cents per share.
Sales in the quarter grew 4.5% to $1.33 billion from $1.27
billion in the fourth quarter of fiscal 2010. The increase in sales
reflects the net addition of 99 new stores during the past 12
months and a comparable store sales gain of 2.9% compared with 8.9%
during the fourth quarter of fiscal 2010.
However, the company’s gross margin deteriorated 39 basis points
to 49% from 49.4% in the fourth quarter of fiscal 2010. The decline
was attributable to higher supply chain expenses due to investments
in hub stores and increased shrink expenses.
Advance Auto Parts anticipates earnings in the range of $5.55 to
$5.75 per share for 2012 compared with $5.12 per share in 2011. The
company also expects comparable store sales gain of low to mid
single digits.
Due to the commendable results and higher earnings guidance, the
company retains a Zacks #2 Rank, which translates to a “Buy” rating
for the short-term (1 to 3 months).
ADVANCE AUTO PT (AAP): Free Stock Analysis Report
AUTOZONE INC (AZO): Free Stock Analysis Report
O REILLY AUTO (ORLY): Free Stock Analysis Report
PEP BOYS M M &J (PBY): Free Stock Analysis Report
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