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Advance Auto Stays Steady
Automotive parts retailer Advance Auto (NYSE:AAP) reported first quarter fiscal 2011 diluted EPS of $1.35, a 13% increase over the year ago quarter. Sales increased slightly to $1.9 billion in the quarter from $1.83 billion in the year ago quarter, respectively. Both figures were essentially in line with analysts estimates for the quarter. (For more, check out Analyzing Auto Stocks.)
TUTORIAL: Earnings Quality
Still Steady
The first quarter of fiscal 2011 was a slow start for Advance Auto relative to the past few years. Comp store sales were up 1.4% during the quarter versus comp store growth of 7.7% in the year ago quarter. Comparable store sales, or sales comparisons amongst stores that have been open for at least a year, is a great metric for assessing the health of a retailer. Sales growth as a result of adding new stores masks the true health of a company, so analysts and investors alike should focus on comp store sales.
Better merchandising enabled Advance to deliver a 70 basis point improvement in gross margin percentage to 50.5% from 49.8% quarter over quarter. This small change is all the more impressive in the midst of today's rising price environment. In fact, management indicated that increasing supply chain costs affected gross margin growth. (To learn more about earning, read Earnings Cyclicality Exposes Profitable Trends.)
The Road Ahead
Auto parts retailers have been one of the best performing groups during the recession and the recovery. Since the beginning of 2008 to now, shares in AAP are up 85% while the S&P 500 is down 9.3%. AutoZone (NYSE:AZO), the largest automotive parts retailer, has done even better up 138% since that time. Rounding out the top three in the industry is O'Reilly (Nasdaq:ORLY), also up an impressive 85%. Even small cap MotorCar Parts of America (Nasdaq:MPAA), a specialty supplier of auto parts, is up 44% over the comparable period.
Bottom Line
Thanks to a combination of strong sales growth, stronger merchandising and share buybacks, auto parts retailers have zoomed past most other industries. Yet it appears as if inflation - as well as comp numbers that are getting tougher to beat - is slowing things down a bit. The quarter was a great for Advance Auto, but the company appears to paring down expectations for the rest of the year. Comp stores sales will likely be in the mid to low single digits. Nonetheless the company affirmed its previous guidance for full year EPS of $4.60 to $4.80. The environment may soften for Advance Auto Parts, but the inherent stability of auto parts sales seems to be intact for the rest of 2011. (To learn more on earning , see Getting The Real Earnings.)
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TUTORIAL: Earnings Quality
Still Steady
The first quarter of fiscal 2011 was a slow start for Advance Auto relative to the past few years. Comp store sales were up 1.4% during the quarter versus comp store growth of 7.7% in the year ago quarter. Comparable store sales, or sales comparisons amongst stores that have been open for at least a year, is a great metric for assessing the health of a retailer. Sales growth as a result of adding new stores masks the true health of a company, so analysts and investors alike should focus on comp store sales.
The Road Ahead
Auto parts retailers have been one of the best performing groups during the recession and the recovery. Since the beginning of 2008 to now, shares in AAP are up 85% while the S&P 500 is down 9.3%. AutoZone (NYSE:AZO), the largest automotive parts retailer, has done even better up 138% since that time. Rounding out the top three in the industry is O'Reilly (Nasdaq:ORLY), also up an impressive 85%. Even small cap MotorCar Parts of America (Nasdaq:MPAA), a specialty supplier of auto parts, is up 44% over the comparable period.
Bottom Line
Thanks to a combination of strong sales growth, stronger merchandising and share buybacks, auto parts retailers have zoomed past most other industries. Yet it appears as if inflation - as well as comp numbers that are getting tougher to beat - is slowing things down a bit. The quarter was a great for Advance Auto, but the company appears to paring down expectations for the rest of the year. Comp stores sales will likely be in the mid to low single digits. Nonetheless the company affirmed its previous guidance for full year EPS of $4.60 to $4.80. The environment may soften for Advance Auto Parts, but the inherent stability of auto parts sales seems to be intact for the rest of 2011. (To learn more on earning , see Getting The Real Earnings.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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