PBY Prospect Capital Corporaton

Advance Auto Parts Inc. (AAP) 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. The increase in profit was driven by the company’s aggressive store expansion strategy, enabling better availability of parts to its customers.

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.

The company’s selling, general and administrative (SG&A) rate fell 221 basis points to 40.6% of sales from 42.8% a year ago. The decrease was driven by productivity improvements from the company’s variable customer-driven labor model, occupancy cost leverage and a significant decrease in overall administrative costs. These were partially offset by continued strategic investments in support of the company’s Service Leadership and Superior Availability strategies.

Operating income rose 33.3% to $111.9 million (8.4% of sales) from $83.9 million (6.6%) in the year-ago period. Operating income per store increased to $184 from $168 in the corresponding quarter of fiscal 2010.

Annual Results

For fiscal 2011, Advance Auto Parts recorded a 29% rise in profit to $5.11 per share from $3.95 per share in the prior fiscal year. Sales in the year rose 4% to $6.2 billion, reflecting comparable store sales gain of 2.2% from $5.9 billion or comparable store sales gain of 8.0% in the prior fiscal year.

Gross margin dipped 24 basis points to 49.7% from the prior fiscal year. The company’s SG&A rate fell 114 basis points to 39.0% versus 40.1% in fiscal 2010. The company’s operating margin increased 90 basis points to 10.8% compared with fiscal 2010.

Store Openings

During the quarter, Advance Auto Parts opened 19 stores, closed 1 Advance store and 1 Autopart International store. In fiscal 2011, the company has opened 104 stores, including 9 Autopart International stores, and closed 4 Advance stores and 1 Autopart International store. As of December 31, 2011, the company’s total store count was 3,662, including 202 Autopart International stores.

Share Repurchase

During fiscal 2011, Advance Auto Parts repurchased 9.9 million shares of its common stock for $609.7 million, reflecting an average price of $61.51. At the end of the fourth quarter of fiscal 2011, the company had $200.0 million remaining under the $300.0 million share repurchase authorization approved by the Board of Directors in August 2011.

Financials

Advance Auto Parts had cash and cash equivalents of $57.9 million as of December 31, 2011 compared with $59.2 million as of January 1, 2011. Long-term debt stood at $416.0 million as of December 31, 2011, reflecting a long-term debt-to-capitalization ratio of 33%.

In the 52-week period ended December 31, 2011, operating cash flow improved to $828.9 million from $666.2 million in the year-ago period. Capital expenditures (net) increased to $266.8 million from $199.3 million a year ago. As a result, free cash flow rose 9% to $507.2 million from $466.4 million a year ago.

Fiscal 2011 Guidance

For fiscal 2012, Advance Auto Parts anticipates earnings in the range of $5.55 to $5.75 per share, assuming an average diluted share count of 74 million. The company also expects comparable store sales gain of low to mid single digits.

The automotive retailer has projected to open 120–140 stores during the year. This includes 110–120 Advance Auto Parts stores and 10–20 Autopart International stores.

Capital expenditures are expected to lie in the range of $275 million to $300 million. Meanwhile, the company expects to generate free cash flow of at least $400 million for the fiscal year.

Advance Auto Parts, Inc. operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, maintenance items, batteries and automotive fluids for cars and light trucks.

The company is the second leading retailer catering to the DIY and DIFM (or Commercial) customers. It competes with AutoZone Inc. (AZO), O’Reilly Automotive Inc. (ORLY) and Pep Boys-Manny, Moe & Jack (PBY).

Based on the improved results and guidance, the company retains Zacks #2 Rank on its stock, which translates into a short-term (1–3 months) rating of Buy.

 
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