One of the leading auto parts players of the aftermarket retail industry is Advance Auto Parts (NYSE:AAP), which has been performing well from last few years. This is because of longer age of automobiles as people want to delay the cost of buying a new car for more than 11 years now. This trend has benefited companies such auto part retailers. The company’s recently reported first quarter results were a blockbuster one. The numbers beat analysts’ estimates, making its share price move north.
Due to severe weather conditions demand for auto parts and repairs increased, leading to a revenue surge of 47% to $2.97 billion over last year. One of the key drivers for the increase in top line was benefits derived from the recently acquired General Parts International. General Parts International is a privately held company which sells aftermarket replacement parts and original equipment. Therefore, the buyout helped Advance Auto in increasing its sales and expanding its presence in the North American market.
- Warning! GuruFocus has detected 7 Warning Signs with AAP. Click here to check it out.
- AAP 15-Year Financial Data
- The intrinsic value of AAP
- Peter Lynch Chart of AAP
However, it was not only because of the addition of General Parts that the overall revenue grew, but also due to higher sales in the company’s business. The aftermarket retailer posted a same store sales growth of 2.4% as more people came for repairs and change in auto parts. Parts such as wipers, antifreeze and batteries registered higher sales, mainly due to colder weather.
But, the company’s gross margin shrunk 446 basis points to 45.6% due to more of commercial sales, which provides lower margins. Adjusted earnings for the quarter rose to $2.25 per share from $1.66 per share in the year ago quarter. Hence, the company managed its costs efficiently.
Future shines bright
Advance Auto’s future too looks bright since the acquisition is expected to boost its sales. In fact, the combined entity is now expected to register total sales of $9.3 billion, on an annual basis. Moreover, expansion of footprint in the North American region should bear fruits.
The auto parts retailer’s CARQUEST Technical Institute should also be beneficial. It is a training program for the customers of CARQUEST Auto Parts and the professionals of Advance Auto. Therefore, it should help the professionals become better with knowledge and skills related to the industry.
Also, the company has revised its outlook for the year. It now expects to register earnings of $7.30 per share to $7.50 per share, higher than the previous forecast range of $7.20 per share and $7.40 per share. Moreover, it plans to open a total of 120 to 140 new stores during the fiscal year which will further expand its footprint.
The bottom line
Advance Auto Parts’ future looks bright because of the aforementioned factors. Its latest acquisition, new training institute and new store openings will help drive its revenue higher. It has also been performing well against other industry players. Moreover, a raised guidance makes me even more hopeful about the company. Hence, this auto parts retailer should make your portfolio rewarding.