Shares of the aftermarket auto parts retailer Advance Auto Parts (AAP, Financial) have surged 46% in the last one year. Its performance has been quite impressive, especially after the buyout of General Parts International in January 2014. It managed to beat the earnings estimate in three out of last four quarters. Further, it reported a blockbuster third quarter results recently. The numbers were ahead of Street’s estimates, sending its share price north. Let us take a closer look.
Snapshot of the great quarter
Revenue for the quarter jumped 51% to $2.29 billion, over last year. This was in line with what analysts were expecting. The top line was driven by same store sales growth of 1.5% during the quarter. Also, there was an increase in the number of stores, which helped revenue grow. The company added 101 new stores in the first three quarters of the fiscal year.
One of the biggest drivers of the aftermarket retailer’s results was the acquisition of General Parts International, which was completed in January this year. General Parts is a distributor of aftermarket replacement parts and original equipment. Thus, this buyout helped in expanding its geographic presence in North America.
Further, the acquisition of the new business helped the acquirer expand its portfolio of products, such as paint and heavy duty. The commercial market has become very popular and through this buyout Advance Auto managed to strengthen its foothold in this market. Thus, this buyout was an important one and helped Advance Auto become the largest auto parts retailer in the industry.
Moving down to the bottom line, adjusted earnings per share jumped to $1.89 per share from $1.48 per share last year. All thanks to the increase in revenue and customers’ growing interests for its products. However, margins were affected due to an increase in the cost of goods sold. Gross margin dropped 500 basis points to 45.2%. This was also because General Parts have lower margins as compared to that of Advance Auto. Nonetheless, the bottom line impressed the investors.
But, Advance Auto was not the only company to perform well. Even peer O’Reilly Automotive (ORLY, Financial) registered a great quarter recently, wherein both the top line and the bottom line were ahead of analysts’ estimates. Revenue surged 9% and the bottom line jumped 22%, over last year’s quarter. Even O’Reilly is expanding its network of stores and has added 145 new stores since the beginning of the year. Moreover, it has increased its outlook for the year.
Strategies formulated
Another acquisition made by the company was that of B.W.P. Distributors in 2012. This was one of the greatest moves to expand in the commercial segment of the business. B.W.P. Distributors supply auto parts to commercial customers in 216 locations. Also, the buyout added 124 BWP stores to the acquirer’s network.
In addition, the auto parts retailer also reaffirmed its guidance for the year as it remains positive about its future.
Summary
Advance Auto is the largest aftermarket retailer in the U.S. Its efforts to expand its business through acquisition have been a remarkable move. Further, its focus on the commercial segment should be fruitful. Great quarterly numbers and a positive outlook make me hopeful about its future prospects. Investors should not ignore this stock.
