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Why Advance Auto Parts Is Outperforming Its Peers in 1Q18

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Mar. 12 2018, Updated 7:30 a.m. ET

Advance Auto Parts in 1Q18

As of March 6, 2018, Advance Auto Parts (AAP) has risen 19% so far in 1Q18. That performance was much better than its direct peers O’Reilly Automotive (ORLY) and AutoZone (AZO). O’Reilly has risen 4.7% during that period, while AutoZone has seen a 6.7% value erosion. US automakers General Motors (GM) and Ford (F) have fallen 7.5% and 13.9%, respectively, so far in 2018.

In 2017, AAP underperformed ORLY and AZO by a large margin. AAP fell 31.1% in the first half of 2017 and 14.5% in the second half of 2017. The stock fell 41.1% in 2017.

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4Q17 earnings beat

In fiscal 4Q17, Advance Auto Parts reported adjusted EPS (earnings per share) of $0.77 compared to $1 in 4Q16. However, it beat Wall Street analysts’ EPS estimate of $0.63. Fiscal 4Q17 was the seventh consecutive quarter that AAP’s earnings fell on a YoY (year-over-year) basis.

Positive estimates for 1Q18

In 4Q17, AAP reported revenues of $2.04 billion, a 2.2% decline from 4Q16. However, it beat analysts’ consensus revenue estimate of $2.02 billion by a narrow margin.

AAP’s same-store sales fell 2.8% in 4Q17 compared to a 3.1% growth in 4Q16. During AAP’s 4Q17 conference call, management said the company’s sales performance wasn’t something to be happy about, but it was still better than expected earlier.

In its 3Q17 earnings call, management said these sales declines in the second half of 2017 were “as expected” amid weak industry-wide sales. In fiscal 2Q17, management warned investors about a possible decline in the company’s sales in the second half of 2017 due to temporary industry-wide weakness.

Wall Street analysts expect Advance Auto Parts’ sales growth to turn positive in the first quarter of 2018. According to estimates, the company’s 1Q18 revenues should be $3 billion, a ~2.2% rise YoY. Analysts’ optimism for the company’s 1Q18 sales performance could be one of the reasons the stock has outperformed its peers so far in 1Q18.

In the next and final part of this series, we’ll see how AutoZone stock has traded so far in 2018.

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