Why Is Advance Auto Parts’ Stock Consolidating in March 2018?



Advance Auto Parts

Advance Auto Parts (AAP) began 2018 on a solid note with 17.4% gains in January 2018. However, since then, it has fallen 2.3%. The company’s stock has risen 14.6% in 2018 so far. This YTD (year-to-date) performance was far better than the performances of other auto industry players (VCR) such as O’Reilly Automotive (ORLY), AutoZone (AZO), and Ford (F). ORLY has risen 2.9% YTD, while AZO and Ford have lost about 8.8% and 11% YTD, respectively. Let’s dig into Advance Auto Parts’ recent financial performance.

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Dismal financial performance

In 4Q17, AAP’s adjusted earnings fell 23% to $0.77 per share from $1.00 per share reported in 4Q16. Nonetheless, the company managed to beat Wall Street analysts’ consensus estimates of $0.63 per share. During the fourth quarter last year, Advance Auto Parts’ revenues fell 2.2% YoY (year-over-year) to $2.04 billion. To add to the pessimism, AAP’s same-store sales also slid 2.8% during 4Q17 as compared to 3.1% positive growth in 4Q16.

Likewise, AAP’s gross profit was at $874 million, about 3.7% lower than the $908 million in 4Q16, which drove the company’s gross profit margin lower to 42.9% in 4Q17 from 43.6% a year ago.

High expectations from 2018

In 2017, Advance Auto Parts focused on inventory optimization to improve its free cash flow condition. With the help of these efforts, its free cash flow in 2017 rose ~56% to $411 million. The company has also been trying to improve auto parts’ availability at stores to provide better customer services to increase its sales. These efforts could help Advance Auto Parts improve its sales in 2018.


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