Analysts Expect AAP’s Profit Margin to Expand in Q2 2018

So far, we’ve seen that Advance Auto Parts stock has outperformed peers O’Reilly Automotive (ORLY) and AutoZone (AZO) this year, as well as the broader market. With the demand for auto parts weakening, AAP’s sales are expected to be flat in the second quarter. Investors’ high expectations for its second quarter may have boosted its stock this year. Let’s look at analysts’ estimates for Advance Auto Parts’ second-quarter profit margin.

Last year, Advance Auto Parts’ profitability largely suffered due to its expenses rising with its efforts to optimize inventory levels. In the first quarter, the company’s gross profit was nearly flat YoY (year-over-year) at $1.27 billion, while its gross profit margin expanded to 44.3% from 44.0% in Q1 2017, and from 42.9% in Q4 2017. The company’s operating profit margin also expanded YoY, to 7.8% from 7.1%.

In the second quarter, analysts expect AAP’s profit margin to expand YoY to 44.2% from 43.9%, and its net profit margin to expand YoY to 6.1% from 5.2%. Auto part sellers’ profit margins tend to be slightly wider than margins of legacy auto companies (FXD) such as Ford (F), General Motors (GM), and Fiat Chrysler (FCAU) because automakers’ manufacturing costs are typically higher. Continue to the next part, where we’ll conclude this series by looking at analysts’ recommendations for AAP stock before its second-quarter earnings announcement.