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We take a look at the third quarter results of of Advance Auto Parts, one of the biggest aftermarket parts suppliers in North America.
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About Advance Auto Parts
So what is Advance Auto parts all about? What do they do, where do they operate and how long have they been in business? We found the following on their website and in their annual reports.
Advance Auto Parts, Inc. is a leading automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers. As of July 14, 2018, Advance operated 5,026 stores and 133 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The Company also serves 1,219 independently owned Carquest branded stores across these locations in addition to Mexico and the Bahamas, Turks and Caicos, British Virgin Islands and Pacific Islands. Additional information about the Company, including employment opportunities, customer services, and online shopping for parts, accessories and other offerings can be found at shop.advanceautoparts.com
Ok and then we fast forward to closer to the current period as we dont want our readers to fall asleep while reading through the history of the group. We want them to read the financial results
Advance Auto Parts, Inc. is a leading automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers. As of July 14, 2018, Advance operated 5,026 stores and 133 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The Company also serves 1,219 independently owned Carquest branded stores across these locations in addition to Mexico and the Bahamas, Turks and Caicos, British Virgin Islands and Pacific Islands. Additional information about the Company, including employment opportunities, customer services, and online shopping for parts, accessories and other offerings can be found at shop.advanceautoparts.com
- 1929 The founders of the Pep Boys open Advance Stores, LLC., with two stores in Roanoke and one in Lynchburg, Virginia.
- 1932 April 29, 1932 - Arthur Taubman purchases Advance Stores and begins his successful drive to build a multi-state chain of auto and home supply stores.
- 1938 Advance Stores Company expands into Winston-Salem, North Carolina, signaling the beginning of the company's multi-state growth.
Ok and then we fast forward to closer to the current period as we dont want our readers to fall asleep while reading through the history of the group. We want them to read the financial results
- January 2nd, 2014 - announced the completion of the acquisition of General Parts International, Inc. (GPII). GPII was a leading privately held distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the CARQUEST and WORLDPAC brands.
- Advance now operates 5,297 company-operated stores, 105 Worldpac branches, and services approximately 1,400 independently owned Carquest branded stores in 49 states, Puerto Rico, the Virgin Islands and Canada. Advance employs over 71,000 Team Members.
Advance Auto Parts location and employees summary
So to the numbers we go
The following highlights were reported by Advance Auto Parts in their 3rd quarter 2018 earnings report.
- Net Sales Increased 4.3% to $2.3B;
- Gross Profit Increased 6.2% to $1.0B
- Comparable Store Sales Increased 4.6%
- Diluted EPS Increased 20.0% to $1.56 (placing the group on a PE ratio of 26
- Dividend of $0.06 per share declared for the quarter. Investors certainly not investing in this stock for its dividends
- Adjusted EPS Increased 32.2% to $1.89
- Operating Cash Flow Increased 69.9% to $681.5M
- Free Cash Flow Increased 140.1% to $576.4M
- Net cash generated from operations per share: $5.01
- Cash and equivelants on the balance sheet: $970 million (or $13.1 per share)
- Updated Full Year 2018 Guidance
So any comments or guidance from management on the results?
The group released the following guidance with their 3rd quarter earnings report.
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive aftermarket parts provider in North America, that serves both professional installer and do-it-yourself customers, today announced its financial results for the third-quarter ended October 6, 2018. “I am extremely pleased to report another quarter of improved top and bottom line growth in the third quarter. Through the dedication of our Team Members and our unrelenting focus on enhancing our Customer Value Proposition, we delivered our strongest comparable sales growth in nearly eight years. In addition, through the disciplined execution of our financial priorities we increased our Free cash flow by 140% and returned $120 million to our shareholders through share repurchases,” said Tom Greco, President and Chief Executive Officer.
Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive aftermarket parts provider in North America, that serves both professional installer and do-it-yourself customers, today announced its financial results for the third-quarter ended October 6, 2018. “I am extremely pleased to report another quarter of improved top and bottom line growth in the third quarter. Through the dedication of our Team Members and our unrelenting focus on enhancing our Customer Value Proposition, we delivered our strongest comparable sales growth in nearly eight years. In addition, through the disciplined execution of our financial priorities we increased our Free cash flow by 140% and returned $120 million to our shareholders through share repurchases,” said Tom Greco, President and Chief Executive Officer.
Mr. Greco commented, “Following continued operational improvement in the third quarter, coupled with the improving demand environment, we are pleased to update our outlook for the balance of the year. Our increased revenue outlook is reflective of our confidence to capitalize on the improving industry trends using our robust SKU assortment to further enhance our Customer Value Proposition to say 'Yes' more often and win with our customers. We remain focused on cost control and dedicated to delivering additional margin expansion and free cash flow during the remainder of the year.”
The image below provides an updated guidance provided by the company of the the expected full year outlook for 2018.
The image below provides an updated guidance provided by the company of the the expected full year outlook for 2018.
Advance Auto Parts 2018 Full year earnings guidance
So should you buy their shares?
While the results for the quarter was extremely positive, the high PE ratio and very low dividend yield doesn't announce the stock as a screaming buy. However the balance sheet is strong with about 7.7% of the share price being made up by cash on the balance sheet. Our one big concern regarding the group is the increase in receivables from $606 million to $698 million (or 15.2% increase over a 9 month period). Current and potential investors in the share should keep a close eye on this number as a ballooning receivables could indicate that their clients are struggling to pay them back for goods and services already delivered.
Advance Auto Parts stock valuation
Based on the group's quarterly earnings and their guidance for the full year, we value them at $135 a share. We therefore feel the share is overvalued and the run it has been on recently has been completely overdone. We would not recommend investors buy into the company at this point in time or at its current price levels, as if they do, future returns might be very disappointing. The image below shows the share price performance of AAP over the last 12months.
We doubt the current upward trajectory of the share will continue after their results announced today and we suspect that after the dust settles on their earnings report it will come down hard and investors will be able to buy the stock at a lot closer to our estimated value of $135 a share. We could be wrong and missing something continued in the results to warrant this optimism in the share price. But we doubt it. Lets sit back and see if we are right on this one in a few months.