Advance Auto Parts Reports Strong Q3, Remains Focused on ‘Cost Control’

 

Advance Auto Parts reported increases in net sales, gross profit, comparable store sales and other key financial metrics for its third quarter.

Compared to third-quarter 2017, net sales increased 4.3 percent to $2.3 billion, gross profit increased 6.2 percent to $1 billion and comparable store sales increased 4.6 percent, according to the company.

“I am extremely pleased to report another quarter of improved top- and bottom-line growth in the third quarter,” said Tom Greco, president and CEO of Roanoke, Virginia-based Advance. “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 percent and returned $120 million to our shareholders through share repurchases.”

Free cash flow through the third quarter of 2018 was $576.4 million, up from $240 million in the third quarter of 2017.

Advance reported a 20 percent increase in diluted earnings per share, to $1.56, and a 32.2 percent increase in adjusted earnings per share, to $1.89.

Advance saw sales improvement in all 12 of its geographic regions, and “increased sales across nearly every category,” Greco said during the company’s third-quarter earnings call. Brakes, batteries and optics led the way with “high single-digit growth,” according to Greco.

The company updated its financial guidance for 2018. Advance now expects full-year net sales between $9.55 billion and $9.6 billion, up from its previous outlook of between $9.3 billion and $9.5 billion.

“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,” Greco said. “We remain focused on cost control and dedicated to delivering additional margin expansion and free cash flow during the remainder of the year.”

So far in 2018, Advance has closed 81 stores, according to Greco. He said the company’s cross-banner initiative has helped Advance capture sales previously generated by those stores. Through cross-banner visibility, all professional customers and Advance, Carquest and WorldPac team members can view the company’s entire catalog.

He estimated the company has more than 400 stores located within a mile and a half of each other, which could point to more consolidation ahead.

“We feel very good about our ability to drive cash flow with this initiative over time,” he said.

‘Work in Progress’

Advance is in the second full year of a five-year transformation plan. During Advance’s Nov. 13 earnings call, Greco indicated the company is making headway on its initiatives.

“Without a doubt, we’re seeing better coordination and planning across our merchandising, marketing and field operations teams, which is also contributing to our momentum,” he said. And “we’re leveraging supplier partnerships and improve analytical capabilities to ensure we have the right inventory in the right locations at the right time.”

Greco described the company’s efforts as “a work in progress.”

“We still have significant opportunity,” he added. “But we believe that the improvements made so far are helping our improved execution.”

Looking ahead to 2019, the company should benefit from some macroeconomic tailwinds. Greco cited 2019 forecasts for a 2.8 increase in gross domestic product and a 1.8 percent increase in total miles driven. He also noted the number of vehicles seven years old and older is projected to grow in 2019 for the first time since 2015.

“This group of vehicles is one of the largest demand drivers in our industry, and we’re confident this will enable continued industry momentum,” Greco said. “In fact, forecasts for the next five years show growth in the number of vehicles seven years and older, and we expect this vehicle population will be roughly 10 percent higher in 2023 than it is today.”