We have downgraded our long-term recommendation on
Advance Auto Parts Inc.
(
AAP
) to Underperform. The leading automotive parts and
accessories retailer is facing challenges from the sluggish economy
and volatile gasoline pricing.
Advance Auto Parts, in the second quarter of 2012, registered an
8.2% decline in earnings per share to $1.34 from $1.46 in the
corresponding quarter a year ago. The results missed the Zacks
Consensus Estimate by 6 cents. Profit decreased 12% to $99.6
million from $113.1 million in the corresponding quarter last year.
Total revenues went down 1.3% year over year to $1.46 billion in
the quarter, missing the Zacks Consensus Estimate of $1.48 billion.
The decline was attributable to a 2.7% drop in store sales
offsetting the favorable impact of the addition of 65 new stores
during the past 12 months.
The softness in the economy coupled with volatile gasoline prices
are putting pressure on the company's performance. Weak economy and
uncertainty in the market are leading to a decline in consumer
spending on replacement parts. In addition, fluctuating gasoline
prices are adversely affecting the miles driven, thus reducing
vehicle parts sales.
Advance Auto Parts faces tough competition from other national and
regional automotive retailers including
AutoZone Inc.
(
AZO
),
O'Reilly Automotive Inc.
(
ORLY
), Pep Boys and CSK Auto Corporation. Moreover, complexity of
vehicles makes it difficult for customers to perform DIY
maintenance activities. This will adversely affect the DIY industry
expansion, thus hindering the company's expansion.
Meanwhile, the company has adopted numerous operational strategies
which will improve sales and productivity of its existing business.
The initiatives include development of merchandising programs,
store remodeling programs and nationwide advertising, which will
establish its brand value along with a focus on the commercial
customer base.
The company has also undertaken an aggressive store expansion
strategy. It has projected the launch of 120-140 stores during 2012
including 110-120 Advance Auto Parts stores and 10-20 Autopart
International stores.
Our recommendation on the stock is backed by a Zacks #4 Rank, which
translates into a short-term (1 to 3 months) Sell rating.
ADVANCE AUTO PT (AAP): Free Stock Analysis
Report
AUTOZONE INC (AZO): Free Stock Analysis Report
O REILLY AUTO (ORLY): Free Stock Analysis
Report
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