Advance Auto Parts keeps upshifting, even after its zippy
stock-market acceleration after announcing a $2 billion buyout in
October to become North America's largest aftermarket car parts
Roanoke, Va.-basedAdvance Auto Parts (
) acquired 1,233 Carquest stores and 103 Worldpac branches when
it bought out privately held General Parts International for
$2.08 billion in an all-cash deal that closed Jan. 2.
The company expects to "achieve synergies of $190 million over
three years," it said in a statement June 18, and spend $39
million to $51 million over two years on restructuring, atop a
$55 million-to-$65 million one-time charge related to the
Despite the added expense, the General Parts International
takeover will fuel earnings and sales growth for the foreseeable
future, analysts say.
"The company only achieved a small amount of synergies in the
first quarter, so the earnings growth should accelerate as the
savings increase in the back half of the year," UBS analyst
Michael Lasser wrote in a client note May 29. "Top-line synergies
have not been factored into the company and should be a key
source of upside to the consensus forecasts."
As a larger firm, Advance Auto Parts will be able to negotiate
lower prices from suppliers, offer more selection and boost its
supply-chain efficiency, Nick Mitchell and Seth Woolf, analysts
at Northcoast Research Partners, wrote May 19.
Advance Auto Parts is the fourth-largest firm by market cap in
IBD's Retail/Wholesale-Auto Parts industry group, afterAutoZone (
),O'Reilly Automotive (
) andGenuine Parts Co. (
) The group ranks No. 81 in performance of 197 IBD tracks, and
Advance Auto Parts holds the top IBD Composite Rating in the
group -- 95 out of a possible 99. O'Reilly holds a 93.
Advance Auto Parts said June 18 that it is relocating some top
managers to General Parts International headquarters in Raleigh,
N.C., and will hire 600 employees at a corporate support center
through 2017. North Carolina is set to give Advance Auto Parts
more than $17 million in tax breaks over 12 years if it meets
hiring and investing targets.
First-quarter sales grew 47% year over year to $2.97 billion,
thanks to the General Parts International acquisition and the
addition of 80 net new stores and two new branches. Same-store
sales ticked up 2.4% vs. the consensus expectations for a 1.6%
First-quarter adjusted earnings jumped 36% from the year-ago
period to $2.25 a share, the company reported May 15. Analysts
polled by Thomson Reuters had expected $2.16 on average.
Extreme weather-related store closures paled in comparison
with a double-digit sales rush in batteries, antifreeze and
Advance Auto Parts raised its full-year earnings outlook to
$7.30 to $7.50 a share, 10 cents higher than its prior forecast.
Analysts in the Thomson Reuters poll on average expect full-year
earnings to grow 42% to $7.58 a share for 2014 followed by 12%
growth next year.
Investors have bid up Advance Auto Parts stock by 17% for the
year to date and by 61% in the past 12 months, vs. the S&P
500 index gains of 6% and 23%, respectively, over those
Advance Auto Parts' prices run 20% to 25% higher than its
online rivals, said Michael Dash, president of New York -based
CarPartKings.com, a supplier to Advance Auto Parts. Customers
"will pay a premium to use a trusted name and they can talk to
someone in person rather than order online."
Serving both auto shops and do-it-yourself customers, Advance
Auto Parts often sources parts from suppliers such as
CarPartKings.com and ships directly to customers or its own
stores, saving itself the cost of stocking many products, he
With a workforce of 74,000 referred to as "team members,"
Advance Auto Parts operates 5,276 stores throughout the U.S. and
Puerto Rico. That's after opening 20 new stores while closing
nine in the first quarter. During that period, it also added 31
hub stores, revving the total hub-store count to 57 and two
Worldpac branches for 105 total.
The company plans to add 120 to 140 new stores this fiscal
year, George Sherman, president of Advanced Auto Parts, told
analysts on a conference call discussing first-quarter results.
Advance Auto Parts declined to speak with IBD for this story.
During the first-quarter conference call, CEO Darren Jackson
said the company is introducing new training programs for its
do-it-yourself (DIY) and commercial customers. The Carquest
Technical Institute provides sales, technical and management
training program for Carquest Auto Parts customers and Advance
Auto Parts professionals.
Older Cars, More Business?
Auto parts typically account for a third of an auto shop's
repair bill, according to JPMorgan research. Auto parts retailers
enjoy consistent demand from auto shops, which can pass on costs
to their customers. Demand for auto repairs is expected to
increase as both average age and the number of cars on the road
rise. Analytics firm IHS forecasts the average age of U.S. autos
to rise nearly 3% over the next five years from 11.4 years in
2014 to 11.7 years by 2019.
The total number of vehicles in operation rose 1.5% last year
to more than 252.7 million, as of Jan. 1, according to IHS. About
11.5 million vehicles were scrapped in 2013, representing an 18%
decline from 2012, when a record 14 million were junked.
"We see the total VIO (vehicles in operation) growing by 6.5%
between now and 2019," said Mark Seng, director of aftermarket
solutions at IHS Automotive, based in Southfield, Mich. "As the
number of vehicles on the road increases and the average age
increases -- people are hanging onto their vehicles longer --
that is all good news for the aftermarket repair business."
On average Americans are financing auto purchases longer and
keeping their vehicle about 22 months longer compared with 10
years ago, Seng added.
Thanks to improved quality and extended ownership periods, the
number of cars 12 years and older will rise 15% by 2019, IHS
estimates. Meanwhile the number of cars less than five years old
will jump nearly a third. But the number of autos between six and
11 years old will drop by roughly a fifth given that new car
registrations crashed 40% between 2008 and 2010 because of the
Growth in new car sales is expected to pick up just 2.6% in
2014 vs. 7.6% and 13.4% in the prior two years, according to
Cars tend to need the most repairs when they're six to 10
years old -- known as the industry sweet spot -- after
manufacturer warranties have expired and before people dump their
U.S. vehicle sales dropped from 16 million to 17 million
annually before the recession to a record low of 10.4 million in
2009, which means this year slightly more cars will exit the
sweet spot than enter it, Christopher Horvers and colleagues at
JPMorgan, said in a research note April 9 headlined "Autoparts
Bull vs. Bear."
"This represents a sharp reversal from a much larger
beneficial trend over the past decade and it gets worse in 2015
when 3 million cars exit on a net basis," they wrote. "We've also
hit a cliff given that the peak repair age starts at six
What's more, the typical do-it-yourself customers -- single
males ages 50 to 59 with annual household income between $30,000
and $49,999 -- are struggling more than most, according to
JPMorgan. "This customer is not getting better and they will
continue to drag on an already weak DIY segment," Horvers and
Horvers also sees potential risks in Advance Auto Parts'
ability to integrate the newly acquired General Parts
International stores, which could drive customers to competitors.
If the economy weakens, consumer spending would drop off,
especially in the DIY business.
Advance Auto Parts announced June 18 that it will hold an
investor and analyst conference in Boston on Wednesday, to be
webcast live from its website.