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Advance Auto Parts Inc. (AAP - Analyst Report) saw a 22.3% rise in adjusted earnings to $1.48 per share in the third quarter of fiscal 2013 (ended Oct 5, 2013) from $1.21 per share in the same quarter of prior fiscal year. It also exceeded the Zacks Consensus Estimate of $1.42 a share.

Including transaction expenses of 4 cents related to the pending acquisition of General Parts International and integration expenses of 2 cents for B.W.P. Distributors, earnings per share (on a reported basis) amounted to $1.42, up 17.4% from $1.21 in the year-ago quarter.  

Earnings benefited from higher gross margin and efficient cost control measures. Net earnings escalated 16% to $103.8 million from $89.5 million in the third quarter of fiscal 2012.

Revenues went up 4.3% to $1.52 billion, marginally missing the Zacks Consensus Estimate of $1.53 billion. The acquisition of BWP Distributors and the net addition of 170 new stores in the last 12 months contributed to the improvement, partially offset by a decline in comparable store sales of 2% versus a decrease of 1.8% during the third quarter of fiscal 2012.

Gross profit increased 5.2% to $762.9 million or 50.2% of sales in the quarter compared with $725.4 million or 49.8% of sales a year ago. The increase in gross profit margin was driven by higher merchandise margins due to lower acquisition costs. This was partially offset by higher supply chain costs due to full operations of the new distribution center and the impact of BWP sales, which have higher mix of Commercial sales, resulting in lower gross margin.

SG&A expense was $592.2 million or 39% of sales in the quarter, compared with $575 million or 39.4% in the third quarter of fiscal 2012. The decrease in margin resulted from lower marketing expense, better labor productivity and lower administrative and support costs, partially offset by higher costs related to the acquisition of General Parts International and new store openings together with higher incentive compensation.

Operating income increased 13.5% to $170.7 million from $150.4 million in the third quarter of fiscal 2012. Operating margin was 11.2% versus 10.3% a year ago.

Store Openings

During the quarter, Advance Auto opened 35 stores and closed 7 stores including 5 Autopart International stores. As of Oct 5, 2013, the company’s total store count stood at 4,018, including 222 Autopart International stores.

Share Repurchase

Advance Auto repurchased about 1 million shares for $77.3 million in the first nine months of 2013, implying an average price of $77.47. As of Oct 5, 2013, the company had roughly $415 million available on its $500 million share repurchase program authorized by its board of directors on May 14, 2012.

Dividend

The Board of Directors of Advance Auto declared a regular quarterly dividend of 6 cents per share to be paid on Jan 3, 2014 to stockholders of record as of Dec 20, 2013.

Financial Position

Advance Auto had cash and cash equivalents of $567.3 million as of Oct 5, 2013, an increase from $479.4 million as of Oct 6, 2012. Long-term debt increased to $605.1 million as of Oct 5, 2013, from $600.2 million as of Oct 6, 2012. The long-term debt-to-capitalization ratio stood at 29.2%, versus 34.3% as of Oct 6, 2012.

In the 40-week period, ended Oct 5, 2013, operating cash flow dipped to $398.5 million from $504.8 million in the year-ago period. The decline in cash flow was due to the impact of working capital changes.

Outlook

Advance Auto continues to expect earnings between $5.30 and $5.45 per share for 2013.

Advance Auto, which is a prominent player in the automotive replacement parts and accessories industry along with AutoZone Inc. (AZO - Analyst Report), O’Reilly Automotive Inc. (ORLY - Analyst Report) and CarMax Inc. (KMX - Analyst Report), retains a Zacks Rank #3 (Hold).

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