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Advance Auto Parts (AAP) Up 14.9% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Advance Auto Parts Inc (AAP - Free Report) . Shares have added about 14.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Advance Auto Parts Earnings Miss in Q2, Decline Y/Y

Advance Auto Parts reported a 16.8% decline in adjusted earnings to $1.58 per share in the second quarter of fiscal 2017 (ended Jul 15, 2017) from $1.90 earned in the prior-year quarter. The figure also missed the Zacks Consensus Estimate of $1.65. Adjusted net income declined to $117 million from $141 million in the second quarter of fiscal 2016.

Advance Auto Parts came up with revenues of $2.26 billion, almost in line with the Zacks Consensus Estimate.

Revenues were 0.3% higher than the year-ago quarter figure. During the quarter, comparable store sales (comps) were almost flat year over year.

Gross profit declined to $993.1 million in the reported quarter from $1.01 billion a year ago. Gross margin declined to 43.9% from 44.8% in the prior-year quarter primarily due to the non-cash accounting impact of the planned lowering down of the inventory, rise in supply chain costs, and unfavorable mix and commodity headwinds, which were partly offset by the company’s initiatives to boost material cost performance.

Adjusted selling, general and administrative (SG&A) expenses totaled $797.6 million or 35.2% of sales in the quarter under review compared with $767.1 billion or 34% in the second quarter of fiscal 2016.

Adjusted operating income fell to $195.5 million from $243.1 million in the prior-year quarter.

Dividend

On Aug 10, 2017, the board of directors of Advance Auto Parts declared a regular quarterly dividend of 6 cents per share. The dividend will be paid on Oct 6, 2017, to stockholders on record as of Sep 22, 2017.

Financial Position

Advance Auto Parts had cash and cash equivalents of $257.2 million as of Jul 15, 2017, up from $135.2 million as of Dec 31, 2016. Total long-term debt was $1.04 billion as of Jul 15, 2017, almost unchanged from the figure as of Dec 31, 2016.

For the fiscal second quarter, operating cash flow was $267.3 million compared with $208.4 million in the year-ago period.

Store Update

As of Jul 15, 2017, Advance Auto Parts operated 5,073 stores and 131 Worldpac branches and served approximately 1,250 independently owned Carquest stores.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter.

VGM Scores

At this time, the stock has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.


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