You have to hand it to automotive parts retailer Advance Automotive (NYSE:AAP). In spite of the sluggish economy and some really stiff competition from the likes of Pep Boys (NYSE:PBY) Autozone (NYSE:AZO) and discount retailers, the Virginia-based company turned in some pretty solid first-quarter results.
Let's take a look at how this company is doing compared to its competitors and what it might mean for investors going forward.
Comps Don't Lie
In the period ended April 19, the company earned $82.1 million, or 86 cents per share. That's markedly better than the $76.1 million ,or 71 cents per share, the company earned in the comparable period a year ago. It was also well north of the 78 cents per share that analysts were expecting. Meanwhile, its revenue line came in at $1.53 billion, a 4% increase over the $1.47 billion it generated in the same period last year. (Read Do-It-Yourself Analyst Predictions to make your own expectations.)
Frankly, I think these numbers are impressive. After all, retailers of all stripes seem to be struggling these days. But what may deserve even more attention is Advance Automotive's comparable store sales results, which were up 0.6%.
That's not a huge number, but it's noteworthy for a couple of reasons.
First, it's impressive given what some of the other big-name automotive retailers have been turning in. For example, in its last quarter, Pep Boys saw its comparable retail sales decline 7% and its comparable service center revenue increase 0.9%. Meanwhile, Autozone saw its domestic same-store numbers decline 0.3% in both its second and third quarters.
In addition, Advance Auto wasn't up against some ridiculously easy comp. In fact, in the comparable period last year, the company generated a same-store-sales increase of 0.7%.
Advance Auto's comps are a testament to its strength and should help the company weather this economic slowdown.
Gross Margin Improvement
In a slowing economy, it's not uncommon for a retailer to issue coupons or to mark down its merchandise to help drive overall revenue and comparable store sales growth. However, the problem with this is that the bottom line is often adversely impacted because margins get pinched.
With that in mind, it's good to see that Advance Auto isn't getting hammered by markdowns. In fact, its gross margins for the quarter came in at 48.7%, a 40-basis point jump over the 48.3% it recorded in the comparable period last year. (Check out our related article The Bottom Line On Margins for more information.)
This margin result stacks up pretty well against the competition too; Pep Boys saw its gross profit as a percentage of sales decline from 25.7% last year to 19.1% in its fourth quarter. However, Autozone did show an increase, from 49.2% last year to 49.9% in its second quarter; it rose again in the third quarter to 50.2%
It's good to see that the company's margins are increasing; this suggests that it isn't having to give stuff away to get consumers in the door. It's also good to see it's performing at a high level that is essentially comparable to Autozone's performance.
The Flip Side
Advance Auto has fared pretty well given the economic situation, but there's no guarantee that it will continue to do so. For what it's worth, management has said that its "financial results will not be linear." This suggests that the company expects a bumpy road for the stock in the future.
Bottom Line
Advance Auto reported a pretty solid quarter. Its better-than-expected bottom line was a pleasant surprise for those who watch this stock, but its same-store-sales results and gross margin increase also suggest that this stock may be tuning up into a winner.
For related reading, be sure to check out Analyzing Retail Stocks.