It was almost all good news for Advance Auto parts this week, as the company reported record fourth-quarter sales and profits. Fourth-quarter earnings per share increased 46% to 57 cents compared with 36 cents during the comparable period the prior year, and full-year profits rose to $3.95 from $2.83 the prior year.
The profit performance was the result of improved productivity at existing stores combined with the addition of new stores. Advance Auto Parts added 143 new units during the past 12 months, which brought its store count to 3,563 units and contributed to total fourth-quarter sales that increased 11.1% to nearly $1.3 billion, while same-store sales increased 8.9%, better than the 7.1% analysts were expecting.
Strong sales trends enabled the company to produce a fourth-quarter operating margin rate of 6.6% compared with 5% during the comparable period the prior year. The gross margin rate increased to 49.4% from 47.9% while expenses as a percentage of sales were essentially flat at 42.8%.
“Overall, 2010 marked our third consecutive year of improved financial and operational performance,” said CFO Mike Norona. “While our performance in 2010 was fueled by strong industry dynamics and favorable weather patterns, the strategic choices we have made through our investments and the superior execution of our team played a significant role and enabled us to gain market share and position our company for long term growth and success.”
To achieve success in the coming year, the company is planning a slightly less ambitious pace of expansion and moderating its financial assumptions compared with 2010. For example, a total of 120 to 140 new stores are planned compared with the 143 stores opened last year and same-store sales are forecast to be in the low to mid-single digit range as opposed to the hefty 8% increase produced in 2010. Full-year earnings are forecast to fall in a range of $4.60 to $4.80, which would represent a 16.4% to 21.5% increase from 2010 earnings per share of $3.95. Although such figures would represent a moderation of growth compared to 2010, analysts were not dismayed by the guidance.
The automotive retail sector is driven by factors which affect it differently than other retailers. For example, an improved economic outlook for 2011, which would generally be good for most retailers, is actually bad for auto parts chains because people tend to buy new cars and they don’t break down as much. In addition, rising gas prices which could cause people to drive less also equates to less parts breakage. That’s a key reason why government statistics such as vehicles miles traveled are watched closely as an indicator of part breakage and consequently demand for auto parts. Harsh winter weather is also an important contributor to parts breakage.