Advance Auto Parts (AAP) Down 36.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Advance Auto Parts (AAP). Shares have lost about 36.7% in that time frame, underperforming the S&P 500.

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

Advance Auto Parts’ Q4 Earnings Miss Estimates, Up Y/Y

Advance Auto Parts reported adjusted earnings of $1.64 per share in fourth-quarter 2019 (ended Dec 28, 2019), up 40.2% from the prior-year number. The earnings figure, however, missed the Zacks Consensus Estimate of $1.36. Adjusted operating income increased 18% year over year to $149.9 million.

Advance Auto Parts generated net revenues of $2,113 million, missing the Zacks Consensus Estimate of $2,124 million. Revenues also edged down 0.4% from the year-ago quarter reported figure. During the fourth quarter, comparable store sales inched up 0.1% year on year.

Adjusted selling, general and administrative (SG&A) expenses totaled $779 million compared with the $802 million witnessed in the year-ago quarter, amid lower labor costs.

Financial Position

Advance Auto Parts had cash and cash equivalents of $418.7 million as of Dec 28, 2019, compared with $896.5 million as of Dec 29, 2018. Total long-term debt was $747 million as of Dec 28, 2019, compared with $1.05 billion as of Dec 29, 2018. The debt-to-capital ratio stands at 17.29%, as of Dec 28, 2019.

Operating cash flow was $867 million as of Dec 28, 2019, up from the prior-year quarter’s $811 million.

Dividend & Share Repurchase

On Feb 12, Advance Auto Parts’ board approved a cash dividend of 25 cents per share to be paid on Apr 3, to all common shareholders of record as of Mar 20, 2020.

The company also authorized $700 million as an addition to the existing $400-million share-repurchase program in fourth-quarter 2019. Under this program, the company repurchased 3.4 million shares of its common stock, at an aggregate amount of $487.4 million, for an average price of $144.23 per share. At the end of the fourth quarter, the company had $890.8 million remaining under the share-repurchase program.

Store Update

As of Dec 28, 2019, the company operated 4,877 stores and 160 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. It also serves 1,253 independently-owned Carquest branded stores across these locations in addition to Mexico, the Bahamas, Turks and Caicos and British Virgin Islands.

Guidance

For full-year 2020, the company anticipates consolidated revenues of $9,880-$10,100 million. Further, adjusted operating income margin is estimated in the band of 8.4-8.7% and capital expenditure is projected at $275-$325 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Advance Auto Parts has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Advance Auto Parts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.