In this column, we take a look at Advance Auto Parts (AAP) which has caught our attention after reporting earnings. Specifically, we discuss the key results you need to be aware of, as well as our expectations for 2018 and beyond.
Key results to be aware of:
First, we need to know about sales. They declined. Total net sales for the fourth quarter came in at $2.04 billion, a 2.2% decrease versus the prior-year period. Here is where we have major concerns; comps. Comparable store sales for the quarter decreased 2.6%. Net sales for full year 2017 were $9.37 billion, versus $9.57 billion in 2016. Comparable store sales for the full year decreased 2.0%. Ouch.
Lower sales hurt but so do higher costs of business. Advanced Auto Parts’ gross profit margin decreased 69 basis points in the fourth quarter to 42.9% from 43.6% in the same time period in the prior year. The decline was primarily driven by increased supply chain costs. In addition, the non-cash impact of inventory optimization negatively affected gross margins by 20 basis points in the fourth quarter. Continued material cost improvement in the quarter helped partially offset these costs. Total gross profit margin for full year 2017 was also down to 43.6% compared to full year 2016 of 44.5%.
Adjusted SG&A was 37.3% of net sales for the fourth quarter, a 24 basis point favorable improvement from the fourth quarter 2016. Continued progress in expense management during the quarter, including labor and third-party fee reductions, were partially offset by higher medical costs and insurance claims.
Combining expenses and top-line revenues, we see that Advanced Auto Parts’ adjusted operating income was $113.7 million, 5.6% of net sales for the quarter. This represented a decline of 45 basis points versus the prior-year period, primarily driven by the declines in revenue and gross profit as well as the SG&A factors described above. On a GAAP basis, the company’s operating income was $87.2 million, 4.3% of net sales, a decline of 82 basis points. For full-year 2017, the company’s adjusted operating income was 7.3% versus 9.4% during full year 2016. Ouch again.
Leave A Comment