Near one-and-a-half year highs, shares of auto parts retailer Advance Auto (AAP 156.98, +12.14, +8.4%) react favorably on Tuesday to the company’s second quarter beat and full year 2018 guidance raise.
Simply put, there wasn’t much not to like in Advance’s
second quarter print. All three major metrics outperformed the Street
expectation in the period as earnings per share (EPS) of $1.97, revenue growth
of 2.8% to $2.33 bln, and comparable store sales growth of 2.8% all came in
ahead of market expectations.
From a category perspective, Advance saw increased sales in brakes and batteries, which grew mid-single digits. In addition, the company delivered a substantial improvement in engine management and under car versus previous run rates as it leveraged long-term better partnerships to help with the early deployment of the right inventory leveraging new analytical capabilities. Finally, due to the delayed start to spring, the company experienced strong growth in spring related categories such as maintenance, appearance chemicals and optics.
Adjusted gross margins were 43.7% of Net sales in the second quarter of 2018, a 16 basis point decrease from a year ago. The decline was primarily driven by an increase in supply chain costs, including higher transportation and fuel expenses.
What’s more, Advance announced that on August 8, 2018, the company's Board of Directors authorized a $600 mln share repurchase program. This new authorization replaces the company's $500 mln share repurchase program authorized in May 2012, which had $415 mln remaining.
Following the strong second quarter performance Advance decided to raise its full year 2018 outlook. Specifically, revenues are now expected to come in between $9.3-9.5 bln, up from the previous expectation of $9.1-9.4 bln. Further, management now sees comparable store sales for the year of flat to up 1.5% compared to the previous outlook which expected a 2% to flat showing. Additionally, the company raises the low-end of its adjusted operating income margin guidance from 7.3-7.8% to 7.5-7.8%. The company also lowered its capital expenditure outlook to $180-220 mln from the previous $200-250 mln due to a combination of higher level of scrutiny on every capital project as well is timing expectations of certain projects this year. Lastly, Advance now sees a minimum of $500 mln in free cash flow for the year, up from a minimum of $400 mln.
Not to be forgotten, Advance also announced some management changes which included the appointments of Jeffrey Shepherd to Executive Vice President, Chief Financial Officer (CFO) and Reuben Slone to Executive Vice President, Supply Chain. Additionally, Nigel Travis, Executive Chairman of Dunkin Brands, was appointed to the Board of Directors.
All told, investors are rewarding Advance for an all-around good quarter and upped guidance. Shares now hold a 58% move higher YTD.