Auto (AAP 89.38 -19.94) reported second quarter earnings this morning of $1.58 per share,
excluding non-recurring items, which fell short of expectations.
On the top line, revenues rose 0.3% year/year to $2.26 billion, which came
in-line with expectations.
The company's gross profit margin decreased 91 basis points year over year to 43.9%.
The decline was primarily driven by the non-cash accounting impact of the planned inventory reduction as well as the increase in supply chain costs, unfavorable mix and commodity headwinds.
These factors were partially offset by the company's efforts to drive favorable material cost performance. The non-cash accounting impact of the year over year inventory reduction was 26 basis points in the second quarter. Excluding the non-cash accounting impact of the inventory reduction, the company's gross profit margin decreased 65 basis points year over year.
The company has purchased inventory at higher costs in the past, which are reflected in the balance sheet on a LIFO basis. In addition, under accounting rules certain supply chain costs associated with inventory have been capitalized.
As the company reduced the inventory, these costs moved from the balance sheet and generated a non-cash negative impact to gross margin. As the company continues to reduce inventory, it will improve cash flow, but there will continue to be a non-cash negative impact to gross margin. Comparable store sales for the quarter were flat.
Looking ahead... the company provided the following update to its full fiscal year 2017 guidance:
- New Stores 60-65 new stores
- Comparable Store Sales -3% to -1%
- Adjusted operating income rate 200 to 300 basis points year over year reduction
The company said, "Our revised guidance for the year
incorporates the impact of industry headwinds in the first half, which we
expect to continue in the second half of the year and we are taking the
appropriate actions to adapt to this environment."
Prior guidance was released on Feb 21, 2017:
- Expected to open 75-85 new stores, including Worldpac branches
- Saw comparable store sales growth between 0-2%
- Saw adjusted operating income rate improvement between 15-35 basis points