Advance Auto Parts, Inc. (AAP)

The second largest specialty retailer of automotive parts in the U.S., Advanced Auto Parts (AAP), has been able to enhance its sales by 8.2% during fiscal 2006. Though comparable store sales grew by 2.1%, it’s bit low as compared to 8.7% witnessed in 2005. This dismal performance in comparable sales growth was on account of economic downturns that the country witnessed during 2006. During the period of economic downturn customers would have deferred maintenance of their vehicle. However, it should be noted that the maintenance for vehicle is done out of necessity, rather than by choice. This postponement of repair and maintenance should materialize in the quarters ahead.





AAP’s average sales per store of $1.55 million per store were in line with the industry leading level. Improved procurement costs, a positive shift in sales mix and logistics efficiencies has been reflected in the form of enhanced gross margin. For the fiscal 2007, the company plans to open around 200-210 new stores, which would supplement their guidance of high single digits revenue growth during the coming year. Moreover, the company expects to remodel 150 stores and relocate around 35 of its existing stores.





Factors like rising average age of cars, which currently hovers around 9.5 years, growing population of light trucks and sport utility vehicles, declining trend of new car sales, and the ascendance of total number of miles driven annually to 3 trillion shows a favorable sign for automotive aftermarket industry, and surely will aid Advance Auto Parts to attain its EPS guidance of $2.38 to $2.48, an increase of at least 10%. These favorable industry dynamics coupled with AAP’s continued execution of key business initiatives makes the stock a good buy.