1 Aftermarket Retailer Beating the Economy


Aftermarket retailer Advance Auto Parts (NYS: AAP) posted a 12% increase in its second-quarter earnings, helped by growth in its commercial sales segment.

Faced with an uncertain economic expansion, consumers have chosen to maintain their old cars instead of spending on new ones. This has benefitted auto part and aftermarket retailers. Advance Auto peers Genuine Parts (NYS: GPC) and O'Reilly (NAS: ORLY) posted impressive quarterly profits as tightfisted consumers turned to them in increasing numbers.

A look at the numbers
Revenues for the quarter increased 4.4%, to $1.48 billion. Higher sales were a result of 130 new stores and a gain in same-store sales of 2.5%, continuing to grow on top of the 5.8% comps gain in the year-ago period. Total store count hit 3,627 in the period.

Gross margin declined 72 basis points, to 49.72%. This fall was mainly because of higher theft-related expenses, product acquisition-related expenses, and higher supply chain costs. The company's net income increased 12%, to $113.1 million.

Advance Auto has been looking to improve its cost structure by reducing its nonproduction (support) costs, lowering incentive compensation, and implementing a new customer-centric labor model. Higher profits this quarter were partly a result of that effort. Moreover, Advance Auto is investing in its commercial and e-commerce businesses, which should deliver growth in the long run.

Advance Auto also is looking to repurchase an additional $300 million in shares, as an earlier $500 million buyback authorization, with just $112 million remaining, comes to an end.

The Foolish bottom line
All in all, Advance Auto Parts had a good quarter, especially when it came to sales growth. It should continue to profit as the economic conditions in the U.S. remain adverse. Plus, its growth initiatives should help drive higher sales in the long run. To stay up to speed with the workings of Advance Auto -- click here to add it to your stock watchlist.

At the time thisarticle was published Shubh Datta doesn't own any shares in the companies mentioned above.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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