Shares in auto parts retailer Advance Auto Parts (NYSE: AAP) burned rubber on Thursday to the tune of a 16% gain as the company posted solid growth for the fourth quarter. While many were expecting high gasoline prices to hurt sales, as they did for larger competitor AutoZone (NYSE: AZO), Advance Auto posted a 9.7% rise in same-store sales.
The combination of an extra week in the year-ago period and some charges and benefits makes the financials about as clear as used motor oil. Sales grew as reported by 3.4%, but adjusting for the extra week boosts that figure to about 12%. On the bottom line, reported earnings per share were $0.43 (versus $0.41), but when charges and benefits are reversed, the numbers are $0.46 and $0.38, respectively.
Advance Auto's growth was pretty balanced as well. The consumer sales (the do-it-yourself) segment was up 5.6% on a same-store basis, and commercial sales (do-it-for-me) were up 29.7%. The company continues to expand its commercial program offerings, and roughly three-quarters of the stores now have such programs (as opposed to about two-thirds a year ago).
While margins continue to improve (7.2% operating margin for the quarter, up from 6.8% a year ago), Advance Auto still has work to do. This is especially true in light of larger competitor AutoZone's nearly 17% operating margin. The company continues to make progress with inventory management changes and believes there is still much to be gained from improving the logistics of the company.
Given the competition in the auto parts market, such improvements will be critical for the company. Customers aren't likely to come back to a store if they can't readily find what they want, and there is no shortage of alternative places to shop. As if competitors like AutoZone and O'Reilly Automotive (Nasdaq: ORLY) aren't bad enough, Wal-Mart (NYSE: WMT) looms as the ever-present retail bogeyman as well.
Of course, the management team at Advance Auto isn't exactly a bunch of slouches. Return on equity for 2004 was above 27% and return on assets was 9% -- not as good as AutoZone, but not exactly terrible either.
Interestingly, both AutoZone and Advance Auto are trading roughly in line with future growth expectations, and their EV-to-FCF multiples are similar (23 for AutoZone, 27 for Advance Auto). The choice for Fools then is the somewhat cheaper and more reliable Cadillac of the auto parts business or the peppier, but more expensive, Corvette. Both are quality options, but each offers the buyer a little something different. Growth or comfort? The choice is yours.
Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.
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