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Advance Auto Parts Standing Still

Stephen D. Simpson, CFA
August 21, 2006

These are challenging times in the auto-parts industry, and no one's faring especially well. Since Advance Auto Parts (NYSE: AAP  ) is among the sector's worst performers, that outlook might be cold comfort for its shareholders. While its long-term picture still looks pretty good, Advance investors will need to exercise some patience in the face of a tough operating environment.

Advance warned us that this second quarter would be weak, and management was certainly right about that. Sales were up more than 8%, but comps were up just barely more than 1%. Within that number, do-it-yourself (DIY) comps were down about 1%, while commercial comps were up a healthy 9.1%. The operating margin, though, was not as solid -- whether you want to credit back the cost of stock compensation or not, margins fell, and it looks like operating costs will be a headwind for now.

Why are Advance, AutoZone (NYSE: AZO