Advance Auto Parts Inc: Can It Get Back to Growth?

Advance Auto Parts (NYSE:AAP) is arguably an attractive deep-value stock, but you uncommonly get deep value without flaws fastened. In this case, the company’s integration of General Parts International (owners of Carquest and worldpac), and catching up with the kinds of margins boasted by rivals like O’Reilly Automotive (NASDAQ:ORLY) and AutoZone, Inc (NYSE:AZO) , have disappointed so far.

In fact, while its peers are busy generating healthy same-store-sales growth, Advance Auto Parts has turned negative. What exactly is going wrong, and can it be immovable?

DATA SOURCE: ADVANCE AUTO PARTS, INC PRESENTATIONS.

Based on management’s guidance and the potential to supply margins closer to those of O’Reilly and AutoZone, the stock is a good value. Readers unacquainted with the investment case can read more in the linked article, but now it’s time to concentrate on what’s going wrong:

• Same-store sales are now negative
• The company commenced two thousand fifteen forecasting low-single-digit comparable same-store sales growth, and comparable cash EPS in the range of $8.35 to $8.55, only to disappoint with plane same-store-sales growth and comparable cash EPS of $7.82.
• In the fourth-quarter earnings call, interim CEO George Sherman said he wasn’t sated with the fourth quarter, and progress in the very first quarter is "not up to what our expectations are right now."

The shortfall in spectacle raises questions about the company achieving its two thousand sixteen guidance for adjusted operating income margin of 12%, coupled with low same-store sales growth and "modest top-line growth." However, if the company merely comes close these targets, then the stock could appreciate substantially.

• The integration process includes a mix of conversions (mainly Carquest stores converted into Advance Auto Parts stores), and consolidations (Carquest stores are merged with Advance Auto Parts stores), and taking these deeds is causing customer disruptions.
• Carquest is do-it-for-me mighty (DIFM), and DIFM requires more exacting standards — more capital intensive as commercial customers require parts quicker — and Advance Auto is focusing on growing DIFM overall.
• Merging two separate companies creates logistics challenges, including ensuring that the right inventory is in place at the right location, while employees and customers also need to adjust to fresh systems.

Beginning with the integration process, the following chart shows how same-store-sales growth has slipped as Carquest consolidations — and, in particular, conversions — have negatively affected growth.

DATA SOURCE: ADVANCE AUTO PARTS INC. PRESENTATIONS.

The key takeaway is that, as the conversions and consolidations take place, you can expect more deterioration. On the latest earnings call, Sherman outlined how the process instantly effects sales for about half a quarter before recovering: "It’s about five to six weeks that there’s a negative influence and then the store embarks to emerge with better results and that generally shows up in the form of double-digit comps, demonstrating up in clearly consolidations and anywhere from single — mid-single to a high-single to double-digit comps in our convergence stores."

Advance Auto Parts commenced off with around 1,230 Carquest stores, but due to consolidations and conversions, its tally as of January two thousand sixteen is around 870. Moreover, management expects to do another three hundred fifty — toughly split inbetween conversions and consolidations — in 2016.

Investing takeaway: Albeit spectacle has been disappointing, Advance Auto’s same-store sales growth is — and will be in two thousand sixteen — negatively affected by short-term flaps of conversions; but once finished, growth will come back.

DIFM and integration difficulties

However, Advance Auto is choosing a more bespoke solution that involves investing to improve inventory coverage — something that could primarily hit efforts to get to O’Reilly, like operating metrics — while developing a field-centric treatment to distribution. In plain English, this means local managers will be empowered to determine how individual store inventories are made up. Sherman noted that daily delivery would be provided where needed, but it’s "not an response by itself."

Advance Auto’s efforts to improve operational spectacle will take time and effort to ensure efficient inventory delivery may hold back near-term improvement.

The bottom line

The enlargening share of revenue from DIFM, and the difficulties in integrating Carquest, indicate that Advance Auto won’t turn into O’Reilly Automotive overnight. However, it may not need too in order to make investors money. The valuation discount and chance is attractive enough for long-term investors; just don’t be astonished if there’s more volatility along the way.

Lee Samaha has no position in any stocks mentioned. The Motley Idiot wields shares of O’Reilly Automotive. Attempt any of our Foolish newsletter services free for thirty 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 Loser has a disclosure policy.

Advance Auto Parts Inc: Can It Get Back to Growth? The Motley Loser

Advance Auto Parts Inc: Can It Get Back to Growth?

Advance Auto Parts (NYSE:AAP) is arguably an attractive deep-value stock, but you uncommonly get deep value without flaws affixed. In this case, the company’s integration of General Parts International (owners of Carquest and worldpac), and catching up with the kinds of margins boasted by rivals like O’Reilly Automotive (NASDAQ:ORLY) and AutoZone, Inc (NYSE:AZO) , have disappointed so far.

In fact, while its peers are busy generating healthy same-store-sales growth, Advance Auto Parts has turned negative. What exactly is going wrong, and can it be stationary?

DATA SOURCE: ADVANCE AUTO PARTS, INC PRESENTATIONS.

Based on management’s guidance and the potential to produce margins closer to those of O’Reilly and AutoZone, the stock is a good value. Readers unacquainted with the investment case can read more in the linked article, but now it’s time to concentrate on what’s going wrong:

• Same-store sales are now negative
• The company began two thousand fifteen forecasting low-single-digit comparable same-store sales growth, and comparable cash EPS in the range of $8.35 to $8.55, only to disappoint with vapid same-store-sales growth and comparable cash EPS of $7.82.
• In the fourth-quarter earnings call, interim CEO George Sherman said he wasn’t sated with the fourth quarter, and progress in the very first quarter is "not up to what our expectations are right now."

The shortfall in spectacle raises questions about the company achieving its two thousand sixteen guidance for adjusted operating income margin of 12%, coupled with low same-store sales growth and "modest top-line growth." However, if the company merely comes close these targets, then the stock could appreciate substantially.

• The integration process includes a mix of conversions (mainly Carquest stores converted into Advance Auto Parts stores), and consolidations (Carquest stores are merged with Advance Auto Parts stores), and taking these deeds is causing customer disruptions.
• Carquest is do-it-for-me strong (DIFM), and DIFM requires more exacting standards — more capital intensive as commercial customers require parts quicker — and Advance Auto is focusing on growing DIFM overall.
• Merging two separate companies creates logistics challenges, including ensuring that the right inventory is in place at the right location, while employees and customers also need to adjust to fresh systems.

Kicking off with the integration process, the following chart shows how same-store-sales growth has slipped as Carquest consolidations — and, in particular, conversions — have negatively affected growth.

DATA SOURCE: ADVANCE AUTO PARTS INC. PRESENTATIONS.

The key takeaway is that, as the conversions and consolidations take place, you can expect more deterioration. On the latest earnings call, Sherman outlined how the process instantly effects sales for about half a quarter before recovering: "It’s about five to six weeks that there’s a negative influence and then the store commences to emerge with better results and that generally shows up in the form of double-digit comps, showcasing up in clearly consolidations and anywhere from single — mid-single to a high-single to double-digit comps in our convergence stores."

Advance Auto Parts began off with around 1,230 Carquest stores, but due to consolidations and conversions, its tally as of January two thousand sixteen is around 870. Moreover, management expects to do another three hundred fifty — toughly split inbetween conversions and consolidations — in 2016.

Investing takeaway: Albeit spectacle has been disappointing, Advance Auto’s same-store sales growth is — and will be in two thousand sixteen — negatively affected by short-term sways of conversions; but once finished, growth will come back.

DIFM and integration difficulties

However, Advance Auto is choosing a more bespoke solution that involves investing to improve inventory coverage — something that could primarily hit efforts to get to O’Reilly, like operating metrics — while developing a field-centric treatment to distribution. In plain English, this means local managers will be empowered to determine how individual store inventories are made up. Sherman noted that daily delivery would be provided where needed, but it’s "not an reaction by itself."

Advance Auto’s efforts to improve operational spectacle will take time and effort to ensure efficient inventory delivery may hold back near-term improvement.

The bottom line

The enlargening share of revenue from DIFM, and the difficulties in integrating Carquest, indicate that Advance Auto won’t turn into O’Reilly Automotive overnight. However, it may not need too in order to make investors money. The valuation discount and chance is attractive enough for long-term investors; just don’t be astonished if there’s more volatility along the way.

Lee Samaha has no position in any stocks mentioned. The Motley Loser possesses shares of O’Reilly Automotive. Attempt any of our Foolish newsletter services free for thirty 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 Idiot has a disclosure policy.

Advance Auto Parts Inc: Can It Get Back to Growth? The Motley Idiot

Advance Auto Parts Inc: Can It Get Back to Growth?

Advance Auto Parts (NYSE:AAP) is arguably an attractive deep-value stock, but you uncommonly get deep value without flaws fastened. In this case, the company’s integration of General Parts International (owners of Carquest and worldpac), and catching up with the kinds of margins boasted by rivals like O’Reilly Automotive (NASDAQ:ORLY) and AutoZone, Inc (NYSE:AZO) , have disappointed so far.

In fact, while its peers are busy generating healthy same-store-sales growth, Advance Auto Parts has turned negative. What exactly is going wrong, and can it be immobile?

DATA SOURCE: ADVANCE AUTO PARTS, INC PRESENTATIONS.

Based on management’s guidance and the potential to supply margins closer to those of O’Reilly and AutoZone, the stock is a good value. Readers unacquainted with the investment case can read more in the linked article, but now it’s time to concentrate on what’s going wrong:

• Same-store sales are now negative
• The company embarked two thousand fifteen forecasting low-single-digit comparable same-store sales growth, and comparable cash EPS in the range of $8.35 to $8.55, only to disappoint with vapid same-store-sales growth and comparable cash EPS of $7.82.
• In the fourth-quarter earnings call, interim CEO George Sherman said he wasn’t pleased with the fourth quarter, and progress in the very first quarter is "not up to what our expectations are right now."

The shortfall in spectacle raises questions about the company achieving its two thousand sixteen guidance for adjusted operating income margin of 12%, coupled with low same-store sales growth and "modest top-line growth." However, if the company merely comes close these targets, then the stock could appreciate substantially.

• The integration process includes a mix of conversions (mainly Carquest stores converted into Advance Auto Parts stores), and consolidations (Carquest stores are merged with Advance Auto Parts stores), and taking these deeds is causing customer disruptions.
• Carquest is do-it-for-me powerful (DIFM), and DIFM requires more exacting standards — more capital intensive as commercial customers require parts quicker — and Advance Auto is focusing on growing DIFM overall.
• Merging two separate companies creates logistics challenges, including ensuring that the right inventory is in place at the right location, while employees and customers also need to adjust to fresh systems.

Commencing with the integration process, the following chart shows how same-store-sales growth has slipped as Carquest consolidations — and, in particular, conversions — have negatively affected growth.

DATA SOURCE: ADVANCE AUTO PARTS INC. PRESENTATIONS.

The key takeaway is that, as the conversions and consolidations take place, you can expect more deterioration. On the latest earnings call, Sherman outlined how the process instantaneously effects sales for about half a quarter before recovering: "It’s about five to six weeks that there’s a negative influence and then the store embarks to emerge with better results and that generally shows up in the form of double-digit comps, demonstrating up in clearly consolidations and anywhere from single — mid-single to a high-single to double-digit comps in our convergence stores."

Advance Auto Parts embarked off with around 1,230 Carquest stores, but due to consolidations and conversions, its tally as of January two thousand sixteen is around 870. Moreover, management expects to do another three hundred fifty — toughly split inbetween conversions and consolidations — in 2016.

Investing takeaway: Albeit spectacle has been disappointing, Advance Auto’s same-store sales growth is — and will be in two thousand sixteen — negatively affected by short-term flaps of conversions; but once finished, growth will come back.

DIFM and integration difficulties

However, Advance Auto is choosing a more bespoke solution that involves investing to improve inventory coverage — something that could primarily hit efforts to get to O’Reilly, like operating metrics — while developing a field-centric treatment to distribution. In plain English, this means local managers will be empowered to determine how individual store inventories are made up. Sherman noted that daily delivery would be provided where needed, but it’s "not an response by itself."

Advance Auto’s efforts to improve operational spectacle will take time and effort to ensure efficient inventory delivery may hold back near-term improvement.

The bottom line

The enhancing share of revenue from DIFM, and the difficulties in integrating Carquest, indicate that Advance Auto won’t turn into O’Reilly Automotive overnight. However, it may not need too in order to make investors money. The valuation discount and chance is attractive enough for long-term investors; just don’t be astonished if there’s more volatility along the way.

Lee Samaha has no position in any stocks mentioned. The Motley Loser possesses shares of O’Reilly Automotive. Attempt any of our Foolish newsletter services free for thirty 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 Loser has a disclosure policy.

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