Advance Auto Parts Hopes to Maintain Fast Pace of Earnings, Expansion

Roanoke, Va., is home to an automotive parts retailer that keeps pushing the pace. Advance Auto continues to expand, stretching itself across many markets. By the end of 2003, it had 2,546 stores in 39 states, Puerto Rico and the Virgin Islands with plans to open up to 135 in 2004. But how long can it keep up this speed?

From The Roanoke Times

ROANOKE, VA — Roanoke, Va., is home to an automotive parts retailer that keeps pushing the pace.

Advance Auto Parts’ earnings rose nearly 100 percent in 2003 from 2002, according to the company’s year-end earnings report released last week.

Advance Auto continues to expand, stretching itself across many markets. By the end of 2003, it had 2,546 stores in 39 states, Puerto Rico and the Virgin Islands with plans to open up to 135 in 2004.

But how long can it keep up this speed?

Analysts predict that the company can keep running for a while.

Bret Jordan, an analyst with Advest Inc., said Advance’s store reformatting and the acquisition of the Discount Auto Parts chain have driven sales, which hit $3.5 billion in 2003.

“I would expect to see continued growth,” Jordan said. “The profitability of Advance has improved significantly.”

Advance is the second-largest retailer of automotive parts, trailing only Memphis, Tenn.-based AutoZone. It’s the only Fortune 500 company based in Roanoke.

One of the company’s marketing initiatives is a 2010 prototype, a design that incorporates brighter colors, new signs and an auto parts counter divided into workstations for customer use. The format has been added in 714 stores and there are plans to reach 1,000 stores by the end of 2004, said Jim Wade, president of Advance Auto.

Alan Rifkin, an analyst with Lehman Brothers, said in a written report that Advance Auto would be able to add new stores through the next two or three years.

He wrote that certain company initiatives, such as system-wide programs and increased advertising, along with same — store sales growth of 7 percent in the fourth quarter, have boosted Advance.

Rifkin also added that company’s cash flow of $270 million in 2003 is impressive.

The continued growth of the automotive aftermarket industry makes the future bright for auto parts retailers, said Rifkin and Jordan.

But despite Advance’s pace, Jordan said the company still has a long way to go before it can reach “industry leader levels.” It ranks third among national automotive retailers in profit margin growth. The top two are AutoZone and O’Reilly Automotive, based in Springfield, Mo.

“They still have to focus on getting closer to No. 2,” Jordan said. This will happen, he added, if Advance improves distribution and operating margins. In 2003, its operating margin increased to 8.3 percent compared to 6.1 percent in 2002.

Advance executives have growth ideas of their own. In a conference call, they championed the 2010 store prototype and other initiatives, such as the Advance Parts and Accessories Look-up (APAL), an electronic catalog system that provides technical information and graphics about products. APAL has been rolled out in stores in the last two to three years.

Though Advance does not have plans for new acquisitions in 2004, it will build its ninth distribution center in the Northeast by 2005. The location for the center has not yet been decided, Wade said.

Last year “is really a continuation of all of the good years that we have had previously,” Wade said. “Going back to 1995, we had 500 stores. We will continue to do the same things going forward.”

Reputation is working in Advance’s favor, Jordan added.

“They are the second-biggest chain,” he said. “That is a reasonable position and means inherent growth in the industry.”

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