Advance Auto Parts Executive Insights: Guidance and DIY Ticket

On Thursday, Advance Auto Parts Inc (NYSE:AAP) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Greg Melich – ISI: Two questions, one on the top line and then on the SG&A. The do-it-for-me business there, and if I got that right, you said it was 38% versus the year ago, I back into it, the do-it-for-me comp over at 5%. One, is my math right, and two, what do you think really drove that deceleration? It seems like do-it-for-me took a little bit more on the chin this quarter than DIY.

Darren Jackson – President and CEO: Greg, we never give out the specifics, but you’re generally pretty good with your math. I would say a couple of things, Greg. What we saw and we tried to highlight in the script today was the fact that if we would have reported in March, it would have been a much better outcome. April, the business just seem to take a step change down. It wasn’t just in the core, but we saw it in our AI business too, which is principally a Northeast business. Now we don’t get market share anymore regionally, so we can’t tell you the impacts for the greater market. But we can tell you that what we saw in April was just in our failure categories in particular in that Northeastern section of the country. It was disproportionately hit. When we looked at the South it didn’t take as much of a hit. So, when we back up, we’d say let’s not overreact because we had a milder winter and we pulled some business probably out of the April time period into the March time period. So, that’s what we can see in the business today. So, as we said in our conference call script, as we look out we have been here before where the business has zigged and zagged in different ways and I don’t think and you should have heard on the call, we don’t plan to overreact, we don’t plan to stop focusing on what we’re focused on and we plan to just drive the business forward as we have done the past four years.

Greg Melich – ISI: Then second, (I’ll take this) I guess for Mike on the guidance. If you just look at how much the EPS grew in the first quarter you’re already into your guidance for the range. So, do you think that your EPS for the rest of the year will effectively be flat and the plan is your down in the second quarter and then up a little bit in the back half or is it that your guidance still doesn’t include any buyback and that might be some that’s part of the difference, if you remind for that?

Mike Norona – EVP and CFO: I think that’s exactly the way to think about it. Greg, you heard in the comments we’re going to see constrained in the second quarter and down, that’s partly because of some of the timing of our GM conference and the advertising and some of the things I referred. You can see that our EPS for the year is planned to be up, we plan to be in that range. If the business is a little bit slower we’ll be in the lower end of that range. If the business comes back and as Darren alluded to then that’s why we put a range out there. But I think that’s exactly the way to think about it.

Greg Melich – ISI: Is your buyback in the guidance or not?

Mike Norona – EVP and CFO: It is not in the — and it’s very consistently we don’t put our buyback in the guidance.

DIY Ticket

Matthew Fassler – Goldman Sachs: A couple questions, first on the top line. If you could allude to or talk to the experience you had in traffic and ticket particularly in DIY and whether that experience has changed at all over the course the past few quarters?

Mike Norona – EVP and CFO: Yeah, Matt. So, for the last few quarters, we’ve been talking about the DIY ticket, the DIY transaction count has been down. The ticket has offset that, and again in this quarter, we did see a positive DIY comp number. It wasn’t a big number, but the transactions I would say have roughly remained the same in terms of their consistent trend of being down offset by ticket. When I look at our overall ticket trend, our commercial tickets and our DIY tickets, what we saw in the first quarter was that combined ticket trend was a little better than the previous four, but we just didn’t see the growth in the overall ticket. So, combined transactions weren’t as difficult in this first quarter as they had been in the previous four, but the overall growth in the ticket has slowed a little bit and that probably doesn’t come as a surprise when the mix of business out of failure changes a little bit, and we haven’t seen as many price increases this first quarter as we did last year.

Matthew Fassler – Goldman Sachs: My second question relates to capital allocation, if you could just give us a sense as to your internal thinking about the buyback and the cadence thereof, the past couple of quarters you (have said you haven’t done) very much the decision to re-up the authorization and more than double in size presumably reflects some intent to deploy that buyback in the immediate future. So, how have you thought about and by the way looks in retrospect like a fortuitous decision how have you thought about the pace of the buyback what has driven your decision on when you are buying back and when you put that on hold?

Mike Norona – EVP and CFO: It’s Mike. So, share buybacks have been and are an important part of our capital deployment, but in our view as we’ve consistently behaved they are not the only opportunity to deploy capital to create shareholder value. And we consistently said that we prioritize growth first as our primary use to capital which includes growing our business through the strategic investments in our commercial business, our availability and our operational performance and looking for future growth opportunities and strategic capabilities things like B-to-B that capitalize on the market growth we see. So, that’s where our first priority is. That said, while we see growth as the primary focus to increase shareholder value we use buybacks opportunistically to reflect our confidence in those investments – in those growth investments and we measure ourselves on those investments on ROIC which we are very pleased up over the last four years, it’s up 580 last four years – 580 basis points. What I’d say if you look back historically we have our behavior showed that we bought shares opportunistically and you can reasonably expect us to buy shares in the future which is why we have a repurchase authorization.