August 16, 2010 - Advance Auto Parts, Inc. (AAP-NYSE) through its subsidiaries, operates as a retailer of automotive aftermarket parts, accessories, batteries, and maintenance items to do-it-yourself (DIY) and do-it-for-me customers. The company has two segments, Advance Auto Parts (AAP) and Autopart International(AI). It is the second largest auto-parts retailer in the U.S.

The AI segment operates stores that provide replacement parts for domestic and imported cars, and light trucks to DIY, do-it-for-me, or commercial customers in northeast and Mid-Atlantic regions, as well as to warehouse distributors and jobbers in North America. It has 156 stores under the Autopart International trade name in the United States. The company was founded in 1929 and is based in Roanoke, Virginia.

This is another retailer that grew sales and earnings in a bad economy. In fact, it's the weak economy that is driving sales. While new cars are starting to move off auto lots, most consumers are still driving older cars, ones that need to stay on the road until the economy gets on the road to recovery. To keep them rolling, owners drive to Advance Auto for parts.

Sales in 2007 were $4.844 billion, followed by $5.142 billion. Last year, they hit $5.412 billion. This year, consensus estimate from 20 analysts is for $5.83 billion, then $6.15 billion next year. Over the last 5 years, average annual growth in revenues was 10.5%.

In the first quarter of 2010, sales were up 7.7% compared to the first of last year, ahead of analysts' expectations. The company attributed the higher number to more demand for replacement parts and higher market share, taken at the expense of locally owned shops and regional stores. Higher sales also came from DIY consumers who bought more this year than last year's first quarter, putting a stop to the downward trend of the last few periods. Further helping revenues were newer stock items, pricing, better service as well as more national brands.

There's every reason to believe growth will continue. As long as the jobless rate remains high, people will work on their cars, replacing what they can, getting as much mileage as possible out of their current means of transportation. The DIY customer is 70% of AAP's sales.

But management isn't looking just to the DIY for growth. It's focused on serving the Do-it-for-me driver. They go to individual mechanics and garage shops for fixes. AAP has increased its management and sales efforts to these providers as well as distribution efforts to stay up with demand.

The company buys its own stock. There's strong cash flow for that and low amounts of debt to service. Look for fewer shares as the company absorbs them which will boost earnings even more. Also expect better operating and profit margins as higher prices couple with better sourcing and parts availability.

More numbers: Market Cap is $4.75 billion. Trailing P/E is 18 while Forward P/E is 13. Price to sales is .86. Price to book is 4.28. Operating margin for the last 12 months was 8.72% and Profit margin was 5.15%. Return on equity was great at 25%, and Return on assets was 9.77%. There's $133.29 million in cash for $1.53 a share. Current ratio is 1.19. Total debt is $312.26 million. Book value is $12.77. Beta is a very defensive .44. There are 87.42 million shares outstanding with a Float of 86.95 million. Institutions own 100% of the Float. The annual dividend is 24 cents for a yield of .5%.

Most investors should like this story. While many retailers struggled these last few years, AAP has grown, in sales and earnings. It looks like it will continue. Until employment improves, AAP has an ever larger consumer base that will have to keep their cars rolling. That can only mean more business.

- Company Web site: www.AdvanceAutoParts.com

- Ted Allrich