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    ADVANCE AUTO PARTS (AAP)

    AAP Q4 2024 atypical costs cut EPS $0.68; hub stores lift comps

    Reported on Jun 4, 2025 (Before Market Open)
    Pre-Earnings Price$45.88Last close (Feb 25, 2025)
    Post-Earnings Price$43.50Open (Feb 26, 2025)
    Price Change
    $-2.38(-5.19%)
    • Strong market hub performance: Testing of the hub stores has shown positive comparable sales relative to controls, demonstrating that the enhanced parts availability and faster delivery can significantly boost service and sales performance.
    • Improving vendor relationships and cost efficiencies: Positive vendor feedback and strategic pricing investments are driving sequential improvement in both cost reduction and promotional pricing, which is expected to boost gross margins over time.
    • Margin improvement trajectory: The company’s clear focus on cost containment through store closures, supply chain consolidation, and operational efficiencies underpins its target of reaching a 7% EBIT margin by 2027, providing confidence in a gradual and sustainable margin expansion.
    • Sales Volatility Risk: Q&A comments noted that Q1 volatility, driven by weather-related issues and delays in tax refunds, could continue to hamper consumer demand and lead to unpredictable sales performance.
    • Restructuring Impact Concerns: Executives acknowledged DIFM channel share losses and hinted at potential negative customer psychology following significant store closures, suggesting that ongoing restructuring could further erode customer confidence.
    • Margin Compression from Atypical Costs: Discussion of atypical costs—amounting to about 280 basis points on gross margin and roughly $0.68 in EPS headwind in Q4—raises concerns that if these costs persist, they could continue to pressure profitability.
    1. Margin Outlook
      Q: How achievable is the 7% margin goal?
      A: Management explained that through COGS improvements, supply chain efficiency, and reducing SG&A below 40%, they expect to reach a 7% operating margin by 2027, reflecting disciplined cost management and clear KPIs.

    2. Economic & Hub Stores
      Q: How are market hubs and economic outlook trending?
      A: They noted that the introduction of hub stores has uplifted comparable sales, and with expected normalization in the second half, the economic conditions should gradually improve, supporting comp performance.

    3. Q1 Volatility & Atypical Costs
      Q: What’s driving Q1 volatility and atypical expenses?
      A: The variability is primarily due to weather fluctuations and consumer pressures; atypical costs accounted for roughly 280 basis points margin and about $0.68 EPS impact in Q4, with expectations of sequential improvement.

    4. Non-Recurring Costs
      Q: How are one-time costs handled in results?
      A: Management clarified that atypical items related to strategic restructuring—like store closures and one-off adjustments—are excluded from non-GAAP measures, expecting sequential quarterly improvement in underlying performance.

    5. Vendor Costs
      Q: How are vendor cost improvements progressing?
      A: They are seeing improving terms and promotional pricing from vendor partnerships, which are expected to gradually reduce COGS and benefit margins as these initiatives roll out through the year.

    6. Time-to-Serve Efficiency
      Q: How does time-to-serve variability impact comps?
      A: Stores closer to customers, with lower time-to-serve, show better performance, and the company is focused on replicating this model to enhance overall order fulfillment efficiency.

    7. DIFM Performance
      Q: Are store closures affecting DIFM customer behavior?
      A: Management observed no significant negative impact on DIFM customers; affected regions vary, and field feedback indicates that closures of underperforming locations have, in fact, streamlined operations.

    8. Merchandise Assortment
      Q: What’s the impact of the new merchandise assortment?
      A: The new approach optimizes inventory by aligning store stocks with local car park demands, improving store-level availability and order completion rates.

    9. Ticket Growth Drivers
      Q: What drives average ticket growth?
      A: Pricing remains competitive with modest 1% inflation influencing ticket growth, while mixed basket effects play a lesser role in the overall performance.

    Research analysts covering ADVANCE AUTO PARTS.