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Earnings preview: Strong profit growth in cards for Advance Auto Parts in Q4

Advance Auto Parts (AAP) is widely expected to report earnings of $1.14 per share for the fourth quarter when it announces the results on Tuesday before the opening bell.

The bullish earnings prediction, which represents a 48% increase from the year-ago quarter, is based on expectations of a 3.3% growth in revenues to $2.10 billion. The recent performance trend points to a strong likelihood of the North Carolina-based provider of automotive aftermarket parts beating the estimates. In all of the previous four quarters, earnings had exceeded the forecast.

Advance Auto Parts Q3 2018 Earnings Result
Advance Auto Parts Q3 2018 Earnings Infographic

However, it needs to be seen if the ambitious sales targets set by the management for fiscal 2018 will be achieved. On the downside, margins might come under pressure from the heavy investment in supply chain and IT infrastructure.

The company seems to be doing everything to boost performance on a long-term basis, including store openings, strategic partnerships, and aggressive e-commerce push. A significant move towards expanding market share was the partnership signed with Walmart (WMT) last year, for setting up a unique auto parts store on the retailer’s online platform.

On the downside, margins might come under pressure from the heavy investment in supply chain and IT infrastructure

The ongoing shift to the digital space bodes well for Advance Auto Parts, as the online traffic has increased notably in recent months. The expanding customer base could add to sales growth in the fourth quarter, with the extensive portfolio of auto accessories and parts reaching more markets now.

In the third quarter, the company posted a 32% surge in earnings to $1.89 per share. At $2.3 billion, revenues were up 4.3%. The highlight of the September quarter was the solid comparable store sales, which rose at the fastest pace in nearly eight years.

Related: Advance Auto Parts Q3 2018 Earnings Conference Call Transcript

Earlier this week, the company announced the appointment of Jeffrey Jones, CEO of H&R Block (HRB), and Best Buy’s (BBY) former CFO Sharon McCollam to its board of directors, effective immediately. Meanwhile, analysts’ have given the company’s stock a consensus recommendation of buy and their price targets range from $177 to $222.

Continuing its recovery from the multi-year lows, the stock last year recouped most of the losses but underperformed the sector. The shares, which gained about 6.8% since the beginning of 2019, closed Thursday’s trading session sharply higher.

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