Buy Signal on Advance Auto Parts (AAP-US)
Advance Auto Parts is a $ 12.6 Bn market cap and an automotive aftermarket parts provider in North America, serving both professional installers (Professional) and do-it-yourself (DIY) customers, as well as independently owned operators. The Company's stores and branches offer a selection of brand name, original equipment manufacturer (OEM) and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. It operates approximately 4,806 total stores and 170 branches primarily under the trade names: Advance Auto Parts, Autopart International, Carquest and Worldpac. The Company offers products under categories, including parts & batteries, accessories & chemicals and engine maintenance.
Advance has been working to implement a number of long-term initiatives including a new management system for its four largest distribution centers, sharper pricing practices, and rising conversion of loyalty members to higher spend tiers. Advance’s operating margin in 2020 was 8.2% for a $10.2 bn revenue, but is expected to grow its operating profitability to 12% mid term given the rollout of the new initiatives. Management indicates it does not plan significant store openings until sales improve and the turnaround is further along, which shows their seriousness in developing their business model before expanding.
The biggest threat to AAP seems materialized by the online competition of Amazon and CarParts.com, a totally online US Auto Parts Network that is building out its distribution centers and is still not profitable, but could be serious competition down the road. Advance’s real advantage over online retailers is the services it provides, as it not only sell parts but will install light bulbs, batteries, and wipers.
Short term catalyst : Focus on expanding margins, online competition.
This signal looks consistent with the Major Bullish Trend in the US retail sector.