Advance Auto Parts Grapples With Higher Fuel Costs

Date: Friday, May 25, 2018
Source: Wall Street Journal

An unexpected jump in fuel prices during the latest quarter gummed up the supply chain and tapped the brakes on profitability at Advance Auto Parts Inc., said interim finance chief Jeffrey Shepard.

Higher energy costs were among the lead pressures that reduced the company’s gross profit margin by 54 basis points, Mr. Shepard said, speaking on the company’s conference call. Overall, gross profit margin improved to 44.3% during its fiscal first quarter from 44% posted during the same period last year.

 

“Biggest drivers of our supply chain headwind were related to transportation costs due to higher fuel prices, as well as the expected costs related to the new distribution centers opened in the second half of 2017,” said Mr. Shepard, who has filled in as CFO since the April departure of Tom Okray.

While a boon to beat-down energy companies, rising fuel costs have rippled through U.S. earnings reports this quarter. Since April, companies from American Airlines Group to CSXhave pointed to higher fuel costs as a factor pressuring results.

“Fuel prices grew quicker, faster than expected, we had that built in and we are going to continue to monitor it for the reminder of the year,” an Advance Auto Parts spokesman told CFO Journal.

Production cuts by major crude oil exporting countries have spurred the run-up of prices at the gas pump. Average regular retail gas prices across the U.S. reached $2.92 a gallon on Monday — the highest level since 2014, according to the U.S. Energy Information Administration.

“We did have a – clearly, a plan in terms of where we felt fuel prices were going to be this year, and it’s above that,” said CEO Thomas Greco, speaking on the call. “We didn’t plan for the current price of fuel.”

For its latest quarter, Advance Auto Parts reported net sales slipped slightly to $2.87 billion from $2.89 billion during the same period last year. Comparable store sales retreated 0.8%.

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