Advance Auto Parts, Inc. (NYSE:AAP) posted a mixed 4Q2015 in which earnings beat expectations but declined from a similar quarter a year ago. Jefferies maintains HOLD rating on the stock, but trimmed its price target to $150 from $158. Among other things, Jefferies is concerned about decline in same-store sales as reported in 4Q. Nevertheless, the firm believes that the future is promising is Advance restructures its store portfolio.

4Q2015 overview

Advance Auto Parts, Inc. (NYSE:AAP) posted adjusted EPS of $01.22, beating consensus and Jefferies estimate of $1.20 in both cases, but falling short of $1.37 a year ago. Revenue of $2.03 billion both declines from a year ago and missed the consensus estimate of $2.05 billion. Advance reported revenue of $2.24 billion in a similar quarter last year.

The management reported that the ongoing restructuring efforts took a $0.40 hit per share in 4Q, but that as partially offset by continued cost curtailment. Fewer selling days and generally weaker sales hampered topline growth in 4Q.

Same-store sales fall 2.5%

Advance Auto Parts, Inc. (NYSE:AAP)’s same-store sales fell steeper than Jefferies expected. The 2.5% decline in comps in 4Q compared with 1% decline and 0.9% decline that Jefferies and consensus call for respectively in the quarter.

The conversion and restructuring of stores is responsible for the comp decline. Jefferies expects comp growth numbers to remain uneven during the restructuring period.

Margin expansion

The management of Advance Auto Parts, Inc. (NYSE:AAP) targets adjusted 2016 EBIT margins of 12%, up from 10.2% in 2015. According to Jefferies, the margin target is attainable. It believes that 100bps EBIT margin expansion will come from ongoing reduction of expenses relating to sales and administration. Another 80bps is expected to come from improving sales and gross margin gains.

Estimates

Given the presently challenging business environment for Advance Auto Parts, Inc. (NYSE:AAP), Jefferies has cut its 2016 EPS estimate for the company to $8.97. It previously guided 2016 EPS of $9.02. The firm has also initiated 2017 EPS estimate for Advance of $9.69. Jefferies believes that Advance’s restructuring efforts will pay off over the long term.