Advance Auto Parts Tumbles on Soft Results, Guidance; Analyst Reactions Mixed

© Reuters. Advance Auto Parts Tumbles on Soft Results, Guidance; Analyst Reactions Mixed

By Senad Karaahmetovic

Shares of Advance Auto Parts (NYSE:AAP) are down almost 7% in premarket after the company reported soft results and modestly cut its full-year forecast.

AAP reported an adjusted EPS of $3.74 on revenue of $2.67 billion to miss on the consensus of $3.77 on revenue of $2.75 billion. Misses were driven by falling comparable sales as the company reported a 0.6% drop while analysts were looking for a 2.4% growth.

“Our DIY omnichannel sales were particularly challenged in the quarter and we expect that high inflation and significant year over year increases in fuel prices will continue to pressure DIY consumers in the back half of the year,” the company said in a client note.

For the full year, the forecast for comparable sales is slashed to between -1% to 0% from the prior +1% to +3%. Net sales projections are also cut as AAP now expects $11 billion to $11.20 billion in full-year revenues, down from $11.20 billion to $11.50 billion it expected earlier.

The adjusted EPS forecast is slashed to the range of $12.75 to $13.25, lower than the prior $13.30 to $13.85 range.

Despite mixed results, a BofA analyst reaffirmed the Buy rating as the margin improvement story remains intact.

“Long-term margin improvement remains a key piece of the AAP investment thesis, and should drive outsized EPS growth versus peers over the next twelve months,” the analyst said in a note.

A Morgan Stanley analyst is more cautious on AAP as he sees headwinds facing the company’s 10.5-12.5% EBIT margin target range.

“Unless expansion to the target EBIT margin range is initiative-driven, the multiple may not expand from here, leaving minimal upside to the stock even if the target range is reached. There is also downside risk to estimates if the target range is out of reach excluding accounting adjustments,” the analyst explained in a note.