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Advance Auto Parts' disappointing Q2 results and lowered full-year guidance send shares plummeting 17%.
Advance Auto Parts (NYSE:AAP) stock tumbled 17% on Thursday, sliding toward the crucial $50 level, after the automotive parts seller released its second-quarter 2024 results and full-year 2024 guidance.
The biggest pain point for investors was the company's full-year guidance, which now calls for Net Sales of $11.15 billion to $11.25 billion , versus Advance Auto Parts' prior outlook range of $11.3 billion to $11.4 billion .
Worse yet, Advance Auto Parts drastically dropped its 2024 earnings guidance from $3.75 to $4.25 per share previously to just $2 to $2.50 currently. Additionally, the firm lowered its 2024 comparable store sales outlook to a range of flat (0%) to down 1% year over year, from the company's previous guidance range of flat to up 1% .
Mixed results don't assuage investors
Besides the aforementioned guidance cuts, Advance Auto Parts disclosed mixed second-quarter 2024 results that didn't quell investors' concerns about the company's financial health. Starting with the top-line results, net sales of $2.683 billion were practically flat when compared to the year-earlier quarter's net sales of $2.686 billion. Furthermore, this sales result was basically in line with Wall Street's consensus estimate of $2.67 billion.
Here's some positive news, though. Advance Auto Parts reported a free cash flow (FCF) outflow through Q2 2024 of $4.6 million, which marks a vast improvement over the FCF outflow of $312 million in the year-earlier quarter.
Moreover, Advance Auto Parts reported comparable store sales growth of 0.4% in 2024's second quarter. However, as we already mentioned, the outlook isn't extremely optimistic as the company lowered its full-year comparable store sales growth guidance range.
Advance Auto Parts President and CEO Shane O'Kelly accentuated a positive point from the company's quarterly report, stating :“Our team delivered positive comparable sales growth while navigating a challenging demand environment during the second quarter.”
Yet, O'Kelly couldn't hide Advance Auto Parts' unfavorable bottom-line results.
In particular, Advance Auto Parts reported Q2-2024 net income of around $45 million, down substantially when compared to the company's second-quarter 2023 net income of $78.577 million. Plus, the firm only earned $0.75 per share, versus $1.32 per share in the year-earlier quarter and below the $0.93 per share that analysts had expected. Hence, it's not difficult to figure out why some investors dumped their Advance Auto Parts stock shares on Thursday morning.
Advance Auto Parts to net $1.2 billion from Worldpac sale
Along with the quarterly results and full-year guidance, Advance Auto Parts also revealed its upcoming sale of automotive parts wholesale distributor Worldpac. Advance Auto Parts expects to sell Worldpac to asset management company Carlyle Group (NASDAQ:CG) for $1.5 billion and generate net proceeds of around $1.2 billion after taxes and transaction fees.
Why would Advance Auto Parts want to divest Worldpac? Of course, it won't hurt Advance Auto Parts to get a $1.2 billion net capital infusion. In addition, the company may want to focus more capital and effort on its chain of retail automotive parts stores.
There might be another reason for the Worldpac sale, though. A Bloomberg report stated that Advance Auto Parts“has been under pressure from shareholder activists to divest the Worldpac unit to improve compensation to better compete with” auto-parts rivals AutoZone (NYSE:AZO) and O'Reilly Automotive (NASDAQ:ORLY).
This, then, seems to represent a major operational re-focus for Advance Auto Parts. O'Kelly confirmed this idea, declaring that the“next chapter of our strategic and operational review will now focus on the remaining Advance business.”
Advance Auto Parts: What investors should watch for
Going forward, it will be interesting to see if shareholder activists pressure Advance Auto Parts to make more changes. Also, investors should look for signs that Advance Auto Parts is, indeed, focusing more effort on the company's retail automotive parts stores.
Just as importantly, Advance Auto Parts' stakeholders will certainly want to see the company exceed its reduced full-year net sales and earnings guidance. Otherwise, Advance Auto Parts stock will likely be susceptible to deeper declines, even after Thursday's harsh share-price rout.
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