Advance Auto Parts Faces Retail Skepticism Even As Wall Street Cheers $1.5B Debt Offering

Advance Auto Parts (AAP) saw a 950% surge in retail user messages on Stocktwits over the last 24 hours, following the company's issuance of preliminary second-quarter results and announcement of a $1.5 billion debt offering.

Retail sentiment on the Advance Auto Parts remained unchanged in the 'bearish' territory with message volumes at 'high' levels, according to Stocktwits data.

Shares of the company were down 1.5% in early trading. It expects second-quarter net sales to come between $1.98 billion and $2 billion.

On Thursday, Advance Auto Parts announced the launch of a $1.5 billion senior unsecured notes offering, consisting of two tranches of notes due 2030 and 2033.

It also said that concurrently with the closing of the notes offering, the company expects to enter into a new asset-based loan revolving credit facility to replace its existing credit facility.

“We are announcing proactive debt financing transactions, aimed at preserving financial flexibility for the business as we continue to execute our initiatives,” CEO Shane O'Kelly said.

Citigroup analyst Steven Zaccone raised the brokerage's price target on Advance Auto Parts to $60 from $49 and maintained a 'Neutral' rating.

Given that the proposed offering is expected to improve Advance's liquidity position, the move "seems like a wise decision," Zaccone said, adding that the cost of capital is high and the deal will likely be dilutive to EPS.

Truist Securities analyst Scot Ciccarelli said that the note offering helps insure against disruption of the company's supply chain financing.

Advance Auto Parts is in the midst of a turnaround after battling a slowdown in demand for vehicle parts, which has been impacted by fewer consumers opting to repair their cars.

Last year, the company announced that it would close approximately 500 stores by mid-2025 and also reduce some job positions. It had also sold its Worldpac unit for $1.5 billion to private equity firm Carlyle Group to streamline operations.

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