Advance Auto Parts Sales Trends Could Lengthen Turnaround

Cleveland Research said softer industry trends over the last 30-45 days poses some risk to the first quarter comp of Advance Auto Parts, Inc.

. Cleveland expects comp at -1.0 percent versus consensus -0.3 percent. The brokerage also slashed its first quarter EPS estimate more in-line with consensus ($2.60 versus $2.61). It also cut its FY16 EPS view to $8.74 versus consensus $8.81. "We realize the combination of a new CEO and a depressed margin structure relative to peers provides a potentially attractive valuation backdrop but we believe that the recent moderation in comp trends and a slightly less favorable industry outlook could make a near-term turnaround more challenging," analyst Daryl Boehringer wrote in a note. The analyst noted that his concern on AAP is "more about the timetable of a potential turnaround rather than a bearish view of what the company's ultimate value could be." Boehringer, who has a Neutral rating on the stock, is concerned that the company has not shown any "meaningful ability" to cut down underperformance versus peers and any moderation in industry sales trends could lengthen the process. "We believe this dynamic raises the degree of difficulty in the company's efforts to enhance profitability as an improvement in comp trends is likely necessary to see more meaningful progress in bridging the gap between AAP's margin structure and that of their competitors," the analyst elaborated. Advance Auto Parts is expected to report its first quarter results on May 19th before the market opens. At the time of writing, shares of Advance Auto Parts fell 2.95 percent to $143.77.