Advance Auto Parts Just Took 'Another Step Back'

Barclays has cut its 2016 and 2017 estimate of Advance Auto Parts, Inc. (NYSE: AAP) after the auto parts retailer reported lower-than-expected earnings for the first quarter.Analyst Matthew McClintock has trimmed his EPS view for 2016 to $8.10 from $8.75 and 2017 to $9 from $9.40. Street expects earnings of $8.49 a share for 2016 and $9.54 a share for 2017.AAP reported adjusted EPS of $2.51 (versus Barclays' $2.63 estimate and consensus' $2.60). Advance Auto Parts' sales revenue slackened 1.9 percent to $2.98 billion (versus Barclays' $3.03 billion and consenus' $3 billion). The company attributed the weak results to execution challenges and said it will continue to focus on conversions and supply chain integration, as well as on the supply chain itself. AAP also announced the departure of its CFO Mike Norona.In addition, the company blamed the comparable store sales drop of 1.9 percent due to availability and service shortfalls and the late spring. However, comps gained from the consolidation impact from Carquest stores.EBIT margin increased 40 bps 10.6 percent (versus Barclays'10.8 percent estimate). However, gross margin declined 60 bps due to supply chain deleveraging."AAP's relatively high fixed cost structure should continue to drag on margins, particularly as we forecast (3.0) % comp for the remainder of FY16," McClintock wrote in a note. Further, AAP said it now assumes annual comparable store sales between negative 3 percent and negative 5 percent and no longer expects to achieve its annual free cash flow assumption of a minimum of $500 million for fiscal 2016. In addition, the company is no longer targeting an adjusted operating income rate of 12 percent for fiscal 2016.McClintock has an Underweight rating and $130 price target on the stock.At the time of writing, shares of Advanced Auto Parts rose 1.30 percent to $145.40.