Advance Auto Parts Q2: Earnings Miss, Pressured Margins, Lagging Outlook, Management Change & More

Advance Auto Parts Inc.AAP reported second-quarter FY23 sales growth of 0.8% year-on-year to $2.69 billion, marginally beating the analyst consensus of $2.66 billion, primarily driven by new store openings.

EPS of $1.43 missed the analyst consensus of $1.66.

Gross profit decreased 3.2% to $1.1 billion, while margins contracted 180 bps to 42.7% of net sales. This was primarily driven by higher product costs, and supply chain deleverages not fully covered by pricing actions, partially offset by a reduction in LIFO-related expenses.

The operating margin in the quarter was 5%, down 260 bps Y/Y. 

The company exited the quarter with cash and equivalents worth $277.06 million.

Free cash flow through the second quarter of 2023 was an outflow of $(309.4) million compared with an inflow of $97.3 million in the same period of the prior year.

Strategic Review: The company also announced initiating a comprehensive operational and strategic review.

"We recognize that there is significant work to be done to improve execution across the business and are conducting a comprehensive operational and strategic review to position Advance for long-term success and increase shareholder value," Gene Lee, interim executive chair, said.

Management Churn - New CEO

AAP appointed Shane O'Kelly as president and chief executive officer, effective September 11, 2023.

O'Kelly will succeed Tom Greco, who has served as president and CEO since April 2016. Greco announced his planned retirement in February 2023.

Advance Auto Parts also named Tony Iskander interim CFO, effective August 18, 2023. Iskander succeeds Jeff Shepherd, who departed from the company. 

Dividend

On August 7, 2023, the company declared a regular cash dividend of $0.25 per share to be paid on October 27, 2023, to all common stockholders of record as of October 13, 2023.

Outlook: The company lowered the FY23 EPS outlook to $4.50-$5.10 versus the $5.85 estimate (Prior View: $6.00-$6.50).

The company revised the FY23 revenue outlook to $11.25 billion - $11.35 billion versus the $11.22 billion estimate (Prior View: $11.2 billion-$11.3 billion).

Comparable store sales are expected to grow in the range of (0.5%)-0.5%, up from the prior view of (1%)-Flat.

Price Action: AAP shares are trading lower by 1.99% at $66.00 in premarket on the last check Wednesday.

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