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Advance Auto Parts, Inc. (NYSE: AAP) reported its financial results for the third quarter of fiscal 2024, highlighting several key developments in its operational and financial performance. The company, a prominent player in the North American automotive aftermarket sector, saw its net sales from continuing operations reach $2.1 billion, a slight decrease from $2.2 billion in the same quarter of the previous year. The decline in comparable store sales by 2.3% was a notable factor impacting overall sales performance.
Despite the drop in sales, Advance Auto Parts reported an increase in gross profit, which rose by 11.0% to $907.9 million, representing 42.3% of net sales compared to 36.9% in the prior year. This improvement was largely attributed to the stabilization of product costs and strategic pricing initiatives. However, the company’s operating income was minimal, at $403,000, equating to zero percent of net sales. Adjusted operating income stood at $16.7 million, or 0.8% of net sales, marking an improvement over the negative operating income margin of 3.3% seen in the third quarter of 2023.
The quarter also saw Advance Auto Parts grappling with atypical items and headwinds, including lost revenue due to Hurricane Helene and a CrowdStrike outage, which negatively impacted operating income margin by approximately 125 basis points. These factors, alongside high labor-related expenses due to wage investments, contributed to the company’s diluted loss per share of $0.42, with an adjusted diluted loss per share of $0.04.
Advance Auto Parts Fails to Meet Expectations in Third Quarter
The third quarter results for Advance Auto Parts fell short of market expectations. Analysts had anticipated earnings per share (EPS) of $0.52 and revenue of $2.65 billion. However, the company’s actual performance showed a diluted loss per share of $0.42 and revenue of $2.1 billion, indicating a significant deviation from the expected figures.
The shortfall in revenue can be attributed to various factors, including the 2.3% decline in comparable store sales and the strategic sale of Worldpac, which was completed on November 1, 2024. This sale, while providing a cash inflow of approximately $1.5 billion, reflects a strategic shift and impacted the overall revenue figures as the results are presented on a continuing operations basis.
Despite the challenges, the company’s gross profit showed a positive trend, increasing by 11.0% compared to the previous year. This was achieved through effective pricing strategies and cost stabilization efforts. However, the overall financial performance was hindered by unusual headwinds, which negatively impacted the company’s earnings per share by 34 cents.
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Advance Auto Parts Expects Comparable Store Sales to Decline by ~1%
Advance Auto Parts provided guidance for the remainder of fiscal 2024, projecting net sales from continuing operations to approximate $9 billion. The company expects comparable store sales to decline by around 1.0%, with an adjusted operating income margin ranging from 0.25% to 0.75%. Adjusted diluted EPS from continuing operations is forecasted to be between a loss of $0.60 and break-even, reflecting ongoing challenges.
Looking ahead, the company is focused on executing a strategic plan aimed at improving business performance through core retail enhancements. This includes a comprehensive asset optimization program targeting the reduction of 500 corporate stores, 200 independently owned locations, and four distribution centers by mid-2025. Advance Auto Parts aims to achieve over 500-basis points of operating margin expansion by fiscal 2027, driven by improvements in store operations, merchandising excellence, and supply chain optimization.
The company has set ambitious fiscal 2027 financial objectives, targeting approximately 7% adjusted operating income margin and a leverage ratio of approximately 2.5x. Preliminary guidance for fiscal 2025 anticipates net sales between $8.4 billion and $8.6 billion, with comparable sales growth in the range of 0.50% to 1.50%.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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