Why Advance Auto Parts (AAP) Shares Are Trading Lower Today

What Happened:

Shares of auto parts and accessories retailer Advance Auto Parts (NYSE:AAP) fell 23.2% in the pre-market session after the company reported second-quarter earnings results. Its full-year revenue guidance was lowered, which is never a good sign. Adding to the pain was that the company's full-year earnings forecast missed analysts' expectations. Overall, this quarter was mediocre. 

Separately, the company announced the sale of Worldpac (automotive parts wholesale distribution business) to investment firm Carlyle, for $1.5 billion in cash. The Worldpac business drove approximately $2.1 billion in revenue and $100 million in EBITDA over the trailing twelve months before the sale was announced. The proceeds from the sale are expected to buffer the company's balance sheet as it streamlines its operations.

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What is the market telling us:

Advance Auto Parts’s shares are not very volatile than the market average and over the last year have had only 19 moves greater than 5%. Moves this big are very rare for Advance Auto Parts and that is indicating to us that this news had a significant impact on the market’s perception of the business. 

The biggest move we wrote about over the last year was 12 months ago, when the stock gained 6.2% on the news that the company reported second quarter results that exceeded analysts' revenue expectations. On the other hand, earnings per share came in below expectations, driven by the company's "inability to price to cover inflation." Moving ahead, the company lowered the full year EPS guidance. Similarly, the free cash flow guidance for the full year was lowered. However, it raised its full-year revenue guidance and same-store sales growth expectations, adding that "We began to see early signs that the strategic investments we are making are beginning to drive an improvement in topline sales and transactions. This is evidenced by positive comparable store sales growth in the final four weeks of the second quarter, which has continued into the third quarter." 

Overall, the results could've been better, but the market was likely looking for growth (and Advance Auto Parts delivered on that front).

Advance Auto Parts is down 17.8% since the beginning of the year, and at $50.87 per share it is trading 41.2% below its 52-week high of $86.45 from March 2024. Investors who bought $1,000 worth of Advance Auto Parts’s shares 5 years ago would now be looking at an investment worth $369.31.

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