Advance Auto Parts (NYSE: AAP) stock tumbled 15.8% through 10:35 a.m. ET after the company beat on sales but missed on earnings in its latest earnings release Thursday morning.
Heading into the fiscal second-quarter results, analysts forecast the automotive parts retailer would earn $0.94 per share on just under $2.7 billion in sales in the period ended July 13. Advance Auto Parts nailed the sales target, but whiffed on profits, reporting just $0.75 per share.
Advance Auto Parts' Q2 earnings
How did that happen? Well, starting on the top line, things didn't look too bad. Sales declined year over year, but only by a fraction of 1%.
Even tiny single-digit-percentage increases in cost of goods sold, and selling, general, and administrative expenses, however, were enough to turn those relatively flat sales into a dramatic 43% plunge in operating income. And despite big savings on taxes paid on that income, this decline held true all the way to the bottom line, where net profit fell 43% as well.
What's next for Advance Auto Parts?
So Q2 wasn't great. The quarterly loss, however, isn't the only thing weighing on Advance Auto Parts stock today. As part of his plan to turn around the business, CEO Shane O'Kelly announced the company will be selling its Worldpac wholesale business for $1.5 billion, "to strengthen our balance sheet and streamline our focus" on the retail business.
That sale should close before the end of the year, and management subtracted $150 million (about 1%) from its sales guidance for the year, probably to account for lost Worldpac revenue. It cut its earnings forecast by much more, however -- from a $3.75-to-$4.25 range to somewhere closer to $2.25 per share, a 44% reduction. Problem is, Worldpac generates about $2.1 billion of Advance Auto Parts' annual sales, so the drop in sales and earnings next year could be even more significant.
Long story short: Q2 was bad, all of 2024 will be just as bad, and 2025, while still not certain, probably isn't going to look great either. No wonder investors are abandoning Advance Auto Parts stock today.
Should you invest $1,000 in Advance Auto Parts right now?
Before you buy stock in Advance Auto Parts, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Advance Auto Parts wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $787,394!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 12, 2024
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
