Shares of Advance Auto Rise as Upbeat Guidance for 2024 Offsets a Loss in the Quarter

Early on Wednesday, Advance Auto Parts Inc.'s stock surged by 7.5% following the car parts manufacturer's positive profit outlook, despite reporting a quarterly loss. The company, based in Raleigh, North Carolina, recorded a net loss of $35.1 million, or 59 cents per share, for the quarter, contrasting with the $82.9 million income, or $1.39 per share, in the same period the previous year. Sales also experienced a decline, dropping to $2.465 billion from $2.474 billion year-over-year.

‍

The FactSet consensus had anticipated earnings per share (EPS) of 21 cents and sales of $2.464 billion, making the reported loss and lower sales figures a deviation from market expectations.

‍

CEO Shane O’Kelly acknowledged the challenges faced by the company in 2023, expressing the need for urgent actions to stabilize the business and pave the way for a return to profitable growth. The full-year results fell significantly below expectations, prompting a renewed focus on instilling greater discipline and accountability throughout the organization.

‍

Advance Auto Parts is actively pursuing a strategic review of its business, including the sale of its Worldpac and Canadian businesses. Worldpac specializes in catalytic converters, engine cooling, and other automotive products. The company has implemented organizational changes, bringing in new hires such as CFO Ryan Grimsland and Chief Accounting Officer Elizabeth Dreyer. It has also identified additional cost reductions, totaling $50 million in sales, general, and administrative costs, building upon the initial $150 million annualized reduction. Furthermore, the company is streamlining its supply chain by consolidating it into a single, unified network.

‍

On February 26, Advance Auto Parts amended its revolving credit facility to allow certain add-backs to financial covenants for inventory and vendor receivables write-downs. The company remained in compliance with its covenants as of December 30.

‍

Looking forward to 2024, the company aims to refine its operational improvement plans and build on the decisive actions taken to reverse its performance. CFO Ryan Grimsland emphasized a commitment to enhancing overall productivity and taking a disciplined approach to expense reduction, supporting a focus on investing in team members.

‍

Advance Auto Parts now anticipates full-year sales ranging from $11.3 billion to $11.4 billion, with EPS expected to range from $3.75 to $4.25. However, the FactSet consensus for 2024 suggests an EPS of $3.65 and sales of $11.5 billion.

‍

Despite the positive market response to the profit outlook, Advance Auto Parts' stock has endured a 55% decline over the past 12 months, standing in stark contrast to the S&P 500's 28% gain during the same period. This significant drop in stock value underscores the challenges and uncertainties the company faces as it undergoes a comprehensive business overhaul.

‍

In conclusion, the recent surge in Advance Auto Parts' stock is a result of the company's optimistic profit guidance, despite reporting a quarterly loss. The strategic review, organizational changes, and cost reduction initiatives reflect the company's commitment to overcoming challenges and returning to profitable growth. However, the substantial decline in stock value over the past year highlights the ongoing uncertainties and underscores the importance of the ongoing strategic initiatives for the company's future performance.

‍