Why Advance Auto Parts Stock Crashed Today

The Motley Fool · 3d ago

Key Points

High gas prices are forcing consumers to tighten their budgets.
Advance Auto Parts is prudently paying down debt.
10 stocks we like better than Advance Auto Parts ›

Shares of Advance Auto Parts (NYSE: AAP) plunged on Thursday after the automotive aftermarket parts supplier warned of a slowdown in consumer spending.

A person is looking at car engine oil in an auto parts store.

Image source: Getty Images.

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DIY customers are curtailing their spending

Advance Auto Parts' net sales were flat year over year at $2 billion in its fiscal second quarter, which ended on July 18.

The company's comparable store sales, which measure revenue from stores open for at least a year, declined by 0.5%.

CEO Shane O'Kelly said Advance Auto Parts saw low-single-digit growth in its Pro channel, which serves professional automotive service providers. But sales to do-it-yourself customers lagged "as tighter household budgets constrained spending more than we anticipated, especially during the last four weeks of the quarter."

Still, tariff refunds helped drive Advance Auto Parts' adjusted operating income up more than 80% to $112 million. Its adjusted diluted earnings per share, in turn, increased 49% to $1.03.

Advance Auto Parts also generated positive free cash flow of $120 million over the twenty-eight weeks ended July 18, a notable improvement after two years of outflows.

This higher cash flow production enabled the automotive parts purveyor to pay down roughly $30 million in debt.

Short-term pain should transition into long-term gains

Despite acknowledging that it's currently facing a "volatile demand environment," Advance Auto Parts reiterated its full-year financial forecast, including:

Net sales of roughly $8.5 billion
Comparable store sales growth of 1% to 2%
Free cash flow of $100 million

"The consumer is stressed, but think a little bit longer term, because I don't think we're going to be permanently in this state of affairs," O'Kelly said during a conference call with analysts. "If you think longer term, the backdrop of the industry that we're in remains very attractive."

Joe Tenebruso 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.