Advance Auto Parts reported below-par second-quarter results late Tuesday. AAP stock plunged as analysts trimmed price targets following revised full-year guidance.
The Raleigh, N.C.-based company is a leading automotive aftermarket parts provider in North America that serves primarily do-it-yourself customers but is increasingly focusing on commercial customers.
As of Jan. 1, AAP had 4,972 retail stores and branches, primarily under the trade name Advance Auto Parts. Its Autopart International business primarily serves the commercial market, with an emphasis on import parts.
New and used car availability throughout the pandemic has been scarce. As a result, many car owners have opted for repairs rather than paying a premium for another car. However, inflation has cut into family budgets and many consumers are putting off repairs where they can.
That's eaten into revenue and earnings growth among used car parts retailers like Advance Auto Parts as well as competitors such as O'Reilly Automotive and AutoZone in recent quarters.
D.A. Davidson analyst Michael Baker said in a recent note to clients that the do-it-yourself (DIY) repairs market was especially hit by inflation vs. those who pay to get their repairs done by professionals.
"Lower income consumers (spent) more on other household items due to inflation, including fuel," he wrote.
Meanwhile, CFRA Research analyst Garrett Nelson said in an Aug. 20 note to clients that "new vehicle prices have hit a plateau after a run-up to record highs over the last couple of years." Nevertheless, affordability remains an issue, he says, "causing many consumers to migrate to the lower-price used vehicle market."
AAP Stock: Advance Auto Parts Earnings
Estimates: FactSet analysts expected second-quarter earnings to grow 10.5% year over year to $3.76 a share. They saw sales coming in 3.6% higher than the year-ago quarter at $2.745 billion.
Results: Advance reported adjusted EPS of $3.74 and revenue growth of 0.6%, to $2.67 billion. Management downshifted its full-year revenue guidance to between $11 billion and $11.2 billion. Prior guidance targeted $11.2 billion to $11.5 billion. Consensus views had looked for a midpoint of $11.3 billion.
AAP Stock
Shares tumbled 10.4% to $178.12 on the stock market today. AAP stock were working on a double-bottom buy point of $231.53 before Wednesday's drop, according to MarketSmtih.
AAP's EPS Rating is 89 out of a best-possible 99, while its RS Rating is 67. With a Composite Rating of 87, AAP ranks No. 6 in IBD's Retail/Wholesale-Auto Parts Group.
Third-ranked ORLY stock fell 0.7% Wednesday, as it backed away from a cup-base buy point of $748.78. And industry No. 4 AZO was down 3.1%, after hitting a 52-week high of $2,362.24 intraday on Aug. 18.
AAP Is A Major Player In Lucrative Market
The U.S. automotive aftermarket was estimated to be a $297 billion industry in 2020, CFRA analyst Nelson said, citing the Auto Care Association. Of that, $207 billion were wholesale customers — mechanics, body shops, etc. Another $58 billion were DIY customers and $32 billion came from tire sales.
The average age of vehicles is the most important driver for the industry, Nelson wrote. The average age of vehicles on the road in the U.S. has increased from 10.3 years in 2008 to a record 12.2 years in 2022, he added, citing data from S&P Global.
"We expect the average age of vehicles on the road to continue to increase, given the economic pressures on consumers as well as the improved engineering of vehicles."
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
