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Advance Auto Parts (AAP - Free Report) a leading automotive parts supplier in North America, serving both the professional installer and do-it-yourself customers. The company operates approximately 5,100 stores, 126 Worldpac branches and serves approximately 1,300 independently owned Carquest branded stores in the US and Canada. They employ approximately 74,000 people.

Shares Plunge After Weak Results

The company reported Q1 ended April 22 results on May 24. Adjusted earnings of $1.60 per share were down 36% year-over-year and also significantly below the Zacks Consensus Estimate of $2.12.

Revenues declined 3% year over year to $2.89 billion and also missed the Zacks Consensus Estimate of $2.93 billion.

 “Our first quarter comparable store sales declined 2.7%. As expected, comparable store sales were unfavorably impacted by the shift in New Year’s Day to the first quarter of 2017 as well as the significant shift of winter related demand into December,” said the CEO.

Shares plunged after the report and have continued to slide since then. The stock is now down about 32% year-to-date.

Falling Estimates

Analysts have slashed their estimates for the company after weak guidance.  Zacks Consensus Estimates for the current and next fiscal year have fallen to $6.78 per share and $8.15 per share from $7.51 and $8.72 respectively, before the results.

The company has missed in three out of past four quarters and just met in one. The average negative quarterly surprise for the past four quarters is 10.75%.

The Bottom Line

It was recently reported that the company is cutting management-level job positions companywide. Auto parts suppliers are facing increasing headwinds due to rising competition from Amazon.

The industry “Automotive - Retail and Wholesale - Parts” is currently ranked 247 out of 265 Zacks industries (bottom 7%), suggesting potential underperformance in the short-to-medium term. With the fundamental shift in the auto industry towards smart cars with more digital features, traditional auto suppliers will face rising challenges ahead.

It would be better for investors to stay away from this stock and the industry as of now. There is no Zacks #1 or #2 stock in this industry.

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