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Advance Auto Parts (AAP) Down 8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Advance Auto Parts (AAP - Free Report) . Shares have lost about 8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Advance Auto Parts due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Advance Auto Q2 Earnings in Line With Estimates

Advance Auto reported adjusted earnings of $3.74 per share for second-quarter 2022 (ended Jul 16, 2022), up 10% from the year-ago quarter figure. The reported figure was in line with the Zacks Consensus Estimate. Our estimate for second-quarter 2022 EPS was $3.79. Advance Auto generated net revenues of $2,665.4 million, falling short of the Zacks Consensus Estimate of $2,748 million but edging up 0.6% from the year-ago reported figure. Our estimate for the top line was $2,762.3 million.

Comparable same-store declined 0.60%. Adjusted operating income was up 3.6% year over year to $312.8 million despite a rise in SG&A costs. Adjusted SG&A expenses totaled $984 million for second-quarter 2022, up from $944.3 million in the year-ago period.  

Financial Position

Advance Auto had cash and cash equivalents of $240.5 million as of Jul 16, 2022 compared with $601.4 million on Jan 1, 2022. Total long-term debt was $1,187.5 million as of Jul 16, 2022, up from $1,034.3 million on Jan 1, 2022. During the reported quarter, net cash provided by operating activities totaled $308.5 million, down from $776.2 million recorded in the second quarter of 2021. AAP recorded an FCF of $97.3 million in the quarter under review, down from $646.6 million in the comparable year-ago period.

Dividend & Share Repurchase

AAP’s board declared a cash dividend of $1.50 a share, which would be payable on Sep 30, 2022 to all common shareholders of record as of Sep 16, 2022.

During the quarter under discussion, AAP repurchased around 1 million shares for $200 million at an average price of $199.02 per share. At the end of second-quarter 2022, AAP had $1.1 billion remaining under the share-repurchase program.

Store Update

As of Jul 16, 2022, AAP operated 4,724 stores and 312 Worldpac branches in the United States, Canada, Puerto Rico, and U.S. Virgin Islands. It also served 1,329 independently-owned Carquest-branded stores across these locations, in addition to Mexico and various Caribbean Islands.

2022 Guidance Trimmed

Advance Auto estimates 2022 net sales in the band of $11-$11.2 billion, down from the previous guided range of $11.2-$11.5 billion. Comparable store sales are now envisioned to decline up to 1% as against the prior forecast of 1-3% growth. Adjusted operating income margin is envisioned in the range of 9.8-10%, down from the prior estimate of 10-10.2%. Advance Auto expects capex in the $300-$350 million range, implying no change from the prior outlook.  The company now targets FCF of a minimum of $700 million, down from $775 million estimated earlier. Adjusted EPS is now forecast between $12.75 and $13.25, down from the previously guided range of $13.30-$13.85. The auto parts retailer now intends to buy back stocks worth $500-$600 million in 2022. It aims to open 125-150 new stores this year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -9.8% due to these changes.

VGM Scores

At this time, Advance Auto Parts has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Advance Auto Parts has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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