19 Oct Advance Auto: Downshifting
Advance Auto Parts, Inc. (AAP) the provider of automotive parts, accessories, and maintenance items for domestic/imported vehicles, and industrial vehicles has been given a “ticket to short,” due to a 20% plunge in a singular trading day. The Roanoke, Virginia-based company founded in 1929 sells its products online through AdvanceAutoParts.com and Worldpac.com. It serves do-it-for-me and do-it-yourself customers, aswell as 5,062 independently owned stores, 127 WORLDPAC branches and approximately 1,250 independently owned Carquest- branded stores in the United States, Puerto Rico, and the U.S. VirginIslands. Internationally it serves Canada, Mexico, the Bahamas, Turks and Caicos, the British Virgin Islands and the Pacific Islands.
AAP’s 20% single-day plunge was primarily due to its reported lower than expected sales outlook for its Q2 2017. The company’s profit fell 30% to $8.7 million. It suggests that AAP is experiencing broad industry sector headwinds where sales for Q2 were flat instead of beating by an expected 0.2%. To make matters worse, this guidance was lowered by 1% to 3% in same-store sales for the year. AAP’s adjusted earnings fell to $1.58 per share from $1.90, leaving flat revenue of $2.26 billion.
AAP’s principle audience is comprised of do-it-for-me and do-it-yourself customers. The acceleration of new car sales in and around 2010 has reduced AAP’s customer base in 2017 and in its 2018 projections. Or another way of saying this is that AAP’s inventory and maintenance services are increasingly unfavorable to its customer base as they are partially comprised of: Batteries and battery accessories, belts and hoses, brakes, clutches, engine parts, exhaust parts, ignition components, radiators, starters, alternators, tire repair, fuel and oil fluids for engine maintenance; which has little demand in a environment of cars that are self regulating, computer centric, and less prone to repair issues.
AAP’s stock price has plummeted to its current low of $82.21, which marks its lowest level since September 2013, skidding consistently lower since its 2016 high above $175 (see “A rough road”). AAP traded below its 50- and 200-day moving averages and continued its retreat through mid-May 2017. This led to a failed rebound above its 50-day MA, followed by continued weakness reaching its new low of $82.21. AAP’s recent rebound challenging the $100 level is being carried out with little conviction. There is a difficult task ahead on AAP’s horizon to fill the prior plunges, as well as its capacity to meet its primary resistance at $110, and its secondary resistance at $115. AAP is on a seemingly long ride in the short lane.