Advance Auto Parts’ AAP top line is impacted by planned store closures and weakness in the DIY segment. The company also requires higher capital to support business growth.
Let’s see what makes this Zacks Rank #5 (Strong Sell) stock a risky bet.
AAP’s sales are impacted by planned store closures, which reduced net sales by about $700 million in the last 12 months. Pro-forma revenues for 2024 are expected to range from $8.2 billion to $8.4 billion, with a net sales reduction of $600-$800 million. The higher end assumes some sales will transfer to remaining stores, while the lower end accounts for challenges from realigning sales efforts due to the reduced store footprint.
The company's DIY segment is facing pressure due to financial strain on consumers, leading to fewer discretionary purchases. While the automotive industry remains resilient because essential maintenance is unavoidable, the short-term challenges are reflected in weaker DIY sales trends.
AAP is increasing its capital expenditure to support business growth, expand new stores, and enhance its supply chain and merchandising projects for better inventory availability. Investments will also address store and technology updates, focusing on essential maintenance like roofing, HVAC and system upgrades. In 2025, the company anticipates spending at least $300 million in capital expenditure. Higher expenditure may limit near-term cash flow.
Price competition remains a concern for Advance Auto, as it competes with national and regional automotive retailers, such as AutoZone, O’Reilly Automotive, Pep Boys and CSK Auto Corporation. It is also facing incursion from online competition and increasing parts quality/complexity. Discouragingly, AAP expects continued pressure in its DIY business segment.
Some better-ranked stocks in the auto space are Dorman Products, Inc. DORM, Tesla, Inc. TSLA and BYD Company Limited BYDDY, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.66% and 51.98%, respectively. EPS estimates for 2024 and 2025 have improved by 75 cents and 88 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for TSLA’s 2024 sales suggests year-over-year growth of 2.97%. EPS estimates for 2024 and 2025 have improved 2 cents each in the past 30 days.
The Zacks Consensus Estimate for BYDDY’s 2024 sales and earnings suggests year-over-year growth of 25.07% and 31.51%, respectively. EPS estimates for 2024 and 2025 have improved by 35 cents and 39 cents, respectively, in the past 30 days.
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Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
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