What Happened?

Shares of auto parts and accessories retailer Advance Auto Parts (NYSE:AAP) jumped 8.6% in the afternoon session after shares of auto parts companies rose as the 25% tariffs announced by President Trump on all vehicles imported into the US suggested new vehicles might be more expensive. Anticipating higher prices, markets were betting that consumers would delay purchasing new vehicles and instead hold on to their current ones longer. This shift in behavior is expected to boost demand for car rentals as well as repairs and maintenance, potentially benefiting auto parts suppliers.

The shares closed the day at $40.33, up 6.6% from previous close.

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What The Market Is Telling Us

Advance Auto Parts’s shares are very volatile and have had 23 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 7 months ago when the stock dropped 23.2% on the news that the company reported weak second-quarter 2024 earnings results. Its full-year revenue guidance was lowered, which is never a good sign. Adding to the pain was that the company's full-year earnings forecast missed analysts' expectations. 

Overall, this quarter was mediocre. Separately, the company announced the sale of Worldpac (automotive parts wholesale distribution business) to investment firm Carlyle, for $1.5 billion in cash. The Worldpac business drove approximately $2.1 billion in revenue and $100 million in EBITDA over the trailing twelve months before the sale was announced. The proceeds from the sale are expected to buffer the company's balance sheet as it streamlines its operations.

Advance Auto Parts is down 15.2% since the beginning of the year, and at $40.80 per share, it is trading 52.2% below its 52-week high of $85.43 from March 2024. Investors who bought $1,000 worth of Advance Auto Parts’s shares 5 years ago would now be looking at an investment worth $426.78.

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