Advance Auto Parts (ticker: AAP) experienced a significant decline in its stock value following the announcement of unexpected third-quarter losses, reduced guidance, and the initiation of a cost-cutting initiative.
Disappointing Financial Performance in Q3
The vehicle-parts retailer reported a loss of 82 cents per share for the third quarter, which fell well below analysts’ expectations of $1.44 per share. This is a notable drop compared to the company’s earnings of $2.84 per share during the same period last year. However, it’s worth mentioning that revenues for the quarter exceeded expectations, reaching $2.72 billion – a 2.9% increase from the previous year.
Cost-Cutting Initiative for Long-Term Success
In an effort to achieve long-term success and enhance shareholder value, Chief Executive Shane O’Kelly emphasized that Advance Auto Parts is taking immediate and decisive actions. The company has initiated a cost-cutting program aimed at generating annualized savings of at least $150 million.
Sale Processes for Worldpac Business and Canada Operations
In addition to the cost-cutting measures, Advance Auto Parts has launched separate sale processes for its Worldpac business and its operations in Canada. These strategic moves are expected to further optimize the company’s operations and potentially unlock additional value.
Revised Guidance for Fiscal 2023
Looking ahead, the company has made significant revisions to its earnings and sales guidance for fiscal 2023. Advance Auto Parts now estimates earnings per share in the range of $1.40 to $1.80, down from the previous outlook of $4.50 to $5.10 per share. The higher end of revenue expectations for 2023 has also been adjusted, with projections now ranging from $11.25 billion to $11.3 billion, compared to prior estimates of $11.25 billion to $11.35 billion.
Factors Impacting Future Performance
Chief Financial Officer Tony Iskander highlighted some key factors influencing the revised guidance in the earnings release. These include non-recurring expenses in Q3 and continued pressure in Q4 from higher product costs, which the company does not expect to fully offset with price adjustments.
Stock Performance and Conclusion
As a result of these announcements, shares of Advance Auto Parts experienced a significant downturn, falling 5.4% to $55.25 in premarket trading on Wednesday. Year-to-date, the stock has declined by 60%.