Advance Auto Parts (AAP) Earnings Preview: A Critical Test for Turnaround Efforts
2min read Advance Auto Parts is preparing to release its third-quarter fiscal 2024 earnings before the market opens tomorrow. Investors are eager to see early signs of success from the company’s ongoing turnaround plan. The FactSet consensus anticipates adjusted earnings per share of $0.49, a dramatic rebound from the $(0.82) reported in the year-ago period. Revenue is expected to decline by 4 percent year-over-year to $2.62 billion.
A Year of Challenges
While the broader auto parts retail industry has enjoyed a positive trajectory this year, Advance Auto Parts has struggled to keep pace. Competitors O'Reilly Automotive and AutoZone have delivered year-to-date share price gains of 31 percent and 23 percent, respectively. In contrast, AAP shares have plummeted by more than 30 percent during the same timeframe, with much of this drop occurring after its disappointing second-quarter results in August.
Last quarter, AAP reported marginal comparable sales growth of just 0.4 percent, primarily driven by its Pro segment, as the DIY business faced persistent weakness. Management cited a challenging macroeconomic environment that continued to weigh on retail performance. With AAP’s starting point lagging its peers, a convincing demonstration of improvement in this quarter is crucial to rebuilding investor confidence.
Turnaround Efforts in Focus
Advance Auto Parts has initiated several strategic measures aimed at restoring its competitive position and profitability. Among the most significant moves was the sale of Worldpac, its Canadian-based wholesale distributor of OEM auto parts. This transaction has bolstered AAP’s balance sheet and provided much-needed liquidity to support its restructuring efforts.
In addition to the Worldpac sale, the company is pursuing cost-cutting measures and increasing investments in its frontline staff and Pro sales team. AAP has also prioritized consolidating its supply chain and enhancing productivity. These initiatives are designed to address its competitive disadvantages and narrow the operating margin gap relative to industry leaders.
Key Metrics to Watch
For AAP, breaking its streak of earnings misses—which dates back to the fourth quarter of fiscal 2022—would be a significant step toward regaining investor trust. Similarly, a return to positive year-over-year revenue growth would signal that the turnaround plan is gaining traction. However, given the broader economic pressures, investors may temper their expectations for top-line growth.
The macroeconomic challenges facing the auto parts sector are not unique to Advance Auto. Both AutoZone and O'Reilly have recently reported sluggish DIY demand and pressures in discretionary categories, though both companies expressed optimism about a potential recovery in the near term. These parallels may provide a degree of leeway for AAP if it continues to face headwinds in the third quarter.
A Pivotal Moment
As Advance Auto Parts trades near decade lows, the company faces mounting pressure to deliver concrete signs of progress. If tomorrow’s results fail to meet expectations, sweeping strategic changes could be on the horizon. Such actions, while disruptive, may be seen as necessary by investors and could even lend support to the stock price if viewed as decisive and forward-looking.
Conclusion
The upcoming earnings report represents a critical test for Advance Auto Parts as it seeks to rebuild credibility and execute on its turnaround strategy. With the stock languishing at historically low levels, this quarter could mark an inflection point if management can demonstrate meaningful progress. Investors will be watching closely for signs of operational improvement, effective cost management, and potential strategic shifts that signal a brighter future for the company.