Advance Auto Parts (NYSE:AAP) Exceeds Q4 Expectations But Quarterly Revenue Guidance Misses Expectations
Auto parts and accessories retailer Advance Auto Parts (NYSE:AAP) beat Wall Street’s revenue expectations in Q4 CY2024, but sales were flat year on year at $2.00 billion. On the other hand, next quarter’s revenue guidance of $2.5 billion was less impressive, coming in 4.4% below analysts’ estimates. Its non-GAAP loss of $1.18 per share was 4.2% above analysts’ consensus estimates.
Revenue: $2.00 billion vs analyst estimates of $1.94 billion (flat year on year, 2.9% beat)
Adjusted EPS: -$1.18 vs analyst estimates of -$1.23 (4.2% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $8.5 billion at the midpoint, in line with analyst expectations and implying -6.5% growth (vs -1.3% in FY2024)
Adjusted EPS guidance for the upcoming financial year 2025 is $2 at the midpoint, beating analyst estimates by 28.1%
Operating Margin: -41.1%, down from -2.1% in the same quarter last year
Locations: 4,788 at quarter end, up from 4,786 in the same quarter last year
Same-Store Sales fell 1% year on year, in line with the same quarter last year
Market Capitalization: $2.72 billion
"During 2024, we initiated transformative actions to reposition Advance for long-term success and value creation,” said Shane O'Kelly, president and chief executive officer.
Company Overview
Founded in Virginia in 1932, Advance Auto Parts (NYSE:AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Auto Parts Retailer
Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.
With $9.09 billion in revenue over the past 12 months, Advance Auto Parts is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.
As you can see below, Advance Auto Parts’s demand was weak over the last five years (we compare to 2019 to normalize for COVID-19 impacts). Its sales fell by 1.3% annually as it closed stores.
Advance Auto Parts Quarterly Revenue
This quarter, Advance Auto Parts’s $2.00 billion of revenue was flat year on year but beat Wall Street’s estimates by 2.9%. Company management is currently guiding for a 9.8% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 6.5% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and indicates its products will see some demand headwinds.
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Advance Auto Parts listed 4,788 locations in the latest quarter and has generally closed its stores over the last two years, averaging 2.6% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
Advance Auto Parts Operating Locations
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.
Advance Auto Parts’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and Advance Auto Parts is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).
Advance Auto Parts Same-Store Sales Growth
In the latest quarter, Advance Auto Parts’s same-store sales fell by 1% year on year. This performance was more or less in line with its historical levels.
Key Takeaways from Advance Auto Parts’s Q4 Results
We were impressed by Advance Auto Parts’s optimistic full-year EPS guidance, which exceeded analysts’ expectations. We were also glad its revenue and EPS outperformed Wall Street’s estimates this quarter. On the other hand, its revenue guidance for the full year was only in line. Overall, this quarter was solid, but the market seems to be focused on the negatives. The stock traded down 3% to $44.54 immediately after reporting.
