Advance Auto Parts Q1 Earnings: What to Expect?

Supply chain problems and chip shortages continue to impact vehicle production. Also, high inflation is hurting consumer spending. In such a scenario, the demand for auto aftermarket parts providers like Advance Auto Parts (NYSE: AAP) could be strong as people would like to maintain or repair their existing vehicles rather than buy a new one.

However, the recently announced Q1’22 earnings of industry peer O’Reilly Automotive (ORLY) reflected that the auto parts retailers are themselves not immune to high inflation and supply chain disruptions.

AAP is scheduled to announce its Q1’22 results after the market closes on May 23 and host an earnings call on May 24.

The company ended 2021 on a high note by posting better-than-expected Q4’21 results back in February. Q4 sales increased 1.3% to $2.4 billion with comparable store sales growth of 8.2%. The company experienced robust recovery in its professional channel and higher demand in its DIY or “do-it-yourself” business. Excluding the additional week in the prior-year quarter, Q4’21 adjusted EPS grew 35.4% to $2.07.

AAP shares are down 18.5% year-to-date amid broader market sell-off.

Q1 Expectations

Analysts expect AAP’s sales to grow 1.5% year-over-year to $3.38 billion in Q1’22 and adjusted EPS to rise about 7% to $3.58.

Though the company did not provide any specific outlook for Q1, CFO Jeff Shepherd stated on the Q4’21 earnings call that he was “encouraged that through the first four weeks of 2022, our comp sales are running above the top-end of our full year guidance.”

AAP expects full-year 2022 sales in the range of $11.2 billion – $11.5 billion, up from $11 billion in 2021, and comparable store sales growth of 1% – 3%. The company predicts 2022 adjusted EPS of $13.20 – $13.75, compared to $12.02 in 2021.  

Wall Street’s Take

Ahead of AAP’s Q1 results, Wells Fargo analyst Zachary Fadem retained his FY22 EPS estimate but lowered FY23 EPS estimate to $15.55 from $16.02. He also cut AAP stock price target to $230 from $245.

Fadem noted that the company’s DIFM [do-it-for-me] read-throughs seem “encouraging” and he observed higher sequential pricing compared to peers in Q1.

However, Fadem believes that AAP is “a margin story, and AAP’s ability to reiterate +40-60bps of FY22 EBIT margin expansion will be a key needle-mover, particularly with inflationary pressures unlikely to abate.”

The top-rated analyst stated that his Hold rating for AAP reflected a high bar for FY22 margins, likely revenue underperformance compared to peers AutoZone (AZO), and O’Reilly Automotive, and “historically choppier execution.”  

On TipRanks, AAP scores a Moderate Buy consensus rating based on three Buys and three Holds. The average Advance Auto price target of $250.33 implies 28.05% upside potential from levels seen before market open on Thursday.

Conclusion

Advance Auto faces tough comparison to last year’s impressive growth rates. Analysts’ estimates reflect that the company will continue to grow, though at moderate rates. Investors’ focus will be on the company’s Q2’22 update and any potential changes to a full-year outlook amid macro challenges, and supply chain pressures.

It’s worth noting that Advance Auto scores a “Perfect 10” on TipRanks’ Smart Score system, indicating that it is more likely to outperform the market.

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