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Advance Auto Parts Inc (AAP)
NYSE:AAP

Advance Auto Parts (AAP) AI Stock Analysis

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AA

Advance Auto Parts

(NYSE:AAP)

45Neutral
Advance Auto Parts is currently facing significant financial and operational challenges, as reflected in its declining revenue, profitability, and cash flows. The technical indicators show a bearish outlook, and the valuation suggests significant risks. Strategic initiatives outlined in the earnings call aim to address these issues, but the stock remains under pressure due to ongoing volatility and a challenging macroeconomic environment.
Positive Factors
Leadership and Strategy
CEO Shane O'Kelly has properly identified and is addressing AAP’s challenges, and now, having met his executive team, the quality and focus are impressive.
Market Performance
Comparable sales decline was 75 basis points better than the Street expectations.
Store Closures
Store closures are proceeding ahead of plan, with lease termination costs tracking favorably.
Negative Factors
Financial Performance
Advance Auto Parts shares are taking another hit as Q4 profitability shifted lower and Q1-to-date comp trends are running below expectations.
Revenue and Margin
Revenue declined by approximately 1% to $2.0B, with weakening gross margin tracked 200 bps below consensus.
Sales Trends
The first quarter sales started off slower than expected, raising concerns about meeting yearly guidance.

Advance Auto Parts (AAP) vs. S&P 500 (SPY)

Advance Auto Parts Business Overview & Revenue Model

Company DescriptionAdvance Auto Parts, Inc. provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts; exhaust systems and parts; hub assemblies; ignition components and wires; radiators and cooling parts; starters and alternators; and steering and alignment parts. It also offers air conditioning chemicals and accessories; air fresheners; antifreeze and washer fluids; electrical wires and fuses; electronics; floor mats, seat covers, and interior accessories; hand and specialty tools; lighting products; performance parts; sealants, adhesives and compounds; tire repair accessories; vent shades, mirrors and exterior accessories; washes, waxes and cleaning supplies; and wiper blades. In addition, the company offers air filters; fuel and oil additives; fuel filters; grease and lubricants; motor oils; oil filters, part cleaners and treatments; and transmission fluids for engine maintenance. Further, it offers battery and wiper installation; engine light scanning and checking; electrical system testing; video clinic; oil and battery recycling; and loaner tool program services. Additionally, the company sells its products through its website. It serves professional installers and do-it-yourself customers. The company operates stores under the Advance Auto Parts, Autopart International, and Carquest brands, as well as branches under the Worldpac name. As of April 23, 2022, it operated 4,687 stores and 311 branches in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada; and served 1,318 independently owned Carquest branded stores in Mexico, Grand Cayman, the Bahamas, Turks and Caicos, and the British Virgin Islands. The company was founded in 1929 and is based in Raleigh, North Carolina.
How the Company Makes MoneyAdvance Auto Parts makes money through the sale of automotive parts and accessories, targeting both professional customers and DIY enthusiasts. The company's key revenue streams include the retail sales of replacement parts such as brake pads, batteries, and engine components, as well as accessories like floor mats and seat covers. Additionally, Advance Auto Parts benefits from a robust commercial segment that supplies parts directly to professional mechanics and repair shops. The company also generates revenue through its e-commerce platform, which complements its physical stores by providing customers with convenient online shopping options. Significant partnerships with automotive manufacturers and suppliers enhance its product offerings, contributing to its revenue growth.

Advance Auto Parts Financial Statement Overview

Summary
Advance Auto Parts faced a challenging year with declining revenues, profitability, and cash flows. The company is experiencing operational and financial difficulties, as evidenced by negative net income and cash flow figures. While the balance sheet displays increased leverage, it remains stable in terms of assets. Strategic focus on improving operational efficiency and revenue growth is crucial moving forward.
Income Statement
45
Neutral
Advance Auto Parts has experienced a significant decline in revenue and profitability. The gross profit margin decreased from 40.08% in 2023 to 37.48% in 2024, and the company recorded a net loss in 2024, resulting in a negative net profit margin of -3.69%. The revenue growth rate was -19.48% from 2023 to 2024, reflecting a considerable drop in sales. Additionally, both EBIT and EBITDA margins turned negative, indicating operational challenges.
Balance Sheet
55
Neutral
The company's financial leverage has increased, with a debt-to-equity ratio of 1.70 in 2024 compared to 1.59 in 2023. The equity ratio also declined from 20.52% in 2023 to 20.10% in 2024, indicating decreased asset financing through equity. Return on equity was negative at -15.47% due to the net loss, highlighting profitability issues. The balance sheet shows increased financial risk but remains relatively stable in asset base.
Cash Flow
50
Neutral
The operating cash flow decreased significantly to $84.63 million in 2024 from $287.38 million in 2023. Free cash flow was negative at -$96.17 million. The operating cash flow to net income ratio was -0.25, and the free cash flow to net income ratio was -0.29, both indicating weak cash generation relative to earnings. The overall cash flow performance reflects liquidity challenges.
Breakdown
Dec 2024Dec 2023Dec 2022Mar 2022Mar 2021
Income StatementTotal Revenue
9.09B11.29B11.15B11.00B10.11B
Gross Profit
3.41B4.52B4.96B4.93B4.48B
EBIT
-713.31M114.38M714.15M838.72M749.91M
EBITDA
-395.08M426.36M939.22M1.10B947.98M
Net Income Common Stockholders
-335.79M29.73M464.40M596.62M493.02M
Balance SheetCash, Cash Equivalents and Short-Term Investments
1.87B503.47M270.81M601.43M834.99M
Total Assets
10.80B12.28B11.99B12.19B11.84B
Total Debt
3.69B4.00B3.65B3.37B3.05B
Net Debt
1.82B3.50B3.38B2.77B2.21B
Total Liabilities
8.63B9.76B9.39B9.07B8.28B
Stockholders Equity
2.17B2.52B2.60B3.13B3.56B
Cash FlowFree Cash Flow
-96.17M44.96M296.26M822.62M701.88M
Operating Cash Flow
84.63M287.38M722.22M1.11B969.69M
Investing Cash Flow
1.35B-235.49M-424.45M-287.31M-266.90M
Financing Cash Flow
-75.01M189.27M-620.70M-1.06B-286.00M

Advance Auto Parts Technical Analysis

Technical Analysis Sentiment
Negative
Last Price35.01
Price Trends
50DMA
41.56
Negative
100DMA
42.53
Negative
200DMA
45.83
Negative
Market Momentum
MACD
-0.55
Negative
RSI
49.64
Neutral
STOCH
51.31
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For AAP, the sentiment is Negative. The current price of 35.01 is below the 20-day moving average (MA) of 37.82, below the 50-day MA of 41.56, and below the 200-day MA of 45.83, indicating a bearish trend. The MACD of -0.55 indicates Negative momentum. The RSI at 49.64 is Neutral, neither overbought nor oversold. The STOCH value of 51.31 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for AAP.

Advance Auto Parts Risk Analysis

Advance Auto Parts disclosed 23 risk factors in its most recent earnings report. Advance Auto Parts reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Advance Auto Parts Peers Comparison

Overall Rating
UnderperformOutperform
Sector (59)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
AZAZO
73
Outperform
$61.11B24.50-14.95%4.72%4.69%
LKLKQ
71
Outperform
$10.68B15.7911.33%2.91%3.53%-25.71%
70
Outperform
$79.56B34.18-174.09%5.67%5.40%
PAPAG
70
Outperform
$9.46B10.3218.50%3.13%3.14%-11.22%
GPGPC
68
Neutral
$16.21B18.0520.69%3.45%1.71%-30.78%
59
Neutral
$11.20B10.09-1.41%3.96%1.31%-16.95%
AAAAP
45
Neutral
$2.09B59.62-23.45%2.86%-9.34%-852.37%
* Consumer Cyclical Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
AAP
Advance Auto Parts
35.01
-41.61
-54.31%
AZO
AutoZone
3,653.24
577.15
18.76%
GPC
Genuine Parts Company
116.81
-29.08
-19.93%
LKQ
LKQ
41.29
-8.72
-17.44%
ORLY
O'Reilly Auto
1,389.87
282.63
25.53%
PAG
Penske Automotive Group
141.79
-6.96
-4.68%

Advance Auto Parts Earnings Call Summary

Earnings Call Date: Feb 26, 2025 | % Change Since: -23.69% | Next Earnings Date: May 28, 2025
Earnings Call Sentiment Neutral
The earnings call highlighted strategic initiatives, such as store closures and enhanced vendor relationships, aimed at improving the company's financial position and operational efficiency. However, the financial results for both the quarter and the full year reflected challenges, including declining sales and negative profitability, with ongoing volatility in early 2025. Despite positive steps taken, the overall environment remains challenging.
Highlights
Strategic Store Closures and Improved Liquidity
Advance Auto Parts successfully closed approximately 500 corporate stores and 200 independent locations, with liquidations largely complete and lease terminations tracking favorably. The closure process was ahead of schedule, enhancing the company's liquidity position, bolstered by proceeds from the Worldpac sale.
Enhanced Vendor Relationships and Cost Improvements
The company reported strong vendor partnerships, resulting in improved product costs and promotional pricing. These enhancements are expected to drive gross margin improvements throughout 2025, particularly in the latter half of the year.
Market Hub Expansion Showing Positive Results
The expansion of market hub stores contributed to above-target comparable sales growth. With 19 market hubs operational and plans for further openings, these hubs are increasing same-day parts availability, supporting stronger future sales growth.
Remediation of Material Weaknesses
Advance Auto Parts successfully remediated all outstanding material weaknesses by the end of 2024, indicating an improved control environment and enhanced financial reporting reliability.
Lowlights
Decline in Quarterly and Annual Sales
Fourth quarter net sales decreased by 1% year-over-year, with comparable store sales down 1%. Full-year net sales declined by 1%, with comparable sales down 0.7%, attributed to a deceleration in the second half and consumer spending softness.
Negative Profitability and Operating Margin Challenges
The company reported an adjusted operating loss of $99 million in Q4, with a negative operating margin of 5%. Full-year adjusted operating income was only $35 million, with operating margin at 0.4%, impacted by transitory costs and strategic actions.
Higher Labor Costs and SG&A Deleverage
Adjusted SG&A expenses increased, resulting in a deleverage of 175 basis points in Q4 and 50 basis points for the full year, primarily due to higher labor-related expenses.
Volatility and Weak Start to 2025
The company experienced week-to-week volatility in Q1 2025, with net sales expected to decline and comparable sales projected to fall by approximately 2% due to closures and a pressured consumer environment.
Company Guidance
In the guidance provided during the Advance Auto Parts' Fourth Quarter and Full Year 2024 Earnings Conference Call, the company outlined several key metrics and strategic initiatives aimed at improving future performance. For the fiscal year 2025, Advance Auto Parts expects net sales to range between $8.4 billion to $8.6 billion, reflecting a reduction of 5% to 8% year-over-year due to store closures. The company anticipates comparable sales growth of 50 to 150 basis points on a 52-week basis. Additionally, adjusted operating income margin is projected to be between 2% to 3%, with adjusted diluted EPS ranging from $1.50 to $2.50. The guidance also includes an expected 53rd week contribution of approximately $100 million to $120 million in sales. The company aims to achieve gross margin expansion through product cost savings and improvements in supply chain and labor productivity. Key strategic initiatives include enhancing merchandising excellence, optimizing the distribution network with 12 large DCs by 2026, and focusing on improving speed of service at stores. These efforts are expected to support the company’s goal of achieving adjusted operating margins of approximately 7% by 2027.

Advance Auto Parts Corporate Events

Executive/Board Changes
Advance Auto Parts EVP Herman Word to Retire
Neutral
Mar 20, 2025

Herman L. Word, Jr., Executive Vice President of Professional, Independents and Canada at Advance Auto Parts, Inc., will retire effective April 15, 2025, and will remain in a transition role until May 16, 2025. The company acknowledges Mr. Word’s over 20 years of service and will provide him with a resignation payment as per his amended employment agreement.

Executive/Board Changes
Advance Auto Parts Announces Executive Retirement Plan
Neutral
Feb 6, 2025

Tammy M. Finley, Executive Vice President, General Counsel and Corporate Secretary of Advance Auto Parts, will retire on March 2, 2025, serving in an advisory role until May 2, 2025, to facilitate a smooth transition. Her departure triggers a termination without due cause payment, and the company acknowledges her over 25 years of service in legal and human resources roles.

Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.