Near Term Remains Volatile, but Progress on Advance’s Long-Term Turnaround Is the Bigger Story

Although narrow-moat Advance Auto Parts has long trailed its peers in profitability, with long-standing operational inefficiencies exacerbated by its troubled 2014 purchase of General Parts, we believe its turnaround can unlock improved performance as it capitalizes on its balanced professional-DIY segment exposure. As Advance refocuses on closing performance gaps, we view it as poised to build share in a market that should gradually consolidate behind large retailers that can leverage a broad distribution network to efficiently provide a high standard of service. Signs of progress in its turnaround have coincided with strong industry conditions, which should remain favorable long term.