Advance Auto's stock tumbles 17% after profit shortfall offsets news of $1.5 billion asset sale

By Ciara Linnane

Advance Auto Parts Inc.'s stock was down 17% in afternoon trading Thursday after the company posted second-quarter results that lagged estimates.

The car-parts maker and retailer (AAP) said it reached an agreement to sell Worldpac to funds managed by private-equity firm Carlyle Group Inc. (CG) for $1.5 billion in cash.

"The sale enables our team to sharpen their focus on decisive actions to turn around the Advance blended box business," Chief Executive Shane O'Kelly said in prepared remarks. The deal is expected to close before year-end and proceeds will be used to bolster the company's balance sheet and invest in the core business.

Advance Auto said in November that it would seek to sell Worldpac as well as its Canadian business to focus on the blended-box business, which refers to the ability to serve both do-it-yourself and professional customers. The divestitures were announced as the company said it would cut $150 million in costs in a bid to return to profitable growth.

Worldpac has more than 5,000 employees and generated revenue of about $2.1 billion in the 12 months through June 30 and about $100 million in Ebitda, or earnings before interest, taxes, depreciation and amortization.

Advance expects to book net proceeds of about $1.2 billion after taxes and fees.

D.A. Davidson analysts said the price may have disappointed some investors.

"While this is in line with our in-print estimate of $1.425 billion, we believe that most were thinking something around $2 billion, althoughthat expectation may have been coming down," analysts Michael Baker and Keegan Cox wrote in a note to clients.

The analysts have a neutral rating on the stock.

On a call with analysts, O'Kelly said the company has now decided to retain the Canadian business, after a visit during the quarter convinced him the long-tenured team brings deep expertise and market knowledge to the business, according to a FactSet transcript.

The company posted net income of $44.9 million, or 75 cents a share, for the quarter through July 14, down from $78.6 million, or $1.32 a share, in the year-earlier period.

Sales came to $2.683 billion, down slightly from $2.686 billion a year ago.

The FactSet consensus was for EPS of 93 cents and sales of $2.669 billion.

Same-store sales rose 0.4%, while FactSet was expecting a 0.5% decline.

"Our team delivered positive comparable sales growth while navigating a challenging demand environment during the second quarter," O'Kelly said in the earnings release.

With the sale of Worldpac now in the works, the company will focus on its remaining business, he said, "'with the goal of improving our sales trajectory and the productivity of all our assets to deliver stronger returns for our shareholders."

For the full fiscal year, Advance Auto is now expecting EPS to range from $2.00 to $2.50 on sales that are expected to range from $11.150 billion to $11.250 billion.

The FactSet consensus is for EPS of $3.54 on sales of $11.288 billion.

Same-store sales are expected to be down 1% to flat, while FactSet is expecting a flat performance.

The stock has gained 1.5% in the year to date, while the S&P 500 has gained 17.8%.

-Ciara Linnane

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08-22-24 1354ET

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