Advance Auto Parts Stock Falls On Outlook Cut. What Analysts Are Saying.

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Soaring fuel prices and inflation have come for Advance Auto Parts‘ consumers. Analysts now see grim chances of the company hitting its long-term margin targets.

After the market closed on Tuesday, Advance Auto Parts said it now expects sales in the range of $11 billion to $11.2 billion for this year, lower than management’s prior estimate of $11.2 billion to $11.5 billion and under the analyst consensus for $11.34 billion, according to FactSet. Adjusted operating margin, which is operating income divided by net sales, is now expected to be in the range of 9.8{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} to 10{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} versus prior expectations of up to 10.2{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe}.

Shares of the automotive products retailer (ticker: AAP) fell 9.5{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} to $180.12 on Wednesday. They are down 25{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} this year.

The downward revisions to guidance reflect CEO Tom Greco’s stance that high inflation and the significant year-over-year increase in fuel prices will continue to pressure its do-it-yourself segment in the back half of the year. Comparable-store sales declined 0.6{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} in the second quarter compared with an increase of 5.8{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} in the year-ago quarter, particularly due to weaker DIY sales.

Wedbush analyst Seth Basham said he sees a risk to the company achieving its 2023 long-term operating margin guidance of 10.5{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} to 12.5{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe}.

“Inflationary pressures on the business have likely been more severe to its margins than expected,” he said, lowering his price target on the stock to $200 from $215 but keeping an Outperform rating on the stock.

Advance Auto didn’t immediately respond to a request for comment regarding its operating margin target. Earlier this year, the company said it was confident in delivering the long-term targets.

RBC analyst Steven Shemesh maintained his Sector Perform rating on the stock and said “at this point, we have little conviction that the FY’23 operating margin will come in much (if at all) ahead of consensus expectations.” Analysts expect 10{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} in operating margin for the full year 2023.

Guggenheim’s Ali Faghri kept his Buy rating on the stock. He believes multiple years of historically strong performance combined with consumers deferring car maintenance due to inflation is now leading to significant pressure on the DIY segment.

Write to Karishma Vanjani at [email protected]