Why Advance Auto Parts Stock Is Down Today

What happened

Shares of auto parts retailer Advance Auto Parts (AAP -1.44{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe}) are lower by 9.6{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} as of 1:30 p.m. ET Wednesday, according to data from S&P Global Market Intelligence, easing back from an intraday loss of 11.2{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} after the company dialed back its full-year guidance.

So what

Even the usually resilient auto parts retailing business is showing signs of strain due to strong inflation and subsequent economic weakness.

For the three-month stretch ending in mid-July, Advance Auto Parts turned $2.7 billion worth of revenue into adjusted earnings of $3.74 per share — a record-breaking Q2 profit. While profits were up 10{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} year over year and roughly in line with estimates, slightly lower same-store sales has the auto parts store chain worried about the future.

The previously expected same-store sales growth of between 1{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} and 3{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} this year was reduced to an expectation of flat — or even slightly lower — sales. The previous profit guidance range of $13.30 to $13.85 per share was reduced to a range of between $12.75 and $13.25 per share.

CEO Tom Greco explains in the official report posted after Tuesday’s close, “Our DIY omnichannel sales were particularly challenged in the quarter, and we expect that high inflation and significant year-over-year increases in fuel prices will continue to pressure DIY consumers in the back half of the year.”

Now what

It’s a rare stumble for Advance Auto Parts.

Necessary automotive repairs are typically made regardless of the environment and of the cost of doing so, as car owners often have little choice but to keep their vehicles in running order. With consumers’ expenses soaring across the board, though, repairs that would have previously been handled in short order are now seemingly being postponed.

Still, given this company’s and the industry’s long-term resiliency, Wednesday’s pullback feels like a buying opportunity rather than a warning. That’s even more the case with the stock now down 25{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe} from January’s peak thanks to today’s selling,

Yes, inflation is still brisk. The pace of its growth is finally cooling, though. At the same time, employment remains strong, with the nation’s unemployment rate standing at a mere 3.5{5be0972a10a00bb621c1a18de1a801d58662e556d02921cebb422beac5e5b2fe}. This means most consumers have access to income needed to make car repairs, even if they’re not being made as quickly as they might have been in the past.